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Jarvis - The downfall of a construction giant

The industry this week was trying to reconstruct the process that led to Jarvis’ administration, as figures showed the value of its plant - a key asset for rail maintenance contractors - has fallen considerably.

The rail contractor last week became the industry’s most highprofile victim of the recession, putting 2,200 jobs at risk.

The company - which was founded in 1846 and grew to become one of the country’s largest construction companies in the early part of last decade - was forced to call in administrators Deloitte after credit negotiations with its lenders collapsed.

Jarvis had been saved from the brink of collapse before, back in 2005, through a debt-for-equity swap with Deutsche Bank. This time, however, the prevailing economic conditions were too much for the contractor - which since the refinancing deal had turned its focus primarily to the railways.

Major cuts to Network Rail’s track renewal programme coupled with increased pressure on margins broke the back of the company.

According to Jarvis’ most recent accounts the contractor enjoyed an increased turnover of £345.8 million for the year to 31 March 2009.

The jump, however, did not convert into higher profits or greater cash flow - the firm suffered an operating loss of £3.7m for the year.

According to figures filed last October, net debt at the company had reached £22.3m. The total level of borrowings came in at £27m. Jarvis last week said its survival had depended on “the continued support of key customers and
creditors, and the ability of the company to win new work”.

While it was recently awarded the Chiltern Railway’s Evergreen 3 contract by Bam Nuttall, it was too little, too late.

A Jarvis statement said: “It has become clear that sufficient support will not be extended to the company to enable it to continue trading as a going concern.”

Sources close to the situation said the group’s principal lenders were the Bank of America and Bank of Ireland subsidiary Burdale Financial. Debt was secured on the assets of the business, namely the plant owned by the firm.

There could be a shortfall, however, as the depreciated value of plant and machinery in the books was just £14.8m at the last announcement.

This figure was a significant decline on the £49.7m the plant and machinery was valued at in April 2007.

The National Union of Rail, Maritime and Transport Workers said staff paid weekly received their money last week, but that there were “big question marks” over what would happen this week when monthly pay cheques became due.

Several boardroom changes have taken place at Jarvis in recent months following a restructuring exercise necessitated by Network Rail’s decision to reduce national track renewal volumes by as much as 30 per cent.

This included the appointment of Laing O’Rourke’s former managing director for infrastructure Phillip Price as managing director of Jarvis’ rail and plant businesses.

Former chief executive Paris Moayedi is credited for having transformed Jarvis from a tiny, and not greatly profitable, contractor in the early 1990s, to a major player whose turnover at one point topped over £1 billion.

Mr Moayedi was appointed in 1994 and refocused the business on infrastructure maintenanceand renewal. The company also pounced on new opportunities in the fledging PFI sector.

Jarvis made a string of acquisitions in the latter half of the 1990s and its revenues soared from less than £80m in 1995 to almost £670m in 2000.

“It was about 2000/01 that Jarvis was at the height of its powers,” one source said. “They were seen as a big force in the industry, particularly in the school stuff they did.”

However, the 2002 Potters Bar Rail crash was a turning point for the burgeoning company. Seven people were killed and 76 injured when the rear carriage of a train travelling from London to Cambridge left the rails, smashed
into a bridge and came to rest across the platform at Potters Bar station.

Jarvis admitted liability for the crash in 2004.

One insider said: “After Potters Bar, things started to unravel fairly quickly. Another source said: “It all stuck around them like a bad smell. They were never really convincing as a contractor after that point. It was difficult for them to portray themselves as anything but a troubled company.”

Mr Moayedi resigned as chairman of the company in 2003 and was replaced by former Conservative minister Steven Norris in 2004.

But the company had overextended itself and was forced to pull the plug on future PFI deals, selling its bidding team to French contractor Vinci.

The firm used the proceeds of the sale to help reduce debt, although it was believed the amount achieved in the deal was only about £5m.

In the summer of 2005, the firm managed to strike its refinancing deal with Deutsche Bank. But turnover continued to slide as the company moved out of the schools sector to focus on rail. Its recent turnover rally was not enough to save it.