NBI.L Regulatory News (NBI)

30 September 2021

Northbridge Industrial Services Plc

("Northbridge", the "Company" or the "Group")

Unaudited Interim Results for the six months ended 30 June 2021

Power reliability division drives continued strong growth

Northbridge, the industrial services and rental company, is pleased to announce 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, 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.

This announcement contains inside information as stipulated under the UK version of the Market Abuse Regulation No 596/2014 which is part of English Law by virtue of the European (Withdrawal) Act 2018, as amended. On publication of this announcement via a Regulatory Information Service, this information is considered to be in the public domain.

For further information

Northbridge Industrial Services plc 01283 531645

Peter Harris, Executive Chairman

Iwan Phillips, Finance Director

Shore Capital (Nominated Adviser and Broker) 020 7408 4050

Robert Finlay / David Coaten / Henry Willcocks

Buchanan 020 7466 5000

Charles Ryland / Stephanie Whitmore

About Northbridge:

Northbridge Industrial Services plc hires and sells specialist industrial equipment. With offices or agents in the UK, USA, The Middle East, Belgium, Germany, France, Australia, New Zealand, Singapore, China and South Korea, Northbridge has a global customer base. This includes utility companies, renewables, the oil and gas sector, data centres, shipping, banking, mining, construction and the public sector. The product range includes loadbanks, transformers, and drilling tools. Northbridge was admitted to AIM in 2006 since when it has grown by providing a high level of service, responsiveness and flexibility to customers.

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

30 September 2021

Finance Director's report

Financial performance

Overall revenue for this period was up by 22% to £19.6 million (2020: £16.0 million) with the significant increase in Crestchic revenue more than offsetting the 25% decline in Tasman revenue.

Hire revenue made up 61% of total revenue in the first half of 2021 compared to 58% in 2020 and this has driven the increase in the overall margin from 43% to 45%. This increase in margin is despite the hire revenue for the period including £1.3 million of low margin pass-through revenue for a contract in Asia.

Operating costs increased from £6.4 million in H1 2020 to £6.9 million in this period with activity levels returning to normal. Costs for the period were marginally up on the £6.7 million seen in the first half of 2019.

This resulted in an operating profit of £1.6 million before finance costs of £0.3 million and exceptional costs relating to refinancing of £0.9 million. The tax charge of £0.4 million includes a deferred tax charge of £0.2 million relating to the announced increase in the rate of UK corporation tax from 19% to 25% from 1 April 2023.

Balance sheet, debt and cashflow

Net hire fleet additions for the period were £0.3 million compared to £2.1 million in the first half of 2020. Total hire fleet capital expenditure was £0.9 million which included additions to the European fleet for datacentre testing and the US fleet whilst the requirement for additional equipment for Tasman has decreased since the beginning of the pandemic.

The Group as a whole continues to take advantage of opportunities to dispose of underutilised assets at good prices and generated £0.7 million from the sale of hire fleet assets in the period.

Inventory levels have remained in line with 31 December 2020 at £4.5 million which is down from the of 30 June 2020 high of £5.1 million. The amount of inventory is historically high and, with the factory at full capacity and the current supply chain disruption unlikely to ease in the near term, it is planned to be maintained at this level into 2022.

Trade and other receivables have increased since the 2020 year end due to the increase in activity and debtor days remain in line with historical norms. Trade and other payables have also increased when compared to 31 December 2020 and mirrors the increase in receivables.

Net debt has continued to decrease significantly, and at 30 June 2021 stood at £4.5 million (31 December 2020: £6.8 million, 30 June 2020: £7.4 million). Ahead of the construction of the new facility in Burton and the planned further investment in Crestchic, the Group's leverage and gearing are low.

The Group's leverage, as calculated by dividing net debt by twelve month rolling EBITDA, has decreased significantly to 0.6 (31 December 2020: 0.9) in the period.

As announced on 29 September 2021 a general meeting will be held on 18 October 2021 where a resolution to cancel the £29.95 million standing to the credit of the Company's share premium account as at 31 December 2020, with the profit and loss account being credited with an equivalent sum in order to eliminate the accumulated losses on the profit and loss account, and to create a positive distributable reserve, will be put to the meeting.

As explained in the notice to the meeting, in light of the Group's improved performance, the Board believes that it may be appropriate in the future to re-commence paying dividends to Shareholders. In addition, it is the intention of the Board to satisfy future issuances of Ordinary Shares pursuant to the Company's LTIP from Ordinary Shares acquired in the market and held in treasury if it is deemed to be in the best interest of shareholders at the time.

Return on investment ("ROI")

As detailed in the 2020 Annual Report, a key metric for the Group is the return generated on the investments it makes in assets and working capital. Our ROI measure is defined by the pre-exceptional operating profit divided by the net operating assets.

The Group is focused on delivering an ROI well above its weighted average cost of capital. The Group's pre-tax cost of capital as at 31 December 2020 was calculated at 12.5% and the Board is targeting a Group ROI of 15% in the medium term. The Group's cost of capital and ROI target will be reviewed again at the year end in light of the refinancing and the outcome of the potential disposal of Tasman.

To achieve this the Board will focus on the following:

- The prioritisation of ROI in all capital expenditure and asset disposal decisions

- Maintaining Crestchic's ROI as investment into its growth continues

- Accelerating the improving trends seen in the Tasman ROI

- Ensuring that the PLC overhead is appropriate

Crestchic achieved an ROI of 22% in 2019 and despite the effects of COVID-19 kept this at over 15% in 2020. As noted in the Executive Chairman's statement, Crestchic has returned to pre-pandemic trading and its ROI for the first half of the year is well in excess of 20%.

Tasman continues to trade at close to breakeven and therefore a negative ROI. A full ROI analysis by division will again be included in the 2021 Annual report.

Risks and uncertainties

The Board has reviewed the risks and uncertainties included in the 2020 Annual Report and concluded that they have not materially changed in the period to 30 June 2021.

IFRS 16

All the metrics used in the accounts are after IFRS 16. For historical comparisons a reconciliation of pre-IFRS 16 to post IFRS-16 metrics is included below.

Iwan Phillips

Finance Director

30 September 2021

Consolidated statement of comprehensive income

For the six months ended 30 June 2021

* As restated - see note 5

All amounts relate to continuing operations.

Consolidated balance sheet

As at 30 June 2021

* As restated - see note 5

Consolidated cash flow statement

For the six months ended 30 June 2021

Notes to the unaudited interim statements

For the six months ended 30 June 2021

1. Basis of preparation

This interim report has been prepared in accordance with the accounting policies disclosed in the full statutory accounts for the year ended 31 December 2020.

These policies are in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations (collectively "IFRS") issued by the International Accounting Standards Board, as endorsed for use in the European Union, that are expected to be applicable for the year ending 31 December 2021.

The Group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing the interim consolidated financial information.

The financial information in this statement relating to the six months ended 30 June 2021 and the six months ended 30 June 2020 has not been audited.

The financial information for the year ended 31 December 2020 does not constitute the full statutory accounts for that period. The annual report and financial statements for 2020 has been filed with the Registrar of Companies.

The Independent Auditor's Report on the annual report and financial statement for 2020 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

The interim report for the period ended 30 June 2021 was approved by the Board of Directors on 30 September 2021.

2. Exceptional items

* As restated - see note 5

i. In June 2020, the Board reviewed the carrying value of all the Group's intangible assets. It concluded that all of the £7,136,000 carrying value of intangibles and goodwill relating to the 2014 acquisition of Tasman New Zealand should be impaired. The Board also decided that the recoverability of a balance of £615,000 owed by the Olio Tasman joint venture was in doubt and that a full provision should be made. The total provision made in June 2020 was £7,751,000 and this was unaltered at the year ended 31 December 2020.

ii. In June 2021 the Group refinanced early its senior debt facilities and convertible loan notes that were due to expire in June 2022. As part of the settlement of the convertible loan notes an early redemption fee of £764,000 was paid to bondholders. Debt fees of £113,000 were written off due to the early repayment of the facilities and a total exceptional finance cost of £877,000 has been recognised in the Group Statement of Comprehensive Income.

iii. The deferred tax credit resulted from the exceptional impairment of the customer relationships realised on the acquisition of Tasman New Zealand described in part i. above.

3. Earnings per share

The earnings per share figure has been calculated by dividing the profit after taxation, £77,000 (2020: loss of £7,295,000), by the weighted average number of shares in issue, 27,990,596 (2020: 27,899,602).

The diluted earnings per share assumes all share options are exercised at the start of the period or, if later, the date of issue of the share options. This increased the weighted average number of shares in issue by 80,232 (2020: nil). At the end of the period, the Company had in issue up to a maximum of 2,956,020 (2020: 2,396,951) share options which have not been included in the calculation of the diluted earnings per share because their effects are anti-dilutive. These share options could be dilutive in the future.

4. Dividends

No interim dividend (2020: nil) will be paid to shareholders.

5. Restatement of certain balances as at 30 June 2020

The deferred tax provision has been reduced by £425,000 and an exceptional deferred tax credit of £425,000 added the Group Statement of Comprehensive Income to align the interim statement with the 2020 year end report as described in 2.ii above.

6. Interim report

Copies of the interim report are being sent to all shareholders shortly and are available to the public from the offices of Northbridge Industrial Services plc at Second Avenue, Centrum 100, Burton on Trent, DE14 2WF. The interim report and the interim announcement will also be available from the Group's website at www.northbridgegroup.co.uk.