Northbridge Industrial Services expects 1H21 to be ‘significantly ahead’ of 2020
Industrial services firm (NBI ) said it expects its revenue and pre-exceptional pre-tax profit for the first half of 2021 to be ‘significantly ahead’ of 2020.
The London-listed group, which hires and sells specialist industrial equipment, told investors that the business remains ‘firmly on course’ to meet full year management expectations.
Crestchic, the Group's power reliability business which began the year with a record order book for manufactured equipment, continues to sustain ongoing order levels in line with expectations. It is anticipated that the factory will remain at full capacity through the year.
Crestchic hire revenue for 1H21 is expected to be significantly ahead of the COVID-affected 1H20 with revenue in the Far East particularly strong in 1Q21 before revenue in the US, Europe and the Middle East also picked up strongly in the second quarter, it said.
Trading at Tasman, the Drilling Tools business, has also remained ‘resilient’ during the first half. While there remain some barriers to recovery - such as COVID-related difficulties in moving people and equipment around the world - the trading environment is expected to improve in the second half of the year, particularly in gas-related activity in Australia, it said.
While the supply chain disruption experienced in 2020 continues to slightly affect margins as a consequence of extended assembly times, the company said visibility for the second half is growing with trading set to continue in this positive vein well into the third quarter.
In particular, Northbridge said growth will continue to come both ‘from established and emerging business sectors, notably data centres and renewables/resilience and through opportunities for further market penetration, particularly in continental Europe and the USA.’
Separately, Northbridge said it has secured a £10m full refinancing with HSBC with the new facilities being ‘more cost-effective, larger and simpler’ than its current facilities.
It said these new facilities have also already enabled the Group to offer to redeem its £4m convertible loan notes, the interest rate on which was set to rise to 10% on 1 July 2021.
Bondholders have responded to the group’s offer and have requested that £3.05m of the loan notes be repaid in cash and £0.943m to be converted into shares in the Company.
‘This, together with the global reach and capabilities of HSBC, will enable us to deliver on our strategic objectives, which include the construction of the additional factory building in Burton,’ it noted.
Northbridge said that refinancing, together with the conversion and the redemption of the loan notes, will result in a substantial reduction in the company’s ongoing interest costs.
Additionally, Northbridge has announced the retirement of Ash Mehta as Non-Executive Director, a move which it says, ‘marks the conclusion of the reshaping of the Board.’
The company said it has successfully implementation of a long-term incentive plan which it believes ‘will support the retention of key executives and officers and their alignment to the creation of significant shareholder value over the three-year life of the plan,’ it noted.
Northbridge said planning permission has now been received for the construction of a third building at the site of the Group’s head office, factory and hire facility in Burton upon Trent. The company said the new facility will add a much needed 50% to its production capacity which can be further expanded ‘as and when required for future growth.’
The company noted that construction contracts are out at tender and that it intends to break ground in 3Q21 with an anticipated completion date in the first half of 2022. Northbridge said it continues to explore the possibility of divesting its Tasman drilling tools division with the group assessing the non-binding indicative offers received to date.
Back in April 2021, the Group said that as the impact of the pandemic diminishes, the Board expects that Tasman will continue to generate cash and return to profitability but added that the disposal of the division will be considered should the Board receive a good offer.
‘We remain hopeful that a divestment at a fair value will be achieved this year but, should this not be possible, are developing contingency plans to improve the profitability of the business should we consider it to be in the interests of shareholders to continue to own the business for the time being,’ the company told investors.
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Today’s news follows the publication of Northbridge’s “robust” results for the year ended 31 December 2020 published in April 2021. At the time, the company told investors that it had entered 2021 with new year record orders for the sale of its Crestchic products and that it was seeing signs of strengthening rental pipelines across both of its operating divisions.
In April 2021, the group said it expected to break ground on a new building in 2H21 with the new facility scheduled to be up and running in early 2022. Both the extension as well as the reconfigured existing facilities are expected to increase production capacity by some 50%.
Looking ahead, the company expects its revenue and pre-exceptional pre-tax profit for the first half of 2021 to be ‘significantly ahead’ of 2020. It added that visibility for the second half is growing with trading set to continue in this positive vein well into the third quarter.
Shares in Northbridge Industrial Services have increased by over 20% in value since the beginning of the year. The stock was trading 0.36% higher this morning at 124.95p.
Reasons to
Northbridge Industrial Services is a global provider of specialist industrial equipment. Operating through five major international hubs with a worldwide support network of depots and agents, Northbridge is able to service the global demand for its products.
In December 2020, the Group presented investors with a positive trading update and said the range of near- and medium-term strategic opportunities ‘continues to increase.’
It said Crestchic, its power reliability business, routine testing has remained ‘buoyant’ while two large rental projects, in leisure and utility power support in Europe and the USA, were undertaken. It said Tasman's performance in a market impacted by international travel restrictions and lower energy prices was ‘resilient, and trading will be ahead of FY19.’
There is a renewed sense of urgency from national governments to move quickly to a sustainable Net Zero Carbon by 2050, and this has been enhanced by plans to "build back greener" following Covid-19 and the increasing global focus and regulation on ESG, it said.
The Group highlighted that Crestchic's reliance on customers from the oil and gas industry has decreased naturally over the past five years, as growth in its power reliability markets in advanced economies continues and new services are continually added to its portfolio.
While Crestchic benefits from new opportunities where energy storage battery farms are being integrated into the UK grid and require high voltage load tests, the Group said ‘longer term opportunities are likely to arise when there is a stronger penetration of hydrogen fuel cells into back-up power systems in place of the current reliance on diesel generators.’
Tasman's hire fleet is now predominantly used to drill for gas and geothermal fluids rather than oil and, more recently, for carbon capture projects in its main markets in Australasia.
Its investment in LNG and natural gas, particularly in Australia, is set to rise ‘for the immediately foreseeable future, as it is both a key transitional fuel to replace high carbon content alternatives, and a prime component for "blue"-hydrogen (H2) manufacture.’
The Group acknowledged that substantial investment is now being allocated by national governments globally in order to ‘kick start a move towards a hydrogen-based economy.’
‘A substantial proportion of the future capital investment of the Group is now targeted towards increasing revenue in these high growth markets related to power reliability where there are longer-term opportunities with higher returns on capital,’ the Company outlined to investors.
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