Annual Financial Report

RNS Number : 1184Q

Northgate PLC

29 July 2010

 



Annual Report and Accounts 2010 and Notice of Annual General Meeting

29/07/2010

In accordance with Listing Rule 9.6.1, Northgate plc ("Northgate" or the "Company") has today submitted to the UK Listing Authority two copies of the following documents:

·     Annual Report and Accounts for the year ended 30 April 2010

·     2010 Notice of Annual General Meeting, to be held on 9 September 2010

These documents will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
Tel: [phone]

Copies of the Annual Report and Accounts for the year ended 30 April 2010 and the Notice of Annual General Meeting are also available on the Company's website at www.northgateplc.com.

Explanatory note and warning

The primary purpose of this announcement is to inform the market about the publication of the Company's Annual Report and Accounts for the year ended 30 April 2010 (the "2010 Annual Report and Accounts").

The information below, which is extracted from the 2010 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's Preliminary Announcement issued on 30 June 2010. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2010 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-reference in the 2010 Annual Report and Accounts.

ADDITIONAL INFORMATION REQUIRED BY DISCLOSURE AND TRANSPARENCY RULE 6.3.5

Directors' responsibilities

The Annual Report and Accounts for the year ended 30 April 2010 contains a responsibility statement in the form set out below:

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRS as adopted by the EU. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, IAS 1 (Presentation of Financial Statements) requires that Directors:

·     properly select and apply accounting policies;

·     present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·     provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

·     make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

·     the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·     the management report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Bob Contreras

Chief Executive Officer

29 June 2010

Audit

The information contained in this announcement does not comprise statutory accounts for the purposes of the Companies Act 2006. The Company's consolidated financial statements as set out in the 2010 Annual Report and Accounts have been audited by Deloitte LLP. A copy of the audit report, which was unqualified, is set out at page 34 of the 2010 Annual Report and Accounts.

Principal risks & uncertainties

The following description of principal risks and uncertainties is set out on pages 16 and 17 of the 2010 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.

Customers and reduction in demand

The construction industry and other key markets of the Group have been particularly sensitive to the downturn in the economic climate which has led to a decline in the number of vehicles rented in recent periods.

A further decline could affect the profitability and cash generation of the business.

The underlying macro-economic conditions have also increased the risk of customer failure, particularly in Spain, which may lead to the occurrence of increased bad debt charges.

The Group generates a large proportion of revenue from customers in the construction industry but is seeking to diversify its customer base across a range of market segments.

Should there be a further significant economic downturn, the flexible nature of the Group's business model enables vehicles to be placed with other customers. Alternatively, utilisation can be maintained through a combination of a

decrease in vehicle purchases and increase in disposals, which although affecting short-term profitability, generates cash and reduces debt levels.

An economic downturn also presents opportunities to increase rentals to customers wishing to benefit from the Group's flexible renting solutions, either due to a lack of available finance or an unwillingness to commit to long term rental.

No individual customer contributes more than five per cent of total revenue generated, and credit analysis is performed on new customers to assess credit risk.

Vehicle holding costs

The overall holding cost of a vehicle is affected by the pricing levels of new vehicles and the disposal value of vehicles sold.

The Group purchases substantially all of its fleet from suppliers with no agreement for the repurchase of vehicles at the end of their hire life cycle. The Group is therefore exposed to fluctuations in residual values in the used vehicle market.

An increase in the holding cost of vehicles, if not recovered through hire rate increases, would affect profitability, shareholder return and cash generation.

Risk is managed on new pricing by negotiating fixed pricing terms with manufacturers a year in advance. Flexibility is maintained to make purchases throughout the year under variable supply terms.

Flexibility in our business model allows us to determine the period over which 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.

Competition and hire rates

The Group operates in highly competitive markets with competitors often pursuing aggressive pricing actions to increase hire volumes. The market is also fragmented, with numerous competitors at a local and national level. Low barriers to entry mean that local competitors often attempt to enter the market through lower pricing.

Our business is highly operationally geared therefore any increase or decrease in hire rates will impact profit and shareholder return to a greater effect.

The Group is now more strongly focused on maximising return on capital therefore hire rates are not being reduced below certain thresholds. In co-ordinating this policy with fleet management, utilisations are being maintained at higher rates.

The current lack of access to capital in the market is enabling us to pursue this strategy without facing significant price competition. Prices are also benchmarked against competitors to ensure that we remain competitive.

Access to capital

The Group requires capital to both replace vehicles that have reached the end of their useful life and for growth in the fleet. Additionally, due to the level of the Group's indebtedness, a significant proportion of the Group's cash flow is required to service its debt obligations. In order to continue to access its credit facilities the Group needs to remain in compliance with its financial covenants throughout the term of its bank and other facilities. Current bank facilities are due to mature in September 2012. There is a risk that the Group cannot successfully extend its bank facilities past this date. Failure to access sufficient financing or meet financial covenants could potentially adversely affect the prospects of the Group.

Financial covenants are reviewed on a monthly basis in conjunction with cash flow forecasts to ensure on-going compliance. If there is a shortfall in cash generated from operations and/or available under its credit facilities, the Group would reduce its capital requirements.

The Group believes that its existing facilities provide adequate resources for present requirements.

 The Group is currently assessing options to refinance bank facilities past September 2012.

The impact of access to capital on the wider risk of going concern is considered page 15.

 IT systems

The Group's business involves a high volume of transactions and the need to track assets which are located at numerous sites.

Reliance is placed upon the proper functioning of IT systems for the effective running of operations. Any interruption to the Group's IT systems would have a materially adverse effect on its business.

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.

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

The operation of a public company involves a number of risks and uncertainties across a full 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 above.

Legal Notice

The Annual Report and Accounts contains certain forward-looking statements. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that occur in the future. There may be a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.

For further information, please contact:

Northgate plc	01325 467558
Bob Contreras, Chief Executive
Bob Mackenzie, Chairman
Hogarth	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. 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:

www.northgateplc.com

 

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