Oil and gas volatility has ‘detrimental’ effect on Northbridge

INDUSTRIAL services and rental company, Northbridge, has said continuing volatility in the oil & gas sector is likely to further impact the business during the second half.

The group, based in Stoke-on-Trent, said in a pre-close update that despite a recovery in crude oil prices since its lowest point in February, market conditions for the majority of businesses in the oil & gas industry during Q2 2016 worsened slightly and investment in current projects continued to fall.

“This had a detrimental effect on our businesses which are involved directly in this market. Our load testing business in the Middle East and Asia Pacific regions also experienced challenging conditions which affected both rentals and sales in particular due to lower activity in core markets such as shipyards,” it said.

“In this context, it now seems prudent not to assume any upturn in the group’s performance for the second half of 2016.”

However, longer term, it said the position may be improving, with analysts predicting that the worst may be over with activity levels picking up.

“If this is the case, we remain well positioned to benefit from the market upturn as and when it arrives. It the meantime we continue to reduce costs and maximise cash generation while competing aggressively for every opportunity,” it added.

On a more positive note, the group’s other sectors, primarily power reliability, have performed much better and it said, remained a defensive hedge against more volatile resource markets.

Load bank rentals in the UK and Europe continue to perform well and, as a result of ongoing research and development and product innovation, some new markets are beginning to appear on the horizon.

The group’s Service Division exceeded expectations and revenue in China has continued to grow.

Northbridge also said that the dramatic fall in the pound following the EU referendum was having a positive and material impact on the group’s balance sheet to June 30, with more than 90% of its assets held in currencies other than sterling.

However, it tempered this by saying that all its current trading losses were also outside the UK and the translation of these would continue to impact results until the market recovers.

A £5.6m placing in April has strengthened the group’s balance sheet and its current trading generates sufficient cash flows to continue to pay down existing debt quickly.