Northern Bear Regulatory News (NTBR)

18 July 2022

Northern Bear PLC

("Northern Bear" or the "Company")

Preliminary results for the year ended 31 March 2022

The board of directors of Northern Bear (the "Board") is pleased to announce its unaudited preliminary results for the year ended 31 March 2022 ("FY22") for the Company and its subsidiaries (together, the "Group").

Financial summary

· Revenue of £61.1m (2021: £49.2m)

· Adjusted EBITDA* of £3.6m (2021: £2.3m)

· Adjusted operating profit* of £2.6m (2021: £1.4m)

· Adjusted basic earnings per share* of 9.8p (2021: 5.5p)

· Cash generated from operations of £2.2m (2021: £3.8m)

· Net cash position at year end of £2.2m (2021: net cash of £2.1m)

· Impairment charge in relation to A1 Industrial Trucks goodwill of £2.6 million

· Legal claim against Springs Roofing settled in July 2022 for £0.6 million

* stated prior to the impact of impairments, amortisation, and other one-off costs

Jeff Baryshnik, Non-Executive Chairman of Northern Bear, commented:

"We are pleased to announce strong operating results for the year ended 31 March 2022, despite the ongoing challenges facing our industry."

"It is a testament to the executive team and the subsidiary operating teams that FY22 operating results exceed those of the comparable pre-pandemic year ended 31 March 2020."

For further information contact:

Chairman's Statement

Introduction

I am pleased to report the results for the year to 31 March 2022 ("FY22") for Northern Bear and its subsidiaries (together, the "Group"). 

Despite industry-wide challenges with respect to both the availability and increasing prices of construction materials, along with the well-publicised issues relating to attracting and retaining employees in our industry, we are pleased to announce strong adjusted operating results, as defined below, for FY22 which have exceeded those from the prior year to 31 March 2021 ("FY21") as well as those from the comparable pre-pandemic year to 31 March 2020 ("FY20").

Trading

In the interim report for the six months to 30 September 2021 ("HY22"), we noted the industry-wide challenges with respect to both the availability and price inflation of construction materials, along with the well-publicised issues relating to attracting and retaining employees in our industry. Despite the impact of these headwinds, we reported that our Group generated strong adjusted operating results, defined as operating profit stated prior to amortisation, one-off costs, and impairment charges, in HY22. Our companies have strong and well-established supplier relationships and, on the whole, have been able to work with our robust supply chain to ensure continuity of supply for contracts.

This situation has continued through the second half of FY22, and the Group has generated strong adjusted operating results that exceed those from the prior year of FY21, as well as those from the comparable pre-pandemic year of FY20.

The Group reported an overall operating loss of £0.7 million (2021: £1.5 million), and a retained loss of £1.3 million (2021: £1.8 million). Both are stated after amortisation, one-off costs, and impairment charges, more detail on which is provided below and where the principal items are goodwill impairment of £2.6 million (2021: £2.8 million) and provision for settlement of a legal claim of £0.6 million (2021: nil). Operating profit for FY22, before amortisation, one-off costs, and impairment charges, was £2.6 million as compared with £1.4 million in FY21. 

Northern Bear Roofing

Despite the issues with materials and labour in the roofing industry, our Roofing division has performed well in FY22 and maintains a strong order book. This result is a testament to our three Managing Directors, their teams, and their excellent relationships with our supply chain.

Alan Chapman, our Heritage Manager and a Director at Wensley Roofing Limited, recently retired as planned, with Adam Rhodes assuming the role after a two-year transition period. We thank Alan for his contributions and wish Adam the best in his new role.

As announced on 8 July 2002, we decided to settle, for the sum of £0.6 million, a legal claim against Springs Roofing Limited ("Springs") brought by Engie Regeneration (FHM) Limited ("Engie"), where court proceedings had been issued in December 2021 for an original claim of £1.9 million. While the Springs directors believed the claim was without merit, we took into consideration the commercial risk of litigation and the potential for irrecoverable costs to be incurred in defending the claim. Springs and Northern Bear's other subsidiaries retain excellent commercial relationships with Engie's (recently renamed to Equans) regional and national management team. As such, Engie (Equans) continues to be an important and valued customer for the Group. There are no other pending legal claims against the Group or its subsidiaries, and we are not aware of any matter that could lead to a material legal claim.

Northern Bear Construction

The businesses in our Construction division performed well on the whole in FY22, and H. Peel & Sons Limited ("H Peel") has seen some stabilisation of its core markets.

MGM Limited ("MGM"), our specialist construction and refurbishment business, has seen continued exceptional performance. Along with recruiting new staff, MGM alleviated some of the pressure on its surveyors and contract managers by employing a buyer to optimise supply chain availability and pricing. This released the surveyors and contracts managers to concentrate more on their site work. The order book is historically strong, and this business continues to grow steadily.

H Peel, our fit out and interiors business, continued to experience challenging trading conditions in FY22 due to the ongoing impact of COVID-19 on its core hospitality and leisure markets. We are cautiously hopeful of a continued stabilisation in H Peel's core markets, and of a resultant improvement in H Peel's trading.

J Lister Electrical Limited ("J Lister"), our electrical contractor, saw improved profitability during FY22. In light of current order book levels, we are optimistic that trading at J Lister will continue to improve in the current financial year.

Isoler Limited ("Isoler"), our fire protection contracting business, has continued to perform very strongly, with an impressive and growing reputation for good quality workmanship. Isoler has won expanded mandates from a general contractor customer and a local social housing provider during FY22.

Northern Bear Materials Handling

Our materials handling business, A1 Industrial Trucks Limited ("A1"), has seen an improvement in its profitability despite disruption to new truck sales. We are now expecting lead times for the delivery of forklift trucks to be in the region of 30 to 40 weeks due to supply chain interruptions, which could lead to a challenging outlook over the medium term. As a result, we recorded an impairment of goodwill of £2.6m in our FY22 results with respect to A1, which is further described below.

Fortunately, A1 has now moved into its new premises on the Team Valley trading estate in Gateshead, providing a larger footprint in a superior location that will increase A1's profile. We also accelerated investment in the fork-lift fleet during FY22 in anticipation of continued supply chain challenges. This investment, coupled with the possibility of being positioned to attract more business from the numerous companies renting property on this well-known trading estate, leads to an exciting time for the business notwithstanding the ongoing supply chain challenges.

Other matters

As in prior years, we have presented amortisation and certain other adjustments separately within the Consolidated Statement of Comprehensive Income, to provide an indication of underlying trading performance. The adjustments in the current year are for the impairment charge related to A1 (as described further above and below), amortisation of acquired intangibles, and provision for settlement of the Springs legal claim (as described above) and related legal costs. Adjustments in the prior year include the impairment charge related to H Peel and amortisation. Calculations supporting alternative performance measures are included in the notes below.

During FY21, when our businesses were unable to operate on site, with the consequent furloughing of direct and indirect employees, we received significant sums from the Government's Coronavirus Job Retention Scheme. These amounts are shown in other operating income for FY21 and total £1.5 million. The majority of the related staff costs are included in cost of sales for FY21, and this consequently impacted reported gross margin that year. During FY22, such amounts were much lower and totalled under £0.1 million.

The operating profit before amortisation and other adjustments contributed by our trading subsidiaries was £3.7 million (2021: £2.1 million), which was offset by corporate and central costs of £1.1 million (2021: £0.7 million). The central costs in FY21 were unusually low due to temporary savings in corporate and central costs due to lower activity levels and voluntary salary reductions. Should future subsidiary profits increase via organic growth or acquisition, central costs would not be expected to increase proportionately and this would, therefore, provide some operating leverage.

Impairment charge

As mentioned above, we recorded an impairment of goodwill related to A1, our materials handling business, of £2.6m for FY22. 

Goodwill is a non-cash accounting estimate which arises on acquisition of subsidiaries. We had noted in our annual report and financial statements for FY21 that there was limited headroom when comparing the recoverable amount to the carrying value of goodwill at the balance sheet date. Despite some improvement in A1's trading performance during FY22, the supply chain disruptions and challenging industry outlook led us to record this impairment for FY22.

The large majority of goodwill relates to acquisitions made in the Group's early years between 2006 and 2008. These acquisitions were completed at a time when different accounting standards were in place which did not require separate identification of acquired intangible assets and permitted capitalisation of deal costs, resulting in a higher goodwill balance than would be likely under current standards. Notwithstanding this, having impaired goodwill related to H Peel and A1, the remaining carrying value of goodwill is comfortably supported by current trading levels. 

Cash Flow and Bank Facilities

The Group had a substantial net cash position (defined as cash balances less the amount drawn down on our revolving credit facility) of £2.2 million at 31 March 2022 (£2.1 million at 31 March 2021). Cash generated from operations during the year was £2.2 million (2021: £3.8 million). These excess cash balances have, to an extent, normalised post year-end, although the Group's financial position remains strong.

As we have emphasised in previous years' results, our net cash/bank debt position represents a snapshot at a particular point in time and can move by up to £1.5 million in a matter of days, given the nature, size and variety of contracts that we work on and the related working capital balances. 

The lowest position during the year was £1.6 million net bank debt, the highest was £2.5 million net cash, and the average was £0.1 million net bank debt.

We have made limited use of our committed £1 million overdraft and £3.5 million revolving credit facility in FY22. While the Group's working capital requirements will continue to vary depending on the ongoing customer and contract mix, we believe that our financial position and bank facilities provide us with ample cash resources for the Group's ongoing operational requirements. 

Growth Initiatives

We have continued to challenge our subsidiary management teams to consider opportunities to expand their businesses over the medium term, notwithstanding the challenging trading conditions during FY22. This could include a degree of geographic expansion and/or the opportunity to broaden their product and service offerings.

Supply Chain and Outlook

It has been widely publicised that industry-wide challenges continue with respect to both the availability and price inflation for construction materials. Our companies have strong and well-established customer and supplier relationships and have been able, on the whole, to work with both groups to ensure continuity of supply for contracts and to pass on cost increases where possible.

However, we have seen some impact on our results and expect this situation could provide a short-term headwind to operations until industry supply and demand revert to more typical levels. 

Our forward order book remains strong and should support our trading performance in the coming months, subject to potential supply chain challenges and the business-specific considerations noted in the trading statement above. 

We regularly report that the timing of Group turnover and profitability is difficult to predict despite the continued strong order book, and our results can also be volatile on a month to month basis. We will continue to update shareholders with ongoing trading updates.

Strategy & Dividend

Following Board changes in late 2021, including my appointment as Non-Executive Chairman, I commenced a process of engaging with the Board and management to discuss and review the Group's strategy and approach to capital allocation. This review remains ongoing and, in recent months, we have assessed two potentially accretive acquisitions of a more substantial size than those we have made previously. Ultimately, these did not come to fruition. We continue to explore avenues for increasing shareholder value.

As a result of our ongoing review, which includes dividend policy, we did not declare a final dividend for the year ended 31 March 2022. I would note that we have the cash resources available to pay a final dividend commensurable with prior year dividends, should we have decided to declare one. Any future dividends would be in line with the Group's relative performance, after taking into account the Group's available resources, working capital requirements, corporate opportunities, debt obligations, and the macro-economic environment. 

People

Anil Khera

Anil Khera joined us as a Non-Executive Director in November 2021. Mr Khera began his career at Credit Suisse, within DLJ Real Estate Capital Partners, before joining Blackstone's real estate investment team in 2006 where he spent 10 years, becoming a managing director of the Real Estate Capital Markets team in 2011. In 2016, Mr Khera founded Node Living, a fully integrated residential investment, development and management company based in London which operates across Europe and North America. I would like to welcome Anil to the Board and look forward to working with him over the coming years. 

Harry Samuel

Harry Samuel joined us as a Non-Executive Director in November 2021. Mr Samuel spent over 20 years across various leadership roles within Royal Bank of Canada ("RBC"). This included roles as Global Head of Funding and Liquidity Asset Management, Foreign Exchange and Commodities, and Fixed Income and Currencies, before becoming CEO of RBC Capital Markets Europe in 2011 and subsequently CEO of RBC Investor & Treasury Services and Chair of RBC's European Executive Committee from 2013 to 2019. Mr Samuel currently serves as CEO of Affordable Housing Communities Limited and Managing Director of Affordable Housing and Healthcare Group Limited, a leading UK developer, constructor and operator of shared ownership communities working in partnership with local authorities, NHS Trusts and institutional investors to create socially impactful developments. I would like to welcome Harry to the Board and look forward to working with him over the coming years. 

Our workforce

As always, our loyal, dedicated, and skilled workforce is a key part of our success and we make every effort both to retain and protect them through continued training and health and safety compliance, supported by our health and safety advisory business, Northern Bear Safety Limited.

Conclusion

I am pleased with the Group's results for the year, particularly in light of the ongoing headwinds and challenges facing our industry. 

I would like to once again thank all of our employees for their hard work and commitment during a challenging year, and our shareholders for their continued support.

Jeff Baryshnik

Non-Executive Chairman

18 July 2022

Consolidated statement of comprehensive income

for the year ended 31 March 2022

Consolidated balance sheet

at 31 March 2022

Consolidated statement of changes in equity

for the year ended 31 March 2022

Consolidated statement of cash flows

for the year ended 31 March 2022

Notes

1 Basis of preparation

This announcement has been prepared in accordance with the Company's accounting policies, which in turn are prepared in accordance with the requirements of the Companies Act 2006 and UK-adopted international accounting standards.

The accounting policies are the same as those applied in preparation of the financial statements for the year ended 31 March 2021, apart from the following standards, amendments and interpretations, which became effective for the first time, and which were adopted by the Group for the financial year ended 31 March 2022:

· Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) - effective date on or after 1 January 2021.

· Covid 19-Related Rent Concessions Beyond 30 June 2021 (Amendment to IFRS 16 Leases) - effective date on or after 1 April 2021.

Their adoption has not had any material impact on the disclosures or amounts reported in the financial statements.

For the purposes of their assessment of the appropriateness of the preparation of the Group's accounts on a going concern basis, the directors have considered the current cash position and forecasts of future trading including working capital and investment requirements. 

During the year the Group met its day to day working capital requirements through an existing £1 million bank overdraft and a £3.5 million revolving credit facility. At 31 March 2022 the Group had net cash of £2.2 million based on £3.2 million cash and £1.0 million drawn on the revolving credit facility. The overdraft facility was last renewed on 17 June 2022 for the period to 31 May 2023. The Group's revolving credit facility was most recently renewed on 19 March 2020 and is committed to 31 May 2023. The Directors have a reasonable expectation of successful renewal for both the overdraft and revolving credit facilities based on a long standing and strong working relationship with the bank. 

The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the Group and the Company should have sufficient cash resources to meet its requirements for at least the next 12 months. Accordingly, the adoption of the going concern basis in preparing the financial statements remains appropriate.

2 Status of financial information

The financial information set out above does not constitute the Company's financial statements for the years ended 31 March 2022 or 31 March 2021. 

The financial statements for 2022 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The results are unaudited; however, we do not expect there to be any difference between the numbers presented and those within the annual report.

The financial information for the year ended 31 March 2021 is derived from the financial statements for that year, which have been delivered to the Registrar of Companies. The auditor has reported on the 2021 financial statements; their report was i) unqualified, ii) did not include references to any matters to which the auditors drew attention by way of emphasis, without qualifying their report, and iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

3 Alternative performance measures

The Group uses Adjusted Operating Profit, Adjusted EBITDA, and Adjusted EPS as supplemental measures of the Group's profitability, in addition to measures defined under IFRS. The directors consider these useful due to the exclusion of specific items that could impact a comparison of the Group's underlying profitability, and is aware that shareholders use these measures to assist in evaluating performance. 

The adjusting items for the alternative measures of profit are either recurring but non-cash charges (amortisation of acquired intangible assets), one-off non-cash items (impairment charges), or one-off exceptional items (provision for settlement of legal claim and associated costs). 

Adjusted operating profit is calculated as below:

Adjusted EBITDA is calculated as below:

Adjusted basic and diluted earnings per share is presented in note 4 below. 

4 Earnings per share

Basic earnings per share is the profit or loss for the year divided by the weighted average number of ordinary shares outstanding, excluding those in treasury, calculated as follows:

The calculation of diluted earnings per share is the profit or loss for the year divided by the weighted average number of ordinary shares outstanding, after adjustment for the effects of all potential dilutive ordinary shares, excluding those in treasury, calculated as follows:

The following additional earnings per share figures are presented as the directors believe they provide a better understanding of the trading performance of the Group.

Adjusted basic and diluted earnings per share is the profit or loss for the year, adjusted for impairment charges, acquisition related items and one-off costs, divided by the weighted average number of ordinary shares outstanding as presented above.

Adjusted earnings per share is calculated as follows:

5 Other operating income

6 Finance costs

7 Loans and borrowings

The Group retains a £3.5 million revolving credit facility and a £1.0 million overdraft facility, both with Virgin Money plc, for working capital purposes.

As at 31 March 2022, a total of £1.0 million (2021: £nil) was drawn down on the revolving credit facility, providing a net cash figure at 31 March 2022 of £2.2 million (2021: £2.1 million) after offsetting cash and cash equivalents of £3.2 million (2021: £2.1 million).

The revolving credit facility was renewed on 19 March 2020 and is committed until 31 May 2023. The overdraft facility was last renewed on 17 June 2022 and is next due for routine review and renewal on 31 May 2023.

8 Availability of financial statements

The Group's Annual Report and Financial Statements for the year ended 31 March 2022 are expected to be approved by 25 July 2022 and will be posted to shareholders during the week commencing 25 July 2022. Further copies will be available to download on the Company's website at: http://www.northernbearplc.com/. It is intended that the Annual General Meeting will take place at the Company's registered office, A1 Grainger, Prestwick Park, Prestwick, Newcastle upon Tyne, NE20 9SJ, at 2:00pm on 14 September 2022. 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018.