Northbridge Industrial Services (LON:NBI), the industrial services and rental company today announced its unaudited interim results for the six-month period ended 30 June 2019.
Commenting on the results and the outlook, Eric Hook, Chief Executive of Northbridge, said:
“Northbridge is starting to see the benefits from the recovery in activity in the oil and gas markets across both our operating divisions of Tasman and Crestchic. Northbridge’s operational gearing is also now beginning to have a significant beneficial impact on our cash generation.”
“We are confident of trading volumes for the remainder of 2019 and with a much-strengthened balance sheet, a strengthening cash flow and further organic opportunities to grow the business, we look forward to the future with optimism. “
· Group revenue up 33% to £16.8 million (2018: £12.6 million)
· Gross profit significantly up by 50% to £7.5 million (2018: £5.0 million)
· EBITDA* up materially by 90% to £3.4 million (2018: £1.8 million)
· Cash generation from operations* up by 33% to £2.6 million (2018: £1.9 million)
· First reported profit before tax since 2014
· Improving conditions in the drilling tool market, with revenue up 29% year on year
· Continuing growth in the core power reliability market
· Operational gearing benefitting results
* – excluding the impact of IFRS 16; reconciliation included in the Finance Director’s report
Chief Executive’s statement
We are pleased to present our interim results for the six month period to 30 June 2019.
As stated in the Trading Update issued on 2 August 2019, the impact of a recovery in revenue has led to a significant improvement in cash flow as well as continued improvement in EBITDA. The gradual improvements to the stability of the oil and gas sector, which is one of the Group’s main markets has positively impacted both of our core businesses of Crestchic Loadbanks (“Crestchic”) and Tasman Oil Tools (“Tasman”). This has enabled the Group to report its first profit before tax for the first half since 2014 and has seen EBITDA almost double to £3.4 million (2018: £1.8 million) since the same period last year.
The power reliability side of Crestchic started the year with its largest ever new year order book for manufactured equipment with invoiced sales for the period increasing 34% to £5.9 million (2018: £3.8 million). Crestchic’s rental division continued its improving trajectory, even compared to the good first half in 2018, which included a successful project in Russia for the World Cup, with rental revenue up 21% to £7.2 million (2018: £5.9 million). This was aided by a continuing growth in power reliability work, data centre investment and renewables, most notably in Europe, and the beginnings of stronger demand from energy projects in other parts of the world
Tasman, The Group’s Oil Tools business, continued to benefit from a recovery in the oil and gas market and its revenue, mostly generated by higher margin rentals, increased 29%. The advantage of our operational gearing is now beginning to make a substantial impact on gross margins which increased to 33.9% (2018: 12.8%) and gross profit which was up 242% to £1.2 million (2018: £0.4 million). Tasman EBITDA also turned positive for the first time in five years. The strongest recovery is being experienced in Australia, which is now the largest exporter of LNG in the world and is also beginning to invest further in its local gas market. Tasman has improved its share in this market over the downturn by focusing on quality, service levels, customer relationships and selective capital investment.
Cash flows from operating activities, before movements in working capital, more than doubled to £3.7 million (2018: £1.7 million) and helped to enable further capital investment in the hire fleet, which increased to £1.6 million (2018: £0.2 million) as the company invested into the upturn. The investment was spread between both Crestchic and Tasman and despite the cost to both working capital, as a result of increased orders, and hire fleet expansion, net debt at the end of June was down to £8.5 million (2018: £8.7 million).
Crestchic Loadbanks and Transformers
The electrical equipment business of Northbridge manufactures, sells and rents loadbanks and transformers, and supplies two main markets. Firstly, the developed world, where it is focussed on supporting the power reliability and power security markets and secondly, emerging markets, where it is mostly focussed on resources, typically shipyards, oil and gas facilities and mines.
Crestchic’s turnover during the period was £13.1 million (2018: £9.8 million) and gross profit was £6.3 million (2018: £4.6 million). Underlying this performance was a change in revenue mix, with a recovery in the higher margin rental activity turnover to £7.2 million (2018: £5.9 million). Sales of manufactured units were substantially higher than the previous year at £5.9 million (2018: £3.8 million) and represent an improvement in demand in some of our markets (noticeably the USA and Europe). There is evidence that the market recovery in the oil and gas market is complementing the additional growth from our traditional power reliability market.
Rental in the UK and Western Europe continues to perform well, and we have enjoyed a recovery in the Middle East. The overall result for rental in the half year was an improvement from 2018, which benefitted from the FIFA World Cup. The new venture in the USA continued its progress and is expected to provide a long-term growth opportunity for Crestchic. The relocation of the underutilised equipment from the Asia-Pacific region is in place and this doubled our fleet size in North America at minimal cost.
The continuing growth in data centres throughout Western Europe has given Northbridge two additional opportunities. Firstly, in heat load management, by using loadbanks to simulate the heat from computer servers, and then managing and proving the backup power sources. Investment in this type of Big Data is likely to grow for many years to come, providing further opportunity to Northbridge. We are now seeing interest for this service further afield.
Tasman Oil Tools
In total, our oil tool rental operations in Australia, New Zealand, Asia Pacific and the Middle East have seen a sea change in their fortunes as the price of crude oil has stabilised and exploration and production activities begin to recover. This has been most noticeable in Australia where there is a renewed focus on gas and LNG exports
Tasman suffered during the downturn in the oil market over the last 4 years but is now showing year on year improvements on a consistent basis. Total revenue in the six months was up 29% to £3.7 million (2018: £2.8 million). The majority of this revenue is derived from rental and the operational gearing this gives us began to show real benefits with gross margins up 242%. EBITDA showed significant gains to move into positive territory for the first time in five years.
Australia performed particularly well in the period with rental revenue up a further 32% following the 90% improvement from the first half of 2017 to the first half of 2018. As our market share has grown in this region, we have continued to invest in hire fleet equipment, and have maintained our focus on quality, service levels, and customer relationships.
Rental rates remain lower compared with earlier years but there are signs that prices have now stabilised and will begin to improve in the coming years. The relative stability in crude oil prices currently being experienced by the industry will, in the longer term, encourage further exploration and production. By maintaining our infrastructure and hire fleet whilst cutting costs, we have put the company in an advantageous position for when market demand begins to grow more significantly.
The Joint Venture in Malaysia with our local partner, Olio Resources SDN BHD, has now been trading for more than a year. Market share is improving, and volumes are also increasing, we are in a strong position in relation to the main market players and we will benefit from these relationships in the future. Whilst the Joint Venture is currently unprofitable, we believe this will change as contracts are renewed on more favourable terms and volumes improve. The Joint Venture’s revenue for the first 6 months was £1.4 million (2018: £0.7 million) and the after-tax loss consolidated in these accounts is £0.3 million (2018: £0.1 million).
There has now been a significant improvement in the Group’s performance, as our traditional energy markets begin to improve, and this has benefitted both Crestchic and Tasman. In addition, the new markets which Crestchic was able to exploit during the downturn, most noticeably in data centres and North America, remain available to us and will also provide additional future growth.
We are confident of trading volumes for the remainder of 2019 and with a much-strengthened balance sheet, a growing cash flow and further organic opportunities to grow the business, we look forward to the future with optimism.
26 September 2019