Interim Results

7 December 2022

This announcement contains inside information

REDDE NORTHGATE PLC

("Redde Northgate" or the "Group" or the "Company")

ANNOUNCEMENT OF RESULTS FOR THE HALF YEAR ENDED 31 OCTOBER 2022

Fleet growth and new contract wins supporting strong financial performance

Redde Northgate (LSE:REDD), the leading integrated mobility solutions platform providing services across the vehicle lifecycle, is pleased to announce its results for the half-year ended 31 October 2022.

Martin Ward, CEO of Redde Northgate, commented:

"With the Group fleet up 8% to over 130,000 vehicles and new multi-year contracts going live in the period, we have achieved meaningful growth across all our revenue streams. Our strategy of building an integrated platform is serving us well, with customers increasingly accessing a broadening product set to support their mobility needs. The Blakedale acquisition at the start of the period has integrated well, enjoying both customer and fleet growth since joining the Group.

We have successfully delivered on our margin targets and implemented pricing increases across the business to help mitigate cost inflation. While mindful of the macro-economic backdrop, with a diverse and high-quality customer base well represented in resilient sectors, we are positioned to capitalise on growth opportunities across the business, in particular when LCV supply strengthens."

Key financial highlights

· Group revenue growth up 14%, reflecting strong traffic and accident management volumes, fleet growth, pricing increases, and continued robust residual values

· Reported PBT of £101.9m up 42%; underlying PBT up 6% to £83.7m due to strong operational performance, partially offset by lower disposal profits and higher interest

· Steady state cash generation improved 30% to £121.2m; free cashflow reflects investments in fleet, working capital for new insurance contracts, and the Blakedale acquisition

· Strong balance sheet with over £300m of facility headroom and bank facility extended out one year to 2026; 1.6x leverage (H1 2022: 1.5x) well within our stated target 1-2x range

· Shareholder returns: 25% increase in interim dividend to 7.5p; £60m share buyback programme running since March, £56m spend in total by end-November 

Depreciation rate change

· H1 reported PBT benefitted from £28m of depreciation adjustment, in line with expectations at full year; no impact on H1 underlying results; and no impact on cash

Business highlights

· Group fleet up 8% to over 130,000, driven by strong growth in Spain and replacement vehicles for insurance contracts; LCV scarcity in Northgate UK&I ongoing, supporting residual values

· Two large insurance contracts went live in period, each customer now taking full range of claims and repair services; activity to grow through next 12 months 

· Growing take-up of value-added services, including cross sell of accident management services, with Northgate UK&I customer fleet under management up 75%; good H2 pipeline for services

· Launch of bundled e-LCV vehicle and charging solution to help fleet transitions; won 2 Spanish repair contracts, including from an existing large UK insurance customer

· Recent acquisitions delivering on strategic goals: strong demand for FMG RS repair solutions; Blakedale proposition gaining traction with existing customers

· Divisional margins maintained in line or above long-term target range through careful pricing actions to reflect cost inflation

Outlook

Demand for our services continues to be robust across geographies along with continuing strength in residual values. These factors underpin our confidence for the full year which is expected to be modestly above market expectations. While the Board is mindful of the ongoing macro-economic environment and current LCV supply, it remains confident that our integrated mobility solutions platform will continue to create sustainable shareholder value.

Analyst Briefing

A hybrid presentation for sell-side analysts and institutional investors will be held at 9.30am today, 7 December 2022. If you are interested in attending, please email Buchanan on [email protected] to request the joining details. This presentation will also be made available via a link on the Company's website www.reddenorthgate.com. 

For further information contact: 

Ross Hawley, Head of Investor Relations +44 (0) 204 566 7090

Buchanan

David Rydell/Jamie Hooper/Hannah Ratcliff/ Verity Parker +44 (0) 207 466 5000

This announcement is made on behalf of Redde Northgate plc by James Kerton, Company Secretary of Redde Northgate plc.

Notes to Editors:

Redde Northgate is the leading integrated mobility solutions platform providing services across the vehicle lifecycle. The Company offers integrated mobility solutions to businesses, fleet operators, insurers, OEMs and other customers across the following key areas: vehicle rental, vehicle data, accident management, vehicle repairs, fleet management, service and maintenance, vehicle ancillary services and vehicle sales.

The Company's core purpose is to keep its customers mobile, whether through meeting their regular mobility needs or by servicing and supporting them when unforeseen events occur. With its considerable scale and reach, Redde Northgate's mission is to offer a market-leading customer proposition and drive enhanced returns for shareholders by creating value through sustainable compounding growth. The Group aims to achieve this through the delivery of its strategic framework of Focus, Drive and Broaden.

Redde Northgate services its customers through a network and diversified fleet of over 130,000 owned and leased vehicles, supporting over 600,000 managed vehicles, with around 175 branches across the UK, Ireland and Spain and a specialist team of over 6,700 employees.

Further information regarding Redde Northgate plc can be found on the Company's website www.reddenorthgate.com. 

GAAP reconciliation and glossary of terms

Throughout this document we refer to underlying results and measures; the underlying measures allow management and other stakeholders to better compare the performance of the Group between the current and prior period without the effects of one-off or non-operational items. Underlying measures exclude intangible amortisation from acquisitions and certain one-off items such as those arising from restructuring activities and the tax impact thereon. Specifically, we refer to disposal profit(s). This is a non-GAAP measure used to describe the adjustment in depreciation charge made in the period for vehicles sold at an amount different to their net book value at the date of sale (net of attributable selling costs).

Adjustments have also been made to underlying results for depreciation rate changes made in the period in relation to an old cohort of vehicles impacted by the disruption in residual values over recent periods which could not have been envisaged at the time those vehicles were purchased. Further explanation of this impact is included within the Financial Review.

A reconciliation of GAAP to non-GAAP underlying financial performance is outlined below. A further explanation of alternative performance measures and a glossary of terms used in this document are outlined below the Financial Review.

GAAP reconciliation tables

Income statement reconciliation

OPERATING REVIEW

Group Overview

The first half of the year saw strong performances across our geographies and segments. We saw significant volume growth in our accident management businesses, and growth in vehicle rental revenues across geographies. These came through a combination of strong demand, careful pricing increases offsetting cost inflation, and successful management of fleet acquisitions and disposals. Together these helped support operating margins across the business units. 

Operationally, our focus in the period has been on careful management and allocation of our resources, with continued scarce LCV supply, to best serve key customer demand and target sectors which are expected to have the greatest resilience through macro-economic stress and position us for future growth opportunities. 

Growth drivers

Strong demand for vehicle provision continued across our end-markets during the period. In Redde, this was helped by increased traffic volumes, in addition to two of the previously announced multi-year large insurer contracts coming on stream. Supported by our other announced contracts, activity and volumes will continue to grow through the year. We have a healthy pipeline as corporates and insurance partners increasingly look for an outsourced solution across the Group's integrated mobility platform, looking to benefit from the cost and efficiency benefits our platform can offer.

Fleet growth of around 5,000 vehicles over the past 6 months reflects the success we have had in accessing pockets of supply, particularly for cars, to support our businesses and customer needs. In Northgate Spain a broader range of manufacturers supported strong fleet growth and in the UK our market position means that we get early visibility and have the financial firepower to quickly respond to supply opportunities when they come available. A combination of limiting disposals and optimising fleet recycling when vehicles come off rent also allowed the businesses to focus on satisfying areas of high-quality demand.

The acquisition of Blakedale, which specialises in traffic management vehicles, announced at the start of the period expanded our specialist services offering and has seen encouraging growth including a growing customer base and vehicle fleet since acquisition. The launch of our new rental solution, which combines an EV vehicle and e-charging point, reflects the ability to offer innovative solutions which address customer needs, and we continue to explore multiple inorganic opportunities to grow both our fleet and range of services. 

Customer diversity

Our rental business benefits from a diverse customer base and we continue to target sectors and customers who are well positioned in the current economic climate. Actively managing customer vehicle returns and realloactions allows for a risk / opportunity focused approach and the result is a diverse end market customer profile. 

In Northgate UK&I, no sector accounts for more than 15% of LCV rental VOH, and eight sectors each represent over 7% of VOH. Public sector and large corporate customers with fleets of over 40 LCVs account for over 50% of our fleet. Growth in areas such as facilities management and fibre installation position us well in areas viewed as more robust in the current economic downturn. We also have a diverse range of sector exposure and customers in Northgate Spain, again with around half the fleet being taken by government or large fleet customers. 

Margin stability

The business has successfully protected its operating margins while experiencing cost inflation and vehicle supply constraints. Across all business segments, there has been a focus on cost management and mitigation of inflation pressures, while still ensuring customers see cost and efficiency benefits from using our services. 

Pricing increases in both Northgate Spain and Northgate UK&I have been carefully managed in discussion with customers, including where targeted on issues such as energy cost levies within existing FMG RS contracts, or enhancing maintenance for extending the fleet life. Appetite for value-added ancillary services such as telematics and fleet management have also grown within the period, together with a 75% growth in vehicles covered by accident management services in Northgate UK&I, supporting rental margins and customer retention, as customers see benefits and efficiencies from leveraging our fleet expertise. 

Supporting sustainability

Our Drive to Zero programme seeks to support fleet customers in identifying the right strategy and first steps in utilising EVs, or improving their fleet management and behaviour to reduce current emissions. We have helped an increasing number of customers better understand their options and timeframes for undertaking fleet transition, and our new bundled EV solution reflects feedback from customers on their barriers to faster transition. 

Within our business, we have focused on targeted recruitment for areas of scarce resource, supported by the grant of shares to all employees this month to help ensure all colleagues are able to benefit from the long-term growth of the business.  To help with cost-of-living pressures in the short term, we are making c.£250 one-off payments to over 4,500 colleagues (over 60% of total employees) across the Group, alongside making available discounts on a broad range of retail purchases and offering an excess holiday buyback scheme.  Our new group intranet hub is already fostering greater sharing of Group values and culture, and our new corporate website was launched at the end of November.

Trading

Total Group revenue, including vehicle sales, was 13.6% higher than the prior period. Underlying Revenue (excluding vehicle sales) of £627.6m (H1 2022: £522.9m) was 20.0% higher (19.9% at constant exchange rates) reflecting an 9.2% increase in vehicle hire revenue and a 32.2% increase in claims and services revenue mainly driven by greater claims volumes.

Total fleet increased 8% since the prior period, up c.10,000 vehicles including those held on contract hire; since the year end it increased 4%. Vehicle sales revenues were 23.7% lower, reflecting lower disposal volumes, while purchases totalled 10,800 (H1 2022: 13,500).

Total disposal profits for the period of £24.7m were 9% lower than the prior period with 7,700 vehicles sold (H1 2022: 10,100). LCV supply constraints across the sector continued to support high residual values, partially offsetting the impact of 24% lower disposal volumes. Northgate UK&I closing VOH was 3.3% lower than at 31 October 2022, while Northgate Spain closing VOH was 5.2% higher reflecting greater availability of new vehicles. 

Northgate UK&I rental margin of 15.6% compared to 17.6% in the prior period, in part reflecting the impact of lower margin contributions from recent acquisitions, and was close to the 15.3% margin for the full year FY 2022. Rental margins in Northgate Spain reached 20.4% (H1 2022: 17.1%), benefitting from higher VOH and pricing actions taken early in the calendar year.  Redde saw volume and activity growth across its product offerings, resulting in a £4.3m increase in underlying EBIT to £20.4m (H1 2022: £16.1m).

Underlying PBT growth of 6.1% to £83.7m (H1 2022: £78.9m) reflects our strong operational performance, partially offset by higher interest and central costs. Statutory EBIT of £111.6m (up £31.5m) and statutory PBT of £101.9m (up £30.2m) included £28.2m adjustment to depreciation rates which is not included in our underlying results, in line with indications set out at the full year. 

Underlying EPS was 28.1p (H1 2022: 26.1p), 7.7% higher than prior period with an average share count of 238.7m (H1 2022: 246.1m) reflecting the share buyback actions taken in the period. Statutory EPS rose to 34.4p (H1 2022: 22.5p).

Free cashflow of £2.1m was £9.7m higher than the prior period (H1 2022: £7.6m outflow) and included £68.7m of growth capex used to support growth in the fleet in Northgate Spain and Redde.

Group ROCE rose by 1ppt to 13.5% (H1 2022: 12.5%), reflecting the improved operational performance, partially offset by lower disposal profits and working capital in Redde.

Financial strength and Capital allocation

Our strong cashflows and balance sheet position supports our business growth, a progressive dividend as well as share buybacks.

This financial strength continues to provide a competitive advantage, both in fleet acquisition strategies and our ability to contemplate non-organic expansion. The extension in October of our RCF bank facility by an additional 12 months to 2026 gives us additional flexibility and duration to our borrowings.

The Board has declared an interim dividend of 7.5p per share (H1 2022: 6.0p) to be paid on 13 January 2023 to shareholders on the register as at close of business on 16 December 2022. The interim dividend represents 50% of the final dividend for the year ended 30 April 2022 in line with previous guidance.

While we focus our efforts on supporting business growth, we continue to view buybacks as a useful element within our capital allocation alongside a progressive dividend and will be kept under review. The share buyback programme has been underway since March and its extension in August reflected the attractive proposition of risk-free enhancement of shareholder returns. As at end-November, 16 million shares had been acquired at a cost of £56m and are being held in treasury.

Northgate UK&I

Rental revenue grew 8% in the period, with a very active focus on directing available inventory to selected market segments and key clients, helping to optimise utilisation and protecting margin, which was also supported by carefully targeted and communicated rate increases. Ageing of the fleet continues to support strong customer demand.

Average VOH at 49,200 was 1.8% lower, reflecting LCV registrations in the UK being 25% below pre-Covid levels and at their lowest level at this point in the year since 2013. This lack of supply has supported residual value levels, which stabilised from the middle of the calendar year, and remains substantially above pre-Covid levels.

The business saw improvements in take-up of ancillary vehicle and fleet services, such as a 75% increase in customer vehicles under accident management, increasing take up of telematics and a strong pipeline of customers interested in fleet management services. Customers looking to convert to electric vans were offered an innovative new electric vehicle and charger bundled rental product which was launched in November, helping to overcome a known barrier to EV transition. Lack of suitable vehicle product is however slowing the wider conversion to electric vans in the general user community.

The Group acquired specialist traffic management vehicle provider Blakedale early in the period and has focused on integration actions and seen early successes in customer introductions, with growth in fleet and customer contracts since acquisition.

Financial overview

Northgate UK&I underlying EBIT of £47.5m was 10.2% lower than the prior period (H1 2022: £52.9m) with average VOH reducing 1.8%, rental profit £1.2m lower at £28.8m and rental margins 2.0ppt lower at 15.6% (H1 2022: 17.6%), compared to FY 2022 full year margin of 15.3%. Disposal profits decreased £4.1m to £18.8m reflecting a 13.8% reduction in vehicle sales due to lower replacements.

Rental business

Hire revenue in the Northgate UK&I business increased 7.8% compared to the prior period to £184.1m (H1 2022: £170.8m), with a 1.8% reduction in average VOH being offset by an 8.0% increase in average revenue per vehicle. Rate increases were applied across our full range of rental products.

Closing VOH of 49,300 was 1,700 lower than the prior period (H1 2022: 50,900) and compares to 49,200 at 30 April 2022 year end which demonstrates that the shortage in supply of new vehicles has held back growth in the period.

Northgate UK&I's minimum term proposition accounted for 38% of average VOH (H1 2022: 35%). The average term of these contracts is approximately three years, providing both improved visibility of future rental revenue and earnings, as well as lower transactional costs.

Rental margin for the period was 15.6% compared to 17.6% in the prior period, 13.2% in H2 FY 2022 and 15.3% in the full year FY 2022. This was supported by pricing increases and partially offset by cost inflation and investment to grow Charged EV.

The net impact of the reduction in VOH and lower rental margin was a 4.2% decrease in rental profits to £28.8m (H1 2022: £30.0m).

Management of fleet and vehicle sales

The closing Northgate UK&I rental fleet was 53,800 compared to 54,200 at 30 April 2022. During the period, 2,900 vehicles were purchased (H1 2022: 6,300) and 3,700 vehicles were de-fleeted (H1 2022: 4,700). The leased fleet increased by 400 vehicles. 

The average age of the fleet at the end of the period was 3.0 months higher than at 30 April 2022 and 5.1 months higher than at 31 October 2021. This was due to managing the fleet to mitigate impacts of the restricted market supply reducing both purchases and vehicles sold.

A total of 4,900 vehicles were sold in Northgate UK&I during the period, 13.8% lower than the prior period (H1 2022: 5,700 vehicles). Disposal profits of £18.8m (H1 2022: £22.9m) decreased 18.1% versus the prior period, reflecting the reduction in the number of vehicles sold. Average profit per unit (PPU) on disposals reduced 5.5% to £3,829 (H1 2022: £4,052).

EBIT and ROCE

Underlying EBIT of £47.5m was 10% lower than the prior period (H1 2022: £52.9m) driven by both rental and disposal profits as explained above.

The ROCE in Northgate UK&I was 16.1% (H1 2022: 17.4%) reflecting the decrease in EBIT mainly as a result of lower disposals.

Capex and cash flow

Underlying EBITDA decreased 3.0% to £90.9m (H1 2022: £93.7m).

Net replacement capex4 was £38.1m, £4.5m higher than the prior period with a reduction in number of vehicles replaced being offset by the average cost of replacements being higher due to price inflation and the change in mix of vehicles replaced.

Steady state cash generation decreased by £9.2m to £47.3m (H1 2022: £56.5m) reflecting the lower underlying EBITDA and the higher net replacement capex. Growth capex4 was £15.1m inflow reflecting a reduction in owned fleet due to the vehicle supply constraints experienced throughout the period.

Northgate Spain

Rental revenue growth of 14% was achieved through a combination of increased VOH (up 8%), together with pricing increases which had been implemented at the start of the calendar year for both minimum term and flexible rental products. Demand remained strong throughout the period and the business focused on delivering vehicles to satisfy its key customers, notably within sectors including infrastructure, IT and telecoms.

Vehicle supply was assisted by a broadening of fleet vehicle suppliers, but remained below the prior period and the high levels of demand. The business also carefully managed its defleeting activities, with disposal volumes 11% lower than the prior period, in order to satisfy key customer needs. PPUs were up over 125% in the period, helping to support disposal profit levels. Fleet ageing increased 5 months since 31 October 2021, with related service costs reflected within the hire rate increases.

Rental margin at over 20% for the period is expected to have reached its peak. This was driven by pricing increases implemented before the start of the period, while inflation-driven costs and fleet growth, with its related depreciation, building through the period.

Northgate's workshops have been working at high capacity throughout the period, supported by the strategic action to make this service available to third parties. Two repair contracts were signed with insurance companies looking to secure workshop capacity, including a referral from a major UK insurance customer, and have the potential to grow to become meaningful customers.

Volumes through the online eAuction platform accounted for almost all of the trade sales in the period, making for highly cost-efficient disposals. The roll-out of solar panels moved into its 2nd phase, providing significant energy cost savings at a time where these are a growing burden for businesses, with a total of over 1 MW of generating capacity installed or planned for installation this financial year. 

Financial overview

Northgate Spain had a strong period with EBIT increasing £8.4m or 37.4% driven by VOH growth of 7.7% and strong rental margins of 20.4% compared to 17.1% in the prior period.

Rental business

Hire revenue in the Northgate Spain business increased 13.9% (13.5% in local currency) to £122.7m (H1 2022: £107.7m), driven by average VOH which increased 7.7%. Closing VOH increased 5.2% to 53,800.

Northgate Spain's minimum term proposition accounted for around 35% (H1 2022: 35%) of average VOH. The average term of these contracts is approximately three years, providing both improved visibility of future rental revenue and earnings.

The rental margin was 3.3ppt higher than the prior period at 20.4% from pricing increases and lower overheads, with some cost inflation offsetting this.

The impact of increase in hire revenue and rental margin was a 35.7% increase in rental profits to £25.1m (H1 2022: £18.5m).

Management of fleet and vehicle sales

The closing Northgate Spain rental fleet amounted to 60,600 compared to 57,600 vehicles at 30 April 2022. During the period 5,700 vehicles were purchased (H1 2022: 7,200) and 2,700 vehicles were de-fleeted (H1 2022: 3,100 vehicles). The average age of the fleet at the end of the period was 5 months higher than at the same time last year. This was due to managing the fleet to mitigate impacts of the restricted market supply reducing purchases.

A total of 2,800 vehicles were sold in Northgate Spain during the period, 36.2% lower than prior period reflecting the restricted market supply of new vehicles in the period.

Disposal profits of £5.9m (H1 2022: £4.1m) increased 45.1%. The reduction in the number of vehicles sold was offset by continued strength in sales values resulting in an increase in average profit per unit (PPU) on disposals to £2,101 (H1 2022: £924).

EBIT and ROCE

Underlying EBIT of £31.0m increased 37.4% over the prior period (H1 2022: £22.6m) driven by both higher rental and disposal profits as explained above. The ROCE in Northgate Spain was 11.5% (H1 2022: 8.7%) reflecting the increase in rental margin and an older fleet. 

Capex and cash flow

Underlying EBITDA increased £10.5m to £75.9m (H1 2022: £65.4m).

Net replacement capex7 in the period was £13.7m, £20.7m lower than the prior period, as a result of the ageing of the fleet in response to the shortage of new vehicle supply.

Steady state cash generation increased by £31.2m to £60.9m (H1 2022: £29.7m) reflecting higher EBITDA and lower net replacement capex in the period. Growth capex7 was £41.0m reflecting investment in the fleet to meet demand.

Redde

The Redde Group of businesses made a strong start to the financial year with revenues up 31.7% reflecting the growth in road traffic, increased volumes from new business wins which have launched in the past 12 months, and an industry-wide rise in chargeable costs reflecting inflation across the supply chain.

The operational focus was on the integration of two (previously reported) large insurance contracts, where we are now providing fault and non-fault claims services and vehicle repair management. Both contracts went 'live' in the first half and have seen strong volume growth from inception. All previously announced contracts are now live, and the pipeline of opportunities remains healthy. Current and prospective customers are attracted to the efficiency savings and customer service levels available from an integrated mobility solution from Redde.

EBIT margin was stable, reflecting a change in repair service mix together with the up-front cost of work in advance of major contract operational launches. Fleet and bodyshop resources remain constrained, although the supply of passenger cars improved slightly, allowing for fleet growth of 17% (since 30 April 2022) to be achieved according to plan. High energy usage within the bodyshops was mitigated by agreement with customers for an interim energy levy, maintaining margin on contracts which are already in existence.

There has been a strong focus on driver and bodyshop recruitment and efficiencies in order to deliver on strong customer demand, which included greater integration of FMG RS within the Redde organisation. A leading customer, Admiral, recently announced a consolidation of their vehicle repair supply chain and FMG RS were selected as an approved partner, further enhancing our overall relationship and delivering increased repair volume to FMG RS.

Financial overview

During the period EBIT has increased by 27.1% over the prior period to £20.4m, with the growth in volumes seen in H2 FY 2022 continuing throughout the period.

Revenue and profit

Revenue for the period (excluding disposals) increased 31.5% to £331.4m (H1 2022: £251.9m) reflecting the increase in traffic volumes seen in H2 FY 2022 and a continuing extension in hire length during the period due to the impact of macro challenges in supply chains for parts and labour.

Gross margin of 21.2% declined 2.8ppt (H1 2022: 24.0%) due to volume mix within the business. 

EBIT for the period increased 27.1% to £20.4m (H1 2022: £16.1m) reflecting the increase in revenue.

Management of fleet

The total fleet in Redde closed the period at 16,900 vehicles, from 14,500 at 30 April 2022 with the fleet increase supporting the increase in volumes of credit hires. 

The average fleet age was 15 months reflecting the lower fleet holding period than in the Northgate businesses due to the different usage of the vehicles and business economics.

The Redde fleet operates a hybrid solution of ownership, contract hire and, during peak periods, cross-hiring when needed. 

Capex and cash flow

Underlying EBITDA increased £9.6m to £37.5m (H1 2022: £27.9m) reflecting the recovery of traffic volumes.

Net replacement capex10 was £1.3m in the period (H1 2022: £0.1m). Steady state cash generation increased £7.0m to £18.5m (H1 2022: £11.5m).

Growth capex10 increased to £42.8m (H1 2022: £5.0m) reflecting a growth in the fleet to meet the increase in demand for our services.

Debtor days were 168 days at the end of the period, a decrease from 176 days in the prior period. This measure is based upon net trade receivables and contract assets, other receivables and accrued income as a proportion of the related underlying sales revenue for the past 12 months multiplied by 365 days.

FINANCIAL REVIEW

Group Revenue and EBIT

· Total Group revenue, including vehicle sales, of £696.3m was 13.6% higher than prior period (13.5% at constant exchange rates). Hire revenues were 9.2% higher due to 2.9% higher VOH across the Group as well as increased hire rates. Vehicle sales revenues were 23.7% lower due to a 2,300 reduction in vehicle disposals compared to the prior period but partially offset by stronger residual values

· Revenue (excluding vehicle sales) of £627.6m (H1 2022: £522.9m) was 20.0% higher (19.9% at constant exchange rates) reflecting an increase in vehicle hire revenue and 32.2% increase in claims and services revenue driven by greater claims volumes

· Underlying EBIT of £93.4m was 7.0% higher, reflecting the strong performance across the business

· Statutory EBIT of £111.6m was 39.3% higher, reflecting higher underlying EBIT as well as adjustments to underlying depreciation of £28.2m as outlined below

Group PBT and EPS

· Underlying PBT was 6.1% higher, reflecting the higher EBIT as a result of the improved business performance partially offset by higher finance costs, which were 15.5% higher

· Statutory PBT was 42.1% higher, reflecting the higher underlying PBT and adjustments to underlying depreciation in the year of £28.2m credit (H1 2022: £nil)

· The underlying effective tax rate of 20.0% was 1.3ppt higher than prior period

· Underlying EPS of 28.1p was 7.7% higher, reflecting the increased profits in the period

· Statutory EPS of 34.4p was 52.3% higher, reflecting the movement in underlying EPS and the impact of credits to underlying depreciation in the current period

Exceptional items

During the period, there were no items that were recognised as exceptional items (H1 2022: £2.7m).

Further detail on exceptional items is included in Note 11.

Amortisation of acquired intangibles and adjustments to underlying depreciation charges are not an exceptional item as it is recurring. However, it is excluded from underlying results in order to provide a better comparison of performance of the Group. The total amortisation of acquired intangibles charged in the period was £10.1m (H1 2022: £9.9m).

Depreciation rate changes

As explained at the year end, residual values have increased significantly over the previous two financial years due to the disruption of new vehicle supply which has increased demand for used vehicles. Up to April 2022, no changes had been made to depreciation rates on existing fleet vehicles as the extent and longevity of this buoyancy in residual values has been uncertain. However, it has continued for longer than anticipated and uncertainty remains over how long it will take for supply of new and used vehicles to return to a more normal level. 

For this reason, there are a number of vehicles on our fleet where the depreciated book value is below or very close to the expected residual value at disposal. In line with the requirements of accounting standards, a decision was made to reduce depreciation rates from 1 May 2022 on certain vehicles remaining on the fleet which were purchased before FY 2021.

The impact on the statutory income statement over the remaining holding period of those vehicles (as outlined at the year end) is expected to be as follows:

The total adjustment made to underlying depreciation in the period was a credit of £28.2m comprising £29.7m reduced depreciation offset by £1.5m reduced disposal profits. The adjustment has been impacted by the continued ageing of the fleet but remains materially in line with expectations.

Interest

Net underlying finance charges increased to £9.7m (H1 2022: £8.4m) due to the higher average debt compared to the prior period. The net cash interest charge for the period was £8.6m (H1 2022: £7.5m).

At 31 October 2022 66% of borrowings were held in fixed rate instruments.

Dividend

The Board has declared an interim dividend of 7.5p per share (H1 2022: 6.0p) to be paid on 13 January 2023 to shareholders on the register as at close of business on 16 December 2022.

The interim dividend represents 50% of the final dividend for the year ended 30 April 2022 in line with previous guidance.

Share buyback programme

As previously announced, during March 2022 the Group commenced a share buyback programme of the Company's ordinary shares for up to a maximum aggregate consideration of £60 million. As at 31 October 2022, 13,731,330 shares had been purchased for a total consideration of £49m; this had increased to 16 million shares at a cost of £56m by 30 November 2022 and these are being held in treasury.

Business combinations

In July 2022 the Group acquired 100% of the equity capital of Blakedale Limited for provisional consideration of £10.0m. The provisional fair value of net assets acquired was £6.2m resulting in the recognition of £3.9m of goodwill.

Group cash flow

Steady state cash generation

· Steady state cash generation remained strong at £121.2m (H1 2022: £93.5m), driven by higher EBITDA and lower replacement capex

· Underlying EBITDA was £16.0m higher driven by stronger performance across the business

· Net replacement capex was £15.7m lower due to constrained vehicle supply reducing the volume of replacements

Free cash flow

· Free cash inflow of £2.1m increased by £9.7m compared to the prior period, driven primarily by higher steady state cash generation and a £13.5m lower working capital outflow partially offset by increases in growth capex of £17.0m and the £10m cash acquisition of Blakedale

· Growth capex of £68.7m reflects a net increase in owned fleet over the period of 3,400 vehicles driven by fleet growth in Northgate Spain and Redde

· If the impact of growth capex in the period is removed from free cash flow, the underlying free cash flow of the Group was £66.6m (H1 2022: £44.8m)

· The share buyback programme which commenced in March 2022 resulted in an outflow of £40.5m in the period (H1 2022: £nil)

· Dividends paid of £35.0m were £5.7m higher than the prior period, reflecting the final dividend of 15.0p declared relating to FY 2022 (FY 2021: 12.0p)

Net debt

Net debt reconciles as follows:

Closing net debt was £78.8m higher than opening net debt, driven by net cash consumption of £48.8m. Other non-cash items of £20.2m consists primarily of new leases acquired and the foreign exchange impact on net debt was a £9.8m increase.

Borrowing facilities

As at 31 October 2022 the Group had headroom on facilities of £308m, with £509m drawn (net of available cash balances) against total facilities of £817m as detailed below:

During the period, the UK bank facilities were extended for a further year to November 2026.

The other loans consist of £12.7m of borrowings located in Spain which were renewed for a further year in November 2022 and £0.5m of preference shares.

The above drawn amounts reconcile to net debt as follows:

There are three financial covenants under the Group's facilities as follows:

The covenant calculations have been prepared in accordance with the requirements of the facilities to which they relate.

Balance sheet

Net assets at 31 October 2022 were £959.0m (H1 2022: £932.7m), equivalent to net assets per share of 413p (H1 2022: 379p). Net tangible assets at 31 October 2022 were £693.9m (H1 2022: £656.8m), equivalent to a net tangible asset value of 299p per share (H1 2022: 267p per share).

Gearing at 31 October 2022 was 69.0% (H1 2022: 89.4%) and ROCE was 13.5% (H1 2022: 12.5%).

Foreign exchange risk

The average and period end exchange rates used to translate the Group's overseas operations were as follows:

Going concern

Having considered the Group's current trading, cash flow generation and debt maturity, the Directors have concluded that it is appropriate to prepare the Group financial statements on a going concern basis.

Risks and uncertainties

The Board and the Group's management have clearly defined responsibility for identifying the major business risks facing the Group and for developing systems to mitigate and manage those risks.

The principal risks and uncertainties facing the Group at 30 April 2022 were set out in detail on pages 30 to 34 of the FY 2022 annual report, a copy of which is available at www.reddenorthgate.com, and were identified as:

These principal risks have not changed since the last annual report and continue to be those that could impact the Group during the second half of the current financial year.

Alternative performance measures and glossary of terms

A reconciliation of statutory to underlying Group performance is outlined at the front of this document. A reconciliation of underlying cash flow measures and additional alternative performance measures used to assess performance of the Group is shown below.

1 See Note 2 to the financial statements for reconciliation of segment underlying operating profit to Group underlying operating profit.

2 Revenue: hire of vehicles including intersegment revenue (see Note 2 to the financial statements). Glossary of terms

The following defined terms have been used throughout this document:

Profit for the period is wholly attributable to owners of the Company. All results arise from continuing operations.

All items will subsequently be reclassified to the consolidated income statement. Profit attributable to the owners of the Company includes amortisation of intangible assets.

 Total equity is wholly attributable to owners of the Company.