Chairman Steven Norris hopes wriggle out of trouble by buying time to reinvent debt-laden contractor
In 11 days’ time Jarvis chairman Steven Norris will stand in front of an audience of the firm’s shareholders to ask for their backing to borrow yet more cash.
The extraordinary general meeting on Monday 15 November is the latest bid to find a workable future for the beleaguered firm. In July the its banks offered it another £25m of credit after it posted losses of £247m for the previous year.
It is clear that the firm’s attempt to carry £260m in debt while transforming itself from a PFI contracting and infrastructure conglomerate into a mere roads and rail contractor is entering a key period.
Norris will hope this month’s meeting will be less fractious than the annual meeting in mid-October, at which he was subjected to a barrage of criticism from investors. One of them, a man called John Farmer, accused Norris of presiding over a “multifaceted shambles” and called for him to resign. Norris stood his ground, but has since faced rumours that his position is precarious – rumours that were categorically denied by the firm and the man himself late last month.
Regardless of his personal future at the firm, the former London mayoral candidate cannot deny that there is a question mark over the future of the firm itself. The essential question is: can Jarvis execute a dramatic turnaround, akin to those that took place at fellow contractors Costain, Laing and Amey (see right)?
Norris took one step in that direction by recruiting Alan Lovell as chief executive. Lovell staved off receivership at Costain in the mid-1990s, and was most recently at sports equipment maker Dunlop Slazenger, where he undertook another refinancing exercise.
However, neither City analysts nor rival firms have been convinced that Norris and Lovell can perform such a turnaround. Problems are foreseen with the completion of Jarvis’ asset disposals. It intends to sell unbuilt PFI education schemes to French group Vinci and its stake in London Underground consortium Tube Lines to investor Star Capital. It is also looking for buyers for its European roads business and facilities management interests.
Of these, the Tube Lines stake is likely to make the most – sources close to the firm say it could fetch as much as £130m. The firm is asking for £30m for European road interests But doubts surround the other sales; the FM arm is believed to be on hold until a shake-up of the firm’s core operations is completed.
The sale to Vinci of PFI school deals in Norfolk, Manchester, Cork and Bangor, Northern Ireland, is encountering problems. The £263m contract to refurbish and upgrade 39 schools in Norfolk is a good example of the problems the firm faces. It is also raises the question of how easily it will get out of them.
It is understood that the initial construction cost for the deal was put at just over £80m. This was value-engineered down to £76m when Jarvis was announced as preferred bidder for the job in December last year. It is understood that Jarvis was hoping to further reduce this to £65m.
Jarvis is believed to have spent £5m on the Norfolk deal since it was made preferred bidder and will receive £8m if the deal closes. Therefore, the sell-on value to Vinci is about £2-3m. But this is dependent on the French firm concluding that the deal is a feasible one. Reports in the national press have put the total sale value of the four PFI deals at about £5m, which is not going to significantly change Jarvis’ overall debt level.
Another question concerns the firm’s remaining interests in rail renewals and roads. In the first case, much depends on the attitude of sole client Network Rail, which in the past year has brought more and more contracting work in house. Jarvis was hardly helped by its involvement in the Potters Bar rail accident in Hertfordshire two-and-a-half years ago.
The roads division was hit by the resignation of maintenance boss John Worthington last month, but it has a solid road products and contracting business called Prismo, which made £7m pre-tax profit on £105m turnover last year.
It seems unlikely that the firm will be able to come back as strongly as Costain, which relied on its brand and reputation to keep it afloat during the 1990s, or Laing, which was able to sell on its profitable housing division for nearly £300m. Nor is Jarvis likely to find a foreign suitor to snap up the whole firm, as Amey did. The only hope seems to be for the firm to ride out the next five months and then slowly and quietly rebuild its reputation as a niche firm.
Construction's great escapes
The firm carried the "troubled" epithet for nearly all the 1990s, accumulating losses of £600m in the first half of the decade. The firm, which was hit by the 1990 housing crash and a disastrous foray into the coal industry, was close to receivership in 1996 before a refinancing deal was struck by then chief executive Alan Lovell in the summer of that year.
LaingAnother grand name that experienced a dramatic decline four years ago Disastrous schemes, such as the Millennium Stadium in Cardiff, contributed to losses of £217m for its construction division in 2000 and 2001. The firm baled out of contracting in 2001, selling the division to Ray O'Rourke for £1, and a year later boosted its balance sheet with the sale of its homes division to Wimpey for £297m. Since then it has reinvented itself as a PFI and infrastructure funder.
The plight of Amey in 2002 bears many similarities to Jarvis. A former stock exchange darling that carved a niche in PFI, Amey then came unstuck after a hole was found in its accounts. The firm's stock plummeted from 430p to just 30p. It was saved at the end of 2002 by signing the tube PPP deal with its partners in the Tube Lines consortium and was then swallowed up in the spring of 2003 by Spanish giant Ferrovial.