黑洞社区

At 3.48pm on Thursday last week, 黑洞社区 finally got through to Rok chief executive Garvis Snook after days of trying. Were we about to get an exclusive on the collapse of one of the UK鈥檚 largest contractors? The once-ebullient boss was never one to avoid media attention - always available for quotes, even if his claims about Rok weren鈥檛 always wholly convincing.

But this time, Snook was not talking. He sounded both crestfallen and like a man with a story to tell. 鈥淚鈥檝e been advised strongly not to say anything to the media,鈥� he said, with an edge of exasperation. 鈥淢aybe some time in the future, but I鈥檓 afraid I can鈥檛 help you.鈥�

Quite a turnaround for a man who once posed in leathers astride a Harley-Davidson to garner publicity for his firm. But nothing compared with the turnaround experienced by the company he spent a decade forming in his own image.

In 2000, Snook arrived at sub-拢100m turnover builder EBC, and began a restructure that culminated in 2001 with a complete rebranding - as Rok - and a new mission statement: to become 鈥渢he nation鈥檚 local builder鈥�. His drive and vision resulted in the company growing tenfold to a peak stock market valuation of 拢437m in 2007. It employed more than 4,000 people and revenue topped out at more than 拢1bn in 2008.

But by the time the axe fell on Monday last week, company shares valued it at just 拢34m, only a fraction more than when Snook took over. Insiders say that in the final months customers deserted the business, which turned over 拢714m last year, leaving it with a final work in progress volume of just 拢150m. What on earth went wrong?

Rok always had its doubters. Long-standing Cenkos analyst Kevin Cammack says: 鈥淭here was a scepticism around Rok, as it never seemed to generate the cash that type of business should do.鈥� However, for many years it was very hard to argue with the headline numbers - revenue up from 拢88m the year he took over, to 拢1.01bn in 2007, profit growing every year for seven years, until the credit crunch hit.

The first sign of anything untoward was in May when Rok issued a profit warning citing underperformance in the plumbing, heating and electrical business, Avonside, it had acquired in 2007. The firm said the problems were dealt with 鈥渟wiftly and decisively鈥�. But things really started to go wrong when, three months later, Rok announced it was suspending its group finance director, Ashley Martin, after discovering the problems were worse than it thought.

Shares fell 40%, despite Rok once again assuring investors 鈥渢his is the full extent of the problem鈥�. The unfolding tragedy turned temporarily to farce when, in September, Martin was cleared of any wrongdoing by the board, but decided to resign anyway.

Then came Connaught. Numerous sources suggest that the collapse of Rok鈥檚 rival social housing contractor had a catalytic effect on the sector, spooking customers, banks and creditors alike. It became clear that size wasn鈥檛 necessarily going to be enough to protect contractors from bad management or luck. One financial source, close to Rok and Connaught, says: 鈥淚f you asked the industry for the past five or six years which companies with high share prices didn鈥檛 deserve it, the two names that came up were always Connaught and Rok. So when Connaught fell, it affected Rok particularly.鈥�

Jan Crosby, head of construction at KPMG, says banks and clients pulled in their horns across the sector. He says: 鈥淔or the banks this means they take much more interest in what they鈥檝e already authorised, and if you need money, it鈥檚 now much more difficult. And for those in breach of loan covenants, they start taking a much closer look.鈥�

With BSS, Travis Perkins and Jewson all rumoured to be owed millions by Connaught, suppliers tightened their supply lines.

Rok鈥檚 acquisition-fuelled growth of the past decade didn鈥檛 help, as bolting on lots of new companies each year made it hard to gauge how well the firm was really doing. The acquisitions also left Rok with 拢70m of bank debt, a high gearing compared with most contractors. None of which helped when the market started to lose confidence.

While the numbers have not yet been made public, it is clear that there came a point when customers started deciding they didn鈥檛 want to be involved. Sources who claim to have seen some of the books say the drop-off in turnover over the past few months was dramatic. One said: 鈥淭he work-in-progress and money owed has fallen to just 拢40m in total. That works out to a company turning over about 拢150m. The clients have just deserted wholesale. All the commercial and private work has disappeared.鈥�

Whereas Connaught鈥檚 overly-aggressive accounting techniques have been blamed for its collapse, the source says it was the dramatic loss of turnover that tipped Rok into crisis, rather than losing one customer.

Rok鈥檚 administrator, Pricewaterhouse Coopers, said turnover had dropped sharply, although it has not put a figure on the fall.

This sudden loss of turnover meant the banks - including HSBC and RBS - no longer felt relaxed about the 拢70m of acquisition debt on Rok鈥檚 books. It was okay for a company turning over 拢714m, as Rok did in 2009, but not for one turning over 拢150m. Something had to be done, quickly.

Rival Morgan Sindall, whose subsidiary Lovell bought Connaught鈥檚 contracts for 拢28m, spoke to Rok about buying it, but turned it down because it realised the debt mountain was too much.

Rok also approached its bankers for a restructure, which, according to one source, would have involved the injection of 拢30-40m with little certainty of a return. The source said projections suggested there would be no profit in 2011, and given the firm was worth little more than 拢30m at the time, the banks didn鈥檛 take long in deciding to pull the plug. The source says: 鈥淭he maths didn鈥檛 work for anyone. Garvis was trying to build a house, but the foundations had gone.鈥� At this point administrators were appointed, and last week鈥檚 sale process began.

Without access to the accounts, or the co-operation of Snook, the full story of the collapse can鈥檛 be told, but it is clear that market confidence played a big part. Some always harboured doubts about Rok鈥檚 overall strategy, and this seems to be a classic example of what can happen in a jittery market when everyone starts to lose faith.