Northbridge Industrial Services plc (LON:NBI), the power reliability company, today announced its audited results for the year ended 31 December 2021, which are in line with increased market expectations.
Highlights:
· Group revenue from continuing operations up 20% to £29.5 million (2020: £24.6 million)
o Hire revenue up 34% as major projects recover from COVID-19 delays
o Equipment sales up 7%, despite capacity constraints, with data centres remaining very strong
o Change in mix towards hire benefitted gross margin from continuing operations – up to 47.2% from 44.9%
· Pre-exceptional profit before tax up sharply to £3.3 million (2020 £0.4 million)
· Strong cashflow reduced net debt1 to £2.2 million (2020: £6.8 million)
· Balance sheet restructured by partial redemption and partial conversion of Convertible Loan Note (“CLN”) and new lower cost, more flexible bank facility
· Successful exit from bulk of Tasman Drilling Tools division with sale of the Australian and New Zealand operations which completed in February 2022
· In line with previous announcements, £6.7 million exceptional cost recognised in respect of Tasman disposal and £0.9 million in respect of the redemption of the CLN
· Factory expansion project well under way by year end and on track for Q2 2022 on stream date
· Started the year with record equipment sales order book for Crestchic for the fourth year in succession
· Excellent financial performance in 2021 and confidence in future prospects has led to the resumption of dividends
· Company name to be changed to Crestchic Plc, after the next AGM, to reflect refocused strategy
1 including IFRS 16, reconciliation to pre-IFRS-16 figures included in the Financial Review
Peter Harris, Northbridge Industrial Services Executive Chairman, commenting on the results said:
“At the start of 2021 we set out a new, strategic direction for the Group, focused on our Crestchic Power Reliability division. We set out a series of actions that we needed to take to restore the group to profitability and robust financial health. We also acted to reposition the group for sustained future growth, based on our proposition of providing mission critical equipment into a niche market that is growing strongly, driven by global megatrends towards a digital economy and energy transition away from fossil fuels.
I am pleased to report that our 2021 results demonstrate that we have been successful on all fronts. Following the successful exit from the bulk of the Tasman division, with our factory expansion nearing completion and with record orders books reflecting the vibrancy of our markets, we face the future with great confidence.“
EXECUTIVE CHAIRMAN’S REPORT
2021 was a transformational year for Northbridge.
At the beginning of the year, following a comprehensive strategic review, we announced that advisors had been appointed to seek to dispose of our Tasman Drilling Tools Rental division. This disposal has now been substantially completed and the future of Northbridge is now firmly focused on its Crestchic Power Reliability business.
Radical steps have been taken to realign the organisation and infrastructure of the Group to the needs of the Crestchic business; notably, we have:
· reorganised and reinvigorated the Board and senior management, taking one layer out of the structure, clarifying accountabilities, accelerating decision making, bringing in new skills in critical areas of responsibility and realigning remuneration to incentivise both short-term performance and long-term value creation;
· restructured our borrowings to produce a financial structure that has increased our financial capacity, is more flexible, has reduced covenant constraints and lowered costs and has eliminated the dilution overhang of the convertible loan notes;
· commenced the construction of a new factory building on our Burton on Trent site which will come on stream in Q2 2022 and increase our manufacturing capacity by around 60%; and
· developed an ESG road map that, over time, will enable us to deliver on our commitments to all our stakeholders, including our local and wider communities, make us more attractive to a broader investor base and identify opportunities emerging from the global energy transition towards cleaner and renewable energy sources.
Whilst doing all of this, we have delivered strong results. Group revenue from continuing operations increased by 20% to £29.5 million (2020: £24.6 million) and Group pre-exceptional profit before tax increased substantially to £3.3 million (2020: £0.4 million), while strong cash flow led to net debt, pre-IFRS 16, falling to £1.0 million (2020 £5.4 million).
We have entered 2022 with strong rental pipelines and, for the fourth year running, the benefit of record new year orders on hand for the sale of Crestchic products.
Crestchic – Power Reliability
Crestchic manufactures, sells and rents loadbanks and transformers to domestic and international customers all around the world. Our products are used by generators and distributors of power to ensure supply reliability, by industries critically dependent on uninterrupted power to test backup power systems, and by extractive industries to commission off grid power generation in remote sites for activities such as mining and drilling.
We have continued to benefit from high levels of growth in two particular sectors – energy transition and data centres.
The accelerating transition from coal and oil-based energy sources towards cleaner and renewable energy is continuing to result in a proliferation of smaller energy generators whose sites both require commissioning and also create unique challenges for connection into established distribution networks. These in turn create an increased need for testing both the primary generators but also backup generators, which are becoming even more important as customers seek to ensure the resilience of supply in the face of less stable primary distribution. All of this drives demand for our products, both for outright sale and for rental.
The continuing worldwide growth in data centres continues to provide Crestchic with tangible and significant opportunities for both the sale and rental of our equipment. We expect global investment in this type of “big data” to grow for many years to come and we are actively expanding our geographic penetration and the range of products and services that we supply to this rapidly growing market.
Outright sales of manufactured goods performed well, up 7% year on year to £14.0 million (2020: £13.1 million), despite the continuing constraint of manufacturing capacity. Gross margin on outright sales improved from 34.4% to 34.9%, as the increased costs of working in the factory as a result of COVID-19 restrictions slowly eased.
Rental recovered well from the dip due to the pandemic. Turnover was up by 34% year on year to £15.5 million (2020: £11.5 million) and was 8% ahead of pre-pandemic levels. Demand remained strong from the data centres and renewables sectors and picked up strongly for larger tests for energy and marine projects in the Far East in H1 and the Middle East in H2 2021. Gross margin on rental also recovered – from 55.7% in 2020 to 58.4% in 2021 – due to the improved recovery of fixed depreciation costs. Demand for these larger projects has remained resilient into 2022.
Our business in the USA continued to develop. We appointed a new Business Development Manager in the US in 2021 and have now signed a lease on a new rental depot in Texas, which will become operational in Q2 2022. This will serve our traditional US customer base and also provide an entry platform into the data centre market. To accelerate our entry into this market we have entered into a supply agreement with a US manufacturer, Mosebach, for the purchase of a fleet of US manufactured and specified smaller loadbanks targeted specifically at data centre testing. Demand for the sale of equipment into the USA has remained vibrant and we should see further growth as manufacturing supply constraints from the UK ease with the expansion of the factory.
Though the supply chain problems that were experienced by many businesses in 2020 as a result of the Covid-19 pandemic persisted through 2021, the corrective actions that we initiated continued to prove effective and, by the end of the year, the impact on our business had been substantially mitigated. The experience gained is again proving valuable in 2022 as we prepare for possible supply chain disruption arising as a result of the conflict in Ukraine and the sanctions imposed upon Russia.
The enlargement of the factory in Burton on Trent is going well. Planning consent came through towards the end of H1 2021 and we broke ground early in H2. The new building remains on time and on budget and is scheduled to be up and running in Q2 2022.
Discontinued operations – Tasman Drilling Tools
As previously reported, our Drilling Tool Rental operations had mixed fortunes during 2021. The joint venture in Malaysia and the subsidiary in Singapore continued to be loss making and during the year we sold our interest in the Malaysian joint venture to our former partners and the Singapore operation was closed down. All our remaining assets from these two businesses were then sold. The businesses in Australia, New Zealand and the Middle East slowly recovered over the year from the effects of the pandemic. Overall, the division traded at breakeven for the year (2020: loss of £0.7 million). The Australian and New Zealand businesses were sold in Q1 2022 and the business in the Middle East is being actively marketed. An exceptional cost of £6.7 million has been recognised in the 2021 accounts which is expected to cover in full all the disposal losses, costs and impairment write downs resulting from the disposal of the division. We are confident in the prospects of the businesses under their new owners and wish our former colleagues well for the future.
The future of the Group and Dividend
The future of the Group is centred around the Crestchic business and its globally recognised brand, technology, distribution network and rental fleet and, in recognition of this, a resolution will be tabled at the forthcoming Annual General Meeting to change the name of the Company to Crestchic Plc.
The momentum of the global megatrends towards a connected, digital economy and energy transition combined with identified opportunities to expand our geographic footprint both for rental and sales of equipment, all supported by a 60% increase in manufacturing capacity, give us the opportunity to outperform what is already a strongly growing market – and it is an opportunity we are determined to seize.
We are also committed to using the factory expansion as a launch platform for the journey from being a manufacturer of world class equipment to being a world class manufacturer of equipment – and the benefits from this journey will flow through to our customers and our shareholders in the form of reduced lead times, a zero-defect culture and improved margins.
Financially, Northbridge is conservatively geared and our low cost, flexible borrowing facilities give us the financial capacity to grow quickly without unnecessarily exposing the Group to risk.
The Crestchic divisional return on investment (“ROI”) has improved to 26% (2020: 15%) and, as a result of this improved performance, combined with lower central costs, the Group ROI has improved significantly from 9% to 18%. Despite our very low gearing, the renegotiation of our financial structure and the exit from Tasman have resulted in our cost of capital remaining unchanged at 12.5 %, meaning we are now creating value for our shareholders. Our planned growth will further enhance ROI and accelerate this shareholder value creation.
All of this good news has allowed us to propose a return to paying dividends and, subject to shareholder approval, a final dividend of 1 pence per share will be paid to shareholders in June 2022 and, at the time of announcing our half year results for 2022, we expect to be in a position to declare an interim dividend in respect of 2022 for payment to shareholders in November 2022.
Organisationally, our Board has continued to give clear strategic leadership and exercise strong governance. In March 2022 we welcomed Nicholas Mills as a non-executive Director and know that he will make a valuable contribution to the Board. Our management team is stable and experienced and possesses a deep knowledge of our products and markets and has been enhanced by the recruitment of several senior managers during 2021, all of whom have brought specialist knowledge and energy to our business.
Our staff are second to none in their skills, experience and loyalty and we are constantly recruiting, inducting, and training new staff as the business grows, not least to meet the needs of the factory expansion. Each member of our team has been challenged during the last year by the sheer scale of the transformation of the business – and each has risen to and overcome the challenges he or she faced. I am proudly able to say that our people are by far our most valuable asset and cannot thank my colleagues enough for all they have done to ensure the future success and prosperity of the business.
While we expect to benefit from the continued recovery of the global economy as the world emerges from the pandemic, we know that the real levers for sustained value creation lie firmly in our own hands. We will use our strong platform of financial stability, product excellence, innovation, market opportunity and outstanding people to drive further growth in revenue, profits and return on capital.
Outlook
We entered 2022 with a record opening order book for our core Crestchic products and a strong rental pipeline. Alongside this, we are continuing to manage costs efficiently, optimise working capital, and focus our capital expenditure on the areas that are strategically significant to our ambitions for growth – in particular the factory expansion, growing the rental fleet and developing our systems infrastructure. All of this should build on the foundations that we have already put in place for long-term growth to deliver a strong performance in 2022 and onwards.
In the first quarter of the year the Group performed ahead of management’s expectations and we expect further growth in revenues and profit over the remainder of the year. As a result, we expect profit for the first half to be ahead of 2021 and for this to continue during the second half of the year.
