Final Results

Northgate PLC 4 July 2001 Wednesday 4 July 2001 NORTHGATE PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2001 Northgate plc, the UK's leading specialist in light commercial vehicle hire, announces its preliminary results for the year ended 30 April 2001. * Turnover up 20% to £261.8m (2000: £218.3m) * Operating profit up 12% to £42.6m (2000: £37.9m) * Pre-tax profit up 11% to £27.1m (2000: £24.3m) * Strong cash flow with EBITDA up 14% at £118.8m * Earning per share up 11% to 31.0p (2000: 27.9p) * Dividends increase by 6% to 14.0p (2000:13.25p) per share * Fleet increases to over 36,000 vehicles * Fleet utilisation remains above 90% * Increase in overall hire rates achieved - first time since 1997 * Profits on disposal of used vehicles achieved in last quarter * Gearing reduced to 174% (2000:189%) * Interest cover unchanged at 2.8 times Michael Waring, Chairman commented: 'We have now completed the second year of our five year Strategy for Growth in which our goal is to double the size of Northgate's business. We remain firmly on track. Furthermore, we have made sound progress during the year in operational areas that were priorities for our management team - most notably achieving increases in hire rates and returning our used vehicle sales to profitable levels. We have also continued to generate a strong cash flow, growing the fleet by 11% while reducing gearing levels that were already conservative by industry standards. Despite a 220% growth in fleet over the past 5 years, we continue to believe that we have not yet tapped the full potential of the market in the UK, nor indeed that in continental Europe. Independent research confirms our view that rental penetration in the UK remains low compared to the more mature US market. Our faith in our ability to successfully grow Northgate is undiminished.' Full statement and results attached. For further information, please contact: Northgate plc 01325 467558 Steve Smith, Managing Director (On 4 July 2001: 020 7357 9477) Phil Moorhouse, Finance Director Hogarth Partnership Limited 020 7357 9477 Andrew Jaques John Olsen Chairman's Statement to Shareholders My report to you covers the second year of our Strategy for Growth in which we set out our aim to double the size of our business within five years. Not only are the results consistent with that strategy, but we have also had success in the areas of the business which we determined to progress this year. These are just some of the achievements of the year: - Our earnings per share have risen by 11%. - Utilisation has averaged in excess of 90%. - We have achieved an increase in the overall hire rate for the first time in 4 years. - We have improved the management of our used vehicle sales to the extent that we achieved profits on disposals in the last quarter. - The regional management structure is now well established giving us the right foundations on which to continue the growth of our business. - Our depot network has grown to 48 sites with another 4 ready to open. All this has been achieved without any increase in gearing, demonstrating that Northgate can achieve this growth without raising gearing levels, which are themselves modest by industry standards. Our faith in our ability to successfully grow Northgate is undiminished. In fact, despite a growth in fleet over the past 5 years from 11,250 to over 36,000 vehicles, we believe we have not yet tapped the full potential of the market in the UK, nor indeed that in continental Europe, for the flexible rental product we offer to customers under the brand name NORFLEX. Christopher Spence and Michael Baughan, who have been non-executive directors of Northgate plc since 1985 and 1987 respectively, have indicated their desire to step down from the board at the AGM. I am extremely grateful to both of them for their untiring efforts on behalf of the shareholders over many years. We have all benefited greatly from their counsel. At the same time I would like to welcome Jan Astrand, who joined the board on 13 February 2001 as a non-executive director. He comes with wide experience of the vehicle rental industry in both Europe and the UK. Finally I would like to thank my fellow directors, the management and staff for all their efforts on your behalf. In addition I would like to thank shareholders for their continued support. OPERATIONAL REVIEW Network We have opened 4 hire companies and 2 branches in the year to 30 April 2001. Since the year end, we have acquired a further 4 properties which are now ready to open and which will provide us with a network of 52 locations. Aberdeen and Dublin in particular have significantly extended our geographic coverage. It remains our intention to open between 10 and 12 new locations in the current financial year as we continue to infill those areas where opportunities exist. Vehicle Fleet Our vehicle fleet at 30 April 2001 was over 36,000, an increase of 3,500, or 11%, over the previous year. The increase was a result of both new depots (1,400 vehicles) and organic growth in existing locations (2,100 vehicles). In the 2 years since 1999, when we announced our five year Strategy for Growth aimed at doubling the size of our business, we have increased the fleet by 35% from 26,600 to the current level. The fleet mix remains heavily biased towards light commercial vehicles with 80% of vehicles being commercials of up to 3.5 tonnes. Our policy of purchasing the market leaders' products in each weight category continues to pay dividends in terms of both our ability to rent the product and its residual value. Our main suppliers remain Ford, Mercedes, Vauxhall and Iveco. Our management of the vehicle fleet remains as vigilant as in previous years and we have achieved overall utilisation levels in excess of 90%. This average is a combination of both new sites, where utilisations are normally below average, and more mature locations operating above 90%. Hire rates In last year's review, we made reference to ' a period of relatively stable prices' and the opportunity to 'obtain some modest hire rate increases'. We are pleased to report that during the year under review, despite the market remaining competitive, we have achieved an overall increase in hire rates for the first time in 4 years. Used Vehicle Sales The first half of the year saw a continuing soft residual market holding back our efforts to improve vehicle disposal margins. From January 2001, however, we have seen better used vehicle prices which, coupled with our internal improvements, has resulted in profits being achieved on disposals in the last quarter. Norcom, the disposal centre for refurbished vehicles that was launched on 1 May 2000, now accounts for 12% of our disposals and has made a valuable contribution to this improvement. For the current year, we remain optimistic that we can achieve our target of break even or better on vehicle disposals. Technology We have continued with a number of technology based initiatives during the year, both to develop new electronic sales channels and to deliver better fleet monitoring solutions for our customers. First, we now have an on-line booking facility through our virtual rental company Wannavan. This was launched in June 2001 and allows customers to access our network of hire companies and the ability to reserve vehicles on-line. Secondly, we have developed Norfleet, a brand which seeks to utilise our purchasing power, particularly in respect of vehicle related products. Our aim is to encourage customers to purchase these products through Norfleet, thereby both increasing our purchasing power and offering customers a valuable service. Thirdly, as the group grows, we have recognised the need to improve communication and provide a mechanism for knowledge to be shared. Driveway, our group intranet, which went live in May 2001, is an ideal conduit allowing communication between all levels of staff and improved efficiencies within the business. The Market In October 2000 we commissioned Datamonitor to report on the commercial vehicle rental market in the UK. Their key findings were as follows:- * The commercial vehicle rental market grew by 19.5% between 1998 and 2000 and is forecast to have a value of £2,900m by 2005, a further increase of around 30%. * Growth is being driven by 'the propensity of new and existing customers to outsource their logistics and fleet management operations'. Companies with commercial vehicles are moving closer to the concept of ' usership' rather than 'ownership'. * Compared to the more mature US market, rental penetration remains low in the UK at 9% v 33% in the US. These findings confirm our belief in the opportunity we have to continue with the expansion of our business in the UK where we have not yet fully tapped the existing potential. Last year we also carried out some preliminary research into the continental European commercial vehicle rental market, which showed development in Europe to be significantly behind the UK. We are of the opinion that, at the appropriate time, there will be considerable potential to roll out our flexible rental product, NORFLEX, into those markets. Current trading and outlook In the year ahead we will continue to focus on maintaining a balanced position on residuals, edging hire rates forward, expanding the depot network and fleet, whilst achieving our traditional utilisation levels. We remain confident of achieving these objectives and hence Northgate's continued profitable growth. FINANCIAL REVIEW Sales and Operating Profit Sales increased by 20% to £261.8m (2000:£218.3m) and operating profit increased by over 12% to £42.6m (2000: £37.9m). This reflected the increase in revenue from rental operations of 16%, together with a 31% increase in revenues from vehicle sales, largely as a result of a higher number of vehicles for disposal. Revenue from hire companies increased across the network with growth in both new and more mature sites. At the end of the year 18 sites had been open less than 2 years: the full benefit of these sites will flow through in subsequent years. Operating margins at 16.3% compared to the previous year of 17.4%. This reflects the cost of continued investment in new locations and a greater proportion of turnover from vehicle sales than the previous year. These vehicle sales are at a significantly lower margin than the hire operation. Interest The net interest cost was £15.5m, an increase of 14% over 2000. This reflects both the increase in average borrowings, largely due to fleet growth, and the underlying increase in UK base rates over the corresponding period. We continue to manage our exposure to interest rates: our policy is to have in place financial instruments covering a proportion of our borrowings over the longer term. Interest cover was unchanged at 2.8 times. Pre-tax profit Profit before tax increased by over 11% to £27.1m (2000: £24.3m) Taxation and FRS 19 We anticipate that the adoption of FRS 19, 'Accounting for tax', in the next financial year will have no adverse impact as the company policy has always resulted in full provision. The tax charge of 30.6% comprises tax payable on ordinary activities. Fixed Assets and FRS 15 In the year ended April 2000 a new accounting policy was adopted following the introduction of FRS 15. Manufacturers' volume related bonuses, previously credited to profits on receipt, were spread over the life of the asset to which they related. This policy change resulted in a deferred income credit last year of £49.4m in the balance sheet, to be released to profit over the life of the vehicle rental fleet. Following discussions with the Financial Reporting Review Panel, to comply with FRS 15, these bonuses are now to be regarded as a reduction in the cost of acquiring vehicles, rather than as deferred income. Accordingly, the deferred income account of £54.2m, which would have been shown separately as a credit under Accruals and deferred income, has been deducted from the cost of the vehicle hire fleet in fixed assets. The effect will be to reduce the depreciation charge over the life of the current vehicle fleet. The effect of the volume related bonus for the year ended 30 April 2001 of £48.8m is now deducted from operating costs, through depreciation, rather than added to turnover as would have been the case under the previous policy. The comparative figures for the year ended 30 April 2000 have been amended accordingly. This treatment has no effect on operating profits, although the operating margin increases because of the change in turnover reported. These adjustments affect turnover and the amount at which the vehicles are carried but have no impact on profit, EPS, net assets, cash flows, gearing or shareholders' funds. Earnings per share The calculated earnings per share were 31.0p, an increase of 11% on the 2000 figure of 27.9p. Dividend The Directors recommend a final dividend of 9.6p per share (2000: 9.07p), making a total for the year of 14p (2000: 13.25p) - an increase of 6%. It will be paid on 14 September 2001 to shareholders on the register at 13 July 2001. The dividend is 2.2 times covered (2000: 2.1). Cash flow and funding Gross cash generation continues to be strong with EBITDA for the year £118.8m, up by 14% from 2000. Capital investment was £172.6m, being £166.8m in the vehicle hire fleet and £5.8m in non-vehicle expenditure on property and other equipment, largely relating to the expansion of the depot network. Our net borrowings increased marginally to £214.7m at 30 April 2001, with average borrowing increasing by 8% year on year. The finance facilities currently available to the group are in excess of £ 400m and are a mixture of hire purchase funding, revolving loans and overdraft, secured primarily over the value of the vehicle hire fleet. More than 63% of our borrowings are longer than one year The vehicle hire fleet consists mainly of light commercial vehicles which are readily saleable, predominantly through our own vehicle sales company. The liquidity of the hire fleet and the management of interest exposure adequately support the level of gearing at 174%, which remains low compared to the industry norm. Gearing has in fact reduced from last year's figure of 189%, demonstrating our ability to achieve these growth levels without increasing gearing. This confirms the strong cash flows in the business. Return on capital Our Strategy for Growth is based upon expanding our depot network to around 100 locations. The continued investment in new sites reduces margins in the short term whilst these businesses are maturing. Despite this our return on capital remains a healthy 12.8%. NORTHGATE PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2001 GROUP PROFIT ANNOUNCEMENT FOR THE 12 MONTHS ENDED 30 APRIL 2001 2001 2000 £000 £000 (reclassified) TURNOVER 261,801 218,286 OPERATING PROFIT 42,569 37,942 INTEREST PAYABLE - NET (15,459) (13,617) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 27,110 24,325 Taxation - UK 8,306 7,429 PROFIT FOR THE FINANCIAL YEAR 18,804 16,896 NORTHGATE PLC PRELIMINARY RESULTS GROUP PROFIT ANNOUNCEMENT FOR THE 12 MONTHS ENDED 30 APRIL 2001 (continued) 2001 2000 £000 £000 (reclassified) PROFIT FOR THE FINANCIAL YEAR 18,804 16,896 DIVIDENDS Preference paid 25 25 Interim paid 2,680 2,528 Final proposed 5,812 5,486 8,517 8,039 PROFIT TRANSFERRED TO RESERVES 10,287 8,857 EARNINGS PER ORDINARY SHARE - BASIC (see note) 31.0p 27.9p DILUTED EARNINGS PER ORDINARY SHARE (see note) 30.9p 27.8p DIVIDENDS PER ORDINARY SHARE Interim paid 4.4p 4.18p Final proposed 9.6p 9.07p TOTAL DIVIDEND FOR YEAR 14.0p 13.25p NORTHGATE PLC PRELIMINARY RESULTS SUMMARY CONSOLIDATED BALANCE SHEET 30 APRIL 2001 2001 2000 £000 £000 (reclassified) Fixed assets 318,353 294,788 Current assets 82,244 75,636 Creditors: amounts falling due within one year (133,869) (108,166) Net current liabilities (51,625) (32,530) Total assets less current liabilities 266,728 262,258 Creditors : amounts falling due after more than one year (136,620) (142,828) Provisions for liabilities and charges (6,681) (6,626) 123,427 112,804 Called up share capital 3,539 3,532 Share premium account 45,321 44,992 Reserves 74,567 64,280 Shareholders' funds 123,427 112,804 Net borrowings (214,675) (213,736) NORTHGATE PLC PRELIMINARY RESULTS RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE 12 MONTHS ENDED 30 APRIL 2001 2001 2000 £000 £000 (reclassified) PROFIT FOR THE FINANCIAL YEAR 18,804 16,896 Dividends (8,517) (8,039) 10,287 8,857 Issue of ordinary share capital (net of 336 92 expenses) NET INCREASE IN SHAREHOLDERS' FUNDS 10,623 8,949 OPENING SHAREHOLDERS' FUNDS 112,804 103,855 CLOSING SHAREHOLDERS' FUNDS 123,427 112,804 NORTHGATE PLC PRELIMINARY RESULTS CONSOLIDATED CASHFLOW STATEMENT FOR THE 12 MONTHS ENDED 30 APRIL 2001 2001 2000 £000 £000 £000 £000 (reclassified) CASH INFLOW FROM OPERATING 117,388 96,973 ACTIVITIES RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (15,266) (13,079) TAXATION 695 (6,309) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of vehicles for hire (21,610) (65,000) Sale of vehicles for hire 72,384 58,805 Other items (net) (5,366) (5,087) NET CASH INFLOW/(OUTFLOW) FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 45,408 (11,282) EQUITY DIVIDENDS PAID (8,166) (7,659) CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING 140,059 58,644 MANAGEMENT OF LIQUID RESOURCES Cash withdrawn from/(placed on) deposit 23 (9) FINANCING Issue of ordinary shares (net of 336 92 expenses) (Decrease)/increase in borrowings (18,052) 421 Capital element of vehicle related hire purchase payments (103,745) (73,586) NET CASH OUTFLOW FROM FINANCING (121,461) (73,073) INCREASE/(DECREASE) IN CASH FOR THE YEAR 18,621 (14,438) NORTHGATE PLC PRELIMINARY RESULTS RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT 2001 2000 £000 £000 (reclassified) INCREASE/(DECREASE) IN CASH FOR THE YEAR 18,621 (14,438) FINANCING Decrease/(increase) in borrowings 26,968 (421) Capital element of vehicle related hire purchase 103,745 73,586 payments Cash (withdrawn from)/placed on deposit (23) 9 Change in net debt resulting from cashflows 149,311 58,736 New hire purchase obligations (150,250) (99,656) MOVEMENT IN NET DEBT FOR THE YEAR (939) (40,920) NET DEBT AT 1 MAY 2000 (213,736) (172,816) NET DEBT AT 30 APRIL 2001 (214,675) (213,736) NOTES Earnings per ordinary share The calculation of basic earnings per ordinary share in respect of the year to 30 April 2001 is based on the profit attributable to equity shareholders of £ 18,779,000 (2000: £16,871,000) and the weighted average of 60,578,305 (2000: 60,405,822) ordinary shares in issue (excluding those shares held by an employee trust in connection with the Goode Durrant Long Term Incentive Plan). Diluted earnings per ordinary share have been calculated on the basis of earnings described above and assume that 217,000 (2000: 358,000) shares remaining exercisable under the Goode Durrant Share Option Scheme had been fully exercised at the commencement of the relevant period, such that the weighted average number of shares is 60,837,249 (2000: 60,721,888) (including those shares held by the employee trust in connection with the Goode Durrant Long Term Incentive Plan). The results for the years to 30 April 2001 and 30 April 2000 and the balance sheets at those dates are abridged. Full accounts for these periods have been prepared on which the Auditors of the company have made unqualified reports and which did not include a statement under Section 237 (2) or (3) of the Companies Act 1985. The Accounts for the year ended 30 April 2000 have been delivered to the Registrar of Companies. The Report and Accounts will be mailed to shareholders not later than 20 July 2001. Michael Waring Chairman Phil Moorhouse Finance Director

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