Building group Rok reveals ‘serious failings’ in finances

By TOM BAWDEN
Updated: 17:52 EST, 11 August 2010

Property repair group Rok has suspended finance director Ashley Martin after the company said it had identified ‘serious failings’ in its financial controls.

The self-proclaimed ‘Nation’s Local Builder’ issued its second profits warning in less than four months, saying its full-year profits would be ‘significantly below market expectations’, of about £20million.

The company lost almost half its value, as the shares tumbled 13p, or 44.8 per cent, to 16p, valuing it at just £28.7m. Rok chief Garvis Snook heaped the blame on Martin, plus 25 managers in the builder’s plumbing division.

Between a Rok...and a hard place

He claimed: ‘First line responsibility lies with the individual finance manager, but the ultimate responsibility lies with the group finance director to ensure that there is an adequate system in place and competent people to run it.’

Although Snook conceded that ‘the buck always stops with me’, he added that he hadn’t handed in his resignation because the firm’s board wanted him to continue in his role.

Rok said an independent review by audit firm BDO Stoy Hayward found that the company had overvalued contracts held by its plumbing, heating & electrical division.

Snook blamed the company’s woes on a core of 25 managers in the division, one of whom was Martin. The managers ‘did not report the true performance’ of some of its contracts, he added.

These managers, whom Snook described as incompetent rather than fraudulent, have all recently left the company.

The contracts in question had been steadily losing value as the collapse in the housing market prompted builders to reduce the prices they paid to subcontractors, Snook said.

Martin has been temporarily replaced by David Miller, a former chief financial officer at public service provider Amey, who now works as a finance troubleshooter.

Snook said the plumbing division would substantially cut down the work it does for housebuilders in England - but not elsewhere in the UK - such as installing central heating and wiring up kitchens and bathrooms. The restructuring will lead to the loss of 200 staff - 100 of whom have already left - and will contribute to an exceptional charge of about £10million this year.

BDO said it was confident that it had uncovered the full extent of the problem in Rok’s finances. However, analysts were more sceptical. Andy Brown at Panmure Gordon said: ‘Anything that involves the removal of the finance director suggests there are other issues that need to be explained.

‘The company said it believes the situation is now contained, but until we have more visibility there will be uncertainty.’