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REG-Jarvis PLC Annual Financial Report - Part 3
Released: 14/07/2009
Part 3 : For preceding part double-click [nRn2N5989V]
effective working practices and provide for career development where
appropriate.
Progress Against Principle 4
Collaborative working arrangements remain key to the successful execution of
many of our contracts. A prime example is the use of Integrated Management Teams
in our Rail business where we work jointly with Network Rail to deliver mutually
beneficial outcomes. Work under these arrangements was reviewed on a monthly
basis as part of the Group's Monthly Operating Review process. The Group remains
committed to long-term framework agreements which enable sustainable continuous
improvements for all parties involved.
Progress Against Principle 5
New additions to the Jarvis supply chain continue to undergo a rigorous
accreditation selection process, which assesses a broad range of criteria to
ensure they follow best practice in safety, social, environmental and commercial
performance. It is still the Group's aim to move to fewer better suppliers in
its supply chain. Some progress has again been made during the period in respect
of our supplier reduction programme, but the opportunity remains to reduce
suppliers further in 2009-10.
Progress Against Principle 6
We appreciate that, whilst delivering long-term benefits, our engineering works
can at times cause short-term periods of disruption to the lives of others. Our
Rail and Plant businesses always try to minimise this disruption and as a
minimum try to ensure that all communities affected by our engineering works are
fully briefed in advance.
We have continued our involvement in school safety talks to educate people,
especially young people, about the dangers of railway infrastructure and
consequences of railway crime. These have been carried out in conjunction with
Network Rail and British Transport Police.
Jarvis Training Management Limited continues to deliver NVQ training to around
1,000 non-teaching staff in schools covering the 'Every Child Matters' and
'Healthy Eating' initiatives. Our congratulations go to the 966 people who
successfully completed their externally recognised qualifications through Jarvis
Training Management Limited during the year: 613 at NVQ Level 2; 312 at NVQ
Level 3 and 41 at Apprenticeship Levels 2 and 3.
Progress Against Principle 7
Throughout the year the Group has remained committed to conducting its business
activities in a way that seeks to prevent injury or ill health to its employees
and anyone else who may be affected by its activities. As such safety has
remained our number one priority and we have continued to instruct our employees
and suppliers to work safely at all times. To underpin our commitment to safety
we are now working towards obtaining certification of our safety management
system against the ISO18001:2007 standard covering occupational health and
safety management systems, a key requirement of which is a commitment to
continual improvement.
Policy and Objectives
During the year health and safety policies were reviewed and re-issued and we
prepared, agreed and issued Group level and business specific Health, Safety,
Quality and Environment (HSQE) Improvement Plans covering the period up to March
2010. These contain a variety of risk based improvement objectives with Fastline
Limited's improvement plan also supporting the wider railway industry's
'strategic safety plan'.
Performance
In terms of performance the rail business achieved a pleasing 10 per cent
reduction in its accident frequency rate (AFR), the key performance indicator
for safety, compared with the previous year and Fastline a noteworthy 55 per
cent improvement. Internal AFR performance targets were met in both businesses
with the rail business also meeting the stringent AFR target set by its
principal client. Following a 40 per cent reduction in 2007-08, the AFR in the
Facilities Management business rose during the year. The reasons behind this
were subject to investigation and analysis and a robust reduction strategy is
being implemented to achieve a specified improvement goal. In addition to AFR
monitoring the Company has also introduced a complementary safety performance
measurement tool based on fatalities and weighted injuries.
Using its industry leading 'Safety Check Number' (SCN) process the Company set
and monitored an SCN target that required at least 85 per cent of its work on
railway infrastructure to be undertaken in a 'green zone' (where no train
movements are made or where staff are physically separated from them). This
target was achieved throughout the year and in many periods significantly
exceeded.
Behaviour Based Safety
The Company's internal training organisation was accredited by IOSH in 2008 to
deliver its 'managing safely' and 'working safely' training programmes.
Managers, supervisory staff and artisan staff within the Group have now started
to attend these courses and all will be required to participate over the next
two years.
Following analysis it became clear that 'behaviour' played a significant role in
the root causes of accidents and incidents in the rail business. We are working
with a recognised specialist 'people coaching and development' company to focus
improvement efforts in this area.
Aspects and Impacts
Via the Company's ISO14001:2004 certificated environmental management system the
aspects and impacts associated with its activities continue to be well
understood. One of the most significant of these impacts is the unintentional
loss of oil from the operation of plant and equipment. When compared with the
previous year a 41 per cent reduction in the number of reported incidents has
been achieved during the year together with a similar reduction in the quantity
of oil lost.
Progress Against Principle 8
The Group's Environmental Management System underpins its commitment to the
effective identification and management of the environmental risks associated
with its activities. The system is audited externally by Lloyds against the
international standard ISO 14001:2004 and operated by the Rail and Fastline
businesses. The system helps both businesses not only meet their legal and
contractual obligations but also enables them to effectively manage the
environmental impacts and risks that arise. During the year environmental
manuals and procedures have been reviewed and are now updated on a six-monthly
basis to ensure that they remain focussed on the specific needs of the business.
As well as external audit the system is subject to a programme of internal
audits focussed on driving continual improvement within the business.
Progress on 2008 Environmental Objectives
During the year satisfactory progress has been made on all objectives. Key
non-financial performance indicators are given in Tables 1 and 2.
It is particularly pleasing to report that once again the number and volume of
oil spills has reduced, with a 41 per cent reduction in the volume of hydraulic
oil spills and leaks being achieved within Fastline compared to the previous
year (see Table 1). Jarvis continues to report all spill incidents, rather than
simply those that exceed the Environment Agency's reporting requirement of over
20 litres, and is regarded by its principal client as a leader in environmental
incident reporting.
Table 1 - 2008 OTM Hydraulic Oil Spills
Number of spill incidents
See Announcement Note ii
Amount of hydraulic oil lost in litres (000)
See Announcement Note ii
Average oil lost in litres / number of spills
See Announcement Note ii
The number of spill incidents has decreased when compared with 2007 and the
average oil lost in litres against number of spills reduced. This is again at
the lowest level since our spill data records began in 1998.
Fuel consumption in the year has reduced marginally reflecting decreased
activity within the business (see Table 2). The Company has also commenced an
electric powered vehicle trial to assess the viability of suitable alternatives
to diesel.
Table 2 - Fuel Consumption
Fuel use in litres (000)
See Announcement Note ii
Road Vehicle, Small Plant and OTM CO2
Emissions 2000-08
Number of cars / machines
See Announcement Note ii
Number with diesel engines
See Announcement Note ii
Number with petrol engines
See Announcement Note ii
CO2 emissions (Tonnes per M/c/pa)
See Announcement Note ii
Conversion factors used from DEFRA web site.
Notes
1 All road vehicles and small plant data included from 2005.
2 On Track Machines data added from 2006.
The Group also achieved significant results in reducing the amount of waste
going to landfill with an overall recycling rate of 37 per cent.
Environmental Objectives for 2009
New environmental objectives have been set for 2009. These include the delivery
of further reductions in the amount of waste sent to landfill sites, the
production of Energy Management Plans for all of the Company's locations and the
continuing monitoring of fuel usage in order to set further consumption and cost
reduction targets.
Progress Against Principle 9
Formal risk reviews have continued to be undertaken as part of the Group's
normal commercial processes and as part of its commitment to meet its health,
safety, quality and environmental obligations. During the year, however, the
Group's overall Risk Management Process has been subject to review as discussed
in the Corporate Governance Statement on page 18. The aim of this review was to
enable the Group to recognise better the overall risks it faced and to
understand more clearly the sources upon which it relied for assurance that
these risks were being managed effectively. Having concluded this review steps
will be taken in the coming year to strengthen the Risk Management Process
creating a more unified approach across the Group where best practice in any
given area can be introduced throughout the Company.
Directors' Remuneration Report
Information Not Subject to Audit
This report, which also forms part of the Group's report on its corporate
governance activities, has been prepared on behalf of the Board and will be
submitted for shareholder approval at the forthcoming Annual General Meeting.
The Remuneration Committee
The members of the Remuneration Committee throughout the year were Brian Mellitt
(Chairman of the Committee), Elizabeth Filkin and Chris Rew, all independent
Non-Executive Directors.
The Committee determines, on behalf of the Board, the policy of the Group for
balanced executive remuneration and specific remuneration packages for each
Executive Director and other senior employees who report to the Chief Executive.
This authority extends to pension rights, terms of service contracts, and
incentive schemes, both equity and non-equity based. The Committee has the
discretion to consider corporate performance on environmental, social and
governance issues when setting remuneration of Executive Directors and is
mindful to ensure that the incentive structure for senior management does not
raise environmental, social and governance risks by inadvertently motivating
irresponsible behaviour. The remuneration of Non-Executive Directors is a matter
reserved for the Board.
The Committee met four times during the year primarily to consider matters
relating to the remuneration of Executive Directors and the Executive Team. The
Group's Chief Executive attended by invitation. The Group Company Secretary and
General Counsel acted as Secretary to the Committee and together with the Group
Human Resources Director provided the Committee with advice and assistance on
the current entitlements of Executive Directors and the Executive Team based on
their performance against targets. No individual attended any parts of the
Committee's meetings which directly affected their own remuneration.
Independent external advice was provided during the year by Hewitt New Bridge
Street, who were formally appointed by the Committee on 13 March 2003. They
provided advice on employee and executive incentive schemes and information on
comparative remuneration from a selected peer group of companies and companies
from the FTSE small cap group selected in terms of activity, market
capitalisation, turnover and employee numbers.
Remuneration Policy
In terms of Directors' remuneration it is the Group's policy:
- to ensure that total rewards are designed to support the
Group's strategy and are set at levels that are competitive
within the relevant market;
- not to award share options in any year which amount to greater
than an Executive Director's annual salary or to award
performance shares which would have a value greater than 50
per cent of the Executive Director's salary in any one year;
- to ensure that incentive based awards can only be earned
through the achievement of demanding performance conditions
which are designed to be aligned with the interests of the
Shareholders in the short, medium and longer terms; and
- to ensure that remuneration packages are designed to maintain
a balance between fixed and variable elements of remuneration
which the Committee believes is appropriate.
This policy, which is unchanged from the previous year, has been adhered to
during the year under review and it is intended that it will be remain in place
in the coming and subsequent years.
Details of the performance conditions which apply to each Director's entitlement
to share options and the objective measures which are used to assess whether or
not they have been met are given on page 27.
Executive Directors' Service Agreements
Brief details of the terms of each Executive Director's service agreement are
set out in the table on page 26.
It is the Group's policy to offer rolling one year service agreements which can
be terminated by the Company on not less than 12 months' notice, and by the
individual Director on not less than 6 months' notice. Such terms are deemed
appropriate by the Remuneration Committee given the nature of the business.
The Remuneration Committee is authorised to determine the compensation terms on
any early termination of a Director's service agreement. The Committee considers
it fair and reasonable, in the event of termination, to respect these existing
contractual terms. On termination a Director will normally be entitled to
payment of full salary for the relevant notice period together with any accrued
holiday entitlement, subject to a balanced view of reasonable mitigation.
Options granted to a Director may become exercisable dependent upon the reasons
for the termination. Compensation arrangements for loss of office on a change of
control are outlined in the Directors' Report on page 30.
Where the Company releases an Executive Director to serve as a Non-Executive
Director elsewhere, the impact of this on the Director's remuneration is
considered by the Remuneration Committee.
Non-Executive Directors' Letters of Appointment
Brief details of each Non-Executive Director's letter of appointment are set out
in the table on page 26.
The period of notice to be given to Non-Executive Directors by the Company is 12
months, having been increased in 2005 from three months in view of the
exceptional demands made on them at that time. There are no provisions for
compensation on early termination of these contracts.
The terms and conditions of appointment of the Non-Executive Directors are
available for inspection at the registered office of the Company and are made
available for inspection at its AGM.
Elements of Remuneration
Details of the elements of remuneration paid to Executive and Non-Executive
Directors are shown on page 26.
Basic Salary and Fees
Executive Directors' receive a basic salary which is reviewed each year by the
Remuneration Committee to ensure that this, together with other elements of
their remuneration package and benefits, represents a fair return for
employment. Due consideration is given to performance and reward relative to
that of comparable companies and the Group's position.
The Non-Executive Directors receive an agreed basic fee. In addition, they
receive compensation in recognition of the additional responsibility assumed in
chairing Committees or assuming specific roles as follows: Chair of Audit
Committee: £10,000 per annum; Chair of Remuneration Committee: £7,500 per annum;
Senior Independent Director: £5,000 per annum. These additional fees are
included in the amounts of Directors' remuneration disclosed on page 26.
Non-Executive Directors are also entitled to remuneration at a rate per day of
1/24 of their basic fee for any days service in excess of the 24 days per annum
for which they originally contracted.
Bonus Scheme
Each year the Remuneration Committee reviews the Group's annual bonus
arrangements for Executive Directors and members of the Executive Team. Group
and individual targets are set with bonuses only being paid on the basis of
exceptional individual performance or on the achievement of a mix of personal
and corporate performance criteria. Specific performance conditions are attached
to Director's individual targets and to the Group's overall performance
objectives including its social responsibility and environmental sustainability
targets. An individual's maximum bonus of up to 50 per cent of basic salary only
becomes payable where performance criteria are exceeded.
The Remuneration Committee formally reviews the performance of each Director
after the end of each financial year and, where targets have been achieved will
award the bonus. In the event that a target has been significantly exceeded, the
Remuneration Committee has the option to increase the normal percentage applied,
to reflect that achievement. Whilst some individual performance criteria have
been met during the financial year under review the overall corporate
performance targets have largely not been met. As a result no bonuses have been
paid to Directors.
New objectives for the 2009-10 financial year are being set for Executive
Directors designed to deliver demonstrable improvements in Shareholder value.
These are a blend of common primary objectives aligned to the Group's strategic
goals and overall performance as well as additional individual objectives
consistent with each Director's corporate role.
Employment Benefits
Benefits provided to Directors typically include a fully financed company car or
car allowance, private medical insurance and life assurance, and permanent
health insurance.
Directors' Pensions
During the financial year the Group contributed to defined contribution schemes
in respect of Richard Entwistle and John O'Kane as detailed in the table on page
26. None of the Executive Directors are members of any of the defined benefit
schemes operated by the Group.
Share Options
No share options were granted to or lapsed, surrendered or exercised by
Directors either during the financial year under review or between the end of
the financial year and the date of this report. Executive Directors continue to
hold share options in the 2003 Share Option Plan and the Management Incentive
Plan as detailed in the table on page 27. It is the view of the Remuneration
Committee that the performance criteria and vesting conditions, outlined in the
notes to the table, remain appropriate to the Company's current circumstances
and prospects. Whilst it is the Company's policy, save in the circumstances
permitted by the Listing Rules, to invite Shareholders to approve all new
long-term incentive schemes and significant changes to existing schemes, no new
schemes were introduced and no changes were made to existing schemes during the
year.
See Announcement Note iii
Total Shareholder Return
The graph above compares the performance of Jarvis plc Ordinary Shares with that
of the FTSE All Share Support Services Index over the last five years. This
index has been selected to allow comparison with a wider range of companies in
the support services sector. The graph illustrates the value at 31 March 2009 of
£100 invested in the Company on 31 March 2004, and at intervening financial year
ends, compared with the value of £100 invested in the FTSE All Share Support
Services Index. Total Shareholder Return has been calculated by Hewitt New
Bridge Street using data provided by Datastream.
Directors' Service Agreements and Letters of Appointment
Executive Directors
Director Effective date of contract Unexpired term Notice period by Company Notice period by Director
08/09/2005 Rolling one year 12 months 6 months
R W Entwistle
08/09/2005 Rolling one year 12 months 6 months
S J Norris
J P O'Kane Rolling one year 12 months 6 months
24/04/2006
Non-Executive Directors
Director Effective date of appointment Notice period by Company Notice period by Director
07/08/2003 12 months 3 months
E Filkin
05/10/2002 12 months 3 months
B Mellitt
13/05/2004 12 months 3 months
C J Rew
Information Subject to Audit
Directors' Remuneration
The table below reflects amounts paid or confirmed as payable in respect of the
financial period ended 31 March 2009.
Salary or Fees Benefits Bonus Pension Supplement Pension
£000 £000 £000 £000 current period Note 1 Pension prior year Note 1
Prior year Total £000 £000
Total £000 £000
Executive Directors
322 17 - - 339 326 64 62
R W Entwistle
177 - - - 177 170 - -
S J Norris
212 16 - - 228 222 51 38
J P O'Kane
Non-Executive Directors
40 - - - 40 40 - -
E Filkin
42 - - - 42 57 - -
B Mellitt
45 - - - 45 47 - -
C J Rew
The benefits shown in the table include private medical insurance, car allowance
and reimbursed fuel and mobile phone costs.
Notes
1 Directors' pension contributions comprise the amounts
paid by the Group to defined contribution arrangements.
Pension contributions are calculated and payable on basic
salary only.
Director's Shares
(Ordinary shares of 5p each)
Shares held at 31 March 2008 Shares acquired during the period Shares sold during the period Shares held at 31 March 2009
69,837 0 0 69,837
R W Entwistle
7 0 0 7
E Filkin
184,476 200,000 0 384,476
S J Norris
10,000 40,000 0 50,000
J P O'Kane
No other shares were bought or sold by Directors during the period 1 April 2009
to 13 July 2009.
Directors' Share Options
Options held by Executive Directors over Ordinary shares under the Share Option
Schemes of the Company were as follows.
Further details of the Jarvis share-based payment schemes are given in Note 24
to the Consolidated Financial Statements.
Options held at 31 March 2008 Exercise price (Pence) Granted (lapsed/ surrendered) during the period Exercised during the period Options held at 31 March 2009 Date exercisable Date of expiry of option
R W Entwistle
13,357 70.00 - - 13,357 01/06/2009 01/12/2009
Savings Related Share Option Scheme
550,000 54.50 - - 550,000 04/10/2009 04/10/2016
2003 Share Option Plan - Note 1
461,400 66.00 - - 461,400 03/04/2010 03/04/2017
2003 Share Option Plan - Note 2
S J Norris
13,357 70.00 - - 13,357 01/06/2009 01/12/2009
Savings Related Share Option Scheme
303,000 54.50 - - 303,000 04/10/2009 04/10/2016
2003 Share Option Plan - Note 1
250,000 66.00 - - 250,000 03/04/2010 03/04/2017
2003 Share Option Plan - Note 2
J P O'Kane
450,000 56.26 - - 450,000 Note 3 08/08/2011
Management Incentive Plan
376,000 54.50 - - 376,000 04/10/2009 04/10/2016
2003 Share Option Plan - Note 1
315,000 66.00 - - 315,000 03/04/2010 03/04/2017
2003 Share Option Plan - Note 2
Notes
1 Theoptions issued under the 2003 Share Option Plan at an
exercise price of 54.50 pence will vest in three separate
tranches. Each tranche, over one-third of the shares under
option, will vest on the basis of an improvement in share
price against the grant price by 20 per cent, 40 per cent and
60 per cent respectively for a period of 10 consecutive
dealing days prior to the date of vesting. The performance
conditions have to be satisfied within three years of the date
of grant. Subject to the rules of the scheme the options
cannot be exercised before the third anniversary of the date
of grant.
2 The options issued under the 2003 Share Option Plan at an
exercise price of 66.00 pence will vest in three separate
tranches. Each tranche over one third of the shares under
option will vest on the basis of an improvement of share price
by 25 per cent; two-thirds on an improvement of 50 per cent
and the remainder on an improvement of 75 per cent over the
grant price. A further performance criteria of earnings per
share growth will be required for options exercised after the
third anniversary of the date of grant.
3 The options are exercisable in the three tranches, each on the
achievement of an increase in the share price of the Company
for a sustained period of 10 days. The tranches are
exercisable on the share price achieving respectively a 25 per
cent, 50 per cent and 75 per cent increase over the grant
price.
4 No options were held by other Directors during the period
under review.
5 The closing middle market price of the Ordinary Shares as at
31 March 2009 was 3.9p and the range during the period was
between 3.81p and 37.75p.
This report has been approved by the Board and is signed on its behalf by:
Mark Akinlade
Secretary
13 July 2009
Directors' Report
Principal Activities and Business Review
The principal activities of the Group during the financial year under review
were rail infrastructure renewal and enhancement, plant hire, freight and
facilities management.
The Chairman's and Chief Executive's Statements together with the Operating and
Financial Reviews which are contained in this report between pages 2 and 13 give
a detailed account of Jarvis's activities and business performance during the
year in these areas and of future prospects and outlook. In addition to
reviewing the Group's position and prospects for the future, they also consider
the principal risks and uncertainties within the business. The key financial
performance indicators for the Group have been set out in the Financial Review
on page 7 and non-financial key performance indicators are set out in the
Corporate Social Responsibility statement between pages 20 and 23.
These statements and the reviews are included in this report by reference.
Principal Risks
This annual report contains certain forward looking statements. These statements
are made by the Directors in good faith, based on the information available to
them up to the time of approval of this report. Actual results may differ to
those expressed in such statements, depending on a variety of factors. These
factors include customer acceptance of the Group's services, levels of demand in
the market, restrictions to market access, competitive pressure on pricing or
additional costs, failure to retain or recruit key personnel and overall
economic conditions.
The latter is particularly important as the Group's operations, like those of
other companies, are not immune from the current severe economic downturn, the
length and severity of which may continue to have an impact on its activities.
In addition, the Company remains mindful that performance continues, as always,
to depend on the pace at which Central Government/Network Rail undertake planned
rail capital works programmes. As ever, a risk inherent in the industry is the
nature, timing and contractual conditions which exist at the time of contract
procurement and its dependency on one large customer, Network Rail. The Office
of Rail Regulation reported that at the end of Q3 2008-09 Network Rail had
underspent its year to date budget on renewals by £325m and on enhancements by
£57m. If Network Rail's anticipated level of spend for 2009-10 is not
implemented or track renewals expenditure and volumes are further deferred, the
Group's business, financial position and cashflows could be adversely affected.
The Company is restructuring its business to reflect its current understanding
of changes in phasing and timing and of Network Rail's overall proposed
investment in rail infrastructure in Control Period 4 (2009-14) and believes
that given its pricing structure, history of innovation and safety record it is
well positioned to continue to be selected to undertake renewal and enhancement
work on Network Rail's behalf.
Safety is of paramount importance in the industry in which the Group operates.
The impact of failing to operate safe systems of working can potentially have
significant implications on each of the Group's stakeholders, cause reputational
damage to the Company and lead to the possible loss of future business. For
these reasons the Group has put in place robust systems of safety management to
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