Final Results

RNS Number : 9630X

Northgate PLC

01 July 2008

 

1 July 2008

NORTHGATE PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2008

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

Financial Highlights

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

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

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

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

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

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

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

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

Operational Highlights

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

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

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

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

Philip Rogerson, Chairman, commented:

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

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

Full statement and results attached.

For further information, please contact:

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

Hogarth Partnership Limited	020 7357 9477
Andrew Jaques
Barnaby Fry
Anthony Arthur

Notes to Editors:

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

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

http://www.northgateplc.com

 

 

Chairman's Statement

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

The Group achieved the following results for the year:

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

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

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

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

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

UK

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

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

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

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

Spain

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

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

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

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

Group

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

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

Board Changes

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

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

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

Current Trading and Outlook 

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

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

Operational Review

Strategy for Growth

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

UK & Republic of Ireland

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

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

A streamlining of the hire company network and management structure.

Spain

• Acquisition of the remaining 51% of the equity of Record;

• Continued double-digit organic fleet growth;

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

New Territory

• Expansion into a new jurisdiction.

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

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

Review of Current Year

United Kingdom and Republic of Ireland

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

Depot Network

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

Vehicle Fleet and Utilisation

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

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

Hire Rates

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

Used Vehicle Sales

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

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

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

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

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

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

Fleet Management

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

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

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

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

Body Repair Facility

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

Spain

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

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

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

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

Depot Network

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

Vehicle Fleet and Utilisation

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

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

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

Hire Rates

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

Used Vehicle Sales

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

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

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

IT

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

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

Other Territories

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

Financial Review 

Financial Reporting

Sales, Margins and Return on Capital

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

United Kingdom & Republic of Ireland

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

	2008 £000		2007 £000
Revenue
Vehicle rental	345,227		337,370
Fleet management	15,525		13,738
	360,752		351,108
Profit from operations
Vehicle rental	73,627		71,137
Fleet management	770		576
Intangible amortisation	(2,569)		(2,035)
	71,828		69,678

Operating margins (excluding intangible amortisation)
	2008		2007
UK overall	20.6%		20.4%
Vehicle rental	21.3%		21.1%
Fleet management	5.0%		4.2%

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

Spain

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

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

			2008 £000		2007 £000
Revenue
Vehicle rental			217,710		175,357
Profit from operations
Vehicle rental			47,404		39,265
Non-recurring property profit			1,098		-
Intangible amortisation			(2,124)		(1,887)
			46,378		37,378

			2008		2007
Operating margins (excluding intangible amortisation and non-recurring property profit)			21.8%		22.4%

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

Group

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

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

Taxation

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

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

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

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

Earnings per Share

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

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

Dividend

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

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

Investments

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

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

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

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

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

Capital Structure

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

 Treasury

Strategy

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

Treasury Management

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

Liquidity

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

Maturing	Amount £m
Within 1 year	152
Within 1 - 3 years	750
Within 4 years	31
Within 7 years	63
Within 10 years	107
Total	1,103

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

Cash Flows

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

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

Interest Costs

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

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

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

Interest Rate Management

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

Risks and Uncertainties

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

Vehicle Holding Costs

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

Customers and reduction in demand

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

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

Hire Rates

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

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

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

Access to capital

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

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

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

Information technology systems

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

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

Consolidated Income Statement

for the year ended 30 April 2008

		2008		2007 (restated)
	Notes	£000		£000
Revenue	1	578,462		526,465
Cost of sales	1	(400,668)		(356,923)
Gross profit		177,794		169,542
Administrative expenses (excluding amortisation)		(54,895)		(58,564)
Amortisation		(4,693)		(3,922)
Total administrative expenses		(59,588)		(62,486)
Profit from operations		118,206		107,056
Investment income		3,139		3,764
Finance costs		(41,853)		(35,452)
Profit before taxation		79,492		75,368
Taxation		(18,158)		(20,885)
Profit for the year		61,334		54,483
Profit for the year is wholly attributable to equity holders of the parent Company
Earnings per share
From continuing operations
Basic	2	86.7p		76.1p
Diluted	2	85.8p		75.8p

Consolidated Statement of Recognised Income and Expense

for the year ended 30 April 2008

	2008		2007
	£000		£000
Foreign exchange differences on retranslation of net assets of subsidiary undertakings	29,221		(1,756)
Foreign exchange difference on revaluation reserve	164		(11)
Net foreign exchange differences on long term borrowings held as hedges	(34,349)		1,425
Other foreign exchange differences recognised directly in equity	-		628
Net fair value (losses) gains on cash flow hedges	(1,721)		4,471
Share options fair value amount credited (charged) directly to equity	3,340		(75)
Actuarial (losses) gains on defined benefit pension scheme	(208)		445
Net current tax credit recognised directly in equity	-		1,084
Deferred tax on net investment hedges	11,192		-
Other net deferred tax charge recognised directly in equity	(2,018)		(2,616)
Net income recognised directly in equity	5,621		3,595
Profit attributable to equity holders	61,334		54,483
Total recognised income and expense for the year	66,955		58,078

  Consolidated Balance Sheet 

as at 30 April 2008

	2008		2007
	£000		£000
Non-current assets
Goodwill	83,152		75,120
Other intangible assets	28,475		26,804
Property, plant and equipment: vehicles for hire	1,006,792		860,052
Other property, plant and equipment	81,960		68,160
Total property, plant and equipment	1,088,752		928,212
	1,200,379		1,030,136
Current assets
Inventories	12,073		8,709
Trade and other receivables	193,088		176,760
Cash and cash equivalents	48,763		35,039
	253,924		220,508
Non-current assets classified as held for sale	30,566		21,941
Total assets	1,484,869		1,272,585
Current liabilities
Trade and other payables	90,182		68,570
Tax liabilities	15,728		11,973
Short term borrowings	8,414		20,340
	114,324		100,883
Non-current liabilities
Long term borrowings	934,357		770,022
Deferred tax liabilities	37,082		38,694
Retirement benefit obligation	553		555
	971,992		809,271
Total liabilities	1,086,316		910,154
Net assets	398,553		362,431
Equity
Share capital	3,527		3,560
Share premium account	67,972		67,230
Revaluation reserve	1,207		1,043
Own shares	(9,006)		(4,572)
Merger reserve	67,463		67,463
Hedging reserve	7,110		5,199
Translation reserve	3,817		1,924
Capital redemption reserve	40		-
Retained earnings	256,423		220,584
Total equity	398,553		362,431

Consolidated Cash Flow Statement 

for the year ended 30 April 2008

		2008		2007
	Notes	£000		£000
Net cash from operating activities	4	285,932		224,765
Investing activities
Interest received		2,453		3,145
Proceeds from disposal of vehicles for hire		196,113		188,512
Purchases of vehicles for hire		(469,438)		(437,947)
Proceeds from disposal of other property, plant and equipment		3,475		3,283
Purchases of other property, plant and equipment		(13,520)		(11,126)
Purchases of intangible assets		(260)		(1,281)
Payment of deferred consideration		-		(10,290)
Acquisition of subsidiary undertakings, including net cash and bank overdraft balances acquired	3	(15,260)		(49,340)
Net cash used in investing activities		(296,437)		(315,044)
Financing activities
Dividends paid		(18,933)		(16,946)
Repayments of obligations under finance leases		(25,082)		(63,740)
Repayments of bank loans and other borrowings		(30,244)		(175,579)
Increase in bank loans and other borrowings		113,210		359,891
Proceeds from issue of share capital		749		2,254
Proceeds from sale of own shares		981		62
Payments to acquire own shares		(5,415)		(1,303)
Payments to acquire own shares for cancellation		(8,166)		-
Settlement of financial instruments		(3,198)		-
Net cash from financing activities		23,902		104,639
Net increase in cash and cash equivalents		13,397		14,360
Cash and cash equivalents at 1 May		34,467		20,259
Effect of foreign exchange movements		899		(152)
Cash and cash equivalents at 30 April	5	48,763		34,467

  Consolidated Statement of Changes in Equity

For the year ended 30 April 2008

		2008		2007
		£000		£000
Amounts attributable to equity holders of the parent Company
Foreign exchange differences on retranslation of net assets of subsidiary undertakings		29,221		(1,756)
Foreign exchange differences on revaluation reserve		164		(11)
Net foreign exchange differences on long term borrowings held as hedges		(34,349)		1,425
Other foreign exchange differences recognised directly in equity		-		628
Net fair value (losses) gains on cash flow hedges		(1,721)		4,471
Share options fair value amount credited (charged) directly to equity		3,340		(75)
Actuarial (losses) gains on defined benefit pension scheme		(208)		445
Net current tax credit recognised directly in equity		-		1,084
Deferred tax on net investment hedges		11,192		-
Other net deferred tax charge recognised directly in equity		(2,018)		(2,616)
Net income recognised directly in equity		5,621		3,595
Profit attributable to equity holders		61,334		54,483
Total recognised income and expense for the year		66,955		58,078
Dividends paid		(18,982)		(16,949)
Issue of Ordinary share capital (net of expenses)		749		2,254
Net increase in own shares held		(4,434)		(1,241)
Cost of shares purchased for cancellation		(8,166)		-
Net changes in total equity		36,122		42,142
Opening total equity as at 1 May		362,431		320,289
Closing total equity as at 30 April		398,553		362,431

  Notes

1.       Segmental analysis

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

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

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

2.       Earnings per share

		2008		2007
(a) Basic and diluted earnings per share
The calculation of basic and diluted earnings per share is based on the following data:
Earnings		£000		£000
Earnings for the purposes of basic and diluted earnings per share, being net profit attributable to equity holders of the parent		61,334		54,483
Number of shares		Number		Number
Weighted average number of Ordinary shares for the purposes of basic earnings per share		70,756,672		71,584,744
Effect of dilutive potential Ordinary shares:
- share options		737,756		250,032
Weighted average number of Ordinary shares for the purposes of diluted earnings per share		71,494,428		71,834,776
Basic earnings per share		86.7p		76.1p
Diluted earnings per share		85.8p		75.8p
(b) Earnings per share before amortisation and non-recurring property profit		£000		£000
Earnings for the purpose of basic and diluted earnings per share (above)		61,334		54,483
Amortisation		4,693		3,922
Non-recurring property profit		(1,098)		-
Earnings for the purpose of basic and diluted earnings per share before amortisation and non-recurring property profit		64,929		58,405
Basic earnings per share before amortisation and non-recurring property profit		91.8p		81.6p
Diluted earnings per share before amortisation and non-recurring property profit		90.8p		81.3p

3.       Business Combinations

		£000
(a) Alquiservicios LSC S.A.
Book value		4,457
Fair value adjustments		385
		4,842
Fair value of net assets
Goodwill		391
Acquisition costs (including expenses)		5,233
(b) GPS Body Repairs Limited
Book value		77
Fair value adjustments		(15)
Fair value of net assets		62
Goodwill		224
Acquisition costs (including expenses)		286
(c) Hampsons (Self Drive Hire) Limited
Book value		6,245
Fair value adjustments		2,698
Fair value of net assets		8,943
Goodwill		996
Acquisition costs (including expenses)		9,939
(d) Abington Vehicle Rentals Limited
Book and fair value of net assets		1,311
Goodwill		-
Acquisition costs (including expenses)		1,311

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

		2008		2007
		£000		£000
Profit from operations		118,206		107,056
Adjustments for:
Depreciation of property, plant and equipment		216,736		193,885
Exchange differences		(337)		366
Amortisation of intangible assets		4,693		3,922
Gain on disposal of property, plant and equipment		(1,540)		(356)
Defined benefit pension charge		9		8
Share options fair value amount credited (charged) directly to equity		3,340		(75)
Operating cash flows before movements in working capital		341,107		304,806
Increase (decrease) in inventories		(2,408)		460
Decrease (Increase) in receivables		12,078		(16,810)
Decrease in payables		(15,478)		(5,838)
Cash generated from operations		335,299		282,618
Income taxes paid		(13,447)		(22,446)
Interest paid		(35,920)		(35,407)
Net cash from operating activities		285,932		224,765

5.       Cash and cash equivalents

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

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

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

		2008		2007
		£000		£000
Cash in hand and at bank		11,372		14,384
Short term investments		37,391		20,655
Gross cash and cash equivalents as reported		48,763		35,039
Bank overdrafts		-		(572)
Net cash and cash equivalents		48,763		34,467

6.       Analysis of Consolidated net debt

	2008		2007
	£000		£000
Cash at bank and in hand	11,372		14,384
Short term investments	37,391		20,655
Bank overdraft due within one year	-		(572)
	48,763		34,467
Bank loans	(735,970)		(601,326)
Loan notes	(201,142)		(168,628)
Vehicle related finance lease obligations	(356)		(16,104)
Deferred consideration	(519)		-
Preference shares	(500)		(500)
Property loans and other borrowings	(4,284)		(3,232)
	(894,008)		(755,323)

7.       Basis of preparation

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

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

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

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

 

END

 

 

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