RNS Number : 9630X
Northgate PLC
01 July 2008
 


1 July 2008



NORTHGATE PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2008


Northgate plc ("Northgate", the "Company" or the "Group"), the UK and Spain's leading specialist in light commercial vehicle hire, announces its preliminary results for the year ended 30 April 2008.


Financial Highlights


  • Revenue up 10% to £578.5m (2007 - £526.5m)

  • Group operating profit* up 10% to £121.8m (2007 - £111.0m)

  • Underlying profit before tax* up 5% to £83.1m (2007 - £79.3m)

  • Profit before tax up 5% to £79.5m (2007 - £75.4m)

  • Adjusted earnings per share* increased by 13% to 91.8p (2007 - 81.6p)

  • Total dividend increased by 10% to 28.0p (2007 - 25.5p)

  • Headroom of £209m under our borrowing facilities (2007 - £222m)

  • Interest cover at 3.1x (2007 - 3.4x)



Operational Highlights


  • UK fleet increased by 5% to 68,600 vehicles (2007 - 65,300 vehicles) 

  • Spanish fleet increased by 14% to 62,750 vehicles (2007 - 55,000 vehicles) 

  • Utilisation and hire rates maintained in both the UK and Spain


*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain.



Philip Rogerson, Chairman, commented:


"The Group has continued to make progress in the past year despite more challenging economic conditions in the second half. In the current year conditions in the used vehicle market are weaker than last year, with the result that profits overall are expected to be at similar levels to last year.


If economic conditions were to deteriorate, we believe our business model has the proven flexibility to enable us to defleet rapidly in order to leave us in a strong financial position when markets improve. Additionally, we believe that the Group's flexible rental model is attractive to customers when capital is constrained and they are unwilling to commit to long-term financing arrangements. In the medium term we remain convinced that the low rental penetration level throughout Europe offers an opportunity for further expansion."



Full statement and results attached.


For further information, please contact:


Northgate plc                

01325 467558

Steve Smith, Chief Executive            

Bob Contreras, Finance Director


Hogarth Partnership Limited    

020 7357 9477

Andrew Jaques

Barnaby Fry

Anthony Arthur



Notes to Editors:


Northgate plc rents light commercial vehicles and sells a range of fleet products to businesses via a network of hire companies in the UKRepublic of Ireland and Spain. Their NORFLEX product gives businesses access to a flexible method to obtain as many commercial vehicles as they require.  


Further information regarding Northgate plc can be found on the Company's website:


http://www.northgateplc.com

 
 

Chairman's Statement


Against a backdrop of challenging economic conditions, particularly in the latter part of the financial year, the Group has demonstrated the resilience of its business model and continued to make progress against the targets set out in our strategy for growth announced in January 2006.


The Group achieved the following results for the year:


  • Group revenue increased by 10% to £578.5m (2007 - £526.5m), 7% at constant exchange rates;

  • Underlying profit before tax* for the year increased by 5% to £83.1m (2007 £79.3m), 1% at constant exchange rates;

  • Adjusted earnings per share* increased by 13% to 91.8p (2007 - 81.6p) reflecting the growth in profit before tax and a reduced tax rate.

Based on these results, the Board has recommended to shareholders a final dividend of 16.5p, making 28.0p in respect of the year (2007 - 25.5p) covered 3.3 times by profits*. The dividend will be payable on 18 September 2008 to those shareholders on the register on 15 August 2008.

*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain.


UK

In the UK, we have benefited from a stable hire rate environment and a buoyant used vehicle market for much of the year. We have supplemented these positive external factors with our usual focus on maintaining a high level of utilisation and achieving the benefits from the restructuring of the business carried out in the last financial year. We also grew the business both organically and through the acquisition of Hampsons (Self Drive Hire) Limited ("Hampsons") on 1 November 2007 and the vehicle fleet of Abington Vehicle Rentals Limited ("Abington") on 30 November 2007.


The UK fleet has grown by 5% to close the year at 68,600 vehicles, including 1,600 arising from the acquisition of Hampsons and 270 from Abington. The improvement in vehicle utilisation to 91%, achieved in the prior year, has been maintained in the current year.


While the market remains competitive, we have successfully managed to retain hire business without discounting prices heavily and, as a consequence, hire rates have remained stable throughout the year. Due to the strong used vehicle market we have achieved residual prices £12.0m higher than expected (2007 - £8.5m). The overall outcome for the UK is an increase in operating profit* of 4% to £74.4m (2007 - £71.7m) and an overall operating margin* of 20.6% (2007 - 20.4%). The UK operating profit represented 61% of the Group's profit from operations.

*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain.


Spain

In Spain, we have grown the fleet by 14%, including 700 vehicles acquired with the purchase of the trade and assets of Alquiservicios S.A. ("Alquiservicios") on 18 July 2007. A utilisation level of 89% is slightly below the prior year (2007 - 90%). Economies of scale in the larger Spanish business have partly compensated for the effect of the weaker vehicle residual market.


Revenue grew by 24% and operating margin* was 21.8% (2007 - 22.4%). Improved trading and the currency effect produced an increase of 21% in operating profit* to £47.4m (2007 - £39.3m), representing 39% of the Group's profit from operations*. The strength of the Euro relative to Sterling during the year accounted for £13.1m of the increase in revenue and £4.7m of the increase in operating profits.


As planned, the transition to a common IT platform for Fualsa and Record took place in May 2008. This now provides us with the opportunity to implement further efficiencies through sharing common support services.

*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain.


Group


For the Group overall, while progress at the operating profit* level has been satisfactory with growth of 10%, net finance costs have increased by 22% to £38.7m (2007 - £31.7m). Of this £7.0m increase £1.7m (24%) arises from the strengthening of the Euro against Sterling; the remainder arises from a combination of higher interest rates and borrowings.

*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain.



Board Changes


On 26 September 2007, Andrew Allner joined the Board as a non-executive Director. Andrew has a strong financial background and assumed the chairmanship of the Audit Committee from the date of his appointment.


On 31 December 2007, Gerard Murray left the Company to take up the position of Finance Director with The Vardy Group of Companies. The Board wishes him well in his new role and thanks him for his significant contribution to the continued growth and development of the Group during the last five years.  


I am pleased to announce that Bob Contreras was appointed as Group Finance Director from 2 June 2008. Bob has a strong financial and operational background together with significant European experience, which will support the Group's expansion plans.


Current Trading and Outlook 


The Group has continued to make progress in the past year despite more challenging economic conditions in the second half. In the current year conditions in the used vehicle market are weaker than last year, with the result that profits overall are expected to be at similar levels to last year.


If economic conditions were to deteriorate, we believe our business model has the proven flexibility to enable us to defleet rapidly in order to leave us in a strong financial position when markets improve. Additionally, we believe that the Group's flexible rental model is attractive to customers when capital is constrained and they are unwilling to commit to long-term financing arrangements. In the medium term we remain convinced that the low rental penetration level throughout Europe offers an opportunity for further expansion.  



Operational Review


Strategy for Growth


The year to 30 April 2008 is the second year that we are reporting against the three-year rolling strategic plan announced in January 2006. The aim was to maintain annual double-digit earnings growth through delivering the following key elements of the plan:


UK & Republic of Ireland

An increase in fleet size from both acquisition and organic growth;

The introduction of fleet management to enable the Group to provide a comprehensive vehicle solutions product to customers;

A streamlining of the hire company network and management structure.

 

Spain

  • Acquisition of the remaining 51% of the equity of Record;
  • Continued double-digit organic fleet growth;

  • The delivery of the synergies available from combining aspects of our two Spanish businesses.

New Territory

  • Expansion into a new jurisdiction.


The last two objectives for the UK and the first objective for Spain were completed in the year to 30 April 2007, leaving continued fleet growth in the UK and Spain and the merging of some activities in Spain as our key targets for this year.


We are pleased that we have substantially achieved our targets, despite a more difficult economic climate and higher interest rates in the second half of the year, thereby continuing our delivery of good growth in earnings per share.

Review of Current Year


United Kingdom and Republic of Ireland


A continued high level of utilisation and a stable hire rate environment has produced an increase in hire revenues of 2.3%. When combined with a very strong residual market for used vehicles, particularly in the first half of the year, and some further efficiencies in operations, this has led to an increase in the operating margin to 20.6% (2007 - 20.4%).


Depot Network


Following the restructuring in the prior year, there has been little change in the depot network, with the exception of the eight additional locations arising from the acquisition of Hampsons. By 30 April 2008, we operated through 21 hire companies with a network of 86 locations. In the year ahead, we do not expect a material change to the overall number of locations, but would expect to relocate certain primary and secondary sites to achieve our optimum operating structure and improve efficiencies.


Vehicle Fleet and Utilisation


In the UK, the fleet has increased from 65,300 to 68,600 vehicles, including 1,600 vehicles relating to the acquisition of Hampsons and 270 vehicles purchased from Abington, a growth rate of 5% (2% organically). Although below our target of 5%, organic growth has been stronger in the second half, with the fleet increasing by 930 vehicles organically, compared to 500 in the traditionally stronger first half of the year.


We have successfully maintained a utilisation rate of 91% for the year, despite the last few months of the year experiencing a higher level of "churn" with more frequent rental returns being compensated by additional business gains. This demonstrates the value of our product to our customers alongside the capability of our business model to react to changing circumstances.  Utilisation remains our most important key performance indicator and the one on which we focus whatever the prevailing economic climate.

 

Hire Rates


While competition for new business remains keen, we have not experienced the same level of downward pressure on hire rates last seen in 2005/06. Consequently, as in the previous financial year, we have been able to maintain our hire rates at constant levels.


Used Vehicle Sales


Through the extended network of vehicle sales sites created last year, we have once again achieved a record number of disposals in the year with total sales of 26,800 vehicles (2007 - 24,700).


The extended network and, in particular, the additional retail sites and our brand "Van Monster" have also enabled us to increase the proportion of vehicles disposed of through our retail and semi-retail channels to achieve our medium-term target of 20% through these channels (2007 - 16%). The continued supply of good quality vehicles being generated by the hire company network, which improved following the acquisition of the Arriva Vehicle Rental business in 2006, is also crucial to this success.


The year has also seen one of the strongest used vehicle markets for some time, driven by both good demand and a shortage of supply, particularly in the first half of the year.  


As a consequence of both the improved sales channels and the buoyant market, we have achieved residual prices £12m (2007 - £8.5m) better than expected. In accordance with our accounting policies this has been reflected in our depreciation charge for the year.


As we stated in our interim report, we expected the vehicle supply shortages to continue only in the short term and, since January this year, we have seen evidence of improved supply from manufacturers. Concerns over the economy and the credit crunch affecting availability of finance have also caused a decrease in demand for second hand vehicles. As a consequence, residual prices have eased, particularly in the latter part of the financial year, as evidenced by the split in the first half and second half adjustments to depreciation of £7m and £5m respectively.


The first part of the current financial year has seen a further easing in used vehicle prices and, as in the prior year, this would be reflected in our depreciation charge. Ongoing depreciation rates, in accordance with our accounting policies, are reviewed regularly together with vehicles' expected residual values and useful economic life.


Fleet Management


Over 72,000 jobs were carried out in the year by Fleet Technique Limited ("FTL"), our fleet management subsidiary, on behalf of our customers and generating revenue of £15.5m, an increase of 13% over the prior year. Within this total were a number of significant contract wins, including becoming sole supplier to a large construction company, a four year extension with a utilities company and the provision of scheduled maintenance management for a vehicle manufacturer.


There was also an improvement in operating efficiency within the business and in particular the employee cost per job, which fell by 9%.


The combination of the above produced an operating profit of £0.8m (2007 - £0.6m) with an improved operating margin of 5.0% (2007 - 4.2%).


Equally important however is the role played by FTL in helping to secure rental business, particularly from larger companies which require a full vehicle solutions package rather than just a rental offering. This was recently demonstrated when we secured our first complete fleet solutions offering with a FTSE listed support services company. Following a fleet audit for this customer, we were able to identify the potential for reductions in CO2 emissions and increased efficiencies, both operational and financial, through our single sourced solution. Every product in our portfolio will be utilised to support a service that will cover over 1,800 vehicles. We expect that the success of this project will enable Northgate to deliver similar fleet solutions in the year ahead.


Body Repair Facility


On 31 August 2007 we acquired a dedicated body repair business, situated in the Midlands, called GPS Body Repairs Limited ("GPS"). This acquisition has given us the capability to carry out a significantly higher proportion of our body repair work in-house, thereby reducing both downtime and whole life cost. Our intention is to replicate these facilities in other parts of the UK to create a small network capable of handling a substantial part of our internal work.


Spain

The fleet has grown during the year by 14% to 62,750 vehicles (2007 - 55,000), including 700 arising from the acquisition in July 2007 of Alquiservicios. While slightly behind our target rate of 15%, this is nevertheless an excellent achievement, particularly given the difficulties the Spanish economy is experiencing.


This fleet growth combined with utilisation of 89% (2007 - 90%) and a modest improvement in hire rates has produced an increase in Spanish rental revenue of 24%; 17% at constant exchange rates.


Benefits from economies of scale, particularly in purchasing, have partly compensated for the additional depreciation charge arising from the weaker than expected used vehicle market and resulted in an operating margin of 21.8%* (2007 - 22.4%).

*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain


Depot Network


The network of depots increased to 37 as a result of the acquisition of Alquiservicios, with its branch in Orense. In addition, we have relocated to larger premises in BarcelonaPamplona and Zaragoza. It is not anticipated that the network will change significantly in the year ahead as our current locations already provide good geographic coverage across Spain, although there will again be a small number of relocations.


Vehicle Fleet and Utilisation


In the first half of the financial year, the fleet increased by 8.2% to reach 59,500 vehicles at 31 October 2007. In the second six months, fleet growth, all organic, was 5.5% which produced a closing fleet of 62,750 vehicles.

We have seen more churn in the hire fleet in the period since 1 January 2008 due to a higher rate of off-hires, mainly from smaller businesses. As higher churn makes it more difficult to maintain utilisation in the short term, we consequently fell marginally below our targeted level of 90%. Overall, however, we still achieved an average of 89% for the year.


Given the current state of the Spanish economy, we do not expect to achieve fleet growth at the same levels in the year ahead and are forecasting single digit organic growth.


Hire Rates


We continue to achieve a modest improvement in hire rates with the average rate up by 1% over the prior year in local currency.  


Used Vehicle Sales


We sold 13,600 vehicles during the year (2007 - 12,200) at residual values £1.9m lower than expected (2007 - £1.9m higher). In accordance with our accounting policies this has been reflected in our depreciation charge for the year. Of these disposals 4% (2007 - 5%) were through semi-retail and retail channels.


In the new financial year we plan to align operating procedures and vehicle holding periods in our two Spanish companies, Fualsa and Record, and as a consequence would expect the depreciation charge in the year to increase by some £2m.


The creation of a used vehicle disposals structure, with a capability similar to that of the UK, remains our medium-term goal and a key target for the business. The property stage is well under way and during the next few months we should have dedicated used vehicle sales locations operating in BarcelonaMadridMurcia and Seville. The development of other disposal channels within Spain and the creation of an export capability are also progressing.

 

IT


In May 2008 we successfully migrated Fualsa onto the Record operating system.


This now gives us the opportunity to implement further synergies through the sharing of common support services as well as providing information to management on a comparable basis for both businesses.


Other Territories


We continue to discuss potential opportunities with a number of target companies within the European Union. We expect to move forward with one of these opportunities in the current calendar year, as envisaged in our strategic plan.



Financial Review 


Financial Reporting


Sales, Margins and Return on Capital


Group revenue increased by 10% to £578.5m (2007 - £526.5m). In the UK, organic fleet growth of 2%, together with the 1,870 vehicles arising from acquisitions contributed to an increase in total revenue of 2.7% to £360.8m (2007 - £351.1m). In Spain, organic fleet growth of 13%, coupled with the 700 vehicles arising from the acquisition of Alquiservicios on 18 July 2007, contributed to an increase in revenue of 24% to £217.7m (2007 - £175.4m); 17% at constant exchange rates.

 

United Kingdom & Republic of Ireland


The composition of the Group's UK revenue and profit from operations as between vehicle rental activities and fleet management is set out below:



2008

£000


2007

£000

Revenue




Vehicle rental 

345,227


337,370

Fleet management

15,525


13,738


360,752


351,108

Profit from operations




Vehicle rental 

73,627


71,137

Fleet management

770


576

Intangible amortisation

(2,569)


(2,035)


71,828


69,678


Operating margins (excluding intangible amortisation)



2008


2007

UK overall

20.6%


  20.4%

Vehicle rental

21.3%


21.1%

Fleet management

5.0%


4.2%


The UK operating margin has improved to 20.6% (2007 - 20.4%), driven mainly by stable utilisation and hire rates and achieving residual values better than expected. In a weakening economic environment we would expect residual values to soften. In accordance with our accounting policies we constantly review anticipated net book values and possible changes in disposal values.  


Spain

For both years, set out below, each of Fualsa and Record have been reported as subsidiary undertakings and therefore the figures are on a comparable basis.


The revenue and profit generated by our Spanish operations are set out below:





2008

£000


2007

£000

Revenue






Vehicle rental 



217,710


175,357







Profit from operations






Vehicle rental 



47,404


39,265

Non-recurring property profit



1,098


-

Intangible amortisation



(2,124)


(1,887)




46,378


37,378






2008


2007

Operating margins (excluding intangible amortisation

and non-recurring property profit)




21.8%



22.4%


Spain's operating margin was 21.8% (2007 - 22.4%). Sales and profit from operations in 2008, expressed at constant exchange rates, would have been lower than reported by £13.1m and £4.7m respectively.


Group


Group return on capital employed, calculated as Group profit from operations divided by average capital employed (being shareholders' funds plus net debt), is 10% (2007 - 10%).


Group return on equity, calculated as profit after tax divided by average shareholders' funds, is 16% (2007 - 16%).


Taxation


The Group's effective tax charge for its UK and overseas operations is 23% (2007 - 28%).


The UK current year rate has been affected by the reduction in UK Corporation tax from 30% to 28%, effective from 1 April 2008, being applied to the deferred tax provision and further adjustments arising from the agreement of earlier year tax computations with HMRC.


The Spanish effective tax rate continues to benefit from concessions based on vehicle purchase reliefs that are available in Spain, some elements of which will be phased out by 2011. Additionally, the standard rate of Spanish Corporation tax will reduce to 30% in 2009 from 32.5% currently.  


The Group's treasury operations, part of which are based in Malta, have not had a significant effect upon the Group's effective tax charge for the year. However, it is anticipated this operation will contribute to maintaining the current effective rate in future periods.


Earnings per Share


Basic earnings per share increased by 14% to 86.7p (2007 - 76.1p), reflecting the growth in profits in both the UK and Spain and the reduced tax rate. Excluding intangible amortisation of £4.7m (2007 - £3.9m) and the exceptional property profit in Spain of £1.1m, adjusted basic earnings per share grew by 13% to 91.8p (2007 - 81.6p).


Basic earnings per share have been calculated in accordance with IAS 33.  


Dividend


The Directors recommend a final dividend of 16.5p per share (2007 - 15.5p) giving a total for the year of 28.0p (2007 - 25.5p), an increase of 10%. The dividend is covered 3.3 times* (2007 - 3.2 times). 

*Stated before intangible amortisation of £4.7m (2007 - £3.9m) and an exceptional property profit of £1.1m in Spain.


Investments


On 18 July 2007, we acquired the trade and assets of Alquiservicios for £5.2m.


On 31 August 2007 we acquired 100% of the equity of GPS for £0.3m.


On 1 November 2007, we acquired 100% of the equity of Hampsons for £9.9m plus acquired debt of £7.4m.


On 30 November 2007 we acquired the trade and vehicles of Abington for £1.3m.


Ordinary shares of the Company have been acquired in the open market by Walbrook Trustees (Guernsey) Limited and Capita IRG Trustees Limited in order to satisfy the Company's obligations under its various share schemes. These shares are included within the Group's balance sheet within the own shares held reserve. Additionally, the Company acquired and cancelled 800,000 of its ordinary shares during 2007.


Capital Structure


As at 30 April 2008 the Group's total gearing, measured as net debt (including cash balances) as a percentage of shareholders' funds was 224% (2007 - 208%). Gearing calculated by deducting goodwill and intangible assets from shareholders' funds was 312% (2007 - 290%). The level of reported net debt has been significantly impacted by the exchange rate movement on Euro denominated debt. At constant exchange rates, net debt would have been £85m lower and the gearing level, calculated by deducting goodwill and intangible assets from shareholders' funds, reduced to 274%.


 Treasury


Strategy


The Group's financing strategy, which has been approved by the Board, is to use medium and long-term debt to finance the Group's vehicle fleet and other capital expenditure. Working capital is funded by internally generated funds and an overdraft facility. The Group's interest rate exposure is managed by a series of treasury contracts as described below.


Treasury Management


Each of the Group's operations is responsible for its own day-to-day cash management. The sourcing of finance for the Group and the related commercial terms is arranged and monitored through the Group's treasury function. In December 2007 the Group extended its loan facilities by £130m to a total of £885m; this extension being under a series of three-year unsecured, revolving, bilateral agreements. Also in December, the Group concluded a second Private Placement in the United States of America by issuing unsecured loan notes with a maturity period of five years raising $62m of new finance. The Group also entered into a series of financial instruments to fix the rate of interest at an effective rate of 5.19% per annum for the period of these new loan notes. All funds generated by the Group's operations are controlled by the treasury function, part of which is based in Malta to reflect the Group's European expansion. 


Liquidity


The Group's aggregate finance facilities, including existing Spanish loan facilities, total £1,103m compared to net debt of £894m at 30 April 2008 giving adequate funding for our expected growth. In addition, under the terms of our facilities, there is permission to obtain debt finance from other sources up to a maximum of £100m. As described above, the core of these arrangements relate to the £885m unsecured bank loan facilities and £201m of unsecured US loan notes which, combined with the other facilities, have the following maturity profile:



Maturing

Amount £m

Within 1 year

152

Within 1 - 3 years

750

Within 4 years

31

Within 7 years

63

Within 10 years

107

Total

1,103


Our plan is to seek to extend the maturity profile of this debt in the current financial year consistent with the Group's strategic plan.


Cash Flows


The Group's net debt increased by 18% to £894.0m (2007 - £755.3m). This increase mainly reflects net capital expenditure relating to fleet growth in the UK £141.5m and Spain £131.9m. Additionally £85m of this increase in debt is related to currency translation resulting from the 16% year on year increase in the value of Euro against Sterling. Gross cash generation as reflected by EBITDA* increased to £339.6m (2007 - £304.9m).  

*EBITDA - Earnings before interest, taxation, depreciation and amortisation.


Interest Costs


The Group's profit before tax has been reduced by the £7m increase in interest costs in 2008. Of this increase £1.7m (24%) arises from the strengthening of the Euro against Sterling; the remainder arises from a combination of higher interest rates and increased borrowings. 


As virtually all our UK borrowings were hedged during the year the increase in UK interest rates did not have a material effect upon interest costs.


The Group's net interest costs have increased by 22% to £38.7m (2007 - £31.7m) compared to an increase in net debt of 18%. Despite the increase in the cost of debt finance, interest cover remains healthy at 3.1 times (2007 - 3.4 times).


Interest Rate Management


The Group's bilateral facilities agreements incorporate variable interest rate clauses. Historically, it has sought to manage this risk by having in place a number of financial instruments covering 30% to 40% of its borrowings at any time but more recently has adopted a policy to increase this coverage to a higher level of between 50% to 75%. The proportion of net debt hedged into fixed rates was 66% at 30 April 2008. The weighting of this coverage is very much towards Sterling debt where over 90% is fixed. The Euro denominated debt has 55% of its value fixed with an average fixed rate term of 3.6 years. Some £164m of financial instruments (interest rate swaps) at an average rate of 2.74% expired in June 2008. These interest rate swaps were replaced with interest rate swaps totalling £158m at an average interest rate level of c.5%.

 

Risks and Uncertainties


The operation of a public company involves a number of risks and uncertainties across a range of commercial, operational and financial areas. The principal risks and uncertainties that have been identified as being capable of impacting the Group's performance over the next financial year are set out below:


Vehicle Holding Costs


We aim to minimise the whole life holding cost of the vehicles in our fleet. An increase in new pricing or a reduction in the disposal values of vehicles being sold would increase our holding cost. Were we not able to recover any such increases from our customers, this would impact on our profitability. We manage the risk on new pricing by using our significant purchasing power to negotiate, before the end of the calendar year, fixed supply terms for the year ahead. As regards disposal values our business model allows us flexibility over the period we hold a vehicle, and therefore, in the event of a decline in residual values, we would attempt to mitigate the impact by ageing out our existing fleet.

 

Customers and reduction in demand


The Spanish business generates 47% of its revenues from customers participating in construction. While the vast majority of these customers are focused on infrastructure projects funded by central government and EU funds with reasonable forward visibility, if there was a significant downturn in demand, vehicles could be returned. Our initial response to such an event would be to seek to place these vehicles with customers in other sectors. Were the downturn to be more widespread, we would look to maintain utilisation at 90% through a combination of a decrease, or cessation, of vehicle purchases and an increase in vehicle disposals, which although affecting short-term profitability, should generate cash and reduce debt levels.


We believe that in response to a downturn in commercial activity affecting the wider Group then similar actions would be taken; with the same effect. The Group, however, could benefit in a downturn as customers who are either unable to finance the purchase of their own vehicle fleet or are unwilling to commit to long-term leasing arrangements turn to the Group's flexible rental model.


Hire Rates


The business model is operationally geared and any increase or decrease in hire rates will impact profit to a greater effect.


In the UK the business has previously experienced pressure on hire rates particularly during 2005. Since the beginning of 2006 hire rates in the UK have been stable.  


Spanish hire rates have reflected a moderate increase year on year for the past few years, mainly reflecting the inflationary nature of the Spanish economy and the increase in the capital cost of vehicles.

 

Access to capital


The Group requires capital both to replace vehicles that have reached their estimated useful life and for growth in the size of the existing vehicle fleet, either organically or through acquisition.  


If cash generated from operations and/or available under its credit facilities is not sufficient to fund its capital requirements, additional debt and/or equity financing will be required. If such financing were not available then this could potentially adversely affect the prospects of the Group.


The Group has sufficient banking facilities to support its plans. During the year we have been able to obtain both new facilities and additional financing from the unsecured loan notes issued through a Private Placement in the United States of America. We believe that a combination of our operating cash flows and available facilities are adequate for our foreseeable needs. We are also confident that we will be able to extend the maturity profile of our existing facilities in the current financial year.


Information technology systems


The Group is dependent upon its IT systems for the effective running of its operations. Prior to any material systems changes being implemented the Board approves a project plan. The project is then led by a member of the executive team; with an ongoing implementation review being carried out by internal audit and external consultants where appropriate. The objective is always to minimise the risk that business interruption could occur as a result of the system changes. In Spain we successfully transferred the Fualsa operations onto the Record IT systems in May 2008 without any material business interruption. We also commenced changing the IT systems platform for the UK business, this process will continue throughout 2008/09.


Additionally, the Group has an appropriate business continuity plan in the event of interruption arising from an IT systems failure.  





Consolidated Income Statement

for the year ended 30 April 2008



2008



2007

(restated)


Notes

£000


£000






Revenue

1

578,462


526,465






Cost of sales

1

(400,668)


(356,923)






Gross profit


177,794


169,542

Administrative expenses (excluding amortisation)


(54,895)


(58,564)

Amortisation 


(4,693)


(3,922)






Total administrative expenses


(59,588)


(62,486)






Profit from operations


118,206


107,056

Investment income


3,139


3,764

Finance costs


(41,853)


(35,452)











Profit before taxation


79,492


75,368






Taxation


(18,158)


(20,885)











Profit for the year


61,334


54,483






Profit for the year is wholly attributable to equity holders of the parent Company










Earnings per share





From continuing operations










Basic

2

86.7p


76.1p






Diluted

2

85.8p


75.8p


  

Consolidated Statement of Recognised Income and Expense

for the year ended 30 April 2008


2008


2007


£000


£000









Foreign exchange differences on retranslation of net assets of subsidiary undertakings

29,221


(1,756)

Foreign exchange difference on revaluation reserve

164


(11)

Net foreign exchange differences on long term borrowings held as hedges

(34,349)


1,425

Other foreign exchange differences recognised directly in equity

-


628

Net fair value (losses) gains on cash flow hedges

(1,721)


4,471

Share options fair value amount credited (charged) directly to equity

3,340


(75)

Actuarial (losses) gains on defined benefit pension scheme

(208)


445

Net current tax credit recognised directly in equity

-


1,084

Deferred tax on net investment hedges

11,192


-

Other net deferred tax charge recognised directly in equity

(2,018)


(2,616)





Net income recognised directly in equity

5,621


3,595





Profit attributable to equity holders

61,334


54,483





Total recognised income and expense for the year

66,955


58,078


  Consolidated Balance Sheet 

as at 30 April 2008


2008


2007


£000


£000

Non-current assets




Goodwill

83,152


75,120

Other intangible assets

28,475


26,804

Property, plant and equipment: vehicles for hire

1,006,792


860,052

Other property, plant and equipment

81,960


68,160

Total property, plant and equipment

1,088,752


928,212


1,200,379


1,030,136





Current assets




Inventories

12,073


8,709

Trade and other receivables

193,088


176,760

Cash and cash equivalents

48,763


35,039


253,924


220,508





Non-current assets classified as held for sale

30,566


21,941





Total assets

1,484,869


1,272,585





Current liabilities




Trade and other payables

90,182


68,570

Tax liabilities

15,728


11,973

Short term borrowings

8,414


20,340


114,324


100,883





Non-current liabilities




Long term borrowings

934,357


770,022

Deferred tax liabilities

37,082


38,694

Retirement benefit obligation

553


555


971,992


809,271





Total liabilities

1,086,316


910,154





Net assets

398,553


362,431





Equity




Share capital

3,527


3,560

Share premium account

67,972


67,230

Revaluation reserve

1,207


1,043

Own shares

(9,006)


(4,572)

Merger reserve

67,463


67,463

Hedging reserve

7,110


5,199

Translation reserve

3,817


1,924

Capital redemption reserve

40


-

Retained earnings

256,423


220,584

Total equity

398,553


362,431


Consolidated Cash Flow Statement 

for the year ended 30 April 2008



2008


2007


Notes

£000


£000






Net cash from operating activities

4

285,932


224,765






Investing activities





Interest received


2,453


3,145

Proceeds from disposal of vehicles for hire


196,113


188,512

Purchases of vehicles for hire


(469,438)


(437,947)

Proceeds from disposal of other property, plant and equipment


3,475


3,283

Purchases of other property, plant and equipment


(13,520)


(11,126)

Purchases of intangible assets


(260)


(1,281)

Payment of deferred consideration


-


(10,290)

Acquisition of subsidiary undertakings, including net cash and bank overdraft balances acquired

3

(15,260)


(49,340)






Net cash used in investing activities


(296,437)


(315,044)






Financing activities





Dividends paid


(18,933)


(16,946)

Repayments of obligations under finance leases


(25,082)


(63,740)

Repayments of bank loans and other borrowings


(30,244)


(175,579)

Increase in bank loans and other borrowings


113,210


359,891

Proceeds from issue of share capital


749


2,254

Proceeds from sale of own shares


981


62

Payments to acquire own shares


(5,415)


(1,303)

Payments to acquire own shares for cancellation


(8,166)


-

Settlement of financial instruments


(3,198)


-






Net cash from financing activities


23,902


104,639






Net increase in cash and cash equivalents


13,397


14,360






Cash and cash equivalents at 1 May 


34,467


20,259






Effect of foreign exchange movements


899


(152)






Cash and cash equivalents at 30 April

5

48,763


34,467


  Consolidated Statement of Changes in Equity

For the year ended 30 April 2008



2008


2007



£000


£000

Amounts attributable to equity holders of the parent Company





Foreign exchange differences on retranslation of net assets of subsidiary undertakings


29,221


(1,756)

Foreign exchange differences on revaluation reserve


164


(11)

Net foreign exchange differences on long term borrowings held as hedges


(34,349)


1,425

Other foreign exchange differences recognised directly in equity


-


628

Net fair value (losses) gains on cash flow hedges


(1,721)


4,471

Share options fair value amount credited (charged) directly to equity


3,340


(75)

Actuarial (losses) gains on defined benefit pension scheme


(208)


445

Net current tax credit recognised directly in equity


-


1,084

Deferred tax on net investment hedges


11,192


-

Other net deferred tax charge recognised directly in equity


(2,018)


(2,616)

Net income recognised directly in equity


5,621


3,595

Profit attributable to equity holders


61,334


54,483






Total recognised income and expense for the year


66,955


58,078

Dividends paid


(18,982)


(16,949)

Issue of Ordinary share capital (net of expenses)


749


2,254

Net increase in own shares held


(4,434)


(1,241)

Cost of shares purchased for cancellation


(8,166)


-

Net changes in total equity


36,122


42,142






Opening total equity as at 1 May


362,431


320,289






Closing total equity as at 30 April 


398,553


362,431


  Notes

1.      Segmental analysis

 

The Directors consider the United Kingdom and Republic of Ireland to be a single geographical segment on the grounds that the results and net assets of operations in the Republic of Ireland are not material to the Group as a whole.

 

 
 
 
UK & Republic of Ireland
 
Spain
 
Total
 
 
 
2008
 
2008
 
2008
 
 
 
£000
 
£000
 
£000
 
 
 
 
 
 
 
 
 
Revenue
 
360,752
 
217,710
 
578,462
 
 
 
 
 
 
 
 
 
Gross profit
 
118,743
 
59,051
 
177,794
 
 
 
 
 
 
 
 
 
Administrative expenses
 
(44,346)
 
(10,549)
 
(54,895)
 
Amortisation
 
(2,569)
 
(2,124)
 
(4,693)
 
 
 
 
 
 
 
 
 
Profit from operations
 
71,828
 
46,378
 
118,206
 
 
 
 
 
 
 
 
 
 
UK & Republic of Ireland
 
Spain
 
Total
 
 
2007
 
(restated)
2007
 
(restated)
2007
 
 
£000
 
£000
 
£000
 
 
 
 
 
 
 
Revenue
 
351,108
 
175,357
 
526,465
 
 
 
 
 
 
 
Gross profit
 
117,638
 
51,904
 
169,542
 
 
 
 
 
 
 
Administrative expenses
 
(45,925)
 
(12,639)
 
(58,564)
Amortisation
 
(2,035)
 
(1,887)
 
(3,922)
 
 
 
 
 
 
 
Profit from operations
 
69,678
 
37,378
 
107,056



The 2007 consolidated income statement has been restated to reclassify certain costs which are considered more appropriately classified within cost of sales than administrative expenses. The impact of this restatement has been to increase cost of sales by £11,473,000 and reduce administrative expenses by the same amount. There is no impact on profit from operations or profit before taxation for the year ended 30 April 2007, the Group cash flow statement for the year ended 30 April 2007 or the Group balance sheet as at 30 April 2007 as a result of this restatement.


 

2.      Earnings per share

 




2008


2007

(a) Basic and diluted earnings per share










The calculation of basic and diluted earnings per share is based on the following data:










Earnings


£000


£000






Earnings for the purposes of basic and diluted earnings per share, being net profit attributable to equity holders of the parent


61,334


54,483






Number of shares


Number


Number






Weighted average number of Ordinary shares for the purposes of basic earnings per share


70,756,672


71,584,744






Effect of dilutive potential Ordinary shares:





 - share options


737,756


250,032






Weighted average number of Ordinary shares for the purposes of diluted earnings per share


71,494,428


71,834,776






Basic earnings per share


86.7p


76.1p






Diluted earnings per share


85.8p


75.8p






(b) Earnings per share before amortisation and non-recurring property profit


£000


£000











Earnings for the purpose of basic and diluted earnings per share (above)


61,334


54,483






Amortisation


4,693


3,922

Non-recurring property profit


(1,098)


-






Earnings for the purpose of basic and diluted earnings per share before amortisation and non-recurring property profit


64,929


58,405






Basic earnings per share before amortisation and non-recurring property profit


91.8p


81.6p






Diluted earnings per share before amortisation and non-recurring property profit


90.8p


81.3p






 

3.      Business Combinations



£000

(a) Alquiservicios LSC S.A.






Book value


4,457

Fair value adjustments


385



4,842

Fair value of net assets





Goodwill


391


Acquisition costs (including expenses)


5,233




(b) GPS Body Repairs Limited






Book value


77

Fair value adjustments


(15)




Fair value of net assets


62




Goodwill


224


Acquisition costs (including expenses)


286




(c) Hampsons (Self Drive Hire) Limited






Book value


6,245

Fair value adjustments


2,698




Fair value of net assets


8,943




Goodwill


996


Acquisition costs (including expenses)


9,939




(d) Abington Vehicle Rentals Limited






Book and fair value of net assets


1,311

Goodwill


-


Acquisition costs (including expenses)


1,311


  

4.      Reconciliation of Group profit from operations to net cash from operating activities




2008


2007



£000


£000






Profit from operations


118,206


107,056






Adjustments for:





Depreciation of property, plant and equipment


216,736


193,885

Exchange differences


(337)


366

Amortisation of intangible assets


4,693


3,922

Gain on disposal of property, plant and equipment


(1,540)


(356)

Defined benefit pension charge


9


8

Share options fair value amount credited (charged) directly to equity


3,340


(75)






Operating cash flows before movements in working capital


341,107


304,806






Increase (decrease) in inventories


(2,408)


460

Decrease (Increase) in receivables


12,078


(16,810)

Decrease in payables


(15,478)


(5,838)






Cash generated from operations


335,299


282,618






Income taxes paid


(13,447)


(22,446)

Interest paid


(35,920)


(35,407)






Net cash from operating activities


285,932


224,765


 

5.      Cash and cash equivalents


Cash and cash equivalents consist of cash in hand and at bank, investments in money market instruments and bank overdrafts. 


Bank overdrafts are included within cash equivalents on the grounds that they are repayable on demand and form an integral part of the Group's cash management. 


Cash and cash equivalents, as described above, included in the cash flow statement comprise the following balance sheet amounts.




2008


2007



£000


£000






Cash in hand and at bank


11,372


14,384

Short term investments


37,391


20,655

Gross cash and cash equivalents as reported


48,763


35,039

Bank overdrafts


-


(572)

Net cash and cash equivalents


48,763


34,467

  

6.      Analysis of Consolidated net debt






2008


2007


£000


£000





Cash at bank and in hand

11,372


14,384

Short term investments

37,391


20,655

Bank overdraft due within one year

-


(572)


48,763


34,467





Bank loans

(735,970)


(601,326)

Loan notes

(201,142)


(168,628)

Vehicle related finance lease obligations

(356)


(16,104)

Deferred consideration

(519)


-

Preference shares

(500)


(500)

Property loans and other borrowings

(4,284)


(3,232)


(894,008)


(755,323)


 

7.      Basis of preparation


The results for the year ended 30 April 2008, including comparative financial information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and their interpretations adopted by the European Union.


Northgate plc ("the Company") has adopted all IFRS in issue.


The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 April 2008 or 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. 


The Report and Accounts for the year ended 30 April 2008 will be mailed to shareholders no later than 1 August 2008. 




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