Half-year Report

RNS Number : 0220R

Northgate PLC

06 December 2016

 



6 December 2016                              

NORTHGATE PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2016

Full year trading in line with expectations, increase in dividend and good momentum into the second half of the year

Northgate plc ("Northgate", the "Company" or the "Group"), the UK, Spain and Ireland's leading specialist in light commercial vehicle hire, announces its interim results for the half year ended 31 October 2016.

Financial highlights

As expected, profitability was held back in the first half of the year, largely due to the lower opening vehicles on hire in the UK.

The UK business has now stabilised and has grown closing vehicles on hire in the period.  This, alongside a  more settled political environment in Spain, provides momentum going into the second half of the year, meaning that full year results remain in line with expectations.

·    Underlying profit before tax £40.4m (2015 - £45.9m), impacted by:

o  £2.5m adverse impact from previous changes in vehicle depreciation rates;

o  £2.9m positive effect of the strengthened Euro;

·    Profit before tax £40.0m (2015 - £42.8m);

·    Underlying basic earnings per share 25.8p (2015 - 27.1p);

·    Basic earnings per share 25.5p (2015 - 25.4p);

·    12% increase in interim dividend to 5.7p per share (2015 - 5.1p);

·    Net debt £355.0m (April 2016 - £309.9m), including £38.3m adverse effect of the strengthened Euro.

Strategic progress

The Group has made good progress across the renewed areas of strategic focus which were outlined in our full year results in June:

Optimise the core business

·    Group closing vehicles on hire grew by 900 in the first six months of the year, compared to a decline of 900 in the same period last year.

Closing vehicles on hire (reduction) growth	Q1	Q2	Total
Year ending 30 April 2017	(100)	1,000	900
Year ended 30 April 2016	(500)	(400)	(900)

·    After strengthening of the UK management team vehicles on hire have stabilised, with growth of 100 in closing vehicles on hire in the six month period compared to a 1,200 reduction in the same period last year;

·    Spain closing vehicles on hire increased by 600 since April 2016, despite the planned return of 900 vehicles from expiring legacy contracts. This compared to a 100 vehicle increase in the same period last year; and

·    Ireland closing vehicles on hire increased by 200 vehicles since April 2016. 

Expand addressable markets

·    Successful trial from June of fixed term product in Spain, expanding our business into an adjacent addressable market.  Contracts for 1,500 vehicles have been signed, with 1,000 vehicles on hire as at the end of October; and

·    Following the success in Spain, the trial has been extended to the UK and Ireland in November.

Maximising end of life value

·    Proportion of UK vehicles sold through retail channels increased to 41% (2015 - 31%); and

·    Successful pilot of vehicle sales purchased from third parties in order to extend the range of vehicles sold in Van Monster.

Bob Contreras, Chief Executive, commented:

"As indicated previously, profitability in the first half of the year has been impacted by the reduction in vehicles on hire experienced in the UK throughout the previous financial year.

We are pleased to see some early signs of progress from our renewed strategic focus which has led to a stabilisation of the UK business in the first half of the year.  Spain continues to develop well and Ireland has grown steadily in the period. A more stable political environment in Spain will provide impetus for growth amongst our larger customer accounts.  

Our fundamental strategy of expanding our addressable markets is progressing well. The key is using our existing strengths to provide a compelling proposition.

We move into the second half with good momentum in all countries and continue to build a solid platform which will drive the medium and long term performance of the business. We expect the full year results to be more weighted towards the second half as the changes implemented continue to gain traction and therefore we continue to expect to see full year results in line with expectations."  

There will be a presentation to analysts at 10.30am today at Numis, 5th floor, London Stock Exchange building, 10 Paternoster Square, London EC4M 7LT. If you have not already registered for attendance then please contact MHP Communications on the number below.  A live webcast of the presentation will be available to view via a link on the Company's website: www.northgateplc.com

 

For further information, please contact:

Northgate plc                                                    01325 467558

Bob Contreras, Chief Executive Paddy Gallagher, Group Finance Director

MHP Communications                                  020 3128 8100

Andrew Jaques

Barnaby Fry

Simon Hockridge Ollie Hoare

Notes to Editors:

Northgate plc is the leading light commercial vehicle hire business in the UK, Ireland and Spain by fleet size and has been operating in the sector since 1981.

Northgate's core business is the hire of light commercial vehicles to businesses on a flexible or term basis, giving customers the ability to manage their vehicle fleet requirements in a way which can adapt to changing business needs without the requirement to enter into a long term commitment.

Further information regarding Northgate plc can be found on the Company's website:

www.northgateplc.com

GAAP reconciliation and glossary of terms

Throughout this report 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 certain one-off items such as those arising from restructuring activities and recurring non-operational items, namely intangible amortisation. A reconciliation of GAAP to non-GAAP underlying measures and a glossary of terms used in this document is outlined beneath the Financial review.

Business review

Overview

During the period we have made good progress across a number of areas, including commencing work on our renewed areas of strategic focus, discussed in more detail below. 

Underlying profit before tax was £40.4m compared to £45.9m and underlying earnings per share were 25.8p compared to 27.1p in the prior period.  As expected, profitability was impacted by the lower starting position of vehicles on hire in the UK. However, encouragingly, closing vehicles on hire have grown by 900 in the period compared to a reduction of 900 in the same period last year, with good momentum in all territories which gives us confidence going into the second half.  

The effects of previous depreciation rate changes impacted profit before tax adversely by £2.5m but this was offset by foreign currency gains of £2.9m.

The Group continues to be cash generative, with free cash flow in the half year of £7.6m (2015 - £8.1m). Debt levels since the year end were impacted by a £38.3m foreign currency revaluation.  However, Euro assets shelter the balance sheet against this movement and debt covenants continue to show healthy headroom.

Dividend and capital allocation

An interim dividend of 5.7p will be paid which reflects our ongoing commitment to maintaining a progressive dividend policy, with dividend cover in the range of 3.75 to 2.5 times earnings.

The interim dividend will be paid on 16 January 2017 to shareholders on the register at the close of business on 16 December 2016.

Our objective is to build shareholder value by generating returns above our cost of capital. We will allocate capital within our business in accordance with the framework outlined below, with our first priority being to allocate capital to support our growth ambitions:

1.      Investment for growth in existing network

2.      Investment in new sites

3.      Provide regular returns to shareholders

4.      Acquisitions

5.      Return of surplus cash

We will continue to maintain our balance sheet within the target leverage range of 1.25 to 1.85 times net debt to EBITDA, although we are prepared to move temporarily outside of this range if circumstances warrant it. This is consistent with our objective of maintaining a balance sheet that is efficient in terms of providing long term returns to shareholders and safeguards the Group's financial position through economic cycles.

Board changes

As separately announced today, Bob Contreras will be standing down as Chief Executive of Northgate and will be succeeded by Kevin Bradshaw. Bob will step down as Chief Executive and from the Board on 11 January 2017.  Kevin will join the Board as CEO on 11 January 2017.

Outlook

As indicated previously, profitability in the first half of the year has been impacted by the reduction in vehicles on hire experienced in the UK throughout the previous financial year.

We are pleased to see some early signs of progress from our renewed strategic focus which has led to a stabilisation of the UK business in the first half of the year.  Spain continues to develop well and Ireland has grown steadily in the period. A more stable political environment in Spain will provide impetus for growth amongst our larger customer accounts.  

Our fundamental strategy of expanding our addressable markets is progressing well. The key is using our existing strengths to provide a compelling proposition.

We move into the second half with good momentum in all countries and continue to build a solid platform which will drive the medium and long term performance of the business. We expect the full year results to be more weighted towards the second half as the changes implemented continue to gain traction and therefore we continue to expect to see full year results in line with expectations.

Strategic review

At our full year results in June we announced our renewed areas of strategic focus, namely:

·     To optimise our core business;

·     To expand our addressable markets; and

·     To maximise end of life value.

Optimise core business

Group closing vehicles on hire grew by 900 in the first six months of the year, compared to a reduction of 900 in the same period last year as follows:

Closing vehicles on hire (reduction) growth	Q1	Q2	Total
Year ending 30 April 2017	(100)	1,000	900
Year ended 30 April 2016	(500)	(400)	(900)

Focussing mainly on the UK business, we appointed a new senior team at the start of the calendar year and their priority has centred on sales and marketing activity.

We have delivered greater clarity around how we sell flexible rental within our existing markets, supported by refreshed national marketing campaigns.

Customers have been re-segmented as follows:

Micro SME	·     Generally sub-five vehicle requirement ·     Managed through telesales team
SME	·     Large SME accounts ·     Managed through regionally based sales teams
Large accounts	·     Customers with national vehicle requirements ·     Generally with fleet sizes greater than 100 vehicles ·     Managed through a specialised team

Using telesales is a more efficient way of interacting with smaller customers as they can now have instant access to an account manager.  Inbound leads from marketing campaigns are also dealt with more effectively.

Regionally based sales teams are now entirely focussed on exploring larger opportunities without the time commitment of managing small accounts. 

We now also have a specialised team in place to address the need for a more consultative approach towards large accounts and who are capable of tailoring a bespoke offering which also covers our extended product offering outlined below. This approach has succeeded in delivering a significant national account win which will alone contribute up to 500 additional vehicles on hire over the next 12 months.

Expanding our addressable markets

As discussed in June, our core flexible rental product accounts for only 5% of the LCV market.  It is our intention to offer a wider range of products and services which can meet all of the needs of existing customers and will enable us to access new customers not currently using flexible rental. 

The first stage of this strategy is to provide a range of fixed term offerings from 12 to 48 months, accompanied by the same service level that is delivered through flexible rental. We believe that this is an area not adequately covered by existing providers.

This offering has been successfully trialled in Spain in the period, with full training of sales teams.  Contracts have been signed for 1,500 vehicles and 1,000 incremental vehicles on hire have been delivered as at the end of October 2016.

Following the success in Spain, the trial has been extended to the UK and Ireland in November 2016.

We will also continue to investigate widening our vehicle product range where there is commercial and financial opportunity to do so.  This includes exploring refrigerated transport and electric and utility specification vehicles, particularly in Spain.

Maximising end of life value

A key part of our business model is our ability to maximise the end of rental life vehicle proceeds through Van Monster, our retail sales channel.

In the UK we continue to progress with our objective of increasing the proportion of vehicles sold through this more profitable retail channel with 41% sold through this route in the period compared to 31% in the same period last year.

The trialling of the sale of third party sourced vehicles has progressed with 260 sold in the period.  This has helped to widen the product range and footfall to Van Monster sites.

In Spain we took the decision to de-prioritise Van Monster. The reason was that strong trade pricing currently erodes the benefit of retail sales given the refurbishment costs we bear if selling through retail. We expect this to persist for the next year or so and anticipate that retail will grow when the market normalises.

Financial review

Group

A summary of the Group's underlying financial performance for the six months to 31 October 2016 with a comparison to the prior period is shown below:

	6 months to	6 months to
	31 Oct 2016	31 Oct 2015	Change
	£m	£m
Revenue: hire of vehicles	229.6	225.7	+1.8%
Revenue: sale of vehicles	87.1	87.5	-0.4%
Operating profit	45.0	51.6	-12.8%
Net interest expense	(4.6)	(5.7)	-19.7%
Profit before tax	40.4	45.9	-11.9%
Profit after tax	34.3	36.1	-4.8%
Basic earnings per share	25.8p	27.1p	-4.8%
Return on capital employed	10.9%	12.0%	-1.1%

At constant exchange rates revenue from the hire of vehicles was 4.1% lower than the prior period.

Profit before tax benefitted by £2.9m due to the impact of foreign exchange gains.  The impact of previous changes to depreciation rates adversely affected profit before tax by £2.5m.

UK

The underlying results of the UK business were as follows:

	6 months to	6 months to
	31 Oct 2016	31 Oct 2015	Change
	£m	£m
Revenue: hire of vehicles	138.4	149.8	-7.7%
Revenue: sale of vehicles	59.0	62.8	-6.0%
Operating profit	23.9	31.8	-25.0%
Operating margin	17.3%	21.2%	-3.9%
Average vehicles on hire	42,000	44,800	-6.3%
Average utilisation	87.7%	87.7%	-
Vehicle disposal units	9,000	10,400	-13.5%

The UK has gone through a period of stabilisation with a growth in closing vehicles on hire of 100 in the six months to October 2016, compared to a 1,200 reduction in the same period last year.  The starting position in the year was 3,300 vehicles lower than at the same point in the previous year, which has led to a 6.3% lower average vehicles on hire across the period.

Underlying operating profit was £8.0m lower than the previous year of which £4.5m related to rental profit impacted by lower vehicles on hire starting position. A total of £1.7m related to the unwind of previous depreciation rate changes and the remaining £1.8m was the impact of selling fewer vehicles than in the previous period.

Including the impact of depreciation rate changes, vehicle disposals led to a reduction in the depreciation charge in the period of £6.6m (2015 - £10.1m). This equates to a PPU of £738 compared to £977 in the prior period.

Spain

The underlying results in Spain were as follows:

	6 months to	6 months to
	31 Oct 2016	31 Oct 2015	Change
	£m	£m
Revenue: hire of vehicles	81.2	68.6	+18.4%
Revenue: sale of vehicles	26.1	22.9	+13.7%
Operating profit	21.3	20.3	+4.7%
Operating margin	26.2%	29.6%	-3.4%
Average vehicles on hire	35,900	35,700	+0.6%
Average utilisation	90.6%	90.8%	-0.2%
Vehicle disposal units	5,700	5,300	+7.5%

Adjusting for the impacts of foreign currency gains, hire revenue was 1.4% higher than in the prior period and underlying operating profit was £2.1m lower (10.3%). Foreign currency gains favourably impacted underlying operating profit by £3.1m.

On a constant currency basis, the impact of previous depreciation rate changes adversely impacted underlying operating profit in the period by £0.7m.  Of the remaining reduction, £1.1m was due to rental operations and £0.3m related to vehicle disposals.

Including the impact of foreign currency gains and depreciation rate changes, vehicle disposals led to an £8.7m reduction in the depreciation charge (2015 - £8.5m).  In Euros, this equates to a PPU of €1,815 compared to €2,211 in the prior period.

Closing vehicles on hire increased by 600 in the period compared to an increase of 100 in the prior period.  A planned return of 900 vehicles from the run out of legacy contracts means that the underlying growth was 1,500 vehicles.  This included 1,000 vehicles under the new fixed term product offering. Government related business has also been hampered by the difficulties in forming a coalition over the last year. Now that a government has been formed, we expect to see vehicles on hire increase as new budgets are approved.

Ireland

The underlying results in Ireland are as follows:

	6 months to	6 months to
	31 Oct 2016	31 Oct 2015	Change
	£m	£m
Revenue: hire of vehicles	10.5	7.8	+35.2%
Revenue: sale of vehicles	2.0	1.8	+13.4%
Operating profit	1.7	1.6	+6.6%
Operating margin	15.7%	20.0%	-4.3%
Average vehicles on hire	3,400	3,000	+13.3%
Average utilisation	89.3%	90.3%	-1.0%
Vehicle disposal units	400	300	+33.3%

After adjusting for the impact of foreign currency, hire revenue was 15.8% higher than in the same period last year and operating profit was £0.1m lower.

Ireland has grown closing vehicles on hire by 10% in the period.  Profitability was held back due to a significant amount of demand originating in the south of the country which is less well serviced by Northgate workshop facilities. Going forward we will invest in the network infrastructure in order to facilitate more internal work throughout the southern region.

Interest and taxation

Net underlying finance charges for the six months to 31 October 2016 were £4.6m (2015 - £5.7m). 

The impact of foreign currency adversely affected net finance charges by £0.3m. Excluding the effects of foreign currency, a decrease in lower average debt and favourable pricing compared to the prior period has reduced net finance charges by £0.8m. An interest refund of £0.6m was also received in the period in relation to an historical tax claim in Spain that was settled in favour of the Group.

The Group's underlying effective tax rate was 15% (2015 - 21%). This was impacted in the year by the £1.7m release of a provision in relation to a previously disputed tax position.

After taking account of intangible amortisation and exceptional items, the effective tax rate was also 15% (2015 - 21%).

Exceptional items

During the period £0.7m of exceptional operating costs were incurred relating to restructuring costs in the UK.  A net refund of £0.9m was received in relation to an historical tax claim in Spain which was settled in favour of the Group.

The exceptional finance credit of £0.3m was received in relation to the above mentioned tax settlement in Spain.

Cash flow and net debt

Net cash outflow was £6.7m (2015 - £5.3m) after net capital expenditure of £95.5m (2015 - £92.7m). Before taking account of the payment of dividends, free cash flow generation was £7.6m compared to £8.1m in the same period last year.

Closing net debt of £355.0m increased by £45.1m since April 2016, which included a £38.3m increase in debt due to the impact of changes in foreign currency rates.  This increase reflects the fact that 81% of the Group's debt is denominated in Euros.  However, this debt is held against Euro assets of the Group, sheltering the balance sheet from exchange rate movements.

Debt leverage cover at 31 October 2016 was 1.49 times net debt to EBITDA with comfortable levels of headroom remaining against all of our debt covenant ratios.

Facility headroom at 31 October 2016 was £231.9m.

Balance sheet

Group return on capital employed was 10.9% compared to 12.0% in the same period last year and 12.2% in the year ended 30 April 2016.

Net tangible assets at 31 October 2016 were £493.5m (April 2016 - £463.4m), equivalent to a tangible net asset value of 370p per share (April 2016 - 348p per share). 

Gearing at 31 October 2016 was 72% (April 2016 - 67%).

Foreign exchange

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

	October 2016	October 2015
	£ : €	£ : €
Average	1.19	1.39
Closing	1.11	1.39

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 2016 were set out in detail on pages 40 and 41 of the 2016 annual report, a copy of which is available at www.northgateplc.com, and were identified as:

·     Economic environment;

·     Competition and hire rates;

·     Vehicle holding costs;

·     Employees and the working environment;

·     IT systems; and

·     Access to capital.

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.

In addition to the risks outlined above, the going concern assumption is considered in Note 1 to the condensed interim financial statements for the six months ended 31 October 2016.

Glossary of terms

The following defined terms have been used throughout this document:

Term	Definition
Facility headroom	Calculated as facilities of £589.2m less net borrowings of £357.3m. Net borrowings represent net debt of £355.0m excluding unamortised arrangement fees of £2.3m and are stated after the deduction of £7.6m of cash balances which are available to offset against borrowings.
Gearing	Calculated as net debt divided by net tangible assets (as defined below)
LCV	Light commercial vehicle: the official term used within the European Union for a commercial vehicle with a gross vehicle weight of not more than 3.5 tonnes
Net tangible assets	Net assets less goodwill and other intangible assets
PPU	Profit per unit/loss per unit - this is a non-GAAP measure used to describe the adjustment in the depreciation charge made in the year for vehicles sold at an amount different to their net book value at the date of sale (net of attributable selling costs), divided by the number of vehicles sold
SME	Small and medium sized enterprise

Reconciliation of GAAP to non-GAAP measures

A reconciliation of GAAP to non-GAAP underlying measures is as follows:

	Six months to 31.10.16 £000	Six months to 31.10.15 £000
Profit before tax	39,997	42,832
Add back:
Exceptional operating (credit) expenses	(198)	493
Intangible amortisation	948	1,003
Exceptional finance (credit) costs	(336)	1,561
Underlying profit before tax	40,411	45,889

Profit for the year				34,020	33,865
Add back:
Exceptional operating (credit) expenses				(198)	493
Intangible amortisation				948	1,003
Exceptional finance (credit) costs				(336)	1,561
Tax on exceptional items, brand royalty charges and intangible amortisation				(99)	(845)
Underlying profit for the year				34,335	36,077
Weighted average number of Ordinary shares				133,232,518	133,232,518
Underlying basic earnings per share				25.8p	27.1p
Net decrease in cash and cash equivalents				(12,554)	(6,348)
Add back:
Receipt of bank loans and other borrowings				-	(70,410)
Repayments of bank loans and other borrowings				5,837	71,448
Net cash outflow				(6,717)	(5,310)
Add back: Dividends paid				14,347	13,389
Free cash flow				7,630	8,079

		UK Six months to 31.10.16£000		Spain Six months to 31.10.16 £000		Ireland Six months to 31.10.16 £000		Corporate Six months to 31.10.16 £000		Eliminations Six months to 31.10.16 £000		Group Six months to 31.10.16 £000
Operating profit	22,275		19,411		1,305		1,224		-		44,215
Add back:
Restructuring costs	688		-		-		-		-		688
Spain tax settlement	-		(886)		-		-		-		(886)
Brand royalty charges	-		2,725		352		(3,077)		-		-
Intangible amortisation	912		36		-		-		-		948
Underlying operating profit (loss)	23,875		21,286		1,657		(1,853)		-		44,965
Underlying operating profit (loss)	23,875		21,286		1,657		(1,853)		-		44,965
Divided by: Revenue: hire of vehicles	138,372		81,223		10,524		-		(480)		229,639
Underlying operating margin	17.3%		26.2%		15.7%						19.6%

		UK Six months to  31.10.15£000		Spain Six months to 31.10.15 £000		Ireland Six months to 31.10.15 £000		Corporate Six months to 31.10.15 £000		Eliminations Six months to 31.10.15 £000		Group Six months to 31.10.15 £000
Operating profit	30,389		17,998		1,295		380		-		50,062
Add back:
Restructuring costs	493		-		-		-		-		493
Brand royalty charges	-		2,306		261		(2,567)		-		-
Intangible amortisation	958		30		-		15		-		1,003
Underlying operating profit (loss)	31,840		20,334		1,556		(2,172)		-		51,558
Underlying operating profit (loss)	31,840		20,334		1,556		(2,172)		-		51,558
Divided by: Revenue: hire of vehicles	149,843		68,624		7,782		-		(561)		225,688
Underlying operating margin	21.2%		29.6%		20.0%						22.8%

Condensed consolidated income statement
for the six months ended 31 October 2016
		Six months	Six months	Six months			Six months				Year to			Year to
		to 31.10.16	to 31.10.16	to 31.10.15			to 31.10.15				30.04.16			30.04.16
		(Unaudited)	(Unaudited)	(Unaudited)			(Unaudited)				(Audited)			(Audited)
		Underlying	Statutory	Underlying			Statutory				Underlying			Statutory
	Note	£000	£000	£000			£000				£000			£000
Revenue: hire of vehicles	2	229,639	229,639	225,688			225,688				447,134			447,134
Revenue: sale of vehicles	2	87,077	87,077	87,459			87,459				171,154			171,154
Total revenue	2	316,716	316,716	313,147			313,147				618,288			618,288
Cost of sales		(237,726)	(237,726)	(230,637)			(230,637)				(459,286)			(459,286)
Gross profit		78,990	78,990	82,510			82,510				159,002			159,002
Administrative expenses (excluding exceptional items and intangible amortisation)		(34,025)	(34,025)	(30,952)			(30,952)				(64,683)			(64,683)
Exceptional administrative credit (expenses)	8	-	198	-			(493)				-			(1,777)
Intangible amortisation		-	(948)	-			(1,003)				-			(1,979)
Total administrative expenses		(34,025)	(34,775)	(30,952)			(32,448)				(64,683)			(68,439)
Operating profit	2	44,965	44,215	51,558			50,062				94,319			90,563
Interest income		1	1	1			1				3			3
Finance costs (excluding exceptional items)		(4,555)	(4,555)	(5,670)			(5,670)				(11,373)			(11,373)
Exceptional finance credit (costs)	8	-	336	-			(1,561)				-			(1,561)
Profit before taxation		40,411	39,997	45,889			42,832				82,949			77,632
Taxation	3	(6,076)	(5,977)	(9,812)			(8,967)				(17,599)			(16,153)
Profit for the period		34,335	34,020	36,077			33,865				65,350			61,479
Profit for the period is wholly attributable to owners of the Parent Company. All results arise from continuing operations.
Underlying profit excludes exceptional items as set out in Note 8, as well as brand royalty charges, intangible amortisation and the taxation thereon, in order to provide a better indication of the Group's underlying business performance.
Earnings per share
Basic	4	25.8p	25.5p	27.1p			25.4p				49.0p			46.1p
Diluted	4	25.4p	25.1p	26.7p			25.0p				48.3p			45.5p

Condensed consolidated statement of comprehensive income
for the six months ended 31 October 2016
		Six months	Six months	Year to
		to 31.10.16	to 31.10.15	30.04.16
		(Unaudited)	(Unaudited)	(Audited)
		£000	£000	£000
Amounts attributable to owners of the Parent Company
Profit attributable to owners		34,020	33,865	61,479
Other comprehensive income (expense) Foreign exchange differences on retranslation of net assets of subsidiary undertakings		50,171	(3,353)	22,775
Net foreign exchange differences on long term borrowings held as hedges		(40,326)	2,943	(18,347)
Foreign exchange difference on revaluation reserve		157	(11)	70
Recycling of hedging reserve items		-	-	649
Net fair value (losses) gains on cash flow hedges		(795)	1,399	(1,428)
Deferred tax credit (charge) recognised directly in equity relating to cash flow hedges		159	(297)	285
Total other comprehensive income for the period		9,366	681	4,004
Total comprehensive income for the period		43,386	34,546	65,483

All items will subsequently be reclassified to the consolidated income statement.

Condensed consolidated balance sheet
31 October 2016
			31.10.16	31.10.15 Restated	30.04.16 Restated
			(Unaudited)	(Unaudited)	(Audited)
		Note	£000	£000	£000
Non-current assets
Goodwill			3,589	3,589	3,589
Other intangible assets			3,250	4,985	4,054
Property, plant and equipment: vehicles for hire			756,648	676,461	684,499
Other property, plant and equipment			68,998	64,711	65,765
Total property, plant and equipment			825,646	741,172	750,264
Deferred tax assets			16,381	14,042	15,256
Total non-current assets			848,866	763,788	773,163
Current assets
Inventories			26,904	22,306	23,109
Trade and other receivables			68,049	71,515	63,499
Cash and bank balances			42,829	31,907	55,248
Total current assets			137,782	125,728	141,856
Total assets			986,648	889,516	915,019
Current liabilities
Trade and other payables			60,971	52,323	53,183
Current tax liabilities			22,016	16,727	19,350
Short term borrowings			41,000	40,950	46,515
Total current liabilities			123,987	110,000	119,048
Net current assets			13,795	15,728	22,808
Non-current liabilities
Derivative financial instrument liabilities		9	3,947	325	3,152
Long term borrowings			356,807	329,641	318,610
Deferred tax liabilities			1,585	4,011	3,184
Total non-current liabilities			362,339	333,977	324,946
Total liabilities			486,326	443,977	443,994
NET ASSETS			500,322	445,539	471,025
Equity
Share capital			66,616	66,616	66,616
Share premium account			113,508	113,508	113,508
Revaluation reserve			1,183	945	1,026
Own shares			(6,087)	(9,568)	(8,157)
Merger reserve			67,463	67,463	67,463
Hedging reserve			(3,157)	(926)	(2,522)
Translation reserve			444	(14,238)	(9,400)
Capital redemption reserve			40	40	40
Retained earnings			260,312	221,699	242,451
TOTAL EQUITY			500,322	445,539	471,025

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

Condensed consolidated cash flow statement
for the six months ended 31 October 2016
			Six months	Six months	Year to
			to 31.10.16	to 31.10.15	30.04.16
			(Unaudited)	(Unaudited)	(Audited)
	Note		£000	£000	£000
Net cash generated from operations	6		10,027	17,721	73,726
Investing activities
Interest received			1	1	3
Proceeds from disposal of other property, plant and equipment			284	307	1,001
Purchases of other property, plant and equipment			(1,938)	(2,241)	(4,503)
Purchases of intangible assets			(127)	(1,648)	(1,682)
Net cash used in investing activities			(1,780)	(3,581)	(5,181)
Financing activities
Receipt of bank loans and other borrowings			-	70,410	70,410
Repayments of bank loans and other borrowings			(5,837)	(71,448)	(107,653)
Debt issue costs paid			-	(1,675)	(1,675)
Dividend paid			(14,347)	(13,389)	(20,114)
Net payments to acquire own shares for share schemes			(617)	(2,825)	(2,366)
Termination of financial instruments			-	(1,561)	(1,561)
Net cash used in financing activities			(20,801)	(20,488)	(62,959)
Net (decrease) increase in cash and cash equivalents			(12,554)	(6,348)	5,586
Cash and cash equivalents at beginning of the period			18,748	9,676	9,676
Effect of foreign exchange movements			1,362	(343)	3,486
Cash and cash equivalents at the end of the period			7,556	2,985	18,748

Cash and cash equivalents consist of:
Cash and bank balances		42,829	31,907	55,248
Bank overdrafts		(35,273)	(28,922)	(36,500)
		7,556	2,985	18,748

Condensed consolidated statement of changes in equity for the six months ended 31 October 2016
	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 2015	180,124	(8,812)	(2,028)	(13,828)	68,459	202,441	426,356
Share options fair value charge	-	-	-	-	-	851	851
Share options exercised	-	-	-	-	-	(2,069)	(2,069)
Profit attributable to owners of the Parent Company	-	-	-	-	-	33,865	33,865
Dividend paid	-	-	-	-	-	(13,389)	(13,389)
Net purchase of own shares	-	(2,825)	-	-	-	-	(2,825)
Transfer of shares on vesting of share options	-	2,069	-	-	-	-	2,069
Other comprehensive income (expense)	-	-	1,102	(410)	(11)	-	681
Total equity at 1 November 2015	180,124	(9,568)	(926)	(14,238)	68,448	221,699	445,539
Share options fair value charge	-	-	-	-	-	815	815
Share options exercised	-	-	-	-	-	(952)	(952)
Profit attributable to owners of the Parent Company	-	-	-	-	-	27,614	27,614
Dividend paid	-	-	-	-	-	(6,725)	(6,725)
Net purchase of own shares	-	459	-	-	-	-	459
Transfer of shares on vesting of share options	-	952	-	-	-	-	952
Other comprehensive (expense) income	-	-	(1,596)	4,838	81	-	3,323
Total equity at 1 May 2016	180,124	(8,157)	(2,522)	(9,400)	68,529	242,451	471,025
Share options fair value charge	-	-	-	-	-	875	875
Share options exercised	-	-	-	-	-	(2,687)	(2,687)
Profit attributable to owners of the Parent Company	-	-	-	-	-	34,020	34,020
Dividend paid	-	-	-	-	-	(14,347)	(14,347)
Net purchase of own shares	-	(617)	-	-	-	-	(617)
Transfer of shares on vesting of share options	-	2,687	-	-	-	-	2,687
Other comprehensive (expense) income	-	-	(635)	9,844	157	-	9,366
Total equity at 31 October 2016	180,124	(6,087)	(3,157)	444	68,686	260,312	500,322
Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve.

Unaudited Notes

1. Basis of preparation and accounting policies

Northgate plc is a Company incorporated in England and Wales under the Companies Act 2006. The condensed financial statements are unaudited and were approved by the Board of Directors on 5 December 2016. The condensed financial statements have been reviewed by the auditor and the independent review report is set out in this document. The interim financial information for the six months ended 31 October 2016, including comparative financial information, has been prepared on the basis of the accounting policies set out in the last annual report and accounts, except for income taxes, which are accrued using the tax rate that is expected to be applicable for the full year, and in accordance with IAS 34 'Interim Financial Reporting', as issued by the International Accounting Standards Board and adopted by the European Union. Various new accounting standards and amendments came into force and others were issued during the period, none of which are expected to have any significant impact on the Group and effects will principally relate to amendment and extension of current disclosures.  As a result of the clarification of an accounting standard, cash and cash equivalents and bank overdrafts are now shown gross, even where accounts have a right of offset within the same banking facility.  The comparatives as at 30 April 2016 have been restated by £36,500,000 and comparatives as at 31 October 2015 have been restated by £28,922,000. In preparing the interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty were the same, in all material respects, as those applied to the consolidated financial statements for the year ended 30 April 2016. Going concern assumption Having reassessed the principal risks and the other matters discussed in connection with the viability statement in the 2016 annual report and accounts the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial statements. Information extracted from 2016 annual report The financial figures for the year ended 30 April 2016, as set out in this report, do not constitute statutory accounts but are derived from the statutory accounts for that financial year. The statutory accounts for the year ended 30 April 2016 were prepared under IFRS and have been delivered to the Registrar of Companies. The audit report was unqualified, did not draw attention to any matters by way of emphasis and did not include a statement under Section 498(2) or 498(3) of the Companies Act 2006.

2. Segmental analysis

Management has determined the operating segments based upon the information provided to the Board of Directors, which is considered to be the chief operating decision maker. The Group is managed, and reports internally, on a basis consistent with its three main operating divisions, UK, Spain and Ireland.  This is the first period in which Ireland has been reported as a separate segment.  Previously the results were included in the UK business. The principal activities of these divisions are set out in the Business review, Strategic review and Financial review.

		UK	Spain	Ireland	Corporate	Eliminations	Total
		Six months	Six months	Six months	Six months	Six months	Six months
		to 31.10.16	to 31.10.16	to 31.10.16	to 31.10.16	to 31.10.16	to 31.10.16
		(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
		£000	£000	£000	£000	£000	£000
Revenue: hire of vehicles		138,372	81,223	10,524	-	(480)	229,639
Revenue: sale of vehicles		59,020	26,071	1,986	-	-	87,077
Total revenue		197,392	107,294	12,510	-	(480)	316,716
Underlying operating profit (loss) *		23,875	21,286	1,657	(1,853)	-	44,965
Exceptional administrative expenses							198
Intangible amortisation							(948)
Operating profit							44,215
Interest income							1
Finance costs (excluding exceptional items)							(4,555)
Exceptional finance credit							336
Profit before taxation							39,997

		UK	Spain	Ireland	Corporate	Eliminations	Total
		Six months	Six months	Six months	Six months	Six months	Six months
		to 31.10.15	to 31.10.15	to 31.10.15	to 31.10.15	to 31.10.15	to 31.10.15
		(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
		£000	£000	£000	£000	£000	£000
Revenue: hire of vehicles		149,843	68,624	7,782	-	(561)	225,688
Revenue: sale of vehicles		62,783	22,925	1,751	-	-	87,459
Total revenue		212,626	91,549	9,533	-	(561)	313,147
Underlying operating profit (loss) *		31,840	20,334	1,555	(2,171)	-	51,558
Exceptional administrative expenses							(493)
Intangible amortisation							(1,003)
Operating profit							50,062
Interest income							1
Finance costs (excluding exceptional items)							(5,670)
Exceptional finance costs							(1,561)
Profit before taxation							42,832

2. Segmental analysis (continued)

		UK	Spain	Ireland	Corporate	Eliminations	Total
		Year to	Year to	Year to	Year to	Year to	Year to
		30.04.16	30.04.16	30.04.16	30.04.16	30.04.16	30.04.16
		(Audited)	(Audited)	(Audited)	(Audited)	(Audited)	(Audited)
		£000	£000	£000	£000	£000	£000
Revenue: hire of vehicles		290,714	140,781	16,691	-	(1,052)	447,134
Revenue: sale of vehicles		123,401	44,110	3,643	-	-	171,154
Total revenue		414,115	184,891	20,334	-	(1,052)	618,288
Underlying operating profit (loss) *		55,392	41,267	2,759	(5,099)	-	94,319
Restructuring costs							(1,777)
Intangible amortisation							(1,979)
Operating profit							90,563
Interest income							3
Finance costs (excluding exceptional items)							(11,373)
Exceptional finance costs							(1,561)
Profit before taxation							77,632

* Underlying operating profit (loss) stated before royalty charges, amortisation and exceptional items is the measure used by the Board of Directors to assess segment performance.

3. Taxation

The charge for taxation for the six months to 31 October 2016 is based on the estimated effective rate for the year ending 30 April 2017 of 15% (2015 - 21%).

4. Earnings per share
	Six months	Six months	Six months	Six months	Year to	Year to
	to 31.10.16	to 31.10.16	to 31.10.15	to 31.10.15	30.04.16	30.04.16
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Audited)	(Audited)
	Underlying	Statutory	Underlying	Statutory	Underlying	Statutory
Basic and diluted earnings per share	£000	£000	£000	£000	£000	£000
The calculation of basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purposes of basic and diluted earnings per share,
being profit attributable to owners of the Parent Company	34,335	34,020	36,077	33,865	65,350	61,479
Number of shares	Number	Number	Number	Number	Number	Number
Weighted average number of Ordinary shares for the purpose
of basic earnings per share	133,232,518	133,232,518	133,232,518	133,232,518	133,232,518	133,232,518
Effect of dilutive potential Ordinary shares:
- share options	2,195,780	2,195,780	2,066,430	2,066,430	1,990,249	1,990,249
Weighted average number of Ordinary shares for the purpose
of diluted earnings per share	135,428,298	135,428,298	135,298,948	135,298,948	135,222,767	135,222,767
Basic earnings per share	25.8p	25.5p	27.1p	25.4p	49.0p	46.1p
Diluted earnings per share	25.4p	25.1p	26.7p	25.0p	48.3p	45.5p

5. Dividends

In the six months to 31 October 2016, a dividend of £14,347,000 was paid (2015 - £13,389,000). The Directors have declared a dividend of 5.7p per share for the six months ended 31 October 2016 (2015 - 5.1p).

6. Notes to the cash flow statement

	Six months	Six months	Year to
	to 31.10.16	to 31.10.15	30.04.16
	(Unaudited)	(Unaudited)	(Audited)
Net cash generated from operations	£000	£000	£000
Operating profit	44,215	50,062	90,563
Adjustments for:
Depreciation of property, plant and equipment	77,708	69,781	144,272
Amortisation of intangible assets	955	1,003	1,979
Loss on disposal of property, plant and equipment	70	35	122
Share options fair value charge	875	851	1,666
Operating cash flows before movements in working capital	123,823	121,732	238,602
Decrease in non-vehicle inventories	281	523	866
Decrease in receivables	1,430	1,271	10,157
Decrease in payables	(11,953)	(9,021)	(6,825)
Cash generated from operations	113,581	114,505	242,800
Income taxes paid	(6,054)	(2,315)	(8,259)
Interest paid	(3,782)	(5,381)	(10,527)
Net cash generated from operations	103,745	106,809	224,014
Purchases of vehicles	(168,155)	(164,464)	(296,165)
Proceeds from disposal of vehicles	74,437	75,376	145,877
Net cash generated from operations	10,027	17,721	73,726

7. Analysis of consolidated net debt
	31.10.16	31.10.15	30.04.16
	(Unaudited)	(Unaudited)	(Audited)
	£000	£000	£000
Cash and bank balances	(42,829)	(31,907)	(55,248)
Bank overdrafts	35,273	28,922	36,500
Bank loans	271,761	269,101	249,742
Loan notes	89,963	71,718	77,930
Cumulative preference shares	500	500	500
Confirming facilities	310	350	453
	354,978	338,684	309,877

8. Exceptional items
During the period the Group recognised exceptional items in the income statement as follows:
			Six months		Six months		Year to
			to 31.10.16		to 31.10.15		30.04.16
			(Unaudited)		(Unaudited)		(Audited)
			£000		£000		£000
Restructuring costs			688		493		1,777
Spain tax settlement			(886)		-		-
Exceptional administrative (credit) expenses			(198)		493		1,777
Termination of interest rate swaps			-		1,561		1,561
Interest refunded in relation to Spain tax settlement			(336)		-		-
Exceptional finance (credit) costs			(336)		1,561		1,561
Total pre-tax exceptional items			(534)		2,054		3,338
Tax (charge) credit on exceptional items			(92)		641		668

Exceptional administrative expenses

All of the restructuring costs arose in the UK.  The Spain tax settlement followed the resolution of an historic tax case with the Spanish tax authorities.

Exceptional finance credit

This relates to interest refunded by the Spanish tax authorities on the settlement of the case disclosed above.

9. Derivative financial instruments
At the balance sheet date, the Group held the following financial instruments at fair value:
			31.10.16		31.10.15		30.04.16
			(Unaudited)		(Unaudited)		(Audited)
			£000		£000		£000
Non-current derivative financial instrument liabilities			3,947		325		3,152

The derivative financial instruments above all have fair values which are calculated by reference to observable inputs (i.e. classified as level 2 in the fair value hierarchy). They are valued using the discounted cash flow technique with an appropriate adjustment for counterparty credit risk. The valuations incorporate the following inputs:

·      interest rates and yield curves observable at commonly quoted intervals;

·      commonly quoted spot and forward foreign exchange rates; and

·      observable credit spreads.

The carrying value of financial assets and liabilities recorded at amortised cost in the financial statements are approximately equal to their fair value.

Interim announcement - Statement of the Directors

We confirm that to the best of our knowledge:

·      the condensed set of financial statements has been prepared in accordance with IAS 34;

·      the interim management report includes a fair review of the information required by DTR 4.2.7 (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

·      the interim management report includes a fair review of the information required by DTR 4.2.8 (disclosure of related party transactions and changes therein).

By order of the Board

Paddy Gallagher

Group Finance Director

5 December 2016

Independent review report to Northgate plc

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Northgate plc's consolidated interim financial statements (the 'interim financial statements') in the half-yearly report of Northgate plc for the 6 month period ended 31 October 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·      the condensed consolidated balance sheet as at 31 October 2016;

·      the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period then ended;

·      the condensed consolidated cash flow statement for the period then ended;

·      the condensed consolidated statement of changes in equity for the period then ended; and

·      the unaudited explanatory notes to the interim financial statements.

The interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The half-yearly report, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly report in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Leeds

5 December 2016

 

END

 

 

IR EANASEAPKFFF