Redhall got the "best result it could" in Vivergo case

REDHALL Group has said its only option was to defend itself in a lengthy dispute with renewable energy giant Vivergo Fuels, despite the Yorkshire company taking a £7.7m hit from the action.

The specialist engineering support services business announced that pre-tax losses had more than doubled last year in its results this week and said the Vivergo settlement has resulted in an exceptional charge of £7.7m, although there is no cash impact through this charge. The preliminary results followed the announcement that Redhall accepted an offer of just £2.1m as a final settlement of its contract dispute with Vivergo Fuels – a sum described by Redhall as “considerably short of the amounts the board believed were recoverable”. The case was brought about following the decision to terminate Redhall’s work at a biofuels plant at Saltend in 2011.

Richard Shuttleworth, Redhall CEO, said: “What people have to remember is that it wasn’t a case brought by Redhall, the case was brought by Vivergo. It was an action brought against our business that we had to defend and one that could have put the whole business at risk if we didn’t. When people ask was it a good decision, we say it was the only decision, other than to just roll over and say they were right.

“Throughout the legal process there wasn’t a formal offer made for the business to settle it before we got to court.

“It was only when the award came to us that we saw the judge hadn’t granted the amount of extension of time we had expected.”

Redhall said that the protracted timetable for recovery of monies through further legal proceedings; the uncertainty as to the ultimate outcome of such proceedings; and the cost and cash outflow implications pose an unacceptable level of risk to the group.

Shuttleworth added: “It was hugely distractive for the business and time consuming but the risk of running for another 18 months meant that the risks outweighed the potential. We got the best result we could get.”

The judgement in the court case ruled that Vivergo was in repudiatory breach of the contract with Redhall’s subsidiary Redhall Engineering Solutions Ltd (RESL) and that the contract was unlawfully terminated.

In a statement, Vivergo said: “Vivergo Fuels Limited is pleased that the court has decided that Redhall Engineering Solutions Limited was in material breach of contract and that Redhall was responsible for the vast majority of the delays to its works, to the extent that the court significantly reduced Redhall’s extension of time claim from an initial position of 158 days to just 15.23 working days.

“Vivergo is, however, disappointed with the court’s decision that, notwithstanding material breach and delay, Redhall fulfilled its obligations to commence rectifying the delay with the result that Vivergo did not have grounds to terminate the contract.”

Redhall said it was pleased to draw a line under the long-running legal case removing uncertainty and further cost, as it now looks to focus on growing the business.

Shuttleworth said: “We said that 2013 was always going to be a year of restructuring and reorganising to align ourselves with the opportunities coming down the track. Now, we have restructured and got the right people to enable us to capitalise on the opportunities coming to us – these opportunities are coming to us – we can see them.”

The business, which has two main divisions – nuclear services and engineering services – said the two key areas for growth over the next four years are in manufacturing and nuclear and said that this year’s growth will be “bottom line”, as it said it doesn’t need to “chase” the top line.

“The top line of the business over the next five years can increase by 50% and we see the bottom line substantially improving by three to four times what we are reporting now. We will see this growth by more manufacturing and over the next two years we have big uptake in the work in the defence sector, which will underline the growth for manufacturing in the next two years,” Shuttleworth said.

Redhall said it sees good growth potential in the nuclear sector – the division it has been able to support risk in – and said there are also key areas of growth in the food side of the business.

Shuttleworth highlighted the confidence HSBC has had in the business. “We continue to receive strong support from our bankers HSBC and since the year end have agreed increased facilities through to September 2015. They are pleased with our trading performance and can see the seeds that were planted last year starting to come through,” he said.

Following Redhall’s results, stockbroker Arden Partners said its results have been “overshadowed” by the Vivergo case settlement but should provide some comfort to investors being broadly in line on profit and ahead on cashflow. “The company should be able to grow from here and, while tight, we think
there is sufficient funding to allow it to do so,” it said.

Investment firm Charles Stanley added: “While the proceeds of £2m from Vivergo was a disappointment it, at least, allows management to draw a line under this issue and removes a material distraction for management and uncertainty for investors.”