ANNUAL REPORT
AND ACCOUNTS 2007
CHAIRMAN’S STATEMENT
01 HIGHLIGHTS
04
06 OPERATIONAL REVIEW
08
FINANCIAL REVIEW
12 BOARD OF DIRECTORS
14 REPORT OF THE DIRECTORS
16 REMUNERATION REPORT
24 CORPORATE GOVERNANCE
27 HEALTH & SAFETY AND ENVIRONMENTAL
28 DIRECTORS’ RESPONSIBILITIES
29
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NORTHGATE PLC
FINANCIAL STATEMENTS
30
37 NOTES TO THE ACCOUNTS
FIVE YEAR FINANCIAL SUMMARY
76
77
INFORMATION FOR SHAREHOLDERS
78 NOTICE OF ANNUAL GENERAL MEETING
80 NOTES ON ARTICLES OF ASSOCIATION
HIGHLIGHTS
01
> GROUP REVENUE FOR THE YEAR INCREASED
BY 41% TO £526.5M (2006 – £372.6M)
> PROFIT BEFORE TAX UP BY 34%
TO £75.4M (2006 – £56.1M)
> UNDERLYING PROFIT BEFORE TAX*
INCREASED BY 29% TO £79.3M (2006 – £61.3M)
> ADJUSTED EARNINGS PER SHARE**
INCREASED BY 24% TO 81.6P (2006 – 65.7P)
*Stated before £nil (2006 – £2.6m) exceptional restructuring costs, £3.9m (2006 – £1.2m)
amortisation of intangible assets and £nil (2006 – £1.4m) of share of associate taxation.
**Stated before exceptional restructuring costs and amortisation of intangible assets.
Vehicle fleet – UK
– Spain
Group profit from operations
Profit before tax
Earnings per share
Dividend per share
Net assets per Ordinary share
2007
65,300
55,000
£107.1m
£75.4m
76.1p
25.5p
509p
2006
64,000
47,000
£72.6m
£56.1m
61.1p
23.0p
453p
Vehicle Fleet - UK
Vehicle Fleet - Spain
Group profit before tax (£000)
* UK GAAP basis
Earnings per share (p)
* UK GAAP basis
75,368
76.1
64,000
65,300
52,600
47,400
45,000
55,000
47,000
54,988
56,062
44,592*
36,603*
60.7
61.1
50.7*
41.4*
19,000
15,000
12,000
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
02_03
“I AM PLEASED TO ANNOUNCE
AN EXCELLENT SET OF RESULTS
FOR THE GROUP AFTER A YEAR
OF SIGNIFICANT CHANGE. WE
HAVE ASSIMILATED TWO MAJOR
ACQUISITIONS, ONE IN EACH OF
OUR MARKETS, STREAMLINED
OUR UK BUSINESS AND WE
ARE WELL POSITIONED FOR
FUTURE GROWTH.”
- Philip Rogerson (Chairman)
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
CHAIRMAN’S STATEMENT
04–05
“THE LOW PENETRATION RATES OF RENTAL
IN BOTH THE UK AND SPANISH COMMERCIAL
VEHICLE PARCS GIVE US CONFIDENCE THAT
THERE STILL EXISTS PLENTY OF OPPORTUNITY
FOR GROWTH. THIS LOW PENETRATION RATE
ALSO EXISTS THROUGHOUT EUROPE AND
OFFERS US THE PROSPECT OF EXPANDING OUR
OPERATIONS INTO FURTHER JURISDICTIONS.”
This is the first year we are reporting against the targets set out in
our new strategy for growth announced in January 2006.
In the UK the key elements of that strategy, namely the reorganisation
of the management structure, growth through a significant acquisition,
and the introduction of fleet management, have all been achieved. In
Spain, we have achieved continued strong organic fleet growth and have
acquired the remaining 51% of the equity in Record Rent a Car S.A.
(“Record”), our second commercial vehicle rental business in Spain.
As a result, earnings per share increased by 24%, comfortably achieving
our target of double-digit growth.
Since 1999, when we announced our first strategy for growth focused
solely on vehicle rental, the business has seen earnings per share
grow from 19.1p to 76.1p, a compound annual growth rate of 19%.
The results for the year are summarised below:
• Group revenue increased by 41% to £526.5m (2006 – £372.6m)
• Underlying profit before tax for the year increased by 29%
to £79.3m (2006 – £61.3m)
• Adjusted earnings per share increased by 24%.
Based on these results, the Board has recommended to shareholders
a final dividend of 15.5p per share making a total dividend for the year
of 25.5p, which is covered three times and represents an increase of
11% over the prior year. The dividend will be payable on 28 September
2007 to those shareholders on the register on 24 August 2007.
The UK business has seen the expected benefits flow through from the
acquisition of Arriva Vehicle Rental (“AVR”) in 2006, with the high level
of customer retention being particularly pleasing. The streamlining of the
management structure which began in May 2006 has also produced some
early gains, as evidenced by the improvement in vehicle utilisation to 91%
(2006 – 90%). External factors have been generally favourable with a more
benign hire rate environment than the previous year and a buoyant used
vehicle market. Fleet growth has been modest as a result of the internal
restructuring within the business and a focus on maintaining hire rates in
the face of competitive pricing. This modest growth has been supplemented
by an improvement in utilisation referred to above that has assisted in
increasing the number of vehicles on hire by 3% since the start of the
financial year. The overall outcome for the UK is that the rental operating
margin has improved to 21.1% (2006 – 20.6%).
In Spain, we have achieved another year of significant growth, with the
fleet now exceeding 55,000 vehicles, up 17% over the prior year. Coupled
with operational improvements, this has increased the operating margin
to 22.4% (2006 – 20.9%). The Spanish business now produces 35% of the
Group’s profit from operations.
Having created a unified management structure, we expect to be operating
on a common IT platform in Spain during this financial year and thereafter
will begin to merge those activities where further synergies can be obtained.
Contrary to comment in the UK press in April 2007 we have seen no
evidence of any reduction in demand from our customers in the Spanish
construction sector. As explained in the Operational Review we would
not expect a change in the fortunes of the real estate market to affect
our business materially since we have a very low exposure to this area.
We have moved forward with our search for new territories and are now
confident that we will find an appropriate opportunity in line with the
timescale set out in our strategic plan. Whilst it will not be of the same
size as Fualsa when we made our first investment in July 2002, we would
expect our flexible rental product to enable us to grow strongly, albeit from
a lower base.
Following his retirement in November 2006 on grounds of ill health it
was with sadness that we learnt of the death of Martin Ballinger, our
former Chairman, in February 2007. In his short time with us Martin
made a significant contribution to Northgate’s continued development.
Our thoughts then, and now, are with his family.
CURRENT TRADING AND OUTLOOK
The new financial year has started well and the Group is performing in line
with the Board’s expectations. The low penetration rates of rental in both
the UK and Spanish commercial vehicle parcs give us confidence that
there still exists plenty of opportunity for growth. This low penetration rate
also exists throughout Europe and offers us the prospect of expanding our
operations into further jurisdictions, a process that we expect to commence
within the coming year.
Philip Rogerson
Chairman
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
OPERATIONAL REVIEW
STRATEGY FOR GROWTH
REVIEW OF CURRENT YEAR
In January 2006 we announced a new three-year rolling strategic plan
aimed at maintaining annual double-digit earnings growth. The key
elements of that plan were:
UK & Republic of Ireland
• An increase in the fleet size, both by acquisition and organic growth
• The introduction of a fleet management product
• A reorganisation of the business to create a more streamlined
hire company network and to implement a functional, rather than
geographic, management structure.
Spain
• Acquisition of the remaining 51% of the equity of Record
• Continued double-digit organic fleet growth
• To obtain the synergies available from combining certain functions
in our two Spanish businesses.
We are delighted that these objectives have been substantially achieved
this year. Although fleet growth in the UK was below our planned levels
we have put additional measures in place designed to achieve our target
level of growth of 5% per annum in future periods.
In the year under review our UK business has enjoyed the benefits of the
acquisition of AVR, the integration of which was concluded by 30 April
2006. We have also introduced a fleet management product to our
customers through the acquisition of Fleet Technique Limited (“FTL”),
streamlined the number of hire companies from 35 to 20 and revised
the management structure.
In Spain we acquired the balance of the share capital of Record on 11 May
2006, grew the fleet by 17%, created a unified management structure to
take the business forward and obtained some economies of scale as a
result of effectively doubling the size of our business.
As a consequence of these achievements, the Group has increased profit
from operations by 50% and, despite an increase in the interest charge
due to interest rate increases and higher levels of net debt, achieved an
increase in underlying profit before tax of 29%.
The resultant increase of 24% in our adjusted earnings per share represents
an excellent start for year one of our latest strategic plan.
UNITED KINGDOM AND REPUBLIC OF IRELAND
During the year ended 30 April 2007, fleet growth has been modest but
has been compensated by improved utilisation and a more benign hire
rate environment when compared to the prior year. In addition used vehicle
residual values have been particularly strong, principally as a result of
shortages in new product in a number of categories leading to a similar
reduction in the number of vehicles entering the used market.
When combined with the benefits of the AVR acquisition referred to
above, this has seen UK profit from operations improve by 22% to £71.7m
(2006 – £58.8m).
DEPOT NETWORK
Following the restructuring of the business, we now operate through 20 hire
companies, ranging in vehicle fleet size from 1,400 vehicles to 6,000 vehicles.
In addition we have 62 branches, producing a total network of 82 locations.
In the year ahead we would not expect the overall number of locations to
change materially, although we do expect to relocate a number of hire
companies as they outgrow their existing facilities.
VEHICLE FLEET AND UTILISATION
We ended the year with a fleet size of 65,300 vehicles, representing growth
of 2%. However, as a result of the improvement in utilisation referred to below,
the number of vehicles on hire has increased by 3% since the beginning of
the financial year. The internal restructuring of the UK business undoubtedly
had a short-term adverse effect on our sales activity during the year, as did
our determination to protect our hire rates and as a consequence we fell
short of our growth target of 5% per annum. Going forward we now have a
settled sales structure and an enlarged marketing resource to focus on the
90% of the market that owns commercial vehicles. In particular we expect to
be able to utilise our fleet management business and our recently relaunched
“sale and rentback” product as a conduit to convert those users.
We achieved a utilisation rate of 91% for the year, up 1% over the prior
year and the highest rate we have delivered since 1997. The improvement
in utilisation was one of the efficiencies expected to be delivered by the
streamlining project and we are pleased to report the progress to date.
HIRE RATES
During the prior financial year hire rates came under pressure in a very
competitive environment. This situation eased in February 2006 and we can
report that for the financial year ended 30 April 2007 hire rates were stable in
the UK and have remained so in the early part of the current financial year.
USED VEHICLE SALES
We have exceeded the prior year record of selling 23,000 vehicles, with total
disposals for this year of 24,700 vehicles. To enable us to achieve this volume
of disposals, we had increased our used vehicles sales network to nine
locations in the previous financial year.
06–07
HIRE RATES
The slightly less competitive pricing environment in Spain has allowed us,
once again, to increase hire rates modestly such that the average hire rate
was up by 1% over the prior year. This benefit is partly offset by the additional
depreciation arising from a similar increase in the capital cost of new vehicles.
USED VEHICLE SALES
During the year we have disposed of 12,200 vehicles (2006 – 4,900) which
gave rise to a small profit on disposal in line with our expectations of
£1.9m (2006 – £2.0m). This has been offset against vehicle depreciation in
accordance with our accounting policies. These disposals were achieved
from a network of 11 locations, with some 5% of the total being delivered
through our semi-retail and retail channels. It is our intention to develop
these channels further in the year ahead in order to achieve a medium-term
goal of 8% of total disposals from these routes to market.
The move towards a common IT platform continues and the Record system
has now completed its upgrade and is ready to roll out in Fualsa. This process
is expected to complete within the current financial year, after which we will
be able to secure further efficiencies in the combined business.
OTHER TERRITORIES
Our search for another jurisdiction has been stepped up a gear and we are
now actively examining a number of markets for potential targets. As we have
previously indicated, our success in Spain came as much from identifying
the right company to acquire as it did from entering the right market.
Whilst our initial research suggests that there are no rental businesses
of the size of Fualsa when we acquired it, we are confident that our flexible
rental product will create demand once offered and that we will be able to
grow quickly, even if it is from a lower base. In line with the timetable in our
strategy for growth, we would expect to move forward with an acquisition
during this financial year.
Steve Smith
Chief Executive
Equally pleasing, we have seen the proportion of vehicles disposed of through
our retail and semi-retail channels increase to 16% (2006 – 12%). This has
been possible due to both the improved supply of good quality clean vehicles
being generated by the AVR business and by the continued development of
our retail and semi-retail brands. We have raised our medium-term target
for these channels to 20% of total disposals. There continues to be a shortage
of new light commercial vehicle product, which naturally leads to less supply
into the used market and, as a consequence, an improvement in used
vehicle residual values. We are not aware of circumstances which will
change this situation in the short term and therefore expect to achieve
similar disposal values in the current calendar year.
The effect of the increase in the proportion of our retail and semi-retail
sales, coupled with the strong used vehicle market, gave rise to a profit on
disposal of £8.5m (2006 – £2.2m) which, in accordance with our accounting
policies, was offset against the vehicle depreciation charge for the year.
FLEET MANAGEMENT
In its first full year of ownership, FTL, our fleet management subsidiary,
produced a profit from operations in line with our expectations at £0.6m.
Revenue from FTL was 6% higher compared to the previous 12 months
trading period, although the Group did not have ownership for the whole of
that prior year. We remain confident that FTL will enable us to sell a broader
range of solutions to our customers and to utilise better our sizeable
network of repair facilities thereby delivering a more significant contribution
in future periods. Equally important is the visibility it provides into the
owned market which, as mentioned above, will assist us in converting
owners of commercial vehicles to renters.
SPAIN
On 11 May 2006 we acquired the remaining 51% of the share capital
of Record, making us the leader in the growing Spanish vehicle rental
market with a combined fleet size for Fualsa and Record, at that time,
of 47,000 vehicles.
Since May 2006 the fleet has grown by 17% to 55,000 vehicles, comfortably
ahead of our targeted growth of 15%. At the same time improved operational
procedures have enabled utilisation to improve to 90% (2006 – 89%).
Whilst the customer base of our Spanish business continues to be
dominated by the construction sector, which represents 58% of our total
revenue, this proportion is lower than in prior years when it peaked at 65%.
The reduction indicates that other sectors are growing at a faster rate than
construction. As with many construction enterprises in the UK, the activities
of Spanish construction companies now encompass service as well as
project based business. Further analysis of our construction customer
activity indicates approximately 11% of the 58% is related to service provision
such as facilities management and the remaining 47% is derived from
construction projects many of which are funded from central government
or the EU Structural Fund. It remains our intention to reduce this
dependency over the medium term.
DEPOT NETWORK
Whilst the network of 35 locations has not increased during the year, we have
relocated five branches to larger premises to accommodate the growth in the
fleet. Looking forward, we do not expect to extend the network significantly as
we already have good geographic coverage across Spain but we do anticipate
further relocations as the fleet continues to grow.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
08–09
The operating margin of the enlarged Spanish business has improved as
a result of the acquired Record business having a higher operating margin
than Fualsa and as a result of overall efficiency gains across the enlarged
Spanish business.
DIVIDEND
The Directors recommend a final dividend of 15.5p per share (2006 – 14p)
giving a total for the year of 25.5p (2006 – 23p), an increase of 11%. The
dividend is covered 3.0 times (2006 – 2.7 times).
GROUP
Group return on capital employed, calculated as Group profit from operations
divided by average capital employed (being shareholders’ funds plus net
debt), is 10% (2006 – 10%).
Group return on equity, calculated as profit after tax divided by average
shareholders’ funds, is 16% (2006 – 16%).
EARNINGS PER SHARE
Earnings per share increased by 24% to 76.1p (2006 – 61.1p), reflecting the
growth in profits in both the UK and Spain. Excluding intangible amortisation
of £3.9m (2006 – £1.2m) and exceptional restructuring costs of £nil
(2006 – £2.6m), basic earnings per share grew by 24% to 81.6p (2006 – 65.7p).
Basic earnings per share have been calculated in accordance with IAS 33.
TAXATION
The Group’s UK operations have a total tax charge of 33% (2006 – 32%),
which is slightly higher than the standard rate of 30% due to disallowable
expenditure incurred within the business. The 2007 Budget Statement
announced a reduction in the standard rate of UK corporation tax from 30%
to 28% commencing in 2008. This change will have the effect of reducing
the UK’s future effective tax rate. At the same time capital allowances,
which are an important component of the UK’s qualifying expenditure, are
scheduled to be reduced from 25% to 20% per annum. This will not impact
the UK’s future effective tax rate but it will result in a short-term cash outflow.
The Spanish effective tax rate of 17% is below the standard Spanish tax
rate of 35% because of tax concessions based on vehicle purchase reliefs
that are available to the businesses. Legislation has been enacted in Spain
that will reduce the standard rate of corporation tax from 35% to 30% over
the next two financial years. The current year effect of this change is that a
credit has accrued to the deferred tax charge to reflect the future reduction
in tax rate. The legislation also includes provisions that will remove some
element of the vehicle purchase reliefs that the Spanish businesses
currently claim. It is therefore expected that the effective rate for our
Spanish business will move towards 30% within the next couple of years.
FINANCIAL REVIEW
FINANCIAL REPORTING
SALES, MARGINS AND RETURN ON CAPITAL
Group revenue increased by 41% to £526.5m (2006 – £372.6m). UK revenue
increased by 17% to £351.1m (2006 – £300.8m) mainly as a result of full year
contributions from the AVR and FTL acquisitions. The Spanish business
benefited from a 144% increase in revenue reflecting the first year contribution
from Record as a subsidiary undertaking and the organic fleet growth of
17% in Spain leading to revenue of £175.4m (2006 – £71.8m).
UNITED KINGDOM & REPUBLIC OF IRELAND
The composition of the Group’s UK revenue and profit from operations as
between vehicle rental activities and fleet management is set out below:
Revenue
Vehicle rental
Fleet management
Profit from operations
Vehicle rental
Restructuring cost*
Fleet management
Intangible amortisation
2007
£000
337,370
13,738
351,108
71,137
-
576
(2,035)
69,678
2006
£000
297,433
3,338
300,771
61,329
(2,607)
119
(692)
58,149
*The UK profit from operations in 2006 incurred an exceptional restructuring
cost of £2.6m relating to AVR following its acquisition on 3 February 2006.
Operating margins (excluding exceptional cost and
intangible amortisation)
The overall UK operating margin has remained static due to the mix
of business from vehicle rental and fleet management changing. The
operating margin from vehicle rental has improved to 21.1% (2006 – 20.6%)
principally as a result of a 1% increase in fleet utilisation and a reduction in
our depreciation charge after offsetting higher profits on vehicle disposals.
The higher profits on vehicle disposals are expected to continue in the short
term but it is less certain as to whether the current level of profits represents
a permanent shift in the market. In accordance with our accounting policies
we continue to review anticipated net book values and changes in the
possible disposal values. The profit from operations is stated after absorbing
costs of £0.8m associated with the streamlining of the hire company network.
SPAIN
Fualsa, a major commercial vehicle rental company in Spain, has been
a wholly owned subsidiary since May 2004. On 5 August 2005 the Group
acquired a 49% interest in the equity of Record, another leading Spanish
commercial vehicle rental company and on 11 May 2006 the Group acquired
the remaining 51% of Record. In the current year both businesses have
been reported as subsidiary undertakings whereas in the prior year only
Fualsa was a subsidiary undertaking.
The revenue and profit from operations generated by Spain during the year
is set out below:
Revenue
Vehicle rental
Profit from operations
Vehicle rental
Intangible amortisation
2007
£000
2006
£000
175,357
71,838
39,265
(1,887)
37,378
2007
22.4%
14,984
(535)
14,449
2006
20.9%
UK overall
Vehicle rental
Fleet management
2007
20.4%
21.1%
4.2%
2006
20.4%
20.6%
3.6%
Operating margins
(excluding intangible amortisation)
Overall
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
FINANCIAL REVIEW
10–11
INVESTMENTS
On 11 May 2006 the Company acquired the remaining 51% of the share
capital of Record for £49.8m.
Ordinary shares of the Company have been acquired in the open market
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.
CAPITAL STRUCTURE
As at 30 April 2007 the Group’s total gearing measured as net debt
(including cash balances) as a percentage of shareholders’ funds but
after the deduction of goodwill and intangible assets increased to 290%
(2006 – 204%). The net cash balance taken into account in calculating
the gearing ratio for this year is £35m (2006 – £24m). This level of gearing
is in line with our expectations, the increase being mainly due to the cash
outflows following the purchase of 51% of Record for £49.8m and the
debt of £146m that was acquired with Record on the same date.
TREASURY
STRATEGY
The Group’s financing strategy, which has been approved by the Board, 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 sourcing of finance for the Group and the related
commercial terms is arranged and monitored through the Group’s treasury
function. In January 2006 the Group extended its loan facilities with its seven
banks to a total of £745m under a series of unsecured, revolving, bilateral
agreements and later in 2006 these facilities were extended to £755m. In
December 2006 the Group concluded a Private Placement in the United
States of America by issuing a series of unsecured loan notes with maturity
periods of between seven and ten years in order to raise $335m of new
finance. All of this new finance was immediately converted to sterling which
at 30 April 2007 was equivalent to debt of £169m. The Group entered into a
series of financial instruments to fix the rate of interest at an effective rate
of 5.78% per annum for the period of the loan notes. This transaction has
diversified the Group’s source of debt finance and also increased the overall
term of its debt repayment. All funds generated by the Group’s operations
are controlled by a central treasury function.
LIQUIDITY
The Group’s aggregate finance facilities, including existing Spanish loan
facilities, total £977m compared to net debt of £755m giving adequate
funding for our expected growth. As described above, the core of these
arrangements relate to the £755m unsecured bank loan facilities and £169m
of unsecured US loan notes which combined have the following maturity:
Maturing
Within 1 year
Within 1 – 3 years
Within 7 years
Within 10 years
Total
Amount (£m)
151
604
63
106
924
CASH FLOWS
The Group’s net debt increased by 44% to £755.3m (2006 – £524.5m)
including the debt in Record’s balance sheet. This increase reflects cash
outflows associated with the purchase of 51% of the equity of Record (£49.8m),
the acquisition of Record’s existing debt (£146m) and funding of fleet growth
particularly in Spain. Gross cash generation as reflected by EBITDA* increased
to £304.9m (2006 – £210.0m). The Group had net capital expenditure on its
fleet of £249.4m representing the purchase of 26,000 new vehicles in the UK
and 20,200 new vehicles in Spain for a total cash outflow of £437.9m and the
sale of 24,700 UK vehicles and 12,200 vehicles in Spain that generated a cash
inflow of £188.5m.
*EBITDA – Earnings before interest, taxation, depreciation and amortisation.
INTEREST COSTS
The Group’s net interest costs have increased by 58% to £31.7m
(2006 – £20.1m) compared to an increase in net debt of 44%. The reason
for the balance of the increase in interest charges is due to LIBOR and
EURIBOR both experiencing a series of rate increases over the financial
year. Interest cover remained a healthy 3.4 times (2006 – 3.6 times).
INTEREST RATE MANAGEMENT
The Group’s bilateral agreements incorporate variable interest rate clauses.
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
but more recently has adopted a strategy to increase this coverage to a
higher level of between 50% to 75%. The proportion of net debt hedged
into fixed rates was 53% at 30 April 2007 and has subsequently increased
to 57%. The weighting of this coverage is very much towards Sterling debt
where 100% of Sterling debt is now fixed. Sterling debt represents 30%
of the Group’s net debt and the remaining net debt proportion of 70% is
denominated in Euros.
Gerard Murray
Finance Director
BOARD OF DIRECTORS
Philip Rogerson
(age 62)
Appointed to the Board as a non-
executive Director in November 2003.
Philip 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. His
appointment as Chairman of the
Company on an interim basis in
November 2006 was made permanent
on 5 June 2007.
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. Phil 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.
Appointed Chief Executive Officer in
October 1999, having been a member of
the Board since August 1997. Managing
Director of vehicle hire operations since
1990. Steve qualified as a Chartered
Accountant with Coopers & Lybrand
and held a number of senior financial
positions in industry prior to joining
the Company.
Stephen Smith ACA
(age 50)
Jan Astrand MBA
(age 60)
Appointed Group Finance Director
in January 2003. Gerard 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.
12–13
Appointed to the Board as a
non-executive Director in April 2005
and appointed Senior Independent
Director in June 2007, Tom is Chairman
of 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.
Appointed to the Board as a non-
executive Director in February 2001.
A Swedish national based in London,
Jan was Chairman of CRC Group plc
until January 2007. Prior to this, he was
Chairman of Car Park Group AB in
Stockholm and also Senior Independent
Director of PHS Group plc. From 1994
to 1999 he was President and Chief
Executive of Axus (International) Inc.
(previously known as Hertz Leasing
International). From 1989 to 1994 he
was Vice President, Finance and
Administration and Chief Financial
Officer of Hertz (Europe) Ltd.
Executive Director since 1990. In 1981
Alan founded the commercial vehicle
hire business, which was acquired by
the Company in 1987.
Tom Brown
(age 58)
Phil Moorhouse FCCA
(age 54)
Gerard Murray ACA
(age 44)
Alan Noble
(age 56)
Board Committees
Audit
Philip Rogerson (Chairman)
Jan Astrand
Tom Brown
Remuneration
Tom Brown (Chairman)
Jan Astrand
Philip Rogerson
Nomination
Philip Rogerson
(Chairman from 14 November 2006)
Jan Astrand
Martin Ballinger (resigned 14 November 2006)
Tom Brown
Stephen Smith
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
REPORT OF THE DIRECTORS
14–15
DIRECTORS
PAYMENT OF SUPPLIERS
ARTICLES OF ASSOCIATION
The Group’s policy is to pay suppliers within normal trading terms agreed
with that supplier. The policy is made known to the staff who handle
payments to suppliers. At 30 April 2007 the Group’s creditor days were
as shown in Note 23 to the accounts.
There have been changes in company law since our present Articles of
Association were adopted in 2004. Accordingly, the Directors consider it
appropriate for the Company to adopt new Articles of Association to reflect
these changes.
DISABLED EMPLOYEES
Applications for employment by disabled persons are given full consideration,
taking into account the aptitudes of the applicant concerned. Every effort is
made to try to ensure that employees who become disabled whilst already
employed are able to continue in employment by making reasonable
adjustments in the workplace, arranging appropriate training or providing
suitable alternative employment. It is Group policy that the training, career
development and promotion of disabled persons should, as far as possible,
be the same as that of other employees. The Group’s equal opportunity
policy is available on the Company’s website.
REMUNERATION REPORT
As required by the Directors’ Remuneration Report Regulations 2002, the
Remuneration Report, set out on pages 16 to 21, will be put to shareholders
for approval at the Annual General Meeting.
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
£175,000 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 7,000,000 Ordinary
shares (representing approximately 10% of the issued Ordinary share capital)
and within the price constraints set out in the special resolution to be
proposed at the Annual General Meeting.
There is no present intention to make any purchase of own shares and,
if granted, the authority would only be exercised if to do so would result
in an improvement in earnings per share for remaining shareholders.
The principal differences between the present and the proposed new
Articles of Association are summarised on page 80. A copy of the proposed
new Articles of Association will be available for inspection at the Company's
registered office until 26 September 2007 and also at the Annual General
Meeting. Copies are also available to shareholders on request and can be
viewed on the Company's website. A special resolution adopting the new
Articles of Association will be proposed at the Annual General Meeting.
FINANCIAL INSTRUMENTS
Details of the Group’s use of financial instruments are given in the Financial
Review on pages 10 and 11 and in Note 25 to the accounts.
AUDITORS
In the case of each of the persons who are Directors of the Company
at the date when this report was approved:
• so far as each of the Directors is aware, there is no relevant audit
information (as defined in the Companies Act 1985) of which the
Company’s auditors are unaware; and
• each of the Directors has taken all the steps that he ought to have taken
as a Director to make himself aware of any relevant audit information
(as defined) and to establish that the Company’s auditors are aware of
that information.
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
2 July 2007
The Directors present their report and the audited financial statements
for the year ended 30 April 2007.
RESULTS
Profit for the year after taxation was £54,483,000 (2006 – £40,594,000).
An interim dividend of 10p per share was paid on the Ordinary shares
on 8 February 2007.
Details of the present Directors, all of whom have served throughout the
year, are listed on pages 12 and 13. Mr Ballinger retired from the Board
through ill health on 14 November 2006 and Mr Rogerson was appointed
as Chairman on an interim basis. This appointment was made permanent
on 5 June 2007. Mr Rogerson and Mr Astrand are retiring by rotation
in accordance with the Articles of Association and, being eligible, are
seeking re-election.
The Directors recommend a final Ordinary dividend of 15.5p per share
making a total for the year of 25.5p per share.
The termination provisions in respect of executive Directors’ contracts
are set out in the Remuneration Report on pages 16 to 21.
The final dividend, if approved, will be paid on 28 September 2007 to
shareholders on the register at close of business on 24 August 2007.
The following are the interests of the Directors in the share capital of the
Company. All interests are beneficial unless otherwise stated.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The Company is an investment holding company.
The principal subsidiary and associated undertakings are listed in
Note 18 to the accounts.
The information that fulfils the requirements of the Business Review
can be found in the Operational and Financial Reviews on pages 6 to 11,
which are incorporated in this report by reference.
CLOSE COMPANY STATUS
So far as the Directors are aware the close company provisions of the
Income and Corporation Taxes Act 1988 do not apply to the Company.
INTERESTS IN SHARES
The following interests in the issued Ordinary share capital of the Company
have been notified to the Company in accordance with the provisions of
Chapter 5 of the Disclosure and Transparency Rules:
P Rogerson
S J Smith
J Astrand
T Brown
P J Moorhouse
G T Murray
A T Noble
Ordinary Shares
30 April
2007
–
71,429
–
2,000
35,596
11,198
732,937
1 May
2006
–
71,121
–
2,000
35,288
10,890
732,629
No Director has an interest in the Preference shares of the Company.
No changes in the above interests have occurred between 30 April 2007
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 Report on pages 16 to 21.
Direct
Indirect
DIRECTORS’ INDEMNITIES
3,840,135 (5.4%)
AEGON UK plc
AXA S.A.
1,036,118 (1.5%)
Columbia Wagner Asset Management LP 2,194,500 (3.1%)
- -
Lazard Asset Management LLC
2,486,796 (3.5%)
Legal & General Group plc
2,278,596 (3.2%)
Lloyds TSB Group plc
4,380,679 (6.1%)
Standard Life Investments Limited
248,732 (0.3%)
4,943,868 (6.9%)
- -
3,494,276 (4.9%)
- -
-
4,502
3,469,705 (4.9%)
The Directors have the benefit of qualifying third party indemnity provisions
contained in the Company’s Articles of Association which were in force
throughout the financial year and remained in force as at the date of
signing of this report. The Company’s Articles of Association are available
on the Company’s website.
DONATIONS
During the year the Group made charitable donations of £27,000
(2006 – £18,000) principally to local charities serving the communities
in which the Group operates.
No political donations were made.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
REMUNERATION REPORT
16–17
The Remuneration Committee has written terms of reference which are
available on the Company’s website. Membership of the Committee is
shown on page 13.
The Committee is responsible for making recommendations to the Board
on the remuneration packages and terms and conditions of employment of
the Chairman, the executive Directors of the Company and of the Company
Secretary. The Committee also reviews remuneration policy generally
throughout the Group. The Committee consults with the Chief Executive
who may be invited to attend meetings. The Company Secretary is secretary
to the Committee. Neither the Chief Executive nor the Company Secretary
took part in discussions relating to their own remuneration.
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”) on remuneration matters
and share scheme implementation. NBSC is appointed by the Committee
and undertakes no other work for the Company or the Group. The terms
of engagement between the Committee and NBSC are available on request
from the Company Secretary.
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 annual 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.
Executive remuneration is structured so that a significant proportion
relates to variable pay. The charts below show the balance between fixed
and variable performance based pay for each executive Director for the
year ended 30 April 2007.
S J Smith
P J Moorhouse
G T Murray
A T Noble
Fixed
Variable
FLEXIBLE BENEFITS SCHEME
The Company operates a flexible benefits scheme which is designed
to help in the recruitment and retention of employees by allowing them
to tailor their remuneration package to best suit their individual needs.
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. Directors have a duty to make reasonable efforts to mitigate any loss
arising from such termination and the Committee will have regard to that
duty on a case by case basis when assessing the appropriate level of
compensation which may be payable. It is also the Board’s policy that
where compensation on early termination is due, in appropriate
circumstances it should be paid on a phased basis.
BASIC SALARIES
The current basic salaries paid to the executive Directors are as follows:
S J Smith
P J Moorhouse
G T Murray
A T Noble
£400,000
£260,000
£260,000
£200,000
All were last reviewed on 1 May 2007.
Basic salaries are reviewed annually taking into account the performance of
the individual, changes in responsibilities and market trends. The Committee
has determined that the most appropriate comparator group against which
to benchmark executive Directors’ basic salaries is the FTSE 250, taking
into account the roles, responsibilities and experience of each Director. In
addition, at the May 2007 review, the Committee reviewed benchmarking
data for a more bespoke group of 17 companies from the FTSE 250 on the
basis of those most closely matching Northgate in terms of a combination
of market capitalisation, turnover, profitability and percentage of overseas
turnover. Accordingly, for the financial year ending 30 April 2008, it agreed
to increase executive Directors’ basic salaries by between 8% and 14%, to
reflect the continued strong performance of the business and the increased
complexity of the Directors’ roles, in particular that of the Chief Executive,
following the significant expansion overseas.
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
currently held are:
P J Moorhouse – Director, Renew (North East) Limited (non fee earning)
NON-EXECUTIVE DIRECTORS
The remuneration of the non-executive Directors (other than the Chairman)
is determined by the Board as a whole, within the overall limit set by the
Articles of Association. Non-executive Directors are not eligible for
performance related payments nor may they participate in the Company’s
share option or pension schemes. Non-executive Directors do not have
contracts of service with the Company and their appointments are
terminable without notice.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
The original dates of appointment to the Board and of their current letters of
appointment are:
Date of appointment
Letter of appointment
P Rogerson 5 November 2003
13 February 2001
J Astrand
13 April 2005
T Brown
5 June 2007
5 June 2007
12 April 2005
The current fees paid to the non-executive Directors are shown below:
P Rogerson Chairman & Chairman of Audit Committee
J Astrand
T Brown
Non-executive Director
Senior Independent Director &
Chairman of Remuneration Committee
£120,000
£37,500
*£42,000
* Including £4,500 in respect of his Chairmanship of the Remuneration Committee.
All were last reviewed on 1 May 2007. The fee structure for non-executive
Directors reflects the time commitment and responsibility for carrying
out non-executive duties. Fees are set taking into account market practice
for similar roles in FTSE 250 companies. In addition to the fees shown,
Mr Astrand receives an amount of £25,000 in recognition of the additional
time commitment required in respect of his appointment as a non-executive
Director of both Fualsa and Record and, in respect of the year ended
30 April 2007, received further fees of £45,187 in respect of a short-term
arrangement in connection with researching new jurisdictions. The Board
does not consider that this work in any way affected his independence. Mr
Astrand’s involvement in researching new jurisdictions for expansion of the
Group has been a very cost effective exercise, leveraging off his experience
in European markets and avoided the inevitably higher fees that external
advisers would have charged for a similar assignment. He reported directly
to the Board on the work performed and operated within guidelines drawn
up and agreed by the Board.
THE FOLLOWING ELEMENTS OF THIS REPORT HAVE
BEEN AUDITED:
PENSION SCHEMES
Throughout the year all pension arrangements (other than the Willhire
Pension Scheme – see Note 39 of the accounts) operated by the Group
were defined contribution type schemes.
PERFORMANCE GRAPH
As required by The Directors’ Remuneration Report Regulations 2002,
the graph below 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. The mid-
market price of the Company’s Ordinary shares at 30 April 2007 was 1,100p
(30 April 2006 – 1,100p) and the range during the year was 921p to 1,219p.
TOTAL SHAREHOLDER RETURN
Source: Thomson Financial
£
e
u
l
a
V
300
250
200
150
100
50
0
Northgate plc
FTSE 250
(Excl. inv. Trusts) Index
2002
2003
2004
2005
2006
2007
This graph shows the value, by the 30 April 2007, of £100 invested in Northgate on
30 April 2002 compared with that of £100 invested in the FTSE 250 (excl. inv. trusts)
Index. The other points plotted are the values at intervening financial year-ends.
P Rogerson
M Ballinger
S J Smith
J Astrand
T Brown
P J Moorhouse
G T Murray
A T Noble
R Williams
Total emoluments excluding
pension contributions
Total pension contributions
Salary/
Fees
£000
Cash
Bonus
£000
Cost of
Benefits*
£000
73
61
350
97
39
240
240
185
–
1,285
–
–
–
119
–
–
65
85
40
–
309
–
–
–
30
–
–
28
25
31
–
114
–
Total
2007
£000
73
61
499
97
39
333
350
256
–
1,708
–
Total
2006
£000
38
100
435
56
35
292
288
219
17
1,480
–
Pension Contributions(cid:2)
2006
£000
2007
£000
–
–
63
–
–
43
43
33
–
–
182
–
–
33
–
–
31
19
24
–
–
107
*These benefits include: company car, private medical insurance, permanent health insurance and life assurance.
(cid:2) All contributions are to a defined contribution type scheme.
REMUNERATION REPORT
SHARE INCENTIVE PLANS
The Group currently operates three share-based incentive schemes:
Directors participate in the Northgate Share Option Scheme (“NSOS”) and
Deferred Annual Bonus Plan (“DABP”) and below the Board, other executives
in the Performance Share Plan (“PSP”) and DABP. No executive participates
in all three schemes. Expressed in face value terms, this effectively gives
Directors a cap of 200% of basic salary for share awards each year (150%
under the NSOS and 50% under the DABP) and other executives a cap of
150% (100% under the PSP and 50% under the DABP).
The Committee believes that the most appropriate measure of performance
against the Plan is one based on divisional or Group profit before tax, as
relevant to the individual. There is a straight-line sliding scale of vesting
starting at 30% for 90% of a stretching target achievement rising to 100%
for achieving 100% of the stretching target. The Committee has discretion
to alter the performance targets to take account of any significant event
occurring after the grant of an award but prior to vesting. Such events
may include a major acquisition, debt restructuring or an equity issue.
With the introduction of the PSP in 2006 and the changes to the rules of
the NSOS approved by shareholders in 2005, the Committee is satisfied
that the share incentive arrangements now in place and the performance
measures currently applying to awards are appropriate for the Group at
the present time.
There is an over-riding condition that no part of an award can vest if
there has been a decrease in profit before tax compared to the prior year.
Options over 113,000 shares granted to 44 executives, including seven
in Spain, were outstanding at 30 April 2007.
PERFORMANCE SHARE PLAN
The PSP is designed to reward achievement of and individual contribution
to, the Group’s three-year rolling business plan (“the Plan”). This scheme
operates only for executives below Board level.
Participants receive a conditional award of free shares which will vest after
three years subject to achievement of performance conditions and continued
employment during the vesting period. The maximum award in any financial
year will normally be 100% of salary.
NORTHGATE SHARE OPTION SCHEME
With the introduction of the PSP for executives below Board level,
only Directors have participated in the NSOS since 2006.
In line with the rule changes approved by shareholders in 2005, the
performance condition applying to all options granted from 2005 onwards
will be based on the growth in the Company’s earnings per share (“EPS”)
in excess of inflation measured over a three-year period commencing with
the EPS for the financial year ending immediately prior to the date of grant.
Options over shares at grant worth 75% of basic salary or less will vest
provided average annual EPS growth is at least RPI plus 5% over the
performance period. Options over shares at grant worth 150% of basic
salary (the maximum grant level) or less will vest provided average annual
EPS growth is at least RPI plus 11% over the performance period. For
grants between 75% and 150% of basic salary a pro rata sliding scale
of EPS growth between 5% and 11% will apply. This requires substantial
improvement in the underlying financial performance of the Company
before options may be exercised. There is no provision for re-testing.
For options granted prior to 2005, full vesting requires average annual
EPS growth of at least 3% plus RPI over the three-year vesting period,
with re-tests at the end of years four and five.
The Committee will apply a consistent calculation methodology for
determining EPS growth following the adoption of International Financial
Reporting Standards.
Options granted to Directors under the NSOS are shown on page 20.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
No options held by Directors lapsed during the year.
It is proposed that an option award for 2007/08 be made in the six-week
period following the announcement of the results for the year ended
30 April 2007.
In addition, options over 136,100 shares granted to 24 executives at exercise
prices ranging from 478p to 1037p were outstanding at 30 April 2007.
DEFERRED ANNUAL BONUS PLAN
The 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.
The shares are retained in an employee benefit trust for three years and are
subject to forfeiture if the employee leaves during that time. This provides
a strong retention mechanism and has the motivational benefits of certainty
and clarity for the employee. During the retention period, executives continue
to have an incentive to influence the share price so as to maximise the
value on release.
The Directors hold deferred shares (in the form of nil cost options) in the
DABP as set out on page 20.
In addition, options over 108,182 shares awarded to 59 executives
were outstanding at 30 April 2007. No options held by Directors either
lapsed or were exercised during the year.
The bonuses for executive Directors upon which the award for the year
ended 30 April 2007 was made were based upon business and individual
performance, including elements based on a target of growth in underlying
earnings per share of between 5% and 20%. The actual growth achieved
was 24% resulting in the maximum award for the share element. The
bonuses payable are set out below.
S J Smith
P J Moorhouse
G T Murray
A T Noble
S J Smith
P J Moorhouse
G T Murray
A T Noble
Value
£000
119
65
85
40
Value
£000
175
96
96
74
Cash
% of basic salary
Awarded
Maximum
34.0
27.1
35.4
21.6
50.0
40.0
40.0
40.0
Shares
% of basic salary
Awarded
Maximum
50.0
40.0
40.0
40.0
50.0
40.0
40.0
40.0
It is intended that the number of shares to be awarded will be calculated
based on the closing mid-market price on 3 July 2007, being the date of
the Preliminary Results Announcement.
18–19
For the financial year ending 30 April 2008 the maximum awards will be
increased to 100% (50% cash and 50% shares) for all executive Directors
(previously the maximum potential for Messrs Moorhouse, Murray and
Noble was 80% of basic salary). The increase in the maximum bonus
potential was considered necessary to allow the Company to continue to
provide competitive remuneration packages with a sufficient performance
related element. The Committee has reviewed the targets applying to the
bonus for the financial year ending 30 April 2008 and is satisfied that
sufficiently challenging performance is required.
The criteria for the executive Directors for 2007/08 will be as follows:
• Share element: to be based solely on underlying earnings per share
improvement over the previous year. The maximum award to be made
for growth of 11%, nil for growth of 5% or less and with a sliding scale
between those two figures.
• Cash element: to be based on individual key performance indicators
relevant to their areas of responsibility and including an element of
discretion by the Committee.
Bonuses for other executives 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.
During the year the Committee exercised its discretion in favour of 12
executives who were made redundant to enable them to exercise awards
totalling 10,907 shares made to them as part of their bonus in previous years.
ALL EMPLOYEE SHARE SCHEME
The All Employee Share Scheme (“the AESS”), which is approved by
H M Revenue and Customs under Schedule 8 Finance Act 2000, was
introduced in 2000 to provide employees at all levels with the opportunity
to acquire shares in the Company on preferential terms. The Board believes
that encouraging wider share ownership by all staff will have longer-term
benefits for the Company and for shareholders. The AESS operates under a
trust deed, the Trustees being Capita IRG Trustees Limited (“the Capita Trust”).
To participate in the AESS, which operates on a yearly cycle, employees are
required to make regular monthly savings (on which tax relief is obtained),
by deduction from pay, for a year at the end of which these payments are
used to buy shares in the Company (“Partnership shares”).
For each Partnership share acquired, the employee will receive one additional
free share (“Matching shares”). Matching shares will normally be forfeited
if, within three years of acquiring the Partnership shares, the employee
either sells the Partnership shares or leaves the Group. After this three-year
period Partnership and Matching shares may be sold, although there are
significant tax incentives to continue holding the shares in the scheme
for a further two years. Those employees who are most committed to the
Company will therefore receive the most benefit.
The sixth annual cycle ended in December 2006 and resulted in 677
employees acquiring 57,242 Partnership shares at 973.25p each and being
allocated the same number of Matching shares. As at 30 April 2007 the
Trust held 538,475 Ordinary shares that have vested to employees from
the first six cycles.
The seventh annual cycle started in January 2007 and currently some 754
employees are making contributions to the scheme at an annualised rate
of £692,952.
REMUNERATION REPORT
20–21
SHARE INCENTIVE PLANS
At 1 May
2006
Number
granted
Number
exercised
Date of
exercise
Northgate Share Option Scheme
Share price
Exercise on date of Gross gain
exercise on exercise At 30 April
2007
p
£
price
p
663
931
1037
–
663
931
1037
–
663
931
1037
–
931
1037
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,000
27,500
50,000
97,500
15,000
19,000
25,000
59,000
13,500
19,000
25,000
57,500
17,000
20,000
37,000
251,000
15,813
15,832
1,750
33,395
10,542
9,672
1,100
21,314
6,325
8,751
1,050
16,126
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,000
27,500
–
–
–
50,000
47,500
50,000
15,000
19,000
–
–
–
25,000
34,000
25,000
13,500
19,000
–
–
–
25,000
32,500
25,000
17,000
–
–
20,000
17,000
20,000
131,000
120,000
15,813
15,832
–
31,645
10,542
9,672
–
20,214
6,325
8,751
–
15,076
–
–
–
1,750
1,750
–
–
1,100
1,100
–
–
1,050
1,050
850
66,935
4,750
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
S J Smith
P J Moorhouse
G T Murray
A T Noble
Deferred Annual Bonus Plan
S J Smith
P J Moorhouse
G T Murray
A T Noble
Executive Incentive Scheme
S J Smith
P J Moorhouse
A T Noble
850
Jul 2009 - Jul 2011
71,685
135,000
130,000
130,537
2,975
133,512
398,512
–
–
–
–
–
–
(45,000) 12 Oct 2006
(80,000) 12 Oct 2006
(87,025) 12 Oct 2006
(2,975) 12 Oct 2006
(90,000)
(215,000)
–
–
492.5
492.5
492.5
503.5
–
–
1018
236,475
90,000
Sep 2003 - Sep 2009
1018
420,400
50,000
Sep 2003 - Sep 2009
1018
1018
457,316
15,306
43,512
–
Sep 2003 - Sep 2009
–
472,622
43,512
– 1,129,497
183,512
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 strategy
plan, no further options have been awarded under the EIS since January
2002 and none are planned.
An award under the EIS consists of a right to acquire Ordinary shares of the
Company at a pre-determined price which, in normal circumstances, can
be exercised, subject to a specified performance condition being satisfied,
between four and ten years following the date of grant.
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.
Options held by the Directors under the EIS are shown on page 20.
In September 2006, the fourth and final tranche of 30% of options became
exercisable, the performance condition having been satisfied. For this
tranche to be exercisable in full a growth in earnings per share over the five
financial years from 1 May 1999 to 30 April 2004 of at least 15% per annum
compound was required: the actual growth achieved was 21.7%.
EIS & NSOS
Through the issue of new Ordinary shares. During the year 454,491
(2006 – 517,544) Ordinary shares were issued to satisfy the exercise
of options under the two schemes.
The total number of options exercised and exercisable as a result of awards
made under the EIS and NSOS over the last 10 years is 1,880,946, which
equates to 2.6% of the issued Ordinary share capital at 30 April 2007.
DABP & PSP
Through open market purchases by an employee benefit trust based in
Guernsey (“the Guernsey Trust”). During the year 115,273 (2006 – 12,013)
Ordinary shares were purchased by the Guernsey Trust and 7,876 (2006 – 500)
were used to satisfy the exercise of awards under the DABP. At 30 April
2007 the Guernsey Trust held 305,722 (2006 – 198,073) Ordinary shares as
a hedge against the Group’s obligations under these schemes.
AESS
Through open market purchases by the Capita Trust. During the year
no (2006 – 110,000) Ordinary shares were purchased by the Capita Trust
and 15,032 (2006 – 14,635) shares were forfeited by leavers. At 30 April 2007
the Capita Trust held 35,691(2006 – 138,189) Ordinary shares as a hedge
against the Group’s obligations under this scheme.
By order of the Board
No options held by Directors lapsed during the year. In addition to those held
by Directors, options over 188,230 shares granted to 14 employees at exercise
prices ranging from 367.5p to 523p were outstanding at 30 April 2007.
D Henderson
Secretary
2 July 2007
SOURCING OF SHARES
Shares to satisfy the requirements of the Group’s share schemes are
currently sourced as follows:
Normally
exercisable
Aug 2007 - Feb 2010
Oct 2008 - Oct 2015
Jul 2009 - Jul 2016
Aug 2007 - Feb 2010
Oct 2008 - Oct 2015
Jul 2009 - Jul 2016
Aug 2007 - Feb 2010
Oct 2008 - Oct 2015
Jul 2009 - Jul 2016
Oct 2008 - Oct 2015
Jul 2009 - Jul 2016
Aug 2007 - Aug 2009
Oct 2008 - Oct 2010
Jul 2009 - Jul 2011
Aug 2007 - Aug 2009
Oct 2008 - Oct 2010
Jul 2009 - Jul 2011
Aug 2007 - Aug 2009
Oct 2008 - Oct 2010
Jul 2009 - Jul 2011
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
22–23
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
CORPORATE GOVERNANCE
24–25
UK listed companies are required by the Financial Services Authority (the
designated UK Listing Authority) to include a statement in their annual
accounts on compliance with the Principles of Good Corporate Governance
and Code of Best Practice set out in the Combined Code (“the Code”).
The provisions of the Code applicable to listed companies are divided into
four parts, as set out below:
1 DIRECTORS
The business of the Company is managed by the Board of Directors,
currently comprising four executive and three non-executive Directors,
details of whom are shown on pages 12 and 13. All the non-executive
Directors are considered to be independent both in the sense outlined in
the Code and in terms of the criteria laid down by the National Association
of Pension Funds for judging the independence of non-executive Directors.
Following Mr Rogerson’s appointment as Chairman on a permanent basis
on 5 June 2007, Mr Brown was appointed Senior Independent Director. The
offices of the Chairman and Chief Executive Officer are separate. The division
of their responsibilities has been set out in writing, approved by the Board
and is available on the Company’s 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
financial year is detailed below.
BOARD
AUDIT
REMUNERATION
All Directors in office at that time were present at the Annual General
Meeting held in September 2006.
The external auditors attended three Audit Committee meetings.
The internal audit manager attended two Audit Committee meetings.
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.
The Company’s Articles of Association provide that at each Annual General
Meeting of the Company all Directors who held office at the time of the two
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 was chaired
by Mr Ballinger until his retirement in November 2006, since when it has
been chaired by Mr Rogerson. 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.
The Committee met formally on one occasion during the year.
Following Mr Rogerson’s appointment as Chairman on a permanent basis
on 5 June 2007, he initiated an evaluation process of the performance of
individual Directors, of the Board as a whole and of its committees. The
process consists of a formal and detailed questionnaire to be completed
by each Director, to be followed by an evaluation of the results, one-to-one
meetings with the Chairman and a Board discussion. In addition the non-
executive Directors, led by the Senior Independent Director, have begun a
review process of the performance of the Chairman, taking into account
the views of the executive Directors.
No of Meetings
P Rogerson
M Ballinger
S J Smith
J Astrand
T Brown
P J Moorhouse
G T Murray
A T Noble
11
10
5
11
11
11
11
10
10
4
4
-
-
4
4
-
-
-
4
4
1
-
4
4
-
-
-
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 16 to 21.
3 ACCOUNTABILITY AND AUDIT
An assessment of the Company’s position and prospects is included in
the Chairman’s Statement and in the Operational and Financial Reviews
on pages 6 to 11.
INTERNAL CONTROL
Provision C2.1 of the Code requires the Directors to conduct an annual
review of the effectiveness of the Group’s system of internal controls. The
Turnbull guidance, revised and updated by the Financial Reporting Council
in October 2005, provides relevant guidance for directors on compliance
with the internal control provisions of the Code.
The Directors are responsible for the Group’s system of internal controls
which aims to safeguard Group assets, ensure proper accounting records
are maintained and that the financial information used within the business
and for publication is reliable. Although no system of internal controls can
provide absolute assurance against material misstatement or loss, the Group’s
system is designed to provide the Directors with reasonable assurance that,
should any problems occur, these are identified on a timely basis and dealt
with appropriately. The key features of the Group’s system of internal controls,
which was in place throughout the period covered by the financial
statements, are described below:
CONTROL ENVIRONMENT
The Group has a clearly defined organisational structure within which
individual responsibilities of line and financial management for the
maintenance of strong internal 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
the procedures set out in written manuals.
To demonstrate the Board’s commitment to maintaining the highest
business and ethical standards and to promote a culture of honesty and
integrity amongst all staff, the Board has established a confidential telephone
service, operated by an independent external organisation, which may
be used by all staff to report any issues of concern relating to dishonesty
or malpractice within the Group. All issues reported are investigated by
senior management.
IDENTIFICATION OF RISKS
The Board and the Group’s management have a clearly defined responsibility
for identifying the major business risks facing the Group and for developing
systems to mitigate and manage those risks. The control of key risk 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.
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 throughout the year.
CONTROL PROCEDURES
The Board and the Group’s management have adopted a schedule of
matters which are required to be brought to it for 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.
MONITORING
The Board has delegated to executive management implementation of
the system of internal control. The Board, including the Audit Committee,
receives reports on the system of control from the external auditors and
from management. An independent internal audit function reports bi-annually
to the Audit Committee primarily on the key areas of risk within the business.
The Directors confirm that they have reviewed the effectiveness of the
system of internal controls covering financial, operational and compliance
matters and risk management, for the period covered by these financial
statements in accordance with the Turnbull guidance.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
HEALTH & SAFETY
AND ENVIRONMENTAL
26–27
The Board recognises that the monitoring and control of Environmental,
Health and Safety (EHS) and strict adherence to legislative requirements in
all areas of operation forms a key part of its risk management programme.
The Board has designated the Chief Executive as the person ultimately
responsible to the Board for all health, safety and environmental matters
throughout the Group. Responsibility for implementing the Group’s policy
is devolved to operational management.
In the UK the principles set out in the management model “HSG 65
Successful Health and Safety Management” have been adopted. This
enables consistent health and safety standards and disciplines to be
applied at all locations.
The Group is committed to pursuing sound EHS management polices
and practices and continually seeks to improve EHS standards in the
workplace by:
• Monitoring and managing the EHS impacts, risks and opportunities
for the business for the benefit of employees, customers and the
local communities in which we operate;
• Promoting awareness of EHS policy across the business to assess
performance and to set objectives for improvement; and
• Reporting on the status of the EHS performance of the business.
Common standards are applied to a wide range of EHS matters, and
legislative requirements are the minimum standard accepted. Working
practices and procedures are continually assessed to ensure that
everything is being done to meet the highest possible standards of safety
using comprehensive and robust safety operating procedures manuals.
Group policies are agreed through a Steering Group, which meets at
regular intervals to consider EHS issues, to review performance and to
determine the necessary controls for compliance to all legislative requirements.
The UK’s EHS function is now licensed to carry out a number of training
courses for the British Safety Council (BSC) and the Institute of Occupational
Safety and Health (IOSH). During this reporting period over one hundred
employees have attended BSC Level one health and safety training courses
and have successfully gained this recognised qualification. The Group
remains committed to continually raising safety standards through training
and is shortly to begin a process of training a number of employees within
the hire companies to a Nebosh General Certificate standard.
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 Republic of Ireland at 30 April 2007 was 65,300,
with an average age of 16 months, of which 14% were cars and the remainder
commercial vehicles. Cars are sold after an average life of 20 months and
commercial vehicles of 31 months. Our fleet is, therefore, comprised
entirely of modern vehicles. Over 99% of the fleet is diesel powered.
From the last quarter calendar year 2006 all of the UK’s car and commercial
vehicle purchases have been Euro IV compliant.
PROPERTY
As at 30 April 2007, the vehicle rental business in the UK and Republic
of Ireland operated out of 82 properties, of which 20 are primary sites and
62 are branches. All but eight of these sites (all of which are branches)
are located on industrial estates, so our activities have minimal impact
on the local community of the areas in which we operate. Our sites vary
in size from the larger sites which will typically 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.
The smaller sites will have an area of approximately 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 nine people. Three of the larger sites share premises with Northgate
Vehicle Sales who have a further six dedicated sales sites. Fleet Technique
operate from offices in Gateshead and the Group’s head office building in
Darlington accommodates all central administrative and support services.
All UK locations underwent comprehensive EHS audits during this
reporting period carried out by the Group’s EHS function and, where
necessary, recommendations were made in a formal risk assessment
report and action plans agreed and reported upon.
An evaluation of EHS arrangements in our Spanish operations is now
complete and a process is underway to implement a comprehensive and
consistent safety management system within both Fualsa and Record.
Within both companies we will apply local standards and where necessary
follow UK good practice. Fualsa is certified to the internationally recognised
Environmental Standard ISO 14001.
The Group are sponsors of Brake, the road safety charity, and are members
of the British Safety Council and the Royal Society for the Prevention
of Accidents.
During the year under review, no incidents resulting in fatality or significant
pollution occurred at any of our locations. No health and safety enforcement
notices were served on any company in the Group.
CORPORATE GOVERNANCE
AUDIT
Details of membership of the Audit Committee is shown on page 13
and of meetings held during the year on page 24.
The Committee’s terms of reference are available on the Company's website.
In summary, these include:
• monitoring the integrity of financial reporting;
• reviewing the Group’s internal controls and risk management systems;
• monitoring the effectiveness of the Group's internal audit function;
• making recommendations to the Board regarding the appointment
of the external auditors and approving their remuneration and terms
of engagement;
• monitoring the independence and objectivity of the external auditors
and developing a policy for the provision of non-audit services by the
external auditor; and
• monitoring the audit process and any issues arising therefrom.
The Board has satisfied itself that at least one member of the Committee
has recent and relevant financial experience.
Due to the cyclical nature of its agenda, which is linked to events in the
Group's financial calendar, the Committee will generally meet four times
a year. The other Directors are normally invited to attend, together with the
external auditors, on at least two occasions during the year. The internal
audit manager also normally makes a presentation to the Committee twice
a year.
Since May 2006, the Committee has:
• reviewed the financial statements for the years ended 30 April 2006 and
2007 and the interim report issued in January 2007. As part of this review
process, the Committee received reports from Deloitte & Touche on
each occasion;
• reviewed and agreed the scope of the audit work to be undertaken by
Deloitte & Touche and agreed their fees;
• reviewed half-yearly reports by the internal audit manager and approved
the internal audit programme;
• monitored the Group’s risk management process;
• reviewed the Group's whistle blowing service;
• verified the ongoing independence and objectivity of Deloitte & Touche; and
• reviewed its own effectiveness.
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 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 shown in Note 7 on page 44.
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 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. In compliance with the
Transparency Rules, introduced in January 2007, the Company will be
publishing Interim (effectively quarterly) Management Statements in March
and September each year. Details of proxies lodged in respect of the Annual
General Meeting will be published on the Company’s website immediately
following the meeting.
COMPLIANCE WITH THE CODE
The Board considers that the Company complied with the provisions of
the Code throughout the year with the exception that the Code states that
at least half the Board, excluding the Chairman, should be comprised of
independent non-executive Directors, and that the Chairman should not
be a member of the Audit Committee.
Since the retirement through illness of Mr Ballinger as Chairman in
November 2006, Mr Rogerson acted as Chairman on a temporary basis
while retaining his roles as Senior Independent Director and Chairman
of the Audit Committee. Following his appointment as Chairman on a
permanent basis in June 2007, Mr Brown has been appointed Senior
Independent Director and a search is underway for a new non-executive
Director who will be qualified to chair the Audit Committee.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
DIRECTORS’ RESPONSIBILITIES
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NORTHGATE PLC
28–29
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the annual report and accounts.
The Directors are required to prepare financial statements for the Group
in accordance with International Financial Reporting Standards (“IFRS”)
and have also elected to prepare financial statements for the Company in
accordance with IFRS. Company law requires the Directors to prepare such
financial statements in accordance with IFRS, the Companies Act 1985
and Article 4 of the IAS Regulation.
International Accounting Standard 1 requires that the financial statements
present fairly for each financial year the Company’s financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards Board’s “Framework for
the Preparation and Presentation of Financial Statements”. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable IFRS. Directors are also required to:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information; and
• Provide additional disclosures where compliance with the specific
requirements of IFRS are insufficient to enable users to understand
the impact of a particular transaction, other events and conditions
on the entity’s financial statements.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial position
of the Company, for safeguarding the assets, for taking reasonable steps
for the prevention and detection of fraud and other irregularities and for
the preparation of a Report of the Directors and Directors’ Remuneration
Report which comply with the Companies Act 1985.
The Directors are responsible for the maintenance and integrity of
the Group website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
GOING CONCERN
The accounts have been prepared on a going concern basis as the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
BASIS OF AUDIT OPINION
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements and the part of the Directors'
Remuneration Report to be audited. It also includes an assessment of the
significant estimates and judgments made by the Directors in the
preparation of the financial statements, and of whether the accounting
policies are appropriate to the Group's and Company's circumstances,
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 Directors' Remuneration Report to be 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 Directors' Remuneration Report to be audited.
OPINION
In our opinion:
• the Group financial statements give a true and fair view, in accordance
with IFRS as adopted by the European Union, of the state of the Group's
affairs as at 30 April 2007 and of its profit for the year then ended;
• the parent Company financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union as applied
in accordance with the provisions of the Companies Act 1985, of the
state of the parent Company's affairs as at 30 April 2007;
• the financial statements and the part of the Directors' Remuneration
Report to be audited have been properly prepared in accordance with
the Companies Act 1985 and, as regards the Group financial statements,
Article 4 of the IAS Regulation; and
• the information given in the Report of the Directors is consistent with
the financial statements.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Leeds
2 July 2007
We have audited the Group and parent Company financial statements
(''the financial statements'') of Northgate plc for the year ended 30 April 2007
which comprise the Consolidated Income Statement, the Group and parent
Company Balance Sheets, the Group and parent Company Cash Flow
Statements, the Group and parent Company Statements of Changes in
Equity, Statements of Recognised Income and Expense and the related
Notes 1 to 40. These financial statements have been prepared under the
accounting policies set out therein. We have also audited the information in
the Directors' Remuneration Report that is described as having been audited.
This report is made solely to the Company’s members, as a body, in
accordance with section 235 of the Companies Act 1985. Our audit work
has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditors’ report and
for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES
OF DIRECTORS AND AUDITORS
The Directors' responsibilities for preparing the Annual Report, the
Directors' Remuneration Report and the financial statements in accordance
with applicable law and International Financial Reporting Standards
(“IFRS”) as adopted by the European Union are set out in the Statement
of Directors' Responsibilities.
Our responsibility is to audit the financial statements and the part of the
Directors' Remuneration Report to be audited in accordance with relevant
legal and regulatory requirements and International Standards on Auditing
(UK and Ireland).
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
Directors' Remuneration Report to be audited have been properly prepared in
accordance with the Companies Act 1985 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. We also report to you whether in
our opinion the information given in the Report of the Directors is consistent
with the financial statements. The information given in the Report of the
Directors includes that specific information presented in the Operating and
Financial Review that is cross referred from the Business Review section of
the Report of the Directors.
In addition we report to you if, in our opinion, the Company has not kept
proper accounting records, if we have not received all the information
and explanations we require for our audit, or if information specified by law
regarding Directors' remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the Company's
compliance with the nine provisions of the 2003 Combined Code specified
for our review by the Listing Rules of the Financial Services Authority, and
we report if it does not. We are not required to consider whether the Board's
statements on internal control cover all risks and controls, or form an opinion
on the effectiveness of the Group's corporate governance procedures or its
risk and control procedures.
We read the other information contained in the Annual Report as described
in the contents section and consider whether it is consistent with the audited
financial statements. The other information comprises only the Report of the
Directors, the unaudited part of the Directors' Remuneration Report, the
Chairman's Statement, the Operating and Financial Review and the Corporate
Governance Statement. We consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies
with the financial statements. Our responsibilities do not extend to any
further information outside the Annual Report.
FINANCIAL STATEMENTS
30–31
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 APRIL 2007
BALANCE SHEETS
AS AT 30 APRIL 2007
32–33
Revenue
Cost of sales
Gross profit
Administrative expenses (excluding amortisation)
Amortisation
Total administrative expenses
Profit from operations
Investment income
Finance costs
Share of profit before taxation of associate
Share of taxation of associate
Share of profit of associate
Profit before taxation
Taxation
Profit for the year
Notes
4,5
5
5,6
15
7
9
10
19
11
34
2007
£000
2006
£000
526,465
372,609
(345,450)
(248,051)
181,015
(70,037)
(3,922)
(73,959)
107,056
3,764
(35,452)
–
–
–
75,368
(20,885)
54,483
124,558
(50,733)
(1,227)
(51,960)
72,598
2,047
(22,125)
4,964
(1,422)
3,542
56,062
(15,468)
40,594
Profit for the year is wholly attributable to equity holders of the parent Company.
All results arise from continuing operations.
Earnings per share
Basic
Diluted
13
13
76.1p
75.8p
61.1p
60.6p
STATEMENTS OF RECOGNISED
INCOME AND EXPENSE
FOR THE YEAR ENDED 30 APRIL 2007
Group
Company
Notes
2007
£000
2006
£000
2007
£000
2006
£000
Amounts attributable to equity holders of the
parent Company
Foreign exchange differences on retranslation of net
assets of subsidiary undertakings
Foreign exchange differences on retranslation of
investments in subsidiary undertakings
Foreign exchange differences on retranslation of
interest in associate
Foreign exchange differences on revaluation reserve
Net foreign exchange differences on long term
borrowings held as hedges
Other foreign exchange differences recognised
directly in equity
Net fair value gains on cash flow hedges
Share options fair value amount (charged) credited
directly to equity
Actuarial gains on defined benefit pension scheme
Net current tax credit recognised directly in equity
Net deferred tax (charge) credit recognised directly in equity
Net income recognised directly in equity
Profit attributable to equity holders
Total recognised income and expense for the year
33
33
33
33
32
39
11
26
(1,756)
1,303
–
–
–
(11)
–
413
–
(4,344)
–
–
–
646
413
–
1,425
(1,571)
4,344
(1,059)
628
4,471
(75)
445
1,084
(2,616)
3,595
54,483
58,078
–
2,956
20
356
–
882
4,359
40,594
44,953
–
3,450
(75)
–
1,084
(2,055)
2,404
11,241
13,645
–
2,554
20
–
–
882
3,456
41,059
44,515
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment: vehicles for hire
Other property, plant and equipment
Total property, plant and equipment
Investments
Interest in associate
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
14
15
16
17
18
19
20
21
Group
Company
Notes
2007
£000
2006
£000
75,120
26,804
860,052
68,160
44,582
18,208
643,824
50,236
928,212
694,060
2007
£000
–
–
–
2,950
2,950
2006
£000
–
–
–
3,012
3,012
–
–
–
41,927
212,279
–
257,221
–
1,030,136
798,777
215,229
260,233
8,709
176,760
35,039
8,918
116,939
24,048
–
796,749
5,036
–
509,359
8,945
220,508
149,905
801,785
518,304
Non-current assets classified as held for sale
22
21,941
14,705
–
–
Total assets
Current liabilities
Trade and other payables
Tax liabilities
Short term borrowings
Non-current liabilities
Long term borrowings
Deferred tax liabilities
Retirement benefit obligation
Total liabilities
Net assets
Equity
Share capital
Share premium account
Revaluation reserve
Own shares
Merger reserve
Hedging reserve
Translation reserve
Retained earnings
Total equity
1,272,585
963,387
1,017,014
778,537
68,570
11,973
20,340
57,584
19,715
30,024
100,883
107,323
770,022
38,694
555
518,485
15,846
1,444
10,139
–
14,220
24,359
765,171
–
–
8,084
–
25,982
34,066
515,937
–
–
809,271
535,775
765,171
515,937
910,154
643,098
789,530
550,003
362,431
320,289
227,484
228,534
3,560
67,230
1,043
(4,572)
67,463
5,199
1,924
220,584
3,538
64,998
1,054
(3,331)
67,463
2,956
1,627
181,984
3,560
67,230
1,371
–
63,159
4,203
–
87,961
3,538
64,998
1,371
–
63,159
2,554
–
92,914
362,431
320,289
227,484
228,534
23
24
24
26
39
27
28
29
30
31
32
33
34
Total equity is wholly attributable to equity holders of the parent Company.
The financial statements were approved by the Board of Directors and authorised for issue on 2 July 2007.
They were signed on its behalf by:
P Rogerson Director
G T Murray Director
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 30 APRIL 2007
34–35
Net cash from (used in) operating activities
(a)
224,765
172,178
(38,160)
(20,278)
Profit (loss) from operations
107,056
72,598
(8,960)
(4,082)
Group
Company
2007
£000
2006
£000
2007
£000
2006
£000
(a) Net cash from (used in) operating activities
Group
Company
2007
£000
2006
£000
2007
£000
2006
£000
Investing activities
Interest received
Dividends received from subsidiary undertakings
Proceeds from disposal of vehicles for hire
Purchases of vehicles for hire
Proceeds from disposal of other property, plant & equipment
Purchases of other property, plant and equipment
Purchases of intangible assets
Payment of deferred consideration (Note 24)
Acquisition of subsidiary undertakings, including net cash
and bank overdraft balances acquired
Purchase of investments in subsidiary undertakings
Purchase of interest in associate
3,145
–
188,512
(437,947)
3,283
(11,126)
(1,281)
(10,290)
(49,340)
–
–
1,931
–
150,849
(306,273)
3,307
(12,208)
(927)
–
(130,047)
–
(37,972)
12,951
30,258
–
–
–
–
–
(10,290)
–
(78,351)
119,352
13,603
–
–
–
–
(18)
–
–
–
(50,316)
(37,972)
Net cash (used in) from investing activities
(315,044)
(331,340)
73,920
(74,703)
Financing activities
Dividends paid
Repayments of obligations under finance leases
Repayments of bank loans and other borrowings
Increase in bank loans and other borrowings
Loans to subsidiary undertakings
Loans repaid by subsidiary undertakings
Proceeds from issue of share capital
Proceeds from sale of own shares
Payments to acquire own shares
(16,946)
(63,740)
(175,579)
359,891
–
–
2,254
62
(1,303)
(13,459)
(36,994)
–
130,988
–
–
65,525
511
(1,371)
(16,946)
–
(175,579)
432,891
(942,938)
659,437
2,254
–
–
(13,459)
–
–
63,202
(70,430)
–
65,525
–
–
Net cash from (used in) financing activities
104,639
145,200
(40,881)
44,838
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 May
Effect of foreign exchange movements
Cash and cash equivalents at 30 April
(b)
14,360
20,259
(152)
34,467
(13,962)
34,057
164
20,259
(5,121)
(3,981)
(82)
(9,184)
(50,143)
46,162
–
(3,981)
Adjustments for:
Depreciation of property, plant and equipment
Exchange differences
Amortisation of intangible assets
(Gain) loss on disposal of property, plant and equipment
Defined benefit pension charge (credit)
Share options fair value amount (charged) credited
directly to equity
Operating cash flows before movements
in working capital
Decrease (increase) in inventories
(Increase) decrease in receivables
(Decrease) increase in payables
Cash generated from (used in) operations
Income taxes paid
Interest paid
193,885
366
3,922
(356)
8
136,209
(16)
1,227
(209)
(386)
(75)
20
304,806
209,443
460
(16,810)
(5,838)
282,618
(22,446)
(35,407)
(2,191)
(1,131)
3,139
209,260
(15,156)
(21,926)
62
178
–
–
–
(75)
(8,795)
–
(2,686)
3,637
(7,844)
–
(30,316)
62
–
–
710
–
20
(3,290)
–
1,257
(230)
(2,263)
–
(18,015)
Net cash from (used in) operating activities
224,765
172,178
(38,160)
(20,278)
(b) Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and at bank, investments in money market instruments and bank overdrafts.
Bank overdrafts are included within cash equivalents on the grounds that they are repayable on demand and form an integral
part of the Group's cash management.
Cash and cash equivalents, as described above, included in the cash flow statement comprise the following balance sheet amounts.
Cash in hand and at bank
Short term investments
Gross cash and cash equivalents as reported
Bank overdrafts
Net cash and cash equivalents
Group
Company
2007
£000
14,384
20,655
35,039
(572)
34,467
2006
£000
22,201
1,847
24,048
(3,789)
20,259
2007
£000
5,036
–
2006
£000
8,945
–
5,036
(14,220)
8,945
(12,926)
(9,184)
(3,981)
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 APRIL 2007
Notes
Amounts attributable to equity holders of the parent Company
Foreign exchange differences on retranslation of net assets of subsidiary undertakings
Foreign exchange differences on retranslation of interest in associate
Foreign exchange difference on revaluation reserve
Net foreign exchange differences on long term borrowings held as hedges
Other foreign exchange differences recognised directly in equity
Net fair value gains on cash flow hedges
Share options fair value amount (charged) credited directly to equity
Actuarial gains on defined benefit pension scheme
Net current tax credit recognised directly in equity
Net deferred tax (charge) credit recognised directly in equity
33
33
33
32
39
11
26
Net income recognised directly in equity
Profit attributable to equity holders
Total recognised income and expense for the year
Dividends paid
Issue of Ordinary share capital (net of expenses)
Net increase in own shares held
Net changes in total equity
Opening total equity as at 1 May
Closing total equity as at 30 April
12
27, 28, 31
30
2007
£000
(1,756)
–
(11)
1,425
628
4,471
(75)
445
1,084
(2,616)
3,595
54,483
58,078
(16,949)
2,254
(1,241)
42,142
320,289
362,431
COMPANY STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 APRIL 2007
Amounts attributable to equity holders of the parent Company
Foreign exchange differences on retranslation of investments
in subsidiary undertakings
Foreign exchange differences on retranslation of interest in associate
Net foreign exchange differences on long term borrowings held
as hedges
Net fair value gains on cash flow hedges
Share options fair value amount (charged) credited directly to equity
Net current tax credit recognised directly in equity
Net deferred tax (charge) credit recognised directly in equity
Net income recognised directly in equity
Profit attributable to equity holders
Total recognised income and expense for the year
Dividends paid
Issue of Ordinary share capital (net of expenses)
Net changes in total equity
Opening total equity as at 1 May
Closing total equity as at 30 April
Notes
2007
£000
33
33
33
32
26
36
12
27, 28, 31
(4,344)
–
4,344
3,450
(75)
1,084
(2,055)
2,404
11,241
13,645
(16,949)
2,254
(1,050)
228,534
227,484
2006
£000
1,303
413
–
(1,571)
–
2,956
20
356
–
882
4,359
40,594
44,953
(13,437)
65,525
(860)
96,181
224,108
320,289
2006
£000
646
413
(1,059)
2,554
20
–
882
3,456
41,059
44,515
(13,437)
65,525
96,603
131,931
228,534
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
36–37
FOR THE YEAR ENDED 30 APRIL 2007
1. GENERAL INFORMATION
Northgate plc is a Company incorporated in England and Wales under the Companies Act 1985. The address of the registered
office is given on page 77. The nature of the Group’s operations and its principal activities are set out in Note 5 and in the
Operational and Financial reviews on pages 6 to 11.
The financial statements are presented in UK Sterling because this is the currency of the primary economic environment
in which the Group operates. Foreign operations are included in accordance with the policies set out in Note 2.
At the date of authorisation of these financial statements, the following relevant Standards and Interpretations, which have
not been applied in these financial statements were in issue but not yet effective:
IFRS 7
IFRS 8
IAS 1
IFRIC 10
IFRIC 11
Financial instruments: Disclosures
Operating segments
Presentation of financial statements (Amendment on capital disclosures)
Interim financial reporting and impairment
IFRS 2: Group and treasury share transactions
The Directors anticipate that the adoption of the Standards and Interpretations in future periods will have no material impact
on the financial statements of the Group except for additional disclosures on capital and financial instruments when the
relevant standards come into effect for periods commencing on or after 1 January 2007.
2. PRINCIPAL ACCOUNTING POLICIES
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
and their interpretations adopted by the International Accounting Standards Board (IASB).
Basis of preparation
The financial information has been prepared on the historical cost basis, except for the revaluation of certain land and buildings
and the treatment of certain financial instruments.
Basis of consolidation
Subsidiary undertakings are entities controlled by the Company. Control exists when the Company has the power, directly or
indirectly, to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The consolidated
financial statements include the financial statements of the Company and its undertakings made up to 30 April 2006 and 30
April 2007. The results of a new subsidiary undertaking are included from the date of its acquisition. Where an entity has ceased
to be a subsidiary undertaking during the year, its results are included to the date of cessation.
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary undertaking are measured at their fair values at the
date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised
as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on
acquisition) is credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at the
minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently any losses applicable to the
minority interest in excess of the minority interest are allocated against the interests of the parent.
Where necessary, adjustments are made to the financial statements of subsidiary undertakings to bring the accounting
policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Revenue recognition
Group revenue is measured at the fair value of the consideration received or receivable in respect of the hire of vehicles
and the supply of related goods and services in the normal course of business, net of value added tax and discounts.
Revenue from vehicle rentals is recognised evenly over the rental period and revenue from sales of other related goods
and services is recognised at the point of sale.
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on
acquisition of subsidiary undertakings and interests in associates and is the difference between the cost of the acquisition
and the fair value of the net identifiable assets and liabilities acquired.
Goodwill is stated at cost less any accumulated impairment losses identified through an annual test for impairment.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts
subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has
not been reinstated and is not included in determining any subsequent profit or loss on disposal.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
38–39
FOR THE YEAR ENDED 30 APRIL 2007
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Intangible assets – arising on business combinations
Amortisation of intangible assets is charged to the income statement on a straight-line basis over the estimated useful lives
of each intangible asset. Intangible assets are amortised from the date they are available for use. The estimated useful lives
are as follows:
Customer relationships
Brand names
Non-compete agreements
5 to 13 years
5 to 10 years
2 to 4 years
Intangible assets – other
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.
Software assets are amortised over their estimated useful lives, which do not exceed three years.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and any provision for impairment.
Depreciation is provided so as to write off the cost of assets to residual values on a straight-line basis over the assets’ useful
estimated lives as follows:
Freehold buildings
Leasehold buildings
Plant, equipment and fittings
Vehicles for hire
Motor vehicles
50 years
50 years or over the life of the lease, whichever is shorter
3 to 10 years
3 to 6 years
3 to 6 years
Vehicles for hire are depreciated on a straight-line basis using depreciation rates that reflect economic lives of between
three and six years. These depreciation rates have been determined with the anticipation that the net book values at the
point the vehicles are transferred into non-current assets held for sale is in line with the open market values for those vehicles.
Depreciation charges are adjusted for any differences that arise between net book values and open market values of used
vehicles upon transfer into non-current assets held for sale, taking into account the further direct costs to sell the vehicles.
Property under construction is not depreciated. Depreciation commences when these assets are ready for their intended use.
Freehold land is not depreciated.
Depreciation on revalued buildings is charged to the income statement. On the subsequent sale or retirement of a revalued
property, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings.
The residual value, if not insignificant, is reassessed annually.
Non-current assets held for sale
Non-current assets classified as held for sale are valued at the lower of carrying amount or fair value less estimated costs to sell.
Non-current assets are classified as held for sale if their carrying amount will be recovered through a disposal transaction.
Fixed asset investments
Fixed asset investments are shown at cost less any provision for impairment.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less selling costs and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable
amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount
of any goodwill allocated to cash generating units and then to reduce the carrying amount of other assets in the unit on
a pro rata basis.
Inventories
Inventories comprise spare parts and consumables and are valued at the lower of cost or net realisable value. Net
realisable value represents the estimated selling price less costs to be incurred in marketing, selling and distribution.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised.
Current and deferred tax is charged or credited in the income statement, except when it relates to items charged or credited
directly to equity, in which case the current or deferred tax is also dealt with in equity.
Financial instruments and hedge accounting
Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provision of the instrument.
Trade receivables are non-interest bearing and are stated at their nominal value less any appropriate provision for irrecoverable
amounts. Trade payables are non-interest bearing and are stated at their nominal value.
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from
operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue
derivative financial instruments for trading purposes.
Derivative financial instruments are stated at fair value. Any gain or loss on remeasurement to fair value is recognised
immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of resultant
gain or loss depends on the nature of the items being hedged.
The fair value of interest rate derivatives is the estimated amount that the Group would receive or pay to terminate the
derivative at the balance sheet date, taking into account current interest rates and the current creditworthiness of the
derivative counterparties.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows
are recognised directly in equity, and the ineffective portion is recognised in the income statement. If the cash flow hedge of a
firm commitment or forecasted transaction results in the recognition of an asset or liability, then, at the time the asset or liability
is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the
initial measurement of the asset or liability. For hedges that do not result in recognition of an asset or a liability, amounts deferred
in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the
income statement as they arise.
Hedge accounting for cash flow hedges is discontinued when the hedging instrument expires or is sold, terminated, or exercised,
or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in
equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the
net cumulative gain or loss recognised in equity is transferred to the income statement as a net profit or loss for the period.
Bank loans and issue costs
Bank loans are stated at the amount of proceeds after deduction of issue costs, which are amortised over the period of the
loan. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for in
the income statement on an accrual basis and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
40–41
FOR THE YEAR ENDED 30 APRIL 2007
2. PRINCIPAL ACCOUNTING POLICIES (continued)
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Foreign currencies
Transactions in foreign currencies other than UK Sterling are recorded at the rate prevailing at the date of the transaction
or at the contracted rate if the transaction is covered by a forward exchange contract. At each balance sheet date, monetary
assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange prevailing at the balance sheet
date or, if appropriate, at the forward contract rate and any variances are reflected in the income statement.
The net assets of overseas subsidiary undertakings are translated into UK Sterling at the rate of exchange ruling at the balance
sheet date. The exchange difference arising on the retranslation of opening net assets is recognised directly in equity. All other
translation differences are taken to the income statement with the exception of differences in equity on foreign currency
borrowings to the extent that they are used to finance or provide a hedge against Group equity investments in foreign enterprises,
which are recognised directly in equity, together with the exchange difference on the net investment in these enterprises.
The results of overseas subsidiary undertakings and joint ventures are translated into UK Sterling using average exchange rates
for the financial period and variances compared with the exchange rate at the balance sheet date are recognised directly in equity.
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 UK Sterling using
the exchange rate prevailing at the balance sheet date. Any variances are recognised directly in equity.
Goodwill and fair value adjustments, arising on acquisition of a foreign entity, are treated as assets and liabilities of the foreign
entity. They are denominated in the functional currency of the foreign entity and translated at the exchange rate prevailing at
the balance sheet date, with any variances reflected directly in equity.
All foreign exchange differences reflected directly in equity are shown in the currency translation reserve component of equity.
Leasing and hire purchase commitments
As Lessee:
Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet at their fair value or, if lower,
the present value of the future minimum lease payments, and are depreciated over their useful economic lives using Group
policies. The capital elements of future obligations under finance leases and hire purchase contracts are included as liabilities
in the balance sheet. The interest elements of the rental obligations are charged to the income statement over the periods
of the leases and hire purchase contracts so as to produce a constant rate of return on the outstanding balance.
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term.
As Lessor:
Motor vehicles and equipment hired to certain customers under operating leases are included within property, plant and
equipment. Income from such leases is taken to the income statement evenly over the period of the operating lease agreement.
Retirement benefit costs
The Group predominantly operates defined contribution pension schemes and has one defined benefit scheme as a result
of the acquisition of Northgate (AVR) Limited (formerly Arriva Vehicle Rental Limited) in the prior year, as detailed in Note 35.
Contributions in respect of defined contribution arrangements are charged to the income statement in the period they fall due.
Pension contributions in respect of one of these arrangements are held in trustee administered funds, independently of the
Group’s finances.
For the defined benefit scheme, the cost of providing benefits is determined using the Projected Unit Credit Method, with
actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period
in which they occur. They are recognised outside the income statement and presented in the statement of recognised income
and expense.
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on
a straight line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation
as adjusted for unrecognised past service cost, and as reduced by the fair value of the scheme assets. Any asset resulting from
this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions
to the scheme.
The Group also operate Group personal pension plans.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
Employee share schemes and share based payments
The Group has applied the requirements of IFRS 2 (Share-based Payment). In accordance with the transitional provisions,
IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 30 April 2005.
The Group issues equity-settled and cash-settled share-based payments to certain employees.
Equity-settled employee schemes, including employee share options and deferred annual bonuses, provide employees with
the option to acquire shares of the Company. Employee share options and deferred annual bonuses are generally subject
to performance or service conditions.
The fair value of equity-settled share-based payments is measured at the date of grant and charged to the income statement
over the period during which performance or service conditions are required to be met, or immediately where no performance
or service criteria exist. The fair value of equity-settled share-based payments granted is measured using the Black-Scholes
model. The amount recognised as an expense is adjusted to reflect the actual number of employee share options that vest,
except where forfeiture is only due to market based performance criteria not being met.
For cash-settled share-based payments a liability equal to the portion of the goods or services received is recognised at the
current fair value determined at each balance sheet date.
The Group also operates a Share Incentive Plan (SIP) under which employees each have the option to purchase an amount
of shares annually and receive an equivalent number of free shares. The Group recognises the free shares as an expense evenly
throughout the period over which the employees must remain in the employ of the Group in order to receive the free shares.
Dividends
Dividends on Ordinary shares are recognised as a liability in the period in which they are either paid or formally approved,
whichever is earlier.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect
is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the process of applying the Group’s accounting policies, which are described in Note 2, the Directors have made the
following judgments that have the most significant effect on the amounts recognised in the financial statements.
Depreciation
Vehicles for hire are depreciated on a straight-line basis using depreciation rates that reflect economic lives of between three
and six years. These depreciation rates have been determined with the anticipation that the net book values at the point the
vehicles are transferred into non-current assets held for sale is in line with the open market values for those vehicles.
Under IAS 16, the Group is required to review its depreciation rates and estimated useful lives regularly to ensure that the
net book value of disposals of tangible fixed assets are broadly equivalent to their market value.
Depreciation charges are adjusted for any differences that arise between net book values and open market values of used
vehicles upon transfer into non-current assets held for sale, taking into account the further direct costs to sell the vehicles.
Intangible assets
Amortisation of intangible assets is charged to the income statement on a straight-line basis over the estimated useful lives
of each intangible asset. The Directors have made assumptions with regard to the evidence in the market, at the time of
acquisitions, when determining these estimated useful lives.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
Goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which
goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise
from each cash generating unit and a suitable discount rate in order to calculate present value. The carrying value of goodwill
at the balance sheet date was £75,120,000 (Note 14).
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
42–43
FOR THE YEAR ENDED 30 APRIL 2007
4. REVENUE
All revenue recognised is from the rendering of services.
5. GEOGRAPHICAL AND BUSINESS SEGMENTS
Geographical segments
The Group's operations are located in the United Kingdom, Republic of Ireland and Spain. These geographical locations are
the basis on which the Group reports its primary segment information.
The Directors consider the United Kingdom and Republic of Ireland to be a single geographical segment on the grounds that
the results and net assets of operations in the Republic of Ireland are immaterial to the Group as a whole. The results of the
associate in the prior year all arose in Spain.
Revenue
Gross profit
Administrative expenses
Amortisation
Profit from operations
Investment income
Finance costs
Profit before taxation
Other Information
Capital additions
Depreciation
Balance Sheet
Segment assets
Segment liabilities
Revenue
Gross profit
Administrative expenses
Amortisation
Profit from operations
Investment income
Finance costs
Share of profit of associate
Profit before taxation
Other Information
Capital additions
Depreciation
Balance Sheet
Segment assets
Interest in associate
Consolidated total assets
Segment liabilities
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
UK & Republic
of Ireland
2007
£000
Spain
2007
£000
Total
2007
£000
351,108
175,357
526,465
117,638
(45,925)
(2,035)
63,377
(24,112)
(1,887)
181,015
(70,037)
(3,922)
69,678
37,378
107,056
3,764
(35,452)
75,368
266,485
127,030
703,891
510,456
190,755
66,855
457,240
193,885
568,694
399,698
1,272,585
910,154
UK & Republic
of Ireland
2006
£000
300,771
102,724
(43,883)
(692)
58,149
Spain
2006
£000
71,838
21,834
(6,850)
(535)
14,449
Total
2006
£000
372,609
124,558
(50,733)
(1,227)
72,598
2,047
(22,125)
3,542
56,062
239,304
113,537
75,374
22,672
314,678
136,209
726,536
194,924
482,187
160,911
921,460
41,927
963,387
643,098
5. GEOGRAPHICAL AND BUSINESS SEGMENTS (continued)
Business segments
For management purposes, the Group has two material business segments, which are the hire of vehicles and fleet management.
As such, the Directors consider that these are the two business segments on which the Group should report.
Revenue
Segment assets
Capital additions
Revenue
Segment assets
Capital additions
6. RESTRUCTURING COSTS
Hire of
Fleet
vehicles management
2007
£000
2007
£000
Total
2007
£000
512,727
1,263,974
457,228
13,738
8,611
12
526,465
1,272,585
457,240
Hire of
Fleet
vehicles management
2006
£000
2006
£000
369,271
954,692
314,678
3,338
8,695
–
Total
2006
£000
372,609
963,387
314,678
In February 2006 the Group acquired the entire issued share capital of Northgate (AVR) Limited (formerly Arriva Vehicle Rental
Limited). To the extent that employees could not be integrated, termination terms were agreed and, to the extent that
properties would not be utilised in the future, amounts were provided in respect of onerous contracts.
Redundancy costs
Onerous contracts
7. PROFIT FROM OPERATIONS
Profit from operations is stated after
charging (crediting):
Depreciation of property, plant and equipment
Amortisation of intangible assets
Net foreign exchange losses (gains)
Restructuring costs
Staff costs
Auditors' remuneration for audit services (below)
Auditors' remuneration for non-audit services (below)
Notes
16, 17
15
6
8
2007
£000
–
–
–
2007
£000
2006
£000
1,673
934
2,607
2006
£000
193,885
3,922
366
–
77,622
308
301
136,209
1,227
(16)
2,607
62,699
313
236
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
44–45
FOR THE YEAR ENDED 30 APRIL 2007
7. PROFIT FROM OPERATIONS (continued)
10. FINANCE COSTS
Fees payable to the Company's auditors for the audit of the Company's annual accounts
Fees payable to the Company's auditors and their associates for the audit of the
Company's subsidiaries pursuant to legislation
Total audit fees
Other services pursuant to legislation
Tax services
Corporate finance services
Other services
Total non-audit fees
2007
£000
296
12
308
20
263
–
18
301
2006
£000
302
11
313
19
129
20
68
236
Fees payable to Deloitte & Touche LLP and their associates for non-audit services to the Company are not required to be
disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis.
A description of the work of the audit committee is set out in the corporate governance statement on pages 24 to 26 and
includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided
by the auditors.
8. STAFF COSTS
The average number of persons employed by the Group:
United Kingdom and Republic of Ireland:
Direct operations
Administration
Spain:
Direct operations
Administration
2007
Number
2006
Number
1,862
503
2,365
752
198
950
1,647
489
2,136
323
68
391
3,315
2,527
The above United Kingdom administration employee numbers include 18 (2006 – 18) in respect of the Company.
The aggregate remuneration of Group employees comprised:
Wages and salaries
Social security costs
Other pension costs
2007
£000
67,755
8,387
1,480
77,622
2006
£000
54,678
6,575
1,446
62,699
The above employee remuneration includes wages and salaries costs of £1,888,000 (2006 – £1,763,000), social security costs
of £402,000 (2006 – £342,000) and other pension costs of £462,000 (2006 – £345,000) in respect of the Company.
9. INVESTMENT INCOME
Interest on bank and other deposits
Change in fair value of interest rate derivatives (Note 25)
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
2007
£000
3,141
623
3,764
2006
£000
1,744
303
2,047
Interest on bank overdrafts and loans
Interest on obligations under finance leases
Amortisation of deferred consideration
Total borrowing costs
Preference share dividends
11. TAXATION
Current tax:
UK corporation tax
Adjustment in respect of prior years
Foreign tax
Deferred tax:
Current year
Adjustment in respect of prior years
2007
£000
33,583
1,844
–
35,427
2006
£000
20,220
1,345
535
22,100
25
25
35,452
22,125
2007
£000
2,697
1,200
9,552
13,449
7,232
204
7,436
2006
£000
13,615
(270)
1,390
14,735
247
486
733
20,885
15,468
Corporation tax is calculated at 30% (2006 – 30%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in those respective jurisdictions.
The charge for the year can be reconciled to the profit before taxation as stated in the income statement as follows:
Profit before taxation
Tax at the UK corporation tax rate of 30% (2006 – 30%)
Tax effect of expenses that are not deductible in
determining taxable profit
Amortisation charge not deductible in determining
taxable profit
Difference in taxation in overseas subsidiary undertakings
Reduction in overseas tax rate
Tax effect of share of results of associate
Adjustment to tax charge in respect of prior years
2007
£000
75,368
22,610
346
–
(2,277)
(1,198)
–
1,404
%
30.0
0.4
–
(3.0)
(1.6)
–
1.9
2006
£000
56,062
16,819
753
368
(1,631)
–
(1,057)
216
Tax expense and effective tax rate for the year
20,885
27.7
15,468
%
30.0
1.3
0.7
(2.9)
–
(1.9)
0.4
27.6
In addition to the amount charged to the income statement, a current tax amount receivable of £1,084,000 (2006 – £nil)
has been credited directly to equity and a deferred tax amount of £2,616,000 has been charged (2006 – £882,000 credited)
directly to equity (Note 26).
The UK corporation tax rate is scheduled to fall from 30% to 28% in 2008. This will have the effect of reducing the future
UK effective tax rate. At the same time, the rate of capital allowances, an important component of UK qualifying expenditure,
is scheduled to fall from 25% to 20% per annum. This will not impact the future UK effective tax rate but will result in a
short-term cash outflow to the Group.
NOTES TO THE ACCOUNTS
46–47
FOR THE YEAR ENDED 30 APRIL 2007
14. GOODWILL
Group
Cost:
At 1 May
Exchange differences
Recognised on acquisition of subsidiary undertakings (Note 35)
Adjustment in respect of subsidiary undertaking acquired in prior year (Note 35)
At 30 April
2007
£000
44,582
(572)
31,439
(329)
75,120
2006
£000
12,448
490
31,644
–
44,582
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected
to benefit from the business combination. Before recognition of impairment losses, the carrying amount of goodwill had been
allocated as follows:
Group
Record Rent a Car S.A.
Northgate (AVR) Limited
Furgonetas de Alquiler S.A.
Fleet Technique Limited
Other UK vehicle hire companies
2007
£000
31,010
27,726
9,527
3,589
3,268
75,120
2006
£000
–
28,055
9,670
3,589
3,268
44,582
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the CGUs are determined from the value in use calculations. The key assumptions for the value
in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs
during the period. The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time
value of money and the risks specific to the CGUs. The growth rates are based on industry growth rates forecasts. Changes in
selling prices and direct costs are based on past practices and expectations of future changes in the market.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by the Directors and
extrapolates these cash flows in perpetuity using growth assumptions relevant for the business sectors. The growth rates
used are between 3% and 5% and are not considered to be higher than average long term industry growth rates. The rates
used to discount the forecast cashflows for all CGUs are based on the Group’s pre-tax weighted average cost of capital of 8.5%.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
12. DIVIDENDS
Amounts recognised as distributions to equity holders of the parent Company:
Final dividend for the year ended 30 April 2006 of 14p per share
Interim dividend for the year ended 30 April 2007 of 10p per share
Final dividend for the year ended 30 April 2005 of 12p per share
Interim dividend for the year ended 30 April 2006 of 9p per share
2007
£000
9,853
7,096
–
–
2006
£000
–
–
7,676
5,761
16,949
13,437
The proposed final dividend of 15.5p per share is subject to approval by the shareholders at the Annual General Meeting and
has not been included as a liability as at 30 April 2007.
13. EARNINGS PER SHARE
(a) Basic and diluted earnings per share
The calculation of basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purposes of basic and diluted earnings per share,
being net profit attributable to equity holders of the parent
Number of shares
Weighted average number of Ordinary shares
for the purposes of basic earnings per share
Effect of dilutive potential Ordinary shares:
– share options
Weighted average number of Ordinary shares for the purposes
of diluted earnings per share
Basic earnings per share
Diluted earnings per share
(b) Earnings per share before amortisation and non-recurring restructuring costs
Earnings for the purposes of basic earnings per share (above)
Amortisation
Non-recurring restructuring costs (net of UK corporation tax at 30%)
Earnings for the purposes of basic earnings per share
before amortisation and non-recurring restructuring costs
Basic earnings per share before amortisation
and non-recurring restructuring costs
Diluted earnings per share before amortisation
and non-recurring restructuring costs
2007
£000
2006
£000
54,483
40,594
Number
Number
71,584,744
66,481,499
250,032
464,060
71,834,776
66,945,559
76.1p
75.8p
£000
54,483
3,922
–
61.1p
60.6p
£000
40,594
1,227
1,825
58,405
43,646
81.6p
65.7p
81.3p
65.2p
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
48–49
FOR THE YEAR ENDED 30 APRIL 2007
15. OTHER INTANGIBLE ASSETS
16. PROPERTY, PLANT AND EQUIPMENT: VEHICLES FOR HIRE
Group
Fair value:
Brand
Customer Non compete
names relationships agreements
£000
£000
£000
Software
technology
£000
Other
software
£000
At 1 May 2005
Additions
Acquisitions of subsidiary undertakings
Exchange differences
At 1 May 2006
Additions
Acquisitions of subsidiary undertakings
Disposals
Exchange differences
3,953
–
535
–
4,488
–
11,725
(4,165)
(46)
1,273
–
12,614
–
13,887
–
3,575
–
(10)
At 30 April 2007
Amortisation:
At 1 May 2005
Charge for the year
Exchange differences
At 1 May 2006
Charge for the year
Eliminated on disposals
Exchange differences
At 30 April 2007
Carrying amount:
At 30 April 2007
At 30 April 2006
12,002
17,452
408
456
–
864
1,329
–
(9)
2,184
9,818
3,624
159
515
–
674
1,836
–
(2)
2,508
14,944
13,213
137
–
148
–
285
–
123
–
(1)
407
26
39
–
65
117
–
–
182
225
220
–
–
168
–
168
–
–
–
–
168
–
11
–
11
34
–
–
45
123
157
1,957
925
177
8
3,067
1,279
57
(94)
(5)
4,304
1,861
206
6
2,073
606
(65)
(4)
2,610
1,694
994
Total
£000
7,320
925
13,642
8
21,895
1,279
15,480
(4,259)
(62)
34,333
2,454
1,227
6
3,687
3,922
(65)
(15)
7,529
26,804
18,208
Group
Cost or valuation:
At 1 May 2005
Additions
Acquisitions of subsidiary undertakings
Transfer to motor vehicles
Exchange differences
Disposals
At 1 May 2006
Additions
Acquisition of subsidiary undertaking
Transfer to motor vehicles
Exchange differences
Disposals
At 30 April 2007
Depreciation:
At 1 May 2005
Charge for the year
Exchange differences
Transfer to motor vehicles
Eliminated on disposals
At 1 May 2006
Charge for the year
Exchange differences
Transfer to motor vehicles
Eliminated on disposals
At 30 April 2007
Carrying amount:
At 30 April 2007
At 30 April 2006
£000
677,492
301,546
92,423
(171)
3,917
(267,865)
807,342
444,835
158,750
(113)
(3,465)
(323,731)
1,083,618
145,649
133,367
630
(32)
(116,096)
163,518
190,095
(217)
(61)
(129,769)
223,566
860,052
643,824
The carrying amount of the Group's vehicles for hire includes an amount of £39,550,000 (2006 – £12,103,000) in respect of
assets held under finance lease agreements.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
50–51
FOR THE YEAR ENDED 30 APRIL 2007
17. OTHER PROPERTY, PLANT AND EQUIPMENT
17. OTHER PROPERTY, PLANT AND EQUIPMENT (continued)
Group
Land and buildings by category:
Freehold
Short leasehold
2007
£000
53,179
8,592
61,771
2006
£000
38,985
6,789
45,774
At 30 April 2007, the Group had entered into contractual commitments for the acquisition of plant, property and equipment
amounting to £892,000 (2006 – £530,000).
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 2007, under the historical cost convention, land and buildings would have been stated at £68,582,000
(2006 – £51,544,000) and related accumulated depreciation of £6,621,000 (2006 – £5,584,000).
Company
Cost:
At 1 May 2005
Additions
At 1 May 2006 and 30 April 2007
Depreciation:
At 1 May 2005
Charge for the year
At 1 May 2006
Charge for the year
At 30 April 2007
Carrying amount:
At 30 April 2007
At 30 April 2006
£000
3,221
18
3,239
165
62
227
62
289
2,950
3,012
Group
Cost or valuation:
At 1 May 2005
Additions
Acquisitions of subsidiary undertakings
Transfer from vehicles for hire
Exchange differences
Disposals
At 1 May 2006
Additions
Acquisition of subsidiary undertaking
Transfer from vehicles for hire
Exchange differences
Disposals
At 30 April 2007
Depreciation:
At 1 May 2005
Charge for the year
Exchange differences
Transfer from vehicles for hire
Eliminated on disposals
At 1 May 2006
Charge for the year
Exchange differences
Transfer from vehicles for hire
Eliminated on disposals
At 30 April 2007
Carrying amount:
At 30 April 2007
At 30 April 2006
Cost or valuation at 30 April 2007 is represented by:
Valuation performed in 1992
Valuation performed in 2004
Additions at cost
Plant,
Land & equipment &
fittings
£000
buildings
£000
Motor
vehicles
£000
38,525
9,737
5,246
–
322
(2,567)
51,263
8,150
11,936
–
(276)
(2,769)
68,304
4,379
1,238
5
–
(133)
5,489
1,445
1
–
(402)
6,533
61,771
45,774
525
3,403
64,376
68,304
8,440
1,765
216
–
30
(844)
9,607
2,173
1,843
–
(33)
(1,102)
12,488
5,645
1,283
(1)
–
(742)
6,185
2,006
6
–
(1,026)
7,171
5,317
3,422
–
–
12,488
12,488
1,281
705
169
171
–
(985)
1,341
803
–
113
–
(848)
1,409
371
321
–
32
(423)
301
339
–
61
(364)
337
1,072
1,040
–
–
1,409
1,409
Total
£000
48,246
12,207
5,631
171
352
(4,396)
62,211
11,126
13,779
113
(309)
(4,719)
82,201
10,395
2,842
4
32
(1,298)
11,975
3,790
7
61
(1,792)
14,041
68,160
50,236
525
3,403
78,273
82,201
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
52–53
FOR THE YEAR ENDED 30 APRIL 2007
18. INVESTMENTS
Company
Cost:
At 1 May 2006
Acquisitions of subsidiary undertakings (see below)
Disposals of interests in subsidiary undertakings
Foreign exchange differences on investments
denominated in foreign currency
At 30 April 2007
Accumulated provisions:
At 1 May 2006 and 30 April 2007
Carrying amount:
At 30 April 2007
At 30 April 2006
Shares in
subsidiary
undertakings
£000
Loans
Investment
to Group
in associate undertakings
£000
£000
Total
£000
174,271
117,189
(119,402)
(4,344)
167,714
2,435
165,279
171,836
38,385
(38,385)
–
47,000
–
–
259,656
78,804
(119,402)
–
–
–
–
38,385
–
(4,344)
47,000
214,714
–
2,435
47,000
47,000
212,279
257,221
The investment in associate at 30 April 2006 related to 49% of the issued share capital of Record Rent a Car S.A. (“Record”),
a company registered in Spain, which the Company purchased on 5 August 2005. On 11 May 2006, the Company purchased
the remaining 51% of the issued share capital of Record for a cash consideration of £50,105,000. The principal activity of
Record is vehicle hire.
On 3 February 2006, the Company acquired 100% of the issued share capital of Northgate (AVR) Limited (formerly Arriva
Vehicle Rental Limited) for a cash consideration of £50,316,000. In the current year, the Company increased the value of its
investment by £3,699,000 (Note 35).
On 30 April 2007, the Company acquired 100% of the issued share capital of Northgate (TM) Limited for a cash consideration
of £25,000,000.
On 1 November 2006, the Company disposed of its entire investments in the share capital of Furgonetas de Alquiler S.A.
(“Fualsa”) and Record to a subsidiary undertaking for a cash consideration of £119,352,000. No profit or loss arose as a
result of this transaction.
On 10 April 2007, the Company reduced its interest in the share capital of Northgate (St Helier) Limited by £50,000.
The proceeds from the disposal were settled by the redemption of preference shares in Northgate (St Helier) Limited.
At 30 April 2007, the principal subsidiary undertaking of the Company was Northgate Vehicle Hire Limited, a company
registered in England and Wales, whose principal activity is the hire of vehicles.
Prior to their disposal on 1 November 2006, the investments in Fualsa and Record were denominated in Euro in the Company
balance sheet. The foreign exchange movements recognised in investments arose when the investment amounts were
retranslated at the foreign exchange rate prevailing on the date of disposal of the investments.
19. INTEREST IN ASSOCIATE
On 5 August 2005, the Group purchased 49% of the issued share capital of Record, a company registered in Spain, for a cash
consideration, payable to the vendors of €€54,800,000. In accordance with IAS 28, this investment, along with associated costs,
was accounted for as an associate under the equity method of accounting.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
19. INTEREST IN ASSOCIATE (continued)
The interest in associate in the Group balance sheet as at 30 April 2006 comprised the following:
Results for the period 5 August 2005 to 30 April 2006
Profit before taxation
Taxation
Profit after taxation
49% share of profit after taxation of associate
Purchase of investment in associate (Note 18)
Interest in associate at 30 April 2006
£000
10,131
(2,902)
7,229
3,542
38,385
41,927
On 11 May 2006, the Group acquired the remaining 51% of the issued share capital of Record.
From the same date, Record was accounted for as an investment in a subsidiary undertaking and in accordance with the
purchase method of accounting (Note 35).
20. INVENTORIES
Inventories comprise spare parts and consumables.
21. OTHER FINANCIAL ASSETS
Trade and other receivables
Trade amounts receivable
Amounts due from subsidiary undertakings
Other taxes
Corporation tax
Deferred tax asset (Note 26)
Financial instrument asset (Note 25)
Other debtors and prepayments
Group
Company
2007
£000
142,461
–
8,374
–
–
4,347
21,578
2006
£000
94,855
–
3,199
691
–
2,747
15,447
2007
£000
–
787,908
1,481
–
275
5,536
1,549
2006
£000
–
503,161
1,171
–
1,829
2,747
451
176,760
116,939
796,749
509,359
2007
2006
UK
Spain
51 days
149 days
49 days
138 days
Allowance for estimated irrecoverable amounts
UK
Spain
Total
2007
£000
2,883
2,308
5,191
2006
£000
2,786
1,469
4,255
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Bank balances and cash
These comprise cash held by the Group and short-term deposits with an original maturity of three months or less.
The Directors consider that the carrying amounts of these assets approximate to their fair value.
Credit risk
Consideration of the Group’s credit risk is documented in Note 24.
A full list of the Company's subsidiary undertakings was included with the Annual Return filed with the Registrar of Companies.
The average credit periods taken on goods are
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
22. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
These comprise vehicles held for resale.
23. OTHER FINANCIAL LIABILITIES
Trade and other payables
Trade payables
Amount due to subsidiary undertakings
Financial instrument liability (Note 25)
Social security and other taxes
Accruals and deferred income
Trade payables comprise amounts outstanding for trade purchases.
The average credit periods taken for trade purchases are
Group
Company
2007
£000
33,538
–
3,868
3,435
27,729
68,570
2006
£000
27,941
–
411
5,779
23,453
57,584
UK
Spain
2007
£000
163
–
3,738
117
6,121
10,139
2007
45 days
90 days
2006
£000
58
5,696
–
102
2,228
8,084
2006
44 days
84 days
The Directors consider that carrying the amount of trade and other payables approximates to their fair value.
24. BORROWINGS
The creditors falling due after more than one year comprise bank loans, loan notes, finance lease obligations and other borrowings.
The Directors consider that the carrying amounts of the Group’s borrowings approximate to their fair value.
Total borrowings
Bank overdrafts
Bank loans
Loan notes
Vehicle related finance lease obligations
Deferred consideration
Property loans
Cumulative Preference shares
Other
Group
Company
2007
£000
2006
£000
2007
£000
2006
£000
572
601,326
168,628
16,104
–
2,718
500
514
3,789
518,393
–
12,326
10,290
2,019
500
1,192
14,220
596,043
168,628
–
–
–
500
–
12,926
518,203
–
–
10,290
–
500
–
790,362
548,509
779,391
541,919
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
54–55
FOR THE YEAR ENDED 30 APRIL 2007
24. BORROWINGS (continued)
The borrowings are repayable as follows:
On demand or within one year
(shown under current liabilities)
Bank overdrafts
Bank loans
Vehicle related finance lease obligations
Deferred consideration
Property loans
Other
In the second year
Bank loans
Vehicle related finance lease obligations
Property loans
In the third to fifth years
Bank loans
Vehicle related finance lease obligations
Property loans
Due after more than five years
Loan notes
Cumulative Preference shares
Property loans
Group
Company
2007
£000
2006
£000
2007
£000
2006
£000
572
2,939
15,894
–
421
514
20,340
952
210
631
1,793
3,789
2,956
11,527
10,290
270
1,192
30,024
–
610
216
826
14,220
–
–
–
–
–
14,220
–
–
–
–
12,926
2,766
–
10,290
–
–
25,982
–
–
–
–
597,435
–
373
515,437
189
697
596,043
–
–
515,437
–
–
597,808
516,323
596,043
515,437
168,628
500
1,293
170,421
–
500
836
168,628
500
–
1,336
169,128
–
500
–
500
Total borrowings
790,362
548,509
779,391
541,919
Less: Amount due for settlement within one year
(shown under current liabilities)
20,340
30,024
14,220
25,982
Amount due for settlement after more than one year
770,022
518,485
765,171
515,937
Bank overdrafts
Bank overdrafts are repayable on demand and are unsecured.
They are denominated in UK Sterling and Euro. Sterling denominated bank overdrafts bear interest at 1% above the Bank
of England base rate and Euro denominated bank overdrafts bear interest at rates of 0.75% to 0.85% above EURIBOR.
This exposes the Group to cash flow interest rate risk.
Bank loans
In January 2007, the Company committed term loan facilities with seven major UK and European banks. The total facilities
of £755,000,000 (2006 – £745,000,000) have commitment dates being one year for £151,000,000 of the facilities and three
years for £604,000,000 of the facilities.
Bank loans are unsecured and bear interest at rates of 0.475% to 0.525% above the relevant interest rate index, being
LIBOR for UK Sterling denominated debt and EURIBOR for Euro denominated debt. This exposes the Group to cash flow
interest rate risk.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
56–57
FOR THE YEAR ENDED 30 APRIL 2007
24. BORROWINGS (continued)
24. BORROWINGS (continued)
Loan notes
In December 2006 and January 2007, the Company issued fixed rate, unsecured loan notes (“the US Notes”), with total
nominal values of US$295,000,000 and £21,000,000 respectively, to investors that are principally based in the United States.
The US Notes are not publicly tradeable and have the following maturity profile:
Value of loan notes
US$125,000,000 7 year loan notes
US$120,000,000 10 year loan notes
£21,000,000 10 year loan notes
US$50,000,000 10 year loan notes
Redemption
date
December 2013
December 2016
December 2016
January 2017
Carrying
value
30 April
2007
£000
62,554
60,052
21,000
25,022
168,628
The redemption of the US Notes and interest payments on the US Notes are due to the loan note holders in the same currency
as the issue currency of the US Notes. These factors expose the Group to foreign currency exchange risk. As explained in further
detail in Note 25, the Company has entered into cross currency swap financial instruments in order to mitigate this risk. The
weighted average fixed interest rate on the US Notes is 5.73%. Taking into account the interest rates within the cross currency
swap instruments, the overall weighted average fixed interest rate on these borrowings is 5.78%.
Cumulative Preference shares
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.
The total number of authorised cumulative Preference shares of 50p each is 1,300,000 (2006 – 1,300,000), of which
1,000,000 (2006 – 1,000,000) were allotted and fully paid at the balance sheet date.
Vehicle related finance lease obligations
The Group previously had a policy of leasing certain of its vehicles for hire under finance leases. The average lease term
is three years. For the year ended 30 April 2007, the average borrowing rate for vehicle related finance leases was 4.1%
(2006 – 4.4%). All leases are on a fixed repayment basis and no arrangements have been entered into for contingent
rental payments.
Group
Amounts payable under vehicle related finance leases:
Within one year
In the second to fifth years inclusive
Less future finance charges
Present value of lease obligations
Less: amount due for settlement within one year
(shown under current liabilities)
Amount due for settlement after more than one year
Minimum
lease payments
Present value of
minimum lease payments
2007
£000
16,239
220
16,459
(355)
16,104
2006
£000
11,703
853
12,556
(230)
12,326
2007
£000
15,894
210
16,104
–
16,104
2006
£000
11,527
799
12,326
–
12,326
(15,894)
(11,527)
210
799
Vehicle related finance lease obligations are denominated in Sterling and Euro.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
Deferred consideration
The deferred consideration liability as at 30 April 2006 was in respect of 20% of the issued share capital of Fualsa, the purchase
of which occurred in May 2004. This liability was paid in May 2006.
Property loans
All property loans relate to land and buildings held in Spain. The loans are secured on the properties to which they relate.
The average loan term is ten years. For the year ended 30 April 2007, the average borrowing rate for property loans was
4.7% (2006 – 3.3%). All loans are on a fixed repayment basis and no arrangements have been entered into for contingent
rental payments.
Minimum
lease payments
Present value of
minimum lease payments
Group
Amounts payable under property loans:
Within one year
In the second to fifth years inclusive
After more than five years
Less future finance charges
Present value of lease obligations
Less: amount due for settlement within one year
(shown under current liabilities)
Amount due for settlement after more than one year
2007
£000
481
1,139
1,510
3,130
(412)
2,718
2006
£000
274
992
973
2,239
(220)
2,019
2007
£000
421
1,004
1,293
2,718
–
2,718
(421)
2,297
2006
£000
270
913
836
2,019
–
2,019
(270)
1,749
Other borrowings
Other borrowings of £514,000 (2006 – £1,192,000) represent Spanish debt discounting arrangements which are unsecured
and fall due within one year.
Total borrowing facilities
The Group has various borrowings facilities available to it. The undrawn committed facilities at the balance sheet date, in
respect of which all conditions precedent had been met at that date, are as follows:
In one year or less
In one year to five years
2007
£000
178,474
7,958
2006
£000
194,215
129,608
186,432
323,823
The total amount permitted to be borrowed by the Company and its subsidiary undertakings in terms of the Articles of
Association shall not exceed six times the aggregate of the issued share capital of the Company and Group reserves, as defined
in those Articles.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
58–59
FOR THE YEAR ENDED 30 APRIL 2007
24. BORROWINGS (continued)
Analysis of consolidated net debt
Cash at bank and in hand
Short term investments
Bank overdraft due within one year
Bank loans
Loan notes
Vehicle related finance lease obligations
Deferred consideration
Preference shares
Property loans and other borrowings
At 1 May
2006
£000
22,201
1,847
(3,789)
Cash flow
£000
(7,964)
18,808
3,217
20,259
14,061
(518,393)
–
(12,326)
(10,290)
(500)
(3,211)
(9,964)
(175,579)
63,740
10,290
–
1,231
Foreign
Acquisitions
(Note 35) movements
£000
exchange At 30 April
2007
£000
£000
299
–
–
299
(75,878)
–
(69,048)
–
–
(1,319)
(152)
–
–
(152)
2,909
6,951
1,530
–
–
67
14,384
20,655
(572)
34,467
(601,326)
(168,628)
(16,104)
–
(500)
(3,232)
24. BORROWINGS (continued)
Financing and interest rate risk
The Group's policy is to finance operating subsidiary undertakings by a combination of retained earnings, loan notes and bank
borrowings, including medium term bank loans.
Cash at bank and on deposit yield interest based principally on interest rate indices applicable to periods of less than three
months, those indices being LIBOR for Sterling denominated cash and EURIBOR for Euro denominated cash. The Group's
exposure to interest rate fluctuations on its borrowings and deposits is managed through the use of interest rate derivatives
as detailed in Note 25. 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 2007, 66% (2006 – 58%) of
gross borrowings were at fixed or capped rates of interest, comprising £180,000,000, €€225,000,000 and US$295,000,000 of
derivative financial instruments, as detailed in Note 25.
Foreign currency exchange risk
The Group maintains borrowings in the same currency as its cash requirements, with the exception of borrowings maintained
in Euro as net investment hedges against its Euro denominated investments (Note 25) and with the exception of US Dollar
denominated loan notes, as explained above.
An analysis of the Group’s borrowings by currency is given below:
(524,461)
(96,221)
(145,946)
11,305
(755,323)
The Group calculates gearing to be net debt as a percentage of shareholders' funds less goodwill and the net book
value of intangible assets, where net debt comprises borrowings less cash at bank and short term investments.
At 30 April 2007, the gearing of the Group amounted to 289.9% (2006 – 203.7%) where net debt was £755,323,000 (2006 –
£524,461,000) and shareholders' funds less goodwill and the net book value of intangible assets was £260,507,000 (2006 –
£257,499,000).
Financial instruments
Financial assets
The Group's principal financial assets are bank balances and cash, trade and other receivables and investments.
The Group's credit risk is primarily attributable to its trade. The trade receivable amounts presented in the balance sheet are
net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which,
based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating agencies.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and
customers in the UK. The credit risk associated with trade receivables in Spain is more concentrated in larger customers than
the UK and, consequently, the Group has put a credit insurance policy in place to mitigate this risk.
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 financial instruments for risk management purposes only. Consistent with Group policy, Group
Treasury does not engage in speculative activity and it is policy to avoid using more complex financial instruments. Further
details regarding derivative financial instruments are shown in Note 25.
The policy followed in managing credit risk permits only minimal exposures with banks and other institutions meeting required
standards as assessed normally by reference to major credit agencies. Deals are authorised only with banks with which dealing
mandates have been agreed and which maintain a Double A rating. Individual aggregate credit exposures are limited accordingly.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
Group
At 30 April 2007
Borrowings
Bank overdrafts
Bank loans
Loan notes
Vehicle related finance lease obligations
Cumulative Preference shares
Property loans
Other
At 30 April 2006
Borrowings
Bank overdrafts
Bank loans
Vehicle related finance lease obligations
Cumulative Preference shares
Deferred consideration
Property loans
Other
Sterling
£000
Euro
£000
US Dollars
£000
Total
£000
572
81,069
21,000
779
500
–
–
–
520,257
–
15,325
–
2,718
514
–
–
147,628
–
–
–
–
572
601,326
168,628
16,104
500
2,718
514
103,920
538,814
147,628
790,362
Euro
£000
US Dollars
£000
Total
£000
Sterling
£000
3,789
292,082
1,255
500
–
–
–
–
226,311
11,071
–
10,290
2,019
1,192
297,626
250,883
–
–
–
–
–
–
–
–
3,789
518,393
12,326
500
10,290
2,019
1,192
548,509
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
60–61
FOR THE YEAR ENDED 30 APRIL 2007
25. DERIVATIVE FINANCIAL INSTRUMENTS
25. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Interest rate derivatives
The Group’s exposure to interest rate fluctuations on its borrowings and deposits is managed through the use of interest rate
swaps and collars. 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. The interest rate derivatives which the Group is
party to, as at 30 April 2007, are summarised below:
Sterling denominated interest rate swaps
Euro denominated interest rate swaps
Sterling denominated interest rate collars
Total
nominal
values
£75,000,000
€€225,000,000
£105,000,000
Weighted
average
contract
rates
5.2%
2.8%
Cap 6.0%
Floor 4.0%
Weighted
average
remaining
life
0.9 years
2.8 years
1.6 years
Net investment hedges
The Group manages its exposure to movements in the reported results of those subsidiary undertakings whose functional
currency is Euro ("the Euro Subsidiaries") by maintaining UK based borrowings, including relevant attributable financial
instruments, denominated in Euro in the parent Company equivalent to the net assets of the Euro Subsidiaries. In accordance
with IAS21, the net assets of the Euro Subsidiaries include goodwill attributable to those subsidiary undertakings. The level
of these Euro borrowings is revised every month to reflect the closing net assets of the Euro Subsidiaries at the previous
month end. The Group achieves net investment hedging through a combination of pre-tax and post-tax net investment
hedging relationships.
The hedging objective is to reduce the risk of spot retranslation foreign exchange gains or losses arising in the consolidated
results of the Group upon the translation of the Euro Subsidiaires from Euro to Sterling at each reporting date in the hedging
period, which is the period between each roll-over of the Euro denominated borrowings which comprise the net investment hedge.
The hedges are considered fully effective in the current and prior year and the exchange differences arising on the borrowings
have been recognised directly within equity along with the exchange differences on retranslation of the net assets of the
Euro Subsidiaries.
The interest rate swaps to which the Group is party are all pay fixed rate, receive floating rate instruments, the fixed rate being
as indicated above.
26. DEFERRED TAX
Market values have been used to determine fair values of interest rate derivatives at each balance sheet date.
The estimated fair values are as follows:
Interest rate swaps
Interest rate collars
2007
£000
3,840
377
4,217
2006
£000
2,576
(240)
2,336
The net fair value of interest rate derivatives of £4,217,000 (2006 – £2,336,000) is represented in the consolidated balance
sheet as an asset of £4,347,000 (2006 – £2,747,000) and a liability of £130,000 (2006 – £411,000), as set out in Notes 21
and 23 respectively.
All of the interest rate swaps are designated and effective as cash flow hedges and their fair value, along with changes in
fair value between balance sheet dates, has been deferred in equity. To the extent that the interest rate swaps are not 100%
effective, a net amount of £6,000 (2006 – £197,000) has been credited to the income statement.
Interest rate collars are not hedge accounted for and, accordingly, an amount of £617,000 (2006 – £106,000) has been
credited to the income statement.
The total change in fair values of interest rate derivatives recognised in the income statement of £623,000 (2006 – £303,000)
is shown within investment income (Note 9).
Cross currency derivatives
During the current year, the Group issued US Dollar denominated loan notes with a total nominal value of US$295,000,000.
These loan notes will be redeemed in US Dollars between 2013 and 2017 and interest payments are to be made by the Group
in US Dollars (Note 24). This exposes the Group to foreign currency exchange risk. To mitigate this risk, in the current year the
Group has entered into cross-currency swaps with a total notional value of US$295,000,000. The effective start dates and
termination dates of these contracts are the same as the loan notes against which hedging relationships are designated and
which are shown in Note 24.
The Group will have interest cash outflows in UK Sterling and interest cash inflows in US Dollars over the life of the contracts.
On the termination date of each of the contracts, the Group will pay a principal amount in UK Sterling and receive a principal
amount in US Dollars. The weighted average interest rate that the Group pays in UK Sterling is 5.78%.
As at 30 April 2007, the estimated total fair value of these derivatives is based upon market values.
The cross currency swaps are designated and fully effective as cash flow hedges and their fair value of £(3,738,000) has
been deferred in equity (Note 32). From this amount, £6,951,000 has been charged to the income statement from equity,
representing the loss on foreign exchange elements of the total fair value of the derivatives. This matches the gain on
retranslation of the loan notes at the exchange rate prevailing on the balance sheet date, to leave a net impact of £nil in
the income statement. The net impact on the hedging reserve is that it has been credited with £3,213,000, representing
the gain on the interest rate element of the fair value of the derivatives.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the
current and prior years:
Accelerated
capital Revaluation
allowances of buildings
£000
£000
Share
based
payment
£000
Intangible
Retirement
benefit
assets obligations
£000
£000
Other
timing
differences
£000
Total
£000
11,384
(1,929)
–
11,153
64
–
20,672
(860)
–
6,730
(140)
149
953
(9)
–
2,548
–
–
3,492
(535)
–
2,319
(33)
–
(1,459)
(6)
(882)
–
–
–
(2,347)
(479)
831
–
–
–
1,637
(331)
–
4,039
–
–
5,345
(1,692)
–
3,940
(20)
–
–
253
–
(686)
–
(2,391)
10,124
2,755
–
733
(882)
(94)
–
16,960
64
–
(11,153)
(11,153)
(433)
133
134
–
–
–
(10,883)
15,846
10,665
1,651
–
–
55
7,232
2,616
12,989
(193)
204
Group
At 1 May 2005
Charge (credit) to income
Credit to equity
Acquisitions of subsidiary
undertakings
Exchange differences
Transfer relating to
acquired subsidiary
undertakings
At 1 May 2006
Charge (credit) to income
Charge to equity
Acquisitions of subsidiary
undertakings
Exchange differences
Adjustments in respect
of prior years
At 30 April 2007
26,551
5,243
(1,995)
7,573
(166)
1,488
38,694
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
62–63
FOR THE YEAR ENDED 30 APRIL 2007
26. DEFERRED TAX (continued)
29. REVALUATION RESERVE
The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon during the
current and prior years:
At 1 May 2005 and 1 May 2006
Foreign exchange differences
At 30 April 2007
30. OWN SHARES
At 1 May 2005
Purchase of own shares
Sale of own shares
At 1 May 2006
Purchase of own shares
Sale of own shares
At 30 April 2007
Group
£000
1,054
(11)
1,043
Group
£000
(2,471)
(1,371)
511
(3,331)
(1,303)
62
(4,572)
Company
£000
1,371
–
1,371
Company
£000
–
–
–
–
–
–
–
The own shares reserve represents shares held by employee trusts in order to meet commitments under the Group’s various
share schemes (Note 38).
31. MERGER RESERVE
At 1 May 2005
Premium on Ordinary shares issued (below)
At 1 May 2006 and 30 April 2007
Group
£000
4,721
62,742
67,463
Company
£000
417
62,742
63,159
During the prior year, the Company completed a placing of 6,050,000 new Ordinary shares in exchange for Ordinary and
Preference shares in Northgate (St Helier) Limited. The price of the issued Ordinary shares of the Company was 1065p each,
raising £63,045,000 (net of expenses). In accordance with Section 131 of the Companies Act 1985 the premium on the issue
was credited to the merger reserve in the prior year.
Company
At 1 May 2005
Charge (credit) to income
Credit to equity
At 1 May 2006
Charge (credit) to income
Charge to equity
At 30 April 2007
Accelerated
capital
allowances
£000
Share
based
payment
£000
Other
timing
differences
£000
167
25
–
192
17
–
209
(870)
(7)
(882)
(1,759)
(490)
254
(1,995)
(895)
633
–
(262)
(28)
1,801
1,511
Total
£000
(1,598)
651
(882)
(1,829)
(501)
2,055
(275)
At the balance sheet date, the aggregate amount of undistributed earnings of overseas subsidiary undertakings was
£112,153,000 (2006 – £40,472,000). No deferred tax liability has been recognised in respect of these amounts because the
Group is in a position to control the timing of distributions from these subsidiary undertakings and it is probable that timing
differences associated with their undistributed earnings will not reverse in the foreseeable future.
27. SHARE CAPITAL
Group and Company
Authorised:
80,000,000 Ordinary shares of 5p each
Allotted and fully paid:
71,205,252 (2006 – 70,750,761) Ordinary shares of 5p each
2007
£000
2006
£000
4,000
4,000
3,560
3,538
The Company has one class of Ordinary share which carries no right to fixed income.
During the year the Company issued 454,491 Ordinary shares with a nominal value of £22,725 pursuant to the exercise of
options under the Group's various share schemes, for cash consideration of £2,254,583. The premium on the issue of these
shares has been credited to the share premium account (Note 28).
28. SHARE PREMIUM ACCOUNT
Group and Company
At 1 May
Premium on Ordinary shares issued (Note 27)
At 30 April
2007
£000
64,998
2,232
67,230
2006
£000
62,544
2,454
64,998
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
64–65
FOR THE YEAR ENDED 30 APRIL 2007
32. HEDGING RESERVE
34. RETAINED EARNINGS
At 1 May 2005
Profit for the year
Dividends paid
Share options fair value amount credited directly to equity
Defined benefit pension credit recognised directly in equity
Net deferred tax credit recognised directly in retained earnings
At 1 May 2006
Profit for the year
Dividends paid
Share options fair value amount charged directly to equity
Defined benefit pension credit recognised directly in equity
Net current tax credit recognised directly in equity
Net deferred tax charge recognised directly in retained earnings
Group
£000
153,569
40,594
(13,437)
20
356
882
181,984
54,483
(16,949)
(75)
445
1,084
(388)
Company
£000
64,390
41,059
(13,437)
20
–
882
92,914
11,241
(16,949)
(75)
–
1,084
(254)
At 30 April 2007
220,584
87,961
35. ACQUISITIONS OF SUBSIDIARY UNDERTAKINGS
(a) Record Rent a Car S.A.
On 5 August 2005, the Group acquired a 49% share in Record Rent a Car S.A. (“Record”), a Company registered in Spain,
for a cash consideration, payable to the vendors, of €€54,800,000. In accordance with IAS 28, this investment, including
associated costs, was accounted for as an associate under the equity method of accounting, in the year ended 30 April 2006.
On 11 May 2006, the Group acquired the remaining 51% of the issued share capital of Record for a consideration of
€€72,400,000, payable to the vendors, under the share purchase agreement. The transaction has been accounted for under
the purchase method of accounting in the current year.
At 1 May 2005
Movement in fair value of hedged interest rate derivatives
Transfer to income statement
At 1 May 2006
Movement in fair value of hedged interest rate derivatives
Movement in fair value of hedged foreign currency derivatives
Deferred taxation on fair value of interest rate and foreign currency derivatives
Transfer to income statement
At 30 April 2007
Group
£000
Company
£000
–
3,153
(197)
2,956
1,264
(3,738)
(2,228)
6,945
5,199
–
2,747
(193)
2,554
221
(3,738)
(1,801)
6,967
4,203
The hedging reserve represents the cumulative amounts of changes in fair values of hedged interest rate and cross currency
derivatives that are deferred in equity, as explained in Note 2 and Note 25, less amounts transferred to the income statement.
33. TRANSLATION RESERVE
At 1 May 2005
Foreign exchange differences on retranslation of net assets of subsidiary undertakings
Foreign exchange differences on retranslation of interest in associate
Foreign exchange differences on retranslation of investments in subsidiary undertakings
Net foreign exchange differences on long term borrowings held as hedges
At 1 May 2006
Foreign exchange differences on retranslation of net assets of subsidiary undertakings
Foreign exchange differences on retranslation of investments in subsidiary undertakings
Net foreign exchange differences on long term borrowings held as hedges
Other foreign exchange differences recognised directly in equity
At 30 April 2007
Group
£000
Company
£000
1,482
1,303
413
–
(1,571)
1,627
(1,756)
–
1,425
628
1,924
–
–
413
646
(1,059)
–
–
(4,344)
4,344
–
–
The management of the Group's foreign exchange translation risks is detailed in Note 25.
During the year, the Company maintained borrowings denominated in Euro in order to hedge its Euro denominated
investments in Fualsa and Record, prior to the disposal of those investments on 1 November 2006 (Note 18). The Company
retranslated the borrowings and the investment into Sterling using the exchange rate prevailing on the date of disposal.
The full loss on the retranslation of the investment has been recognised directly in the equity of the Company and the gain on
the retranslation of borrowings has been recognised directly in the equity of the Company 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 income statement of the Company.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
66–67
FOR THE YEAR ENDED 30 APRIL 2007
35. ACQUISITIONS OF SUBSIDIARY UNDERTAKINGS (continued)
35. ACQUISITIONS OF SUBSIDIARY UNDERTAKINGS (continued)
Had the 49% share in Record been accounted for under the purchase method of accounting, then goodwill of £12,236,000
would have arisen as follows:
Book value of net assets of Record at 5 August 2005
Fair value adjustments
Fair value of net assets of Record at 5 August 2005
49% share of fair value of net assets of Record at 5 August 2005
Goodwill
Acquisition cost of 49% share in Record (including expenses)
£000
53,802
(436)
53,366
26,149
12,236
38,385
The acquisition cost of £38,385,000, referred to above, comprises cash flow of £37,972,000 and exchange differences of
£413,000, both recognised in the results of the Group in the year ended 30 April 2006.
The detail relating to the acquisition of the remaining 51% of the issued share capital of Record is as follows:
Book
value
£000
Fair value
adjustments
£000
Fair
value
£000
Net assets acquired:
Intangible assets
Property, plant and equipment: vehicles for hire
Other property, plant and equipment
Inventories
Non-current assets held for sale
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Deferred tax liabilities
51% share of fair value of net assets of Record at 11 May 2006
Goodwill
Acquisition cost of 51% share in Record (including expenses)
Fair value of consideration:
Cash
Net cash acquired with subsidiary undertaking
Cash outflow in the year on acquisition of Record
57
158,526
14,038
499
3,162
43,523
299
(7,618)
(146,244)
(6,730)
59,512
11,258
224
(259)
(234)
–
(1,375)
–
(2,274)
(1)
(6,259)
1,080
11,315
158,750
13,779
265
3,162
42,148
299
(9,892)
(146,245)
(12,989)
60,592
30,902
19,203
50,105
50,105
(299)
49,806
The total goodwill arising on the acquisition of Record of £31,439,000 is attributable to the fair value of the workforce, in place
at the date of acquisition, and other potential future economic benefit that it is anticipated will be derived from the business.
Record contributed £91,374,000 of revenue and £13,775,000 profit before tax for the period between 11 May 2006 and
the balance sheet date.
If the acquisition of Record had been completed on the first day of the financial year then there would be no material
difference between Group revenues for the year and Group profit attributable to equity holders of the parent, compared
to those stated in the Consolidated Income Statement for the year ended 30 April 2007.
In the above acquisition, the fair values represent the Directors' current estimates of the net assets acquired. In accordance
with IFRS 3, the values attributed may be revised as further information becomes available.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
(b) Northgate (AVR) Limited
On 3 February 2006, the Group acquired the entire issued share capital of Northgate (AVR) Limited (formerly Arriva Vehicle
Rental Limited) ("AVR") for an original cash consideration of £50,316,000, including goodwill of £28,055,000. The transaction
was accounted for in accordance with the purchase method of accounting in the year ended 30 April 2006.
In the current year, the Group paid a further £3,699,000 to the vendor, under the terms of the sale and purchase agreement,
and further fair value adjustments were made, totalling £4,028,000, such that the revised detail relating to the fair value of net
assets of AVR acquired is as follows:
Net assets acquired:
Goodwill
Intangible assets
Property, plant and equipment: vehicles for hire
Other property, plant and equipment
Inventories
Non-current assets held for sale
Trade and other receivables
Cash and cash equivalents
Bank overdraft
Trade and other payables
Deferred tax liabilities
Defined benefit pension obligation
Goodwill
Acquisition cost (including expenses)
Fair value of consideration:
Cash
Net bank overdraft acquired with subsidiary undertaking
Proceeds from disposal of intangible assets to the vendor,
offset against cash flows in the current year
Cash outflow in the prior year on acquisition of AVR
Net cash inflow in the current year relating to the acquisition of AVR
Book
value
£000
Fair value
adjustments
£000
16,909
4,219
93,728
5,764
44
2,320
16,378
3,301
(77,357)
(11,956)
(11,145)
(1,537)
40,668
(16,909)
10,626
(1,305)
(337)
(17)
–
214
–
–
(927)
(4,980)
(744)
(14,379)
Fair
value
£000
–
14,845
92,423
5,427
27
2,320
16,592
3,301
(77,357)
(12,883)
(16,125)
(2,281)
26,289
27,726
54,015
54,015
74,056
128,071
(4,165)
(124,372)
(466)
36. PROFIT OF THE PARENT COMPANY
A profit of £11,241,000 (2006 – £41,059,000) is dealt with in the accounts of the Company. The Directors have taken
advantage of the exemption available under Section 230 of the Companies Act 1985 and not presented an income statement
for the Company alone.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
68–69
FOR THE YEAR ENDED 30 APRIL 2007
37. OPERATING LEASE ARRANGEMENTS
38. SHARE BASED PAYMENTS (continued)
The inputs into the Black-Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2007
2006
£10.33
£10.37
26.9%
4.6 years
4.7%
2.9%
£9.31
£9.31
19.5%
4.7 years
4.3%
3.2%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
Executive Incentive Scheme (“EIS”)
No options have been granted since 24 January 2002 under this scheme.
At 1 May
Exercised during the year
Forfeited during the year
At 30 April
2007
2006
Weighted
Number
of share
average
options exercise price
£
Weighted
Number
of share
average
options exercise price
£
739,958
(361,091)
(7,125)
371,742
4.90
4.92
4.20
4.89
1,107,075
(365,944)
(1,173)
739,958
4.90
4.92
3.68
4.90
Exercisable at the end of the year
333,492
4.91
337,083
4.91
Share options were exercised at several points during the year. The weighted average share price of the Company's Ordinary
shares during the year was £10.68 (2006 – £10.24). The options outstanding at 30 April 2007 had a weighted average exercise
price of £4.89, and a weighted average remaining contractual life of 2.6 years.
As lessee
Group
Minimum lease payments under operating leases recognised
in the income statement for the year
2007
£000
2006
£000
6,134
5,981
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases, which fall due as follows:
Group
Within one year
In the second to fifth years inclusive
After five years
2007
£000
4,680
11,115
7,880
23,675
2006
£000
4,592
9,141
7,926
21,659
Operating lease payments represent rentals payable by the Group for certain of its operating sites as well as rentals
for certain vehicles.
Leases are negotiated for an average term of ten (2006 – nine) years and rentals are fixed for an average number of four
(2006 – four) years.
As lessor
The revenue of the Group is generated from the hire of vehicles under operating lease arrangements. There is no minimum
contracted rental period. The revenue of the Group under these arrangements is as shown in the consolidated income
statement. There are no contingent rentals recognised in income.
38. SHARE BASED PAYMENTS
The Group’s various share option incentive plans are explained on pages 18 to 21.
The Group recognised total expenses of £1,634,000 (2006 – £1,301,000) related to equity-settled share-based payment
transactions in the year.
Further details regarding the plans are outlined below.
Northgate Share Option Scheme (“NSOS”)
At 1 May
Granted during the year
Exercised during the year
Lapsed during the year
At 30 April
2007
2006
Weighted
Number
of share
average
options exercise price
£
Weighted
Number
of share
average
options exercise price
£
369,500
120,000
(93,400)
(9,000)
387,100
5.16
10.37
5.11
4.22
8.60
379,500
141,600
(151,600)
–
369,500
5.16
9.31
4.42
–
7.03
Exercisable at the end of the year
46,000
5.18
38,400
4.61
Share options were exercised at several points during the year. The weighted average share price of the Company's Ordinary
shares during the year was £10.68 (2006 – £10.24). The options outstanding at 30 April 2007 had a weighted average exercise
price of £8.60 and a weighted average remaining contractual life of 6.7 years. In the current year, options were granted in July
2006. The aggregate of the estimated fair values of the options granted on this date is £280,000. In the prior year, options
were granted in October 2005. The aggregate of the estimated fair values of the options granted on this date is £215,000.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
38. SHARE BASED PAYMENTS (continued)
Deferred Annual Bonus Plan (“DABP”)
All options granted under this scheme are nil cost options.
At 1 May
Granted during the year
Exercised during the year
Forfeited during the year
At 30 April
2007
Number of
2006
Number of
share options share options
160,353
31,050
(7,876)
(3,660)
83,143
77,960
(500)
(250)
179,867
160,353
3,031 (2006 – nil) options were exercisable at the end of the year.
The weighted average share price at the date of exercise of options was £10.76 (2006 – £9.82).
The options outstanding at 30 April 2007 had a weighted average remaining contractual life of 2.9 years. In the current year,
options were granted in July 2006. The aggregate of the estimated fair values of the options granted on this date is £294,000.
In the prior year, options were granted in July 2005. The aggregate of the estimated fair values of the options granted on this
date is £515,000.
The inputs into the Black-Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2007
2006
£10.33
£nil
26.9%
3 years
4.7%
2.9%
£9.05
£nil
19.5%
3 years
4.2%
3.2%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
All Employee Share Scheme (“AESS”)
The scheme has a 12 month Accumulation period. Partnership shares are purchased by the employee at the end of the
Accumulation period from the amount contributed by the employee during that period. The Company allocates an amount
of free Matching shares equivalent to the number of Partnership shares purchased. The vesting period for Matching shares
is three years.
Matching shares are forfeited if the employee either sells the related Partnership shares or leaves the Group before the three
years have elapsed.
Details of Matching shares which had not vested at 30 April were as follows:
At 1 May
Allocated during the year
Forfeited during the year
Vested during the year
At 30 April
2007
Number of
shares
2006
Number of
shares
187,287
57,242
(15,032)
(69,495)
200,171
58,876
(11,343)
(60,417)
160,002
187,287
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE ACCOUNTS
70–71
FOR THE YEAR ENDED 30 APRIL 2007
38. SHARE BASED PAYMENTS (continued)
The share price at the date of vesting for Matching shares which vested during the year was £11.14 (2006 – £10.27). The non-
vested Matching shares outstanding at 30 April 2007 had a weighted average remaining period until vesting of 1.7 years. In
the current year, Matching shares were allocated in January 2007. The aggregate of the estimated fair values of the Matching
shares allocated on this date was £597,000. In the prior year, Matching shares were allocated in January 2006. The aggregate
of the estimated fair values of the Matching shares allocated on this date was £522,000.
The inputs into the Black-Scholes model are as follows:
Weighted average share price
Weighted average vesting price
Expected volatility
Expected life
Risk free rate
Expected dividends
2007
2006
£12.06
£nil
27.0%
5 years
5.2%
2.9%
£10.35
£nil
19.5%
5 years
4.2%
3.2%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
Performance Share Plan (“PSP”)
All options granted under this scheme are nil cost options. The first grant of options under this scheme occurred in May 2006.
Details of the share options outstanding during the year are as follows:
At 1 May
Granted during the year
Forfeited during the year
At 30 April
2007
Number of
share options
–
134,000
(21,000)
113,000
No options were exercisable at the end of the year.
The options outstanding at 30 April 2007 had a weighted average remaining contractual life of 9 years. In the current year,
matching share options were granted in May 2006. The aggregate of the estimated fair values of the options granted on this
date is £1,330,000.
The inputs into the Black-Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2007
£10.83
£nil
25.5%
3 years
4.5%
2.9%
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous three years.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
72–73
FOR THE YEAR ENDED 30 APRIL 2007
39. RETIREMENT BENEFIT SCHEMES
39. RETIREMENT BENEFIT SCHEMES (continued)
During the year the Group operated two group personal pension plans and The Willhire Pension Scheme (“the Scheme”)
(acquired by the Group as part of the acquisition of Northgate (AVR) Limited on 3 February 2006), which includes both
defined benefit and defined contribution sections. The total pension cost to the Group of all these arrangements was
£1,480,000 (2006 – £1,446,000).
The Scheme
The Scheme, which is established under Trust, is financed through separate Trustee administered funds managed by
independent professional fund managers on behalf of the Trustees.
During the year, the Scheme was closed to both new members and to future service accrual for existing members.
Contributions to the Scheme are based upon actuarial advice following the most recent actuarial valuation
of the fund. Actuarial valuations of the Scheme were performed as at 3 February 2006 and 30 April 2006 by a Fellow of the
Institute of Actuaries, representing Watson Wyatt Limited and at 30 April 2007 by a Fellow of the Institute of Actuaries,
representing JLT Benefit Solutions Limited.
The present value of the defined benefit obligation, the related current service cost and the past service cost were measured
using the projected unit credit method.
The principal actuarial assumptions used were:
Discount rate
Inflation rate
Salary increases
Future pension increases
Valuation at
30 April 2007
%pa
Valuation at
Valuation at
30 April 2006 3 February 2006
%pa
%pa
5.5
3.4
n/a
3.3
5.1
3.0
4.5
3.0
4.7
2.9
4.4
2.9
Amounts recognised in the income statement in respect of the Scheme are as follows:
Service cost
Interest (income) cost
Expected return on Scheme assets
Curtailments
Total pension charge (credit)
From 1 May 2006
to 30 April 2007
£000
From 3 February 2006
to 30 April 2006
£000
21
(13)
–
–
8
48
62
(53)
(443)
(386)
The charge for service cost has been included in administrative expenses.
Actuarial gains and losses have been reported directly in equity, within retained earnings.
The actual return on the Scheme assets was a loss of £236,000 (2006 – £48,000 gain). There are no reimbursement rights.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
The amount included in the balance sheet arising from the Group's obligations in respect of the Scheme is as follows:
Present value of defined benefit obligations
Fair value of plan assets
Liability recognised in the balance sheet
The net movements in the deficit were as follows:
At 1 May
Acquisition
Pension charge (credit) recognised in the income statement
Actuarial gains
Contributions
At 30 April
Movements in the present value of the defined benefit obligations were as follows:
At 1 May
Acquisition
Current service cost
Interest cost
Actuarial gains
Benefits paid
Past service cost
Curtailments
At 30 April
Movements in the fair value of Scheme assets were as follows:
At 1 May
Acquisition
Expected return on Scheme assets
Contributions
Benefits paid
Actuarial (losses) gains
At 30 April
2007
£000
(3,900)
3,345
(555)
2006
£000
(4,595)
3,151
(1,444)
2007
£000
1,444
–
8
(445)
(452)
555
2007
£000
4,595
–
21
234
(928)
(22)
–
–
3,900
2007
£000
3,151
–
247
452
(22)
(483)
3,345
2006
£000
–
2,281
(386)
(356)
(95)
1,444
2006
£000
–
5,236
35
62
(308)
–
13
(443)
4,595
2006
£000
–
2,955
53
95
–
48
3,151
The derivation of the overall expected return on assets reflects the actual asset allocation at the measurement date combined
with an expected return for each asset class. The bond return is based on the prevailing return available on bonds. The return
on equities and property is based on a number of factors including the income yield at the measurement date, the long-term
growth prospects for the economy in general, the long-term relationship between each asset class and the bond returns and
the movement in market indices since the previous measurement date.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30 APRIL 2007
NOTES TO THE ACCOUNTS
74–75
FOR THE YEAR ENDED 30 APRIL 2007
39. RETIREMENT BENEFIT SCHEMES (continued)
40. RELATED PARTY TRANSACTIONS
The analysis of the Scheme assets and the expected rate of return at the balance sheet date was as follows:
Transactions with subsidiary undertakings
Transactions between the Company and its subsidiary undertakings, which are related parties, are as follows:
Net interest receivable
Management charges
2007
£000
11,327
300
11,627
2006
£000
6,951
300
7,251
During the year, the Company also disposed of investments to a subsidiary undertaking, as detailed in Note 18.
Balances with subsidiary undertakings at the balance sheet date are shown in Notes 21 and Note 23.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out in the audited part of the
Directors' Remuneration Report on pages 16 to 21.
The fair value charged to the consolidated income statement in respect of equity-settled share-based payment transactions with
the Directors is £443,000.
Equity instruments
Debt instruments
Other
30 April 2007
30 April 2006
Expected
return
%
Fair value
of assets
£000
Expected
return
%
Fair value
of assets
£000
6.0
4.0
4.0
2,046
1,137
162
3,345
7.9
4.5
4.0
2,663
305
183
3,151
The Scheme assets do not comprise any of the Group’s own financial instruments nor does the Group occupy any property
or use any other assets held by the Scheme.
During the current year, contributions have been made of £21,000 per month in accordance with latest actuarial advice
received. A single special contribution of £200,000 was also made during the current year. The estimated amount of
contributions expected to be paid to the Scheme during the year ended 30 April 2008 is £252,000.
The history of experience adjustments is supplied only for financial periods since the acquisition of the Scheme as part of
the acquisition of Northgate (AVR) Limited by the Group on 3 February 2006.
Funded status:
Present value of defined benefit obligation
Fair value of Scheme assets
Deficit in the Scheme
Experience adjustments on Scheme obligations:
Amount
Percentage of Scheme obligations
Experience adjustments on Scheme assets:
Amount
Percentage of Scheme assets
Year ended Period ended
30 April 2007 30 April 2006
£000
£000
3,900
3,345
555
738
19.0%
4,595
3,151
1,444
48
1.5%
(483)
(14)%
493
10.7%
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
FIVE YEAR FINANCIAL SUMMARY
INFORMATION FOR SHAREHOLDERS
76–77
Based on the consolidated financial statements for years ended 30 April and adjusted to reflect the effect of subsequent
changes in accounting policy.
Income statement
Revenue
526,465
372,609
339,382
355,624
337,875
IFRS
2007
£000
IFRS
2006
£000
IFRS
2005
£000
UK GAAP
2004
£000
UK GAAP
2003
£000
Profit from operations
Share of joint venture profit from operations
Net finance costs
Share of profit before taxation of associate
Share of taxation of associate
Profit before taxation
Taxation
Profit for the year
Basic earnings per Ordinary share
Dividends
Dividends per Ordinary share
Balance sheet
Assets employed
Non-current assets
Net current assets (liabilities)
Non-current assets held for sale
Non-current liabilities
Financed by
Share capital
Share premium account
Reserves
107,056
–
107,056
(31,688)
–
–
75,368
(20,885)
54,483
76.1p
16,949
25.5p
72,598
–
72,598
(20,078)
4,964
(1,422)
56,062
(15,468)
40,594
61.1p
13,437
23.0p
76,237
–
76,237
(21,249)
–
–
54,988
(15,757)
39,231
60.7p
11,916
20.0p
55,605
4,342
59,947
(15,355)
–
–
44,592
(13,303)
31,289
50.7p
11,064
17.6p
49,015
2,620
51,635
(15,032)
–
–
36,603
(11,497)
25,106
41.4p
9,736
16.0p
IFRS
2007
£000
IFRS
2006
£000
IFRS
2005
£000
UK GAAP
2004
£000
UK GAAP
2003
£000
1,030,136
119,625
21,941
(809,271)
798,777
42,582
14,705
(535,775)
587,008
40,502
11,464
(413,943)
419,136
(15,929)
–
(214,900)
402,173
(86,615)
–
(162,597)
362,431
320,289
225,031
188,307
152,961
3,560
67,230
291,641
3,538
64,998
251,753
3,209
62,544
159,278
3,702
61,829
122,776
3,545
45,635
103,781
362,431
320,289
225,031
188,307
152,961
Net asset value per Ordinary share
509p
453p
351p
293p
250p
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 joint corporate brokers are Citigroup Global Marketing Limited and UBS Limited and the
Company’s Ordinary shares are traded on SETSmm
Financial calendar
December
January
March
July
September
Publication of Half Yearly Report
Payment of interim dividend
Publication of Interim Management Statement
Announcement of year end results
Report and accounts posted to shareholders
Annual General Meeting
Payment of final dividend
Publication of Interim Management Statement
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
The Group’s website address is www.northgateplc.com
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
NOTICE OF ANNUAL
GENERAL MEETING
NOTICE OF ANNUAL
GENERAL MEETING
78–79
The Directors of the Company consider that all the proposals to be considered at the Annual General Meeting are in the best
interests of its shareholders as a whole and they recommend that you vote in favour of them.
By Order of the Board
D. Henderson
Secretary
2 July 2007
Registered Office:
Norflex House
Allington Way
Darlington DL1 4DY
NOTES
1. Only the holders of Ordinary shares registered in the register of members of the Company as at 6.00 pm on 24 September
2007 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at
that time. Changes to entries on the register of members after that time shall be disregarded in determining the right of
any person to attend and vote at the meeting.
2. A member entitled to attend and vote is entitled to appoint one or more proxies to attend and (on a poll) vote instead
of him. A proxy so appointed need not also be a member. A three-way proxy card for this purpose is enclosed.
THIS NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you have any
doubt as to the action you should take, you are recommended to seek your own personal financial advice from your stockbroker,
bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000.
If you have sold or otherwise transferred all your Ordinary shares in Northgate plc, please send this document, together with
the accompanying documents to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the
sale or transfer was effected for transmission to the purchaser or transferee.
Notice is hereby given that the one hundred and ninth Annual General Meeting of Northgate plc will be held
at Norflex House, Allington Way, Darlington at 11.30 am on 26 September 2007 for the following purposes:
1. To receive and adopt the Directors’ report and audited accounts of the Company for the year ended 30 April 2007.
2. To declare a final dividend of 15.5p per Ordinary share.
3. To approve the Remuneration Report for the financial year ended 30 April 2007 set out on pages 16 to 21 of the 2007
Annual Report and Accounts.
4. To re-appoint Deloitte & Touche LLP as auditors of the Company.
5. To authorise the Audit Committee to determine the remuneration of the auditors.
6. To re-elect Mr J Astrand as a Director.
7. To re-elect Mr P Rogerson as a Director.
As special business to consider and, if thought fit, to pass the following resolutions which are to be proposed as Special Resolutions:
8. 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:
(a)
(b)
(c)
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 £175,000.
And shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2008 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.
9. That the Company be generally and unconditionally authorised to make market purchases (as defined in Section 163,
Companies Act 1985) of its Ordinary shares of 5p each provided that:
(a)
the Company does not purchase under this authority more than 7,000,000 Ordinary shares;
(b)
the Company does not pay less than 5p for each share;
(c)
(d)
(e)
the Company does not pay more for each share than 5% over the average of the middle market price of the Ordinary
shares according to the Daily Official List of the London Stock Exchange for the 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 2008 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.
10. That the Regulations contained in the document submitted to the Meeting marked ‘A’ and signed by the Chairman of
the Meeting for the purposes of identification be and the same are hereby adopted as the Articles of Association of the
Company to the exclusion of and in substitution for all existing Articles of Association of the Company.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
80–81
ARTICLES OF
ASSOCIATION
EXPLANATORY NOTES ON PROPOSED CHANGES TO THE ARTICLES OF ASSOCIATION
Companies Act 2006
We are proposing changes to our Articles of Association to reflect those provisions of the Companies Act 2006 which came
into effect in January and April 2007. In summary, these changes are to:
– permit the Company to communicate with its shareholders electronically;
– replace the references to section 212 of the Companies Act 1985 with section 793 of the Companies Act 2006 in respect
of the Company's powers to investigate its' shareholder register; and
– reflect the removal from company legislation of an upper age limit of 70 years for directors.
The principal changes introduced by the Companies Act 2006 earlier this year relate to electronic communications with
shareholders. The new Articles of Association will permit the Company to use electronic communications for all notices,
documents and information to be sent to shareholders, in accordance with individual preference.
The Companies Act 2006 allows the Company to use website communication with its shareholders as the default position.
The Company will be able to ask each individual shareholder for their consent to receive communications from the Company
via its website. If the shareholder does not respond to the request for consent within 28 days, the Company will be entitled to
take that as consent to receive communications in this way. However, when the Company places a document on its website,
it must notify each shareholder who has agreed to receive documents via the website that the document has been made
available on its website. A shareholder who has received a document electronically can ask for a hard copy of the document
at any time and shareholders may also revoke their consent to receive electronic communications at any time.
This new regime, while continuing to ensure that shareholders are able to receive communications and documents in hard
copy if that is their preference, will enable the Company to take advantage of the efficiencies and cost savings inherent in
electronic communications to a greater extent than is currently possible.
In addition, with effect from 1 October 2007, the Companies Act 2006 will reduce the statutory notice periods for general
meetings. Except for annual general meetings which will continue to require 21 days' notice, all other general meetings may
be held on 14 days' notice irrespective of whether or not a special resolution is to be proposed at the relevant meeting.
We are proposing to amend our Articles of Association to reflect this relaxation in the law.
The Government has announced that it intends to bring into force the remaining provisions of the Companies Act 2006 in
various stages in October 2007, April 2008 and October 2008. It is anticipated that shareholders may be asked to approve
further changes to our Articles of Association during the course of the next two annual general meetings as may be necessary.
Directors' indemnities
Since our present Articles of Association were adopted in 2004, the Companies Act 1985 has been amended to provide for
a relaxation of the prohibition against the granting of directors' indemnities.
Under the old law, subject to certain exceptions, provisions in the articles of association of a company or in any contract with
a company were void if they sought to exempt a director, the company secretary or its auditors from liability, or indemnify such
an officer or auditor against any such liability, for negligence, default, breach of duty or breach of trust.
The exceptions to this prohibition are (i) purchasing insurance for an officer or auditor; (ii) indemnifying an officer or auditor
against any liability incurred in defending civil or criminal proceedings in which judgment is given in his favour or he is
acquitted; and (iii) indemnifying an officer or auditor against the costs of successfully procuring an order from the court
excusing a director from liability for negligence, default or breach of duty or trust where he has acted honestly and reasonably,
and in all the circumstances ought fairly to be excused.
The changes to the Companies Act 1985 mean that (i) companies will not be permitted to indemnify a director of another
company in its group if the indemnity would be unlawful if it was given by the company of which the individual is a director;
(ii) the restrictions only apply to directors and not to “officers”; (iii) in the case of liabilities arising from actions brought by third
parties, both the costs (of the director and of the third party) and any damages may, subject to certain exclusions, be paid by
the company even if the judgment goes against the director; (iv) in the case of liabilities owing to the company, the company
will not be able to indemnify a director against damages awarded to the company itself but may pay directors' defence costs as
they are incurred (although a director would be liable to repay his defence costs if his defence was to be unsuccessful); (v)
companies will not be permitted to indemnify directors against criminal fines, fines by regulators or the legal costs of successful
criminal proceedings against directors; and (vi) indemnities permitted by the new provisions must be disclosed in the directors'
report in the annual accounts and made available for inspection at the company's registered office.
It is proposed that our Articles of Association be amended to reflect this change in company law. The proposed amendment
is a permissive power that tracks the wording of the provisions of the Companies Act 1985 and allows the Company to
indemnify its directors subject to those provisions.
NORTHGATE PLC ANNUAL REPORT & ACCOUNTS 2007
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Registered office:
Norflex House, Allington Way, Darlington DL1 4DY
Telephone: 01325 467558 Fax: 01325 363204
www.northgateplc.com