Final Results

RNS Number : 4464V

Northgate PLC

10 July 2009

 



NOT FOR DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA, SOUTH AFRICA OR JAPAN.

10 July 2009

NORTHGATE PLC

PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 30 APRIL 2009

Northgate plc ('Northgate', the 'Company' or the 'Group'), the leading light commercial vehicle rental business in the UK and Spain by fleet size, announces its preliminary unaudited results for the year ended 30 April 2009.

Financial Position

• New credit facilities of c.£880m providing a stable medium-term funding platform;

• Fully underwritten placing and 10 for 1 rights issue raising net proceeds of £108m to reduce the Group's debt levels and pay refinancing fees;

• Group revenue increased by 5% to £609.6m (2008 - £578.5m), decreased 1.4% at constant exchange rates(1);

• Group operating profit(2) decreased by 41% to £71.8m (2008 - £121.8m);

• Underlying profit before tax(2) decreased by 67% to £27.5m (2008 - £83.1m);

• Underlying adjusted earnings per share(2) decreased by 68% to 29.3p (2008 - 91.8p);

• Pre-tax loss for the year of £195.6m after exceptional items of £217.9m including impairment of goodwill and assets of £180.9m and cancellation of interest rate derivatives of £32.7m;

• No final dividend for 2009 (2008 - 16.5p), total dividend for year 11.5p (2008 - 28.0p);

• Net assets, excluding goodwill and other intangible assets, of £155.3m (2008 - £286.9m), equivalent to net assets per share of 220p (2008 - 407p);

• Net debt(3) of £886m at 30 April 2009 equivalent to £800m in constant exchange rates(1) (2008 - £903m).

Operational Highlights

Actions taken to address business issues include:

• Ageing of the fleet by five months to an average of 22 months (2008 - 17 months);

• Reducing vehicle purchases and increasing vehicle sales to recover utilisation levels;

• Implementation of personnel cost savings in both the UK and Spain, with the full year payroll cost savings relating to these measures expected to be approximately £6.5m;

• Revised three year strategic plan for the Group.

(1)Constant exchange rates restate the results at the same exchange rate that prevailed in the previous financial period. 

(2)Stated before intangible amortisation of £5.3m (2008 - £4.7m) and exceptional items of £217.9m (2008 - credit £1.1m).

(3)Taking into account the fixed exchange rates at which the US Loan Notes have been swapped.

Philip Rogerson, Chairman, commented:

'Trading in the early part of the current financial year is broadly in line with the Group's internal expectations, with utilisation in the UK and Spain currently at 91% and 86% respectively. However, the Board remains cautious about the Group's outlook given the backdrop of uncertain macro-economic conditions, which continue to adversely affect the Group's markets.  Accordingly, the Group will continue to focus on maximising fleet utilisation, cash management and pursuing operational efficiencies in the current financial year. 

The main objective of the Board is to ensure the Group emerges from the current economic downturn in a stronger position. The Board believes that, following the placing and rights issue, the Group will, through a more resilient capital structure, be better positioned to deal with any further decline in its core markets and to take advantage of opportunities which may arise when market conditions begin to improve.'

Full statement and results attached.

There will be a presentation to analysts at 12.00 p.m. today at RBS, 250 Bishopsgate, London EC2M 4AA. Please contact Hogarth on [phone] for dial in details.

For further information, please contact:

Northgate plc	01325 467558
Steve Smith, Chief Executive
Bob Contreras, Finance Director Paul Tallentire, Deputy Chief Executive

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 UK, Republic of Ireland and Spain. Its 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

The content of the Company's website does not form part of this announcement.

This document does not constitute an offer to sell, or the solicitation of an offer to buy or subscribe for, securities of the Company in the United States or in any other jurisdiction.

The securities of the Company (the 'Securities') have not been and will not be registered under the US Securities Act of 1933, as amended (the 'Securities Act'), and may not be offered or sold in the United States unless registered under the Securities Act or an exemption from such registration is available. No offering of Securities is being made in the United States.

No communication or information relating to the offer of Securities (the 'Offering') may be disseminated to the public in jurisdictions other than the United Kingdom where prior registration or approval is required for that purpose. No action has been taken that would permit an offer of the Securities in any jurisdiction where action for that purpose is required, other than in the United Kingdom.

Certain statements made in this announcement constitute forward-looking statements. Forward-looking statements can be identified by the use of words such as 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'plans', 'annualised', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could' or 'should' or similar expressions (in each case, their negative or other variations or comparable terminology). Statements in this document that are not historical facts are hereby identified as 'forward-looking statements'. Such forward-looking statements, including, without limitation, those relating to future business prospects, revenue, liquidity, capital needs, interest costs and income, in each case relating to Northgate, wherever they occur in this document, are not necessarily based on assumptions reflecting the views of the Company and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. Such forward looking statements should, therefore, be considered in the light of various important factors. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation: economic and business cycles, the terms and conditions of the Company's financing arrangements, including fluctuations in interest rates, foreign currency rate fluctuations, competition in the Company's principal markets, acquisitions or disposals of businesses or assets and trends in the Company's principal industries and markets. As such, forward-looking statements are no guarantee of future performance.

Chairman's Statement 

Following a period of nine years of consecutive growth in sales and earnings, the second half of 2008 saw the Group's markets start to deteriorate rapidly. Whilst historically, the flexibility inherent in the Group's business model has enabled the Group to respond effectively to fluctuations in demand, the speed and severity of the current economic downturn resulted in a sudden and prolonged period of reduced vehicle utilisation and a significant decline in the residual value of used vehicles, necessitating the impairment of assets announced on 2 March 2009.

Although management responded quickly and implemented a number of operational measures to improve performance, the benefits of these actions have taken time to come through and will only be seen fully in the Group's financial results for the year to 30 April 2010.

The results for the year ended 30 April 2009, both underlying and after adjusting for the impairment of assets, are as follows:

• Group revenue increased by 5% to £609.6m (2008 - £578.5m), a decrease of 1.4% at constant exchange rates(4);

• Underlying profit before tax(5) for the year decreased by 67% to £27.5m (2008 - £83.1m), 70% at constant exchange rates(4);

• Exceptional write-off of goodwill and other assets totalling £180.9m following the impairment review;

• Other exceptional costs totalling £37.0m including costs related to the cancellation of interest rate derivatives of £32.7m;

• The Group suffered a loss per share of 263.2p (2008 - earnings of 86.7p) reflecting the fall in profit before tax and the impairment adjustment and other exceptional costs.

In the light of these results and the Group's financing requirements, the Board has recommended to shareholders that no final dividend be paid and therefore the total dividend for the year is 11.5p (2008 - 28.0p).

(4)Constant exchange rates restate the results at the same exchange rate that prevailed in the previous financial period.

(5)Stated before intangible amortisation of £5.3m (2008 - £4.7m) and exceptional items of £217.9m (2008 - credit £1.1m).

UK

By 30 April 2009 there was a reduction of c.6% in the number of vehicles on rent compared to the start of the year, primarily as a result of existing customers utilising the flexibility offered by our product to downsize the vehicle fleets they operate. This reduction in hire volumes from existing customers put significant pressure on the UK fleet's utilisation, with the average utilisation rate for the year ended 30 April 2009 being 88% (2008 - 91%). In addition, we saw an unprecedented fall in the used vehicle market, with average market values decreasing by over 20% in calendar year 2008. This was due to a reduction in demand, together with a lack of available credit for vehicle purchasers. Against this background we were able to actively manage our utilisation levels by disposing of 23,400 vehicles during the year (2008 - 26,800), whilst restricting purchases of new vehicles to only 16,900 (2008 - 28,500). As a consequence utilisation has improved to 91% at the present time.

Hire rates also declined by some 6% in the year ended 30 April 2009, mainly due to competitor pricing pressure and temporary discounting in some areas being applied to promote rental of otherwise unutilised stock.

To reflect the lower fleet size we have rationalised the UK structure, reducing the network of depots from 86 to 80 and the headcount by 193 people. The full year payroll costs in relation to these individuals are approximately £3.5m.

Spain

In Spain, we have experienced similar issues to the UK but these have been intensified by a more difficult economic environment and by our inability to dispose of the necessary volume of used vehicles in the second half of calendar year 2008. The combination of these two factors put extreme pressure on our utilisation level which fell to a low point of 78% in the third quarter of the financial year. In order to address this, we restricted new vehicle purchases to 8,800 (2008 - 20,650) whilst achieving vehicle disposals of 13,200 (2008 - 13,600). 

From January 2009 we achieved a significant improvement in our used vehicle sales volumes which, coupled with a slow-down in the rate of off-hires and the restriction in vehicle purchases set out above, has seen utilisation improve to 86% currently.

Cost reduction measures similar to the UK have also been implemented, reducing the number of locations by 5 and the headcount by 166 as well as creating a single head office for the business. The full year payroll costs in relation to these individuals are approximately £3m.

Group

Although the profitability of the Group has been impacted by the issues outlined above, the actions taken have not only improved a number of the key operating statistics but also improved the cash generation of the Group, which was £103m in the year before the effects of currency translation.

After the impairment of goodwill and other assets announced on 2 March 2009, net tangible assets at 30 April 2009 were £155.3m (2008 - £286.9m) equivalent to a tangible net asset value of 220p per share (2008 - 407p per share). 

Strategic Plan

In order to reflect the rapid change in economic circumstances, the Group prepared a strategic plan to set out its response. The plan assumes no improvement in the economic climate in the year to 30 April 2010 and only modest growth thereafter. The plan, mainly through efficient fleet management, further cost reductions and cash generation, aims to both rebuild profitability and reduce borrowings, thereby positioning the Group for a recovery in demand when that occurs.

In particular the strategic plan includes the following additional actions:

UK	-	Improve revenue per vehicle from increased hire rates supplementing the actions already taken to maintain utilisation at over 90%;
	-	Continue refinement of the UK operating structure and operational efficiencies within the workshops;
	-	Implement an integrated information technology ('IT') system to provide opportunities to streamline processes.
Spain	-	Achieve and subsequently maintain a targeted level of utilisation approaching 90%;
	-	Improve vehicle disposal capability to assist in the management of utilisation and enhance residual values;
	-	Diversify the customer base to reduce the dependency on the construction and infrastructure sector.

Refinancing

The majority of banking facilities were renewed in September 2008, but the significant deterioration in trading conditions in the second half of the financial year, combined with the strength of the Euro relative to Sterling, put pressure on certain key financial covenants.

The Group therefore initiated discussions with all its lenders and private placement noteholders leading to the successful renegotiation of its borrowing facilities (including its private placement notes) announced today. In total the Group now has facilities (including loan notes) of c.£880m based upon an equity fundraising (net of equity fundraising costs) of £108m. This positions the business well for the challenges of the current market conditions and supports the opportunity to deliver value for shareholders in the medium term.

The new borrowing facilities (including amended notes) will become effective subject to, inter alia, the Group completing an equity fundraising by 30 September 2009 of at least £100m (net of equity fundraising costs) of which at least £85m must be used to repay existing facilities (including its private placement notes). The Group is announcing today a fully underwritten placing and rights issue raising net proceeds of £108m.

The Board believes that the placing and rights issue, in conjunction with the new borrowing facilities (including amended notes) and the implementation of the strategic plan, should enable the Group to protect and subsequently enhance shareholder value by positioning the Group to take advantage of any future recovery in its markets.

Board Changes

Steve Smith had been due to step down as Chief Executive on 1 August 2009, but has agreed, in light of recent trading conditions, the Group's debt refinancing and the equity fundraising, to remain as Chief Executive until 30 June 2010. Paul Tallentire, who has held the role of Deputy Chief Executive since joining the Group on 31 October 2008, has taken over responsibility for day to day operations of the Group. It is planned that Paul will take over the role of Chief Executive on 1 July 2010, at which time Steve will take up the role of Deputy Chairman for the nine months to 31 March 2011.

Current Trading and Outlook 

Trading in the early part of the current financial year is broadly in line with the Group's internal expectations, with utilisation in the UK and Spain currently at 91% and 86% respectively. However, the Board remains cautious about the Group's outlook given the backdrop of uncertain macro-economic conditions, which continue to adversely affect the Group's markets.  Accordingly, the Group will continue to focus on maximising fleet utilisation, cash management and pursuing operational efficiencies in the current financial year. 

The main objective of the Board is to ensure the Group emerges from the current economic downturn in a stronger position. The Board believes that, following the placing and rights issue, the Group will, through a more resilient capital structure, be better positioned to deal with any further decline in its core markets and to take advantage of opportunities which may arise when market conditions begin to improve.

Operational Review

Group

Without doubt, the year to 30 April 2009 has been the most demanding the business has faced in its 28-year history. The deteriorating economic conditions caused customers to off-hire vehicles and produced a significant fall in vehicle residual values combining to create a 'perfect storm' for the business. Against that scenario, the targets and objectives set out in our previous strategy for growth became obsolete and the focus of management has been on guiding the business through the current turmoil and creating a revised strategy for the business for the coming years. The actions we have taken in respect of both the UK and Spanish businesses are explained below, along with an outline of the revised three year strategic plan, effective from 1 May 2009.  

United Kingdom and Republic of Ireland

The rapid decrease in hires by existing customers created a reduction in utilisation levels during the year and a subsequent reduction in the fleet size. Combined with a reduction in hire rates in the second half of the year, this produced a fall in hire revenues of c.3% for the year. The decline in the values achieved for used vehicles reflected in the addition of £6.5m in the depreciation charge, added to the pressure on the operating margin, which fell to 11.1% (2008 - 20.6%).

Vehicle Fleet and Utilisation

In response to the economic downturn, we reduced the UK fleet by c.8% from 68,600 vehicles at 30 April 2008 (and a peak of 70,700 at 31 December 2008) to 62,900 vehicles at 30 April 2009. This decline took place in the second half of the year as we sought to achieve our targeted utilisation level. Whilst utilisation for the year has averaged 88% (2008 - 91%), we recovered from a low of 84% in quarter three to finish the financial year at 90%.

In late summer 2008 we took the decision to reduce the number of vehicles we would purchase in the remainder of the financial year, particularly in respect of replacements. This was both to assist in improving utilisation by reducing the fleet size and to generate cash. As a consequence, we have purchased 16,900 vehicles in the year (2008 - 28,500) and the fleet has been aged to an average of 19.4 months (2008 - 16.2 months). This active management of our fleet has made a significant contribution to the reduction in debt referred to in the Financial Review.

Hire Rates

During the first six months of the year hire rates remained relatively stable. From January 2009 onwards, some discounting was introduced on short-term deals to rent unutilised stock and there was also some competitive pricing pressure. As a consequence, hire rates were c.4% lower in April 2009 than in October 2008. We are planning for rates to improve in the new financial year as short-term deals end and pricing is increased; particularly as new vehicles are introduced into the fleet.

Depot Network

The network of hire locations has reduced from 86 to 80 during the year as part of the programme of rationalisation initiated in response to the difficult trading conditions. The customer accounts managed by these branches have been transferred elsewhere within the network. This has retained the Group's national coverage whilst removing branches that had become uneconomic.

In addition headcount has reduced by 193 since the start of the financial year. The full year payroll costs in relation to these individuals is approximately £3.5m.

Used Vehicle Sales

During calendar year 2008, there was a marked deterioration in the used vehicle market which resulted in a reduction of over 20% in the average residual values we achieved. 

Although values have fallen, we have been able to achieve our targeted volumes of used vehicle sales, with total sales of 23,400 vehicles (2008 - 26,800).

Progress has also been maintained in developing our channels to the disposals market, with the retail and semi-retail channels accounting for 18% (2008 - 20%) of total disposals.

As a consequence of the weaker market, we have achieved residual values lower than we expected which, in accordance with our accounting policies, has been reflected in an increase of £6.5m (2008 - reduction of £12m) in the depreciation charge.

Since January 2009, we have seen a modest recovery in the sales prices being achieved for used vehicles. As a consequence of this recovery and following the increase in the depreciation charge on new vehicles of 1.5% to 20.7%, which has not had a material impact on the results for the year, and the impairment of fleet asset values of £28.6m, an average of £415 per vehicle, both of which were announced on 2 March 2009, we would expect to achieve close to a break-even position on disposals of used vehicles in the year ahead.  

Fleet Management

The fleet management business had a very successful year, with jobs managed growing by 21% to 88,200 (2008 - 72,700) and operating profit by 21% to £0.9m (2008 - £0.8m). The growth came predominantly through existing customer penetration and cross-selling of the services to Northgate vehicle rental customers. The systems capability of the fleet management business is now being used to co-ordinate external repairs for the vehicle rental business.

Body Repair Facility

We have continued to invest in our own body repair facilities. GPS Body Repairs, purchased in 2007, has been expanded and has doubled its throughput. A new bodyshop facility was opened in Stockton and an existing site refurbished in Huddersfield. These three locations will be used to carry out over 50% of all major repairs and refurbishments in the UK business.

Spain

The issues which the Spanish business has faced during the year are, in essence, the same as those in the UK but have been generally more extreme due to the weaker economic environment in Spain and the higher concentration of customers operating in the construction sector, which has been severely affected by the economic downturn.

We reduced the fleet from 62,750 vehicles at 30 April 2008 to 60,400 vehicles at 30 April 2009. As the fleet reached a peak of 64,800 at 31 October 2008, the reduction in the fleet in the second half of the year was 4,400 vehicles (7%). 

Despite the reduction in the closing fleet size and lower utilisation levels, as average on-hires were slightly higher than the prior year, there has been an increase in rental revenue in Spain of 0.6% at constant exchange rates (an 18% increase after currency translation).

Vehicle Fleet and Utilisation

Having remained relatively stable over the first few months of the year, the number of vehicles on-hire fell by 5,900 between September 2008 and April 2009. The reduction in demand was particularly evident in the period between September and January, after which the rate of decline reduced significantly with a fall in vehicles on-hire of less than 100 in the last three months of the financial year.

The slowdown in the used vehicle market impacted our ability to reduce the fleet in response to the fall in the number of off-hires, with utilisation reaching a low of 78% for January 2009, with the average rate for the year ended 30 April 2009 being 83% (2008 - 89%). Since January 2009, our used vehicle sales capability has improved and, combined with a reduction in the rate of off-hires and restriction of vehicle purchases, we have seen utilisation gradually improve to 86% at the end of June 2009.

Hire Rates

Hire rates have remained relatively stable during the year, with the exception of some modest discounting to rent unutilised stock and to persuade customers to continue renting vehicles beyond our normal replacement age. As with the UK, rates are expected to recover as new vehicles are gradually introduced in the year ahead.  

Used Vehicle Sales

Historically, our Spanish vehicle disposal capabilities have not been as developed as those in the UK. In the first half of the year we were unable to sell the volume of used vehicles necessary to balance the reduction in rental demand and thereby maintain utilisation at our targeted level. In that period we sold only 5,700 vehicles. The changes made to both the network of disposal sites and the management team last autumn have produced a significant increase in the number of vehicles sold in the last six months to 7,500 vehicles, thereby producing a similar total to the previous year of 13,200 vehicles (2008 - 13,600). More importantly, in the last three months of the year we sold an average of over 1,500 vehicles per month, an annualised rate of c.18,000 vehicles.

The used vehicle market in Spain experienced a material decline in sales prices over the year and, as a consequence, we achieved lower than expected residual values which, in accordance with our accounting policies, have been reflected in an increase in the depreciation charge of £14.3m (2008 - increase of £1.9m).

As we do not expect the market to make a significant recovery in the short term, we have written down the value of our vehicles in Spain by €70.8m, an average of €1,116 per vehicle, as part of the impairment review in February 2009. In addition, we have increased the depreciation rate on vehicles purchased after February by 3% to 20%, which has not had a material impact on the results for the year. We expect that these two measures will position the business to return to our targeted break-even position on disposals in future periods.

By the end of the year, we had established an improved sales team, operating from a network of six dedicated used vehicle sale sites and three locations shared with the rental business. We have also developed two disposal channels, one for export and one for retail customers within Spain. The export channel is to assist with the volume of disposals with exports representing 23% of disposals in the year ended 30 April 2009; the retail channel should improve our average margin on disposal. We have invested in developing this network during the year and have already seen a benefit, with total vehicle volumes in the last five months of the year up 50% on the same period in the prior year.

Cost Reduction Measures in Spain

In response to the difficult trading environment and the 7% reduction in the vehicle fleet since October 2008, we have closed branches in Alicante, Castellon, Gerona, Orense and Pamplona, transferring the business transacted through these outlets into the nearest alternative location. Following these closures the network of branches totals 32 which we believe maintains our geographic coverage across Spain.

During the year the Group successfully completed the process of integrating the head office and back office functions of the two Spanish operating companies, Fualsa and Record, including information technology, human resources, purchasing and fleet administration and finance functions. Together with the branch closures set out above these measures reduced headcount by 166 at 30 April 2009. The full year payroll costs in relation to these individuals are approximately £3m.

IT

The UK is currently implementing a new Enterprise Resource Planning ('ERP') system covering operations, asset management and finance. The ERP system will replace a number of legacy systems and will be used as a basis to streamline processes and improve customer service. The rollout of systems across the hire companies will be phased throughout the financial year with completion planned by April 2010.

New Strategic Plan

As a result of the significant deterioration in trading during the financial year, a revised strategic business plan has been formulated, approved by the Board in February 2009. The plan assumes no improvement in the economic climate in the year to 30 April 2010 and only modest economic growth thereafter. As a consequence the key features of the plan, particularly in year one, are focused on efficient fleet management, further cost reductions and cash generation.

The measures which the Group has planned to achieve these objectives can be summarised as follows:

UK

Management of the fleet:	The UK business is targeting to operate at over 90% utilisation throughout the period of the plan. The fleet is expected to age by a further two months over the first two years of the plan with new vehicle purchases being used to improve the mix of the fleet and to assist in raising hire rates.
Improved hire rates:	We intend to improve hire rates through a combination of customer specific rate increases, increased pricing for new vehicles introduced to the fleet and the expiry of temporary discounting introduced when utilisation levels were under severe pressure in January 2009.
Sector focus:	Although the plan assumes only modest growth in years two and three, we are anticipating a continued high level of churn i.e. increased off-hires and on-hires. We will focus, through our central sales and marketing teams, on targeting large customers who will benefit from both the range of our services and our national network. The local sales teams within the hire companies will continue to focus on smaller, local businesses.
Reduction in costs:	A number of improvements are planned and will be substantially complete by 30 April 2010: The new ERP system, mentioned above, is expected to be implemented across the UK operations by 30 April 2010. Together with a programme for standardising processes across hire company operations this will provide a basis for streamlining processes, improving customer service and achieving an improvement in operational and financial performance. Operational efficiencies across the UK's network of 60 workshops in relation to purchasing, personnel management and streamlining processes. Continued adaptation and refinement of the branch network in order to operate from an efficient structure whilst maintaining national coverage.
Vehicle disposals:	We aim to continue the development of the retail channel for our used vehicle disposals, and we are targeting disposals through our retail channel of 30% of all used vehicle sales in the UK in the medium term.

Spain

Management of the fleet:	The Spanish business is targeted to operate at an average approaching 90% utilisation over the period of the strategic plan. If required we will, where we have excess capacity, continue to supply other rental companies who have seasonal demands. The vehicle sales capability of c.1,500 per month is now in line with our planned disposal volume and this, combined with continued control of new vehicle replacements, should assist in achieving the targeted level of utilisation.
Improved hire rates:	We intend to increase hire rates generally and customer profitability analysis will be used to specifically target low margin customers with rate increases. New vehicles will be introduced to the fleet at an increased tariff.
Sector focus:	The Spanish business has a high dependency on the construction and infrastructure sectors. The focus will therefore be on winning new business in other sectors and hence creating a broader customer base by the end of the plan period. Combined with continued stringent controls on new customer credit approval this will determine the sector focus of the commercial teams.
Reduction in costs:	We will continue to balance the footprint of locations, presently 32, with the fleet size in Spain. In addition we aim to reduce the maintenance cost per vehicle by operational improvements within our own workshops, a reduction in the amount of third party work and cost reductions with retained third party suppliers.
Vehicle disposals:	We will continue to improve the Spanish vehicle disposal capabilities, with the objective of replicating the standards set by the UK operations. We believe this should allow residual values to be enhanced and provide greater flexibility in managing utilisation.

Financial Review 

Financial Reporting

In response to the difficult trading circumstances referred to in the Operational Review the Group has focused on taking actions to reduce the Group's cost base and generate cash to reduce the level of indebtedness. In addition, it has been necessary to renegotiate our financing facilities and to undertake an equity fundraising in order to secure a financing structure appropriate to the Group's medium term requirements.

Sales, Margins and Return on Capital

Group revenue increased by 5% to £609.6m (2008 - £578.5m) a decrease of 1.4% at constant exchange rates. In the UK, a reduction in average vehicles on hire of 1.2% compared to the prior year contributed to a decrease in total revenue of 2% to £352.7m (2008 - £360.8m). In Spain, the average vehicles on hire were slightly higher than the prior year and this contributed to an increase in revenue of 0.6% at constant exchange rates. With exchange rates taken into account, revenue in Spain increased by 18% to £257.0m (2008 - £217.7m). 

United Kingdom & Republic of Ireland

The composition of the Group's UK revenue and profit from operations(6) as between vehicle rental activities and fleet management is set out below:

	2009 £000		2008 £000
Revenue
Vehicle rental	334,685		345,227
Fleet management	17,993		15,525
	352,678		360,752
Profit from operations(6)
Vehicle rental	38,231		73,627
Fleet management	931		770
Intangible amortisation	(3,112)		(2,569)
	36,050		71,828

(6)Operating profit before exceptional items.

	2009		2008
Operating margins (excluding intangible amortisation and exceptional items)
UK overall	11.1%		20.6%
Vehicle rental	11.4%		21.3%
Fleet management	5.2%		5.0%

The UK vehicle rental operating profit(7) margin has declined to 11.4% (2008 - 21.3%). This is directly attributable to the lower fleet utilisation achieved, the reduction in hire rates and the decline in used vehicle residual values. 

Spain

The revenue and operating profit(7) generated by our Spanish operations are set out below:

			2009 £000		2008 £000
Revenue
Vehicle rental			256,967		217,710
Profit from operations(7)
Vehicle rental			32,605		47,404
Intangible amortisation			(2,142)		(2,124)
			30,463		45,280

			2009		2008
Operating margins (excluding intangible amortisation and exceptional items)			12.7%		21.8%

Spain's operating margin was 12.7% (2008 - 21.8%). Sales and profit from operations in 2009, expressed at constant exchange rates, would have been lower than reported by £38m and £4.8m, respectively.

(7)Operating profit before exceptional items.

Group

Group return on capital employed, calculated as Group profit from operations (excluding exceptional items) divided by average capital employed (being shareholders' funds plus net debt), is 5% (2008 - 10%).

Group return on equity, calculated as profit after tax (excluding exceptional items) divided by average shareholders' funds, is 5% (2008 - 16%).

Exceptional Items

A review of the Group's businesses in February 2009 resulted in an exceptional write-off of goodwill and intangible assets of £54.9m relating to the two businesses in Spain, together with £32.8m of goodwill and intangible assets in relation to the UK hire business. In addition to this, other assets of the Group, mainly the vehicle fleet in the UK and Spain, were written down by £93.2m. The total pre-tax exceptional charge in respect of these items was therefore £180.9m.

In order to benefit from the lower interest rate environment, the Board reviewed its interest rate hedging policy in February 2009. As a result of this review, interest rate derivatives on debt totalling €475m, with 3.3 years remaining at an average rate of 4.64%, were terminated at a cost of £32.7m on 13 February 2009. At the balance sheet date, it was reasonably foreseeable that the borrowings which had been hedged by these derivatives would be replaced by new facilities; details of which are set out below. As a result, the settlement cost of £32.7m has been treated as an exceptional cost in the year ended 30 April 2009.

Other exceptional items amounted to £4.3m and consisted of restructuring costs of £3.1m and financing fees of £1.2m in respect of deferral of covenants relating to our lending facilities.

Taxation

The Group's effective tax charge for its UK and overseas operations is 5%, including the impact of the exceptional items referred to above. Of the exceptional items, the write off of goodwill does not attract any tax relief and certain tax assets, arising as a result of the other exceptional items, have not been recognised at the balance sheet date.

Excluding the impact of exceptional items, the Group effective tax rate is 31% (2008 - 23%). This is higher than the prior year primarily as a result of certain expenditure items which do not attract tax relief and a gradual increase in the Spanish rate.

The Spanish effective tax rate continues to benefit from concessions based on vehicle purchase reliefs that are available in Spain, albeit at a lower level than in earlier years as some elements are being phased out by 2011.  

The reduction in the rate of UK Corporation tax from 30% to 28%, effective from 1 April 2008, was already recognised in the deferred tax provision at April 2008.

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.

Earnings per Share

The decline in profitability and the post-tax exceptional costs of £201.1m produced a loss per share of 263.2p (2008 - 86.7p earnings per share). Excluding intangible amortisation of £5.3m (2008 - £4.7m) and the exceptional costs, adjusted basic earnings per share declined by 68% to 29.3p (2008 - 91.8p).

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

Dividend

The Directors believe that it is in the best interests of the Group not to pay a final dividend in relation to the Ordinary shares for the year ended 30 April 2009 (2008 - 16.5p). In addition, the new borrowing facilities (including the amended notes) contain a restriction prohibiting the payment of a dividend in relation to the Ordinary shares in respect of the year ended 30 April 2009. The total dividend for the year is therefore 11.5p (2008 - 28.0p). The Directors currently envisage the reintroduction of a progressive dividend policy when market conditions stabilise and the Directors believe it is prudent to do so, taking into account the Group's earnings, cash flow and balance sheet position. Future dividend policy will be based upon maintaining a dividend cover ratio of at least three times earnings, reflecting a requirement in the new borrowing facilities (including the amended notes). In addition the new borrowing facilities (including the amended notes) provide that dividends may not be paid in the event of an actual or potential event of default under the new borrowing facilities (including the amended notes).

Balance Sheet and Cash Flow

Net tangible assets at 30 April 2009 were £155.3m (2008 - £286.9m) equivalent to a tangible net asset value of 220p per share (2008 - 407p per share). Gearing at 30 April 2009 was 602% (2008 - 312%).

The Group's net debt, calculated with loan notes stated at their fixed currency amounts, decreased by £17m to £886m (2008 - £903m). The 13% year on year increase in the value of Euro against Sterling and the cash cost of termination of the interest rate derivatives resulted in an £86.5m and £32.7m increase in debt respectively; £119.2m in total.  

Refinancing

The severe impact the economic recession had on trading and the resultant risk that the Group would breach certain of its financial covenants in its banking facilities agreements (including its US private placement noteholder agreements) led it to initiate discussions with all its lenders in early March 2009. The Group has now reached agreement with its lenders (including its private placement noteholders) in respect of revised lending facilities appropriate for its business needs over the medium term. In addition, the Group's lenders agreed to further defer the date of testing of certain covenants under its existing facilities (including its private placement notes) until 30 September 2009.

The revised facilities (including the amended notes) will become effective, subject to, inter alia, the Group completing an equity fundraising by 30 September 2009 of at least £100m (net of equity fundraising costs) of which at least £85m must be used to repay its existing facilities (including its private placement notes). The successful completion of the equity fundraising announced today will enable the Group to satisfy the equity fundraising and repayment conditions.

The key points of the refinancing are as follows:

• Total committed facilities of c.£880m post receipt of the equity fundraising proceeds;

• Maturity dates of all bank facilities September 2012;

• Private placement noteholders maturity substantially unchanged, but with a right for noteholders to require repayment on 30 September 2012 unless there has been a successful refinancing of the new bank facilities on or before September 2012;

• Margins and coupons on borrowings to be based upon a pricing grid which uses asset cover for the borrowings as a determinant;

• Amortisation of the facilities as follows:

  • £30m December 2009;

  • £40m June 2010;

  • £40m December 2010.

There are four financial covenants under the revised facilities as follows:

1.Interest cover ratio

A minimum ratio of earnings before interest and taxation ('EBIT') to net interest costs tested quarterly on a rolling 12-month basis. The ratio ranges between 1.04 and 1.39.

2.Minimum tangible net worth

Minimum tangible net worth i.e. net assets excluding goodwill and intangibles, tested monthly. This covenant has been set initially at 80% of the net tangible assets at 30 April 2009 (reduced by £6m in relation to previous refinancing fees that will be written off when the new lending facilities become effective). This covenant will then be adjusted to reflect the proceeds of the placing and rights issue and 80% of budgeted retained profits under the strategic plan.

3.Loan to value

The ratio of total consolidated net borrowings to the book value of vehicles, debtors and property, tested monthly. The ratio may not exceed 85%.

4.Debt leverage cover ratio

A minimum debt leverage ratio of net debt to EBITDA, tested quarterly on a rolling 12-month basis. The ratio ranges between 2.25 and 2.51. 

The Board announced on 10 July 2009 that it is proposing to raise £108m (net of equity fundraising costs) by way of a placing and rights issue. The placing and rights issue have been fully underwritten by RBS Hoare Govett Limited and Oriel Securities Limited and are conditional upon, inter alia, approval of the relevant resolutions at the forthcoming Extraordinary General Meeting. Customary conditions and termination rights also apply.

Treasury

Interest Rate Management

The Group's bank facilities agreements incorporate variable interest rates. The Group seeks to manage the risks associated with fluctuating interest rates by having in place a number of financial instruments covering 50% to 75% of its borrowings at any time. Following the cancellation of the majority of the Group's interest rate derivatives in February 2009 to benefit from the lower interest rate environment, the proportion of net debt hedged into fixed rates was 28% at 30 April 2009. This coverage is related to the US private placement notes which remained 100% hedged. Now that the Group's refinancing structure is agreed we will revert to our policy of hedging between 50% to 75% of total borrowings.

Foreign Exchange Risk

The Group's reporting currency is, and the majority of its revenue (56%) is generated in, Sterling. The Group's principal currency translation exposure is to the Euro, as the results of operations, assets and liabilities of the Spanish and Irish businesses must be translated into Sterling to produce the Group's consolidated financial statements.

The Group manages its exposure to currency fluctuations on retranslation of the balance sheets of those subsidiary undertakings whose functional currency is Euro by maintaining a proportion of its borrowings in the same currency. The hedging objective is to reduce the risk of spot retranslation foreign exchange gains or losses arising in the consolidated results of the Group upon the translation of the Euro subsidiaries from Euro to Sterling at each reporting date. The hedges are considered highly effective in the current and prior year and the exchange differences arising on the borrowings have been recognised directly within equity along with the exchange differences on retranslation of the net assets of the Euro subsidiaries.  

The Group has in issue US dollar-denominated loan notes which bear fixed rate interest in US dollars. The payment of this interest and the capital repayment of the loan notes at maturity expose the Group to foreign exchange risk. To mitigate this risk, the Group has entered into a series of Sterling/US dollar cross-currency swaps. The effective start dates and termination dates of these contracts are the same as the loan notes against which hedging relationships are designated. The Group will have interest cash outflows in pounds sterling and interest cash inflows in US dollars over the life of the contracts. On the termination date of each of the contracts, the Group will pay a principal amount in pounds sterling and receive a principal amount in US dollars. As part of the refinancing, these cross-currency derivatives will be terminated at the date the refinancing becomes effective and immediately replaced with new derivatives to fix the future liability in Sterling.

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. The Group purchases substantially all of its fleet from suppliers with no agreement for the repurchase of such vehicles by the supplier or an alternative third party deal or customer. Residual values are therefore not guaranteed to the Group but, rather, are prone to fluctuations in the used vehicle market. 

Were we not able to recover any such increases in vehicle holding costs from our customers, this would impact on our profitability. We manage the risk on new pricing by using our purchasing power to negotiate, before the end of the calendar year, fixed supply terms for the year ahead. In the calendar year 2009 we have retained the flexibility to make purchases during the year under variable terms to take advantage of the current environment. 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 construction industry and the other key markets of the Group have been severely affected by the current economic downturn. The Spanish business generates 57% 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, the downturn in demand from all sectors has led to a decline in the number of vehicles being rented.

 Should there be any further decline we would respond as we have done in the current downturn, by seeking to place these vehicles with other businesses, or look to maintain utilisation 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.

In addition, it is possible that the Group could subsequently benefit as businesses 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 Group operates in highly competitive markets. In the current economic environment the Group's competitors may pursue aggressive pricing actions to increase hire volumes. As our business model is operationally geared, any increase or decrease in hire rates will impact profit to a greater effect.

In the UK the business experienced pressure on hire rates during 2008/09 due to the competitive environment with rates falling by c.6%.  

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. This year hire rates in Spain have been broadly stable as inflationary increases have been offset by the decline in the Spanish economy and our need to adopt a more flexible approach to pricing in order to return utilisation to an acceptable level.

Access to Capital

The Group requires capital both to replace vehicles that have reached the end of their estimated useful life and for growth in the size of the existing vehicle fleet, either organically or through acquisition. Additionally, due to the level of the Group's indebtedness a significant proportion of the Group's cash flow is required to service its debt obligations.  

If there is a shortfall in cash generated from operations and/or available under its credit facilities the Group would reduce its capital requirements. If this is not sufficient, 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.

In order to continue to access its credit facilities the Group needs to remain in compliance with its financial covenants throughout the term of these facilities.

The Group believes that, taking into account the net proceeds of the equity offering and the revised facilities (including the amended notes), it has adequate resources for its present requirements.

IT Systems

The Group is dependent upon the proper functioning of 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 have also commenced changes to the IT systems platform for the UK business, this process will continue throughout the year ending 30 April 2010. In executing this change there is a risk of disruption to the Group's business. This risk will be mitigated by a gradual roll out as opposed to a same date implementation across the UK business.

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

Going Concern

In determining whether the Group's 2009 accounts can be prepared on a going concern basis, the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowings facilities and the risks and uncertainties relating to its business activities in the current economic climate. The key risks and uncertainties are set out in further detail above.

The Directors have reviewed trading and cash flow forecasts as part of their going concern assessment, including downside sensitivities, which take into account the uncertainties in the current operating environment

In forming their conclusions over the adoption of the going concern basis, the Directors have considered the possibility of the relevant resolutions at the forthcoming Extraordinary General Meeting, relating to the proposed equity fundraising, not being approved and on the basis of the available evidence have considered this possibility to be remote.

Having considered all the factors above impacting the Group's businesses, including downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's 2009 accounts.

Consolidated Income Statement

for the year ended 30 April 2009

	Note	Before exceptional items	Exceptional items	Total	Total
		2009	2009	2009	2008
		£000	£000	£000	£000
Revenue	1	609,645	-	609,645	578,462
Cost of sales	1	(478,459)	-	(478,459)	(400,668)
Gross profit		131,186	-	131,186	177,794
Administrative expenses (excluding impairment of assets and intangible amortisation)		(59,419)	(3,123)	(62,542)	(54,895)
Impairment of assets		-	(180,921)	(180,921)	-
Intangible amortisation		(5,254)	-	(5,254)	(4,693)
Total administrative expenses		(64,673)	(184,044)	(248,717)	(59,588)
Profit (loss) from operations		66,513	(184,044)	(117,531)	118,206
Investment income		6,438	-	6,438	3,139
Finance costs		(50,691)	(33,830)	(84,521)	(41,853)
Profit (loss) before taxation		22,260	(217,874)	(195,614)	79,492
Taxation		(6,813)	16,725	9,912	(18,158)
Profit (loss) for the year		15,447	(201,149)	(185,702)	61,334
Profit (loss) for the year is wholly attributable to equity holders of the parent Company
All results arise from continuing operations.
The above consolidated income statement includes exceptional items in respect of both years, as explained further in Note 6.
Earnings per share
Basic	2	21.9p		(263.2)p	86.7p
Diluted	2	21.4p		(257.4)p	85.8p

Consolidated Statement of Recognised Income and Expense

for the year ended 30 April 2009

	2009		2008
	£000		£000
Amounts attributable to equity holders of the parent Company
Foreign exchange differences on retranslation of net assets of subsidiary undertakings	-		29,221
Foreign exchange differences on retranslation of net assets of subsidiary undertakings prior to inception of net investment hedging relationship	(4,976)		-
Foreign exchange differences on retranslation of net assets of subsidiary undertakings after initial inception of net investment hedging relationship	51,118		-
Foreign exchange differences on retranslation of net assets of subsidiary undertakings after subsequent change in level of net investment hedging relationship	(18,108)		-
Net foreign exchange differences on long term borrowings held as hedges	-		(34,349)
Net foreign exchange differences on long term borrowings held as hedges between initial inception and subsequent change in level of net investment hedging	(37,556)		-
Net foreign exchange differences on long term borrowings held as hedges after subsequent change in level of net investment hedging relationship	5,299		-
Foreign exchange differences on revaluation reserve	158		164
Net fair value losses on cash flow hedges	(7,801)		(1,721)
Share options fair value charge	788		3,340
Share options exercised	(1,600)		-
Actuarial losses on defined benefit pension scheme	(109)		(208)
Deferred tax on net investment hedges	-		11,192
Other net deferred tax credit (charge) recognised directly in equity	870		(2,018)
Net (expense) income recognised directly in equity	(11,917)		5,621
(Loss) profit attributable to equity holders	(185,702)		61,334
Total recognised income and expense for the year	(197,619)		66,955

Consolidated Balance Sheet 

as at 30 April 2009

	2009		2008
	£000		£000
Non-current assets
Goodwill	3,589		83,152
Other intangible assets	23,875		28,475
Property, plant and equipment: vehicles for hire	843,101		1,006,792
Other property, plant and equipment	89,917		81,960
Total property, plant and equipment	933,018		1,088,752
	960,482		1,200,379
Current assets
Inventories	10,950		12,073
Trade and other receivables	248,003		193,088
Current tax asset	4,006		-
Deferred tax assets	17,138		-
Cash and cash equivalents	80,036		48,763
	360,133		253,924
Non-current assets classified as held for sale	19,809		30,566
Total assets	1,340,424		1,484,869
Current liabilities
Trade and other payables	86,685		90,182
Tax liabilities	5,572		15,728
Short term borrowings	92,621		8,414
	184,878		114,324
Non-current liabilities
Long term borrowings	922,931		934,357
Deferred tax liabilities	49,391		37,082
Retirement benefit obligation	465		553
	972,787		971,992
Total liabilities	1,157,665		1,086,316
Net assets	182,759		398,553
Equity
Share capital	3,527		3,527
Share premium account	67,972		67,972
Revaluation reserve	1,365		1,207
Own shares	(2,302)		(9,006)
Merger reserve	67,463		67,463
Hedging reserve	4,851		7,110
Translation reserve	(5,656)		3,817
Capital redemption reserve	40		40
Retained earnings	45,499		256,423
Total equity	182,759		398,553

Consolidated Cash Flow Statement 

for the year ended 30 April 2009

		2009		2008
	Notes	£000		£000
Net cash from operating activities	3	328,328		285,932
Investing activities
Interest received		7,183		2,453
Proceeds from disposal of vehicles for hire		160,526		196,113
Purchases of vehicles for hire		(315,263)		(469,438)
Proceeds from disposal of other property, plant and equipment		1,813		3,475
Purchases of other property, plant and equipment		(9,234)		(13,520)
Purchases of intangible assets		(936)		(260)
Payment of deferred consideration		(519)		-
Business combinations		-		(15,260)
Net cash used in investing activities		(156,430)		(296,437)
Financing activities
Dividends paid		(19,302)		(18,933)
Repayments of obligations under finance leases		(331)		(25,082)
Repayments of bank loans and other borrowings		(107,174)		(30,244)
Increase in bank loans and other borrowings		30,873		113,210
Proceeds from issue of share capital		-		749
Proceeds from sale of own shares		1,373		981
Payments to acquire own shares for share schemes		(4,057)		(5,415)
Payments to acquire own shares for cancellation		-		(8,166)
Settlement of financial instruments		(9,646)		(3,198)
Termination of financial instruments		(32,666)		-
Net cash (used in) from financing activities		(140,930)		23,902
Net increase in cash and cash equivalents		30,968		13,397
Cash and cash equivalents at 1 May		48,763		34,467
Effect of foreign exchange movements		305		899
Cash and cash equivalents at 30 April	4	80,036		48,763

Consolidated Statement of Changes in Equity

For the year ended 30 April 2009

		2009		2008
		£000		£000
Amounts attributable to equity holders of the parent Company
Foreign exchange differences on retranslation of net assets of subsidiary undertakings		-		29,221
Foreign exchange differences on retranslation of net assets of subsidiary undertakings prior to inception of net investment hedging relationship		(4,976)		-
Foreign exchange differences on retranslation of net assets of subsidiary undertakings after initial inception of net investment hedging relationship		51,118		-
Foreign exchange differences on retranslation of net assets of subsidiary undertakings after subsequent change in level of net investment hedging relationship		(18,108)		-
Net foreign exchange differences on long term borrowings held as hedges		-		(34,349)
Net foreign exchange differences on long term borrowings held as hedges between initial inception and subsequent change in level of net investment hedging relationship		(37,556)		-
Net foreign exchange differences on long term borrowings held as hedges after subsequent change in level of net investment hedging relationship		5,299		-
Foreign exchange differences on revaluation reserve		158		164
Net fair value losses on cash flow hedges		(7,801)		(1,721)
Share options fair value charge		788		3,340
Share options exercised		(1,600)		-
Actuarial losses on defined benefit pension scheme		(109)		(208)
Deferred tax on net investment hedges		-		11,192
Other net deferred tax credit (charge) recognised directly in equity		870		(2,018)
Net (expense) income recognised directly in equity		(11,917)		5,621
(Loss) profit attributable to equity holders		(185,702)		61,334
Total recognised income and expense for the year		(197,619)		66,955
Dividends paid		(19,359)		(18,982)
Issue of Ordinary share capital (net of expenses)		-		749
Net decrease (increase) in own shares held		1,184		(4,434)
Cost of shares purchased for cancellation		-		(8,166)
Net changes in total equity		(215,794)		36,122
Opening total equity as at 1 May		398,553		362,431
Closing total equity as at 30 April		182,759		398,553

Notes

1. Segmental analysis 

The Directors consider the United Kingdom & 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
				2009				2009				2009
				£000				£000				£000
Revenue				352,678				256,967				609,645
Gross profit				81,778				49,408				131,186
Administrative expenses				(42,616)				(16,803)				(59,419)
Impairment of assets				(61,487)				(119,434)				(180,921)
Other exceptional items				(846)				(2,277)				(3,123)
Amortisation				(3,112)				(2,142)				(5,254)
Loss from operations				(26,283)				(91,248)				(117,531)
				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)				(11,647)				(55,993)
Exceptional items				-				1,098				1,098
Amortisation				(2,569)				(2,124)				(4,693)
Profit from operations				71,828				46,378				118,206

2. Earnings per share

		2009		2008
(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 (loss) profit attributable to equity holders of the parent		(185,702)		61,334
Number of shares		Number		Number
Weighted average number of Ordinary shares for the purposes of basic earnings per share		70,548,045		70,756,672
Effect of dilutive potential Ordinary shares:
- share options		1,597,946		737,756
Weighted average number of Ordinary shares for the purposes of diluted earnings per share		72,145,991		71,494,428
Basic earnings per share		(263.2)p		86.7p
Diluted earnings per share		(257.4)p		85.8p
(b) Earnings per share before amortisation and exceptional items		£000		£000
Earnings for the purposes of basic and diluted earnings per share (above)		(185,702)		61,334
Exceptional items		201,149		(1,098)
Earnings for the purpose of basic and diluted earnings per share before exceptional items		15,447		60,236
Amortisation		5,254		4,693
Earnings for the purpose of basic and diluted earnings per share before amortisation and exceptional items		20,701		64,929
Basic earnings per share before exceptional items		21.9p		85.1p
Diluted earnings per share before exceptional items		21.4p		84.3p
Basic earnings per share before amortisation and exceptional items		29.3p		91.8p
Diluted earnings per share before amortisation and exceptional items		28.7p		90.8p

3. Net cash from operating activities

		2009		2008
		£000		£000
(Loss) profit from operations		(117,531)		118,206
Adjustments for:
Depreciation of property, plant and equipment		278,205		216,736
Impairment of assets		180,921		-
Exchange differences		28		(337)
Amortisation of intangible assets		5,254		4,693
Gain on disposal of property, plant and equipment		(82)		(1,540)
Defined benefit pension charge		-		9
Share options fair value charge		788		3,340
Operating cash flows before movements in working capital		347,583		341,107
Decrease (increase) in inventories		1,320		(2,408)
Decrease in receivables		18,293		12,078
Increase (decrease) in payables		22,871		(15,478)
Cash generated from operations		390,067		335,299
Income taxes paid		(10,698)		(13,447)
Interest paid		(51,041)		(35,920)
Net cash from operating activities		328,328		285,932

4. Cash and cash equivalents

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

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

		2009		2008
		£000		£000
Cash in hand and at bank		27,757		11,372
Short term investments		52,279		37,391
Net cash and cash equivalents		80,036		48,763

5. Analysis of Consolidated net debt

	2009		2008
	£000		£000
Cash at bank and in hand	27,757		11,372
Short term investments	52,279		37,391
	80,036		48,763
Bank loans	(736,584)		(735,970)
Loan notes	(263,560)		(201,142)
Vehicle related finance lease obligations	(37)		(356)
Deferred consideration	-		(519)
Cumulative preference shares	(500)		(500)
Property loans and other borrowings	(14,871)		(4,284)
	(935,516)		(894,008)

The above consolidated net debt includes loan notes translated into Sterling at exchange rates prevailing on balance sheet dates. If the loan notes are presented at the fixed exchange rates at which they are swapped with counterparties, then consolidated net debt is £886,446,000 (2008 - £902,861,000).

6. Exceptional items

The following exceptional charges (credits) have been recognised:

	2009		2008
	£000		£000
Restructuring costs	3,123		-
Impairment of assets	180,921		-
Termination of interest rate swaps	32,666		-
Covenant deferral fees	1,164		-
Property profit	-		(1,098)
	217,874		(1,098)

(a) Restructuring costs

During the year, the Group incurred total restructuring costs of £3,123,000, of which £846,000 arose in the United Kingdom and £2,277,000 arose in Spain.

(b) Impairment of assets

In February 2009, the Group recognised impairment write downs against certain of its assets as follows:

	2009
	£000
Goodwill	85,732
Other intangible assets	1,979
Vehicles for hire	91,814
Plant and equipment	1,396
	180,921

(c) Termination of interest rate swaps

Interest rate swaps, of total notional value €475,000,000 were cancelled during the year, at a cash cost of £32,666,000. These instruments were designated as cash flow hedges and their closure value was initially deferred in equity, in accordance with IAS 39. As at 30 April 2009, the Group had engaged with its lenders in a process to refinance the debt against which the instruments had originally been designated in hedge relationships. Consequently, the full value was transferred to the income statement in accordance with the forecast transaction provisions of IAS 39.

 (d) Covenant deferral fees

As part of the debt refinancing process, referred to in (c) above, the Group has deferred the testing of loan covenants at the balance sheet date, upon the payment of a fee to its lenders of £1,164,000 on the same date.

(e) Tax impact

The initial tax impact of the above items in the current year was the recognition of income tax assets of £38,417,000. At the balance sheet date, £21,692,000 was then derecognised to the extent that it was no longer considered probable that they would be recovered in the short term, leaving a net tax credit of £16,725,000 in the consolidated income statement in the current year. 

(f) Property profit

In 2008, the exceptional profit was the result of insurance proceeds received in respect of a fire at one of the Group's operating sites in Spain.

7. Basis of preparation 

The results for the year ended 30 April 2009, 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 and effective for the year.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 April 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's Annual General Meeting. 

The audit of the statutory accounts for the year ended 30 April 2009 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's Annual General Meeting.

The auditors have reported on the accounts for the year ended 30 April 2008. Their report was unqualified and did not contain statements under Sections 237 (2) or (3) of the Companies Act 1985.

 

END

 

 

FR DXGDRBXGGGCC