Rok's issues are hitting other contractors too, says Garvis Snook

Rok’s competitors might like to paint its workload slippage as being unique to Rok but the plunge in clients’ planned activities – triggered initially by the crash of Lehman Brothers – is hitting everyone, reckons Garvis Snook, chief executive.

“We have led the way in shaping our business for what is suited to a smaller group next year,” says Snook. “Sadly we needed to take the layer out between me and the front-line operations and that was John [Rok announced that John Samuel, operations director, had lost his job earlier today].

“It was no failure on his part. He has done a great job but that role was no longer needed.

“Indeed my role has changed in so far as we won’t be doing any acquisitions for a year or so.”

Rok anticipates a turnover of £800m in 2009 which is well down on the figure of more than £1.2bn that had been forecast by management 6-9 months ago.

“That change is a reflection on what is happening right across UK construction.”

The shock that Rok is bringing to the surface – and its shares are being selectively punished for saying – took effect between the collapse of Lehman Brothers and the Icelandic bank implosion soon after.

Rok's competitors continue to say they are feeling little effect, but time will tell whether or not they bring similar bad news to the surface.

Construction profit forecasts generally have taken a knock but most contractors have merely trimmed their forecasts for the rest of 2008 and 2009 by single-digit figures.

Rok believes it has been the first to come clean, pointing to an immediate 15%-20% downward adjustment in order to deal with the issues quickly, and shape the business for a tougher economy that it anticipates to lie ahead.

Snook saw the instant mood swing among clients in the last week of September and the first two weeks of October.

Traditional construction groups, working on much larger average contract size, would not notice the marked change as quickly, he argues, but the effect will filter through to them as well eventually, Snook believes.

Francesca Raleigh, analyst at Numis, has painted some of Rok's competitors, particularly in markets like social housing, as being different in that they have much more of their workloads tied up in framework agreements.

Snook scoffs at the implied difference – the issue is not the proportion of any firm’s future anticipated work that is “protected” by framework conditions, but rather that frameworks themselves are failing because clients who are party to them simply don’t have money - and that is because only 40% of their funds come from government while the other 60% is in the form of bank borrowings.

The disappearance of bank borrowings is the fundamental issue, he suggests, and everyone is equally disadvantaged by that.

“There is good news out there,” aid Snook. “The government is helping by bringing projects forward.

“Also, Rok’s response maintenance operation is growing strongly. Demand is on the increase and I’m particularly pleased with the investment we made in the division in the past.”