Letter from CEO

Dear Shareholder

As we all are aware, there has been a marked shift in the macro-economic climate and these results reflect the changes in business conditions and the strategic changes Redstone has made to counteract them. Almost all visibility around timing and delivery of retail construction projects and activities around financial services has dramatically reduced. Month on month, in common with the rest of the industry, we are seeing projects either suspended or cancelled. As a result we have implemented a cost reduction programme which will see our current cost base reduce by £7m by the end of December 2008. We will continue to review all costs and will make further reductions in our cost base if we believe demand will fall further.

One of our goals has always been to focus on winning long-term Managed Service contracts that deliver profits and revenue visibility and we have been successful in achieving this. As part of adapting to the current business environment we have placed more emphasis on this area. This has paid dividends in terms of revenues and visibility though margins on these contracts tend to be much lower than complex ICT projects. Overall, the interim figures represent a solid performance in light of difficult trading conditions. We have been very aware of the need to prepare the business in advance of a difficult couple of years.

Market Strategy

One of the main considerations with regards to our business strategy going forward is to identify where we are likely to see continued demand for our skills and product offering. There is no question that the reticence of banks to provide funding for the construction industry will continue to have an effect on our business until this situation is resolved. However, historically we have been very successful in this area and are widely considered to be the leader in the provision of IT infrastructure for major construction projects. An obvious example is the Westfield shopping centre in London; however there have also been many less high profile examples of our work in this field. However, in the knowledge that such projects will slow down in frequency in the short term at least, our focus has to be on other areas. This is where our diverse range of talents and success in major project management and delivery comes into its own.

Our strategy over the next few years:

• to increase our presence in Building Schools for the Future projects (BSF)
• to open up more opportunities in Fibre To The Home
• to expand our activities in other areas of the Public Sector such as Local Government and the Academies programme
• to improve the operational efficiencies of our business divisions; and
• to cross-sell our capabilities into our existing customer base.

Operational review

Our focus will be pragmatic and on those sectors where there is demand for our services. Typically our target markets will be where major project funding is still in place, e.g. BSF and in the commercial sector products and services which can demonstrate rapid return on investment and pure cost savings.

Redstone will continue to invest in bidding for large, long term projects that will deliver organic growth in the medium term.

In line with our strategy of increasing the level of cross-selling across divisions, one of the recent highlights within Redstone has been to launch Redstone Select. Essentially this is an outward bound telesales account management team focused on our SME customers. It is the first time Redstone has put in place a bespoke team to establish a relationship with SME customers who would often be a customer of one of our products, sometimes unaware that it is Redstone. By establishing a stronger relationship with our customers we can bring to their attention our other capabilities we have and thereby enhance cross-selling.

Outlook

At Redstone our principal focus is to ensure that the Group delivers a reasonable level of profitability, whilst maintaining investment for growth in what is clearly going to be a difficult trading environment for the foreseeable future. Notwithstanding the operational improvements we have made in several areas of the business, the Board believes that the market will continue to be challenging for the remainder of the current financial year, and potentially throughout the following year, until it sees its major project pipeline restored.

The Board feels this statement reflects a pragmatic assessment of the current economic environment, and will seek to ensure the Group is positioned to take advantage of improved trading conditions as and when they arise.

Martin Balaam
Chief Executive
17 December 2008


If you are unable to find the information that you require please contact Redstone’s financial public relations team at ICIS, on 0207 651 8688 or email fiona.conroy@icisnet.com

Please be aware that ICIS and Redstone plc are not able to give investment advice of any kind. Any enquiries of this nature should be made to an FSA regulated stock broker or financial advisor.