Letter from CEO

Dear Shareholder

Following a concerted period of acquisitions and re-organisation in the previous financial year, the goal for this year was to focus on the integration of the acquired companies and to deliver organic growth and increased profitability and EPS improvement in accordance with our business plan. I am pleased to report that we have delivered on our objectives, and that the Group has performed well. These results represent a clear view of the complete business, with all prior year acquisitions now fully integrated and I believe they show the true potential of the new Redstone.

Redstone is now an established market leader in the provision of end to end ICT and Communications Services to the corporate, enterprise and public sector markets. The Group can supply, either in whole or in part, dedicated ICT solutions and ongoing support to all parts of a customer’s organisation.

As Redstone has grown in both scale and capability, it has been able to tender for, win and deliver major contracts with multi-year revenue streams. This has enabled the Group to consolidate its position within the market place and has given it increased visibility in terms of future revenues.

Redstone has also been able to reap the benefits of operational synergies resulting from the acquisitions it has made, generating revenues from cross-selling. Importantly, through realising synergies, it has generated a group margin which is greater than the sum of its parts. This is the key to the success of Redstone’s corporate development strategy. 

Redstone now employs over 1,000 people supporting over 20,000 established B2B customers in both the corporate enterprise and SME arenas, which compares to 16,000 in 2007. I am a firm believer that successful businesses generate both customer and employee loyalty, and Redstone is dedicated to retaining both its customers and its staff to ensure quality and continuity are maintained.

I would like to thank both the staff and the customers of Redstone for their help and support in making the Group the success that it is today.

Integration of acquisitions
The businesses acquired immediately prior to this financial year, Comunica and IDN, have been fully integrated within the Converged Solutions and Telecoms divisions respectively.  Both businesses have been rebranded and now operate under the “Redstone” banner, their back and head office functions have been consolidated with Redstone’s, and their operations aligned with their respective business divisions.

The successful integration of these businesses has been important to the Group’s ability to secure major contracts. Both new businesses have contributed significantly to the success of the Group over the period. Redstone will continue to seek appropriate acquisition opportunities that increase the scale, operational capability and capacity of the Group.  This will enable Redstone to capitalise on its now established market leadership position and to continue to win large scale ICT projects.

Business Development
Redstone announced a number of significant contract wins during the financial year. The focus placed by the management on integrating the new companies to enhance the Redstone offering to customers has been vital to the success the Group has enjoyed. Redstone has an increasing reputation for delivering major infrastructure projects and this credibility is an essential part in enabling the Group to successfully bid for contracts of a similar and greater scale going forward.

Due to the scale and nature of organisations with which Redstone is now contracting, the Group has been unable to announce a number of major contract wins because of confidentiality clauses and publicity restrictions. However, Redstone is pleased to announce that this year, it has won 11 multi-year contracts each with a value surpassing £1m. These have contributed towards the Group’s total potential order book value of £83m.

This progress is best evidenced by Redstone’s progress in being short-listed for the Building Schools for the Future (BSF) contract. In addition to the £16 million Lancashire contract awarded last year, Redstone has been short-listed for the Birmingham BSF contract.  This involves the complete rebuild or remodel of 89 Birmingham schools and is worth approximately £150 million in total.  A final decision to appoint the preferred bidder is expected to be made in September 2008.  There are a number of opportunities within the BSF programme, and Redstone has positioned itself to be able to participate in this exciting and growing market.

Strategy and market positioning

Investment in sales organisation
As Redstone has grown in both scale and capability, it has seen the number of business opportunities available to it increase. In order to address these opportunities more effectively the Group has begun, and will continue, to make a measured investment in its sales organisation, so as to underpin medium term growth and strengthen its competitive position. Investment will be focused on enabling the Group to commit more resources to the tender processes for large multi-year contracts, better addressing the differing needs of the SME market versus the corporate market, and further exploiting cross-selling opportunities. Redstone has already taken steps to drive cross-selling within the group, including implementing specific sales incentives and a dedicated management structure to oversee the activity. As a result, 2008 saw cross-sales account for 2% of total Group sales, and it is the Board’s desire to see a further expansion of cross-selling activity.

Strategic Partnerships
Redstone has utilised its strong relationships with partners to secure a number of its significant contract wins in the ICT arena during the 12 months. These partnerships include Catalyst Lend Lease, with whom Redstone has bid for the BSF contracts; Hammerson plc, enabling Redstone to bid for OneNET intelligent buildings network infrastructure contracts; and Hammerson and Westfield for the shopping centre contracts. The Group is confident that these partnerships will continue to be successful, and is actively seeking new partnerships to increase the already expanding customer reach of Redstone.

Outlook
The key objectives for the year were to fully integrate the acquisitions made towards the end of the previous year and to show a set of results where we achieve significant organic revenue and profit line growth. I am pleased to report that we have delivered on both of these objectives.  We are now seeing the benefits of the acquisitions emerging, with cross-selling initiatives gaining momentum and the increased capability and scale of Redstone enabling the Group to secure multi-million pound, multi-year projects. We are enjoying an improving profile and reputation in the ICT arena, giving us an excellent platform from which to proceed to our next stage of development and we are further investing in out sales organisation in order to take full advantage of this. The Board is confident in the Group's ability to deliver its large scale contracts, progress its cross-selling and other sales initiatives and further develop the business both organically and acquisitively in order to increase shareholder value.

Martin Balaam
Chief Executive
10 June 2008

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