|In a series of events that seem hauntingly reminiscent of Connaught's recent demise, Rok went under with a speed that took many people by surprise. As late as October, the company was announcing a new agreement to provide claim management and building repair services to home insurance customers of Tesco Underwriting. Around the same time, Chief Executive Garvis Snook was still buying Rok shares with three fellow directors also following suit.|
Rok's rapid fall rather mirrors its equally spectacular rise. Its Chief Executive moved to the company in 2000 after being a regional managing director at Morgan Sindall. At the time, it was a £7 million Exeter-based company called Exeter Building Contractors. It was soon renamed Rok and quickly became a £450 million national building group that worked on construction projects and repaired buildings for insurers and councils.
Snook, who dubbed Rok 'the nation's local builder', was rewarded for his efforts by being voted CEO of the Year at the Quoted Company Awards in 2007. However, his rapid rise did not attract universal acclaim, with many of his rivals critical of his preference for modern management techniques.
From Highs to Lows...
The first warning signs came in August this year when the company issued a warning of 'serious failings' in the accounting of its plumbing business, which it had acquired in 2007. At the time, it suspended its financial director, Ashley Martin, and the shares took a 45% fall. By the end of September, the suspension was lifted with an apology, with the company stating that the problems in the division were "due to a scaling back of sub-contracting work from the private housing sector and weak operational, commercial and financial controls". Despite this, the financial director quit the company anyway.
Only six weeks before the collapse, Rok put out a trading update that stated it was confident of meeting market expectations for the year. However, the administrator has since stated that the company suffered a catastrophic September, with revenue falling 30% below the budgeted level. This fall was right across its activities although public sector clients, who provide 55% of Rok's business, were mainly the cause through cutting back on contracted building work.
The fall in income was aggravated by a tightening of credit from suppliers and customers, which was apparently prompted by the profit warning in August. The two events together were too much to stand and the company attempted to secure around £20 million of emergency finance to meet its commitments. However, when this failed, PricewaterhouseCooper was appointed administrator on the 8th of November.
Job Losses Became Inevitable...
Within a short time, the administrators received some one hundred expressions of interest to take over either parts of the business or its contracts. The stated aim was to shortlist bidders based on their size, their level of interest in acquiring large parts of the business and the likely speed of reaction, with the intention of completing disposals within a matter of days. Nevertheless, 711 redundancies were quickly announced, mainly in the maintenance and improvements business, due to little or no interest being shown from prospective purchasers and an insufficient workload.
A further 268 jobs went the following day due to the collapse of a deal to sell a division in Scotland. At the time it went down, Rok had 3,800 employees and the hope is that the remaining jobs will be saved. One of the bidders is the Gloucester-based Mears, which took over eight of Connaught's repair and maintenance contracts. Much of Rok's work is likely to fit in well with its existing social housing repairs and maintenance business.
Speculation about the company's rapid demise has suggested that the company's structure added to the problems caused by falling revenue and tightening credit. Its ambition to be 'the nation's local builder' meant it had depots and directly employed staff around the country. This meant that, unlike other companies that use a high proportion of sub-contractors, it still had the same cost base to support when revenues went down. The outcome is that Rok's banks and other creditors are left with over £60 million of debt and an inquiry by the Financial Services Authority into the circumstances of the administration seems likely.
Whilst there is something admirable about a firm that seeks to employ its staff directly and own its own facilities, the ROK situation ends up being a great advertisement for outsourcing. In today's construction industry firms need to be able to react swiftly to significant decreases (and increases) in workload and unfortunately ROK's inability to do this appears to have been their downfall.