RNS Number:0355G
Jarvis PLC
06 December 2004
FOR IMMEDIATE RELEASE
6 December 2004
Proposed disposal of, and other arrangements relating to, certain freehold and
leasehold interests in the York Central Site, Jarvis House and the Wider
Property Portfolio
to raise #25 million
Introduction
Jarvis plc announces that it has reached a conditional agreement with Network
Rail on arrangements relating to five leasehold interests held by the Group
close to York railway station known as the York Central Site, the leasehold
property situated at Jarvis House, Toft Green, York and 39 other property
interests held by the Group for a total cash consideration of #25 million (plus
VAT, where applicable), herein referred to as ("the Transaction").
Background to and reasons for the Transaction
As outlined in the 2004 Annual Report, the Directors are implementing a Business
Plan that is designed to develop a simpler, leaner and more cash generative
business that is sustainable in the long term. This Business Plan has several
core elements, as set out in the section headed "The Business Plan" below.
The strategy underlying the Business Plan is for the Group to focus primarily on
UK rail, road and plant hire activities. The Directors believe this will enable
Jarvis to maintain a competitive advantage and grow its market share by
capitalising on its investment in technology, new products and equipment.
As part of its restructuring initiatives Jarvis has been seeking to rationalise
its property portfolio. This has enabled the Board to identify a number of
properties as being surplus to requirements and to identify an opportunity for
the Group to seek an alternative basis of occupation in certain other
properties. In both of these cases there is an opportunity for Jarvis to realise
cash in the short term whilst achieving fair value and to retain the use of
those properties required for continuing use. These properties are currently
used, or have in the past been used, for the accommodation and operation of rail
and road businesses and other Group functions.
Having conducted marketing exercises of the various properties, the Board has
resolved to enter into the Transaction by way of a framework agreement covering
all of the identified Properties for total cash consideration of #25 million
(plus VAT, where applicable).
Principal terms and conditions of the Transaction
The Transaction comprises three principal elements:
Proceeds*
York Central Site #4.5m
Jarvis House #3.5m
Wider Property Portfolio #17.0m
Total: #25.0m
*Plus VAT, where applicable
These elements are described in more detail below.
1. York Central Site
Jarvis holds five separate leasehold interests in adjoining sites next to York
railway station. The sites comprise the York Central Site and include facilities
for rail plant hire, rail plant maintenance and storage, as well as facilities
for Jarvis's rail renewals activities. The total area of the sites is
approximately 20.2 acres. Four of the sites are currently on long leases from
Network Rail, three of which are for a term of 50 years and one of which is for
a term of 125 years. Parts of two of these sites are currently leased back to
Network Rail and a third party by Jarvis at an annual rental from Network Rail
of #65,500. The fifth site is leased from another third party with Network Rail
as the head lessor, and is on a lease of nearly 50 years. All leases to Jarvis
are currently on a peppercorn rental.
Under the terms of the York Central transaction, Jarvis will continue to occupy
parts of each of the sites, but will surrender its four current leases from
Network Rail back to Network Rail and assign the fifth site to Network Rail. It
will then enter into new operating leases for all of those parts of the sites it
then occupies. These new leases will be of a ten-year duration, with a right to
renew for a further ten years, at an initial rental of #320,000 per annum,
upwardly reviewable in five years. As part of the negotiations for this lease
rearrangement, Jarvis has already received cash consideration of #4.5 million
from Network Rail and there will be a further sum due in respect of the VAT
thereon. No further consideration will be payable. However, both the cash
consideration and the VAT will be repayable if the principal conditions
contained in the Framework Agreement are not satisfied.
On the Framework Agreement becoming unconditional, Network Rail and Jarvis will
enter into a collaboration agreement for the York Central Site to deal with
relocation and to exploit jointly any redevelopment value for the Properties.
The new leases contain break clauses that can be invoked after three years if
Network Rail has secured planning consent (outline or otherwise) or has a
pending planning application for the redevelopment of any of the sites that form
part of the York Central Site and surrounding areas. In such circumstances, the
collaboration agreement obliges Network Rail to use reasonable endeavours to
make another site available to Jarvis and to incur expenditure to make such site
suitable for Jarvis's use, or to reimburse Jarvis's relocation costs in each
case, for up to a total of #3 million. To the extent that Network Rail's net
receipts from redevelopment exceed #4.5 million, after payment of any relocation
costs by Network Rail, it will be obliged to pay Jarvis 25 per cent. of that
excess. The new leases also contain break clauses which Network Rail can
exercise if Network Rail requires any of the sites, or parts of them, for its
own purposes. In that event, the same relocation package will apply.
2. Jarvis House, York
Network Rail has approached Jarvis to acquire its lease on Jarvis House, where
Network Rail already occupies one 18,000 square feet floor in a building
totalling 75,000 square feet. Jarvis is already committed to enter into a lease
on a new-build development known as Meridian House, York and will relocate its
headquarters and rail and road operations to this location. Annual rental
obligations on Meridian House are approximately #1 million lower than those on
Jarvis House.
Under the terms of the Jarvis House transaction, Jarvis is to transfer the lease
of Jarvis House to Network Rail for a total cash consideration of #3.5 million
(plus VAT) comprised of a premium of #100,000, #1.5 million for the fixtures and
fittings in Jarvis House and a #1.9 million contribution towards the costs of
Jarvis moving to Meridian House. Network Rail will also make additional premises
available to Jarvis in York.
3. Wider Property Portfolio
The Board has also identified 16 properties that are surplus to the Group's
requirements and can be sold, and a further 23 properties which Jarvis will
continue to occupy and over which Network Rail will enter into sale and
leaseback arrangements. Collectively all of these properties are known as the
Wider Property Portfolio.
In total, Network Rail will pay #17.0 million cash consideration (plus VAT,
where applicable) to Jarvis for the new arrangements in respect of the Wider
Property Portfolio. Network Rail will pay #7.25 million to Jarvis for the
eleven freeholds in the Wider Property Portfolio and #9.75 million for the 28
leasehold properties (plus VAT, where applicable in both cases).
Of the 16 surplus properties, five are freehold and 11 are leasehold. Network
Rail is the freeholder of nine of the leaseholds.
Of the 23 properties which are the subject of sale and leaseback arrangements,
six are freehold and 17 are leasehold. Network Rail is the freeholder in
relation to 15 of the leasehold properties. Under the terms of the sale and
leaseback arrangements each lease will be for a term of 20 years, with a break
option after ten years.
In respect of the 28 leaseholds, Jarvis will surrender its existing leases on 24
properties where Network Rail is the freeholder and in respect of four other
properties that are let by third parties to Jarvis, and these leases will be
assigned to Network Rail. In consideration for those properties currently let to
Jarvis by Network Rail, Jarvis will receive #8.6 million (plus VAT, where
applicable). In consideration for the properties currently let to Jarvis by
third parties, Jarvis will receive #1.15 million (plus VAT, where applicable).
On the Framework Agreement becoming unconditional, Network Rail and Jarvis will
enter into a Wider Property Portfolio collaboration agreement to deal with
relocation and to exploit jointly any redevelopment value for the sale and
leaseback properties. The new leases contain break clauses operable by either
party if the properties are not being used in accordance with the collaboration
agreement. There is an additional break clause to allow Network Rail to end the
leases for development and operational reasons. In the event of a break, Network
Rail is obliged to make another site available to Jarvis and to incur
expenditure to make such site suitable for Jarvis's use, or to pay Jarvis's
relocation costs. Jarvis will be entitled to receive 25 per cent. of the uplift
in value of any individual disposal. To the extent that Network Rail's net
receipts from redevelopment exceed #8.5 million, after payment of any relocation
costs by Network Rail, it is obliged to pay Jarvis 25 per cent. of that excess.
It is a term of the Framework Agreement that Jarvis will indemnify Network Rail
in relation to remediation costs applicable to environmental contamination of
the 16 surplus properties, up to a maximum of #2 million.
4. Conditions to be satisfied prior to Completion
Shareholder approval is the principal condition to completion of the individual
transactions underlying the Framework Agreement.
The only part of the York Central transaction which is subject to a further
condition is the assignment of the fifth site by Jarvis to Network Rail. This
requires landlord's consent (not to be unreasonably withheld or delayed). The
payment of #4.5 million has been received for this transaction and it is
expected that the outstanding VAT thereon will be received following Shareholder
approval at the EGM.
The assignment of the lease on Jarvis House is conditional upon receipt of the
landlord's consent both to the assignment of the lease and to the underletting
by Network Rail to Jarvis of additional premises in York. The Board does not
consider that these conditions will delay completion beyond the EGM, and
accordingly #3.5 million (plus VAT) is expected to be received at that time.
In relation to the Wider Property Portfolio:
* the sale and purchase of the freehold properties, and the leasehold
properties leased to Jarvis by third parties, is conditional upon Network Rail
investigating Jarvis's title to these properties. Completion of the sale and
purchase of each of these properties will occur on satisfaction of this
condition in relation to the relevant property. Payment will be made for the
relevant property at that time. The overall long-stop date for the condition to
be satisfied in each case is 4 March 2005;
* the sale and purchase of seven of the above properties is also
conditional upon Network Rail receiving the consent of the Office of Rail
Regulation; and
* the surrender of the leasehold properties let to Jarvis by Network Rail
is conditional upon Network Rail receiving replies to enquiries before surrender
that are submitted to Jarvis by Network Rail. It is expected that this condition
will be met before the EGM and the sum of #8.6 million (plus VAT, where
applicable) will be payable at that time.
Having considered all of the above elements, the Board believes that the
Transaction represents the best opportunity to realise cash from the Properties
in the short term whilst achieving fair value.
Financial effects of the Transaction and application of Transaction proceeds
In addition to the #4.5 million already received on the York Central
transaction, the further cash to be received by Jarvis on completion of the
Transaction amounts to #20.5 million (plus VAT, where applicable). The aggregate
book value of the various properties and associated assets as at 31 March 2004,
being the date of the last audited balance sheet, amounted to #17.6 million. The
Transaction will give rise to a profit, before tax and after relocation and
transaction costs, of approximately #5.6 million.
Subject to the consent of Core Lenders to use the proceeds from the transaction
for working capital purposes, the proceeds of the Transaction will be used
primarily to provide additional working capital but also to fit out the new
premises in York and cover relocation costs which are expected to amount to
approximately #1.9 million.
Current trading and prospects
On 8 November 2004, the Board provided a trading update. Since that
announcement, trading is continuing to prove difficult but consistent with the
update provided. The interim results for the six months ended 30 September 2004
will be released before the end of December 2004 once the Board has completed
its review which will include an assessment of appropriate levels of provisions.
As foreshadowed on 8 November 2004, the results will show a substantial
deterioration in the Group's financial position since 31 March 2004.
Recent changes to the Group's current financing facilities
On 30 July 2004, the Group's Core Lenders agreed terms to extend the Group's
facilities until 25 March 2005 and to provide an additional working capital
facility of up to #25 million and a new bonding facility of up to #9 million.
These facilities were summarised in the 2004 Annual Report. On 3 December 2004,
the bonding facility was reduced by #4 million and the working capital facility
increased by the same amount.
The Business Plan
The 2004 Annual Report sent to Shareholders in September 2004 described the
Business Plan adopted by the Board to stabilise the Group's finances and reduce
indebtedness to more acceptable levels.
The Business Plan was central to the Core Lenders' decision to continue to
support the Group and provide continued facilities to 25 March 2005. The plan
assumed that a number of important measures would be successfully implemented in
a timely manner for indebtedness to be brought back to an acceptable level so
that working capital facilities adequate for the Group's needs could be secured.
The Transaction is an important element in the achievement of the Business Plan.
In addition to the strategic repositioning of the Group, the other principal
components of the Business Plan are set out below with an update on the Group's
progress in achieving them:-
(i) The timely realisation of value from Group assets, in particular,
the Company's investment in the Tube Lines PPP Project and the European Roads
businesses.
The Group is in discussions to realise value from the disposal of
its interests in the Tube Lines PPP Project and the European Roads businesses.
These transactions remain on course for later this calendar year.
(ii) A substantial reduction in the Group's overheads, including
accommodation costs, achieved through re-location to a smaller number of sites.
A programme to achieve annualised future savings of more than #20
million has been implemented ahead of plan. In recent weeks, further annualised
savings of #30 million have been identified and action to achieve these savings
is underway.
The disposal of properties and re-location of the Group's
headquarters described above will achieve the majority of the reduction in the
Group's accommodation costs envisaged in the Business Plan.
(iii) The rationalisation of the Group's accommodation services business,
including the sub-contracting of construction activities on new projects to be
undertaken by the Group in the future.
As announced on 8 November 2004, the severe cash flow pressures
endured by the Group since September have proven to have had a materially worse
than anticipated impact on the Group's relationships and terms of business with
its sub-contractors, and therefore on the Group's ability to deliver the
construction contracts in accordance with deadlines and anticipated costs.
Accordingly, the Board expected further significant costs to complete the
construction contracts.
The Group continues to look for ways to limit its exposure to these
contracts. It is in advanced discussions with its partners in the projects and
is negotiating alternative sources of funding (the "project refinancing
discussions") as well as the possibility of bringing in new parties to complete
the contracts.
The Board announced, on 3 December 2004, the sale of its PFI bidding
and management operations.
(iv) The satisfactory renegotiation of the Group's core financing
arrangements, which are currently repayable on 25 March 2005.
The Directors are confident that, following the conclusion of the
project refinancing discussions described in (iii) above and realisation of
value from the Group's interests in the Tube Lines PPP Project, satisfactory
longer-term core financing arrangements for the Group will be put in place.
Without satisfactory agreements being reached on those matters, the Board
considers it may prove difficult to secure longer-term financing arrangements
for the Group. The Core Lenders have been kept abreast of developments, and
discussions with respect to a refinancing are progressing. There can be no
certainty that a satisfactory conclusion to these negotiations will be reached.
The Group's Core Lenders have indicated that their consent to applying the
proceeds from the Transaction to meet the Group's working capital requirements
will depend in part on seeing satisfactory progress being made on items (i) and
(iii) above.
Working capital
The Directors are of the opinion that the Continuing Group does not have
sufficient working capital for its present requirements, that is for at least
the next 12 months from the date of this announcement.
The Directors are actively pursuing the measures described herein to ensure that
the Group secures adequate facilities for its present requirements but there can
be no certainty that these measures will prove to be successful.
The Group continues to operate within its debt facilities but headroom is
limited and accordingly management is concentrating on managing cash. The
Directors are in discussions with the Core Lenders to secure longer-term core
financing arrangements for the Group ("a refinancing"), probably in conjunction
with a realisation of the Group's interests in the Tube Lines PPP Project. To
provide the time necessary to secure a refinancing, the Directors are
progressing a number of important actions outlined below:
* obtaining Shareholder approval to the Transaction and securing the Core
Lenders' consent to the use of the proceeds for working capital purposes as
described above (which the Directors expect to be obtained before the EGM);
* the realisation of a number of other smaller assets which are currently
being negotiated;
* securing the receipt of certain outstanding sums due in respect of work
already undertaken;
* continuing the deferral or rescheduling of certain amounts owed to
third party creditors and non-Core Lenders within the period; and
* realising value from the sale of the European Roads businesses and
securing Core Lenders' consent to the use of the proceeds for working capital
purposes.
Whilst these actions are well progressed, the Board recognises that they are
complex and require the consent and/or support of third parties, including
Lenders and other stakeholders.
If Shareholders do not approve the Transaction, the Directors believe that this
is likely to have a material adverse effect on the Core Lenders' willingness to
enter into a refinancing and on the ability of the Group to continue to trade.
If Shareholders do approve the Transaction, which the Directors believe is
essential to the Group's finances in the short-term, there is still a risk that
a refinancing will not be achieved if there were to be a material adverse change
in the Group's underlying businesses or other material adverse developments, or
management did not achieve in time the actions described above.
In the absence of a refinancing, emergency funding of working capital would be
required by the second half of January 2005. Such funding cannot be guaranteed
nor can its terms which may be materially disadvantageous to Shareholders. If
such support were not forthcoming, the Group would be unable to continue to
trade.
Extraordinary General Meeting
Completion of the Transaction is conditional, amongst other things, upon the
approval of Shareholders. A circular containing a Notice of Extraordinary
General Meeting will be despatched to Shareholders shortly.
Alan Lovell, Chief Executive commented:-
"Today's announcement marks a very important step in our strategy. Property is
one of the three main assets from which we seek to realise value, the others
being the European Roads businesses and our Tube Lines PPP Project investment,
with both transactions continuing to make good progress. Elsewhere we have
completed the disposal of parts of the PFI business and expect to make an
announcement regarding UPP soon. We continue to talk to our Lenders about
refinancing for the Group. A great deal remains to be achieved but we are
confident of a satisfactory conclusion."
Enquiries:
Jonathan Haslam, Jarvis plc Tel: 020 7017 8147
Paul Downes, Merlin PR Tel: 020 7653 6620
DEFINITIONS
The following definitions apply throughout this announcement unless the context
requires otherwise:
"2004 Annual the Jarvis plc annual report and accounts for the year ended 31
Report" March 2004
"Act" or the Companies Act 1985 (as amended)
"Companies Act"
"Board" or the directors of the Company
"Directors"
"Business the recovery programme described within the 2004 Annual
Plan" Report
"Company" Jarvis plc, a public limited company incorporated in England
under registered number 2238084
"Core Lenders" the Lenders who are party to or have acceded to the Override
Agreement, announced 30 July 2004 (as amended and restated from
time to time)
"Extraordinary the extraordinary general meeting of Jarvis plc, convened under
General Meeting" Section 142, Companies Act and to approve the Transaction, to
or "EGM" be held at 9.00 a.m. on 23 December 2004 at the offices of
Slaughter and May, One Bunhill Row, London EC1Y 8YY or any
adjournment thereof
"Facilities" the lending arrangements comprising the various lending,
bonding, letter of credit and other credit facilities provided
by certain of the Core Lenders to the respective members of the
Group
"Framework the Framework Agreement between Network Rail Infrastructure
Agreement" Limited and Jarvis plc
"Group" or the Company, its subsidiaries and its subsidiary undertakings
"Jarvis"
"Jarvis House the proposed transaction relating to Jarvis House
transaction"
"Lenders" the Core Lenders, other providers of finance to members of the
Group and the providers of finance to certain special purpose
PFI or UPP companies
"Network Rail" Network Rail, a private limited company limited by guarantee,
its subsidiaries and its subsidiary undertakings
"Properties" means each of the properties the subject of the Transaction
"Resolution" the ordinary resolution to approve the Transaction to be
proposed at the Extraordinary General Meeting
"Shareholders" holders of Ordinary Shares in issue from time to time
"Transaction" the York Central transaction, the Jarvis House transaction and
the Wider Property Portfolio transaction, envisaged by the
Framework Agreement
"Tube Lines PPP the public private partnership for the management, maintenance
Project" and upgrade of the assets and infrastructure of the Jubilee,
Northern and Piccadilly lines on the London underground rail
network
"Wider Property the proposed transaction relating to 39 properties in the
Portfolio Jarvis property portfolio
transaction"
"York Central the proposed transaction relating to the York Central Site
transaction"
This information is provided by RNS
The company news service from the London Stock Exchange
END
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