Getting Jarvis Back on Track

While still new to the European market, the use of a Chief Restructuring Officer (CRO) to drive fundamental change in a deeply troubled company is quickly proving to be a preferred alternative for boards of directors, shareholders and lenders. Witness the case of Jarvis plc.


Jarvis was the kind of high growth story that readily attracts capital. From humble beginnings as a construction company with turnover of some £10 million, Jarvis rapidly expanded its reach into railroad refurbishment and maintenance, highway maintenance and product manufacturing and a significant ownership in three of London's tube lines. When public-private partnership arrived in the UK construction world, Jarvis saw this area as a natural growth opportunity. Thus by 2002 the company had increased its annual turnover to some £1.1 billion, while its stock price had risen to 575p.

However, by spring 2004 Jarvis had become a different story. A major accident on a rail line maintained by Jarvis brought the quality of the company's work into public question. Significant losses began to develop in the construction division, a brand new road materials manufacturing facility was struggling to use its capacity, and lease costs at a new headquarters were almost double current market rent. Along the way the CEO, CFO and several other key leaders were replaced. By the time that Steve Norris, the former UK Minister of Transport, was elected chairman, the company was fully extended and in default on its borrowings; there was an average of 60 days past due in paying its suppliers; and there was little cash in the bank. Annual operating losses were £189 million and the share price had fallen to 79p.

Norris recognized that a dramatic change was required to ensure the company's survival. In June 2004, after interviewing several possible firms for assistance, he selected AlixPartners, the well-known international restructuring firm, with myself, Eric Simonsen as the company's CRO. While most corporate leaders develop their skills in a growth environment, what Jarvis needed was a leader who knew how to manage in a time of deep crisis. I had just finished a year as the CRO of Cable & Wireless's US operations, leading a turnaround into a successful sale of that business. I and the firm had the skills and experience that Norris was seeking. Three tasks needed to be accomplished immediately:

• Work with the company's investment bankers to identify the core operations around which the new company would focus, developing plans to dispose or close the rest;
• Ensure the timeliness and reliability of the company's cash flow forecasting and management; and
• Open up communications with the company's stakeholders - its customers, lenders, trade creditors and employees - to give them confidence as to the company's future direction.

Within 45 days enough significant progress had been made on these tasks for the lender group to agree to loaning Jarvis an incremental £25 million. Progress continued on these three tasks. In addition, over the next 90 days the company used the incremental loan proceeds to complete nine major under-funded construction contracts. During the same period £24 million of recurring operating costs were eliminated, the asset disposal process was begun, and the rail refurbishment and UK roads maintenance and manufacturing businesses were thoroughly analyzed to confirm their future viability as the company's core operations.

Thus by October - only four months after the start of the AlixPartners engagement - significant forward progress had been made, and stakeholders had a vision of the company's new future and a road map for getting there. For the next several months the focus was on three new critical endeavors:

• Securing bridge financing for the pending sale for £146 million of its London tube ownership;
• Eliminating an additional £30 million of recurring operating costs to fit the company's future expense structure to its forecast core revenues, and;
• Raising from the individual construction contract stakeholders £120 million of new funding to fill the forecast shortfall in the remaining 14 major contracts. Without this funding, these projects were likely to face delay of years until completion.

The combination of hands-on operating experience and financial restructuring know-how brought in by myself and the AlixPartners team allowed the company to achieve these objectives by January 2005, only seven months after the CRO had arrived.

The Jarvis story was not yet finished. Work remained to complete the wind-down of the non-core operations and to continue to build the future for the core businesses. In addition, a debt for equity swap was likely for later in 2005. However, late in 2004 the board hired a new CEO to take the redesigned company forward. By March 2005 the CEO had also brought in a new CFO and in May hired a leader to complete the non-core wind down. Thus by the end of May, less than one year from being hired, the CRO's tasks had been completed or transferred to the new management team that would lead the restructured company.

From the viewpoint of the stakeholders - the customers, suppliers, employees, lenders and equity holders - what value did the CRO bring? In a relatively short period of time, AlixPartners had stabilized operations for continuing customers, suppliers and employees by restructuring the company's balance sheet and cost structure, ensuring a stronger economic platform from which to deliver future goods and services. Non-core operations were wound down in an economically responsible manner for customers, suppliers and employees, or sold to competitors that viewed the operations as core ones to their own businesses.

Lenders and equity holders faced economic outlooks for their investments that were more optimistic than a traditional insolvency liquidation would have provided. Perhaps most important, this was achieved in an environment of open communication, where these constituents could follow and critique the progress of the components most important to each of them.

In September 2006 AlixPartners announced that its successful turnaround work at Jarvis, led by Simonsen, a managing director with the firm, had received the Turnaround Management Association's 2006 award for 'International Turnaround of the Year'.