Northbridge Industrial Services Plc (LON:NBI), the industrial services and rental company, today issued the following trading update for the period 1 January 2020 to 31 May 2020, following its Annual General Meeting which was held yesterday evening at 5PM at the Group’s head office in Burton on Trent.
As previously noted in the full year results announcement on 7 April 2020, in 2019 the Group returned to an operating profit for the first time in four years, following the severe downturn in the oil and gas industry. Additionally, cash generated from operations improved very substantially. This good trading performance continued into the first quarter of 2020, with Crestchic, which manufactures, sells and rents specialist electrical equipment into global markets, entering the year with record sales orders and Tasman, our gas, geothermal and oil tool rental business, trading well ahead of the same period in 2019.
The Covid-19 pandemic began to impact trading towards the end of the first quarter as the worldwide lockdowns started, and the second quarter will include the period in which the lockdowns were most evident. Overall revenue for the first two months of the second quarter to the end of May was 13% lower year on year. Transactional rental activities, which have short lead times, for both Crestchic and Tasman were most affected, as some customer sites were closed, and work was delayed. Encouragingly, most ongoing contracts carried on as expected and, while some new starts have been postponed, very few have been cancelled. In addition, all our rental depots remained open for business albeit sometimes under strict health and safety regulations.
With a record level of orders through the factory for the sale of loadbanks, the Group was pleased to have been able to keep the factory open and maintain production throughout this period. Although pandemic related health and safety protocols have inevitably impacted productivity to some extent and some deliveries have been delayed, these are expected to catch up later in the year. No orders have been cancelled and enquiries remain strong, with some market sectors, for example data centres, less affected by the pandemic.
Mitigation measures and additional liquidity
Mitigation measures, introduced to help us during this downturn, include taking advantage of government support measures when applicable, a voluntary pay reduction by salaried staff up to and including the Board, a significant reduction of variable and other costs and a temporary halt on non-essential capex.
In addition, two important further measures have been taken to ensure strong liquidity through to July 2022. Firstly, subject to the extension of the existing convertible loan notes below, we have received credit approval from our bankers, NatWest, to extend our current facilities for a further year to 30 June 2022. Net bank debt had reduced to only £2.4 million on 31 March 2020. The terms of the extension include a capital repayment holiday on the amortising loans which will increase liquidity over the next nine months by £1.0 million and some additional trade financing facilities of £0.5 million to fund the high factory output. The interest rates and covenants will be unchanged.
Secondly, we have agreed Heads of Terms on a similar extension with the holders of the £4.0 million convertible loan notes to extend until July 2022. Given the current environment and owing to the uncertainty regarding the medium-term economic impact of COVID-19, the conversion price has been reduced from 125p to 90p which is an 10% premium to the latest closing share price of 82p. Conversion can take place at any time up to July 2022 and all other significant terms and conditions remain the same. Therefore, as previously announced, the interest rate on the loan notes post July 2021 will increase from 8% to 10% per annum.
£3,250,000 of the convertible loan notes are owned by funds managed by existing shareholder, Gresham House Asset Management (“GHAM”). Funds managed by GHAM currently hold 3,661,796 shares in Northbridge, representing 13.06% of the total voting rights.
GHAM is a substantial shareholder of the Company and a related party under the AIM Rules. The extension of the convertible loan notes held by GHAM constitutes a related party transaction under the AIM Rules. The directors of the Company, having consulted with the Company’s nominated adviser, Shore Capital, consider that the extension of the convertible loan notes held by GHAM, on the basis set out under the heads of terms, is fair and reasonable insofar as the Company’s shareholders are concerned.
The documenting and signing of both the bank facility and convertible loan note extension will be completed over the coming weeks. We would like to thank NatWest and the convertible loan note holders for their continued support.
We already have evidence that the easing of lockdown regulations on a worldwide basis has begun to benefit transactional rental business, particularly in Crestchic, and we expect this to strengthen further from the third quarter. Tasman also expects some previously delayed contracts to start within this timescale. The underlying sentiment in most of our markets for power reliability, renewables and natural gas extraction remains positive and we expect that to continue beyond the impact of Covid-19.
We anticipate that the overall performance of the Group in the first half will be similar to that of the first half of last year, but it is still too early at this stage to give reliable guidance for the year as a whole.
Northbridge’s business model is focused strongly towards rental of equipment and therefore the Group has high operational gearing, together with a strong cash flow and a conservative depreciation policy. As the rebound from the virus begins to take effect, this operational gearing will again benefit earnings and cashflow.
At the end of April 2020 we have seen an increase in the 12 month trailing EBITDA (excluding IFRS16) to £7.4 million (April 2019: £5.7 million). The equivalent figure at 31 December 2019 was £7.0 million.
Northbridge’s balance sheet remains strong and the Group has a substantial portfolio of rental assets which are readily available for deployment. We have taken robust action to ensure sufficient liquidity to see the Group through the challenges and uncertainties resulting from the pandemic.
New Board Director and strategy
We are also pleased to announce a strengthening of the Board with the proposed appointment of Stephen Yapp as an independent non-executive director, effective early July 2020 and conditional upon completion of regulatory clearance. Stephen brings a wide range of skills and experience to the Board as it addresses challenges and opportunities arising from the impact of the pandemic upon our markets.
Beyond COVID-19, we will continue to invest in our core businesses and will seek to maintain and improve our reputation for quality, innovation, reliability and customer support for our manufactured products which are sold throughout the world. On all our activities, emphasis will be on those markets where we can achieve the best returns on capital employed. Crestchic rental will primarily focus on those economies where power reliability is valued and rental rates are higher, and our secondary focus will be on opportunities in the energy, marine and resources sectors in emerging market economies. Tasman will continue to directly focus on Natural Gas, LNG, carbon capture and storage and geothermal energy in the regions of the Far East and Australasia where we already have market leading positions in our product range and QHSE accreditations.