N o r t h b r i d g e I n d u s t r i a l S e r v i c e s p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 8 Global industrial equipment group Northbridge Industrial Services plc Annual report and accounts 2018 Selling specialist industrial equipment around the world Overview 1 Highlights of 2018 Strategic report 2 Our business model and strategy 4 At a glance: Crestchic 6 At a glance: Tasman 8 Chairman’s statement 9 Chief Executive’s review 12 Financial review 14 Principal risks and uncertainties Corporate governance 16 Board of Directors 18 Corporate governance statement 20 Directors’ report Financial statements 23 Independent auditor’s report 27 Consolidated statement of comprehensive income 28 Consolidated statement of changes in equity 29 Consolidated balance sheet 30 Consolidated cash flow statement 31 Notes to the consolidated financial statements 57 Parent company accounts under FRS 101 58 Statement of changes in equity 59 Notes to the parent company financial statements 63 Notice of Annual General Meeting 65 Financial calendar 65 Company information 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. This report can also be viewed online at www.northbridgegroup.co.uk/ar18 The Company has in place a set of key performance indicators (“KPIs”) to enable us to measure performance through the success of our strategy. Revenue (£m) 26.9 Pre-tax pre-exceptional (loss)/profit (£m) (2.0) Dividend (p) 0.0 18 17 16 15 14 26.9 25.7 23.8 34.1 44.9 (4.4) (4.1) (2.0) (1.4) 18 17 16 15 14 0.0 0.0 0.0 0.1 18 17 16 15 14 7.0 6.2 Why invest in Northbridge? n Exposure to strong global end markets with blue-chip clients n Organic and acquisitive growth potential n Geographic diversification with cross-selling potential n Substantial and specialised hire fleet n Significant cash generation Highlights of 2018 n Group revenue up 4.9% to £26.9 million (2017: £25.7 million) n Gross profit up 20.6% to £11.3 million (2017: £9.3 million) n EBITDA1 up 44.0% to £4.6 million (2017: £3.2 million) n Pre-tax losses1 more than halved to £2.0 million (2017: £4.4 million) n Significantly increased cash generation from operations reaching £4.3 million (2017: £2.6 million) n Placing of 2 million shares at 125 pence raising £2.4 million after expenses in June 2018 n Acquisition of a complementary hire fleet of drilling tools in Southeast Asia from a distressed competitor for £3.0 million n Net debt unchanged at £8.7 million (£8.7 million at 31 December 2017) n Steadily improving conditions in the drilling tool market, with rental revenue in our Tasman business up 22.5% year on year 1 Before one-off exceptional cost of £712,000 (2017: £nil). Read more on page 12 Net assets (£m) 37.1 Hire fleet cost (£m) 52.0 Net debt (£m) 8.7 18 17 16 15 14 37.1 35.7 41.8 35.9 46.4 18 17 16 15 14 52.0 48.2 49.7 41.8 43.5 18 17 16 15 14 8.7 8.7 9.5 14.3 14.7 Northbridge Industrial Services plc – Annual report and accounts 2018 1 Financial statementsOverviewStrategic reportCorporate governance OUR BUSINESS MODEL AND STRATEGY Our divisions Northbridge is an AIM-listed entity which wholly owns two distinct trading divisions, Crestchic and Tasman. The divisions’ rental activities are similar in nature with some common customers. n Specialists in electrical testing equipment n Manufacturing, sales, service and hire n Drilling tool and ancillary item rental into the gas, oil and geothermal industries Read about Crestchic on pages 4 and 5 Read about Tasman on pages 6 and 7 Our value creation All our markets demand very high levels of safety appreciation, working practices and qualification. We demand the same from our engineering design, factory production, rental operation and site engineers. Continuous training, certification and customer engagement are vital to keep our employees, customers and shareholders insulated from risk. Our understanding of emerging market trends and technologies and our capacity to innovate enable us to keep pace with changing customer needs and provide high value-added solutions. 2 Northbridge Industrial Services plc – Annual report and accounts 2018 Our stakeholders OUR CUSTOMERS Our customer-focused, dedicated and collaborative approach adds value to customers as well as ourselves. Our loadbank design team works closely with customers to ensure the end product meets all of their needs. Our size means we are ideally placed to be large enough for customers to benefit from production scale and experience, but nimble and flexible enough to undertake bespoke engineered solutions that both our rental and sales competitors often resist. Highly focused teams concentrate on ensuring equipment availability is at the highest levels possible. This allows our customers to have the confidence to rely on us to meet their needs. The fast-paced and service-led construction, oil and gas and data centre markets demand this manner of operation. OUR PEOPLE The Group’s employees are highly motivated, customer focused and highly experienced in their fields. Attracting, motivating and retaining the right people will be critical on our recovery path. We have a very stable workforce with many long-term employees. Apprenticeship schemes are in place and we are committed to bringing young people into the business, whilst sponsoring their education and training. We aim to attract and develop our staff and give them opportunities and pathways to progress. Many of our staff have secured promotions over the past few years and many job opportunities are taken by internal candidates. OUR PARTNERS Building successful partnerships is key to Northbridge. New products have been launched and new markets entered by partnering with local companies and utilising the relationships to access local markets. This enables us to establish a presence quickly and cost efficiently and leverages the partners’ local knowledge. Within Crestchic, which offers a specialised service, this model is very flexible as many markets do not offer full time demand but often have major projects. Our effectiveness in meeting our customers’ needs is reliant on our strong relationships with our key suppliers. OUR SHAREHOLDERS Throughout the downturn in the oil and gas market we have striven to cost efficiently keep our customer-facing operations open and grow our market share. In the early stages of the recovery we have invested in equipment to serve our customers. We believe that we are well positioned to capitalise on a sustained recovery and deliver outstanding returns to shareholders. Our strategy The Northbridge strategy is to consolidate and build its specialist industrial equipment businesses by: n driving growth organically through investing in the hire fleet and improving quality systems and customer service; n using partnerships to increase geographical coverage; n exploiting the opportunities offered by growth markets such as renewable energy sources and gas exploration; and n selective acquisitions in our two divisions that: n add complementary products and services; n synergistically increase penetration in core markets; and n give access to markets in which we are not currently present. In achieving this strategy, we will be able to capitalise on the market opportunity to become a significant industrial services business serving an international market. The Board reviews this strategy periodically and believes it is still the correct one for the Group. Northbridge Industrial Services plc – Annual report and accounts 2018 3 Financial statementsOverviewStrategic reportCorporate governance AT A GLANCE: CRESTCHIC www.crestchicloadbanks.com Designs, manufactures and hires loadbanks to test generators. From emergency standby systems in data centres, utilities and critical industries, to the commissioning of propulsion, accommodation and production power in marine engineering from commercial shipping to oil and gas production. Our locations Our products and services Operating through five major international hubs, with a worldwide support network of depots and agents, we are able to meet the global demand for our products. LOADBANKS Northbridge is the largest designer, manufacturer, supplier and renter of specialist loadbanks and transformers in the world. Loadbanks are primarily used for the commissioning and maintenance of independent power sources and systems such as diesel generators and gas turbines. MAJOR INDUSTRIES WE SERVE: n Healthcare n Marine engineering n Oil and gas n Air transport n Banking n Military n Power and utilities n Data centres CRESTCHIC GLOBAL HUBS: CRESTCHIC AGENTS/DEPOTS: TRANSFORMERS Asia-Pacific: Singapore Europe: Belgium UAE: Dubai UK: Burton on Trent USA: California and Pennsylvania China France Germany 4 Northbridge Industrial Services plc – Annual report and accounts 2018 We supply specialist hire of containerised transformers and switchgear and temporary packaged substations globally. We provide medium and low voltage transformers at various capacities with voltages from 230v to 36,000v, providing step-up and step-down capabilities. MAJOR INDUSTRIES WE SERVE: n Healthcare n Marine engineering n Oil and gas n Air transport n Banking n Military n Power and utilities n Power rental suppliers Chris Caldwell, Managing Director of Crestchic, pictured with Carl Robson from our factory in Burton and Sharon Philpotts, Quality Manager. The continuing growth in data centres throughout Western Europe has given Crestchic two additional opportunities: firstly, in heat load management, by using loadbanks to simulate the heat from computer servers, and then secondly, in managing and proving back-up power sources.” Chris Caldwell Managing Director, Crestchic Market opportunities Our end markets WHAT WE DO OFF GRID: n Marine engineering and ship building: n Electric propulsion system ON GRID: n Back-up power: n Diesel generator and turbine testing n Navigation system n Uninterruptible power supplies n World’s shipping fleet continues to grow n Oil and gas: n Offshore drilling platforms n LNG industry/LNG transportation/FPSOs n Emergency power systems – hospitals, banks and financial services n Digitisation – data centres, telecoms and process industries n Independent power producers (“IPP”) n Balancing reserve/smart grids BANKING POWER AND UTILITIES MARINE HEALTHCARE Northbridge Industrial Services plc – Annual report and accounts 2018 5 Financial statementsOverviewStrategic reportCorporate governance AT A GLANCE: TASMAN www.tasmanoiltools.com Tasman specialises in the rental of drilling tools suitable for use in the onshore and offshore oil and gas drilling, coal bed methane and geothermal drilling operations. Offering a broad range of drilling rental tools and well intervention equipment along with the reassurance of in-house maintenance and specialised services, Tasman has developed an understanding of its clients’ requirements which drives its philosophy of operational excellence in the Eastern Hemisphere. Our locations Operating through four major international hubs, with a regional support network of depots and agents, we are able to service the Eastern Hemisphere, for any demand for drilling rental tools, or service of the same. TASMAN GLOBAL HUBS: Australia: Perth Malaysia: Kuala Lumpur New Zealand: New Plymouth UAE: Dubai TASMAN AGENTS/DEPOTS: Egypt Saudi Arabia Singapore 6 Northbridge Industrial Services plc – Annual report and accounts 2018 Tasman was able to purchase an entire and complementary hire fleet from a distressed competitor and this, together with further modest capital expenditure, has enabled momentum to continue.” Ian Gardner Managing Director, Tasman Oil Our products and services Market opportunities OIL TOOLS WHAT WE DO We supply over 4,000 different products to the onshore and offshore oil, gas and geothermal drilling industries. n Growth potential in the targeted regional markets as normal market conditions return Strategically positioned in Australasia, the Middle East and Southeast Asia to meet any future industry demand. PRODUCTS AND SERVICES: n Downhole drilling rental tools: n Bottom hole assembly n Tubulars n Handling tools n Mud management tools n Fishing and re-entry tools n Pressure control equipment rental n Third-party tool servicing and management n Comprehensive rental fleet offering, with the ability to rapidly respond to any demand, within the whole region n Highest levels of QHSE maintained and accredited n Drilling rig activity set to increase in all our regional markets n Geothermal drilling set to increase in New Zealand n Positioned to explore growth in product offering and geographical locations Our end markets OIL, GAS AND GEOTHERMAL Northbridge Industrial Services plc – Annual report and accounts 2018 7 Financial statementsOverviewStrategic reportCorporate governance CHAIRMAN’S STATEMENT Our strategy for the future is to continue to build on the platform that has now been created, and we look forward to further growth in the coming years. Peter Harris Chairman I am pleased to report progress in the business during 2018. The Group, which is streamlined into two distinct core business activities, Tasman Oil Tools and Crestchic Loadbanks, is active in the energy, oil, gas, renewables and power reliability markets. Earlier in 2018 we experienced the first signs of a welcome change in sentiment in the oil and gas sector, following the longest downturn in the industry’s history. As the year progressed, this improving sentiment turned into increased activity levels in our businesses which are focused on this sector. This has obviously had the largest impact on the trading of Tasman Oil Tools and is a leading indicator of a potential market recovery. There are also some early signs of increasing activity in the energy and resource-focused part of Crestchic. In addition, the power reliability part of Crestchic continues to perform well. We took the opportunity during the year to optimise our funding structure and make it more sensitive to a recovering market. This was done by issuing £4.0 million of convertible loan notes and the placing of further ordinary shares, to raise £2.5 million in new equity. This enabled the Group to consolidate and renew its banking facilities with a single lender, and allowed the Group to reduce future capital repayments and repay the outstanding deferred consideration due to the vendor of Tasman Oil Tools in New Zealand. Our strategy during the downturn, to focus on core activities and reduce costs while retaining a presence in key markets, has proved successful. With an increasing cash flow, and a strong balance sheet, we are well positioned to benefit from a return to growth and take advantage of opportunities that arise. This strength has recently enabled us to acquire an entire and complementary hire fleet, as a result of a competitor liquidation. As we look forward with a more positive outlook for future trading, it is time to pay tribute to our people, whose loyalty, experience, specialist skills, unwavering focus on our customers and sheer hard work have helped us respond quickly and effectively to the many challenges faced by the Group in recent years and have helped us to emerge lean and focused to grasp the opportunities now presented by improving markets. We are fortunate indeed to have such dedicated and capable colleagues across our worldwide businesses. We have also taken steps to strengthen the Board for the future, with the appointment of Judith Aldersey-Williams as an additional Non-executive Director. Judith brings an immense depth of experience in the oil and gas industry gained as a partner with a major legal practice in Aberdeen. Our strategy for the future is to continue to build on the platform that has now been created, and we look forward to further growth in the coming years. Peter Harris Chairman 11 April 2019 8 Northbridge Industrial Services plc – Annual report and accounts 2018 CHIEF EXECUTIVE’S REVIEW The impact of operational gearing on trading is now beginning to benefit the Company, as revenues, particularly in our hire operations, begin to improve. Eric Hook Chief Executive During the year a convertible loan note for £4.0 million was issued at a fixed interest rate of 8%. This, in conjunction with the early renewal of its banking facilities with its senior lender, Royal Bank of Scotland (“RBS”), enabled the Group to consolidate its future bank funding solely with the RBS Group. It also enabled the Group to fully repay KBC Bank and reduce capital repayments which, in turn, allows for further investment into a recovering market. The loan notes are convertible into ordinary shares in Northbridge, at the discretion of the holders, at a conversion price of 125 pence. Additionally, in June 2018, the Company placed a further 2 million ordinary shares to raise £2.5 million in new equity. Approximately £1.05 million of the proceeds from the placing was used to pay the outstanding deferred consideration due to the vendor of the Tasman Oil Tools companies in New Zealand. This payment was originally due on 7 January 2016 but had been deferred until 7 July 2018. Some of these funds, plus some additional borrowings, were also used to acquire a complementary hire fleet which became available as a result of the liquidation of a drilling tool rental competitor in Southeast Asia, for £3.0 million in December 2018. The much-improved cash flow, together with the placing of new equity, has enabled gearing to be reduced to 23.8% (2017: 24.5%), despite the acquisition of the drilling tool hire fleet. 2018 proved to be a watershed year for the Group, with signs of a recovery in both parts of the business, particularly noticeable in Tasman Oil Tools. The impact of operational gearing on trading is now beginning to benefit the Company, as revenues, particularly in our hire operations, begin to improve. After a period of significant cost reduction, much of our operational costs remain fixed, in particular establishment costs and depreciation, which are less sensitive to volume. This means that, as revenues improve, gross profit will grow proportionately faster. In addition, the mix between sales and rental also adds to the operational gearing effect, as our higher-margin rental revenue should recover faster than the growth of outright sales of manufactured units. Overall, the Group’s revenue improvement, year on year, in 2018 was 4.9%, but gross margin rose to 41.8% compared with 36.4% in 2017 as the proportion of rental in the mix increased. Gross profits increased by 20.6% to £11.3 million (2017: £9.3 million). Operational gearing also impacts EBITDA (pre-exceptional), and this in turn increased by 44.0% to £4.6 million (2017: £3.2 million). Costs were reduced and remain under control and pre-exceptional operational expenditure was £12.3 million, reducing from £12.9 million in 2017. Cash generated from operations improved substantially to £4.3 million (2017: £2.6 million). The combined effect of all these movements enabled us to substantially reduce pre-exceptional operating losses in 2018 by £2.4 million to £1.4 million (2017: £3.8 million). Pre-exceptional losses before tax were £2.0 million (2017: £4.4 million). The exceptional cost of £712,000 (2017: £nil) arose from a post balance sheet event and relates to a full provision against a debt in Dubai from 2013 and 2014 and is explained further in note 4. Statutory losses before tax were £2.7 million (2017: £4.4 million). Northbridge Industrial Services plc – Annual report and accounts 2018 9 Financial statementsOverviewStrategic reportCorporate governance CHIEF EXECUTIVE’S REVIEW CONTINUED Net debt Hire fleet cost Cash generated from operations £8.7m 2017: £8.7m £52.0m 2017: £48.2m £4.3m 2017: £2.6m 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 focused on supporting the power reliability, renewables, and power security markets, and secondly, emerging markets (“EM”), where it is mostly focused on resources, typically shipyards, oil and gas facilities and mines. Total turnover during the period was £20.4 million (2017: £20.2 million), but a change in mix towards higher-margin rental saw gross profits rise by 5.9% to £9.5 million (2017: £9.0 million). Sales of manufactured units and service revenue were slightly down on the previous year at £8.4 million (2017: £9.0 million) but the underlying trend of enquiries and orders showed signs of improvement, and the year ended with the largest ever order book for the sale of manufactured equipment. This represents a sure sign of improvement from Crestchic’s emerging overseas markets as well as a continued growth in its traditional power reliability market. The business in the UK and Western Europe continues to perform well and the contract to supply the FIFA World Cup stadiums helped the rental revenue during the year. Our business in the USA continued its good progress and is expected to provide a long-term growth opportunity for Crestchic. The relocation of underutilised equipment from the Asia-Pacific region has doubled our fleet size at minimal cost. Revenue from both sales and rental rose to £2.0 million (2017: £0.8 million). We continue to look for suitable trading partners for our rental operation in order to expand our footprint whilst minimising the overhead cost of operating in North America. 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 secondly, in managing and proving back-up power sources. Global investment in this type of “big data” is likely to grow for many years to come. The more recent growth in renewable power generation in advanced economies is continuing to gather pace and has created new markets for our equipment and services. This also represents another longer-term growth opportunity for the Company, and we are currently supporting this growth through the further technical development of our products. Tasman Oil Tools Our oil tool rental operations in Australia, New Zealand, Malaysia and the Middle East, which suffered badly during the downturn in the oil market over the last three years, have shown some good signs of an early recovery. Total revenue in the year was £6.6 million (2017: £5.4 million). Rental during the period increased 22.5% to £5.4 million (2017: £4.4 million). The strongest performance in this business segment was Australia, which showed an increase of overall revenue of 61.4% to £2.9 million (2017: £1.8 million) and we have continued to support this growth with further capital expenditure for specific contracts. Current volumes, whilst low historically, have begun to make a significant difference to the Group’s overall profitability, and particularly to our cash flows, with the Tasman businesses now close to break-even at an EBITDA level. Rental rates still remain depressed and are not expected to recover until 2020 at the earliest. 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, the Company is strongly positioned for when market demand begins to recover more significantly. The joint venture in Malaysia with our local partner, Olio Resources SDN BHD, started trading in earnest in 2018. Early results are encouraging, and the proportion of revenue generated by hiring Tasman tools into the joint venture is beginning to increase. Because of our improved trading position, and the refinancing earlier in the year, Tasman was able to purchase an entire and complementary hire fleet, at a significant discount to its new replacement value, from a distressed competitor and this, together with further modest capital expenditure, has enabled this momentum to continue. The drilling tools acquired have also been deployed in the Tasman operations in New Zealand and Australia and we have been able to establish a further Tasman location in Singapore which will service the new customers that were acquired in Singapore, Thailand and Vietnam. It is hoped that this location will begin to trade profitably during 2019. The joint venture’s total revenue for 2018 was £2.1 million (2017: £0.4 million) and the cross-hire revenue attributed to Tasman SEA from the JV was £0.4 million (2017: £0.0 million) and the after-tax loss included in these accounts is £0.4 million. 10 Northbridge Industrial Services plc – Annual report and accounts 2018 Northbridge is very well placed to benefit from the current recovery. While remaining cash generative, we have completed our restructuring and now have a much lower cost base throughout the Group.” Eric Hook Chief Executive In the overall oil and gas market, supply and demand have appeared to reach an equilibrium following a sharp fall in crude prices in Q4 2018. This fall does not appear to have affected market activity significantly, as most of our customers’ final investment decisions had been made earlier in the year, and the oil price has since recovered. In our particular area of the market, Southeast Asia and Australasia, gas and geothermal fluids play an important and growing part in the mix for businesses we supply. The outlook for both, over the short and medium term, is positive. The need for further capital expenditure as the recovery takes hold has been much reduced by the opportunistic acquisition of a competitor’s hire fleet in the year. This in turn has also reduced the average age of our combined rental assets and has enabled us to expand our footprint and services in Southeast Asia. Outlook The ongoing recovery in the oil market, coupled with a more stable crude oil price over the last 18 months, has improved confidence amongst the majority of exploration and production (“E&P”) companies, which form an important part of our customer base. The additional cash flow as a result of higher crude prices has enabled the oil majors and national oil companies to pay down debt and to start a return to modest levels of capital expenditure. In the deepwater sector of the Asia-Pacific region alone, where we have a strong presence, the energy analysts Wood MacKenzie expect capital expenditure to rise from a low of US$3 billion per annum in 2017/18 to reach US$9 billion per annum by 2020/21. Other oil and gas analysts expect drilling rates to double in the same time scale. Whilst it is difficult to be precise, this impact is likely to be felt in the sectors that both Crestchic and Tasman supply, although the timing may be different in each industry. We have seen some improvement in the important rental revenue of Tasman Oil Tools, albeit from a low base, and we expect this to continue in 2019 and beyond. The longer-term opportunities in the activities we supply in New Zealand, Australia and other countries in Southeast Asia are likely to continue to grow. We are very active in the LNG, natural gas and geothermal fluids E&P sectors which are expecting a demand boost as the nearby economies, including China, switch from a coal and oil energy base, to the more environmentally sustainable gas and renewables. For the wider Group, the short-term opportunity is mostly focused towards a recovery in the activity and revenue levels of Tasman Oil Tools. However, we are not ignoring the longer-term growth of the power reliability market and the opportunities there are equally important, particularly in the USA. For Crestchic, a return to activity in the oil market will also, in time, benefit the marine sector. The reducing levels of overcapacity in the oil and gas rig market, with substantial amounts of equipment retired or scrapped, has led to further investment planned in new rigs, tankers and LNG carriers. This is a key market for our products, and we should see some improvements over the next few years. Our services are generally engaged during the last element of power commissioning projects before the vessels are launched. The other part of Crestchic’s business, which has been unaffected by the oil and gas downturn, is involved in power commissioning and reliability testing in Western economies. The traditional use of loadbanks, to test “real-time” power output from standby power generators, has now been supplemented by their increasing use in data centres, distributed generation and frequency management. The growth of renewables will also lead to further fragmentation of the generating base, and will make the systems inherently less reliable, at a time in which uninterruptible power becomes even more important. Overall, the industries we serve are likely to continue to grow for years to come. We have recently added further equipment and personnel to Crestchic’s operation in North America. This market is potentially one of the largest in the world for our services and we are confident in its longer-term profitable future. Northbridge is very well placed to benefit from the current recovery in all its markets. While remaining cash generative, we have completed our restructuring and now have a much lower cost base throughout the Group. Having retained all our operating bases during the downturn, and maintained relationships with all our customers, we expect to be able to exploit the high operational gearing inherent in our business model, and the expected additional revenue will support bottom line growth. We are now confident of the Group’s profitable and growing future in the medium to long term. Eric Hook Chief Executive 11 April 2019 Northbridge Industrial Services plc – Annual report and accounts 2018 11 Financial statementsOverviewStrategic reportCorporate governance FINANCIAL REVIEW The Group continued to increase the cash generated from operating activities, which totalled £4.3 million during the year (2017: £2.6 million). Iwan Phillips Finance Director Net finance costs were largely unchanged from 2017 at £0.7 million (2017: £0.6 million) which included £0.1 million of non-cash finance charges. Pre-exceptional losses before tax were reduced by £2.4 million to £2.0 million (2017: £4.4 million). Earnings per share The basic and diluted loss per share (“LPS”), both of 8.9 pence (2017: 17.9 pence), have been arrived at in accordance with the calculations contained in note 11. Balance sheet and debt Total net assets at 31 December 2018 were £36.5 million compared to £35.7 million in 2017. The increase in net assets during the year is due to the increases in share capital, share premium and foreign exchange reserves more than offsetting the loss for the year after tax of £2.4 million. Net assets per share at the year end are 132 pence (2017: 138 pence). Hire fleet additions have risen to £4.5 million in the year (2017: £0.5 million) with substantial investment in Tasman including the purchase of the entire fleet of a competitor in liquidation in Asia. Property, plant and equipment decreased from £29.3 million to £28.9 million during the year due to net additions of £4.4 million and a positive movement of £0.6 million from the translation of assets held in foreign currency being more than offset by a depreciation charge of £6.4 million. Revenue and profit before tax The Group’s revenues are derived principally from the rental of its hire fleet and also from the sale of manufactured equipment; hence IFRS 15 has not impacted the results for the year. Notes 2 and 3 show the Group’s revenue split by segment, geography and revenue type. As many of the Group’s costs are largely of a fixed nature in the short to medium term (with significant movements in the cost base being attributable to acquisitions, large capital expenditure and divestments) any revenue movement, however small, will be highlighted at the operating profit level. This operating gearing, along with a movement in sales mix towards rental in the year and tight cost control, enabled a 4.7% increase in sales, leading to a reduction in a pre-exceptional operating loss of £2.4 million. Rental revenue made up 65% of total revenue in 2018 compared to 61% in 2017. Rental revenue within Tasman increased by 23% even taking account of a 41% decrease in revenue in the Middle East where a strategic decision was made to cease low margin cross-hire work. Pre-exceptional operating costs were £0.3 million lower in 2018 at £12.1 million (2017: £12.4 million). This was mainly due to a full year effect of some cost reductions from H2 2017 and a foreign exchange gain of £0.1 million against a £0.1 million loss in 2017. No new strategic cost reductions were implemented in 2018 as the business began to recover. An exceptional cost was recognised in the year for £0.7 million (2017: £nil). This relates to a full provision against a debt in Dubai from revenue recognised in 2013 and 2014. A more detailed explanation is included in note 4. 12 Northbridge Industrial Services plc – Annual report and accounts 2018 The Group’s leverage has decreased from 2.7 as at 31 December 2017 to 1.9 as at 31 December 2018. ” Iwan Phillips Finance Director Inventory levels have increased during the year to £4.3 million (2017: £3.4 million) mainly due to an increase in finished goods of £0.7 million. This is a strategic move to hold inventory of Crestchic’s more commonly sold and hired items to take advantage of short-timeframe opportunities, especially in North America. Trade receivables have decreased from £7.3 million to £5.9 million in the year with reasonable collections and an increase in provisions. Year-end net debt (cash balances less financial liabilities) stood at £8.7 million (2017: £8.7 million) which includes £3.8 million debt convertible to equity at 125 pence per share. The Group has used cash flow, new debt and new equity to fund investment in the hire fleet as well as paying the final deferred consideration of £1.1 million for the acquisition of Tasman New Zealand. Notwithstanding the investment seen during the year, the Group’s leverage, as calculated by dividing net debt by pre-exceptional EBITDA, has decreased from 2.7 as at 31 December 2017 to 1.9 as at 31 December 2018. Excluding the convertible debt, the leverage is 1.1. Cash flow The Group continued to increase the cash generated from operating activities which totalled £4.3 million during the year (2017: £2.6 million). The Group closely monitors cash management and prioritises the repatriation of cash to the UK from its overseas subsidiaries. The net cash inflow from financing activities of £3.4 million (2017: outflow of £2.1 million) included the refinancing as well as £2.4 million net proceeds from the share issue in June. The inflow from financing activity was partly used to pay the remaining deferred consideration due on the acquisition of Tasman New Zealand of £1.1 million (2017: £nil). Tax expense The overall tax credit for the year totalled £0.3 million (2017: charge of £0.2 million). This was made up of a tax charge of £0.4 million (2017: £0.8 million) and a deferred tax credit of £0.7 million (2017: £0.6 million). Losses relating to the Group’s Australian entities have prudently not been recognised as a deferred tax asset at this balance sheet date, but the losses are available to be utilised against future profits. Any future recognition of a deferred tax asset will be dependent on these future profits by jurisdiction becoming more certain. The Group manages taxes such that it pays the correct amount of tax in each country that it operates in, utilising available reliefs and engaging with local tax authorities and advisors as appropriate. Iwan Phillips Finance Director 11 April 2019 Northbridge Industrial Services plc – Annual report and accounts 2018 13 Financial statementsOverviewStrategic reportCorporate governance PRINCIPAL RISKS AND UNCERTAINTIES The Board is responsible for determining the level and nature of risks that are felt to be appropriate in delivering the Group’s objectives and for implementing an appropriate Group risk management framework. In common with any organisation, the Group can be subjected to a variety of risks in the conduct of its normal business operations that could have a material impact on the Group’s long-term performance. The Board is responsible for determining the level and nature of risk accepted that is felt to be appropriate in delivering the Group’s objectives and for implementing an appropriate Group risk management framework. The Group seeks to mitigate exposure to all forms of risk where practical and to transfer risk to insurers where cost effective. In this respect the Group maintains a range of insurance policies against major identified insurable risks, including (but not limited to) business interruption, damage to or loss of property and equipment, and employment risks. The major risks are outlined here. THE BOARD EXECUTIVE DIRECTORS DIVISIONAL MANAGEMENT SUBSIDIARY MANAGEMENT Description Mitigation Change QHSE The Group’s hire equipment is involved in safety-critical environments where a fault with the equipment or its misuse could cause serious injury or death. The Tasman equipment is mainly used in the oil, gas and geothermal drilling industry whereas the Crestchic equipment is involved in electrical testing that can produce lethal voltages. Bribery and corruption The global nature of its business exposes the Group to risk of unethical behaviour. The Group operates in countries with perceived high levels of corruption and tenders for projects and uses third-party sales agents in some countries where it does not have a permanent presence. Market and macroeconomic risks As evidenced by the impact of the sharply declining oil price in 2015 and early 2016, a downturn in global economic conditions or volatility in commodity prices creating uncertainty may result in lower rental activity and equipment sales levels. This may result in a poorer performance than expected, impacting revenues and margins. Any post-Brexit restrictions on the ability of the Group to move goods and services from the UK into the EU may result in lost revenue and/or increased costs. The Group’s divisions, Tasman and Crestchic, have detailed QHSE policies which are communicated to all staff. Tasman is certified under ISO 9001, ISO 14001 and OHSAS 18001 with Crestchic certified under ISO 9001, ISO 14001 and ISO 45001. Accident (and near-miss) reports are continually monitored and appropriate staff training is completed. The Group has a clear bribery policy which is available on the website. All third-party agents are thoroughly vetted and are closely monitored. The Group has a whistleblowing process in place which is continually reviewed. The Group constantly monitors market conditions and can flex capital investment into the hire fleet accordingly. Products, services and demand vary by subsidiary with some of our products and services being subject to less market impact than others, enabling the hire fleet to be relocated to mirror changes in localised utilisation, although equipment in the US (specific frequency) and China (permanently imported) is less flexible. As the Group’s global business continues to develop this will naturally increase and broaden both the market and revenue base, placing reduced reliance on specific markets and regions. Though much of the cost base of the Group is fixed, as recently shown, the Group is prepared to take prompt and effective action to exit underperforming activities and reduce overhead costs to mitigate the impact of market downturns. The Board has developed plans to mitigate the impact of any post-Brexit restrictions on the ability of the Group to move goods and services from the UK into the EU including moving assets to be permanently stored within the EU and employing further EU based staff. 14 Northbridge Industrial Services plc – Annual report and accounts 2018 Description Mitigation Change Competition and commercial risk The Group’s revenues are derived from the sale and rental of specialist complementary industrial equipment and services which can be impacted by competitor activity. There is a relatively small number of significant competitors serving the markets in which we operate, although we often compete against larger and better capitalised companies which could pose a significant threat because of financial capability, which may result in lower pricing and margins, loss of business, reduced utilisation rates and erosion of market share. Information technology The Group is dependent on its information technology (“IT”) systems to operate its business efficiently, without failure or interruption. Whilst data within key systems is regularly backed up and systems are subject to virus protection, any systems failure or other major IT interruption could have a disruptive effect on the Group’s business. Interest rate risk The Group delegates day-to-day control of its bank accounts to local management. All bank and other borrowings with the exception of the convertible loan notes attract variable interest rates. The Board accepts that this policy of not fixing interest rates for all borrowings neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments. People risk Retaining and attracting the best people are critical in ensuring the continued success of the Group. Foreign currency exchange risk The Group is exposed to movements in exchange rates for both foreign currency transactions and the translation of net assets and income of foreign subsidiaries. Local management has responsibility for its own bank accounts, with bank balances held in Euro, US Dollar, Australian Dollar, Singaporean Dollar, New Zealand Dollar and UAE Dirham accounts. Outstanding balances for trade receivables, trade payables and financial liabilities are also held in these currencies. The Board recognises that the ongoing Brexit negotiations will impact the volatility of Sterling. Credit risk Exposure to credit risk arises principally from the Group’s trade receivables. At 31 December 2018 the Group had £7,169,000 (2017: £8,182,000) of trade receivables and an expected credit loss provision of £1,221,000 (2017: £868,000). During the year the Group wrote off £403,000 (2017: £11,000) of debts considered unrecoverable which were previously provided against. The Group increased provisions by £866,000 (2017: £536,000) during the year. Competition for products and services provided by the Group varies by subsidiary with some of our products and services being subject to less market competition than others. As the Group’s global business continues to develop this increases and broadens both the customer and revenue base, placing reduced reliance on individual customers. Our use of international hubs holding significant levels of equipment available for rent has enabled us to provide an enhanced and efficient customer service, and the ability to readily transport our hire fleet enables us to respond to changes in localised utilisation. The geographically diverse nature of the Group reduces the global risk associated with IT failure or disruption. The use of recognised service providers and operating and communication platforms has strengthened the Group’s technological infrastructure and reduced the risk of loss due to failure, breakdown, loss or corruption of data. The Group maintains strong relationships with all banking contacts. Group borrowings are reviewed, arranged and administered centrally with day-to-day control of bank accounts by local management being restricted to operating within agreed parameters. The Group’s bank borrowings are made up primarily of revolving facilities, invoice finance and term loans. The Group also utilises short-term trade finance and supplier finance facilities and finance leases. The Board considers that it currently achieves an appropriate balance of exposure to these risks, although this situation is constantly monitored. Northbridge offers well-structured reward and benefit packages, including share options, which are regularly reviewed. We try to ensure that our people fulfil their potential to the benefit of the individual and the Group by providing appropriate training and offering the possibility of career advancement on an intercompany basis within the Group. The Board manages this risk by converting surplus non-functional currency into Sterling as appropriate, after allowing for future similar functional currency outlays. The Board regularly seeks the opinion of foreign currency professionals to advise on potential foreign currency fluctuations, especially when it is aware of future foreign currency requirements. It does not currently consider that the use of hedging facilities would provide a cost-effective benefit to the Group on an ongoing basis. The Group’s trade receivables are managed through stringent credit control practices both at a local and Group level, including assessing all new customers, requesting external credit ratings (which are factored into credit decisions), regularly reviewing established customers and obtaining credit insurance where it is felt appropriate. The Group trades in regions such as the Middle East and Africa where formal credit ratings are not always readily available. In these situations, trading history with the Group and market reputation are given greater weighting in credit decisions. This Strategic Report was approved by the Board on 11 April 2019 and signed by order of the Board by the Chief Executive. Eric Hook Chief Executive 11 April 2019 Northbridge Industrial Services plc – Annual report and accounts 2018 15 Financial statementsOverviewStrategic reportCorporate governance BOARD OF DIRECTORS Peter Harris Eric Hook Ian Gardner Iwan Phillips Non-executive Chairman Chief Executive Divisional Managing Director Finance Director Iwan Phillips, aged 35, studied at Warwick University before joining BDO in 2005, where he qualified as a chartered accountant in 2008. He spent five years at BDO, working on the audits of a variety of businesses but specialising in fully listed and AIM companies. Iwan joined Northbridge in 2010 as the Group Accountant and was appointed the Group’s Finance Director in 2016. He was appointed as Company Secretary in 2011. Skills and experience Iwan’s professional training and long service, with continually expanding responsibilities, at Northbridge, have given him the skills and experience to bring financial leadership and direction to the Board and to build, on behalf of the Board, secure and constructive relationships with the shareholders, bankers and other financial stakeholders of the Group. Eric Hook, aged 65, qualified as a chartered certified accountant (“FCCA”) in 1983 and spent many years in financial roles, culminating in his appointment as finance director of Harvey Plant Ltd, a subsidiary of Lex Service Plc. In 1994 Eric was appointed chief executive of Andrews Sykes Group Plc, the listed support services company, where he led the turnaround of the loss-making group. Eric left Andrews Sykes in 1999 to lead Longville Group, a private equity-backed consolidation of three industrial hire businesses. He expanded Longville organically and by acquisition to gain a market-leading position in pumps, fluid chillers and diesel generators. Eric left Longville Group to establish Northbridge Industrial Services in 2003. Skills and experience His successful track record in the publicly quoted industrial equipment hire sector has given him the experience and credentials to lead the Group as its Chief Executive and to help devise and manage the delivery of its strategic goals and operational performance. Ian Gardner, aged 52, joined the Group in 2007 and was instrumental in the start-up and subsequent growth of Northbridge Middle East and Northbridge Asia-Pacific and he now holds responsibility for the Group’s oil and gas division, Tasman Oil Tools. Following the successful integration of the Tasman Oil Tools businesses, Ian is now residing in Kuala Lumpur, Malaysia, giving him access to the Tasman division and supporting the new joint venture within the region. Ian has over 28 years’ experience in the industrial services and rental sector, with over 19 years being within international roles, and has championed start-ups and acquisitions and driven growth in Singapore and the Middle East, prior to joining the Group. Skills and experience Ian brings to the Board the experience gained from his career in the industrial equipment sector prior to joining the Group which, together with his involvement since joining Northbridge in all the major areas of activity and development of the Group’s operations, enables him to contribute to the Board on a broad range of operational and strategic issues, with particular emphasis on products, markets, customers and industry partners. A R Peter Harris, aged 67, qualified as a chartered accountant having studied at Sheffield University. After a number of years in the accountancy profession he joined Borden Inc., a multinational food packaging and industrial product company, where he spent 13 years in a variety of senior financial roles. In 1994 Peter was appointed as finance director of RAC plc (formerly Lex Service Plc), a leading automotive services provider. In 1999 he became a group managing director of RAC plc, heading a number of businesses including Lex Transfleet, Lex Multipart, Lex Commercials, Lex Defence and RAC Software Solutions. In April 2006, following the acquisition of RAC plc by Aviva plc, Peter was appointed chief executive of Dawson Holdings plc, the media supply chain business, from which he retired in June 2009. Peter is also chairman of Atmaana Business Consulting Ltd and senior advisor to Chetwode SAS, a Paris-based financial services company, and a member of the Advisory Board of Sovam SAS, a French manufacturer of ground support equipment for the aviation industry. He is a member of the Remuneration and Audit Committees of the Company. Skills and experience His extensive international business experience in the public company and charity environment, in which he has had experience of all the major executive and non-executive roles, and extensive experience in corporate governance, coupled with his ongoing career in business strategy consultancy, robustly qualify him for the role of Chairman of the Board. 16 Northbridge Industrial Services plc – Annual report and accounts 2018 RA RA RA A R Ash Mehta, aged 53, qualified David Marshall, aged 74, Nitin Kaul, aged 44, studied Judith Aldersey-Williams, as a chartered accountant with is chairman of a number of at King’s College and City aged 55, studied at Cambridge KPMG, following which he worked public listed companies, including Business School before joining and Harvard before qualifying in commercial finance roles in US Western Selection PLC, which Arthur Andersen in 1996, where as a solicitor in 1989. She began multinationals. He has since held is a substantial shareholder of he worked across various business her career as a commercial and a number of senior financial roles Northbridge Industrial Services lines in Europe, Asia and North competition lawyer in the City of in fully listed and AIM companies, plc. In recent years he has taken a America. He joined Tomkins plc in London with Travers Smith before and has extensive experience in leading role in the reorganisation 2002 and spent over 13 years with moving to Aberdeen and joining IPO-type fundraisings and and development of a number of the group in senior finance, M&A CMS, where she became a partner acquisitions. Ash was part-time medium-sized listed companies and operating roles, including in 2007. In Aberdeen she has Finance Director of the Group from in the UK and overseas. He is a heading various group businesses specialised in oil and gas law, 2007 to 2011 when he became member of the Remuneration in the oil and gas vertical. a Non-executive Director of and Audit Committees of Northbridge. He is a member the Company. of the Remuneration and Audit Committees of the Company. Skills and experience Skills and experience His extensive experience in senior roles in multinational Skills and experience David’s breadth of experience in businesses gives him the insight quoted international businesses required for the chairmanship His professional qualification, and corporate finance gives him of the Remuneration Committee, together with his extensive the stature both to contribute to his blend of finance and advising operators and service companies, large and small, on regulatory issues, upstream contracts, procurement and construction contracts, IT and competition law. She is a member of the Audit and Remuneration Committees of the Company. experience in senior finance roles the Board and its Committees operational experience brings a Skills and experience in listed companies, equips him and to represent the Board relevant perspective to the Audit Judith’s legal skills add to be an effective Chairman of the to external stakeholders. Committee and his international to the range of professional Audit Committee, his wide business experience in commercial finance roles allows him to offer a broad input into the Remuneration Committee and his senior management responsibilities, particularly in strategy formulation and corporate finance, are highly relevant to the general business of the Board. experience in senior management experience on the Board. Her and business consultancy, coupled work in the oil and gas sector puts with a broad knowledge of the her at the forefront of complex power and oil and gas markets, industry legal issues and has given is of great value to the Board. her a thorough understanding of the way the oil and gas industry works, both in operational and cultural terms, the risks it faces and how these are mitigated, which enables her to make a significant contribution to the Board and its Committees. A R RA RA RA A R Ash Mehta David Marshall Nitin Kaul Non-executive Director (independent) Non-executive Director (independent) Non-executive Director (independent) Judith Aldersey- Williams Non-executive Director (independent) Peter Harris, aged 67, qualified Eric Hook, aged 65, qualified as Ian Gardner, aged 52, joined the Iwan Phillips, aged 35, studied at as a chartered accountant having a chartered certified accountant Group in 2007 and was instrumental Warwick University before joining studied at Sheffield University. (“FCCA”) in 1983 and spent many in the start-up and subsequent BDO in 2005, where he qualified After a number of years in the years in financial roles, culminating growth of Northbridge Middle East as a chartered accountant in accountancy profession he joined in his appointment as finance and Northbridge Asia-Pacific and 2008. He spent five years at BDO, Borden Inc., a multinational food director of Harvey Plant Ltd, a he now holds responsibility for working on the audits of a variety packaging and industrial product subsidiary of Lex Service Plc. the Group’s oil and gas division, of businesses but specialising in company, where he spent 13 years In 1994 Eric was appointed Tasman Oil Tools. Following the fully listed and AIM companies. in a variety of senior financial roles. chief executive of Andrews Sykes successful integration of the Iwan joined Northbridge in 2010 In 1994 Peter was appointed as Group Plc, the listed support Tasman Oil Tools businesses, as the Group Accountant and was finance director of RAC plc (formerly services company, where he led the Ian is now residing in Kuala Lumpur, appointed the Group’s Finance Lex Service Plc), a leading turnaround of the loss-making group. Malaysia, giving him access to the Director in 2016. He was appointed automotive services provider. Eric left Andrews Sykes in 1999 to Tasman division and supporting as Company Secretary in 2011. In 1999 he became a group lead Longville Group, a private the new joint venture within the managing director of RAC plc, equity-backed consolidation of region. Ian has over 28 years’ heading a number of businesses three industrial hire businesses. experience in the industrial including Lex Transfleet, He expanded Longville organically services and rental sector, with Lex Multipart, Lex Commercials, and by acquisition to gain a Lex Defence and RAC Software market-leading position in over 19 years being within international roles, and has Solutions. In April 2006, following pumps, fluid chillers and diesel championed start-ups and the acquisition of RAC plc by Aviva generators. Eric left Longville acquisitions and driven growth in plc, Peter was appointed chief Group to establish Northbridge Singapore and the Middle East, executive of Dawson Holdings plc, Industrial Services in 2003. prior to joining the Group. Skills and experience Iwan’s professional training and long service, with continually expanding responsibilities, at Northbridge, have given him the skills and experience to bring financial leadership and direction to the Board and to build, on behalf of the Board, secure and constructive relationships with the shareholders, bankers and other financial stakeholders Skills and experience His successful track record Skills and experience Ian brings to the Board the in the publicly quoted industrial experience gained from his career of the Group. equipment hire sector has given in the industrial equipment sector him the experience and credentials prior to joining the Group which, to lead the Group as its Chief together with his involvement since Executive and to help devise joining Northbridge in all the major and manage the delivery of its strategic goals and operational performance. areas of activity and development of the Group’s operations, enables him to contribute to the Board on a broad range of operational and strategic issues, with particular emphasis on products, markets, customers and industry partners. the media supply chain business, from which he retired in June 2009. Peter is also chairman of Atmaana Business Consulting Ltd and senior advisor to Chetwode SAS, a Paris-based financial services company, and a member of the Advisory Board of Sovam SAS, a French manufacturer of ground support equipment for the aviation industry. He is a member of the Remuneration and Audit Committees of the Company. Skills and experience His extensive international business experience in the public company and charity environment, in which he has had experience of all the major executive and non-executive roles, and extensive experience in corporate governance, coupled with his ongoing career in business strategy consultancy, robustly qualify him for the role of Chairman of the Board. David Marshall, aged 74, is chairman of a number of public listed companies, including Western Selection PLC, which is a substantial shareholder of Northbridge Industrial Services plc. In recent years he has taken a leading role in the reorganisation and development of a number of medium-sized listed companies in the UK and overseas. He is a member of the Remuneration and Audit Committees of the Company. Skills and experience David’s breadth of experience in quoted international businesses and corporate finance gives him the stature both to contribute to the Board and its Committees and to represent the Board to external stakeholders. Nitin Kaul, aged 44, studied at King’s College and City Business School before joining Arthur Andersen in 1996, where he worked across various business lines in Europe, Asia and North America. He joined Tomkins plc in 2002 and spent over 13 years with the group in senior finance, M&A and operating roles, including heading various group businesses in the oil and gas vertical. Skills and experience His extensive experience in senior roles in multinational businesses gives him the insight required for the chairmanship of the Remuneration Committee, his blend of finance and operational experience brings a relevant perspective to the Audit Committee and his international experience in senior management and business consultancy, coupled with a broad knowledge of the power and oil and gas markets, is of great value to the Board. Ash Mehta, aged 53, qualified as a chartered accountant with KPMG, following which he worked in commercial finance roles in US multinationals. He has since held a number of senior financial roles in fully listed and AIM companies, and has extensive experience in IPO-type fundraisings and acquisitions. Ash was part-time Finance Director of the Group from 2007 to 2011 when he became a Non-executive Director of Northbridge. He is a member of the Remuneration and Audit Committees of the Company. Skills and experience His professional qualification, together with his extensive experience in senior finance roles in listed companies, equips him to be an effective Chairman of the Audit Committee, his wide business experience in commercial finance roles allows him to offer a broad input into the Remuneration Committee and his senior management responsibilities, particularly in strategy formulation and corporate finance, are highly relevant to the general business of the Board. Judith Aldersey-Williams, aged 55, studied at Cambridge and Harvard before qualifying as a solicitor in 1989. She began her career as a commercial and competition lawyer in the City of London with Travers Smith before moving to Aberdeen and joining CMS, where she became a partner in 2007. In Aberdeen she has specialised in oil and gas law, advising operators and service companies, large and small, on regulatory issues, upstream contracts, procurement and construction contracts, IT and competition law. She is a member of the Audit and Remuneration Committees of the Company. Skills and experience Judith’s legal skills add to the range of professional experience on the Board. Her work in the oil and gas sector puts her at the forefront of complex industry legal issues and has given her a thorough understanding of the way the oil and gas industry works, both in operational and cultural terms, the risks it faces and how these are mitigated, which enables her to make a significant contribution to the Board and its Committees. Committee key: A R C Audit Committee Remuneration Committee Committee Chairman Northbridge Industrial Services plc – Annual report and accounts 2018 17 Financial statementsOverviewStrategic reportCorporate governance CORPORATE GOVERNANCE STATEMENT This Corporate Governance Statement addresses how the Group complies with each of the ten principles of the QCA Code; however, further disclosure relating to each principle can be found in other sections of the 2018 Annual Report and Accounts (the “2018 Report’’) as indicated opposite. No. Principle Page number in the accounts 1. 2. 3. 4. Establish a strategy and business model which promotes long-term value for shareholders Seek to understand and meet shareholder needs and expectations Take into account wider stakeholder and social responsibilities, and their implications for long-term success Embed effective risk management, considering both opportunities and threats, throughout the organisation 2–3 19 19 14–15 5. Maintain the Board as a well-functioning, balanced team led by the Chairman 18 6. 7. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities 16–17 Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement 8. Promote a corporate culture that is based on ethical values and behaviours 9. Maintain governance structures and processes that are fit for purpose and support good decision making by the Board 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders 19 19 18 19 Strategy and model The Group hires and sells specialist industrial equipment across the world through its two divisions, Crestchic Loadbanks and Transformers and Tasman Oil Tools. For further information on the strategy, please see the Strategic Report on pages 2 and 3 and for more information on the key challenges posed to the Group in executing the strategy, please see pages 14 and 15 of the 2018 Annual Report. The Board The Board meets regularly to monitor the current state of business and to determine its future strategic direction. Board composition 13+ Non-executive Chairman Executive Directors Non-executive Directors 1 3 4 Day-to-day management of the Group is delegated to the Executive Directors, subject to formal delegated authority limits; however, certain matters are reserved for whole Board approval. These matters are reviewed periodically and include Board and Committee composition, strategy, funding decisions and corporate transactions among others. Directors are required to commit sufficient time to their role to appropriately discharge their duties. All Directors are offered regular training to develop their knowledge and ensure they stay up to date on matters for which they have responsibility as a Board member. During the year, the Board comprised a Non-executive Chairman, three Executive Directors and three Non-executive Directors. Board Committees The principal Committees established by the Directors are: Audit Committee The Committee meets at least twice a year and examines any matters relating to the financial affairs of the Group including the review of annual and interim results, internal control procedures and accounting practices. The Audit Committee meets with the auditor periodically and as necessary. This Committee is comprised of Nitin Kaul, Peter Harris, David Marshall, Judith Aldersey-Williams and Ash Mehta, who chairs the Committee. The Executive Directors may also attend meetings as appropriate to the business in hand but are not members of the Committee. Remuneration Committee The Remuneration Committee meets at least twice a year and reviews the performance of the Executive Directors and sets and reviews their remuneration and the terms of their service contracts, determines the payment of bonuses to Executive Directors and senior management and considers any bonus and option schemes which may be implemented by the Group. This Committee is comprised of David Marshall, Peter Harris, Ash Mehta, Judith Aldersey-Williams and Nitin Kaul, who chairs the Committee. Executive Directors may also attend meetings as appropriate to the business in hand but are not members of the Committee. None of the Executive Directors were present at meetings of the Committee during consideration of their own remuneration. 18 Northbridge Industrial Services plc – Annual report and accounts 2018 37 + 50 + M Nominations Committee The Nominations Committee meets as and when required. It met once in 2018 and comprised the Chairman and Chief Executive. The composition of the Nominations Committee varies but will always include the Chairman and at least one other Board member. The recommendations of the Nominations Committee are put to the full Board for approval. Board independence The Board has considered the independence of all Non-executive Directors and considers that all Non-executive Directors bring an independent judgement to bear, notwithstanding the varying lengths of service, the varying length of service concurrent with Chief Executive or any previous part-time Executive Director roles previously held within the Group. Attendance at Board and other meetings for 2018 The Board met on six occasions during the year following a formal agenda. Attendance at formal Board meetings during the year is shown in the table below. All Directors receive regular and timely information on the Group’s operational and financial performance. Relevant information is circulated to the Directors in advance of meetings to ensure that they have sufficient time to read and consider papers and consider their content prior to the meeting. The meetings include at least annual detailed strategy reviews of each division. All Directors have direct access to the advice and services of the Company Secretary and are able to take independent professional advice in the furtherance of their duties, if necessary, at the Company’s expense. The Company Secretary is also the Finance Director. The Board feels this to be appropriate due to the Group’s size and the fact there are no other employees with the necessary skills within the Group. This arrangement is continually being reviewed. Board evaluation The Board has undertaken an internal evaluation with the assistance of external advisors. The results of the evaluation are still being evaluated. Relations with shareholders The Company encourages two-way communication with both its institutional and private investors and responds quickly to all queries received. The Chairman is available to the Group’s major shareholders and ensures that their views are communicated fully to the Board. The Board recognises the Annual General Meeting as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally, immediately following the Annual General Meeting. The Company will disclose outcomes of all votes at general meetings of shareholders in a clear and transparent manner either on the website or via an announcement. Where a significant proportion of votes (20% of independent votes) have been cast against a resolution at any general meeting, the Company will provide an explanation of what actions it intends to take to understand the reasons behind that vote result, and, where appropriate, any different action it has taken, or will take, as a result of the vote. The website includes historical annual reports and other governance-related material over the last five years. Social responsibilities The Group is committed to sustainable progress in all aspects of our business – for the environment, customers, suppliers and the communities we operate in. The Group’s stakeholders include shareholders, members of staff, customers, suppliers, regulators, industry bodies and creditors (including the Group’s lending banks). The principal ways in which their feedback on the Group is gathered are via meetings, direct conversations and social media. Corporate culture The Board promotes the highest level of behaviour and ethics. The trading divisions adhere to the highest level of quality, health, safety and environment (“QHSE”). The Group’s QHSE and anti-bribery policies can be found on its website. Number of meetings in year Board (scheduled) 6 Attendance: P R Harris E W Hook I C Phillips I J Gardner N Kaul D C Marshall A K Mehta Audit Committee Remuneration Committee 2 — — — 2 — — — Northbridge Industrial Services plc – Annual report and accounts 2018 19 Financial statementsOverviewStrategic reportCorporate governance DIRECTORS’ REPORT The Directors present their report and the financial statements for the year ended 31 December 2018. Statement of Directors’ responsibilities in respect of the annual report and financial statements The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: n select suitable accounting policies and then apply them consistently; n make judgements and accounting estimates that are reasonable and prudent; n state whether they have been prepared in accordance with IFRS as adopted by the European Union and applicable UK accounting standards, subject to any material departures disclosed and explained in the financial statements; and n prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. After making appropriate enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that the Group can have a reasonable expectation that adequate resources will be available for it to continue its operations for the foreseeable future, and consequently it is appropriate to adopt the going concern principle in the preparation of the financial statements. In forming this judgement, the Directors have reviewed the Group’s budget for 2019 and the forecast for 2020 (including downside sensitivity scenarios), cash flow forecasts, contingency planning, the sufficiency of banking facilities and forecast compliance with banking covenants. Since the year end a £0.5 million mortgage has been secured over the property in New Zealand to provide further headroom to invest in the oil tool rental recovery. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Principal activities The Company was incorporated for the purpose of acquiring companies that manufacture, hire and sell specialist industrial equipment. The principal activities of the subsidiary companies are detailed in note 23. Profit or loss and dividends The loss for the year after taxation amounted to £2,409,000 (2017: £4,626,000). The Directors are not proposing a final dividend (2017: £nil), resulting in dividends for the whole year of nil pence (2017: nil pence) per share. Future developments The future developments of the Group are included within the Strategic Report. Financial instruments Details of the use of financial instruments by the Group are contained in note 26 of the financial statements. 20 Northbridge Industrial Services plc – Annual report and accounts 2018 Cash flow risk The Group’s assessment of cash flow risk is included within the Strategic Report. Purchase of own shares At the year end and at the date of this report the Company held 215,150 (2017: 215,150) of its own shares, which represents 0.77% (2017: 0.82%) of the share capital of the Company. Directors and their interests The present Directors are detailed on pages 16 and 17 together with brief biographies. The Directors who served during the year and their interests in the Company’s issued share capital were: P R Harris E W Hook I J Gardner I C Phillips A K Mehta N Kaul D C Marshall* Ordinary shares of 10 pence each Share options 31 December 2018 1 January 2018 31 December 2018 1 January 2018 1,577,475 1,577,475 650,000 29,914 2,586 183,636 — — 680,000 29,914 2,586 183,636 — — — 906,601 136,000 96,000 — — — — 856,601 116,000 76,000 — — — * D C Marshall is a director of Western Selection PLC, a substantial shareholder in the Company, which held 3,300,000 (2017: 3,223,632) ordinary shares at 31 December 2018 and at the date of this report. Between 1 January 2019 and the balance sheet approval date there have been no changes to the above shareholdings or options. J Aldersey-Williams was appointed to the Board on 1 January 2019 and purchased 3,975 ordinary shares in the Company on 22 February 2019. Further details on Directors’ share options can be found in note 24. Directors’ indemnity insurance Qualifying third-party indemnity insurance was in place, for the benefit of the Directors, during the year and at the date of this report. Substantial shareholdings The Company has been notified that the following investors held interests in 3% or more of the Company’s issued share capital (net of shares held in treasury) at 31 December 2018: Artemis Investment Management Ltd Western Selection PLC Gresham House Strategic Plc Canaccord Genuity Group Inc P R Harris River and Mercantile BlackRock Inc R G Persey Lazard Frères Gestion SAS Number % 3,702,701 3,300,000 3,177,529 3,051,318 1,577,475 1,316,721 1,222,204 1,092,910 1,001,796 13.27 11.83 11.39 10.94 5.65 4.72 4.38 3.92 3.59 From 1 January 2019 to the balance sheet approval date, the Directors have not been notified of any changes to the substantial shareholdings above. Annual General Meeting The 2019 Annual General Meeting of the Company will be held at the offices of Buchanan Communications, 107 Cheapside, London EC2V 6DN, on 4 June 2019 at 12 noon. The Notice of the Meeting, together with an explanation of the business to be dealt with at the meeting, is included on pages 63 and 64 of this annual report and is also available on the website. Northbridge Industrial Services plc – Annual report and accounts 2018 21 Financial statementsOverviewStrategic reportCorporate governance DIRECTORS’ REPORT CONTINUED Auditor’s independence The non-audit work undertaken in the year by the Group’s auditor, BDO LLP, was restricted to subsidiary financial reporting assistance and advice on tax matters for the Group. Auditor A resolution to re-appoint the independent auditor, BDO LLP, will be proposed at the next Annual General Meeting. In the case of each of the persons who was a Director of the Company at the date when this report was approved and so far as each of the Directors is aware, there is no relevant audit information of which the Company’s auditor is unaware, and each of the Directors has taken all of the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This report was approved by the Board on 11 April 2019 and signed by order of the Board by the Company Secretary. Iwan Phillips Company Secretary 11 April 2019 22 Northbridge Industrial Services plc – Annual report and accounts 2018 INDEPENDENT AUDITOR’S REPORT To the members of Northbridge Industrial Services plc Opinion We have audited the financial statements of Northbridge Industrial Services plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2018 which comprise the consolidated statement of comprehensive income, the consolidated and parent company balance sheets, the consolidated cash flow statement, the consolidated and parent company statements of changes in equity and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: n the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s loss for the year then ended; n the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; n the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and n the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: n the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or n the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Matter Our response Goodwill and intangible assets – impairment assessment Refer to the accounting policies and significant judgements and estimates (Note 1). The directors are required to conduct annual impairment reviews for goodwill and also consider other assets where impairment triggers are identified, to ensure the goodwill and other intangible assets are not impaired. Having conducted these impairment reviews which, in the absence of reliable information to determine the market values, require assessments of the value in use of each relevant cash generating unit (“CGUs”), the directors have concluded that no further impairments were required as explained within Note 12. We focused on this area because the determination of whether or not an impairment of goodwill and other intangible assets was necessary involves significant judgement including the determination of CGUs, the allocation of trading results and assets to CGUs and an assessment of the future results for each CGU and the wider economies in which they operate. This includes consideration of the long-term growth rates, profit margins and the discount rates. For all CGUs with goodwill, or where impairment reviews are required, we evaluated the directors’ determination of the CGUs and the allocation of assets and trading results thereto, considering forecast future cash flows, the integrity of the underlying assumptions and the process by which they were prepared. This included comparing them to the latest Board approved budgets and comparison against prior outturns. We also verified the integrity of the value in use model used to establish that it complied with the approach required by relevant accounting standards. Our consideration of management’s assessment of the long-term revenue growth rates and profit margins included considering the external evidence available to support the assumptions and we also applied our own independent expectations to sensitise the assumptions. We read and considered the disclosures made by the directors within the financial statements and found them to be consistent with our testing and compliant with the requirements of accounting standards. Northbridge Industrial Services plc – Annual report and accounts 2018 23 Financial statementsOverviewStrategic reportCorporate governance INDEPENDENT AUDITOR’S REPORT CONTINUED To the members of Northbridge Industrial Services plc Key audit matters continued Matter Our response Tangible fixed assets – useful economic lives and residual values Refer to the accounting policies and significant judgements and estimates (Note 1). The directors are required to reassess useful economic lives and residual values annually in accordance with accounting standards to ensure they remain appropriate. Having done so, they have concluded that they remain appropriate, with no evidence suggesting any revisions are required. We focused on this area because the group’s statement of financial position includes a significant level of hire fleet assets (net book value of £21,320,000) and the estimates of their useful economic lives and residual values have a significant impact on the financial statements both in terms of the annual depreciation charge, the profits recognised on the disposal of fixed assets and the carrying values at 31 December 2018. Recoverability of accounts receivable Refer to the accounting policies and significant judgements and estimates (Note 1) and Notes 4 and 16. The group has exposures to debts around the world and its accounts receivable include a number of significant overdue balances. The group has experienced a trend of increasing amounts of overdue debts, particularly within the Middle East, with the increased risk of impairments arising. Applying the expected credit loss model, with specific provisions against identified customer accounts with a significant known credit risk, a provision of £1,221,000 has been established at 31 December 2018. Management apply a strict process, with regular Board oversight, in order to assess the level of provisions for impaired accounts receivable. They assess the exposures and level of provision through undertaking a process by which they assess the recoverability of each individual debt to determine the appropriate provisions. This takes into consideration an assessment of expected credit loss which is established from historic payment trends and future market sentiment, security held and other local market intelligence. We challenged the directors’ conclusion that no revisions were required to the previously adopted useful economic lives and residual values by: n comparing the estimated useful economic lives and residual values of the hire fleet assets with the policies adopted by other businesses in similar industries; n reviewing the profit or losses achieved on the sale of assets for indicators of changes required to the policies adopted; n considering the impact on the useful economic lives of the directors’ plans and expectations for the business, together with the impact of the emerging improved trading conditions, which is expected to result in increasing utilisation of the assets in future years; and n considering whether the judgements supporting the estimated useful economic lives were consistent with the judgements made by the directors’ elsewhere in the financial statements. The group engagement team worked closely with the local BDO component teams in the Middle East, Singapore and Australia to ensure all relevant information, including the impact of local custom and practice, was considered. We tested the management’s calculations to identify the level of provisions against potentially impaired debts, including testing the integrity of the reports used and the ageing of the accounts receivable balances by agreeing a sample of entries to underlying documentation. In addition to the application of an expected credit loss approach, management also identified specific historic debts which fell outside of the forward looking expected credit loss model. For these balances, we challenged management’s assessment of the need for additional provisions. To test completeness of the overall provision; we tested a sample of accounts receivable to post year-end cash receipts where possible or by reading correspondence with the customers concerned or other relevant evidence regarding the recoverability of the amounts due. We also assessed the adequacy of the provision by considering the historical collection patterns from the overdue customers to understand any emerging trends or patterns that might indicate additional concerns over the recoverability of the debts and we reviewed correspondence with the group’s legal advisers where action had commenced or was being considered in support of debt recovery. We used this to challenge the assumptions therein and the resulting provisions. 24 Northbridge Industrial Services plc – Annual report and accounts 2018 Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and forming our opinions. Materiality The magnitude of an omission or misstatement that, individually or in aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the group to be £270,000 (2017 – £250,000), which was based on 1.0% of turnover. We determined materiality in respect of the audit of the parent company to be £256,000 (2017 – £235,000) using a benchmark of 2% of total assets, restricted to 95% of group materiality. Performance materiality is the application of materiality to the individual accounts or balances and is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set at £202,000 (2017 – £187,000) for the group and £192,000 (2017 – £176,000) for the parent company which represents 75% (2017 – 75%) of the above materiality levels. Reporting threshold An amount below which identified misstatements are not reported. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £13,500 (2017 – £12,500), which was set at 5% of materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluated all uncorrected misstatements against both quantitative measures of materiality discussed above and in light of other relevant qualitative considerations when forming our opinion. An overview of the scope of our audit We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statement as a whole, taking into account the geographies in which the group operates, the accounting processes, systems and controls and the industry in which the group operates. The group comprises 14 trading companies, a parent Company, 4 intermediate holding company and 6 dormant companies. Having assessed the way in which the group is managed and reports its results, we identified 5 components, being the parent company and 4 trading components in the UK, Australia, Singapore and the United Arab Emirates that, in our view, required an audit of their complete financial information. The audits of these 5 components were performed by either the group engagement team or by other BDO network firms operating under the direction of the group engagement team. We sent detailed group instructions to all of the component auditors, in which we identified and explained the areas where we wanted them to focus their work. Whilst materiality for the financial statements of a whole was set at £270,000, materiality for each component of the group was £256,000. We then held meetings and calls with them to discuss and agree their approach, materiality and reporting requirements. The group team also maintained oversight during the execution and completion phases of their work, receiving formal reports on their work, undertaking selected reviews of their audit working papers and attending the closing meetings for each component. This, together with the additional procedures performed at the group level, including analytical review procedures, gave us the evidence we needed for our opinion on the group financial statements as a whole. The work over these components above gave us coverage of 85% of revenue, 80% of the loss and 85% of total assets and we performed analytical review procedures over the remaining trading entities to ensure we had the evidence needed to form our opinion on the financial statements as a whole. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Northbridge Industrial Services plc – Annual report and accounts 2018 25 Financial statementsOverviewStrategic reportCorporate governance INDEPENDENT AUDITOR’S REPORT CONTINUED To the members of Northbridge Industrial Services plc Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: n the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and n the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: n adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or n the parent company financial statements are not in agreement with the accounting records and returns; or n certain disclosures of directors’ remuneration specified by law are not made; or n we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the statement of directors’ responsibilities set out on page 20, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Andrew Mair (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor Birmingham United Kingdom 11 April 2019 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 26 Northbridge Industrial Services plc – Annual report and accounts 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2018 Revenue Cost of sales Gross profit Operating costs Impairment loss on trade receivables: Excluding exceptional cost Exceptional cost Total impairment loss on trade receivables Share of post-tax result of joint ventures Loss from operations Finance costs Loss before tax excluding exceptional cost Exceptional items Loss before taxation Taxation Loss for the year attributable to the equity holders of the parent Other comprehensive income/(loss) Exchange differences on translating foreign operations Other comprehensive income/(loss) for the year, net of tax Total comprehensive loss for the year attributable to equity holders of the parent Loss per share – basic (pence) – diluted (pence) All amounts relate to continuing operations. The notes on pages 31 to 56 form part of these financial statements. Note 2 4 5 9 4 10 2018 £’000 2017 £’000 26,936 (15,674) 11,262 (12,100) 25,669 (16,331) 9,338 (12,398) (154) (712) (866) (364) (2,068) (654) (2,010) (712) (2,722) 313 (536) — (536) (188) (3,784) (597) (4,381) — (4,381) (245) (2,409) (4,626) 638 638 (1,519) (1,519) (1,771) (6,145) 11 11 (8.9) (8.9) (17.9) (17.9) Northbridge Industrial Services plc – Annual report and accounts 2018 27 Financial statementsOverviewStrategic reportCorporate governance CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Changes in equity Balance at 1 January 2018 Loss for the year Other comprehensive income Total comprehensive loss for the year Purchase of non-controlling interest Issue of ordinary shares Issue of convertible loan notes Share option expense Balance at 31 December 2018 Share capital £’000 2,611 — — — — 200 — — 2,811 — — — — — — 201 — 201 Convertible debt option reserve £’000 Share premium £’000 Merger reserve £’000 Foreign exchange reserve £’000 Treasury share reserve £’000 Retained earnings £’000 27,779 — — — — 2,171 — — 2,810 — — — — — — — 3,010 — 638 638 — — — — (451) — — — — — — — (74) (2,409) — (2,409) (77) — — 50 29,950 2,810 3,648 (451) (2,510) 36,459 Total £’000 35,685 (2,409) 638 (1,771) (77) 2,371 201 50 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2017 Changes in equity Balance at 1 January 2017 Loss for the year Other comprehensive income Total comprehensive loss for the year Share option expense Share capital £’000 Share premium £’000 Merger reserve £’000 Foreign exchange reserve £’000 Treasury share reserve £’000 Retained earnings £’000 2,611 — — — — 27,779 — — — — 2,810 — — — — 4,529 — (1,519) (1,519) — (451) — — — — 4,507 (4,626) — (4,626) 45 Total £’000 41,785 (4,626) (1,519) (6,145) 45 Balance at 31 December 2017 2,611 27,779 2,810 3,010 (451) (74) 35,685 The following describes the nature and purpose of each reserve within owners’ equity: Reserve Description and purpose Share capital Convertible debt option reserve Share premium Merger reserve Foreign exchange reserve Treasury share reserve Retained earnings Amount subscribed for share capital. Amount of proceeds on issue of convertible debt relating to the equity component (i.e. option to convert the debt into share capital). Amount subscribed for share capital in excess of nominal value. Excess of the fair value of shares issued over their nominal value when such shares are issued as part of the consideration to acquire at least a 90% equity holding in another company. Amount arising on the retranslation of foreign subsidiaries. Amount used to purchase ordinary shares for holding in treasury. All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. The notes on pages 31 to 56 form part of these financial statements. 28 Northbridge Industrial Services plc – Annual report and accounts 2018 CONSOLIDATED BALANCE SHEET As at 31 December 2018 Company number: 05326580 Note £’000 £’000 £’000 £’000 2018 2017 ASSETS Non-current assets Intangible assets Property, plant and equipment Investments accounted for using the equity method Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Financial liabilities Other financial liabilities Current tax liabilities Non-current liabilities Financial liabilities Deferred tax liabilities Total liabilities Total net assets Capital and reserves attributable to equity holders of the Company Share capital Convertible debt option reserve Share premium Merger reserve Foreign exchange reserve Treasury share reserve Retained earnings Total equity 12 13 14 15 16 17 18 18 18 19 20 12,333 28,872 — 4,288 7,902 2,302 5,306 3,145 — 660 7,851 2,276 12,833 29,281 — 41,205 42,114 14,492 55,697 14,654 56,768 3,429 9,322 1,903 5,383 3,617 1,053 1,015 9,111 11,068 7,013 3,002 10,127 19,238 36,459 2,811 201 29,950 2,810 3,648 (451) (2,510) 36,459 10,015 21,083 35,685 2,611 — 27,779 2,810 3,010 (451) (74) 35,685 The notes on pages 31 to 56 form part of these financial statements. The financial statements were approved and authorised for issue by the Board and were signed on its behalf on 11 April 2019. Eric Hook Director Northbridge Industrial Services plc – Annual report and accounts 2018 29 Financial statementsOverviewStrategic reportCorporate governance CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2018 Cash flows from operating activities Net loss before taxation Adjustments for: – amortisation of intangible assets – amortisation of capitalised debt fee – depreciation of property, plant and equipment – profit on disposal of tangible fixed assets – share of post-tax results of joint ventures – finance costs – share option expense (Increase)/decrease in inventories Decrease/(increase) in receivables Decrease in payables Cash generated from operations Finance costs Taxation Increase in receivables from joint ventures Hire fleet expenditure Sale of assets within hire fleet Net cash (used in)/from operating activities Cash flows from investing activities Investment in joint ventures Payment of deferred consideration Purchase of property, plant and equipment Sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from share capital issued Proceeds from bank and other borrowings Debt issue costs Repayment of bank and other borrowings Repayment of finance lease creditors Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at end of period Note 2018 £’000 2017 £’000 (2,722) (4,381) 12 13 9 24 13 13 576 126 5,379 (537) 364 654 50 3,890 (853) 1,507 (258) 4,286 (574) (651) (402) (4,469) 844 750 229 6,227 (255) 188 597 45 3,400 42 (620) (204) 2,618 (597) (309) (123) (542) 350 (966) 1,397 — (1,130) (243) 8 (1,365) 2,371 10,923 (437) (9,116) (299) (183) — (123) 70 (236) — 909 (89) (2,154) (780) 3,442 (2,114) 1,111 1,173 18 25 2,302 (953) 2,146 (20) 1,173 During the period, the Group acquired property, plant and hire equipment with an aggregate cost of £4,732,000 (2017: £811,000), of which £20,000 (2017: £146,000) was acquired by means of finance leases. This includes £4,469,000 (2017: £542,000) of hire fleet additions, of which £nil (2017: £nil) was acquired by means of a finance lease. The notes on pages 31 to 56 form part of these financial statements. 30 Northbridge Industrial Services plc – Annual report and accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2018 1. Accounting policies 1.1 Basis of preparation of financial statements The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group financial statements have been prepared under the historical cost convention subject to fair valuing certain financial instruments and in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations (collectively, “IFRS”) issued by the International Accounting Standards Board (“IASB”) as adopted by European Union (“adopted IFRS”) and with those parts of the Companies Act 2006 applicable to companies preparing financial statements in accordance with IFRS. The parent company’s financial statements have been prepared under applicable United Kingdom accounting standards (FRS 101) and are on pages 57 to 62. 1.2 Basis of consolidation Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the Company considers all relevant facts and circumstances, including: n the size of the Company’s voting rights relative to both the size and dispersion of other parties which hold voting rights or substantive potential voting rights held by the Company and by other parties; n other contractual arrangements; and n historical patterns in voting attendance. The consolidated financial statements present the results of the Company and its subsidiaries (the “Group”) as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the Consolidated Balance Sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Consolidated Statement of Comprehensive Income from the date on which control is obtained. They are deconsolidated from the date on which control ceases. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The consolidated financial statements incorporate a share of the results, assets and liabilities of joint ventures using the equity method of accounting, whereby the investment is carried at cost plus post-acquisition changes in the share of net assets of the joint venture, less any provision for impairment. Losses in excess of the consolidated interest in joint ventures are not recognised except where the Group has a constructive commitment to make good those losses. The results of joint ventures acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate. 1.3 Revenue Revenue comprises the fair value of consideration receivable by the Group in respect of goods and services supplied exclusive of value-added tax and trade discounts. The Group does not enter contracts with variable consideration. Revenue is recognised using a five-step process: n Identify the contract with the customer n Identify separate performance obligations in the contract n Determine the transaction price n Allocate the transaction price to the performance conditions n Recognise revenue when each performance obligation is satisfied Revenue is recognised as follows: Hire of equipment – Over time on a straight line basis as the performance obligation is satisfied. Ancillary revenue and transport related to the hire of equipment – At a point in time when the performance obligation is satisfied. Sale and service of equipment – At a point in time when the performance obligation is satisfied. Revenue generated from the hire of equipment is recognised over time as the customer obtains the benefit of the equipment over time. Northbridge Industrial Services plc – Annual report and accounts 2018 31 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. Accounting policies continued 1.3 Revenue continued IFRIC 4 “Determining Whether an Arrangement Constitutes a Lease” requires that any arrangement that is dependent on the use of a specific asset or assets and that conveys a right to use the asset is accounted for as a lease. The Directors have used their judgement to consider the requirements of IFRIC 4 and concluded that none of the Group’s contracts are dependent on the use of a specific asset or assets as the Group can swap in and out the rental fleet required to provide the services to our customers. 1.4 Intangible assets and amortisation Development products Expenditure on internally developed products is capitalised if it can be demonstrated that: n it is technically feasible to develop the product for it to be sold; n adequate resources are available to complete the development; n there is an intention to complete and sell the product; n the Group is able to sell the product; n sale of the product will generate future economic benefits; and n expenditure on the project can be measured reliably. Capitalised development costs are amortised over seven years. The amortisation expense is included within the operating costs line in the Statement of Comprehensive Income. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised within the operating costs line in the Statement of Comprehensive Income. Intangible assets in acquired companies Intangible assets in acquired companies are valued by an independent expert valuer and amortised over their expected useful life within operating costs. Current experience has shown this to be over the periods shown below: Customer relationships Order backlog Non-competition agreements – – – Between five and twelve years Less than one year Five years 1.5 Leasing and hire purchase Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the fair value or, if lower, the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the Statement of Comprehensive Income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an “operating lease”), the total rentals payable under the lease are charged to the Statement of Comprehensive Income on a straight line basis over the lease term. 1.6 Goodwill Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 January 2010, the total fair value of the identifiable assets, liabilities and contingent liabilities acquired as at the acquisition date. For business combinations completed prior to 1 January 2010, cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus any direct cost of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date are treated as an adjustment to cost and, in consequence, result in a change in the carrying value of goodwill. For business combinations completed on or after 1 January 2010, cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree, plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, it is remeasured subsequently through profit or loss. For combinations completed on or after 1 January 2010, direct costs of acquisition are taken immediately as an expense. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the Consolidated Statement of Comprehensive Income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceeds the fair value of consideration paid, the excess is credited in full to profit or loss. Impairment tests on goodwill are undertaken annually on 31 December. The Company carries out an impairment review by evaluating the recoverable amount, which is the higher of the fair value less costs to sell and value in use. In assessing the value-in-use amount, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Past impairment cannot be reversed. 32 Northbridge Industrial Services plc – Annual report and accounts 2018 1. Accounting policies continued 1.7 Property, plant and equipment Property, plant and equipment is stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost of property, plant and equipment, excluding freehold land, less their estimated residual value, over their expected useful lives on the following bases: Freehold buildings Plant and machinery Motor vehicles Furniture and fittings Hire equipment – – – – – Straight line Reducing balance Reducing balance 2% 10% 25% 10–33% Reducing balance and straight line 10% Straight line In the course of ordinary activities items from the hire fleet may be sold. The sale proceeds and the related cost of sales arising from the sale of hire fleet assets are included within revenue and cost of sales. Cash payments to acquire or manufacture hire fleet assets and cash received on the sale of hire fleet assets are included with cash flows from operating activities. The manufactured hire equipment is capitalised, including materials, labour costs and an overhead cost allocation. 1.8 Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. Recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing the value-in-use amount, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or CGU in prior years. A reversal of an impairment loss is recognised immediately in profit or loss unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 1.9 Inventories Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete and slow-moving items. Cost includes all direct costs and an appropriate proportion of fixed and variable overheads. 1.10 Current and deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base, except for differences arising on: n the initial recognition of goodwill; n goodwill for which amortisation is not tax deductible; and n investments in subsidiaries where the Company is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: n the same taxable Group company; or n different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Northbridge Industrial Services plc – Annual report and accounts 2018 33 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. Accounting policies continued 1.11 Foreign currencies Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised in the Statement of Comprehensive Income. On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising between translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in other comprehensive income and are credited/(debited) to the foreign exchange reserve. Exchange differences recognised in the Statement of Comprehensive Income of the Group’s entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve on consolidation. 1.12 Pensions Contributions to defined contribution pension schemes are charged in the Statement of Comprehensive Income in the year to which they relate. 1.13 Share-based payments Where share options are awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored in to the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of the options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the vesting period. 1.14 Treasury shares Consideration paid for the purchase of treasury shares is recognised directly in equity. The cost of treasury shares held is presented as a separate reserve (the “treasury share reserve”). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is credited to the share premium account. 1.15 Financial instruments (a) Financial assets The Group’s financial assets fall into the categories discussed below, with the allocation depending to an extent on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity. Unless otherwise indicated, the carrying amounts of the Group’s financial assets are a reasonable approximation of their fair values. Amortised cost These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the Consolidated Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward-looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve-month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in the Consolidated Statement of Comprehensive Income (operating profit). 34 Northbridge Industrial Services plc – Annual report and accounts 2018 1. Accounting policies continued 1.15 Financial instruments continued (a) Financial assets continued Amortised cost continued The Group’s financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and – for the purpose of the Statement of Cash Flows – bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the Consolidated Statement of Financial Position. (b) Financial liabilities The Group classifies its financial liabilities into one of three categories, depending on the purpose for which the liability was acquired. Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair values. Other financial liabilities include the following items: n trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method; n bank borrowings, trade finance facilities and loan notes are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Interest is recognised as a finance expense in the Statement of Comprehensive Income; and n liability components of convertible loan notes. The proceeds received on issue of the Group’s convertible debt are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond. The remainder of the proceeds is allocated to the conversion option and is recognised in the “Convertible debt option reserve” within shareholders’ equity, net of income tax effects. Fair value is calculated by discounting estimated future cash flows using a market rate of interest. Financial instruments are recognised when the Group becomes party to the contractual terms of the instrument and derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. 1.16 Deferred consideration Deferred consideration in relation to business combinations is recognised at fair value on the business combination date. 1.17 Exceptional items Exceptional items are those significant, non-recurring items which are separately disclosed by virtue of the size or incidence to enable a full understanding of the Group’s financial performance. 1.18 Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors. 1.19 Critical accounting estimates and judgements The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below: Estimated impairment of goodwill The Group is required to test whether goodwill has suffered any impairment. Judgements – As part of the review the management is required to make judgements on certain areas such as the identification of CGUs, the allocation of assets and central costs to each CGU and the selection of discount rates. Accounting estimate – An impairment review requires management to make uncertain estimates concerning the cash flows, growth rates and working capital assumptions of the cash-generating units under review as shown in note 12. Northbridge Industrial Services plc – Annual report and accounts 2018 35 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. Accounting policies continued 1.19 Critical accounting estimates and judgements continued Impairment of assets Property, plant and equipment and other intangible assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Judgement – Management is required to use its judgement to determine whether the events or changes in circumstances may indicate an impairment has arisen. Accounting estimate – An impairment review requires management to make uncertain estimates concerning the cash flows, growth rates and discount rates of the assets or cash-generating units under review (see notes 12 and 13). Useful economic life (“UEL”) and residual value of hire fleet assets Accounting estimate – The estimated useful economic lives of PPE is based on management’s experience. When management identifies that actual useful economic lives differ materially from the estimates used to calculate depreciation, that charge is adjusted prospectively. Due to the significance of PPE investment to the Group, variations between actual and estimated useful economic lives could impact operating results both positively and negatively and, as such, this is a key source of estimation uncertainty, although historically few changes to estimated useful economic lives have been required. The Group depreciation policy is detailed in note 1.7. Trade receivable provisions Accounting estimate – When a receivable is recognised a provision is created using the expected loss model. When a specific doubt emerges over the ability of the customer to pay the debt the Board assesses whether a provision above the initial expected loss is required. This is based on the age of the debt and the customers’ ability to pay using market information and credit reports. In regions of the world such as the Middle East and Africa, where such information is less likely to be available, more consideration is attached to the knowledge and experience of local management. The actual level of receivables collected may differ from the estimated levels of recovery, which could impact operating results positively or negatively. 1.20 New standards and interpretations In preparing the Group financial statements, the following new standards and interpretations have been adopted: New standard or interpretation IFRS 15 “Revenue from Contracts with Customers” IFRS 9 “Financial Instruments” EU endorsement status Endorsed Endorsed Mandatory effective date (periods beginning) 1 January 2018 1 January 2018 The effect on the financial statements of implementing IFRS 15 is explained in note 2. Revenue is now recognised when contractual performance obligations are met where previously revenue was recognised when the risks and rewards had passed to the customer. The expected loss model is now being used to calculate under IFRS 9 versus the incurred loss model previously used. This change has not led to any restatement of any prior year balances. Standards not yet effective There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these are: New standard or interpretation IFRS 16 “Leases” IFRIC 23 “Uncertainty over Income Tax Positions’’ EU endorsement status Endorsed Endorsed Mandatory effective date (periods beginning) 1 January 2019 1 January 2019 IFRS 16 applies to accounting periods beginning on or after 1 January 2019 and requires lessees to recognise all leases on balance sheet with limited exemptions for short-term leases and low value leases. This will result in the recognition of a right-to-use asset and corresponding liability on the balance sheet, with the associated depreciation and interest expense being recorded in the income statement over the lease period. The Group has completed its impact assessment of this standard and the expected impact of applying IFRS 16 in its first full year of application is detailed below: n The total annual income statement charge is not expected to be materially affected. n EBITDA is expected to increase by around £0.4 to £0.5 million as the expense is now depreciation and interest. n Recognition of a right-of-use asset and lease liability in the range of £0.8 to £0.9 million with no impact on net assets. The Group plans to apply IFRS 16 initially on 1 January 2019, using a modified retrospective approach. Therefore, any cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparatives. IFRIC 23 clarifies how to recognise and measure current and deferred income tax assets and liabilities when there is uncertainty over income tax treatments. 36 Northbridge Industrial Services plc – Annual report and accounts 2018 1. Accounting policies continued 1.21 Dividends Interim dividends are recognised when they are paid. Final dividends are recognised when they are approved by shareholders at the Annual General Meeting. 2. Revenue from contracts with customers Disaggregation of revenues The Group has disaggregated revenue into various categories in the following table which is intended to: n depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic date; and n enable users to understand the relationship with revenue segment information provided in note 3. Revenue by location of sale origination UK Continental Europe North and South America Australia and New Zealand Middle East Asia Revenue type and timing of transfer of goods or service Hire – over time Hire – point in time Sales and service in point in time Contract assets 2018 2017 Crestchic Loadbanks and Transformers £’000 12,395 1,650 1,952 — 1,700 2,660 Tasman Oil Tools £’000 Total £’000 — 12,395 1,650 — 1,952 — 4,787 4,787 3,021 1,321 3,131 471 Crestchic Loadbanks and Transformers £’000 Tasman Oil Tools £’000 12,816 2,128 767 — 1,809 2,724 — — — 3,171 2,236 18 Total £’000 12,816 2,128 767 3,171 4,045 2,742 20,357 6,579 26,936 20,244 5,425 25,669 11,339 665 8,353 4,402 1,038 1,139 15,741 1,703 9,492 10,930 279 9,035 3,452 988 985 14,382 1,267 10,020 20,357 6,579 26,936 20,244 5,425 25,669 At 1 January Transfers in the period from contract assets to trade receivables Excess revenue recognised over cash (or rights to cash) being recognised during the period At 31 December 2018 £’000 506 (357) 357 506 2017 £’000 343 (343) 506 506 Contract assets and contract liabilities are included within “trade and other receivables” and “trade and other payables” respectively on the face of the balance sheet. There were no contract liabilities at 31 December 2018 (2017: £nil). They arise when revenue is recognised in line with IFRS 15 but invoices have not been raised. The majority of invoices are raised when revenue can be recognised in line with IFRS 15. In 2017 revenue was recognised at a point in time for a sale of goods but it is was agreed to invoice the customer in 36 monthly instalments. The contract assets as at 31 December 2018 included £149,000 (2017: £229,000) in respect of this contract. All other contract assets relate to short-term delays in invoicing. Other than the £149,000 noted above, all amounts included within contract assets as at 31 December 2017 were transferred to trade receivables during 2018. Contract assets are not discounted given they are short term in nature. Effect of the adoption of IFRS 15 There has been no material effect from the adoption of IFRS on the 2017 balances shown in these financial statements. Accrued revenue balances previously included within prepayments have been reclassified as “contract assets” within “trade and other receivables”. 3. Segment information The Group currently has two main reportable segments: n Crestchic Loadbanks and Transformers – this segment is involved in the manufacture, hire and sale of loadbanks and transformers. It is the largest proportion of the Group’s business and generated 78% (2017: 79%) of the Group’s revenue. This includes the Crestchic, NTX, Crestchic France, NME, CME, CAP, USA and China businesses; and n Tasman Oil Tools – this segment is involved in the hire and sale of oil tools and loadcells and contributes 22% (2017: 21%) of the Group’s revenue. This includes the TOTAU, TOTNZ, TOTAE, TOTSEA businesses and the Group’s 49% share of OTOT. Northbridge Industrial Services plc – Annual report and accounts 2018 37 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 3. Segment information continued Factors that management used to identify the Group’s reportable segments The Group’s reportable segments are strategic business units that offer different products and services. Measurement of operating segment profit or loss and assets and liabilities The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Group evaluates performance on the basis of profit or loss before tax. Segment assets and liabilities include an aggregation of all assets and liabilities relating to businesses included within each segment. Other adjustments relate to the non-reportable head office items along with consolidation adjustments, which include goodwill and intangible assets. All inter-segment transactions are at arm’s length. Crestchic Loadbanks and Transformers £’000 Tasman Oil Tools £’000 20,357 (69) (3,329) — 2,190 (712) 6,579 (4) (1,762) (58) (1,932) — 1,478 (1,932) Other including consolidation adjustments £’000 2018 Total £’000 — 26,936 (654) (5,379) (576) (581) (288) (518) (2,268) — (2,010) (712) (2,268) (2,722) Total £’000 26,936 (73) (5,091) (58) 258 (712) (454) (518) (1,071) (582) (288) 191 2,722 Crestchic Loadbanks and Transformers £’000 Tasman Oil Tools £’000 Other including consolidation adjustments £’000 Total £’000 2018 Total £’000 446 4,275 4,721 11 4,732 Crestchic Loadbanks and Transformers £’000 Tasman Oil Tools £’000 55,549 25,385 (33,212) (22,020) Total £’000 80,934 (36,208) (1,570) 11,899 658 (16) 55,697 (55,232) 45,931 (8,977) (868) (92) (19,238) Revenue from external customers Finance expense Depreciation Amortisation Pre-exceptional profit/(loss) before tax Exceptional cost Profit/(loss) before tax Group amortisation of goodwill Head office costs Group finance costs Group depreciation costs Other Group loss before tax Balance sheet Non-current asset additions Tangible asset additions Reportable segment assets Elimination of intercompany balances Elimination of investments in subsidiaries Non-segment intangible assets Non-segment property, plant and equipment Other Total Group assets Reportable segment liabilities Elimination of intercompany balances Non-segmental borrowings Non-segmental deferred tax Other Total Group liabilities 38 Northbridge Industrial Services plc – Annual report and accounts 2018 3. Segment information continued Measurement of operating segment profit or loss and assets and liabilities continued Revenue from external customers Finance expense Depreciation Amortisation Profit/(loss) before tax Group amortisation of goodwill Head office costs Group finance costs Group depreciation costs Other Group loss before tax Balance sheet Non-current asset additions Tangible asset additions Reportable segment assets Elimination of intercompany balances Elimination of investments in subsidiaries Non-segment intangible assets Non-segment property, plant and equipment Other Total Group assets Reportable segment liabilities Elimination of intercompany balances Deferred consideration Non-segmental borrowings Non-segmental deferred tax Other Total Group liabilities UK Continental Europe Australia and New Zealand Middle East Asia Crestchic Loadbanks and Transformers £’000 20,244 (106) (3,811) — 1,695 Tasman Oil Tools £’000 5,425 (4) (2,122) (59) (3,446) Other including consolidation adjustments £’000 2017 Total £’000 — 25,669 (597) (6,227) (750) (4,381) (487) (294) (691) (2,630) Total £’000 25,669 (110) (5,933) (59) (1,751) (691) (1,138) (487) (294) (20) (4,381) Crestchic Loadbanks and Transformers £’000 Tasman Oil Tools £’000 Other including consolidation adjustments £’000 Total £’000 2017 Total £’000 668 203 871 (60) 811 Crestchic Loadbanks and Transformers £’000 Tasman Oil Tools £’000 55,480 21,618 (30,606) (15,830) Total £’000 77,098 (31,633) (1,503) 12,345 727 (266) 56,768 (46,436) 36,290 (1,053) (9,103) (1,095) 314 (21,083) Non-current assets by location 2018 £’000 9,927 2,569 11,953 7,016 9,740 2017 £’000 11,041 3,077 13,040 7,678 7,278 41,205 42,114 Northbridge Industrial Services plc – Annual report and accounts 2018 39 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 4. Exceptional costs An exceptional cost was recognised in the year for £712,000 (2017: £nil) as a result of a post balance sheet event. The exceptional cost relates to a full provision against a debt in Dubai from revenue recognised in 2013 and 2014. The contract with the customer stated that payment should be made on a “back-to-back” basis and the customer claimed not to have been paid. The legal advice received stated that “back-to-back” was not time unlimited and legal action commenced in early 2016. As at 31 December 2018 the Group had been successful at two court hearings and the full amount had been secured by the court. In late February 2019 the Court of Cessation ruled that the legal action was premature and the security on the full amount was released. Although the customer has always acknowledged the debt and there are no signs that cast any doubt on the customer’s ability to pay, the latest court judgement casts some doubt as to the enforceability of the debt. Due to this post balance sheet event, in line with IFRS 9, a full provision has been made against the debt. The Directors remain confident that the debt will be paid in full but appreciate enforcement may be difficult and that the timing of any receipts is uncertain. The Directors are still being advised as to the next steps to take to recover the debt. The Directors believe that it is appropriate to disclose the provision resulting from the court’s decision as an exceptional event. 5. Loss from operations The operating loss is stated after charging/(crediting): Amortisation of customer relationships Depreciation of property, plant and equipment: – owned by the Company – held under finance leases Operating lease rentals: – property leases – other operating leases Foreign exchange (gains)/losses Cost of inventories recognised as an expense during the year Share-based payment remuneration See note 8 for auditor’s fees. 6. Staff costs Staff costs, including Directors’ remuneration, were as follows: Wages and salaries Social security costs Other pension costs Share-based payments 2018 £’000 576 5,254 125 456 50 (75) 3,784 50 2018 £’000 7,329 913 261 50 8,553 2017 £’000 750 5,899 328 424 73 60 4,188 45 2017 £’000 7,285 774 267 45 8,371 Of the share-based payments recognised in the year £50,000 (2017: £45,000) related to key management personnel. The key management personnel are deemed to be the Directors. Of the £8,242,000 (2017: £8,059,000) of wages and salaries and social security costs paid during the year, £713,000 (2017: £660,000) related to key management personnel. The average monthly number of employees, including the Directors, during the year was as follows: Technical and production Sales Administration 2018 Number 2017 Number 98 29 32 159 95 29 31 155 40 Northbridge Industrial Services plc – Annual report and accounts 2018 7. Directors’ remuneration 2018 2017 P R Harris E W Hook I J Gardner I C Phillips A K Mehta M G Dodson N Kaul* D C Marshall** Compensation for loss of office £’000 Salary £’000 Benefits £’000 60 241 167 136 18 — 18 18 658 — — — — — — — — — — 3 51 1 — — — — 55 Total £’000 60 244 218 137 18 — 18 18 713 * N Kaul was appointed on 1 May 2017. ** D C Marshall’s fees are paid to a third party. 8. Auditor’s remuneration Fees payable to the Group’s auditor for the audit of the Group and Company Fees payable to the Group’s auditor and associates in respect of: – audit of subsidiaries – other assurance services – tax services Compensation for loss of office £’000 Salary £’000 Benefits £’000 60 241 146 118 18 9 12 18 622 — — — — — 8 — — 8 — 2 27 1 — — — — 30 2018 £’000 26 96 9 53 Amounts paid to the Company’s auditor in respect of services to the Company only, other than the audit of the Company’s financial statements, have not been disclosed as the information is disclosed on a consolidated basis. 9. Finance costs On bank loans and overdrafts On finance leases and hire purchase contracts Other 10. Income tax expense Current tax expense Prior year (over)/underprovision of tax Deferred tax credit resulting from the origination and reversal of temporary differences Taxation 2018 £’000 482 45 127 654 2018 £’000 475 (81) 394 (707) (313) Total £’000 60 243 173 119 18 17 12 18 660 2017 £’000 25 113 20 40 2017 £’000 419 90 88 597 2017 £’000 780 15 795 (550) 245 Northbridge Industrial Services plc – Annual report and accounts 2018 41 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 10. Income tax expense continued Factors affecting tax charge for the year The tax assessed for the year is different to the standard rate of corporation tax in the UK. The differences are explained below: Loss before taxation Loss multiplied by standard rate of corporation tax in the UK of 19% (2017: 19.25%) Effects of: – income not subject to tax – expenses not allowable for taxation purposes – difference in taxation rates – losses not recognised as a deferred tax asset – prior year under provision of taxation and deferred taxation Total taxation (credit)/charge for the year 2018 £’000 2017 £’000 (2,722) (4,381) (517) (843) (182) 226 68 173 (81) (313) (325) 733 352 313 15 245 The standard rate of corporation tax in the UK is 19% since 1 April 2017. The rate will decrease to 17% from 1 April 2020. 11. Earnings per share Numerator Loss used in basic and diluted EPS Denominator Weighted average number of shares used in basic EPS Effects of share options Effects of convertible debt Weighted average number of shares used in diluted EPS 2018 £’000 2017 £’000 (2,409) (4,626) 2018 Number 2017 Number 26,957,136 25,899,602 — — — — 26,957,136 25,899,602 At the end of the year, the Company had in issue 1,819,451 (2017: 1,594,451) share options and £4,000,000 of convertible loan notes which can be converted to 3,200,000 (2017: nil) ordinary shares at a price of 125 pence per share which have not been included in the calculation of diluted EPS because their effects are anti-dilutive. These share options and convertible loan notes could be dilutive in the future. 12. Intangible assets Cost At 1 January 2018 Exchange differences At 31 December 2018 Amortisation and impairment At 1 January 2018 Exchange differences Amortisation charge for the year At 31 December 2018 Net book value At 31 December 2018 At 31 December 2017 Customer relationships £’000 Order backlog £’000 Product development £’000 Non- competition agreements £’000 8,393 (15) 8,378 5,621 (21) 576 6,176 2,202 2,772 217 — 217 217 — — 217 — — 152 — 152 152 — — 152 — — 254 — 254 254 — — 254 — — Goodwill £’000 Total £’000 14,896 72 23,912 57 14,968 23,969 4,835 2 — 4,837 11,079 (19) 576 11,636 10,131 12,333 10,061 12,833 42 Northbridge Industrial Services plc – Annual report and accounts 2018 12. Intangible assets continued Cost At 1 January 2017 Exchange differences At 31 December 2017 Amortisation and impairment At 1 January 2017 Exchange differences Amortisation charge for the year At 31 December 2017 Net book value At 31 December 2017 At 31 December 2016 Customer relationships £’000 Order backlog £’000 Product development £’000 Non- competition agreements £’000 8,640 (247) 8,393 4,962 (91) 750 5,621 2,772 3,678 217 — 217 217 — — 217 — — 152 — 152 152 — — 152 — — 254 — 254 254 — — 254 — — The remaining amortisation periods for customer relationships are as shown below: NT CAP TME TNZ Goodwill £’000 Total £’000 15,371 (475) 24,634 (722) 14,896 23,912 4,955 (120) — 4,835 10,540 (211) 750 11,079 10,061 10,416 12,833 14,094 Remaining amortisation period (years) 3.00 2.75 0.88 7.75 Carrying value (£’000) 72 176 53 1,901 Certain goodwill balances are denominated in foreign currencies and are therefore subject to currency fluctuations. The carrying amount of goodwill is allocated to the CGUs as follows: Crestchic NT CAP TNZ 2018 £’000 2,192 972 1,284 5,683 2017 £’000 2,192 961 1,235 5,673 10,131 10,061 Impairment of intangible assets The downturn in the oil and gas industry following the fall in crude oil prices in 2015 has continued to have a significant impact on the revenues and profitability of the operations of the Group in certain locations. The improvement in sentiment in these markets noted last year has led to an improved performance in 2018. The Board is confident that this will continue with the Group well placed to benefit from a continued increase in activity in the market. The Board recognised the full impact of the downturn and in 2015 made significant impairments against the carrying value of goodwill that arose on the acquisitions of TOTAU and TOTNZ. All intangible assets that were recognised on the acquisition of TOTAU have now been fully impaired or amortised. The Directors have reviewed the carrying value of both tangible and intangible assets and have concluded that no further impairment charge is necessary. The Directors appreciate that the financial results forecast for New Zealand for 2019 are lower than forecast at this point last year but from the lows of the middle of 2016 the revenue trend for the entity is now positive. Northbridge Industrial Services plc – Annual report and accounts 2018 43 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 12. Intangible assets continued Impairment of intangible assets continued The recoverable amounts of the above CGUs have been determined from value-in-use calculations based on cash flow projections derived from budgets covering a five-year period to 31 December 2023. Management does not believe that any CGU will see a material change in its market share. Other major assumptions are as follows: 2018 Crestchic NTX TOTNZ CAP 2017 Crestchic TOTAU NTX TOTNZ CAP Discount rate % Operating (gross) margin % Wage inflation % 13 13 15 13 50 60 65 55 3 1 5 2 Discount rate % Operating (gross) margin % Wage inflation % 13 15 13 15 13 50 45 50 65 55 3 8 1 4 — The growth rates used for TOTNZ assume that revenue will broadly return to 2014 levels by 2023 and will continue at this level. The Board feels that these prudent projections are reasonable given the current market conditions. 2019 will see the first offshore rigs in New Zealand since the downturn and the growth rate used takes into account the low starting point as well as an expected increase in geothermal drilling activity over the next five years. The growth rates that have been used in the value-in-use calculations as at 31 December 2018 are based on forecasts for the five-year period to 31 December 2023 which have been formally approved by the Board of Directors. Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount rates are pre-taxation and are based on the Group’s, beta adjusted to reflect management’s assessment of specific risks related to each CGU. Growth rates and wage inflation have been based on prior year experience and expected future economic conditions. The recoverable amount for the Crestchic, NTX and CAP CGUs significantly exceeds their carrying amount and given the level of the excess the Directors do not consider the impairment calculations to be sensitive to movements in the above assumptions. The recoverable amount for TOTNZ is more sensitive to movements in the discount rate and growth inflation. A growth rate of 5% lower than forecast or a discount rate of 2.5% higher than used in the forecasts would lead to an impairment. 13. Property, plant and equipment Cost At 1 January 2018 Exchange differences Additions Disposals* At 31 December 2018 Depreciation At 1 January 2018 Exchange differences Charge for the year On disposals At 31 December 2018 Net book value At 31 December 2018 At 31 December 2017 Land and buildings £’000 Plant and machinery £’000 Motor vehicles £’000 Furniture and fittings £’000 Hire fleet £’000 Total £’000 7,031 129 — — 7,160 1,030 8 150 — 1,188 5,972 6,001 1,705 (17) 57 (1) 1,744 769 (21) 130 (1) 877 867 936 578 (1) 30 (85) 522 261 — 84 (76) 269 253 317 1,224 19 176 (57) 48,163 938 4,469 (1,547) 58,701 1,068 4,732 (1,690) 1,362 52,023 62,811 800 10 149 (57) 902 460 424 26,560 518 4,866 (1,241) 29,420 515 5,379 (1,375) 30,703 33,939 21,320 28,872 21,603 29,281 * The hire fleet disposals are first transferred to inventory before disposal to third parties. 44 Northbridge Industrial Services plc – Annual report and accounts 2018 13. Property, plant and equipment continued Cost At 1 January 2017 Exchange differences Additions Disposals* At 31 December 2017 Depreciation At 1 January 2017 Exchange differences Charge for the year On disposals At 31 December 2017 Net book value At 31 December 2017 At 31 December 2016 Land and buildings £’000 Plant and machinery £’000 Motor vehicles £’000 Furniture and fittings £’000 Hire fleet £’000 Total £’000 7,282 (251) — — 7,031 894 (12) 148 — 1,030 6,001 6,388 1,697 (42) 60 (10) 1,705 653 (11) 131 (4) 769 936 1,044 528 (6) 175 (119) 578 281 (7) 80 (93) 261 317 247 1,263 (38) 34 (35) 49,685 (1,414) 542 (650) 60,455 (1,751) 811 (814) 1,224 48,163 58,701 705 (27) 151 (29) 22,299 (934) 5,717 (522) 24,832 (991) 6,227 (648) 800 26,560 29,420 424 558 21,603 29,281 27,386 35,623 * The hire fleet disposals are first transferred to inventory before disposal to third parties. Bank borrowings are secured on the Group’s assets, including freehold land and buildings (see note 18). The net book value of assets held under finance leases or hire purchase contracts, included above, is as follows: Motor vehicles Hire fleet 2018 £’000 143 410 2017 £’000 155 655 During the year the Group received £763,000 (2017: £325,000) of compensation from third parties for items of PPE that were impaired, lost or given up. These amounts are included in revenue received from the sale of hire fleet assets. 14. Investments in joint ventures The Group holds a 49% interest in a joint venture incorporated in Malaysia, Olio Tasman Oil Tools SDN BHD. The entity provides tools and equipment to hire for the oil and gas industry in Southeast Asia. The impact of the joint venture on the consolidated financial statements is as follows: Carrying amount of investment at 1 January Investment in joint ventures during the year Share of post-tax result of joint ventures Carrying amount of investment at 31 December 2018 £’000 — — — — 2017 £’000 — 183 (183) — Current assets of the joint venture are £1,126,000 (2017: £419,000) including £7,000 of cash and cash equivalents (2017: £2,000). Non-current assets of the joint venture are £133,000 (2017: £114,000). Net liabilities of the joint venture are £914,000 (2017: £153,000), of which the Group’s share is £448,000 (2017: £75,000). Total revenue and post-tax loss of the joint venture are £2,064,000 and £742,000 respectively (2017: £370,000 and £383,000). Included in these results is a charge of £12,000 for depreciation (2017: £6,000). The joint venture had no contingent liabilities or capital commitments at 31 December 2018 (2017: none). 15. Inventories Raw materials Work in progress Finished goods 2018 £’000 3,237 74 977 4,288 2017 £’000 3,036 133 260 3,429 Raw materials are stated after a provision for slow-moving inventory of £98,000 (2017: £24,000). Northbridge Industrial Services plc – Annual report and accounts 2018 45 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 16. Trade and other receivables Due within one year Trade receivables Less provision for impairment of receivables Trade receivables – net Other receivables Receivables from joint ventures Contract assets Prepayments The receivables from joint ventures are after provisions as detailed in note 27. The carrying value of the Group’s trade and other receivables is denominated in the following currencies: Pound Sterling Euro US Dollar Australian Dollar UAE Dirham Singapore Dollar New Zealand Dollar Other 2018 £’000 2017 £’000 7,169 (1,221) 5,948 706 156 506 586 7,902 2018 £’000 1,506 1,008 1,711 759 592 569 210 299 6,654 8,182 (868) 7,314 670 118 506 714 9,322 2017 £’000 2,014 940 3,132 601 573 322 113 289 7,984 The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision rate for trade receivables and contract assets. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and ageing. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts. Given the low level of contract assets of £506,000 (2017: £506,000) and the history of no impairment losses the expected credit loss is 0% for both years. The expected loss rates are based on the Group’s historical credit losses experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers. Specific provision above the expected credit loss model Europe and North America Middle East Asia Australia and New Zealand Total Specific provision above the expected credit loss model Europe and North America Middle East Asia Australia and New Zealand Total 2018 Gross trade receivables £’000 Expected credit loss % Expected credit loss £’000 1,042 3,043 1,208 919 957 7,169 0.5% 8.0% 5.0% 2.0% 2017 1,042 15 99 46 19 1,221 Gross trade receivables £’000 Expected credit loss % Expected credit loss £’000 620 3,549 2,112 1,056 845 8,182 0.5% 8.0% 4.0% 2.0% 620 18 171 42 17 868 Specific provisions above the expected credit loss model relate to non-recurring business and are separated in the above tables to avoid distortion of the underlying expected credit loss as it is deemed to have no impact on the future losses of the business. 46 Northbridge Industrial Services plc – Annual report and accounts 2018 16. Trade and other receivables continued The Group records impairment losses on its trade receivables separately from gross receivables. The movements on this allowance account during the year are summarised below: Opening balance Exchange differences Amounts written off Recovered amounts reversed Increase in provisions Closing balance 2018 £’000 868 (10) (403) (100) 866 1,221 2017 £’000 376 (10) (11) (23) 536 868 The maximum exposure to credit risk, including cash balances, at 31 December 2018 is £9,668,000 (2017: £9,886,000). 17. Current liabilities Trade and other payables – current Trade payables Social security and other taxes Other payables Accruals and deferred income 18. Financial liabilities Current Bank borrowings – secured Other loans Capitalised debt fees Total Net obligations under finance leases and hire purchase agreements Total The bank loans, trade finance facility and overdraft are secured by: n a first and legal charge over the property; n a first and only debenture from each Group company; 2018 £’000 2,995 322 319 1,669 5,305 2017 £’000 2,632 325 257 2,169 5,383 2018 £’000 2,711 367 (136) 2017 £’000 3,368 — (41) 2,942 3,327 203 290 3,145 3,617 n a composite guarantee by each Group company (as guarantor) in favour of the Royal Bank of Scotland on account of each Group company (as principal); and n an assignment in security of keyman policies. The Group has committed borrowing facilities drawn at 31 December which are repayable as follows: Expiry within one year More than one year and less than two years More than two years and less than five years – non-convertible debt More than two years and less than five years – convertible debt Total 2018 £’000 3,078 1,351 2,758 3,845 2017 £’000 3,368 6,738 6 — 11,032 10,112 Overdrawn balances of £nil (2017: £730,000) are repayable on demand and are included in bank borrowings which expire within one year. The other loans relate to a £367,000 (2017: £nil) short-term supply chain finance working capital facility. At the year end the Group had £nil of undrawn funds (2017: £1.25 million) on its revolving credit facility of £0.5 million (2017: £7.0 million) available. The Group has outstanding warranty guarantees totalling £83,000 (2017: £139,000) relating to the sales of manufactured equipment. Northbridge Industrial Services plc – Annual report and accounts 2018 47 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 18. Financial liabilities continued Other financial liabilities Deferred consideration for purchase of subsidiary Obligations under finance leases and hire purchase contracts can be analysed as follows: 2018 Not later than one year Between one and five years 2017 Not later than one year Between one and five years Non-current financial liabilities Bank borrowings – secured Convertible debt Capitalised debt fees Total Net obligations under finance leases and hire purchase agreements Total Minimum lease payments £’000 229 92 321 Minimum lease payments £’000 329 306 635 2018 £’000 — — 2017 £’000 1,053 1,053 Interest £’000 26 15 41 Interest £’000 39 37 76 2018 £’000 4,109 3,845 (180) 7,774 77 7,851 Present value £’000 203 77 280 Present value £’000 290 269 559 2017 £’000 6,744 — — 6,744 269 7,013 Based upon the established market rates prevailing at 31 December 2018 the fair value of all financial liabilities is not materially different to the carrying value. Convertible debt In April 2018 the parent company issued 4,000 8% convertible loan notes at a face value of £1,000 each. The loan notes are repayable in three years from the issue date at their face value of £4,000,000 or can be converted at any time into shares at the holder’s option at the rate of 0.8 shares per £1 of loan, i.e. at 125 pence per share. If both the Group and the holder agree the repayment date can be extended by up to two one-year periods at an interest rate of 10%. The value of the liability component and the equity conversion component was determined at the date the instrument was issued. The fair value of the liability component, included in non-current borrowings, at inception was calculated using a market interest rate for an equivalent instrument without conversion option. The discount rate applied was 10%. 19. Deferred taxation Opening provision Taken to Statement of Comprehensive Income in current year Foreign exchange difference Closing provision 2018 £’000 3,002 (707) (19) 2017 £’000 3,621 (550) (69) 2,276 3,002 48 Northbridge Industrial Services plc – Annual report and accounts 2018 19. Deferred taxation continued The provision for deferred taxation is made up as follows: Accelerated capital allowances Fair value adjustment to property, plant and equipment on acquisition Fair value of intangibles on acquisition 2018 £’000 1,408 284 584 2,276 2017 £’000 1,907 366 729 3,002 The Group has unrecognised tax losses carried forward of £1,327,000 (2017: £1,323,000). These losses relate to the Group’s Australian entities and a deferred tax asset has not been recognised at this balance sheet date but the losses are available to be utilised against future profits. Any future recognition of a deferred tax asset will be dependent on these future profits becoming more certain. 20. Share capital Allotted, called up and fully paid 28,114,752 ordinary shares of 10 pence each (2017: 26,114,752 ordinary shares of 10 pence each) 2018 £’000 2017 £’000 2,811 2,611 Ordinary shares of 10 pence each At beginning of year Issue of new shares At end of year During the year 2,000,000 shares were issued through a placing. Treasury shares held by the Company 2018 2017 Number £’000 Number £’000 26,114,752 2,000,000 2,611 200 26,114,752 — 28,114,752 2,811 26,114,752 2,611 — 2,611 2018 Number 2017 Number 215,150 215,150 Capital management The Group considers its capital to comprise its ordinary share capital, share premium, foreign exchange reserve, merger reserve and accumulated retained earnings. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group monitors its gearing to balance risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues or the reduction of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives. Gearing is a key performance indicator and is discussed in the Chairman and Chief Executive’s Review. 21. Pension commitments The Group operates defined contribution pension schemes. The assets of the scheme are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the funds and amounted to £261,000 (2017: £267,000). No amounts were owing at the year end (2017: £nil). 22. Operating lease commitments At 31 December 2018 the total future value of minimum lease payments is due as follows: Property Not later than one year Later than one year and not later than five years Other assets Not later than one year Later than one year and not later than five years Total 2018 £’000 2017 £’000 416 416 832 30 16 46 414 426 840 47 41 88 878 928 The Group leases properties in locations where it does not own freehold property and also leases motor vehicles. Northbridge Industrial Services plc – Annual report and accounts 2018 49 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 23. Subsidiaries The following are the subsidiary undertakings of the Company: Company name Country of incorporation Registered office Percentage shareholding Second Avenue, Centrum 100, Burton DE14 2WF 5 Tuas Avenue 13, Singapore 638977 235 Sweet Spring Rd, Glenmoore, PA,19343 855 Chengshan Road, Shanghai 200125 Antwerpsesteenweg 124b30, 2630 Aartselaar 15 Avenue Condorcet, 921240 St Michel Sur Orge, Paris United Kingdom United Arab Emirates PO Box 262519, Jebel Ali Free Zone, Dubai United Arab Emirates PO Box 262519, Jebel Ali Free Zone, Dubai Singapore USA China Belgium France United Arab Emirates PO Box 262559, Jebel Ali Free Zone, Dubai 38 Station Street, Subiaco, Perth, WA 6008 Australia Vero Centre, 48 Shortland Street, Auckland New Zealand Vero Centre, 48 Shortland Street, Auckland New Zealand No.15 Jalan Dato’ Abdullah Tahir, 80300 Johor Bahru Malaysia 77 Robinson Road, Singapore 068896 Singapore Vero Centre, 48 Shortland Street, Auckland New Zealand Second Avenue, Centrum 100, Burton DE14 2WF United Kingdom 38 Station Street, Subiaco, Perth, WA 6008 Australia Crestchic Ltd Northbridge (Middle East) FZE Crestchic (Middle East) FZE Crestchic (Asia-Pacific) PTE Limited Crestchic Inc. Crestchic Shanghai Northbridge Transformers NV Crestchic France S.A.S. Tasman Middle East FZE Tasman Oil Tools Pty Ltd Tasman Oil Tools Leasing Ltd Tasman Oil Tools Ltd Tasman Oil Tools (S.E.A.) SDN BHD Tasman Asia-Pacific Pte Ltd Northbridge NZ Holdings Ltd Northbridge Australia Limited Northbridge Australia Pty Limited Crestchic (Middle East) Technical Services LLC United Arab Emirates PO Box 211520, Dubai Tasman OMM Limited Duck Trading FZCO Loadbank Hire Services Limited RDS (Technical) Ltd Tyne Technical Equipment Rental Services United Arab Emirates PO Box 262559, Jebel Ali Free Zone, Dubai United Arab Emirates MO0229, Jebel Ali Free Zone, Dubai United Kingdom Azerbaijan United Arab Emirates PO Box 211520 Second Avenue, Centrum 100, Burton DE14 2WF 11 ASAF Zeynally, Apartment 5, Baku, AZ1095 100% 100% 100%* 100%* 100%* 100%* 100% 100% 100%* 100%* 100%* 100%* 100%* 100% 100%* 100%* 100%* 100%* 100%* 100%* 100% 100%* 100%* * These subsidiaries are indirectly held by the Company. Of the subsidiaries listed, Crestchic Ltd is involved in both the manufacture and hire of loadbanks. Northbridge Australia Limited, Northbridge Australia Pty Limited, Northbridge NZ Holdings Ltd and Tasman OMM Limited are holding companies. Loadbank Hire Services Limited, RDS (Technical) Ltd, Duck Trading FZCO and Tyne Technical Equipment Rental Services are dormant companies. All the other subsidiaries are involved in the hire of specialist industrial equipment in the loadbank, transformer and oil tools rental markets. 24. Share-based payments The Company operates two equity-settled share-based remuneration schemes: an HMRC-approved scheme and an unapproved scheme. Outstanding at the beginning of the year Share options surrendered during the year Granted during the year – replacements Granted during the year – new Share options lapsed during the year Outstanding at the end of the year 2018 2017 Weighted average exercise price (pence) Number Weighted average exercise price (pence) Number 208 1,594,451 — — 230,000 (5,000) — — 130 96 228 1,391,601 228 (1,391,601) 228 1,391,601 231,750 102 (28,900) 319 198 1,819,451 208 1,594,451 The exercise price of options outstanding at the end of the year ranged between 89.50 pence and 453.50 pence (2017: 89.50 pence and 453.50 pence) and their weighted average contractual life was six months (2017: seven months). The weighted average exercise price of the options is 198 pence (2017: 208 pence). Of the total number of options outstanding at the end of the year, 1,093,201 (2017: 953,768) had vested and were exercisable at the end of the year. The schemes have been valued using the Black Scholes pricing model. 50 Northbridge Industrial Services plc – Annual report and accounts 2018 24. Share-based payments continued Details of the share options issued during the year are shown below: Options granted during the year Date of grant Fair value per option at measurement date Share price Exercise price Weighted average exercise price Weighted average exercise life Expected volatility Earliest exercisable point Option life Risk-free interest rate Options granted during the year Date of grant Fair value per option at measurement date Share price Exercise price Weighted average exercise price Weighted average exercise life Expected volatility Earliest exercisable point Option life Risk-free interest rate 2018 230,000 16 May 2018 130 pence 130 pence 130 pence 130 pence Two years four months 33% Three years Ten years 0.75% 2017 231,750 5 May 2017 102 pence 102 pence 102 pence 102 pence Two years four months 33% Three years Ten years 0.5% The volatility rate is based on the average share price movement during the year ended 31 December 2018 and during the year ended 31 December 2017. The share-based remuneration expense for the year is £50,000 (2017: £45,000), of which £24,000 (2017: £45,000) relates to key management personnel. The following share options were outstanding at 31 December 2018: Type of scheme Approved share option Unapproved share option Approved share option Unapproved share option Date of grant Number of shares 2018 Number of shares 2017 152,299 5 May 2017 152,299 5 May 2017 1,437,152 1,442,152 — — 16 May 2018 16 May 2018 37,399 192,601 1,819,451 1,594,451 Northbridge Industrial Services plc – Annual report and accounts 2018 51 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 24. Share-based payments continued Directors’ share options E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook E W Hook I J Gardner I J Gardner I J Gardner I J Gardner I J Gardner I J Gardner I J Gardner I C Phillips I C Phillips I C Phillips I C Phillips I C Phillips I C Phillips I C Phillips I C Phillips I C Phillips I C Phillips E W Hook I J Gardner I C Phillips Date of grant 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 16 May 2018 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 16 May 2018 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 5 May 2017 16 May 2018 16 May 2018 Number of shares 118,659 102,746 41,098 41,098 120,000 75,000 60,000 48,000 50,000 50,000 100,000 29,411 20,589 50,000 20,000 16,000 20,000 20,000 20,000 20,000 20,000 10,000 8,000 3,898 4,102 6,981 3,019 20,000 20,000 5,015 14,985 1,138,601 Exercise price of shares (pence) 100.64 146.96 150.86 149.88 186.00 237.00 281.50 327.50 453.50 377.50 89.50 102.00 102.00 130.00 281.50 327.50 453.50 377.50 89.50 102.00 130.00 281.50 327.50 453.50 453.50 377.50 377.50 89.50 102.00 130.00 130.00 Normal exercise period Scheme type 05/05/2017–30/05/2021 05/05/2017–02/04/2022 05/05/2017–09/04/2023 05/05/2017–20/04/2024 05/05/2017–30/09/2025 05/05/2017–21/04/2025 05/05/2017–18/04/2025 05/05/2017–18/04/2025 05/05/2017–10/04/2025 17/04/2018–17/04/2025 10/05/2019–10/05/2026 05/05/2020–05/05/2027 05/05/2020–05/05/2027 16/05/2021–16/05/2028 05/05/2017–18/04/2025 05/05/2017–18/04/2025 05/05/2017–10/04/2025 17/04/2018–17/04/2025 10/05/2019–10/05/2026 05/05/2020–05/05/2027 16/05/2021–16/05/2028 05/05/2017–18/04/2025 05/05/2017–18/04/2025 05/05/2017–10/04/2025 05/05/2017–10/04/2025 17/04/2018–17/04/2025 17/04/2018–17/04/2025 10/05/2019–10/05/2026 05/05/2020–05/05/2027 16/05/2021–16/05/2028 16/05/2021–16/05/2028 Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Approved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Unapproved Approved Unapproved Approved Unapproved Approved Approved Unapproved 2018 Number of options 906,601 136,000 96,000 2017 Number of options 856,601 116,000 76,000 1,138,601 1,048,601 Options are normally exercisable from the third anniversary from the date of grant and are exercisable subject to three-year EPS targets set by the Remuneration Committee. 25. Note supporting cash flow statement Cash and cash equivalents comprises: – cash available on demand – overdrawn balances 52 Northbridge Industrial Services plc – Annual report and accounts 2018 2018 £’000 2017 £’000 2,302 — 2,302 1,903 (730) 1,173 25. Note supporting cash flow statement continued At 1 January 2018 Cash flows Non-cash flows: Movement between cash and overdrawn balances Amortisation of debt fees Equity element of convertible loan notes New finance leases Loans and borrowings classified as non-current at 31 December 2017 becoming current during 2018 Non-current loans and borrowings (note 17) £’000 Current loans and borrowings (note 17) £’000 7,013 1,017 3,617 54 — 24 (155) 10 (58) (730) 136 — 10 58 Total £’000 10,630 1,071 (730) 160 (155) 20 — At 31 December 2018 7,851 3,145 10,996 At 1 January 2017 Cash flows Non-cash flows: Movement between cash and overdrawn balances Effects of foreign exchange Equity element of convertible loan notes New finance leases Loans and borrowings classified as non-current at 31 December 2016 becoming current during 2017 Non-current loans and borrowings (note 17) £’000 Current loans and borrowings (note 17) £’000 8,804 (2,684) 4,367 570 — — 87 35 771 (830) 28 142 111 (771) Total £’000 13,171 (2,114) (830) 28 229 146 — At 31 December 2017 7,013 3,617 10,630 26. Financial instruments Financial instrument risk exposure and management In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have not been changes to the Group’s exposure to financial instrument risks and its objectives, policies and processes for managing those risks or the methods used to measure them have not changed from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: n trade receivables; n cash at bank; n bank overdrafts and trade finance facilities; n trade and other payables; n bank and other loans; n convertible loan notes; n finance leases; and n deferred consideration. Northbridge Industrial Services plc – Annual report and accounts 2018 53 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 26. Financial instruments continued Financial instrument risk exposure and management continued General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Categories of financial assets and financial liabilities Current financial assets Trade and other receivables Cash and cash equivalents Total current financial assets Current financial liabilities Trade and other payables Loans and borrowings Deferred consideration Total current financial liabilities Non-current financial liabilities Loans and borrowings Total non-current financial liabilities Total financial liabilities Loans and receivables at amortised cost 2018 £’000 2017 £’000 6,654 2,302 8,956 7,983 1,903 9,886 Financial liabilities measured at amortised cost 2018 £’000 2017 £’000 4,983 3,145 — 8,128 7,851 7,851 5,058 3,619 1,053 9,730 7,013 7,013 15,979 16,743 Trade and other payables are all considered to be current and due in less than one year. Credit risk Credit risk arises principally from the Group’s trade receivables. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. Credit risk also arises from cash and cash equivalents and deposits with banks. The quality of the cash and debtors is considered to be high through trading with a well-established customer base and arrangements with reputable banks. Trade receivables Credit risk is managed locally by the management of each operating location. Prior to accepting new customers, a credit assessment is made using trade industry knowledge and credit scoring database services as appropriate. Based on this information, credit limits and payment terms are established, although for some large customers and contracts credit risk is not considered to be high risk and credit limits can sometimes be exceeded. These exceeded accounts are closely monitored and if there is a concern over recoverability, accounts are put on stop and no further goods or services will be provided before receiving payment. Pro-forma invoicing is sometimes used for new customers or customers with a poor payment history until creditworthiness can be proven or re-established. Management teams at each operating location receive monthly ageing reports and these are used to chase relevant customers for outstanding balances. The Executive team of the Group also receives monthly reports analysed by trade receivable balance and ageing profile of each of the key customers individually. The Board receives periodic reports summarising the ageing position and any significant issues regarding credit risk. No major renegotiation of terms has taken place during the year. There are no significant customers with restricted accounts. 54 Northbridge Industrial Services plc – Annual report and accounts 2018 26. Financial instruments continued Financial instrument risk exposure and management continued Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances or agreed facilities to meet expected requirements for a period of at least twelve months. The cash position is continually monitored and the overdraft facilities are utilised at the appropriate time to ensure that there is sufficient cash and that the optimum interest rate is obtained. The Board monitors annual cash budgets against actual cash position on a monthly basis. The Group also utilises an agreed trade finance facility whereby amounts can be drawn down against sales orders and repaid once the related sales invoice has been settled. This gives the Group greater flexibility and decreases some of the usual liquidity risks associated with taking on large or long-term projects. The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities: 2018 Trade and other payables Loans and borrowings 2017 Trade and other payables Loans and borrowings Deferred consideration Up to 12 months £’000 4,983 3,145 8,128 Up to 12 months £’000 5,058 3,619 1,053 9,730 Between 1 and 2 years £’000 — 1,308 1,308 Between 1 and 2 years £’000 — 6,933 — 6,933 Between 2 and 5 years £’000 — 6,543 6,543 Between 2 and 5 years £’000 — 80 — 80 Interest rate risk The Group has a centrally managed policy. All Group borrowings and overdrafts attract variable interest rates except that the Group may enter into capping arrangements for certain variable interest rate borrowings. Although the Board accepts that this policy of not fixing interest rates neither protects the Group entirely from the risk of paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments, it considers that it achieves an appropriate balance of exposure to these risks. The Group’s bank and other borrowings are made up of term loans, a revolving credit facility, short-term trade finance and invoice facilities and a supply chain finance facility. The annualised effect of a 0.5% decrease in the interest rate at the balance sheet date on the variable rate bank facilities carried at that date would, all other variables held constant, have resulted in a decrease in post-tax loss for the year of £34,000 (2017: £53,000). A 0.5% increase in the interest rate would, on the same basis, have increased the post-tax loss by the same amount. Northbridge Industrial Services plc – Annual report and accounts 2018 55 Financial statementsOverviewStrategic reportCorporate governance 26. Financial instruments continued Financial instrument risk exposure and management continued Currency risk Foreign exchange risk arises when individual Group operations enter into transactions denominated in a currency other than their functional currency. It is the Group’s policy to convert all non-functional currency to Sterling at the first opportunity after allowing for similar functional currency outlays. It does not consider that the wide use of hedging facilities would provide a cost-effective benefit to the Group, although in certain circumstances where large balances denominated in a foreign currency are due, short-term forward contracts are used. There were no forward contracts open at the year end. The cash and cash equivalents at 31 December were as follows: Pound Sterling Euro US Dollar UAE Dirham Australian Dollar Singapore Dollar New Zealand Dollar Other 2018 Floating rate £’000 2017 Floating rate £’000 237 592 912 71 185 40 143 122 277 1,146 233 93 11 81 18 44 2,302 1,903 The following table shows the impact (due to the retranslation of non-functional currency monetary assets and liabilities in the Group’s operations) of a 10% movement in the Group’s principal foreign currency exchange rates at the year-end date: 31 December 2018 Euro US Dollar UAE Dirham Singapore Dollar Australian Dollar New Zealand Dollar Other 31 December 2017 Euro US Dollar UAE Dirham Singapore Dollar Australian Dollar New Zealand Dollar Other 10% increase 10% decrease Effect on loss before tax £’000 Effect on shareholders’ equity £’000 Effect on loss before tax £’000 Effect on shareholders’ equity £’000 (65) (123) — — — — — (54) (129) — — — — — (126) (155) (35) (26) (25) 5 (31) (159) (192) (45) (4) 20 2 (33) 79 151 — — — — — 67 157 — — — — — 155 189 43 31 30 (6) 37 194 235 55 5 (24) (3) 40 The effect on the profit or loss before taxation is due to the retranslation of trade receivables and other receivables, trade and other payables, cash and borrowings at the rates in effect on the year-end date. 27. Related parties The employee benefits and share-based payments expense for the key management personnel are disclosed in note 6 and note 7. As at the year end there was a net balance of £156,000 (2017: £118,000) owed by joint ventures. The gross balance is £534,000 (2017: £122,000) with a provision due to the losses of the joint venture of £378,000 (2017: £4,000). These amounts are unsecured, have no fixed date of repayment and are repayable on demand. Amounts owed by joint ventures are assessed for recoverability and, where necessary, provided for in line with normal commercial transactions. Sales by the Group to joint ventures during the year amount to £471,000 (2017: £18,000). 28. Capital commitments At the year end the Group was committed to capital expenditure of £511,000 (2017: £nil). 56 Northbridge Industrial Services plc – Annual report and accounts 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFor the year ended 31 December 2018 PARENT COMPANY ACCOUNTS UNDER FRS 101 Parent company balance sheet As at 31 December 2018 Company number: 05326580 Fixed assets Tangible fixed assets Fixed asset investments Current assets Debtors Cash and cash equivalents Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Capital and reserves Called up share capital Convertible loan note reserve Share premium account Merger reserve Treasury share reserve Profit and loss account Shareholders’ funds Note 2018 £’000 2017 £’000 3 4 6 7 8 10 10 28,787 — 28,787 28,797 28,787 18,483 45 18,528 (2,891) 12,410 65 12,475 (4,046) 15,637 8,429 44,434 (7,767) 37,216 (6,638) 36,667 30,578 2,811 201 29,950 2,810 (451) 1,346 2,611 — 27,779 2,810 (451) (2,171) 36,667 30,578 Northbridge Industrial Services plc has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Company’s profit after tax was £3,467,000 (2017: loss of £1,307,000). The notes on pages 59 to 62 form part of these financial statements. The financial statements were approved and authorised for issue by the Board and were signed on its behalf on 11 April 2019. Eric Hook Director The Directors’ Report is on pages 20 to 22 and the Strategic Report is on pages 2 to 15 of the annual report and accounts. Northbridge Industrial Services plc – Annual report and accounts 2018 57 Financial statementsOverviewStrategic reportCorporate governance STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2018 Changes in equity Balance at 1 January 2018 Profit for the year Other comprehensive loss Total comprehensive loss for the year Issue of ordinary shares Issue of convertible loan notes Share option expense Balance at 31 December 2018 Share capital £’000 2,611 — — — 200 — — 2,811 Convertible loan note reserve £’000 Share premium £’000 Merger reserve £’000 Treasury share reserve £’000 Retained earnings £’000 27,779 — — — 2,171 — — 2,810 — — — — — — (451) — — — — — — (2,171) 3,467 — 3,467 — — 50 — — — — — 201 — 201 29,950 2,810 (451) 1,346 36,667 Total £’000 30,578 3,467 — 3,467 2,371 201 50 STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2017 Changes in equity Balance at 1 January 2017 Loss for the year Other comprehensive loss Total comprehensive loss for the year Share option expense Balance at 31 December 2017 Share capital £’000 Share premium £’000 Merger reserve £’000 Treasury share reserve £’000 Retained earnings £’000 2,611 — — — — 27,779 — — — — 2,810 — — — — (451) — — — — (909) (1,307) — (1,307) 45 Total £’000 31,840 (1,307) — (1,307) 45 2,611 27,779 2,810 (451) (2,171) 30,578 The notes on pages 59 to 62 form part of these financial statements. 58 Northbridge Industrial Services plc – Annual report and accounts 2018 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS For the year ended 31 December 2018 1. Accounting policies 1.1 Basis of preparation of financial statements The financial statements have been prepared under the historical cost convention and in accordance with applicable UK accounting standards (FRS 101) and the Companies Act 2006. The policies have been consistently applied to all years presented. Disclosure exemptions adopted In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these financial statements do not include: n certain comparative information as otherwise required by EU-endorsed IFRS; n certain disclosures regarding the Company’s capital; n a statement of cash flows; n the effect of future accounting standards not yet adopted; n the disclosure of the remuneration of key management personnel; and n disclosure of related party transactions with other wholly owned members of the Group headed by Northbridge Industrial Services plc. In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated financial statements of Northbridge Industrial Services plc. These financial statements do not include certain disclosures in respect of: n share-based payments; n business combinations; n assets held for sale and discontinued operations; n financial instruments (other than certain disclosures required as a result of recording financial instruments at fair value); n fair value measurement (other than certain disclosures required as a result of recording financial instruments at fair value); and n impairment of assets. 1.2 Investments Investments in subsidiaries are stated at cost less provision for impairment. Non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. 1.3 Deferred taxation Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date except that the recognition of deferred tax assets is limited to the extent that the Company anticipates making sufficient taxable profits in the future to absorb the reversal of the underlying timing differences. Deferred tax balances are not discounted. 1.4 Share options When share options are awarded to employees, the fair value of the options at the date of the grant is charged to the profit and loss account over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored in to the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of the options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the profit and loss account over the vesting period. Where equity instruments are granted to persons other than employees, the profit and loss account is charged with the fair value of goods and services rendered. Where share-based payments granted by the Company relate to employees of subsidiary companies, the amount of the charge that would arise is added to the cost of investment in the subsidiary company as a capital contribution and the related credit is taken to reserves. Northbridge Industrial Services plc – Annual report and accounts 2018 59 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 1. Accounting policies continued 1.5 Finance costs Finance costs are charged to the profit and loss account over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance costs include issue costs, which are initially recognised as a reduction in the proceeds of the associated capital instrument. 1.6 Foreign currencies Foreign currency transactions of individual companies are translated at the rates ruling when they occurred. Foreign currency monetary assets are translated at the rate of exchange ruling at the balance sheet date. Any differences are taken to the profit and loss account. 1.7 Dividends Interim dividends are recognised when they are paid. Final dividends are recognised when they are approved by shareholders at the Annual General Meeting. 1.8 Critical accounting estimates and judgements The preparation of financial statements under FRS 101 requires the Company to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below: Impairment of investments Accounting estimate – The Group is required to test whether investments have suffered any impairment. An impairment review requires management to make uncertain estimates concerning the cash flows, growth rates and discount rates of the assets or cash-generating units under review. The cash flows, growth rates and discount rates of the assets or cash-generating units were reviewed (see notes 12 and 13 of the Group financial statements). Recoverability of amounts owed by Group undertakings Accounting estimate – When a Group receivable is recognised a provision is created using the expected loss model. When a specific doubt emerges over the ability of the Group undertaking to pay the debt the Board assesses whether a provision above the initial expected loss is required. This is based on the Group undertakings’ net assets, cash balances, value in use and future cash flows. The actual level of receivables collected may differ from the estimated levels of recovery, which could impact operating results positively or negatively. 2. Staff costs Staff costs, including Directors’ remuneration, were as follows: Wages and salaries Social security costs Share-based payments The average monthly number of employees, including the Directors, during the year was as follows: Full time – administration Part time – administration 2018 £’000 483 59 50 592 2017 £’000 466 55 45 566 2018 Number 2017 Number 2 4 6 2 4 6 3. Directors’ remuneration Details of Directors’ remuneration, including that of the highest paid Director, are set out in note 7 to the consolidated financial statements. All Directors except for I J Gardner are remunerated through the parent company. 60 Northbridge Industrial Services plc – Annual report and accounts 2018 4. Fixed asset investments Cost At 1 January 2018 Additions At 31 December 2018 Shares in Group undertakings £’000 28,787 — 28,787 Subsidiary undertakings Details of all subsidiary undertakings and their principal activities are included in note 23 of the Group financial statements. 5. Tangible fixed assets Cost At 1 January 2018 Additions At 31 December 2018 Depreciation At 1 January 2018 Charge for the year At 31 December 2018 Net book value At 31 December 2018 At 31 December 2017 6. Debtors Amounts owed by Group undertakings Other debtors Prepayments All amounts shown under debtors fall due for payment within one year. 7. Creditors: amounts falling due within one year Bank loans and overdraft net of capitalised debt fees Amounts payable to Group undertakings Trade creditors Other creditors Bank securities are detailed in note 18 to the Group financial statements. Fixtures and fittings £’000 43 11 54 43 1 44 10 — 2018 £’000 18,350 22 111 2017 £’000 12,368 29 13 18,483 12,410 2018 £’000 1,209 1,469 131 82 2,891 2017 £’000 2,466 1,469 33 78 4,046 Northbridge Industrial Services plc – Annual report and accounts 2018 61 Financial statementsOverviewStrategic reportCorporate governance NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED For the year ended 31 December 2018 8. Creditors: amounts falling due after more than one year Bank loan net of capitalised debt fees All loans are wholly repayable within five years. The bank loan is secured by: n a first and only debenture from each Group company; n a first and legal charge over a property held within the Group; 2018 £’000 2017 £’000 7,767 6,638 n a composite guarantee by each Group company (as guarantor) in favour of the Bank of Scotland on account of each Group company (as principal); and n an assignment of keyman policies on Eric Hook and Iwan Phillips. 9. Financial instruments Borrowing facilities The Company has committed borrowing facilities drawn at 31 December which are repayable as follows: Expiry within one year More than one year and less than two years More than two years and less than five years Total The Company has £nil (2017: £1.25 million) undrawn on a revolving credit facility as at 31 December 2018. 10. Share capital Allotted, called up and fully paid 28,114,752 ordinary shares of 10 pence each (2017: 26,114,752 ordinary shares of 10 pence each) 2018 £’000 1,209 1,225 6,542 8,976 2017 £’000 2,466 6,638 — 9,104 2018 £’000 2017 £’000 2,811 2,611 Ordinary shares of 10 pence each At beginning of year Issue of new shares At end of year During the year 2,000,000 shares were issued through a placing. Treasury shares held by the Company 2018 2017 Number £’000 Number £’000 26,114,752 2,000,000 2,611 200 26,114,752 — 28,114,752 2,811 26,114,752 2,611 — 2,611 2018 Number 2017 Number 215,150 215,150 62 Northbridge Industrial Services plc – Annual report and accounts 2018 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the twelfth Annual General Meeting of Northbridge Industrial Services plc will be held at the offices of Buchanan Communications, 107 Cheapside, London EC2V 6DN, on 4 June 2019, commencing at 12 noon for the following purposes: Ordinary business 1. To receive and adopt the financial statements for the year ended 31 December 2018 together with the Directors’ Report and the Independent Auditor’s Report. 2. To re-elect as a Director E W Hook, who retires in accordance with the Company’s Articles of Association. 3. To re-elect as a Director I J Gardner, who retires in accordance with the Company’s Articles of Association. 4. 5. To elect as a Director J Aldersey-Williams, who retires in accordance with the Company’s Articles of Association having been appointed a Director since the last Annual General Meeting. To re-appoint BDO LLP as auditor to the Company to hold office until the next general meeting at which accounts are laid before the Company and to authorise the Directors to determine its remuneration. 6. To consider and, if thought fit, pass the following ordinary resolution: That the Directors of the Company be and they are hereby generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares and grant rights to subscribe for, or convert any security into, shares: (a) up to an aggregate nominal amount of £937,158.40 (such amount being equal to 33% of the Company’s share capital and such amount to be reduced by the nominal amount allotted or granted from time to time under (b) below in excess of such sum); (b) comprising equity securities (as defined in Section 560 of the Companies Act 2006) up to an aggregate nominal amount of £937,158.40 (such amount to be reduced by the nominal amount allotted or granted from time to time under (a) above) in connection with or pursuant to an offer or invitation by way of rights issue in favour of: (i) holders of ordinary shares in proportion (as nearly as practicable) to the respective number of ordinary shares held by them on the record date for such allotment; and (ii) holders of any other class of equity securities entitled to participate therein or, if the Directors consider it necessary, as permitted by the rights of those securities, but subject to such exclusions or other arrangements as the Directors may consider necessary or appropriate to deal with fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under the laws of, or the requirements of, any regulatory body or stock exchange in any territory or any other matter whatsoever; and (c) such authority shall expire on the earlier of the conclusion of the next Annual General Meeting of the Company or the date falling 15 months after the date of the passing of this resolution. Special business 7. To consider and, if thought fit, pass the following special resolution: That, subject to the passing of resolution 6 above, the Directors of the Company be and they are hereby empowered pursuant to Section 570 of the Companies Act 2006 to allot equity securities (as defined in Section 560 of the Companies Act 2006) of the Company for cash pursuant to the authorities conferred by resolution 6 as if Section 561 of the Companies Act 2006 did not apply to any such allotment, provided that this power shall be limited to: (a) the allotment of equity securities for cash in connection with or pursuant to an offer or invitation (but, in the case of the authority granted under resolution 7(b), by way of a rights issue only) in favour of holders of ordinary shares in proportion (as nearly as practicable) to the respective number of ordinary shares held by them on the record date for such allotment (and holders of any other class of equity securities entitled to participate therein or, if the Directors consider it necessary, as permitted by the rights of those securities) but subject to such exclusions or other arrangements as the Directors may deem necessary or appropriate to deal with fractional entitlements, treasury shares, record dates, or legal, regulatory or practical difficulties which may arise under the laws of, or the requirements of, any regulatory body or stock exchange in any territory or any other matter whatsoever; (b) the allotment of equity securities for cash in the case of the authority granted under resolution 6(a) above and, otherwise than pursuant to paragraph (a) of this resolution, up to an aggregate nominal amount of £281,148 (such amount being equal to 10% of the Company’s share capital). This power shall expire at the conclusion of the next Annual General Meeting of the Company save that the Company may before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the Directors may allot the relevant securities in pursuance of such offer or agreement as if the authority conferred hereby had not expired; and (c) such authority shall expire on the earlier of the conclusion of the next Annual General Meeting of the Company or the date falling 15 months after the date of the passing of this resolution. 8. To consider and, if thought fit, pass the following special resolution: That, subject to the Company’s Articles of Association and Section 701 of the Companies Act 2006, the Company be and is hereby generally and unconditionally authorised to make one or more market purchases (within the meaning of Section 163(3) of the Companies Act 2006) of its own ordinary shares on such terms and in such manner as the Directors of the Company shall determine, provided that: (a) the maximum aggregate number of ordinary shares hereby authorised to be acquired is 10% of the present issued share capital of the Company; Northbridge Industrial Services plc – Annual report and accounts 2018 63 Financial statementsOverviewStrategic reportCorporate governance NOTICE OF ANNUAL GENERAL MEETING CONTINUED Special business continued 8. continued (b) the maximum price which may be paid for each ordinary share is no more than 5% above the average of the price of the ordinary shares of the Company (derived from the London Stock Exchange Daily Official List) for the five business days prior to the date of purchase and the minimum price per ordinary share is the nominal value thereof, in each case exclusive of any expenses payable by the Company; (c) the authority hereby given shall expire at the conclusion of the next Annual General Meeting of the Company save that the Company may make a purchase of ordinary shares after expiry of such authority in execution of a contract of purchase that was made under and before the expiry of such authority; and (d) any shares purchased will be held in treasury and may be resold at any time. By order of the Board Iwan Phillips Company Secretary 11 April 2019 Notes: 1. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those members entered in the Company’s register of members at close of business on 31 May 2019 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their names at that time. Changes in the Company’s register of members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting. If the meeting is adjourned, as at close of business on the day two days (excluding non-working days) before the date of the adjourned meeting shall apply for the purpose of determining the entitlement of members to attend and vote at the adjourned meeting. 2. You can vote either: n by logging on to www.signalshares.com and following the instructions; n you may request a hard copy form of proxy directly from the registrars, Link Asset Services, at enquiries@linkgroup.co.uk, or on Tel: 0371 664 0300. Calls cost 12 pence per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9.00am to 5.30pm, Monday to Friday excluding public holidays in England and Wales; or n in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out below. To be valid, your proxy vote and in the case of requesting a hard copy the form of proxy (and any power of attorney or other authority (if any) under which it is assigned) must be duly completed and signed and deposited at the office of the Company’s registrars, Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not less than 48 hours (excluding non-working days) before the time for holding the meeting (or any adjourned meeting). Completion of a form of proxy does not preclude a member from attending and voting in person at the meeting if (s)he so wishes. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting (and any adjournment of the meeting) by using the procedures described in the CREST Manual (available from www.euroclear.com/site/public/EUI). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s agent (ID RA10) by 12 noon on 31 May 2019. For this purpose, the time of receipt will be taken to mean the time (as determined by the timestamp applied to the message by the CREST application host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. In the case of joint holders of shares, the vote of the first named in the register of members who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of other joint holders. A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint someone to represent it. This can be done in one of two ways: either by the appointment of a proxy or of a corporate representative. Members considering the appointment of a corporate representative should check their own legal position, the Company’s Articles of Association and the relevant provision of the Companies Act 2006. 3. 4. 5. 6. 7. 8. 9. If you wish to attend the Annual General Meeting in person, you should make sure that you arrive at the venue for the Annual General Meeting in good time before the commencement of the meeting. You may be asked to prove your identity in order to gain admission. Registrars Link Asset Services 65 Gresham Street London EC2V 7NQ 64 Northbridge Industrial Services plc – Annual report and accounts 2018 Overview Strategic report Corporate governance Financial statements FINANCIAL CALENDAR 2019 June June September October December 2020 April April Annual General Meeting Half year end Interim results announced Interim report published Year end Preliminary results announced Annual report published COMPANY INFORMATION Secretary I C Phillips Company number 05326580 Registered office Second Avenue Centrum 100 Burton on Trent DE14 2WF +44 (0)1283 531 645 www.northbridgegroup.co.uk Country of incorporation of parent company England and Wales Legal form Public limited company Independent auditor BDO LLP Two Snowhill Birmingham B4 6GA 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 Stockdale Securities Limited 100 Wood Street London EC2V 7AN Registrars Link Asset Services 65 Gresham Street London EC2V 7NQ Northbridge Industrial Services plc – Annual report and accounts 2018 65 N o r t h b r i d g e I n d u s t r i a l S e r v i c e s p l c A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 8 Northbridge Industrial Services plc Second Avenue Centrum 100 Burton on Trent DE14 2WF +44 (0)1283 531 645 www.northbridgegroup.co.uk