LONDON (Alliance News) - Northbridge Industrial Services PLC Thursday said it sees "no reliable signs of any upturn" in the oil and gas sector in 2015 and said it expects to make a loss in the first-half as the company slashes jobs and expenditure whilst closing and selling some of its operations to mitigate the difficulties in the sector.
Following these actions, Northbridge will be focused on its two core businesses, Crestchic, in the manufacture, sale and rental of loadbanks and transformers, and Tasman Oil Tools, in the rental and management of oil and gas drilling equipment.
Northbridge shares plummeted 22% to 235.75 pence per share on Thursday morning.
"At the time of our preliminary announcement in April we highlighted a cyclical reduction in our oil and gas related rental revenue. This has continued and, despite a high current level of quotations and enquiries, we now see no reliable signs of any upturn for the rest of 2015," said Chairman Peter Harris ahead of the company's annual general meeting to be held Thursday.
Northbridge said the Crestchic loadbank operations in Singapore and Dubai, and Tasman Oil Tools in Australia are the businesses most affected by the downturn in the oil and gas sector due to lower rental activities.
"Our loadbank business in Singapore and Dubai focuses on larger projects being carried out in shipyards and in other oil and gas facilities, where there has been a marked slowdown since the beginning of the year, with projects subject to delays, postponements and cancellations," said Harris.
"Tasman in Australia has also suffered from significant cuts in investment by the oil & gas industry, exacerbated by merger and acquisition activity within our customer base," he added.
Harris said the Crestchic loadbank businesses in the UK and Europe and transformer rental operations have not been affected by the "turmoil" in the oil and gas sector and are performing to plan with "robust" cash flow.
"Whilst we do not believe the current downturn in the oil and gas industry will be prolonged, we nevertheless think it prudent not to assume a return to stability and growth before 2016/17. We have therefore taken steps to ensure we will be in a position to take advantage when the upturn arrives," said Harris in a statement.
Harris said it will close and sell its generator rental activities in the Middle East and the air compressor rental business in the UK. Northbridge's entire business in Vietnam will be closed, and it will sell its non-core hire fleet and cut capital expenditure in the division. In addition, Northbridge will cut 10% of its staff.
Capital expenditure will be cut by a further GBP10 million over the next 18 months.
"These steps will accelerate the de-gearing of our balance sheet by a combination of reductions in capital expenditure, cost savings and the disposal of non-core and surplus assets," said Harris.
The closure of the non-core activities will raise around GBP1.5 million in cash by the end of June, and the company said further equipment will be sold in the future.
In addition, the company has entered into a new GBP17.1 million senior multi-currency term and revolving facility agreement wiuth the Royal Bank of Scotland PLC and KBC Bank NV. The four-year agreement incorporates a GBP7.1 million loan and a GBP10 million facility. The company has also entered a separate GBP5.8 million ancillary facility agreement.
"Whilst these facilities are subject to normal banking covenants and are available for general corporate purposes, they also provide further scope for growing the businesses should these opportunities arise," said Harris.
"In the event of the downturn being further prolonged, our actions are aimed to enable us to become materially financially un-geared by the end of 2016, with substantial freehold properties and good cash flow," said Harris. "The directors expect the group to be loss-making during the first half of 2015. We have very significantly reduced our expectations for the year as a whole, but expect the group to remain profitable and cash generative in 2015.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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