Brain Food: Behind The Spin - Jarvis

THE DILEMMA

by
Last Updated: 31 Aug 2010

Will 2005 be the year that crisis-hit support services group Jarvis gets back on track? The company faced financial collapse last year, but was steered back from the brink by new chief exec Alan Lovell. He sold Jarvis' one-third stake in Tube Lines, a consortium that runs part of the London Underground, and secured a year's extension of its banking facilities, giving the company a stay of execution and shareholders a much needed Christmas present. But its troubles are not over. With an expected net debt of £240 million by March to contend with, and core businesses - UK rail, roads and plant operations - to build up, Lovell faces a challenging year.

THE SPIN

Latest results were announced at the end of December: a first-half loss of £283.1 million, compared with a profit of £33.7 million for the same period the previous year. Chairman Steven Norris, the former Tory MP, called the results 'the nadir of the group's fortunes, arguing that many of the serious issues the group faced had been resolved, allowing Jarvis 'to draw a line under the past and look forward with much more confidence to a positive future with a smaller but profitable business: For Lovell, the priority had been survival. 'Now my priority is to ensure the future of the core business going forward, with repair of the balance sheet coming next.

THE STRAIGHT TALK

Jarvis maintains a fairly good reputation in rail and roads, despite its association with the Potters Bar rail crash for which, with Network Rail, it has agreed to pay legally justified claims on behalf of the industry. However, its Private Finance Initiative projects remain problematic, and the group intends to work its way out of this area. 'We went into too many projects and we were too aggressive on pricing, said Lovell. By December, the firm's future could be assured only with an urgent restructuring to secure refinancing, so Lovell sold off the Tube Lines stake for £146.8 million and its European roads business for £24.5 million. The group stays afloat, but at the expense of a considerable loss of scale.

THE VERDICT

How bright is the light at the end of Jarvis' tunnel? It may be dim without outside help. The share price doubled in December after rumours of an investment partner waiting in the wings, which Lovell quashed. 'I can say that it is categorically not the case, although there will be too much debt and in an ideal world - as a significant priority - we will carry out some form of debt-for-equity swap or look for a strategic partner or investor.'

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