1st Jul 2008 07:00
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:
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Northgate plc |
01325 467558 |
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Steve Smith, Chief Executive |
|
|
Bob Contreras, Finance Director |
|
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Hogarth Partnership Limited |
020 7357 9477 |
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Andrew Jaques |
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Barnaby Fry |
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Anthony Arthur |
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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
Continued double-digit organic fleet growth;
New Territory
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 |
||
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Revenue |
|||
|
Vehicle rental |
345,227 |
337,370 |
|
|
Fleet management |
15,525 |
13,738 |
|
|
360,752 |
351,108 |
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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:
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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 |
||||
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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
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.
|
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 |
||
|
£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 |
|
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 |
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 |
|
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) |
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.
Related Shares:
REDD.L