Turnover drops but Redhall looks to progress

The Wakefield-based group, which issued a profits warning and the departure of its chief executive last week, said turnover fell nine per cent to £51.4m in the six months to March 31 and adjusted pre-tax profits tumbled from £500,000 to £200,000.

Chairman David Jackson said the new management team will concentrate on increasing margins in the short term rather than top line growth .

“Once we have achieved this we can again look to grow,” he said. “The board remains convinced that the group’s future prospects are strong.”

Former chief executive Richard Shuttleworth resigned with immediate effect last week and was replaced by group commercial director Phil Brierley.

Analyst David Buxton at FinnCap said: “Redhall’s interim results are overshadowed by the two recent trading updates and management changes. Following the recent profits warning we placed our forecasts under review, seeking greater clarity from interim results and the new management.

“We now introduce lowered 2014 forecasts, with an adjusted pre-tax profit of £1.0m, down 50 per cent from £2.1m.

“New management needs to demonstrate a recovery in profitability, while it will also take time to stabilise and restore the market’s confidence in the shares. As such we believe a ‘Hold’ rating is appropriate.”

Redhall’s interim finance director Chris Kelly, the former finance director of Town Centre Securities, was appointed group finance director in May.

Mr Jackson said projects for key customers were delayed in the first half as a result of budgetary pressures and extended sign-offs.

“While most engineers are seeing market recovery, Redhall is still experiencing project delays and reductions in the expected order pipeline,” said Mr Buxton.

Mr Jackson said the group has set expectations for the current year which reflect these delays and a more prudent approach has been adopted to future forecasting.

“There has been considerable management change during the last 18 months including the recent appointment of a new chief executive and group finance director,” he said.

“The board’s objective for the next 18 months is to have stability in the management teams as change inevitably brings uncertainty, disruption and cost.”

The group’s current order book stands at £85m, down from £111m at the year end. Mr Jackson said the group has re-assessed its framework contracts based on current activity levels, which has resulted in a £30m reduction in the order value.

“Our high level prospects remain good and we are close to realising work in several areas of the business, particularly so in manufacturing and in the food segment of our engineering division,” said Mr Jackson.

“In the longer term, we remain convinced that the proposed new nuclear reactors at Hinkley for EDF will go ahead, but we cannot give any guidance on a start date and have therefore excluded this potential work from our forecasts,” he added.

Analyst Andy Smith at Charles Stanley said: “The issue for the company in 2014 has been major clients suffering substantial delays and provisions on legacy provisions which have been reflected in the revised expectation for the full year.”

The new chief executive Mr Brierley said: “The industrial market continues to be challenging for our customers as evidenced in the recent decision by Polimeri to close their plant at Hythe in Hampshire. There has been reduced activity in plant shutdowns in the first half of this year with programmes deferred.”