We’re through the worst, says Redhall after tough six months

REDHALL insisted the worst is behind it after suffering a “disappointing” six months as a contract dispute, poor trading and the departure of its chief executive weighed heavily.

The Wakefield-based engineering support services company was dealt a heavy blow in March when its biggest contract – to build pipework at the Vivergo biofuels plant near Hull – was axed prematurely.

Combined with poor trading, that sent adjusted pre-tax profits in the six months to the end of March plunging to £1m from £3.3m a year earlier. Revenues dipped to £64.3m from £65.4m the prior year.

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“The board believes this is a low point and trading will be much improved in the second half and beyond,” said chairman and chief executive David Jackson.

“We are deeply committed to resolving the Vivergo issue and restoring shareholder value.”

But shares in the company sunk another 8.7 per cent yesterday to close down 6p at 63p as Redhall axed its dividend. Since the Vivergo dispute was announced its shares have more than halved in value. Redhall said it will consider resuming the dividend in September.

The contract was axed because, according to Vivergo, the mechanical and piping work was significantly behind schedule. Redhall disputes this and has launched legal action to try to recover what it claims are £14.6m in unpaid costs, plus damages.

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The group did not make a provision to provide for the unpaid costs, insisting it is on solid legal ground to reclaim the money, having sought two external legal opinions.

“We thoroughly debated it and listened to all the professional advice we took,” said Mr Jackson.

Redhall added it expects any counter-claim for damages from Vivergo to be invalid. It hopes to have more clarity on the dispute by the end of its financial year in September.

Despite the dispute, Redhall insisted other customers are not being put off placing orders with the group. Since the Vivergo dispute was revealed, it has won orders worth £25.6m, giving it a £101m order book.

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“We got on the front foot and explained this to all our major clients,” said Mr Jackson. “They all accepted it’s a one-off. It’s very much business as usual at Redhall.”

Among the deals won in the first half were a £7.5m three-year contract with Chevron for repairs on their terminals.

It also received a £4.8m order for Sellafield nuclear plant and the first phase of a £20m contract with AWE. Redhall’s nuclear business has also received its first substantial invitations to tender for nuclear new build.

As well as the Vivergo problems, Redhall had to contend with poor trading in its energy and process divisions, where margins are being squeezed.

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However, its defence business remained robust, and Redhall said it is confident the energy division will pick up in the second half, while its process arm is also showing signs of improvement.

The group is also looking for a new chief executive after Simon Foster resigned for “family reasons” in February. Mr Jackson, who has taken on this role alongside chairing the group, said the search has started for a replacement, but he will not rush it.

He added Redhall’s senior non-executive director Ian Butcher has become deputy chairman, and the group has also appointed two new managing directors. Helen Simms heads its nuclear business and Richard Edwards leads its manufacturing arm.

“They have brought a wealth of operational experience and fresh perspective to their new roles,” said Mr Jackson.

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The Vivergo dispute drove net debt at the end of March to £10.8m, but Redhall said its banking facilities are adequate.

Acquisitions are on hold while the group focuses on paying back the debt.

Mr Jackson added: “I’m a fighter and I will come back from this and I’m determined to work through the next three to six months to get a clean sheet.

“It’s not a business that’s in crisis. The share price just reflects the fact that there’s some uncertainty with Vivergo.”

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Analysts at house brokers Altium Securities reduced their profit and revenue expectations for the full year. They see Redhall reporting £3m of adjusted full-year profits, from a previous expectation of £4m. They trimmed their full-year revenue forecast from £150m to £140m.

“We still expect second half underlying pre-tax profits to be substantially ahead of the first half, although the new business component of our second half revenue estimate looks increasingly demanding and therefore we are reducing our numbers,” they said.

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