Redhall shares rise after contract ruling

The Wakefield-based group’s shares closed the day up 12.5p at 90.5p after an independent adjudicator ruled in its favour over the premature termination of its biggest contract – for pipework at a biofuels factory near Hull.

Redhall was dealt a heavy blow in March when its subsidiary Redhall Engineering Solutions Ltd’s contract at the Vivergo plant was brought to an abrupt halt.

Yesterday Redhall said the adjudicator ruled “Vivergo had unlawfully attempted to terminate its contract with the company and, by denying the company’s workforce access to the site, had repudiated the contract”.

Redhall claims the contract breach left it £16.7m out of pocket, based on the outstanding value of the contract and a settlement made to former employees.

“The group is vigorously pursuing the process to recover damages for Vivergo’s contract repudiation and also to recover unlawfully withheld monies,” added the group.

The contract dispute left about 430 workers without jobs, with both Redhall and Vivergo denying responsibility for them. In April, Redhall agreed to pay £1.2m to former staff who lost their jobs, insisting the settlement was not an admission of liability.

Once complete in 2012, the biofuels plant will produce 420m litres of bioethanol annually. It will also produce 500,000 tonnes of mid-protein, high-fibre animal feed annually.

A joint venture between BP, British Sugar and Du Pont, Vivergo awarded the contract to Redhall in March 2010.

Analysts at Redhall’s house broker Altium Securities said while the contract had originally been worth £23m over eight months for Redhall, the total value of work completed by the group ballooned to £29.2m, of which £14.6m of costs remain unpaid.

Redhall has so far insisted no provision is needed for the contract. Yesterday it said the outcome of any settlement “remains subject to normal legal process and the timing of any resolution remains uncertain”.

Redhall’s chairman and chief executive David Jackson said the adjudication vindicated his stance.

“It’s not a relief because we always knew we were right,” he said. “I would like to get the whole matter sorted because then we can move on.

“They still owe us a lot of money although the adjudication will allow us to claim damages.

“As far as I’m concerned the adjudicator’s verdict is final and they have to accept it.”

Mr Jackson added it is “highly unlikely” the dispute will go to court, and said he hopes to have more clarity on a settlement by October. “We won the legal arguments very, very strongly.”

The contract was axed because, according to Vivergo, the mechanical and piping work was significantly behind schedule.

Vivergo yesterday said the adjudicator also ruled Redhall was “in material breach of its contract with Vivergo”. However, it added the adjudicator ruled Vivergo “did not give a valid notice under the contract”.

Dave Richards, managing director of Vivergo Fuels, said: “We took the decision back in March to terminate the Redhall contract with immediate effect due to significant performance issues and delays, which continued over many months despite our best efforts to work with the Redhall management to improve the situation.

“We welcome the finding of the adjudicator that confirms that Redhall was in material breach of the contract, and are disappointed that, in the adjudicator’s opinion, we failed to give the correct notice.”

It added: “Vivergo Fuels continues to believe that Redhall holds no grounds to pursue the alleged £16.7m losses relating to this contract.”

Redhall said trading and cash flow in the third quarter of its financial year have been in line with its expectations.

Brewin Dolphin analysts hiked their target price to 81p.

“The positive outcome improves Redhall’s chances of recovering the monies owed and reducing the gearing of the group’s balance sheet,” they said.

Altium increased Redhall’s target price to 125p and said the company is undervalued.

“This is positive on two fronts,” said analysts at Altium. “Firstly, it allows Redhall to pursue a claim for the value of outstanding costs and damages from Vivergo and secondly, it removes the possibility of Vivergo attempting to counter claim.”

HOPES IN NUCLEAR FIELD

REDHALL believes a rich vein of nuclear new build and decommissioning work lies ahead.

The group hopes to play a leading role in the construction of new nuclear plants to replace Britian’s aging fleet of nuclear and coal-fired power stations.

It recently created consolidated its nuclear operations into one division, Redhall Nuclear. While Japan’s earthquake and Fukushima nuclear disaster has caused ripples around the global nuclear industry, Redhall’s executive chairman and chief executive David Jackson said he is confident Britain’s new nuclear programme will go ahead.

“There’s an absolute need for green energy in this country,” said Mr Jackson.

“The new generation of nuclear power stations is very clean and they produce very little waste.”