Contract dispute derails Jarvis shares

SHARES IN Jarvis, the former stock market darling, plunged by more than a third yesterday, after the rail maintenance and contracting company disclosed that profits last year were blighted by a dispute with its biggest customer, Railtrack.

Jarvis said that profits had taken a pounds 21m hit because of a long-running labour dispute, delays in contract renewals, and a disagreement with Railtrack over the value of two big track renewal and maintenance contracts. The shares fell 35 per cent to 322.5p, wiping more than pounds 200m off Jarvis' stock market value.

The news followed a profits warning in April, when Jarvis pointed to the effect of industrial action by the Rail Maritime & Transport Union, and deferred maintenance contracts. At that time, analysts downgraded profits by pounds 10m.

However, they were not braced for a further hit yesterday of around pounds 12m in relation to track renewal contracts with Railtrack. Although its accountant would not allow it to book the expected revenues in last year's results, Jarvis expects to be able to book some or all of the pounds 12m in the current year.

Jarvis said its pre-tax profits for the year to 31 March were pounds 34.4m, down from pounds 36.7m last year.

The dispute between Railtrack and Jarvis centres on settling the bill for two annual contracts, one for maintenance, another for track renewals.

The groups is thought to have reached agreement on the former contract, which closed in March. However, the second contract finished at the end of May, leaving Jarvis little time to calculate how much Railtrack's period payments fell short of the final bill.

Railtrack is thought to have pushed for a bundling of the two bills, to Jarvis' displeasure. Talks broke down in the last few days, forcing Jarvis to rewrite its results.

"The discussions dragged on and the next thing we knew we were right up against the deadline of our results. We had even printed everything, and had to temper down a fairly bullish statement," said Paris Moayedi, Jarvis's chief executive. "We find Railtrack to be a very good client. But we occasionally have our ups and downs."

Railtrack yesterday praised Jarvis's maintenance work. It said negotiations over track renewals were advanced and expected to make an announcement "in weeks".

"There are ups and downs in any contractual relationship," a Railtrack spokeswoman said.

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