Northbridge Industrial Services Plc (LON:NBI), the industrial services and rental company, today issued a further trading statement in relation to COVID-19, this is in follow up to the statement issued on 26th March 2020 and the outlook comments in our results announcement on 7th April 2020, and gives some further clarity on the immediate outlook for the Group.
The Group’s trading during the first quarter of 2020 was in line with management’s original expectations for the year, albeit with some weakness towards the end of the period. Our recovery momentum of 2019 was maintained, and Tasman, in particular, showed very good year on year growth and traded profitably in the quarter.
Following the UK lockdown, we have largely been able to maintain factory production under appropriate social distancing and staff welfare working practices. We have a record level of sales orders for this year and this has been our top priority, as the equipment, (mostly used to test emergency backup power systems), is pre ordered, and frequently paid in full before leaving the factory. This will underpin the Group’s cash planning and will help mitigate any decline in rental revenue. Additional new orders have also been received during the lockdown period, and the factory will be running at near capacity for the remainder of the year. Maintaining production enables the group to better manage any liquidity issues during the expected COVID related downturn, as we are able to receive cash deposits, together with trade and invoice financing, prior to the goods being despatched to the customer.
Liquidity has improved since the year end, with additional funds being drawn against facilities where available. In addition, all senior salaried staff, including Board members, have accepted a voluntary 20% pay reduction for a 3 month period from 1st April and a small number of staff are furloughed in the UK, and funds have been received from overseas job retention schemes. The amount of cash released from this action, together with other savings in variable costs in this quarter alone, is expected to be around £0.5 million. All other discretionary spending including Capex has also been significantly reduced.
Rental operations are either open for business or working on a business continuity basis (despatching goods/accepting deliveries). During the lockdown periods over the last six weeks, all locations have negotiated and delivered new hire orders. This includes equipment for a utility in California, data centres in Europe, nuclear facilities in China and drilling tools and accessories for onshore and offshore, gas, oil and geothermal projects in Australia, New Zealand, South East Asia and the Middle East. Whilst the volumes have been lower than prior to the lockdown, demand for both Crestchic and Tasman services currently remain firm. It is unclear whether a relaxation in lockdown measures will lead to a “bounce back” in demand, however up to now most projects have been delayed or postponed rather than cancelled.
The longer-term impact of lower oil and gas prices has yet to be ascertained, and it is still too early to predict the level of trading for the rest of 2020, but our assumptions remain that Q2 and Q3 will be the most directly affected by COVID-19 and that the energy price downturn will continue to impact activity levels in Q4 and into 2021. The key drivers for the performance of the Group in the second half of the year will therefore, be the level of possible ”bounce back” within Crestchic, and then later in the year, for both Crestchic and Tasman, the effect of lower oil prices and the resilience of demand for natural gas and LNG.
There is no doubt that trading will be adversely affected for some time due to the economic fallout of the pandemic. However, the benefit of the Group’s strong positive cash flows, proactive cost control and experienced management team have been well evidenced in past downturns and we expect this to continue to be the case.
I would like to take the opportunity to thank all our staff for the efforts they have made to maintain the business for the future and wish them and their families well.