RHL.L Regulatory News (RHL)

Redhall Group plc

("Redhall" or the "Group")

Preliminary Results for the year ended 30 September 2012

Redhall Group plc, the specialist engineering support services group, announces its preliminary results for the year ended 30 September 2012.

FINANCIAL HIGHLIGHTS:

·; Revenue before exceptional items £119.5 million (2011: £126.6 million)

·; Adjusted profit before tax and amortisation £1.9 million in line with revised expectations (2011: £3.9 million)

·; £5.9 million exceptional charge comprising of £2.5 million of additional Vivergo legal costs and £2.6 million for provisions on legacy contracts

·; Adjusted fully taxed and diluted earnings 4.84p per share (2011: 9.49p)

·; Strong balance sheet with net assets of £31 million (2011: £37.4 million)

·; Net debt of £10.6 million (2011: £10.2 million netdebt)

·; Order book strong at £119 million (2011: £116 million)

OPERATIONAL HIGHLIGHTS:

·; Management strengthened by appointment of Richard Shuttleworth as Group Chief Executive, Phil Brierley as Group Commercial Director,Chris Lewis-Jones as Interim Group Finance Director and John Hynes as Managing Director of Manufacturing

·; Reappointed as key delivery partner to Hertel UK Limited following their renewal of Multi-Disciplinary Site Works contract at Sellafield estimated to be worth £26 million to the Group over four years

·; Vivergo dispute: judgement awaited

·; Engineering Division secures renewal of three maintenance contracts representing 15% of its annual turnover

·; Exploring options for disposal of three small non-core businesses

David Jackson, Chairman of Redhall, commented:

 "The prospects for the next 12 months look encouraging even in advance of the award of nuclear new build work, with strength in the oil and gas market and opportunities afforded by the Crossrail project in London where we are a specified supplier. The opportunities for our Manufacturing business in particular look outstanding over the next three years.

"We are looking to address the balance between contracting and manufacturing with more emphasis being placed on the manufacturing side of the business. This should enable the Group to improve its overall margin and reduce the risks associated with site activity."

Contacts:

Chairman's Statement

Introduction

This has been another testing year for the Group, although I do now feel that the worst is behind us. We have recruited an excellent executive management team who have dealt expeditiously with the contract issues they inherited and have built a solid platform for the future. We have retained our reputation with our key clients, have a good order book and some highly attractive prospects. The Vivergo court case is behind us and we now await the verdict of the judge to enable us to move forward.

We have been advised by our partner Hertel UK Limited that we have been awarded the renewal of the Multi-Disciplinary Site Works contract at Sellafield. This contract is estimated to be worth approximately £26.0 million to the Group over four years.

Trading Results

Underlying revenue for the year ended 30 September 2012 at £119.5 million was 5.6% down on the prior year of £126.6 million. Adjusted profit (before tax and amortisation) at £1.9 million was down 50.3% from the prior year comparative of £3.9 million. The adjusted fully taxed diluted earnings per share stood at 4.8p, down 49% on a comparative of 9.5p.

During the year under review the Engineering business performed well but both the Nuclear business and the Manufacturing business encountered difficulties and consequently performed below expectations. The detail of individual business performance is dealt with in the Chief Executive's Review.

Exceptional Items

We have incurred exceptional items in the year of £5.9 million. The majority of this charge relates to costs on the Vivergo legal dispute of £2.5 million and provisions on legacy contracts of £2.6 million. It is not anticipated that any further provisions will be required in future for these legacy contracts.

Financial Position

Net assets at 30 September 2012 stood at £31.0 million. Our year end net debt position was £10.6 million. Our bank borrowings remain within our covenanted facilities and we are grateful to our bankers HSBC for their strong support over the past 18 months in view of the major dispute with Vivergo. It is the strength of this relationship that enables us to pursue our entitlement in full. The costs of the legal case have been a drain on our cash reserves but these costs are hopefully now at an end and we look forward to more normal cash generation during the next twelve months.

No tax is payable by the Group for the financial year under review and we have £7.5 million of tax losses carried forward. We have recognised £2.0 million of these losses in our deferred tax reserve.

Vivergo

The court case brought by Vivergo against us concluded on 9 November 2012. The case will determine two matters:-

1. Was the contract terminated unlawfully?

2. What extension of time was our subsidiary RESL entitled to on the contract?

We now await the judge's verdict which we understand may not be decided for several months. The Board has discussed the case in detail with its legal and professional advisers and we believe that the position adopted in our balance sheet, which is a continuation of the position adopted previously, remains reasonable in terms of the most likely settlement.

A significant part of the dispute involves the re-measurement of work done and the value of this item is not covered by the current legal case. We are in discussion on this with Vivergo and our objective is for this element to be agreed prior to the judgement being received. All other heads of recovery can be dealt with once the judge's verdict has been received and we would anticipate a conclusion to this matter during the first half of 2013.

Dividend

The Board has taken the decision that no dividend will be paid. The Board will review the dividend policy on an ongoing basis.

People

There have been major changes to our Executive during the year under review at Board level and Leadership Team level. During this year we have appointed Richard Shuttleworth as Group Chief Executive, Phil Brierley as Group Commercial Director and Chris Lewis-Jones as interim Group Finance Director. We now have a better balance on our Board between commercial, accounting and engineering skills. I sincerely believe that this balance will enable the Group to perform more effectively and consistently.

In the Manufacturing business we have a new managing director, John Hynes who has extensive experience at Rolls Royce and Jaguar Land Rover. This is an important appointment in an area of the business where margin potential and prospects are at their highest.

Our staff have worked diligently during a challenging year and I would like to take this opportunity to acknowledge their effort.

Prospects and Strategy

Our new Chief Executive has, since his arrival in early September, conducted a thorough review of the business and has produced a business plan endorsed by the Board which will be implemented during the course of the current financial year. Three small businesses within the Group have been identified as non-core and we have begun discussions with Altium, our corporate finance advisers, about their potential disposal during the course of the next six months. In addition we are looking to address the balance between contracting and manufacturing with more emphasis being placed on the manufacturing side of the business. This should enable the Group to improve its overall margin and reduce the risks associated with site activity.

The prospects for the next 12 months look encouraging, even in advance of the award of nuclear new build work, with strength in the oil and gas market and opportunities afforded by the Crossrail project in London where we are a specified supplier. The food industry appears to be more active and several of our clients have major work programmes during the course of the next year. The timetable for the commencement of the new nuclear build programme in the UK appears to have slipped by approximately three months but we fully anticipate a decision to be made in the spring of next year. The opportunities for our Manufacturing business in particular look outstanding over the next three years.

Our order book today stands at around £119.0 million compared with last year's figure of £116.0 million. This was boosted by the recent receipt by our partner Hertel UK Limited of the Multi-Disciplinary Site Works renewal contract at Sellafield. In addition to the current order book, prospects are at a record level which gives us confidence over the medium term.

David Jackson

Chairman

5 December 2012

Chief Executive's Review

Introduction

It is three months since I was appointed Chief Executive, during which time I have completed a strategic review of the business which has been considered by the Board. Fundamentally, the Redhall Group is a very sound business which has the potential to deliver excellent stakeholder returns. The business operates in attractive, if competitive, markets which are forecast to grow significantly in the short to medium term. The business has an extensive portfolio of blue chip customers with whom we have long term working relationships.

The Group is structured into three divisions:

Engineering

Nuclear

Manufacturing

They deliver niche engineering services and products to the nuclear, defence, oil and gas, petrochemical, chemical, pharmaceutical and food markets.

Whilst the financial year 2011/2012 has been a challenging one for the Group and against a backdrop of economic and political uncertainty, Redhall has had some notable achievements particularly within the Engineering division. The markets within which we operate continue to be extremely competitive but the pipeline of opportunities is encouraging and we have maintained our market share. We continue to work to develop the products delivered via our Manufacturing division to preserve our much valued reputation with our important customers.

Health & Safety

Health and Safety continues to be as important to the Group as it is to our customers and I am pleased to report that we had 18 fewer accidents in the year and our all accident frequency rate was 14% better than for the previous year ending 30th September 2011. Man hours expended since our last Lost Time Accident are 4.9 million in Nuclear, in excess of 1.0 million in Engineering and 0.5 million in Manufacturing.

Engineering

* Pre-exceptional items

** Excluding Vivergo

The Engineering division comprises activities in industrial processes including oil and gas, petrochemical, chemical, pharmaceutical, telecoms and food and includes design, project management and delivery of on-site works through qualified and experienced engineers and trades personnel. Activities include mechanical design and construction, storage tank services, plant modifications and upgrades, repair and maintenance, shutdown services and off-site services.

Excluding the impact of the Vivergo contract the revenue for Engineering at £54.2 million represented a 4.8% increase on 2011. The operating profit margin for the division rose to 3.9% from the 2.4% reported last year. This increase, and in particular the improvement in the latter part of the year, reflect the positive effects of the reorganisation of the food side of the business, together with the seasonal shutdown activities.

This year has seen the business secure or renew a number of its major long term contracts. A maintenance contract was secured from Huntsman which runs until the end of 2016, we secured a two year extension to our Vopak contract and a three year term contract for Polimeri which runs until July 2015. In total these three contracts alone make up in excess of 15% of the division's annual turnover.

The market within the industrial side of the business continues to be challenging. I am pleased to report that notwithstanding these pressures our margins continue to hold up following the successful completion of a number of major shutdowns during the year for Valero, Polimeri, Dow Corning, Hexcel and Huntsman Tioxide. Our key customers continue to value the safe, reliable service we offer in what is becoming a resource constrained market place. The tankage side of the business continues to develop both within the UK and overseas where we work for the defence sector on the Ascension and Falkland Islands.

The food and pharmaceutical side of the division has made significant progress improving margins but there still remains opportunity for further improvement. We have strengthened the management team with the appointment of Martin Miller who brings with him extensive knowledge of the industry and a network of important contacts. With the improvements made within the business coupled with the capital programmes of our major food clients we hope that 2013 will mark a turning point for this part of the business.

Nuclear

* Pre-exceptional items

Nuclear comprises activities in both the civil and defence sectors and includes design, project management and execution of on-site works through qualified and experienced engineers and trades personnel. Activities in the civil sector include decommissioning and waste management, support to operating nuclear power stations and nuclear new build. Activities in the defence sector encompass activities on behalf of the Ministry of Defence and include the marine outfitting of the Astute Class submarines and the design and manufacture of specialist equipment and mechanical and electrical engineering activities for the AWE establishments.

Turnover for the division at £36.8 million represents an 11% increase on 2011. The performance of the division has been overshadowed by the impact of resolving commercial disputes and outstanding contractual matters which initially arose under the previous management. The majority of these have been resolved and the Board believes that an adequate position has been taken against those not yet finally agreed.

The relationship with BAe Systems continues to develop and the marine operation delivered growth in sales of in excess of 37% in the year. We continue to work with this valued customer to grow our service offering at their facility in Barrow as work progresses on Boats 3, 4, 5 and 6. Our Defence business continued to support AWE and this year's performance was broadly in line with that for 2011.

The trading conditions within our decommissioning and waste management activities continue to be challenging and performance has been adversely affected by a number of issues on legacy contracts. We continue to commit resources to resolving the outstanding issues which we hope to fully close-out next year. We have recently been notified that we are to continue to be a key delivery partner to Hertel UK Limited under the new framework contract for the Multi-Disciplinary Site Works which will run for three years with options to extend for a further year. Based on historic performance this contract is estimated to be worth £26.0 million over four years. Work undertaken through this contract amounts to approximately 50% of our operation at Sellafield. We are well positioned to secure other project work at Sellafield from Tier 2 contractors with whom we have developed good working relationships over many years.

During the year we have successfully completed the Activpipebridge at Sellafield and the Cross site transporter has been commissioned at Hunterston. In addition the initial phase of work on Evaporator D has been completed and the post module delivery works are scheduled for completion in 2013. Each of those projects was awarded outside the MDSW contract. Significantly we also secured the RCW project last year which is contracted directly with Sellafield Limited and is valued at £3.2 million.

The work on the Fellside boiler park completion contract has had a material impact on the performance of the Nuclear business as this difficult project has been the subject of significant delay and change. We are continuing to work with our client and the ultimate customer to ensure all outstanding issues are resolved by the earliest date.

On the power side of the business we continue to make slow but purposeful progress in securing work on existing nuclear sites. We have successfully secured and executed work at Dungeness, Heysham 1 and Sizewell B this year and we have identified further high quality opportunities for next year.

In the civil nuclear new build market we were delighted with the appointment of BYLOR on Hinkley Point with whom we worked closely during the bidding stage. We continue to work closely with our French trade partners and remain positive that the exciting opportunities which exist on this project can be converted into contracts for the Group.

Manufacturing

* Pre-exceptional items

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, windows and wall systems.

The turnover for the division showed an increase compared with 2011 of 7.2% but the overall trading position was disappointing with operating margins down nearly 10% on 2011.

The performance of our specialist door business based in Bolton has been affected by two significant factors this year. First, the difficulties which we reported earlier in the year with a major contract to supply highly engineered door frames has badly affected the earnings in this business. This project is largely behind us and we are anticipating a prompt resolution of the remaining outstanding issues. The second factor is the delay in the award of some projects anticipated in the plan.

It was a disappointing year for our manufacturing operations in Bristol and the North East which specialise largely in high quality, high integrity products for the nuclear and oil and gas related markets. One of our key customers went into receivership and the nuclear related projected work volume failed to materialise. Whilst the oil and gas related industries remain relatively buoyant, the short term contracts and availability of quality operatives eroded the margin in this business.

The outlook for the specialist door business is encouraging and we have greater visibility of projects which will support the major base workload for the business. There are significant opportunities in defence, nuclear new build and major infrastructure projects over the next four years and we are well placed to capitalise on them. We continue to invest in our facilities at Bristol in readiness to capitalise on the work which will materialise from the nuclear new build programme. This facility is well positioned from both a geographical and resource perspective to secure significant contracts in the nuclear sector over the foreseeable future. The business has suffered from a shortage of opportunities over the last 12 months but the prospects list looks a lot more encouraging for 2013 and beyond.

I am pleased to announce that Redhall has secured the services of John Hynes who joined us at the beginning of November as Managing Director of the Manufacturing division. John has extensive experience in manufacturing having worked for Rolls Royce and Jaguar/Land Rover and brings with him a wealth of experience and contacts which will be key to integrating and developing this important part of the Group.

Outlook

In my initial review of the business, I identified a number of key areas which needed to be addressed. The core business of Redhall remains high quality and the problems we have suffered in the year are restricted to a small number of projects and are not widespread. I have worked with the Board to ensure we tighten our controls and procedures and appoint the best people with the requisite experience, knowledge and competence into the key roles to ensure the mistakes of the past are not repeated.

I have made three key appointments. Chris Lewis-Jones was appointed interim Finance Director, Phil Brierley, Commercial Director, and most recently John Hynes has joined the business as Managing Director for the Manufacturing division. These key appointments strengthen the Board and Leadership Team of Redhall and enable us to capitalise on the significant opportunities for the business going forward. The team is better balanced between the functions and operations and has a complementary skill set to address the business issues we face going forward and will ensure that risks are not only identified but actively managed.

The outlook for the Group is extremely encouraging. We now have greater transparency of opportunities with our key customers which will underpin the base workload for the business. In our specialist Manufacturing businesses we are developing longer term relationships with our key customers to establish Redhall as their supplier of choice. The recent notification of key delivery partner status with Hertel UK Limited on MDSW and our relationship with AWE in the Nuclear division provide a solid base load of work which the business can use as a springboard into the nuclear new build arena. Our Engineering division continues to deliver reliable results from its contracts with key customers as we drive to deliver improved and enhanced services to our clients' ageing infrastructure.

2013 will represent a year of consolidation to ensure the Group's business is positioned to capitalise on the growth opportunities in 2014 and beyond.

Richard Shuttleworth

Chief Executive

5 December 2012

Consolidated Income Statement

* Adjustedprofit before tax is profit before tax and amortisation of intangible assets acquired with business combinations.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

1. Segment analysis

Following the restructuring of the Group and of its operational management team as reported by the Chairman in the 2011 Annual Report and Accounts, the segmental reporting has been changed to reflect the new structure.

The revised reporting represents how the Group operates now and in the future. The 2011 comparatives have been restated. The activities in each segment are as follows:

Engineering

Engineering comprises activities in industrial processes including oil and gas, petrochemical, chemical, pharmaceutical and food and includes design, project management and execution of on-site works through qualified and experienced engineers and trades personnel. Activities include mechanical design and construction, storage tank services, plant modifications and upgrades, repair and maintenance, shutdown services and offsite services.

Nuclear

Nuclear comprises activities in both the civil and defence sectors and includes design, project management and execution of on-site works through qualified and experienced engineers and trades personnel. Activities in the civil sector include decommissioning and waste management, support to operating nuclear power stations, and nuclear new build. Activities in the defence sector encompass activities on behalf of the Ministry of Defence and include the marine outfitting of Astute class submarines at Barrow, West Cumbria, and the design and manufacture of specialist equipment and mechanical and electrical engineering activities for the AWE establishments at Aldermaston and Burghfield.

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.

Operating segments

Year to 30 September 2012

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

1. Segment analysis (continued)

Exceptional items totalled £5,928,000 of which £2,500,000 related to a further provision against the previously reported Vivergo contract being an estimate of additional legal and professional fees to secure recovery of the remaining contract balance. This matter is more fully explained in the Chairman's Statement. Provisions against other contracts amounted to £2,568,000 and related to legacy contract issues arising under previous management. The costs of bidding for Nuclear New Build opportunities amounts to £225,000. Our Manufacturing business suffered a bad debt of £436,000 following the failure of a major customer. The regular review of property values has resulted in a charge against income of £164,000. The impact on our final salary pension scheme (see note 17) of pension increases being linked to CPI inflation rather than RPI inflation for certain classes of membership has resulted in a credit to exceptional items of £756,000. The balance of exceptional items amounting to £791,000 related largely to the restructuring of the Group and of its senior management and includes the costs payable in connection with the resignation of the former Finance Director. A tax credit of £1,482,000 has arisen in connection with these items resulting in a net, post tax charge of £4,446,000.

Share-based payment charges amounting to £3,000 (2011: credits £38,000) have been charged to central costs.

Year to 30 September 2011

Adjusted operating profit is stated before exceptional items and amortisation of intangible assets acquired with business combinations. Exceptional items in the year ended 30 September 2011 were fully explained in the Annual Report and Accounts for that year and comprised Vivergo contract provision of £8,345,000, other contract provisions of £1,960,000, integration and restructuring costs of £500,000 and head office restructuring costs of £449,000.

1. Segment analysis (continued)

1. Segment analysis (continued)

Geographical segments

All of the Group's assets and capital expenditure originate in the United Kingdom.

Analysis of revenue by category

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

Two customers accounted for more than 10% of revenue in the year. One of those customers is a customer of both the Nuclear and Manufacturing segments and accounted for revenue of £19.0 million and the other which is a customer of the Nuclear segment alone accounted for revenue of £12.1 million (2011: one customer accounting for £17.3 million of revenue in the Nuclear and Manufacturing segments).

2. Financial income and expenses

* Includes £110,000 of pension administration expenses paid for by the Company (2011: £150,000).

3. Tax expense

4. 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: