The Board maintains a Group level risk register which is discussed at each Board meeting.
The impact of each risk and the likelihood of it occurring are assessed periodically. Divisional management maintain their own sub-registers which feed into the Group register.
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 Group’s revenues are derived from some labour-intensive activities such as the manufacture of loadbanks and the service and maintenance of equipment both within the Group’s depots and on site. Pandemics such as COVID-19, which restrict the movement of people, both in terms of being able to be physically present at work and to be able to travel to customer sites across the world, will affect the Group’s ability to produce loadbanks for third-party sales and service rental contracts. This may result in lower revenues, profits and cash flows.||The Group’s activities are diverse, both in terms of industries and geographies. The loadbanks are used to test critical infrastructure such as hospitals and national electricity grids and a base level of revenue can reasonably be expected to continue. The oil tools are also used in industries that have been deemed essential by some governments and work will continue. The main manufacturing facility in Burton is able to follow all current government advice on social distancing and can continue to function, albeit on a reduced capacity. The engineering support teams are managing to service customers remotely through video conferencing. The senior management are discussing the on-going situation by telephone at least three times a week and updates to the full Board are being sent after each meeting.|
|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.||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 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.||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.|
As evidenced by the impact of the sharply declining oil price in 2015 and early 2016, and again in 2020, a downturn in global economic conditions or volatility in commodity prices creates uncertainty and may result in lower rental activity and equipment sales levels. This may result in a poorer performance than expected, impacting revenues and margins.
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.
In the execution of its corporate strategy, the Group from time to time buys and sells businesses, an activity which brings attendant transaction risks.
|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 USA (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. Management and the Board have implemented and are continually refining 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. The composition of the Board is continually reviewed to ensure that it brings the right complement of skills to manage transaction risk, both through its own direct involvement and through the engagement of suitably qualified advisors.|
|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.||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 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.|
|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.||
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 invoice finance and term loans. The Group also utilises short-term trade finance and finance leases. Although the Board considers that it currently achieves an appropriate balance of exposure to these risks, this situation is constantly monitored and the Board is currently renegotiating the banking facilities and is in discussions with the holders of the convertible notes which may lead to the notes being partially or fully converted and/or redeemed.
|Retaining and attracting the best people are critical in ensuring the continued success of the Group.||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 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.||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.|
|Exposure to credit risk arises principally from the Group’s trade receivables. At 31 December 2020 the Group had £7,815,000 (2019: £7,955,000) of trade receivables and an expected credit loss provision of £1,383,000 (2019: £1,277,000). The Group increased provisions by £167,000 (2019: £149,000) during the year.||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.|