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Disputes derail Jarvis shares by 35%

JARVIS, the former stock market darling, suffered a 35 per cent fall in its share price yesterday after its auditors refused to allow the facilities management group to include disputed revenues from Railtrack in its results.

Jarvis said its operating profits for the year to 31 March were pounds 44.2m but would have been pounds 21m higher but for industrial action, delayed contracts and an on-going dispute with Railtrack over a track renewal contract.

The news follows a profits warning in April, when Jarvis pointed to the effect of the industrial action by the Rail Maritime & Transport Union, and the deferred maintenance contracts. Analysts downgraded profits by pounds 10m. However, they were not braced for a further hit of around pounds 12m in relation to other Railtrack contracts. Jarvis expects to be able to book some or all of that figure in the current year's accounts.

The dispute between the groups centres on settling the bill for two annual contracts, one for maintenance, another for track renewals. The groups are 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's displeasure. Talks broke down in the last few days, forcing Jarvis to re-write 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 spokeswoman said.

Jarvis's failure to agree the contracts prior to the results threatens to undermine the group's turnaround story, founded on the supposed visibility of its earnings from Railtrack.

One analyst said: "These discussion are perfectly standard, but the market's turned against Jarvis because Railtrack has obviously been more aggressive than was expected."

Jarvis closed down 171.5p at 322.5p, dragging down shares in related businesses. AMEC dropped 7p to 256p.