Rok shares plunge after accountants find 'failings'
The group said it had conducted an investigation into its plumbing, heating and electrical (PHE) business after a restructuring failed to address a poor performance flagged in a trading update in April.
It has suspended finance director Ashley Martin - and replaced him with a specialist interim chief financial officer, David Miller, who held a similar role at construction group Amey between 1998 and 2002.
Exeter-based Rok, which in recent years has expanded into Scotland with the twin acquisitions of part of Inverness-based Tulloch and Dundee's Pitkerro, said group profit would be "significantly below" expectations as a result of a hit from the plumbing business. It added that the PHE arm would not make a contribution to profits this year.
Rok said: "The board believes that it has taken appropriate action in the best interests of shareholders and the future profitability of the group."
The board initially believed that problems in PHE had been caused by underperforming contracts. Earlier this year, the firm called in accountancy firm BDO to conduct an independent review after a restructuring plan and termination of the contracts failed to revive the business.
The company said yesterday: "BDO has now reported back to the board and has stated that there have been serious failings in the financial controls of the PHE business. BDO has also confirmed that this is the full extent of the problem."
Rok reassured investors over its other businesses, but shares still plummeted as analysts reacted to the announcement.
The firm said: "Trading within the construction and social housing businesses is strong and these divisions, with good order books, are positioned to perform well during the remainder of the year.".
Stockbrokers at Panmure Gordon and Numis Securities removed their "buy" recommendations on the stock following the warning. Numis put an "under review" tag on Rok, saying it hoped more information would emerge at its half-year results announcement next week.
Numis said: "This is further disappointment after issues were flagged in April,and will inevitably further damage the share price."
But analyst Andy Brown added: "The issues here appear to be Rok-specific, so we would not take any negative read-across, on trading grounds, to other companies operating in this space."
Rok shares closed 45 per cent lower at 16p.
The company said half-year figures would be in line with previous expectations - before one-off restructuring costs. However, it added it will look at cost cutting in its maintenance and improvements division, saying the directors thought it was "prudent" to do so in the current climate.
In 2009, the company saw revenues fall by 29 per cent to 714.8 million and profits remained flat, hit by the economic downturn.