Jarvis plc - Announcement of unaudited interim results for the six months to 30 September 2004

The reported loss before tax totals £283.1million (2003/4: profit £33.7 million) of which £240.1 million is exceptional and mainly relates to the write off of goodwill in the roads business, provision for construction losses and write off of aged debtor balances and certain work in progress.

Despite these results, in the last few weeks the Group has made outstanding progress with its business plan to stabilise the Group’s finances and reduce indebtedness.

Shareholders have approved the sale of a property portfolio that will raise some £25 million.

Agreement has been reached for the sale of the European roads business for £24.5 million.

Agreement has also been reached on the sale of the Company’s interest in Tube Lines Ltd for a gross consideration of £146.8 million (of which £95.5 million is cash, and £51.3 million represents the release of collateralised cash) and the release of a contingent liability of £11.7 million.

The Group has reached agreement on funding contributions (including those of the group) of some £105 million to enable the completion of 14 current construction contracts. This allows the Group to limit its exposure to cost overruns on these projects.

The Group has also agreed heads of terms for a refinancing through an extension of the Lender Override Agreement which was signed on 27 August 2004 and ran until 25 March 2005. Under this agreement the refinancing will run until 27 March 2006 with the provision of a further £5.5 million of bonding facilities.

Extremely good progress has been made elsewhere. A programme to achieve annualised savings of £20 million has been implemented ahead of plan and in November further annualised savings of £30 million were identified and action to achieve these is underway.

The new core businesses of rail, road and plant operations have been re-designed under a new organisational structure, and will be leaner and more cash generative than in the past.

Despite this progress more work needs to be done in many areas to re-establish and enhance our reputation in our core markets.

The actions described above, particularly the disposals, mean that the Group has been able to reduce indebtedness, and the business will shortly have greater working capital headroom. The disposal to date of 17 smaller businesses and property interests and the general simplification of the business mean that managers will be able to devote more time to current operations rather than to the essential restructuring.

These disposals have also allowed the Group to exit from non-core activities and focus on its core businesses of rail, roads and plant operations, headquartered in York.

Financial Results
Group turnover in the first half of the financial year 2004/5 was £356 million (2003/4: £588 million). This fall was largely due to the exit from rail maintenance, which was completed on 31 March 2004, and from lower levels of activity in construction projects, from which Jarvis is withdrawing.

Group operating loss was £44.5 million, (2003/4: profit £31.7 million) before operating exceptional items of £204.8 million and non-operating exceptional items of £35.3 million. After all exceptional items, and after including joint venture profits the operating loss before interest was £ 266.5 million (2003/4: profit £47.7 million). The pre-exceptional operating loss of £44.5 million is after provision of some £31 million for aged debtor balances and £12 million for bid costs on PFI and UPP projects early in the half year.

Excluding exceptional items the rail, Tube Lines and plant operations all generally performed in line with expectations, however as previously announced the roads business has suffered from unfavourable operating conditions.

Rail write off
In addition to the write off reported in the Group’s announcement of 8 November 2004 of £9 million, it is considered prudent to make a provision for aged debt of another £9 million in this area.

Accommodation Services Losses
Within accommodation services, operating exceptional items of £128 million largely comprised the construction losses and provisions in the first half of £86 million. Further the accounts to 31 March 2004 provided some £20 million against the Facilities Management (FM) risk margin in work in progress. As the Group has now decided to sell its FM business it is appropriate to write off the remaining balance of £23 million in these first half results. Finally, the Group has not yet let its Smithfield building which is now surplus to requirements and has taken a further provision of £ 7 million (2003/4: £15 million) against any rental shortfall. We have also written off £7m of office fit out costs.

In addition operating losses attributable to the write off bid costs and aged debt amounted to £28 million.

Professional fees associated with restructuring
The Group has incurred significant restructuring and refinancing costs of £32million, which include professional fees relating to disposals and debt restructuring costs including bank arrangement fees, as part of the continuing restructuring of its activities.

Goodwill
As previously announced, a number of businesses have been or are in the process of being sold. The Group has therefore written off some £9 million of goodwill in respect of these disposals. In addition it is making a £63 million provision for its UK roads business to write off the goodwill attaching to this business completely, given its recent performance.

Balance Sheet and Cashflows
Net debt, after taking account of charged cash of £53 million, was £242million at the half year excluding the equity bridge loan of £45 million for Tube Lines. Operating cash outflow at £110 million (2003/4: Outflow £50 million) was lower than the operating loss of £249 million due to the high level of non-cash write-offs and provisions. In the period the Group has reduced debtors, stocks and work in progress by £114 million, and creditors have also decreased by £34 million.

Dividend
The Board will not recommend or pay an interim dividend.

Board Changes
The arrival of Alan Lovell as Group Chief Executive on 14 October has been vitally important to the Group. Alan has an outstanding record of achievement in his business career, and has undertaken restructuring and recovery work in the most exacting situations. I cannot underestimate the value of his contribution to the restoration of a viable business in Jarvis. The board appointed Andrew Lezala, who was originally employed to head our rail division as Chief Operating Officer. He has made an excellent start to the practical task of rebuilding our core businesses. The Board also confirmed Alistair Rae as Group Finance Director in recognition of his outstanding contribution since he was appointed acting Finance Director earlier in the year.

Corporate Governance
In the light of all that has transpired in the last year the Board has been concerned to re-examine and where necessary improve standards of corporate governance and has established a specific Corporate Governance Committee under the chairmanship of Chris Rew, who joined the board in May and who is also the Chairman of the Audit Committee.

Safety and Environment
Safety remains a paramount concern in the Group. The rail business has successfully achieved re-certification for both its Quality Management System (to BS EN ISO 9001:2000) and its Environment Management System (to BS EN ISO 14001:1996). Both approvals have been given by Lloyd’s Register Quality Assurance. Rail also gained agreement from the Health and Safety Executive for extensions to its Railway Safety Case for Fastline Ltd. Jarvis Construction UK has successfully achieved re-certification of its Environment Management System (to BS EN ISO 14001:1996) by BSI. Prismo Ltd trading as Prismo Contracting Services, part of the roads business, gained certification for its Environmental Management System from Quality and Assurance Services Ltd.

Operational Review

Rail
The period began with a successful handover of maintenance to Network Rail. To support Network Rail in its goal of reducing costs while intruding less on the operating timetable, Jarvis Rail continued to deliver technical innovations such as the Supertamper. Development of the Accutrack process – a turnkey track renewals system – significantly contributed to minimising costs and possession times, maximising output and guaranteeing safe, fault-free handbacks at full line speed. Key to the process are the Jarvis-developed Track Renewal System (TRS) and Rapid Ballast Excavator (RBE) machines. During the period we secured significant additional track renewals orders on the West Coast and East Coast Main Lines and in Scotland. A number of initiatives focused on internal processes and procedures. The period saw the publication of our Safety and Environmental Plan, which was the culmination of a review conducted by DuPont.

Roads
Prismo Contracting Services (PCS) has continued to maintain a very significant presence in its market. Much work has been undertaken at the manufacturing facility at Chorley, which is now fully operational. Improvements in machine reliability and other efficiencies have led to reduced labour requirements and a reduction in the number of shifts needed to meet demand.

Small Plant Operations
JFM continues to develop well as a business, winning new contracts. It was awarded contracts to supply vehicles to Network Rail to help meet the needs of the crews as maintenance work has been handed back. Currently 2,100 vehicles are on long-term hire to external customers. In keeping with the group’s emphasis on good working practice JFM Hire has been awarded ISO 14001 accreditation for all its operational depots and activities.

Accommodation Services
The Accommodation Services division has faced difficulties across the range of its activities this year. Nevertheless, as outlined above the group has negotiated an effective cap on its liabilities in respect of its ongoing contracts. 5 of the 14 contracts will be let to a new contractor and plans are in place to close out the remaining 9. This will ensure that our public sector clients do ultimately receive the new facilities due to them under the contracts. A new organisation structure has also been put in place to bring our Facilities Management operation together into a single unit prior to its planned disposal.

Conclusion
This has, as I indicated, been the most difficult period for everyone employed by the Jarvis group of companies at whatever level. We have been obliged by our urgent restructuring plan to say goodbye to many who have served the company conscientiously and well over many years. I thank them for their service and wish them well in the future. To those who remain, in whatever way they contribute to the company, I acknowledge their loyalty and perseverance which has been exceptional and enormously gratifying. We will be doing everything in our power in the coming months to recreate a profitable efficient business which is market leader in its chosen fields and of which we can all once again be proud.

Steven Norris
Chairman

Contact for further details:

Merlin PR 020 7653 6620 Paul Downes
Jonathan Haslam 020 7017 8147

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