Contract delays push Jarvis to full-year loss

The York-based group said expected volumes have failed to materialise since October as customers including Network Rail hold back spending, and will mean a 5m operating loss, capping a "disappointing year".

Shares regained some of their losses to close the day down 10 per cent at 11p.

Analysts had been expecting the group to break even at operating level. House broker KBC Peel Hunt now forecasts the group reporting adjusted pre-tax losses of 11m, compared to its previous view of 5.9m losses.

Jarvis is already battling through a fallow year as a result of Network Rail's decision to defer spending on a 4bn portion of its track renewal programme.

"The volumes haven't picked up and it's a pretty volume-sensitive business," said chief executive Stuart Laird. "People aren't spending the money and it's taking longer. It's a timing issue."

Jarvis added it has cut another 50 to 70 jobs across the country as a result, which will cost about 3m in restructuring, leaving the group with about 2,200 employees. "We have found that as work has not come through we have to continue with a bit of downsizing to make sure we have got the right resources," said Mr Laird.

Jarvis added restructuring is largely complete and it has been working hard to ensure its skill base is not lost.

Net debt was down to 12.6m from 22.3m in October as working capital is linked to rail and plant volumes.

The group is more optimistic about 2011 as its strategy of diversifying revenues begins to pay off. Its over-reliance on Network Rail meant the group was left high and dry when the Government-backed body delayed the huge tranche of track repairs a year ago.

Mr Laird envisages cutting the proportion of rail revenues earned from Network Rail to about 75 per cent from 90 per cent. Chairman Steven Norris said this strategy is "already bearing fruit".

It recently won a 55m contract with Chiltern Railways, with the bulk of the work starting in its next financial year beginning in April.

Jarvis Rail will be the subcontractor on the project and will work closely with principal contractor civil engineering specialists BAM Nuttall. The total value of the rail and civil elements of the mainline phase of Project Evergreen 3 is around 94m.

The contract also contains the option to extend the works, subject to relevant approvals, to cover the 96m upgrade of the Bicester to Oxford line which is due to start in April 2011.

The group also announced the award of its first small signalling contract with London Underground Limited, which it hopes will lead to more work with the Tube operator.

"That sends out a message that we are determined to spread the load outside of Network Rail and will continue to seek to do that," said Mr Laird.

Mr Norris added: "The Evergreen contract is a huge boost and we now have a strong bid pipeline with a significant proportion of work secured already for next year."

The group added its rail and plant divisions have battled through the heavy snowfall in recent months.

Teams in Scotland successfully commissioned the Lugton Loop project and other teams worked on projects at Trent East, Peterborough, Barnsley and Midland Mainline.

Jarvis said freight levels for its E.ON contract were below expectations as the business was further hit by the fall in demand for electricity and high coal stocks at power stations.

However, its accommodation services arm, which manages schools, fire stations and hospitals under private finance initiative contracts, performed well and increased margins.

KBC Peel Hunt said: "While 2010 has been a disappointing year for the group, we remain reassured about the 2011 outlook."

New MD for division named

Jarvis announced the appointment of Phillip Price as new managing director of its rail and plant businesses.

Mr Price takes over the day-to-day responsibility for both businesses from John Snowdon who plans to retire.

He joins Jarvis from Laing O'Rourke where he has been managing director of its infrastructure business for the past three years and has worked in construction and related markets for more than 18 years. He has held senior positions at companies including Alfred McAlpine and Yorkshire Electricity Group.

Jarvis said Mr Snowdon will work closely with Mr Price to ensure a comprehensive handover.