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 4 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 . Annual report and accounts 2004 NORFLEX House Allington Way Darlington DL1 4DY Telephone: 01325 467 558 Fax: 01325 363204 www.northgateplc.com Commercial vehicles for business Fleet growth 0 0 4 , 7 4 0 0 0 , 5 4 0 0 5 , 0 4 0 0 1 , 6 3 0 0 5 , 2 3 2000 2001 2002 2003 2004 Profit before tax £000 3 3 7 4 4 , 3 0 6 6 3 , 4 7 6 1 3 , 0 1 1 7 2 , 5 2 3 4 2 , 2000 2001 2002 2003 2004 EBITDA* *Earnings before interest, taxation, depreciation and amortisation £000 4 6 3 , 4 5 1 4 5 3 , 8 4 1 1 7 9 , 1 3 1 2 6 7 , 8 1 1 3 1 6 , 4 0 1 2000 2001 2002 2003 2004 Highlights contents Turnover Group operating profit Profit before tax Earnings per share Dividend per share Net assets per share 2004 2003 £355.6m £337.9m £55.7m £44.7m 50.9p 17.6p 295p £48.3m £36.6m 41.4p 16.0p 252p Contents Chairman’s Statement Operational Review Financial Review Directors Directors’ Responsibilities Report of the Directors Report on Remuneration Corporate Governance Report of the Auditors Financial Statements Accounting Policies Notes on the Accounts Five Year Financial Summary New Articles of Association Notice of Annual General Meeting Information for Shareholders Our Products 02 04 06 08 09 10 12 16 21 23 28 29 42 43 44 45 46 Northgate plc rents vehicles and sells a range of fleet products to businesses via a network of companies. www.northgateplc.com Chairman’s Statement Dear Shareholder, This financial year is the first year of our Strategy for Growth announced in July 2003 and covering the period to April 2006. I am pleased to report an excellent start, particularly in respect of the increase in earnings per share of 22.9% to 50.9p (2003 – 41.4p). Progress against the other specific targets in the plan is set out in the Operational Review by the Chief Executive which follows my statement. Based on these results and the Board’s view of future prospects, the Board We believe that the dynamics of the vehicle rental market in Spain offer has decided to recommend to shareholders a final dividend of 10.6p per the Group an exceptional opportunity to build on its initial success. We share. This will make the total dividend for the year 17.6p – an increase intend to build a substantial business in the Spanish market using Fualsa of 10% on last year, covered 2.8 times. The dividend will be payable on as a platform for expansion. How large a business we can develop is the 10 September 2004 to those shareholders on the register on 6 August 2004. question we are currently addressing in order to establish the framework Our UK business faced challenging trading conditions in the summer of for our strategy beyond April 2006. 2003 due to short term competitor pricing pressure. However, as a result of Our underlying philosophy will continue to be the prudent management of the actions taken by management, the business has not only produced a the Company’s assets in order to deliver long term sustainable growth. good set of results but also emerged stronger for the experience. In May, I advised the Company that it was my wish to stand down as Looking to the future, the UK business will continue to form the core of the Chairman no later than the AGM in 2005, but sooner if the Board had settled Group’s trading operations and we remain confident of our ability to expand on a suitable candidate as my successor. I have been either Chairman or our market share and business here. Our position as the leading van rental Chief Executive of the Group for nearly 20 years. With the help and support company in the UK leaves us well placed to take advantage of opportunities of my colleagues, most of whom today fill the top positions in the Company, that will arise to expand our fleet and network either via acquisition or the I have seen the Company’s market capitalisation and earnings increase establishment of new greenfield locations. The strengths of the business some twenty fold over this period. Shareholders have seen the dedication which brought us to this position and in particular our product Norflex, our and drive that the management have brought to the Company in the unique structure and the commitment and dedication of our employees, will delivery of our previous five year Strategy for Growth, which saw earnings be as valid to our future as they were to our past. As a management we will double during the period 1999 – 2003, and in the results for this year, the remain focused on the key measures of our business such as utilisation and first year of our new three year Strategy for Growth. I have no doubt that will look for the many small improvements that will ensure that we remain this commitment to shareholders will continue for the future. ahead of the competition. Finally, I want to thank all the men and women who work so hard to make The continued excellent performance of Fualsa, our Spanish rental Northgate such an outstanding company. Their commitment to serve the business, resulted in the exercise of our option to purchase a further 40% of the equity on 3 May 2004. As anticipated the consideration was e22.3m – the maximum payable under the terms of the purchase contract. In addition, we reached agreement to effect the early exercise of the option for the remaining 20%, which also took place on 3 May 2004. The consideration for this final 20% remains payable in 2006 and will be determined using a multiple of 8.5 times the average profits after tax for calendar years 2004 and 2005, subject to the maximum consideration payable being e14.9m. interests of customers, often under difficult circumstances, is a large measure of the Group’s success. Michael Waring Chairman 02 Northgate plc Annual Report & Accounts 2004 2 Northgate plc Annual Report & Accounts 2003 Earnings per share have increased by 22.9% in the first year of our three year Strategy for Growth increasing from 41.4p to 50.9p Northgate plc Annual Report & Accounts 2004 03 Operational Review Three Year Strategy for Growth In July 2003, we announced a new three year Strategy for Growth based on achieving the following targets by April 2006: Fleet size of 60,000 in the UK and 18,000 in Spain; Network of 100 locations in the UK and 20 in Spain; 100% ownership of Fualsa; An established portfolio of non-rental products. Aim Hire have been merged into our East Anglian business and Daman currently remains a stand-alone business. Excluding the effects of these acquisitions, fleet growth for the year was just over 3%. The new financial year has started well with fleet growth in the first two months, all from existing locations, being in line with our plan for the year ahead. HIRE RATES Through the successful implementation of the plan we are seeking to Once again hire rates have remained relatively stable over the year, in part achieve annual double-digit earnings per share growth. An increase in as a result of our decision not to discount aggressively to match quotes earnings per share of 22.9% in the year under review represents a good start. from contract hire companies last summer. Review of Current Year The Interim Statement in January detailed the challenging trading conditions experienced in the first half of the financial year as a result of short term competitor pricing pressure. As a consequence management As we outlined last July, our three year Strategy for Growth does not envisage any material improvement in hire rates, with increased profitability being driven in the main by growth in the fleet and cost efficiencies. took a prudent approach to the purchase of new vehicles and the opening Whilst low inflation and low interest rates create an environment where the of new locations with the result that fleet growth was limited. Despite opportunities to increase prices are limited, they do, of course, also impact these conditions, pre-tax profits and earnings per share for the six months positively on our costs and margins. However, if interest rates increase, to 31 October 2003 saw good improvements due to tight cost control and it may be possible to improve our hire rates but it is more likely that we increased operational efficiency. The second half of the year has been much more positive, with growth in can achieve additional fleet growth on the back of competitors and, in particular, contract hire companies being forced to increase their prices. both the network and the fleet being more in line with our expectations. UTILISATION DEPOT NETWORK We currently operate from 36 primary and 39 branch locations. We have Utilisation, which averaged just over 89% for the year, remains the key management tool within the business. opened new locations in Aldershot, Crawley, Droitwich, Glasgow and Newport The overall percentage masks a variation between utilisation in established during the financial year and Wakefield since the year-end. All of these (i.e. greater than two years old) and new (i.e. less than two years old) locations are branches operating as satellites of existing hire companies. locations of 89.3% and 85.3% respectively. We continue to look at consolidating businesses where we feel this will Consequently there remains an opportunity to improve utilisation as the lead to efficiencies without detracting from customer choice and service. network matures. During the year our businesses in Plymouth and Bristol were merged to trade under the new style – Bristol & West Vehicle Hire Limited. Of the 75 sites in the Group, 18 have been open for less than two years and, in our terms, are not yet mature, thereby offering greater growth USED VEHICLE SALES The used vehicle market had another relatively stable year, enabling us to continue to achieve profits from this area of our business throughout the year. The average profit per vehicle was at a similar level to that of the prior potential than for more mature locations. We will continue to expand the year. network through greenfield sites (in the main, satellites) and, where appropriate, selective acquisitions. VEHICLE FLEET We sold 18,700 units, up from 18,000 the previous year. The opening of our remarketing centre in Carnaby (near Bridlington) in November 2003 expanded our channels to market which now cover the full spectrum of Despite a difficult first half to the financial year, the fleet grew by 2,400 trade, semi-retail and retail. We are looking to open a further remarketing vehicles in the year to close at 47,400 vehicles (2003 – 45,000 vehicles). centre in the West Midlands in the medium term. In addition to our In what is traditionally for us a quieter second half, fleet growth was Carnaby remarketing centre we sell vehicles from three other dedicated 1,700 vehicles. Two small acquisitions were made towards the end of the financial year sales locations in the UK – Darlington, Snodland in Kent and Banbury, as well as direct from selected hire locations. and contributed 1,000 vehicles to the increase in fleet size. In March we Last year saw 6% of our disposals go through a refurbishment process bought the assets of Aim Hire Limited based in Peterborough and on into the semi-retail or retail channel: our aim remains to increase this 30 April we purchased the equity of F Herriman & Sons Limited trading percentage over the next couple of years to around 15% of the Group’s UK as Daman Vehicle Rental based in Runcorn in Cheshire. The assets of disposals. 04 Northgate plc Annual Report & Accounts 2004 NORTHGATE VEHICLE SOLUTIONS The third leg of our Strategy for Growth is based on growing our non-rental but vehicle-related products through a new division called Northgate Vehicle Solutions. The business was relocated to Darlington last summer significantly improving the service levels we offer customers. Our vehicle monitoring product, branded as Insight, continues to be of value to an ever-growing number of our customers and is now fitted to 1,400 of our vehicles, up from 750 on 1 May 2003. FUALSA (SPAIN) The year saw further expansion of the network with sites rolled out in North Madrid, Santander and La Coruna. Since the year-end, we have opened in Murcia, which brings our total number of locations to 12. There remains much scope for further greenfield development and infill and we remain confident of achieving our target of 20 locations by April 2006. The fleet closed at 15,000 on 30 April 2004, an increase of 25% over the prior year and 50% since our initial investment in July 2002. As in the UK, the overall utilisation rate of 88% is held back slightly by the lower rates of utilisation as the network continues to expand. Of the 12 depots operated by Fualsa, six have been opened during the last two years. Hire rates have seen modest increases of 1% over the last 12 months. This increase is similar to that achieved in the period from July 2002 to April 2003. As a result of the healthy fleet growth and good utilisation, Fualsa delivered a contribution (before goodwill amortisation) of £3.3m (2003 – £1.9m) to our pre-tax profits. Current Trading and Outlook Trading for the Group since the year-end has been in line with our expectations. As mentioned in the Chairman’s Statement, in the UK we cannot become complacent and need to remain focused on those areas where we can drive through further efficiencies and thereby improve our business further. The challenges in Spain come in growing the fleet, whilst diversifying from the current bias towards the construction sector, together with the further development of people and processes to create a structure for sustainable long term growth. It is likely that the Group will achieve a higher profit per unit through operational gearing effects than was first envisaged at the start of the three year Strategy for Growth but may fall short of the original target of 60,000 vehicles in the UK by April 2006. However, the vehicle fleet in Spain is likely to exceed our target of 18,000 vehicles given the rate of growth that is currently being experienced. We are confident that the overriding goal of our plan, namely to achieve annual double-digit earnings per share growth, remains achievable. Steve Smith Chief Executive Earnings per share (p) . 9 0 5 4 . 1 4 8 . 5 3 4 . 1 3 1 . 8 2 2000 2001 2002 2003 2004 Northgate plc Annual Report & Accounts 2004 05 Financial Review Financial Reporting SALES, MARGINS AND RETURN ON CAPITAL Group return on equity, calculated as profit after tax divided by average shareholders’ funds, is 18.3% (2003 – 17.3%). Turnover increased by 5.3% to £355.6m (2003 – £337.9m) excluding turnover TAXATION from the Fualsa joint venture. This increase in turnover is in line with the The Group’s UK operations have a total tax charge of 31% (2003 – 31%) modest increase in fleet size achieved during the financial year. which is slightly higher than the standard rate of 30% due to disallowable The composition of the Group’s UK turnover and operating profit as expenditure incurred within the business. between hire company activities and vehicle sales is set out below: The Fualsa joint venture tax rate of 12% (2003 – 25%) is below the standard Turnover Hire company sales Sale of vehicles Operating profit Hire company sales Sale of vehicles UK operating profit 2004 £000 250,747 104,877 355,624 52,213 3,533 55,746 2003 £000 243,627 94,248 337,875 44,926 3,353 48,279 The Group’s reported operating margin has increased to 15.7% (2003 – 14.3%). This improvement in the overall margin is as a result of the Group’s underlying margin in its hire companies improving to 20.8% (2003 – 18.4%). Spanish tax rate of 35% because of tax concessions based on vehicle purchase reliefs that are available to the business. Given the significant growth in the Fualsa fleet, the relief available has reduced the Fualsa tax charge to this lower level. As long as these tax concessions remain available it is likely that the tax rate for Fualsa will remain below the standard rate, although it is anticipated that in future years the tax rate will be more in the range of 20% to 30% of profit before tax rather than the current very low rate. DIVIDEND The Directors recommend a final dividend of 10.6p per share (2003 – 11.1p) giving a total for the year of 17.6p (2003 – 16.0p) – an increase of 10%. The dividend is 2.8 times covered (2003 – 2.6 times). The Board’s intention is that annual dividend payments should in the future be spread as to approximately 40% in the interim and 60% in the final. As highlighted in last year’s Financial Review, the Group’s hire company EARNINGS PER SHARE operating margin in 2003 was diluted by incurring a number of non- Earnings per share increased by 22.9% to 50.9p (2003 – 41.4p). recurring costs and further investment costs associated with the continued development of the Group’s network. The increasing number of depots reaching maturity has started to reverse the margin dilution experienced last year. In addition to tight cost controls, the Group has also benefited from economies in purchasing being reflected in lower capital costs feeding through to reduced depreciation. The profit generated from used Basic earnings per share have been calculated in accordance with FRS14. The weighted average number of shares in issue during the year has been amended to exclude those Ordinary shares held by the Employee Benefit Trust in Guernsey for the Company’s various share schemes until such time as they rank for dividend. vehicle sales has increased in line with vehicle sales turnover at a similar INVESTMENTS margin of 3.4% (2003 – 3.6%). This represents an operating profit per vehicle On 16 July 2002 the Company acquired 40% of the equity of Fualsa in sold of £189 (2003 – £186). The Group’s share of Fualsa’s profit before tax and goodwill amortisation for the year increased to £3.3m (2003 – £1.9m). This continues the strong Spain for a consideration of £10.2m. This investment has been treated as a joint venture within the Group’s accounts to reflect that the Company has joint management control of Fualsa. It is disclosed in the consolidated performance of Fualsa, achieved primarily through fleet growth of 25%. balance sheet as ‘Investment in joint venture’. Fualsa’s operating margin of 18.5% (2003 – 18.1%) has been enhanced by non-recurring profits on vehicle disposals of which the Group’s share is The Company’s option to acquire the remaining 60% of the equity of Fualsa was exercised in full after the Group’s financial year-end on 3 May 2004 as estimated to be £0.7m for the year. These profits arose on the disposal of detailed in the Chairman’s Statement. vehicles acquired prior to 1 January 2001 to which historically excessive On 30 April 2004 the Group acquired 100% of F Herriman & Sons Limited depreciation rates had been applied. Depreciation rates complying with trading as Daman Vehicle Rental, a UK vehicle hire operation in the North revised fiscal legislation have been applied to all vehicles acquired since West of England for a total cash consideration (including the bank 1 January 2001 and have resulted in levels of profit per unit on disposal overdraft acquired) of £1.1m. closer to those generated in the UK. Ordinary shares of the Company have been acquired in the open market Group return on capital employed, calculated as Group operating profit by Kleinwort Benson (Guernsey) Trustees Limited in order to satisfy the divided by average capital employed (being shareholders’ funds plus net Company’s obligations under its various share schemes. These shares are debt), is 13.9% (2003 – 12.9%). included within the Group’s balance sheet as investments. 06 Northgate plc Annual Report & Accounts 2004 GOODWILL The Group amortises goodwill acquired over its useful life up to a maximum of 20 years. The goodwill that has been paid for the initial 40% equity in Fualsa is being amortised over 20 years. This gives rise to a goodwill amortisation charge in the year of £0.2m relating to Fualsa. Following the acquisition of the remaining 60% of Fualsa’s equity on 3 May 2004, the ongoing goodwill amortisation charge relating to Fualsa is estimated to be £0.7m per annum. strategy is to use medium and long term debt to finance the Group’s vehicle fleet, other capital expenditure and acquisitions. Working capital is funded by internally generated funds and an overdraft facility. The Group’s interest rate exposure is managed by a series of treasury contracts as described below. TREASURY MANAGEMENT Each of the Group’s operations is responsible for its own day-to-day cash management. The funding arrangements of the Group (excluding Fualsa) with asset finance companies and banks are negotiated and monitored Further goodwill amortisation of £0.07m was charged to the profit and loss centrally. The funding arrangements for Fualsa will be brought under the account relating to UK businesses acquired. Following the business central treasury management function in the near future. All funds acquisitions during the year ended 30 April 2004 the ongoing goodwill generated by the Group’s operations are controlled by a central treasury amortisation charge relating to UK businesses is estimated to be £0.2m per annum. CAPITAL STRUCTURE function. LIQUIDITY The Group’s aggregate finance facilities, excluding the Fualsa joint The Company issued 3,040,000 Ordinary shares on 14 January 2004 via a venture, total £446m compared to net debt of £250m. These facilities have 5% Placing at 545p per share raising £16m (net of expenses) in order to been comprised historically of up to 80% of hire purchase funding with the fund future acquisitions in the UK and Europe. Partly as a result of these balance of the facilities being revolving loans and overdraft. In order to additional funds the Group’s total gearing (excluding Fualsa which was secure longer term funding and improve efficiency, some of the hire not a subsidiary undertaking at 30 April 2004) decreased to 132% (2003 – purchase funding was replaced as a result of the Group entering into a five 175%). The gearing ratio is calculated after taking into account net cash year £100m medium term loan with The Royal Bank of Scotland plc and balances of £46.2m (2003 – £31.5m). Barclays Bank plc in April 2004. This loan is subject to similar covenants to As at 30 April 2004 the Fualsa joint venture had £25m of shareholders’ funds and £86.7m of net debt. If it were assumed that the Group’s option to acquire the remaining 60% of Fualsa’s share capital had been exercised on 30 April 2004 at the maximum consideration payable, the resulting consolidated balance sheet of the Group would have had gearing of 190% on a pro forma basis. Treasury CASH FLOWS the existing revolving loans: the main covenant of interest cover is comfortably achieved. INTEREST RATE MANAGEMENT The Group has variable rate interest agreements for all of its UK borrowings. Historically, it has sought to manage this risk by having in place a number of financial instruments covering 30% to 40% of its borrowings. Some of the earlier financial instruments are at levels 2% to 4% above prevailing base rates and as a consequence the Group increased this coverage to 76% of gross borrowings by entering into additional The Group’s net debt, excluding the debt contained in the Fualsa balance interest rate derivatives in May and June 2003. Five year swaps to cover sheet, decreased to £249.8m (2003 – £268.4m) reflecting the Placing of £45m of debt at an average rate of 3.97% were contracted for as were five Ordinary shares in January 2004 and the underlying strong cash flow. Gross year interest rate collars covering £55m of debt with a range of 3.15% to 5.5%. cash generation as reflected by EBITDA* increased to £154m (2003 – £148m). Based on the UK’s closing net debt position of £250m at 30 April 2004 and *EBITDA – Earnings before interest, taxation, depreciation and amortisation. LIBOR at that date, a 1% increase in LIBOR would generate an additional INTEREST COSTS The Group’s net interest costs increased by 2.2% to £15.4m (2003 – £15.0m). This increase is solely due to the Group’s share of interest costs in the Fualsa joint venture increasing to £1.3m (2003 – £0.8m) as a result of Fualsa’s fleet growing by 25% during the financial year. The underlying interest costs in the UK decreased to £14.1m (2003 – £14.2m) primarily as a result of proceeds received from the 5% Placing of Ordinary shares, lower interest rates in the early part of the financial year and the strong cash flow referred to above. £2.5m per annum of interest costs if financial instruments were not in place. The table below indicates the additional annual funding costs to the Group at this level of debt following increases in LIBOR for a range between 1% to 3% after applying the benefits of the Group’s existing financial instruments: Increase in LIBOR Additional UK Interest costs 1% 2% 3% £1.5m £2.5m £3.3m STRATEGY The Group’s financing strategy has been approved by the Board. This Gerard Murray Finance Director Northgate plc Annual Report & Accounts 2004 07 Directors Michael Waring (57) Became Non-Executive Chairman in October 1999, having been Executive Chairman since February 1996. Previously Chief Executive of the Group since 1985. Stephen Smith ACA (47) 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 the Company. Jan Astrand MBA (57) 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. Philip Rogerson (59) Appointed to the Board as a non-executive Director in November 2003. He is Chairman of Viridian Group plc and Aggreko plc and a non-executive Director of a number of other companies. He was Deputy Chairman of BG plc (formerly British Gas plc) until February 1998 having been a Director since 1992. Ronald Williams FCA (70) A non-executive Director and Deputy Chairman since March 1996. Prior to his appointment he was for eight years an executive Director of Smiths Group plc. Board Committees Audit Ronald Williams (Chairman until 5 July 2004) Jan Astrand Philip Rogerson (Chairman from 5 July 2004) Remuneration Jan Astrand (Chairman from 10 March 2004) Philip Rogerson Ronald Williams (Chairman until 10 March 2004) Phil Moorhouse FCCA (51) Appointed Managing Director, UK Rental operations in January 2003, having been Finance Director since February 1998 and a member of the Board since August 1997. Joined the vehicle hire division in 1991 as Finance Director. He previously held a number of senior financial positions within the Norcros group of companies and Meyer International. Nomination Ronald Williams (Chairman) Jan Astrand Philip Rogerson Stephen Smith Michael Waring Gerard Murray ACA (41) Appointed Group Finance Director in January 2003. Qualified as a Chartered Accountant with Arthur Andersen & Co before joining Reg Vardy plc in 1988, where he served as Finance Director from 1991 to 2001 and as Chief Executive from 2001 to 2002. Alan Noble (53) Executive Director since 1990. In 1981 he founded the commercial vehicle hire business, which was acquired by the Company in 1987. 08 Northgate plc Annual Report & Accounts 2004 Directors’ Responsibilities IN RELATION TO THE PREPARATION OF THE ACCOUNTS The following statement, which should be read in conjunction with the The Directors are responsible for ensuring that the Company keeps statement of auditors’ responsibilities set out on page 21, is made with a adequate accounting records and for safeguarding the assets of the Group view to distinguishing for shareholders the respective responsibilities of and hence for taking reasonable steps for the prevention and detection of the Directors and auditors in relation to the accounts. fraud and other irregularities. The Directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year 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 and prudent judgements and estimates and that all accounting standards which they consider to be applicable have been followed. 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. Northgate plc Annual Report & Accounts 2004 09 Report of the Directors The Directors present their report and the audited financial statements for time of the Annual General Meeting will therefore have served on the the year ended 30 April 2004. Board for over eight years. In light of Mr Waring’s stated intention to stand down as Chairman no later than the Annual General Meeting in 2005, Mr Williams has agreed to remain on the Board, subject to shareholder approval, for a period of up to six months after the appointment of a new Chairman, in order to provide continuity, following which he would also stand down. The termination provisions in respect of executive Directors’ contracts are set out in the Report on Remuneration on page 12. 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. Results Profit for the year after taxation was £31,430,000 (2003 – £25,106,000). An interim dividend of 7.0p per share was paid on the Ordinary shares on 13 February 2004. The Directors recommend a final ordinary dividend of 10.6p per share making a total for the year of 17.6p per share. The final dividend, if approved, will be paid on 10 September 2004 to shareholders on the register at close of business on 6 August 2004. Ordinary and preference dividends paid and recommended for payment in respect of the year total £11,064,000 (2003 – £9,736,000). Principal activities The Company is an investment holding company. The Group’s activities are reported on pages 4 to 7. Fualsa Details of the acquisition of the remaining 60% of the share capital of F M Waring S J Smith J Astrand Furgonetas de Alquiler SA on 3 May 2004 are given in Note 18 to the P J Moorhouse accounts on page 38. 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. G T Murray A T Noble P Rogerson R Williams ORDINARY SHARES 1 May 2003 30 April 2004 1,663,767* 1,663,767* 73,007 – 43,674 4,000 71,729 – 44,396 10,000 821,015 731,737 –† 5,000 – 5,000 Interests in shares *5,767 (2003 – 5,767) shares are held beneficially. The interest of Mr Waring in the remainder is as a discretionary beneficiary The following interests of 3% or more in the issued Ordinary share capital of various family trusts. of the Company appear in the register required to be maintained under the † On appointment provisions of Section 211 of the Companies Act 1985: NUMBER OF SHARES Capital Group Companies Inc 3,104,371 (4.8%) Legal & General 1,921,541 (3.0%) Directors The names of the present Directors are listed on page 8. All have No Director has an interest in the preference shares of the Company. No changes in the above interests have occurred between 30 April 2004 and the date of this report. Details of options held by the Directors under the Company’s various share schemes are given in the Report on Remuneration on pages 12 to 15. Donations served throughout the year except Mr Rogerson who was appointed on The Group made charitable donations of £25,000 (2003 – £17,000). 5 November 2003. Mr Waring and Mr Astrand are retiring by rotation in No political donations were made. accordance with the Articles of Association and with the requirements of the Combined Code and, being eligible, are seeking re-election. Mr Williams is aged 70 and is therefore retiring in accordance with the provisions of section 293 Companies Act 1985. Special notice, in accordance with the provisions of section 379 Companies Act 1985, has been given of the intention to propose his re-election at the Annual General Meeting. Mr Williams was first appointed to the Board in March 1996 and by the 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 30 April 2004 the Group’s creditor days were 39. Remuneration report As required by the Directors’ Remuneration Report Regulations 2002, 10 Northgate plc Annual Report & Accounts 2004 the Report on Remuneration, set out on pages 12 to 15 of these Report and Accounts, will be put to shareholders for approval at the Annual General Meeting. Share Capital Articles of Association The present Articles of Association were adopted in 1994, since when there have been changes in company law and practice and in corporate governance. The Company’s authorised share capital was last increased in September Accordingly, the Directors consider it appropriate for the Company to adopt 2000. Since that time, 217,000 Ordinary shares have been issued pursuant entirely new Articles of Association. to the exercise of options under the Goode Durrant Share Option Scheme The principal differences between the present and the proposed new and 3,040,000 Ordinary shares were issued in January 2004 pursuant to a cash placing. In order to maintain a reasonable margin of unissued share capital it is proposed that the authorised share capital of the Company be Articles of Association are summarised on page 43. A copy of the proposed new Articles of Association will be available for inspection at the Company’s registered office until 8 September 2004 and also at the Annual General increased to £4.9m by the creation of five million new Ordinary shares of 5p Meeting. Copies are also available to shareholders on request and can be each. Following this increase, approximately 21 million Ordinary shares will viewed on the Company’s web site. A special resolution adopting the new be available for issue, representing 32.7% of the present issued Ordinary Articles of Association will be proposed at the Annual General Meeting. share capital. The present authority of the Directors under Section 80 of the Companies Act 1985 to allot unissued shares was granted at the Annual General Meeting held in September 2000 and expires on 14 September 2005. A resolution to renew that authority for a further period of five years until 8 September 2009, to allot up to £1,048,283 nominal of share capital, which represents all the authorised and unissued Ordinary share capital (and is less than 33% of the present issued Ordinary share capital) will be proposed at the Annual General Meeting. This amount is within the limits approved by the Investment Committees of the Association of British Insurers and the National Association of Pension Funds. The Directors have no present intention of exercising such authority and no issue of shares which would effectively alter the control of the Company will be made without the prior approval of shareholders at general meeting. A special resolution, pursuant to Section 95 of the Companies Act 1985, will be proposed to renew the authority of 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 £160,000 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 All Employee Share Scheme The Company’s All Employee Share Scheme provides a means for employees to acquire shares in the Company on favourable terms (see Report on Remuneration, page 15). Employees who invest their own money in the Company’s shares from pre-tax income receive a matching award of shares. On cessation of employment, the matching shares may be forfeited but there are certain “compassionate circumstances” where they can be retained (and where the tax benefits available for the purchased shares are also retained). One of these compassionate circumstances is retirement at an age specified in the scheme and the scheme rules currently specify an age of 65. Recognising that there is still a differential (albeit reducing but not equalising until 2020) in the state pension ages for men and women and that, in practice, many women retire before men, it is proposed that the retirement age specified in the scheme rules is reduced. Although it is an Inland Revenue requirement that the scheme rules contain a specified retirement age, which must be the same for men and women, this can be any age not less than 50, which is the current normal minimum pension age. However, under legislation contained in the Finance Bill 2004, the government is proposing to increase the normal minimum pension age from 50 to 55, with effect from 2010. As the Board considers that, in the context of the scheme, age 50 is too low, it is therefore proposed that the retirement age for the purposes of the scheme is fixed at 55. A resolution to this effect will be proposed at the Annual General Meeting. Auditors The Directors propose to renew the general authority of the Company to A resolution for the re-appointment of Deloitte & Touche LLP as auditors of make market purchases of its own shares to a total of 6,400,000 Ordinary the Company will be proposed at the forthcoming Annual General Meeting. 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. By order of the Board D Henderson Secretary 5 July 2004 Northgate plc Annual Report & Accounts 2004 11 Report on Remuneration Remuneration committee The Remuneration Committee 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 members of the Committee are Mr Williams (Chairman until 10 March 2004), Mr Astrand (appointed Chairman on 10 March 2004), both of whom served throughout the year and Mr Rogerson (appointed to the Committee on 6 January 2004). The Committee consults with the Chairman of the Board and with the Chief Executive who may be invited to attend meetings. The Company Secretary is secretary to the Committee. The Committee has access to external independent advice on matters relating to remuneration. During the year the Committee took advice from New Bridge Street Consultants in relation to the remuneration packages of the executive Directors and senior management. 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 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. In the event of early termination of an executive Director’s service contract, compensation of up to the equivalent of one year’s basic salary and benefits may be payable: there is no contractual entitlement to compensation beyond this. Directors have a duty to make reasonable efforts to mitigate any loss arising from such termination and the Committee will have regard to that duty on a case by case basis when assessing the appropriate level of compensation which may be payable. It is also the Board’s policy that where compensation on early termination is due, in appropriate circumstances it should be paid on a phased basis. Basic salaries The current basic salaries paid to the executive Directors are as follows: S J Smith P J Moorhouse G T Murray A T Noble £275,000 £210,000 £190,000 £163,000 All were last reviewed on 1 May 2004. External appointments The Board recognises that executive Directors may be invited to become non-executive Directors of other companies and that such appointments can broaden their knowledge and experience, to the benefit of the Group. Provided that it does not impact on their executive duties, Directors are generally allowed to accept one such appointment. As the purpose of Basic salaries are normally reviewed annually taking into account the seeking such positions is self-education rather than financial reward, any performance of the individual, changes in responsibilities and market trends. resulting fees would normally be expected to be paid to the Company as Flexible benefits scheme A flexible benefits scheme was introduced on 1 May 2002 which is designed compensation for the time commitment involved. Non-executive Directors to help in the recruitment and retention of employees by allowing them to The remuneration of the non-executive Directors is determined by the Board tailor their remuneration package to best suit their individual needs. as a whole, within the overall limit set by the Articles of Association. Non- In particular, it enables company car users to mitigate the effects of the benefit in kind taxation system for company cars which is based on CO2 executive Directors are not eligible for performance related payments nor may they participate in the Company’s share option or pension schemes. emission levels. Service contracts The executive Directors have rolling service contracts which may be Non-executive Directors do not have contracts of service with the Company and their appointments are terminable without notice. The current fees paid to the non-executive Directors are as follows: terminated by 12 months notice on either side. F M Waring Chairman The dates of the contracts are: S J Smith P J Moorhouse G T Murray A T Noble 8 January 2003 8 January 2003 8 January 2003 9 June 2004 12 Northgate plc Annual Report & Accounts 2004 £85,000 £36,000 R Williams Deputy Chairman and Chairman of Nomination Committee J Astrand Chairman of Remuneration Committee £29,000 P Rogerson Chairman of Audit Committee £29,000 Subject to the approval by shareholders at the Annual General Meeting to be held in September of the proposed new Articles of Association, which include, inter alia, an increase in the cap on Directors’ fees (see summary a constituent of the FTSE 250 index, that index (excluding investment of changes on page 43), it is proposed that the fees payable to the non- companies) is considered to be the most appropriate benchmark. executive Directors be increased, with effect from 1 May 2004, as follows: F M Waring R Williams J Astrand P Rogerson £95,000 £40,000 £49,000 £34,000 In the case of Mr Astrand, the above proposed fee includes an amount of £15,000 in recognition of the additional time commitment required following his appointment as a non-executive Director of Fualsa with effect from 3 May 2004. The Board do not consider that this appointment in any way affects his independence. Pension schemes Throughout the year all pension arrangements operating throughout the Group were defined contribution schemes. Performance graph Total Shareholder Return Source: Thomson Financial 160 140 120 100 80 60 40 20 0 Northgate plc FTSE Mid 250 (Excl. inv. Trusts) Index 30-Apr-99 30-Apr-00 30-Apr-01 30-Apr-02 30-Apr-03 30-Apr-04 This graph shows the value, by the 30 April 2004, of £100 invested in the Company on 30 April 1999 compared with that of £100 invested in the FTSE Mid 250 (Excl. inv. Trusts) Index. The other points plotted are the values at intervening financial year-ends. As required by The Directors’ Remuneration Report Regulations 2002, this graph illustrates the performance of Northgate plc measured by Total Shareholder Return (share price growth plus dividends paid) against a The mid-market price of the Company’s Ordinary shares at 30 April 2004 was 624p (30 April 2003 – 416p) and the range during the year was 416p to ‘broad equity market index’ over the last five years. As the Company is 645p. The following elements of this report have been audited. EMOLUMENTS Salary/ fees £000 Bonus £000 Cost of Chargeable expenses £000 benefits* £000 85 240 29 200 160 158 15 36 923 – 96 – 50 43 16 – – 205 – 24 – 25 22 25 – – 96 – 1 – 3 – 1 – – 5 2004 total £000 85 361 29 278 225 200 15 36 1,229 2004 Pension 2003 2003 Pension total contributions† contributions† £000 £000 £000 75 282 26 241 53 182 – 33 892 – 26 – 28 14 22 – – 90 – 21 – 20 4 22 – – 67 F M Waring S J Smith J Astrand P J Moorhouse G T Murray A T Noble P Rogerson R Williams Total emoluments excluding pension contributions Total pension contributions *These benefits include: company car, private medical insurance, permanent health insurance, life assurance and spouses death in service pension. † All contributions are to a defined contribution type scheme. Northgate plc Annual Report & Accounts 2004 13 Report on Remuneration Executive incentive scheme The EIS, introduced in 1999, was designed to motivate those key executives in the Group most able to influence the successful implementation of our five year Strategy for Growth, with a target to double the size of the business over the period 1999 – 2004. As measured by earnings per share, we achieved that target in 2003, one year ahead of expectations. As the EIS was specifically aligned to that strategy plan, it has been decided that no further options will be awarded under the EIS, the last options being granted in January 2002. above, options over 808,500 shares granted to 39 employees at exercise prices ranging from 367.5p to 523p were outstanding at 30 April 2004. Northgate share option scheme The Northgate Share Option Scheme (“the NSOS”) was introduced in 2000 and operates on broadly similar lines to the EIS. The NSOS is designed to provide incentives, in the form of Ordinary shares in the Company, to selected employees at managerial level. Although Directors, (with the exception of Mr Murray who does not participate in the EIS) and certain other management at a senior level have not An award under the EIS consists of a right to acquire Ordinary shares of previously participated in the NSOS (as their share incentives in recent the Company at a pre-determined price which, in normal circumstances, years have been provided under the EIS), it is intended that, from can be exercised, subject to a specified performance condition being July 2004, longer term incentives for Directors and senior executives satisfied, between four and ten years following the date of grant. (currently numbering approximately 12 in total) be provided by a modest For all the options to become exercisable, the Company’s normalised level (up to 50% of basic salary per annum) of option grants under the earnings per share growth over the five year period following their grant NSOS: this would be in addition to participating in the new DABP (see should exceed 15% per annum. These options will normally only first below). From July 2004, middle management will no longer participate in become exercisable in full on the seventh anniversary of their grant and the NSOS, instead being incentivised under the DABP. will lapse if they do not meet the prescribed level of growth over the five years. However, they become capable of earlier exercise in tranches of The principal differences between the NSOS and the EIS are: 20%, 25% and 25% on the fourth, fifth and sixth anniversaries of their grant i) the maximum individual allocation over a ten year period is limited if earnings per share growth has been at least 15% per annum over the to four times annual earnings (EIS – eight times); two, three and four years following their grant respectively. Partial exercise ii) subject to the performance criteria being satisfied, options may be of these options over a sliding scale is permitted for growth in earnings per exercised between three and five and a half years from the date of share of between 8% and 15% per annum over these periods. grant (EIS – four to ten years); and In September 2003 the first tranche of 20% of options became exercisable, the performance condition having been satisfied. For this tranche to be exercisable in full a growth in earnings per share over the two financial years from 1 May 1999 to 30 April 2001 of at least 15% per annum compound was required: the actual growth achieved was 28.2%. 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 three years (EIS – earnings per share growth of 15% per annum over five years but with partial exercise over a sliding scale for growth between 8% and 15%). The aggregate value (in each case being the exercise price multiplied by the number of options) of options granted to an individual in the preceding ten years under the EIS and under any other executive share option scheme Mr Murray was awarded 50,000 options under the NSOS at an exercise price of 380p following his appointment to the Board in January 2003. These options are normally exercisable between January 2006 and July adopted by the Company may not exceed eight times their annual earnings. 2008. Waived and exercised options continue to count towards this limit. In addition, options over 335,850 shares granted to 61 employees at The Directors hold the following options granted under the EIS: exercise prices ranging from 403.5p to 524p were outstanding at No. of options Exercise price (p) 30 April 2004. S J Smith 180,000 492.5 Deferred annual bonus plan P J Moorhouse 180,000 492.5 A new Deferred Annual Bonus Plan (“DABP”) was introduced last year A T Noble 174,050 492.5 5,950 503.5 180,000 for Directors and senior and middle management. Part of the bonus will be delivered in cash and will be payable immediately after the year end and part (not normally exceeding 50% of basic salary) in the form of All the above options are normally exercisable between September 2003 shares with the first share award being made following the and September 2009. No Directors were granted options under the EIS announcement of the Group’s results on 6 July 2004. during the year, none lapsed and none were exercised. In addition to the 14 Northgate plc Annual Report & Accounts 2004 The shares will be retained in an employee benefit trust for three years To participate in the AESS, which operates on a yearly cycle, employees and be subject to forfeiture if the employee leaves during that time. This are required to make regular monthly savings (on which tax relief is will provide a stronger retention mechanism than share options and has obtained), by deduction from pay, for a year at the end of which these the motivational benefits of certainty and clarity for the employee. During payments are used to buy shares in the Company (“Partnership shares”). the retention period, executives continue to have an incentive to influence For each Partnership share acquired, the employee will receive one the share price so as to maximise the value on release. additional free share (“Matching shares”). Matching shares will normally The bonuses for executive Directors upon which these awards will be made will be based upon business and individual performance, including elements based on cash flow and a target of growth in earnings per share of between 3% and 10% above inflation. For the financial year ended 30 April 2004, the bonuses payable to the executive Directors under the DABP determined by the Remuneration Committee in accordance with the criteria referred to above are as follows: be forfeited if, within three years of acquiring the Partnership shares, the employee either sells the Partnership shares or leaves the Group. After this three 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 two years. Those employees who are most committed to the Company will therefore receive the most benefit. The third annual cycle ended in January 2004 and resulted in 425 employees acquiring 86,038 Partnership shares at 414.5p each and being Cash Shares allocated the same number of Matching shares. Value % of Maximum Value % of Maximum % % (£) basic salary (£) basic salary S J Smith 96,000 P J Moorhouse 50,000 G T Murray 43,200 40 25 27 50 108,000 40 30 72,000 43,200 45 36 27 50 40 30 The number of shares to be awarded will be calculated based on the closing mid-market price on 6 July 2004, being the date of the Preliminary Results Announcement. As at 30 April 2004 the Trust held 406,832 Ordinary shares that have vested to employees from the first three cycles. The fourth annual cycle started in January 2004 and currently some 500 employees are making contributions to the scheme at an annualised rate of £430,000. Goode Durrant share option scheme At 30 April 2004 there were no options remaining outstanding under this For the financial year 2004/05 the criteria and maximum awards will be the scheme. On 25 July 2003 Mr F M Waring exercised 100,000 options at same as for 2003/04 except that Mr Murray’s award will be capped at 40% for both cash and shares. 218.5p when the market price was 495p. The total gross gain on exercise was therefore £276,500. There were no performance conditions attached to Due to Mr Noble’s absence through illness for a significant part of the year, this scheme. No further options can be awarded under this scheme. the Remuneration Committee did not feel it appropriate that he participate in the DABP: instead, he was awarded a cash bonus of 10% of basic salary, Long term incentive plan based on business and individual performance. Any bonus awarded to Mr Noble will continue to be on this basis in the future. For other levels of management bonus levels will be based on a combination of the performance of the relevant business unit and individual key performance indicators and the maximum amounts, again expressed as a percentage of basic salary and split equally between cash and shares, range from 20% to 60% in total. 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 Trustees Limited. At 30 April 2004 options over 886 Ordinary shares capable of exercise remained outstanding, the relevant performance condition having been satisfied. No Director held any options under the plan at any time during the year. The last options were awarded in 1999 and no further options will be awarded. Employee benefit trust Shares to satisfy the requirements of the EIS, NSOS, DABP, AESS and the long term incentive plan are sourced through an employee benefit trust based in Guernsey (“the Trust”). At 30 April 2004 the Trust held 239,779 Ordinary shares as a hedge against the Group’s obligations under the above schemes. By order of the Board D Henderson Secretary 5 July 2004 Northgate plc Annual Report & Accounts 2004 15 Corporate Governance Corporate Governance UK listed companies are required by the Financial Services Authority (the designated UK Listing Authority) to include a statement in their annual accounts on compliance with the Principles of Good Corporate Governance and Code of Best Practice set out in the Combined Code published in 1998 (“the 1998 Code”). In July 2003 a revised Combined Code (“the New Code”) 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 1998 Code and in terms of the criteria laid down by the National Association of Pension Funds for judging the independence of non-executive Directors. Mr Williams, as Deputy Chairman, is considered to be the senior such independent Director. was published, incorporating recommendations made in the Higgs Report The offices of the Chairman and Chief Executive Officer are separate. The on the role and effectiveness of non-executive directors and in the Financial division of their responsibilities has been set out in writing, approved by Reporting Council’s new guidance for audit committees. The New Code the Board and is available on the Company’s website. will apply to the Company for the financial year ending 30 April 2005. The Board meets regularly, normally monthly, to review trading results and During the year the Board established a corporate governance sub- has responsibility for the major areas of Group strategy, the annual committee, consisting of the Deputy Chairman, the Finance Director Business Plan, financial reporting to and relationships with shareholders, and the Company Secretary, to review the Company’s compliance with dividend policy, internal financial and other controls, financing and best practice and to make recommendations as to any changes that may treasury policy, insurance policy, major capital expenditure, acquisitions be necessary to achieve compliance with the New Code. The Board and disposals, Board structure, remuneration policy, corporate governance accepted the Committee’s recommendations and now considers that the and compliance. Company is already substantially compliant with the New Code. The Chairman ensures that all Directors are properly briefed to enable The report which follows relates to compliance with the 1998 Code. them to discharge their duties. In particular, detailed management The provisions of the 1998 Code applicable to listed companies are divided into four parts, as set out below: 1 Directors 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. Directors’ attendance at Board and Committee meetings during the year is The business of the Company is managed by the Board of Directors, detailed below: currently comprising four executive and four non-executive Directors, details of whom are set out on page 8. F M Waring S J Smith J Astrand P J Moorhouse G T Murray A T Noble P Rogerson R Williams BOARD AUDIT REMUNERATION NOMINATION A 13 13 13 13 13 13 6 13 B 13 13 13 12 12 10 5 13 A – – 5 – – – 2 5 B 5 5 5 4 5 4 1 5 A – – 9 – – – 2 9 B 9 6 9 4 1 – 2 9 A 1 1 1 – – – 1 1 B 1 – 1 – – – 1 1 A = Maximum number of meetings the Director was entitled to attend. B = Number of meetings attended 16 Northgate plc Annual Report & Accounts 2004 All Directors were present at the Annual General Meeting held in September appointments by selecting and proposing to the Board suitable candidates 2003, except for Mr Rogerson who was not appointed until November 2003. of appropriate calibre. The Committee would normally expect to use the Mr Rogerson was appointed to the Audit and Remuneration Committees in January 2004. Attendance by executive Directors at meetings of the Audit and Remuneration Committees were by invitation. services of professional external head-hunters to help in the search for candidates. The Committee has written terms of reference which are available on the Company’s website. 2 Directors’ remuneration The external auditors attended three Audit Committee meetings. The internal The Company’s policy on remuneration and details of the remuneration of audit manager attended two Audit Committee meetings. each Director are given in the Report on Remuneration on pages 12 to 15. In addition, the non-executive Directors, including the Chairman, but without executive Directors present, met informally on six occasions during the year. 3 Relations with shareholders Throughout the year the Company maintains a regular dialogue with Before appointment, non-executive Directors are required to assure the institutional investors and brokers’ analysts, providing them with such Board that they can give the time commitment necessary to properly fulfil information on the Company’s progress and future plans as is permitted their duties, both in terms of availability to attend meetings and discuss within the guidelines of the Listing Rules. In particular, twice a year, at the matters on the telephone and meeting preparation time. time of announcing the Company’s interim and full year results, they are The Company’s existing Articles of Association provide that at each Annual invited to briefings given by the Chief Executive and Finance Director. General Meeting of the Company, one third (or the number nearest to but The Chief Executive has written to the Company’s 40 largest institutional not exceeding one third) of the Directors shall retire from office. Those to shareholders to advise that, in line with the provisions of the New Code, the retire in each year are those who have been longest in office since their Senior Independent Director and other non-executives may attend these appointment or re-appointment. (Any Director appointed by the Board briefings and, in any event, would attend if requested to do so. during the year is obliged to seek re-election at 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 is proposing to adopt new Articles of Association at the Annual General Meeting to be held in September 2004 (see Report of the Directors on page 11). The Article governing the re-election of Directors will be amended to provide that all Directors be subject to re-election at intervals of not more than three years. No current Director has served more than three years without being re-elected by shareholders. In anticipation of the requirements of the New Code, the Board has established a Nomination Committee, which is chaired by Mr Williams, the Deputy Chairman. All the non-executive Directors and the Chief Executive are members. Its main function is to lead the process for Board All shareholders are given the opportunity to raise matters for discussion at the Annual General Meeting, of which more than the recommended minimum 20 working days notice is given. In recent years the Company has adopted 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. In addition, the Company issues brief “pre-close” trading statements two months prior to the announcement of both our interim and full year results. In compliance with the requirement in the 1998 Code, the Company has adopted the practice at general meetings of the Company of advising shareholders of the numbers of proxy votes lodged on each resolution, after the resolution has been dealt with on a show of hands. Northgate plc Annual Report & Accounts 2004 17 Corporate Governance 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 1998 Code requires the Directors to conduct an annual review of the effectiveness of the Group’s system of internal 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 prepared by management and approved by the Board annually. Each operating unit prepares a three year controls. The Turnbull Report, published by the ICAEW in September 1999, business plan with performance reported against key performance provides relevant guidance for directors on compliance with the internal indicators on a monthly basis together with comparisons to plan and prior control provisions of the 1998 Code. year. These are reviewed regularly by management. Forecasts are updated The Directors are responsible for the Group’s system of internal controls regularly throughout the year. which aims to safeguard Group assets, ensure proper accounting records CONTROL PROCEDURES are maintained and that the financial information used within the business The Board and the Group’s management have adopted a schedule of and for publication is reliable. Although no system of internal controls can matters which are required to be brought to it for decision, thus ensuring provide absolute assurance against material misstatement or loss, the that it maintains full and effective control over appropriate strategic, Group’s system is designed to provide the Directors with reasonable financial, organisational and compliance issues. Measures taken include assurance that, should any problems occur, these are identified on a timely clearly defined procedures for capital expenditure appraisal and basis and dealt with appropriately. The key features of the Group’s system authorisation, physical controls, segregation of duties and routine and of internal controls, which was in place throughout the period covered by the financial statements, are described below: ad hoc checks. MONITORING CONTROL ENVIRONMENT The Board has delegated to executive management implementation of The Group has a clearly defined organisational structure within which the system of internal control. The Board, including the Audit Committee, individual responsibilities of line and financial management for the receives reports on the system of control from the external auditors and maintenance of strong internal controls and the production of accurate from management. An independent internal audit function reports and timely financial management information are identified and can be bi-annually to the Audit Committee primarily on the key areas of risk monitored. Where appropriate, the business is required to comply with within the business. the procedures set out in written manuals. The Directors confirm that they have reviewed the effectiveness of the To demonstrate the Board’s commitment to maintaining the highest system of internal controls covering financial, operational and compliance business and ethical standards and to promote a culture of honesty and matters and risk management, for the period covered by these financial integrity amongst all staff, the Board has established a confidential telephone service, operated by an independent external organisation, which may be used by all staff to report any issues of concern relating to dishonesty or malpractice within the Group. All issues reported are investigated by senior management. IDENTIFICATION OF RISKS The Board and the Group’s management have a clearly defined statements in accordance with the guidance contained in the Turnbull Report. AUDIT The Audit Committee is currently comprised of the three independent non-executive Directors. Mr Rogerson was appointed a member of the Committee in January 2004 and he took over as Chairman of the Committee following the approval of these Report and Accounts by the responsibility for identifying the major business risks facing the Group and Board on 5 July 2004. The Committee has written terms of reference for developing systems to mitigate and manage those risks. The control of setting out its duties which are available on the Company’s website. key risks is reviewed by the Board and the Group’s management at their These include matters relating to the appointment and fees of the external monthly meetings. auditors and review of the annual and interim statements, of the Group’s The Board is therefore able to confirm that there is an ongoing process for internal controls and of the nature, scope and results of the internal audit identifying, evaluating and managing the significant risks faced by the programme. 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. 18 Northgate plc Annual Report & Accounts 2004 The Committee has access to the resources and facilities it requires to enable it to carry out its duties. These include external professional advice and direct access to the Company Secretary and other relevant staff. 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. In addition to the meetings referred to in the table above, the members of the Committee, together with the Chairman of the Board, had informal meetings with the external auditors and, separately, with the internal audit manager, both with no other Directors 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. 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 consultants to provide external advice and support to the internal audit department, the auditors will not be invited to compete for the work. Fees paid and payable to Deloitte & Touche LLP in respect of the year under review are as follows: Statutory audit work and interim review Tax Other Total COMPLIANCE £000 178 82 73 333 The Board considers that the Company was in compliance with the provisions of the 1998 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 Company has been in compliance since Mr Rogerson’s appointment in January 2004. Northgate plc Annual Report & Accounts 2004 19 Health and Safety The Board regards the monitoring and control of health and safety and environmental issues as a key part of its risk management programme. The Board has designated the Chief Executive as the person ultimately responsible to the Board for all health, safety and environmental matters throughout the Group. Responsibility for implementing the Group’s policy is devolved to regional and depot management. - - - all hazardous waste (principally engine oils, batteries, tyres and other vehicle consumables) is collected and disposed of by licensed contractors; prior to acquiring new sites, environmental risk assessments, to ISO 9000 standard, are carried out by external consultants; we have arranged with the Institute of Advanced Motorists a rolling The Group has adopted the principles set out in the management model programme of driver assessment and training for all employees who ‘HSG 65 Successful Health and Safety Management’. have a company vehicle or who are otherwise required to drive as A comprehensive health and safety procedures manual and a vehicle user part of their duties. handbook provide guidance and advice in implementing the Group’s During the year under review, no major incidents (classed as those health and safety policy. Relevant training is provided to all employees. resulting in death, serious injury or significant pollution) occurred at any of Technical advice and support is provided by a qualified health and safety our locations. officer, part of whose responsibility is to visit every Group location at least No health and safety enforcement notices were served on any company in once a year to carry out a health and safety audit. Where appropriate, the Group and there were no convictions for health and safety offences outside professional advice and services are used: during the year. There were no pending prosecutions outstanding at the - - in compliance with the Electricity at Work Regulations, a rolling programme of electrical inspections and surveys, covering all Group locations, is carried out by qualified electrical contractors; a programme of surveys has been put in place to meet the requirements of the new Asbestos Regulations, which came into force in 2004, using licensed contractors; year end. 20 Northgate plc Annual Report & Accounts 2004 Report of the Auditors INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF NORTHGATE PLC We have audited the financial statements of Northgate plc for the year governance procedures or its risk and control procedures. We read the ended 30 April 2004 which comprise the consolidated profit and loss Report of the Directors and the other information contained in the annual account, the balance sheets, the consolidated cash flow statement, the report for the above year as described in the contents section including statement of total recognised gains and losses, the accounting policies the unaudited part of the Report on Remuneration and consider the and the related Notes 1 to 26 together with the reconciliation of net cash implications for our report if we become aware of any apparent flow to movement in net debt and the notes to the consolidated cash flow misstatements or material inconsistencies with the financial statements. statement. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information Basis of audit opinion in the part of the Report on Remuneration that is described as having been We conducted our audit in accordance with United Kingdom auditing audited. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As described in the Statement of Directors’ responsibilities, the Company’s Directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. They are also responsible for the preparation of the other information contained in the annual report including the Report on Remuneration. Our responsibility is to audit the financial statements and the part of the Report on Remuneration described as having been audited in accordance with 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 and the part of the Report on Remuneration described as having been audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed. 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 and the part of the Report on Remuneration described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Report on Remuneration described as having been audited. Opinion In our opinion: relevant United Kingdom legal and regulatory requirements and auditing the financial statements give a true and fair view of the state of affairs standards. of the Company and the Group as at 30 April 2004 and of the profit of the We report to you our opinion as to whether the financial statements give a Group for the year then ended; and true and fair view and whether the financial statements and the part of the the financial statements and that part of the Report on Remuneration Report on Remuneration described as having been audited have been described as having been audited have been properly prepared in properly prepared in accordance with the Companies Act 1985. accordance with the Companies Act 1985. We also report to you if, in our opinion, the Report of the Directors is 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 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 of the Financial Services Authority 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 Deloitte & Touche LLP Chartered Accountants and Registered Auditors Leeds 5 July 2004 Northgate plc Annual Report & Accounts 2004 21 22 Northgate plc Annual Report & Accounts 2004 Financial Statements Northgate plc Annual Report & Accounts 2004 23 Consolidated Profit and Loss Account FOR THE YEAR ENDED 30 APRIL 2004 Before goodwill amortisation Goodwill amortisation Notes 1 Turnover Continuing operations Joint venture Turnover: Group and share of joint venture Less: share of joint venture's turnover Group turnover Cost of sales Gross profit Administrative expenses – general administrative expenses – goodwill amortisation Total administrative expenses Group operating profit – continuing operations 1, 2 Share of joint venture's operating profit Profit on disposal of property Interest payable, net 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 4 5 6 7 22 8 8 7 2004 £000 355,624 23,461 379,085 (23,461) 355,624 (261,255) 94,369 (38,552) – (38,552) 55,817 4,578 60,395 – (15,355) 2004 £000 – – – – – – – – (71) (71) (71) (236) (307) – – Total 2004 £000 355,624 23,461 379,085 Total 2003 £000 337,875 14,514 352,389 (23,461) (14,514) 355,624 337,875 (261,255) (250,213) 94,369 87,662 (38,552) (71) (38,623) 55,746 4,342 60,088 – (38,999) (384) (39,383) 48,279 2,620 50,899 736 (15,355) (15,032) 45,040 (307) 44,733 (13,303) 31,430 (11,064) 20,366 50.9p 50.8p 17.6p 36,603 (11,497) 25,106 (9,736) 15,370 41.4p 41.2p 16.0p 24 Northgate plc Annual Report & Accounts 2004 Balance Sheets 30 APRIL 2004 Fixed assets Intangible assets Tangible assets Vehicles for hire Other fixed assets Investments Investment in joint venture Share of gross assets Share of gross liabilities Goodwill on investment less amortisation Total fixed assets Current assets Stocks Debtors Cash at bank and in hand Group Company Notes 9 10 11 12 13 14 2004 £000 1,981 379,346 23,342 1,330 405,999 50,389 (40,215) 4,293 14,467 420,466 15,285 56,382 46,160 117,827 2003 £000 1,382 366,976 21,574 409 390,341 38,450 (30,898) 4,529 12,081 402,422 10,328 57,270 31,545 99,143 2004 £000 – – 3,117 79,050 82,167 – – – – 2003 £000 – – 2,188 79,050 81,238 – – – – 82,167 81,238 – 122,881 44,311 167,192 12,197 154,995 237,162 100,000 (119) – 19,455 29,792 49,247 12,909 36,338 117,576 – (6) 137,281 117,582 3,702 61,829 – 417 71,333 137,281 136,781 500 137,281 3,545 45,635 – 417 67,985 117,582 117,082 500 117,582 Creditors: amounts falling due within one year 15 133,756 185,758 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 16 19 20 21 22 22 22 (15,929) (86,615) 404,537 315,807 208,079 6,821 189,637 3,702 61,829 23 4,721 119,362 189,637 189,137 500 189,637 155,592 7,005 153,210 3,545 45,635 23 4,721 99,286 153,210 152,710 500 153,210 The accounts were approved by the Board of Directors on 5 July 2004. F M Waring Director G T Murray Director Northgate plc Annual Report & Accounts 2004 25 Consolidated Cash Flow Statement FOR THE YEAR ENDED 30 APRIL 2004 Notes (i) (ii) (iii) (iv) 17 16 2004 £000 2003 £000 157,203 150,896 (14,679) (11,279) (215,129) 106,771 (5,414) (13,847) (11,869) (216,858) 95,341 (3,457) (113,772) (124,974) (1,092) (14,672) (11,005) (9,240) 5,376 (23,706) (205) (191) 16,351 93,833 (263,310) 169,577 16,451 21,622 167 (7,226) (170,458) 199,254 21,737 (2,160) 2004 £000 21,622 (93,833) 263,310 (169,577) 205 21,727 (3,271) 96 18,552 2003 £000 (2,160) 7,226 170,458 (199,254) 191 (23,539) (11,547) (393) (35,479) (268,378) (232,899) (249,826) (268,378) 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 inflow (outflow) before use of liquid resources and financing Management of liquid resources Cash placed on deposit Financing Issue of Ordinary shares (net of expenses) Increase (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 (decrease) in cash for the year Reconciliation of Net Cash Flow to Movement in Net Debt Increase (decrease) in cash for the year Financing (Increase) decrease in borrowings Capital element of vehicle related hire purchase payments Cash inflow from new vehicle related hire purchase agreements Cash placed on deposit Change in net debt resulting from cash flows Hire purchase agreements acquired with subsidiary undertakings Foreign exchange movements Movement in net debt for the year Net debt at 1 May Net debt at 30 April 26 Northgate plc Annual Report & Accounts 2004 Notes to the Consolidated Cash Flow Statement (i) Reconciliation of operating profit to net cash inflow from operating activities Notes Group operating profit Depreciation Amortisation of goodwill (Profit) loss on sale of equipment and other fixed assets Increase in stocks Decrease (increase) in debtors Increase in creditors Net cash inflow from operating activities Analysis of items stated on a net basis in the cash flow statement 2004 £000 55,746 98,547 71 (63) (4,922) 1,450 6,374 2003 £000 48,279 99,691 384 3 (2,124) (1,557) 6,220 157,203 150,896 2004 £000 1,028 (4,849) (10,833) (25) (14,679) (215,129) 106,771 (5,729) 1,236 (1,888) 807 160 2003 £000 1,163 (4,355) (10,630) (25) (13,847) (216,858) 95,341 (6,027) 2,389 (472) 653 – (113,772) (124,974) 17 – 1,092 1,092 10,170 4,502 14,672 (ii) Returns on investments and servicing of finance Interest received Interest paid on bank loans and overdrafts 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 – employee share schemes Sale of investments – employee share schemes Sale of investment – unlisted investment (iv) Acquisitions Investment in joint venture Acquisition of subsidiary undertakings Statement of Total Recognised Gains and Losses FOR THE YEAR ENDED 30 APRIL 2004 Profit for the financial year Foreign exchange differences 2004 £000 31,430 (290) 31,140 2003 £000 25,106 626 25,732 Northgate plc Annual Report & Accounts 2004 27 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 30 April. Joint ventures are accounted for by the gross equity method. The results of subsidiary undertakings and joint ventures are included from their respective dates of acquisition. Goodwill Goodwill representing the excess of the purchase consideration over the fair value of net assets acquired on acquisition of subsidiary undertakings and joint ventures is capitalised as an intangible asset in the year of acquisition. It is amortised through the profit and loss account over the Directors’ estimate of its useful life of up to a maximum of 20 years. As permitted by FRS10, goodwill arising on acquisitions prior to 1 January 1998 was eliminated against reserves as a matter of accounting policy and has not been reinstated to intangible assets from reserves, but will be charged to the profit and loss account on subsequent disposal of the businesses to which it relates. 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 as follows: Freehold buildings Leasehold property over 50 years over 50 years or over the term of the lease, whichever is the shorter over 3 to 10 years over 3 to 6 years over 3 years Plant, equipment and fittings Vehicles for hire Motor vehicles Investments 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. 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 its various share schemes 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. Foreign currency Assets and liabilities of overseas subsidiaries and joint ventures are translated into sterling at the rates of exchange ruling at the balance sheet date. The effect of variances in exchange rates between the beginning and the end of the financial year on the net investment in subsidiary undertakings and joint ventures is dealt with through reserves. The results of overseas subsidiary undertakings and joint ventures are translated into sterling using average exchange rates for the financial year and variances compared with the exchange rate at the balance sheet date are dealt with through reserves. All other monetary assets and liabilities expressed in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date with resulting exchange gains and losses being taken to the profit and loss account. Deferred taxation In accordance with FRS19, Deferred Tax, full provision is made on timing differences that have originated but not reversed at the balance sheet date. 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 joint ventures 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. 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 revenue resulting from Group operating activities, excluding value added tax. These comprise the hire of vehicles, the sale of used vehicles and the supply of related goods and services. Pensions The Group only operates 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 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 or where applicable the relevant collar. Interest rate swaps – Interest payments and receipts relating to swaps 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 2004 Notes on the Accounts 1 Segmental Analysis All trading activities in 2004 and 2003 relate to the business of vehicle hire. The Group operates in the United Kingdom and Republic of Ireland and turnover relates to customers in the United Kingdom and Republic of Ireland. The joint venture operates in all material respects in Spain. 2 Operating profit Operating profit is stated after charging (crediting): Depreciation of owned tangible fixed assets Depreciation of fixed assets held under hire purchase agreements Amortisation of goodwill Hire of plant and equipment and other assets Auditors’ remuneration Fees paid to auditors for other services (Profit) loss on sale of tangible fixed assets Other rental income 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 2004 £000 2003 £000 39,679 37,537 58,868 71 3,710 178 155 (63) (216,318) 62,154 384 3,138 173 239 3 (213,842) 2004 number 2003 number 1,362 375 1,737 £000 37,496 3,401 944 41,841 1,296 370 1,666 £000 32,838 3,016 725 36,579 Details of Directors’ remuneration, pension contributions and share options are provided in the audited part of the Report on Remuneration on pages 12 to 15. 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 five years Finance charges related to hire purchase agreements UK interest payable, net Share of joint venture’s interest payable, net 2004 £000 202 1,231 1,433 (5,066) (10,436) (15,502) (14,069) (1,286) 2003 £000 231 875 1,106 (4,532) (10,758) (15,290) (14,184) (848) (15,355) (15,032) Northgate plc Annual Report & Accounts 2004 29 Notes on the Accounts continued 5 Tax on profit on ordinary activities UK corporation tax on profits for the year Over provision of corporation tax for prior years Share of overseas joint venture taxation Total current taxation Deferred taxation Origination and reversal of timing differences Adjustment in respect of prior years 2004 £000 13,860 (599) 13,261 389 13,650 (932) 585 2003 £000 11,052 (740) 10,312 493 10,805 (337) 1,029 13,303 11,497 The tax assessed for the year 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 gain covered by losses Depreciation in excess of capital allowances for the year Difference in taxation on overseas joint venture Adjustment to tax charge in respect of prior years Other 2004 £000 44,733 13,420 510 – 932 (598) (599) (15) 2003 £000 36,603 10,981 573 (235) 337 (99) (740) (12) 13,650 10,805 6 Profit of parent company Of the profit attributable to shareholders, a profit of £14,412,000 (2003 – £16,835,000) 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 7p per share (2003 – 4.9p) Final proposed 10.6p per share (2003 – 11.1p) Total dividend 17.6p per share (2003 – 16.0p) Non-equity dividend on preference shares 2004 £000 4,259 6,780 11,039 25 11,064 2003 £000 2,965 6,746 9,711 25 9,736 30 Northgate plc Annual Report & Accounts 2004 8 Earnings per Ordinary share The calculation of basic earnings per Ordinary share in respect of the year to 30 April 2004 is based on the profit attributable to equity shareholders of £31,405,000 (2003 – £25,081,000) and the weighted average of 61,647,279 (2003 – 60,646,882) Ordinary shares in issue (excluding those shares held by an employee trust in connection with the Group’s various share schemes). Diluted earnings per Ordinary share have been calculated on the basis of earnings described above and assume that nil shares (2003 – 102,000) 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 61,817,783 (2003 – 60,893,447) (including 170,504 shares held by an employee trust in connection with the Group’s various share schemes). 9 Intangible assets Group Cost At 1 May 2003 Additions (see Note 17) At 30 April 2004 Amortisation At 1 May 2003 Charge for the year At 30 April 2004 Net book value At 30 April 2004 At 30 April 2003 10 Vehicles for hire Group Cost 1 May 2003 Transfer to motor vehicles Foreign exchange differences Additions Acquisitions Disposals 30 April 2004 Depreciation 1 May 2003 Transfer to motor vehicles Foreign exchange differences Charged to profit and loss account Disposals 30 April 2004 Net book value 30 April 2004 30 April 2003 Goodwill £000 1,770 670 2,440 388 71 459 1,981 1,382 £000 480,154 (335) (205) 211,374 3,585 (205,780) 488,793 113,178 (109) (46) 95,433 (99,009) 109,447 379,346 366,976 The net book value of the above vehicles which are held under hire purchase agreements amounts to £152,539,000 (2003 – £255,746,000). Northgate plc Annual Report & Accounts 2004 31 Notes on the Accounts continued 11 Other fixed assets Group Cost or valuation 1 May 2003 Transfer from vehicles for hire Foreign exchange differences Additions Acquisitions Disposals 30 April 2004 Depreciation 1 May 2003 Transfer from vehicles for hire Foreign exchange differences Charged to profit and loss account Disposals 30 April 2004 Net book value 30 April 2004 30 April 2003 Cost or valuation at 30 April 2004 is represented by: Valuation performed in 1992 Subsequent additions at cost Land and buildings by category: Freehold Short leasehold Net book value Land and buildings £000 Plant, equipment & fittings £000 Motor vehicles £000 19,687 – – 3,894 – (485) 23,096 2,733 – – 805 (43) 3,495 19,601 16,954 525 22,571 23,096 8,992 – (4) 986 102 (131) 9,945 5,473 – (2) 1,829 (91) 7,209 2,736 3,519 – 9,945 9,945 1,423 335 – 849 – (1,202) 1,405 322 109 – 480 (511) 400 1,005 1,101 – 1,405 1,405 2004 £000 16,943 2,658 19,601 Total £000 30,102 335 (4) 5,729 102 (1,818) 34,446 8,528 109 (2) 3,114 (645) 11,104 23,342 21,574 525 33,921 34,446 2003 £000 14,393 2,561 16,954 Certain of the above freehold properties were valued as at 30 April 1992 by Jones Lang Wootton, Chartered Surveyors, on the basis of open market value for existing use. At 30 April 2004, under the historical cost convention, land and buildings would have been stated at £23,374,000 and related accumulated depreciation at £3,591,000. Company Cost or valuation 1 May 2003 Additions 30 April 2004 Depreciation 1 May 2003 Charged to profit and loss account 30 April 2004 Net book value 30 April 2004 30 April 2003 32 Northgate plc Annual Report & Accounts 2004 Land and buildings £000 2,237 984 3,221 49 55 104 3,117 2,188 12 Fixed asset investments Group Cost 1 May 2003 Additions Disposals 30 April 2004 Provisions 1 May 2003 Release on disposals 30 April 2004 Net book value 30 April 2004 30 April 2003 Own shares £000 Unlisted investments £000 487 1,888 (1,045) 1,330 238 (238) – 1,330 249 184 – (184) – 24 (24) – – 160 Total £000 671 1,888 (1,229) 1,330 262 (262) – 1,330 409 Own shares At 30 April 2004, 239,779 (2003 – 115,974) Ordinary shares in the Company with a market value of £1,496,221 (2003 – £482,452) were held by Kleinwort Benson (Guernsey) Trustees Limited as a hedge against the Group’s obligations under its various share schemes. All but a nominal dividend right in respect of these shares has been waived. Further details of the Group’s share schemes are outlined in the Report on Remuneration on pages 12 to 15. Company Cost 1 May 2003 and 30 April 2004 Provisions 1 May 2003 and 30 April 2004 Net book value 30 April 2004 30 April 2003 Shares in subsidiary undertakings £000 Investment in joint venture £000 Loans to group undertakings £000 Total £000 24,315 10,170 47,000 81,485 2,435 – – 2,435 21,880 21,880 10,170 10,170 47,000 47,000 79,050 79,050 At 30 April 2004 the Company’s principal subsidiary undertaking was Northgate Vehicle Hire Limited (NVH), whose business is vehicle hire. NVH 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 2004 33 Notes on the Accounts continued 13 Stocks Goods for resale and finished goods 14 Debtors Amounts falling due within one year: Trade debtors Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income Amounts falling due after more than one year: Prepayments and accrued income 15 Creditors: amounts falling due within one year Amounts falling due within one year: Borrowings (see Note 16) Trade creditors Amounts owed to subsidiary undertakings Corporation tax Social security and other taxes Accruals and deferred income Proposed dividends Group Company 2004 £000 15,285 2003 £000 10,328 2004 £000 – 2003 £000 – Group Company 2004 £000 41,801 – 7,647 6,496 55,944 438 56,382 2003 £000 45,821 – 4,840 5,927 56,588 682 57,270 2004 £000 – 122,583 242 56 122,881 2003 £000 – 18,024 1,369 62 19,455 – – 122,881 19,455 Group Company 2004 £000 87,907 9,838 – 7,143 7,050 15,038 6,780 133,756 2003 £000 144,331 10,814 – 5,058 3,751 15,058 6,746 185,758 2004 £000 – – 3,097 – 81 2,239 6,780 2003 £000 – – 4,589 – – 1,574 6,746 12,197 12,909 34 Northgate plc Annual Report & Accounts 2004 16 Creditors: amounts falling due after more than one year The only creditors falling due after more than one year are borrowings. Details of total Group borrowings, including those due within one year are as follows: Group Company Amounts falling due within one year: 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 2003 £000 2004 £000 2003 £000 2004 £000 3,485 84,422 87,907 10,686 133,645 144,331 51 11 140,628 67,400 208,079 295,986 51 44,933 44,984 140,628 22,467 163,095 46,835 108,746 155,592 299,923 11 72,497 72,508 46,835 36,249 83,084 – – – – 100,000 – 100,000 100,000 – – – 100,000 – 100,000 – – – – – – – – – – – – – – Vehicle related bank loans and overdrafts of £144,113,000 (2003 – £57,521,000) and £51,000 (2003 – £11,000) 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 £151,822,000 (2003 – £242,391,000) is secured by a fixed charge over the vehicles to which it relates. 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 Vehicle related hire purchase At 1 May 2003 £000 29,997 (10,686) 19,311 1,548 (46,846) (242,391) (268,378) Cash flow £000 14,410 7,212 21,622 205 (93,833) 93,733 21,727 Acquisitions (Note 17) £000 Foreign exchange movement £000 – – – – – (3,271) (3,271) – (11) (11) – – 107 96 At 30 April 2004 £000 44,407 (3,485) 40,922 1,753 (140,679) (151,822) (249,826) At 30 April 2004 the gearing of the Group amounted to 132% (2003 – 175%) which is represented by net borrowings of £249,826,000 (2003 – £268,378,000) as a percentage of shareholders’ funds of £189,637,000 (2003 – £153,210,000). Net borrowings comprise borrowings less cash at bank. Northgate plc Annual Report & Accounts 2004 35 Notes on the Accounts continued 16 Creditors: amounts falling due after more than one year (continued) Borrowing facilities The Group has various borrowing facilities available to it. The undrawn committed borrowing facilities at 30 April 2004 in respect of which all conditions precedent had been met at that date expire as follows: In one year or less In one year to five years 2004 £000 138,010 14,097 152,107 2003 £000 127,125 27,654 154,779 On 5 April 2004 the Company agreed a new committed term loan facility with two of its existing funders. The sum borrowed of £100,000,000 has a commitment termination date five years from the agreement date. The total amount permitted to be borrowed by the Company and its subsidiary undertakings 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 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 30 April 2004 the Group’s total borrowings were £295,986,000 (2003 – £299,923,000). Financing and interest rate risk The Group’s policy is to finance operating subsidiary undertakings 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 three 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 30 April 2004, 76% of gross borrowings were at fixed or capped rates of interest: £85,000,000 of swaps as shown below and £140,000,000 of caps and collars as detailed on page 37. After taking into account the various interest rate swaps entered into by the Group, the interest rate exposure of the borrowings of the Group as at 30 April 2004 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 295,986 210,986 85,000 299,923 269,923 30,000 5.29 7.05 3.86 4.14 At 30 April 2004 UK Sterling At 30 April 2003 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. 36 Northgate plc Annual Report & Accounts 2004 16 Creditors: amounts falling due after more than one year (continued) The interest rate exposure is further protected by interest rate caps and collars set out as follows: Contracts effective as at 30 April 2004 Cap amount (£m) Cap % Floor % 5 5 5 5 5 25 8 8 8 8 7.5 – – – – – Collar amount (£m) Cap % Floor % 10 10 10 10 10 25 10 10 10 10 115 Total value of current contracts (£m) 140 Contracts to commence after 30 April 2004 Collar amount (£m) 10 10 20 6 7 7 7 7 5.50 5.25 5.00 4.75 7.00 Cap % 7.00 6.50 Finish date May 2004 December 2004 January 2005 April 2006 June 2006 Finish date January 2005 April 2007 April 2007 April 2008 April 2008 May 2008 June 2008 June 2008 June 2008 April 2009 4 5 5 5 5 3.22 3.19 3.15 3.25 5.00 Floor % 5.00 4.50 Start date April 2005 April 2007 Finish date April 2010 April 2012 Fair values of financial instruments The comparison of fair and book values of all the Group’s financial instruments as at 30 April 2004 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 2004 2003 Book value £000 46,160 (295,986) (249,826) 682 Fair value £000 46,160 (295,986) (249,826) 180 Book value £000 31,545 (299,923) (268,378) 1,040 Fair value £000 31,545 (299,923) (268,378) (6,659) (249,144) (249,646) (267,338) (275,037) Northgate plc Annual Report & Accounts 2004 37 Notes on the Accounts continued 17 Acquisitions Subsidiary undertakings F Herriman & Sons Limited On 30 April 2004 the Group acquired the entire issued share capital of F Herriman & Sons Limited trading as Daman Vehicle Rental (“Daman”) for a cash consideration of £960,000 including goodwill of £670,000. The goodwill on the acquisition of Daman is capitalised and written off over a period of five years being its estimated useful economic life. The transaction has been accounted for in accordance with acquisition accounting principles. Vehicles for hire Plant, equipment and fittings Stocks Debtors Overdraft Vehicle related hire purchase Creditors Provisions for liabilities and charges Net assets acquired Goodwill Acquisition cost (including expenses) Satisfied by cash Cash equivalents in subsidiary undertaking acquired Cash outflow on acquisition Fair value of net assets £000 3,585 102 41 682 (132) (3,271) (551) (166) 290 670 960 960 132 1,092 The provisional fair values equate to the book values and represent the Directors’ current estimates of the net assets acquired. However, in accordance with FRS7, the values attributed may be revised as further information becomes available. 18 Post balance sheet events Subsidiary undertaking On 16 July 2002 the Group acquired a 40% share in Furgonetas de Alquiler SA (“Fualsa”), a business in Spain for a cash consideration of £10,170,000 including goodwill of £4,726,000. In the year to 30 April 2004 this investment has been accounted for as a joint venture. On 3 May 2004 the Group exercised its option to acquire a further 40% of the share capital of Fualsa for the maximum consideration of £15,154,000 under the share purchase agreement. On the same date the Group also exercised its option to acquire the final 20% of Fualsa’s share capital. The consideration for this exercise is, however, deferred until 2006 and will be dependant on the profit after tax of Fualsa for the calendar years 2004 and 2005. With effect from May 2004 Fualsa will be accounted for as a subsidiary undertaking of the Group with the estimated net assets and goodwill acquired as set out in the table below. The total goodwill arising on the acquisition will be amortised over 20 years from 16 July 2002. Book value of net assets acquired Goodwill Acquisition cost (including expenses) Satisfied by cash Fair value of deferred consideration Total consideration 38 Northgate plc Annual Report & Accounts 2004 £000 15,260 8,956 24,216 15,154 9,062 24,216 18 Post balance sheet events (continued) The balance sheet of Fualsa as at 30 April 2004 is shown below for information purposes and does not incorporate any fair value adjustments to assets or liabilities following the option that was exercised by the Company on 3 May 2004 to acquire a further 60% of Fualsa’s share capital. Fixed assets Vehicles for hire Plant, equipment and fittings Current assets Stocks Debtors Cash at bank Creditors: amounts falling due within one year – Borrowings – Other Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year – Borrowings Provisions for liabilities and charges Net assets Fualsa’s net borrowings at 30 April 2004 were £86,738,000. 19 Provisions for liabilities and charges Deferred tax provided Accelerated capital allowances Other timing differences Movement in deferred tax 1 May 2003 On acquisition Credited in profit and loss account Adjustments to prior years Foreign exchange movement £000 85,624 6,398 92,022 2,536 27,624 1,194 31,354 55,975 8,417 64,392 (33,038) 58,984 31,957 1,594 25,433 Group Company 2004 £000 8,562 (1,741) 6,821 7,005 166 (932) 585 (3) 6,821 2003 £000 7,969 (964) 7,005 5,170 1,143 (337) 1,029 – 7,005 2004 £000 110 (229) (119) (6) – (119) 6 – (119)) 2003 £000 66 (72) (6) (65) – 27 32 – (6) Northgate plc Annual Report & Accounts 2004 39 Notes on the Accounts continued 20 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: 64,034,340 (2003 – 60,892,340) Ordinary shares of 5p each 1,000,000 5% cumulative preference shares of 50p each 2004 £000 4,000 650 4,650 3,202 500 3,702 2003 £000 4,000 650 4,650 3,045 500 3,545 During the year 102,000 Ordinary shares with a nominal value of £5,100 were issued pursuant to the exercise of options under the Goode Durrant Share Option Scheme, for a cash consideration of £224,110. On 14 January 2004 the Company completed a placing of 3,040,000 new Ordinary shares of 5p each. These new Ordinary shares were placed with institutions at a price of 545p each raising £16,126,643 (net of expenses). 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 the Company. These shares have no voting rights other than in exceptional circumstances. 21 Share premium account Group and Company 1 May 2003 Premium on shares issued (net of expenses) 30 April 2004 22 Reserves Group 1 May 2003 Profit transferred to reserves Foreign exchange differences 30 April 2004 Company 1 May 2003 Profit transferred to reserves 30 April 2004 2004 £000 45,635 16,194 61,829 Profit and loss account £000 99,286 20,366 (290) 119,362 2003 £000 45,471 164 45,635 Total reserves £000 104,030 20,366 (290) 124,106 67,985 3,348 71,333 68,402 3,348 71,750 Revaluation reserve £000 Merger reserve £000 23 – – 23 – – – 4,721 – – 4,721 417 – 417 The cumulative amount of goodwill written off to reserves is £13,195,000 (2003 – £13,195,000). 40 Northgate plc Annual Report & Accounts 2004 23 Reconciliation of movements in shareholders’ funds for the year ended 30 April 2004 Profit for the financial year Dividends Profit transferred to reserves Issue of Ordinary share capital (net of expenses) Foreign exchange differences Net increase in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 24 Contingent liabilities 2004 £000 31,430 (11,064) 20,366 16,351 (290) 36,427 153,210 189,637 2003 £000 25,106 (9,736) 15,370 167 626 16,163 137,047 153,210 The Company has guaranteed borrowings by subsidiary undertakings of £44,033,000 as at 30 April 2004 (2003 – £10,686,000). 25 Commitments Capital expenditure commitments: Capital expenditure contracted for but not provided in the accounts is as follows: Contracted for but not provided in the accounts Financial commitments: As at 30 April 2004 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 26 Pensions Group 2004 £000 475 2003 £000 947 2004 2003 Land and buildings £000 250 590 1,299 2,139 Other £000 683 1,161 12 1,856 Land and buildings £000 469 481 911 1,861 Other £000 628 315 14 957 The total pension cost for the Group was £944,000 (2003 – £725,000). During the year ended 30 April 2004 the Group only operated defined contribution arrangements. Northgate plc Annual Report & Accounts 2004 41 Five Year Financial Summary Based on the consolidated financial statements for years ended 30 April and adjusted to reflect the effect of subsequent changes in accounting policy. Profit and loss account Turnover Continuing operations Joint venture Turnover: Group and share of joint venture 2004 £000 355,624 23,461 379,085 2003 £000 337,875 14,514 352,389 Less: share of joint venture’s turnover (23,461) (14,514) 2002 £000 277,829 – 277,829 – 2001 £000 261,801 – 261,801 – 2000 £000 218,286 – 218,286 – Group turnover 355,624 337,875 277,829 261,801 218,286 Operating profit Group operating profit - continuing operations Share of joint venture’s operating profit Exceptional items Interest Profit before taxation Tax Profit for the financial year Dividends Retained profit Earnings per Ordinary share Dividends per Ordinary share Balance sheet Assets employed Fixed assets Net current liabilities Creditors (after one year) and provisions Financed by Share capital Share premium account Reserves Net asset value per Ordinary share 55,746 4,342 60,088 – (15,355) 44,733 (13,303) 31,430 (11,064) 20,366 50.9p 17.6p 2004 £000 48,279 2,620 50,899 736 (15,032) 36,603 (11,497) 25,106 (9,736) 15,370 41.4p 16.0p 2003 £000 45,055 – 45,055 – (13,381) 31,674 (9,953) 21,721 (9,119) 12,602 35.8p 15.0p 2002 £000 42,569 – 42,569 – (15,459) 27,110 (8,054) 19,056 (8,517) 10,539 31.4p 14.0p 2001 £000 37,942 – 37,942 – (13,617) 24,325 (7,328) 16,997 (8,039) 8,958 28.1p 13.25p 2000 £000 420,466 (15,929) (214,900) 402,422 (86,615) (162,597) 344,924 (60,676) (147,201) 318,353 (51,625) (142,436) 294,788 (32,530) (148,841) 189,637 153,210 137,047 124,292 113,417 3,702 61,829 124,106 189,637 295p 3,545 45,635 104,030 153,210 252p 3,542 45,471 88,034 3,539 45,321 75,432 3,532 44,992 64,893 137,047 124,292 113,417 225p 205p 187p 42 Northgate plc Annual Report & Accounts 2004 New Articles of Association 6.7 Article 104: borrowing powers. Provision has been made for the treatment of treasury shares and employee share schemes, which will now be deducted for the purposes of calculating the adjusted capital and reserves. The limit on the directors’ powers to incur borrowings has been increased from five to six times the value of adjusted capital and reserves in order to accommodate this. The increased flexibility may also prove useful when the International Financial Reporting Standards come into effect in 2005 as they are expected to make the figures in balance sheets more fluid. 6.8 Old Article 109: local management. This article has been deleted as the matter is covered by Article 98.3. 6.9 Article 110: participation by conference call. This article has been updated to take into account developments in telecommunications and to include a statement that, where a meeting is held by telephone, the meeting is deemed to have taken place where the largest group of directors is assembled or, if no group is ascertainable, where the chairman is. 6.10 Article 135.2: capitalisation of profits. Employee share option schemes often provide for the option price to be adjusted downwards to reflect the discount element in rights issues, and this may result in the option price being reduced below nominal value. To avoid shares being issued at a discount on the exercise of options this article provides that directors may capitalise reserves in favour of option holders to cover the difference between the option price and nominal value. Set out below is a summary of the principal changes proposed to be made to the Articles of Association of the Company. References below are to articles in the proposed revised draft unless otherwise stated. 1 Uncertificated shares/CREST Under the Listing Rules securities of listed companies must be eligible to be held in CREST. The main relevant articles are Articles 10, 17.2, 30, 33.2, and 46. 2 Treasury Shares Changes have been included to reflect the fact that a company can now hold its own shares in treasury. Examples include Articles 12.1, 42.1(b), 48, 104 and 135. 3 Electronic communications As electronic communications with members are now permitted, the Articles have been updated following the drafting of the amendments to Table A. 4 Provisions covered by the Companies Act 1985 Certain provisions have been deleted as they repeat the Companies Act. Examples include the removal of the reference to issuing shares at a discount in old Articles 6, and old Articles 11.3, 135. 5 Outdated or unnecessary provisions Certain provisions have been deleted as being out of date or unnecessary. Examples include old Articles 11.2, 42, 55 and 148 and references to “Depositaries”. In certain others, the language has been updated, for example Articles 46, 84 and 95. 6 Principal specific changes 6.1 Article 14.1: rights to certificates. This article has been updated to enable the Company to carry out various forms of mechanical authentication of share certificates. 6.2 Article 70: directors may supply proxy cards. Wording has been added to provide that the accidental omission to provide such an appointment of proxy to a member shall not invalidate the meeting to which it relates. 6.3 Article 73: number of directors. The upper limit on the number of directors has been removed. It is fairly usual for a listed plc’s Articles not to set a maximum number of directors. 6.4 Article 80: retirement of directors. Changes have been made to replace the old “one-third retiring by rotation” rule with the Combined Code requirement that all directors should be required to re-submit themselves for re-election at least every three years and that non-executive directors may serve longer than nine years (three three-year terms) subject to annual re-election. 6.5 Article 84: vacation of office by directors. A new Article 84.2 has been added, being the common provision that directors shall not be required to leave office at seventy years of age. 6.6 Article 91: directors’ fees. The cap on directors’ fees has been increased to £400,000 in the aggregate. It is an ABI guideline that a listed plc’s Articles of Association should contain a limit on directors’ fees. Northgate plc Annual Report & Accounts 2004 43 Notice of Annual General Meeting Notice is hereby given that the one hundred and sixth Annual General Meeting of Northgate plc will be held at Norflex House, Allington Way, Darlington at 11.30 am on 8 September 2004 for the following purposes: 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); To receive and adopt the Directors’ report and audited accounts of the Company for the year ended 30 April 2004. To declare a final dividend of 10.6p per Ordinary share. To approve the Report on Remuneration for the financial year ended 30 April 2004 set out on pages 12 to 15 of the 2004 Annual Report and Accounts. (b) (c) the allotment of equity securities in connection with any employees’ share scheme approved by the members in general meeting; and the allotment (otherwise than pursuant to sub-paragraphs (a) and (b) above) of equity securities up to an aggregate nominal amount of £160,000. 1. 2. 3. 4. 5. 6. 7. 8. To re-appoint Deloitte & Touche LLP as auditors of the Company. To authorise the Audit Committee to determine the remuneration of the auditors. To re-elect Mr J Astrand as a Director. To re-elect Mr P Rogerson as a Director. To re-elect Mr R Williams, who has attained the age of 70, as a Director. Special notice to propose this resolution has been received. 9. To re-elect Mr F M Waring as a Director. As special business to consider, and if thought fit, to pass the following resolutions: numbers 10, 11 and 15 are to be proposed as Ordinary Resolutions and numbers 12, 13 and 14 as Special Resolutions. 10. That the authorised share capital of the Company be increased from £4,650,000 to £4,900,000 by the creation of 5,000,000 new Ordinary shares of 5p each. 11. That the Directors be and they are hereby generally and unconditionally authorised in accordance with Section 80 of the Companies Act 1985 to exercise all the powers of the Company to allot relevant securities (within the meaning of the said Section 80) up to an aggregate nominal amount of £1,048,283 during the period commencing on the date of the passing of this Resolution and expiring on 8 September 2009 (both dates inclusive) but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require relevant securities to be allotted after such expiry and notwithstanding such expiry the Directors may allot relevant securities in pursuance of such offers or agreements. 12. That, subject to the passing of Resolution 11, 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 Resolution 11 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 and shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2005 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. 13. 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 6,400,000 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 five 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 2005 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. 14. That the Regulations contained in the document submitted to the Meeting marked ‘A’ and signed by the Chairman of the Meeting for the purposes of identification be and the same are hereby adopted as the Articles of Association of the Company to the exclusion of and in substitution for all existing Articles of Association of the Company. 15. That the rules of the All Employee Share Scheme be amended by reducing the specified retirement age for the purposes of the scheme from age 65 to age 55. By Order of the Board D. Henderson Secretary 5 July 2004 Registered Office: Norflex House Allington Way Darlington DL1 4DY NOTES 1. 2. Only the holders of Ordinary shares registered in the register of members of the Company as at 6.00 pm on 6 September 2004 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. 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 three-way proxy card for this purpose is enclosed. 44 Northgate plc Annual Report & Accounts 2004 Information for Shareholders 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. The Company’s sponsoring broker is Hoare Govett Limited (part of ABN AMRO) and the Company’s Ordinary shares are traded on SETSmm. 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 Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0870 1623100 Northgate plc Annual Report & Accounts 2004 45 Our Products NORFLEX® flexible risk-free fleet hire – The risk-free and flexible alternative to contract hire or buying vehicles. NORFLEX® also allows you to invest your time and your company’s money on your core business activity while you let us look after your fleet. www.norflex-flexible-fleet-hire.com ONE Call Fleet Rental – Nationwide fleet rental for companies that have large daily rental needs. Why deal with lots of different hire companies when ONE Call Fleet Rental can deal with all your rental needs anywhere in the UK. www.northgate-vehicle-solutions.com Vehicle Insight – Web-based vehicle tracking system. Increase the efficiency of your fleet, save money and deliver better service to your customers by seeing what your vehicles have been up to. www.vehicle-insight.com Van in a Box – Designed for fleet departments that operate an owner-driver scheme. Van in a Box gives your drivers an easy way to hire vehicles on NORFLEX® with an optional monthly premium for insurance cover. www.van-in-a-box.com Fleet Transformer – Transform the vehicles you own into a rental fleet and give your business an injection of cash. You get all the benefits of NORFLEX® plus money to invest in your business. www.fleet-transformer.com Fleet Insurance Solutions – We have taken the hassle out of finding insurance by giving you a direct link to the World’s biggest supplier of insurance services. One call is all it takes to get a tailored policy specific to your business needs. This service is exclusive to our customers but can cover all of your fleet. www.fleet-insurance-solutions.com Norfleet Parts – Using our buying power we have negotiated great deals for customers on vehicle parts, tyres and thousands of consumables (from tools to fluorescent jackets), all direct from the manufacturer. www.norfleet.co.uk 46 Northgate plc Annual Report & Accounts 2004 Notes Northgate plc Annual Report & Accounts 2004 47 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 non-rental products go to www.northgate-vehicle-solutions.com Or you can ring or email for an information pack about all our products. Call: 01325 370209 Email: info@northgateplc.com 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 4 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 . Annual report and accounts 2004 NORFLEX House Allington Way Darlington DL1 4DY Telephone: 01325 467 558 Fax: 01325 363204 www.northgateplc.com Commercial vehicles for business