Final Results
Northgate PLC
04 July 2006
4 July 2006
NORTHGATE PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2006
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 2006.
• Revenue up 10% to £372.6m (2005 - £339.4m)
• Profit before tax up 2% to £56.1m (2005 - £55.0m)
• Underlying profit before tax* up 7% to £59.9m (2005 - £55.8m)
• Adjusted earnings per share* increased by 6% to 65.7p (2005 - 62.1p)
• Total dividend increased by 15% to 23.0p (2005 - 20.0p)
• UK fleet increased by 22% to 64,000 vehicles (2005 - 52,600) including
approximately 10,500 vehicles retained as a result of the acquisition
of Arriva Vehicle Rental Limited
• In Spain, Fualsa's fleet increased by 21% to 23,000 vehicles and
following the investment in Record gave a total Spanish fleet of
47,000 vehicles
*Stated before intangible amortisation of £1.2m (2005 - £0.8m) and exceptional
restructuring costs of £2.6m (2005 - £nil) related to the reorganisation of
Arriva Vehicle Rental Limited following its acquisition on 3 February 2006
Martin Ballinger, Chairman, commented:
'In the current financial year, in addition to the expected organic growth in
the UK, we will see the full benefit of the Arriva Vehicle Rental acquisition.
We will also see further development of our fleet management activities through
Fleet Technique Limited.
'In Spain, along with good organic growth, we will have 100% ownership of Record
for the full year and the benefit of further synergies from combining business
activities.
'Consequently the Board remains confident of good progress in the year ahead and
trading remains in line with its expectations.'
Full statement and results attached.
For further information, please contact:
Northgate plc 01325 467558
Steve Smith, Chief Executive
Gerard Murray, 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 acquire 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
The year's performance was one of strong growth in Spain and a resilient
delivery from the UK business. It was also the third and final year of
Northgate's three-year Strategy for Growth Plan, which was set out in 2003. The
Group has achieved compound earnings per share growth of 14% per annum over the
three years, and in the process has developed a robust and geographically
diverse business. This is particularly pleasing as it coincides with our 25th
anniversary in the business of renting light commercial vehicles.
A new three-year rolling strategy has been adopted which foresees the
continuation of earnings growth through building on our market leading positions
in the UK and Spain. Management began the implementation of this new strategy in
January 2006.
This is the first financial year that the Group has prepared its results under
IFRS. The impact of IFRS on profit before tax for the year was immaterial. The
main presentational change to the Group's financial results is that proceeds
received from the disposal of used vehicles are no longer classified as revenue.
This change in policy has had the effect of reducing Group revenue as previously
reported under UK GAAP. Group revenue now comprises income derived from the hire
of vehicles and the supply of related goods and services.
The results for the year are set out below:
• Group revenue increased by 10% to £372.6m (2005 - £339.4m)
• Underlying profit before tax* for the year was £59.9m (2005 - £55.8m)
• Adjusted earnings per share* increased by 3.6p to 65.7p (2005 - 62.1p)
*Stated before intangible amortisation of £1.2m (2005 - £0.8m) and exceptional
restructuring costs of £2.6m (2005 - £nil).
Based on these results and the Board's view of future prospects, the Board has
decided to recommend to shareholders a final dividend of 14p per share. This
will produce a total dividend for the year of 23p - an increase of 15% over the
prior year and is covered 2.7 times. The dividend will be payable on 29
September 2006 to those shareholders on the register on 1 September 2006.
As previously reported, the UK market was impacted by lower residual values in
the first half of the financial year. The second half has seen residual values
recover, albeit not to the unusually high levels of the prior year. Continued
development of retail and semi-retail channels for vehicle sales has contributed
to this improvement in profitability.
Whilst UK hire rates have remained competitive, we have experienced five months
of relative stability since January 2006. The limited fleet growth due to market
weakness experienced in the construction, retail and distribution sectors
referred to in my Interim Statement has been largely overcome with the UK
business achieving expected levels of growth in the six months to April 2006.
Our new strategy included a plan to acquire Arriva Vehicle Rental Limited
('AVR'), a business with a rental fleet of over 11,000 vehicles in markets
largely complementary to Northgate's UK business. The acquisition, which was
funded in part by a placing to raise £63m, was completed in January 2006 and
management have worked hard so that the integration of the business is now
substantially complete.
The growth of the UK network and the AVR acquisition have demonstrated that
efficiency improvements are achievable through managing larger numbers of
vehicles per business and Northgate's autonomous management structure is more
cost-effective as a result. Further strategic restructuring in the UK along
these lines is currently underway.
During the year, the Group also acquired Fleet Technique Limited ('FTL'). An
important element of Northgate's growth strategy, this business has given the
Group the facility to manage operators' fleets regardless of how they choose to
acquire their vehicles.
In Spain, the growing vehicle rental market continues to justify Northgate's
confidence in both its original investment in Fualsa and in its future strategy.
In August 2005, the Group purchased 49% of Record Rent a Car SA ('Record') and
completed the acquisition of the remaining 51% on 11 May 2006.
I have been encouraged by the strategic approach of the executive team and the
energy and enthusiasm that they display in the continued development of the
Group. The commitment of the staff and management at all levels this year has
been impressive. Your Board will ensure that the new strategy is professionally
adopted throughout the Group with long-term benefits for all stakeholders.
Current Trading and Outlook
In the current financial year, in addition to the expected organic growth in the
UK, we will see the full benefit of the AVR acquisition. We will also see
further development of our fleet management activities through FTL.
In Spain, along with good organic growth, we will have 100% ownership of Record
for the full year, an expected improvement in Fualsa's operating performance and
the benefit of further synergies from combining business activities.
Consequently the Board remains confident of good progress in the year ahead and
trading remains in line with the Board's expectations.
Operational Review
Strategy for Growth
In July 2003 we announced our Strategic Plan for the three years to April 2006,
the key targets of which were:
• A fleet size of 60,000 in the UK and 18,000 in Spain;
• A network of 100 locations in the UK and 20 in Spain;
• 100% ownership of Fualsa; and
• An established portfolio of non-rental products.
In the year under review the acquisition of AVR has resulted in us exceeding the
fleet size objective in the UK. In Spain, Fualsa exceeded their fleet target by
5,000 units and had a network of 17 locations at 30 April 2006. The final
payment of €14.9m in respect of the consideration for the purchase of Fualsa was
made to the vendors on 8 May 2006.
The completion of the acquisition of Record on 11 May 2006 effectively doubled
both the vehicle fleet and the depot network in Spain.
We now have a number of ancillary products such as vehicle tracking and parts
procurement available to customers and the acquisition of FTL on 23 January 2006
significantly extended our non-rental product range.
Through the successful implementation of our strategy we were seeking to achieve
double-digit earnings growth in each year of the plan. Over the three-year
period the Company has achieved growth in earnings per share at an annualised
compound rate of 14%.
In January 2006 we announced, with our interim results, our new Strategy for
Growth based on a three-year rolling business plan aimed at achieving continued
double-digit growth in earnings per share. The acquisitions of AVR and FTL and
the completion of the purchase of Record are very much in line with that
Strategic Plan and give us a platform to continue to successfully grow our
business.
Review of Current Year
United Kingdom and Republic of Ireland
The first half of the financial year was one of the most difficult we have
encountered with limited fleet growth, competitive pressures reducing hire rates
and lower used vehicle residual values. The second half, as predicted at the
time of our interim results, has seen more normal levels of fleet growth, stable
hire rates since January 2006 and an improvement in residual values.
Depot Network
We currently operate from 88 locations, of which 35 are primary and 53 are
branches. This represents an increase of 12 locations over the financial year,
of which we acquired ten as a result of the purchase of AVR.
Vehicle Fleet
The historic pattern of fleet growth for the UK has been one of a stronger first
half than second half of the financial year. This year has seen the opposite
pattern with no growth in the first half of the year, followed by an organic
increase in the fleet of 2% in the second half.
As noted in the interim report in January, in the first six months the Group was
affected by some weakness in demand from customers operating in the
construction, retail and distribution sectors along with a major customer
off-hiring a large number of vehicles. From September demand returned to more
normal levels and was in line with our expectations for the remainder of the
financial year. In addition, the acquisition of AVR added significantly to our
fleet in February 2006, and we consequently ended the financial year with a
fleet of 64,000 vehicles.
Once integrated into our fleet it became impossible to distinguish between our
existing fleet and the AVR fleet, particularly for common customers. As a
consequence we cannot precisely split growth arising from the AVR acquisition
and organic growth for the second half of the year but estimate that of the
increase of 11,600 vehicles between 31 October and 30 April, 10,500 came from
the acquisition, once non-utilised AVR vehicles were disposed of, and 1,100 from
existing businesses.
Utilisation and Hire Rates
Utilisation again averaged 90% for the year (2005 - 90%).
From the beginning of August 2005 we experienced strong competition resulting in
declining hire rates. This continued until January 2006 and as a result hire
rates reduced year on year by 2.5%. Since January we have not experienced the
same level of aggressive activity and as a consequence hire rates have remained
stable.
Used Vehicle Sales
We sold 23,000 vehicles (2005 - 17,700) during the year, the largest volume we
have ever disposed of. In the first half we experienced a weaker market for used
vehicle values, particularly in the long wheel base van sector. Since October
2005, we have seen an improvement in values as a result of the market improving,
a significant reduction in our stock levels and the continued development of our
semi-retail and retail channels.
Under IFRS the profit for used vehicle disposals is no longer accounted for
separately since depreciation is adjusted in order that vehicles are retired
from the fleet at their anticipated market value less any direct costs incurred
in their disposal. If this profit arising from the used vehicle disposals had
been calculated on the same basis as last year, applying UK GAAP, the UK would
have recorded an operating profit per vehicle of £83 (2005 - £205).
We continue to seek to increase both the overall capacity of our used vehicle
sales network and our ability to sell more vehicles through the semi-retail and
retail channels. To that end we have opened new facilities at Newmains in
Scotland, Colchester and Warrington during the year and now have nine outlets,
of which six are devoted primarily to retail and semi-retail disposals. In the
year under review 12% (2005 - 10%) of our disposals were to semi-retail or
retail customers and we remain on target to achieve 15% through these channels
in the medium term.
Purchase of Fleet Technique Limited ('FTL')
In line with the Group's Strategic Plan announced at the time of the interim
results, the Group acquired the entire issued share capital of FTL for a
consideration in cash of £5.7m, on 23 January 2006.
FTL is a specialist fleet management business, based in the north east of
England, serving customers across the UK. Third party fleets under management
totalled some 15,000 vehicles, including both cars and commercials as at 30
April 2006. In addition, FTL has developed a leading software package for the
industry and has a reputation for excellent service to its customers.
In the three months of ownership FTL contributed £0.1m to the Group's profit
from operations for the year. More importantly, FTL provides us with the
platform to develop a significant fleet management business through offering
customers a full range of flexible vehicle solutions whilst capitalising on our
core skills of purchasing, maintaining and disposing of large volumes of
vehicles.
Purchase of Arriva Vehicle Rental Limited ('AVR')
On 31 January 2006 we announced that we had entered into an agreement to acquire
the entire issued share capital of AVR and that 6.05 million new Ordinary shares
were being placed to partially fund payment of the consideration. The placing
became wholly unconditional on 3 February 2006. The total consideration,
including acquired debt, paid to date for AVR is £124.4m. This is subject to
final agreement with the vendor of the net asset values acquired.
At the time of acquisition AVR operated a fleet of over 11,000 vehicles through
a branch network of 33 locations and employed around 650 people.
Our plan was to fully integrate AVR into our existing operating structure by the
end of our financial year and we are pleased to report that this was achieved.
Of the 33 branches ten were retained as new locations for Northgate and another
four were used as replacements for existing Northgate sites. The staffing levels
were reduced from around 650 employed by Arriva to around 250 additional staff
in the enlarged structure. Customer retention has to date been excellent and
those vehicles not being utilised have been disposed of profitably.
On 8 March 2006 the Office of Fair Trading announced that it was to examine the
transaction. Having considered the evidence the OFT decided on 18 May 2006 not
to refer the merger to the Competition Commission. A text of the decision is
available on their website at www.oft.gov.uk.
Reorganisation
On 20 June 2006 the Group commenced a restructuring plan to create a functional,
rather than geographic, management structure for the UK business by streamlining
the number of hire companies to give fewer, but larger, business units, whilst
retaining the existing network of locations.
It is intended that this process, which will take around six to nine months to
complete, will leave us better able to deliver consistent customer service
throughout the Group and with improved productivity from increased utilisation
of the fleet and reduced costs. Whilst it is likely that the benefits will be
negated by the one-off transactional cost of the changes in the current
financial year, future periods will benefit as evidenced by an improved
operating margin.
Spain
On 5 August 2005 we significantly increased our presence in Spain with the
purchase of 49% of Record, like Fualsa, one of Spain's leading vehicle rental
companies. Since the remaining 51% of the equity was not acquired until 11 May
2006, in the year under review Record is accounted for as an associate. We are
therefore reporting on Fualsa and Record as two separate businesses this year
but going forward, will review our Spanish businesses as one operation.
During the year, the growth in the Spanish vehicle rental market has been in
part due to the continued high level of activity in the construction sector.
Whilst our aim remains to reduce our dependency on this sector over time, we
continue to take advantage of the opportunities that exist in the medium term.
Fualsa
As at 30 April 2006 Fualsa operated a fleet of 23,000 vehicles from a depot
network of 17 locations, an increase of 4,000 vehicles and two locations over
April 2005. The utilisation rate averaged 89%, the same as the prior year. Hire
rates continued to improve modestly and were up by just under 2% on the prior
year, albeit the benefit of this increase is reduced by a similar increase in
the capital cost of new vehicles.
The operating margin at 20.9% was down by over 4% on the prior year, as a result
of an increase in external maintenance costs, increased depreciation due to
lower residual values and some planned increases in expenditure on management,
IT and other aspects of Fualsa's infrastructure. Maintenance costs increased due
to the cumulative fleet growth of the last few years overstretching the
management structure combined with a shortage of skilled personnel, particularly
mechanics, leading to more work having to be completed externally. Both of these
issues have been addressed and we are confident of an improvement in the year
ahead. These corrective actions, along with the operational gearing benefit we
will derive from a larger fleet size, should lead to an improvement of over 1%
in the operating margin for the current year.
Record
Since our investment on 5 August 2005 the vehicle fleet has grown by 20%
producing a closing fleet of 24,000 vehicles at 18 locations. The utilisation
rate averaged 92% in the period, a slight improvement on the level achieved
prior to our investment. A similar increase to Fualsa was achieved in hire
rates.
Whilst we remain of the belief that our customers are best served by retaining
two separate brands in Spain, there are opportunities to obtain synergies by
combining certain areas of the two operations.
We have already brought together the purchasing activities of the two companies
to benefit from the economies of scale from purchasing larger volumes,
particularly vehicles. In the year ahead we intend to merge vehicle disposals
into one unit. Within the next six months we expect to have appointed a CEO for
Spain to allow us to further merge the businesses in the second half of the
financial year. Further integration is to some extent dependent on having a
common IT platform, a project currently being developed and expected to conclude
in the 2007 calendar year.
Financial Review
Financial Reporting
The Group has delivered a resilient set of financial results, particularly
taking into account the difficult trading conditions that existed in the UK
during the first half of the financial year. The financial impact on these
results of businesses acquired in the UK and Spain throughout the year are
described separately below. Whilst the additional contribution to earnings per
share in this year from these acquisitions has been marginal, they position the
Group for strong growth in the future.
This report represents the first annual results prepared under IFRS. The
transition to IFRS has not had a material impact on reported profit before tax
or cash flow. The main presentational change to the Group's financial results is
that proceeds received from the disposal of used vehicles are no longer being
classified as revenue. This change in policy has had the effect of reducing
Group revenue as previously reported under UK GAAP. Group revenue now comprises
the hire of vehicles and the supply of related goods and services in the normal
course of business.
Sales, Margins and Return on Capital
Group revenue increased by 10% to £372.6m (2005 - £339.4m) as a result of an
increase in UK revenue of 6% to £300.8m (2005 - £283.4m) and a 28% increase in
revenue from Fualsa to £71.8m (2005 - £56.0m).
The Group acquired 49% of Record, a leading commercial vehicle rental company in
Spain on 5 August 2005. The results of Record have been accounted for as an
associate under the net equity method and as a consequence none of Record's
revenues have been consolidated into Group revenue.
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:
2006 2005
£000 £000
Revenue
Vehicle rental 297,433 283,414
Fleet management 3,338 -
-------- ----------
300,771 283,414
-------- ----------
Profit from operations
Vehicle rental 58,722 * 62,863
Fleet management 119 -
Intangible amortisation (692) (321)
-------- ----------
58,149 62,542
-------- ----------
*The UK profit from operations is stated after an exceptional restructuring
charge of £2.6m relating to AVR following its acquisition on 3 February 2006.
Operating margins (excluding exceptional charge and intangible amortisation)
2006 2005
UK overall 20.4% 22.2%
Vehicle rental 20.6% 22.2%
Fleet management 3.6% -
The overall UK operating margin has declined to 20.4% (2005 - 22.2%) partly as a
result of acquiring FTL, a fleet management company that generates a lower
operating margin than vehicle rental. One of the main reasons for the reduction
in margin, however, was a higher depreciation charge as a consequence of lower
values being obtained for vehicles sold at the end of their life. This was
particularly the case in the first half of the financial year when the Group
held more stock than normal and long wheel base products experienced significant
declines in value. The UK also experienced a highly competitive environment in
hire rates and as a result the average hire rate declined by over 2% compared to
2005. In order to compensate for lower hire rates and lower residual values the
operating expenses of the UK business were addressed and savings achieved. After
a particularly difficult first half to the financial year an underlying
operating margin in the UK vehicle rental business of 20.6% (2005 - 22.2%) is a
satisfactory outcome.
Spain
Fualsa, a major commercial vehicle rental company in Spain, has been a wholly
owned subsidiary since May 2004. On 5 August 2005 the Group acquired a 49%
interest in the equity of Record, another leading Spanish commercial vehicle
rental company. Fualsa has been reported as a subsidiary undertaking within the
consolidated financial statements whereas Record has been accounted for as an
associate.
Fualsa
The revenue and profit from operations generated by Fualsa during the year is
set out below:
2006 2005
£000 £000
Revenue
Vehicle rental 71,838 55,968
--------- --------
Profit from operations
Vehicle rental 14,984 14,229
Intangible amortisation (535) (534)
--------- --------
14,449 13,695
--------- --------
Operating margins (excluding intangible amortisation)
2006 2005
Overall 20.9% 25.4%
Fualsa's vehicle rental revenue increased by 28%, in line with the increase in
the average rental fleet size of 26% and hire rate increases of just under 2%.
The operating margin achieved by Fualsa of 25.4% in 2005 was forecast to reduce
as a result of investing in the infrastructure of the business. Planned
expenditure was incurred with the appointment of senior managers, upgrading IT
systems and introducing credit insurance. In addition to these costs, Fualsa's
vehicle repair expenditure increased substantially in the second half of the
financial year as a result of a shortage of skilled technicians to service the
enlarged fleet resulting in a higher proportion of maintenance being carried out
by third parties. These additional costs combined with increased depreciation
due to lower residual values have resulted in the operating margin reducing by
4.5%.
Record
The Group's 49% share of Record's profit before tax in the nine month period
since the date of the initial investment was £5.0m. The equivalent operating
margin for Record during this period was 23.7% reflecting higher utilisations
and an absence of the issues surrounding repair costs that existed in Fualsa.
The fleet growth of 20% in the period since acquisition indicates that the
market remains very strong for our flexible rental product in Spain.
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% (2005 - 14%).
Group return on equity, calculated as profit after tax divided by average
shareholders' funds, is 16% (2005 - 19.0%).
IFRS
This is the first set of Group results that have been prepared under IFRS. The
Group released an announcement on 21 December 2005 detailing the impact of IFRS
on the results for the year ended 30 April 2005. The comparative financial
information has been restated to reflect the application of IFRS. The main
impacts of IFRS on the Group's reported results, as compared with the results
for 2005 reported under previous accounting standards, are set out below.
IFRS 2 (Share-based Payment): An income statement charge is recognised in
respect of the cost of share options granted under the Group's various share
schemes. This cost is deemed to be the fair value of the options granted and is
charged over the vesting period. An amount equivalent to the charge is credited
directly to equity, resulting in no impact on net assets. This accounting
treatment is the same as UK GAAP except that the fair values used under IFRS 2
differ from those under UK GAAP.
IFRS 3 (Business Combinations): Separate intangible assets are recognised at
fair value on the acquisition of businesses after the date of transition to
IFRS, which previously formed part of goodwill under UK GAAP. These include
non-contractual customer relationships, brand names and non-compete agreements,
all of which are amortised over their respective estimated useful lives. The
residual goodwill balance under IFRS is therefore lower in value than under UK
GAAP but it is no longer amortised and is, instead, tested annually for
impairment.
IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations): Vehicles
held for resale are reclassified from inventories into non-current assets held
for sale under IFRS.
IAS 10 (Events After the Balance Sheet Date): Under IFRS, dividends are not
appropriated within the accounts until they are either paid or formally
approved.
IAS 12 (Income Taxes): Deferred taxation changes arise under IFRS as a result of
differences between the accounting treatment and taxation treatment in respect
of share options (IFRS 2), intangible assets (IFRS 3) and holiday pay accruals
(IAS 19). Under IAS 12, deferred tax liabilities are also recognised on all
capitalised buildings, regardless of whether a contractual commitment to sell
exists.
IAS 16 (Property, Plant and Equipment): Under IAS 16, the Group is required to
review its depreciation rates and estimated useful lives on a regular basis to
ensure that the net book value of disposals of tangible fixed assets are broadly
equivalent to their market value. Depreciation charges are adjusted for any
differences that arise between net book values and open market values of used
vehicles upon transfer into non-current assets held for sale, taking into
account the further direct costs to sell the vehicles.
IAS 18 (Revenue): Under IFRS, income from the sale of used vehicles is not
recognised within revenue and the net book value of the vehicles sold, along
with associated direct selling costs, are removed from cost of sales.
IAS 19 (Employee Benefits): An accrual is recognised for employee annual leave
accrued, but not taken, at each balance sheet date. Where this applies to
business combinations, the accrual required at the date of acquisition is deemed
to reduce the fair value of the net assets acquired with a corresponding
adjustment to goodwill.
IAS 21 (The Effects of Changes in Foreign Exchange Rates): Certain exchange
differences, previously recognised directly within the profit and loss account
reserve under UK GAAP, are reclassified into a separate translation reserve,
directly within equity, under IFRS.
IAS 32 (Financial Instruments: Disclosure and Presentation): The Company's
cumulative preference shares are deemed to be debt rather than equity under
IFRS. They are reclassified from share capital to borrowings in the balance
sheet and preference dividends are reclassified from dividends to finance costs
in the income statement.
IAS 38 (Intangible Assets): Certain software assets are reclassified from
tangible to intangible assets under IFRS. Amounts previously charged to the
profit and loss account as depreciation under UK GAAP relating to these fixed
assets are reclassified as amortisation within the IFRS income statement.
Separate intangible assets are also recognised within business combinations (see
IFRS 3, above). These assets are amortised to the income statement over their
estimated useful lives.
IAS 39 (Financial Instruments: Recognition and Measurement): Interest rate
derivatives, to which the Group is party, are recognised on the balance sheet at
their fair value. Subsequent changes in the fair value are recognised either
within the income statement, as a finance cost, or directly in equity to the
extent that the Group elects to hedge account, within the provisions of IFRS.
This standard has not been applied to the prior year as allowed under the
transitional rules.
Taxation
The Group's UK operations have a total tax charge of 32% (2005 - 31%), which is
slightly higher than the standard rate of 30% due to disallowable expenditure
incurred within the business.
Both Fualsa's effective tax rate of 18% (2005 - 20%) and Record's of 29% are
below the standard Spanish tax rate of 35% because of tax concessions based on
vehicle purchase reliefs that are available to the businesses. There is draft
legislation in Spain that proposes to reduce the standard rate of Corporation
Tax from 35% to 30% whilst at the same time removing some of the vehicle
purchase reliefs that the businesses currently claim. The timing of any change
is not certain and the precise impact on the likely effective tax in Spain has
not been quantified. It is expected, however, that this effective rate will be
near to 30% in the medium term.
Dividend
The Directors recommend a final dividend of 14p per share (2005 - 12p) giving a
total for the year of 23p (2005 - 20p), an increase of 15%. The dividend is
covered 2.7 times (2005 - 3.0 times).
Earnings per Share
Earnings per share increased to 61.1p (2005 - 60.7p), reflecting the growth in
underlying profits being offset by an exceptional restructuring cost associated
with the acquisition of AVR and its subsequent reorganisation and the increased
number of Ordinary shares in issue following the placing of 6.05 million shares
in February 2006. Excluding intangible amortisation of £1.2m (2005 - £0.8m) and
exceptional restructuring costs of £2.6m (2005 - £nil), basic earnings per share
grew by 6% to 65.7p (2005 - 62.1p).
Basic earnings per share have been calculated in accordance with IAS 33. The
weighted average number of shares in issue during the year has been amended to
exclude those Ordinary shares held by Walbrook Trustees (Guernsey) Limited and
Capita IRG Trustees Limited for the Company's various share schemes until such
time as they rank for dividend.
Investments
On 5 August 2005 the Company acquired 49% of the share capital of Record for
€54.8m. In the UK the entire share capital of FTL was acquired for a
consideration in cash of £5.7m on 23 January 2006 and on 3 February 2006 the
Company acquired the entire share capital of AVR for £50.3m.
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.
Capital Structure
As at 30 April 2006 the Group's total gearing measured as net debt (including
cash balances) as a percentage of shareholders' funds but after the deduction of
goodwill and intangible assets increased to 204% (2005 - 198%). The net cash
balance taken into account in calculating the gearing ratios for this year is
£24m (2005 - £41.4m).
This level of gearing is in line with our expectations and is mainly due to the
cash outflows following the purchase of 49% of Record and the acquisition of AVR
being offset by cash generation from operations and proceeds received from the
issue of 6.05 million Ordinary shares in February 2006. Since the year end the
Group has acquired the remaining 51% of Record's equity. If this purchase had
taken place on 30 April 2006 the consolidated balance sheet of the Group would
have had gearing of 314% on a pro-forma basis.
Treasury
Cash Flows
The Group's net debt increased by 28% to £524.5m (2005 - £410.9m) excluding the
debt in Record's balance sheet. This increase reflects cash outflows associated
with the purchase of 49% of Record (£37.9m), the acquisition of AVR (£124.4m),
funding of fleet growth in the UK and Spain and the receipt of the proceeds of
the placing of 6.05 million Ordinary shares on 3 February 2006. Gross cash
generation as reflected by EBITDA* increased to £210.0m (2005 - £197.9m). The
Group funded the purchase of 22,500 new vehicles in the UK and 9,400 new
vehicles in Fualsa for a total cash outflow of £306.3m. The sale of 23,000 UK
vehicles and 4,900 Fualsa vehicles generated a cash inflow of £150.8m. The
option over the remaining 20% of Fualsa's equity, whilst exercised, has not yet
given rise to a cash outflow. This deferred consideration of €14.9m is
classified as debt in the Group's balance sheet and was paid after the Group's
financial year end in May 2006.
*EBITDA - Earnings before interest, taxation, depreciation and amortisation.
Interest Costs
The Group's net interest costs have decreased by 6% to £20.1m (2005 - £21.2m)
despite an increase in closing net debt of 28%. This is because the Group has
benefited from the full effects of the refinancing arrangements put in place in
January 2005 and also from having a higher proportion of debt denominated in
Euros than in the prior year. Interest cover remained a healthy 3.6 times (2005
- 3.6 times).
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 funding arrangements of the Group with banks are negotiated and
monitored centrally. In January 2006 the Group extended its facilities to a
total of £745m under a series of unsecured, revolving, bilateral agreements.
These extended facilities have provided funding for the acquisition of AVR and
will also fund the refinancing of Record's borrowings. All funds generated by
the Group's operations are controlled by a central treasury function.
Liquidity
The Group's aggregate finance facilities, including existing Fualsa loan
facilities, total £756m compared to net debt of £524m. As described above, the
core of these arrangements relate to the £745m unsecured facilities with the
following terms:
Term Amount £m
Within one year 149
Within three years 298
Within four years 298
-----
Total 745
Interest Rate Management
The Group's bilateral 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. The
current value of financial instruments represents 60% of net debt at 30 April
2006 with an average term outstanding of two years. This coverage fell to 44% of
net debt following the acquisition of Record in May 2006.
In assessing the effectiveness of these instruments, the table below details the
additional interest costs to the Group, based on the Group's closing net debt
position at 30 April 2006 of £524m, of a series of interest rate increases after
applying the benefit of the instruments. This table is based on the cash amounts
and does not take into account the effects of applying IAS 39:
Increase in Additional interest costs
interest rate Sterling debt Euro debt Total
1% £1.8m £1.4m £3.2m
2% £3.2m £2.7m £5.9m
3% £4.3m £4.0m £8.3m
Consolidated Income Statement
for the year ended 30 April 2006
2006 2005
Notes £000 £000
Revenue 1 372,609 339,382
Cost of sales 1 (248,051) (215,097)
--------- ---------
Gross profit 124,558 124,285
+---------+---------+
Administrative expenses (excluding amortisation) |(50,733) | (47,193)|
Amortisation | (1,227) | (855)|
+---------+---------+
Total administrative expenses |(51,960) | (48,048)|
+---------+---------+
--------- ---------
Profit from operations 72,598 76,237
Investment income 2,047 1,814
Finance costs (22,125) (23,063)
--------- ---------
+---------+---------+
Share of profit before taxation of associate | 4,964 | - |
Share of taxation of associate | (1,422) | - |
+---------+---------+
Share of profit of associate | 3,542 | - |
+---------+---------+
Profit before taxation 56,062 54,988
Taxation (15,468) (15,757)
--------- ---------
Profit for the year 40,594 39,231
--------- ---------
Profit for the year is wholly attributable to
equity holders of the parent Company
Earnings per share
From continuing operations
Basic 3 61.1p 60.7p
Diluted 3 60.6p 60.3p
Consolidated Statement of Recognised Income and Expense
for the year ended 30 April 2006
2006 2005
£000 £000
Gains on revaluation of land and properties - 1,031
Foreign exchange differences on retranslation of net assets
of subsidiary undertakings 1,303 (153)
Foreign exchange differences on retranslation of interest in
associate 413 -
Net foreign exchange differences on long term borrowings
held as hedges (1,571) 1,635
Net fair value gains on cash flow hedges 2,956 -
Adjustment for share options granted 20 88
Net deferred tax credit recognised directly in equity 882 1,084
Actuarial gains on defined benefit scheme 356 -
-------- -------
Net income recognised directly in equity 4,359 3,685
Profit attributable to equity holders 40,594 39,231
-------- -------
Total recognised income and expense for the year 44,953 42,916
-------- -------
Consolidated Balance Sheet
as at 30 April 2006
2006 2005
£000 £000
Non-current assets
Goodwill 44,582 12,448
Other intangible assets 18,208 4,866
+----------+----------+
Property, plant and equipment: vehicles for hire | 643,824 | 531,843 |
Other property, plant and equipment | 50,236 | 37,851 |
+----------+----------+
Total property, plant and equipment | 694,060 | 569,694 |
+----------+----------+
Interest in associate 41,927 -
---------- ----------
798,777 587,008
---------- ----------
Current assets
Inventories 8,918 6,696
Trade and other receivables 116,939 92,841
Cash and cash equivalents 24,048 41,375
---------- ----------
149,905 140,912
---------- ----------
Non-current assets classified as held for sale 14,705 11,464
---------- ----------
Total assets 963,387 739,384
---------- ----------
Current liabilities
Trade and other payables 57,584 44,769
Tax liabilities 19,715 7,231
Short term borrowings 30,024 48,410
---------- ----------
107,323 100,410
---------- ----------
Non-current liabilities
Long term borrowings 518,485 403,819
Deferred tax liabilities 15,846 10,124
Retirement benefit obligation 1,444 -
---------- ----------
535,775 413,943
---------- ----------
---------- ----------
Total liabilities 643,098 514,353
---------- ----------
---------- ----------
Net assets 320,289 225,031
---------- ----------
Equity
Share capital 3,538 3,209
Share premium account 64,998 62,544
Revaluation reserve 1,054 1,054
Own shares (3,331) (2,471)
Merger reserve 67,463 4,721
Hedging reserve 2,956 -
Translation reserve 1,627 1,482
Retained earnings 181,984 154,492
---------- ----------
Total equity 320,289 225,031
---------- ----------
Consolidated Cash Flow Statement
for the year ended 30 April 2006
2006 2005
Notes £000 £000
Net cash from operating activities 5 172,178 150,457
-------- --------
Investing activities
Interest received 1,931 1,957
Proceeds from disposal of vehicles for hire 150,849 116,895
Purchases of vehicles for hire (306,273) (274,517)
Proceeds from disposal of other property, plant
and equipment 3,307 378
Purchases of other property, plant and equipment (12,208) (7,613)
Purchases of intangible assets (927) (19)
Acquisition of subsidiary undertakings, including
net cash and bank overdraft balances acquired 4 (130,047) (19,353)
Purchase of interest in associate (37,972) -
-------- --------
Net cash used in investing activities (331,340) (182,272)
-------- --------
Financing activities
Dividends paid (13,459) (11,874)
Repayments of obligations under finance leases (36,994) (279,243)
New finance lease agreements - 93,663
Increase in bank loans and other borrowings 130,988 221,166
Proceeds from issue of share capital 65,525 722
Proceeds from sale of own shares 511 -
Payments to acquire own shares (1,371) (1,141)
-------- --------
Net cash from financing activities 145,200 23,293
-------- --------
Net decrease in cash and cash equivalents (13,962) (8,522)
Cash and cash equivalents at 1 May 34,057 42,675
Effect of foreign exchange movements 164 (96)
-------- --------
Cash and cash equivalents at 30 April 6 20,259 34,057
-------- --------
Consolidated Statement of Changes in Equity
For the year ended 30 April 2006
2006 2005
£000 £000
Amounts attributable to equity holders of the parent
Company
Gains on revaluation of land and properties - 1,031
Foreign exchange differences on retranslation of net
assets of subsidiary undertakings 1,303 (153)
Foreign exchange differences on retranslation of interest
in associate 413 -
Net foreign exchange differences on long term borrowings
held as hedges (1,571) 1,635
Net fair value gains on cash flow hedges 2,956 -
Adjustment for share options granted 20 88
Actuarial gains on defined benefit pension scheme 356 -
Net deferred tax credit recognised directly in equity 882 1,084
------- --------
Net income recognised directly in equity 4,359 3,685
Profit attributable to equity holders 40,594 39,231
------- --------
Total recognised income and expense for the year 44,953 42,916
Dividends paid (13,437) (11,916)
Issue of Ordinary share capital (net of expenses) 65,525 722
Net increase in own shares held (860) (1,141)
------- --------
Net changes in total equity 96,181 30,581
------- --------
Opening total equity as at 1 May 225,031 194,450
Transitional adjustment on adoption of IAS32 and IAS39 (923) -
------- --------
Opening total equity after adoption of IAS32 and IAS39 224,108 194,450
------- --------
------- --------
Closing total equity as at 30 April 320,289 225,031
------- --------
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 Spain Total
of Ireland
2006 2006 2006
£000 £000 £000
Revenue 300,771 71,838 372,609
Gross profit 102,724 21,834 124,558
Administrative expenses (43,883) (6,850) (50,733)
Amortisation (692) (535) (1,227)
----------- --------- --------
Profit from operations 58,149 14,449 72,598
----------- --------- --------
UK & Republic Spain Total
of Ireland
2005 2005 2005
£000 £000 £000
Revenue 283,414 55,968 339,382
----------- --------- --------
Gross profit 103,509 20,776 124,285
Administrative expenses (40,646) (6,547) (47,193)
Amortisation (321) (534) (855)
----------- --------- --------
Profit from operations 62,542 13,695 76,237
----------- --------- --------
2. Restructuring costs
In February 2006 the Group acquired Northgate (AVR) Limited (formerly Arriva
Vehicle Rental Limited) (see Note 4). To the extent that employees could not be
integrated, termination terms were agreed and, to the extent that properties
would not be utilised in the future, amounts have been provided in respect of
onerous contracts.
2006 2005
£000 £000
Redundancy costs (net of pension credit) 1,673 -
Onerous contracts 934 -
-------- --------
2,607 -
-------- --------
3. Earnings per share
2006 2005
(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 40,594 39,231
----------- -----------
Number of shares Number Number
Weighted average number of Ordinary shares for the
purpose of basic earnings per share 66,481,499 64,598,909
Effect of dilutive potential Ordinary shares:
- share options 464,060 465,690
----------- -----------
Weighted average number of Ordinary shares for the
purpose of diluted earnings per share 66,945,559 65,064,599
----------- -----------
Basic earnings per share 61.1p 60.7p
----------- -----------
Diluted earnings per share 60.6p 60.3p
----------- -----------
(b) Earnings per share before amortisation and
exceptional restructuring costs
£000 £000
Earnings for the purpose of basic earnings per share
(above) 40,594 39,231
Amortisation 1,227 855
Exceptional restructuring costs (net of UK
corporation tax at 30%) 1,825 -
----------- -----------
Earnings for the purpose of basic earnings per share
before amortisation and exceptional restructuring
costs 43,646 40,086
----------- -----------
Basic earnings per share before amortisation and
exceptional restructuring costs 65.7p 62.1p
----------- -----------
4. Acquisitions
Fleet Technique Limited
On 23 January 2006, the Group acquired the entire issued share capital of Fleet
Technique Limited ('FTL') for a cash consideration of £6,583,000 including
goodwill of £3,589,000.
£000
Book value 1,014
Fair value adjustments 1,980
------
Fair Value 2,994
------
Goodwill 3,589
------
Acquisition cost (including expenses) 6,583
------
Fair value of consideration:
Cash 6,583
Net cash with subsidiary undertaking acquired (908)
------
Cash outflow in year on acquisition of FTL 5,675
------
Northgate (AVR) Limited
On 3 February 2006, the Group acquired the entire issued share capital of
Northgate (AVR) Limited (formerly Arriva Vehicle Rental Limited) ('AVR') for a
cash consideration of £50,316,000, including goodwill of £28,055,000. The
transaction has been accounted for in accordance with the purchase method of
accounting.
£000
Book value 40,668
Fair value adjustments (14,188)
--------
Fair Value 22,261
--------
Goodwill 28,055
--------
Acquisition cost (including expenses) 50,316
--------
Fair value of consideration:
Cash 50,316
Net cash with subsidiary undertaking acquired 74,056
--------
Cash outflow in year on acquisition of AVR 124,372
--------
In both of the above acquisitions, the fair values represent the Directors'
current estimates of the net assets acquired. In accordance with IFRS 3, the
values attributed may be revised as further information becomes available.
5. Reconciliation of Group profit from operations to net cash inflow from
operating activities
2006 2005
£000 £000
Profit from operations 72,598 76,237
Adjustments for:
Depreciation of property, plant and equipment 136,209 120,831
Exchange differences (16) -
Amortisation of intangible assets 1,227 855
(Gain) loss on disposal of property, plant and equipment (209) 39
Defined benefit pension credit (386) -
Share options fair value charge credited directly back to
equity 20 88
-------- -------
Operating cash flows before movements in working capital 209,443 198,050
(Increase) decrease in inventories (2,191) 1,665
Increase in receivables (1,131) (7,735)
Increase (decrease) in payables 3,139 (3,634)
-------- -------
Cash generated from operations 209,260 188,346
Income taxes paid (15,156) (15,241)
Interest paid (21,926) (22,648)
-------- -------
Net cash from operating activities 172,178 150,457
-------- -------
6. 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.
2006 2005
£000 £000
Cash in hand and at bank 22,201 39,601
Short term investments 1,847 1,774
-------- -------
Gross cash and cash equivalents as reported 24,048 41,375
Bank overdrafts (3,789) (7,318)
-------- -------
Net cash and cash equivalents 20,259 34,057
-------- -------
7. Analysis of Consolidated net debt
2006 2005
£000 £000
Cash at bank and in hand 22,201 39,601
Short term investments 1,847 1,774
Bank overdraft due within one year (3,789) (7,318)
-------- --------
20,259 34,057
Bank loans (518,393) (382,221)
Vehicle related finance lease obligations (12,326) (48,642)
Deferred consideration (10,290) (9,548)
Preference shares (500) (500)
Property loans and other borrowings (3,211) (4,000)
-------- --------
(524,461) (410,854)
-------- --------
8. Basis of preparation
The results for the year ended 30 April 2006, including comparative financial
information, have been prepared in accordance with International Financial
Reporting Standards ('IFRS'), as issued by the International Accounting
Standards Board, that are endorsed, or are expected to be endorsed, by the
European Commission.
Northgate plc ('the Group') has adopted all IFRS in issue.
The Group previously prepared its annual and interim consolidated accounts under
UK GAAP. The date of transition of the Group to IFRS is 1 May 2004, with the
exception of IAS 32 and IAS 39. The date of transition of the Group for IAS 32
and IAS 39 only is 1 May 2005. As part of the transition to IFRS, on 21 December
2005 the Group published the restatement of certain comparative financial
information under IFRS for the year ended 30 April 2005 and for the six months
ended 31 October 2004. This information is available from the Group's website at
www.northgateplc.com.
IFRS 1 (First-time Adoption of IFRS) contains several transitional exemptions
from the full requirements of IFRS for those companies adopting IFRS for the
first time. The details of the IFRS 1 transitional exemptions that the Group has
taken advantage of, along with all of the accounting policies adopted by the
Group, are detailed within the restatement of comparative information under IFRS
published on 21 December 2005, as referred to above.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 April 2006 or 2005, but is derived
from those accounts. Statutory accounts for 2005 have been delivered to the
Registrar of Companies and those for 2006 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 2006 will be mailed to
shareholders no later than 1 August 2006.
This information is provided by RNS
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