Jarvis' troubles mount as it announces profit warning

Support services group Jarvis faces increasing difficulties after it issued a profit warning on Wednesday, admitting that it would underperform this year by £12m.

Jarvis' problems centre on the following four areas:

Loss of outsourcing deals
Sources who have worked with Jarvis believe that the contractor now has little chance of winning two large local authority outsourcing deals, worth a combined £450m.

Building understands Jarvis is bidding for a £250m, 10-year deal to take over Westminster council's highways division and a £200m outsourcing deal to take over Salford council's highways and property departments.

The company is up against teams including Balfour Beatty and McNicholas/Conway on the Westminster contract and Capita and Babtie on the Salford deal.

A source admitted: "It will be a brave council who gives them a job right now."

Low staff morale
At least a tenth of Jarvis' 10,500-strong workforce has been hit by the fall in the share price this week.

More than 1000 staff hold shares in Jarvis, which fell 44.75p on Tuesday to close at 139.25p, as the market anticipated the announcement on Wednesday. By Wednesday lunch time, shares had fallen below 130p. Jarvis' year high price is 380p.

A source close to Jarvis said: "The company doesn't keep records of the number of staff holding shares, but it knows that at least 1000 do."

Management changes
Industry leaders who have worked with Jarvis insist that management changes are inevitable.

A Jarvis spokesperson denied this, and blamed the problems on contract obstacles (see below) that management could not avoid.

The spokesperson said: "There are no management changes planned."

Steven Norris, who succeeded Paris Moayedi as chairman in November, was singled out for criticism by a spokesperson for Nicky Gavron, the former deputy mayor of London. Gavron is Ken Livingstone's likely running mate in the forthcoming London election and Norris is the Conservative candidate.

Gavron's spokesperson said: "There is a conflict of interest if he is in a senior position with such a firm."

A spokesperson for Norris said he would resign from the post if he wins the mayoral election.

Shareprice fall
Jarvis' own broker, Dresdner Kleinwort Wasserstein, said that concerns over the company's cash flow meant that it could only recommend investors to hold on to the shares rather than buy them.

This followed a warning from ABN Amro on Tuesday that Jarvis might break its banking covenants in March if it does not receive the £24m it claims it is owed by Network Rail. A Jarvis spokesperson said that negotiations with Network Rail were going well.

Jarvis said that the £12m hit to its profits has largely been caused by additional bid costs on four PFI projects, as a result of the deals taking longer to reach preferred bidder status than originally thought.

These projects are Norfolk schools; two treatment centres for the NHS; a second tranche of schools in Kirklees, West Yorkshire; and Bangor schools in Northern Ireland.

In addition, Jarvis said that a further 10 projects it is shortlisted on have been delayed. Jarvis has also written down its investment in a primary care joint venture by £1m.

Former directors of failed contractor Ballast are understood to have been asked by its administrator, Deloitte & Touche, to send them any correspondence they have from their former Dutch parent Ballast Nedam.

It is interested in correspondence from August and September, the months leading up to Nedam's cutting off of financial support of Ballast on 15 October.