Redde Northgate
Annual Report 2002

Plain-text annual report

Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 2 a n n u a l r e p o r t a n d a c c o u n t s 2 0 0 2 D e s i g n e d a n d p r o d u c e d b y T h e R o u n d h o u s e N e w c a s t l e u p o n T y n e . P r i n t e d b y R e e d P r i n t i W a s h n g t o n . annual report and accounts 2002 NORFLEX House Allington Way Darlington DL1 4DY Telephone: 01325 467 558 Fax: 01325 363204 www.northgateplc.com Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 4 We have now completed the third year of our five year Strategy for Growth... we are well on track to meet the target. Highlights Turnover Operating Profit Profit before tax Earnings per share Dividend per share Net Assets per share 2002 2001 £277.8m £45.1m £31.7m 35.8p 15.0p 225p £261.8m £42.6m £27.1m 31.4p 14.0p 205p Contents Chairman’s statement Operational review Financial review Our Business Directors Report of the directors Report on remuneration Corporate governance Directors’ Responsibilities Report of the Auditors Financial Statements Accounting policies Notes on the accounts Five year financial summary Notice of AGM Information for shareholders 2-3 4-5 6-7 8 9 10-11 12-16 18-20 21 22 23 28 29 42 43 44 Northgate plc rents vehicles and sells a range of fleet products to businesses via a network of companies. www.northgateplc.com Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 6 ...our management is to be congratulated on keeping their focus and continuing to achieve improvements... CHAIRMAN’S STATEMENT Dear Shareholder, This report covers the completion of the third year of our five year Strategy for Growth, which we announced in 1999. I am able to report that we are well on track to meet the target set out to shareholders at the time, namely to double the size of your company’s business within the five year period ending 30th April 2004. It is worth reviewing the progress we have made over the past three years by reference to some of the main indicators, namely fleet growth, hire sites and earnings per share. Our opening position and that at the end of each subsequent financial year is given below. The cumulative percentage change in each measurement is shown in brackets. 30th April 1999 Fleet size 26,600 Hire sites Basic e.p.s. 30 19.1p 30th April 2000 32,500 (+22%) 41 (+37%) 28.1p (+47%) 30th April 2001 36,100 (+36%) 48 (+60%) 31.4p (+64%) 30th April 2002 40,500 (+52%) 61 (+103%) 35.8p (+87%) Shareholders should take note of the significant gross cash generation that Northgate is able to achieve at current levels of growth as evidenced by the fact that gearing has remained almost constant over this period, moving from 166% to only 170%, despite an increase in the fleet of 52%. While we remain firmly of the view that there is plenty of room for the growth of NORFLEX in the UK (our five year Strategy for Growth is focused solely on the development of our business in the UK), we have previously advised shareholders of our intention to expand into continental Europe. Extensive research into the various markets has confirmed our belief that they are less developed than the UK and that our NORFLEX product would be well received. Whilst we are determined to take a cautious approach to our expansion in this area, and shareholders would expect no less of us, we look forward to updating you on our progress during the forthcoming reporting period. Despite the macro-economic difficulties of the past year, our management is to be congratulated on keeping their focus and continuing to achieve improvements in most of the important measurements of the performance of our business. My thanks as always go to my fellow directors and the staff of Northgate who have worked tirelessly in the interests of shareholders and to shareholders for their continued support. Michael Waring Chairman 2 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 3 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 8 OPERATIONAL REVIEW Network We plan to open between 12 and 15 locations in each year of the five year Strategy for Growth. In the year to 30th April 2002, we actually opened 2 new hire companies and 11 new branches, bringing our total number of locations to 61. The majority of these new sites are in the North but Aberdeen and Swindon in particular have enhanced our geographic coverage. Vehicle fleet During the month of April 2002, our vehicle fleet passed the 40,000 milestone, ending the year at 40,500. This represented an increase of 12% over the previous year. Once again, growth has not resulted in any change to the fleet mix with light commercial vehicles still dominating at 80% of the total fleet. We also continue to purchase the premier products available in the market, both to ensure rental customers are offered the best available and to protect residual values when we dispose of our vehicles. Utilisation Our focus on tight management of the fleet ensures that, as with previous years, we can report an average utilisation for the period of 90%. This is split between mature locations where generally over 90% is achieved, and sites not yet mature where the utilisation averaged 84%. Hire rates As reported in the Chairman’s Statement in the Interim Report to inflation does not lend itself to increasing prices to customers. As a result of these economic factors and the need to remain competitive in the marketplace, prices have remained relatively static over the year. have achieved our target of break even, or better, on vehicle sales Our most recent addition in this area, in March this year, was the in each quarter of this financial year. We see no reason currently launch of “Norfleet Vehicle Monitoring”, our telematics product. why we cannot maintain this position in the year ahead. Brand development and product innovation Rental products Whilst most of our business is still generated by selling either through the individual brands of our network of local hire companies, or by using our product NORFLEX to sell on a national basis, we have continued the development of three other channels to complement these areas. “Sale and Rentback” is used where potential customers own their fleet. Using this product we can offer the opportunity to owners to sell their fleet to us and then rent it back, thereby allowing them immediately to convert capital tied up in assets into cash for use in their core business. To date this has been received positively by our customers and we look forward to developing this product further over the year ahead. People A significant factor in our success has been the commitment and dedication of our employees. In order to assist in the recruitment and retention of the best people, we have introduced a number of initiatives in the last year. In particular, we have launched an induction programme for new employees, revised our personal development programme and introduced a flexible benefits package allowing about a quarter of our employees to tailor the structure of their remuneration to their individual needs. Current trading and outlook We remain confident that we will be able to continue to develop customers the ability to procure all their nationwide vehicle hire requirements through just one telephone call. Due to the comprehensive coverage of our network, we are able to source over 95% of these requirements using our own vehicle fleet, resorting to third parties in general only when the hire is in a location where we are not represented or where the vehicle is one we do not operate. “Wannavan.com” effectively replicates Central Reservations by replacing telephone calls with the Internet for customers preferring to use this channel. It is aimed at both the retail Complementary non-rental products maturing our new sites and by extending both our network and the overall rental market. In addition, it is our intention over the next 12 months to further develop the complementary non-rental products we offer to customers to support our continued growth. There are no one-off magical solutions and the key to success is in grinding out small improvements in the daily operations of the business. As we continue to strive towards this objective, we are well placed to seize upon any opportunities that arise, given our position as the UK’s leading van rental company. The current year has started well and we remain confident about our continued ability to deliver on the objectives of the five year Strategy for Growth. 31st October 2001, an economy with low interest rates and low market and short-term business users. Whilst we remain focused on our core business of van rental, we As explained in the Chairman’s Statement, we intend to add to have commenced the development of complementary, vehicle- the development of rental and complementary products in the UK related but non-rental products, through our “Norfleet” division. with our first step into Europe, thereby producing a third distinct Used vehicle sales As forecast in the Operational Review in last year’s Report and Our first offerings were in the provision of discounted vehicle parts and mobile servicing for customers who rent from us but Accounts, the internal measures we have taken to improve the also have their own fleets. This makes use of both our significant results from the disposal of used vehicle sales, combined with a purchasing power and our service network and helps tie in reasonably firm residual market, have been successful and we customers with services other than rental. avenue for growing the business. We look forward to updating shareholders on our progress in this area during the forthcoming reporting period. Steve Smith Chief Executive Officer Fleet growth 0 0 5 , 0 4 0 0 1 6 3 , 0 0 5 , 2 3 0 0 6 , 6 2 0 0 6 , 0 2 0 0 0 , 6 1 Fleet split VANS 80% CARS 13% TRUCKS 6% HGVs 1% Our “Central Reservations” operation based in Birmingham gives and grow our rental business in the UK beyond 2003, through 1997 1998 1999 2000 2001 2002 4 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 5 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 10 FINANCIAL REVIEW Sales and operating profit Sales increased by 6% to £277.8m (2001:£261.8m) and Earnings per share Basic earnings per share were 35.8p, an increase of 14% on operating profit increased by 6% to £45.1m (2001:£42.6m). the 2001 figure of 31.4p. Revenue from rental operations increased by 9% across the network, a combination of growth from both new and more mature sites. Including the 13 sites opened in this financial year, there are currently a total of 20 sites which have been open for less than two years. The full potential from those sites will be realised in subsequent years. Revenue from our vehicle sales operation was just under 3% less than last year, largely as a result of a marginal reduction in volumes sold into the used vehicle market. Operating margins were virtually unchanged at 16.2%. As referred to in the operating review, increases in margins are difficult in a low inflation and interest rate environment. Also, the investment in new locations inevitably has a drag on margins in their initial trading years. Interest costs and pre-tax profit Interest costs in the year have fallen by 13% to £13.4m (2001: £15.5m) as UK interest rates have continued to fall. Interest costs are the second largest direct vehicle cost in our business after depreciation. Lower interest rates are therefore a significant benefit. As a result of both the increase in operating profits and reduction in interest costs, pre-tax profit increased by almost 17% to £31.7m (2001:£27.1m). Pre-tax margins improved to 11.4% (2001:10.4%). Taxation As anticipated, the adoption of FRS 19 (Deferred Taxation) has had no adverse impact on the company as our policy has always resulted in full provision for deferred tax liabilities. The effective tax rate of 31.4% comprises corporation tax payable on ordinary activities. Dividend The directors recommend a final dividend of 10.35p per share (2001:9.6p), making a total for the year of 15.0p (2001:14.0p) - an increase of 7.1%. It will be paid on 12th September 2002 to shareholders on the register at 12th July 2002. The dividend is 2.4 times covered (2001:2.2x). Cash flow, funding and treasury We continue to manage our exposure to interest rates. Our policy is to have in place financial instruments covering a proportion of our borrowings over the longer term. We have taken advantage of the low interest rates to improve our cover still further by adding instruments of £20m during the year. Our net borrowings increased by 8% over the corresponding period to £232.9m (2001:£214.7m). £258.9m of the gross debt is vehicle related and is secured against the fleet value of £325.1m. More than 54% of our gross borrowings are repayable after more than one year. The finance facilities currently available to the group are in excess of £444m and are a mixture of hire purchase funding, revolving loans and overdraft, secured primarily over the value of the vehicle hire fleet. Only 17% of the facilities are subject to any covenants. Interest cover at 3.37 times has improved over last year’s level of 2.8 times. Gross cash generation continues to be strong with EBITDA for the year £132m, up by 11% from 2001. Capital investment was £183m, being £176m in the vehicle hire fleet and £7m in non-vehicle expenditure on property and other equipment, largely relating to the expansion of the depot network. The vehicle hire fleet consists mainly of light commercial vehicles which are readily saleable, predominantly through our own vehicle sales company. The liquidity of the hire fleet and the management of interest exposure adequately support the level of gearing at 170%, which remains low compared to the industry norm. Gearing has in fact reduced from last year’s figure of 173%, demonstrating our ability to achieve these growth levels without increasing gearing. Return on capital Our five year Strategy for Growth is based upon expanding our depot network to around 100 locations. The continued investment in new sites reduces margins in the short term whilst these businesses are maturing. Our return on capital (calculated as operating profit over average capital employed, being shareholders’ funds plus net borrowings) is 12.7% and our return on equity (calculated as profit after tax over average shareholders’ funds) is 16.6%. Key Performance Indicators Over the last two years we have revised our method of measuring performance by introducing Key Performance Indicators (‘KPIs’). These KPIs target those areas of the business which are critical to the success of the group, namely those relating to finance, customers, people and processes. These measurements are supported by business plans prepared by each profit centre and updated by regular rolling forecasts. Our focus on these measures ensures that we achieve the continuous improvements we are seeking for the business. Phil Moorhouse Finance Director 6 Northgate plc annual report & accounts 2002 EBITDA* * Earnings before interest, taxation, depreciation and amortisation. 1 7 9 1 3 1 , 2 6 7 8 1 1 , 3 1 6 4 0 1 , 0 0 7 8 7 , 7 1 5 3 7 , 1998 1999 2000 2001 2002 Operating profit - Continuing Activities 5 5 0 , 5 4 9 6 5 , 2 4 2 4 9 , 7 3 0 2 6 , 8 2 8 3 2 , 7 2 1998 1999 2000 2001 2002 Northgate plc annual report & accounts 2002 7 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 12 OUR BUSINESS DIRECTORS Within Northgate plc are a number of companies and brands, each involved in the commercial vehicle business. Northgate Vehicle Hire Ltd Manages our national network of hire companies. Northgate Vehicle Sales Ltd Sells ex-rental vehicles in the used vehicle market. Northgate Central Reservations Ltd Looks after large companies with daily rental needs who require a ‘one stop shop’. NORFLEX ® Our national fleet hire brand. A flexible risk free alternative to purchase, contract hire and fleet management. Northgate Sale & Rentback We buy a customer’s fleet and rent it back to them generating cash to use in their core business. Norcom Vehicle Remarketing Refurbishes our ex-rental vehicles for sale to main dealers and the retail market. Norfleet Ltd Sells a range of products related to vehicles and fleet management, these include: vehicle parts, telematics, insurance and servicing. Wannavan.com Our van rental brand on the world wide web. Rents a range of standard vehicles to business and the public. Michael Waring (55) Became Non-Executive Chairman in October 1999, having been Executive Chairman since February 1996. Previously Chief Executive of the group since 1985. Jan Astrand MBA* (55) Appointed to the board as a non-executive director in February 2001. A Swedish national based in London, he is Chairman of Car Park Group AB in Stockholm and also a non-executive director of PHS Group plc. From 1994 to 1999 he was President and Chief Executive of Axus (International) Inc. (previously known as Hertz Leasing International). From 1989 to 1994 he was Vice President, Finance and Administration and Chief Financial Officer of Hertz (Europe) Ltd. Phil Moorhouse FCCA (49) Appointed Finance Director in February 1998 having been appointed to the board in August 1997. Finance Director of the vehicle hire operations since 1991. He previously held a number of senior financial positions within the Norcros group of companies and Meyer International. Alan Noble (51) Appointed Executive Deputy Chairman in October 1999 having been Managing Director since March 1996 and a member of the board since 1990. In 1981 he founded the commercial vehicle hire business, which was acquired by Northgate in 1987. Stephen Smith ACA (45) Appointed Chief Executive Officer in October 1999, having been a member of the board since August 1997. Managing Director of the vehicle hire operations since 1990. He qualified as a Chartered Accountant with Coopers & Lybrand and held a number of senior financial positions in industry prior to joining Northgate. Ronald Williams FCA* (68) A non-executive director and Deputy Chairman since March 1996. Prior to his appointment he was for 8 years an executive director of Smiths Group plc. * Member of the Remuneration and Audit Committees 8 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 9 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 14 REPORT OF THE DIRECTORS The directors present their report and the audited financial statements for the year ended 30th April 2002. Results The net profit for the year after taxation was £21,721,000. An interim dividend of 4.65p per share was paid on the ordinary shares on 9th February 2002. Directors The names of the present directors, all of whom served throughout the year, are listed on page 9. Mr A.T. Noble and Mr R. Williams are retiring by rotation in accordance with the Articles of Association and with the requirements of the Combined Code and, being eligible, are seeking re-election. Mr M.C. Baughan and Mr C.J. Spence retired The directors recommend a final ordinary dividend of from the board at the conclusion of the Annual General 10.35p per share making a total for the year of 15.0p Meeting held on 12th September 2001. per share. The termination provisions in respect of executive directors’ The final dividend, if approved, will be paid on 12th contracts are set out in the Remuneration Report on September 2002 to shareholders on the register on page 12. Mr Williams does not have a contract of service 12th July 2002. Ordinary and preference dividends paid with the company. and recommended for payment in respect of the year total £9,119,000. Principal activities Northgate plc is an investment holding company. The group’s activities are reported on pages 4 to 8. Close company status So far as the directors are aware the close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the company. Interests in shares The following interests of 3% or more in the issued ordinary share capital of the company appear in the register required to be maintained under the provisions of Section 211 of the Companies Act 1985: Scottish Widows HBOS Group Legal & General Number of shares 4,206,544 (6.9%) 2,843,231 (4.7%) 1,921,541 (3.2%) The following are the interests of the directors in the share capital of the company as shown in the register required to be maintained under Section 325 of the Companies Act 1985. All interests are beneficial unless otherwise stated. Ordinary shares 1.5.01 30.4.02 – 39,167 814,508 69,834 – 41,616 817,624 70,616 J. Astrand P. J. Moorhouse A. T. Noble S. J. Smith F. M. Waring 1,673,100* 1,673,100* R. Williams 5,000 5,000 *15,100 (2001: 15,100) shares are held beneficially. The interest of Mr. Waring in the remainder is as a discretionary beneficiary of various family trusts. No director has an interest in the preference shares of the company. No changes in the above interests have occurred between Mercury Institutional Trust 1,842,400 (3.0%) 30th April 2002 and the date of this report. Lazard Asset Management 1,836,007 (3.0%) Details of options held by the directors under the company’s various share schemes are given in the Remuneration Report on pages 12 to 16. Donations The group made charitable donations of £20,000. Power to allot shares A special resolution, pursuant to Section 95 of the Companies No political donations were made. Act 1985, will be proposed to renew the authority of Payment of suppliers The group’s policy is to pay suppliers within normal trading terms agreed with that supplier. The policy is made known to the staff who handle payments to suppliers. At 30th April 2002 the group’s creditor days were 41. Remuneration report At the Annual General Meeting, shareholders will be asked to approve the report of the remuneration committee set out in the company’s annual report and accounts. The Combined Code on Corporate Governance appended to the Listing Rules of the UK Listing Authority requires the board to consider each year whether circumstances are such that shareholders should be invited at the Annual General Meeting to approve the remuneration policy set out in the report of the remuneration committee. The draft Directors’ Remuneration Report Regulations published by the DTI on 18th December 2001 envisage that not just the remuneration policy but the full report of the remuneration committee of a listed company should be put to an advisory shareholder vote each year. These Regulations the directors to allot ordinary shares for cash other than to existing shareholders on a proportionate basis. This authority will be limited to an aggregate nominal amount of £152,000 representing approximately 5% of the current issued ordinary share capital and will expire not later than 15 months after the date on which the resolution is passed. Authority for the company to purchase its own shares The directors propose to renew the general authority of the company to make market purchases of its own shares up to a total of 6,000,000 ordinary shares (representing approximately 10% of the issued ordinary share capital) and within the price constraints set out in the special resolution to be proposed at the Annual General Meeting. There is no present intention to make any purchase of own shares, and if granted, the authority would only be exercised if to do so would result in an improvement in earnings per share for remaining shareholders. Auditors A resolution for the re-appointment of Deloitte & Touche are not due to come into force until later this year and will as auditors of the company is to be proposed at the only apply to reporting in respect of a financial year ending forthcoming Annual General Meeting. on or after 31st December 2002. However, in anticipation of the implementation of the DTI’s current proposals, the board has decided to ask shareholders to approve the report of the By order of the Board D. Henderson remuneration committee (including the remuneration policy) Secretary at the Annual General Meeting this year. 2nd July 2002 10 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 11 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 16 REPORT ON REMUNERATION The Remuneration Committee, which is comprised of the two independent non-executive directors and chaired by Ron Williams, who is Deputy Chairman of the board, is responsible for making recommendations to the board on the remuneration packages and terms and conditions of employment of the executive directors of the company and of other senior executives in the group. The Committee also reviews remuneration policy generally throughout the group. The Committee consults with the Chairman and with the Chief Executive who may be invited to attend meetings. The Company Secretary is secretary to the Committee. Remuneration policy The Committee aims to ensure that executive directors are fairly and competitively rewarded for their individual contributions by means of basic salary, benefits in kind and pension benefits. High levels of performance are recognised by discretionary bonuses (which will not normally exceed 30% of basic salary), and the motivation to achieve the maximum benefit for shareholders in the future is provided by the allocation of share options. Only basic salary is pensionable. Basic salaries are reviewed annually taking into account the performance of the individual, changes in responsibilities and market trends. Flexible benefits scheme During the year we designed, in conjunction with our advisers, Deloitte & Touche, a flexible benefits scheme which was successfully introduced on 1st May 2002. The Scheme is designed to help in the recruitment and retention of employees by allowing them to tailor their remuneration package to best suit their individual needs. In particular, it enables company car users to mitigate the effects of the new benefit in kind taxation system for company cars, introduced on the 6th April 2002, which is based on CO2 emission levels. Service contracts The executive directors have rolling service contracts which may be terminated by 12 months notice on either side. Provisions extending the notice period to 24 months in the event of a change of control of the company have been removed. The dates of the contracts are: Phil Moorhouse 1st February 1998 Alan Noble Steve Smith 6th January 1998 12th November 1999 Emoluments J. Astrand M. C. Baughan P. J. Moorhouse A. T. Noble S. J. Smith C. J. Spence F. M. Waring R. Williams Total emoluments excluding pension contributions Total pension contributions Salary/ fees £000 Bonus £000 Cost of benefits* £000 Chargeable expenses £000 25 12 140 155 155 12 75 32 606 – – 42 40 46 – – – 128 – – 20 25 19 – – – 64 – – 4 1 2 – – – 7 2002 total £000 25 12 206 221 222 12 75 32 805 2002 Pension 2001 2001 Pension total contributions contributions £000 £000 £000 5 23 187 216 206 23 100 29 789 – – 16 22 14 – – – – – 14 17 13 – – – 52 44 *These benefits comprise: company car, private medical insurance, permanent health insurance, life assurance and spouses death in service pension. Non-executive directors The remuneration of the non-executive directors is determined by the board as a whole, within the overall limit set by the Articles of Association. Non-executive directors are not eligible for performance related payments nor may they participate in the company’s share option or pension schemes. Non-executive directors do not have contracts of service with the company and their appointments are terminable without notice. Pension schemes Throughout the year all pension arrangements operating throughout the group were of the defined contribution type. Share option scheme The Goode Durrant Share Option Scheme (“the GD Scheme”), which has been approved by the Board of the Inland Revenue, was established in 1986. Since then options have been granted to employees in all parts of the group and at all levels of the management structure and at 30th April 2002 options over 162,500 ordinary shares were outstanding exercisable at various dates between 1998 and 2006 (See note 19 on page 39). The last options were granted in January 1996 and no further options may be granted under this Scheme. There are no performance conditions attached to this scheme. The directors held the following options granted under the GD Scheme: A. T. Noble F. M. Waring Total At 1.5.01 Exercised At 30.4.02 52,500 52,500 100,000 52,500 152,500 205,000 52,500* 52,500 – – 52,500 – – 100,000 52,500 152,500 152,500 Exercise price (p) Normally exercisable between 280.5 Jan 1999 Jan 2006 218.5 280.5 Jan 1998 Jan 1999 Jan 2005 Jan 2006 *These options were exercised on 14th January 2002 when the market price was 520p. The total gross gain on exercise was therefore £125,737. No directors’ options under the GD scheme lapsed during the year. The mid-market price of the ordinary shares at 30th April 2002 was 503p (30th April 2001 – 465p) and the range during the year was 398p to 536p. Long term incentive plan In 1996 a Long Term Incentive Plan (“the Plan”), which is administered by the trustees of an employee trust (“the Trust”), was introduced for executive directors and senior management within the group. The Plan was intended to provide incentives, in the form of ordinary shares of the company, to directors and senior management. An award under the Plan consists of a right to acquire shares for a nominal price which, in normal circumstances, can be exercised, subject to performance criteria being satisfied, between 3 and 6 years following the date of grant. A condition of the grant of an option is that any shares acquired on exercise will be held on behalf of the employee by the trustees for a further period of 2 years, during which time the employee will be entitled to all the benefits of share ownership but may not dispose of the The board believes that the Plan failed to achieve its shares (other than sufficient to meet any income tax liability motivational objectives, largely due to its complexity, arising on exercise). and it was therefore effectively replaced by a new share option scheme, (“the NSOS”) (see below) which was approved by shareholders at the Annual General Meeting in 2000. It is the board’s intention that no further options under the Plan be awarded. The last options were awarded in July 1999. The performance criteria considered by the board to be the most appropriate at the time the awards were made was a comparison of the growth in the company’s total shareholder return (“TSR”) with that of other companies included in the HSBC Trixie Index (“the Index”) over the period of 3 years following the date of grant. 12 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 13 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 18 REPORT ON REMUNERATION When granted, an option is expressed in terms of a standard number of shares. The number of shares which ultimately will Options granted in July 1997 and January 1998 did not earnings per share growth has been at least 15% p.a. over be vested in the employees on exercise will depend on the company’s TSR performance relative to the Index and, provided the company’s performance is above the median, can range from a fraction of 1⁄3 to a multiple of 2. If performance is below the median, options cannot be exercised. The maximum value of an award on any one occasion to any individual may not exceed 25% of his basic annual salary at that time and the aggregate value (in each case taking the value at the time of grant) of all awards subsisting under the Plan at any one time may not exceed his basic annual salary. The company will fund the Trust to enable it to acquire shares in the company to be applied on the exercise of options under the Plan. At 30th April 2002 the Trust held 140,306 5p ordinary shares of the company, purchased in the market against the award of options granted (see note 12 on page 33). P. J. Moorhouse A. T. Noble S. J. Smith F. M. Waring Total At 1.5.01 Exercised Gross gain on exercise £ At 30.4.02 Normally exercisable between 4,000 4,200 5,000 13,200 8,000 6,800 7,000 21,800 5,000 4,400 4,500 13,900 9,000 7,700 8,000 24,700 73,600 6,709 9,393 6,036 1,667* 1,667 2,334* 2,334 1,500* 1,500 5,501 4,000 4,200 – 8,200 8,000 6,800 – 14,800 5,000 4,400 – 9,400 9,000 7,700 8,000 24,700 57,100 July 2000 Jan 2001 July 2001 July 2000 Jan 2001 July 2001 July 2003 Jan 2004 July 2004 July 2003 Jan 2004 July 2004 July 2000 Jan 2001 July 2001 July 2003 Jan 2004 July 2004 July 2000 Jan 2001 July 2001 July 2003 Jan 2004 July 2004 *The company’s TSR Performance over the period of 3 years following the date of grant placed it in the top 50% of the Index resulting in a multiple of 1⁄3 being applied to the original number of options granted. The three directors above all exercised their options on 2nd October 2001 when the market value of an ordinary share was 402.5p. The exercised price was £1 per award. No directors were granted options under the Plan during the year and none lapsed. 1998 Award (Cumulative TSR Performance†) Upper Quartile (Comparator Group) Lower Quartile (Comparator Group) Northgate Median (Comparator Group) FTSE 350 (Total Return Index) †Assuming £100 invested at the beginning of the measurement period £160 £140 £120 £100 £80 £60 £40 £20 £0 July 1998 July 1999 July 2000 July 2001 14 Northgate plc annual report & accounts 2002 meet the above performance criteria over the 4 and 3 year the 2, 3 and 4 years following their grant respectively. periods respectively following the date of their grant and Partial exercise of these options over a sliding scale will be therefore were not exercisable. These options will be permitted for growth in earnings per share of between 8% measured against the performance criteria again after 5 and and 15% p.a. over these periods. Performance conditions 4 years respectively and, the latter, if still not exercisable, attaching to future grants will, in the opinion of the board, after 5 years. If not exercisable after 5 years, they will lapse. be equally demanding. The directors hold options granted under the Plan as shown The aggregate value (in each case being the exercise price in the table on page 14. The exercise price is £1 per award. multiplied by the number of options) of options granted to Executive incentive scheme The EIS introduced in 1999 has been designed to motivate those key executives in Northgate who are most able to influence the successful implementation of our five year Strategy for Growth, with a target of doubling earnings per share over the period 1999-2004. Some 48 of the most senior executives have been granted options over shares worth between approximately two and five times the aggregate of their basic salary and the maximum bonus provided in their respective contracts of employment. Sufficient headroom has been retained an individual in the preceding 10 years under the EIS and under any other executive share option scheme adopted by the company may not exceed 8 times their annual earnings. Waived and exercised options continue to count towards this limit. The directors hold the following options granted under the EIS: P J Moorhouse A T Noble No. of options Exercise price (p) 180,000 174,050 5,950 180,000 180,000 492.5 492.5 503.5 492.5 to allow additional grants to be made in the future to new executives or to reflect promotions as the business grows. S J Smith An award under the EIS consists of a right to acquire ordinary shares of the company at a pre-determined All the above options are normally exercisable between September 2003 and September 2009. price which, in normal circumstances, can be exercised, No directors were granted options under the EIS during the subject to a specified performance condition being satisfied, between 4 and 10 years following the date of grant. Options may relate to new and/or existing shares when exercised. The performance condition attached to the options granted during the year is that, for all the options to become exercisable, the company’s normalised earnings per share year, none lapsed and none were exercised. In addition to the above, options over 1,040,500 shares granted to 45 employees at exercise prices ranging from 3671/2p to 523p were outstanding at 30th April 2002. New share option scheme The NSOS was introduced in 2000 to replace the Plan (see growth over the 5 year period following their grant should page 13) and operates on broadly similar lines to the EIS exceed 15% p.a. These options will normally only first (see above). The NSOS is designed to provide incentives, in become exercisable in full on the seventh anniversary of the form of ordinary shares in the company, to selected their grant and will lapse if they do not meet the prescribed employees at managerial level. However, directors and level of growth over the 5 years. However, they will become certain other management at a senior level do not currently capable of earlier exercise in tranches of 20%, 25% and participate in the scheme as their share incentives are all 25% on the 4th, 5th and 6th anniversaries of their grant if provided under the EIS. Northgate plc annual report & accounts 2002 15 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 20 REPORT ON REMUNERATION The principal differences between the NSOS and To participate in the Scheme, which operates on a yearly the EIS are: i) the maximum individual allocation over a 10 year period is limited to 4 times annual earnings (EIS – 8 times); ii) subject to the performance criteria being satisfied, options may be exercised between 3 and 51/2 years from the date of grant (EIS – 4 to 10 years); and iii) the performance criteria is that earnings per share should increase by at least 3% per annum above inflation over a period of at least 3 years (EIS – EPS growth of 15% per annum over 5 years but with partial exercise over a sliding scale for growth between 8% and 15%). At 30th April 2002 options over 128,000 shares granted to 32 employees at exercise prices ranging from 4031/2p to 4571/2p were outstanding. All employee share scheme The All Employee Share Scheme (“the AESS”), which is approved by the Inland Revenue under Schedule 8 Finance Act 2000, was introduced in 2000 to provide employees at all levels with the opportunity to acquire shares in the company on preferential terms. The board believes that encouraging wider share ownership by all staff will have longer term benefits for the company and for shareholders.The AESS operates under a trust deed, the Trustees being Capita IRG who are also our Registrars. cycle, employees are required to make regular monthly savings (on which tax relief is obtained), by deduction from pay, for a year at the end of which these payments are used to buy shares in the company (“Partnership shares”). For each Partnership share acquired, the employee will receive one additional free share (“Matching shares”). Matching shares will normally be forfeited if, within 3 years of acquiring the Partnership shares, the employee either sells the Partnership shares or leaves the group. After this 3 year period Partnership and Matching shares may be sold, although there are significant tax incentives to continue holding the shares in the scheme for a further 2 years. Those employees who are most committed to the company will therefore receive the most benefit. The first annual cycle ended in November 2001 and resulted in 309 employees acquiring 60,035 Partnership shares at 383p each (being the price ruling at the beginning of the cycle) and being allocated the same number of Matching shares. The second yearly cycle started in January 2002 and currently some 450 employees are making contributions to the scheme at an annualised rate of £365,000. In addition to the shares held against the award of options granted under the Plan (see above), the Trust also held, at 30th April 2002, 62,360 5p ordinary shares of the company against the shares that are anticipated to be required at the end of the second annual cycle of the AESS in January 2003. Ron Williams Chairman, Remuneration Committee 2nd July 2002 16 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 17 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 22 CORPORATE GOVERNANCE The Financial Services Authority has incorporated into the The company’s Articles of Association provide that at each All shareholders are given the opportunity to raise matters controls and the production of accurate and timely financial Listing Rules the Combined Code (“the Code”), published annual general meeting of the company, one third (or the for discussion at the annual general meeting, of which management information are identified and can be in June 1998, which sets out Principles of Good Corporate number nearest to but not exceeding one third) of the more than the recommended minimum 20 working days monitored. Where appropriate, the business is required to Governance and contains a Code of Best Practice. The Code directors shall retire from office. Those to retire in each year notice is given. In recent years the company has adopted comply with the procedures set out in written manuals. is derived by the Hampel Committee on Corporate are those who have been longest in office since their Governance from the Committee’s Final Report and from the appointment or re-appointment. (Any director appointed by earlier Cadbury and Greenbury Reports. the board during the year is obliged to seek re-election at The provisions of the Code applicable to listed companies are divided into four parts, as set out below: 1 Directors The business of the company is managed by the board of directors, currently comprising three executive and three non-executive directors, details of whom are set out on page 9. The non-executive directors, apart from the Chairman, who was formerly an executive director of the company, are considered to be independent both in the sense outlined in the Code and in terms of the criteria laid down by the National Association of Pension Funds for judging the independence of non-executive directors. Ron Williams, as Deputy Chairman, is considered to be the senior such independent director. The offices and responsibilities of the Chairman and Chief Executive Officer are separate. The board meets regularly, normally monthly, to review trading results and has responsibility for, inter alia, overall group strategy, financial reporting to and relationships with shareholders, dividend policy, acquisitions and disposals, major capital expenditure and financing and treasury policy. The Chairman ensures that all directors are properly briefed to enable them to discharge their duties. In particular, detailed management accounts are prepared and copies sent to all board members every month and, in advance of each board meeting, appropriate documentation on all items to be discussed is circulated. the next following annual general meeting and is not included when determining the one third to retire by rotation). It is therefore possible for a director to serve four years before seeking re-appointment by shareholders. The company intends to amend its Articles to comply with the Code requirement that all directors be subject to re-election at intervals of no more than three years the next time it makes other changes to its Articles of Association. No current director has served more than three years without being re-elected by shareholders. Until the Articles are amended, the company will in any event comply with the Code by ensuring that no director serves more than three years without seeking re-election. In terms of the Code requirement to establish a nominations committee, the board considers that it is a small board and therefore does not need to establish such a committee. The appointment of new directors is regarded as a matter for the board as a whole. 2 Directors’ remuneration The company’s policy on remuneration and details of the remuneration of each director are given in the Remuneration Report on pages 12 to 16. 3 Relations with shareholders Throughout the year the company maintains a regular dialogue with institutional investors and brokers’ analysts, providing them with such information on the company’s progress and future plans as is permitted within the guidelines of the Listing Rules. In particular, twice a year, at the time of announcing the company’s interim and full year results, they are invited to briefings given by the Chief Executive Officer and Finance Director. the practice of issuing a brief statement at the annual general meeting, which is simultaneously released to the London Stock Exchange, on current trading conditions. Identification of risks The board and the group’s management have a clearly defined responsibility for identifying the major business In compliance with the requirement in the Code, the risks facing the group and for developing systems to company has adopted the practice at general meetings mitigate and manage those risks. The control of key risks is of the company of advising shareholders of the numbers reviewed by the board and the group’s management at of proxy votes lodged on each resolution, after the their monthly meetings. resolution has been dealt with on a show of hands. 4 Accountability and audit An assessment of the company’s position and prospects is included in the Chairman’s Statement on page 2. Internal control Provision D2.1 of the Code requires the directors to conduct an annual review of the effectiveness of the group’s system of internal controls. The Turnbull Report, published by the ICAEW in September 1999, provides relevant guidance for directors on compliance with the internal control provisions of the Code. The directors are responsible for the group’s system of internal controls which aims to safeguard group assets, ensure proper accounting records are maintained and that the financial information used within the business and for publication is reliable. Although no system of internal controls can provide absolute assurance against material misstatement or loss, the group’s system is designed to provide the directors with reasonable assurance that, should any problems occur, these are identified on a timely basis and dealt with appropriately. The key features of the group’s system of internal controls, which was in place throughout the period covered by the financial statements, are described below: Control environment The group has a clearly defined organisational structure within which individual responsibilities of line and financial management for the maintenance of strong internal The board is therefore able to confirm that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the group, that it has been in place for the year under review and up to the date of approval of these accounts and accords with the Turnbull guidance. Information and communication The group has a comprehensive system for reporting financial results to the board. Each operating unit prepares monthly accounts with a comparison against their business plan and against the previous year, with regular review by management of variances from targeted performance levels. A business plan is received and approved by the board annually. Each operating unit prepares a three-year business plan with performance reported against key performance indicators on a monthly basis together with comparisons to plan and prior year. These are reviewed regularly by management. Forecasts are updated regularly throughout the year. Control procedures The board and the group’s management have adopted a schedule of matters which are required to be brought to it for decisions, thus ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. Measures taken include clearly defined procedures for capital expenditure appraisal and authorisation, physical controls, segregation of duties and routine and ad hoc checks. 18 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 19 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 24 CORPORATE GOVERNANCE DIRECTORS’ RESPONSIBILITIES in relation to the preparation of the accounts Monitoring The board has delegated to executive management implementation of the system of internal control. The board, including the Audit Committee, receives reports on the system of control from the external auditors and from management. An independent internal audit function reports bi-annually to the Audit Committee primarily on the key areas of risk within the business. The directors confirm that they have reviewed the effectiveness of the system of internal controls covering financial, operational and compliance matters and risk management, for the period covered by these financial statements in accordance with the guidance contained in the Turnbull Report. Audit The Audit Committee is currently comprised of the two independent non-executive directors and chaired by Ron Williams, who is Deputy Chairman of the board. Michael Baughan and Christopher Spence were also members of the Committee until their retirement from the board on 12th September 2001. The Committee has written terms of reference setting out its duties. These include matters relating to the appointment and fees of the external auditors and review of the annual and interim statements, Non-audit related and general consultancy work. This type of work will either be placed on the basis of the lowest fee quote or to the consultants who are felt to be best able to provide the expertise and working relationship required. In certain instances - such as the appointment of KPMG as consultants to provide external advice and support to the internal audit department - the auditors will not be invited to compete for the work. The following statement, which should be read in and prudent judgements and estimates and that all conjunction with the statement of auditors’ responsibilities accounting standards which they consider to be applicable set out on page 22, is made with a view to distinguishing have been followed. for shareholders the respective responsibilities of the directors and auditors in relation to the accounts. The directors are responsible for ensuring that the company keeps adequate accounting records and for safeguarding The directors are required by the Companies Act 1985 to the assets of the group and hence for taking reasonable prepare financial statements for each financial year which steps for the prevention and detection of fraud and other give a true and fair view of the state of affairs of the irregularities. Fees paid to Deloitte & Touche in respect of the year under company and the group as at the end of the financial year review are as follows:- and of the profit or loss for that period. The directors consider that in preparing the financial statements, the company has used appropriate accounting policies, consistently applied and supported by reasonable Statutory audit and interim review Tax advice (principally Corporation Tax) Consultancy work Due diligence Other £000 137 33 69 31 36 306 The £69,000 in respect of consultancy work was carried out by Deloitte & Touche’s Human Resources department based in London in connection with the introduction of our flexible benefits scheme (referred to in the Remuneration Report). The statutory audit work is carried out by their Going concern The accounts have been prepared on a going concern basis as the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. of the group’s internal controls and of the nature, scope Leeds office. and results of the internal audit programme. Both the external auditors and the internal audit manager have direct access to members of the Committee and can meet with the Committee without the company’s management being present. The Committee also monitors the independence and objectivity of the external auditors in carrying out their statutory audit work on behalf of shareholders and providing other fee-paying services to the company. The board’s policy on non-audit work is:- Tax advisory and other audit-related work (including in particular Corporation Tax). This is work that, in their capacity as auditors, they are best placed to carry out and will generally be asked to do so. Nevertheless, where appropriate, they will be asked for a fee quote. Deloitte & Touche were selected for this assignment, from a shortlist of three potential providers, on the basis of their expertise and experience in this particular field. Compliance The board considers that the company was in compliance with the provisions of the Code applicable to listed companies throughout the financial year, with the exception of the requirement to appoint three non- executive directors to the Audit Committee (see under Audit above). The composition of the Audit Committee is currently under review. 20 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 21 Northgate AR&A 2002 Front JM* 19/7/02 12:10 pm Page 26 REPORT OF THE AUDITORS independent auditors’ report to the members of northgate plc FINANCIAL STATEMENTS We have audited the financial statements of Northgate plc We read the directors’ report and the other information for the year ended 30th April 2002 which comprise the contained in the annual report for the above year as profit and loss account, the balance sheets, the cash flow described in the contents section and consider the statement, the statement of total recognised gains and implications for our report if we become aware of any losses and the related notes 1 to 25 together with the apparent misstatements or material inconsistencies with reconciliation of net cash flow to movement in net debt, the financial statements. notes to the consolidated cash flow statement, notes to the reconciliation of net cash flow to movement in net debt and accounting policies. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and the company’s directors are responsible for the preparation of whether the accounting policies are appropriate to the of the financial statements in accordance with applicable circumstances of the company and the group, consistently United Kingdom law and accounting standards. Our applied and adequately disclosed. responsibility is to audit the financial statements in accordance with relevant United Kingdom legal and regulatory requirements, auditing standards, and the Listing Rules of the Financial Services Authority. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are We report to you our opinion as to whether the financial free from material misstatement, whether caused by fraud statements give a true and fair view and are properly or other irregularity or error. In forming our opinion, we prepared in accordance with the Companies Act 1985. also evaluated the overall adequacy of the presentation of We also report if, in our opinion, the directors’ report is information in the financial statements. not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We review whether the corporate governance statement reflects the company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group as at 30th April 2002 and of the profit of the group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche Chartered Accountants and Registered Auditors 10-12 East Parade Leeds LS1 2AJ 2nd July 2002 22 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 23 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 1 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the 12 months ended 30th April 2002 BALANCE SHEETS 30th April 2002 Turnover Operating profit Net interest payable Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit for the financial year Dividends Profit transferred to reserves Earnings per ordinary share – basic Diluted earnings per ordinary share Dividends per ordinary share All current and prior year trading relates to continuing operations. Notes 1, 2 1, 2 4 5 6 7 21 8 8 7 2002 £000 277,829 45,055 2001 Restated £000 261,801 42,569 (13,381) (15,459) 31,674 (9,953) 21,721 (9,119) 12,602 27,110 (8,054) 19,056 (8,517) 10,539 35.8p 35.6p 15.0p 31.4p 31.3p 14.0p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the 12 months ended 30th April 2002 Fixed assets Intangible assets Tangible assets Vehicles for hire Other fixed assets Investments Current assets Stocks Debtors Cash at bank and in hand Creditors: amounts falling due within one year – Borrowings – Other Net current (liabilities)/assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Capital and reserves Called up share capital Share premium account Revaluation reserve Merger reserve Profit and loss account Shareholders’ funds Attributable to equity shareholders Attributable to non-equity shareholders Notes 9 10 11 12 13 14 16 15 16 18 19 20 21 21 21 Group Company 2002 £000 142 325,116 19,076 590 344,924 8,028 54,925 26,125 89,078 116,993 32,761 149,754 (60,676) 284,248 142,031 5,170 137,047 3,542 45,471 23 4,721 83,290 137,047 136,547 500 137,047 2001 Restated £000 – 302,473 15,121 759 318,353 6,685 51,296 24,263 82,244 102,318 31,551 133,869 (51,625) 266,728 136,620 5,816 124,292 3,539 45,321 23 4,721 70,688 124,292 123,792 500 124,292 2002 £000 – – 1,932 70,161 72,093 – 26,465 24,537 51,002 115 12,729 12,844 38,158 110,251 – (65) 2001 £000 – – 223 70,242 70,465 – 25,247 22,867 48,114 111 10,530 10,641 37,473 107,938 – 36 110,316 107,902 3,542 45,471 – 417 60,886 110,316 109,816 500 110,316 3,539 45,321 – 417 58,625 107,902 107,402 500 107,902 Profit for the financial year Prior period adjustment (see note 18) Total recognised gains and losses for the financial year 2001 Restated £000 19,056 2002 £000 21,721 865 22,586 The accounts were approved by the board of directors on 2nd July 2002. F M Waring Director P J Moorhouse Director 24 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 25 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 3 CONSOLIDATED CASH FLOW STATEMENT for the 12 months ended 30th April 2002 Net cash inflow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Purchase of vehicles for hire Sale of vehicles for hire Other items, net Net cash outflow from capital expenditure and financial investment Acquisitions Equity dividends paid Cash outflow before use of liquid resources and financing Management of liquid resources Cash withdrawn from deposit Financing Issue of ordinary shares (net of expenses) Decrease in borrowings Capital element of vehicle related hire purchase payments Cash inflow from new vehicle related hire purchase agreements Net cash inflow from financing Increase in cash for the year RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase in cash for the year Financing Decrease in borrowings Capital element of vehicle related hire purchase payments Cash inflow from new vehicle related hire purchase agreements Cash withdrawn from deposit Change in net debt resulting from cash flows New hire purchase obligations Hire purchase agreements acquired with subsidiary Movement in net debt for the year Net debt at 1st May Net debt at 30th April Notes (i) (ii) (iii) 17 (iv) 2002 £000 127,057 (13,265) (7,250) (172,603) 68,866 (6,173) 2001 Restated £000 117,388 (15,266) 695 (162,944) 72,384 (5,366) (109,910) (95,926) (6,150) (8,631) – (8,166) (18,149) (1,275) 39 23 153 (1,735) (133,091) 166,258 31,585 13,475 336 (18,052) (103,745) 141,334 19,873 18,621 2002 £000 13,475 1,735 133,091 (166,258) (39) (17,996) – (228) (18,224) (214,675) (232,899) 2001 Restated £000 18,621 26,968 103,745 (141,334) (23) 7,977 (8,916) – (939) (213,736) (214,675) NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (i) Reconciliation of operating profit to net cash inflow from operating activities Operating profit Depreciation Amortisation of goodwill Loss on sale of equipment and other fixed assets Increase in stocks Increase in debtors Increase in creditors Other non-cash items Net cash inflow from operating activities Analysis of cash flows for headings netted in the cash flow statement (ii) Returns on investments and servicing of finance Interest received Interest paid Interest paid on hire purchase agreements Dividends paid – non-equity preference shares (iii) Capital expenditure and financial investment Purchase of vehicles for hire Sale of vehicles for hire Purchase of other fixed assets Sale of other fixed assets Purchase of investments – All Employee Share Scheme Sale of investments – All Employee Share Scheme 2002 £000 45,055 86,912 4 10 (1,329) (4,429) 834 – 2001 £000 42,569 76,193 – – (858) (1,608) 1,082 10 127,057 117,388 2002 £000 1,630 (4,744) (10,126) (25) (13,265) (172,603) 68,866 (7,009) 667 (419) 588 (109,910) 2001 Restated £000 1,045 (6,763) (9,523) (25) (15,266) (162,944) 72,384 (5,800) 792 (358) – (95,926) The cash flow statement amounts for capital expenditure and financing for the year ended 30th April 2001 have been grossed up by £141,334,000 to more fully reflect the cash flows arising from refinancing through hire purchase agreements. Previously these amounts were shown net. There is no impact on net cash flow or net debt. NOTES TO THE RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (iv) Decrease in borrowings Decrease in borrowings resulting from cash flows Other non-cash changes 2002 £000 1,735 – 1,735 2001 £000 18,052 8,916 26,968 26 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 27 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 5 ACCOUNTING POLICIES Basis of accounting The financial statements are prepared in accordance with applicable United Kingdom accounting standards under the historical cost convention as modified by the revaluation of freehold and long leasehold properties. The group adopted the transitional provisions of FRS15 in respect of the valuation of properties. The valuation of previously revalued properties will not be updated. Details of the latest revaluations are shown in note 11. Basis of consolidation The consolidated financial statements comprise the accounts of the company and all subsidiary undertakings made up to 30th April. The results of subsidiary undertakings acquired are included from the date of acquisition. The excess of the purchase consideration of businesses and other assets acquired over the fair value of the net assets for periods before the implementation of FRS10 has been treated as purchased goodwill and written off against reserves as a matter of accounting policy. This goodwill would be charged in the profit and loss account on subsequent disposal of the businesses to which it relates. Goodwill on acquisitions made after the implementation of FRS10 is capitalised as an intangible asset and amortised through the profit and loss account by equal instalments over its estimated useful life of up to a maximum of 20 years. Tangible fixed assets: depreciation Freehold land and property under construction are not depreciated. Other tangible fixed assets are depreciated over their estimated useful lives on a straight line basis which write off: Freehold buildings Leasehold property over 50 years over 50 years or over the term of the lease, whichever is the shorter Plant, equipment and fittings Vehicles for hire Motor vehicles over 3 to 10 years over 3 to 6 years over 3 years Investments (i) Current assets are stated at the lower of cost and net realisable value. Shares in group undertakings and other unlisted fixed asset investments are stated at cost less provision for impairment. (ii) Fixed asset investments - own shares The company’s shares held by Kleinwort Benson (Guernsey) Trustees Limited as trustees of the Goode Durrant Employees’ Trust are included in the consolidated balance sheet as a fixed asset investment until such time as the interest in the shares is transferred to the employees. The shares are held as a hedge against the group’s obligations under the Long Term Incentive Plan and the Northgate All Employee Share Scheme and accordingly the shares purchased are recorded at cost. The cost of meeting these obligations is charged to the profit and loss account on a systematic basis over the period of service in respect of which options are granted. Stocks Goods for resale and finished goods are stated at the lower of cost and net realisable value. Translation of foreign currencies Assets, liabilities and trading results of overseas subsidiary undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date. Exchange differences arising from NOTES ON THE ACCOUNTS 1 Segmental information All trading activities in 2002 and 2001 relate to the business of vehicle hire. The group operates in all material respects in the United Kingdom and turnover relates to customers in the United Kingdom. 2 Operating profit Turnover Cost of sales Gross profit Administrative expenses Operating profit Operating profit is stated after including: Depreciation of owned tangible fixed assets Depreciation of fixed assets held under hire purchase agreements Amortisation of goodwill Hire of plant and equipment Hire of other assets Auditors’ remuneration Fees paid to auditors for other services Loss on sale of tangible fixed assets Other rental income 2002 £000 277,829 (202,315) 75,514 (30,459) 45,055 2001 £000 261,801 (193,736) 68,065 (25,496) 42,569 2002 £000 2001 £000 38,555 38,594 48,357 4 38 2,539 129 177 (10) 184,217 37,599 – 29 2,318 118 77 – 171,494 The comparative figure for other rental income has been amended from the previously reported amount of £153,699 to correct an error. 3 Information regarding employees and directors The average number of persons employed by the group: Direct operations Administration The staff costs of these persons were as follows: Wages and salaries Social security costs Other pensions costs 2002 number 2001 number 1,059 358 1,417 £000 26,973 2,569 563 30,105 926 341 1,267 £000 22,851 2,254 545 25,650 Disclosures on directors’ remuneration, share options and long term incentive schemes required by the Companies Act 1985 and the disclosures specified by the Financial Services Authority are contained in the Remuneration Report on pages 12 to 16. To the extent they are required to be audited they form part of these audited accounts. the retranslation of opening foreign currency balances to the year end rates are treated as a movement in reserves. Other translation differences are dealt with in the profit and loss account. Deferred taxation In accordance with FRS19, Deferred Taxation, which was adopted during the period, full provision is made on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. The adoption of FRS19 has given rise to a prior period adjustment of £865,000 in respect of deferred taxation. Leasing As lessee: Acquisitions of fixed assets funded through finance leases and hire purchase agreements are capitalised and depreciated in accordance with group policies. Future obligations under these leases and agreements are included in creditors. Interest costs payable are charged to the profit and loss account over the life of the lease so as to produce a constant rate of return on the outstanding balance. All other leases are operating leases and the payments made are charged to the profit and loss account evenly over the period of the lease. As lessor: Motor vehicles and equipment leased to customers under operating leases are included within fixed assets. Income from such leases is taken to the profit and loss account evenly over the period of the operating lease agreements. Turnover Turnover represents the amounts charged to customers for goods and services supplied excluding value added tax. Pensions The group operates only defined contribution type pension arrangements. Contributions in respect of these arrangements are charged to the profit and loss account as they become payable by the group. Pension contributions in respect of one of these arrangements are held in trustee administered funds independent of the group’s finances. The other arrangements are group personal pension plans. Financial instruments and their derivatives Derivative instruments utilised by the group are interest rate caps, collars and swaps. A derivative instrument is considered to be used for hedging purposes when it alters the risk profile of an existing underlying exposure of the group in line with the group’s risk management policies. Interest rate caps and collars – The option premia are recognised on the group balance sheet as ‘Prepayments and accrued income’. The option premia are taken to net interest payable spread evenly over the lifetime of the cap/collar. Interest rate swaps – Interest payments/receipts are accrued with net interest. They are not revalued to fair value or shown in the group balance sheet at the year end. 28 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 29 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 7 NOTES ON THE ACCOUNTS CONTINUED 4 Interest Income from fixed asset investments Interest receivable and similar income: Interest receivable on bank and other deposits Interest payable and similar charges: On bank loans, overdrafts and other loans repayable within 5 years Finance charges related to hire purchase agreements Net interest payable 5 Tax on profit on ordinary activities UK corporation tax on profits of the period Over provision of corporation tax for prior years Total current taxation Deferred taxation Origination and reversal of timing differences Adjustment in respect of prior periods 2002 £000 15 1,610 1,625 (4,760) (10,246) (15,006) (13,381) 2002 £000 12,022 (1,418) 10,604 (2,005) 1,354 9,953 2001 £000 21 1,223 1,244 (6,817) (9,886) (16,703) (15,459) 2001 £000 Restated 10,492 (2,241) 8,251 (2,429) 2,232 8,054 The restatement of previous years’ figures is as a result of the adoption of FRS19 Deferred Taxation. See note 18 for further details. The tax assessed for the period is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit on ordinary activities before tax Tax on profit on ordinary activities at the standard rate Expenses not deductible for tax purposes Capital allowances for period in excess of depreciation Adjustment to tax charge in respect of previous periods Other 2002 £000 31,674 9,502 490 2,005 (1,418) 25 10,604 2001 £000 27,110 8,133 (53) 2,429 (2,241) (17)) 8,251 6 Profit of parent company Of the profit attributable to shareholders, a profit of £11,380,000 (2001 – £13,059,000) has been dealt with in the accounts of the parent company. The company has taken advantage of the exemption contained in the Companies Act 1985 from presenting its own profit and loss account. 7 Dividends Equity dividend on ordinary shares: Interim paid 4.65p per share (2001 – 4.4p) Final proposed 10.35p per share (2001 – 9.6p) Total dividend 15.0p per share (2001 – 14.0p) Non-equity dividend on preference shares 2002 £000 2,819 6,275 9,094 25 9,119 2001 £000 2,680 5,812 8,492 25 8,517 8 Earnings per ordinary share The calculation of basic earnings per ordinary share in respect of the year to 30th April 2002 is based on the profit attributable to equity shareholders of £21,696,000 (2001 – £19,031,000) and the weighted average of 60,560,376 (2001 – 60,578,305) ordinary shares in issue (excluding those shares held by an employee trust in connection with the Goode Durrant Long Term Incentive Plan). Diluted earnings per ordinary share have been calculated on the basis of earnings described above and assume that 162,500 shares (2001 – 217,000) remaining exercisable under the Goode Durrant Share Option Scheme had been fully exercised at the commencement of the relevant period, such that the weighted average number of shares is 60,876,578 (2001 – 60,837,249) (including those shares held by an employee trust in connection with the Goode Durrant Long Term Incentive Plan). 9 Intangible assets On acquisition of Vickers (Northern) Limited (see note 17) Amortisation in the period 30th April 2002 10 Vehicles for hire Group Cost: 1st May 2001 Additions Acquisitions Disposals 30th April 2002 Depreciation: 1st May 2001 Charged to profit and loss account Disposals 30th April 2002 Net book value: 30th April 2002 30th April 2001 Goodwill £000 146 (4) 142 £000 398,799 169,860 6,174 (126,496) 448,337 96,326 84,525 (57,630) 123,221 325,116 302,473 The net book value of the above vehicles which are held under hire purchase agreements amounts to £215,663,000 (2001 – £178,549,000). 30 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 31 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 9 NOTES ON THE ACCOUNTS CONTINUED 11 Other fixed assets Group Cost or valuation: 1st May 2001 Additions Acquisitions Transfers Disposals 30th April 2002 Depreciation: 1st May 2001 Charged to profit and loss account Disposals 30th April 2002 Net book value: 30th April 2002 30th April 2001 Cost or valuation at 30th April 2002 is represented by: Valuation in 1992 Cost Land and buildings by category: Freehold Short leasehold Net book value Property under construction £000 Land and buildings £000 Plant equipment & fittings £000 Motor vehicles £000 223 1,721 – (1,944) – – – – – – – 223 – – – 12,741 2,600 – 1,944 (184) 17,101 1,703 564 (48) 2,219 14,882 11,038 795 16,306 17,101 6,304 1,760 10 – (71) 8,003 3,678 1,235 (44) 4,869 3,134 2,626 – 8,003 8,003 1,701 928 – – (1,066) 1,563 467 588 (552) 503 1,060 1,234 – 1,563 1,563 2002 £000 13,130 1,752 14,882 Total £000 20,969 7,009 10 – (1,321) 26,667 5,848 2,387 (644) 7,591 19,076 15,121 795 25,872 26,667 2001 £000 9,130 1,908 11,038 Certain of the above freehold properties were valued as at 30th April 1992 by Jones Lang Wootton, Chartered Surveyors, on the basis of open market value for existing use. At 30th April 2002, under the historical cost convention, land and buildings would have been stated at £17,379,000 and related accumulated depreciation at £2,315,000. The gross amount of depreciable assets included in land and buildings is £12,267,000. Company Cost or valuation: 1st May 2001 Additions Transfers 30th April 2002 Depreciation: Charged to profit and loss account 30th April 2002 Net book value: 30th April 2002 30th April 2001 32 Northgate plc annual report & accounts 2002 Property under construction £000 Land and buildings £000 223 1,721 (1,944) – – – – 223 – – 1,944 1,944 12 12 1,932 – 12 Fixed asset investments Group Cost: 1st May 2001 Additions Disposals 30th April 2002 Provisions: 1st May 2001 and 30th April 2002 Net book value: 30th April 2002 30th April 2001 Own shares £000 Unlisted investments £000 1,458 419 (588) 1,289 859 430 599 184 – – 184 24 160 160 Total £000 1,642 419 (588) 1,473 883 590 759 Own shares At 30th April 2002, 62,360 (2001: 84,700) ordinary shares in Northgate plc with a market value of £313,670 (2001: £393,855) were held by Kleinwort Benson (Guernsey) Trustees Limited as a hedge against the group’s obligations under the Northgate All Employee Share Scheme (“the All Employee Scheme”). At 30th April 2002, 140,306 (2001: 152,484) ordinary shares in Northgate plc with a market value of £705,739 (2001: £709,051) were held by Kleinwort Benson (Guernsey) Trustees Limited as a hedge against the group’s obligation under the Long Term Incentive Plan (“the Plan”). All but a nominal dividend right in respect of these shares has been waived. Further details of the All Employee Scheme and of the Plan are outlined in the Remuneration Report on pages 12 to 16. Company Cost: 1st May 2001 Additions Disposals 30th April 2002 Provisions: 1st May 2001 and 30th April 2002 Net book value: 30th April 2002 30th April 2001 Own shares £000 Shares in subsidiary undertakings £000 Loans to group undertakings £000 358 419 (500) 277 – 277 358 25,319 – – 25,319 2,435 22,884 22,884 Total £000 72,677 419 (500) 72,596 47,000 – – 47,000 – 2,435 47,000 47,000 70,161 70,242 At 30th April 2002 the company’s principal subsidiary undertaking was Northgate Vehicle Hire Limited (Northgate), whose business is vehicle hire. Northgate is wholly and directly owned by the company, incorporated in Great Britain, registered in England and Wales and operates in the country of incorporation. A full list of the company’s subsidiaries was included with the Annual Return filed with the Registrar of Companies. Northgate plc annual report & accounts 2002 33 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 11 NOTES ON THE ACCOUNTS CONTINUED 13 Stocks 16 Borrowings Goods for resale and finished goods 14 Debtors Amounts falling due within one year: Trade debtors Amounts owed by subsidiary undertakings Corporation tax Other debtors Prepayments and accrued income Amounts falling due after more than one year: Prepayments and accrued income 15 Other creditors Amounts falling due within one year: Trade creditors Amounts owed to subsidiary undertakings Corporation tax Social security and other taxes Accruals and deferred income Proposed dividends Group 2002 £000 8,028 2001 £000 6,685 Group Company 2002 £000 43,867 – 1,257 2,840 5,921 53,885 1,040 54,925 2001 £000 40,013 – 2,091 2,444 5,526 50,074 1,222 51,296 2002 £000 – 25,937 – 410 118 26,465 – 26,465 Group Company 2002 £000 7,163 – 7,664 3,610 8,049 6,275 32,761 2001 £000 10,008 – 5,134 2,489 8,108 5,812 31,551 2002 £000 – 5,322 88 – 1,044 6,275 Amounts falling due within one year: Bank loans and overdrafts Vehicle related bank loans and overdrafts Vehicle related hire purchase Amounts falling due after more than one year: Bank loans and overdrafts Vehicle related bank loans and overdrafts Vehicle related hire purchase Total borrowings Of the amounts falling due after more than one year, repayments fall due in the following periods: Due within one to two years Bank loans and overdrafts Vehicle related hire purchase Due within two to five years Vehicle related bank loans and overdrafts Vehicle related hire purchase Group Company 2002 £000 115 3,126 113,752 116,993 2001 £000 121 14,740 87,457 102,318 28 74 54,027 87,976 142,031 259,024 28 58,651 58,679 54,027 29,325 83,352 55,670 80,876 136,620 238,938 74 53,917 53,991 55,670 26,959 82,629 2002 £000 115 – – 115 – – – – 2001 £000 111 – – 111 – – – – 115 111 – – – – – – – – – – – – Vehicle related bank loans and overdrafts of £57,153,000 (2001 – £70,410,000) and £28,000 (2001 – £74,000) of the bank loans and overdrafts are secured by fixed and floating charges over the assets of the subsidiary undertakings. Vehicle related hire purchase of £201,728,000 (2001 – £168,333,000) is secured by a fixed charge over the vehicles to which it relates. 2001 £000 – 24,573 – 414 223 25,210 37 25,247 2001 £000 – 3,547 873 – 298 5,812 12,729 10,530 Analysis of net debt Cash in hand, at bank Bank overdraft due within one year Cash in hand, short term deposits Bank loans and overdrafts due after one year Hire purchase obligations At 1st May 2001 £000 22,867 (14,861) 8,006 1,396 (55,744) (168,333) (214,675) Other non- cash changes £000 – 46 46 – (46) (228) (228) At 30th April 2002 £000 24,768 (3,241) 21,527 1,357 (54,055) (201,728) (232,899) Cash flow £000 1,901 11,574 13,475 (39) 1,735 (33,167) (17,996) 34 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 35 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 13 NOTES ON THE ACCOUNTS CONTINUED 16 Borrowings (continued) At 30th April 2002 the gearing of the group amounted to 170% (2001 – 173%) which is represented by net borrowings of £232,899,000 (2001 – £214,675,000) as a percentage of shareholders’ funds of £137,047,000 (2001 – £124,292,000). Net borrowings comprise borrowings less cash at bank. Borrowing facilities The group has various borrowing facilities available to it. The undrawn committed borrowing facilities at 30th April 2002 in respect of which all conditions precedent had been met at that date expire as follows: In one year or less In more than two years 2002 £000 172,234 13,470 185,704 2001 £000 128,807 12,755 141,562 The total amount permitted to be borrowed by the company and its subsidiaries in terms of the Articles of Association shall not exceed five times the aggregate of the issued share capital of the company and the group reserves, as defined in those Articles. Financial instruments and their derivatives Treasury policies and the management of risk The function of Group Treasury is to reduce or eliminate 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. The group uses derivative instruments for risk management purposes only. Consistent with group policy, Group Treasury do not engage in speculative activity and it is policy to avoid using the more complex financial instruments. 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 the 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. Short term debtors and creditors have been excluded from the analysis below. At 30th April 2002 the group’s total borrowings were £259,024,000 (2001 – £238,938,000). The increase reflects the growth in fleet numbers and funding thereof during the year. In all other respects the year end figures are consistent with the year as a whole. Financing and interest rate risk The group’s policy is to finance operating subsidiaries by a combination of retained earnings, bank borrowings including medium-term loans and hire purchase finance. Cash at bank and on deposit yield interest based principally on LIBOR rates applicable to periods of less than 3 months. The group’s exposure to interest rate fluctuations on its borrowings and deposits is managed through the use of interest rate caps, collars and swaps. These derivatives are also used to manage the group’s desired mix of fixed and floating rate debt. The policy is to fix or cap a substantial element of the interest cost on outstanding debt. At 30th April 2002, 46% of gross borrowings were at fixed or capped rates of interest. After taking into account the various interest rate swaps entered into by the group, the interest rate exposure of the net borrowings of the group as at 30th April 2002 was: Gross borrowings £000 Floating rate borrowings £000 Fixed rate borrowings £000 Fixed rate borrowings Weighted average interest rate at year end % Weighted average time for which rate is fixed Years 259,024 214,024 45,000 238,938 203,938 35,000 7.16 7.37 3.53 4.13 At 30th April 2002 UK Sterling At 30th April 2001 UK Sterling The analysis of weighted average interest rates and weighted average years to maturity is on fixed rate borrowings and after adjustments for interest rate swaps. The floating rate borrowings bear interest at relevant national LIBOR equivalents. 16 Borrowings (continued) The interest rate exposure is further protected by interest rate caps and collars set out as follows: Cap amount (£m) 5 5 5 5 5 5 5 5 5 45 Collar amount (£m) 10 10 10 30 Total capped borrowings (£m) 75 Cap % 8 8 8 8 8 8 8 8 7.5 Cap % 6 7 7 Floor % – – – – – – – – – Floor % 4 5 5 Finish date May 2002 June 2002 July 2003 April 2004 May 2004 December 2004 January 2005 April 2006 June 2006 Finish date January 2005 April 2007 April 2007 In addition to the instruments reflected in the tables above, the group has further structures with forward starting dates. They constitute £10,000,000 of interest rate swaps with a weighted average time of 5 years for which the rate is fixed at a weighted average rate of 5.99% and £50,000,000 of interest rate collars, £40,000,000 maturing 5 years from 3 consecutive annual dates commencing 1st April 2003 with a cap strike of 7% and a floor strike of 5% and £10,000,000, maturing 5 years from its commencement date of 2nd April 2007 with a cap strike of 6.5% and a floor strike of 4.5%. Fair values of financial instruments The comparison of fair and book values of all the group’s financial instruments as at 30th April 2002 is set out below. Market values have been used to determine fair values. Where market values are not available, fair values have been calculated by discounting cash flows at prevailing interest rates. Cash at bank and in hand Debt Net borrowings Derivatives to manage interest rate 2002 2001 Book value £000 26,125 (259,024) (232,899) 1,412 Fair value £000 26,125 (259,024) (232,899) (2,104) Book value £000 24,263 (238,938) (214,675) 1,565 Fair value £000 24,263 (238,938) (214,675) (2,099) (231,487) (235,003) (213,110) (216,774) 36 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 37 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 15 NOTES ON THE ACCOUNTS CONTINUED 17 Acquisitions On 1st October 2001 the group acquired the entire issued share capital of Vickers (Northern) Limited (“Vickers”) for a cash consideration of £776,000 including goodwill of £146,000. On 1st April 2002 the group acquired the business of Global Self Drive Limited (“Global”) for a cash consideration of £5,404,000. Both acquisitions have been accounted for using acquisition accounting. No fair value adjustments have been made. The impact on the results for the period is immaterial in respect of both acquisitions. Book value of assets acquired: Vehicles for hire Plant, equipment & fittings Stocks Debtors Cash at bank Hire purchase obligations Creditors Provisions Net assets acquired Goodwill Acquisition cost (including fees) Satisfied by cash Cash equivalents in subsidiary undertaking purchased Cash outflow on acquisitions 18 Provisions for liabilities and charges Deferred tax provided Accelerated capital allowances Other timing differences Movement in deferred tax 1st May 2001 Prior period adjustment Restated On acquisition Credited in profit and loss account Adjustments to prior years Total £000 6,174 10 14 192 30 (228) (153) (5) 6,034 146 6,180 6,180 (30) 6,150 2001 £000 – 36 36 Vickers £000 Global £000 815 10 14 147 30 (228) (153) (5) 630 146 776 776 (30) 746 5,359 – – 45 – – – – 5,404 – 5,404 5,404 – 5,404 Group Company 2001 Restated £000 6,294 (478) 5,816 2002 £000 5,678 (508) 5,170 6,681 (865) 5,816 5 (2,005) 1,354 5,170 2002 £000 – (65) (65) 36 – 36 – (101) – (65) The adoption of FRS19 has required changes in the method of accounting for deferred tax assets and liabilities. These changes have resulted in a prior period adjustment of £865,000 in respect of deferred tax assets and in a restatement of the 2001 figures. The figure for the tax on profit on ordinary activities for 2001 has been restated from the previously reported amount of £8,306,000 to £8,054,000, a reduced tax charge of £252,000. The impact on the current year is a reduction in the tax charge of £234,000. 19 Called up share capital Group and Company Authorised: 80,000,000 ordinary shares of 5p each 1,300,000 5% cumulative preference shares of 50p each Allotted and fully paid: 60,831,840 (2001 – 60,777,340) ordinary shares of 5p each 1,000,000 5% cumulative preference shares of 50p each 2002 £000 4,000 650 4,650 3,042 500 3,542 2001 £000 4,000 650 4,650 3,039 500 3,539 During the year 54,500 ordinary shares with a nominal value of £2,725 were issued pursuant to the exercise of options under the GD scheme, for a cash consideration of £152,872. The cumulative preference shares of 50p each entitle the holder to receive a cumulative preferential dividend at the rate of 5% on the paid up capital and the right to a return of capital at either winding up or a repayment of capital. The preference shares do not entitle the holders to any further or other participation in the profits or assets of Northgate plc. These shares have no voting rights other than in exceptional circumstances. Options At 30th April 2002 options outstanding for ordinary shares granted under the GD scheme were as follows: Year of Grant 1995 1996 Number of Shares 104,000 58,500 Exercise Price 218.5p 280.5p Exercisable From January 1998 January 1999 To January 2005 January 2006 There is no commitment to issue ordinary shares under the company’s other share schemes. 20 Share premium account Group and Company 1st May 2001 Premium on shares issued (net of expenses) 30th April 2002 £000 45,321 150 45,471 38 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 39 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 17 NOTES ON THE ACCOUNTS CONTINUED 21 Reserves 23 Contingent liabilities Revaluation reserve £000 Merger reserve £000 Profit and loss account £000 Total reserves £000 Northgate plc has guaranteed borrowings by subsidiary undertakings of £3,126,000 as at 30th April 2002 (2001 – £14,740,000). Performance bonds given to local authorities in respect of the group’s former housebuilding activities at 30th April 2002 amounted to £nil (2001 – £38,740). Group 1st May 2001 As previously reported Prior period adjustment As restated Profit transferred to reserves 30th April 2002 Company 1st May 2001 Profit transferred to reserves 30th April 2002 23 – 23 – 23 4,721 – 4,721 – 4,721 417 – 417 69,823 865 70,688 12,602 83,290 58,625 2,261 60,886 The cumulative amount of goodwill written off to reserves is £13,195,000 (2001 – £13,195,000). 22 Reconciliation of Movements in Shareholders’ Funds for the 12 months ended 30th April 2002 Profit for the financial year Dividends Issue of ordinary share capital (net of expenses) Net increase in shareholders’ funds Opening shareholders’ funds As previously reported Prior period adjustment As restated Closing shareholders’ funds 2002 £000 123,427 865 £000 21,721 (9,119) 12,602 153 12,755 124,292 137,047 2001 Restated £000 112,804 613 74,567 865 75,432 12,602 88,034 59,042 2,261 61,303 £000 19,056 (8,517) 10,539 336 10,875 113,417 124,292 24 Commitments Capital expenditure commitments: Capital expenditure contracted for but not provided in the accounts is as follows: Contracted for but not provided in the financial statements Financial commitments: As at 30th April 2002 the group had annual commitments to make payments under operating leases as follows: Leases expiring: within one year two to five years over five years 25 Pensions Group 2002 £000 225 2001 £000 98 2002 2001 Land and buildings £000 146 478 872 1,496 Other £000 234 628 42 904 Land and buildings £000 44 289 559 892 Other £000 506 262 9 777 The total pension cost for the group was £563,000 (2001 – £545,000). With effect from 1st April 1997 the former defined benefit schemes were merged and converted into a single defined contribution plan. After full provision for all liabilities arising on conversion, independent qualified actuaries estimated that a surplus of £500,000 was attributable to the company. This surplus was taken to the profit and loss account for the year ended 30th April 1997 as an exceptional credit to employment costs. The surplus is being used to fund the group’s contributions under the new defined contribution plan as they fall due. Accordingly an amount of £30,000 (2001 – £119,000) has been included as a pensions prepayment in the balance sheet. During the year ended 30th April 2002 the group only operated defined contribution arrangements. 40 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 41 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 19 FIVE YEAR FINANCIAL SUMMARY NOTICE OF ANNUAL GENERAL MEETING based on the consolidated financial statements for 12 months ended 30th April and adjusted to reflect the effect of subsequent changes in accounting policy. Profit and loss account Turnover Continuing activities Discontinued activities Operating profit before exceptional items Continuing activities Discontinued activities 2002 £000 277,829 – 277,829 45,055 – 45,055 2001 £000 261,801 – 261,801 42,569 – 42,569 2000 £000 218,286 – 218,286 37,942 – 37,942 1999 £000 184,753 – 184,753 28,620 – 28,620 1998 £000 153,632 14,815 168,447 27,238 3,057 30,295 Interest (13,381) (15,459) (13,617) (12,010) (10,671) Profit before exceptional items and taxation Exceptional items Profit before taxation Tax Profit for the financial year Dividends Retained profit Earnings per ordinary share Adjustment for exceptional items Adjusted earnings per ordinary share Dividends per ordinary share Balance sheet Assets employed Fixed assets Net current (liabilities)/assets Creditors (after one year) and provisions Financed by Share capital Share premium account Reserves 31,674 – 31,674 (9,953) 21,721 (9,119) 12,602 35.8p – 35.8p 15.0p 2002 £000 27,110 – 27,110 (8,054) 19,056 (8,517) 10,539 31.4p – 31.4p 14.0p 2001 £000 24,325 – 24,325 (7,328) 16,997 (8,039) 8,958 28.1p – 28.1p 13.25p 2000 £000 16,610 – 16,610 (5,080) 11,530 (7,561) 3,969 19.1p – 19.1p 12.5p 1999 £000 19,624 2,000 21,624 (5,881) 15,743 (7,066) 8,677 27.0p (3.4p) 23.6p 11.75p 1998 £000 344,924 (60,676) (147,201) 318,353 (51,625) (142,436) 294,788 (32,530) (148,841) 251,765 (14,905) (132,493) 197,985 9,481 (107,677) 137,047 124,292 113,417 104,367 99,789 3,542 45,471 88,034 3,539 45,321 75,432 3,532 44,992 64,893 3,530 44,902 55,935 137,047 124,292 113,417 104,367 3,516 44,307 51,966 99,789 165p Net asset value per ordinary share 225p 205p 187p 172p Notice is hereby given that the one hundred and fourth Annual General Meeting of Northgate plc will be held at Norflex House, Allington Way, Darlington at 11.30 am on 10th September 2002 for the following purposes: 1. 2. 3. 4. 5. 6. 7. To receive and adopt the directors’ report and audited accounts of the company for the year ended 30th April 2002. To declare a final dividend of 10.35p per ordinary share. To re-appoint Deloitte & Touche as auditors of the company and to authorise the directors to agree their remuneration. To re-elect Mr. A. T. Noble as a director. To re-elect Mr. R. Williams as a director. As special business to consider, and if thought fit, to pass the following resolutions: number 6 is to be proposed as an Ordinary Resolution and numbers 7 and 8 as Special Resolutions. That the Report on Remuneration for the financial year ended 30th April 2002 set out on pages 12 to 16 of the 2002 Annual Report and Accounts be approved. That the directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 (“the Act”), to allot equity securities (within the meaning of Section 94 of the Act) for cash, pursuant to the authority given in accordance with Section 80 of the Act by a resolution passed at the Annual General Meeting of the company held on 14th September 2000 as if Section 89(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: (a) the allotment of equity securities in connection with an offer of securities, open for acceptance for a period fixed by the directors, by way of rights to holders of ordinary shares and such other equity securities of the company as the directors may determine on the register on a fixed record date in proportion to their respective holdings of such securities or in accordance with the rights attached thereto (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise or with legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory or otherwise howsoever); (b) the allotment of equity securities in connection with any employees’ share scheme approved by the members in general meeting; and (c) the allotment (otherwise than pursuant to sub- paragraphs (a) and (b) above) of equity securities up to an aggregate nominal amount of £152,000. and shall expire at the conclusion of the Annual General Meeting of the company to be held in 2003 or, if earlier, fifteen months after the passing of this resolution except that the company may before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and notwithstanding such expiry the directors may allot equity securities in pursuance of such offers or agreements. 8. That the company be generally and unconditionally authorised to make market purchases (as defined in Section 163, Companies Act 1985) of its ordinary shares of 5p each provided that: (a) the company does not purchase under this authority more than 6,000,000 ordinary shares; (b) the company does not pay less than 5p for each share; (c) (d) (e) the company does not pay more for each share than 5% over the average of the middle market price of the ordinary shares according to the Daily Official List of the London Stock Exchange for the ten business days immediately preceding the date on which the company agrees to buy the shares concerned; this authority shall expire at the conclusion of the Annual General Meeting of the company to be held in 2003 unless such authority is renewed prior to such time; and the company may agree before the aforesaid authority terminates to purchase ordinary shares where the purchase will or may be executed (either wholly or in part) after the authority terminates. The company may complete such a purchase even though the authority has terminated. Dated 2nd July 2002 By Order of the Board D. Henderson Secretary Registered Office: Norflex House Allington Way Darlington DL1 4DY NOTES 1. Only the holders of ordinary shares registered in the register of members of the company as at 6.00 pm on 8th September 2002 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries on the register of members after that time shall be disregarded in determining the right of any person to attend and vote at the meeting. 2. A member entitled to attend and vote is entitled to appoint one or more proxies to attend and (on a poll) vote instead of him. A proxy so appointed need not also be a member. A two-way proxy card for this purpose is enclosed 42 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 43 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 21 INFORMATION FOR SHAREHOLDERS NOTES Classification Information concerning day to day movements in the price of the company’s ordinary shares is available on Cityline (09068 123456) code 2722. The company’s listing symbol on the London Stock Exchange is NTG. Market-makers The following companies have informed the London Stock Exchange that they make a market in the company’s shares: Altium Capital Ltd. Credit Suisse First Boston Equities Ltd. Dresdner Kleinwort Benson Securities Ltd. WestLB Panmure Ltd. Financial calendar January Announcement of interim results February Payment of interim dividend July Announcement of year end results Report and accounts posted to shareholders September Annual general meeting Payment of final dividend Secretary and registered office D Henderson FCIS Norflex House Allington Way Darlington Co. Durham DL1 4DY Tel: 01325 467558 Registrars Capita IRG plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0870 1623100 44 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 45 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 23 NOTES NOTES 46 Northgate plc annual report & accounts 2002 Northgate plc annual report & accounts 2002 47 Northgate AR&A 2002 Acounts JM* 19/7/02 12:14 pm Page 25 Find out the latest news and information about our business at www.northgateplc.com We have hire sites throughout the UK as well as one site in Dublin. Dialling 0870 607 77 17 connects you to your nearest site. For a quick and easy way to rent a van go to www.wannavan.com To find out more about our Norfleet products go to www.norfleet.co.uk Or you can ring or email for an information pack about all our products. Call: 01325 370209 Email: info@northgateplc.com 48 Northgate plc annual report & accounts 2002 

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