Garvis Snook, Rok’s chief executive – coincidentally named ‘CEO of the year’ in 2007 - has said that he feels ‘hugely let down’ after suspending his finance director for ‘serious failings’ concerning the financial reporting of its plumbing division. Not only will this cost Rok – which bills itself the ‘nation’s local builder’ – an estimated £8.5m, but the bad news also knocked 45% off its share price, as the group announced its second profit warning in the space of three months.
What went wrong? Rok’s plumbing, heating and electrical business had been struggling as housebuilders sought to renegotiate contracts, but the scale of the problem wasn’t properly uncovered until BDO Stoy Hayward was brought in to conduct a review. It found that not only were revenues being overstated but costs were not being recognised until long after the completion of contracts.
All in all, there were ‘serious failings in the financial controls’ of the business.All this has left Snook feeling a little red-faced. ‘You end up making management decisions on numbers that are effectively made up’, he said. Finance director Ashley Martin has been removed, to be replaced in the interim by David Miller, previously CFO at outsourcing business Amey, which he left in 2002. Apparently his departure was in part down to the introduction of new international accounting standards that Miller said dealing with would be about appealing as ‘a little cup of sick, and I’m not going to drink it’.
Rok’s dramatic drop in share price was in part a reaction to a nervous market, whose confidence was hit when Connaught, the social housing maintenance specialist, also suffered accounting problems. But Rok maintains that it is confident of meeting its banking covenants and that the business is in good health.
We can’t help wondering if Snook – whom we interviewed in November 2008 – could have succumbed to the curse of MT, that curious affliction that very occasionally affects the seemingly successful who appear in our pages (note Pepita Diamand of failed wedding list business Wrapit). Back then, he told us that Rok was the most profitable company in its sector, but then a lot can change over the course of 18 months. He also told us that his best business decision was to follow his convictions…. we wonder what his gut feelings are telling him now?