CRESTCHIC Global industrial equipment group
Northbridge Industrial Services plc
Interim report and accounts 2020
Northbridge Industrial Services plc hires and sells specialist industrial equipment and has grown organically and by the acquisition of companies in the UK and abroad and through investing in those companies to make them more successful.
CONTENTS
IFC Highlights
- Chief Executive's statement
- Finance Director's report
- Consolidated statement of comprehensive income
- Consolidated balance sheet
- Consolidated cash flow statement
- Notes to the unaudited interim statements
- Directors and advisors
HIGHLIGHTS
nn Overall the business has shown operational resilience in the face of Covid-19 with Group revenue only 4.5% lower at £16.0 million (2019: £16.8 million)
nn Third consecutive pre-exceptionalhalf-yearly profit before tax
nn Gross profit 8.1% lower at £6.9 million (2019: £7.5 million) as lockdown impacted rental revenues more than sales
nn EBITDA* 6.3% lower at £3.2 million (2019: £3.4 million)
nn Cash generation from operations* increased substantially by 24% to £3.2 million (2019: £2.6 million)
nn Exceptional impairment of £7.1 million relating to the intangible assets recognised on the 2013 acquisition of Tasman New Zealand and £0.6 million relating to working capital investments in joint ventures as a result of Covid-19 and other local factors
nn Net debt*, including £4.0 million of convertible debt, of less than one times twelve-month rolling EBITDA* at £6.3 million (2019 year end: £6.4 million)
nn Successful renegotiation of financing facilities extending one year to June 2022 in August 2020
nn Continuing record level of factory orders at Crestchic
nn Growing success for Crestchic in North American market
- Excluding the impact of IFRS 16; a reconciliation is included in the Finance Director's Report.
CHIEF EXECUTIVE'S STATEMENT
Eric Hook
Chief Executive
We are pleased to present our interim results for the six-month period ended 30 June 2020.
Trading operations during the first half of 2020 can be separated into two distinct quarters: before Covid-19 and the associated global restrictions and after the first onset of Covid-19 protocols. The first quarter, up to the last week of March, continued to experience the strong recovery enjoyed during 2019 in most of our markets. This was particularly true for the Tasman Group, where year-on-year revenue showed strong revenue growth. The second quarter experienced the full impact of the pandemic and the resultant national lockdowns in our operating areas.
Overall trading in the six months remained resilient in the context of the Covid-19 pandemic. Total revenue was down by just 4.5% to £16.0 million (2019: £16.8 million), with rental revenue down in the second quarter. However, revenue mix between sales and rental, between Crestchic and Tasman, and between the individual quarters fluctuated widely, as the various pandemic responses worked through our regional networks.
The comparative is also influenced by the timing of large load testing contracts which vary year to year.
The decrease in revenue has mostly been offset by a reduction in operating costs of 4.7% to £6.4 million (2019: £6.7 million), which included a voluntary salary reduction by senior staff during the second quarter. Other operating income for the period of £0.2 million (2019: £nil) related to the receipt of various governmental support payments received during lockdown and a further £0.1 million is expected in the second half. Gross profits were reduced to £6.9 million (2019: £7.5 million) reflecting the swing to unit sales from higher margin rentals. Cash generated from operations rose by 24% to £3.2 million (2019: £2.6 million). The Group continued to invest and expenditure on the hire
fleet doubled to £2.4 million (2019: £1.2 million). Pre-exceptional profit before tax was £35,000 compared to £22,000 in 2019.
The impact of Covid-19 on some of our operations has caused the Board to re-examine the holding value of intangible assets. Our conclusion has led to the impairment of the goodwill created on the 2013 acquisition of Tasman Oil Tools (New Zealand) and £7.1 million was included as an exceptional impairment in the period. We remain committed to the New Zealand market, which we believe has an exciting future particularly in renewables and other more sustainable activities. The Group has no further intangible assets relating to the Tasman division. Full details of the overall impairment review undertaken on 30 June 2020 are included in note 2 of this report.
As announced on 25 June 2020, an agreement has been reached with the Group's bank and loan note holders to extend the maturity of the bank facilities and loan notes by one year to June 2022. We are
pleased to confirm that this process has now been formally concluded and amended agreements have been signed by all parties.
Overall net debt (before IFRS 16) was £6.3 million at 30 June 2020, which includes £4.0 million
of convertible loan notes. Net bank debt was £2.3 million at
30 June 2020 and included cash on hand of £4.1 million.
DIVISIONAL TRADING
Northbridge has two core activities, Crestchic Ltd and Tasman Ltd. Crestchic is a specialist electrical equipment business which manufactures, sells and rents loadbanks and transformers from its base in Burton on Trent and has depots in the USA, France, Germany, Belgium, the UAE, Singapore
and China. Tasman rents drilling equipment and provides services to the oil, gas, carbon capture and geothermal industries from its sites in Australia, New Zealand, Malaysia, Singapore and the UAE.
CRESTCHIC - ELECTRICAL POWER RELIABILITY
The UK, European and USA activities of Crestchic continue to perform well, albeit interrupted by various regional lockdowns. The services we provide to this sector are largely resilient to market economic volatility as power reliability, renewables and data centres continue to play an increasingly important part in worldwide markets. Our other overseas market, principally relating to natural resources, shipyards and large energy projects, has been more widely affected by Covid-19, as these activities rely on an international skilled workforce and travel
and quarantine restrictions impact its availability.
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CHIEF EXECUTIVE'S STATEMENT CONTINUED
DIVISIONAL TRADING CONTINUED
CRESTCHIC - ELECTRICAL POWER RELIABILITY CONTINUED
Quarterly revenue comparatives (£'m):
Q1 20 | Q2 20 | H1 20 | Q1 19 | Q2 19 | H1 19 | |
Crestchic hire | 2.6 | 2.4 | 5.0 | 3.2 | 4.0 | 7.2 |
Crestchic sales | 2.1 | 3.9 | 6.0 | 2.7 | 3.2 | 5.9 |
Crestchic total | 4.7 | 6.3 | 11.0 | 5.9 | 7.2 | 13.1 |
Crestchic manufacturing, having started 2020 with its largest ever new year order book for the second consecutive year, continues to perform strongly.
TASMAN - DRILLING TOOL RENTAL
The improvement in trading experienced by Tasman during 2019 continued strongly into the first quarter of 2020, with the division showing a trading profit and positive
Quarterly revenue comparatives (£'m):
cash flows for the first time in four years. The impact of Covid-19 was most apparent during the second quarter, as rig operators experienced problems with rig crews either testing positive or being affected by international travel bans. This has led to a number of projects being delayed until the fourth quarter of 2020 and also into 2021.
The fall in demand for crude oil globally also weighs on the sector; however, in our focused corner of the market in Australasia, Southeast Asia and the Middle East, natural gas, LNG and geothermal fluid demand has held up and further exploration and production projects have been scheduled to begin as the pandemic eases. Oil production currently only accounts for 25%
of our operational activity.
Q1 20 | Q2 20 | H1 20 | Q1 19 | Q2 19 | H1 19 | |
Tasman hire | 2.5 | 1.8 | 4.3 | 1.3 | 1.9 | 3.2 |
Tasman sales | 0.4 | 0.3 | 0.7 | 0.3 | 0.2 | 0.5 |
Tasman total | 2.9 | 2.1 | 5.0 | 1.6 | 2.1 | 3.7 |
Despite the interruption from Covid-19,year-on-year revenues are showing significant gains in most of Tasman, albeit from a low base, and we are confident of the long-term future of the operation.
Despite the strong overall improvements in Tasman Group's revenues since 2016, current events in some local markets, largely as a result of the pandemic, have caused the Board to review the carrying value of intangible assets, particularly in New Zealand.
The acquisition of Tasman New Zealand ("TNZ") in 2013 led to the establishment of balance sheet intangible assets of £9.5 million, split between goodwill and other intangibles. After £1.6 million of impairment in 2015 and ongoing amortisation of other intangibles, its carrying value at 30 June 2020 was £7.1 million. TNZ has a substantial hire fleet and generated all its revenue from the geothermal,
gas and oil markets. The impact of Covid-19, and the highly uncertain future of the Tiwai aluminium
smelter, which consumes 13% of NZ electricity capacity, has caused us to reappraise the carrying value of the investment and, as a consequence, we have written the intangible to zero. We believe TNZ has a good long-term future, albeit at lower revenues than previously expected, and its hire fleet can also be shared by other Tasman locations around the region. There are no further intangible assets relating
to Tasman.
2 Northbridge Industrial Services plc • Interim report and accounts 2020
The impact of the pandemic
on trading in our Malaysian joint venture has affected the ability of the joint venture to repay amounts owed to the Group as they fall due and in recognition of this an impairment provision of £0.6 million has been made against the receivables. Further details relating to the impairment process can be found in note 2 to this report.
SUMMARY AND OUTLOOK FOR 2020
In summary, the overall interim trading result was very similar to the equivalent period in 2019 and we expect a similar performance in the second half of year, demonstrating the resilience of the Group during the Covid-19 pandemic. It was particularly important for us to maintain factory production, due to both the record order book and the essential nature of our products for power reliability and data system resilience. Likewise, our rental operations, which are at the forefront of supporting our industrial and commercial customers, continue to operate effectively. Our success in this has been down to our staff, who have worked through this crisis with commitment and flexibility.
We believe the impact of the pandemic on the overall economy represents an interruption to the recovery in our markets rather than a fundamental long-term change. We recognise that the impetus towards a "green" recovery will accelerate as the crisis reduces, and our focus remains to continue to develop our ESG values together with our development of services and equipment to benefit from this move.
Eric Hook
Chief Executive
30 September 2020
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FINANCE DIRECTOR'S REPORT
Iwan Phillips
Finance Director
REVENUE AND PROFIT BEFORE TAX
Overall revenue for the period was down by 4.5% to £16.0 million (2019: £16.8 million) with large variations across revenue streams and across the first and second quarters as described in the Chief Executive's Statement.
Sales revenue made up 42% of total revenue in the first half of 2020 compared to 38% in 2019 and this has driven the decrease in the overall margin from 48% to 46%.
Other operating income of £0.2 million (2019: £nil) was recognised in the period and relates to various Government support initiatives across the Group. This includes jobkeeper support in Australia, New Zealand and Singapore as well as limited use of the UK furlough scheme. At the date of this report all staff have returned to work.
Operating costs decreased from £6.7 million to £6.4 million which was mainly due to a voluntary 20% pay decrease for all senior salaried staff in the second quarter and a decrease in staff travel costs.
BALANCE SHEET, DEBT AND CASH FLOW
Net hire fleet additions have risen to £2.1 million in the year (2019: £0.9 million) with the majority of this committed to prior to the Covid-19 outbreak, although investment opportunities with short payback periods and good long-term returns have continued to arise since. The 2020 additions include an increase to the number of loadbanks held in the USA and oil tools for secured projects across the Tasman division, in Asia and Australia in particular.
Inventory levels have increased since the previous year end to £5.1 million (2019 year end: £3.9 million) due to an increase in the level of loadbank components held in the UK factory. When the pandemic began to affect the
Crestchic business in March it was decided to increase stock levels to guard against the risk of future supply shortages given the historically high sales order book. This strategy has been successful in keeping the factory output high but a reduction in stock levels will now be targeted as the supply risk from the pandemic eases.
Trade and other receivables have increased slightly from £9.1 million at the previous year end to
£9.4 million at the end of June 2020. Trade debtors and debtor days remain close to the levels seen at 31 December 2019.
Period-end net debt stood at £6.3 million (2019 year end: £6.4 million) which includes
£4.0 million of debt convertible to equity at 90 pence per share. As part of the extension to financing facilities which was signed on 11 August, the maturity of the convertible debt was extended by one year to June 2022 and, reflecting the movement in the share price since the original issue, the strike price was lowered from 125 pence per share to 90 pence per share. The Group did not defer the payment of any rent, payroll taxes, VAT or GST in the period.
The Group's leverage, as calculated by dividing net debt by twelve‑month rolling EBITDA, has remained consistent with that seen at
31 December 2019 at 0.9. The Group continued to increase the cash generated from operations, which totalled £3.2 million during the period (2019: £2.6 million).
The Group is renewing its focus on return on capital with all capital expenditure projects reviewed for their payback periods and medium to long-term return on capital. More details on return on capital will be provided with the year-end results.
4 Northbridge Industrial Services plc • Interim report and accounts 2020
IFRS 16
The table below shows the impact of IFRS 16 on the Group's EBITDA, cash generated from operations and net debt. For the purposes of comparison with historical figures the commentary in the Chief Executive's Statement and this report and the highlights refer to these figures excluding the impact of IFRS 16.
Excluding | |||
£'000 | As reported | IFRS 16 impact | IFRS 16 impact |
EBITDA | |||
Six-month period ended 30 June 2020 | 3,650 | 484 | 3,166 |
Six-month period ended 30 June 2019 | 3,823 | 444 | 3,379 |
Twelve-month period ended 31 December 2019 | 7,788 | 756 | 7,032 |
Cash generated from operations | |||
Six-month period ended 30 June 2020 | 3,666 | 484 | 3,182 |
Six-month period ended 30 June 2019 | 3,008 | 444 | 2,564 |
Twelve-month period ended 31 December 2019 | 8,798 | 756 | 8,042 |
Net debt as at: | |||
30 June 2020 | 7,430 | 1,169 | 6,261 |
31 December 2019 | 7,752 | 1,308 | 6,444 |
30 June 2019 | 9,931 | 1,398 | 8,533 |
GOING CONCERN
The Group's annual report and accounts for the period ended
31 December 2019 was signed and released on 7 April 2020 when the uncertainty surrounding Covid-19 was close to its peak. At that time the Directors acknowledged that although they were satisfied from stress testing their forecasts and the headroom that this showed on the bank covenants that the Group would be able to continue to operate for the foreseeable future, the issues connected to Covid-19 and the decline in market oil price created significant difficulties in being able to forecast future trading and cash flows and that actual results achieved might be significantly different to management's expectations in the forecasts prepared to assess funding requirements and going concern.
Since 7 April some of the uncertainties have become a little clearer and the risks for the Group have certainly decreased:
nn The factory remained operational throughout the period and the supply chain held up well.
nn Hire revenue has rebounded towards the middle of the third quarter.
nn Brent remains above $40 per barrel.
nn The bank and loan note facilities have been extended to June 2022.
nn The bank facility extension included a capital repayment holiday which increased liquidity and headroom on covenants.
nn The sales order book for the UK factory remains at a record level with over £2 million already secured for the first quarter of 2021.
Whilst the Directors continue to acknowledge that Covid-19 is causing a level of general uncertainty, and in particular around oil and gas investment in 2021 and beyond, the mostly positive news since April, except for the impairment provisions, has improved the internal downside sensitivity scenarios and significantly increased the level of liquidity and covenant headroom.
The Directors do not believe that material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern currently exist.
Iwan Phillips
Finance Director
30 September 2020
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2020
Six months | Six months | Year | |||
ended | ended | ended | |||
30 June | 30 June | 31 December | |||
2020 | 2019* | 2019 | |||
Unaudited | Unaudited | Audited | |||
Note | £'000 | £'000 | £'000 | ||
Revenue | 16,002 | 16,759 | 33,600 | ||
Cost of sales | (9,119) | (9,268) | (17,802) | ||
Gross profit | 6,883 | 7,491 | 15,798 | ||
Other operating income | 204 | - | - | ||
Operating costs: | |||||
Excluding exceptional impairment | (6,376) | (6,691) | (13,634) | ||
Exceptional impairment | 2 | (7,751) | - | - | |
Total operating costs | (14,127) | (6,691) | (13,634) | ||
Impairment loss on trade receivables | (50) | - | (149) | ||
Share of post-tax results of joint ventures | (283) | (349) | (832) | ||
(Profit)/loss from operations | (7,373) | 451 | 1,183 | ||
Finance costs | (343) | (429) | (868) | ||
Profit before tax excluding exceptional impairment | 35 | 22 | 315 | ||
Exceptional impairment | (7,751) | - | - | ||
(Loss)/profit before taxation | (7,716) | 22 | 315 | ||
Income tax charge | (4) | (144) | (551) | ||
Loss for the period attributable to the equity holders of the parent | (7,720) | (122) | (236) | ||
Other comprehensive income/(loss) | |||||
Exchange differences on translating foreign operations | 801 | (130) | (1,248) | ||
Other comprehensive loss for the period, net of tax | 801 | (130) | (1,248) | ||
Total comprehensive loss for the period attributable to | |||||
equity holders of the parent | (6,919) | (252) | (1,484) | ||
Loss per share attributable to the equity holders of the parent | 3 | ||||
- basic (pence) | (27.7) | (0.4) | (0.8) | ||
- diluted (pence) | (27.7) | (0.4) | (0.8) |
* As restated - see note 5.
All amounts relate to continuing operations.
6 Northbridge Industrial Services plc • Interim report and accounts 2020
CONSOLIDATED BALANCE SHEET
As at 30 June 2020
30 June | 30 June | 31 December | |
2020 | 2019* | 2019 | |
Unaudited | Unaudited | Audited | |
£'000 | £'000 | £'000 | |
ASSETS | |||
Non-current assets | |||
Intangible assets | 4,595 | 12,177 | 11,633 |
Property, plant and equipment | 26,118 | 27,342 | 25,578 |
Right-of-use-asset | 2,036 | 2,054 | 1,995 |
32,749 | 41,573 | 39,206 | |
Current assets | |||
Inventories | 5,144 | 3,938 | 3,547 |
Trade and other receivables | 9,378 | 9,965 | 9,070 |
Cash and cash equivalents | 4,051 | 3,259 | 3,272 |
18,573 | 17,162 | 15,889 | |
Total assets | 51,322 | 58,735 | 55,095 |
LIABILITIES | |||
Current liabilities | |||
Trade and other payables | 7,886 | 6,380 | 6,242 |
Loans and borrowings | 5,214 | 3,526 | 2,043 |
Lease liabilities | 832 | 942 | 864 |
Current tax liabilities | 538 | 729 | 601 |
14,470 | 11,577 | 9,750 | |
Non-current liabilities | |||
Loans and borrowings | 4,380 | 7,659 | 7,063 |
Lease liabilities | 1,055 | 1,063 | 1,054 |
Deferred tax liabilities | 2,170 | 2,198 | 2,205 |
7,605 | 10,920 | 10,322 | |
Total liabilities | 22,075 | 22,497 | 20,072 |
Total net assets | 29,247 | 36,238 | 35,023 |
Equity attributable to equity holders of the parent | |||
Share capital | 2,811 | 2,811 | 2,811 |
Convertible debt option reserve | 201 | 201 | 201 |
Share premium | 29,950 | 29,950 | 29,950 |
Merger reserve | 2,810 | 2,810 | 2,810 |
Treasury share reserve | (451) | (451) | (451) |
Foreign exchange reserve | 4,319 | 3,518 | 2,400 |
Retained earnings | (10,393) | (2,601) | (2,698) |
Total equity | 29,247 | 36,238 | 35,023 |
* As restated - see note 5.
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CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2020
Six months | Six months | Year | |
ended | ended | ended | |
30 June | 30 June | 31 December | |
2020 | 2019* | 2019 | |
Unaudited | Unaudited | Audited | |
£'000 | £'000 | £'000 | |
Cash flows from operating activities | |||
Net (loss)/profit from ordinary activities before taxation | (7,716) | 22 | 315 |
Adjustments for: | |||
- amortisation of intangible fixed assets | 158 | 194 | 380 |
- impairment of intangible fixed assets | 7,136 | - | - |
- amortisation of right-of-use assets | 504 | 436 | 822 |
- amortisation of capitalised debt fee | 72 | 84 | 93 |
- depreciation of property, plant and equipment | 2,610 | 2,742 | 5,403 |
- profit on disposal of property, plant and equipment | (233) | (195) | (553) |
- share of post-tax results of joint ventures | 283 | 349 | 832 |
- finance costs | 343 | 429 | 868 |
- share option expense | 24 | 30 | 48 |
3,181 | 4,091 | 8,208 | |
(Increase)/decrease in inventories | (1,560) | 350 | 712 |
Increase in receivables | (38) | (2,147) | (771) |
Increase in payables | 2,083 | 714 | 649 |
Cash generated from operations | 3,666 | 3,008 | 8,798 |
Taxation | (156) | (156) | (563) |
Increase in receivables from joint ventures | (224) | (266) | (1,394) |
Hire fleet expenditure | (2,450) | (1,202) | (3,658) |
Sale of assets within hire fleet | 365 | 309 | 1,638 |
Net cash from operating activities | 1,201 | 1,693 | 4,821 |
Cash flows from investing activities | |||
Investment in joint ventures | - | - | (50) |
Sale of property, plant and equipment | - | 21 | 38 |
Purchase of property, plant and equipment | (43) | (114) | (201) |
Net cash used in investing activities | (43) | (93) | (213) |
Cash flows from financing activities | |||
Proceeds from bank and other borrowings | 777 | 1,124 | 498 |
Debt issue costs | (18) | (26) | (24) |
Repayment of bank and other borrowings | (366) | (886) | (2,407) |
Principal paid on lease liabilities | (575) | (457) | (901) |
Interest paid on lease liabilities | (52) | (50) | (100) |
Interest paid on loans and other borrowings | (266) | (349) | (662) |
Net cash from financing activities | (500) | (644) | (3,596) |
Net increase in cash and cash equivalents | 658 | 956 | 1,012 |
Cash and cash equivalents at beginning of period | 3,272 | 2,302 | 2,302 |
Exchange gains/(losses) on cash and cash equivalents | 121 | 1 | (42) |
Cash and cash equivalents at end of period | 4,051 | 3,259 | 3,272 |
* As restated - see note 5.
8 Northbridge Industrial Services plc • Interim report and accounts 2020
NOTES TO THE UNAUDITED INTERIM STATEMENTS
For the six months ended 30 June 2020
1. BASIS OF PREPARATION
This interim report has been prepared in accordance with the accounting policies disclosed in the full statutory accounts for the year ended 31 December 2019.
These policies are in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations (collectively "IFRS") issued by the International Accounting Standards Board, as endorsed for use in the European Union, that are expected to be applicable for the year ending 31 December 2020.
The Group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing the interim consolidated financial information.
The financial information in this statement relating to the six months ended 30 June 2020 and the six months ended 30 June 2019 has not been audited.
The financial information for the year ended 31 December 2019 does not constitute the full statutory accounts for that period. The annual report and financial statements for 2019 has been filed with the Registrar of Companies.
The Independent Auditor's Report on the annual report and financial statement for 2019 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.
The interim report for the period ended 30 June 2020 was approved by the Board of Directors on 30 September 2020.
2. EXCEPTIONAL IMPAIRMENT COST
£'000 | |
Impairment of goodwill | 7,136 |
Impairment of receivables from joint ventures | 615 |
Total exceptional cost | 7,751 |
IMPAIRMENT OF GOODWILL
In preparing the 2019 year-end Group financial statements, a goodwill impairment review was conducted on
31 December 2019 that did not result in any impairment. It was noted that the recoverable amount for the Tasman New Zealand cash-generating unit ("CGU") was more sensitive to movements in the discount rate and growth inflation and that a growth rate of 5% lower than forecast or a discount rate of 2.3% higher than used in the forecasts would lead to an impairment.
At 31 December 2019 it was noted that the recoverable amount for the Crestchic Limited, Northbridge Transformers and Crestchic Asia-Pacific CGUs significantly exceeded their carrying amounts and that the calculations were not sensitive.
Due to Covid-19 being an indicator of impairment, an impairment review of the Group's goodwill has been conducted as at 30 June 2020. The recoverable amounts of the above noted CGUs have been determined from value-in-use calculations based on the latest cash flow projections derived from forecasts covering a five-year period to 31 December 2024.
Crestchic Limited - carrying value of goodwill of £2,192,000
Crestchic Limited cash flows have been discounted using a nominal pre-tax rate of 13% and a long-term future revenue growth rate of 5% has been used. No impairment has been recognised following the impairment review. A reasonable increase to the discount rate or a decrease to the future growth rate to zero does not indicate any impairment and calculations are not deemed sensitive.
Northbridge Transformers - carrying value of goodwill of £989,000 and customer relationships of £37,000 Northbridge Transformers cash flows have been discounted using a nominal pre-taxrate of 13% and a future revenue growth rate of 10% has been used. No impairment has been recognised following the impairment review although the headroom has been decreased and the calculations are now sensitive to changes to the discount rate or future growth rate. A 1% increase in the discount rate would create an impairment of £0.1 million and a 1% decrease in the future revenue growth rate would create an impairment of £0.1 million.
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NOTES TO THE UNAUDITED INTERIM STATEMENTS CONTINUED
For the six months ended 30 June 2020
2. EXCEPTIONAL IMPAIRMENT COST CONTINUED IMPAIRMENT OF GOODWILL CONTINUED
Crestchic Asia-Pacific - carrying value of goodwill of £1,296,000 and customer relationships of £80,000 Crestchic Asia-Pacificcash flows have been discounted using a nominal pre-taxrate of 14% and an average future revenue growth rate of 20% has been used. The discount rate for this CGU has been increased from the 13% used at 31 December 2019 due to the uncertainty created by Covid-19.
No impairment has been recognised following the impairment review although the headroom has been decreased and the calculations are now sensitive to changes to the discount rate or future growth rate. A 1% increase in the discount rate would decrease the headroom to zero while a decrease in the average future revenue growth rate from 20% to 15% would create an impairment of £0.6 million.
The pandemic has made a significant impact on Crestchic Asia-Pacific with the Singapore shipyards closed for a long period and now only working at a very reduced capacity. The entity has been able to conduct business in other parts of Asia including Brunei and Korea but, overall, 2020 revenue will be significantly down on 2019. Due to the direct impact of Covid-19 it is expected that revenue will rebound in 2021 although the model assumes it will take longer to recover to the level of revenue seen in 2019.
The rebound in 2021 and gradual uplifts from 2022 are key assumptions in the current discounted cash flow model. The Directors are satisfied that the assumptions used in the model are prudent and reasonable and that no impairment is required.
Tasman New Zealand - carrying value of goodwill and customer relationships now zero after impairments of £5,621,000 and £1,515,000 (total £7,136,000)
As previously noted, the recoverable amount of the Tasman New Zealand goodwill has been sensitive to relatively small changes in the growth rate and discount rates for some time. Tasman New Zealand cash flows have been discounted using a nominal pre-tax rate of 15% and an average future revenue growth rate of 5% (7% decrease in 2020, 0% in 2021 and 10% growth from 2022 to 2024) has been used.
The model used at 31 December 2019 used a growth rate of 30% which assumed a return to larger and more frequent offshore campaigns and some significant geothermal projects including new power stations.
The Directors now believe that a return to large, frequent offshore campaigns and large-scale geothermal projects is unlikely in the medium term and the future growth rates have been decreased to reflect this.
The key factor affecting the Directors' view on future offshore drilling is Covid-19 and its effect on investment in the oil and gas industry in New Zealand. Although 2020 started well, Covid-19 led to the early end of an offshore campaign and the severe delay of another. From 2014 to 2016 many international drilling entities left New Zealand and retrenched to their traditional core markets and have to date not returned. With Covid-19 decreasing the current price of oil and weighing on anticipated global demand for oil and gas it seems unlikely that that they will return in the medium term and will concentrate their investment on their core markets. The previously announced moratorium on granting any further offshore drilling permits will also hinder any new investment in the country.
The key factor affecting the Directors' view on future large-scale geothermal projects, which involve a very high level of drilling, is the news that the future of the Tiwai Point aluminium smelter is highly uncertain. The smelter currently uses a significant proportion of all of New Zealand's generation capacity so it is unlikely any further capacity will be required from new geothermal power stations in the medium term.
Notwithstanding this impairment, the Group continues to look forward to a successful future in New Zealand, albeit not at the revenue and profit levels previously anticipated.
IMPAIRMENT OF RECEIVABLES FROM JOINT VENTURES
The Directors have reviewed the recoverability of the balance owed from Olio Tasman Oil Tools which is a joint venture based in Malaysia. A balance of £615,000, net of the joint venture losses suffered to date, was owed from the joint venture and a full provision has been made against this balance.
The joint venture's performance improved significantly in the first quarter of 2020 and losses were greatly reduced but, due to the impact of Covid-19, trading in the second quarter and its prospects for the remainder of 2020 have suffered. It is therefore unlikely to have the necessary resources to repay the amounts owed to the Group.
This provision has been made due to the direct impact of Covid-19 and is classified as an exceptional cost.
10 Northbridge Industrial Services plc • Interim report and accounts 2020
3. EARNINGS PER SHARE
The earnings per share figure has been calculated by dividing the loss after taxation, £7,720,000 (2019: £122,000),
by the weighted average number of shares in issue, 27,899,602 (2019: 27,899,602).
At the end of the period, the Company had in issue 2,396,951 (2019: 2,119,451) share options and £4,000,000
of convertible loan notes which can be converted to 3,200,000 (2019: 3,200,000) ordinary shares at a price of
125 pence per share which have not been included in the calculation of the diluted earnings per share because their effects are anti-dilutive. These share options and convertible loan notes could be dilutive in the future.
On 11 August 2020 the maturity date of the loan notes was extended by a year to July 2022 and the £4,000,000 of loan notes can now be converted into 4,444,444 ordinary shares at a price of 90 pence.
4. DIVIDENDS
No interim dividend (2019: nil) will be paid to shareholders.
5. RESTATEMENT OF CERTAIN BALANCES AS AT 30 JUNE 2019
Certain balances within the 2019 interim results have been restated to reflect the effect of IFRS 16 more accurately and to be consistent with the audited results for the year ended 31 December 2019. There is no effect on the profit before tax or the net assets reported.
6. POST BALANCE SHEET EVENT - EXTENSION OF BANK FACILITIES
On 11 August 2020 the maturity date of the Group's main bank facilities was extended by one year to 30 June 2022. If this extension had been completed prior to the balance sheet date of 30 June 2020 the ageing of the Group's debt would have been disclosed differently as follows:
Effect of | After | ||
facility | facility | ||
As reported | extension | extension | |
Current liabilities | |||
Loans and borrowings | 5,214 | (3,013) | 2,201 |
Non-current liabilities | |||
Loans and borrowings | 4,380 | 3,013 | 7,393 |
7. INTERIM REPORT
Copies of the interim report are being sent to all shareholders and are available to the public from the offices of Northbridge Industrial Services plc at Second Avenue, Centrum 100, Burton on Trent DE14 2WF. The interim report and the interim announcement will also be available from the Group's website at www.northbridgegroup.co.uk.
Northbridge Industrial Services plc • Interim report and accounts 2020 | 11 |
DIRECTORS AND ADVISORS
DIRECTORS | COMPANY NUMBER |
PETER HARRIS | 05326580 |
Non-executive Chairman | REGISTERED OFFICE |
ERIC HOOK | |
Second Avenue | |
Chief Executive | |
Centrum 100 | |
IAN GARDNER | |
Burton on Trent DE14 2WF | |
Divisional Managing Director | +44 (0)1283 531 645 |
IWAN PHILLIPS | |
www.northbridgegroup.co.uk | |
Finance Director | COUNTRY OF INCORPORATION |
ASH MEHTA | |
OF PARENT COMPANY | |
Non-executive Director | |
England and Wales | |
(independent) | |
NITIN KAUL | LEGAL FORM |
Non-executive Director | Public limited company |
(independent) | INDEPENDENT AUDITOR |
JUDITH ALDERSEY-WILLIAMS | |
BDO LLP | |
Non-executive Director | |
Two Snowhill | |
(independent) | |
Birmingham B4 6GA | |
STEPHEN YAPP | |
Non-executive Director | |
(independent) | |
SECRETARY | |
I C Phillips |
BANKERS
ROYAL BANK OF SCOTLAND GROUP
Cumberland Place
Nottingham NG1 7ZS
SOLICITORS
FREETHS LLP
1 Heddon Street
Mayfair
London W1B 4BD
NOMINATED ADVISORS AND BROKERS SHORE CAPITAL
Cassini House
57 St. James's Street
London SW1A 1LD
REGISTRARS
LINK ASSET SERVICES
65 Gresham Street
London EC2V 7NQ
12 Northbridge Industrial Services plc • Interim report and accounts 2020
CBP004710
Northbridge Industrial Services plc's commitment to environmental issues is reflected in this Interim Report, which has been printed on GalerieArt Satin, an FSC® certified material.
This document was printed by Park Communications using its environmental print technology, which minimises the impact of printing on the environment, with 99% of dry waste diverted from landfill.
Both the printer and the paper mill are registered to ISO 14001.
Northbridge Industrial Services plc Second Avenue
Centrum 100
Burton on Trent DE14 2WF
+44 (0)1283 531 645 www.northbridgegroup.co.uk
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Northbridge Industrial Services plc published this content on 23 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2020 09:24:05 UTC