Rok has plunged into the red for the first half of 2010 due to a £6.8m restructuring cost centring on its troubled M&E business.
Earlier this month, the construction group said it had uncovered “serious failings in the financial controls” of the Plumbing, Heating and Electrical (PHE) division, which has been integrated into the Maintenance and Improvements arm.
This restructuring, which included an unspecified number of redundancies, has cost Rok £6.8m, resulting in a pre-tax loss of £3.8m for the six months ending 30 June 2010. In the first half of 2009, the firm made a £7.6m profit.
Group revenues fell by 15% to £308.1m (H1 2009: £364.5m).
Net debt at the period end was £47.6m (12 months ago: £57.0m).
Rok's construction business generated revenue of £115.7m (H1 2009: £160m), and operating profit £600,000 (H1 2009: £500,000).
According to chief executive Garvis Snook, this was “in line with expectations during the period”, in which the business “continued to target profit over volume through careful customer and project selection. This deliberate tactic has been employed since late November 2008 to minimise risk during the worst phase of the recession.”
In social housing, Rok's revenue shrank to £84.5m (H1 2009: £98.4m), with operating profit also reduced to £3.6m (H1 2009: £5m).
Snook said: “The business was not affected by the change in Government and subsequent spending cuts although a slight slowdown in the period between tender and award of contract and a greater emphasis on new build housing rather than planned repairs has been noticeable.
“Margins were maintained at 2009 year end levels and the business, whilst not forecasting to grow this year, also enjoys a good order book and is expected to perform in line with expectations for the remainder of the year.”
Rok's maintenance and improvements division grew revenue marginally to £116.7m (H1 2009: £112.6m), while operating profit more than doubled to £5.4m (H1 2009: £2.3m).
The division includes response maintenance and Rok Insurance Services (RIS), and its client base has continued to grow, according to Snook.
“The key development within this unit during the first half was the continued investment in systems and technology,” he added. “As a result, the unit now has a strong platform to enable it to service its existing blue chip customer base and to increase capacity significantly with minimal increase in fixed costs.”
Looking ahead, the Rok chief executive said the economic climate remained “challenging”.
He continued: “We expect, and have planned for, lower volumes in construction next year in light of forecast reductions in public sector spending. Due to high levels of future revenue visibility we expect to increase our market share in social housing where industry volumes are forecast to reduce overall. Visibility of revenues in our Maintenance and Improvements business is good and we expect income to grow through new insurance customer wins.
“Over the last decade, Rok has built foundations based on a clear vision of what we need to achieve to deliver the services that people and organisations want across the UK. Whilst the isolated shortcomings in financial control at the PHE unit will have a significant impact on this year's results, the fundamentals of our business remain sound.
“Rok has a strong secured order book at £435m, good momentum in its Social Housing and Construction businesses and a Maintenance and Improvements division where we have swiftly implemented the steps necessary to ensure all activities operate effectively.
“The diversification of our business portfolio has enabled us to shape our business as and when the economic landscape requires. For the full year, we anticipate that our volumes will be flat but we do expect margins to improve during the second half due to the continuing flexibility of our business model.”