Northbridge cuts costs as it sees 'some weakness'

(Sharecast News) - Industrial services and rental company Northbridge updated the market on the ongoing impact of the Covid-19 pandemic on Monday, saying that trading in the first quarter was in line with its original expectations, although with "some weakness" towards the end of the period.
The AIM-traded firm said its recovery momentum of 2019 was maintained, and in particular, the Tasman operation showed "very good" year-on-year growth, and traded profitably.

Following the UK lockdown, it said it had largely been able to maintain factory production under appropriate social distancing and staff welfare working practices.

"We have a record level of sales orders for this year and this has been our top priority, as the equipment - (mostly used to test emergency backup power systems - is pre-ordered, and frequently paid in full before leaving the factory," the board explained in its statement.

"This will underpin the group's cash planning and will help mitigate any decline in rental revenue.

"Additional new orders have also been received during the lockdown period, and the factory will be running at near capacity for the remainder of the year."

Northbridge said maintaining production enabled it to better manage any liquidity issues during the expected Covid-related downturn, as it was able to receive cash deposits, together with trade and invoice financing, before the goods were despatched to the customer.

Liquidity had improved since the year-end, with additional funds being drawn against facilities where available.

In addition, all senior salaried staff, including board members, had accepted a voluntary 20% pay reduction for a three-month period from 1 April, and a small number of staff were furloughed in the UK, with funds received from overseas job retention schemes.

The amount of cash released from that action, together with other savings in variable costs in the current quarter, was expected to be around ?0.5m.

All other discretionary spending, including capital expenditure, had also been significantly reduced.

"Rental operations are either open for business or working on a business continuity basis," the board said.

"During the lockdown periods over the last six weeks, all locations have negotiated and delivered new hire orders.

"This includes equipment for a utility in California, data centres in Europe, nuclear facilities in China and drilling tools and accessories for onshore and offshore, gas, oil and geothermal projects in Australia, New Zealand, South East Asia and the Middle East."

Northbridge said that, while the volumes had been lower than before the lockdown, demand for both Crestchic and Tasman services remained "firm".

"It is unclear whether a relaxation in lockdown measures will lead to a 'bounce back' in demand, however up to now most projects have been delayed or postponed rather than cancelled.!

The longer-term impact of lower oil and gas prices had yet to be ascertained, and Northbridge said it was still too early to predict the level of trading for the rest of 2020.

Its assumptions remained that the second and third quarters would be the most directly affected by Covid-19, and that the energy price downturn would continue to impact activity levels in the fourth quarter and into 2021.

The key drivers for its performance in the second half would, as a result, be the level of possible ''bounce back'' within Crestchic, and then later in the year for both Crestchic and Tasman, the effect of lower oil prices and the resilience of demand for natural gas and LNG.

"There is no doubt that trading will be adversely affected for some time due to the economic fallout of the pandemic.

"However, the benefit of the group's strong positive cash flows, proactive cost control and experienced management team have been well evidenced in past downturns and we expect this to continue to be the case."

At 1050 BST, shares in Northbridge Industrial Services were up 9.31% at 79.25p.