Jarvis, the embattled rail and construction group, won a stay of execution yesterday after its banks agreed to back a radical restructuring plan that will see the company halve in size, shed more than 1,000 jobs and quit much of its loss-making PFI activities.
The agreement, drawn up after lengthy talks with the company's lenders, came as Jarvis announced losses of £247m last year after taking write-downs of £186m, more than £100m of which relates to loss-making school refurbishment contracts.
The deal with creditors will provide Jarvis with a lifeline until March next year. In return, its banks, led by Barclays and Royal Bank of Scotland, will take a stake of up to 15 per cent in the company.
However, the long-term survival of the company, chaired by the failed Conservative candidate for London Mayor Steven Norris, remains in the balance. Jarvis itself said that "fundamental uncertainties" existed in respect of its "going concern" status. Shares in the company fell 5.25p to 46.5p.
Jarvis hopes to raise £150mfrom a disposal programme which will include selling its stake in the London Underground contractor Tube Lines and scaling down its troubled PFI division. In future it will concentrate on UK rail, roads and local authority outsourcing.
However, the company's results announcement was littered with health warnings, stressing that the success of the plan rested on raising sufficient amounts from disposals, recovering money owed from clients such as Network Rail and capping future losses on construction contracts already taken.
Kevin Hyde, Jarvis's chief executive, maintained that the financing agreement the company had reached with its lenders was better than he had expected and provided a sound basis for the company to move forward and return to profitability in 2006. The banks have agreed to provide a further lending facility of £25m, which will remain in place through to the end of March alongside Jarvis's £21.5m overdraft and bond facilities. It will then need to secure long-term financing, which the company estimates at £100m, provided the disposal programme nets the anticipated £150m. The group's debts currently stand at £230m.
Jarvis said it had identified £30m of cost savings. As part of this, the 7,500-strong workforce will be reduced by about 1,000 in addition to the 850 jobs that have gone over the past few months and Jarvis will move its head offices from London to York.
Mr Hyde said the recovery plan was designed to produce a "simpler, leaner and more cash generative business that is sustainable in the long-term". The turnover of the group once the disposals are complete will fall from £1.3bn to £600m-£700m.
Talks about a number of the businesses-to-be were "well advanced", Mr Hyde said, adding that he expected to find a buyer for the Tube Lines stake in the next couple of months. Jarvis is talking to a handful of UK buyers, which do not include its current partners in the Underground PPP, Bechtel and Amey.
Mr Hyde said Jarvis's biggest error had been to bid for a series of refurbishment contracts covering 50 schools at a fixed price and without fully understanding the amount of work entailed. This had been a "fundamental mistake". He denied, however, that the financial crisis at Jarvis had been a disaster for the Government's private finance initiative, arguing that it had, on the contrary, demonstrated the success of the concept. "The ultimate test is this: in the past any cost overruns would have been paid for by the taxpayer but in this case we, the private contractor, have carried the loss."
The Rescue Plan
- New £25m loan facility to run until next March
- Banks to take 15 per cent equity stake
- Cut debt from £230m now to about £100m
- Disposals, including one-third stake in Tube Lines, to raise £150m
- Halve size of group by exiting most PFI activities, construction, overseas rail
- Scale down Jarvis Accommodation Services
- 1,000 job reductions in addition to 850 already achieved
- Relocate head office from London to York
- New long-term financing arranged from next March