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NORTHBRIDGE
Image of man working at a factory

Corporate governance

Principal risks and uncertainties

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 risks that is felt to be appropriate in delivering the Group's objectives and to implement 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.

Description Mitigation
Market and macroeconomic risks

As evidenced by the impact of the sharply declining oil price in 2015 and early 2016, a downturn in the global economic recovery 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.

The Group constantly monitors market conditions and can flex capital investment into 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 hire fleet to be relocated to mirror changes in localised utilisation. 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 markets and regions. Though much of the cost base of the Group is fixed, the Group is prepared to take prompt and effective action to exit underperforming activities and reduce overhead costs to mitigate the impact of such an event.

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 are a relatively small number of significant competitors serving the markets in which we operate, although we often compete against larger and better capitalised companies who 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.

The Group's customer base is global, minimising overreliance on individual customers. 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 signi cant levels of equipment available for rent has enabled us to provide an enhanced and ef cient customer service, and the ability to readily transport our hire fleet enables us to respond to changes in localised utilisation.

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.

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.

Interest rate risk

The Group delegates day-to-day control of its bank accounts to local management. Most Group borrowings and overdrafts attract variable interest rates, although the Group has some fixed interest rate finance lease agreements. 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.

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, finance leases and term loans. The Group also utilises short-term trade finance facilities, a temporary overdraft facility and leasing arrangements.

The Board considers that it currently achieves an appropriate balance of exposure to these risks, although this situation is constantly monitored.

People risk

Retaining and attracting the best people is critical in ensuring the continued success of the Group.

Northbridge offers well structured reward and benefit packages 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 inter-company basis within 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 have responsibility for their 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 nancial liabilities are also held in these currencies.

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.

Credit risk

Exposure to credit risk arises principally from the Group's trade receivables. At 31 December 2016 the Group had £4,331,000 (2015: £4,777,000) of trade receivables which were past due but not impaired, of which £3,256,000 (2015: £3,864,000) has been collected since the year end. At 31 December 2016 trade receivables of £376,000 (2015: £496,000) were past due and are considered to be impaired due to the fact that the debts are old and due from customers in financial difficulty. During the year the Group wrote off £96,000 (2015: £60,000) of debts considered unrecoverable.

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.

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