RHL.L Regulatory News (RHL)

For immediate release 9 December 2015

Redhall Group plc

("Redhall" or the "Group")

Preliminary Results for the year ended 30 September 2015

Redhall Group plc (AIM: RHL), the manufacturing and specialist services Group, announces its preliminary results for the year ended 30 September 2015.

 Key points:

· Group now refocussed on Manufacturing and Specialist Services following completion of first stage of strategic plan

· Placing, open offer and debt conversion in September 2015 reduced debt by £8.0 million and provided £5.0 million of funds (after expenses)

· Revenue on continuing operations of £44.7 million (2014: £57.2 million), reflecting continuing delays in customer programmes and the downturn in the oil and gas sector

· Operating loss on continuing operations before exceptional items £0.7 million (2014: profit of £1.6 million), in line with management expectations

· Loss on discontinued operations of £9.1 million including loss on sale of RESL of £5.1 million and costs of withdrawal from site based nuclear contracting

· Refinancing agreed - facility expiring in December 2018 with facilities provided by HSBC Bank plc and funds managed by Henderson

· Exceptional charges of £9.3 million (2014: £3.6 million) reflecting restructuring and other items of £4.2 million (continuing £1.2 million and discontinued £3.0 million) and loss on sale of RESL of £5.1 million

· Order book for continuing businesses of £21 million (2014: £21 million restated) with the quality of contracts improving

Martyn Everett, Chairman of Redhall commented: "Redhall has undergone dramatic change in the last financial year. The Group is now a Manufacturing and Specialist Services business with a clear strategy to leverage our relationships with customers in the nuclear and infrastructure sectors. The key to the next phase of the turnaround at Redhall is achieving an improved order flow in its core businesses. We firmly believe that the nuclear sector in particular represents a significant medium to long term opportunity for the Group."

Contact details:

CHAIRMAN'S STATEMENT

Redhall has undergone dramatic change in the last financial year. The Group is now a Manufacturing and Specialist Services business with a clear strategy to leverage our relationships with customers in the nuclear and infrastructure sectors. We have materially reduced borrowings. In September we successfully raised £5.0 million net of expenses by way of a placing and open offer and converted £3.0 million of shareholder debt to equity resulting in year end net debt of £5.5 million (2014: £16.0 million).

Our focus this year has been the implementation of the strategic plan announced in December 2014 and this is dealt with in greater detail in the Chief Executive's Strategic Report. With a focus on the nuclear defence, decommissioning and infrastructure sectors our key manufacturing businesses, Booth Industries and Jordan Manufacturing, have the capability of generating high margins with anticipated improvements in volumes.

Our manufacturing businesses performed acceptably given clients' budgetary constraints and client driven design delays exacerbated by the downturn in the oil and gas market. Our Specialist Services businesses have performed satisfactorily generating profits during the year.

In May we sold Redhall Engineering Solutions ("RESL") to Cape plc and announced the closure of our site-based nuclear contracting businesses based at Sellafield and Aldermaston. Since then we have completed our withdrawal from site based work and are completing minor works and final accounts. Following these actions we have created a more stable platform for the business as well as reducing the Group's overall risk profile.

The Group now has a much simplified structure and cost base with no divisional management and our finance, HR and IT are all managed on a Group basis.

Trading results

This year's results reflect the transition that the Group has undergone. The revenue for the year from continuing operations was £44.7 million which compares with £57.2 million on a like for like basis. The adjusted operating loss before exceptional items amounted to £0.7 million compared with an operating profit of £1.6 million last year. Adjusted fully diluted loss per share for the continuing business was 3.34p (2014: 0.39p).

Exceptional items

Exceptional items amounted to £9.3 million (2014: £3.6 million). They can be classified in three categories: the loss on disposal of RESL of £5.1 million, the loss on disposal of surplus assets of £0.1 million and other exceptional items of £4.1 million, which were incurred in executing the strategy and reshaping the Group to achieve ongoing cost savings. In addition to the restructuring announced in May, the decline in the oil and gas market has had a significant effect upon our fabrication business in Newcastle. This has been down sized and the related reorganisation costs amounted to £0.3 million.

Financial position

The support of HSBC and of Henderson during this financial year has been fundamental in allowing the Group to implement the restructuring and begin the next stage of the turnaround. The HSBC facility has been reduced from £20.25 million to £6.0 million as a consequence of disposals, the fundraising and the purchase of debt by Henderson. Our total facilities at the year end were £12.2 million and I am pleased that both HSBC and funds managed by Henderson have agreed to extend the facilities to December 2018.

Net debt at 30 September 2015 was £5.5 million (30 September 2014: £16.0 million).

Net assets at 30 September 2015 amounted to £18.6 million. The increase in net assets of £8.0m from the placing and open offer and debt conversion was offset by losses of £12.2 million and the movement on the pension deficit of £0.4 million.

An impairment review of the carrying value of goodwill and intangible assets has been carried out and based upon our projections there is no impairment of the amounts carried in the consolidated balance sheet.

Dividend

In the light of the performance in the year the Board does not recommend a dividend (2014: nil).

People

We have had a settled Board over the past year and the Board remains focussed upon the implementation of the strategic plan.

The Board would particularly like to thank the Group's loyal staff for their commitment and for their hard work to support the Group's turnaround.

Prospects

The key to the next phase of the turnaround in Redhall's fortunes is achieving an improved order flow in its core businesses. The order book now stands at £21.0 million. We are investing in sales resource to secure more work whilst taking full advantage of our strong brands and reputation. Whilst anticipated order flow from certain major customers is unpredictable, we firmly believe that the nuclear sector in particular represents a significant medium to long term opportunity for the Group. We are currently engaged in a number of major tenders for nuclear defence and decommissioning projects and infrastructure related work. The infrastructure opportunities are likely to result in work in FY16, and the nuclear opportunities are likely to lead to revenue in FY17 and beyond.

We are encouraged by agreements reached between the UK Government, EDF and China General Nuclear Power in recent months relating to the Hinkley Point C nuclear new build project. Further announcements by the parties will clarify the timing and extent of work that Redhall's manufacturing businesses will be able to bid for over the coming years.

The oil and gas sector remains subdued. We expect this to impact on volumes for a second year at both Booth Industries and R Blackett Charlton and we do not anticipate any significant improvement in this sector over the course of this financial year.

Our Specialist Services businesses in the telecommunications and food sectors are likely to have a strong year in 2015/16 whilst our Marine business will continue to work for its major customer on site instructions but with lower volumes due to process changes.

To enhance profitability we will also focus over the next year on operational improvements to drive margin growth. We plan to invest in essential capital equipment and are committed to enhancing our margins with supply chain, bidding and commercial management improvements.

After a difficult few years, the business is now right sized, leaner and well set to capitalise on future prospects in the infrastructure and nuclear sectors.

Martyn Everett

Chairman

9 December 2015

STRATEGIC REPORT

Strategic Update

The 2015 financial year has been one of considerable change for Redhall Group. In December 2014 we set out our Strategic Plan stating our intention to focus on our higher margin manufacturing and specialist services businesses, reduce contracting risk, reduce gearing and lower costs. The delivery of this plan was the Group's primary goal for the year.

We announced in June that Stage One of the Strategic Plan was largely complete. We have reduced the contracting risk through the disposal of RESL to Cape plc and the withdrawal from our site based nuclear contracting activities. Debt has been lowered as the sale of RESL for an enterprise value of £6.0 million injected £5.1 million of net cash into the Group and the sale of a non-core property generated net cash of £0.4 million. A further property sale raised net proceeds of £0.4 million after the year end. We have also lowered costs by removing the old divisional structure, centralising our service functions and exercising local cost reduction plans in some of our businesses.

We have now entered the second stage of the Strategic Plan, one of business improvement, investment and growth. To facilitate this we completed a fundraising in September consisting of a placing, open offer and debt conversion that improved the Group's balance sheet by £8.0 million and available cash by £5.0 million. We believe that this transaction will benefit the Group by:

· improving client confidence

· gaining better trading terms with our supply chain

· allowing investment in equipment and technology to improve productivity and expand our business offering

· allowing investment in pre-contract sales, marketing and tendering

· providing working capital to fund growth

Furthermore, this transaction has introduced new institutions to our shareholder base to support the Group's future growth.

These actions delivered in the year have been significant steps in realising our strategic goals and redefining Redhall as an established high integrity manufacturing and specialist services business.

Overview

During this period of restructuring the Group has made an adjusted operating loss on continuing operations of £0.7 million on revenue of £44.7 million. This is lower than the £1.6 million of adjusted operating profit on revenues of £57.2 million for the year ended 30 September 2014, but is in line with expectations. The performance reflects the heavy restructuring that has been carried out during the financial year together with delays in some of our customers' capital projects and the substantial downturn in the oil and gas market. The ongoing activities have also taken the full burden of the Group costs in the year. These costs have progressively reduced as the restructuring has been delivered and will be lower in 2016. Pre Group costs the ongoing business made an adjusted operating profit of £1.2 million.

Health and Safety

The health and safety of our employees and those who may be affected by our business remains our principal priority. All of our six subsidiaries, with the exception of Redhall Networks, now have management systems to control health and safety risks to OHSAS 18001 and environmental management systems certified to BS EN ISO 14001. We expect Redhall Networks will achieve accreditation to both standards by the end of 2015.

During the year our subsidiaries once again applied for health and safety awards from The Royal Society for the Prevention of Accidents (RoSPA), which recognises high or very high levels of performance. One of our businesses maintained performance to achieve the prestigious Order of Distinction for the fifth year in a row. This is awarded to organisations that have achieved 15 or more consecutive Gold Awards. Two businesses achieved Gold Awards whilst one achieved a Silver Award.

Manufacturing

Manufacturing operations encompass the design, manufacturing, installation and commissioning of high integrity products and equipment typically in nuclear, oil and gas, specialist infrastructure and high end architectural metalwork sectors. We have three businesses with very strong brands and heritage in their areas: Booth Industries, Jordan Manufacturing and R Blackett Charlton.

Through a period of significant restructuring, the turnover for Manufacturing reduced to £18.5 million from £29.4 million in 2014. Operating profits also fell to £0.3 million from £2.8 million last period. Although all three subsidiaries experienced revenue reductions in the year the most pronounced was RBC which experienced a reduction in sales of 53.0% bringing turnover down to £5.7 million. RBC's principal activity is the manufacture of large bore pipe for supply into the oil and gas market. This business had an excellent year in 2014 but, as a result of the dramatic fall in oil prices, the market for these products has been very depressed in recent months. We do not see this market improving in the foreseeable future and so have taken the decision to considerably reduce the size of the operation. The cost of this restructure is £0.3 million but will result in a business that will be modestly profitable.

Despite the difficulties encountered in 2015, we have experienced an increase in the order books of Booth Industries and Jordan Manufacturing during the year.

The manufacturing opportunities in nuclear decommissioning and nuclear new build are medium to long term in nature, although we have seen a significant increase in tenders for this work in the past three months. We are confident that, having strategically refocussed the business, we are now well positioned to take advantage of these opportunities in the coming years. In the shorter term, defence tenders have improved since the general election and we continue to expand our offering into other high integrity or high hazard environments. One notable success in the year has been the award to Booth Industries of five engineered doors contracts on the Crossrail major infrastructure project with a combined value in excess of £5 million.

Specialist Services

Specialist Services consists of our activities in installation and maintenance of the telecommunications network infrastructure, design manufacture and installation of process lines in food and pharmaceutical markets and specialist surface finishings to Astute class submarines. We deliver these services through Redhall Networks, Redhall Jex and Redhall Marine.

The turnover for this business segment for the year ended 30 September 2015 was £26.2 million, down from £27.7 million in 2014. The adjusted operating profit for the same period was £0.9 million which is consistent with the performance in 2014. Volumes and profits in Redhall Networks were strong as the networks infrastructure market remained buoyant throughout the year. Our clients in the food and pharmaceutical sectors have remained fairly consistent in the volume of prospects suited to Redhall Jex resulting in this business performing at similar levels to last year. Since our 2015 year end there has been a noticeable increase in food tenders which should allow the business to improve the order book and become more selective. Redhall Jex was part of our old engineering division and since the disposal of RESL it has been managed independently and it has become clear that there are opportunities to improve margin through driving efficiencies in both fixed costs and cost of sales. Redhall Marine continued to provide specialist surface finishings to Astute class submarines for BAe at Barrow.

Site Services

This reporting segment consists of the businesses held for strategic divestment or closure and is shown as discontinued operations. It encompasses the pre disposal activities of RESL and the site-based nuclear contracting activities of Redhall Nuclear Ltd.

The turnover from these businesses for year was £24.1 million and they contributed an adjusted operating loss of £1.0 million. These results are not directly comparable with 2014 as they do not relate to a full year of activity. Within this segment, the site-based nuclear contracting business also accounted for the majority of the Group's exceptional costs.

Exceptional Items

Exceptional costs in the period under review totalled £9.3 million We announced in our strategy update on 14 May 2015 that we expected total exceptional costs to be £8.8 million consisting of £3.6 million resulting from redundancy costs, closure costs and asset write offs due to restructuring and £5.2 million resulting from the disposal of RESL. A large part of this £0.5 million movement is as a result of the £0.3 million of redundancy costs at R Blackett Charlton to right size the business in the light of a significant drop in oil and gas contracts.

Outlook

We have now restructured Redhall into a clearly focussed Manufacturing and Specialist Services Group. Since the fundraising in September we have begun to invest in strengthening our business development capability, recruiting more depth into our management teams, training and developing our people and upgrading our equipment and technology. The improved balance sheet also gives us more credibility with customers and suppliers.

There is still more work to be done before the turnaround is complete and the Group can begin to achieve its potential. One of our main strategic priorities is to grow the order book whilst maintaining its quality. It is therefore encouraging that we have recently seen a significant increase in manufacturing tenders particularly for longer term nuclear opportunities where we will have submitted around £150 million of bids in the last quarter of the 2015 calendar year. These projects are primarily for manufacture from 2017 onwards with some extending for 10 years. There is considerable work to do before any of these schemes become contracts but we believe that the submission of these tenders not only demonstrates increased activity in the market but also the level of credibility and resource our businesses now have.

Also within Manufacturing we have secured multiple orders for the Crossrail project and continue to tender for a number of sizable engineered door projects on this infrastructure scheme. We are also benefiting from repeat work with many high quality clients such as Sellafield Ltd, Dounreay Site Restoration Ltd, Rolls Royce, AWE, and Renishaw.

Within Specialist Services we have submitted our proposal to renew the framework contract for blasting, painting and insulating the Astute class submarines. This contract is likely to be awarded during 2016. If successful, it will provide us with a further 2 years of work with BAe which may be extended to 5 years in annual increments. We continue to receive good levels of opportunities from Mondelez, Kellogg's and Nestle in our food and pharmaceutical business and have recently seen a substantial increase in tenders from Mars. The contracts in our networks infrastructure business are always short term but this market has been buoyant recently and with the continued roll out of 4G and the consolidation of network providers we expect that it will remain buoyant throughout 2016.

In summary we believe that we are experiencing a significant increase in opportunities due to both an uplift in our target markets and an improving business development capability within the Group. The implementation of Stage Two of the Strategic Plan will provide a good platform to benefit from these opportunities.

Phil Brierley

Chief Executive

9 December 2015

Consolidated Income Statement

* Adjusted operating (loss)/profit is (loss)/profit before financial income, financial expenses, tax and amortisation of intangible assets acquired with business combinations. The comparative amounts have been restated as a result of discontinuance of site services operations (note 3).

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Other reserves comprise share based compensation £250,000 (2014: £251,000), equity reserve relating to the grant of options on conversion of debt during the year £925,000 and other reserves of £2,000.

Consolidated Cash Flow Statement

See note 3 for cash flows relating to discontinued activities

Notes to the Consolidated Financial Statements

1. Segment analysis

IFRS8 "Operating Segments" requires an entity to report on those operating segments that engage in business activities from which it may earn revenues and incur expenses; whose operating results are regularly reviewed by the chief operating decision maker ("CODM"); and for which discrete financial information is available. The CODM has been identified ultimately as the Board of Directors.

The Board assess the performance of the operating segments based on a measure of operating profit or loss which excludes the effects of exceptional items. Central costs and unallocated items represent head office functions and items such as amortisation of acquired intangible assets arising on the acquisition of businesses.

The activities of each business segment are as follows:

Manufacturing

Manufacturing encompasses the design, manufacture and installation of bespoke specialist plant and equipment typically in the nuclear, defence, oil and gas, petrochemical, chemical, pharmaceutical and food sectors. The division has particular expertise in the design and manufacture of high integrity fire and blast resistant doors, window and wall systems.

Specialist Services

Specialist Services comprises our activities in installation and maintenance of the telecommunications network infrastructure, design, manufacture and installation of process lines in food and pharmaceutical markets and specialist surface finishings to Astute class submarines.

Site Services

During the period the activities of the Site Services segment were discontinued following the Group's decision to sell its Engineering business and to close its site-based Nuclear contracting businesses. The results of these businesses are disclosed in Note 3.

The Group has previously reported its activities in Manufacturing, Nuclear and Engineering segments. Following the strategic review by the Chief Executive businesses were reallocated to segments reflecting the Group's amended strategic direction.

Operating segments

*Adjusted operating profit is stated before exceptional items and amortisation of intangible assets acquired with business combinations.

* Adjusted operating profit is stated before exceptional items and amortisation of intangible assets acquired with business combinations.

1. Segment analysis (continued)

1. Segment analysis (continued)

Continuing operations

Practically all of the Group's revenue is considered to be contract revenue as defined by IAS11.

Customers accounting for more than 10% of revenue

One customer accounted for more than 10% of revenue in the year, which is a customer of the Specialist Services segment and accounted for revenue of £9.6 million (2014: one customer accounting for £13.0 million of revenue in the Specialist Services segment).

2. Exceptional items

The Board has separately identified, by virtue of their size or incidence, certain credits and charges to the consolidated income statement that should be separately disclosed to enable users of the financial statements to better understand the underlying performance of the Group:

Continuing operations

Redundancy and restructuring costs reflect the costs of resizing the businesses within the Manufacturing segment and Head Office. These are split between cost of sales and administrative expenses on the basis of the function of the personnel to which they relate.

Provisions against contracts in 2014 relate to charges in respect of legacy contracts which have suffered losses.

Discontinued operations

Redundancy and restructuring costs relate to the winding down and ultimate closure of those businesses which are discontinued, split between cost of sales and administrative expenses on the basis of the function of the personnel to which they relate.

3. Discontinued operations

Income and expenditure incurred on discontinued operations during the period comprises the Site Services business. RESL was sold on 13 May 2015 and on 14 May 2015 the Group announced the closure of its site based nuclear contracting businesses.

Site Services comprised certain engineering and nuclear related activities. These included engineering activities in industrial processes including oil and gas, petrochemical and chemical, and included design, project management and execution of on-site works through qualified and experienced engineers and trades personnel. Activities included mechanical design and construction, storage tank services, plant modifications and upgrades, repair and maintenance, shutdown services and offsite services.

The segment also included activities in both the civil and defence nuclear sectors and included design, project management and execution of on-site works through qualified and experienced engineers and trades personnel. Activities in the civil sector included decommissioning and waste management, support to operating nuclear power stations, and nuclear new build. Activities in the defence sector encompassed activities on behalf of the Ministry of Defence and included the design and manufacture of specialist equipment and mechanical and electrical engineering activities for the AWE establishment at Aldermaston.

During the period, discontinued operations contributed a net outflow of £4.37m (2014: £0.63m outflow) to the Group's operating cash flows and a net inflow of £5.09m (2014: £0.03m outflow) to investing activities. There were no cash flows from financing activities.

The adjusted operating loss before exceptionals is stated after amortisation of acquired intangible assets of £120,000 (2014: £180,000).

Practically all of the Group's revenue is considered to be contract revenue as defined by IAS11.

4. Disposal of subsidiary company

On 13 May 2015, the Group sold Redhall Engineering Solutions Limited to Cape plc for an enterprise value of £6.0m. The business is classified as a discontinued operation.

5. Financial income and expenses

* Includes £89,000 of pension administration expenses paid for by the Company (2014: £98,000).

6. Tax expense

7. Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

The net deferred tax liability at the year-end and movement during the year is analysed as follows:

Unrecognised deferred tax assets

Deferred tax assets have not been recognised on tax losses of £16,300,000 (2014: £20,600,000) as their recovery is insufficiently certain in the longer term. £14,500,000 are related to the discontinued site services segment.

Effect of reduction in the main rate of Corporation tax

Reductions in the UK corporation tax rate from 23% to 21% (effective 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. The deferred tax balances have been calculated based on the rate of 20% which was substantively enacted at the balance sheet date.

8. Loss per share

Basic and diluted loss per share

The calculation of the basic loss per share of 24.57p (30 September 2014: loss per share 14.29p) is based on 49,491,094 shares (30 September 2014: 39,751,863) being the weighted average number of shares in issue throughout the period and on a loss of £12,161,000 (30 September 2014: loss of £5,680,000).

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted loss per share for both the year ended 30 September 2015 and 30 September 2014 are identical to those used for the basic loss per share. This is because the exercise of share options would have the effect of reducing the loss per share and is, therefore, not a dilution under the terms of IAS33. The dilutive potential ordinary shares are therefore not included in the table below. At 30 September 2015 there were 250,000 outstanding options under relevant schemes and 18.5m shares under option to funds managed by Henderson. These may impact dilutive earnings per share in future.

Adjusted earnings per share

The Directors believe that helpful additional earnings per share calculations are earnings per share on adjusted bases (i.e. based on profit before exceptional items and amortisation of acquired intangible assets and on a fully taxed basis). The basic and adjusted weighted average numbers of shares and the adjusted earnings have been calculated as follows: