Rok plc, the maintenance and building services group, has issued the following update on trading.
In its Interim Management Statement (IMS) on April 30, 2010, the company announced that profitability in the Plumbing Heating & Electrical (PHE) business - part of the Maintenance and Improvements division - was being adversely affected by a number of underperforming contracts and that these had been terminated and the business restructured.

Despite these measures, the PHE business continued to disappoint and the board instigated a further, thorough review.

In order to be certain that the full extent of the problem was known, the board appointed BDO to conduct an independent review. BDO has now reported back and has stated that there have been serious failings in the financial controls of the PHE business. BDO has also confirmed that this is the full extent of the problem.

As a consequence, the PHE business has significantly underperformed relative to expectations and will not make a contribution to group profit this year. The board therefore anticipates that this will have a material adverse impact on group profit for the year to December 31 2010 and that overall underlying pre tax profit for the year will be significantly below market expectations.

The board has decided the company must have new financial leadership. Ashley Martin has therefore been suspended with immediate effect and his day-to-day duties passed to David Miller, a specialist interim CFO, who was Chief Financial Officer of Amey PLC between 1998 and 2002.

The board has taken the decision to streamline the cost base of its Maintenance and Improvements division. The directors believe 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.

Trading within the Construction and Social Housing businesses is strong and these divisions, with good order books, are positioned to perform well during the remainder of the year.

The results for the six months to 30 June 2010 will be in line with previous guidance before one-off restructuring costs. The group's cash flow generation profile has strengthened during the first half of 2010 and the board expects this will lead to a material reduction in net debt by the end of this financial year. In consequence, the group continues to have adequate headroom on its banking facilities, and the board is confident in the group being able to meet its covenants.

The board believes it has taken appropriate action in the best interests of shareholders and the future profitability of the group. Rok's fundamentals are strong - a solid order book, good momentum in the Social Housing and Construction divisions and very good cash generation leading to materially lower debt.

With a significantly lower fixed cost base and having addressed the underperforming operations, the board is looking ahead with confidence.

Rok will be releasing its interim results on Tuesday August 17 2010. A briefing for analysts will be held at 0800hrs on that day at Rok's offices, 5 Lloyd's Avenue, London EC3N 3AE.