Provision for dispute pushes Redhall into red

David Jackson
David Jackson
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ENGINEERING support services group Redhall plunged into the red after an £8.4m provision for a contract dispute wiped out profits, but insisted its future is bright as nuclear opportunities stack up.

The Wakefield-based group said the provision was a “prudent view” of what it hopes to recover from the Vivergo contract for pipework at a new biofuels plant at Saltend near Hull.

The contract was terminated prematurely in March due to what Vivergo called “unacceptable” performance. Redhall and Vivergo, a joint venture between BP, British Sugar and Du Pont, have taken their dispute to adjudication to determine liability.

Total provisions of £11.3m drove Redhall to £8.1m pre-tax losses. Turnover was down 12.5 per cent to £126.6m, primarily due to weakness in the group’s process division. Redhall is not paying a dividend, and plans to review this in the coming year.

Finance director John O’Kane said the Vivergo provision is the “middle ground of a range of possible outcomes”, roughly half of the total balance sheet impact of £17m.

“We are taking a prudent view of the recoverability,” he added. “It’s a provision, not a write-off.”

Executive chairman David Jackson said the provision is “in no way a reflection of a just award for the work undertaken under the contract”. Rather, he said, it is an “acceptance that the process of recovery of outstandings under English law is an extremely lengthy and expensive process”.

Redhall has so far spent about £1m on the disputed contract. Mr Jackson expects the dispute to conclude next year through mediation, rather than end up in court. “You never get 100 per cent through mediation,” he said. “I don’t feel any different about the rights and wrongs of the case.”

Despite the dispute, Mr Jackson insisted the company stands “on the cusp of the biggest opportunity in the engineering industry for decades” as Britain replaces aging nuclear and coal-fired plants with new nuclear power stations.

Shares in the company firmed 3p to 70.5p.

“The market opportunities for us are enormous going forward,” said Mr Jackson. “I’m more bullish about the two to three-year view than the 12-month view. I think the business will take a step up as the nuclear new build programme starts.”

Redhall said trading “greatly improved” in the second half of its financial year, especially around defence and energy. Its order book now stands at £116m, and Mr Jackson said booked orders are much better quality than a year earlier.

The company expects the first nuclear new build orders in 2012, and to be on site by 2014. It is targeting opportunities around pond liners, used to store nuclear fuel, and has a joint venture with ACCP which it hopes will win work at Hinkley Point C in Somerset worth £25m.

It also hopes to win pipework contracts, each worth £100m, and has a memorandum of understanding with Vinci of France around this. The company is also in talks around the supply of shield and security doors for contracts worth £50m at each new plant.

“There are huge opportunities for our business, particularly with the French partners we have got,” said Mr Jackson. “We believe that key decisions on nuclear new build will be made during the course of the next twelve months. The supplier base is starting to take shape and we are well positioned to play a significant role.”

The group has restructured in recent months, cutting about £1m of costs from its process division, including an unspecified number of redundancies. It said this has helped the division remain profitable amid tough market conditions.

The company ended September with net debt of £10.2m and said this remains comfortably within its banking covenants and facilities, which are not due for renewal until 2015. It expects cash generation to help cut debt during the year.

Redhall is still searching for a new chief executive after Simon Foster resigned as CEO for “family reasons” in February. “We still have not found the right person,” said Mr Jackson. “I’m confident that we will appoint somebody in the first six months of 2012.”

Michael Donnelly, analyst at house broker Canaccord Genuity, said the results were in line with its expectations. “The outlook statement is bullish, citing a strengthening order book with good margin potential and expectations of a continuation of the performance in energy and defence and an improvement in the performance of process,” he said.

Canaccord recently replaced Altium Securities as Redhall’s broker.

North Atlantic builds stake

Executive chairman David Jackson said investors have largely stuck with Redhall through its Vivergo contract dispute.

However, Fidelity, Schroders and Rensburg Sheppards, sold shares during the year, allowing North Atlantic Value Trust to amass a 15.3 per cent stake in the company.

The fund, headed by Christopher Mills, paid £2.8m for the 4.5m shares.

“He saw this as an incredible value opportunity,” said Mr Jackson. “He’s now our biggest shareholder; he’s very supportive.”

Mr Jackson added he does not believe North Atlantic is building the stake for a takeover.

“He’s been known to acquire businesses in the past but he’s not told us that’s his intention here,” said Mr Jackson.

North Atlantic also has a stake in Wetherby-based hazardous waste firm Augean.