Jarvis' recovery gains momentum - £4m interim profit

The rest of the world might be on the slide but Jarvis is on the up. Now out of the red, the group has reported an interim pre-tax profit of more than £4m.

In the comparable period last year Jarvis reported a pre-tax loss of £3.3m.

The latest financial period covers the six months to 10 October 2008.

Turnover of £200m was higher than the previous figure of £140m.

Steven Norris, executive chairman, reported that Jarvis has seen a continuation of the improved profitability experienced during the second half of the previous financial year.

“Our strategy remains to develop the rail, plant and freight businesses while working to reduce the group's cost base,” he said.

Norris said that Jarvis anticipates “growth opportunities that the UK rail market presents in the longer term”.

• Rail turnover doubled compared to the same period last year, primarily due to the high levels of activity on West Coast contracts.
• Plant turnover mirrored the effect of high rail volumes.
• Turnover in accommodation services was lower following the exit from several loss-making contracts during the second half of the previous financial year.

Jarvis achieved its target of reducing overheads by £10m a year to an annualised run rate of £11m.

Cash inflow of £5.8m was far better than in the six months to 30 September 2007 when Jarvis suffered an outflow of £19.1m.

Net debt at 10 October 2008 was £35m, a reduction of £6m

Rail

Turnover doubled to £150m and operating profit did the same, up 100% at £10.2m. 

There was an increase in track renewals workload as a result of the successful integration of the East Midlands territory into the London North East Integrated Management Team.

Over the summer Jarvis also experienced an intensive period of enhancement activity including major projects in Staffordshire on the Route Section 12 contract and on the Airdrie-Bathgate rail link in Scotland.

The first three stages of the advanced works on the Airdrie-Bathgate Rail Link line enhancement project were successfully delivered in early October. During a 16 day blockade the team successfully undertook major remodelling works between Livingston and Newbridge. 

Plant 

Turnover in the division was £51m (previous figure: £42m) but operating profit halved to £1.2m from £2.4m last time. 

The division benefited from the sustained increase in rail volumes. Plant supported the extensive works programme undertaken in the first half and provided machines for key Network Rail projects on the West Coast Main Line including the RS12 contract, the Rugby remodelling contract, Northampton and Milton Keynes.

The lower demand for external transport vehicle hires has affected the transport business during the first half and impacted margins.

Small plant continued to perform well with turnover showing much improvement on the same period last year, leading to improved operating margins. This was due to higher volumes of activity, increased prices and cost efficiencies.

Freight container volumes have been affected by lower import levels throughout the period. This was exacerbated in the latter part of the period by locomotive reliability issues which are now being addressed.

The bulk haulage business has however performed well following the successful launch and roll out of the E.ON UK contract.

Jarvis Accommodation Services 

Turnover in the division was £23m, a fall of £11m. There was an operating loss of £0.2m which was better than the last time round when a loss of £1.4m was made.

Having exited the major loss-making contracts in the second half of the previous financial year, the division is now on a much sounder financial footing.

“Early in this financial year we reported the termination of two further facilities management contracts,” said Norris.

“The business now consists of 25 contracts, of which 23 are long term PFI agreements, and many of these are reaching their first benchmarking date. The team remains focused on implementing further operational efficiencies.”

Norris said that the longer-term prospects for the rail business remain good given the programme of enhancement projects planned by Network Rail.

Enhancement spend is set to double over the next five years, as outlined in the recent 'Determination' issued by The Office of Rail Regulation.

“We believe that this will create more opportunities in Rail and Plant for our innovative approach to mechanised service solutions,” said Norris.

In May 2008 Jarvis announced that the board was considering all its strategic options, one of which might have led to an offer being made.

Since then, discussions with various interested parties have taken place, some of which reached an advanced stage.

“Unsurprisingly given the current extreme economic conditions, these have not resulted in the company receiving a formal offer at this time,” said Norris.

“The company confirms that it is no longer engaged in any discussions that may or may not lead to an offer.”

Accordingly, Jarvis is no longer in an Offer Period for the purposes of the City Code on Takeovers and Mergers.