Maintenance contractor Rok has suspended its finance director and cancelled several contracts after serious failings in the financial controls of the plumbing, heating and electrical side of the business.
Shares in Rok slumped by more than 40% to 16.25p by close on Wednesday but bounced back slightly to 17.75p this morning.
Rok issued the news a week ahead of its interim results for the first half of 2010 when it is expected to announce job cuts in the PHE division.
Rok employs around 571 people in the North West and North Wales. Customers in the area include Great Places Housing Group, Contour Housing Group, The Riverside Partnership, Lancashire County Council and South Sefton Council. The company has offices in Liverpool, Bolton and Rochdale. A Chester office closed in July after a lease expired and the team relocated to Liverpool and Llandudno without job losses.
Rok is now looking to make its temporary Llandudno base, opened to save client North Wales Housing, into a permanent one as it predicts a strong pipeline of work in the region.
Financial advisor BDO was appointed in the spring to look into underporming contracts in PHE. BDO has now reported back to the board and said "there have been serious failings in the financial controls of the PHE business."
Rok anticipates that this will have a "material adverse impact on group profit" for the year to 31 December 2010 and pre-tax profit will be "significantly below market expectations".
Ashley Martin has been suspended with immediate effect and his duties passed to David Miller, a specialist interim chief financial officer, who was CFO of Amey between 1998 and 2002.
Today's statement continued: "The board has taken the decision to streamline the cost base of its maintenance and improvements division. The directors believe that this is prudent in the current economic climate although the business model remains robust and the board is confident about the outlook for the wider division."
No further details about the nature and extent of the streamlining were available today.
Elsewhere in the business, Rok said trading within the construction and social housing businesses is strong and these divisions have good order books and will perform well during the remainder of the year. The group has adequate headroom on its banking facilities, and the board is confident the group canmeet its covenants.