Rok has enjoyed a dramatic resurgence in profitability, posting a pre-tax profit of £17m for the year ending 31 December 2009, compared to just £5.9m for 2008.
However, the 2008 profit was badly-hit by exceptional items; discounting exceptionals for both years, Rok's pre-tax profit for 2009 would have been identical to that of a year before at £20.4m.
Revenue was down by 29% to £714.8m (2008: £1,011.2m), as the self-styled ‘Nation’s Local Builder’ felt the impact of the shrinking general construction market.
Rok’s forward order book stood at £2bn at the end of 2009, of which £330m is secured. The firm said 85% of its 2010 forecast revenues are now either secured or probable.
Net debt at the period end was £46.7m, up £3m on the previous year. Underlying net debt averaged £69.6m for the whole year (2008: £61.1m), the increase due to restructuring, including redundancy payments, and the full year impact of 2008 acquisitions.
Rok has refocused its business away from traditional construction towards the more profitable repairs and maintenance market, which it sees as offering more growth potential. The group’s maintenance and improvement businesses now account for 58% of revenues and 83% of profits.
The reduction in the its cost base, in alignment with predicted future revenues, together with the change in business mix, has led to underlying operating margins increasing to 3.2% from 2.1% a year ago.
Exceptional items include £5.1m incurred in restructuring costs to downsize construction activities and reduce overheads, which has resulted in savings of £18m per annum.
Partly offsetting this was a one-off credit of £3m arising from the release of provisions made in respect of potential fines from the Office of Fair Trading's investigation into tendering in construction. The release arises from both the recovery of these fines from the vendors of the acquired businesses and the actual penalty being lower than the original estimate we made on acquisition.
Losses in respect of the discontinued activity, commercial property development, were £4.6m net of tax relief (2008: £18.6m). This included a £4m write down of land assets, as a result of a continued weakening in the market for commercial land together with financing charges totalling £2.8m.
Operations review
Response maintenance. This is a national service provided by a network of locally-based technicians who respond to calls from Rok customers when maintenance or repair work is needed within their properties or the properties of their customers. Revenues fell by 12% to £104.6m (2008: £119.0m) as a result of a reduction in insurance claims due to milder weather.
Planned repairs and refurbishment. Planned repairs and refurbishment work comprises contracts housing associations and local authorities as well as general building improvements for public and private sector organisations. This includes work undertaken by Rok’s plumbing, heating and electrical teams. Revenues for the year were 8% lower at £314.2m (2008: £341.3m) reflecting a slow first quarter when many housing association budgets were constrained in the wake of the banking crisis.
New build. Roks’new build activities in 2009 comprised regional construction for public and private sector organisations, as well as constructing new houses for social housing customers. Revenues overall were down by 45% to £307.4m (2008: £563.6m) reflecting the scaling back of regional construction activities.
Garvis Snook, chief executive, summarised: “We expect the market for regional construction to remain challenging in the UK for the next few years as the drive to reduce public sector debt intensifies, cancelling out the benefit from an improving private sector.
“Our focus during this period will remain on the repair, maintenance and improvement of property, particularly domestic property, where our directly employed technicians have consistently demonstrated that they provide customers and the group with a differentiated level of service and profitability.
“Overall, during 2009 and the latter part of 2008, we have reshaped and refocused our business while remaining true to our vision of being The Nation's Local Builder.
“While we expect the economic backdrop to remain challenging during 2010, we now generate a large proportion of our revenues and profits from working in markets that are stable, are characterised by long term revenue visibility and have the potential to grow over the next few years.
“With the distinctive Rok approach to service and delivery, we believe we are well placed to ride out the current uncertainty and take advantage of opportunities that will inevitably arise in our chosen markets.”
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