Preliminary Results

Redhall Group plc

("Redhall" or the "Group")

Preliminary Results for the year ended 30 September 2010

Redhall Group plc, the specialist engineering support services group, announces its preliminary results for the year ended 30 September 2010.

FINANCIAL HIGHLIGHTS:

·; Revenue up 12% at £144.7 million (2009: £129.0 million)

·; Adjusted profit before tax up 9% to £7.0 million (2009: £6.5 million)

·; Adjusted fully taxed and diluted earnings per share up 6.5% to 17.0p (2009: 16.0p)

·; Proposed 9% increase in total dividend to 4.8p per share (2009: 4.4p)

·; Net cash resources of £5.4 million (2009: £6.3 million)

·; Order book remains at a consistent level with last year at £115 million

OPERATIONAL HIGHLIGHTS:

·; Fifth successive year of growth

·; Operating margin maintained above 5% in challenging markets

·; Well positioned in Energy and Defence markets with positive long term drivers

·; Long term workstreams protected in the Comprehensive Spending Review

·; Number of new contracts won with Sellafield, Magnox, Vivergo and Teesside, Dungeness and Torness power stations

·; Key strategic partnerships agreed for nuclear new build programme

David Jackson, Chairman of Redhall, commented:

"A pleasing performance in difficult market conditions reinforces our belief that we are delivering on our sound strategy. The medium and long term prospects of this Group remain extremely good. We are confident that we have positioned the business in key sectors in growth markets and in particular we are looking forward to the start of the Nuclear New Build programme where we have a lot to offer."

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Chairman's Statement

Introduction

We are pleased to report that the Group has produced an improved trading result in the face of difficult market conditions. The specialist nature and spread of our businesses has enabled us to maintain our overall margin whilst increasing revenue by more than 12%.

The Group's strategy remains focussed on energy, defence and process and the platform of robust trading has enabled us to complete the restructuring of our engineering services business to trade as Redhall Engineering. Whilst this has contributed to substantial exceptional costs, the restructuring has been well received by our clients and will show considerable operational cost reductions in future periods. In 2010/11 we shall be restructuring our nuclear businesses to trade as Redhall Nuclear. This process will incur some one-off costs but these will be significantly less than those associated with Redhall Engineering.

We continue our efforts to grow the business by acquisition since withdrawing from the competition to acquire Mount Engineering. We are focussing our attention on high margin businesses that can improve our net margin return and complement our existing engineering service operations. We believe we have the financial and management capacity to considerably improve earnings per share without compromising our balance sheet.

Trading Results

Revenue for the year ended 30 September 2010 increased by 12.2% to £144.7 million (2009: £129.0 million). Adjusted profit before tax which excludes exceptional items and amortisation of intangible assets stood at £7.0 million, up 9.0% from the comparative of £6.5 million.

The adjusted operating margin achieved was slightly down at 5.1% compared to 5.2% in 2009 and was a strong performance given the competitiveness of the market. Adjusted fully taxed and fully diluted earnings per share stood at 17.0p compared to 16.0p in 2009, an increase of 6.5%.

A segmental analysis of trading is incorporated in the Business Review accompanying this statement but in summary Energy traded satisfactorily with increased operating profits, Defence traded exceptionally well with operating profits almost double last year and whilst Process has traded below expectations steps have been taken to address this.

Financial Position

The Group continues to maintain its strong financial position with net assets of £45.0 million (2009: £42.9 million) and net cash at the year end of £5.4 million (2009: £6.3 million). Our cash conversion in the year under review was low at 43% caused in the main by the previously anticipated increase in our work in progress position on our major contract at Vivergo the large bio-ethanol plant at Salt End. However, cash conversion viewed over a four year period shows a more acceptable figure of 79% given the Group's record of growth, and the position at 30 September 2010 reflects a more normal working capital position which we expect to continue.

The Group's effective tax rate in the year was 21.5% (2009: 20.2%), an improvement on the 25% predicted this time last year. Unutilised losses now stand at £0.4 million and it is anticipated that the effective rate of tax next year will be close to the standard rate.

The exceptional costs in the year totalled £1.8 million and comprised aborted acquisition costs net of an inducement fee payment from Mount Engineering of £165,000 and reorganisation and downsizing costs.

Dividend

The Board has proposed the payment of a final dividend of 3.0p resulting in a full year dividend of 4.8p per share. This represents an increase of 9% from last year's dividend of 4.4p and confirms the Board's continuing confidence in the future prospects of the business. The dividend is in line with the Board's policy of a minimum of three times cover on taxed earnings. The final dividend of 3.0p per share will be paid on 10 February 2011 to shareholders who are on the register on 14 January 2011.

People

We have an exceptional workforce. The results announced today are a testament to their skill and endeavour as market conditions have remained testing during the last twelve months. The Board wishes to acknowledge the efforts of all our employees in the achievement of these results.

We continue to strengthen our team immediately below main Board level and we are delighted to have filled the position of Managing Director, Redhall Nuclear with a strong candidate from a major competitor. We are currently seeking a Managing Director for our manufacturing operations and this appointment will conclude the recruitment immediately below main Board level giving a strong operational team with the capability of driving each division forward.

Future Prospects & Strategy

Whilst it is difficult to predict the level of organic growth that the business can achieve in the short term until we see a return to more normal market conditions, the medium and long term prospects of this Group remain extremely good. We are confident that we have positioned the business in growth sectors in growth markets. We also believe our skilled direct delivery model and our unique blend of contracting and manufacturing capability gives us an edge when providing a turnkey solution for our clients. In particular we are looking forward to the start of the Nuclear New Build programme where we have a lot to offer.

Our strategy in Nuclear New Build has been to ally ourselves with European organisations who provide the scale and experience of working in global markets to improve our prospects of participation. It is interesting to note that we have been approached by many potential partners both UK and European based who have identified our unique offering. We have now concluded our negotiations and are pleased to announce that we have signed heads of terms with the French manufacturing company ACPP. They are an established supplier to the French, Finnish and Chinese nuclear markets and we will assist in a joint bid to supply pond liners to the proposed nuclear power plants at Hinkley Point and Sizewell. The agreement will comprise a 50/50 joint venture company and it is envisaged that we shall assist in supplying markets outside as well as within the UK. We have also signed a Memorandum of Understanding with Nuvia, the nuclear arm of French based Vinci Group with whom we shall be bidding for work on site at Hinkley Point and Sizewell. It is anticipated that work will emanate from the manufacturing agreement starting in 2012/13 and from the contracting agreement in 2013/14. The opportunities in this Nuclear New Build programme are significant and Redhall is well positioned to benefit through these strategic partnerships.

The recent Comprehensive Spending Review caused no major deferral of projects that we are currently operating on or bidding although there has been a short term slow down in the allocation of work at Sellafield. In the oil and gas market we are beginning to see market dynamics improve which should result in an increased work level during 2011. It remains critical to win major targeted projects and we have a good record of success on specific targets. Our order book remains at a consistent level with last year at £115m which is satisfactory in the current climate.

We are committed to increasing the size of the Group, for both trading and investor purposes, and continue to vigorously search for suitable bolt-on acquisitions. We are looking at a range of possibilities but our objective is to improve margin and create opportunity for our existing businesses.

David Jackson

Executive Chairman

1 December 2010

Business Review

Introduction

We are pleased to report the Group's fifth successive year of growth with adjusted operating profit 10% ahead of 2009 and operating margins maintained in excess of 5%. The strategy of acquiring and developing a balance of engineering activities delivered to highly regulated UK and overseas sectors has underpinned this year's performance despite the ongoing economic challenges in the wider market.

2010 has been a year where we have consolidated our activities, with the Group aligning its operations to its key markets, particularly in our Energy division, where we see potential for gains both in the UK and overseas. Redhall as a trading brand was launched for the first time in January 2010 and client reaction has been positive. We believe that the simpler and more integrated model better matches our client expectations whilst providing improved opportunities for our people. It should also better position the Group for more sizeable opportunities in the future as clients' investment programmes return and we move towards a period of new build in the nuclear sector.

We have continued to drive continual improvement across the Group, particularly in the areas of health, safety and quality and have seen our reportable lost time accident rate fall a further 30%, with four incidents in the year. These improvements have been made in businesses acquired in recent years, particularly in defence. We have also continued our excellent track record in our nuclear businesses where we now have 21 years without a reportable lost time accident. Given the high hazard nature of our operations this performance is a credit to our businesses and people. We continue to strive for our zero accident target.

The Group's financial performance has been generated as a consequence of strong performances in our Energy and Defence divisions whilst our Process division has continued to experience difficult market conditions. The Energy operations experienced growth in volumes and market share whilst Defence operations demonstrated improved margin. These activities represented 70% of revenues. Further action has been taken to address the decline in the Process division to reflect the current trading environment.

Comprehensive Spending Review ("CSR")

We welcomed clarity on budgets announced in the CSR in late October. Whilst it will inevitably take some months for the finer detail to be disseminated to the supply chain, early indications for the Group are generally positive and any impact is likely to be limited to the short term.

Importantly, the Nuclear Decommissioning Authority budgets have been preserved for long term decommissioning, full commitment was given to the Astute Class submarine programme and AWE's budgets for the current nuclear programme were confirmed.

Whilst there was an inevitable delay in some capital projects as we entered the current financial year, the CSR remains a significant opportunity in the medium term for the Group, as clients seek efficiencies in their own organisations and place greater reliance on their trusted supply chains. Our challenge is to demonstrate both long term commitment, quality of delivery and value for money.

Energy

*stated prior to amortisation of acquired intangibles, exceptional items and central overhead.

The Group's activities in Energy saw growth in the year, with revenues up 19% to £77.8 million and adjusted operating profit up 3% to £5 million. Operating margin was 6.5%. Revenues improved due to increased activity in both specialist manufacturing and engineering services for the upstream and downstream oil and gas sector, however margins were held back through more subdued market conditions within the nuclear clean-up market.

In civil nuclear, we have consolidated our position in the market with our integrated offering of specialist manufacture and engineering services. We completed key engineering projects for the refurbishment of Sellafield's combined heat and power plant at Fellside and secured a follow on three year contract for maintenance work. We also won a £5 million contract for upgrading the Sellafield Boiler Park. Our Sellafield Multi-Discipline Site Works framework contract, which provides us with ongoing work packages in the high hazard legacy facilities, was extended to a fourth year.

In Sellafield major projects, we secured our first orders for specialist equipment for SPP1 and Evap D and we hope to secure further orders shortly. Beyond Sellafield we secured orders for waste management and clean-up work at Bradwell and Hunterston which remain NDA priority sites.

The Group extended its activities into the wider nuclear power generation market with contracts for British Energy at Dungeness and Torness power stations. We are also preferred supplier for a five year £15 million contract for multi-disciplinary maintenance services for GDF Suez for Teesside Power Station which commences in 2011.

During the year we developed our position in nuclear new build. We are pleased to announce the signing of a Memorandum of Understanding with Nuvia, the nuclear subsidiary of French Group Vinci, for the provision of mechanical engineering services and specialist manufacturing for the Areva EPR reactor. We have also agreed terms of a Joint Venture with ACPP of France for the design, manufacture and installation of specialist nuclear pond liners. ACPP are currently engaged on Areva builds in France, Finland and China. We believe the strategy of partnering with French and UK organisations to access nuclear new build is important and we have submitted sizeable bids for Hinkley, Wylfa and Sizewell in excess of £100 million which could benefit the business within three years.

In September, we were pleased to announce the appointment of Helen Simms as Managing Director of Redhall Nuclear. Helen joined us from Amec Nuclear where she was business unit director.

In oil and gas, we saw growth in demand for our integrated engineering services offering under the newly launched Redhall brand. We secured term contracts for tank and terminal maintenance and refurbishment for Chevron and were awarded a £30 million mechanical construction contract for the UK's largest bio-fuels project with Vivergo Fuels in Hull. We also completed the £9 million low sulphur diesel plant at Lindsey Oil Refinery. The Group is now benefitting from an enhanced reputation and national reach.

The offshore market for blast and fire related products had a strong first half as front end engineering conducted in early 2009 paid dividends in the year. Product was provided as far afield as Korea, Malaysia and Australia in addition to the North Sea. The second half saw an increase in enquiries for future projects as clients started to invest ahead of expected improvements in commodity prices and in reaction to the Deepwater Horizon disaster in the Gulf of Mexico. We would expect to see a pick-up in activity from the second half of 2011.

We believe the Energy division of the Group is well placed for the medium to longer term. Key drivers remain the clean-up of legacy nuclear facilities, extension of the life of current power generating stations and the securing of sustainable long-term clean energy sources. We believe the Group has built specialist resources in both manufacturing and services that will be in demand as investment programmes develop in these areas.

Defence

*stated prior to amortisation of acquired intangibles, exceptional items and central overhead.

The Group's Defence division saw an 85% increase in operating profits to £3.2 million on slightly reduced revenues of £24.1 million. The margin was up substantially to 13% due to mix of work, targeted operational improvements in acquired contracts and successful completion of a number of major projects.

The breadth of work at AWE has continued to develop with significant turnkey projects valued in excess of £10 million complementing our existing re-kit activities in the radiological areas of AWE. Whilst the recent CSR has re-ignited the debate about the UK's future nuclear deterrent sometime in the future, there is every indication that long term programmes of work at AWE are secure, and we believe the Group can play a material role.

We are pursuing new sizeable turnkey projects at AWE where we have been involved in front end studies and believe our unique skills in security product design and manufacture aligned with our 16 year site presence will benefit the Group.

Our long term outfitting contract with BAE at Barrow for the build of the Astute class submarines performed in line with our expectations with improvements in financial and operational performance. We saw the completion of the first submarine in late 2009 and expectations are that Boat Two will launch in 2011. We are already advancing rapidly with Boats Three and Four. We were delighted to see confirmation in the CSR of the commitment to Boats Five to Seven which have the potential to provide sustainable work well into the future. The Group believes it can provide a greater scope of service to its client and has recently been awarded its first contract for mechanical works outside its original scope.

The Group has longstanding reputations for delivery with clients such as AWE and BAE and with the changes outlined above we believe we can grow our business with them and the wider Defence and Security sector.

Process

*stated prior to amortisation of acquired intangibles, exceptional items and central overhead.

The Group's operations in turnkey design and build and term contract maintenance for the food, pharmaceutical and chemical sectors saw a challenging year with revenues increasing 10% to £42.7 million but adjusted operating profit falling to £1.3 million. Operating margin decreased to 2.9% due to the continuation of difficult market conditions and the very competitive environment.

Whilst the Group managed to secure improved market share, it has been with reduced margins as a greater proportion of work has been competitively tendered. In turnkey projects we secured contracts in the UK and in Eastern Europe for clients such as Nestle, Cadbury and McCains which we believe are pre-cursors to further expansion.

With no improvement in the trading environment in the second half of the year, we decided to further restructure the operations which resulted in the second half exceptional charge. We remain committed to our key clients and believe in the longer term that investment from our multi-national blue chip clients will return as market conditions for the UK and Europe become more favourable.

Summary

We expect challenging market conditions to continue in the short term, however the Group is well placed in its chosen markets and there are indications that both public and private sector spend particularly in our regulated markets will be less affected than other areas and over the medium term be well supported. Our order book at £115 million together with a sizeable bid pipeline gives us confidence that we will continue to make progress in the medium term.

We have been delighted that the Group has continued to grow organically over the past two years and thanks must go to our people who have remained absolutely committed during difficult economic times. The consolidation and integration of our activities is key to positioning the Group for the future particularly in our Energy and Defence divisions.

Whilst the Board remains cautious for 2011, it believes that the Group is well positioned for the future.

Simon Foster

Group Chief Executive

1 December 2010

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

1. Segment analysis

The Group has adopted IFRS8 Operating Segments for the year ended 30 September 2010. Following adoption, the operating segments remained the same as those reported in the year ended 30 September 2009. The segment information set out below reflects the information provided to the Group Chief Executive, who is the Chief Operating Decision Maker as described by IFRS8. The activities in each segment are summarised as follows:

Energy

Energy comprises the design and manufacture of bespoke plant and equipment, repair and maintenance of production and storage infrastructure and the implementation of major mechanical engineering projects in the UK nuclear, oil and gas and power generation sectors.

Defence

Defence encompasses activities on behalf of the Ministry of Defence ("MOD"), in particular the outfitting of Astute class submarines at Barrow, West Cumbria and the design, specialist equipment manufacture and mechanical and electrical engineering activities at the Atomic Weapons Establishments at Aldermaston and Burghfield.

Process

Process comprises the design, manufacture and mechanical installation of process plant and systems to the food, chemical and pharmaceutical sectors.

Operating segments

Year to 30 September 2010

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

Share based payment charges amounting to £124,000 (2009: £76,000) have been charged within central costs.

 Year to 30 September 2009

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

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 (2009: one) in the Energy segment accounted for revenue of £15.3 million and £20.9 million respectively (2009: £15.2 million).

2. Financial income and expenses

* Includes £150,000 of pension administration expenses paid for by the Company (2009: £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:

Unrecognised deferred tax assets

Deferred tax assets have not been recognised on tax losses of £382,000 (2009: £1,921,000) as their recovery is insufficiently certain.

5. Earnings per share

Basic earnings per share

The calculation of basic earnings per share of 12.02p (30 September 2009: 14.23p) is based on 29,605,423 shares (30 September 2009: 28,797,206) being the weighted average number of shares in issue throughout the period and on earnings of £3,558,000 (30 September 2009: £4,098,000).

Diluted earnings per share

The calculation of diluted earnings per share of 11.94p (30 September 2009: 14.07p) is based on profit for the period of £3,558,000 because no adjustments were required (30 September 2009: £4,098,000 because no adjustments were required) and on 29,810,177 ordinary shares (30 September 2009: 29,124,307) as calculated below:

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 are set out above. The adjusted earnings have been calculated as follows:

6. 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.

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 was performed as at 6 April 2009. The results of this valuation have been rolled forward to 30 September 2010 by an independent qualified actuary. The assumptions used were as follows:

Assumptions

Analysis of movement in retirement benefit obligation

Change in fair value of scheme assets during the year