Final Results

RNS Number : 4137J

Northgate PLC

30 June 2011

 



30 June 2011

NORTHGATE PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 APRIL 2011

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 2011.

Underlying Financial Highlights

·     Group operating profit⁽¹⁾ increased by 28% to £105.6m (2010 - £82.8m);

·     Profit before tax⁽²⁾  increased by 47% to £53.8m (2010 - £36.5m);

·     Basic earnings per share⁽³⁾ increased by 8% to 29.0p (2010 - 26.8p);

·     Net debt⁽⁴⁾ reduced by £68.4m to £529.9m (2010 - £598.3m);

·     Gearing⁽⁵⁾ improved to 163% (2010 - 213%) and interest cover⁽⁶⁾ strengthened to 2.1x (2010 - 1.9x);

·     Return on capital employed⁽⁷⁾  improved to 11.9% (2010 - 8.4%);

·     Successful completion of debt refinancing during the year, accessing new capital and providing enhanced stability over the medium term.

Operational Highlights

·     Average utilisation in the year of 90% in the UK (2010 - 90%⁽⁸⁾) and 91% in Spain (2010 - 88%);

·     Underlying pricing improvement of 4% in the UK and 2% in Spain since April 2010;

·     Restructuring of UK business progressing to plan and implementation of new IT system completed in May 2011;

·     Merging of the two Spanish operating subsidiaries into Northgate España;

·     Benefited from strong used vehicle markets in both the UK and Spain;

·     Closing fleet of 61,200 in the UK (2010 - 60,900) and 43,500 in Spain (2010 - 48,900).

Statutory Financial Highlights

·     Profit from operations increased to £82.6m (2010 - £71.1m);

·     Profit before taxation of £26.5m after exceptional items and impairment of intangible assets of £22.6m (2010 - £9.6m after exceptional items of £21.9m);

·     Profit for the year increased to £29.4m (2010 - £24.4m);

·     Basic earnings per share 22.1p (2010 - 23.1p);

·     Net debt reduced by £86.0m to £529.1m (2010 - £615.1m).

Bob Mackenzie, Chairman, commented:

"Despite the economic downturn the Group has retained a strong, market leading position in both the UK and Spain, and has delivered earnings growth in line with the Board's expectations.  Underlying cash generation in 2011 was £99m leaving net debt at £530m, which we expect to fall further in 2012. This, combined with the debt refinancing completed during the year, leaves the Group with an appropriate and robust capital structure.

We enter the new financial year with a clear programme for operational improvement.  Our focus will remain on improving returns and further progress is planned in the coming year through hire rate improvement, efficient fleet management, further cost reductions and cash generation.

The Group has begun the new financial year in line with the Board's expectations, and the Board is confident the Group is well placed to continue to deliver significant value to shareholders."

Full statement and results attached.

There will be a presentation to analysts at 9.30am today at RBS Offices, 250 Bishopsgate, London EC2. 

For further information, please contact:

Northgate plc                                                                    01325 467558

Bob Contreras, Chief Executive Chris Muir, Group Finance Director

MHP Communications                                                 020 3128 8753

Andrew Jaques

Barnaby Fry

Simon Hockridge

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:

www.northgateplc.com

Chairman's Statement

Against a background of continuing economic uncertainty in the countries in which we operate, I am pleased to report that the Group has made further progress with the restructuring of our UK and Spanish operations that commenced in summer 2010.

The focus of the Group will be to maintain utilisation in excess of 90%, improve operating efficiency to reduce costs and concentrate on increasing the Return on Capital Employed ("ROCE") above levels previously achieved.  Against all of these measures we have delivered improvements in the past year.

The Group's financial results for the year ended 30 April 2011 are summarised as follows:

·     Underlying profit before tax⁽²⁾ increased by 47% to £53.8m (2010 - £36.5m);

·     Underlying basic earnings per share⁽³⁾ of 29.0p (2010 - 26.8p), based on shares of 133 million (2010 - 105 million);

·     Net debt⁽⁴⁾ reduced by £68.4m to £529.9m;

·     ROCE⁽⁷⁾ 11.9% (2010 - 8.4%); and

·     Statutory profit before tax increased to £26.5m (2010 - £9.6m).

The successful refinancing in April 2011 was another milestone in the Group's progress as it was able to access new capital and secures its financial base for the medium term.  At 30 April 2011 we had £225m headroom on our committed debt facilities of £781m⁽⁹⁾.  Net debt to EBITDA⁽⁶⁾ has come down to 1.7x (2010 - 2.0x) and all covenant measures improved over the year as a result of £99m of underlying cash generation⁽¹⁰⁾.  Net debt was reduced by £68m during the year, as the Group continued to strengthen its balance sheet and position itself for any sustained improvement in market conditions.

We now have a strong management team in Spain and are developing our team in the UK by a mixture of internal promotion and external recruitment where necessary.  This has stabilised the business.  Management in both countries are now working effectively to maximise returns.

In the past few years sales have grown as a result of chasing volume at lower prices.  We have ceased this practice and as a result we have lost some customers.  We are seeking to replace this business with sales to customers who are attracted to our flexible renting model.

In both the UK and Spain our market is the flexible renting of vehicles.  As we get improved data we will be better able to judge the size of the opportunity that exists for future expansion.

UK

Our underlying operating margin⁽¹¹⁾ increased to 22.0% in the year, compared to 18.0% in 2010 and utilisation rates have remained in line with targeted levels at 90% (2010 - 90%)⁽⁸⁾.  The increase in operating margin has been achieved through our actions aimed at improving operating efficiency, increasing hire rates and the continued strength in the residual prices for used vehicles.

During the year, the model of 20 separate companies with their own brands and management structure was initially replaced with 12 business areas operating under one Northgate Vehicle Hire brand.  In line with original plans, the 12 areas were further reduced to seven regions in May 2011 providing the platform for a consistent and improved customer service and operational efficiencies.

The rebranding exercise was completed successfully providing the UK with a nationally recognised single brand.  Brand development will continue to ensure that we are recognised as the market leader in light commercial vehicle rental in the UK.  Our main rebranding focus has been vehicle livery on our own fleet, with c.15,000 vehicles now liveried in the Northgate Vehicle Hire branding.

I am pleased to report that the new IT system has finally been successfully implemented across the UK.  As envisaged this is already providing enhanced information about the profitability of our activities, processes and services.    

A number of significant initiatives have commenced during the year, which include:

·    Improving the operational efficiency and productivity of our 53 workshops;

·    Driver logistics management - planning and control of the collection and delivery of vehicles for customers. We used to employ delivery drivers and additional agency drivers to deliver vehicles all over the country, however a customer will now receive a vehicle from the nearest depot with availability;

·    Simplifying and reducing the costs of internal administration and finance through centralisation to be completed early in the 2012 calendar year;

·    Improved sales and operational planning, reducing vehicle holding costs and increasing sales opportunities;

·    Restructuring our commercial sales organisation to improve both our national and SME sales with a nationally managed sales force; and

·    Increasing staff training and development across the whole organisation.

This fundamental reorganisation of the UK business, together with the enhanced information about our activities, will enable us to make sensible informed decisions about pricing and availability thus improving our offering to customers and increasing our operating margin.

In addition to the £10m annualised cost savings targeted by April 2011, the above plans will result in a further annualised improvement to operating profit of over £5m from April 2012. Of these additional £5m annualised cost savings, we will incur total implementation costs of c.£3m in the year ending 30 April 2012.

Spain

Our Spanish business continues to operate in an extremely difficult and uncertain environment.  This is particularly the case in the construction sector.  One of the major challenges our business has faced in Spain is the reliance on this sector, and I am pleased to report that we have reduced our reliance on the construction sector from 55% in 2010 to 37% in 2011, which was mainly achieved through compensating increases in the wholesale and retail distribution, and electrical, plumbing and equipment maintenance service sectors.

Our underlying operating margin⁽¹²⁾ increased to 18.0% in the year (2010 - 12.7%). In Spain, we have significantly lower margins compared to the UK, as we incur c.€14m of vehicle insurance costs, which are borne by the company and not the customer.  In the longer term, hire rates will need to improve to recover these costs.

In times of uncertainty the importance of strong fleet management becomes imperative and for the first time under our ownership the Spanish business has achieved average utilisation for the year of 91% (2010 - 88%).  Ongoing investment made in our used vehicle disposal capability has enabled the Spanish business to dispose of 19,000 vehicles at increasing residual values.

Debtor management continues to be an area of focus, specifically large construction debtors as government investment programmes continue to reduce. In the year ended 30 April 2011 the bad debt charge at €4m was €6m less than in the year to 30 April 2010.

From 1 January 2011, the Spanish business was merged, with the former Fualsa and Record businesses trading under the Northgate brand.  It has been a complex task as there was much overlap between the two brands at very different prices.  This has strengthened our position with customers and provides annualised benefits of approximately €4m from January 2011.  One-off cash costs associated with this merger totalling €3m were incurred in the year.  Further non-cash write downs of non-current assets of €15m have also been recognised in the current year.  These comprise €7m write down of certain intangible assets recognised on acquisition and €8m of property write downs.

Refinancing

During the year the Group initiated discussions with all its lenders and private placement noteholders leading to a successful renegotiation of its borrowing facilities.

As previously announced the refinancing comprises three elements:

·     A new eight year £100m term loan facility provided by M&G UK Companies Financing Fund ("M&G loan"), repayable in three equal instalments in October 2017, April 2018 and April 2019;

·     A committed bank facility with an extended maturity of September 2014, initially £468m in size; and

·     The Group's existing loan notes (currently amounting to £170m equivalent at fixed exchange rates) will remain invested until their original maturity dates, which are between November 2012 and December 2016, and at their existing coupon rates.

These facilities contribute to total committed facilities of the Group of £781m providing headroom of £225m at 30 April 2011⁽⁹⁾.

Employees

The Group's employees experienced a year of considerable change as a result of the need to reorganise both the UK and Spanish businesses.  Our ongoing recovery continues to be as a result of their dedication, hard work and loyalty through this time of upheaval and economic uncertainty.  I would like to thank them on behalf of the Board.

Dividend

The Board has again given careful consideration to paying a dividend and, on balance, has decided that it is not yet prudent to pay a dividend.  The re-introduction of a dividend will continue to be reviewed going forward.

Board Changes

On 19 May 2011 Chris Muir was appointed Group Finance Director.  His appointment was made following an extensive search process involving internal and external candidates.  He has an extensive working knowledge of the business and has worked for Northgate in a wide range of finance positions demonstrating that he has the capability to be an outstanding finance director.

Current trading and outlook

Despite the economic downturn the Group has retained a strong, market leading position in both the UK and Spain, and has delivered earnings growth in line with the Board's expectations.  Underlying cash generation in 2011 was £99m⁽¹⁰⁾ leaving net debt at £530m⁽⁴⁾, which we expect to fall further in 2012. This, combined with the debt refinancing completed during the year, leaves the Group with an appropriate and robust capital structure.

We enter the new financial year with a clear programme for operational improvement.  Our focus will remain on improving returns and further progress is planned in the coming year through hire rate improvement, efficient fleet management, further cost reductions and cash generation.

The Group has begun the new financial year in line with the Board's expectations, and the Board is confident the Group is well placed to continue to deliver significant value to shareholders.

Operational Review

Group

In 2010 the Group commenced a comprehensive programme designed to restructure the business to enhance both customer service and operational performance.   It was evident at the time of the 2010 review that the focus should move away from targeting vehicle growth via aggressive pricing and an expanding network, to identifying markets and customers who are prepared to pay the correct price for the service offering and creating a business that does the simple things well and has optimal operating efficiency.

In an environment where capital has become more scarce and expensive, the Group has focused on improving returns on capital employed and restoring the strength of the Group's balance sheet.

To ensure this objective was met, the following areas were identified as key in both the UK and Spain:

·     Improved fleet management;

·     Pricing increases;

·     Cost reduction; and

·     Improvement in vehicle disposal capabilities.

For the year ended 30 April 2011, substantially all of the original targets have been met resulting in an improved return on capital employed⁽⁷⁾ of 11.9% (2010 - 8.4%).

In addition, the Group also successfully refinanced its borrowing facilities in the year, improving terms and increasing the maturity of the previous facilities.  The successful completion of the refinancing allows the Group to continue to focus on the improvement programme it has initiated.

UK

Improvements achieved in pricing, operational efficiencies and used vehicle residuals, coupled with continued strong fleet management have led to an increase in operating margin⁽¹¹⁾ from 18.0% to 22.0%.

Vehicle fleet and utilisation

The UK fleet size increased slightly to 61,200 vehicles (April 2010 - 60,900 vehicles).  Vehicle utilisation for the year averaged 90% (2010 - 90%⁽⁸⁾).  Utilisation remains a key area of focus for the Group and the UK will be targeting an average rate of 91% going forward.  The new IT system which was implemented across the UK by 31 May 2011 allows us to measure utilisation daily rather than weekly, as was the case previously.  We estimate that the daily target rate of 91% is equivalent to some 93% under the previous weekly measure.

During the year we purchased 18,900 vehicles (2010 - 18,800) reflecting the Group's commitment to running a fleet with a suitable ageing profile, efficiency and reliability. 

The average age of our fleet has increased to 22.1 months (April 2010 - 20.8 months).

Hire rates and vehicles on hire

 

Average hire revenue per vehicle closed at over 2% higher than in the prior year.  This has been impacted by consumer demand moving towards smaller vehicles to reduce their operational costs.  Adjusting for this mix impact the underlying hire rate increase was some 4%.  Due to the change in vehicle mix, the UK saw no increase in its capital cost per vehicle despite new vehicle price inflation.

 

Year on year closing vehicles on hire fell by 1,000 (2010 - 600).  We believe that the increase in pricing achieved has been a contributory factor to this reduction. Some customers originally moved from contract hire or acquisition to flexible rental to benefit from the unsustainable low rental rates rather than because it matched their business requirements.  The higher rental price has caused them to reconsider their mix of fixed to flexible fleet, which has resulted in a decline in on-hires.

 

This will not reduce our focus on charging the correct price for the service provided and all ancillary services and costs incurred.  Additionally, we will continue to seek to attract customers for whom flexible rental is the most appropriate solution.

Restructuring and operational improvement

In April 2010 we commenced a restructuring of the UK business.  The previous 20 hire companies were initially reduced to 12 areas, reducing further to seven regions in May 2011, all operating under a single brand of Northgate Vehicle Hire. 

 

The vehicle and site rebranding exercise is on track with c.15,000 vehicles now liveried in the Northgate Vehicle Hire brand.  This will continue each year as the fleet is replaced, and we have a target of 33,000 vehicles to be liveried by 30 April 2012.

 

Historically the 20 hire companies were responsible for vehicles operating across the UK, resulting in significant inefficiencies due to the difficulty in managing vehicle movements out of their local geographic areas.  In order to eliminate this inefficiency, during the year we have progressively reallocated fleet into the region most suited to service the customer involved.

 

During the year we have identified a number of areas of improvement which will continue to drive operational efficiency and improve customer service. These comprise:

·     Improved IT capability and systems, which will allow greater visibility and planning of our 53 workshops, leading to increased efficiency and utilisation;

·     Further development around driver logistics management, which will provide the UK with opportunities for increasing delivery efficiency;

·     The implementation of the UK-wide Enterprise Resource Planning ("ERP") system, which allows the Group to centralise and reduce the costs of the UK finance and administration function;

·     Improved sales and operational planning, which reduce vehicle holding costs and increase sales opportunities.

Of the £10m full year equivalent cost savings targeted by 30 April 2011, £9m have been achieved in the year, with the remaining £1m to be achieved in the year ending 30 April 2012 by establishing a centralised finance and administrative function.  The results for the year include £6m of this annualised saving. 

In addition to these £10m annualised cost savings, the above operational improvements will generate ongoing full year equivalent cost savings of some £5m by April 2012 with total implementation costs of c.£3m.  Of these £5m cost savings, £3m will be achieved in the year ending 30 April 2012.

Used vehicle sales

The recovery in resale values for used vehicles observed in the last financial year continued in the year ended 30 April 2011.

During the year a total of 18,900 vehicles (2010 - 22,700 vehicles) were sold, with the higher margin retail and semi-retail channels accounting for 22% (2010 - 19%) of those disposals.

The improvement in the values achieved for the vehicles disposed resulted in a decrease of £14.2m (2010 - £6.5m) in the depreciation charge.

Depot network

As part of the ongoing operational improvement programme, we reduced the network of hire locations from 65 to 62 during the year.  We continue to move towards a structure of larger hubs with a smaller number of satellite locations.  Prior to the year end, we invested in new locations in the Midlands, which will facilitate further rationalisation of the network.  More importantly the facilities and their location will allow increased planning, efficiency and utilisation of the network and improve customer service.  The Group will continue to look for further opportunities to invest in the network when there is an economic benefit of doing so.

We have also commenced a programme of investment in our existing locations, focusing largely on workshop improvement.  We envisage this programme will run over the next two years creating improved efficiency of our workshops and customer service.

IT

The UK has completed the roll-out of the UK-wide ERP system.  This was completed by May 2011. The ERP system covers operations, asset management and finance and will be used as a basis to improve customer service and reduce costs through further operational efficiencies.

Spain

Our Spanish business has performed well against the ongoing difficult trading conditions.    Improved fleet management, together with improvements in our used vehicle disposal capability, have led to closing fleet utilisation of 91% (measured daily on a consistent basis) and better residual values achieved for used vehicles when sold. 

Additionally, the ongoing operational efficiency and hire rate improvements, as well as a reduced incidence of bad debts, have more than offset the reduction in vehicles on hire to improve the operating margin⁽¹²⁾to 18.0% (2010 - 12.7%).

Vehicle fleet and utilisation

The fleet size reduced in line with our expectations, from 48,900 vehicles at 30 April 2010 to 43,500 at 30 April 2011.  The average utilisation for the year was 91% (2010 - 88%).

During the year we purchased 13,400 vehicles (2010 - 9,100) and the average age of the fleet reduced from 27.2 months at 30 April 2010 to 25.0 months at 30 April 2011.

Hire rates and vehicles on hire

Average hire revenue per rented vehicle in the year was 2% higher than the prior year period.  This has been achieved through a combination of strong pricing controls on new vehicles and targeted price increases with existing customers.  As with the UK the mix of vehicles on hire in Spain is being impacted by customer demand moving towards smaller vehicles.

In line with expectations, vehicles on hire fell 4,600 in the year ended 30 April 2011, from 44,000 vehicles at 30 April 2010.  The increased disposal capability and strong operational controls allowed Spain to reduce the fleet appropriately and maintain strong vehicle utilisations.

Restructuring

From 1 January 2011 the Spanish business was merged, with the former Fualsa and Record businesses now trading under the Northgate brand. Having managed the potential negative consequences arising from the significant customer overlap, the merger was achieved with minimal disruption and has resulted in an improved customer service.

As in the UK, significant progress has been made in rebranding fleet, consolidating locations and promoting the brand in the market.

Operating under one brand will strengthen our customer service offering and will provide annualised benefits of c.€4m from January 2011.

Depot network

 

The size of the hire network in Spain has fallen from 32 sites to 25 sites, mainly as a result of operating under one brand.  As part of the restructuring a review was carried out to determine which sites would maximise operational efficiency whilst retaining the required geographical coverage across the country.

 

Of the sites now vacated, an impairment provision of €7.8m has been charged in the year ended 30 April 2011 to reflect estimated current market values of these properties. 

Sector focus

 

As previously reported, a high proportion of our Spanish customers have operated in the construction industry.  In the year we have reorganised our commercial sales operations to focus on new sectors such as wholesale and retail distribution, maintenance, and cleaning services, which has enabled us to re-profile the customer base with construction now accounting for 37% of vehicles on hire at the end of April 2011 compared to 55% at the end of April 2010.

Used vehicle sales

As targeted we have increased the capability of our Spanish disposal network. This has been driven by ongoing investment in locations and resource.  Whilst Spain has seen good progress, there is still further development required to reach the capabilities of our UK business.

In line with the previous year we were able to dispose of 19,000 vehicles (2010 - 19,800 vehicles). The improvement in resale values achieved has resulted in a decrease in the depreciation charge of €0.2m compared to a €4.7m increase in the prior year.

Bad debts

Debtor management continues to be an area of focus, specifically large construction debtors as government investment programmes continue to reduce. The incidence of bad debt in Spain in the year ended April 2011 was €4.3m, a €6.0m fall from the charge in the year ended April 2010 of €10.3m.  Ongoing improvements in controls and processes have further improved days' sales outstanding, falling from 109 as at 30 April 2010 to 94 days at 30 April 2011.

Financial Review

Financial reporting

Group

A summary of the Group's underlying financial performance for 2011 with a comparison to 2010, is shown below:

	2011	2010
	£m	£m
Revenue	715.5	749.6
Profit from operations(1)	105.6	82.8
Net interest expense(13)	(51.8)	(46.3)
Profit before tax(2)	53.8	36.5
Profit after tax(3)	38.5	28.2
Basic earnings per share(3)	29.0p	26.8p
Return on capital employed(7)	11.9%	8.4%

Group revenue in 2011 decreased by 4.5% to £715.5m (2010 - £749.6m) or 3.3% at constant exchange rates.

Net underlying cash generation⁽¹⁰⁾ was £99.4m (2010 - £184.6m) after net capital expenditure of £186.1m (2010 - £126.8m) resulting in closing net debt⁽⁴⁾  of £529.9m (2010 - £598.3m).

On a statutory basis, operating profit, stated after intangible amortisation and exceptional items, has increased to £82.6m (2010 - £71.1m) with profit before tax increasing to £26.5m (2010 - £9.6m). Basic earnings per share reduced to 22.1p (2010 - 23.1p).  Net cash from operations, including net capital expenditure on vehicles for hire, reduced by £86.2m to £102.3m (2010 - £188.5m), with net debt falling by 14.4% from £615.1m at 30 April 2010 to £529.1m at 30 April 2011.  Gearing improved to 163% (2010 - 219%).

UK

The composition of the Group's UK revenue and profit from operations is set out below:

	2011	2010
	£m	£m
Revenue
Vehicle rental	333.9	328.2
Vehicle sales	103.0	114.3
	436.9	442.5
Profit from operations(14)	73.6	59.0

Rental revenue increased by 1.7% to £333.9m (2010 - £328.2m) driven by an increase in hire rates of c.2% partially offset by a 0.3% reduction in the average number of vehicles on hire. 

An improvement in residual values of used vehicles contributed £7.7m of the increase in profit from operations.

The UK operating margin was as follows:

	2011	2010
Operating margin(11)	22.0%	18.0%

The UK operating profit margin⁽¹¹⁾ has increased to 22.0% (2010 - 18.0%).  This is due to an improvement in hire rates and used vehicle residual values as mentioned above, coupled with cost savings targeted through the on-going restructuring of the UK business.

Spain

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

	2011	2010
	£m	£m
Revenue
Vehicle rental	203.3	235.5
Vehicle sales	75.3	71.6
	278.6	307.1
Profit from operations(15)	36.6	30.0

The reduction in average vehicles on hire of 12.7% contributed to a decrease in rental revenue of 13.7% (10.8% at constant exchange rates), which was partially offset by a c.2% increase in average revenue per rented vehicle.

An improvement in used vehicle residual values has contributed £4.3m to the £6.6m increase in profit from operations with 19,000 vehicles sold (2010 - 19,800).

The Spanish operating margin was as follows:

	2011	2010
Operating margin(12)	18.0%	12.7%

Vehicle rental revenue and profit from operations in 2011, expressed at constant exchange rates, would have been higher than reported by £6.8m and £1.2m respectively.

Revenue per rented vehicle increased by 2% despite a lightening of the fleet mix, which reflects targeted price increases and an improvement in pricing controls.

The incidence of bad debt in Spain has reduced by £5.4m to £3.7m (2010 - £9.1m), equivalent to 1.8% of operating margin (2010 - 3.9%) despite no significant improvement in the economic environment, which demonstrates a major improvement in credit control procedures.

Corporate

Corporate costs⁽¹⁶⁾ were £4.6m compared to £6.1m in the prior year reflecting the impact of Board changes previously announced.

Return on capital employed

Group return on capital employed⁽⁷⁾ was 11.9% compared to 8.4% in the prior year and 5.8% in 2009.  This represents a substantial improvement over the previous two years and underlines the Group's success in applying its strategy of maximising returns through more efficient fleet management and improved hire rates.

Group return on equity, calculated as profit after tax (excluding intangible amortisation, impairment of intangible assets and exceptional administrative expenses) divided by average shareholders' funds, was 12% (2010 - 12%). 

Exceptional items

During the year £5.6m of restructuring costs were incurred, of which £2.4m related to the UK, £2.6m related to the merger of Fualsa and Record in Spain and £0.6m related to corporate costs.  

As part of the merger in Spain, property impairments of £6.9m were recognised for sites vacated and £5.9m of intangible assets were written down in relation to brand names no longer used.

During the year £4.2m of non-cash financing costs were incurred, of which £2.7m related to unamortised financing fees written off in relation to borrowings which were treated as extinguished debt upon refinancing of the Group in April 2011.   Financing costs of £1.5m were also incurred in relation to swap contracts which were either cancelled or which no longer qualified for hedge accounting following the refinancing.

Interest

Net finance charges for the year before exceptional items were £51.8m (2010 - £46.3m). 

The charge includes £9.4m of non-cash interest, primarily from borrowing fees amortised in the year (2010 - £5.9m).

Net cash interest has increased by £2.0m to £42.4m, with a £15.0m increase due to the full year impact of higher rates since refinancing in September 2009 being largely offset by an interest saving of £13.0m as a result of the reduction in average net debt throughout the year.

Taxation

The Group's underlying effective tax charge for its UK and overseas operations is 28% (2010 - 23%).  This is higher than the previous year, which included a £2m tax credit in respect of prior years.

The underlying tax charge excludes the tax on intangible amortisation and exceptional items and a credit of £5.9m for the recognition of previously unrecognised deferred tax assets (2010 - £15.5m). 

Also excluded from the underlying tax charge in the year is a £4.2m credit in relation to tax provisions which were made on acquisition of our Spanish operations which have been settled in the year at a lower amount.

Excluding these items the Group's statutory effective tax charge is (11)% (2010 - (153)%).

Earnings per share

Basic earnings per share ("EPS")⁽³⁾, were 8% higher than the previous year at 29.0p (2010 - 26.8p).  Basic statutory earnings per share were 22.1p (2010 - 23.1p). 

Underlying earnings for the purposes of EPS⁽³⁾ of £38.5m were £10.3m (36%) higher than the previous year (2010 - £28.2m).  The weighted average number of shares for the purposes of EPS was 133m, 28m higher than the previous year which reflects the full year impact of the equity raising and rights issue in the prior year.

Dividend

The Directors do not recommend the payment of a dividend in relation to the Ordinary shares for the year ended 30 April 2011 (2010 - £Nil).  

Balance sheet

Net tangible assets at 30 April 2011 were £324.4m (2010 - £281.1m), equivalent to a tangible net asset value of 243.5p per share (2010 - 211.4p per share). 

Gearing⁽⁵⁾ at 30 April 2011 was 163% (2010 - 213%) reflecting a £68m reduction in net debt.

Cash flow

A summary of the Group's cash flows is shown below:

	2011	2010
	£m	£m
Underlying operational cash generation	331.4	358.1
Net capital expenditure	(186.1)	(126.8)
Net taxation and interest payments	(45.9)	(46.7)
Net underlying cash generation(10)	99.4	184.6
Proceeds from issue of share capital	0.4	108.3
Refinancing fees	(10.3)	(31.4)
Other	(2.6)	(0.7)
Net cash generated	86.9	260.8
Opening net debt(4)	598.3	886.4
Net cash generated	(86.9)	(260.8)
Financing fees paid and amortised as well as issue of make whole notes	6.4	(18.2)
Other non-cash items	3.4	-
Exchange differences	8.7	(9.1)
Closing net debt(4)	529.9	598.3

Underlying operational cash generation (as defined in the table above) of £331.4m, coupled with tight control over capital expenditure of £186.1m have contributed to a £68.4m reduction in net debt⁽⁴⁾ to a closing position of £529.9m.

A total of £343.6m was invested in new vehicles in order to replace fleet compared to £299.1m in the prior year.  This increase primarily related to 4,300 more units purchased in Spain compared to the previous year, which brought the average age of the fleet down from 27 to 25 months.  The Group's new vehicle outlay was partially funded by £161.2m of cash generated from the sale of used vehicles. Other net capital expenditure amounted to £3.7m.

After capital expenditure, and payments of interest and tax of £45.9m, net underlying cash generation⁽¹⁰⁾ was £99.4m, compared to £184.6m in the previous year.

Borrowing facilities

The new financing arrangements came into effect in April 2011 and comprise committed secured facilities of £739m.  Including local facilities in Spain of £42m, Group facilities amounted to £781m compared to debt (gross of £26m of unamortised arrangement fees) of £556m at 30 April 2011 giving headroom of £225m⁽⁹⁾.

The Group's facilities⁽⁹⁾ and their maturities are shown below:

	Facility	Drawn	Headroom	Maturity
	£m	£m	£m
Bank	468	257	211	Sept-14
US loan notes	170	170	-	Nov-12 to Dec-16
M&G loan	101	101	-	Oct-17 to Apr-19
Other loans	42	28	14	Up to Nov-12
	781	556	225

US loan notes bear fixed interest of 8.7%.  M&G loan interest is charged at LIBOR +4.25%.  This has been swapped into fixed rate debt at a rate of 8.3%.  A proportion of bank debt is fixed at 5.1% giving an overall fixed rate debt of 7.1%.  Including floating rate debt, the overall cost of the Group's borrowings is 6.6%.

The margin charged on bank debt is dependent upon the Group's net debt to EBITDA ratio, and ranges from a maximum of 3.25% to a minimum of 2.25%. The net debt to EBITDA ratio at 30 April 2011 corresponds to a bank margin of 2.75%.

The Group made total borrowing repayments of £175m in the year.  This included repayments of £89m under the previous financing arrangements, £78m of the M&G loan received being paid to existing lenders and make-whole payments of £8m to US loan noteholders.

The repayment of bank borrowings from the receipt of monies from the Sterling M&G loan was made against Euro denominated bank debt. The equivalent amount of M&G loan was swapped into Euro borrowings in order to maintain the net investment hedging position of the Group.

Scheduled bank repayments of £74m are due in November 2012 before the facilities mature in September 2014.

US note repayments and maturities of £47m are due in November 2012, with £46m maturing in December 2013 and £77m in December 2016.

The M&G loan is repayable in three equal instalments in October 2017, April 2018 and April 2019.

There are four financial covenants⁽⁶⁾ under the Group's revised facilities as follows:

1.  Interest cover ratio

A minimum ratio of earnings before interest and taxation ("EBIT") to net interest costs tested quarterly on a rolling historic 12-month basis.  The covenant ratio to be exceeded ranges between 1.50x and 2.25x.

Interest cover at 30 April 2011 was 2.1x with EBIT headroom, all else being equal, of c.£25m.

2.  Minimum tangible net worth

A minimum tangible net worth, i.e. net assets excluding goodwill and intangibles, tested quarterly.  This covenant has been set at 80% of the net tangible assets at 30 April 2010 as adjusted for 80% of budgeted cumulative retained profits planned at the time of re-financing.

Headroom at 30 April 2011 was c.£85m.

3.  Loan to value

A maximum ratio of total consolidated net borrowings to the book value of vehicles for hire, vehicles held for resale, trade receivables and freehold property, tested quarterly.  The covenant ratio which must not be exceeded ranges between 70% and 80%. 

Loan to value at 30 April 2011 was 63% giving net debt headroom, all else being equal, of c.£154m.

4.  Debt leverage cover ratio

A maximum ratio of net debt to earnings before interest, tax, depreciation and amortisation ("EBITDA"), tested quarterly on a rolling historic 12-month basis.  The covenant ratio which must not be exceeded ranges between 2.00x and 2.25x.

Debt leverage cover at 30 April 2011 was 1.7x with EBITDA headroom, all else being equal, of c.£81m.

Treasury

The function of Group Treasury is to mitigate financial risk, to ensure sufficient liquidity is available to meet foreseeable requirements to secure finance at minimum cost and to invest cash assets securely and profitably.  Treasury operations manage the Group's funding, liquidity and exposure to interest rate risks within a framework of policies and guidelines authorised by the Board of Directors.

The Group uses derivative financial instruments for risk management purposes only.  Consistent with Group policy, Group Treasury does not engage in speculative activity and it is policy to avoid using more complex financial instruments.

Credit risk

The policy followed in managing credit risk permits only minimal exposures, with banks and other institutions meeting required standards as assessed normally by reference to major credit agencies.  Deals are authorised only with banks with which dealing mandates have been agreed and which maintain a Double A rating.  Individual aggregate credit exposures are limited accordingly.

Liquidity and funding

The Group has sufficient funding facilities to meet its normal funding requirements in the medium term as discussed above.  Covenants attached to those facilities as discussed above are not restrictive to the Group's operations.

Capital management

The Group's objective is to maintain a balance sheet structure that is efficient in terms of providing long term returns to shareholders and safeguards the Group's financial position through economic cycles.

Operating subsidiary undertakings are financed by a combination of retained earnings, loan notes, other loans and bank borrowings, including medium term bank loans.

The Group can choose to adjust its capital structure by varying the amount of dividends paid to shareholders, by issuing new shares or by adjusting the level of capital expenditure.  As discussed above, gearing⁽⁵⁾ at 30 April 2011 was 163% compared to 213% at 30 April 2010.

Interest rate management

The Group's bank facilities and other loan agreements incorporate variable interest rates.  The Group seeks to manage the risks associated with fluctuating interest rates by having in place a number of financial instruments covering at least 50% of its borrowings at any time.  The proportion of gross borrowings hedged into fixed rates was 83% at 30 April 2011 (2010 - 71%).

Foreign exchange risk

The Group's reporting currency is, and the majority of its revenue (60%) is generated in pounds sterling.  The Group's principal currency translation exposure is to the Euro, as the results of operations, assets and liabilities of its Spanish and Irish businesses must be translated into Sterling to produce the Group's consolidated financial statements.

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

	2011	2010
	£ : €	£ : €
Average	1.17	1.13
Year end	1.12	1.15

The Group manages its exposure to currency fluctuations on retranslation of the balance sheets of those subsidiary undertakings whose functional currency is in Euro by maintaining a proportion of its borrowings in the same currency.  In addition, the Group has entered into a number of GBP/EUR cross currency swaps which are designated as net investment hedges.  The hedging objective is to reduce the risk of spot retranslation of the Euro subsidiaries from Euro to Sterling at each reporting date.  The hedges are considered highly effective in the current and prior year and the exchange differences arising on the borrowings and net investment hedges have been recognised directly within equity along with the exchange differences on retranslation of the net assets of the Euro subsidiaries.

The Group has in issue US dollar-denominated loan notes which bear fixed rate interest in US dollars.  The payment of this interest and the capital repayment of the loan notes at scheduled repayment dates and maturity expose the Group to foreign exchange risk.  To mitigate this risk, the Group has entered into a series of Sterling/US dollar cross-currency swaps.  The effective start dates and termination dates of these contracts are the same as the loan notes against which hedging relationships are designated.  The Group will have interest cash outflows in pounds sterling and interest cash inflows in US dollars over the life of the contracts.  On the termination date of each of the contracts, the Group will pay a principal amount in pounds sterling and receive a principal amount in US dollars.

Going concern 

In determining whether the Group's 2011 accounts should be prepared on a going concern basis the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowings facilities and the risks and uncertainties relating to its business activities in the current economic climate.

The key risks and uncertainties of the Group are outlined below.  Measures taken by the Directors in order to mitigate those risks are also outlined.

The Directors have reviewed trading and cash flow forecasts as part of their going concern assessment, including reasonably possible downside sensitivities, which take into account the uncertainties in the current operating environment.

The Group has sufficient headroom compared to its committed borrowing facilities and against all covenants as detailed in this report.

Having considered all the factors above impacting the Group's businesses, including reasonably possible downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the Group's 2011 accounts.

Principal risks and uncertainties

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 below.

Economic environment

There is a link in our business between the demand for our products and services and the levels of economic activity in the countries in which the Group operates.  The high level of operational gearing in our business model means that changes in demand can lead to higher levels of variation in profitability.

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 years.

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 ongoing credit analysis is performed on new and existing 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 a vehicle at the end of its 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.

As our business is highly operationally geared, 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 and so hire rates are not being reduced below certain hurdle rates.  In co-ordinating this policy with fleet management, utilisations are being maintained at higher rates.

Our current pricing strategy is focused on charging the correct price for the service provided and all ancillary services offered which will attract customers for whom flexible rental is the most appropriate solution but not necessarily the cheapest.  This means that the Group will be better positioned against solely price led competition going forward.

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 facilities.  Current bank facilities are due to mature in September 2014 with other facilities having varying maturity dates up to April 2019.  There is a risk that the Group cannot successfully extend its 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 impact of access to capital on the wider risk of going concern is considered above.

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.

Change management

The UK and Spain businesses are currently undertaking restructuring programmes which seek to improve the operational efficiency of the Group, with the aim of increasing returns to shareholders and placing the Group in a better position for future expansion, or to be more resilient to any further downturns in the economic environment. 

If these programmes are not executed effectively, the Group will not be in a position to achieve its objectives, and profitability and shareholder returns will be impacted.

The Board and its advisors conducted detailed reviews of the restructuring strategy before it commenced, and each project is subject to an on-going assessment at Board level.  The restructuring strategies have been communicated to all employees.  Risks arising through the process are continually monitored and mitigating actions are taken when required.

⁽¹⁾      Stated before intangible amortisation of £4.7m (2010 - £5.0m), impairment of intangible assets of £5.9m (2010 - £Nil) and exceptional administrative expenses of £12.5m (2010 - £6.7m).

⁽²⁾      Stated before intangible amortisation of £4.7m (2010 - £5.0m), impairment of intangible assets of £5.9m (2010 - £Nil), exceptional administrative expenses of £12.5m (2010 - £6.7m) and exceptional finance costs of £4.2m (2010 - £15.2m).

⁽³⁾      Stated before intangible amortisation of £4.7m (2010 - £5.0m), impairment of intangible assets of £5.9m (2010 - £Nil), exceptional administrative expenses of £12.5m (2010 - £6.7m), exceptional finance costs of £4.2m (2010 - £15.2m) and tax on intangible amortisation, exceptional items and exceptional tax credit of £18.2m (2010 - £23.0m).

 ⁽⁴⁾     Net debt taking into account swapped exchange rates for US loan notes and proportion of M&G loan swapped into Euro being retranslated to Sterling at closing exchange rates.

⁽⁵⁾      Calculated as tangible net assets divided by net debt⁽⁴⁾,with tangible net assets being net assets less goodwill and other intangible assets.

⁽⁶⁾      Calculated in accordance with covenant requirements of the Group's financing arrangements.

⁽⁷⁾      Calculated as operating profit⁽¹⁾ divided by average capital employed, being shareholders funds plus net debt⁽⁴⁾.

⁽⁸⁾    Utilisation rate for 2010 restated, removing free of charge customer loans.

⁽⁹⁾    Headroom calculated as facilities of £781m less net borrowings of £556m.  Facilities and net borrowings stated taking into account the fixed swapped exchange rates for US loan notes and proportion of M&G loans swapped into Euro being retranslated to Sterling at closing exchange rates.  Net borrowings represent net debt of £530m gross of £26m of unamortised arrangement fees less cash balances available to offset against borrowings of £97m.

⁽¹⁰⁾  Net increase in cash and cash equivalents before financing activities. 

⁽¹¹⁾  Calculated as operating profit before intangible amortisation of £3.2m (2010 - £3.0m), exceptional administrative expenses of £2.4m (2010 - £5.8m), divided by revenue of £333.9m (2010 - £328.2m), excluding vehicle sales.

⁽¹²⁾  Calculated as operating profit before intangible amortisation of £1.4m (2010 - £2.0m), impairment of intangible assets of £5.9m (2010 - £Nil), exceptional administrative expenses of £9.4m (2010 - credit of £(0.1)m), divided by revenue of £203.4m (2010 -  £235.5m), excluding vehicle sales.

⁽¹³⁾    Stated before exceptional finance costs of £4.2m (2010 - £15.2m).

 ⁽¹⁴⁾ Excluding amortisation of intangible assets of £3.2m (2010 - £3.0m) and exceptional administrative expenses of £2.4m (2010 - £5.8m).

⁽¹⁵⁾ Excluding amortisation of intangible assets of £1.4m (2010 - £2.0m), impairment of intangible assets of £5.9m (2010 - £Nil) and exceptional administrative expenses of £9.4m (2010 - credit of £(0.1)m).

⁽¹⁶⁾ Excluding exceptional administrative expenses of £0.6m (2010 - £1.1m).

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 APRIL 2011
			Underlying			Statutory			Underlying			Statutory
			2011			2011			2010			2010
	Note		£000			£000			£000			£000
Revenue: hire of vehicles			537,285			537,285			563,698			563,698
Revenue: sale of vehicles			178,217			178,217			185,875			185,875
Total revenue	1		715,502			715,502			749,573			749,573
Cost of sales			(553,083)			(553,083)			(599,045)			(599,045)
Gross profit			162,419			162,419			150,528			150,528
Administrative expenses (excluding exceptional items, impairment of intangible assets and intangible amortisation)			(56,772)			(56,772)			(67,709)			(67,709)
Exceptional administrative expenses	7		-			(12,499)			-			(6,720)
Impairment of intangible assets	7		-			(5,892)			-			-
Intangible amortisation			-			(4,681)			-			(4,990)
Total administrative expenses			(56,772)			(79,844)			(67,709)			(79,419)
Profit from operations	1		105,647			82,575			82,819			71,109
Interest income			848			848			770			770
Finance costs (excluding exceptional items)			(52,649)			(52,649)			(47,048)			(47,048)
Exceptional finance costs	7		-			(4,234)			-			(15,216)
Total finance costs			(52,649)			(56,883)			(47,048)			(62,264)
Profit before taxation			53,846			26,540			36,541			9,615
Taxation			(15,305)			2,853			(8,295)			14,741
Profit for the year			38,541			29,393			28,246			24,356

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

Underlying profit excludes exceptional items and impairment of intangible assets as set out in Note 7, as well as intangible amortisation and the taxation thereon, in order to provide a better indication of the Group's underlying business performance.

Earnings per share
Basic	2	29.0p	22.1p	26.8p	23.1p
Diluted	2	28.5p	21.7p	26.4p	22.8p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 APRIL 2011
		2011	2010
		£000	£000
Amounts attributable to owners of the Parent Company
Profit attributable to owners		29,393	24,356
Other comprehensive income Foreign exchange differences on retranslation of net assets of subsidiary undertakings		4,645	(3,929)
Net foreign exchange differences on long term borrowings held as hedges		(3,727)	3,929
Foreign exchange difference on revaluation reserve		33	(35)
Net fair value gains (losses) on cash flow hedges		5,386	(14,681)
Deferred tax (charge) credit recognised directly in equity relating to cash flow hedges		(1,559)	4,110
Actuarial losses on defined benefit pension scheme		(169)	(221)
Deferred tax credit (charge) recognised directly in equity relating to defined benefit pension scheme		50	(8)
Total other comprehensive income for the year		4,659	(10,835)
Total comprehensive income for the year		34,052	13,521

CONSOLIDATED BALANCE SHEET
AS AT 30 APRIL 2011
			2011	2010
		Note	£000	£000
Non-current assets
Goodwill			3,589	3,589
Other intangible assets			11,809	20,449
Property, plant and equipment: vehicles for hire			714,042	741,543
Other property, plant and equipment			77,308	86,512
Derivative financial instrument assets			2,155	14,622
Deferred tax assets			10,179	18,409
Total non-current assets			819,082	885,124
Current assets
Inventories			21,371	22,933
Trade and other receivables			124,623	142,175
Cash and cash equivalents			96,885	85,343
Total current assets			242,879	250,451
Total assets			1,061,961	1,135,575
Current liabilities
Trade and other payables			67,419	86,687
Current tax liabilities		3	16,712	16,439
Short term borrowings			13,578	153,349
Total current liabilities			97,709	256,475
Net current assets (liabilities)			145,170	(6,024)
Non-current liabilities
Derivative financial instrument liabilities			7,684	8,794
Long term borrowings			612,434	547,061
Deferred tax liabilities			4,233	17,600
Retirement benefit obligation			142	539
Total non-current liabilities			624,493	573,994
Total liabilities			722,202	830,469
NET ASSETS			339,759	305,106
Equity
Share capital			66,616	66,475
Share premium account			113,508	113,269
Revaluation reserve			1,363	1,330
Own shares			(1,630)	(891)
Merger reserve			67,463	67,463
Hedging reserve			(1,893)	(5,720)
Translation reserve			(4,738)	(5,656)
Capital redemption reserve			40	40
Retained earnings			99,030	68,796
TOTAL EQUITY			339,759	305,106

Total equity is wholly attributable to owners of the Parent Company.

CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 APRIL 2011
		2011	2010
	Note	£000	£000
Net cash from operations	5 (a)	102,260	188,525
Investing activities
Interest received		848	770
Proceeds from disposal of other property, plant and equipment		3,295	1,805
Purchases of other property, plant and equipment		(4,972)	(4,617)
Purchases of intangible assets		(2,027)	(1,849)
Net cash used in investing activities		(2,856)	(3,891)
Financing activities
Repayments of obligations under finance leases		-	(37)
Repayments of bank loans and other borrowings		(175,464)	(255,422)
Debt issue costs paid		(10,309)	(31,358)
Receipt of other loan		100,000	-
Proceeds from issue of share capital		380	108,245
Payments to acquire own shares for share schemes		(1,676)	(674)
Termination of financial instruments		(896)	-
Net cash used in financing activities		(87,965)	(179,246)
Net increase in cash and cash equivalents		11,439	5,388
Cash and cash equivalents at 1 May		85,343	80,036
Effect of foreign exchange movements		103	(81)
Cash and cash equivalents at 30 April	5 (b)	96,885	85,343

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 APRIL 2011

	Share capital  and share premium	Own shares	Hedging reserve	Translation reserve	Other reserves	Retained earnings	Total
	£000	£000	£000	£000	£000	£000	£000
Total equity at 1 May 2009	71,499	(2,302)	4,851	(5,656)	68,868	45,499	182,759
Share options fair value charge	-	-	-	-	-	1,154	1,154
Share options exercised	-	-	-	-	-	(1,984)	(1,984)
Issue of Ordinary share capital (net of expenses)	108,245	-	-	-	-	-	108,245
Profit attributable to owners of the Parent Company	-	-	-	-	-	24,356	24,356
Purchase of own shares	-	(674)	-	-	-	-	(674)
Transfer of shares on vesting of share options	-	2,085	-	-	-	-	2,085
Other comprehensive income	-	-	(9,602)	(969)	(35)	(229)	(10,835)
Transfers between equity reserves	-	-	(969)	969	-	-	-
Total equity at 1 May 2010	179,744	(891)	(5,720)	(5,656)	68,833	68,796	305,106
Share options fair value charge	-	-	-	-	-	1,897	1,897
Share options exercised	-	-	-	-	-	(937)	(937)
Issue of Ordinary share capital	380	-	-	-	-	-	380
Profit attributable to owners of the Parent Company	-	-	-	-	-	29,393	29,393
Purchase of own shares	-	(1,676)	-	-	-	-	(1,676)
Transfer of shares on vesting of share options	-	937	-	-	-	-	937
Other comprehensive income	-	-	2,616	2,129	33	(119)	4,659
Transfers between equity reserves	-	-	1,211	(1,211)	-	-	-
Total equity at 30 April 2011	180,124	(1,630)	(1,893)	(4,738)	68,866	99,030	339,759
Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve.

NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2011

1. SEGMENTAL ANALYSIS

		UK	Spain	Corporate	Total
		2011	2011	2011	2011
		£000	£000	£000	£000
Revenue: hire of vehicles		333,935	203,350	-	537,285
Revenue: sale of vehicles		102,964	75,253	-	178,217
Total revenue		436,899	278,603	-	715,502
Operating profit (loss) *		73,617	36,649	(4,619)	105,647
Exceptional administrative expenses		(2,433)	(9,434)	(632)	(12,499)
Impairment of intangible assets		-	(5,892)	-	(5,892)
Intangible amortisation		(3,234)	(1,447)	-	(4,681)
Profit (loss) from operations		67,950	19,876	(5,251)	82,575

		UK	Spain	Corporate	Total
		2010	2010	2010	2010
		£000	£000	£000	£000
Revenue: hire of vehicles		328,198	235,500	-	563,698
Revenue: sale of vehicles		114,321	71,554	-	185,875
Total revenue		442,519	307,054	-	749,573
Operating profit (loss) *		58,970	29,983	(6,134)	82,819
Exceptional administrative expenses		(5,779)	127	(1,068)	(6,720)
Intangible amortisation		(2,977)	(2,013)	-	(4,990)
Profit (loss) from operations		50,214	28,097	(7,202)	71,109

* Operating profit (loss) stated before amortisation, impairment and exceptional items is the measure used by the executive Board of Directors to assess segment performance.

Fleet Technique was previously reported as a separate operating segment of the Group.  Due to an ongoing restructuring of the UK business, the operations of Fleet Technique have become integrated into the UK segment and as such the results are no longer reported separately to the Chief Operating Decision Maker. Consequently, Fleet Technique is no longer considered to be a separate operating segment of the Group.

2. EARNINGS PER SHARE
	Underlying	Statutory	Underlying	Statutory
Basic and diluted earnings per share	2011	2011	2010	2010
The calculation of basic and diluted earnings per share is based on the following data:
Earnings	£000	£000	£000	£000
Earnings for the purposes of basic and diluted earnings per share, being net profit attributable to owners of the Parent Company
	38,541	29,393	28,246	24,356
	Number	Number	Number	Number
Number of shares
Weighted average number of Ordinary shares for the purposes of basic earnings per share
	133,029,317	133,029,317	105,374,935	105,374,935
Effect of dilutive potential Ordinary shares:
- share options	2,306,309	2,306,309	1,605,626	1,605,626
Weighted average number of Ordinary shares for the purposes of diluted earnings per share
	135,335,626	135,335,626	106,980,561	106,980,561
Basic earnings per share	29.0p	22.1p	26.8p	23.1p
Diluted earnings per share	28.5p	21.7p	26.4p	22.8p

3. TAXATION

The current tax creditor of £16,712,000 at 30 April 2011 (2010 - £16,439,000) includes a total amount of £13,997,000 (2010 - £13,422,000) that is considered unlikely to give rise to a cash outflow within twelve months of the balance sheet date but is shown in the balance sheet as a current liability in order to satisfy the requirements of IAS 1.

The expected cash outflow in respect of corporate tax in the 12 months following the 30 April 2011 balance sheet date is, therefore, £2,715,000.

4. DIVIDENDS

The Directors do not propose an Ordinary dividend in respect of the year ended 30 April 2011 (2010 - £Nil). 

5. NOTES TO THE CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 APRIL 2011
	2011	2010
	£000	£000
(a) Net cash from operations		(As restated)
Profit from operations	82,575	71,109
Adjustments for:
Depreciation of property, plant and equipment	215,867	242,120
Impairment of intangible assets	5,892	-
Impairment of other property, plant and equipment	6,868	-
Exchange differences	69	58
Amortisation of intangible assets	4,681	4,990
Loss (gain) on disposal of property, plant and equipment	48	(491)
Share options fair value charge	1,897	1,154
Operating cash flows before movements in working capital	317,897	318,940
(Increase) decrease in non-vehicle inventories	(619)	832
Decrease in receivables	18,836	31,826
(Decrease) increase in payables	(4,729)	6,511
Cash generated from operations	331,385	358,109
Income taxes (paid) repaid	(3,292)	835
Interest paid	(43,445)	(48,316)
Net cash generated from operations	284,648	310,628
Purchases of vehicles	(343,620)	(299,144)
Proceeds from disposal of vehicles	161,232	177,041
Net cash from operations	102,260	188,525

(b) Cash and cash equivalents

Cash and cash equivalents consist of cash at bank and in hand.

6. ANALYSIS OF CONSOLIDATED NET DEBT
	2011	2010
	£000	£000
Cash at bank and in hand	96,885	85,343
Bank loans	(360,974)	(473,367)
Loan notes	(161,718)	(223,324)
Other loan	(97,506)	-
Cumulative preference shares	(500)	(500)
Property loans and other borrowings	(5,314)	(3,219)
	(529,127)	(615,067)

Net borrowings at 30 April 2011, taking into account the fixed swapped exchange rates for the loan notes and the other loan are £529,854,000 (2010 - £598,291,000).

7. EXCEPTIONAL ITEMS
During the year, the Group recognised exceptional items in the income statement made up as follows:
		2011		2010
		£000		£000
Restructuring costs		5,583		6,324
Impairment of Spanish property assets		6,868		-
Net property losses		48		396
Exceptional administrative expenses		12,499		6,720
Impairment of Spanish intangible assets		5,892		-
Exceptional impairment of intangible assets		5,892		-
Financing fees written off on extinguishment of debt		2,728		-
De-designation of GBP interest rate swaps		610		-
Termination of Euro interest rate swaps		473		-
Termination of cross currency swaps		423		-
Covenant deferral fees		-		2,199
Make-whole premium on US loan notes		-		8,842
Write off of unamortised fees relating to bilateral debt facilities		-		3,751
Other financing fees		-		424
Exceptional finance costs		4,234		15,216
Total pre-tax exceptional items		22,625		21,936
Tax credit on exceptional items		(6,653)		(6,142)
Net recognition of deferred tax assets		(5,928)		(15,456)
Exceptional tax credit relating to prior year items		(4,237)		-
Exceptional tax credit		(16,818)		(21,598)

8. BASIS OF PREPARATION 

The results for the year ended 30 April 2011, 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 and effective for the year.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in July 2011.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 April 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The financial information presented in respect of the year ended 30 April 2011 has been prepared on a basis consistent with that presented in the annual report for the year ended 30 April 2010 except for the changes explained below.

The amounts disclosed in note 5 for depreciation of property, plant and equipment and for proceeds from disposal of vehicles for the year ended 30 April 2010 have both been increased by £12,368,000 in order to accurately state these figures.  There is no change to the profit or cash flows of the Group.

 

END

 

 

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