NBI.L Regulatory News (NBI)

30 March 2011

Northbridge Industrial Services Plc.

("Northbridge" or the "Group")

Preliminary Results for the Year Ended 31 December 2010

Northbridge Industrial Services plc, the industrial services and rental company, today announces its preliminary results for the year ended 31 December 2010.

Highlights:

·; Consolidated Group revenue of £19.3 million (2009: £12.7 million)

·; Pre-tax profits of £3.7 million (2009: £2.2 million)

·; Gross margins continue to grow, increasing to 62.4% (2009: 59.1%)

·; Earnings per share up 35% to 25.8 pence (2009: 19.1 pence)

·; Strong cash generation from operations of £6.0 million (2009: £4.5 million)

·; Acquisition of Tasman Oil Tools in Australia and successful placing raising £6.7 million net of expenses

·; Further substantial investment of £4.4 million into the hire fleet (2009: £5.5 million)

·; Proposed increase in the final dividend to 3.05 pence, raising the total dividend for the year to 4.6 pence (2009: 4.1 pence), an increase of 12.2%.

Outlook:

2011 has started well and our main customer base of power generation and the oil & gas sectors is seeing growth in most markets. We are encouraged by progress across the Group and look forward to achieving our objectives and announcing further developments for the Group during the year.

Eric Hook, Chief Executive Officer, commenting on the results and outlook said:

"We are pleased with the Group's performance in 2010 and the positive start to 2011 and hope this will to lead to further good growth for the rest of the year and beyond. The performance of Tasman is encouraging and its integration into Northbridge is continuing as planned. The global economy continues to improve despite recent world events and as a sign of the Board's confidence in the Group's prospects an increase in the dividend of 12.2% for the year has been proposed."

For further information

About Northbridge:

Northbridge Industrial Services plc hires and sells specialist industrial equipment to a non-cyclical customer base. With offices or agents in the UK, US, Dubai, Germany, Australia, Singapore, India, Brazil, Korea and Azerbaijan, Northbridge has a global customer base. This includes utility companies, the oil and gas sector, shipping, construction and the public sector. The product range includes loadbanks, transformers, generators, compressors and oil tools. Northbridge was admitted to AIM in 2006 since when it has recorded increased earnings and dividends each year based on providing a high level of service, responsiveness and flexibility to customers. It has grown by acquisition of companies in the UK, Dubai, Azerbaijan and Australia and through investing further in those acquired companies to make them more successful. Northbridge continues to seek suitable businesses for acquisition across the world.

CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW

We are pleased to present our review of the Group's trading performance for 2010.

It was encouraging that the worldwide economy, following a difficult period for most businesses in 2009 and the early part of 2010, did begin to recover towards the last quarter of the year. The Group is also once more on a strongly upward trajectory with significant growth in overall profits and an increase in reported earnings per share of 35.1% to 25.8 pence (2009: 19.1 pence). This figure includes exceptional acquisition related costs and tax benefits which are described below.

We were also very pleased to finally announce the acquisition of Tasman Oil Tools Pty Ltd ("Tasman") in July 2010 following a long period of negotiation which started in 2008. This is a major step forward in achieving our strategic objectives and gives us a much larger platform from which to build. Tasman is strongly focused towards renting its equipment into the oil and gas industry with over 70% of the total revenue coming from this activity. The acquisition also creates opportunities to cross sell our existing products from Tasman's locations, and Tasman will benefit from Northbridge's Middle East and Caspian presence where there are some common customers.

Our two largest subsidiaries performed well and it was encouraging to see Crestchic's manufacturing and sales activity show growth again following the decline in 2009. Northbridge (Middle East) FZE ("NME") again had a record year with both turnover and profits increasing substantially.

Crestchic designs, manufactures, sells and hires loadbank equipment, which is primarily used for the commissioning and maintenance of independent power sources such as diesel generators and gas turbines. The need to test and maintain standby and independent power systems, together with the associated switchgear and controls, has become an increasingly important element within the power critical technology used by the banking, medical, marine and defence industries. This has resulted in continued strong demand for Crestchic's range of equipment and services throughout the world. Additionally Crestchic is benefiting from a background of an increasingly unreliable global power infrastructure and an increase in the size and remoteness of projects.

NME, which was formed in 2007 and is located in the Jebel Ali free zone of Dubai, acts as a distributor for the full range of Crestchic's products and services throughout the Middle East and Africa, as well as trading on its own account in the rental of transformers, generators and associated electrical equipment.

Our other smaller subsidiaries in the Middle East, the Caspian region and the UK continued to experience lower volumes during the year, although all of these had begun to improve by the last quarter.

Tyne Technical Equipment Rental Services ("TTERS") in Dubai was affected by the ongoing financial issues in the region. At the start of 2011 we took the opportunity to acquire the remaining 33.3% minority interest in the business at no further cost, which enabled us to restructure the business and reduce its overheads to ensure profitability for 2011 and beyond.

RDS, our specialist generator and transformer rental subsidiary, which trades principally in the Caspian region, is now seeing an improvement in volumes following a delay in the expected new round of oil and gas investment in the region. Its operation in the Middle East was impacted by the termination of a contract for the supply of power generation equipment to the Jabal Salab Zinc project which had been won in 2009. This project suffered numerous delays due to funding problems and was terminated by the customer. The Group is currently in discussions regarding rental payments due for the minimum service period and the equipment for this project has been sold, redeployed in other areas or is available for hire.

Allied Industrial Resources Limited ("AIR") in the UK, which offers high volume/high pressure compressed air equipment rental, was impacted by the reduction in industrial output in the early part of 2010 but is now recovering.

Acquisition of Tasman Oil Tools

On the 30 July 2010 we acquired Tasman for an aggregate consideration of AUD$ 16.9 million (£9.7 million). Due to the net assets actually acquired on completion being higher than anticipated the final consideration was £10.1 million. This amount was made up of an initial cash consideration of £7.1 million and a deferred payment of £2.1 million together with 738,048 Northbridge shares which are subject to a "lock-in" agreement for 18 months. Funding for the acquisition was provided by a placing of 5,606,000 new shares at 125 pence each plus an acquisition facility of £3.0 million over 5 years provided by Lloyds Banking Group.

Tasman, based in Perth, Western Australia, is involved in the rental of equipment to the oil & gas industry in Australia. Audited profits for Tasman for the Year ended 30 June 2010 amounted to AUD$ 4.5 million (£2.8 million), prior to rent, and net assets were AUD$ 20.4 million (£12.7 million). The freehold trading properties at Tasman located at Perth W.A., Darwin N.T. and Sale V.T. and valued at AUD$ 8.8 million (£5.5 million) were not acquired as part of the transaction and were excluded from the sale. These properties are currently being rented by Tasman on commercial terms of AUD $0.6 million (£0.4 million) per annum for a period of five years. The vendors of Tasman have agreed new contracts of employment with the Group.

Financial Performance

The Group's consolidated revenue for the year ended 31 December 2010 was £19.3 million (2009: £12.7 million) including a £3.7 million contribution from Tasman. Gross profits and pre-tax profits were £12.1 million (2009: £7.5 million) and £3.7 million (2009: £2.2 million) respectively, this latter figure is stated after charging exceptional costs of the acquisition of £195,000 and additional amortisation relating to Tasman of £201,000.

Excluding Tasman, rental revenue grew by 20% to £9.2 million (2009: £7.7 million) and sales of the lower margin manufactured units grew by 28% to £6.4 million (2009: £5.0 million). Underlying operating profits for the year prior to Tasman grew by 12.2%.

Basic earnings per share based on the weighted average shares in issue, taking into account the shares issued during the period to allow for the placing, was 25.8 pence (2009: 19.1 pence), an increase of 35.1%. This calculation includes a tax benefit relating to the Group's overseas subsidiaries. This benefit relates to two years taxation at the standard UK rate on the profits from NME and RDS. On 23 March 2011 the Group received clearance from HMRC that these two overseas subsidiaries may be treated as exempt from controlled foreign company legislation and therefore their profits would not be chargeable for UK tax. The clearance from HMRC has contributed to a reduced group tax rate of 17.5% on 2010 profits. Future years earnings will also benefit from an overall lower tax charge but the rate of charge will depend on the relative contribution to the Group's profits from those two subsidiaries.

Net cash generated from operating activities amounted to £6.0 million (2009: £4.5 million) and new hire fleet expenditure was £4.4 million (2009: £5.5 million) out of a total capital investment during the year of £4.7 million (2009: £5.9 million).

Net assets at 31 December 2010 grew to £24.5 million (2009: £12.4 million). This equates to basic asset value of 158 pence per share at the year end, up significantly from 137 pence in 2009.

At 31 December 2010 the Group had net gearing, defined as the ratio of all short and long-term borrowings and other financial liabilities,including the deferred consideration for Tasman, to net assets of 23.7%, down from 28.9% at December 2009. Cash balances at the year end were £2.6 million (2009: £0.8 million)

Dividend

Based on this performance the board is pleased to propose an increase in the final dividend for 2010 of 13% to 3.05 pence (2009: 2.7 pence) resulting in a total dividend for the year of 4.6 pence (2009: 4.1 pence) per share, an overall increase of 12.2% for the year. The final dividend will be paid on the 31 May 2011 to shareholders on the register on 13 May 2011, subject to shareholder approval at the Annual General Meeting, to be held at 12.00 noon on 26 May 2011 at the offices of Buchanan Communications, 107 Cheapside, London, EC2V 6DN.

Business review

This year has seen an improvement in most of our activities. In particular the sales demand for our manufactured units showed an increase in our traditional markets in South East Asia. Rental continued to grow in most of our markets, with the UK and the Middle East continuing to perform strongly.

With the addition of Tasman, a predominantly rental business, the proportion of rental sales within total turnover reached 65.4 % (2009: 60.3%). The rental mix is expected to grow further in 2011 and this in turn will improve our margins and cash flow. We continue to make substantial investment into our hire fleet for both replacement and growth.

As previously announced in June 2010, the contract for the supply of power generation equipment to the Jabal Salab Zinc project in Yemen, which had suffered delays since September 2009 due to funding problems with the project, was terminated formally by the customer. The Group is currently in discussion regarding rental payments due for the minimum service period under the contract. The equipment that had been allocated to this contract has been sold, redeployed to other areas of our business or is available for hire.

Strategy

The Northbridge strategy is to acquire and consolidate specialist industrial equipment businesses. The criteria against which potential targets are assessed are:

·; Potential for expansion into complete outsourcing providers.

·; Supplying, or capable of supplying, a worldwide customer base.

·; Incorporating a strong element of rental and service work.

·; Capable of organic growth in their own right.

By consolidating a number of such companies Northbridge can add significant value through organic expansion into new geographical or industry markets and, by making complementary acquisitions, we can increase the Group's product offering to its international customer base.

In achieving this strategy we will be able to capitalise on the market opportunity to become a significant industrial services business serving an international market. The Board reviews this strategy periodically and believes it is still the correct one for the Group. We are actively continuing to search for suitable acquisitions.

Staff

We would like to take this opportunity to thank all the employees of the Group for their contribution to our success in 2010. In particular, we welcome the Tasman employees to the Group and thank them for the smooth transition to new ownership.

Outlook

The global economic environment showed some signs of improvement in 2010 and despite recent events in the Middle East and Japan, we are pleased to note that orders and enquiries for the sales of manufactured units remain strong in all our traditional markets and demand for our rental services continues to grow.

Substantial investment continues to be made in our hire fleet, continuing the trend of previous years, giving us long term benefits in terms of revenue and cash flow. This will enable the Group to continue the development of its strategy and leave us well placed to take advantage of any opportunities that arise.

2011 has started well and our main customer base of power generation and the oil & gas sectors are seeing growth in most markets. We are encouraged by progress across the Group and look forward to achieving our objectives and announcing further developments for the Group during the year.

FINANCE DIRECTOR'S REPORT

Revenue and Profit before tax

During the year ended 31 December 2010 the Group achieved turnover of £19.3 million (2009: £12.7 million) to which our recent acquisition Tasman Oil Tools contributed £3.7 million of revenue during the five months it was under our ownership in 2010. The proportion of group revenues from rental as opposed to sale of equipment has moved up to 65.4% (2009: 60.3%) and the higher margin on rental means that the gross margin has increased this year to 62.4% (2009: 59.1%).

With costs increasing in line with the growth of the business, the profit before tax for the year is up by 66.4% to £3.7 million (2009: £2.2 million). This performance is despite exceptional costs of £0.2 million (2009: nil) relating to the acquisition which under new accounting rules need to be charged to the income statement rather than being accounted for as part of the cost of the acquisition in the balance sheet. This year's income statement also includes an increased charge for amortisation of intangible assets arising from the acquisition of Tasman of £201,000 (2009: £Nil) and whilst this reduces the profit before tax it is not a cash charge.

Earnings per share

The basic EPS figure of 25.8 pence (2009: 19.1 pence) and diluted EPS of 25.5 pence (2009: 18.9 pence) have been arrived at in accordance with the calculations contained in note 4.

Balance sheet and debt

The balance sheet shows another significant increase in property, plant and equipment this year primarily due to our investment into the hire fleet of £4.4 million (2009: £5.5 million), on top of which a further £3.1 million was added by the acquisition of Tasman bringing the carrying value of our hire fleet at cost to £18.9 million. Trade receivables have increased to £5.4 million (2009: £2.7 million) due to higher trading levels and the addition of Tasman receivables. Cash and cash equivalents increased to £2.6 million (2009: £0.8 million).

Bank borrowings increased to £6.1 million (2009: £2.9 million) but overall gearing was down to 23.7% (2009: 28.9%). The Group is comfortably within its banking covenants which were revised at the time of taking on additional borrowings. The Group cashflow from operating activities before movements in working capital were £5.9 million (2009: £3.6 million). The largest component of the difference between the profit before tax of £3.6 million and the cashflow from operating activities before movements in working capital of £5.8 million is depreciation, which at £1.6 million is significantly higher than in 2009 (£1.0 million) due to the larger hire fleet in the Group. Based on the Group's cashflow from operating activities there is further capacity for increased borrowings.

Cash flow

During the year, the Group generated £6.0 million of cash from operations (2009: £4.5 million), of which £4.4 million (£5.5 million) was reinvested into the hire fleet. The Group also raised £6.7 million net of expenses from the issue of equity, of which £6.5 million was used in the acquisition of Tasman. Bank borrowings were restructured during the year giving rise to a net inflow of funds from bank borrowings of £2.1 million. The Group also paid out £0.5 million in dividends to shareholders.

Income tax expense

The Group has an income tax expense for the year of £643,000 (2009: £640,000) equating to a charge of 17.5% (2009: 28.9%) of profit before tax. The Group has benefited from reduced taxation on the current year and previous year's profits in two of its businesses following utilisation of HMRC rules on overseas subsidiaries.

Principal risks and uncertainties

Interest rate risk

The Group has a centrally managed policy and most Group borrowings and overdrafts attract variable interest rates. Although the Board accepts that this policy of not fixing interest rates neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments, it considers that it achieves an appropriate balance of exposure to these risks. On occasion the Group may enter into capping arrangements for certain variable interest rate borrowings. The Group's bank borrowings are made up primarily of a mortgage and term loans. The rate on a portion of the term loan total has been capped at the margin plus a maximum LIBOR rate of 2% for the remaining term of the loan. The Group also utilises a short-term trade finance facility, a temporary overdraft facility and leasing arrangements.

Foreign currency exchange risk

Part of the cash at bank is held in Euro, US Dollar, Australian Dollar and Arab Emirates Dirham accounts. There are also trade balances and investments in these currencies. The Board manages this risk by converting non-functional currency into Sterling as appropriate, after allowing for future similar functional currency outlays. It does not currently consider that the use of hedging facilities would provide a cost effective benefit to the Group on an ongoing basis although a forward currency contract was used to fix the cost of the initial cash consideration paid to the vendors of Tasman over the period from announcement to completion of the acquisition.

Credit risk

Credit risk arises principally from the Group's trade receivables. The Group manages its credit risk by assessing all new customers, and setting credit ratings which are factored into credit decisions. At 31 December 2010 the Group had £3,237,000 (2009: £1,954,000) of trade receivables outstanding over three months old of which £2,672,000 (2009: £1,198,000) has been collected since the year end. At 31 December 2010 trade receivables of £109,000 (2009: £97,000) were past due and are considered to be impaired due to the fact that the debts are old and due from customers in financial difficulty. During the year the Group wrote off £68,000 (2009: nil) of debts considered unrecoverable.

Ash Mehta

Finance Director

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2010

All amounts relate to continuing operations.

CONSOLIDATED BALANCE SHEET

As at 31 December 2010

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2010

For the year ended 31 December 2009

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2010

During the period the Group acquired property, plant and hire equipment with an aggregate cost of £4,665,000 (2009: £5,862,000) of which £52,000 (2009: £1,495,000) was acquired by means of finance leases.

1. ACCOUNTING POLICIES

1.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS

While the financial information included in the annual financial results announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), this announcement does not contain sufficient information to comply with IFRSs.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2009, but is derived from those accounts. Statutory accounts for the year ended 31 December 2009 have been delivered to the Registrar of Companies and those for the year ended 31 December 2010 will be delivered following the company's annual general meeting.

The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.

Their report for the year end 31 December 2010 and 31 December 2009 did not contain statements under s498 (2) or (3) of the Companies Act 2006.

1.2 BASIS OF CONSOLIDATION

The financial statements consolidate the accounts of Northbridge Industrial Services plc and its subsidiary undertakings.

The results of the business acquired during the year are included from the effective date of acquisition. Intercompany transactions and balances between companies are eliminated in full.

2. SEGMENT INFORMATION

The Group currently has three main reportable segments:

·; Europe - this segment is involved in the manufacture, hire and sale of specialist industrial equipment. It is the largest proportion of the Group's business and generated 50% (2009: 71%) of the Group's revenue. This includes the Crestchic and AIR businesses; and

·; Middle East - this segment is involved in the hire of specialist industrial equipment and contributes 31% (2009: 29%) of the Group's revenue. This includes the NME, RDS and TTERS businesses; and

·; Asia-Pacific - this segment is involved in the hire and sale of specialist industrial equipment and generated 19% (2009: 0%) of the Group's revenue. This includes the Tasman business.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products and services which operate in different locations around the world. They are managed separately because they require different marketing and distribution strategies.

Measurement of operating segment profit or loss, assets and liabilities

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

The Group evaluates performance on the basis of profit or loss before tax.

Segment assets and liabilities include an aggregation of all assets and liabilities relating to businesses included within each segment. Other adjustments relate to the non-reportable head office along with consolidation adjustments which include goodwill and intangible assets. All intersegment transactions are at arms length.

3. INCOME TAX EXPENSE

Factors affecting tax charge for the year

The tax assessed for the year is different to standard rate of corporation tax in the UK (28%). The differences are explained below:

4. EARNINGS PER SHARE

At the end of the year, the Company had in issue 99,701 (2009: 430,357) share options which have not been included in the calculation of diluted EPS because their effects are anti-dilutive. These share options could be dilutive in the future.

5. DIVIDENDS

The Directors are proposing a final dividend of 3.05 pence (2009: 2.7 pence) per share totalling £472,000 (2009: £241,000), resulting in dividends for the whole year of 4.6 pence (2009: 4.1 pence) per share. The dividend has not been accrued at the balance sheet date.

6. ACQUSITIONS DURING THE YEAR

Tasman Oil Tools Pty Limited (Tasman)

On 30 July 2010, the Group purchased 100% of Tasman. Tasman is registered in Australia and its principal business is hire of tools and equipment for the oil and gas industry in Australia. The total consideration was £10,066,000, which was satisfied by £7,110,000 in cash on acquisition, £925,000 in shares by the issue of 738,048 new ordinary shares at a price of 125 pence per ordinary share with £991,000 in cash paid on 4 January 2011 and £1,040,000 due to be paid in cash on 30 September 2011. The share price was based on the closing bid price at the time control was obtained. Acquisition expenses of £195,000 have been taken to profit or loss in the statement of comprehensive income.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

The contingent consideration is based on a formula applied to the net assets on 30 June 2010 and the profit after tax for the year ended 30 June 2010 per the audited financial statements of Tasman.

Current assets acquired include trade receivables with a book and fair value of £1,685,000 representing contractual receivables of £1,688,000. Whilst the Group will make every effort to collect all contractual receivables, it considers it unlikely that the £3,000 will ultimately be received.

The net cash sum expended on the acquisition was as follows:

The acquisition is in line with the Group's stated strategy of acquiring earnings enhancing specialist businesses in niche sectors which are capable of further organic growth. It also significantly increases the size of Northbridge and gives it greater critical mass and broadens the Group's presence in the Asia Pacific region. Tasman is strongly focused towards renting its equipment into the oil and gas industry with over 70 per cent of the total revenue coming from this activity. Tasman also creates opportunities to cross sell Northbridge's existing products from Tasman's locations and Tasman will also benefit from Northbridge's Middle East and Caspian presence where there are some common customers.

The main factors leading to the recognition of goodwill are the presence of certain intangible assets in the acquired entity. These include the assembled work force of the acquired entity which do not qualify for separate recognition. Moreover, elements of goodwill such as the strong position in a market are typically not contractual or separable from the entity. They remain within goodwill.

None of the goodwill recognised is expected to be deductible for income tax purposes.

Since the acquisition date, Tasman has contributed £3,700,000 to group revenues and £1,115,000 to group profit. If the acquisition had occurred on the first day of the accounting period group revenue would have been £26,958,000 andgroup profit for the period after tax would have been £7,184,000 (this includes a one-off profit on disposal of property of £3,949,000).

7. ANNUAL REPORT AND ACCOUNTS

The annual report and accounts will be posted to shareholders shortly and will be available for members of the public at the Company's registered office Second Avenue, Centrum,100, Burton on Trent, DE14 2WF, and on the company's website www.northbridgegroup.co.uk.

8. ANNUAL GENERAL MEETING

The Company's Annual General Meeting is to be held at the offices of Buchanan Communications, 107 Cheapside, London, EC2V 6DN on 26 May 2011, commencing at 12.00 noon.