Final Results

Northgate PLC 3 July 2002 Wednesday 3 July 2002 NORTHGATE PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30th APRIL 2002 Northgate plc, the UK's leading specialist in light commercial vehicle hire, announces its preliminary results for the year ended 30th April 2002. • Turnover up 6% to £277.8m (2001: £261.8m) • Operating profit up 6% to £45.1m (2001: £42.6m) • Pre-tax profit up 17% to £31.7m (2001: £27.1m) • Strong cash flow with EBITDA up 11% at £132.0m • Basic earnings per share up 14% to 35.8p (2001: 31.4p) • Dividends increase by 7% to 15.0p (2001: 14.0p) per share • Fleet increases by 12% to 40,500 vehicles • Fleet utilisation remains at 90% • Profits on disposal of used vehicles achieved in every quarter throughout the year • Gearing reduced to 170% (2001: 173%) • Interest cover at 3.37 times (2001: 2.8 times) Michael Waring, Chairman, commented: 'We have now completed the third year of our five year Strategy for Growth in which our goal is to double the size of Northgate's business. I am pleased to report that we remain firmly on track. 'Furthermore, we have retained our focus and achieved improvements in most of the important measurements of the performance of our business. We have also continued to generate a strong cash flow, growing the fleet by 12% while reducing gearing levels that were already conservative by industry standards. 'Despite more than doubling the fleet over the past 5 years, we believe that we are a long way from tapping the full potential of the expanding UK rental market. In addition, we are convinced that there are excellent prospects for growth in continental Europe. We look forward to updating you on our progress, especially our plans for European expansion, during the forthcoming reporting period. 'Our faith in our ability to continue to successfully grow Northgate remains undiminished.' Full statement and results attached. For further information, please contact: Northgate plc 01325 467558 Steve Smith, Chief Executive Phil Moorhouse, Finance Director Hogarth Partnership Limited 020 7357 9477 Andrew Jaques John Olsen Tom Leatherbarrow CHAIRMAN'S STATEMENT TO SHAREHOLDERS This report covers the completion of the third year of our five year Strategy for Growth, which we announced in 1999. I am able to report that we are well on track to meet the target set out to shareholders at the time, namely to double the size of your company's business within the five year period ending 30th April 2004. It is worth reviewing the progress we have made over the past three years by reference to some of the main indicators, namely fleet growth, hire sites and earnings per share. Our opening position and that at the end of each subsequent financial year is given below. The cumulative percentage change in each measurement is shown in brackets. Fleet size Hire sites Basic e.p.s. 30th April 1999 26,600 30 19.1p 30th April 2000 32,500 (+22%) 41 (+37%) 28.1p (+47%) 30th April 2001 36,100 (+36%) 48 (+60%) 31.4p (+64%) 30th April 2002 40,500 (+52%) 61 (+103%) 35.8p (+87%) Shareholders should take note of the significant gross cash generation that Northgate is able to achieve at current levels of growth as evidenced by the fact that gearing has remained almost constant over this period, moving from 166% to only 170%, despite an increase in the fleet of 52%. While we remain firmly of the view that there is plenty of room for the growth of NORFLEX in the UK (our five year Strategy for Growth is focused solely on the development of our business in the UK), we have previously advised shareholders of our intention to expand into continental Europe. Extensive research into the various markets has confirmed our belief that they are less developed than the UK and that our NORFLEX product would be well received. Whilst we are determined to take a cautious approach to our expansion in this area, and shareholders would expect no less of us, we look forward to updating you on our progress during the forthcoming reporting period. Despite the macro-economic difficulties of the past year, our management is to be congratulated on keeping their focus and continuing to achieve improvements in most of the important measurements of the performance of our business. My thanks as always go to my fellow directors and the staff of Northgate who have worked tirelessly in the interests of shareholders and to shareholders for their continued support. OPERATIONAL REVIEW Network We plan to open between 12 and 15 locations in each year of the five year Strategy for Growth. In the year to 30th April 2002, we actually opened 2 new hire companies and 11 new branches, bringing our total number of locations to 61. The majority of these new sites are in the North but Aberdeen and Swindon in particular have enhanced our geographic coverage. Vehicle fleet During the month of April 2002, our vehicle fleet passed the 40,000 milestone, ending the year at 40,500. This represented an increase of 12% over the previous year. Once again, growth has not resulted in any change to the fleet mix with light commercial vehicles still dominating at 80% of the total fleet. We also continue to purchase the premier products available in the market, both to ensure rental customers are offered the best available and to protect residual values when we dispose of our vehicles. Utilisation Our focus on tight management of the fleet ensures that, as with previous years, we can report an average utilisation for the period of 90%. This is split between mature locations where generally over 90% is achieved, and sites not yet mature where the utilisation averaged 84%. Hire rates As reported in the Chairman's Statement in the Interim Report to 31st October 2001, an economy with low interest rates and low inflation does not lend itself to increasing prices to customers. As a result of these economic factors and the need to remain competitive in the marketplace, prices have remained relatively static over the year. Used vehicle sales As forecast in the Operational Review in last year's Report and Accounts, the internal measures we have taken to improve the results from the disposal of used vehicle sales, combined with a reasonably firm residual market, have been successful and we have achieved our target of break even, or better, on vehicle sales in each quarter of this financial year. We see no reason currently why we cannot maintain this position in the year ahead. Brand Development and Product Innovation Rental products Whilst most of our business is still generated by selling either through the individual brands of our network of local hire companies, or by using our product NORFLEX to sell on a national basis, we have continued the development of three other channels to complement these areas. 'Sale and Rentback' is used where potential customers own their fleet. Using this product we can offer the opportunity to owners to sell their fleet to us and then rent it back, thereby allowing them immediately to convert capital tied up in assets into cash for use in their core business. Our 'Central Reservations' operation based in Birmingham gives customers the ability to procure all their nationwide vehicle hire requirements through just one telephone call. Due to the comprehensive coverage of our network, we are able to source over 95% of these requirements using our own vehicle fleet, resorting to third parties in general only when the hire is in a location where we are not represented or where the vehicle is one we do not operate. 'Wannavan.com' effectively replicates Central Reservations by replacing telephone calls with the Internet for customers preferring to use this channel. It is aimed at both the retail market and short-term business users. Complementary non-rental products Whilst we remain focused on our core business of van rental, we have commenced the development of complementary, vehicle-related but non-rental products, through our 'Norfleet' division. Our first offerings were in the provision of discounted vehicle parts and mobile servicing for customers who rent from us but also have their own fleets. This makes use of both our significant purchasing power and our service network and helps tie in customers with services other than rental. Our most recent addition in this area, in March this year, was the launch of ' Norfleet Vehicle Monitoring', our telematics product. To date this has been received positively by our customers and we look forward to developing this product further over the year ahead. People A significant factor in our success has been the commitment and dedication of our employees. In order to assist in the recruitment and retention of the best people, we have introduced a number of initiatives in the last year. In particular, we have launched an induction programme for new employees, revised our personal development programme and introduced a flexible benefits package allowing about a quarter of our employees to tailor the structure of their remuneration to their individual needs. Current trading and outlook We remain confident that we will be able to continue to develop and grow our rental business in the UK beyond 2003, through maturing our new sites and by extending both our network and the overall rental market. In addition, it is our intention over the next 12 months to further develop the complementary non-rental products we offer to customers to support our continued growth. There are no one-off magical solutions and the key to success is in grinding out small improvements in the daily operations of the business. As we continue to strive towards this objective, we are well placed to seize upon any opportunities that arise, given our position as the UK's leading van rental company. The current year has started well and we remain confident about our continued ability to deliver on the objectives of the five year Strategy for Growth. As explained in the Chairman's Statement, we intend to add to the development of rental and complementary products in the UK with our first step into Europe, thereby producing a third distinct avenue for growing the business. We look forward to updating shareholders on our progress in this area during the forthcoming reporting period. FINANCIAL REVIEW Sales and operating profit Sales increased by 6% to £277.8m (2001: £261.8m) and operating profit increased by 6% to £45.1m (2001: £42.6m). Revenue from rental operations increased by 9% across the network, a combination of growth from both new and more mature sites. Including the 13 sites opened in this financial year, there are currently a total of 20 sites which have been open for less than two years. The full potential from those sites will be realised in subsequent years. Revenue from our vehicle sales operation was just under 3% less than last year, largely as a result of a marginal reduction in volumes sold into the used vehicle market. Operating margins were virtually unchanged at 16.2%. As referred to in the operating review, increases in margins are difficult in a low inflation and interest rate environment. Also, the investment in new locations inevitably has a drag on margins in their initial trading years. Interest costs and pre-tax profit Interest costs in the year have fallen by 13% to £13.4m (2001: £15.5m) as UK interest rates have continued to fall. Interest costs are the second largest direct vehicle cost in our business after depreciation. Lower interest rates are therefore a significant benefit. As a result of both the increase in operating profits and reduction in interest costs, pre-tax profit increased by almost 17% to £31.7m (2001: £27.1m). Pre-tax margins improved to 11.4% (2001: 10.4%). Taxation As anticipated, the adoption of FRS 19 (Deferred Taxation) has had no adverse impact on the Company as our policy has always resulted in full provision for deferred tax liabilities. The effective tax rate of 31.4% comprises corporation tax payable on ordinary activities. Earnings per share Basic earnings per share were 35.8p, an increase of 14% on the 2001 figure of 31.4p. Dividend The Directors recommend a final dividend of 10.35p per share (2001: 9.6p), making a total for the year of 15.0p (2001:14.0p) - an increase of 7.1%. It will be paid on 12th September 2002 to shareholders on the register at 12th July 2002. The dividend is 2.4 times covered (2001: 2.2x). Cash flow, funding and treasury 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. We have taken advantage of the low interest rates to improve our cover still further by adding instruments of £20m during the year. Our net borrowings increased by 8% over the corresponding period to £232.9m (2001: £214.7m). £258.9m of the gross debt is vehicle related and is secured against the fleet value of £325.1m. More than 54% of our gross borrowings are repayable after more than one year. The finance facilities currently available to the group are in excess of £444m and are a mixture of hire purchase funding, revolving loans and overdraft, secured primarily over the value of the vehicle hire fleet. Only 17% of the facilities are subject to any covenants. Interest cover at 3.37 times has improved over last year's level of 2.8 times. Gross cash generation continues to be strong with EBITDA for the year £132m, up by 11% from 2001. Capital investment was £183m, being £176m in the vehicle hire fleet and £7m in non-vehicle expenditure on property and other equipment, largely relating to the expansion of the depot network. 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 170%, which remains low compared to the industry norm. Gearing has in fact reduced from last year's figure of 173%, demonstrating our ability to achieve these growth levels without increasing gearing. Return on capital Our five year 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. Our return on capital (calculated as operating profit over average capital employed, being shareholders' funds plus net borrowings) is 12.7% and our return on equity (calculated as profit after tax over average shareholders' funds) is 16.6%. Key Performance Indicators Over the last two years we have revised our method of measuring performance by introducing Key Performance Indicators ('KPIs'). These KPIs target those areas of the business which are critical to the success of the Group, namely those relating to finance, customers, people and processes. These measurements are supported by business plans prepared by each profit centre and updated by regular rolling forecasts. Our focus on these measures ensures that we achieve the continuous improvements we are seeking for the business. Consolidated Profit and Loss Account for the 12 months ended 30th April 2002 2002 2001 Restated Notes £000 £000 Turnover 277,829 261,801 Operating profit 45,055 42,569 Net interest payable (13,381) (15,459) Profit on ordinary activities before taxation 31,674 27,110 Tax on profit on ordinary activities (9,953) (8,054) Profit for the financial year 21,721 19,056 Dividends Preference paid 25 25 Interim paid 2,819 2,680 Final proposed 6,275 5,812 9,119 8,517 Profit transferred to reserves 12,602 10,539 Earnings per ordinary share - basic 1 35.8p 31.4p Diluted earnings per ordinary share 1 35.6p 31.3p Dividends per ordinary share Interim paid 4.65p 4.4p Final proposed 10.35p 9.6p Total dividend for the year 15.0p 14.0p Summary Consolidated Balance Sheet 30th April 2002 2002 2001 Restated Notes £000 £000 Fixed assets 344,924 318,353 Current assets 89,078 82,244 Creditors: amounts falling due within one year (149,754) (133,869) Net current liabilities (60,676) (51,625) Total assets less current liabilities 284,248 266,728 Creditors: amounts falling due after more than one year (142,031) (136,620) Provisions for liabilities and charges (5,170) (5,816) 137,047 124,292 Capital and reserves Called up share capital 3,542 3,539 Share premium account 45,471 45,321 Reserves 88,034 75,432 Shareholders' funds 137,047 124,292 Net borrowings (232,899) (214,675) Reconciliation of Movements in Shareholders' funds for the 12 months ended 30th April 2002 Profit for the financial year 21,721 19,056 Dividends (9,119) (8,517) 12,602 10,539 Issue of ordinary share capital (net of expenses) 153 336 Net increase in shareholders' funds 12,755 10,875 Opening shareholders' funds As previously reported 123,427 112,804 Prior period adjustment 2 865 613 Restated 124,292 113,417 Closing shareholders' funds 137,047 124,292 Consolidated Cash Flow Statement for the 12 months ended 30th April 2002 2002 2001 Restated £000 £000 Net cash inflow from operating activities 127,057 117,388 Returns on investments and servicing of finance (13,265) (15,266) Taxation (7,250) 695 Capital expenditure and financial investment Purchase of vehicles for hire (172,603) (162,944) Sale of vehicles for hire 68,866 72,384 Other items, net (6,173) (5,366) Net cash outflow from capital expenditure and financial investment (109,910) (95,926) Acquisitions (6,150) - Equity dividends paid (8,631) (8,166) Cash outflow before use of liquid resources and financing (18,149) (1,275) Management of liquid resources Cash withdrawn from deposit 39 23 Financing Issue of ordinary shares (net of expenses) 153 336 Decrease in borrowings (1,735) (18,052) Capital element of vehicle related hire purchase payments (133,091) (103,745) Cash inflow from new vehicle related hire purchase agreements 166,258 141,334 Net cash inflow from financing 31,585 19,873 Increase in cash for the year 13,475 18,621 Reconciliation of net cash flow to movement in net debt 2002 2001 Restated £000 £000 Increase in cash for the year 13,475 18,621 Financing Decrease in borrowings 1,735 26,968 Capital element of vehicle related hire purchase payments 133,091 103,745 Cash inflow from new vehicle related hire purchase agreements (166,258) (141,334) Cash withdrawn from deposit (39) (23) Changes in net debt resulting from cash flows (17,996) 7,977 New hire purchase obligations - (8,916) Hire purchase agreements acquired with subsidiary (228) - Movement in net debt for the year (18,224) (939) Net debt at 1st May (214,675) (213,736) Net debt at 30th April (232,899) (214,675) Notes 1. Earnings per share The calculation of basic earnings per ordinary share in respect of the year to 30th April 2002 is based on the profit attributable to equity shareholders of £21,696,000 (2001: £19,031,000) and the weighted average of 60,560,376 (2001: 60,578,305) 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 162,500 shares (2001: 217,000) 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 60,876,578 (2001: 60,837,249) (including those shares held by an employee trust in connection with the Goode Durrant Long Term Incentive Plan). 2. Basis of preparation The results have been prepared on the basis of the accounting policies set out in the last annual report and accounts as amended to reflect the adoption of FRS19, Deferred Taxation, which has resulted in a prior period adjustment of £865,000 in respect of deferred tax assets. The cash flow statement amounts for capital expenditure and financing for the year ended 30th April 2001 have been grossed up by £141,334,000 to more fully reflect the cash flows arising from refinancing through hire purchase agreements. Previously these amounts were shown net. There is no impact on net cash flow or net debt. The results for the years to 30th April 2002 and 30th April 2001 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 30th April 2001 have been delivered to the Registrar of Companies. The Report and Accounts will be mailed to shareholders not later than 18th July 2002. Michael Waring Chairman Phil Moorhouse Finance Director This information is provided by RNS The company news service from the London Stock Exchange

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