Shares plunge as turmoil hits Rok division

The group also issued a second profits warning, saying that annual pre-tax profits will be "significantly below" market expectations of about 20m.

Rok, which has offices in Leeds and Wakefield, warned that there would be job losses in Wakefield as a result of the decision to close its plumbing, heating and electrical division, where the serious failings occurred.

Wakefield is one of a number of regional offices which offered plumbing services.

Rok said it was too early to say how many jobs will go in Wakefield, but said it was committed to its Yorkshire operation, which employs 210 people.

The group's shares plunged 45 per cent last night to close down 13p at 16p.

The plumbing business will make no contribution to profits this year and will be closed down once its operations are absorbed into the general maintenance division.

Analysts said the shares had plummeted on fears that the failings in financial controls could extend to other divisions.

"The wider implications have to be if there are failings there, there could easily be failings elsewhere and I think that's why the shares have halved," said Panmure Gordon analyst Andy Brown.

The company said that following an independent review by accountancy firm BDO Stoy Hayward, it could confirm the failings were confined to the plumbing division.

A spokeswoman said the failings were not fraudulent and the police would not be involved. She added that the actions were not criminal and no profit was made as a result of them.

"It concerned invoices not being chased up," she said. "It relates to loss-making contracts we inherited when we set up the plumbing division."

The company will take an exceptional charge of about 10m this year to close the plumbing business in England and cover written-off debts.

The plumbing business was focused on supplying services to housebuilders, a market that has been extremely tough in the past few years.

Finance director Ashley Martin, who has held the role since 2003, was immediately suspended. The board did not ask chief executive Garvis Snook to step down and nor did he offer to resign.

Rok said in April that its plumbing business was trading below expectations and said it would look to terminate some contracts and carry out a restructuring. It has scaled back its construction business by half to reduce reliance on the public sector, ahead of cost cuts.

Rok's rival Connaught has been hit hard by cuts in local government spending, and is in crunch talks over funding.

Philip Sparks, an analyst at Evolution, has cut his 2010 Rok pre-tax profit forecast from 19m to 14m and 2011 forecast from 21.8m to 16.5m.

David Miller, previously chief financial officer of construction firm Amey between 1998 and 2002, has stepped in as interim finance director. Mr Miller specialises in interim finance director roles.

The group said trading in the construction and social housing businesses is strong and they should perform well over the next few months.

Rok expanded into Yorkshire in 2005 with the acquisition of Lemmeleg, the Wakefield construction business co-founded by Yorkshire Forward chairman Terry Hodgkinson.

Although the acquisition proved problematic, it didn't stop Rok expanding further, buying Rotherham-based plumbing, plastering and joinery firm EMB Services in February 2007, for an undisclosed sum.

BUILDING IN THE COMMUNITY

Rok opened its Leeds office after it acquired Richardson Projects in 2008.

A family-run building company, the business was set up 25 years ago providing services to housing association and local authority customers.

The Leeds office is in a converted building on Commercial Street, Morley in close reach of the M62.

The team, led by Derek Gooch, works mainly on new build and refurbishment of premises in the affordable housing, healthcare and education sectors with typical contract values between 1m and 10m.

The Wakefield Rok Centre opened in June 2004 and has focused on delivering a local service to the Wakefield community.

It provides design and build, refurbishment and maintenance and has expertise in specialist concrete repairs and external facade refurbishment.