Northbridge Industrial Services plc (LON:NBI), the industrial services and rental company, has announced its unaudited interim results for the six-month period ended 30 June 2021 and the Board is pleased to report an interim trading result performance ahead of management’s expectations. This has continued into Q3 2021 and gives Northbridge confidence in further increasing expectations for operating profits for the full year with the momentum expected to continue into 2022.
Highlights
· Group revenue for the period up by 22% to £19.6 million (H1 2020: £16.0 million)
· Positive sales mix – Crestchic hire revenue up 74% to £8.7 million (H1 2020: £5.0 million)
· Vibrant data centre market drives increase in sales orders and pipeline
· Gross profit 27% higher at £8.8 million (H1 2020: £6.9 million) with a move in sales mix towards hire
· Operating profit increased substantially to £1.6 million (H1 2020: £0.4 million)
· Net cash from operating activities more than doubled from £1.2 million in H1 2020 to £2.8 million in H1 2021
· Senior debt and convertible loan facilities fully refinanced (related exceptional costs £0.9m (H1 2020: £0.0))
· Net debt decreased significantly from £6.8 million to £4.5 million in the period
· Planning permission received for factory expansion and construction commenced early in H2
· Restructure and possible divestment of Tasman division progressed
Commenting on the results and the outlook, Peter Harris, Executive Chairman of Northbridge Industrial Services, said:
” We are delighted to report on a period of growth for Northbridge, with our position in the electrical power reliability market in particular driving growth and margins and both divisions contributing to strong cash generation. As trends towards long term sustainable power generation and a connected, data driven society take centre stage worldwide, our global footprint and technological excellence give us confidence in sustaining this momentum through the fourth quarter of 2021 and into 2022.”
Analyst briefing
A virtual meeting for sell-side analysts will be held at 10.00 a.m. today, 30 September 2021. Please contact Buchanan via stephaniew@buchanan.uk.com if you wish to join the meeting.
Executive Chairman’s statement
We are pleased to present our interim results for the six-month period ended 30 June 2021.
This period has seen a strong recovery in the trading results of the Group, most notably in Crestchic, our electrical power reliability division, as the impact of the ongoing Covid-19 pandemic has been mitigated. Also, it has been a time of significant change as we have re-evaluated our strategy and pushed through a number of actions which we believe are already leading to an acceleration in value creation for our shareholders.
Having again entered the year with a record order book for the sales of Crestchic equipment, demand for equipment sales has remained strong during the first half of the year and continues into the second half. We have also started to see activity levels returning on major hire projects, which had fallen off sharply in the second quarter of 2020 because of the pandemic. This has been most noticeable in Crestchic, initially in the Far East and then more generally around the world. As a result, Group turnover for the half year has risen by 22% to £19.6 million (H1 2020: £16.0 million); gross margin, benefitting both from the overall increase in revenue and the resurgence of higher margin rental revenues, has risen by 27% to £8.8 million from £6.9 million in 2020 and operating profit has quadrupled from £0.4 million in 2020 to £1.6 million in 2021.
Strong cash generation was another pleasing outcome for the half year, with net cash from operating activities increasing to £2.8 million compared with £1.2 million in 2020. This, together with the refinancing of the convertible loan notes, has in turn led to a significant reduction in Group net debt.
Over and above this encouraging operational performance, we have made excellent progress on a number of strategic initiatives that underpin the delivery of accelerated, sustainable growth for the Group and the creation of value for our shareholders by:
· taking the opportunity afforded by retirements to streamline the Board, most notably by combining the roles of Chairman and Chief Executive and by promoting Chris Caldwell, the Managing Director of our Crestchic Division, to the main Board. This has already resulted in improved communication and faster decision making and will also deliver significant cost savings;
· bringing new senior executives into Crestchic to lead the delivery of our geographic and sector growth opportunities, notably in Europe and the USA and in data centres and grid resilience/renewables
· setting and publishing target returns on capital, which will drive our allocation of capital and investment priorities and encourage the achievement of operating returns above and beyond our cost of capital;
· reducing our cost of capital by repaying/partially converting the £4.0 million of convertible loan notes which were both expensive and a potential dilution for shareholders;
· breaking ground on a major extension to our factory which will increase production capacity by 50% or more to meet growing demand for sales and rental of our Crestchic equipment
· commencing the restructure and progressing the possible sale of the loss-making Tasman division
Divisional Trading
Northbridge has two core activities, Crestchic and Tasman.
Crestchic is a specialist electrical equipment business which manufactures, sells and rents loadbanks and transformers from its base in Burton on Trent and has depots in the USA, France, Germany, Belgium, the UAE, Singapore and China.
Tasman rents drilling equipment and provides services to the oil, gas, carbon capture and geothermal industries from its sites in Australia, New Zealand, Malaysia, Singapore and the UAE.
Crestchic – electrical power reliability
Crestchic performed well across all areas and sectors.
Sales of equipment benefited from a record order pipeline coming into 2021 and order intake has remained strong through the half year and into the third quarter. Despite production constraints due to the pandemic, notably some supply chain disruption and the continuation of social distancing and safe working practices, sales increased 19% from £6.0 million in 2020 to £7.1 million in the first half of 2021. Data Centres continue to be a vibrant growth sector and we were delighted to receive our first significant direct order from a major e-commerce retailer, demonstrating how we are successfully building our visibility and presence in the sector.
The dominant feature of the half year was the resurgence in large rental projects, which was first evident in the Far East in the marine sector before spreading to all areas and sectors in the second quarter and on into the second half year.
During the quarter, we successfully launched a trial rental fleet of server emulators into the data centre market and commissioned the factory to produce a further 25 300kw loadbanks to meet sector demand which has exceeded the capacity of our existing hire fleet.
In line with many other companies Northbridge experienced an increased level of materials price increases and anticipates emerging pressure on payroll costs but has been, and expects to continue to be, successful in passing increases on without impacting margins. Increasing demand and production constraints are leading to extended delivery lead times, so it is reassuring that our factory expansion programme remains on schedule and on budget and the benefits of the expansion will feed through into both sales and the hire fleet from H2 2022.
Tasman – drilling tool rental
The recovery in the drilling tool rental revenue from the problems imposed by Covid-19 was slower than hoped for as continuing lockdowns and travel restrictions in all the regions in which we operate have continued to pose challenges for rig operators. However, with demand for gas and geothermal fluid remaining resilient and demand for oil having, along with prices, substantially recovered to pre-pandemic levels, there is emerging evidence that deferred exploration and production projects are starting to be rescheduled to begin towards the end of the year and into 2022.
This division performed well given the level of market activity, recording a small operating loss (£0.2 million v £0.0 million in 2020) but with EBITDA significantly outstripping net capital expenditure, it returned to generating a positive free cashflow.
As first announced with the 2020 results on 13 April 2021, we initiated a process to explore the possible divestment of the loss-making Tasman division. In our Strategic and Trading Update on 11 August, we further advised that we were taking steps to restructure the division to return it to profitability and, in parallel, are actively negotiating with potential buyers.
We are hopeful that this process is now nearing a conclusion:
– We are at an advanced stage of agreeing the exit from the joint venture in Malaysia and have agreed a short-term equipment rental agreement with our former partner. The operation in Singapore has ceased to take any new orders and trading will end when all existing rental contracts expire, which is expected to be sometime in Q4 2021. The disposal of the Malaysia and Singapore assets at the end of the existing contracts is being actively explored;
– We are in exclusive discussions to sell the Australian and New Zealand entities and we are hopeful that a deal can be concluded in the near future;
– We are at an early stage of discussions to sell the Middle East entities.
At 31 August 2021, the book value of the net assets relating to Tasman in Australian and New Zealand amounted to £4.7m. If the deal currently being negotiated for these operations completes as expected it will be at a small discount to net assets before costs. If the deal does not complete, then the businesses will be retained for the time being, and we are confident that they will continue to be profitable and to generate positive returns on capital.
The division’s net assets outside of Australia and New Zealand to be disposed of amounted to £6.3 million (at 31 August) and we expect the disposal to be materially completed by the year end. Given current market conditions, a significant discount to net book value is expected on any disposals and any undisposed items are likely to require a substantial impairment. These, together with any loss and associated costs on the disposal of the Australian and New Zealand operations, will be recognised as an exceptional item, estimated at between £6.0 – 7.0 million, in the second half of 2021.
Summary and outlook
The overall interim trading result was ahead of management’s expectations and continued positive performance since the trading update on 11 August has now given management sufficient visibility into the second half to further increase expectations for operating profit for the full year, and increased our confidence that this momentum will continue into 2022.
A successful conclusion of the disposal process will see the Group emerge debt free and moving forward with a clear strategy, focused on the exciting opportunities for our Crestchic division that, we believe, will deliver ongoing growth in revenue and profit and superior returns on capital. Again, our success in this has been down to our people, who have worked through our strategic repositioning with commitment, flexibility and resilience.
Increasingly we are seeing evidence that the impact of the pandemic on the overall economy represented an interruption to market growth rather than a fundamental long-term change for Northbridge. The long-term global trends towards the increased need for reliable electrical power, of which an expanding proportion will be generated from environmentally sustainable sources, and of a data driven society and economy represent an enduring opportunity for our business and we are continuing to expand our range of products and services, our geographic reach and our production capacity to enable us to harvest the benefits on offer.
Peter Harris
Executive Chairman, Northbridge Industrial Services
30 September 2021
