Redde Northgate
Annual Report 2005

Plain-text annual report

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 2005 NORFLEX House Allington Way Darlington DL1 4DY Telephone: 01325 467558 Fax: 01325 363204 www.northgateplc.com Commercial vehicles for business HIGHLIGHTS 2005 2004 Turnover Group operating profit Profit before tax Earnings per share Dividend per share £458.3m £75.7m £54.5m 59.7p 20.0p Net assets per Ordinary share 336p £355.6m £55.6m* £44.6m* 50.7p* 17.6p 293p* *As restated (see Note 9 to the accounts) Contents Chairman’s Statement Operational Review Financial Review Directors Directors’ Responsibilities Report of the Directors Remuneration Report Corporate Governance Health & Safety and Environmental Report of the Auditors Financial Statements Accounting Policies Notes to the Accounts Five Year Financial Summary Notice of Annual General Meeting The Northgate Share Option Scheme Information for Shareholders 02 04 06 10 11 12 14 18 22 23 25 30 32 47 48 49 50 Northgate plc rents vehicles and sells a range of fleet products to businesses via a network of companies. www.northgateplc.com Group profit before tax Vehicle Fleet – UK 7 5 4 , 4 5 2 9 5 , 4 4 3 0 6 , 6 3 4 7 6 , 1 3 0 1 1 , 7 2 0 0 6 , 2 5 0 0 0 4 0 , 7 7 , 4 5 4 0 0 0 , 5 4 0 0 5 , 0 4 0 0 1 , 6 3 Vehicle Fleet – Spain 0 0 0 , 9 1 0 0 0 0 0 , 5 5 , 1 3 1 0 0 0 , 2 1 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2003 2004 2005 CHAIRMAN’S STATEMENT Dear Shareholder, This is the first Annual Report Statement I have written as Chairman of your Company. I would like first to pay tribute to my predecessor, Michael Waring. Few could have foreseen the growth of the business achieved during the 20 years of his leadership. His skills and determination have helped the development of the Northgate business and in the formulation of its strategies, leaving it well placed to continue that growth in the future. I am, therefore, pleased to report on the Company’s excellent results With a fleet growth of 27% to 19,000 vehicles and a profit before tax of in Michael’s last year at Northgate. Turnover for the year increased £9.9m in the year, Fualsa is an excellent platform for further expansion by 28.9% to £458.3m (2004 – £355.6m). Profit before tax and goodwill in Spain. Fualsa’s network of 15 depot locations at 30 April 2005 has grown amortisation is up by £10.7m to £55.6m (2004 – £44.9m as restated). further to 17 depots since the year end and is well on course to expand to Earnings per share rose 17.8% to 59.7p (2004 – 50.7p as restated). All 20 by April 2006. provide further evidence of Northgate’s progress towards the targets stated in the three year Strategy for Growth, taking the Company forward to April 2006. The Company is currently updating its Strategy for Growth to progress through 2006 to 2009 and beyond. The growth of the business in Spain has indicated the attraction of further acquisitions in due course in mainland Based on these results and the Board’s view of future prospects, the Europe. Clearly not every EU country shares the growth in the sector Board has decided to recommend to shareholders a final dividend of 12p experienced in Spain and Northgate will consequently be very selective in per share. This will make the total dividend for the year 20p – an increase its acquisition strategy. Northgate has also identified further consolidation of 13.6% on last year and it will be covered three times. The dividend will opportunities in the UK. The Company is in a strong position to make be payable on 30 September 2005 to those shareholders on the register on such acquisitions and has an executive team with proven skills in 5 August 2005. Northgate’s success is due in large part to its corporate culture. Its structure of separate businesses enables each local team to focus on the opportunities in its own area. Local relationships allow a diversified range integrating them into the Northgate business model. Strategic planning will also focus on opportunities for organic growth both in the UK and in Spain, using the proven Northgate business model, adapted for local cultural realities. of business sectors and geographic areas in the customer base and The Company’s senior independent director, Ron Williams, has ensure prompt attention to each customer’s needs on-site. The devolved announced that he is to retire in September, being over 70 years of age management structure is complemented by central corporate functions and with a length of service of over nine years. He has been a great to monitor and audit Health and Safety standards, asset management, support to Michael Waring in the development of your Company and he performance and finance controls. Moreover, the centralised vehicle has been invaluable to me, the incoming Chairman. The Board will miss purchasing and sales function, national accounts, marketing and sales, him greatly. We were joined in April by Tom Brown, a very experienced treasury and IT teams provide essential support to those local businesses. public company director, whose skills complement those of other Board The Northgate culture yields a flexible, robust business model that members. As the other ‘new boy’ I am very pleased to have joined the continues to lead the field in commercial vehicle solutions. Northgate team. The staff and management at local and corporate levels Northgate’s UK business returned to strong growth in the year with its fleet advancing 11% to 52,600 vehicles (2004 – 47,400). Whilst hire rates remained competitive, the operational gearing effect of this larger fleet, coupled with utilisation averaging 90%, ensured the hire operating margin have worked very hard to achieve these results, within the vision and leadership of the senior executives. The Board itself, executives and non- executives, have a blend of skills and experience that, I believe, will ensure Northgate will continue to deliver. It is a privilege to be part of that team. remained healthy at 20.8% (2004 – 20.8% as restated). The residual market Since the end of the year we have experienced a weaker vehicle residual for used vehicle sales remained stable and the UK business was market in the UK than in the prior financial year. In Spain, meanwhile, our successful in its aim of achieving a greater proportion (up by 60%) of fleet growth rates are higher than those planned. used vehicle sales through retail and semi-retail channels. As a result, the operating profit per vehicle sold improved to £205 (2004 – £189). Despite the softer residual market and perceived weaknesses in the UK economy, the Board remains of the opinion that we should achieve further Northgate’s Spanish vehicle rental business, Fualsa, contributed its first progress towards our planned objectives in both the UK and Spain during full year as a wholly owned subsidiary. Its result underscores our belief in the forthcoming year. the exceptional opportunity afforded by the vehicle rental market in Spain. 02 Northgate plc Annual Report & Accounts 2005 Martin Ballinger Chairman Earnings per share have increased by 17.8% in the second year of our three year Strategy for Growth, increasing from 50.7p (as restated) to 59.7p Northgate plc Annual Report & Accounts 2005 03 OPERATIONAL REVIEW Three Year Strategy for Growth We are now reporting on the second year of our three year Strategy for Growth that was announced in July 2003. The strategy was 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; and An established portfolio of non-rental products. In the summer of 2003 very low levels of interest rates and inflation combined to give conditions that resulted in lower than expected fleet growth in the UK. Since September 2003 fleet growth has been more in line with our expectations with growth of 11% in the year to April 2005. We do not, however, expect to make up the shortfall in fleet growth which arose in 2003 and as such now anticipate having a UK fleet below our original target of 60,000 vehicles in April 2006. The fleet growth in Fualsa, our Spanish subsidiary, has, however, exceeded our expectations such that the closing fleet at April 2005 of 19,000 vehicles already exceeds the target for April 2006 of 18,000 vehicles. Through the successful implementation of than was originally envisaged as a result of the average fleet size per FUALSA (SPAIN) location being greater than expected. This enhances the operating margin This is the first year that Fualsa has been included as a subsidiary of the of the UK since fixed costs are spread over a larger fleet. Some depots are, Group following the exercise of options to acquire the remaining equity of however, constrained from taking advantage of this operational gearing due to the physical aspects of their location. We, therefore, have plans to relocate four primary locations to larger depots during the next financial year, thus increasing the capacity of the network. VEHICLE FLEET As highlighted above the historic pattern of fleet growth for the UK has been one whereby there has been a stronger first half to the financial year than the second half. This year is no exception with growth of 4,600 vehicles from May to October 2004 of which 850 vehicles were as a result of the acquisition of Foley Self Drive Limited on 1 August 2004. A further 1.3% growth in the fleet was achieved in the second half of the financial Fualsa on 3 May 2004. It has been another excellent year of progress with fleet growth of 27% and a profit before tax of £9.9m. During the year steps have been taken to strengthen the management team with the appointment of a Commercial Director and an Operations Director. We believe we have a strong and committed team capable of taking advantage of the tremendous opportunity that exists in Spain. DEPOT NETWORK The depot network as at 30 April 2005 comprised 15 locations as a result of Murcia, Cadiz, Badojoz and Alicante opening during the financial year. Since the year end, depots at Leon and Cordoba have opened bringing the total number of locations to 17, well on track to achieve the objective year producing a closing fleet of 52,600 vehicles (2004 – 47,400). of 20 locations set out in the three year Strategy for Growth. UTILISATION AND HIRE RATES VEHICLE FLEET Utilisation, which averaged 90% (2004 – 89%) for the year, remains the key management tool within the business. our strategy we were seeking to achieve annual double-digit earnings per As we outlined last July, our three year Strategy for Growth does not share growth in each year of the plan. An increase in earnings per share of envisage any material improvement in hire rates, with increased profitability 22.9% in the first year of the plan, followed by a further increase of 17.8% in being driven in the main by growth in the fleet and cost efficiencies. the year to 30 April 2005 leaves us well placed to achieve that objective. Review of Current Year UNITED KINGDOM AND REPUBLIC OF IRELAND The first half of our financial year usually represents the strongest period of fleet growth and utilisation for the UK since the second half is impacted by a significant number of vehicle returns in December and January as construction and distribution sector customers adjust their vehicle requirements in line with holiday periods and seasonal demand. The year Our interim report mentioned that hire rates had softened slightly both as a result of localised competitor activity and our focus on fleet growth. With regards to fleet growth, we continue to aim to win selected business from contract hire companies. Since this business tends to be lower mileage and longer term, contract hire companies generally operate at the lower end of our hire rate range. This new business has, therefore, contributed to a slightly reduced average hire rate over the year but has improved profitability as a result of operational gearing. that we are reporting on is a good example of this cycle with 11% fleet USED VEHICLE SALES growth for the year as a whole being achieved but with 9.7% of this growth We sold 17,700 vehicles (2004 – 18,700) during the year and at the same being in the first half of the financial year and 1.3% in the second. DEPOT NETWORK As at 30 April 2005 we operated from 36 primary and 40 branch locations. We have added new locations in Wakefield, Kidderminster and Worcester since 1 May 2004 – the latter two being as a result of acquiring Foley Self Drive Limited on 1 August 2004. Since the year end we have opened a new branch at Keighley and further branch openings at Chelmsford, Erith (Kent) and Hove are scheduled for the next few weeks. These new branches will bring our network to a total of 80 locations, 36 primary and 44 branches. time improved the operating profit per vehicle sold to £205 (2004 – £189). This improvement in margin is mainly driven by the sales mix since the market has remained reasonably stable over both years. We have actively sought to increase the proportion of vehicles sold through retail and semi-retail sales channels since such disposals attract better margins. For the year ended April 2004 we saw 6% of our disposals go through a refurbishment process into the semi-retail or retail channels, whereas for the year to April 2005 this has been increased to over 10%. One of our objectives is to continue to increase this percentage over the next couple of years to around 15% of the Group’s UK disposals. In addition to our Fleet growth during the year was 27% producing a closing fleet of 19,000 vehicles (2004 – 15,000). This growth was evenly spread between the first and second half of the financial year since Spain does not have the same seasonality of demand as the UK. The industrial sectors contributing to this growth continue to be in line with our existing customer profile with a bias towards the construction sector. With the appointment of the Commercial Director and the resultant marketing activity into other sectors, we are aiming to move to a more diversified customer base over the medium term. UTILISATION AND HIRE RATES The overall utilisation rate improved to 89% (2004 – 88%) despite being held back slightly by lower rates of utilisation as the network continues to expand. Of the 17 depots operated by Fualsa, nine have been opened during the last two years. Hire rates in Spain have been increasing at a modest rate of around 1% per annum for the last couple of years. A large proportion of this increase is, however, funding increases in the capital cost of the fleet where price increases for new vehicles generally exceed the 1% hire rate improvement. CURRENT TRADING AND OUTLOOK Since our trading update on 3 May 2005, we have experienced a weaker vehicle residual market in the UK than that experienced in the last financial year. As a consequence, we currently expect to achieve a lower operating profit per unit compared to the £205 per unit achieved in the financial year to 30 April 2005. We do, however, expect to achieve operating profits on disposal within our target range of between plus or minus £100 Carnaby and Walsall remarketing centres we sell vehicles from three other per unit. As highlighted in previous years we will take the appropriate opportunities dedicated sales locations in the UK – Darlington, Snodland in Kent and to consolidate businesses where we feel this will lead to efficiencies Banbury, as well as direct from selected hire locations. without detracting from customer choice and service. During the year Daman Vehicle Rental Limited, which was acquired in April 2004, was merged with Maincrest Vehicle Hire Limited in the North West of England. NON-RENTAL PRODUCTS Although not the main focus of our business, we continue to build on the portfolio of products that we offer customers as ancillary services to our One of the features of our growth over the past six years has been the rental product. In particular, we now have over 1,900 (2004 – 1,400) tracking achievement of our planned level of fleet growth through fewer locations units installed on vehicles in our fleet. Fualsa continues to achieve fleet growth rates higher than those planned. We remain of the opinion that we should make further progress during the financial year towards the objectives communicated in our three year Strategy for Growth. Steve Smith Chief Executive 04 Northgate plc Annual Report & Accounts 2005 Earnings per share (p) . 7 9 5 . 7 0 5 4 . 1 4 8 . 5 3 4 . 1 3 2001 2002 2003 2004 2005 Northgate plc Annual Report & Accounts 2005 05 FINANCIAL REVIEW Financial Reporting SALES, MARGINS AND RETURN ON CAPITAL Group turnover increased by 28.9% to £458.3m (2004 – £355.6m) as a result of an increase in UK turnover of 8.3% and the first time inclusion of Fualsa’s turnover that contributed £73.0m. UNITED KINGDOM AND REPUBLIC OF IRELAND The composition of the Group’s UK turnover and operating profit as between hire activities and vehicle sales is set out below: Subsidiary (100%) 2005 £000 55,968 17,075 73,043 (100%) 2004 £000 43,492 15,160 58,652 Joint venture (40%) 2004 £000 17,397 6,064 23,461 Turnover Hire Used vehicle sales Turnover Hire Used vehicle sales 2005 £000 2004 As restated £000 283,414 101,810 385,224 250,747 104,877 355,624 Operating profit Hire 52,143 3,533 Used vehicle sales Goodwill amortisation (435) (71) 55,605 UK Operating profit 58,968 3,632 62,165 Operating margins (excluding goodwill) UK overall Hire Used vehicle sales 16.3% 20.8% 3.6% 15.7% 20.8% 3.4% Operating profit 13,170 Hire Used vehicle sales 1,027 Goodwill amortisation* (681) 13,516 Fualsa Operating profit 8,835 2,610 3,534 1,044 – (236) 4,342 11,445 Operating margins (excluding goodwill) Fualsa overall Hire Used vehicle sales 19.4% 23.5% 6.0% 19.5% 20.3% 17.2% 19.5% 20.3% 17.2% *Goodwill amortisation arises on consolidation of Fualsa in the current year and accounting for Fualsa as a joint venture in the prior year. Fualsa’s hire turnover increased by 28.7%, in line with the rental fleet increase of 27%. Hire margins have improved to 23.5% (2004 – 20.3%), reflecting fleet growth that has generated operational gearing benefits. This is despite a continued investment programme in new locations throughout Spain, with four new locations opening during the financial year. The overall operating margin of 19.4% (2004 – 19.5%) is similar to the The UK’s overall operating margin increased to 16.3% (2004 – 15.7%) prior year even though 2004 had been enhanced by £1.75m of non-recurring mainly as a result of hire representing a larger proportion of total operating profits on vehicle disposals of which the Group’s share was estimated to profit than in the prior year. UK hire turnover increased by 13%, reflecting be £0.7m for the year. increases in the closing and average UK rental fleet of 11% and 12% respectively and generated the same operating margin of 20.8% (2004 – 20.8%) as the prior year. GROUP The operating profit generated from used vehicle sales has increased debt), is 14.2% (2004 – 13.9%). before tax rather than the very low rate of 2004. Ordinary shares of the Company have been acquired in the open market Group return on capital employed, calculated as Group operating profit the tax rate for Fualsa will remain below the standard rate. The tax rate for divided by average capital employed (being shareholders’ funds plus net future years is anticipated to remain in the range of 20% to 30% of profit by £0.1m representing an operating profit per vehicle sold of £205 (2004 – £189). The number of vehicles disposed of during the year was in line with expectations at a similar level to the prior year at 17,700 vehicles (2004 – 18,700). FUALSA This is the first financial year that Fualsa has been reported within the Group’s results as a wholly owned subsidiary. The composition Group return on equity, calculated as profit after tax divided by average DIVIDEND shareholders’ funds, is 19.0% (2004 – 18.3%). PRIOR YEAR ADJUSTMENTS Prior year adjustments have been made to reflect accounting policy The Directors recommend a final dividend of 12.0p per share (2004 – 10.6p) giving a total for the year of 20.0p (2004 – 17.6p), an increase of 13.6%. The dividend is covered three times (2004 – 2.84 times). changes following the adoption of Urgent Issues Task Force Abstract EARNINGS PER SHARE (“UITF”) 38 and UITF17 (revised), both with effect from 1 May 2004. Earnings per share increased by 17.8% to 59.7p (2004 – 50.7p as restated), of Fualsa’s turnover and operating profit as between hire activities UITF38 is in respect of investments in own shares. The impact of this and vehicle sales is set out as follows: 06 Northgate plc Annual Report & Accounts 2005 change is to reduce both fixed asset investments and shareholders’ funds by £1,330,000 at 30 April 2004. There is no impact on the consolidated profit and loss account for either year. UITF17 (revised) is in respect of shares granted to employees. The impact of this change is to increase administrative expenses and reduce profit reflecting the increase in profit after tax of 23% and the full year effect of 3.04m new shares issued as a result of a 5% Cash Placing on 14 January 2004. 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 Walbrook Trustees (Guernsey) Limited and Capita IRG Trustees Limited for the Company’s various share schemes until such time as they rank for dividend. after taxation by £191,000 in the current year and by £141,000 in INVESTMENTS the prior year. Within the consolidated cash flow statement, the Group On 3 May 2004 the Company exercised its option to acquire a further 40% operating profit is reduced by the same amounts for the respective years of the equity of Fualsa for the maximum consideration of £15.1m. On the but there is no effect on the net cash inflow from operating activities in same date the Company also exercised its option to acquire the final 20% either year. There is no change to the profit and loss reserve in either year. of Fualsa’s share capital. The consideration for this exercise is, however, TAXATION The Group’s UK operations have a total tax charge of 31% (2004 – 31%) which is slightly higher than the standard rate of 30% due to disallowable expenditure incurred within the business. The Fualsa tax rate of 20% (2004 – 12%) is below the standard Spanish tax rate of 35% because of tax concessions based on vehicle purchase reliefs that are available to the business. As was outlined last year it remains the case that as long as these tax concessions are available it is likely that deferred until 2006 and will be dependent on the profit after tax of Fualsa for the calendar years 2004 and 2005. The maximum amount of deferred consideration payable under the terms of the Share Purchase Agreement is 14.9m. This amount has been used to calculate the cost of the investment in Fualsa and the resultant goodwill. In prior years this investment has been treated as a joint venture within the Group’s accounts but with effect from May 2004 it has been accounted for as a subsidiary undertaking of the Group. On 1 August 2004 the Group acquired 100% of Foley Self Drive Limited, a UK vehicle hire operation based in the West Midlands, for a total cash consideration (including the bank overdraft acquired) of £4.4m. by Walbrook Trustees (Guernsey) Limited and Capita IRG Trustees Limited in order to satisfy the Company’s obligations under its various share schemes. These shares are included within the Group’s balance sheet within the own shares held reserve. 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 and the goodwill arising following the exercise of the options over the remaining share capital of Fualsa on 3 May 2004 is being amortised over 20 years from the date of the initial investment in July 2002. This gives rise to a goodwill amortisation charge in the year of £0.7m relating to Fualsa. Further goodwill amortisation of £0.4m was charged to the profit and loss account relating to UK businesses. Northgate plc Annual Report & Accounts 2005 07 FINANCIAL REVIEW CAPITAL STRUCTURE negotiated and monitored centrally. On 10 January 2005 the Group entered INTERNATIONAL FINANCIAL REPORTING STANDARDS As at 30 April 2005 the Group’s total gearing increased to 203% (2004 – 137%). The prior year comparative for gearing has been amended from 132% to reflect our decision that the gearing ratio going forward will be calculated as net debt (including cash balances) as a percentage of shareholders’ funds but after the deduction of goodwill. The net cash balance taken into account in calculating the gearing ratios for this into a series of unsecured, revolving, bilateral facilities with major UK and Under European Union legislation, all listed companies will be required to European banks to provide an aggregate Group facility of £565m over one, report under International Financial Reporting Standards (“IFRS”) for three and five years. These new facilities have replaced the bank and accounting periods commencing on or after 1 January 2005. The first asset finance facilities that previously existed for the UK. They are also annual report and accounts for the Group prepared under IFRS will be for being used to gradually replace debt facilities in Fualsa within the next two the year ended 30 April 2006. At that time comparative information will be years. All funds generated by the Group’s operations are controlled by a restated on the same basis. Interim results for the year to 30 April 2006 will year is £41.4m (2004 – £46.2m). central treasury function. also be prepared on an IFRS basis. The significant increase in gearing is in line with our expectations and LIQUIDITY During the last financial year, work has been ongoing with regard to the is mainly due to the first time consolidation of Fualsa’s balance sheet The Group’s aggregate finance facilities, including existing Fualsa loan first time adoption of IFRS. The restatement of the opening balance sheet and the funding of fleet growth in the UK and Spain of 11% and 27% facilities, total £672m compared to net debt of £410.4m. As described will be completed in 2005. While the exact financial impact of the changes respectively during the financial year. above, the core of these arrangements relate to the £565m unsecured in Group accounting policies as a result of IFRS is still being assessed and Treasury CASH FLOWS The Group’s net debt increased by 64% to £410.4m (2004 – £249.8m) reflecting the consolidation of Fualsa and the funding of fleet growth in the UK and Spain. Gross cash generation as reflected by EBITDA* increased to £205.1m (2004 – £154.2m). The Group funded the purchase of 22,600 new vehicles in the UK and 7,700 new vehicles in Fualsa for a total cash outflow of £274.5m. The sale of 17,700 UK vehicles and 3,700 Fualsa vehicles generated a cash inflow of £113.1m. The Group paid cash of £15.1m following the exercise of its option to acquire a further 40% in Fualsa on 3 May 2004. The option over the remaining 20% of Fualsa’s equity, whilst exercised, has not yet given rise to a cash outflow. This deferred consideration of a maximum of 14.9m is classified as debt in the Group’s balance sheet but is not expected to be paid until 2006. The acquisition of Foley Self Drive Limited gave rise to a £4.4m cash outflow. facilities with the following terms: has not yet been finalised, the following key areas of difference have been Term Within one year Within three years Five years Total Amount (£m) 113 226 226 565 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 at any time. 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 by entering into additional interest rate derivatives in May and June 2003. Five-year swaps to cover £45m of debt identified: accounting for options and other share-based payments will require a charge against profit on a different basis. the treatment of goodwill, whereby existing goodwill and goodwill on future acquisitions will no longer be amortised. Future annual impairment reviews of goodwill could result in periodic charges against profit. recognition of intangibles arising on acquisition and amortisation of these assets. accounting for derivative financial instruments may cause some volatility of earnings, although the Group’s financial instruments are restricted to managing some of the Group’s currency and interest rate risks. the Group will no longer classify the proceeds from vehicle disposals as *EBITDA – Earnings before interest, taxation, depreciation and amortisation. at an average rate of 3.97% were contracted for as were five-year interest part of its revenue. rate collars covering £55m of debt with a range of 3.15% to 5.5%. Since no provision for final dividends payable will be made until approved at a the year end, the Group has entered into a number of Euro swaps, with a general meeting. INTEREST COSTS Following the consolidation of Fualsa and the subsequent increase in net debt, the Group’s net interest costs increased by 38.2% to £21.2m (2004 – £15.4m). The percentage increase in interest costs is significantly swap rate of 2.27%. lower than the corresponding percentage increase in net debt because the Based on the Group’s closing net debt position at 30 April 2005 of £410.4m cost of debt in Fualsa is based on EURIBOR whereas the UK debt is based (represented by Sterling debt of £235.2m and Euro debt of £175.2m), a 1% on the higher cost LIBOR. Interest cover has decreased to 3.6 times increase in LIBOR and EURIBOR would generate an additional £4.1m per minimum term of three years, to cover 150m of debt with an average Whilst the Group anticipates currently that these will be the major adjustments which arise on transition to IFRS, the Group’s convergence project is ongoing and IFRS, along with associated interpretations, continues to be refined and developed. The Group has established a project timetable to ensure the requirements under IFRS will be met and adopted (2004 – 3.9 times) as a result of UK base rates being higher in the financial annum of interest costs if financial instruments were not in place. The in its interim results for the year to 30 April 2006. year compared to the prior year. STRATEGY The Group’s financing strategy has been approved by the Board. This strategy is to use medium and long-term debt to finance the Group’s vehicle fleet and other capital expenditure. 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 with banks are table below indicates the additional annual funding costs to the Group at this level of debt following increases in LIBOR and EURIBOR for a range between 1% to 3% after applying the benefits of the Group’s financial instruments, including those put in place since 30 April 2005: Gerard Murray Finance Director Increase in interest rate 1% 2% 3% 1. Sterling debt £1.2m £2.1m £2.5m Additional interest costs Euro debt £0.9m £1.6m £2.3m Total £2.1m £3.7m £4.8m 08 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 09 DIRECTORS DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE PREPARATION OF THE ACCOUNTS Martin Ballinger (61) Appointed to the Board as a non-executive Director in November 2004, becoming Chairman on 5 January 2005. Formerly Chief Executive of Go-Ahead Group plc since 1982. Alan Noble (54) Executive Director since 1990. In 1981 he founded the commercial vehicle hire business, which was acquired by the Company in 1987. 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 23, is made with a adequate accounting records and for safeguarding the assets of the view to distinguishing for shareholders the respective responsibilities of Group and hence for taking reasonable steps for the prevention and the Directors and auditors in relation to the accounts. detection of 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. Stephen Smith ACA (48) 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 (58) Appointed to the Board as a non-executive Director in February 2001. A Swedish national based in London, he is a non-executive Director of PHS Group plc and CRC Group plc. Prior to this, he was Chairman of Car Park Group AB in Stockholm. 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. Tom Brown (56) Appointed to the Board as a non-executive Director in April 2005. He is Chairman of Dyson Group plc and Chamberlin & Hill plc and a Director of a number of private companies. He was previously Group Chief Executive of United Industries plc and before that Group Managing Director of Fenner plc. Philip Rogerson (60) Appointed to the Board as a non-executive Director in November 2003. He is Chairman of Aggreko plc, Carillion plc and THUS Group plc and a non-executive Director of Davis Service Group plc. He was Deputy Chairman of BG plc (formerly British Gas plc) until February 1998 having been a Director since 1992. Ronald Williams FCA (71) 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. Mr Williams will be retiring from the Board at the conclusion of the Annual General Meeting to be held on 28 September 2005. Board Committees Audit Philip Rogerson (Chairman from 5 July 2004) Jan Astrand Tom Brown (Appointed 8 June 2005) Ronald Williams (Chairman until 5 July 2004) Remuneration Jan Astrand (Chairman) Tom Brown (Appointed 8 June 2005) Philip Rogerson Ronald Williams Phil Moorhouse FCCA (52) 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 Martin Ballinger (Chairman from 5 January 2005) Ronald Williams (Chairman until 5 January 2005) Jan Astrand Tom Brown (Appointed 8 June 2005) Philip Rogerson Stephen Smith Gerard Murray ACA (42) 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. 10 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 11 REPORT OF THE DIRECTORS The Directors present their report and the audited financial statements for The following are the interests of the Directors in the share capital of the the year ended 30 April 2005. Company as shown in the register required to be maintained under Results Profit for the year after taxation was £38,494,000 (2004 – £31,289,000 as restated). An interim dividend of 8p per share was paid on the Ordinary shares on 11 February 2005. The Directors recommend a final ordinary dividend of 12p per share making a total for the year of 20p per share. The final dividend, if approved, will be paid on 30 September 2005 to shareholders on the register at close of business on 5 August 2005. Ordinary and preference dividends paid and recommended for payment in respect of the year total £12,837,000 (2004 – £11,064,000). Principal activities The Company is an investment holding company. The Group’s activities are reported on pages 4 to 9. Fualsa Section 325 of the Companies Act 1985. All interests are beneficial unless otherwise stated. M Ballinger S J Smith J Astrand T Brown P J Moorhouse G T Murray A T Noble P Rogerson R Williams ORDINARY SHARES 1 May 2004 30 April 2005 –† 71,729 – –† 44,396 10,000 731,737 – 5,000 2,500 72,271 – – 34,938 10,540 732,279 – 5,000 Details of the acquisition of the remaining 60% of the share capital of † On appointment Furgonetas de Alquiler SA (Fualsa) on 3 May 2004 are given in Note 18 to No Director has an interest in the Preference shares of the Company. the accounts on page 42. Close company status No changes in the above interests have occurred between 30 April 2005 and the date of this report. Details of options held by the Directors under the Company’s various share schemes are given in the Remuneration So far as the Directors are aware the close company provisions of the Report on pages 14 to 17. Income and Corporation Taxes Act 1988 do not apply to the Company. Interests in shares Donations The Group made charitable donations of £45,000 (2004 – £25,000). The following interests of 3% or more in the issued Ordinary share capital No political donations were made. of the Company appear in the register required to be maintained under the provisions of Section 211 of the Companies Act 1985: Payment of suppliers HBOS plc 2,410,852 (3.8%) payments to suppliers. At 30 April 2005 the Group’s creditor days were 48. NUMBER OF SHARES with that supplier. The policy is made known to the staff who handle The Group’s policy is to pay suppliers within normal trading terms agreed Columbia Wanger Asset Management 1,935,000 (3.0%) Directors Remuneration report As required by the Directors’ Remuneration Report Regulations 2002, the Remuneration Report, set out on pages 14 to 17 of these Report and The names of the present Directors are listed on page 10. All have Accounts, will be put to shareholders for approval at the Annual General served throughout the year except Mr Ballinger who was appointed on Meeting. 10 November 2004 and Mr Brown who was appointed on 13 April 2005. In addition, Mr F M Waring resigned as Chairman and as a Director on 5 January 2005. Mr Noble is retiring by rotation in accordance with the Articles of Association and, being eligible, is seeking re-election. As has previously been announced, Mr Williams, having served as a non-executive Director since 1996, will resign from the Board at the conclusion of the Annual General Meeting to be held on 28 September 2005. The termination provisions in respect of executive Directors’ contracts are set out in the Remuneration Report on page 14. 12 Northgate plc Annual Report & Accounts 2005 Power to allot shares 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 The Directors propose to renew the general authority of the Company to make market purchases of its own shares to a total of 6,400,000 Ordinary shares (representing approximately 10% of the issued Ordinary share capital) and within the price constraints set out in the special resolution to be proposed at the Annual General Meeting. There is no present intention to make any purchase of own shares and, if granted, the authority would only be exercised if to do so would result in an improvement in earnings per share for remaining shareholders. Share option scheme A resolution to amend the rules of the Share Option Scheme will be proposed at the Annual General Meeting. The proposed changes are summarised on page 49. Auditors A resolution for the re-appointment of Deloitte & Touche LLP as auditors of the Company will be proposed at the forthcoming Annual General Meeting. This proposal is supported by the Audit Committee. By order of the Board D Henderson Secretary 4 July 2005 Northgate plc Annual Report & Accounts 2005 13 REMUNERATION REPORT Remuneration Committee The Remuneration Committee has written terms of reference which are available on the Company’s website. Membership of the Committee is shown on page 10. Directors have a duty to make reasonable efforts to mitigate any loss In addition to the above, Mr Astrand receives an amount of £15,000 in arising from such termination and the Committee will have regard to that recognition of the additional time commitment required following his duty on a case by case basis when assessing the appropriate level of appointment as a non-executive Director of Fualsa with effect from 3 May compensation which may be payable. It is also the Board’s policy that 2004. The Board do not consider that this appointment in any way affects where compensation on early termination is due, in appropriate his independence. The Committee is responsible for making recommendations to the Board circumstances it should be paid on a phased basis. on the remuneration packages and terms and conditions of employment of the Chairman, the executive Directors of the Company and of other senior Basic salaries Pension schemes Throughout the year all pension arrangements operating throughout the executives in the Group. The Committee also reviews remuneration policy The current basic salaries paid to the executive Directors are as follows: Group were defined contribution schemes. The Group will not incur any generally throughout the Group. 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 LLP (“NBSC”) in relation to the remuneration S J Smith P J Moorhouse G T Murray A T Noble £300,000 £220,000 £210,000 £168,000 packages of the Chairman, the executive Directors and senior management. All were last reviewed on 1 May 2005. NBSC is appointed by the Committee and undertakes no other work for the Company. 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. 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 seeking such positions is self-education rather than financial reward, any resulting fees would normally be expected to be paid to the Company as compensation for the time commitment involved. External appointments Basic salaries are normally reviewed annually taking into account the currently held are: performance of the individual, changes in responsibilities and market P J Moorhouse – Director, Renew (North East) Limited (non fee earning) trends and changes in salaries elsewhere in the Group. A T Noble – Director, Tees Valley Regeneration (non fee earning) Flexible benefits scheme Non-executive Directors The Company operates a flexible benefits scheme which is designed The remuneration of the non-executive Directors is determined by to help in the recruitment and retention of employees by allowing them the Board as a whole, within the overall limit set by the Articles of to tailor their remuneration package to best suit their individual needs. Association. Non-executive Directors are not eligible for performance Service contracts The executive Directors have rolling service contracts which may be terminated by 12 months notice on either side. 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 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. 14 Northgate plc Annual Report & Accounts 2005 related payments nor may they participate in the Company’s share option or pension schemes. Non-executive Directors do not have contracts of service with the Company and their appointments are terminable without notice. The current fees paid to the non-executive Directors are as follows: M Ballinger Chairman £100,000 R Williams Deputy Chairman and Senior non-executive Director J Astrand Chairman of Remuneration Committee T Brown Non-executive Director £40,000 £36,000 £32,000 P Rogerson Chairman of Audit Committee £38,000 All were last reviewed on 1 May 2005. additional costs as a result of the introduction of Pension Simplification on 6 April 2006. Performance graph 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 ‘broad equity market index’ over the last five years. As the Company is a constituent of the FTSE 250 index, that index (excluding investment companies) is considered to be the most appropriate benchmark. Total Shareholder Return Source: Thomson Financial £ e u l a V 300 250 200 150 100 50 0 Northgate plc FTSE Mid 250 (Excl. inv. Trusts) Index 30-Apr-00 30-Apr-01 30-Apr-02 30-Apr-03 30-Apr-04 30-Apr-05 This graph shows the value, by the 30 April 2005, of £100 invested in Northgate on 30 April 2000 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. The mid-market price of the Company’s Ordinary shares at 30 April 2005 was 812.5p (30 April 2004 – 624p) and the range during the year was 583p to 944p. The following elements of this report have been audited: Emoluments M Ballinger F M Waring S J Smith J Astrand T Brown P J Moorhouse G T Murray A T Noble P Rogerson R Williams Total emoluments excluding pension contributions Total pension contributions Salary/fees £000 Cash bonus £000 Cost of Chargeable expenses £000 benefits* £000 37 71 275 49 3 210 190 163 34 40 1,072 – – – 124 – – 63 66 41 – – 294 – – – 25 – – 25 23 25 – – 98 – – – 1 – – 3 – – – – 4 – 2005 total £000 37 71 425 49 3 301 279 229 34 40 – 85 361 29 – 278 225 200 15 36 1,468 – 1,229 – 2005 Pension 2004 Pension 2004 total contributions† contributions† £000 £000 £000 – – 30 – – 29 17 23 – – – 99 – – 26 – – 28 14 22 – – – 90 *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 2005 15 REMUNERATION REPORT Northgate share option scheme The Northgate Share Option Scheme (“the NSOS”) was introduced in 2000 and was designed on broadly similar lines to the Executive Incentive Scheme (“the EIS”) (see below). The NSOS provides incentives, in the form of Ordinary shares in the Company, to Directors and senior executives, currently numbering approximately 12 in total. It is proposed that the rules of the NSOS be amended in order to bring them into line with current market practice. Shareholders will be asked to approve these changes at the Annual General Meeting to be held on 28 September 2005. The changes are summarised on page 49 of these Report and Accounts. The Committee continues to believe that earnings per share growth is the most appropiate performance measure for the Company, particularly as there are no other listed companies whose business is directly comparable to that of S J Smith P J Moorhouse G T Murray No. of options 15,813 10,542 6,325 These options, granted in July 2004 when the share price was 683p, are normally exercisable between July 2007 and July 2009. In addition, options over 50,463 shares awarded to 48 management level employees were outstanding at 30 April 2005. The bonuses for executive Directors upon which the award for 2004/05 was made was 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. The bonuses payable are as Northgate. A consistent calculation methodology will apply following the follows: adoption of International Financial Reporting Standards in due course. The Directors hold the following options granted under the NSOS: At 01.05.04 Granted At 30.04.05 Exercise price Normally exercisable between S J Smith P J Moorhouse G T Murray CASH % of basic salary £000 awarded maximum 50 45 124 40 30 63 40 35 66 SHARES value % of basic salary £000 awarded maximum 50 50 40 40 40 40 138 84 76 S J Smith P J Moorhouse G T Murray – – 20,000 20,000 663p Aug 07 – Feb 09 15,000 15,000 663p Aug 07 – Feb 09 It is intended that the number of shares to be awarded will be calculated based on the closing mid-market price on 5 July 2005, being the date of the Preliminary Results Announcement. 50,000 – 50,000 – 13,500 13,500 50,000 13,500 63,500 380p 663p Jan 06 – July 08 Aug 07 – Feb 09 For the financial year 2005/06 the maximum awards will be the same as for 2004/05. Following Mr Noble’s recovery from illness and his return to management on a full-time basis, he will participate in the DABP for the No Director exercised any options during the year and none lapsed. financial year 2005/06. His maximum award will be 40% for both cash and It is proposed that the option award for 2005 be made after the Annual shares. General Meeting, in line with the new rules, rather than our usual practice The criteria for executive Directors for 2005/06 will be as follows: of making awards after the announcement of our year end results. It is the Share element: to be based solely on earnings per share improvement 30 April 2005. Deferred annual bonus plan A Deferred Annual Bonus Plan (“DABP”) was introduced in 2003 for Directors and senior and middle management. Part of the bonus is delivered in cash payable immediately after the year end and part (not normally exceeding 50% of basic salary) in the form of deferred shares awarded following the announcement of the Group’s full year results. For other levels of management bonus levels are 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. The shares will be retained in an employee benefit trust for three years and be subject to forfeiture if the employee leaves during that time. This will All employee share scheme provide a strong retention mechanism and has the motivational benefits The All Employee Share Scheme (“the AESS”), which is approved by the of certainty and clarity for the employee. During the retention period, Inland Revenue under Schedule 8 Finance Act 2000, was introduced in executives continue to have an incentive to influence the share price 2000 to provide employees at all levels with the opportunity to acquire a trust deed, the Trustees being Capita IRG Trustees Limited (“the Capita tranche to be exercisable in full a growth in earnings per share over the Trust”). To participate in the AESS, which operates on a yearly cycle, employees three financial years from 1 May 1999 to 30 April 2002 of at least 15% per annum compound was required: the actual growth achieved was 23.3%. are required to make regular monthly savings (on which tax relief is The aggregate value (in each case being the exercise price multiplied by obtained), by deduction from pay, for a year at the end of which these the number of options) of options granted to an individual in the preceding payments are used to buy shares in the Company (“Partnership shares”). ten years under the EIS and under any other executive share option scheme adopted by the Company may not exceed eight times their annual earnings. Waived and exercised options continue to count towards this limit. The Directors hold the following options granted under the EIS: For each Partnership share acquired, the employee will receive one additional free share (“Matching shares”). Matching shares will normally 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 S J Smith scheme for a further two years. Those employees who are most committed to the Company will therefore receive the most benefit. P J Moorhouse A T Noble The fourth annual cycle ended in December 2004 and resulted in 460 employees acquiring 69,824 Partnership shares at 554.75p each and being allocated the same number of Matching shares. As at 30 April 2005 the No. of options Exercise price 180,000 180,000 492.5p 492.5p 174,050 492.5p 5,950 503.5p 180,000 Capita Trust held 489,166 Ordinary shares that have vested to employees All the above options are normally exercisable between September 2003 from the first four cycles. The fifth annual cycle started in January 2005 and currently some 600 employees are making contributions to the scheme at an annualised rate of £550,000. 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, that target was achieved in 2003. As the EIS was specifically aligned to that For all the options to become exercisable, the Company’s normalised earnings per share growth over the five year period following their grant should exceed 15% per annum. These options will normally only first become exercisable in full on the seventh anniversary of their grant and 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 20%, 25% and 25% on the fourth, fifth and sixth anniversaries of their grant if earnings per share growth has been at least 15% per annum over the two, three and four years following their grant respectively. Partial exercise of these options over a sliding scale is permitted for growth in earnings per share of and September 2009. No Directors were granted options under the EIS during the year, none lapsed and none were exercised. In addition to the above, options over 567,075 shares granted to 33 employees at exercise prices ranging from 367.5p to 523p were outstanding at 30 April 2005. Long term incentive plan At 30 April 2005 there were no options remaining outstanding under this scheme. No Director held any options under the plan at any time during the year. No further options will be awarded under this scheme. Sourcing of shares Shares to satisfy the requirements of the Group’s share schemes are currently sourced as follows: EIS and NSOS – New issue benefit trust (“the Trust”) based in Guernsey. At 30 April 2005 the Trust held 185,041 Ordinary shares as a hedge against the Group’s obligations under this scheme. AESS – Through open market purchases by the Capita Trust. At 30 April 2005 the Capita Trust held 129,887 Ordinary shares as a hedge against the Group’s obligations under this scheme. By order of the Board D Henderson Secretary 4 July 2005 intention that the level of this award will not exceed 100% of basic salary. over the previous year. The maximum award to be made for growth in strategy plan, no further options will be awarded under the EIS, the last In addition, options over 281,000 shares granted to 56 employees excess of 12%, nil for growth of less than 5% and pro rata for growth options being granted in January 2002. at exercise prices ranging from 403.5p to 663p were outstanding at between those two figures. An award under the EIS consists of a right to acquire Ordinary shares of the DABP – Through open market purchases by an employee Cash element: to be based on individual key performance indicators Company at a pre-determined price which, in normal circumstances, can be relevant to their areas of responsibility and including an element of exercised, subject to a specified performance condition being satisfied, discretion by the Remuneration Committee. between four and ten years following the date of grant. so as to maximise the value on release. shares in the Company on preferential terms. The Board believes that between 8% and 15% per annum over these periods. The Directors received the following number of shares (in the form of nil encouraging wider share ownership by all staff will have longer term cost options) in respect of the financial year ended 30 April 2004: benefits for the Company and for shareholders. The AESS operates under In September 2004 the second tranche of 25% of options became exercisable, the performance condition having been satisfied. For this 16 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 17 CORPORATE GOVERNANCE UK listed companies are required by the Financial Services Authority non-executive Director following his retirement. During the year, The provisions of the New Code applicable to listed companies are divided meetings of the Audit and Remuneration Committees were by invitation. (the designated UK Listing Authority) to include a statement in their annual the Chairmen, respectively Mr Waring until 5 January 2005 and into four parts, as set out below: The external auditors attended three Audit Committee meetings. accounts on compliance with the Principles of Good Corporate Governance Mr Ballinger from that date, were satisfied that at all times the and Code of Best Practice set out in the Combined Code published in balance of skills and experience between the executive and 1 Directors a revised form in July 2003 (‘the New Code’). This New Code, which non-executive Directors was appropriate for the requirements of the incorporates recommendations made in the Higgs Report on the role and business and Mr Ballinger remains of that view. effectiveness of non-executive Directors and in the Financial Reporting – Performance evaluation: during the year, an evaluation process of Council’s new guidance for audit committees, applies to the Company the performance of the Board and of its committees was carried out, for the first time for the financial year ended 30 April 2005. led by the Chairman, Mr Ballinger. The process consisted of a formal During the year the Corporate Governance Committee, established by the Board in 2003, consisting of the Deputy Chairman, the Finance Director and the Company Secretary, continued to review the Company’s compliance with best practice and made further recommendations towards achieving compliance with the New Code. The Board accepted the Committee’s recommendations and considers that the Company complied with the New Code throughout the year, except for the following: – Board composition: the New Code requires that at least half the Board, excluding the Chairman, should comprise independent non-executive Directors. With four executive Directors, compliance would require a total of five non-executive Directors, including the Chairman. The Company did not comply with this requirement except for the period between Mr Ballinger’s appointment on 10 November 2004 and Mr Waring’s retirement on 5 January 2005 and the period following Mr Brown’s appointment on 13 April 2005. As is referred to elsewhere in these Report and Accounts, Mr Williams will be retiring from the Board at the Annual General Meeting on 28 September 2005. There is no present intention to appoint a further and detailed questionnaire completed by each Director, followed by one-to-one meetings with the Chairman. As a result of this process, Mr Ballinger was satisfied that all the non-executive Directors continued to demonstrate a commitment to their role and in particular to devote adequate time to properly carry out their duties as a member of the Board and Board committees. The process initiated during the year is an evolutionary one in that it will continue to be developed during the current year to include in particular an assessment of the performance of individual Directors. With the change to the position of Chairman during the year, it was not felt appropriate to carry out a review of the performance of either of them: the non-executive Directors will carry out such a review during the current year. The business of the Company is managed by the Board of Directors, currently comprising four executive and five non-executive Directors, details of whom are set out on page 10. All the non-executive Directors are considered to be independent both in the sense outlined in the New 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. The offices of the Chairman and Chief Executive The internal audit manager attended two Audit Committee meetings. The non-executive Directors, including the Chairman, but without executive Directors present, met informally on four occasions during the year. In addition, the non-executive Directors met informally on two occasions during the year without the Chairman being present. Before appointment, non-executive Directors are required to assure the Board that they can give the time commitment necessary to properly fulfil their duties, both in terms of availability to attend meetings and discuss matters on the telephone and meeting preparation time. Officer are separate. The division of their responsibilities has been set The Company’s Articles of Association provide that at each Annual General out in writing, approved by the Board and is available on the Company’s Meeting of the Company all Directors who held office at the time of the two website. The Board meets regularly to review trading results and has responsibility for the major areas of Group strategy, the annual Business Plan, financial reporting to and relationships with shareholders, dividend policy, internal financial and other controls, financing and treasury policy, insurance policy, major capital expenditure, acquisitions and disposals, Board structure, remuneration policy, corporate governance and compliance. The Chairman ensures that all Directors are properly briefed to enable them to discharge their duties. In particular, detailed management accounts are prepared and copies sent to all Board members every month and, in advance of each Board meeting, appropriate documentation on all items to be discussed is circulated. Directors’ attendance at Board and Committee meetings during the year is detailed below. preceding Annual General Meetings and did not retire by rotation shall be subject to re-election. In addition, any Director appointed by the Board during the year is obliged to seek re-election at the next following Annual General Meeting. The Board has established a Nomination Committee, which is chaired by Mr Ballinger. All the non-executive Directors and the Chief Executive are members. Its main function is to lead the process for Board appointments by selecting and proposing to the Board suitable candidates of appropriate calibre. The Committee would normally expect to use the services of professional search consultants to help in the search for candidates. The Committee has written terms of reference which are available on the Company’s website. During the year, the Committee lead the process which resulted in the appointment of Mr Brown to the Board in April 2005 and, previously, under the Chairmanship of Mr Williams, the appointment of Mr Ballinger to the Board in November 2004. In both cases the services of external search All Directors in office at that time were present at the Annual General consultants were used. Meeting held in September 2004. Attendance by executive Directors at M Ballinger F M Waring S J Smith J Astrand T Brown P J Moorhouse G T Murray A T Noble P Rogerson R Williams BOARD AUDIT REMUNERATION NOMINATION A 6 9 12 12 1 12 12 12 12 12 B 6 8 12 12 1 12 11 12 12 12 A – – – 7 – – – – 7 7 B 4 4 6 7 – 6 6 6 7 7 A – – – 5 – – – – 5 5 B 1 4 3 5 1 2 – 1 5 5 A 1 2 3 3 – – – – 3 3 B 1 1 3 3 – – – – 3 3 A = Maximum number of meetings the Director was entitled to attend. B = Number of meetings attended 18 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 19 CORPORATE GOVERNANCE 2 Directors’ remuneration The Company’s policy on remuneration and details of the remuneration of each Director are given in the Remuneration Report on pages 14 to 17. 3 Accountability and audit An assessment of the Company’s position and prospects is included in the Chairman’s Statement on page 2 and in the Operational and Financial Review on pages 4 to 9. INTERNAL CONTROL 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 business plan with performance reported against key performance indicators on a monthly basis together with comparisons to plan and prior year. These are reviewed regularly by management. Forecasts are updated regularly Provision C2.1 of the New Code requires the Directors to conduct an annual review of the effectiveness of the Group’s system of internal controls. The throughout the year. Turnbull Report, published by the ICAEW in September 1999, provides CONTROL PROCEDURES relevant guidance for directors on compliance with the internal control provisions of the New Code. The Directors are responsible for the Group’s system of internal controls which aims to safeguard Group assets, ensure proper accounting records are maintained and that the financial information used within the business and for publication is reliable. Although no system of internal controls can provide absolute assurance against material misstatement or loss, the The Board and the Group’s management have adopted a schedule of matters which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. Measures taken include clearly defined procedures for capital expenditure appraisal and authorisation, physical controls, segregation of duties and routine and ad hoc checks. Group’s system is designed to provide the Directors with reasonable MONITORING assurance that, should any problems occur, these are identified on a timely The Board has delegated to executive management implementation of 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: 30 April 2005 £000 Statutory audit work and interim review 228* Tax compliance Other Total 60 106 394 2004 £000 178 82 73 333 basis and dealt with appropriately. The key features of the Group’s system of the system of internal control. The Board, including the Audit Committee, * This includes audit fees paid to Deloitte & Touche LLP for internal controls, which was in place throughout the period covered by the receives reports on the system of control from the external auditors and the statutory audit of Fualsa which has a year end different to 4 Relations with Shareholders Throughout the year the Company maintains a regular dialogue with institutional investors and brokers’ analysts, providing them with such information on the Company’s progress and future plans as is permitted within the guidelines of the Listing Rules. In particular, twice a year, at the time of announcing the Company’s interim and full year results, they are invited to briefings given by the Chief Executive and Finance Director. The Company’s major institutional shareholders have been advised by the Chief Executive that, in line with the provisions of the New Code, the Senior Independent Director and other non-executives may attend these briefings and, in any event, would attend if requested to do so. 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. 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 its interim and full year results. In compliance with the requirement in the New 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. that of the Group. In prior years this audit was performed by an audit firm other than Deloitte & Touche LLP. financial statements, are described below: CONTROL ENVIRONMENT The Group has a clearly defined organisational structure within which individual responsibilities of line and financial management for the maintenance of strong internal controls and the production of accurate and timely financial management information are identified and can be monitored. Where appropriate, the business is required to comply with from management. An independent internal audit function reports bi-annually to the Audit Committee primarily on the key areas of risk within the business. The Directors confirm that they have reviewed the effectiveness of the system of internal controls covering financial, operational and compliance matters and risk management, for the period covered by these financial statements in accordance with the guidance contained in the Turnbull Report. the procedures set out in written manuals. To demonstrate the Board’s AUDIT commitment to maintaining the highest business and ethical standards Membership of the Audit Committee is shown on page 10. The Committee and to promote a culture of honesty and integrity amongst all staff, the has written terms of reference setting out its duties which are available on Board has established a confidential telephone service, operated by an the Company’s website. These include matters relating to the appointment independent external organisation, which may be used by all staff to report and fees of the external auditors and review of the annual and interim any issues of concern relating to dishonesty or malpractice within the statements, of the Group’s internal controls and of the nature, scope and Group. All issues reported are investigated by senior management. results of the internal audit programme. The Committee has access to IDENTIFICATION OF RISKS The Board and the Group’s management have a clearly defined responsibility for identifying the major business risks facing the Group and for developing systems to mitigate and manage those risks. The control of key risks is reviewed by the Board and the Group’s management at their monthly meetings. The Board is therefore able to confirm that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that it has been in place for the year under review and up to the date of approval of these accounts and accords with the Turnbull guidance. 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 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. 20 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 21 HEALTH & SAFETY AND ENVIRONMENTAL REPORT OF THE AUDITORS INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF NORTHGATE PLC The Board recognises that the monitoring and control of health and safety and environmental issues forms a key part of its risk management programme. Property As at 30 April 2005, the vehicle rental business in the UK and Ireland operated out of 76 properties, of which 36 were primary sites and 40 The Board has designated the Chief Executive as the person ultimately were branches. All but four of these sites (all of which are branches) are responsible to the Board for all health, safety and environmental matters located on industrial estates, so our activities have minimal impact on the throughout the Group. Responsibility for implementing the Group’s policy local community of the areas in which we operate. A typical primary site is devolved to regional and depot management. The Group has adopted the principles set out in the management model “HSG 65 Successful Health and Safety Management”. This enables the Group to apply consistent health and safety standards and disciplines at all locations. Comprehensive health and safety procedures and vehicle user manuals provide guidance and advice on implementing the Group’s health and safety policy. Relevant training is provided to all employees through a rolling programme designed to promote a positive health and safety culture throughout the business. will have an area of 1.2 acres, will comprise approximately 9,000 sq. ft. of workshops and office facilities, with the remainder hard-standing and will employ approximately 35 people. A typical branch location will have an area of 0.3 acres, have a small office (often of the portacabin type), a valet/washbay and in some cases a workshop facility, again, often a modular building. They employ an average of 9 people. Three of the primary sites, Darlington, Banbury and Snodland are shared with Northgate Vehicle Sales. In addition, the head office building in Darlington houses all central administrative and support services and the Northgate Vehicle Solutions business. We have audited the financial statements of Northgate plc for the year We also review whether the company has complied with the requirements ended 30 April 2005 which comprise the consolidated profit and loss set out in Listing Rules 9.8.8R(2) with regards to the amount of each element account, the balance sheets, the consolidated cash flow statement, in the remuneration package and information on share options, 9.8.8R(3), the consolidated statement of total recognised gains and losses, the (4) and (5) with regards to details of long term incentive schemes for accounting policies and the related Notes 1 to 26 together with the directors, 9.8.8R(11) with regards to money purchase schemes, and reconciliation of net cash flow to movement in net debt and the notes to the 9.8.8R(12) with regards to defined benefit schemes, and we give a consolidated cash flow statement. These financial statements have been statement, to the extent possible, of details of any non-compliance. prepared under the accounting policies set out therein. We have also audited the information in the part of the Remuneration Report that is described as having been audited. We read the Report of the Directors and the other information contained in the annual report for the above year as described in the contents section including the unaudited part of the Remuneration Report and consider the This report is made solely to the Company’s members, as a body, in implications for our report if we become aware of any apparent accordance with section 235 of the Companies Act 1985. Our audit work misstatements or material inconsistencies with the financial statements. 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 Basis of audit opinion no other purpose. To the fullest extent permitted by law, we do not accept or We conducted our audit in accordance with United Kingdom auditing assume responsibility to anyone other than the Company and the Company’s standards issued by the Auditing Practices Board. An audit includes members as a body, for our audit work, for this report, or for the opinions we examination, on a test basis, of evidence relevant to the amounts and A head office steering group reviews health and safety and environmental Part of the responsibilities of the Group health and safety officer is to have formed. performance and policy issues on a quarterly basis. Technical advice and visit all locations annually to carry out a health and safety audit. Where support is provided by a qualified health and safety officer. appropriate, outside professional advice and services are also used: Health and safety and environmental issues impact on the Group’s operations in two main areas: Vehicle fleet The total fleet in the UK and Ireland at 30 April 2005 was 52,600, with an average age of between 15 and 16 months, of which 6,400 were cars and the remainder commercial vehicles. Cars are sold after an average life of 20 months and commercial vehicles of 30 months. Our fleet is therefore comprised entirely of modern vehicles. Over 99% of the fleet is diesel – 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; – all hazardous waste (principally engine oils, batteries, tyres and other vehicle consumables) is collected and disposed of by licensed powered. Of the 3,400 cars purchased in calendar year 2004, just over 30% contractors; were Euro IV compliant. We expect this to rise to 75% in calendar year 2005 – prior to acquiring new sites, environmental risk assessments, and to 100% in 2006. Commercial vehicle manufacturers are still debating to ISO 9000 standard, are carried out by external consultants; the launch of Euro IV products but current expectations are that such products should become available in the UK in the last quarter of 2006. – all primary sites and some branch locations have above-ground fuel storage tanks. A programme to upgrade those tanks which do not currently To encourage a safe driving culture amongst our own staff, we have comply with the guidelines relating to double-bunding laid down by the arranged with the Institute of Advanced Motorists a rolling programme Environment Agency in PPG2 will be completed by September 2005. 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 Remuneration Report. Our responsibility is to audit the financial statements and the part of the Remuneration Report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Remuneration Report described as having been audited have been properly prepared in 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 disclosures in the financial statements and the part of the Remuneration Report 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 Remuneration Report 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 Remuneration Report described as having been audited. Opinion In our opinion: the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 April 2005 and of the profit of the Group for the year then ended; and the financial statements and that part of the Remuneration Report described as having been audited have been properly prepared in accordance with the Companies Act 1985. of driver assessment and training for all employees who have a company vehicle or who are otherwise required to drive as part of their duties. The Group was the first UK vehicle rental company to participate in the Institute of Road Transport Engineers Certification scheme for motor technicians, run in conjunction with the Society of Operation Engineers. During the year under review, no major incidents (classed as those resulting in death, serious injury or significant pollution) occurred at any explanations we require for our audit, or if information specified by law of our locations. No health and safety enforcement notices were served regarding directors’ remuneration and transactions with the Company on any company in the Group and there were no convictions for health and other members of the Group is not disclosed. and safety offences during the year. We review whether the corporate governance statement reflects the To date over 30% of our technicians have successfully completed the The Group’s commitment to health and safety has been recognised during Company's compliance with the nine provisions of the July 2003 FRC course. The Group has received an award from Brake, the road safety the year, with a Merit award from the Royal Society for the Prevention organisation, for its initiative in adopting the scheme. of Accidents for demonstrating the effective implementation of safety 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 Deloitte & Touche LLP Chartered Accountants and Registered Auditors arrangements within the organisation. 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 Leeds 4 July 2005 Group's corporate governance procedures or its risk and control procedures. 22 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 23 FINANCIAL STATEMENTS 24 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 25 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 APRIL 2005 BALANCE SHEETS 30 APRIL 2005 Before goodwill amortisation 2005 Goodwill amortisation 2005 Notes £000 £000 380,486 77,781 – 458,267 – 458,267 (277,376) (56,537) (333,913) 103,110 21,244 124,354 (40,471) (7,086) – (47,557) 62,639 14,158 76,797 – – 76,797 (21,224) 55,573 Turnover – continuing operations – acquisitions – joint venture Turnover: Group and share of joint venture Less: share of joint venture's turnover Group turnover Cost of sales – continuing operations – acquisitions Total cost of sales Gross profit – continuing operations – acquisitions Total gross profit Administrative expenses – continuing operations – acquisitions – goodwill amortisation Total administrative expenses Group operating profit – continuing operations – acquisitions Total operating profit Share of joint venture's operating profit Amortisation of goodwill on joint venture investment Profit on ordinary activities before interest and taxation 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 1 1, 2 4 5 7 8 8 7 Total 2005 £000 Total 2004 As restated £000 380,486 77,781 – 458,267 355,624 – 23,461 379,085 – (23,461) 458,267 355,624 (277,376) (56,537) (261,255) – (333,913) (261,255) 103,110 21,244 124,354 (40,471) (7,086) (1,116) (48,673) 62,433 13,248 75,681 – – 94,369 – 94,369 (38,693) – (71) (38,764) 55,605 – 55,605 4,578 (236) – – – – – – – – – – – – – – (1,116) (1,116) (206) (910) (1,116) – – (1,116) 75,681 59,947 – (21,224) (15,355) (1,116) 54,457 (15,963) 38,494 (12,837) 25,657 59.7p 59.1p 20.0p 44,592 (13,303) 31,289 (11,064) 20,225 50.7p 50.6p 17.6p 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 Creditors: amounts falling due within one year Net current assets (liabilities) 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 Own shares held Profit and loss account Shareholders’ funds Attributable to equity shareholders Attributable to non-equity shareholders Notes 10 11 12 13 14 15 16 17 19 20 21 22 22 22 22 23 Group Company 2005 £000 2004 As restated £000 14,110 1,981 531,843 37,947 – 583,900 – – – – 583,900 18,160 92,841 41,375 379,346 23,342 – 404,669 50,389 (40,215) 4,293 14,467 419,136 15,285 56,382 46,160 152,376 117,827 107,284 45,092 628,992 403,319 9,424 216,249 3,709 62,544 1,054 4,721 (2,471) 146,692 216,249 215,749 500 216,249 133,756 (15,929) 403,207 208,079 6,821 188,307 3,702 61,829 23 4,721 (1,330) 119,362 188,307 187,807 500 188,307 2005 £000 – – 3,056 103,234 106,290 – – – – 2004 £000 – – 3,117 79,050 82,167 – – – – 106,290 82,167 – 391,968 46,180 438,148 15,846 422,302 528,592 387,639 – 140,953 3,709 62,544 1,371 417 – 72,912 140,953 140,453 500 140,953 – 122,881 44,311 167,192 12,197 154,995 237,162 100,000 (119) 137,281 3,702 61,829 – 417 – 71,333 137,281 136,781 500 137,281 The accounts were approved by the Board of Directors on 4 July 2005. M Ballinger Director G T Murray Director 26 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 27 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 APRIL 2005 Notes (i) (ii) 2005 £000 2004 As restated £000 192,108 (20,691) (15,241) (274,517) 113,133 (7,254) 157,203 (14,679) (11,279) (215,129) 106,771 (4,333) (iii) (168,638) (112,691) Net cash inflow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Purchase of vehicles for hire Sale of vehicles for hire Other items, net Net cash outflow from capital expenditure and financial investment Acquisitions Acquisitions of subsidiary undertakings (Note 18) Equity dividends paid Cash (outflow) inflow before use of liquid resources and financing Management of liquid resources Cash placed on deposit Financing Issue of Ordinary shares (net of expenses) Purchase of investments (net) – purchase of own shares (Note 9) Increase in borrowings Capital element of vehicle loans, hire purchase and finance lease payments Cash inflow from vehicle loans, hire purchase and finance lease agreements Net cash inflow from financing (Decrease) increase in cash for the year RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT FOR THE YEAR ENDED 30 APRIL 2005 (Decrease) increase in cash for the year Financing Increase in borrowings Capital element of vehicle loans, hire purchase and finance lease payments Cash inflow from vehicle loans, hire purchase and finance lease agreements Cash placed on deposit Change in net debt resulting from cash flows Vehicle loans, hire purchase and finance lease agreements acquired with subsidiary undertakings Other net debt acquired with subsidiary undertakings New vehicle loans and hire purchase agreements Deferred consideration in respect of Fualsa (Note 18) Foreign exchange differences Movement in net debt for the year Opening net debt Closing net debt (19,353) (11,874) (1,092) (11,005) (43,689) 6,457 (21) 722 (1,141) 221,166 (279,243) 93,663 35,167 (8,543) (205) 16,351 (1,081) 93,833 (263,310) 169,577 15,370 21,622 2005 £000 (8,543) (221,166) 279,243 (93,663) 21 (44,108) (66,829) (27,144) (15,083) (9,548) 2,184 (160,528) (249,826) (410,354) 2004 £000 21,622 (93,833) 263,310 (169,577) 205 21,727 (3,271) – – – 96 18,552 (268,378) (249,826) NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 APRIL 2005 (i) Reconciliation of Group operating profit to net cash inflow from operating activities Group operating profit Depreciation Goodwill amortisation Loss (profit) on sale of equipment and other fixed assets Charge for shares granted to employees under UITF17 (revised) (Note 9) Increase in stocks (Increase) decrease in debtors (Decrease) increase in creditors Net cash inflow from operating activities (ii) Returns on investments and servicing of finance Interest received Interest paid on bank loans and overdrafts Interest paid on hire purchase agreements and vehicle loans Non-equity preference dividends paid (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 Sale of investments – unlisted investment CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 30 APRIL 2005 Profit for the financial year Revaluation of land and buildings (Note 18) Foreign exchange differences Share options adjustment under UITF17 (revised) (Note 9) Total recognised gains and losses for the financial year 2005 £000 75,681 128,253 1,116 39 191 (128) (9,340) (3,704) 192,108 2005 £000 1,957 (15,966) (6,657) (25) (20,691) 2004 As restated £000 55,605 98,547 71 (63) 141 (4,922) 1,450 6,374 157,203 2004 £000 1,028 (4,849) (10,833) (25) (14,679) 2005 £000 2004 As restated £000 (274,517) 113,133 (7,632) 378 – (215,129) 106,771 (5,729) 1,236 160 (168,638) (112,691) 2005 £000 38,494 1,031 1,482 191 41,198 2004 As restated £000 31,289 – (290) 141 31,140 28 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 29 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 12. The principal accounting policies are summarised below. They have been applied consistently throughout the year and the preceding year, with the exceptions of the changes in the accounting policies with respect to own shares and shares granted to employees, as explained in Note 9 to the accounts. 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 Plant, equipment and fittings Vehicles for hire Motor vehicles over 3 to 10 years over 3 to 6 years over 3 to 6 years 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, except as described in the accounting policies for foreign currency below. Own shares The Company’s shares held by Walbrook Trustees (Guernsey) Limited, as trustees of the Goode Durrant Employees’ Trust, and by Capita IRG Trustees Limited, as trustees of The All Employee Share Scheme, are included in the consolidated balance sheet until such time as the interest in the shares is transferred to 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. In accordance with UITF38, the Group has changed its accounting policy with respect to own shares, with effect from 1 May 2004. Shares held by the Group, as described above, were previously shown as fixed asset investments and are now shown within an own shares held reserve, as a deduction from equity shareholders’ funds. Shares granted to employees In accordance with UITF17 (revised), the Group has changed its accounting policy with respect to shares granted to employees under the Group’s various share schemes. Previously, the cost of granting shares to employees was recognised in the profit and loss account, as the difference between the price paid by employees and the historic cost to the Group of acquiring the shares. Under UITF17 (revised), the cost to the Group of granting the shares is recognised in the profit and loss account as the difference between the price paid by employees and the market value of the shares, on the day that the shares are granted. The difference between the market value and the book value of the shares is recognised in the profit and loss account reserve over the relevant performance period. Stocks Goods for resale and finished goods are stated at the lower of cost and net realisable value. 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. Current tax Current tax, including UK corporation tax and foreign tax, is provided at the amounts expected to be paid (or recovered) using the tax rates enacted, or substantively enacted, at the balance sheet date. 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 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. 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. 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. The Company maintains certain borrowings in the same currency as the functional currency of its overseas subsidiary undertaking, as a hedge against the net assets of the subsidiary. These borrowings are translated into Sterling using the exchange rate prevailing at the balance sheet date. Any variances are reflected directly in the profit and loss reserve. Goodwill arising on the consolidation of an overseas subsidiary is denominated in the local currency of the subsidiary and retranslated into Sterling at the exchange rate prevailing at the balance sheet date. The Company has denominated the investment in its overseas subsidiary undertaking in the functional currency of the subsidiary. This investment is translated into Sterling using the exchange rate prevailing at the balance sheet date. In accordance with SSAP20, any variances are reflected directly in the profit and loss reserve to the extent that they offset foreign exchange differences upon retranslation of the foreign currency borrowings held as a hedge by the Company. Any remaining difference is recognised in the profit and loss account. 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. 30 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 31 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 1 Segmental analysis The Directors consider that the only material class of business is that of vehicle hire. As such, the only segmental analysis provided is by geographical area. United Kingdom and Republic of Ireland Spain Total turnover United Kingdom and Republic of Ireland Spain Total operating profit United Kingdom and Republic of Ireland Spain Total profit before taxation United Kingdom and Republic of Ireland Spain Total net assets 2005 £000 385,224 73,043 458,267 62,165 13,516 75,681 44,598 9,859 54,457 192,373 23,876 216,249 2004 £000 355,624 – 355,624 55,605 – 55,605 41,536 3,056 44,592 173,840 14,467 188,307 Prior to the acquisition of Furgonetas de Alquiler SA ("Fualsa") on 3 May 2004 (Note 18), all turnover from the joint venture arose 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 and finance lease agreements Amortisation of goodwill Hire of plant and equipment and other assets Auditors’ remuneration Fees paid to auditors for other services Loss (profit) 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 Details of Directors’ remuneration, pension contributions and share options are provided in the audited part of the Remuneration Report on pages 14 to 17. 2005 £000 2004 £000 80,260 39,679 47,993 1,116 5,080 228 166 39 (297,935) 58,868 71 3,710 178 155 (63) (216,318) 2005 £000 1,723 446 2,169 45,855 5,386 1,125 52,366 2004 £000 1,362 375 1,737 37,496 3,401 944 41,841 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 Finance charges related to hire purchase and finance lease agreements Interest payable, net Share of joint venture interest payable, net Interest payable on bank loans, overdrafts and other loans of £17,040,000 includes £489,000 relating to the amortisation of the discounted element of the Fualsa deferred consideration, as explained in Note 17. 5 Tax on profit on ordinary activities Corporation tax UK corporation tax charge for the current year Overprovision of corporation tax for prior years Overseas taxation Overseas tax charge for the current year Total current taxation Deferred taxation Origination and reversal of timing differences Adjustment in respect of prior years 2005 £000 – 1,814 1,814 2004 £000 202 1,231 1,433 (17,040) (5,066) (5,998) (21,224) – (10,436) (14,069) (1,286) (21,224) (15,355) 2005 £000 15,308 (1,214) 14,094 1,696 15,790 (784) 957 2004 £000 13,860 (599) 13,261 389 13,650 (932) 585 15,963 13,303 The tax assessed for the year differs from the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit on ordinary activities before taxation Tax on profit on ordinary activities at the standard rate Expenses not deductible for tax purposes Depreciation in excess of capital allowances for the year Difference in taxation on overseas subsidiary / joint venture Adjustment to tax charge in respect of prior years Other Total current taxation 6 Profit of parent company 2005 £000 54,457 16,337 895 784 (1,030) (1,214) 18 2004 As restated £000 44,592 13,378 552 932 (598) (599) (15) 15,790 13,650 Of the profit attributable to shareholders, a profit of £14,225,000 (2004 – £14,271,000 as restated) 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. 32 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 33 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) 7 Dividends Equity dividend on Ordinary shares: Interim paid 8p per share (2004 – 7p) Final proposed 12p per share (2004 – 10.6p) Total dividend 20p per share (2004 – 17.6p) Non-equity dividend on Preference shares 8 Earnings per Ordinary share 2005 £000 5,136 7,676 12,812 25 12,837 2004 £000 4,259 6,780 11,039 25 11,064 The calculation of basic earnings per Ordinary share in respect of the year ended 30 April 2005 is based on the profit attributable to equity shareholders of £38,469,000 (2004 – £31,264,000 as restated) and the weighted average of 64,443,741 (2004 – 61,647,279) Ordinary shares in issue (excluding those shares held by employee trusts 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 465,690 shares (2004 – nil), remaining exercisable under the Group's various share schemes, had been fully exercised at the commencement of the relevant period, such that the weighted average number of shares is 65,064,599 (2004 – 61,817,783), including 155,168 shares (2004 – 170,504) held by employee trusts in connection with the Group's various share schemes. 9 Prior year adjustments Investments in own shares On 1 May 2004, the Group changed its accounting policy in respect of investments in its own shares, in accordance with Urgent Issues Task Force Abstract 38. A prior year adjustment has been made to reflect this change in accounting policy. The impact of this change is to reduce both fixed asset investments and shareholders' funds by £1,330,000 at 30 April 2004. The change in accounting policy gives rise to an own shares held reserve. This represents shares held by employee trusts in order to meet commitments under the Group's various share schemes. The impact of the change in accounting policy in the current year is to decrease fixed asset investments by £1,141,000 and to increase the own shares held reserve by the same amount. Within the consolidated cash flow statement, the change in accounting policy has caused a reduction in the cash outflow from capital expenditure and financial investment and a reduction in the net cash inflow from financing of the same amount. This amount is £1,081,000 for the year ended 30 April 2004 and £1,141,000 for the year ended 30 April 2005. There is no impact on the consolidated profit and loss account in either year. Shares granted to employees On 1 May 2004, the Group changed its accounting policy in respect of shares granted to employees, in accordance with Urgent Issues Task Force Abstract 17 (revised). A prior year adjustment has been made to reflect this change in accounting policy. The impact of this change is to increase administrative expenses by £141,000 and reduce profit after taxation by £141,000 for the year ended 30 April 2004. There is no impact on the profit and loss account reserve as at 30 April 2004. Within the consolidated cash flow statement, the change in accounting policy has caused a reduction in Group operating profit of £141,000. There is no impact on the net cash inflow from operating activities for the year ended 30 April 2004. The impact of the change in accounting policy in the current year is to increase administrative expenses by £191,000 and decrease profit after taxation by £191,000. There is no impact on the profit and loss account reserve as at 30 April 2005. Within the consolidated cash flow statement, the Group operating profit is reduced by £191,000. There is no impact on the net cash inflow from operating activities for the year ended 30 April 2005. 10 Intangible assets Group Cost At 1 May 2004 Additions (Note 18) Reclassification from joint venture At 30 April 2005 Amortisation At 1 May 2004 Reclassification from joint venture Charge for the year At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 Goodwill £000 2,440 8,952 4,726 16,118 459 433 1,116 2,008 14,110 1,981 11 Vehicles for hire Group Cost At 1 May 2004 Transfer to motor vehicles Foreign exchange differences Additions Acquisitions (Note 18) Disposals At 30 April 2005 Depreciation At 1 May 2004 Transfer to motor vehicles Foreign exchange differences Charge for the year Disposals At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 £000 488,793 (134) (757) 295,851 95,342 (201,603) 677,492 109,447 (35) (252) 124,959 (88,470) 145,649 531,843 379,346 The net book value of the above vehicles held under hire purchase or finance lease agreements amounts to £26,085,000 (2004 – £152,539,000). 12 Other fixed assets Group Cost or valuation At 1 May 2004 Transfer from vehicles for hire Foreign exchange differences Additions Acquisitions (Note 18) Disposals At 30 April 2005 Depreciation At 1 May 2004 Transfer from vehicles for hire Foreign exchange differences Charge for the year Disposals At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 Cost or valuation at 30 April 2005 is represented by: Valuation performed in 1992 Valuation performed in 2004 (Note 18) Additions at cost Land and buildings £000 Plant, equipment & fittings £000 Motor vehicles £000 23,096 – (42) 5,817 9,833 (179) 38,525 3,495 – (2) 1,061 (175) 4,379 34,146 19,601 525 3,403 34,597 38,525 9,945 – (8) 1,222 798 (1,560) 10,397 7,209 – (2) 1,756 (1,457) 7,506 2,891 2,736 – – 10,397 10,397 1,405 134 – 593 – (851) 1,281 400 35 – 477 (541) 371 910 1,005 – – 1,281 1,281 Total £000 34,446 134 (50) 7,632 10,631 (2,590) 50,203 11,104 35 (4) 3,294 (2,173) 12,256 37,947 23,342 525 3,403 46,275 50,203 34 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 35 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) 12 Other fixed assets (continued) Group (continued) Land and buildings by category: Freehold Short leasehold 2005 £000 26,031 8,115 34,146 2004 £000 16,943 2,658 19,601 Certain of the above freehold properties were valued as at 30 April 1992 by Jones Lang Wootton, Chartered Surveyors, and certain other freehold properties as at 3 May 2004 by Amercian Appraisal, Professional Valuers, on the basis of open market value for existing use. At 30 April 2005, under the historical cost convention, land and buildings would have been stated at £38,803,000 (2004 – £23,374,000) and related accumulated depreciation of £4,472,000 (2004 – £3,591,000). Company Cost At 1 May 2004 and 30 April 2005 Depreciation At 1 May 2004 Charge for the year At 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 13 Fixed asset investments Company Cost At 1 May 2004 Acquisitions (see below) Foreign exchange differences on investment denominated in foreign currency (see below) At 30 April 2005 Provisions At 1 May 2004 and 30 April 2005 Net book value At 30 April 2005 At 30 April 2004 £000 3,221 104 61 165 3,056 3,117 Total £000 81,485 24,202 Shares in subsidiary undertakings £000 Investment in joint venture £000 Loans to group undertakings £000 24,315 34,372 (18) 58,669 2,435 56,234 21,880 10,170 (10,170) 47,000 – – – – – 10,170 – (18) 47,000 105,669 – 2,435 47,000 47,000 103,234 79,050 14 Stocks Stocks comprise goods for resale and finished goods. 15 Debtors Amounts falling due within one year: Trade debtors Amounts due from subsidiary undertakings Social security and other taxes Corporation tax Deferred tax asset (Note 19) Other debtors Prepayments and accrued income Amounts falling due after more than one year: Prepayments and accrued income 16 Creditors: amounts falling due within one year Borrowings (Note 17) Trade creditors Amounts due to subsidiary undertakings Corporation tax Social security and other taxes Accruals and deferred income Proposed dividends Group Company 2005 £000 76,291 – 1,447 492 – 2,389 12,222 92,841 – 92,841 2004 £000 41,801 – – – – 7,647 6,496 55,944 438 56,382 2005 £000 – 388,300 1,163 – 700 1,144 661 391,968 2004 £000 – 122,583 – – – 242 56 122,881 – – 391,968 122,881 Group Company 2005 £000 48,410 20,008 – 7,231 2,138 21,779 7,718 2004 £000 87,907 9,838 – 7,143 7,050 15,038 6,780 2005 £000 18 48 5,693 – 88 2,281 7,718 2004 £000 – – 3,097 – 81 2,239 6,780 107,284 133,756 15,846 12,197 At 30 April 2005, the principal subsidiary undertakings of the Company were as follows: Name of undertaking Northgate Vehicle Hire Limited Furgonetas de Alquiler SA (see below) Principal activity Vehicle hire Vehicle hire Country of registration England and Wales Spain A full list of the Company's subsidiaries was included with the Annual Return filed with the Registrar of Companies. At 30 April 2004, the investment in joint venture related to the Company's interest in the share capital of Furgonetas de Alquiler SA ("Fualsa"). During the current year, the Company increased its interest in the share capital of Fualsa to 100% (Note 18), such that it became a wholly owned subsidiary of the Company from May 2004. All amounts relating to this investment, included within fixed asset investments, are now shown as shares in subsidiary undertakings. The investment in Fualsa is denominated in Euro in the Company balance sheet. The foreign exchange movement recognised in investments arose when this investment amount was retranslated into Sterling at the foreign exchange rate prevailing on the balance sheet date. 36 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 37 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) 17 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 17 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 2005, in respect of which all conditions precedent had been met at that date, expire as follows: Amounts falling due within one year: Bank overdraft Vehicle related bank loans Vehicle loans, hire purchase and finance leases Other Amounts falling due after more than one year: Bank overdraft Vehicle related bank loans Vehicle loans, hire purchase and finance leases Other Due within one to two years: Bank overdraft Vehicle related bank loans Vehicle loans, hire purchase and finance leases Other Due within two to five years: Vehicle related bank loans Vehicle loans, hire purchase and finance leases Due in more than five years: Other 2005 £000 7,318 3,946 36,491 655 48,410 – 378,275 12,151 12,893 403,319 – 185 11,470 10,530 22,185 378,090 681 378,771 2,363 2,363 2004 £000 3,485 – 84,422 – 87,907 51 140,628 67,400 – 208,079 51 – 44,933 – 44,984 140,628 22,467 163,095 – – 2005 £000 18 – – – 18 – 378,091 – 9,548 387,639 – – – 9,548 9,548 378,091 – 378,091 – – 2004 £000 – – – – – – 100,000 – – 100,000 – – – – – 100,000 – 100,000 – – Vehicle related loans, hire purchase and finance lease agreements of £48,642,000 (2004 – £151,822,000) are secured by fixed charges over the vehicles to which they relate. At 30 April 2004, vehicle related bank loans and overdrafts of £144,113,000 and bank loans and overdrafts of £51,000 were secured by fixed and floating charges over the assets of the subsidiary undertakings. There were no such charges in place as at 30 April 2005. Other borrowings falling due within one to two years include £9,548,000 in respect of the deferred consideration for 20% of the issued share capital of Fualsa (Note 18). This amount is unsecured and represents the actual amount payable of £10,040,000, which has been discounted by the Group’s cost of capital, in accordance with FRS7. This has resulted in a charge to the profit and loss account of £489,000 for the year ended 30 April 2005, that has been classified as interest (Note 4). Accordingly, an additional amount of £492,000 will be charged to the profit and loss account on a straight line basis from May 2005 until the expected date that the consideration falls due. Other borrowings of £458,000 (2004 – £nil), falling due within one year, and £3,284,000 (2004 – £nil), falling due in more than one year, represent Fualsa property loans which are secured by fixed charges over the properties to which they relate. All other borrowings are unsecured. In one year or less In one year to five years 2005 £000 144,338 87,421 231,759 2004 £000 138,010 14,097 152,107 On 10 January 2005, the Company agreed new committed term loan facilities with seven major UK and European banks. The total facilities of £565,000,000 have commitment termination dates one, three and five years from the agreement dates. 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 of Directors. 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 2005 the Group’s total gross borrowings were £451,729,000 (2004 – £295,986,000). Financing and interest rate risk The Group’s policy is to finance operating subsidiary undertakings by a combination of retained earnings and bank borrowings including medium term loans. 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 2005, 48% of gross borrowings were at fixed or capped rates of interest: £85,000,000 of swaps and £125,000,000 plus 12,000,000 of caps and collars as detailed on page 40. 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 2005 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 269,272 182,457 451,729 184,272 149,835 334,107 85,000 32,622 117,622 5.29 3.81 2.86 1.25 295,986 210,986 85,000 5.29 3.86 At 30 April 2005 UK Sterling Euro At 30 April 2004 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 UK Sterling floating rate borrowings bear interest at relevant national LIBOR equivalents. The Euro floating rate borrowings bear interest at relevant national EURIBOR equivalents. 38 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 39 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) 17 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: UK Sterling contracts effective as at 30 April 2005 Cap amount (£m) 5 5 10 Collar amount (£m) 10 10 10 10 25 10 10 10 10 10 115 Cap % 8.00 7.50 Cap % 7.00 7.00 7.00 7.00 5.50 5.25 5.00 4.75 7.00 7.00 Floor % – – Floor % 5.00 5.00 5.00 5.00 3.22 3.19 3.15 3.25 5.00 5.00 Finish date April 2006 June 2006 Finish date April 2007 April 2007 April 2008 April 2008 May 2008 June 2008 June 2008 June 2008 April 2009 April 2010 Total value of current contracts (£m) 125 UK Sterling contracts to commence after 30 April 2005 Collar amount (£m) 10 10 Euro contracts effective as at 30 April 2005 Cap amount ( m) 12 12 Cap % 6.50 Cap % 3.75 Floor % 4.50 Start date April 2007 Finish date April 2012 Floor % Start date Finish date – October 2003 October 2006 Euro contracts to commence after 30 April 2005 In addition to the instruments reflected in the tables above, the Group has further Euro swaps with forward starting dates, as follows: Swap amount ( m) 50 50 50 150 Swap % 2.30 2.28 2.23 Start date Finish date June 2005 June 2005 June 2005 June 2008* June 2009* June 2009* *The counterparty to these contracts has a right to cancel this arrangement, with no cost to the Company or the counterparty, on the third anniversary of the inception date of the contract. 17 Creditors: amounts falling due after more than one year (continued) Fair values of financial instruments The comparison of fair and book values of all the Group’s financial instruments as at 30 April 2005 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 Analysis of net debt Cash at bank and in hand Bank overdraft due within one year Short term deposits Bank loans and overdrafts Vehicle loans, hire purchase and finance leases Other borrowings 2005 2004 Book value £000 41,375 (451,729) (410,354) _ Fair value £000 41,375 (451,729) (410,354) (923) Book value £000 46,160 (295,986) (249,826) 682 Fair value £000 46,160 (295,986) (249,826) 180 (410,354) (411,277) (249,144) (249,646) At 1 May 2004 £000 44,407 (3,485) 40,922 1,753 (140,679) (151,822) – Cash flow £000 (4,712) (3,831) (8,543) 21 (226,732) 185,580 5,566 (249,826) (44,108) Acquisitions (Note 18) £000 – – Other non-cash changes £000 – – Foreign exchange movements £000 (94) (2) At 30 April 2005 £000 39,601 (7,318) – – (17,577) (66,829) (9,567) (93,973) – – – (15,083) (9,548) (24,631) (96) 32,283 – 2,767 (488) 1 1,774 (382,221) (48,642) (13,548) 2,184 (410,354) The Group calculates gearing to be net borrowings as a percentage of shareholders’ funds less goodwill, where net borrowings comprise borrowings less cash at bank and short term deposits. At 30 April 2005, the gearing of the Group amounted to 203% (2004 – 137% as restated) where net borrowings are £410,354,000 (2004 – £249,826,000) and shareholders’ funds less goodwill are £202,139,000 (2004 – £182,033,000 as restated). 40 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 41 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) 18 Acquisitions 18 Acquisitions (continued) Furgonetas de Alquiler SA ("Fualsa") On 16 July 2002, the Group acquired a 40% share in Fualsa, a company registered 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 was accounted for as a joint venture. On 3 May 2004, the Group exercised its option to acquire a further 40% of the issued share capital of Fualsa for a consideration of £15,143,000 under the share purchase agreement. On the same date, the Group also exercised its option to acquire the final 20% of the issued share capital of Fualsa. The consideration for this exercise is deferred until May 2006 and will be dependent upon the profit after tax of Fualsa for the calendar years 2004 and 2005. With effect from May 2004, Fualsa has been accounted for as a subsidiary undertaking and in accordance with acquisition accounting principles. The detail relating to the 60% share of Fualsa, that was acquired on 3 May 2004, is as follows: Provisional fair value adjustment £000 Book value £000 Fair value £000 Fixed assets – vehicles for hire Other fixed assets Stocks Debtors Cash at bank and in hand Bank overdraft Borrowings falling due in less than one year Other creditors falling due in less than one year Borrowings falling due after more than one year Provisions for liabilities and charges 60% interest in net assets acquired Goodwill Acquisition cost (including expenses) Fair value of consideration: Cash Deferred consideration Cash payment made Cash equivalents with subsidiary undertaking acquired Cash outflow in the year on acquisition of Fualsa 85,624 6,398 2,536 27,624 1,194 (1,104) (54,871) (8,417) (31,957) (1,594) 25,433 15,260 – 2,578 – – – – – – – – 2,578 1,547 85,624 8,976 2,536 27,624 1,194 (1,104) (54,871) (8,417) (31,957) (1,594) 28,011 16,807 7,395 24,202 15,143 9,059 24,202 15,143 (90) 15,053 The total goodwill of £12,121,000, arising on this acquisition, comprises £4,726,000 relating to the initial 40% share and £7,395,000 relating to the 60% share of Fualsa. This is being amortised over a 20 year period from July 2002. The deferred consideration is included within creditors falling due after more than one year (Note 17). The fair value adjustment made to other fixed assets represents a revaluation of land and buildings as at 3 May 2004 in line with an open market valuation performed by professional valuers (Note 12). The Group revaluation reserve in the consolidated balance sheet has been credited with 40% of the total revaluation, relating to the Group’s existing interest in Fualsa prior to 3 May 2004, amounting to £1,031,000. In its financial year to 31 December 2003, Fualsa made a profit after tax of £7,044,000. For the period from that date to the date of acquisition, Fualsa had hire turnover of £15,407,000, operating profit of £3,852,000, profit before taxation of £2,786,000, taxation of £697,000 and profit after taxation of £2,089,000. The post acquisition results of Fualsa are detailed in the segmental analysis in Note 1, being the results arising in Spain for the year ended 30 April 2005. In addition, Fualsa contributed a post acquisition net cash inflow from operating activities of £25,153,000 and paid £33,429,000 in respect of net capital expenditure for the year ended 30 April 2005. Foley Self Drive Limited ("Foley") On 1 August 2004, the Group acquired the entire issued share capital of Foley for a cash consideration of £3,895,000, including goodwill of £1,557,000. The goodwill on the acquisition of Foley 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. Fixed assets – vehicles for hire Other fixed assets Stocks Debtors Bank overdraft Borrowings falling due in less than one year Other creditors falling due in less than one year Borrowings falling due after more than one year Other creditors falling due after more than one year Provisions for liabilities and charges Fair value of net assets acquired Goodwill Acquisition cost (including expenses) Fair value of consideration: Cash Bank overdraft with subsidiary undertaking acquired Cash outflow in the year on acquisition of Foley The provisional fair values equate to the book values. Book & fair value £000 9,718 1,655 237 896 (475) (3,692) (758) (3,453) (954) (836) 2,338 1,557 3,895 3,895 475 4,370 In its financial year to 31 March 2004, Foley made a profit after tax of £527,000. For the period from that date to the date of acquisition, Foley made a profit after tax of £124,000. F Herriman & Sons Limited ("Daman") On 30 April 2004, the Group acquired the entire issued share capital of Daman for a cash consideration of £960,000, including goodwill of £670,000. During the current year, the Group received £70,000 from the vendor, under the retention terms of the sale and purchase agreement. There is no impact on goodwill in the current year. In all of the above acquisitions, the fair values represent the Directors' current estimates of the net assets acquired. In accordance with FRS7, the values attributed may be revised as further information becomes available. 42 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 43 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) 19 Provisions for liabilities and charges 22 Reserves Group Company Deferred tax provided: Accelerated capital allowances Other timing differences Movement in deferred tax: At 1 May Acquisitions (Note 18) Credited in profit and loss account Adjustments to prior years Foreign exchange movement Reclassification to debtors (Note 15) At 30 April 20 Called up share capital Group and Company Authorised: 80,000,000 Ordinary shares of 5p each 1,300,000 cumulative Preference shares of 50p each Allotted and fully paid: 64,183,217 (2004 – 64,034,340) Ordinary shares of 5p each 1,000,000 5% cumulative Preference shares of 50p each 2005 £000 11,329 (1,905) 9,424 6,821 2,430 (784) 957 – – 9,424 2004 £000 8,562 (1,741) 6,821 7,005 166 (932) 585 (3) – 6,821 2005 £000 167 (867) (700) (119) – (671) 90 – 700 – 2005 £000 4,000 650 4,650 3,209 500 3,709 2004 £000 110 (229) (119) (6) – (119) 6 – – (119) 2004 £000 4,000 650 4,650 3,202 500 3,702 During the year 148,877 Ordinary shares with a nominal value of £7,444 were issued pursuant to the exercise of options under the Group's various share schemes, for a cash consideration of £722,164. 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 At 1 May Premium on shares issued (net of expenses) (Note 20) At 30 April 2005 £000 61,829 715 62,544 2004 £000 45,635 16,194 61,829 Revaluation reserve £000 Merger reserve £000 Own shares held £000 Group At 1 May 2004 (as originally stated) Prior year adjustment (Note 9) At 1 May 2004 (as restated) Profit transferred to reserves Share options adjustment under UITF17 (revised) (Note 9) Revaluation of land and buildings (Note 18) Foreign exchange differences on retranslation of net assets of subsidiaries Foreign exchange differences on long term borrowings Increase in own shares held Disposal of own shares held 23 – 23 – – 1,031 – – – – 4,721 – 4,721 – – – – – – – At 30 April 2005 1,054 4,721 Company At 1 May 2004 Profit transferred to reserves Share options adjustment under UITF17 (revised) (Note 9) Foreign exchange differences on retranslation of investments in subsidiaries Foreign exchange differences on long term borrowings Revaluation of foreign currency denominated investment in subsidiary upon inception of hedge (see below) At 30 April 2005 – – – – – 1,371 1,371 417 – – – – – 417 – (1,330) (1,330) – – – – – (2,567) 1,426 (2,471) – – – – – – – Profit and loss account £000 119,362 – 119,362 25,657 191 – (153) 1,635 – – Total reserves £000 124,106 (1,330) 122,776 25,657 191 1,031 (153) 1,635 (2,567) 1,426 146,692 149,996 71,333 1,388 191 (1,389) 1,389 – 72,912 71,750 1,388 191 (1,389) 1,389 1,371 74,700 During the year, the Company took out borrowings denominated in Euro in order to hedge its Euro denominated investment in Fualsa. The investment balance was translated into Sterling at the exchange rate prevailing when this hedge was put into place and the gain arising was reflected in the revaluation reserve of the Company. The Company retranslated the borrowings and the investment into Sterling using the exchange rate prevailing at the balance sheet date. In accordance with SSAP20, the full loss on the retranslation of the investment has been recognised directly in reserves and the gain on the retranslation of the borrowings has been recognised directly in reserves to the extent that it offsets the loss arising on the retranslation of the investment. The remaining gain on the retranslation of the borrowings has been recognised in the profit and loss account of the Company. The cumulative amount of goodwill written off directly to reserves is £13,195,000 (2004 – £13,195,000). At 30 April 2005, a total of 314,928 (2004 – 239,779) Ordinary shares in the Company, with a market value of £2,558,790 (2004 – £1,496,221) were held by Walbrook Trustees (Guernsey) Limited and Capita IRG 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 Remuneration Report on pages 14 to 17. 44 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 45 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 APRIL 2005 (CONTINUED) FIVE YEAR FINANCIAL SUMMARY 23 Reconciliation of movements in shareholders’ funds Based on the consolidated financial statements for years ended 30 April and adjusted to reflect the effect of subsequent changes in accounting policy. Profit for the financial year Dividends Issue of Ordinary share capital (net of expenses) Share options adjustment under UITF17 (revised) (Note 9) Revaluation of land and buildings (Note 18) Increase in own shares held (net) Foreign exchange differences Opening shareholders’ funds (as originally stated) Prior year adjustment - UITF38 (Note 9) Prior year adjustment - UITF17 (revised) (Note 9) Opening shareholders’ funds (as restated) Closing shareholders’ funds 24 Contingent liabilities The Company has guaranteed borrowings by subsidiary undertakings of £nil (2004 – £44,033,000) as at 30 April 2005. 25 Commitments Capital expenditure commitments: Capital expenditure contracted for but not provided in the accounts is as follows: 2005 £000 38,494 (12,837) 25,657 722 191 1,031 (1,141) 1,482 27,942 188,307 – – 188,307 216,249 2004 as restated £000 31,289 (11,064) 20,225 16,351 – – – (290) 36,286 153,210 (1,330) 141 152,021 188,307 Group 2005 £000 119 2004 £000 475 Contracted for but not provided in the accounts Financial commitments: As at 30 April 2005 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 2005 2004 Land and buildings £000 736 671 912 2,319 Other £000 533 2,026 11 2,570 Land and buildings £000 250 590 1,299 2,139 Other £000 683 1,161 12 1,856 Profit and loss account Turnover Continuing operations Acquisitions Joint venture Turnover: Group and share of joint venture 2005 £000 380,486 77,781 – 458,267 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 – Group turnover 458,267 355,624 337,875 277,829 261,801 Operating profit Group operating profit - continuing operations Group operating profit - acquisitions 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 assets (liabilities) Creditors (after one year) and provisions Financed by Share capital Share premium account Reserves Net asset value per Ordinary share 62,433 13,248 – 75,681 – (21,224) 54,457 (15,963) 38,494 (12,837) 25,657 59.7p 20.0p 2005 £000 55,605 – 4,342 59,947 – (15,355) 44,592 (13,303) 31,289 (11,064) 20,225 50.7p 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 £000 583,900 45,092 (412,743) 419,136 (15,929) (214,900) 402,173 (86,615) (162,597) 344,494 (60,676) (147,201) 317,754 (51,625) (142,436) 216,249 188,307 152,961 136,617 123,693 3,709 62,544 149,996 216,249 336p 3,702 61,829 122,776 188,307 293p 3,545 45,635 103,781 152,961 250p 3,542 45,471 87,604 3,539 45,321 74,833 136,617 123,693 224p 203p The pension cost for the Group was £1,125,000 (2004 – £944,000). During the year ended 30 April 2005 the Group only operated defined contribution arrangements. 46 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 47 NOTICE OF ANNUAL GENERAL MEETING THE NORTHGATE SHARE OPTION SCHEME and shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2006 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. 10. 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) (b) (c) (d) (e) the Company does not purchase under this authority more than 6,400,000 Ordinary shares; the Company does not pay less than 5p for each share; 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 2006 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. 11. That the amendments to the Rules of the Northgate Share Option Scheme, produced in draft to this Meeting in the document marked ‘A’ and signed by the Chairman of the Meeting for the purposes of identification, be and the same are hereby approved and the Directors be and they are hereby authorised to cause such Rules to be adopted in the form of such draft and to do all acts and things which they may consider necessary or expedient for implementing and giving effect to the same. Notice is hereby given that the one hundred and seventh Annual General Meeting of Northgate plc will be held at Norflex House, Allington Way, Darlington at 11.30 am on 28 September 2005 for the following purposes: 1. 2. 3. 4. 5. 6. 7. 8. To receive and adopt the Directors’ report and audited accounts of the Company for the year ended 30 April 2005. To declare a final dividend of 12p per Ordinary share. To approve the Remuneration Report for the financial year ended 30 April 2005 set out on pages 14 to 17 of the 2005 Annual Report and Accounts. 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 M Ballinger as a Director. To re-elect Mr T Brown as a Director. To re-elect Mr A T Noble as a Director. As special business to consider, and if thought fit, to pass the following resolutions: numbers 9 and 10 are to be proposed as Special Resolutions and number 11 as an Ordinary Resolution. 9. (a) (b) (c) That the Directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 (‘the Act’), to allot equity securities (within the meaning of Section 94 of the Act) for cash, pursuant to the authority given in accordance with Section 80 of the Act by a resolution passed at the Annual General Meeting of the Company held on 8 September 2004 as if Section 89(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: the allotment of equity securities in connection with an offer of securities, open for acceptance for a period fixed by the Directors, by way of rights to holders of Ordinary shares and such other equity securities of the Company as the Directors may determine on the register on a fixed record date in proportion to their respective holdings of such securities or in accordance with the rights attached thereto (but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise or with legal or practical problems under the laws of, or the requirements of, any recognised regulatory body or any stock exchange in any territory or otherwise howsoever); 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. NOTES 1. 2. 3. Only the holders of Ordinary shares registered in the register of members of the Company as at 6.00 pm on 26 September 2005 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. Copies of the draft document referred to in Resolution 11 will be available for inspection at the registered office and at the offices of New Bridge Street Consultants LLP, 20 Little Britain, London EC1A 7DH until the conclusion of the Annual General Meeting. With assistance from New Bridge Street Consultants LLP, the Company has recently reviewed the provisions of the Northgate Share Option Scheme (the “Scheme”) against current market practice and corporate governance. In summary the proposed changes, which will only apply to future grants, are: Eligibility: in line with current market practice flexibility has been incorporated to enable grants up to six months before retirement (the current rules prohibit grants within two years of retirement); Option Price: the default option price for unapproved options has been set to be the middle market quotation on the dealing day prior to grant or on such other dealing day within the preceding 5 days (i.e. curbing the 30 day window in the current rules to 5 days); Option Term: the term has been increased from 5.5 years to 10 years which is the norm for share options; Timing of grants: authority to make grants for a further ten years from the date of the AGM to be held on 28 September 2005; Dilution limits: the dilution limits within the existing rules have been replaced with two new limits which are in line with current market practice. The first limit provides that in any ten year period the Company may not issue (or have the possibility to issue) more than 10 per cent of the issued Ordinary share capital of the Company under the Scheme and any other employees’ share scheme adopted by the Company. The second limit provides that on the same basis no more than 5 per cent of the issued Ordinary share capital of the Company may be issued under a discretionary executive share option plan. The limits provide flexibility to periodically recalculate the “dilution” position to take into account grants structured or restructured as Share Appreciation Rights (see below); Individual limits: The four times remuneration limit within the existing rules of the Scheme has been removed. Unapproved options are now limited to grants not exceeding 150% of salary per financial year. Approved options are subject to the £30,000 limit prescribed by the relevant legislation (or such higher limit prescribed by the legislation from time to time); Rights on cessation of employment: For future grants performance conditions will continue to apply in all circumstances (the performance conditions will expressly deal with the measurement of performance over a curtailed period). Where options vest early, they will also ordinarily be pro-rated to time, reflecting the number of days elapsed from the grant date to the date of cessation bears to three years. There is discretion not to pro-rate; Rights on takeover, reconstruction and winding up: For future grants performance conditions will continue to apply on a change of control, reconstruction or winding up of the Company (again, the performance conditions will expressly deal with the measure of performance over a curtailed period). Where options vest early, they will ordinarily be pro- rated for time, reflecting the number of days elapsed from the grant date to the date of cessation bears to three years. There is discretion not to pro-rate; and Share appreciation rights: Flexibility has been incorporated into the rules to grant Share Appreciation Rights (SARs) and/or restructure “unapproved” option grants as SARs. SARs deliver the net gain made on the exercise of an unapproved share option in shares (they cannot currently be used in connection with Inland Revenue approved grants). The way they can work is as follows: A participant is granted an option with an exercise price equal to the market value of the shares at grant; On the exercise of the option the participant does not pay the exercise price; The Company calculates the amount of gain which the participant would make on the exercise of his option, i.e. the amount by which the market value of the shares exceeds the exercise price; The resulting gain is then divided by the Company’s share price; The resulting number of shares is either issued or transferred to the Participant. As SARs only deliver the gain in shares, this reduces the number of shares which have to be used to satisfy an option. Performance conditions The performance condition that has been attached to grants to date has been a single hurdle target of EPS growth over three financial years to exceed inflation by a simple average of 3% per annum with two re-tests at the end of the fourth and fifth financial years if the test has not been met. The vesting schedule proposed for grants made in 2005 and subsequently is as follows. Average annual EPS growth in excess of inflation over three year performance period Proportion of share option exercisable 5% 5% 11% Zero Options over shares at grant worth 75% of salary or less Options over shares at grant worth 150% of salary or less Between 5% and 11% Pro-rata between the above For example, were an executive to receive a grant over options equating to 100% of salary, assuming a zero rate of inflation, for any part of the option to vest, EPS for the final financial year would need to exceed EPS for the base year by 15%. For such performance 75% of the option would become exercisable (i.e. such portion representing 75% of salary). In the same scenario, for the option to vest in full, EPS for the last financial year would need to exceed the EPS of the base year by 21% (plus inflation) or more (i.e. 7% average p.a. falls one third between 5% and 11% p.a., corresponding to 100% of salary falling one third between 75% and 150% of salary). The re-testing provisions will be removed. 48 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 49 INFORMATION FOR SHAREHOLDERS NOTES Classification Information concerning day to day movements in the price of the Company’s Ordinary shares is available on Cityline (09068 123456) code 2722. The Company’s listing symbol on the London Stock Exchange is NTG. 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 DL1 4DY Tel: 01325 467558 Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0870 1623100 50 Northgate plc Annual Report & Accounts 2005 Northgate plc Annual Report & Accounts 2005 51 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 

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