Preliminary Results

Redhall Group plc

("Redhall" or the "Group")

Preliminary Results

Redhall Group plc, the specialist engineering support services group, announces its preliminary results for the year ended 30 September 2013.

KEY POINTS:

· Operating profit before exceptional items* up 12.7% to £2.1 million (2012: £1.9 million)

· Revenue before exceptional items* of £113.1 million (2012: £119.5 million)

· Increased banking facilities extended until September 2015

· Vivergo dispute settled and legacy contracts finalised

· Order book stands at £111 million (2012: £119 million)

· Core markets showing good organic growth potential

*Adjusted results are stated before exceptional items which total £10.9 million (2012: £5.9 million)

OPERATIONAL HIGHLIGHTS:

· Planned restructuring by the new management team completed positioning the Group for organic growth

· Engineering Division won new clients in the period, delivering £6 million of sales, and secured maintenance contract extensions worth £8 million

· Lean manufacturing and continuous improvement rolled out in Manufacturing, driving operational efficiencies and margin improvement

· Excellent safety record within the business continues

David Jackson, Chairman of Redhall, commented:

"The Vivergo settlement is highly significant for Redhall. It draws a line under the long-running legal case removing uncertainty and further cost. The Group has addressed the other legacy contracts that have affected the trading performance in the last three years. We have strengthened the commercial and operational management in our Group and have the cost base better aligned to market opportunities. The management team can now focus on growing the business, which continues to offer high quality products and services to attractive markets."

Contact details:

Chairman's Statement

Introduction

The year to September 2013 presented the new management team with a number of challenges, and it is therefore pleasing to report that the underlying operating profit for the Group saw a slight increase on revenues which were down 5.4%.

The delay in receiving judgement on our long running legal dispute with Vivergo Fuels Limited ("Vivergo") led to delayed publication of these final results to take into account the judge's decision which was received on 16 December 2013 more than thirteen months after the end of the court case. The receipt of the decision has enabled an agreement to be reached with Vivergo which has been incorporated into these results. The settlement draws a line under the Vivergo issue, allowing us to focus on the future.

The improvement in underlying operating profit is again impacted by various non-recurring exceptional items. The restructuring of the Redhall Group, as set out in business plan prepared by Richard Shuttleworth and his management team following their appointment in late 2012, has been largely implemented and, at this stage, trading in the current financial year is in line with the plan. Restructuring costs of some £2.3 million have been absorbed into the figures to September 2013 and any further costs in the current year are expected to be negligible. The benefits of the restructuring are already being seen within the Group. While future performance will depend upon levels of activity in certain of the key markets in which we operate, the Group is now significantly better positioned to benefit from improvement in market conditions.

Our financial position remained largely unchanged during the second half of the year. We continue to receive strong support from our bankers HSBC and since the year end have agreed increased facilities through to September 2015. While the level of Group debt remains higher than we would wish, our peak debt requirement is anticipated to be reached during the first half of the year and to reduce steadily thereafter.

Trading Results

Revenue for the year ended 30 September 2013 at £113.1 million was 5.4% down on the prior year of £119.5 million. Operating profit before exceptional items at £2.1 million was up 12.7% on the prior year comparative of £1.9 million. The adjusted fully taxed diluted earnings per share stood at 4.05p down on last year's 4.84p.

The Engineering division performed well in 2013 with sales up 1.4% and adjusted operating profit 4.2% higher than in 2012. Despite the continuing difficult market conditions experienced by many of our industrial clients, the division enjoyed growth in revenues and margins across all areas, with particular growth within the telecoms sector.

In the Nuclear division sales and adjusted operating profit fell by 13.0% and 15.5% respectively compared with 2012. This reflected delays in both the decommissioning work and waste management projects and with volumes associated with our major defence term contract. The continuing uncertainty over the civil nuclear power projects also contributed to the shortfall.

Within Manufacturing despite a reduction in sales of 8.4% our adjusted operating profit increased by 8.5% as measured against 2012. Our manufacturing operations are, to some extent, impacted by the issues faced by the Nuclear division, although the Manufacturing division enjoys a more diverse customer base and we are seeking to broaden and expand this customer base yet further.

Exceptional Items

Exceptional items total £10.9 million and are dominated by the Board's decision, as reported on 30 January 2014, to accept an offer made by Vivergo of £2.1 million in full and final settlement of all claims between the parties. This offer fell considerably short of the amounts the Board believed to be recoverable based on the views of its professional advisers throughout the dispute process. However, the risks and cost of pursuing an alternative strategy outweighed the disappointment of settling at this level.

The settlement has resulted in an exceptional charge of £7.7 million in the year. although there is no cash impact through this charge. For the Group it is important that we can now put this matter behind us with no further drain on management time and resource.

The balance of the exceptional charge comprises restructuring charges of £2.3 million, referred to above and further provisions associated with legacy contracts dating back to 2012 and before. The detail of these provisions is dealt with in Note 2.

Financial Position

The settlement of the Vivergo dispute enables the business to focus on the future and address its core funding requirements going forward. Our revised banking arrangement with HSBC gives us a maximum of £24.75 million of facilities during our peak borrowing requirement reducing to £21.25 million by September 2014. These facilities due for renewal on 30 September 2015 are considered by the Board to be adequate for current commitments and covenants have been set at levels considered adequate for current trading. The additional receipt from the Vivergo settlement has further improved this position.

Net assets at 30 September 2013 stood at £22.4 million. Our year end debt position was £19.1 million compared with £18.6 million at the half year and £10.6 million at 30 September 2012. We have controlled our use of cash to fund working capital during the last six months of the year under review and although this is anticipated to rise again during the first half of the current year it should fall thereafter.

We have conducted an impairment test on the intangible assets and goodwill at the period end which demonstrates that there has been no impairment of the amounts carried in the Consolidated Balance Sheet.

We have no tax to pay in the current year due to the use of current and brought forward losses.

Dividend

The Board has taken the decision that no dividend will be paid. The Board continues to review dividend policy on a regular basis.

People

There have been no changes to the Board in the year apart from the retirement of Dr Jim Carrick on 31 May 2013 as already reported.

There has been much change to the management boards, particularly in the Nuclear Division. These changes have now been completed with the emphasis on strengthening the commercial approach to contracting.

I would like to thank the staff for their commitment during the year.

Prospects and Strategy

The Group remains ideally placed for the growth we envisage in the Nuclear sector. Our continuing strength as suppliers to Ministry of Defence contracts and as a platinum supplier to the Atomic Weapons Establishment at Aldermaston and Burghfield are key elements in our future. Our strength with our joint venture partners in the prospective UK Nuclear New Build programme gives us an edge on our competitors for the door and pond liner contracts. Support to EDF in their plant life extension programme will also provide further opportunities in the near future.

In Manufacturing we continue to benefit from a high level of market activity in the offshore Oil and Gas sector. This activity is forecast to continue for the foreseeable future. We are hopeful that we will receive our first orders for the Crossrail project in 2014 where there is the potential of orders totalling £12 million. Our high level prospects are currently strong with particular potential in the Defence sector.

Our current order book stands at £111 million (2012: £119 million). The Engineering Services market place remains competitive and recent delays to significant projects by some of our clients have been disappointing; however in spite of these short term delays the prospects remain very attractive with growing certainty regarding New Nuclear power generation and the general strengthening of the UK economic background. The niche skill sets and specialist manufacturing capability provided by Redhall Group find us well placed to build a profitable order book.

The disposal of our non-core operation in Northern Ireland since the year-end is a strategic move towards the Group's plan to de-risk the business and provide a better balance between manufacturing and contracting. Further non-core sales are possible but not certain.

We intend to consolidate our four Booth Industries factories in Bolton during 2014. The development of new manufacturing facilities at Bolton will represent the dawn of a new era for the Manufacturing division. This investment will help our specialist door manufacturing business capitalise on the opportunities particularly in Defence and the Oil and Gas sectors over the short to medium term and provide substantial organic growth to the Group.

We have settled the long outstanding Vivergo dispute and we have addressed the other legacy contracts that have affected the trading performance of the Group in the last three years. We have strengthened the commercial and operational management in our Group and have better aligned the cost base to market opportunities. We are now well positioned to take advantage of the opportunities that lie before us.

David Jackson

Chairman

5 February 2014

Strategic Review

During the strategic review I undertook after joining the business in August 2012, 2013 was identified as the period to consolidate and restructure our operations to enable the Group to capitalise on the opportunities identified in our chosen markets. I am pleased to report that this restructuring is complete and the administrative costs associated with operating the businesses have been substantially reduced and the material legacy contracts have been finalised. We have continued to develop our relationship with key customers which has increased the opportunity for us to expand the range of goods and services we now provide. In addition there has been good progress made in our drive to embed a continuous improvement culture within the manufacturing businesses and we are starting to see the benefit of this initiative in the form of improving margins. As part of this initiative we are in negotiations to combine our four manufacturing facilities in Bolton into a single purpose built facility. This will not only substantially increase capacity as part of the drive to provide a better balance between contracting and manufacturing operations but will improve operational efficiency. Our plan is to relocate into these new facilities at the end of calendar year 2014.

The financial year 2012/2013 was another challenging year for the Group and I am pleased to report an improvement in adjusted operating profit compared to 2012. Against the backdrop of the planned consolidation and restructuring envisaged at the start of the year the business had to react to an unforeseen downturn in work via its two key Nuclear framework contracts and reduced capital expenditure programme from its key food customers which resulted in a more extensive restructuring programme than that originally envisaged. The Group has had some notable successes this year in terms of new contract momentum. In the Nuclear division we secured two additional framework agreements for work at Dounreay and the LLWR at Drigg in Cumbria which are new areas of operation for us.

The framework agreement at Dounreay provides significant opportunities for both our Nuclear and Manufacturing divisions over the next few years as the site moves through its restoration phase. The Nuclear division has also been awarded a number of small contracts by EDF and we have targeted some key opportunities to support their plant life extension programme over the next few years. In Manufacturing the contract to supply highly engineered door frames was completed and negotiations to agree the value of the final account have concluded post year end. We have recently concluded an arrangement to outsource production of components for our commercial doors to an Indian supplier which will help us reduce costs for our clients and increase our competitiveness whilst maintaining high standards. Our Engineering division has secured new clients generating £6 million of new business during the financial year 2013 and safely completed a number of important shutdowns.

Health and Safety

Health and safety remains a key priority for the Group and 2013 saw the roll out of our Golden Rules of Safety and our behavioural safety programme. I am pleased to report that within the Nuclear division it is 5.4 million man hours since the last RIDDOR lost time incident. This is equivalent to in excess of seven years. Similarly within the Engineering division it is 6.0 million man hours since the last RIDDOR lost time incident.

Disposal of CINIL

We are also pleased to announce that we have sold our Belfast-based subsidiary Chieftain Insulation (Northern Ireland) Limited ("CINIL") to Precision Industrial Services Limited, a provider of property, utility and environmental solutions.

CINIL is based in Northern Ireland and provides industrial insulation, maintenance and asbestos management and survey services to the Belfast government authorities and the construction, marine, offshore and power industries and was deemed non-core to future strategy of the Group.

The consideration for the transaction comprises £0.2 million in total plus the retention of certain aged debtor balances equating to £0.2 million together with the payment to Redhall by way of dividend of cash on the CINIL balance sheet of £0.2 million. The sale and purchase agreement contains customary representations and warranties for a deal of this nature and the sale proceeds will be used towards reducing Redhall's indebtedness. For the year ended 30 September 2013, CINIL reported turnover of £1.4 million and a loss before taxation of £0.2 million with net assets of £0.7 million.

Engineering

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.

The revenue for Engineering at £54.9 million has increased by 1.4% from 2012. There was a 5.4% reduction in the food side of the business driven by the reduction in capital spending of our key food customers which was compensated for by a corresponding increase within the rest of the Engineering division. Encouragingly the adjusted operating margin percentage increased to 4.0% from the 3.9% reported last year which reflects the continued focus on driving operational efficiencies within the business.

The market within the industrial side of the business continues to be challenging with our customers' capital and operating expenditure budgets coming under increasing pressure. As noted above our margins continue to improve following the completion of a number of successful projects and shutdowns for Valero, Dow Corning, Huntsman, Centrica, Nestlé, Kelloggs and BOC to mention but a few.

Project work in the telecoms sector continues to deliver good operating margins through the framework agreements we have with the key customers in this sector, delivering 4G infrastructure and associated network upgrades.

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 the Astute class submarines and the design and manufacture of specialist equipment and mechanical and electrical engineering activities for the AWE establishments.

The turnover for Nuclear at £32.0 million represents a 13% reduction on 2012. This was largely attributable to a 30% downturn in work value from key framework contracts in our Decommissioning and Waste Management and Defence units which underwent a transition period to new agreements. This reduction was offset by a 20% increase in the work undertaken within our Marine unit for BAE Systems where we continue to support this key customer on Boats 3, 4, 5 and 6 of the Astute Class submarine programme. Operating profit at £1.0 million is 15.5% less than 2012 but the adjusted operating profit percentage at 3.0% held up well compared with 3.1% in 2012 despite the reduction in turnover. This was largely as a result of the restructuring and cost reduction measures implemented during the year.

The trading conditions within both Decommissioning and Waste Management and Defence continue to be challenging and our performance is being adversely affected by the shortfall in work. We are continuing to expand our customer base to dilute our reliance on the two key frameworks within the division and have secured two new framework agreements at the Drigg LLWR and for Dounreay Site Restoration Limited. On the Power side of the business we continue to build on the relationship being developed with EDF through the small projects successfully completed for them to date. In the short term EDF represents a source of high quality opportunities on their plant life extension programme. In the Civil Nuclear new build market we are delighted that the strike price for the electricity to be generated at Hinkley Point has been set and look forward to EDF's investment decision which we anticipate will be mid-2014. We continue to work with our French partners to support BYLOR/EDF and remain positive on the opportunities this could deliver for the Group in 2015 and beyond.

Manufacturing

Manufacturing encompasses the design, manufacture and installation of bespoke specialist plant and equipment typically in the nuclear, defence, oil and gas, petrochemical, chemical and pharmaceutical 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 a decrease compared to 2012 of 8.4%. Despite the reduction in turnover it is encouraging that the adjusted operating margin has increased from 4.7% in 2012 to 5.6% in 2013. This increase is driven by the continuous improvement initiatives introduced into the division by the new management.

The performance in our specialist door business based in Bolton has been affected by delays in the award of projects with volume at similar levels to that reported in 2012. It is encouraging however, that the adjusted operating profit is 18% greater than that reported in 2012.

Our Bristol and North East based Manufacturing operations traded at a small loss in 2013; we retain our key skills in high integrity products for the nuclear sector which will demonstrate their value when new projects come on stream as anticipated.

Exceptionals

The exceptional costs incurred in the year fell into two categories which were the settlement of legacy contracts and restructuring associated with aligning the cost base of the business to the near term market forecasts.

Vivergo was the major adjustment associated with resolution of legacy contracts although there were other costs associated with finalising old projects within the Nuclear division. All the legacy issues have now been finalised by the new management team.

The restructuring costs of £2.3 million have been incurred within Nuclear and Engineering. The Nuclear business has been significantly downsized to reflect the reduced volume of work arising from the two key framework contracts. As this division grows it will benefit significantly from the reduction in its cost base. During the year we also experienced an unforeseen reduction in the volume of project work for our key food customers. This part of the business has been restructured from three to two operational centres which despite the downsizing can still respond positively to the anticipated upturn in 2014.

Outlook

2013 was a year of restructuring the business and realigning the cost base to reflect the activity levels in our core markets and provide a base for profitable growth. Whilst the downturn was greater than envisaged, the measures taken will provide us with the correct base for our growth plan. In Nuclear we are now less reliant on the two framework agreements in place at the beginning of the year (with the award of the framework contracts at Drigg and Dounreay) and we anticipate activity levels under the MDSW and Rekit frameworks will improve later this year. Our relationships with key Tier 2 contractors at Sellafield are expected to produce some notable contract awards this year. In Engineering the industrial side of the business continues to be highly competitive. The recent announcement by Polimeri that they are to shut their plant on the South coast this year should not have a material effect on 2014 but this work will need to be replaced for 2015 and beyond. The management of our food operations has been consolidated into two centres and the recent awards from Mars are encouraging given the recent downturn in expenditure within this sector. Within Manufacturing the benefits from the introduction of "LEAN" and the various continuous improvement initiatives implemented during 2013 are becoming more tangible. The market available to our specialist door manufacturing business is still growing and the move to our new facility later in 2014 will help us capitalise on these opportunities and we expect a number of long awaited major defence and infrastructure projects to be announced this year which provide us with further opportunities. The recent announcement from the Government on the strike price for the electricity to be generated at Hinkley Point will hopefully lead to EDF making a positive decision on the construction of the two new nuclear reactors at Hinkley Point some time later this year. Management have not incorporated any revenues for Hinkley Point into its plan for this year but look forward to awards as projects start to come through in 2015/2016.

Richard Shuttleworth

Chief Executive

5 February 2014

Consolidated Income Statement

* Adjusted operating profit is profit before financial income, financial expenses, tax and amortisation of intangible assets acquired with business combinations.

Consolidated Statement of Comprehensive Income

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:

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 2013

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

Year to 30 September 2012

The 2012 comparative figures have been restated to better reflect the business segments as presented to the CODM in the management accounts in the year ended 30 September 2013.

1. Segment analysis (continued)

The 2012 comparative figures have been restated to reclassify cash, borrowings, acquired intangible assets, purchased goodwill, retirement benefit obligations and deferred tax as unallocated because this better reflects the information as presented in the management accounts of the operating segments whose primary focus is on trading performance and working capital.

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 £13.4 million and the other which is a customer of the Nuclear segment alone accounted for revenue of £14.5 million (2012: one customer accounting for £19.0 million of revenue in the Nuclear and Manufacturing segments and another in the Nuclear segment only, accounting for revenue of £12.1 million).

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:

The Vivergo contract has been subject to dispute over a number of years and the carrying amount in the previous period of £9.8 million reflected the amount that the Board believed was recoverable based on the views of its professional advisers throughout the legal process. Following receipt of a judgement on the matter on 16 December 2013, Vivergo made an offer of £2.1million in full and final settlement of all claims between the parties. After careful consideration of the risks associated with pursuing the matter further through legal proceedings the Board accepted the offer of £2.1 million on 30 January 2014 and accordingly has written down the carrying amount by £7.7 million in these financial statements.

Redundancy and restructuring costs reflect the costs of substantial resizing of businesses within our Nuclear and Engineering segments to align them with the reduced level of activity currently being experienced in these sectors. These are split between cost of sales and administrative expenses on the basis of the function of the personnel to which they relate.

An amount of £2,568,000 was charged in respect of legacy contracts in the year ended 30 September 2012. During 2013, there were further adjustments totalling £671,000 required against certain of those contracts resulting in an additional provision in the year.

Nuclear new build bidding costs have been separately identified because this is a potential new business stream for which no revenues have yet been generated and no orders have been secured.

3. Financial income and expenses

* Includes £150,000 of pension administration expenses paid for by the Company (2012: £110,000).

4. Tax expense

5. 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 £15,850,000 (2012: £7,483,000) as their recovery is insufficiently certain in the longer term.

Effect of reduction in the main rate of Corporation tax

The reduction in the main rate of corporation tax from 23% to 21% and 21% to 20% effective from 1 April 2014 and 1 April 2015 respectively was substantively enacted on 2 July 2013. Accordingly, deferred tax balances which are expected to reverse between 1 April 2014 and 31 March 2015 have been recognised at the reduced rate of 21%, and those balances which are expected to reverse after March 2015 have been recognised at the reduced rate of 20% in these financial statements.

6. Earnings per share

Basic and diluted loss per share

The calculation of the basic loss per share of 31.32p (30 September 2012: loss per share 14.46p) is based on 29,846,700 shares (30 September 2012: 29,788,367) being the weighted average number of shares in issue throughout the period and on a loss of £9,349,000 (30 September 2012: loss of £4,306,000).

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 2013 and 30 September 2012 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.

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:

7. Retirement benefit obligation

The Group sponsors a defined benefit pension scheme in the United Kingdom, the Booth Industries Group PLC Staff Pension and Life Assurance Scheme ("the Booth Scheme") and operates a small number of defined contribution pension schemes and makes contributions to personal pension plans.

a) Defined benefit scheme

Pension benefits are linked to the members' final pensionable salaries and service at their retirement date (or date of leaving if earlier). The scheme is closed to new entrants. The Group has opted to recognise all actuarial gains and losses immediately through the Consolidated Statement of Comprehensive Income.

The most recent formal actuarial valuation, which was completed prior to 30 September 2013, was carried out as at 6 April 2012. The results of this valuation have been updated to 30 September 2013 by an independent qualified actuary. The assumptions used were as follows:

Assumptions