Jarvis: the company that made a billion and nearly lost it all
As the rail-maintenance group gears up for a sale, Mark Leftly looks back on a dash for growth and the accident that changed everything
Sunday 04 May 2008
Paris Moayedi, the charismatic Iranian entrepreneur, has an unfortunate habit of being away when news breaks on Jarvis, the construction and infrastructure group he turned into a £1bn empire.
He was on a flight to the Cayman Islands when a train derailed at Potters Bar in Hertfordshire, a piece of track maintained by Jarvis, on 10 May 2002. He was on holiday the following year when Jarvis mistakenly took the rap for a derailment at King's Cross; and this bank holiday weekend, as The Independent on Sunday discloses that the company he once grew so spectacularly is cleaning itself up for a possible future sale, Moayedi is in mainland Europe.
Jarvis is no longer under the control of Moayedi – he was ousted in what was in effect a boardroom coup in November 2003. But he is integral to one of the UK's great corporate stories of recent times – a staggering, riches-to-rags yarn that has seen Jarvis's market capitalisation fall from around £1bn to less than £50m today.
As one former Jarvis executive says: "The nightmare was always the fear that people might die because of a train derailment. But when it happened [seven people were killed at Potters Bar], I don't think anyone knew how bad the repercussions would be from a business point of view. Paris also had to cancel a lot of holidays, I can assure you."
Jarvis has never been found guilty of causing the problems at Potters Bar, although, along with Network Rail, it did accept "liability on behalf of the rail industry" in 2004. Several sources who were employed by Jarvis at the time remain convinced that sabotage was the likely cause.
But local authorities were not convinced. The group's private finance initiative (PFI) division started losing work. Worse still, in the drive to win PFI deals in the years leading up to Potters Bar, it had underpriced contracts, particularly on school buildings.
The company was leaking money. "We were spending 12 to 16 hours a day, seven days a week, plugging gaps in underpriced construction contracts," says one member of an eight-strong troubleshooting team set up by the board to solve its financial crisis. "We were focused on simply selling assets and generating cash."
Another member of that team says there was a growing realisation Jarvis had been "driven too hard" in the second half of the 1990s. When Moayedi took over in 1994, it was worth only £3.6m. "If you go back to 1995-2000, Jarvis was all about growth, commitment and a driven work ethic," says the source.
Moayedi moved from chief executive to chairman in 2003 and his replacement, Kevin Hyde, had to focus on stemming growth and reviving a failing business. He announced a profit warning in January 2004.
Moayedi had already left, replaced by the non-executive director and then London mayoral candidate Steven Norris. A swathe of senior Jarvis figures followed Moayedi in 2004. One of them was Hyde, who was succeeded in the October by former Dunlop Slazenger chief executive Alan Lovell, a turnaround specialist desperately needed as the share price lost 80 per cent of its value in nine months.
The group's debt burden, at £304m, was crippling, and in December the market was shocked by the announcement of a £283.1m half-year loss. Lovell ordered spending on construction contracts to be stopped and sold the company's one-third stake in Tube Lines, the London Underground consortium, for £147m.
The key, though, was a £350m debt-for-equity swap with Jarvis's lenders, diluting the holdings of existing investors. By the end of 2005, with numerous divisions sold off, it was focused on lucrative track-renewal contracts with Network Rail. Well-regarded by that client, Jarvis survived last year's cull of two of the six firms on the renewals framework.
Today, Jarvis is basically a rail specialist. Having successfully restructured the business, Lovell left in 2006, though two sources close to him admit the debt-for-equity swap was an indication to the market that the company had no long-term future."Jarvis will get broken up and consolidated – that's been on the cards since the swap," says one of the sources. "You could never grow Jarvis back to a £1bn business."
There have been subsequent problems. In November, a shock profit warning wiped 75 per cent off the share value. At the start of this year, chaos on the West Coast Mainline in the Rugby area was blamed on delays to a £415m upgrade project run by Jarvis. That, says a source close to the group, has "set back Jarvis's full recovery by a couple of years".
But that the business survived at all is testament to Lovell and Norris. Privately, Lovell is known to beam that "it was a good battle" and is proud that 5,000 jobs ultimately remained in place. Norris and the latest chief executive, Richard Entwistle, are clearing up the remnants of Jarvis's past, with 21 "legacy" contracts from its PFI days likely to be sold for £7m to £9m by the end of the summer. Interested parties are thought to include Operon, a construction and PFI business, and Hochtief, the German builder.
Cleaned up, Jarvis will be in position for a sale and Norris would be open to offers. While no information memorandum will be prepared, a source suggests that Jarvis will be "proactive" in interesting buyers.
The most likely interested parties are those on the Network Rail renewals framework: Balfour Beatty, an Amey/Serco joint venture, and First Engineering.
A source close to Jarvis says that, including debt, the business could fetch £100m.
If and when Jarvis is sold the company will probably be consolidated into its new parent's operations. At that point, this saga will finally have an end.
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