Annual Report & Accounts

Transcription

1 Annual Report & Accounts 2017

2 Redhall is a leading International manufacturing and services provider in high hazard and security environments Redhall supports its blue chip client base using its integrated offering of design, manufacture and installation. Redhall continues to develop additional added value skills and products for its clients through focused investment in organic growth, innovation and through selective acquisitions. Redhall s mission is to be a global manufacturing and services business, by providing high integrity products and services in demanding environments that consistently exceed our customers expectation of quality, value and delivery. Our activities The Group designs, manufactures and installs bespoke specialist plant and equipment typically in the nuclear, defence, oil and gas, petrochemical, chemical, pharmaceutical, cellular network and food sectors. It has particular expertise in the design and manufacture of high integrity fire and blast resistant doors, window and wall systems.

3 Financial highlights Year ended 30 September Continuing business Group revenue 38,905 Adjusted operating profit* 1,430 Adjusted profit/(loss) before tax* 573 Group loss after tax (1,369) Loss on discontinued operations net of tax (265) Adjusted fully taxed basic and diluted earnings per share continuing business* 0.20p Basic and diluted loss per share (0.59)p Year ended 30 September , (1) (1,670) (983) 0.00 p (0.83)p *Adjusted results are stated before exceptional items of 1.1 million (2016: 0.4 million), amortisation of acquired intangible assets of 0.3 million (2016: 0.3 million) and IFRS 2 charge 0.4 million (2016: charge 0.4 million). Adjusted measures are presented to illustrate how the board views business performance. A reconciliation is provided in the income statement and Note 8. Contents 02 Chairman s Statement 04 Strategic Report 07 Financial Review 09 Operating Environments, Risks and Uncertainties 10 Company Information 11 Report of the Directors Group 15 Corporate Governance 16 Corporate and Social Responsibility 17 Independent Auditor s Report 20 Financial Statements Company 53 Financial Statements 65 Notice of Annual General Meeting Annual Report & Accounts

4 Chairman s Statement Martyn Everett Chairman Photo credit: EDF Energy Redhall s strategic transformation into a focused high integrity Manufacturing and Services group, working in complex, secure and hazardous environments, gained momentum in A growing proportion of the Group s order book is now manufactured product, principally for the nuclear sector. The Board has focused on delivering improvements in profitability and operational performance during the year to build a robust platform for a sustained period of growth. Jordan Manufacturing s success in being awarded preferred bid status on the 8 million marine works at Hinkley Point C illustrates the Group s strategic progress. In July 2017, and in response to the growing momentum of the Group s recovery, 9.5 million (before expenses) of new equity was successfully raised, at a premium, through an oversubscribed placing and additionally 3.75 million of debt was converted to equity. The fund raising provided increased working capital to deliver our order book as work moved from engineering to manufacturing in the second half. The order book stands at 32 million, up 19 per cent. compared with 27 million in December The order book comparison excludes the Redhall Marine contract with BAE which concluded in January Trading Results Revenue in the year ended 30 September 2017 from continuing operations was 38.9 million (2016: 43.8 million). Adjusted operating profit before exceptional items was 1.4 million (2016: 0.9 million). Adjusted diluted earnings per share for the continuing business amounted to 0.20 pence per share (2016: nil). The result was impacted by delays in major projects at the end of our financial year as announced in October Despite the outturn being below our original expectation, we are pleased with the progress achieved in the year. 02

5 The Group loss for the year was 1.4 million (2016: loss of 1.7 million) which represents a loss of 0.59 pence per share (2016: loss of 0.83 pence). Exceptional Items Exceptional costs for the continuing business of 1.1 million, comprised 0.7 million relating to the closure of the remaining element of our RBC business including the loss on sale of a long leasehold property and 0.4 million of management reorganisations in the manufacturing businesses as we continued to improve their capabilities and management teams. We exited our final contract in nuclear site-based contracting and agreed all final accounts. This resulted in a write down of 0.3 million, which represents the exceptional loss for discontinued operations, and will generate 0.7 million of cash of which 0.5 million will be collected early in our 2018 financial year. Total exceptional costs in the year ended 30 September 2016 amounted to 1.4 million. Financial Position It is very pleasing to be able to report that, following the placing and debt conversion in July and the capital reduction in September, the Group balance sheet is now considerably improved. Four-year bank facilities with HSBC Bank plc and funds managed by Lombard Odier Investment Management (LOIM) amounting to 7.2 million plus a further 2.5 million accordion facility were agreed in July At the year end the Group had net cash of 0.1 million (2016: net debt of 8.2 million). Net assets at 30 September 2017 were 30.0 million (2016: 15.5 million) reflecting the net proceeds of the placing and the debt conversion of 12.6 million and a reduction in the pension deficit of 3.3 million partially offset by the retained loss for the year of 1.4 million. The pension deficit of 0.5 million (2016: 3.8 million) reflects improvements in yields and investment performance and changes in mortality assumptions. fundraisings; refocusing the Group s activities onto high integrity manufactured products and services for delivery into complex environments; and establishing the Group in key growth markets, particularly nuclear but also large infrastructure projects such as Crossrail. The Board considers that the turnaround is complete, and the strategy is now focused on investment, improvement and growth in our core manufacturing businesses. With the completion of the turnaround, Phil Brierley has decided to step down from the role of Chief Executive on 31 March He will be succeeded by Wayne Pearson, currently the Group s Chief Operating Officer, who is an operationally focused executive with a background in manufacturing. To ensure a smooth handover of responsibilities Phil will remain with the Group in an advisory role until the end of I would like to thank Phil for the tremendous commitment he has given in delivering the turnaround strategy and in positioning the business for future growth. The Board receives great support from our employees and are very grateful to them for their commitment. We have commenced a management development programme for our senior employees and have engaged teams at all levels in business and process improvement projects during the year enabling them to make a strong contribution to the implementation of our strategy. Prospects The Board continues to see considerable opportunities for its manufacturing and services business. This is reflected in a significant volume of tenders, received by Booth Industries and Jordan Manufacturing, in our key nuclear defence, decommissioning and new build markets. We also see strong demand for our food process manufacturing and installation and mobile networks businesses. Dividend The Board is not recommending a dividend for the year to 30 September 2017 (2016: nil). Whilst the Board has no current intention of resuming dividend payments, the capital reduction which took place in September created a positive balance of 15.9 million on the Group profit and loss account, which provides it with the flexibility to pay dividends at the appropriate time in the future. People In the past three years the Group board has been committed to delivering the Strategic Turnaround Plan which included de-risking the Group by exiting from capital intensive, low margin contracting activities; strengthening the balance sheet and financial resources of the Group through the disposal of the Engineering Division, sale of assets, recovery of work in progress on legacy projects and Martyn Everett Chairman 6 December 2017 Annual Report & Accounts

6 Strategic Report Phil Brierley Chief Executive As the Group moves beyond the turnaround plan of the last three years, the focus of the 2017 financial year has been on putting in place the building blocks to deliver investment, improvement and growth in our high integrity manufacturing businesses. During the year under review, the Group achieved many of its targets including: n Further improvement in the size and quality of its forward order book. This stands at 32m (2016: 27m) with a greater proportion of the order book derived from high integrity manufacturing projects particularly in nuclear defence, decommissioning and nuclear new build; n An improving pipeline of tendered opportunities with high probabilities of conversion particularly in respect of longer term nuclear projects; n Strengthening the leadership team with particular focus on enhancing operational and manufacturing management expertise, most significantly with the appointment in July 2017 of Wayne Pearson as Chief Operating Officer. Wayne will be appointed Chief Executive at the end of March next year; n The strengthening of the Group s finances and balance sheet through raising 9.5 million (before expenses) of new equity and conversion of 3.75 million of debt to equity in July, ensuring that the Group has the financial resources to invest in process improvement, plant and equipment, facilities and automation to achieve growth in its core manufacturing markets; 04

7 n The order for Hinkley Point C completes our penetration into all three of the Group s key nuclear markets, being defence, decommissioning and civil new build; and n The restructuring of the Group s balance sheet through the capital reduction which completed in September, and resulted in positive retained earnings of 15.9 million. This will allow the Group to pay dividends at an appropriate point in the future and enhances the attractiveness of the Company s shares. The Group made an adjusted operating profit on continuing operations of 1.4 million (2016: 0.9 million) on revenue of 38.9 million (2016: 43.8 million), representing a net adjusted operating margin of 3.7% (2016: 2.0%). As detailed in the Group s trading update issued on 4 October 2017, this performance is below earlier initial expectations for the year, due principally to customer delays particularly on the Hinkley Point C project. Despite this, it is pleasing that it still marks an improvement over the 2016 financial year in terms of adjusted operating profit and adjusted net operating margin. Before deducting Group and central services costs the adjusted profit amounted to 3.6 million (2016: 3.3 million). The Board believes that the Group s turnaround is complete, and its strategic focus is now investment, improvement and growth in our manufacturing businesses. The opportunities in our core markets are considerable and we are particularly encouraged by the size of the markets in nuclear decommissioning and new build. We recognise that the future growth strategy requires a different type of expertise than the turnaround and corporate restructuring that has been the principal focus of the last three years. During our 2018 year we will progressively bring in further high calibre manufacturing and operational expertise to the leadership team. Health and Safety The health and safety of our employees and those who may be affected by our business remains our highest priority. All of our subsidiaries have accredited management systems to control health and safety risks to OHSAS and environmental management systems certified to BS EN ISO During the year, our subsidiaries once again applied for health and safety awards from The Royal Society for the Prevention of Accidents (RoSPA), which recognises high or very high levels of performance. All our businesses obtained a minimum of the Gold Award. Trading We believe that our Group companies are leaders in their respective markets and work with many of the key players within these markets. The focus of the Group is now on performance improvement and growth through cultivating customer relationships, devising bid winning strategies and delivering our quality products and services efficiently. Booth Industries Booth had a particularly strong second half in this financial year. A number of projects that had been in design for several months were released onto the shop floor resulting in an increase in turnover and performance. We invested 1.0 million in developing intangible assets and purchasing equipment during the year and are now starting to see some of the productivity benefits of this investment. By way of example our engineering output is significantly higher as a result of migrating all our core engineered doors onto 3D CAD models. We also invested in a laser cutting machine which has reduced lead times considerably. Delivery in the year was dominated by the manufacture of highly engineered doors for defence projects, predominately in the nuclear sector and the design and manufacture of doors for Crossrail stations and tunnels. These sectors are heavily represented in our bid pipeline where the largest elements are high integrity nuclear and tunnel doors. The delivery of the current order book in the first half of 2018 and conversion of the bid pipeline for the second half and beyond are key focuses for the business in the current year. Jordan Manufacturing Jordan Manufacturing suffered as a result of the delayed start to the works on the Hinkley Point C project which materially impacted the outturn for the year. The contract, estimated to be in excess of 8 million, is expected to be delivered in full before the end of our 2018 financial year. The Group remains very confident in the future prospects for this business. The Hinkley Point C project gives the business good visibility throughout 2018 and as a result of significant bid activity this year, we have a substantial pipeline of quality tendered projects which we remain optimistic of securing. We are also confident that Jordan will have the opportunity to secure a number of larger, long term nuclear contracts that will give us a strong baseload of future work. Redhall Jex Redhall Jex performed well in the second half of the 2017 year, helped by the delivery of a 2.8 million order for a key client. This project has extended into 2018 and its scope has increased to over 4.7 million. Coupled with the fact that all our major customers have capital spend programmes for 2018, this means that Redhall Jex is likely to perform above 2017 levels. Since the year end we made the decision to consolidate the activities of Redhall Jex in Grimsby into our Trafford Park facility in Manchester. This will make the overall operation more efficient and better controlled as well as reducing overheads. Most of the customer relationships are already held in Manchester. Redhall Networks Our networks business had another strong year as it continued to benefit from high volumes of new and upgrade works to the national cellular infrastructure. The long-term outlook is encouraging with mobile operators installing more technologies, disentangling shared sites, upgrading, replacing and reviewing their estates. We are confident, therefore, that the robust performance in Redhall Networks will continue. Annual Report & Accounts

8 Exceptional Items During the year we incurred 1.1 million of exceptional operating costs in our continuing businesses. These principally comprised of the costs incurred in the closure of the remaining element of the RBC business (including redundancies and the loss on sale of a property held by this business) and the costs incurred in further restructuring the senior management in the Group s manufacturing subsidiaries as we continue to improve our capabilities. The Group also incurred 0.3 million of exceptional costs relating to discontinued operations. These are non-cash costs which relate to the settlement of legacy final accounts. With the exception of agreeing the Redhall Marine account with BAE, on which work concluded during the year, these legacy accounts are now all agreed. Outlook We are pleased with the strategic progress achieved in the financial year. The strengthening of our manufacturing expertise, the further improvement in the quality of order book, an increasing pipeline of high quality opportunities and increasing adjusted operating profit margin give the Board reason for cautious optimism for 2018 and beyond. In our businesses, we await decisions on a number of sizable bids. Within this tendered pipeline are contracts and frameworks which span many years. We are confident that the likely conversions will provide the Group with a good revenue stream for years to come. Whilst nuclear defence, decommissioning and new build are key markets in which we are submitting an increasing number of bids, we are also devoting resource to large and complex infrastructure schemes, building on the expertise gained in projects such as Crossrail as we look to secure future contracts for HS2, Crossrail 2 and several international tunnel projects. Whilst capital spend within the oil and gas sector continues to be constrained, we are seeing the first signs of increased activity in this market. It is unlikely that this will have a material impact on our 2018 year but we are once again encouraged to be submitting tenders for live schemes. The cellular networks market remains buoyant with sufficient activity from the operators for the Group to be optimistic that this will continue for the foreseeable future. The operations in this business are well managed and we expect that it will remain a significant contributor in The major food customers of Redhall Jex have committed spend programmes for this year and although this will need to be converted into orders we are confident that the performance of the second half of 2017 will continue through into In support of our efforts to achieve growth in our order book, we aim to invest heavily in product development and equipment and to automate many of our activities to keep the Group at the forefront of its chosen markets. We continue to invest in our people, increasing the access they have to learning and development opportunities to create the highest calibre teams. Our 2018 financial year is another important phase in the delivery of the Group s strategic plans and for Redhall as a high integrity manufacturing and services business serving secure, hazardous and complex environments. The Group s ambitions are to deliver a strong performance, further building shareholder value. Phil Brierley Chief Executive 6 December

9 Financial Review Chris Kelly Group Finance Director Key financial indicators Continuing business Revenue 38,905 43,823 Operating profit before central costs, exceptional items, IFRS 2 and amortisation 3,632 3,295 central costs (2,202 ) (2,439 ) after central costs, before exceptional items, IFRS 2 and amortisation 1, Group loss (1,369 ) (1,670 ) Operating loss on discontinued operations after exceptional items (265) (983) Operating cash flow (3,371 ) (2,367 ) Adjusted fully taxed diluted earnings per share continuing business 0.20p 0.00p Basic and diluted loss per share (0.59 )p (0.83 )p Operating results The trading performance of the Group is discussed in the Strategic Report. Group revenue of 38.9 million reduced from 43.8 million in There was a reduction in turnover resulting from the completion of work for BAE on the Astute contract in January This was partially offset by increases in turnover at Booth Industries and Jordan Manufacturing in line with our strategic focus. The Group adjusted operating profit before central costs was 3.6 million (2016: 3.3 million). This demonstrates the profitability of the underlying businesses prior to deduction of central costs which are high because of the size of the Group at this stage of its development. Adjusted operating profit after central costs increased to 1.4 million (2016: 0.9 million) continuing the improvement of recent years as the platform for more aggressive growth into 2018 was created. The delays on key contracts at the end of the year were very disappointing but provided the opportunity to start 2018 strongly. The Group profit on continuing operations after IFRS 2 charge of 0.4 million (2016: 0.4 million) and amortisation of intangible assets 0.3 million (2016: 0.3 million) was 0.8 million (2016: 0.2 million). After financing charges of 0.9 million (2016: 0.9 million), the adjusted operating loss amounted to 0.1 million (2016: loss of 0.7 million). Exceptional items Certain charges and credits to the income statement, which due to their size or incidence, have been separately identified as exceptional items were as follows. Continuing business exceptional items consisted of 0.7 million relating to the closure of RBC (including the loss on disposal of a long leasehold property of 0.2 million) and other costs incurred in restructuring management teams of 0.4 million. In addition the Group incurred exceptional costs on discontinued operations of 0.3 million (2016: 1.0 million) in closing out certain site based nuclear contracts. Interest The Group incurred financing charges of 0.9 million during the year which comprised interest and arrangement fees of 0.7 million (2016: 0.7 million) and pension scheme net finance charge of 0.2 million (2016: 0.2 million). Taxation The Group tax credit for the year was 0.1 million (2016: tax credit of 0.4 million). The tax charge and movements in deferred tax are shown in Notes 6 and 12. The Group has tax losses carried forward of 18.5 million upon which deferred tax assets have not been recognised. Annual Report & Accounts

10 Dividends The Board is not able to recommend a dividend. Cashflow and net borrowings Group net cash amounted to 0.5 million (2016: 8.2 million). In addition the Group had amounts due under finance leases of 0.3 million (2016: nil). Net cash outflows from operating activities amounted to 3.3 million. The Group made a significant investment in new product development of 0.3 million and capital expenditure of 0.9 million. At the year end the Group had net cash with HSBC of 2.2 million offset by a term loan from funds managed by Lombard Odier of 1.7 million. The Group had overdraft and revolving credit facilities of million and an accordion facility of million with HSBC Bank plc of which only 0.2 million was drawn on the overdraft at year end. All of the Group s facilities expire in July Goodwill and impairment reviews An impairment review of goodwill and intangible assets was carried out at the year end which demonstrated that there had been no impairment of the amounts carried in the consolidated balance sheet. The carrying amount at the year end was 20.1 million (2016: 20.4 million). Details of the calculations and assumptions used for the impairment review are shown in Note 11. identified at the date of the triennial valuation and is making payments of 140,000 per annum until 5 April 2018 and payments of 305,000 thereafter until 5 April The next triennial valuation will be carried out at 5 April Key performance indicators Adjusted operating profit margin 3.68% 1.95% Adjusted fully taxed diluted earnings per share 0.20p 0.00p Work in hand and secured orders 32 million 27 million Gearing (net debt to equity) N/A 52.9% All accident frequency rate Chris Kelly Group Finance Director 6 December 2017 Equity Shareholders equity increased by 14.5 million during the year. This comprised the loss for the year of 1.4 million, the issue of share capital net of expenses of 12.6 million, a reduction in the pension deficit net of deferred tax of 3.3 million and a movement in other reserves of 0.2 million representing the IFRS 2 charge net of national insurance. In July 2017 the Company raised 9.5 million of new equity and converted 3.75 million of debt to equity. In September 2017 the Company converted 40.9 million of share premium and 12.7 million of merger reserve to distributable reserves by means of a court order. Pension scheme A formal valuation of the defined benefit scheme was carried out as at 5 April The results of this valuation have been updated to 30 September 2017 by a qualified independent actuary to determine the IAS 19 position. The IAS 19 net deficit at the year end reduced significantly to 0.45 million (2016: 3.8 million). The reduction arises due to the increase in gilt and bond yields in the last year, strong asset performance and improvements in mortality data. There has been a 20% reduction in the number of members since April 2015 as members have taken advantage of pension freedoms and the Company has worked with the Trustees to implement liability management exercises. The Company will continue to work with the Trustees to identify opportunities to reduce the risks inherent in a scheme of this nature. The pension scheme is of a long-term nature and the portfolio of assets invested by the fund are selected to match the maturity of the liabilities. The Trustees seek advice on the periodic allocation of the scheme s assets in order to match the future liabilities. The Company has entered into an agreement with the Trustees to fund the deficit 08

11 Operating Environments, Risks & Uncertainties Principal operating risks and uncertainties The Group has an established system of internal control which includes financial, operational and risk management. The Board has overall responsibility for such a system and its ongoing review and the Board has a programme of continual improvement. This system is openly communicated to ensure its effectiveness and it is the role of management to implement the policies on risk and control. Given the breadth and complexity of the Group s activities the list of principal risks below is not exhaustive, but such specific risks are identified and managed on a business by business basis. Major customers and contracts The Group has delivered a strategy of focusing on blue chip major clients. As a consequence, the Group could be affected by budgeting, regulatory or political constraints on the clients business. This would have a bearing on the size, duration and timing of major contract awards which would in turn have an impact on the businesses of the Group. During the year and as part of the Group s ongoing strategy we focus on longer-term partnerships where future work visibility can be assessed. Bid success and contract performance The Group is dependent on the success of its bid activity across many of its sectors. Bidding, by its nature, can be long and expensive and investment in such activity needs to be closely monitored to ensure adequate return. The success and performance of the Group also depends on our businesses ability to successfully execute their contractual obligations on terms that provide the expected returns. Any failure could result in losses for the Group or irreparable reputational damage with our existing and potential future customers. The Group has developed and laid down its gatekeeping process to assess on a business by business basis, or if necessary at a Group level, the risk and reward balance in deciding to bid for or execute contracts whether on our own account or in partnership with others. The ongoing contractual performance is monitored within a Group framework and discussed at both the divisional and Group level on a monthly basis. Health, safety and environment The products we manufacture and the environments in which we work as a Group are inherently technically challenging and provide a barrier to entry for new competition. If our record in these areas were to fall short of both our clients and our own expectations, it could cause the Group both reputational and financial damage. It is critical that the Group complies with all applicable laws, respects the rights of individuals to be protected from harm and to safeguard the environment. commitment to the safety of our people and the public at large and we continue to develop our systems and approach to ensure improvement every year. People and capability Our key asset remains our technical know-how which is embedded in our people. People are the key driver of our success through their technical and management capabilities. We operate in markets where resources can become constrained due to decades of under investment in UK engineering. It is therefore key that we attract the best people, and also retain and develop those who have grown with the Group thus far. The Group is focused on providing attractive competitive remuneration structures that reward performance whilst introducing greater flexibility and choice for our staff. We also run a number of development and training programmes to ensure we maximise our talent pool and grow it for the future. Acquisitions When appropriate, the Group will seek to develop and grow by selective acquisition. All acquisitions entail risk and judgement and no guarantees can be provided that future financial performance will justify the acquisition consideration. The Group mitigates risk through carrying out due diligence to ensure acquisitions are made on the best available information and judgement. Integration plans are developed in advance and are then executed, and the acquired businesses continue to be monitored against targets set out at acquisition. All acquisitions are monitored and approved by the Board. Pensions The Group has one defined benefit pension scheme which was closed to new entrants in 1997 and to future accrual in June Risk is inherent within the principal assumptions used in determining the scheme liabilities, namely mortality and discount rates, and the return on scheme assets. Adverse movements in these underlying factors could result in an increase in the deficit in the scheme which would require additional funding. The Group, in conjunction with the scheme Trustees, mitigates risk through seeking professional advice on the most appropriate assumptions to be applied to the valuation of liabilities to ensure that the scheme is funded to a level which is adequate to meet its obligations. We also take advice to ensure that the scheme assets are invested in instruments which are most appropriate to meet the maturity profile of the scheme liabilities whilst seeking to maximise the return on those investments. Debt finance The Group has facilities with its lenders as detailed in note 24. The core of the facilities is subject to renewal in July The Group s performance, given the products it manufactures and the challenging environments it works in, demonstrates our absolute Annual Report & Accounts

12 Company Information Directors M Everett BA, FCA Chairman P Brierley MRICS Chief Executive C J Kelly BA, ACA Group Finance Director and Company Secretary W Pearson Chief Operating Officer Registered Office and Administration Office Unit 3, Calder Close Wakefield, WF4 3BA Registered number Web site brokers WH Ireland 24 Martin Lane London EC4R 0DR Nominated Advisers GCA Altium Capital Limited Belvedere Booth Street Manchester, M2 4AW Bankers HSBC Bank plc 4th Floor, City Point 29 King Street Leeds, LS1 4LT Solicitors Squire Patton Boggs 6 Wellington Place Leeds, LS1 4AP Auditor KPMG LLP 1 Sovereign Square Sovereign Street Leeds, LS1 4DA Registrars Neville Registrars Neville House 18 Laurel Lane Halesowen, B63 3DA P B Hilling MA, FCA Non-Executive J D Brooke MA, ACA Non-Executive 10

13 Report of the Directors The Directors present their report and audited financial statements of the Group and Company for the year ended 30 September Principal activity The principal activity of the Group during the year has been manufacturing and services provided in high hazard and security environments. Results and dividends The loss of the Group after taxation is 1,369,000 (2016: loss 1,670,000). The Directors do not recommend the payment of a dividend (2016: nil). Strategic Report A general review of the business and activities of the Group, its strategy and its key operating and financial risks and key performance indicators are given in the Chairman s Statement, Strategic Report and Financial Review which should be regarded as part of this report. Directors The names of the Directors who served during the year were: M Everett P Brierley C J Kelly W Pearson (appointed 17 July 2017) P B Hilling J D Brooke Profiles of each Director serving at the date of issue of this report are set out below. M Everett Chairman (Non-Executive) Martyn Everett, aged 59, joined the Board in September He is a turnaround and restructuring specialist and is a Fellow of the Institute of Chartered Accountants. He is currently Chairman of Mar City PLC and a Director of BICF Limited. P Brierley Chief Executive Philip Brierley, aged 53, joined the Board as Commercial Director in September 2012 and was appointed Chief Executive on 6 June He is a member of the Royal Institution of Chartered Surveyors. He has had a 30 year career in the construction industry during which the roles he has held include the Managing Director of Construction for Peterhouse Group PLC, the Chief Executive of Propencity Group PLC and a Director of ISG PLC. C J Kelly Group Finance Director and Company Secretary Chris Kelly, aged 55, joined the Board in June He is a Chartered Accountant. He was an Audit Partner with Ernst & Young from 1997 to 2009 and Finance Director of Town Centre Securities plc from 2010 to W Pearson Chief Operating Officer Wayne Pearson, aged 55, joined the Board in July He has a wealth of experience of multi-site engineering businesses, which has been gained over a 35 year career in roles including Managing Director of Brush Group Limited, Environmental Division Managing Director of Alcontrol Laboratories, Divisional Managing Director of Parker Hannifin and Chief Operating Officer of Bridgeport Machines. P B Hilling Non-Executive Director Phillip Hilling, aged 68, joined the Board in October He is a Chartered Accountant and qualified with Ernst & Young LLP where he spent 25 years as an audit partner until his retirement from the firm in He held a number of senior roles within the firm and was Managing Partner of the Yorkshire Office for 14 years. He is Chairman of Tenet Group Limited and Chairman of its Remuneration Committee and Vice Chairman of St Peter s School, York, and Chairman of the Finance Committee. J D Brooke Non-Executive Director Jamie Brooke, aged 46, joined the Board in July Jamie is a Fund Manager at Lombard Odier. He previously worked for Gartmore and Henderson. He is also a Non-Executive Director at Chapel Down Group Plc and Flowgroup plc. STATEMENT OF DIRECTORS RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT, strategic REPORT, THE DIRECTORS REPORT AND THE FINANCIAL STATEMENTS The directors are responsible for preparing the Annual Report, Strategic Report, the Directors Report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the directors are required to: n select suitable accounting policies and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n for the Group financial statements state whether they have been prepared in accordance with IFRSs as adopted by the EU; n for the Parent Company financial statements state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; n assess the Group and Parent Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and n use the going concern basis of accounting unless they either intend to liquidate the Group or Parent Company or to cease operations, or have no realistic alternative but to do so. Annual Report & Accounts

14 Report of the Directors (cont.) The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act They are responsible for such internal control as they may determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulation the directors are also responsible for preparing a Strategic Report and a Directors Report that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors and their interests The Directors at 30 September 2017 had beneficial interests in shares and share options as set out below: n Redhall Group plc 2007 Enterprise Management Incentive Plan A plan which allows for the grant, to selected employees of the Group, of rights to acquire ordinary shares in the Company on a tax favoured basis. n Redhall Group plc 2007 Discretionary Share Option Plan - A plan which allows for the grant, to selected employees of the Group, of rights to acquire ordinary shares in the Company. These options may be granted as tax favoured options under the HM Revenue & Customs ( HMRC ) approved addendum to the plan, or as non-hmrc approved share options. The exercise of awards under all three of the 2007 schemes will be subject to the attainment of one or more objective conditions set at the time the grant is made. The performance conditions will reflect market practice at the time the grant is made. Generally, awards under the 2007 schemes will only be made in the six-week period commencing with any of the following: the dealing day following an announcement of the Company s results for any period; the day on which any change to relevant legislation, regulations or government directive affecting employees share schemes is proposed or made; or the day on which a new employee first joins the Company or any of its qualifying subsidiaries. Shareholdings P Brierley P B Hilling C J Kelly W Pearson M Everett J D Brooke At 30 September ,230, , , ,000 - At 30 September , , , ,000 - There have been no changes to Directors shareholdings between 30 September 2017 and the date of this report. Share options The Company has three share option schemes which were approved in On 1 October 2015, the Remuneration Committee approved amendments to the Redhall Group 2007 Performance Share Plan. Under the PSP, options have been granted to certain directors and senior employees under a two year performance period. The 2007 share incentive schemes can be summarised as follows: n Redhall Group plc 2007 Performance Share Plan A discretionary long term incentive plan comprising two parts. Part 1 enables options to be granted at no cost to participants, whilst Part 2 enables conditional shares to be awarded. 12

15 The beneficial interests in share options of those Directors in office at 30 September 2017 are as follows (audited information): Director Class Options at 30 September 2017 Number Options at 30 September 2016 Number Exercise price Earliest exercise date Latest exercise date P Brierley C J Kelly M Everett W Pearson 2007 PSP 2007 PSP 2007 PSP 2007 DSOP Approved 2007 DSOP Non-approved 10,189,853 7,336,790 6,113, ,000 1,680,000 10,189,853 7,336,790 6,113, p 8.45p 8.45p 16.2p 16.2p 1 October October October September September October October October September September 2027 Further details of the share option schemes under which options had been granted at 30 September 2017 are given in note 22. The market price of the Company s ordinary shares on 30 September 2017 was 9.375p and the high and low prices during the year were 12.0p on 27 January 2017 and 8.25p on October and November The share price on 5 December 2017 was 7.25p. Directors emoluments (audited information) Details of the emoluments of Directors who served during the year are set out below. Executive Director Salary Bonus Social Taxable 2017 Total 2016 Total and fees security costs benefits (excl. pension) (excl. pension) Pension Pension P Brierley C J Kelly W Pearson Non-Executive Director M Everett P B Hilling J D Brooke Executive remuneration is determined by the Remuneration Committee, details of which are set out in the report on Corporate Governance. Pension contributions represent payments made to either defined contribution plans or personal pension arrangements. None of the Directors participate in the Group s defined benefit scheme. Annual Report & Accounts

16 Report of the Directors (cont.) Substantial shareholdings The Company has been notified that on 5 December 2017 the following shareholders had interests of 3% or more in the issued ordinary shares of the Company: Number Percentage LOIM 92,587, % Downing LLP 75,100, % Ruffer LLP 42,000, % Canaccord Genuity 30,240, % Financial instruments The Group s principal financial instruments are cash, an overdraft, revolving loan and term loan facility, trade receivables and trade payables. An analysis of the maturity of the Group s borrowings is given in note 17 and the maturity of financial instruments is given in notes 14 and 24. The main sensitivities arising from the financial instruments are liquidity sensitivity, interest rate sensitivity, foreign exchange sensitivity, and credit risk sensitivity. The policies for managing these sensitivities and exposures are set out in note 24. Employment policies The Group places great importance on the involvement of its employees, the majority of whom are able to work closely with their managers on a daily basis. Certain key employees are encouraged to be involved in the Group s performance through the use of share options. Employees have frequent opportunities to meet and have discussions with management. The Group aims to keep employees regularly informed of the financial and economic factors affecting the performance of the Group and its objectives in part through quarterly staff briefings, the publication of a bi-annual newsletter and through the Group website. The Group s policy is that, where it is reasonable and practicable within existing legislation, all employees, including disabled persons, are treated in the same way in matters relating to employment, training and career development. months from the date of this year s Annual General Meeting. This represents the renewal of the Directors existing authority. n Resolution 8 is to grant authority to the Directors to issue shares wholly for cash and on a non pre-emptive basis, otherwise than in connection with a rights issue, up to a maximum nominal amount of 1,650, which authority will terminate at the earlier of the subsequent Annual General Meeting and 15 months from the date of this year s Annual General Meeting. This represents the renewal of the Directors existing authority. n Resolution 9 is to grant authority to the Directors to make market purchases of Ordinary Shares up to a maximum number of 33,290,068 at minimum and maximum prices as set out in the Notice of Annual General Meeting. This authority will terminate at the earlier of the subsequent Annual General Meeting and 12 months from the passing of this resolution. This represents the renewal of the Directors existing authority. Disclosure of information to auditor The Directors who held office at the date of approval of the Report of the Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company s auditor is unaware; and each Director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company s auditor is aware of that information. Auditor Our auditor, KPMG LLP, has agreed to be put forward to be reappointed as auditor and a resolution concerning their appointment will be put to the members at the Annual General Meeting. Approval The Report of the Directors was approved by the Board on 6 December 2017 and signed on its behalf by: C J Kelly Secretary Research and development The Group conducts research and development activities to the extent that management considers that it is required to maintain its competitive position in the markets in which it operates. Political donations The Group made no political donations during the year (2016: nil). Annual General Meeting At the Annual General Meeting to be held on 1 February 2018 notice of which is set out within this Annual Report, three items of special business are to be considered: n Resolution 7 is to grant authority to the Directors to issue shares up to a limit of 10,900 which authority will terminate at the earlier of the subsequent Annual General Meeting and

17 Corporate Governance The Board supports the principles of good corporate governance although as an AIM listed company it is not required to apply the UK Corporate Governance Code ( the Code ). However, the Board believes that the application of the Code is in the best interests of the Company and its stakeholders and has sought to apply the spirit of the Code in a manner which is appropriate for the size of the Group. This report sets out the way in which the principles are currently being applied. The Board At 30 September 2017 the Board was comprised of three Executive and three Non-Executive Directors and was chaired by Martyn Everett. The Board is responsible for the long term success of the Group. The Executive Directors meet on a regular and frequent basis and are in continual discussion with the operational management to ensure that the business objectives of the Group are achieved. Non- Executive Directors have a particular responsibility to ensure that the strategies proposed by the Executive Directors are fully challenged. To enable the Board to discharge its duties, all Directors receive appropriate information and are allowed sufficient time to discharge their responsibilities effectively. Briefing papers are distributed by the Company Secretary to all Directors in advance of Board meetings. The Chairman ensures that the Directors take independent professional advice as required. The Company s Non-Executive Directors are considered by the Board to be independent of management and they bring a breadth of experience which is welcomed by the Executive Directors. In considering the principles of the Code, it is recognised that Martyn Everett is not independent given his interest in share options of the Group and that Jamie Brooke is a representative of the Group s major shareholder. Shareholder relationships The Directors seek to build on a mutual understanding of objectives shared between the Group and its principal shareholders. The Board welcomes the attendance of private shareholders at the Annual General Meeting and the opportunity to address any questions that they may have. Internal control The Board is ultimately responsible for the Group s systems of internal control for safeguarding shareholders investment and the Group s assets. Such systems are designed to manage, rather than eliminate, the risks of failing to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss. The current procedures in place are summarised as follows: n Regular discussions between management of the subsidiaries and the Group Executive Directors. Each operating company has at least one of the Group Executive Directors on its own board. n An annual budget for each operating company is prepared in detail, reviewed by executive management and formally adopted by the Board. The Board also formally adopts the Group s overall budget and plans. n Monthly actual results of sales, profitability and cash are reported against budget and prior year and significant variances are investigated and explained. n Daily cash monitoring and monthly cash forecasting and treasury reporting to the Group finance function and periodic reporting to the Board. n Internal financial control is exercised within a clearly defined organisational structure which operates a system of financial management controls, including financial reporting procedures and levels of authority for commitment to contracts and expenditure. Audit Committee The Audit Committee currently comprises Phillip Hilling (Chairman), Martyn Everett and Jamie Brooke. The committee, and other Board members by invitation, meets with the independent external auditor to review the Group s annual accounts and at other times, as appropriate, during the year. The committee keeps under review the nature and extent of non-audit work carried out by the external auditor with a view to maintaining the auditor s objectivity and independence. Remuneration Committee The Remuneration Committee currently comprises Phillip Hilling (Chairman), Martyn Everett and Jamie Brooke. The committee determines the remuneration and terms of service of the Executive Directors including incentive arrangements and duration of notice periods. No Director participates in the discussions regarding their own compensation. Nominations Committee The Nominations Committee comprises Martyn Everett (Chairman) and Phillip Hilling. The committee is responsible for proposing candidates for appointment to the Board, having regard to the balance of skills, experience, independence and knowledge of the Group. It also considers the benefits of diversity, including gender diversity, when making appointments. In appropriate cases, recruitment consultants are used to assist the process. All Directors are subject to re-election at least every three years. n Organisational structures established with clearly defined lines of responsibility, delegation of authority and reporting requirements to the Group Board. n Management of operating companies are charged with the ongoing responsibility for identifying risks facing each of the businesses and for putting in place procedures to mitigate and monitor risks. Annual Report & Accounts