Northgate plc
Annual report and accounts 2010
We are the leading light commercial vehicle
hire business in the UK and Spain
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Registered office:
Norflex House, Allington Way, Darlington DL1 4DY
Telephone: 01325 467558 Fax: 01325 363204
www.northgateplc.com
Who we are
Northgate plc is the leading light commercial vehicle
hire business in both the UK and Spain by fleet size
and has been operating since 1981. Our core business is the
rental of vehicles to other businesses on flexible length
agreements, giving customers the flexibility to manage
their vehicle fleet without a long-term commitment.
What we do
The business in the UK and Ireland operates from
65 sites with a fleet of 60,900 vehicles. In addition, we
sell former rental vehicles to both retail and trade
customers. We also offer an increasing range of services
and products to help customers manage their fleets
effectively, such as vehicle monitoring and parts
procurement. Our Fleet Technique business offers the
opportunity for customers to outsource fleet management
whilst retaining ownership.
In Spain, we operate through two separate brands,
Fualsa and Record. With 32 branches and a combined
fleet of 48,900 vehicles we are the market leaders in
light commercial vehicle hire in Spain.
Our customers operate in a wide range of industries, of
which construction and support services are the two
largest. Other major sectors include local authorities,
public utilities and retailers.
Our vision
We always put our customers first, providing tailored
vehicle solutions which match the needs of each individual
business and offer only the leading manufacturers’
products in each weight category – from a single van to a
fleet of thousands. We offer access to a vehicle fleet
of more than 100,000 vehicles. These principles ensure that
all of our customers benefit from a friendly, focused and
personal service.
Our strategy
Going forward our strategy is to concentrate on increasing
the profitability and operational efficiency of the Group
without compromising on the quality of service and
flexibility offered to our customers. We will achieve this by
managing the fleet efficiently and concentrating on doing
the simple things very well.
UK: Vehicle fleet
2010: 60,900
2009: 62,900
2008: 68,600
2007: 65,300
2006: 64,000
Spain: Vehicle fleet
2010: 48,900
2009: 60,400
2008: 62,750
2007: 55,000
2006: 47,000
Underlying group profit
before tax2 £m
2010: 36.5
2009: 27.5
2008: 83.1
2007: 79.3
2006: 61.3
Group operating profit1 £m
2010: 82.8
2009: 71.8
2008: 121.8
2007: 111.0
2006: 73.8
Contents
Key performance indicators
Review
01 Highlights of the year
02 Chairman’s statement
04 Group at a glance
05
06 Operational review
12
16
18
20
Financial review
Principal risks and uncertainties
Board of directors
Report of the Directors
Remuneration report
Corporate governance
23
29 Audit committee report
30 Corporate governance
32 Health & safety and environmental
33 Directors’ responsibilities
Auditors‘ Report
34
Independent Auditors’ Report to the Members of
Northgate plc
Primary Statements
35 Consolidated income statement
Statements of comprehensive income
36
37
Balance sheets
38 Cash flow statements
39 Notes to the cash flow statements
40
Statements of changes in equity
Notes to the accounts
41 Notes to the accounts
84
Five year financial summary
85 Notice of annual general meeting
88 Appendix of notice of AGM
Shareholder Information
90
Highlights of the year
Operational highlights
Average utilisation in the year of 91% in the UK
(2009 – 88%) and 88% in Spain (2009 – 83%)
Pricing improvement of 3% in the UK since April 2009
Benefited from strong used vehicle markets in both
the UK and Spain
Closing fleet of 60,900 in the UK (2009 – 62,900) and
48,900 in Spain (2009 – 60,400)
Reorganisation of the UK business underway
Underlying financial highlights
2010
2009
Group operating profit1
£82.8m
Underlying profit before tax2
£36.5m
Basic earnings per share3
Earnings3
Net debt5
Return on capital employed1
26.8p
£28.2m
£598m
8.4%
£71.8m
£27.5m
59.2p4
£19.2m
£886m
5.8%
Successful completion of debt refinancing and equity
fundraising during the year.
Statutory financial highlights
Profit from operations increased to £71.1m
(2009 – loss of £117.5m)
Profit before taxation of £9.6m after exceptional items
of £21.9m (2009 – loss of £195.6m after exceptional items
of £217.9m)
Basic earnings per share increased to 23.1p
(2009 – loss per share of 572.6p4)
Profit for the year increased to £24.4m
(2009 – loss of £185.7m)
1 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items
of £6.7m (2009 – £3.1m) and impairment of £Nil (2009 – £180.9m).
2 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items
of £6.7m (2009 – £3.1m), impairment of £Nil (2009 – £180.9m) and exceptional
finance costs of £15.2m (2009 – £33.8m).
3 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items
of £6.7m (2009 – £3.1m), impairment of £Nil (2009 – £180.9m), exceptional finance
costs of £15.2m (2009 – £33.8m) and tax credit of £23.0m (2009 – £18.2m).
4 As restated for the bonus element of the ten for one rights issue at seven pence per
Ordinary share effective 12 August 2009 and the one for ten consolidation
effective 23 September 2009.
5 Net debt taking into account the fixed swapped exchange rates for US loan notes.
Group operating profit1
+15.4%
2010
2009
£82.8m
£71.8m
Underlying profit before tax2
+32.8%
2010
2009
Net Debt5
£36.5m
£27.5m
-£288m
2010
2009
£598m
£886m
Northgate plc
Annual report and accounts 2010
Review
1
Chairman’s statement
“Since the refinancing last year, we
have met substantially all of our
targets. Going forward, we will
concentrate on doing simple things
very well. We will complete the UK
restructuring. We will develop
further plans for Spain, which is
already significantly more
operationally efficient than the UK,
and will continue to focus on margin.
Our aim is 90% utilisation and if we
need to further reduce the fleet so
be it. Maximising returns and
charging fully for ancillary services
will be our prime targets.
The Group has begun the new
financial year in line with
expectations”.
I am pleased to present my first report
since joining the Group in February. Let
me start with an historical perspective.
By the end of the 2008 financial year the
Group had aggressively expanded its fleet
to a level of 68,600 vehicles in the UK and
62,750 in Spain, but some of this growth
had been at the expense of margins.
When the recession hit, utilisation levels
fell in 2009 to 88% in the UK and
83% in Spain, compared to historic rates
of over 90% and the problem was
exacerbated by a dramatic fall in vehicle
residual values in both the UK and Spain.
This put inordinate strain on the balance
sheet and, at the beginning of the
financial year, the Group raised £108m
(£77m net of equity and debt
arrangement fees) from a rights issue,
thus refinancing its debt and securing the
capital structure up until September 2012.
By the end of 2009 the UK fleet numbers
had fallen to 62,900 vehicles and in
Spain to 60,400. This process continued
in 2010 with the UK fleet falling by 3%
to 60,900 vehicles and in Spain falling
by 19% to 48,900.
Going forward, the focus of the Group
will be to maintain utilisation in excess
of 90%, improve operating efficiency
to reduce costs and to concentrate on
increasing the return on capital employed
(ROCE), the key performance measure for
the Group, above levels previously
achieved.
The combination of the rights issue,
strong cash generation and improved
profitability has produced the following
results for the year ended 30 April 2010:
• Underlying profit before tax1
increased by 32.8% to £36.5m
(2009 – £27.5m);
• Net debt2 reduced by £288m to £598m
(2009 – £886m);
• ROCE3 8.4% (2009 – 5.8%);
• Basic earnings per share increased
to 23.1p (2009 – loss per share of
572.6p4).
The Board has debated the dividend issue
long and hard and, on balance, has
decided that it is not yet prudent to pay a
dividend. The Company is facing difficult
economic conditions in both the UK and
Spain. There will be major government
cutbacks which will reduce demand for
some vehicle units, but our flexible model
may well prove attractive to customers
who struggle to raise the capital for
outright purchase or do not wish to
commit to long-term lease or contract
hire. As we focus our efforts on SME
customers we will carefully monitor
debtor age profiles. We will continue
to concentrate on conserving cash and
paying down debt.
UK
Our underlying UK rental margin5
increased to 18.5%, compared to 12.8%
in 2009 and utilisation rates in the UK
averaged 91% (2009 – 88%). This was
achieved by continuing the actions taken
in 2009 to improve fleet management
and to focus on hire rate improvement.
This was alongside improved market
conditions, particularly in the used vehicle
market, where much improved residual
prices for second-hand vehicles
contributed £6.5m towards operating
profit (2009 – £14.4m reduction in
operating profit).
Historically, the Group had operated
through 20 hire companies across the
UK, each with its own local brand and
management. There was a great degree
of rivalry between these businesses
which did not always operate in the
best interests of either the Group or the
customer. By the end of August 2010,
the 20 companies will become
12 business areas operating under the
Northgate Vehicle Hire brand.
A decision was taken in April to
commence a restructuring of the UK
business to significantly improve our
efficiency and establish a solid base for
growing the business and improving
customer service whilst also increasing the
operating margin. Along with this radical
overhaul of the UK operating structure,
we see the opportunity for significant cost
savings, for example in maintenance,
repair and overheads.
An inordinate amount of time had been
dedicated in trying to develop an IT system
to meet the requirements of all the
separate companies within the Group.
This could not be achieved. We are now
adopting standardised operating
procedures for all of our units and have
chosen a proprietary IT solution to meet
our needs. The implementation of this
Group wide IT system should be complete
by April 2011. This will reduce our costs
and give us much better information
about the profitability of our activities,
processes and services. Taken together
Northgate plc
Annual report and accounts 2010
Review
2
with the consolidation of operating units
and the Board changes set out below, this
should result in annualised cost savings
of over £10m from April 2011.
We are also establishing a national
sales team to concentrate on our core
SME customers.
Spain
Our Spanish business operates in an
extremely difficult environment,
particularly in the construction and related
sectors. Despite approximately 60% of
our business coming from these sectors,
we have made progress in a number of
operational areas. Improved fleet
management has, in turn, improved
average utilisation. Indeed, utilisation in
the last two months of the year averaged
90%. A major contributory factor has
been the successful introduction of a
used vehicle disposal capability based
on our UK experience. We introduced
a retail website and further developed
our wholesale disposal channel. As a
direct consequence we were able to
dispose of 19,800 vehicles (an increase
of 50% on the previous year) at higher
residual values.
In Spring 2009, the Record head office
in Castellón was closed and its operations
were integrated into the Fualsa head
office in Madrid. I have to report that
this resulted in considerable operating
problems. This compounded the bad
debt situation which was already under
pressure from high levels of bankruptcy
within the local economy. The bad debt
charge for the year increased to €10.3m
(2009 – €3.7m). Both the CEO and CFO
in Spain have been replaced and our new
team in Spain has made an excellent start
and is concentrating on resolving the
inherited administration problems. The
bad debt charge in the second half of the
year was reduced by €1.3m compared to
the first half of the year and there was a
significant improvement in debt collection
resulting in a €50.6m (35.2%) reduction
in Spanish debtors compared with
31 October 2009.
Balance sheet
During the year net debt has reduced by
£288m to £598m. This was primarily as a
result of the rights issue proceeds of £77m
(net of equity and debt arrangement fees),
continued strong EBITDA (earnings before
interest, taxation, depreciation and
amortisation) of £306m and working
capital of £39m, with net interest
payments of £48m and net capital
expenditure on vehicles of £110m being
£61m lower than in the previous year.
It is important that the Group has secure
financing to support the business across
the economic cycle. At 30 April 2010 we
had net debt6 of £598m, which gave us
headroom of £240m on our committed
debt facilities of £865m. Net debt to
EBITDA was 2.0 (2009 – 2.5) and
headroom on all covenants improved
since the date of refinancing.
Our committed facilities mature in
September 2012 and we will assess the
appropriate timing of refinancing well
ahead of its maturity.
Board changes
On becoming Chairman one of my first
tasks, with the assistance of the
Nominations Committee, has been to
decide on the future management
structure of the Group.
The Chief Executive, Steve Smith,
originally intended to retire on 31 July
2009 but had agreed to stay on to guide
the Group through its refinancing, placing
and rights issue during very difficult
trading conditions. Having successfully
completed the task, Steve stood down on
31 March 2010. I would like to thank him
not only for his efforts in the last 12
months but also for more than 20 years
of dedicated service. He was very helpful in
introducing me to the Group when I
became Chairman.
Alan Noble founded the business in
February 1981 and was the driving force
behind its early growth. Regrettably due
to ill health, he retired from the business
on 31 March 2010. I would like to thank
him for his many years of dedicated
service to the Group.
As part of the review, Phil Moorhouse,
UK Managing Director, agreed to bring
forward his retirement from 31 December
2010 to 31 March 2010. I would like to
personally thank Phil for the objective
insights into the UK business which he
has given me.
Bob Contreras, our Group Finance Director
since June 2008, was appointed Chief
Executive on 7 June 2010. I am confident
that he will drive the business forward,
implement the necessary changes agreed
by the Board and focus on maximising
returns over the coming years. We are
currently conducting a thorough search
for a Finance Director and will make an
announcement in due course.
Paul Tallentire, the Deputy Chief Executive,
decided that his future lay outside
the Group and we thank him for his
contribution and wish him well for
the future.
Current trading and future outlook
Since the refinancing last year, we have
met substantially all of our targets. Going
forward, we will concentrate on doing
simple things very well. We will complete
the UK restructuring. We will develop
further plans for Spain, which is already
significantly more operationally efficient
than the UK, and will continue to focus
on margin.
Our aim is 90% utilisation and if we need
to further reduce the fleet so be it.
Maximising returns and charging fully for
ancillary services will be our prime targets.
The Group has begun the new financial
year in line with expectations.
Bob Mackenzie
Chairman
1 Stated before intangible amortisation of £5.0m (2009
– £5.3m), exceptional items of £6.7m (2009 – £3.1m),
impairment of £Nil (2009 – £180.9m) and exceptional
finance costs of £15.2m (2009 – £33.8m).
2 Net debt taking into account the fixed swapped
exchange rates for US loan notes.
3 Stated before intangible amortisation of £5.0m (2009
– £5.3m), exceptional items of £6.7m (2009 – £3.1m)
and impairment of £Nil (2009 – £180.9m).
4 As restated for the bonus element of the ten for one
Rights Issue at seven pence per Ordinary share
effective 12 August 2009 and the one for ten
consolidation effective 23 September 2009.
5 Calculated as operating profit before intangible
amortisation of £2.3m (2009 – £2.6m), exceptional
items of £5.8m (2009 – £0.8m) and impairment of
£Nil
(2009 – £61.5m), divided by revenue of
£312.0m (2009 – £334.7m), excluding vehicle sales.
6 Net of £27m of unamortised arrangement fees.
Northgate plc
Annual report and accounts 2010
Review
3
Group at a glance
UK Hire and Fleet Technique
Spain Hire
Revenue
(excluding vehicle sales)
2010
2009
£328.2m
£352.7m
Operating profit1
Operating margin2
Number of employees
Closing fleet
Vehicle sales
Vehicle purchases
Average utilisation
Locations
Vehicle types
Customers by sector
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
£58.9m
£43.8m
18.0%
12.4%
2,122
2,253
60,900
62,900
£114m
£116m
£211m
£198m
91%
88%
65
£235.5m
£257.0m
£30.0m
£32.6m
12.7%
12.7%
974
956
48,900
60,400
£72m
£45m
£99m
£96m
88%
83%
32
22,700 vehicles
23,400 vehicles
18,800 vehicles
16,900 vehicles
19,800 vehicles
13,200 vehicles
9,100 vehicles
8,800 vehicles
Car
Car derived van
Large van
Medium van
Minibus
Short wheel base van
4x4
Construction & civil Engineering
Support services
Logistics
Hire of plant and vehicles
Government bodies
Business supplies & services
Others (less than 5%)
Car
Car derived van
Large van
Medium van
Minibus
Short wheel base van
4x4
Construction
Support services
30%
16%
14% Manufacturing
Retail
Engineering
Logistics
Others (less than 3%)
8%
7%
6%
19%
Customers by fleet size
Main trading subsidiaries
Corporate fleets (>100)
Small and medium fleets (5–100)
Micro-fleets (< 5)
Corporate fleets (>100)
Small and medium fleets (5–100)
39%
49%
12% Micro-fleets (< 5)
Northgate Vehicle Hire Limited
Northgate Vehicle Hire (Ireland) Ltd
Fleet Technique Limited
Furgonetas de Alquiler S.A
Record Rent a Car S.A
1 Before intangible asset amortisation and exceptional items. Excludes corporate costs.
2 Operating profit as per (1) and excluding vehicle sales revenue.
57%
17%
8%
4%
3%
3%
8%
32%
53%
15%
.
Northgate plc
Annual report and accounts 2010
Review
4
Key performance
indicators
Utilisation
Utilisation needs to be
maintained at a high level in
order to maximise return
on capital employed whilst
holding enough vehicles to
meet the flexible demands
of our customers.
Hire rate
The hire rate achieved is a
key contributor to return on
capital employed. Hire rates
need to reflect
the level of flexibility and
service offered to our
customers.
Fleet management
The size and age of the fleet
needs to be managed in order
to maximise utilisations and
minimise the overall holding
cost of vehicles.
Return on capital employed
In a capital intensive business,
return on capital employed is
a more important measure of
performance than profitability
alone, as low margin business
returns low value
to shareholders.
Earnings per share (EPS)
Basic EPS is considered to be
a key short term measure of
performance used by
shareholders.
Going forward, the focus of the Group will be to maintain
utilisation in excess of 90%, improve operating efficiency
to reduce costs and to concentrate on increasing the
return on capital employed (ROCE), the key performance
measure for the Group, above levels previously achieved.
Performance
Target
Key performance indicators
The target for both segments is to
maintain average utilisation above
90%. This is currently being achieved
in the UK with the trend in Spain
leading towards this being achieved
in the next financial year.
Minimum hire rate thresholds have
been set for new vehicles. Further
rate increases are targeted in the UK
and Spain through improved sales
analysis to eliminate low margin
customers, and improved recovery
on recharging of costs such as
collection, delivery and damage
recovery.
Utilisation improvement
UK +3%
Spain +5%
2010
2009
91% 88%
83%
88%
UK
Spain
Hire rate improvement
UK +0.6%
Spain-2.4%
Utilisations have improved in both
hire segments as a result of efficient
management of a lower fleet.
UK Average utilisation has improved
to 91% (2009 – 88%).
Spain Average utilisation of 88%
compared to 83% in the prior year,
with utilisation in the last two
months of the year averaging 90%.
UK Increase in average hire revenue
per vehicle of 0.6% (although >3%
since final quarter of prior year)
achieved through a combination
of rate increases, increased pricing
for new vehicles and improvements
in recharging of other costs.
Spain Average rates reduced by
2.4% primarily as result of hiring
unutilised vehicles to holiday rental
companies at lower rates in the early
part of the year. Rates increased in
the latter part of the year following a
reduction in fleet size, targeted rate
increases and minimum threshold
rates for new customers.
The level of vehicle purchases and
sales is controlled in order to manage
fleet size and ageing. Overall holding
costs are minimised through
managing the mix and volume of
purchases from each manufacturer
and by improving the effectiveness
of vehicle sales channels.
The overall fleet size in the UK and
Spain is expected to remain relatively
stable in the short term with focus
remaining on maximising utilisations
and hire rates. Further holding cost
savings are targeted through
managing the mix of vehicle
purchased through each
manufacturer and maximising
disposals through higher margin
retail and semi-retail channels.
ROCE is maximised through a
combination of managing utilisation,
hire rates, vehicle holding and
other costs.
Group ROCE1 for the year was 8.4%
(2009 – 5.8%).
Each KPI above has been targeted
for improvement to contribute to
an overall increase in ROCE of the
Group. Overall ROCE for the Group
is targeted to recover to a level
in excess of 10%.
Basic EPS2 of 26.8p compared to
59.2p in the prior year but with
earnings increasing by 47.2% to
£28.2m (2009 – £19.2m).
The target is to maximise shareholder
value by increasing EPS in the short
term alongside longer term return
on equity.
Closing fleet
UK 60,900
Spain 48,900
ROCE Group
+2.6%
2010
2009
Earnings3
8.4%
5.8%
+47.2%
Basic EPS
2010
2009
26.8p
59.2p
1 Before intangible amortisation, exceptionals items and impairment.
2 Stated before intangible amortisation, exceptional items, impairment and the tax effect thereon. Shares as restated for the bonus element of the ten for one rights issue
at seven pence per Ordinary share effective 12 August 2009 and the one for ten consolidation effective 23 September 2009.
3 Earnings as adjusted for items stated in (2) have increased year on year, whilst basic EPS have decreased due to the increased number of shares in issue following the rights issue in
September 2009.
Northgate plc
Annual report and accounts 2010
Review
5
Operational and financial
reviews
Operational Review
Group
After the severe economic downturn in
the latter part of 2008, the Group
began the implementation of several
operational measures in order to improve
performance. In particular, in February
2009, the Board approved a three-year
strategic plan, which was effective from
May 2009. That plan focused on the
following key performance improvements
in both the UK and Spain:
• Improved fleet management;
• Pricing increases;
• Cost reduction; and
• Improvement in vehicle disposal
capabilities.
We are pleased that we have been able to
meet substantially all of our targets for the
year ended 30 April 2010, as explained
in more detail below, despite a backdrop
of continuing economic uncertainty, and
generate a much improved return on
capital employed1 of 8.4% (2009 – 5.8%).
The Group also successfully refinanced its
debt and completed a placing and rights
issue in the year. The financial stability that
these measures produced will allow the
Group to focus on the implementation of
longer-term operational improvements.
United Kingdom hire of vehicles
The successful management of fleet
utilisation, from an average of 88% in
the previous financial year to 91% in the
current financial year, combined with
improvements achieved in pricing,
operational efficiencies and increases in
used vehicle residual values have led to
an increase in operating margin 2 from
12.8% to 18.5%.
Vehicle fleet and utilisation
We managed the UK fleet size down by
3% to 60,900 vehicles at 30 April 2010
(2009 – 62,900). However, the closing
number of vehicles on hire fell by only
600 compared to 30 April 2009 and
utilisation for the year averaged 91%
(2009 – 88%), better than anticipated in
our three-year plan. As part of our goal
to increase return on capital employed,
utilisation remains a key area of focus, at
“We are pleased that we have been
able to meet substantially all of our
targets for the year ended 30 April
2010, despite a backdrop of continuing
economic uncertainty, and generate a
much improved return on capital
employed of 8.4% (2009 – 5.8%).”
all stages of the economic cycle, and
therefore we aim to maintain an average
rate of at least 91% going forward.
As part of the process to increase
utilisation we purchased 18,800 vehicles
in the year (2009 – 16,900) but increased
the average age of the fleet from
19.4 months to 20.8 months. Whilst this
does not represent a significant ageing
of the fleet, it has made a contribution
to the substantial level of operating cash
generation of the Group in the year, as
referred to in the Financial Review.
Hire rates
Average hire revenue per vehicle in the
year was 0.6% higher than in the previous
year. However, since increased hire rates
were specifically targeted in the final
quarter of the previous financial year, the
increase in revenue has been in excess of
3%. This is a combination of increased
headline hire rates with both new and
existing customers, as well as initiatives
to improve the levels of recharges in areas
such as collection and delivery and
damage recovery.
Depot network
As part of the ongoing rationalisation of
operating costs and increased efficiency,
we reduced the network of hire locations
by 15 from 80 to 65 during the year. This
is part of the continuing move towards
a structure of larger hubs with a smaller
number of satellite locations. Customer
accounts managed by those closed
branches have been transferred elsewhere
within the network.
As part of the ongoing focus on efficiency,
headcount has reduced by 131 (6%) since
the start of the financial year. The full year
saving in payroll costs in relation to these
individuals is approximately £2.6m.
We have also driven additional efficiencies
in our vehicle repair workshops, with a
1% reduction in the net maintenance
cost of each of our vehicles in the year,
compared to 2009; this is despite the
slight increase in the ageing of the fleet
during the year noted above.
Northgate plc
Annual report and accounts 2010
Review
6
One Northgate
During the 2011 financial year we will conduct
a fundamental reorganisation of the UK
business. We will create ‘One Northgate’
– what does this mean?
A best in class support services company under one brand
and one set of operating procedures, maximising operating
efficiencies and eliminating duplication.
Our employees will receive improved training allowing them to
provide the customer with a consistent service throughout our
network.
One Northgate will initially involve:
• Consolidating 20 hire companies down to 12 business areas
rebranded as Northgate Vehicle Hire
• A new IT system and roll-out of a business blueprint which will
allow us to operate as one business
• The same consistent service throughout our network
• Centralisation of certain administrative functions
• Annualised savings of over £10m by April 2011 with other
areas being identified for review
c. £10m
Annualised costs savings to be implemented by April 2011
Substantiation
picture of printed material/
advert with new branding
applied.
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Northgate plc
Annual report and accounts 2010
Review
7
Restructuring
Fleet Technique
The latter part of the financial year
has seen the commencement of a
restructuring of the UK business. A key
part of this restructuring is the reduction
in the number of hire companies from
20 to 12, as well as the movement to a
single common brand. Northgate Vehicle
Hire will replace the existing local brands
of each of the hire companies. It is
expected that this restructuring will be
completed during the first half of the
financial year ending 30 April 2011.
Once the overall rationalisation of the
business is complete, it is anticipated
that the ongoing cost savings will be
approximately £10m per annum from
April 2011 with total implementation
costs by that date of a similar amount,
the majority of which has been incurred
in the year ended 30 April 2010.
Used vehicle sales
There has been a significant improvement
in the resale values achieved for used
vehicles during the financial year, mainly
due to the recovery in market prices.
During the year, a total of 22,700 vehicles
(2009 – 23,400) were sold with the retail
and semi-retail channels accounting for
19% (2009 – 18%) of those disposals.
The improvement in the values achieved
for the vehicles disposed, above our
expectations, has been reflected in
a decrease of £6.5m (2009 – £14.4m
increase, as restated) in the
depreciation charge.
IT
The UK will complete the roll-out of the
Group-wide Enterprise Resource Planning
(ERP) system by April 2011 as part of
the restructuring of that business. This will
cover operations, asset management and
finance and will be used as a basis to
improve customer service and reduce costs
through further operational efficiencies.
Fleet Technique, which manages fleet on
behalf of those of our customers that own
their own vehicles, increased its level of
operating profit to £1.3m (2009 – £0.9m),
despite the number of jobs managed
slightly falling by 1.9% to 86,500
(2009 – 88,200). The Fleet Technique
business continues to add value to the
Group as a whole as we leverage its
systems capability to coordinate external
repairs for the vehicle rental business.
Spain hire of vehicles
Improved fleet management together with
significant improvements in our used
vehicle disposal capability, despite
challenging economic conditions, has led
to current fleet utilisation in excess of
90% and better residual values achieved
for used vehicles when sold. Alongside
this, ongoing operational efficiency
improvements have offset reductions in
vehicles on hire and hire rates charged
per vehicle, as well as a higher incidence
of bad debts to maintain the operating
margin10 at 12.7% (2009 – 12.7%).
Vehicle fleet and utilisation
As anticipated in the three-year plan,
the total fleet fell from 60,400 vehicles
at 30 April 2009 to 48,900 vehicles at
30 April 2010. Of this fall, vehicles on
hire fell by 6,400 and we reduced the
fleet by a further 5,100 vehicle to increase
utilisation. The average utilisation rate
for the financial year was 88%
(2009 – 83%) and utilisation at the year
end exceeded 90%.
One of the reasons for the achievement of
90% utilisation in the last quarter of the
year was the focus on a reduction in the
number of vehicles under repair, from 9%
at December 2009 to 4% at April 2010.
Another factor in achieving this increased
utilisation level was the continued low
level of vehicle purchases, with only
9,100 vehicles purchased in the year
(2009 – 8,800). This, in conjunction with
the level of vehicle disposals explained
below, resulted in an increase in the
average age of the fleet from 25.5 to
27.2 months.
Northgate plc
Annual report and accounts 2010
Review
8
Fleet management
Utilisation is a key foundation of driving return
on assets. The average for the year was 91%
in the UK and 88% in Spain compared to
88% in the UK and 83% in Spain in the prior
year. Utilisation is targeted to be in excess of
90% for the 2011 financial year.
In order to restore utilisations to levels previously achieved the
fleet was managed down to a closing size of 60,900 in the UK
and 48,900 in Spain. This was achieved through the sale of
22,700 and 19,800 vehicles in the UK and Spain respectively. An
increased proportion of UK sales was generated through the
higher margin retail and semi-retail channels with Spain also
reducing the proportion of lower margin export sales.
Fleet age in the UK increased from 19.4 months to 20.8 months
and in Spain increased to 27.2 months from 25.5 months.This
action in the year has made a significant contribution to cash
generation.
>90%
Targeted utilisation levels in UK and Spain
Vehicle fleet over the last three years
UK
2010: 60,900
2009: 62,900
2008: 68,600
Spain
2010: 48,900
2009: 60,400
2008: 62,750
Northgate plc
Annual report and accounts 2010
Review
9
further progress in the year ending
30 April 2011.
Used vehicle sales
A key objective of our strategic plan,
announced in 2009, was the improvement
of our Spanish vehicle disposal capabilities
to a level closer to those in our UK
business.
In the year ended 30 April 2010, we
have improved the quality and the
overall capability of our vehicle disposal
operations such that we were able to
dispose of 19,800 vehicles (2009 –
13,200), at an average of 1,650 vehicles
per month, an increase of 50% compared
to the previous year. The reliance on
export sales has been reduced from 21%
to 8%.
This improvement, which was above our
expectations, along with a modest
increase in the general market prices for
used vehicles, has been reflected in a
lower increase of €4.8m (2009 – €21.0m,
as restated) in the depreciation charge.
Bad debts
The incidence of bad debt has increased
in Spain in the year ended 30 April 2010
to €10.3m compared with €3.7m in the
previous financial year. However, the
second half of the year saw an
improvement with a bad debt expense
of €4.5m compared to €5.8m in the first
half. Significant work is ongoing in the
area of receivables collection with days’
sales outstanding of 109 in our Spanish
business at April 2010 compared to 140
at April 2009.
Cost reduction
We continue to focus on increasing the
efficiency of our operation. We have
achieved total cost savings of 9% (€3.7m)
in staff costs and overheads, excluding
bad debt charges explained above,
compared to the previous year.
The increase in average age of vehicles has
caused an increase in the average repair
cost per vehicle of 5% compared to the
prior year. The planned reduction in
average age of the fleet, combined with
further operational efficiencies, should see
a reduction in this cost going forward.
Hire rates
The economic conditions have remained
challenging in Spain. In the first half of
the year, utilisation levels were maintained
partly through the hire of unutilised
vehicles to holiday rental companies whilst
we developed the used vehicle sales
capability necessary to execute the fleet
reduction programme set out in our
strategic plan. The rates charged for those
vehicles were lower than our core average
hire rate. However, as with the UK, we
sought to increase the revenue generated
from each vehicle on hire, through a
combination of minimum threshold rates
for new vehicles as well as targeted price
increases with some existing customers.
The success we had in this area in the
latter part of the financial year was not,
however, sufficient to fully offset the
discounts offered earlier in the year.
Consequently, the full year revenue per
vehicle on hire is some 2.4% lower than
the previous financial year.
Going forward, our improvement of
utilisation rates means that there is no
anticipation of significant rate discounts
on future rentals to holiday rental
companies.
Depot network
During the year, the size of the hire
network has remained at 32 sites. This
is after the actions taken in the previous
financial year to reduce the size of the
network from 37 to 32 sites whilst
maintaining geographical coverage
across the country.
Sector focus
Given the relatively high proportion of
Spanish customers that operate in the
construction industry, compared to the
UK, significant focus is being directed
towards diversifying the business into
other sectors, in light of the particular
difficulties experienced by companies
operating in the Spanish construction
sector. The proportion of the Spanish
revenue derived from customers in the
construction industry in the year ended
April 2010 was 55% compared to 57%
in the previous year. We are targeting
Northgate plc
Annual report and accounts 2010
Review
10
Pricing
Our focus is on hire rate improvement as the
key to increasing return on capital employed.
This has been a cultural change for the
business, recognising that seeking growth
at the expense of return does not increase
shareholder value.
Our competitors have restricted access to capital, cost of funds
has increased and there is upward price pressure on vehicle
purchases as manufacturers attempt to increase their returns.
We therefore have an opportunity to promote our flexible
product and charge appropriately for the added value that we
provide to our customers. During the 2011 financial year we
are targeting overall price increases higher than those achieved
last year and will pursue this at the expense of growth if it
means increasing shareholder returns.
+3%
Pricing improvement achieved in the UK since the final quarter of 2009 financial year
Northgate plc
Annual report and accounts 2010
Review
11
Financial Review
Financial reporting
Group
A summary of the Group’s underlying financial performance for
2010, with a comparison to 2009, is shown below:
Revenue
Profit from operations1
Net interest expense3
Profit before tax4
Profit after tax5
Basic earnings per share5
2010
£m
749.6
82.8
(46.3)
36.5
28.2
26.8p
2009
£m
770.5
71.8
(44.3)
27.5
19.2
59.2p6
The recovery in residual values of used vehicles contributed £6.5m
of the profit from operations which is reflected as a reduction in
the depreciation charge for the year.
Operating margins (excluding intangible amortisation, exceptional
items, and vehicle sales revenue) were as follows:
UK overall
Vehicle rental
Fleet Technique
2010
2009
18.0%
18.5%
7.8%
12.4%
12.8%
5.2%
The UK vehicle rental operating profit margin2 has increased to
18.5% (2009 – 12.8%). This is due to increased utilisation
achieved through more efficient fleet management, improved hire
rates as mentioned above, targeted cost savings and increases in
used vehicle residual values.
Spain
Group revenue in 2010 decreased by 2.7% to £749.6m
(2009 – £770.5m) or 4.4% at constant exchange rates.
The revenue and operating profit generated by our Spanish
operations are set out below:
Net underlying cash generation7 was £184.6m
(2009 – £171.9m) after net capital expenditure of £114.4m
(2009 – £179.6m) resulting in closing net debt11 of £598.3m
(2009 – £886.4m).
On a statutory basis, operating profit has increased to £71.1m
(2009 – operating loss of £117.5m) with profit before tax
increasing to £9.6m (2009 – loss before tax of £195.6m). Basic
earnings per share increased to 23.1p (2009 – loss per share
of 572.6p). Net cash from operations, including net capital
expenditure on vehicles for hire, increased by 9% to £188.5m
(2009 – £173.6m), with net debt falling by 34% from
£935.5m at 30 April 2009 to £615.1m at 30 April 2010.
UK
The composition of the Group’s UK revenue and profit from
operations is set out below:
Revenue
Vehicle rental
Vehicle sales
2010
£m
235.5
71.6
307.1
2009
£m
257.0
45.0
302.0
Profit from operations9
Vehicle rental
30.0
32.6
The reduction in average vehicles on hire of 10.0% contributed
to a decrease in rental revenue of 8.4% (7.2% at constant
exchange rates).
Residual value improvement and an improved sales capability with
19,800 vehicles sold (2009 – 13,200), reduced the decrease in
profit from operations to £2.6m.
Revenue
Vehicle rental
Fleet Technique
Vehicle sales
Profit from operations8
Vehicle rental
Fleet Technique
2010
£m
312.0
16.2
114.3
442.5
57.7
1.3
59.0
The reduction in the average number of vehicles on hire of 5.8%
has contributed to a decrease in rental revenue of 6.8% to
£312m (2009 – £335m).
The revenue impact of a decrease in vehicles on hire was partially
offset by a 0.6% improvement in hire rates reflecting a more
focused strategy on removing low margin business.
2009
£m
The Spanish operating margin (excluding intangible amortisation,
exceptional items and vehicle sales revenue) was as follows:
334.7
18.0
115.9
468.6
42.8
0.9
43.7
Operating margin10
2010
2009
12.7%
12.7%
Vehicle rental revenue and profit from operations in 2010,
expressed at constant exchange rates, would have been lower
than reported by £9.8m and £1.3m respectively.
Vehicle hire rates were lower in the year primarily due to the
rental of unutilised vehicles to holiday rental companies at lower
than average rates. The hire rate is now recovering as a more
highly utilised fleet means that higher margin business can
be targeted.
The incidence of bad debts in Spain had a significant adverse
impact on operating margins with a charge of £9.1m
(2009 – £3.1m), equivalent to 3.9% of operating margin
(2009 – 1.2%). Whilst the economic environment in Spain is
expected to remain challenging the level of bad debts is targeted
to fall following management actions to tighten credit risk and
control procedures.
Northgate plc
Annual report and accounts 2010
Review
12
Return on capital employed
Dividend
Group return on capital employed, calculated as Group profit
from operations (excluding intangible amortisation and
exceptional items) divided by average capital employed (being
shareholders’ funds plus net debt11) as 8.4% (2009 – 5.8%). This
represents a substantial improvement on the prior year, and
underlines the Group’s success in applying its current strategy of
maximising returns in the medium term through more efficient
fleet management and improving hire rates.
The Directors do not recommend the payment of a dividend in
relation to the Ordinary shares for the year ended 30 April 2010
(2009 – 11.5p).
Balance sheet
Net tangible assets at 30 April 2010 were £281.1m
(2009 – £155.3m), equivalent to a tangible net asset value of
211.4p per share (2009 – 478.9p per share6).
Group return on equity, calculated as profit after tax (excluding
intangible amortisation and exceptional items) divided by average
shareholders’ funds, was 12% (2009 – 5%).
Gearing at 30 April 2010 was 213% (2009 – 571%), which
demonstrates that the capital structure following refinancing is
in a position to be able to meet the Group’s medium term goals.
Exceptional items
Cash flow
A summary of the Group’s cash flows is shown below:
2010
£m
Underlying operational cash generation
Net capital expenditure
Net taxation and interest payments
345.7
(114.4)
(46.7)
Net underlying cash generation7
Proceeds from issue of share capital
Refinancing fees
Dividends
Termination of swaps
Other
Net cash generated
Opening net debt11
Net cash generated
Financing fees paid and amortised
as well as issue of make-whole notes
Exchange differences
Closing net debt11
184.6
108.3
(31.4)
–
–
(0.7)
260.8
886.4
(260.8)
(18.2)
(9.1)
598.3
2009
£m
406.5
(180.1)
(54.6)
171.9
–
–
(19.3)
(42.3)
(2.7)
107.6
902.9
(107.6)
0.7
90.4
886.4
Underlying operational cash generation (as defined in the table
above) of £345.7m, coupled with tight control over capital
expenditure and £108.3m of equity, raised as part of the Group’s
refinancing, are the main factors which have enabled the Group
to reduce net debt by £288m in the year to a closing position of
£598.3m11.
A total of £299.1m was invested in new vehicles in order to
replace fleet. This was partially funded by £189.4m of cash
generated from the sale of used vehicles, with other net capital
expenditure of £4.7m.
After capital expenditure and payments of interest and tax of
£46.7m, net cash generated from operations was £184.6m,
which represents a 7.4% improvement on the prior year
(2009 – £171.9m).
During the year, £2.6m for the deferral of covenant testing and
other fees were incurred as well as the write off of unamortised
financing fees of £3.8m, all of which relate to the borrowing
facilities replaced in September 2009.
Financing fees of £8.8m also arose due to the issuance of
‘make-whole’ notes to the private placement noteholders as a
result of the partial repayment of existing notes and in respect of
future scheduled borrowing amortisations.
Other exceptional items amounting to £6.7m consisted of
restructuring costs of £6.3m, mainly in respect of the UK, and
£0.4m of net property losses, which comprised £0.8m of losses
in the UK and a £0.4m profit related to the disposal of a property
in Spain.
Interest
Net finance charges for the year before exceptional items were
£46.3m (2009 – £44.3m).
The charge includes £5.9m of non-cash interest from borrowing
fees amortised in the year (2009 – £1.9m).
Net cash interest has decreased by £2.0m to £40.4m, mainly as a
result of the reduction in average net debt offset by the increase
in borrowing costs.
Taxation
The Group’s effective tax charge for its UK and overseas
operations is (153)% (2009 – 5%), including the impact of
exceptional items referred to above, and the recognition of
£15.5m previously unrecognised deferred tax assets
(2009 – £21.7m derecognised).
Excluding the impact of exceptional items, deferred tax asset
recognition and intangible amortisation, the Group effective tax
rate is 23% (2009 – 30%). This is lower than the previous year
primarily as a result of a £2.6m tax credit in respect of prior years.
Excluding this impact the underlying Group effective tax rate is
30% (2009 – 30%).
The Group’s treasury operations, part of which are based in
Malta, have not had a significant effect upon the Group’s
effective tax charge for the year.
Earnings per share
Basic earnings per share, before amortisation and exceptional
items, were 26.8p (2009 – 59.2p6). Basic statutory earnings per
share were 23.1p (2009 – loss of 572.6p6).
Northgate plc
Annual report and accounts 2010
Review
13
Borrowing facilities
The new financing arrangements came into effect in September
2009 and comprise committed secured facilities of £865m, giving
headroom of £240m compared to debt (gross of £27m of
unamortised arrangement fees) of £625m at 30 April 2010.
The Group’s facilities are shown below:
Bank facilities
£m
US loan notes
£m
Total facilities
£m
Facility
Drawn
Headroom
652
412
240
Maturity
Sept 12
213
213
–
Nov 12 to
Dec 16
865
625
240
3. Loan to value
The ratio of total consolidated net borrowings to the book value
of vehicles for hire, debtors and freehold property, tested monthly.
The ratio may not exceed 85%.
Loan to value at 30 April 2010 was 67% giving net debt
headroom, all else being equal, of c.£176m, at that time.
4. Debt leverage cover ratio
A maximum ratio of net debt to earnings before interest, tax,
depreciation and amortisation (EBITDA), tested quarterly on a
rolling historic 12-month basis. The covenant ratio ranges
between 2.25 and 2.51.
Debt leverage cover at 30 April 2010 was 2.04 with EBITDA
headroom, all else being equal, of c.£51m, at that time.
The maturity of US loan notes is subject to the successful renewal
of bank facilities on or before September 2012.
Treasury
US loan notes bear fixed interest of 8.6%. A proportion of bank
debt is fixed at 5.6% giving an overall fixed rate debt of 7.1%.
Including floating rate debt, the overall cost of the Group’s
borrowings is 5.9%.
In order to satisfy the terms of the revised facilities, the Group
successfully raised £108m of equity (net of equity fundraising
costs) by way of a placing and rights issue. From the amount
raised, £93m was used to repay existing facilities (including
private placement notes).
Since the initial refinance, the Group has repaid scheduled
amortisations of c.£15m. This, coupled with the underlying cash
generation of the business, has resulted in total borrowing
repayments of £255m in the year.
Further scheduled debt repayments of £80m are due to be made
by December 2010, along with a further amortisation of c.£55m
due to provisions of the financing agreement requiring certain
excess cash to be used to pay down facilities and private
placement notes. The remaining bank facilities are due to mature
in September 2012.
There are four financial covenants under the Group’s facilities
as follows:
Interest cover ratio
1.
A minimum ratio of earnings before interest and taxation (EBIT)
to net interest costs tested quarterly on a rolling historic
12-month basis. The covenant ratio ranges between 1.04
and 1.39.
Interest cover at 30 April 2010 was 1.92 with EBIT headroom,
all else being equal, of c.£28m, at that time.
2. Minimum tangible net worth
Minimum tangible net worth, i.e. net assets excluding goodwill
and intangibles, tested monthly. This covenant has been set at
80% of the net tangible assets at 30 April 2009 as adjusted for
write off of previous refinancing fees, the proceeds of the placing
and rights issue and 80% of budgeted retained profits under the
strategic plan.
Headroom at 30 April 2010 was c.£51m.
The function of Group Treasury is to mitigate 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
with 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.
Credit risk
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.
Liquidity and funding
The Group has sufficient funding facilities to meet its normal
funding requirements in the medium term as discussed above.
Covenants attached to those facilities as discussed above are
not restrictive to the Group’s operations.
Capital management
The Group’s objective is to maintain a balance sheet structure
that is efficient in terms of providing long term returns to
shareholders and safeguards the Group’s financial position
through economic cycles.
Operating subsidiary undertakings are financed by a combination
of retained earnings, loan notes and bank borrowings, including
medium term bank loans.
The Group can choose to adjust its capital structure by varying the
amount of dividends paid to shareholders, by issuing new shares
or by adjusting the level of capital expenditure. As discussed
above, gearing at 30 April 2010 was 213% compared to 571%
at 30 April 2009.
Northgate plc
Annual report and accounts 2010
Review
14
Interest rate management
Going concern
The Group’s bank facilities agreements incorporate variable
interest rates. The Group seeks to manage the risks associated
with fluctuating interest rates by having in place a number of
financial instruments covering 50% to 75% of its borrowings at
any time. The proportion of gross borrowings hedged into fixed
rates was 71% at 30 April 2010 (2009 – 28%).
Foreign exchange risk
The Group’s reporting currency is, and the majority of its revenue
(58%) is generated in pounds sterling. The Group’s principal
currency translation exposure is to the Euro, as the results of
operations, assets and liabilities of its Spanish businesses must
be translated into sterling to produce the Group’s consolidated
financial statements.
The average and year end exchange rates used to translate the
Group’s overseas operations were as follows:
Average
Year end
2010
£ : 2
1.13
1.15
2009
£ : €
1.18
1.12
The Group manages its exposure to currency fluctuations on
retranslation of the balance sheets of those subsidiary
undertakings whose functional currency is in Euro by maintaining
a proportion of its borrowings in the same currency. The hedging
objective is to reduce the risk of spot retranslation of the Euro
subsidiaries from Euro to Sterling at each reporting date. The
hedges are considered highly 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 Group has in issue US dollar-denominated loan notes which
bear fixed rate interest in US dollars. The payment of this interest
and the capital repayment of the loan notes at maturity
expose the Group to foreign exchange risk. To mitigate this risk,
the Group has entered into a series of Sterling/US dollar
cross-currency swaps. The effective start dates and termination
dates of these contracts are the same as the loan notes against
which hedging relationships are designated. The Group will
have interest cash outflows in pounds 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 pounds sterling and receive a principal
amount in US dollars.
In determining whether the Group’s 2010 accounts should be
prepared on a going concern basis, the Directors considered all
factors likely to affect its future development, performance and
its financial position, including cash flows, liquidity position and
borrowings facilities and the risks and uncertainties relating to
its business activities in the current economic climate.
The key risks and uncertainties of the Group are outlined on
pages 16 and 17. Measures taken by the Directors in order to
mitigate those risks are also outlined.
The Directors have reviewed trading and cash flow forecasts as
part of their going concern assessment, including reasonably
possible downside sensitivities, which take into account the
uncertainties in the current operating environment.
The Group has sufficient headroom compared to its committed
borrowing facilities and against all covenants as detailed in
this report.
Having considered all the factors above impacting the Group’s
businesses, including reasonably possible downside sensitivities,
the Directors are satisfied that the Group will be able to operate
within the terms and conditions of the Group’s financing
facilities for the foreseeable future.
The Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing
the Group’s 2010 accounts.
Bob Contreras
Chief Executive
1 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items
of £6.7m (2009 – £3.1m) and impairment of £Nil (2009 – £180.9m).
2 Calculated as operating profit before intangible amortisation of £2.3m (2009 –
£2.6m), exceptional items of £5.8m (2009 – £0.8m) and impairment of £Nil (2009 –
£61.5m), divided by revenue of £312.0m (2009 – £334.7m), excluding vehicle sales.
3 Stated before exceptional items of £15.2m (2009 – £33.8m).
4 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items
of £6.7m (2009 – £3.1m), impairment of £Nil (2009 – £180.9m) and exceptional
finance costs of £15.2m (2009 – £33.8m).
5 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items
of £6.7m (2009 – £3.1m), impairment of £Nil (2009 – £180.9m), exceptional finance
costs of £15.2m (2009 – £33.8m) and tax credit of £23.0m (2009 – £18.2m).
6 As restated for the bonus element of the ten for one rights issue at seven pence per
Ordinary share effective 12 August 2009 and the one for ten consolidation
effective 23 September 2009.
7 Net increase in cash and cash equivalents before financing activities.
8 Excluding amortisation of intangible assets of £3.0m (2009 – £3.1m), exceptional
items of £5.8m (2009 – £0.9m) and impairment of £Nil (2009 – £61.5m).
9 Excluding amortisation of intangible assets of £2.0m (2009 – £2.1m), exceptional
credit of £(0.1)m (2009 – charge of £2.3m) and impairment of £Nil
(2009 – £119.4m).
10 Calculated as profit from operations9 divided by vehicle rental revenue.
11 Net debt taking into account the fixed swapped exchange rates for US loan notes.
Northgate plc
Annual report and accounts 2010
Review
15
Principal risks and
uncertainties
Customers and reduction in demand
Vehicle holding costs
Competition and hire rates
Impact
Mitigation
The construction industry and other key
markets of the Group have been
particularly sensitive to the downturn in
the economic climate which has led to a
decline in the number of vehicles rented
in recent periods.
A further decline could affect the
profitability and cash generation of
the business.
The underlying macro-economic
conditions have also increased the risk
of customer failure, particularly in Spain,
which may lead to the occurrence of
increased bad debt charges.
The Group generates a large proportion
of revenue from customers in the
construction industry but is seeking to
diversify its customer base across a range
of market segments.
The overall holding cost of a vehicle is
affected by the pricing levels of new
vehicles and the disposal value of
vehicles sold.
The Group purchases substantially all of
its fleet from suppliers with no agreement
for the repurchase of vehicles at the end of
their hire life cycle. The Group is therefore
exposed to fluctuations in residual values
in the used vehicle market.
An increase in the holding cost of
vehicles, if not recovered through hire
rate increases, would affect profitability,
shareholder return and cash generation.
The Group operates in highly competitive
markets with competitors often pursuing
aggressive pricing actions to increase hire
volumes. The market is also fragmented,
with numerous competitors at a local and
national level. Low barriers to entry mean
that local competitors often attempt to
enter the market through lower pricing.
Our business is highly operationally geared
therefore any increase or decrease
in hire rates will impact profit and
shareholder return to a greater effect.
Should there be a further significant
economic downturn, the flexible nature
of the Group’s business model enables
vehicles to be placed with other
customers. Alternatively, utilisation can be
maintained through a combination of a
decrease in vehicle purchases and increase
in disposals, which although affecting
short-term profitability, generates cash
and reduces debt levels.
An economic downturn also presents
opportunities to increase rentals to
customers wishing to benefit from the
Group’s flexible renting solutions, either
due to a lack of available finance or
an unwillingness to commit to long
term rental.
No individual customer contributes
more than five per cent of total revenue
generated, and credit analysis is
performed on new customers to
assess credit risk.
Risk is managed on new pricing by
negotiating fixed pricing terms with
manufacturers a year in advance.
Flexibility is maintained to make purchases
throughout the year under variable
supply terms.
Flexibility in our business model allows us
to determine the period over which we
hold a vehicle and therefore in the event
of a decline in residual values we would
attempt to mitigate the impact by ageing
out our existing fleet.
The Group is now more strongly focused
on maximising return on capital therefore
hire rates are not being reduced below
certain thresholds. In co-ordinating this
policy with fleet management, utilisations
are being maintained at higher rates.
The current lack of access to capital in
the market is enabling us to pursue this
strategy without facing significant price
competition. Prices are also benchmarked
against competitors to ensure that we
remain competitive.
Northgate plc
Annual report and accounts 2010
Review
16
Access to capital
IT systems
Impact
Mitigation
The Group requires capital to both replace
vehicles that have reached the end of
their useful life and for growth in the
fleet. Additionally, due to the level of the
Group’s indebtedness, a significant
proportion of the Group’s cash flow is
required to service its debt obligations. In
order to continue to access its credit
facilities the Group needs to remain in
compliance with its financial covenants
throughout the term of its bank and other
facilities. Current bank facilities are due
to mature in September 2012. There is
a risk that the Group cannot successfully
extend its bank facilities past this date.
Failure to access sufficient financing or
meet financial covenants could potentially
adversely affect the prospects of the
Group.
The Group’s business involves a high
volume of transactions and the need to
track assets which are located at
numerous sites.
Reliance is placed upon the proper
functioning of IT systems for the effective
running of operations. Any interruption
to the Group’s IT systems would have a
materially adverse effect on its business.
Financial covenants are reviewed on a
monthly basis in conjunction with cash
flow forecasts to ensure on-going
compliance. If there is a shortfall in cash
generated from operations and/or
available under its credit facilities, the
Group would reduce its capital
requirements.
The Group believes that its existing
facilities provide adequate resources for
present requirements.
The Group is currently assessing options
to refinance bank facilities past September
2012.
The impact of access to capital on the
wider risk of going concern is considered
page 15.
Prior to any material systems changes
being implemented, the Board approves
a project plan. The project is then led by
a member of the executive team, with an
ongoing implementation review being
carried out by internal audit and external
consultants where appropriate. The
objective is always to minimise the risk
that business interruption could occur as
a result of the system changes.
Additionally, the Group has an
appropriate business continuity plan in
the event of interruption arising from an
IT systems failure.
The operation of a public company involves a number of risks and uncertainties across a full range of commercial, operational and
financial areas. The principal risks and uncertainties that have been identified as being capable of impacting the Group’s performance
over the next financial year are set out above.
Northgate plc
Annual report and accounts 2010
Review
17
Board of directors
1
2
3
4
5
Northgate plc
Annual report and accounts 2010
Review
18
1 Bob Mackenzie ACA
3 Andrew Allner FCA
Board committees
Appointed to the Board as Chairman
on 5 February 2010. Bob is also currently
Chairman of Dometic Holdings AB, a
Swedish based manufacturing company.
Prior to his appointment, he was Chief
Executive of Sea Containers Ltd, including
the Chairmanship of its subsidiary GNER.
He was previously Chairman of PHS Group
plc and held senior executive board
appointments with National Parking
Corporation, BET plc, Storehouse plc and
Hanson plc. He has also acted as a senior
adviser to a number of private equity
funds. He qualified as a Chartered
Accountant with KPMG in 1978. Age 57.
2 Bob Contreras ACA
Appointed Chief Executive on 7 June
2010 having been Group Finance Director
since 2 June 2008 when he joined the
Group. A Chartered Accountant, Bob has
held senior positions with Azlan Group
plc, Damovo Group SA and most recently
with Mölnlycke Healthcare Group. Age 47.
Audit
Andrew Allner Chairman
Jan Astrand
Tom Brown
Remuneration
Tom Brown Chairman
Andrew Allner
Jan Astrand
Bob Mackenzie
Nominations
Bob Mackenzie Chairman
Andrew Allner
Jan Astrand
Tom Brown
Appointed to the Board as a non-
executive Director in September 2007.
Andrew is currently also Chairman of
Marshalls plc and a non-executive Director
of CSR plc and Go Ahead Group plc.
His most recent executive appointment
was Group Finance Director of RHM plc.
He was previously Chief Executive Officer
of Enodis plc and prior to that held
Board appointments with Dalgety plc,
PIC International Group plc and
Amersham International plc. He was also
a non-executive Director of Moss Bros
Group plc from 2001 to 2005. He
qualified as a Chartered Accountant with
Price Waterhouse in 1978, subsequently
becoming a Partner. Age 56.
4 Jan Astrand MBA
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. Age 63.
5 Tom Brown MBA
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 plc, a
non-executive Director of CO2Sense Ltd
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. Age 61.
Northgate plc
Annual report and accounts 2010
Review
19
Report of the Directors
The Directors present their Report and the Audited Accounts
for the Year Ended 30 April 2010.
Results
Profit for the year after taxation was £24,356,000 (2009 – loss
£185,702,000).
No interim dividend was paid on the Ordinary shares.
The Directors do not recommend the payment of a final dividend
on the Ordinary shares.
Principal activities and business review
The Company is an investment holding company.
The principal subsidiaries 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 15, 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.
Capital structure
Details of the issued share capital, together with details of any
movements during the year are shown in Note 26. The Company
has one class of Ordinary shares which carries no right to fixed
income. Each share carries the right to one vote at general
meetings of the Company.
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.
The percentage of the issued nominal value of the Ordinary shares
is 99.25% of the total issued nominal value of all share capital.
There are no specific restrictions on the size of a holding nor on
the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation.
The Directors are not aware of any agreements between holders
of the Company’s shares that may result in restriction on the
transfer of securities or on voting rights.
Details of employee share schemes are set out in the
Remuneration Report. Shares held by the Capita Trust are voted on
the instructions of the employees on whose behalf they are held.
Shares in the Guernsey Trust are voted at the discretion of the
Trustees.
No person has any special rights of control over the Company’s
share capital and all issued shares are fully paid.
Articles themselves may be amended by special resolution of the
shareholders. The powers of Directors are set out in the Articles of
Association.
The Directors are not aware of any agreements between the
Company and its Directors or employees that provide for
compensation for loss of office or employment that occurs
because of a takeover bid.
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:
Standard Life
Investments Limited
Aviva plc
Blackrock Inc
Legal & General
Group plc
Royal London Asset
Management
Ignis Investment
Services Ltd
Direct
Indirect
Contracts for
Difference
7,431,348 (5.6%) 12,510,385 (9.4%)
3,474,099 (2.6%) 6,434,628 (4.8%)
–
–
– 6,706,114 (5.0%) 1,158,011 (0.9%)
5,160,216 (3.9%)
4,886,705 (3.7%)
–
–
–
–
– 3,915,857 (2.9%)
82,683 (0.1%)
In addition to the above, Capital Group notified an indirect interest
in 4,149,068 Ordinary shares of 5p each in January 2008, then
representing 5.9% of the issued Ordinary share capital. As no later
notification, post rights and consolidation has been received, it is
assumed that Capital Group, as investment managers, still retains
an interest in between 5% and 10% of the current issued
Ordinary share capital.
Directors
Details of the present Directors are listed on pages 18 and 19. All
have served throughout the year except Bob Mackenzie who was
appointed on 5 February 2010. In addition, Philip Rogerson
resigned from the Board on 31 December 2009 and Steve Smith,
Phil Moorhouse and Alan Noble all retired from the Board on
31 March 2010. Subsequent to the year end, Paul Tallentire
resigned from the Board with effect from 4 June 2010.
The Board has decided to adopt, with immediate effect, the
provision in the new UK Corporate Governance Code (which will
replace the Combined Code with effect from accounting periods
beginning on or after 29 June 2010) which requires all directors of
FTSE 350 companies to be subject to annual election. Accordingly,
resolutions to re-appoint each of the five Directors in office at the
date of this report will be proposed at the Annual General
Meeting.
Although not yet having conducted a formal evaluation process
(see section 1 of the Corporate Governance Report on page 30),
the Chairman is satisfied that the non-executive Directors continue
to act effectively and to fulfill the duties and responsibilities
expected of them, demonstrating commitment to the role,
including commitment of time for meetings and meeting
preparation.
With regards to the appointment and replacement of Directors,
the Company is governed by its Articles of Association, the
Combined Code, the Companies Act and related legislation. The
The termination provisions in respect of executive Directors’
contracts are set out in the Remuneration Report on pages 23
to 28.
Northgate plc
Annual report and accounts 2010
Review
20
The following are the interests of the Directors who were in office
at the end of the financial year in the share capital of the
Company. All interests are beneficial unless otherwise stated.
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.
Ordinary Shares
of 50p each
Ordinary Shares
of 5p each
30 April 2010
1 May 2009
13,090
51,920
52,634
105,000
–
40,700
11,900
47,200
106,000
44,000
–†
37,000
A Allner
J Astrand
T Brown
R Contreras
R Mackenzie
P Tallentire
† on appointment
No Director has an interest in the Preference shares of the
Company.
No changes in the above interests have occurred between 30 April
2010 and the date of this report, or, in the case of Paul Tallentire,
the date of his resignation on 4 June 2010.
Details of options held by the Directors under the Company’s
various share schemes are given in the Remuneration Report on
pages 23 to 28.
Directors’ indemnities
As permitted by the Company’s Articles of Association, qualifying
third party indemnities for each Director of the Company were in
place throughout the 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 £13,000
(2009 – £18,000) principally to local charities serving the
communities in which the Group operates.
No political donations were made.
Payment of suppliers
The Group’s policy is to pay suppliers within normal trading terms
agreed with that supplier. The policy is made known to the staff
who handle payments to suppliers. At 30 April 2010 the Group’s
creditor days were as shown in Note 21 to the accounts.
Employee consultation
Employees are kept informed on matters affecting them as
employees and on various issues affecting the performance of the
Group through announcements on the Group’s intranet, to which
all employees have access, formal and informal meetings at local
level and direct written communications. All employees are eligible
to participate on an equal basis in the Group’s share incentive
plan, which has been running successfully since its inception in
2000.
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
Remuneration report
As required by the Directors’ Remuneration Report Regulations
2002, the Remuneration Report, set out on pages 23 to 28, will be
put to shareholders for approval at the Annual General Meeting.
Power to allot shares
The present authority of the Directors to allot shares was granted
at the Annual General Meeting held in September 2009 and
expires at the forthcoming Annual General Meeting. A resolution
to renew that authority for a period expiring at the conclusion of
the Annual General Meeting to be held in 2011 will be proposed
at the Annual General Meeting. The authority will permit the
Directors to allot up to £44m nominal of share capital (which
represents less than 66% of the present issued Ordinary share
capital and is within the limits approved by the Investment
Committees of the Association of British Insurers and the National
Association of Pension Funds) on an offer to existing shareholders
on a pre-emptive basis of which up to £22m only may be allotted
otherwise than pursuant to a rights issue.
The Directors have no present intention of exercising such
authority and no issue of shares which would effectively alter the
control of the Company will be made without the prior approval
of shareholders in general meeting.
A special resolution 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. The authority will be limited
to an aggregate nominal amount of £3,320,000 representing
approximately 5% of the current issued Ordinary share capital.
The Directors have no present intention of exercising this authority
and confirm their intention to follow the provisions of the
Pre-emption Group’s Statement of Principles regarding cumulative
use of such authorities within a rolling three-year period. The
Principles provide that companies should not issue shares for cash
representing more than 7.5% of the Company’s issued share
capital in any rolling three-year period, other than to existing
shareholders, without prior consultation with shareholders.
Length of notice of general meetings
The minimum notice period permitted by the Companies Act 2006
for general meetings of listed companies is 21 days, but the Act
provides that companies may reduce this period to 14 days (other
than for AGMs) provided that two conditions are met. The first
condition is that the company offers a facility for shareholders to
vote by electronic means. This condition is met if the company
offers a facility, accessible to all shareholders, to appoint a proxy by
means of a website. Please refer to Note 5 to the Notice of
Meeting on page 86 for details of the Company’s arrangements
for electronic proxy appointment. The second condition is that
there is an annual resolution of shareholders approving the
reduction of the minimum notice period from 21 days to 14 days.
A resolution to approve 14 days as the minimum period of notice
for all general meetings of the Company other than AGMs will be
proposed at the Annual General Meeting. The approval will be
effective until the Company’s next AGM, when it is intended that
the approval be renewed.
Northgate plc
Annual report and accounts 2010
Review
21
Employee share scheme
The Northgate All Employee Share Scheme (‘the Scheme’), an
all-employee share incentive scheme approved by HM Revenue &
Customs, will come to the end of its ten year life this year.
The Scheme is currently offered to all eligible UK employees.
Under current policy, such eligible employees are invited to buy
shares in the Company at the end of a one year savings period
using deductions from their gross salary of up to £1,500. Shares
purchased under the Scheme are then matched by the Company
on a 1:1 basis. The Scheme has facilitated wider employee share
ownership and, accordingly, the Directors are seeking shareholder
approval to renew the Scheme for a further ten years. The Scheme
has been updated to reflect changes in the relevant tax legislation
and market practice. The main terms of the Scheme are
summarised on pages 88 and 89.
Financial instruments
Details of the Group’s use of financial instruments are given in the
Financial Review on pages 14 and 15 and in Notes 23 and 39 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 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.
This confirmation is given and should be interpreted in accordance
with the provisions of s148 Companies Act 2006.
A resolution for the re-appointment of Deloitte 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
29 June 2010
Northgate plc
Annual report and accounts 2010
Review
22
Remuneration report
The remuneration committee has written terms of reference
which are available on the company’s website. Membership
of the committee is shown on page 19.
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 take 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 Hewitt New Bridge Street (HNBS) on
remuneration matters and share scheme implementation. HNBS is
appointed by the Committee and undertakes no other work for
the Company or the Group. The terms of engagement between
the Committee and HNBS 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 long-term share incentives.
Only basic salary is pensionable.
Following the reorganisation of the executive team, the
Committee reviewed the structure of the remuneration packages
for executive Directors and decided to lower base salaries and
increase the weighting of the variable pay element that is linked to
long-term performance. The Committee believes restraint on fixed
pay is appropriate for the business going forward. The revised
structure also offers a stronger linkage between executive
remuneration and the long-term performance of the Company,
providing greater alignment with the interests of shareholders.
In view of the pay and employment conditions of employees
elsewhere in the Group, as well as the continuing impact of the
recession on the performance of the Company, for the second
year running no increase in salary was awarded to any Director at
the annual review. As regards other staff, those eligible to
participate in a bonus scheme in respect of the year 2009/10
received no increase in salary, whilst those who were not eligible
were awarded an increase of 2%.
In line with the Association of British Insurers’ Guidelines on
Responsible Investment Disclosure, the Committee will seek to
ensure that the incentive structure for executive Directors and
senior management will not raise environmental, social or
governance (ESG) risks by inadvertently motivating irresponsible
behaviour. More generally, with regard to the overall remuneration
structure, there is no restriction on the Committee which prevents
it from taking into account ESG matters.
Service contracts
Bob Contreras has a rolling service contract, dated 2 June 2008,
which may be terminated by 12 months notice from the Company
or by six months notice from the Director.
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 salary paid to Bob Contreras is £350,000, with
effect from his appointment as Chief Executive on 7 June 2010.
Basic salaries are normally reviewed annually taking into account
the performance of the individual, changes in responsibilities,
market trends and pay and employment conditions elsewhere in
the Group.
Total remuneration
The chart below shows the balance between fixed and variable
performance based pay for the Chief Executive comparing Steve
Smith for the year ended 30 April 2010 with Bob Contreras for the
year ending 30 April 2011 at a target level of performance.
Total reward can only be estimated, because the actual value of
the cash and deferred bonus and performance shares will not be
known until the end of the relevant performance period. We have
assumed a target level of bonus of 50% of the maximum and an
expected value of 55% of the face value has been used in respect
of performance shares and 100% of the face value in respect of
deferred bonus shares.
For the year ending 30 April 2011, on target performance has
been assumed for the annual bonus scheme.
R Contreras 2010/11 as CEO
350
90
87 87
289
S Smith 2009/10 as CEO
420
105
156 53
231
0
200
400
600
800
1000
n Base Salary
n Pension & Benefits
n Annual Bonus – Cash
n Annual Bonus – Deferred Shares
n Performance Shares
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. No such external
appointments are currently held.
Northgate plc
Annual report and accounts 2010
Corporate governance
23
The current fees paid to the non-executive Directors are shown
below:
R Mackenzie
Chairman
A Allner
J Astrand
T Brown
Chairman of Audit Committee
Non-executive Director
Senior Independent Director
and Chairman of Remuneration
Committee
£190,000**
£46,000†
£39,000
£45,000*
** Including a supplement of £40,000 to reflect the extra work required in the first year
of the appointment.
† Including £7,000 in respect of his Chairmanship of the Audit Committee.
* Including £6,000 in respect of his Chairmanship of the Remuneration Committee.
All were last reviewed on 1 May 2010 when no increases were
awarded. 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 companies of a comparable size. In addition to the fees
shown, Mr Astrand received an amount of £6,250 in recognition
of the additional time commitment required in respect of his
appointment as a non-executive Director of both Fualsa and
Record. These appointments terminated on 30 July 2009.
Other senior executives
The senior executives below Board level, both in the UK and Spain,
also have a significant influence on the ability of the Company to
achieve its goals. Accordingly, in addition to setting the
remuneration of the executive Directors, the Committee also
reviews the remuneration for these senior employees, to ensure
that rewards are competitive with the market and that they are
appropriate relative to the Board and to the remaining employees.
Pension schemes
Throughout the year all pension arrangements (other than the
Willhire Pension Scheme – see Note 38 of the accounts) operated
by the Group were defined contribution type schemes.
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.
The original dates of appointment to the Board and of their
current letters of appointment are:
R Mackenzie
5 February 2010
4 February 2010
Date of appointment
Letter of appointment
A Allner
J Astrand
T Brown
26 September 2007
5 September 2007
13 February 2001
5 June 2007
13 April 2005
12 May 2008
Performance graph
As required by The Directors’ Remuneration Report Regulations 2008, 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 has been a constituent of the FTSE 250 index for the majority of the last five years, 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 2010 was 212.45p (30 April 2009 – 146.75p). The range during the year was 50.25p to 142p (pre rights, placing and
consolidation) and 182.5p to 278p (post rights, placing and consolidation).
Total shareholder return
)
£
(
e
u
a
V
l
200
180
160
140
120
100
80
60
40
20
0
30-Apr-05
30-Apr-06
30-Apr-07
30-Apr-08
30-Apr-09
30-Apr-10
Northgate plc
FTSE 250 (Excl. Inv. Trusts) Index
Source: Thomson Reuters
This graph shows the value, by the 30 April 2010, of £100 invested in Northgate on 30 April 2005 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.
Northgate plc
Annual report and accounts 2010
Corporate governance
24
The following elements of this report have been audited:
Salary/
fees
£000
Bonus
Benefits*
£000
£000
Compensation
for loss of
office
R Mackenzie***
P Rogerson*****
S Smith****
A Allner
J Astrand
T Brown
R Contreras
P Moorhouse****
A Noble****
P Tallentire
44
87
385
46
45
45
275
252
192
420
–
–
294
–
–
–
206
168
190
270
Total emoluments excluding
pension contributions
1,791
1,128
Total pension contributions
–
–
–
–
29
–
–
–
22
27
30
28
136
–
440†
1,148
Total
2010
£000
44
87
46
45
45
503
679
668
718
Total
2009
£000
–
130
456
46
64
45
445
310
245
226
3,983
1,967
–
–
Pension contributions**
2009
£000
2010
£000
–
–
145†
–
–
–
49
82†
72†
76
–
424
–
–
76
–
–
–
45
50
38
38
–
247
–
–
–
–
–
–
232†
256†
–
928
–
These benefits include: company car, private medical insurance, permanent health insurance and life assurance.
All contributions are to a defined contribution type scheme.
From 5 February 2010.
To 31 March 2010.
*
**
***
****
***** To 31 December 2009.
†
These payments reflect contractual entitlements on early termination. In the case of Steve Smith and Alan Noble, the payments include basic salary and benefits in lieu of
working their 12 months notice period. In the case of Phil Moorhouse the payment reflects the balance of his 12 month notice period, being nine months salary and benefits.
In all three cases, the bonus payments are an apportionment of eleven twelfths of the full amount for the year.
On 4 June 2010 Paul Tallentire ceased to be a Director of the Company and received a payment in compensation for loss of office of
£482,000 including basic salary and benefits in lieu of working his 12 months notice period, in accordance with his contractual
entitlement on early termination.
Share incentive plans
The Group currently operates three share-based incentive schemes:
Directors participate in the Executive Performance Share Plan
(EPSP) and Deferred Annual Bonus Plan (DABP), and below the
Board other executives participate in the Management
Performance Share Plan (MPSP) and DABP. No executive
participates in all three schemes. Expressed in face value terms,
this effectively provides Directors with a cap of 200% of basic
salary for share awards each year (150% under the EPSP and 50%
under the DABP).
In line with current best practice guidelines, the Committee has
introduced clawback provisions into the rules of the EPSP, MPSP
and DABP which can be invoked in the event of financial mis-
statement or fraud and which will apply to all awards made in
2010 and subsequently.
Awards held by Directors during the year are shown in the table
on page 27.
Deferred annual bonus plan
The DABP was introduced in 2003 for executive Directors and
senior and middle management. Part of the bonus is delivered in
cash and part in the form of deferred shares awarded following
the announcement of the Group’s full year results. The total
maximum potential bonus (cash and shares) which may be
achieved by each executive Director is 100% of basic salary earned
in the financial year.
For the year ended 30 April 2010, as referred to in last year’s
Remuneration Report, for the executive Directors, 75% of the
total bonus will be paid in cash and 25% deferred as shares. In
future years we will revert to 50% of the total bonus earned being
paid in cash and 50% deferred as shares. The level of bonus
payable for ‘on-target’ performance is 50% of salary.
The shares are retained in an employee benefit trust for three
years and are subject to forfeiture if the employee chooses to leave
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.
Options over 168,469 deferred shares awarded to 84 executives
were outstanding at 30 April 2010.
In respect of the year ended 30 April 2010, 50% of the total
bonus for P Tallentire and R Contreras was weighted towards
underlying PBT performance, 25% towards net debt, and the
remaining 25% to personal KPIs, with the cash flow and KPI
elements also being subject to an over-riding profit qualification.
The stretch PBT target of £30.25m and the stretch net debt target
of £650m were both achieved. The bonuses payable are set out
below.
Northgate plc
Annual report and accounts 2010
Corporate governance
25
R Contreras
P Tallentire*
S Smith*
P Moorhouse*
A Noble*
R Contreras
Value
£000
154
270
294
168
190
Value
£000
52
Cash
% of basic salary
Awarded
Maximum
56
65
76
67
99
75
100
100
100
100
Shares
% of basic salary
Awarded
Maximum
19
25
* These bonuses were paid wholly in cash on termination of their appointments.
It is intended that the number of shares to be awarded will be
calculated based on the closing mid-market price on 30 June
2010, being the date of the preliminary results announcement.
Due to recent Board changes, the targets in respect of the year
ending 30 April 2011 had not been determined at the time of
publication of these accounts.
Bonuses for other management 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.
Executive performance share plan
Currently only executive Directors participate in the EPSP with
other executives participating in the MPSP (see below). Awards
under the EPSP vest after three years subject to continued
employment and the satisfaction of challenging performance
targets. The maximum individual grant level under the plan is
150% of salary face value, but historically grants have been
limited to 100% of salary. However, following the recent
restructuring of the executive team, it has been decided that it will
provide more incentive to combine the lower base salaries now
awarded with a higher level of EPSP grant and so the normal level
of grant has now been increased to 150% of annual salary. The
performance targets applying to the grants to be made in 2010
will be a mixture of underlying basic earnings per share (EPS)
(2/3rds) and return on capital employed (ROCE) targets (1/3rd).
25% of each part of the award will vest for achieving a threshold
performance target increasing to full vesting for achieving a
stretch performance target. The Committee considers that EPS and
ROCE are the most appropriate performance measures for the
EPSP since they incentivise the executives to both improve the
earnings profile of the Group and the balance sheet efficiency
(important for a capital intensive business), both of which should
flow through to superior returns to its shareholders. Currently EPS
targets are set for the third year of the three year performance
period and ROCE targets are set for the average of the three years
of the performance period.
The relevant targets are:-
EPS in 3rd Year
ROCE average over 3 years
Threshold
Stretch
Threshold
Stretch
2009 award
2010 award
18.3p
31.45p
21p
37p
8.7%
10.4%
10.2%
12%
Northgate plc
Annual report and accounts 2010
Corporate governance
26
Rights issue
conversion
& consoli-
dation
At 1 May
2009
Market
price
at grant
p
Number
granted
Number
exercised
Date of
exercise
Exercise
Price
p
Share
price on
date of
exercise
p
Gross
gain on
exercise
£
Number
lapsed
At
30 April
2010
Normally
exercisable
Executive performance share
plan
S Smith
R Contreras
P Moorhouse
A Noble
P Tallentire
Deferred annual
bonus plan
S Smith
P Moorhouse
A Noble
Northgate share
option scheme
S Smith
P Moorhouse
A Noble
Executive incentive scheme
S Smith
A Noble
156,862
75,315
102,707
49,313
–
–
–
–
130,952
102,707
49,313
130,952
102,707
49,313
78,431
37,657
316,384
151,908
–
–
–
267.5
267.5
157.5
–
267.5
267.5
133
–
–
200,000
157.5
316,384
151,908
200,000
757,091
363,506
330,952
–
–
1,750
16,234
59,041
8,402
7,794
28,347
77,025
44,543
1,100
8,905
38,376
528
4,275
18,425
48,381
23,228
850
6,865
29,250
408
3,296
14,173
36,965
17,877
162,371
85,648
20,000
27,500
50,000
55,650
9,602
13,038
–
26,719
153,150
49,359
4,500
19,000
25,000
36,150
2,160
9,058
–
17,357
84,650
28,575
17,000
20,000
27,800
7,990
–
12,679
64,800
20,669
302,600
98,603
90,000
43,512
133,512
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8,402)*
(7,794)
(28,347)
(44,543)
–
–
–
–
(408)
(3,296)
(14,173)
(17,877)
(62,420)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.9.09
7.4.10
7.4.10
–
–
–
–
–
14.4.10
14.4.10
14.4.10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
663
1,939
1,037
1,078
–
663
1,939
1,037
1,078
–
1,939
1,037
1,078
–
–
492.5
492.5
–
–
–
–
–
–
–
–
–
–
–
24
187
187
–
–
–
–
–
190
190
190
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(75,315)
–
Vest Sep 2011
–
–
–
49,313***
130,952
180,265
Vest Sep 2011
Vest Oct 2012
(49,313)
(37,657)
–
–
Vest Sep 2011
Vest Sep 2011
– 151,908†
Vest Sep 2011
– 200,000†
Vest Oct 2012
–
351,908
– (162,285)
532,173
2,016
14,575
53,009
69,600
–
–
–
–
775
6,262
26,929
33,966
103,566
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Jul 2009 – Jul 2011
Jul 2010 – Jul 2012
Jul 2011 – Jul 2013
By 30 Sept 2010
By 30 Sept 2010
By 30 Sept 2010
Jul 2009 – Jul 2011
Jul 2010 – Jul 2012
Jul 2011 – Jul 2013
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
528
4,275
18,425
23,228
–
–
–
–
23,228
(9,602)
– 13,038**
–
–
(50,000)
(26,719)
– Aug 2007 – Feb 2010
By 31 March 2011
Jul 2009 – Jul 2016
Jul 2010 – Jul 2017
(86,321)
13,038
(2,160)
–
(25,000)
(17,357)
– Aug 2007 – Feb 2010
By 31 March 2011
Jul 2009 – Jul 2016
Jul 2010 – Jul 2017
9,058**
–
–
(44,517)
9,058
–
(20,000)
(12,679)
7,990**
–
–
By 31 March 2011
Jul 2009 – Jul 2016
Jul 2010 – Jul 2017
(32,679)
7,990
– (163,517)
30,086
–
–
(90,000)
(43,512)
– Sep 2003 – Sep 2009
– Sep 2003 – Sep 2009
– (133,512)
–
* These options were exercised post the rights issue adjustment but pre-consolidation.
† These share options lapsed on leaving the Company on 4 June 2010.
** Even though these options are exercisable, the performance condition having been achieved in 2008, given the exercise price (which has been adjusted for the rights issue and
consolidation) it is unlikely that they will be exercised before the date shown above, on which they will lapse.
*** It is not expected that the award due to vest in September 2011 will achieve its performance targets.
Where options lapsed in the period preceding the rights issue and consolidation these options have not been adjusted.
Northgate plc
Annual report and accounts 2010
Corporate governance
27
Management performance share plan
The MPSP is designed to reward achievement of and individual
contribution to, the Group’s three-year rolling business plan (‘the
business plan’). The MPSP 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 is capped at 100% of
salary. Awards do not normally exceed 50% of salary.
The Committee believes that the most appropriate measure of
performance against the business plan is one based on divisional
earnings before interest and tax or Group profit before tax, as
relevant to the individual. 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.
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.
The position as at 30 April 2010 with regard to awards made
under the MPSP is as follows:-
and being allocated the same number of Matching shares. As at
30 April 2010 the Trust held 1,299,455 50p Ordinary shares that
have been allocated to employees from the first nine cycles.
The tenth annual cycle started in January 2010 and currently some
470 employees are making contributions to the scheme at an
annualised rate of £435,000.
The current scheme expires in September 2010. A resolution to
approve a new scheme on the same basis as the existing scheme
will be proposed at the Annual General Meeting.
Share ownership guidelines
The executive Directors of the Company are expected to comply
with Share Ownership Guidelines. Broadly, these require executive
Directors to accumulate, over a period of five years from the date
of appointment, a holding of Ordinary shares of the Company
equivalent in value to their basic annual salary, measured annually.
It is intended that this should be achieved primarily through the
exercise and vesting of share incentive awards and that Directors
are not required to go into the market to purchase shares,
although any shares so acquired would count towards meeting
the guidelines.
2007
2008
2009
Total
As at 30 April 2010, the value of Bob Contreras’ shareholdings
expressed as a percentage of his basic salary on that date was 81%.
Original award of
shares adjusted
as appropriate for
rights issue and
consolidation
68,713 283,486 872,638 1,224,837
Lapsed
40,810 126,026
Will vest after 3 years
10,919
–
–
–
166,836
10,919
Remaining subject
to performance
16,984 157,460 872,638 1,047,082
The above awards are held by 48 executives, including 5 in Spain.
All employee share scheme
The All Employee Share Scheme (AESS), which is approved by HM
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 ninth annual cycle ended in December 2009 and resulted in
626 employees acquiring 346,584 Partnership shares at 159p each
Sourcing of shares and dilution
Shares to satisfy the requirements of the Group’s existing share
schemes are currently sourced as follows:
DABP and MPSP
Through open market purchases by an employee benefit trust
based in Guernsey (‘the Guernsey Trust’). During the year 300,000
50p (2009 – 825,000 5p) Ordinary shares were purchased by the
Guernsey Trust and 59,490 5p and 69,091 50p (2009 – 78,242
5p) were used to satisfy the exercise of awards under the DABP
and MPSP. At 30 April 2010 the Guernsey Trust held 78,001 50p
(2009 – 557,399 5p) Ordinary shares as a hedge against the
Group’s obligations under these schemes.
EPSP
Shares to satisfy the vesting of awards under the EPSP may be
sourced either from new issue or through open market purchases.
Under normal circumstances, the first vesting under this scheme
will not occur until September 2011. The Board has not yet made
a decision as to which option (or a combination) it will pursue.
AESS
Partly new issue and partly market purchase. 331,515 50p (2009
– 700,000 5p) Ordinary shares were acquired from the Guernsey
Trust which, together with 15,069 50p (2009 – 14,596 5p)
forfeited shares held following early withdrawals, were used to
satisfy the award of Partnership Shares. The award of Matching
Shares was satisfied by the allotment of 346,583 new 50p
Ordinary shares.
At 30 April 2010 the Capita Trust held 21,096 50p (2009 – 9,822
5p) Ordinary shares which had been forfeited as a result of early
withdrawals post January 2010.
Tom Brown
Chairman of the Remuneration Committee
29 June 2010
Northgate plc
Annual report and accounts 2010
Corporate governance
28
Audit committee report
Role
The Audit Committee is appointed by, and reports to, the Board.
The Committee’s terms of reference, which include all matters
referred to in the Combined Code, are reviewed annually by the
Committee and 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.
Membership
The members of the Committee, who are all independent
non-executive Directors of the Company, are:
Date of appointment
Qualification
A Allner (Chairman)
26 September 2007
J Astrand
T Brown
6 June 2001
8 June 2005
FCA
MBA
MBA
The Combined Code requires that at least one member of the
Committee should have recent and relevant financial experience:
currently, the Chairman of the Committee fulfils this requirement. All
members of the Committee are expected to be financially literate.
Meetings
The Committee is required to meet at least three times a year.
Details of attendance at meetings held in the year ended 30 April
2010 are given on page 30.
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, together with the
head of internal audit and the external auditors, are normally
invited to attend all meetings.
Activity
Since May 2009, the Committee has:
•
reviewed the financial statements for the years ended 30 April
2009 and 2010, the half yearly report issued in December 2009
and Interim Management Statements issued in September 2009
and March 2010. As part of this review process, the Committee
received reports from Deloitte LLP on the full and half year
results:
•
reviewed and agreed the scope of the audit work to be
undertaken by Deloitte LLP and agreed their fees;
•
monitored the Group’s risk management process and business
continuity procedures;
•
reviewed the effectiveness of the Group’s system of internal
controls;
•
reviewed the Group’s whistle blowing procedures;
•
reviewed the application of IFRS 8 (
Group’s financial reporting;
Operating Segments) on the
•
reviewed the Group’s depreciation policy;
•
reviewed the Group’s corporate taxation arrangements;
•
monitored the progress of a major IT project in the UK;
•
reviewed reports on asset impairment;
•
monitored the Group’s going concern status; and
•
reviewed its own effectiveness and terms of reference.
External auditors
The Board’s policy on non-audit services provided by the external
auditors, developed and recommended by the Committee, is:-
•
•
Tax compliance 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;
Tax advisory and other 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.
During the year, the Committee reviewed and was satisfied as to
the effectiveness and independence of the external auditors,
including conducting a one-to-one meeting with the audit partner.
Consequently, the Committee has recommended to the Board the
reappointment of Deloitte LLP at the Annual General Meeting.
Fees paid and payable to Deloitte LLP in respect of the year under
review are as shown in Note 6 on page 50.
Internal audit
In fulfilling its duty to monitor the effectiveness of the internal
audit function, the Committee has:
•
reviewed the adequacy of the resources of the internal audit
department for both the UK and Spain;
•
ensured that the head of internal audit has direct access to the
Chairman of the Board and to all members of the Committee;
•
conducted a one-to-one meeting with the head of internal
audit; approved the internal audit programme; and reviewed
half-yearly reports by the head of internal audit.
The Chairman of the Committee will be available at the Annual
General Meeting to answer any questions about the work of the
Committee.
Andrew Allner
Chairman of the Audit Committee
29 June 2010
Northgate plc
Annual report and accounts 2010
Corporate governance
29
Corporate governance
UK Listed Companies are required by the Financial Services
Authority (The designated UK Listing Authority) to include a
statement in their annual accounts on compliance with the
principles of good corporate governance and code of best
practice set out in the Combined Code (‘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 one executive and four non-
executive Directors, details of whom are shown on pages 18 and
19. 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.
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 year is detailed below.
Board
10
3
7
9
10
10
10
9
7
10
10
Audit Remuneration
4
–
–
–
4
4
4
–
–
–
–
9
4
4
–
8
9
9
–
–
–
–
No. of Meetings
R Mackenzie*
P Rogerson**
S Smith***
A Allner
J Astrand
T Brown
P Moorhouse***
A Noble***
R Contreras
P Tallentire
* From 5 February 2010
** To 31 December 2009
*** To 31 March 2010
All Directors in office at that time, with the exception of Alan
Noble, were present at the Annual General Meeting held in
September 2009.
The external auditors and the internal audit manager attended all
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.
However, as referred to in the Report of the Directors, the Board
has decided on early adoption of the provision in the new UK
Corporate Governance Code which will require all Directors of
FTSE 350 companies to be subject to annual election. Accordingly,
resolutions to re-appoint all Directors currently in office will be
proposed at the Annual General Meeting.
The Board has established a Nominations Committee, which is
chaired by Mr Mackenzie. 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.
During the year, Mr Rogerson started an evaluation process of the
performance of individual Directors, of the Board as a whole and
of its committees. Detailed questionnaires were completed by
each Director but Mr Rogerson left the Board before the process
could be completed. Mr Mackenzie will be reviewing the
evaluation process over the coming year.
Pursuant to those provisions of the Companies Act 2006 relating
to conflicts of interest, which came into effect on 1 October 2008,
and in accordance with the authority contained in the Company’s
Articles of Association, the Board has put in place procedures to
deal with the notification, authorisation, recording and monitoring
of directors’ conflicts of interest and these procedures have
operated effectively throughout the year and to the date of
signing of this report and accounts.
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 23 to 28.
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 2 to 15.
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 provides relevant guidance
for directors on compliance with the internal control provisions of
the Code.
Northgate plc
Annual report and accounts 2010
Corporate governance
30
Corporate governance
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 risks is reviewed by the Board and the
Group’s management at their monthly meetings. The Board is
therefore able to confirm that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by
the Group, that it has been in place for the year under review and
up to the date of approval of these accounts and accords with the
Turnbull guidance.
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.
Audit
An account of the work of the Audit Committee is given in the
Audit Committee Report on page 29.
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
half 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-executive
Directors 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, the Company publishes
Interim 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.
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 two-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.
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. As was explained in last year’s report there was a
planned period of overlap between the appointment of Paul
Tallentire and the retirement of Steve Smith which means that the
balance of the Board was not in compliance during that period.
Following the early retirements of Steve Smith, Phil Moorhouse
and Alan Noble on 31 March 2010, the balance of the Board has
been, and continues to be in, compliance.
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,
By order of the Board
D Henderson
Secretary
29 June 2010
Northgate plc
Annual report and accounts 2010
Corporate governance
31
Health & safety and environmental
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 safety and environmental policies is
devolved to operational management at all locations in the UK
and Spain.
As the leading commercial vehicle hire company in Europe, a
commitment to the highest safety and environmental standards is
at the heart of our business.
Northgate has an excellent safety record and we have a proactive
approach and culture across the Group that ensures the health
and safety of our employees and our customers is our top priority.
Injury prevention is one of our core objectives. We believe all injuries
are preventable and acknowledge that we have a responsibility to
our employees, customers and stakeholders to work safely and
conduct our operations in the safest way possible. Health and safety
performance is monitored across the business and immediate action
is taken to address issues in our business processes wherever
necessary. Reports on health and safety performance in both the UK
and Spain are reviewed by the Board on a regular basis.
Our approach to safety management includes specific training for
senior operational managers, employees and supervisory staff.
Much of the training in the UK is externally accredited by the
British Safety Council and is carried out in-house by the Safety and
Environmental team. The Group remains committed to continually
raising safety and environmental awareness and standards through
the provision of training for all employees.
The Group health and safety policy is to identify all potential
hazards and assess the risks presented by its activities. This process
enables the Company to provide systems and procedures which
allow employees at all levels to take responsible decisions in their
day to day work in relation to their own and others’ health and
safety. The Company promotes awareness to potential risks and
hazards and the implementation of corresponding preventative or
remedial actions through its intranet, procedures manuals and
regular communications on topical issues.
To monitor compliance against Group operating policies all
locations in the UK and Spain undergo systematic reviews and
audits of safety and environmental standards and conditions at
least annually. Should any issues be identified during this process
they are dealt with in an appropriate and timely manner in
accordance with policy and legislative requirements.
In Spain we have now successfully implemented a comprehensive
and robust safety and environmental management system similar
to those controls adopted within the UK but which also takes into
account local legislative requirements. A safety and environmental
team is now firmly established and controls in Spain undergo
regular reviews to ensure compliance with Group operational
requirements. The operating business in Spain is also certified to
the internationally recognised Environmental Standard ISO 14001.
Our operations across the Group give rise to both hazardous and
non-hazardous waste including waste from offices and
workshops. During the year we have made significant progress in
improving our dry waste recycling rates in the UK by working
closely with our waste management partners. In the UK 30% of
our dry waste and 98% of workshop waste streams were recycled.
In Spain we are currently undertaking a review of waste
management arrangements and would hope to be able to
generate similar waste recycling figures to that achieved in the UK.
We will be looking to improve our waste recycling rates for both
hazardous and non-hazardous waste across all locations in the UK
and Spain.
With the aim of reducing water usage we undertook a trial
process of monitoring water usage at a number of our sites. As a
result we implemented a number of water usage controls at these
locations which resulted in an 11% reduction in our water
consumption over the year. We intend to roll out these controls
across the Group over the next couple of years and continue to
investigate other ways of reducing water consumption. Our total
consumption in the UK for the period was 51,500 cubic metres.
The Group is a corporate sponsor of Brake, the road safety charity,
and is a member of the British Safety Council and the Royal
Society for the Prevention of Accidents (RoSPA). For the second
successive year we received a Gold Award from RoSPA in
recognition of our health and safety arrangements in the UK. In
addition, and also for the second successive year we received the
British Safety Council’s International Award for our health and
safety arrangements in the UK.
During the year under review, no incidents resulting in fatality or
significant pollution occurred at any of our locations. No formal
notices were issued by enforcement authorities.
Vehicle fleet
The total fleet in the UK and Republic of Ireland at 30 April 2010
was 60,900, with an average age of 20.8 months, of which 13%
were cars and the remainder commercial vehicles. The total fleet in
Spain at 30 April 2010 was 48,900 vehicles with an average age
of 27.2 months of which 46% were cars and the remainder
commercial vehicles.
Vehicles were sold after an average life of 33.2 months in the UK
and 42.5 months in Spain.
Our fleet is therefore, comprised entirely of modern vehicles. All
purchases in the year ended 30 April 2010 were Euro IV compliant.
Property
As at 30 April 2010, the vehicle rental business in the UK and
Republic of Ireland operated out of 65 properties, of which 20 are
primary sites and 45 are branches. The vast majority of these sites
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 40-50 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 10-15 people.
Two of the larger sites share premises with Northgate Vehicle Sales
who have a further seven 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. There are two stand alone body shop
facilities in Warwick and Huddersfield.
Northgate plc
Annual report and accounts 2010
Health & safety and environmental
32
Directors’ responsibilities
The Directors are responsible for preparing the annual
report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors are
required to prepare the group financial statements in accordance
with International Financial Reporting Standards (IFRS) as adopted
by the European Union and Article 4 of the IAS Regulation and
have also chosen to prepare the parent company financial
statements under IFRS as adopted by the EU. Under company law
the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, IAS 1 (Presentation of
Financial Statements) requires that Directors:
•
properly select and apply accounting policies;
•
•
present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
•
make an assessment of the Company’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the
consolidation taken as a whole; and
the management report, which is incorporated into the
Directors’ report, includes a fair review of the development and
performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Bob Contreras
Chief Executive Officer
29 June 2010
Northgate plc
Annual report and accounts 2010
Directors’ responsibilities
33
Independent Auditors’ Report to the
Members of Northgate plc
We have audited the financial statements of Northgate plc for the
year ended 30 April 2010 which comprise the consolidated
income statement, the Group and Parent Company statements of
comprehensive income, 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,
notes to the cash flow statements and the related notes 1 to 40.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRS) as adopted by the European Union and as regards
the parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to state
to them in an auditors’ report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
As explained more fully in the Directors’ Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit the financial statements
in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s (APB’s) Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of
the Group’s and of the Parent Company’s affairs as at 30 April
2010 and of the Group’s profit for the year then ended;
•
the Group financial statements have been properly prepared in
accordance with IFRS as adopted by the European Union;
•
the Parent Company financial statements have been properly
prepared in accordance with IFRS as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
•
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
the information given in the Report of the Directors for the
financial year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
•
•
adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law
are not made; or
•
we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
•
the Directors’ statement contained within the Financial Review
in relation to going concern; and
•
the part of the Corporate Governance Statement relating to the
company’s compliance with the nine provisions of the June
2008 Combined Code specified for our review.
Paul Feechan (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
Leeds, United Kingdom
29 June 2010
Northgate plc
Annual report and accounts 2010
Auditors’ Report
34
Consolidated income statement
For the year ended 30 April 2010
Revenue: hire of vehicles and fleet management
Revenue: sale of vehicles
Total revenue
Cost of sales
Gross profit
Administrative expenses (excluding exceptional items,
impairment of assets and intangible amortisation)
Exceptional administrative expenses
Impairment of assets
Intangible amortisation
Total administrative expenses
Profit (loss) from operations
Interest income
Finance costs (excluding exceptional items)
Exceptional finance costs
Total finance costs
Profit (loss) before taxation
Taxation
Profit (loss) for the year
Notes
4,5
4,5
4,5
35
35
15
5,6
8
9
9,35
10
Underlying
2010
£000
563,698
185,875
749,573
Statutory
2010
£000
563,698
185,875
749,573
Underlying
2009
£000
(As restated)
609,645
160,887
770,532
Statutory
2009
£000
(As restated)
609,645
160,887
770,532
(599,045)
(599,045)
(642,592)
(642,592)
150,528
150,528
127,940
127,940
(67,709)
–
–
–
(67,709)
82,819
770
(47,048)
–
(47,048)
36,541
(8,295)
28,246
(67,709)
(6,720)
–
(4,990)
(79,419)
71,109
770
(47,048)
(15,216)
(62,264)
9,615
14,741
24,356
(56,173)
–
–
–
(56,173)
71,767
6,438
(50,691)
–
(50,691)
27,514
(8,327)
19,187
(56,173)
(3,123)
(180,921)
(5,254)
(245,471)
(117,531)
6,438
(50,691)
(33,830)
(84,521)
(195,614)
9,912
(185,702)
Profit (loss) for the year is wholly attributable to equity holders of the Parent Company. All results arise from continuing operations.
Underlying profit excludes exceptional items and impairment of assets as set out in Note 35 as well as intangible amortisation and the
taxation thereon in order to provide a better indication of the Group's underlying business performance.
Earnings per share
Basic
Diluted
12
12
26.8p
26.4p
23.1p
22.8p
59.2p
57.9p
(572.6)p
(560.0)p
Northgate plc
Annual report and accounts 2010
Primary statements
35
Statements of comprehensive income
For the year ended 30 April 2010
Amounts attributable to equity holders of the
Parent Company
Profit (loss) attributable to equity holders
24,356
(185,702)
(13,118)
21,565
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
Notes
Other comprehensive income
Foreign exchange differences on retranslation of net assets of
subsidiary undertakings prior to inception of net investment
hedging relationship
Foreign exchange differences on retranslation of net assets of
subsidiary undertakings after initial inception of net investment
hedging relationship
Net foreign exchange differences on long term borrowings held
as hedges between initial inception and subsequent change in
level of net investment hedging relationship
Foreign exchange differences on retranslation of net assets of
subsidiary undertakings after subsequent change in level of net
investment hedging relationship
Net foreign exchange differences on long term borrowings held
as hedges after subsequent change in level of net investment
hedging relationship
Foreign exchange difference on revaluation reserve
Net fair value losses on cash flow hedges
Deferred tax credit recognised directly in equity relating to cash
flow hedges
Actuarial losses on defined benefit pension scheme
Deferred tax (charge) credit recognised directly in equity relating
to defined benefit pension scheme
Total other comprehensive income
Total comprehensive income for the year
32
32
32
32
32
28
31
25
38
25
–
–
–
(4,976)
51,118
(37,556)
(3,929)
(18,108)
3,929
(35)
5,299
158
–
–
–
–
–
–
–
–
–
–
–
–
(14,681)
(7,801)
(14,762)
(2,035)
4,110
(221)
839
(109)
(8)
31
4,130
675
–
–
–
–
(10,835)
(11,105)
13,521
(196,807)
(10,632)
(23,750)
(1,360)
20,205
Northgate plc
Annual report and accounts 2010
Primary statements
36
Balance sheets
As at 30 April 2010
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment: vehicles for hire
Other property, plant and equipment
Total property, plant and equipment
Financial instrument assets
Deferred tax assets
Investments
Current assets
Inventories: vehicles held for resale
Inventories: other
Trade and other receivables
Financial instrument assets
Current tax asset
Cash and cash equivalents
Total assets
Current liabilities
Financial instrument liabilities
Trade and other payables
Current tax liabilities
Short term borrowings
Non-current liabilities
Financial instrument 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
Capital redemption reserve
Retained earnings
TOTAL EQUITY
Notes
14
15
16
17
23
25
18
19
19
20
23
23
21
24
22
23
22
25
38
26
27
28
29
30
31
32
33
34
Company
2010
£000
2009
£000
2010
£000
3,589
20,449
741,543
86,512
828,055
14,622
18,409
–
Group
2009
£000
(As restated)
2008
£000
(As restated)
3,589
23,875
83,152
28,475
848,654
1,012,259
89,917
81,960
938,571
1,094,219
–
17,138
–
3,361
–
–
885,124
983,173
1,209,207
18,406
4,527
19,809
5,397
30,566
6,606
–
–
–
2,766
2,766
14,622
2,462
147,895
167,745
–
–
142,175
182,975
189,727
960,562
–
–
85,343
250,451
1,135,575
65,028
4,006
80,036
357,251
142
–
48,763
275,804
1,340,424
1,485,011
–
–
38,737
999,299
1,167,044
–
86,687
16,439
153,349
256,475
8,794
547,061
17,600
539
573,994
830,469
305,106
66,475
113,269
1,330
(891)
67,463
(5,720)
(5,656)
40
68,796
305,106
9,904
76,781
5,572
92,621
244
87,197
15,728
8,414
184,878
111,583
–
922,931
49,391
465
2,883
934,357
37,082
553
972,787
974,875
1,157,665
182,759
1,086,458
398,553
3,527
67,972
1,365
(2,302)
67,463
4,851
(5,656)
40
3,527
67,972
1,207
(9,006)
67,463
7,110
3,817
40
–
196,015
–
152,236
348,251
8,794
544,955
–
–
553,749
902,000
265,044
66,475
113,269
1,371
–
63,159
(5,378)
–
40
45,499
182,759
256,423
398,553
26,108
265,044
–
–
–
2,828
2,828
–
–
147,895
150,723
–
–
957,946
65,028
–
13,215
1,036,189
1,186,912
15,688
11,726
–
58,835
86,249
-
919,648
1,620
–
921,268
1,007,517
179,395
3,527
67,972
1,371
–
63,159
5,254
–
40
38,072
179,395
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 29 June 2010.
They were signed on its behalf by:
RD Mackenzie
RL Contreras
Director
Director
Northgate plc
Annual report and accounts 2010
Primary statements
37
Cash flow statements
For the year ended 30 April 2010
Group
2010
£000
2009
£000
(As restated)
Company
2010
£000
2009
£000
Net cash from (used in) operations including net capital
expenditure on vehicles for hire
(a)
188,525
173,591
(54,325)
(53,076)
Investing activities
Interest received
Dividends received from subsidiary undertakings
Proceeds from disposal of other property, plant and
equipment
Purchases of other property, plant and equipment
Purchases of intangible assets
Payment of deferred consideration
770
–
1,805
(4,617)
(1,849)
–
7,183
–
1,813
(9,234)
(936)
(519)
236
56,701
–
82,823
–
–
–
–
–
–
–
–
Net cash (used in) from investing activities
(3,891)
(1,693)
56,937
82,823
Financing activities
Dividends paid
Repayments of obligations under finance leases
Repayments of bank loans and other borrowings
Debt issue costs paid
Increase in bank loans and other borrowings
Loans from subsidiary undertakings
Settlement of financial instruments
with subsidiary undertaking
Proceeds from issue of share capital
Proceeds from sale of own shares
Payments to acquire own shares for share schemes
Settlement of financial instruments
Termination of financial instruments
Net cash (used in) from financing activities
Net increase 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)
–
(37)
(19,302)
(331)
–
–
(19,302)
–
(255,422)
(107,174)
(216,924)
(167,250)
(31,358)
–
(31,358)
–
–
–
108,245
–
(674)
–
–
30,873
–
–
–
1,373
(4,057)
(9,646)
(32,666)
(179,246)
(140,930)
5,388
80,036
(81)
85,343
30,968
48,763
305
80,036
–
181,680
(21,620)
108,245
–
(684)
–
–
19,339
21,951
13,215
3,571
38,737
–
61,969
143,211
–
–
–
–
(9,646)
(32,666)
(23,684)
6,063
7,152
–
13,215
The above cash generated from operations is stated after the following net capital expenditure on vehicles for hire:
Purchase of vehicles
Proceeds from disposal of vehicles
Group
2010
£000
2009
£000
(299,144)
(320,395)
189,409
149,190
(109,735)
(171,205)
Cash generated from operations excluding net capital expenditure
on vehicles for hire
298,260
344,796
Company
2010
£000
–
–
–
–
2009
£000
–
–
–
–
Northgate plc
Annual report and accounts 2010
Primary statements
38
Notes to the cash flow statements
For the year ended 30 April 2010
(a) Net cash from (used in) operations including net capital
expenditure on vehicles for hire
Profit (loss) from operations
Adjustments for:
Depreciation of property, plant and equipment
Impairment of assets
Exchange differences
Amortisation of intangible assets
Gain on disposal of property, plant and equipment
Share options fair value charge
Operating cash flows before movements
Group
2010
£000
2009
£000
(As restated)
Company
2010
£000
2009
£000
71,109
(117,531)
(7,496)
(4,766)
229,752
–
58
4,990
(491)
1,154
294,659
180,921
28
5,254
(82)
788
62
–)
(225)
–
–
1,154
61
–
(458)
–
–
788
in working capital and net capital expenditure on vehicles for hire
306,572
364,037
(6,505)
(4,375)
Decrease in inventories
Decrease (increase) in receivables
Increase (decrease) in payables
Cash generated from (used in) operations before net capital
expenditure on vehicles for hire
Income taxes repaid (paid)
Interest paid
Cash generated from (used in) operations before net capital
expenditure on vehicles for hire
Purchase of vehicles
Proceeds from disposal of vehicles
832
31,826
6,511
1,334
18,293
22,871
–
893
(611)
–
(3,570)
409
345,741
406,535
(6,223)
(7,536)
835
(48,316)
(10,698)
(51,041)
–
–
(48,102)
(45,540)
298,260
344,796
(54,325)
(53,076)
(299,144)
(320,395)
189,409
149,190
–
–
–
–
Net cash from (used in) operations including net capital expenditure
on vehicles for hire
188,525
173,591
(54,325)
(53,076)
(b) Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and at bank and investments in money market instruments.
Cash and cash equivalents, as described above, included in the cash flow statements comprise the following balance sheet amounts.
Cash in hand and at bank
Short term investments
Net cash and cash equivalents
Group
2010
£000
85,343
–
85,343
2009
£000
27,757
52,279
80,036
Company
2010
£000
2009
£000
38,737
13,215
–
–
38,737
13,215
Northgate plc
Annual report and accounts 2010
Primary statements
39
Statements of changes in equity
For the year ended 30 April 2010
Issue of Ordinary share capital (net of expenses)
108,245
Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve.
Group
Total equity at 1 May 2008
Share options fair value charge
Share options exercised
Loss attributable to equity holders
Dividends paid
Purchase of own shares
Sale of own shares
Other comprehensive income
Transfers between equity reserves
Total equity at 1 May 2009
Share options fair value charge
Share options exercised
Profit attributable to equity holders
Purchase of own shares
Sale of own shares
Other comprehensive income
Transfers between equity reserves
Total equity at 30 April 2010
Company
Total equity at 1 May 2008
Share options fair value charge
Profit attributable to equity holders
Dividends paid
Other comprehensive income
Total equity at 1 May 2009
Share options fair value charge
Loss attributable to equity holders
Other comprehensive income
Total equity at 30 April 2010
Share
capital
and share
premium
£000
Own
shares
£000
Hedging
reserve
£000
Translation
reserve
£000
Other
reserves
£000
Retained
earnings
£000
Total
£000
71,499
(9,006)
7,110
3,817
68,710
256,423
398,553
–
–
–
–
(4,057)
5,241
–
–
–
–
–
–
–
(6,962)
5,520
–
–
–
–
(674)
2,085
4,703
4,851
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,223)
(5,250)
158
–
788
788
(1,600)
(1,600)
(185,702)
(185,702)
(19,359)
(19,359)
–
–
(4,057)
5,241
(78)
(11,105)
(4,973)
–
(5,656)
68,868
45,499
182,759
–
–
–
–
–
–
–
–
–
–
–
–
1,154
1,154
(1,984)
(1,984)
–
108,245
24,356
24,356
–
–
(674)
2,085
71,499
(2,302)
–
–
(9,602)
(969)
(969)
969
(35)
–
(229)
(10,835)
–
–
179,744
(891)
(5,720)
(5,656)
68,833
68,796
305,106
Share
capital
and share
premium
£000
Revaluation
reserve
£000
Hedging
reserve
£000
Merger
reserve
£000
Capital
redemption
reserve
£000
Retained
earnings
£000
Total
£000
71,499
1,371
6,614
63,159
40
35,078
177,761
–
–
–
–
–
–
–
–
–
–
–
(1,360)
–
–
–
–
–
–
–
–
788
788
21,565
21,565
(19,359)
(19,359)
-
(1,360)
71,499
1,371
5,254
63,159
40
38,072
179,395
–
–
–
–
–
–
–
(10,632)
–
–
–
–
–
–
–
–
1,154
1,154
–
108,245
(13,118)
(13,118)
–
(10,632)
179,744
1,371
(5,378)
63,159
40
26,108
265,044
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issue of Ordinary share capital (net of expenses)
108,245
Northgate plc
Annual report and accounts 2010
Primary statements
40
Notes to the Accounts
1. GENERAL INFORMATION
Northgate plc is a Company incorporated in England and Wales under the Companies Act 2006. The address of the registered office is
given on page 90. 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 15.
The accounts 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.
2. PRINCIPAL ACCOUNTING POLICIES
Statement of compliance
The accounts have also been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European
Union (EU) and therefore the Group accounts comply with Article 4 of the EU Regulation.
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.
Going concern
The accounts continue to be prepared on a going concern basis since the Directors have a reasonable expectation that the Company and
Group have adequate resources to continue in operational existence for the foreseeable future as set out on page 15 of the Financial
Review.
Changes in accounting policy
(a) Change to policy in respect of attributable costs to sell used vehicles
A change in accounting policy was adopted in the year so that certain costs which are directly attributable to the sale of used vehicles
are taken into account in determining net residual value on disposal and, therefore, are adjusted against depreciation charges. There is
no impact on the profit of the Group. As a result of this change, depreciation is increased by £12,052,000 (2009 – £11,336,000), cost of
sales is increased by £4,035,000 (2009 – £3,246,000) and administrative expenses are reduced by £4,035,000 (2009 – £3,246,000).
There is no change to net cash from operations. Proceeds from disposal of vehicles for hire are reduced by £12,052,000 (2009 –
£11,336,000). There is no impact on the Group balance sheet.
(b) Change to property, plant and equipment policy
A change in accounting policy was adopted in the year so that certain costs incurred to bring vehicles for hire into use, previously
classified as inventories in the balance sheet, have been classified within property, plant and equipment (vehicles for hire). As a result of
this change, property plant and equipment is increased and inventories are reduced by £4,559,000 (2009 – £5,553,000). There is no
impact on the profit of the Group. As a result of this change, depreciation is increased by £4,963,000 (2009 – £5,118,000). There is no
net change to cost of sales. There is no net change to net cash from operations. Purchases of vehicles are increased by £3,973,000 (2009
– £5,132,000) and the change in inventories is decreased by £990,000 (2009 – increased by £14,000).
The Group has adopted the following standards and interpretations which are mandatory for the first time for the financial year
beginning 1 May 2009.
IFRS 8 (Operating Segments)
(c)
The Group has determined operating segments in accordance with this standard for the first time and these are as shown in Note 5.
(d) Amendment to IAS 16 (Property, Plant and Equipment) and consequential amendment to IAS 7 (Statement of Cash Flows)
In accordance with amendments made to IAS 16 by the International Accounting Standards Board, used vehicles are now required to be
shown within inventories rather than non-current assets held for sale, as previously required. The impact of this classification can be seen
in the Group balance sheet.
The sales proceeds obtained for those assets are now required to be recognised within revenue, the impact of which can been seen in
Note 4, and, in accordance with IAS 7, the associated cash flows, in respect of sales and purchases of vehicles, are now recognised
within operating cash flows in the Group cash flow statement rather than investing cash flows, as previously required.
(e) Amendments to IAS 1 (Presentation of Financial Statements)
The Group is now required to produce a statement of comprehensive income setting out all items of income and expense relating to
non-owner changes in equity. This replaces the statement of recognised income and expense.
There is a choice between presenting comprehensive income in one statement or in two statements comprising an income statement
and a separate statement of comprehensive income. The Group has elected to present comprehensive income in two statements.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
41
2. PRINCIPAL ACCOUNTING POLICIES (continued)
In accordance with IAS 1, financial instruments with maturity dates greater than twelve months from the balance sheet date are
classified as non-current assets and non-current liabilities rather than current assets and current liabilities. This is with the exception of
those derivatives with maturity dates greater than twelve months from the balance sheet date which are expected to be settled within
twelve months, which are stated as current assets and current liabilities, as appropriate.
Deferred tax assets have been reclassified as non-current assets in accordance with IAS 1.
In accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), prior period comparatives have been
restated accordingly, as a result of the above changes in accounting policy.
(f) Other new standards and interpretations
The following new standards, amendments to standards and interpretations are mandatory for the financial year beginning 1 May 2009
but have no material impact on the consolidated results or financial position of the Group.
IFRS 2
IFRS 7
IAS 1
IAS 23
IAS 27
IAS 32
IFRIC 13
IFRIC 15
IFRIC 16
Share-based Payment – Amendment relating to vesting conditions and cancellations
Financial Instruments: Disclosures – Amendments enhancing disclosures about fair value and liquidity risk
Presentation of Financial Statements – Amendments relating to disclosure of puttable instruments and obligations arising
on liquidation
Borrowing costs – Comprehensive revision to prohibit immediate expensing
Consolidated and Separate Financial Statements – Amendment relating to cost of an investment on first time adoption
Financial Instruments: Presentation – Amendments relating to puttable instruments and obligations arising on liquidation
Customer Loyalty Programmes
Agreements for the Construction of Real Estate
Hedges of a Net Investment in a Foreign Operation
(g) New standards and interpretations issued but not yet effective
The following new standards, amendments to standards and interpretations have been issued with an effective date for financial years
beginning on or after the dates disclosed below.
IFRS 2
IFRS 3
IFRS 9
IAS 27
IAS 28
IAS 31
IAS 32
IAS 39
IFRIC 17
IFRIC 18
IFRIC 19
Share-based Payment – Amendment relating to group cash-settled share-based payment
transactions
Business Combinations – Comprehensive revision on applying the acquisition method
Financial Instruments
Consolidated and Separate Financial Statements – Consequential amendments arising from
amendments to IFRS 3
Investments in Associates – Consequential amendments arising from amendments to IFRS 3
Interests in Joint Ventures – Consequential amendments arising from amendments to IFRS 3
1 July 2009
1 July 2009
1 January 2013
1 July 2009
1 July 2009
1 July 2009
Financial Instruments: Presentation – Amendments relating to classification of rights issues
1 February 2010
Financial Instruments: Recognition and Measurement – Amendments for eligible hedged items
Distribution of Non-cash Assets to Owners
Transfer of Assets from Customers
Extinguishing Financial Liabilities with Equity Instruments
1 July 2009
1 July 2009
1 July 2009
1 July 2010
The Directors do not expect that there will be any material impact on the Group's accounts on adoption of the above standards and
interpretations.
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 accounts include the
accounts of the Company and its subsidiary undertakings made up to 30 April 2009 and 30 April 2010. 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 accounts 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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
42
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Revenue recognition
Group revenue is measured at the fair value of the consideration received or receivable in respect of the hire of vehicles, sale of used
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.
Revenue from the sale of used vehicles 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 annual or other tests for impairment. Any
impairment is recognised immediately in the income statement and is not subsequently reversed.
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
Intangible assets – other
5 to 13 years
5 to 10 years
2 to 4 years
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Software
assets are amortised on a straight line basis over their estimated useful lives, which do not exceed three years.
Property, plant and equipment
Property, plant and equipment is stated at historical cost, except in the case of certain revalued buildings, 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 inventories is in line with the open market values for those vehicles. Depreciation charges reflect adjustments made as a
result of differences between expected and actual residual values of used vehicles, taking into account the further directly attributable
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.
Fixed asset investments
Fixed asset investments are shown at cost less any provision for impairment.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
43
2. PRINCIPAL ACCOUNTING POLICIES (continued)
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.
Where an impairment loss has been recognised in an earlier period, the Group reassesses whether there are any indications that such
impairment has decreased or no longer exists.
Inventories
Used vehicles held for resale 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.
Other inventories comprise spare parts and consumables and are valued at the lower of cost or net realisable value.
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
accounts 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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
44
2. PRINCIPAL ACCOUNTING POLICIES (continued)
The fair value of cross currency and 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, 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, loan notes and issue costs
Bank loans and loan notes 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 accruals 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.
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 exchange differences 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.
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 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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
45
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Retirement benefit costs
The Group predominantly operates defined contribution pension schemes but has one defined benefit scheme. 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 other comprehensive income.
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 operates Group personal pension plans. The costs of these plans are charged to the income statement as they fall due.
Employee share schemes and share based payments
The Group has applied the requirements of IFRS 2 (Share-based Payment). The Group issues equity-settled 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 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 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.
The Group also operates a share incentive plan 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.
Interest income and finance costs
Interest income and finance costs are recognised in the income statement as they fall due.
Exceptional items
Items are classified as exceptional gains or losses where they are considered by the Group to be material and which individually or, if of a
similar type, in aggregate need to be disclosed by virtue of their size or incidence if the accounts are to be properly understood.
Dividends
Dividends on Ordinary shares are recognised 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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
46
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 accounts.
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 inventories 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 reflect adjustments made as a result of differences between expected and actual residual values of used vehicles,
taking into account the further directly attributable 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.
Impairment of goodwill and other non-current assets
Determining whether goodwill and other non-current assets are impaired requires an estimation of their value in use in the cash
generating units. 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.
Provision for bad and doubtful debts
Trade receivables are stated in the balance sheet at their nominal value less any appropriate provision for irrecoverable amounts. In
determining whether provision is required against any trade receivable, judgment is required in estimating the likely levels of recovery. In
exercising this judgment, consideration is given to both the overall economic environment in which a debtor operates, as well as specific
indicators that the recovery of the nominal balance may be in doubt, for example days’ sales outstanding in excess of agreed credit
terms or other qualitative information in respect of a customer.
Taxation
The Group carries out tax planning consistent with a Group of its size and makes appropriate provision, based on best estimates, until
tax computations are agreed with the tax authorities. To the extent that tax estimates result in the recognition of deferred tax assets,
those assets are only carried in the balance sheet to the extent that it is considered that they are likely to be recovered in the short term.
In the current year, net deferred tax assets totalling £15,456,000 previously derecognised have been recognised as the recovery of those
assets is now considered probable in the short term (2009 – £21,692,000 derecognised), as explained further in Note 10.
4. REVENUE
Total revenue of £749,573,000 (2009 – £770,532,000) comprises revenue from the hire of vehicles and fleet management of
£563,698,000 (2009 – £609,645,000) and revenue from the sale of vehicles of £185,875,000 (2009 – £160,887,000).
Northgate plc
Annual report and accounts 2010
Notes to the accounts
47
5. SEGMENTAL REPORTING
Management has determined the operating segments based upon the information provided to the executive Board of Directors which is
considered to be the chief operating decision maker. The Group is managed and reports internally, on a basis consistent with its three
main operating divisions, UK Hire, Spain Hire and Fleet Technique. The UK Hire division includes operations in the Republic of Ireland.
The principal activities of these divisions are set out in the Operational and Financial Reviews.
Revenue: hire of vehicles and fleet management
Revenue: sale of vehicles
Total Revenue
Intersegment revenue
UK Hire
2010
£000
311,992
114,321
426,313
–
Spain Hire
2010
£000
235,500
71,554
307,054
–
Revenue from external customers
426,313
307,054
Fleet Technique
2010
£000
Corporate
2010
£000
19,625
–
19,625
(3,419)
16,206
1,266
–
(705)
561
–
–
–
–
–
(6,134)
(1,068)
–
(7,202)
Total
2010
£000
567,117
185,875
752,992
(3,419)
749,573
82,819
(6,720)
(4,990)
71,109
770
(47,048)
(15,216)
9,615
57,704
(5,779)
(2,272)
49,653
29,983
127
(2,013)
28,097
214,003
123,685
101,718
106,001
12
4
–
62
315,733
229,752
634,464
459,520
8,560
–
1,102,544
14,622
18,409
1,135,575
484,112
300,304
3,220
–
787,636
8,794
34,039
830,469
Operating profit (loss) *
Exceptional items
Amortisation
Profit (loss) from operations
Interest income
Finance costs (excluding exceptional items)
Exceptional finance costs
Profit before taxation
Other Information
Capital expenditure
Depreciation
Reportable segment assets
Derivative financial assets
Income tax assets
Total assets
Reportable segment liabilities
Derivative financial liabilities
Income tax liabilities
Total liabilities
Northgate plc
Annual report and accounts 2010
Notes to the accounts
48
5. SEGMENTAL REPORTING (continued)
Revenue: hire of vehicles and fleet management
Revenue: sale of vehicles
Total revenue
Intersegment revenue
UK Hire
2009
£000
334,685
115,883
450,568
–
Spain Hire
2009
£000
256,967
45,004
301,971
–
Revenue from external customers
450,568
301,971
Fleet Technique
2009
£000
Corporate
2009
£000
20,320
–
20,320
(2,327)
17,993
–
–
–
–
–
Total
2009
£000
611,972
160,887
772,859
(2,327)
770,532
Operating profit (loss) *
Impairment of assets
Other exceptional items
Amortisation
(Loss) profit from operations
Interest income
Finance costs (excluding exceptional items)
Exceptional finance costs
Loss before taxation
Other Information
Capital expenditure
Depreciation
Reportable segment assets
Derivative financial assets
Income tax assets
Total assets
Reportable segment liabilities
Derivative financial liabilities
Income tax liabilities
Total liabilities
42,839
32,605
931
(4,608)
71,767
(61,487)
(119,434)
(846)
(2,560)
(2,277)
(2,142)
(22,054)
(91,248)
–
–
(552)
379
–
–
–
(180,921)
(3,123)
(5,254)
(4,608)
(117,531)
6,438
(50,691)
(33,830)
(195,614)
202,940
177,321
101,609
117,260
2
17
–
61
304,551
294,659
655,122
591,197
7,933
–
1,254,252
65,028
21,144
1,340,424
640,493
449,105
3,200
–
1,092,798
9,904
54,963
1,157,665
*
operating profit (loss) stated before amortisation and exceptional items is the measure used by the executive Board of Directors to
assess segment performance.
Revenue from sale of vehicles is included as revenue in accordance with amendments to IAS 16 which require used vehicle assets to be
classified as inventories. Used vehicle sales are included within UK Hire and Spain Hire operating segments, which reflects the level at
which the executive Board of Directors allocate resources and review performance of the Group.
Intersegment trading is undertaken on arms length commercial terms.
Geographical information
Revenues are attributed to countries on the basis of the company’s location. 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.
United Kingdom & Republic of Ireland
Spain
Revenue
2010
£000
442,519
307,054
749,573
Non-current
assets
2010
£000
486,026
366,067
852,093
Revenue
2009
£000
468,561
301,971
770,532
Non-current
assets
2009
£000
507,765
458,270
966,035
There are no customers from whom the Group derives more than ten per cent of total revenue from external customers. Non-current
assets exclude financial instrument assets and deferred taxation.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
49
6. PROFIT (LOSS) FROM OPERATIONS
Profit (loss) from operations is stated after charging:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Net foreign exchange losses
Exceptional items
Staff costs
Cost of inventories recognised as an expense
Net impairment of trade receivables
Auditors’ remuneration for audit services (below)
Auditors’ remuneration for non-audit services (below)
Notes
2010
£000
2009
£000
(As restated)
16, 17
229,752
294,659
15
35
7
39
4,990
58
6,720
91,185
5,254
28
184,044
90,643
211,839
218,322
12,065
356
355
5,275
411
178
The above cost of inventories recognised as an expense includes movements in stock provisions which are immaterial.
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
Other services
Total non-audit fees
2010
£000
226
130
356
21
250
84
355
2009
£000
273
138
411
21
140
17
178
In addition to the amounts shown above, fees payable to Deloitte LLP in their capacity as Reporting Accountants in connection with the
placing and rights issue amounting to £500,000 (2009 – £Nil) were charged to the share premium account.
Fees payable to Deloitte 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 on page 29 and includes an explanation of how auditor objectivity and
independence is safeguarded when non-audit services are provided by the auditors.
7. STAFF COSTS
The average number of persons employed by the Group:
United Kingdom and Republic of Ireland:
Direct operations
Administration
Spain:
Direct operations
Administration
2010
Number
2009
Number
1,664
493
2,157
841
118
959
3,116
1,869
455
2,324
909
169
1,078
3,402
Northgate plc
Annual report and accounts 2010
Notes to the accounts
50
7. STAFF COSTS (continued)
The above United Kingdom administration employee numbers include 21 (2009 – 21) in respect of the Company.
The aggregate remuneration of Group employees comprised:
Wages and salaries
Social security costs
Other pension costs
2010
£000
2009
£000
78,609
10,628
1,948
91,185
78,589
10,651
1,403
90,643
Wages and salaries include £4,226,000 (2009 – £Nil) and pension costs include £151,000 (2009 – £Nil) in respect of redundancies and
loss of office. The above employee remuneration includes wages and salaries costs of £5,110,000 (2009 – £2,844,000), social security
costs of £501,000 (2009 – £259,000) and other pension costs of £552,000 (2009 – £358,000) in respect of the Company.
Details of Directors’ remuneration, pension contributions and share options are provided in the audited part of the Remuneration Report
on pages 23 to 28.
8.
INTEREST INCOME
Interest on bank and other deposits
9. FINANCE COSTS
Interest on bank overdrafts and loans
Amortisation of terminated cross currency derivatives
Change in fair value of interest rate derivatives (Note 23)
Preference share dividends
Interest on obligations under finance leases
Finance costs (excluding exceptional items)
Exceptional finance costs
Make-whole premium on US loan notes (Note 35)
Covenant deferral fees (Note 35)
Write off of unamortised fees relating to bilateral debt facilities (Note 35)
Other financing fees (Note 35)
Write off of terminated interest rate derivatives (Note 35)
Amortisation of terminated interest rate derivatives (Note 35)
Total exceptional finance costs
2010
£000
770
2010
£000
2009
£000
6,438
2009
£000
47,169
49,708
(405)
253
25
6
–
952
25
6
47,048
50,691
8,842
2,199
3,751
424
–
–
15,216
62,264
–
1,164
–
–
31,006
1,660
33,830
84,521
Included in interest on bank overdrafts and loans in the current year is a foreign exchange gain of £252,000 arising in the period 1 May
2009 to 11 September 2009 (Note 23).
Included in interest on bank overdrafts and loans in the prior year is a gain of £1,083,000 representing the change in the fair value of
the Group’s Euro/Sterling cross currency derivative prior to its designation within a net investment hedging relationship in the year (Note
23) and a gain of £3,600,000 on retranslation of certain group borrowings prior to the inception of net investment hedging. These
amounts have been recognised as part of the cost of borrowings in accordance with IAS 21 (The Effects of changes in Foreign Exchange
Rates).
The write off and amortisation of terminated interest rate derivatives and cross currency derivatives represents amounts recycled to the
income statement from the hedging reserve (Note 31).
Northgate plc
Annual report and accounts 2010
Notes to the accounts
51
10. TAXATION
Current tax:
UK corporation tax
Adjustment in respect of prior years
Foreign tax
Deferred tax:
Origination and reversal of timing differences
Adjustment in respect of prior years
Net (recognition) derecognition of deferred tax assets
2010
£000
–
(564)
1,208
644
2,085
(2,014)
(15,456)
(15,385)
(14,741)
2009
£000
227
(47)
(4,274)
(4,094)
(27,671)
161
21,692
(5,818)
(9,912)
Corporation tax is calculated at 28% (2009 – 28%) of the estimated assessable profit for the year. Taxation for other jurisdictions is
calculated at the rates prevailing in those respective jurisdictions.
The net credit for the year can be reconciled to the profit before taxation as stated in the income statement as follows:
Profit (loss) before taxation
Tax at the UK corporation tax rate of 28% (2009 – 28%)
Tax effect of expenses that are not deductible in determining taxable profit
Goodwill impairment not deductible in determining taxable profit
Difference in taxation in overseas subsidiary undertakings
Derecognition of deferred tax assets (below)
Recognition of deferred tax assets (below)
Adjustment to tax charge in respect of prior years
Tax credit and effective tax rate for the year
2010
£000
9,615
2,692
131
–
470
–
(15,456)
(2,578)
(14,741)
%
28.0
1.3
–
4.9
–
(160.7)
(26.8)
(153.3)
2009
£000
(195,614)
(54,772)
1,989
25,075
(4,010)
21,692
–
114
(9,912)
%
28.0
(1.0)
(12.8)
2.0
(11.1)
–
5.1
In addition to the amount credited to the income statement, a net deferred tax amount of £4,102,000 (2009 – £870,000) has been
credited directly to equity (Note 25).
Deferred tax assets of £15,456,000 previously derecognised have been recognised in the current year as the recovery of those assets is
now considered probable in the short term (2009 – £21,692,000 derecognised).
11. DIVIDENDS
Amounts recognised as distributions to equity holders of the Parent Company:
Final dividend for the year ended 30 April 2008 of 16.5p per share
Interim dividend for the year ended 30 April 2009 of 11.5p per share
The Directors do not propose a final dividend for the year ended 30 April 2010.
2010
£000
–
–
–
2009
£000
11,433
7,926
19,359
Northgate plc
Annual report and accounts 2010
Notes to the accounts
52
12. EARNINGS PER SHARE
Basic and diluted earnings per share
The calculation of basic and diluted earnings per share is based on the
following data:
Underlying
2010
Statutory
2010
Underlying
2009
(As restated)
Statutory
2009
(As restated)
Earnings
£000
£000
£000
£000
Earnings for the purposes of basic and diluted earnings per share,
being net profit (loss) attributable to equity holders of the parent*
28,246
24,356
19,187
(185,702)
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
Number
Number
Number
(as restated)
Number
(as restated)
105,374,935 105,374,935
32,428,634
32,428,634
1,605,626
1,605,626
734,523
734,523
106,980,561 106,980,561
33,163,157
33,163,157
26.8p
26.4p
23.1p
22.8p
59.2p
57.9p
(572.6)p
(560.0)p
* Underlying earnings for the purposes of basic and diluted earnings per share have been restated to exclude the tax effect of
amortisation of intangibles of £1,438,000 (2009 – £1,514,000).
** Prior year number of shares adjusted for the bonus element of the ten for one rights issue at seven pence per Ordinary share effective
12 August 2009 and the one for ten consolidation effective 23 September 2009.
13. RESULT OF THE PARENT COMPANY
A loss of £13,118,000 (2009 – profit £21,565,000) is dealt with in the accounts of the Company. The Directors have taken advantage of
the exemption available under Section 408(3) of the Companies Act 2006 and not presented an income statement for the Company
alone.
14. GOODWILL
Group
Book value:
At 1 May
Exchange differences
Impairment write down
At 30 April
2010
£000
3,589
–
–
3,589
2009
£000
83,152
6,169
(85,732)
3,589
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from
the business combination. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill
might be impaired.
As explained in Note 35, in the prior year an impairment of goodwill of £85,732,000 was recognised, after which the carrying amount
of goodwill relates solely to the acquisition of Fleet Technique Limited.
In accordance with IAS 36 (Impairment of Assets), goodwill has been tested for impairment based on cash flow forecasts of Fleet
Technique Limited derived from a two year business plan approved by the Directors in April 2010 with growth rates of 1 to 2% over a
ten year period and a discount rate of 7%. The recoverable amount was in excess of the current book value and accordingly, no
provision for impairment has been recognised.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
53
15. OTHER INTANGIBLE ASSETS
Group
Fair value:
At 1 May 2008
Additions
Exchange differences
At 1 May 2009
Additions
Disposals
Exchange differences
At 30 April 2010
Amortisation:
At 1 May 2008
Charge for the year
Impairment charge (Note 35)
Exchange differences
At 1 May 2009
Charge for the year
Impairment charge (Note 35)
Impairment reversal (Note 35)
Disposals
Exchange differences
At 30 April 2010
Carrying amount:
At 30 April 2010
At 30 April 2009
At 30 April 2008
Brand
names
£000
Customer
relationships
£000
Non-compete
agreements
£000
Software
technology
£000
Other
software
£000
13,746
22,394
–
1,693
15,439
–
(246)
(378)
–
747
23,141
–
(450)
(166)
14,815
22,525
3,999
1,550
1,043
545
7,137
1,340
215
(215)
(246)
(184)
4,977
2,742
923
246
8,888
2,662
85
(85)
(450)
(74)
8,047
11,026
6,768
8,302
9,747
11,499
14,253
17,417
436
–
28
464
–
(461)
(3)
–
333
40
8
24
405
70
–
–
(461)
(14)
–
–
59
103
Total
£000
41,450
936
2,620
45,006
1,849
(1,157)
(587)
45,111
168
–
–
168
–
–
–
4,706
936
152
5,794
1,849
–
(40)
168
7,603
79
34
5
–
118
33
–
–
–
–
151
17
50
89
3,587
12,975
888
–
108
4,583
885
–
–
–
(30)
5,438
2,165
1,211
1,119
5,254
1,979
923
21,131
4,990
300
(300)
(1,157)
(302)
24,662
20,449
23,875
28,475
Northgate plc
Annual report and accounts 2010
Notes to the accounts
54
16. PROPERTY, PLANT AND EQUIPMENT: VEHICLES FOR HIRE
Group
Cost:
At 1 May 2008 (as restated)
Additions (as restated)
Exchange differences
Transfer to inventories (as restated)
At 1 May 2009 (as retated)
Additions
Transfer to motor vehicles
Exchange differences
Transfer to inventories
At 30 April 2010
Depreciation:
At 1 May 2008 (as restated)
Charge for the year (as restated)
Exchange differences
Impairment charge (Note 35)
Transfer to inventories (as restated)
At 1 May 2009 (as restated)
Charge for the year
Exchange differences
Impairment charge (Note 35)
Impairment reversal (Note 35)
Transfer to motor vehicles
Transfer to inventories
At 30 April 2010
Carrying amount:
At 30 April 2010
At 30 April 2009 (as restated)
At 30 April 2008 (as restated)
£000
1,281,874
294,381
77,064
(365,591)
1,287,728
309,538
(374)
(15,064)
(420,103)
1,161,725
269,615
290,005
18,687
91,814
(231,047)
439,074
224,513
(5,807)
11,000
(11,000)
(109)
(237,489)
420,182
741,543
848,654
1,012,259
The carrying amount of the Group’s vehicles for hire includes an amount of £Nil (2009 – £37,000) in respect of assets held under finance
lease agreements.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
55
17. OTHER PROPERTY, PLANT AND EQUIPMENT
Group
Cost or valuation:
At 1 May 2008
Additions
Exchange differences
Disposals
At 1 May 2009
Additions
Transfer from vehicles for hire
Exchange differences
Disposals
At 30 April 2010
Depreciation:
At 1 May 2008
Charge for the year
Exchange differences
Impairment charge (Note 35)
Disposals
At 1 May 2009
Charge for the year
Exchange differences
Impairment charge (Note 35)
Impairment reversal (Note 35)
Transfer from vehicles for hire
Disposals
At 30 April 2010
Carrying amount:
At 30 April 2010
At 30 April 2009
At 30 April 2008
Cost or valuation at 30 April 2010 is represented by:
Valuation performed in 1992
Valuation performed in 2004
Additions at cost
Land and buildings by category:
Freehold and long leasehold
Short leasehold
Land &
buildings
£000
Plant,
equipment &
fittings
£000
Motor
vehicles
£000
18,662
1,209
78,637
5,508
5,615
(1,302)
88,458
1,716
–
(1,315)
(1,659)
87,200
7,355
1,573
133
–
(2)
9,059
2,581
(49)
–
–
–
(823)
10,768
76,432
79,399
71,282
525
3,403
83,272
87,200
3,179
1,321
(278)
22,884
2,220
–
(318)
(2,020)
22,766
8,884
2,666
299
1,396
(117)
13,128
2,388
(121)
300
(300)
–
(1,854)
13,541
9,225
9,756
9,778
–
–
22,766
22,766
Total
£000
98,508
9,234
6,936
(2,436)
112,242
4,346
374
(1,633)
(4,042)
111,287
16,548
4,654
432
1,396
(705)
22,325
5,239
(170)
300
(300)
109
(2,728)
24,775
86,512
89,917
81,960
547
–
(856)
900
410
374
–
(363)
1,321
309
415
–
–
(586)
138
270
–
–
–
109
(51)
466
855
762
900
–
–
1,321
1,321
525
3,403
107,359
111,287
2010
£000
68,891
7,541
76,432
2009
£000
69,548
9,851
79,399
At 30 April 2010, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £23,000 (2009 – £1,161,000).
Certain of the above freehold properties were valued as at 30 April 1992 by Jones Lang Wooton, Chartered Surveyors, and certain other
freehold properties as at 3 May 2004 by American Appraisal, Professional Valuers, on the basis of open market value for existing use.
At 30 April 2010, under the historical cost convention, land and buildings would have been stated at a cost of £87,477,000 (2009 –
£88,736,000) and related accumulated depreciation of £10,869,000 (2009 – £9,145,000).
Northgate plc
Annual report and accounts 2010
Notes to the accounts
56
17. OTHER PROPERTY, PLANT AND EQUIPMENT (continued)
Company
Cost:
At 1 May 2008, 1 May 2009 and 30 April 2010
Depreciation:
At 1 May 2008
Charge for the year
At 1 May 2009
Charge for the year
At 30 April 2010
Carrying amount:
At 30 April 2010
At 30 April 2009
18. INVESTMENTS
Company
Cost:
At 1 May 2009 and 30 April 2010
Accumulated provisions:
At 1 May 2009 and 30 April 2010
Carrying amount:
At 1 May 2009 and 30 April 2010
Land &
buildings
£000
3,239
350
61
411
62
473
2,766
2,828
Shares in
subsidiary
undertakings
£000
Loans
to Group
undertakings
£000
Total
£000
103,330
47,000
150,330
2,435
–
2,435
100,895
47,000
147,895
A full list of the Company’s subsidiaries was included with the Annual Return filed with the Registrar of Companies.
At 30 April 2010, the principal subsidiary undertakings of the Group were as follows, all of which are wholly owned and are registered in
England and Wales unless otherwise stated:
Fleet Technique Limited*
Furgonetas de Alquiler S.A.* (incorporated in Spain)
GPS Body Repairs Limited*
Northgate (Europe) Limited
Northgate (Malta) Limited* (incorporated in Malta)
Northgate (MT) Limited* (incorporated in Malta)
Northgate (TM) Limited
Northgate Vehicle Hire Limited
Record Rent a Car S.A.* (incorporated in Spain)
*interest held indirectly by the Company
19. INVENTORIES
Vehicles held for resale
Spare parts and consumables
Group
2009
£000
(As restated)
19,809
5,397
25,206
2010
£000
18,406
4,527
22,933
2008
£000
(As restated)
30,566
6,606
37,172
Northgate plc
Annual report and accounts 2010
Notes to the accounts
57
20. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts due from subsidiary undertakings
Other taxes
Other debtors and prepayments
2010
£000
Group
2009
£000
2008
£000
130,070
165,875
171,888
–
–
–
–
–
–
12,105
142,175
17,100
182,975
17,839
189,727
Company
2010
£000
–
2009
£000
–
958,366
954,339
2,163
33
1,650
1,957
960,562
957,946
The average credit periods given on trade sales
UK
45 days
Spain
109 days
54 days
140 days
52 days
138 days
2010
2009
2008
Allowances for estimated irrecoverable amounts and the Group’s credit risk are considered in Note 39.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value due to their short term
nature.
21. TRADE AND OTHER PAYABLES
Trade payables
Amounts due to subsidiary undertakings
Social security and other taxes
Accruals and deferred income
2010
£000
Group
2009
£000
2008
£000
44,601
35,975
36,640
Company
2010
£000
301
–
6,922
35,164
86,687
–
13,454
27,352
76,781
–
184,588
3,173
47,384
87,197
140
10,986
196,015
2009
£000
101
–
130
11,495
11,726
Trade payables comprise amounts outstanding for trade purchases.
The average credit period taken on trade
purchases is
2010
2009
2008
UK
49 days
Spain
121 days
48 days
85 days
50 days
85 days
The Directors consider that the carrying amount of trade and other payables approximates to their fair value due to their short term
nature.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
58
22. BORROWINGS
Borrowings comprise bank loans, loan notes, property loans and other borrowings.
Except as detailed in Note 39, the Directors consider that the carrying amounts of the Group’s borrowings approximate to their fair
value.
Bank loans
Loan notes
Vehicle related finance lease obligations
Property loans
Cumulative Preference shares
Debt discounting facilities
The borrowings are repayable as follows:
On demand or within one year
(shown within current liabilities)
Bank loans
Loan notes
Vehicle related finance lease obligations
Property loans
Debt discounting facilities
In the second year
Bank loans
Property loans
In the third to fifth years
Bank loans
Loan notes
Property loans
Due after more than five years
Loan notes
Cumulative Preference shares
Total borrowings
Less: Amount due for settlement within one year
(shown within current liabilities)
Amount due for settlement after one year
Group
2010
£000
473,367
223,324
–
3,206
500
13
2009
£000
736,584
263,560
37
4,331
500
10,540
Company
2010
£000
2009
£000
473,367
223,324
714,423
263,560
–
–
500
–
–
–
500
–
700,410
1,015,552
697,191
978,483
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
112,309
39,927
–
1,100
13
153,349
80,996
–
37
1,048
10,540
92,621
112,309
39,927
–
–
–
58,835
–
–
–
–
152,236
58,835
–
128,223
1,666
1,666
361,058
89,734
440
1,645
129,868
527,365
127,055
1,638
–
–
–
361,058
89,734
–
128,223
–
128,223
527,365
127,055
–
451,232
656,058
450,792
654,420
93,663
136,505
93,663
136,505
500
500
94,163
137,005
700,410
1,015,552
153,349
547,061
92,621
922,931
500
94,163
697,191
152,236
544,955
500
137,005
978,483
58,835
919,648
Bank loans
Bank loans are secured (2009 – unsecured) and bear interest at rates of 0.75% to 3.25% (2009 - 0.425% to 1.5%) above the relevant
interest rate index, being LIBOR for UK Sterling denominated debt and EURIBOR for Euro denominated debt.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
59
22. BORROWINGS (continued)
Loan notes
In 2006 and 2007, the Company issued unsecured loan notes to investors principally based in the United States. The total of the loan
notes (‘the US Notes’) issued by the Group was US$357,000,000 and £21,000,000. During the current year, the Group has repaid
$39,141,000 and £2,302,000 respectively. In addition, and in accordance with the terms of the US Notes, make-whole notes amounting
to $4,981,000 and £297,000 were issued, which all mature in September 2012 and otherwise have the same terms as the related loan
notes. The US Notes are not publicly tradeable and have the following maturity profile:
Value of loan notes
Redemption date
Carrying
value
30 April
2010
£000
Carrying
value
30 April
2009
£000
$55,203,000 (2009: $62,000,000) 5 year loan
notes
$111,295,000 (2009: $125,000,000) 7 year
loan notes
$106,843,000 (2009: $120,000,000) 10 year
loan notes
£18,698,000 (2009: £21,000,000) 10 year loan
notes
$44,518,000 (2009: $50,000,000) 10 year loan
notes
November 2012
36,184
42,125
December 2013
72,951
84,930
December 2016
70,034
81,533
December 2016
18,698
21,000
December 2016
29,181
33,972
$4,981,000 (2009: $Nil) make-whole notes
September 2012
3,265
£297,000 (2009: £Nil) make-whole notes
September 2012
297
Unamortised finance fees relating to the US
Dollar denominated Loan Notes
Unamortised finance fees relating to the Sterling
denominated Loan Notes
(6,639)
(647)
–
–
–
–
223,324
263,560
Weighted
average
fixed interest
rate on the
US Notes
Overall
weighted
average
fixed
interest rate
7.72%
(2009 – 5.52%)
8.15%
(2009 – 5.19%)
7.86%
(2009 – 5.73%)
8.87%
(2009 – 5.78%)
7.99%
(2009 – 5.73%)
8.82%
(2009 – 5.78%)
7.89%
(2009 – 5.73%)
7.89%
(2009 – 5.78%)
7.99%
(2009 – 5.73%)
8.80%
(2009 – 5.78%)
7.90%
(2009 – Nil)
7.89%
(2009 – Nil)
8.72%
(2009 – Nil)
7.89%
(2009 – Nil)
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
23, the Group has entered into cross currency swap financial instruments in order to mitigate this risk. Both the weighted average fixed
interest rate on the US Notes and the overall weighted average fixed interest rate (taking into account the interest rates within the cross
currency swap instruments) are shown in the table above.
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 (2009 – 1,300,000), of which 1,000,000 (2009 –
1,000,000) were allotted and fully paid at the balance sheet date.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
60
22. BORROWINGS (continued)
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, at original
inception, for 2009 was three years. During the year, all remaining finance leases were repaid.
Finance lease obligations were secured by fixed charges over the vehicles to which they related.
Group
Amounts payable under vehicle related finance leases:
Within one year
Less future finance charges
Present value of lease obligations
Minimum
lease payments
Present value of
minimum lease payments
2010
£000
–
–
–
2009
£000
39
(2)
37
2010
£000
–
–
–
2009
£000
37
–
37
Vehicle related finance lease obligations at 30 April 2009 were denominated in Sterling.
Property loans
All property loans relate to land and buildings held in Spain and are accounted for as finance lease obligations. The loans are secured on
the properties to which they relate.
The average remaining lease term is two years. For the year ended 30 April 2010, the average borrowing rate for property loans was
1.5% (2009 – 2.5%). All loans are on a fixed repayment basis and no arrangements have been entered into for contingent rental
payments.
Amounts payable under property loans:
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 one year
Debt discounting facilities
Minimum
lease payments
Present value of
minimum lease payments
2010
£000
1,146
2,140
3,286
(80)
3,206
2009
£000
1,155
3,414
4,569
(238)
4,331
2010
£000
1,100
2,106
3,206
–
3,206
2009
£000
1,048
3,283
4,331
–
4,331
(1,100)
2,106
(1,048)
3,283
Spanish debt discounting facilities of £13,000 (2009 – £10,540,000) are unsecured and all fall due within one year. These arrangements
bear interest at a range of 0.5% to 1.25% above EURIBOR.
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:
Less than one year
In one year to five years
2010
£000
10,444
144,197
154,641
2009
£000
4,641
177,348
181,989
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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
61
22. BORROWINGS (continued)
Analysis of consolidated net debt
Cash at bank and in hand
Short term investments
Bank loans
Loan notes
Vehicle related finance lease obligations
Cumulative Preference shares
Property loans and other borrowings
At 1 May
2009
£000
27,757
52,279
80,036
(736,584)
(263,560)
(37)
(500)
Cash flow
£000
57,667
(52,279)
5,388
242,014
33,602
37
–
(14,871)
(935,516)
11,164
292,205
Other
non-cash
changes
£000
Foreign
exchange
movements
£000
–
–
–
16,397
(5,020)
–
–
–
(81)
–
(81)
4,806
11,654
–
–
488
At 30 April
2010
£000
85,343
–
85,343
(473,367)
(223,324)
–
(500)
(3,219)
11,377
16,867
(615,067)
The Group calculates gearing to be net borrowings as a percentage of shareholders’ funds less goodwill and the net book value of
intangible assets, where net borrowings comprise borrowings less cash at bank and short term investments. At 30 April 2010, the
gearing of the Group amounted to 218.8% (2009 – 602.4%) where net borrowings are £615,067,000 (2009 – £935,516,000) and
shareholders’ funds less goodwill and the net book value of intangible assets are £281,068,000 (2009 – £155,295,000).
Net borrowings at 30 April 2010, taking into account the fixed swapped exchange rates for the US loan notes, are £598,291,000 (2009
– £886,446,000).
Financial instruments (see also Note 39)
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 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.
The credit risk associated with trade receivables in Spain is more concentrated in larger customers than the UK and, consequently, as in
the UK 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 mitigate 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 23.
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.
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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
62
22. BORROWINGS (continued)
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 23. 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 2010, 71% (2009 – 28%) of gross borrowings were at fixed or capped
rates of interest, comprising £63,000,000 and €200,000,000 of interest rate swaps and $322,840,000 of US Dollar/Sterling cross
currency swaps and forward contracts (2009 – £20,000,000 of interest rate collars and $357,000,000 of US Dollar/Sterling cross
currency swaps), as detailed in Note 23.
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 23) 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:
Group
At 30 April 2010
Bank loans
Loan notes
Cumulative Preference shares
Property loans
Debt discounting facilities
At 30 April 2009
Bank loans
Loan notes
Vehicle related finance lease obligations
Cumulative Preference shares
Property loans
Debt discounting facilities
Sterling
£000
75,782
18,348
500
–
–
Euro
£000
US Dollars
£000
Total
£000
397,585
–
–
3,206
13
–
204,976
–
–
–
473,367
223,324
500
3,206
13
94,630
400,804
204,976
700,410
Sterling
£000
Euro
£000
US Dollars
£000
Total
£000
185,572
21,000
37
500
–
–
551,012
–
–
–
4,331
10,540
–
242,560
–
–
–
–
736,584
263,560
37
500
4,331
10,540
207,109
565,883
242,560
1,015,552
23. DERIVATIVE FINANCIAL INSTRUMENTS
The Group’s derivative financial instruments at the balance sheet date comprise interest rate swaps and cross-currency swaps.
At the previous balance sheet date, the Group was also party to interest rate collars.
Their net estimated fair values are as follows:
Interest rate derivatives
Cross-currency derivatives and Sterling/US Dollar forward contracts
They are represented in the balance sheet as follows:
Financial instrument asset
Financial instrument liability
2010
£000
(6,893)
12,721
5,828
14,622
(8,794)
5,828
2009
£000
(1,012)
56,136
55,124
65,028
(9,904)
55,124
Northgate plc
Annual report and accounts 2010
Notes to the accounts
63
23. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Interest rate derivatives
The Group’s exposure to interest fluctuations on its borrowings and deposits is managed through the use of interest rate derivatives.
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 to which the Group was party to as at 30 April 2010 and
30 April 2009 are summarised below:
30 April 2010
GBP denominated interest rate swaps
EUR denominated interest rate swaps
30 April 2009
Total
nominal
values
Weighted
average fixed
contract pay
rates
Weighted
average
remaining
life
£63,000,000
€200,000,000
2.44%
2.35%
2.4 years
2.4 years
GBP denominated interest rate collars
£20,000,000
6.75% (cap)
1.9 years
4.75% (floor)
During the current year, the £20,000,000 notional value of interest rate collars were terminated.
In September 2009, £63,000,000 and €200,000,000 of interest rate swaps, with a weighted average fixed contract pay rate of 2.44%
and 2.35% respectively and weighted average maturity of 3.1 years commenced. In addition, forward starting interest rate swaps
amounting to €100,000,000 with a weighted average fixed contract pay rate of 2.35% will commence on 30 July 2010. In July 2011,
£38,000,000 and €60,000,000 of interest rate swaps will mature with weighted average fixed contract pay rate of 2.44% and 2.35%
respectively.
All the Group’s interest rate swaps were designated as cash flow hedges and their fair value to the point of either maturity or
termination, along with changes in fair value in the current year, were deferred in equity. To the extent that the interest rate swaps were
not 100% effective, a net amount of £Nil has been credited (2009 – £36,000) to the income statement.
The estimated fair values of interest rate derivatives are as follows:
Interest rate swaps
Interest rate collars
2010
£000
(6,893)
–
(6,893)
2009
£000
–
(1,012)
(1,012)
In September 2009, the interest rate collars were terminated when they had a negative fair value of £1,265,000. That negative fair value
was not settled in cash but was added to the Group’s bank loan borrowing position with the derivative counterparty concerned. Interest
rate collars were not hedge accounted for and, accordingly, an amount of £253,000 (2009 – £988,000) has been charged to the income
statement.
The total change in fair values of interest rate derivatives charged to the income statement of £253,000 (2009 – £952,000) is shown
within finance costs (Note 9).
Cross-currency derivatives
Market values have been used to determine fair values of cross-currency derivatives at each balance sheet date.
The estimated fair values are as follows:
Sterling/US Dollar cross-currency swaps
Sterling/US Dollar forward contracts
Euro/Sterling cross-currency swaps
2010
£000
2009
£000
12,708
65,028
161
(148)
12,721
–
(8,892)
56,136
Northgate plc
Annual report and accounts 2010
Notes to the accounts
64
23. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Sterling/US Dollar cross-currency swaps
The Group has in issue US Dollar denominated loan notes of capital value $322,840,000 (2009 – $357,000,000) which bear fixed rate
interest in US Dollars. The payment of this interest and the capital repayment of the loan notes at maturity expose the Group to foreign
exchange risk. To mitigate this risk, the Group has entered into a series of Sterling/US Dollar cross-currency swaps. 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 22.
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 Sterling and receive a principal amount in US Dollars.
The weighted average interest rate that the Group pays in Sterling is 8.73% (2009 – 5.78%). All Sterling/US Dollar swaps are designated
and fully effective as cash flow hedges.
In September 2009, the cross currency swaps were terminated when their fair value was £33,562,000 and was applied to reduce
borrowings with the respective counterparty banks. The negative change in fair value between 1 May 2009 and this date of
£31,466,000 was deferred into equity. On the same day, new cross currency swaps commenced to maintain the Group’s hedging of the
US Dollar denominated loan notes. The positive change in fair value of £12,708,000 between that date and 30 April 2010 was deferred
into equity.
The £161,000 fair value of the forward contracts has also been deferred to equity.
Euro/Sterling cross-currency swaps
The Group also has Euro/Sterling cross-currency swaps of total notional value €37,765,000 (2009 – €43,555,000). The Group will have
interest cash inflows in Sterling and interest cash outflows in Euro over the life of the contract. On the termination date of the contract,
the Group will pay a principal amount in Euro and receive a principal amount in Sterling. The interest rate that the Group pays in Euro is
8.15% (2009 – 5.19%).
Between the date of inception of the contract and 30 April 2008, this swap was designated in a net investment hedging relationship
and was highly effective with the negative fair value of £3,989,000 deferred to equity as at 30 April 2008. On 1 May 2008, the
designation of the derivative in a net investment hedging relationship ceased and a hedging relationship was not redesignated until 6
October 2008. Consequently, the positive change in fair value of the derivative between 1 May 2008 and 6 October 2008 of £1,083,000
was recognised directly in the income statement, within finance costs (Note 9), with the subsequent negative change in the fair value of
£5,986,000 between 6 October 2008 and 30 April 2009 deferred to equity (Note 31), as the derivative was highly effective between
those dates.
In September 2009, the swap was terminated when its fair value was negative £7,722,000. This value was added to the Group’s
borrowings with the counterparty bank. The positive change in fair value between 1 May 2009 and this date of £1,170,000 was
deferred into equity. On the same day, a new cross currency swap commenced and the negative change in its fair value of £148,000
between that date and 30 April 2010 was deferred into equity. Throughout the year these cross-currency swaps have been highly
effective.
Gross movement in fair values initially deferred in hedging reserve:
At 30 April 2009
Movement in fair value of hedged instruments
At 30 April 2010
Cumulative amounts recycled to the income statement:
At 30 April 2009
Movement for the year
At 30 April 2010
Cumulative amounts recycled to the currency translation reserve:
At 30 April 2009
Movement for the year
At 30 April 2010
Net fair value deferred in hedging reserve:
At 30 April 2010
At 30 April 2009
Sterling/
US Dollar
£000
65,028
(18,597)
46,431
(57,737)
10,728
(47,009)
–
–
–
(578)
7,291
Euro/
Sterling
£000
(9,975)
1,022
(8,953)
–
28
28
9,421
(969)
8,452
(473)
(554)
Northgate plc
Annual report and accounts 2010
Notes to the accounts
65
23. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Amounts recycled to the income statement from the hedging reserve represent the movements on the foreign exchange elements of the
total fair value of the Sterling/US Dollar swaps. This matches the exchange difference on retranslation of the loan notes at the exchange
rate prevailing at the balance sheet date, leaving a net impact of £Nil in the income statement. In addition, the amount includes the
accrued interest from 1 May 2009 to the termination date of the swaps and the amortisation of the interest legs of the terminated
swaps over their residual life. The amount recycled to the translation reserve represents the movement on the foreign exchange elements
of the total fair value of the derivative subsequent to the designation of the Euro/Sterling swap as a net investment hedge. The net fair
value remaining in the hedging reserve represents the fair value of the interest rate element of the derivatives (Note 31).
Net investment hedges
The Group manages its exposure to currency fluctuations on retranslation of the balance sheets of those subsidiary undertakings whose
functional currency is Euro by maintaining a proportion of its borrowings in the same currency. 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 subsidiaries from Euro to Sterling at each reporting date.
Between 1 May 2009 and 11 September 2009, exchange differences on the retranslation of Euro borrowings exceeded the exchange
differences arising on the retranslation of the balance sheets of the Euro denominated subsidiary undertakings by £252,000.This amount
has been credited to finance costs in the year (Note 9). Subsequent to 11 September 2009, exchange differences on the retranslation of
Euro borrowings were less than the exchange differences arising on the retranslation of the balance sheets of the Euro denominated
subsidiary undertakings.
Except as stated above, the hedges are considered highly 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.
24. CURRENT TAX
The current tax creditor of £16,439,000 at 30 April 2010 (2009 – £5,572,000) includes a total amount of £13,422,000 (2009 – £Nil)
that is considered unlikely to give rise to a cash outflow within twelve months of the balance sheet date but is shown in the balance
sheet as a current liability in order to satisfy the requirements of IAS 1.
The expected cash outflow in respect of corporate tax in the twelve months following 30 April 2010 is therefore £3,017,000.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
66
25. DEFERRED TAX
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
allowances
£000
12,244
(26,926)
Revaluation
of buildings
£000
2,169
(304)
Share
based
payment
£000
(597)
395
Intangible
assets
£000
7,913
(1,811)
–
–
60
–
–
–
–
–
–
–
454
–
1,925
(49)
(202)
51
6,556
(1,397)
–
–
(12)
–
–
–
–
–
–
–
–
–
(82)
–
–
Group
At 1 May 2008
(Credit) charge to income
Derecognition of deferred
tax assets (Note 10)
Credit to equity
Exchange differences
Adjustments in respect
of prior years
At 1 May 2009
(Credit) charge to income
Recognition of deferred
tax assets (Note 10)
Charge (credit) to equity
Exchange differences
Adjustments in respect
of prior years
Transfer to current tax
At 30 April 2010
13,023
–
328
(2,273)
(3,604)
(7,768)
(13,023)
–
(31)
(2,422)
17,821
(9,027)
Retirement
benefit
obligations
£000
(155)
56
–
(31)
–
–
(130)
(29)
–
8
–
–
–
Other
timing
differences
£000
15,508
19,308
–
(839)
454
2,434
36,865
5,778
–
(4,110)
(108)
Losses
£000
–
(18,389)
8,669
–
563
–
(9,157)
5,499
(2,433)
–
196
–
–
408
(31,359)
Total
£000
37,082
(27,671)
21,692
(870)
1,859
161
32,253
2,085
(15,456)
(4,102)
(37)
(2,014)
(13,538)
(809)
1,864
(151)
5,077
(151)
(5,895)
7,474
Deferred tax is represented in the balance sheet as follows:
At 30 April 2010
Deferred tax assets
Deferred tax liabilities
Net deferred tax
assets (liabilities)
At 30 April 2009
Deferred tax assets
Deferred tax liabilities
Net deferred tax
assets (liabilities)
9,287
260
–
1,864
151
–
–
5,077
151
–
5,895
–
2,925
10,399
18,409
17,600
9,027
(1,864)
151
(5,077)
151
5,895
(7,474)
809
6,500
2,896
–
1,925
202
–
–
6,556
130
–
9,157
–
1,149
38,014
17,138
49,391
3,604
(1,925)
202
(6,556)
130
9,157
(36,865)
(32,253)
In the current year, the net credit to equity of £4,110,000 (2009 – £839,000), in respect of other timing differences relates to derivative
financial instruments which has been reflected in the hedging reserve (Note 31).
Deferred tax assets not recognised in the balance sheet of £6,045,000 (2009 – £21,692,000) relate to accelerated capital allowances
and unused tax losses where recoverability is not considered probable in the short term. These assets will be available for offset against
future taxable profits of the Group.
Net deferred tax liabilities of £7,474,000 (2009 – £36,865,000) classified as other timing differences relate to movements on fair values
of interest rate and foreign currency derivatives, other timing differences in relation to tax payable in various tax jurisdictions in which the
Group operates and other timing differences within the UK.
The following are the major deferred tax liabilities and (assets) recognised by the Company and movements thereon during the current
and prior years:
Company
At 1 May 2008
(Credit) charge to income
Credit to equity
At 1 May 2009
Charge (credit) to income
Credit to equity
At 30 April 2010
Accelerated
capital
allowances
£000
Share
based
payment
£000
Other
timing
differences
£000
39
(39)
–
–
–
–
–
(597)
395
–
(202)
51
–
(151)
2,331
166
(675)
1,822
(3)
(4,130)
(2,311)
Total
£000
1,773
522
(675)
1,620
48
(4,130)
(2,462)
Northgate plc
Annual report and accounts 2010
Notes to the accounts
67
26. SHARE CAPITAL
Group and Company
Allotted and fully paid:
132,949,433 (2009 - 70,548,045) Ordinary shares of 50p (2009 - 5p) each
The Company has one class of Ordinary shares which carries no right to fixed income.
2010
£000
2009
£000
66,475
3,527
In July 2009, 50,000,000 five pence Ordinary shares were issued pursuant to a placing at 60 pence per share for a cash consideration of
£30,000,000. In August 2009, 1,205,480,450 five pence Ordinary shares were issued pursuant to a ten for one rights issue at seven
pence per share for a cash consideration of £84,384,000. Total expenses of £6,691,000 in connection with the placing and rights issue
were deducted from the total cash proceeds and have been charged to the share premium account (Note 27). In September 2009, ten
Ordinary five pence shares were consolidated into one 50 pence Ordinary share. In January 2010, 346,583 50 pence Ordinary shares
were issued in connection with the All Employee Share Scheme for a cash consideration of £552,000.
27. SHARE PREMIUM ACCOUNT
Group and Company
At 1 May
Premium on Ordinary shares issued
Share issue expenses
At 30 April
Share issue expenses comprise underwriting and other fees directly attributable to the placing and rights issue.
28. REVALUATION RESERVE
At 1 May 2008
Foreign exchange differences
At 1 May 2009
Foreign exchange differences
At 30 April 2010
2010
£000
67,972
51,988
(6,691)
113,269
Group
£000
1,207
158
1,365
(35)
1,330
2009
£000
67,972
–
–
67,972
Company
£000
1,371
–
1,371
–
1,371
Northgate plc
Annual report and accounts 2010
Notes to the accounts
68
29. OWN SHARES
At 1 May 2008
Purchase of own shares
Disposal of own shares
Market value adjustment to own shares (Note 34)
At 1 May 2009
Purchase of own shares
Disposal of own shares
At 30 April 2010
Group
£000
(9,006)
(4,057)
5,241
5,520
(2,302)
(674)
2,085
(891)
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 37).
The results of the trusts are consolidated into the results of the Group in accordance with SIC 12 (Consolidation – Special Purpose
Entities).
On 30 April 2009, the own shares reserve was adjusted to reflect the market value of the shares held on that date effected through a
transfer to retained earnings (Note 34). The total value paid for the shares held at 30 April 2010 is £1,823,000 (2009 – £7,822,000).
30. MERGER RESERVE
At 1 May 2008, 1 May 2009 and 30 April 2010
31. HEDGING RESERVE
At 1 May 2008
Movement in fair value of hedged interest rate derivatives
Movement in fair value of hedged foreign currency derivatives
Deferred tax on fair value of interest rate and foreign currency derivatives
Amortisation of terminated interest rate derivatives (below)
Write off of terminated interest rate derivatives to income statement (below)
Transfer to income statement
Transfer to retained earnings (below)
Transfer to translation reserve (Note 32)
At 1 May 2009
Movement in fair value of hedged interest rate derivatives
Movement in fair value of hedged foreign currency derivatives
Deferred tax on fair value of interest rate and foreign currency derivatives
Amortisation of terminated interest rate derivatives (below)
Transfer to income statement
Transfer to translation reserve (Note 32)
At 30 April 2010
Group
£000
67,463
Company
£000
63,159
Group
£000
7,110
(32,588)
54,575
839
1,660
31,006
(62,454)
(547)
5,250
4,851
(6,893)
(17,575)
4,110
(405)
11,161
(969)
(5,720)
Company
£000
6,614
(32,808)
60,561
675
1,660
31,006
(62,454)
–
–
5,254
(6,893)
(18,597)
4,130
(400)
11,128
–
(5,378)
The hedging reserve represents the cumulative amounts of changes in fair values of hedged interest rate and foreign currency derivatives
that are deferred in equity, as explained in Note 2 and Note 23, less amounts transferred to the income statement and other
components of equity.
In the current year, certain US Dollar/Sterling cross currency-swaps were terminated. Prior to their termination, these instruments were all
designated in cash flow hedging relationships. In accordance with the provisions of IAS 39 (Financial Instruments: Recognition and
Measurement) in respect of early termination of cash flow hedges, this value remained deferred in equity to be amortised to the income
statement over the remaining life of the originally designated cash flow hedge. An amount of £400,000 was credited to the income
statement in this regard, recognised within finance costs (Note 9).
Northgate plc
Annual report and accounts 2010
Notes to the accounts
69
31. HEDGING RESERVE (continued)
As explained in Note 23, in the prior year, interest rate swaps were terminated at a cash cost of £32,666,000. Prior to their termination,
these instruments were all designated in cash flow hedging relationships. In accordance with the provisions of IAS 39 in respect of early
termination of cash flow hedges, this value remained deferred in equity to be amortised to the income statement over the remaining life
of the originally designated cash flow hedge. An amount of £1,660,000 was transferred to the income statement in the prior year in this
regard, recognised within finance costs (Note 9). At 30 April 2009, the Directors anticipated that the debt, against which the derivatives
were originally specifically designated in the cash flow hedge relationships, would cease to exist and, consequently, the hedged
transaction was no longer expected to occur. In accordance with IAS 39, a further cumulative amount of £31,006,000 was transferred to
the income statement, also recognised within finance costs.
During the prior year, certain interest rate swaps matured, the fair value of which was initially recognised in retained earnings upon the
transition of the Group to IAS 32 (Financial Instruments: Presentation) and IAS 39 on 1 May 2005. As such, the residual value remaining
in the hedging reserve in respect of these instruments was transferred, upon their maturity, into retained earnings. The amount
transferred was £547,000.
32. TRANSLATION RESERVE
At 1 May 2008
Foreign exchange differences on retranslation of net assets of subsidiary undertakings prior to inception of
net investment hedging relationship
Foreign exchange differences on retranslation of net assets of subsidiary undertakings after initial inception
of net investment hedging relationship
Net foreign exchange differences on long term borrowings held as hedges between initial inception and
subsequent change in level of net investment hedging relationship
Foreign exchange element of fair value movement of hedged derivatives, between date of initial inception
and date of subsequent change in level of net investment hedging relationship, transferred from hedging
reserve (Note 31)
Foreign exchange differences on retranslation of net assets of subsidiary undertakings after subsequent
change in level of net investment hedging relationship
Net foreign exchange differences on long term borrowings held as hedges after subsequent change in level
of net investment hedging relationship
Foreign exchange element of fair value movement of hedged derivatives, after subsequent change in level
of net investment hedging relationship, transferred from hedging reserve (Note 31)
At 1 May 2009
Foreign exchange differences on retranslation of net assets of subsidiary undertakings
Net foreign exchange differences on long term borrowings held as hedges
Foreign exchange element of fair value movement of hedged derivatives transferred from hedging reserve
(Note 31)
At 30 April 2010
Group
£000
3,817
(4,976)
51,118
(37,556)
(7,825)
(18,108)
5,299
2,575
(5,656)
(3,929)
2,960
969
(5,656)
Company
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
The translation reserve represents the aggregate of the cumulative exchange differences arising from the retranslation of the balance
sheets of the Euro based subsidiary undertakings and the cumulative exchange differences arising from long term borrowings held as
hedges and the foreign exchange element of fair value movements of hedged derivatives.
The management of the Group’s foreign exchange translation risks is detailed in Note 23.
33. CAPITAL REDEMPTION RESERVE
At 1 May 2008, 1 May 2009 and 30 April 2010
Group
£000
40
Company
£000
40
Northgate plc
Annual report and accounts 2010
Notes to the accounts
70
34. RETAINED EARNINGS
At 1 May 2008
(Loss) profit for the year
Dividends paid
Share options exercised
Market value adjustment to own shares
Share options fair value charge
Defined benefit pension charge recognised directly in equity
Net deferred tax credit recognised directly in retained earnings
Transfer from hedging reserve
At 1 May 2009
Profit (loss) for the year
Share options exercised
Share options fair value charge
Defined benefit pension charge recognised directly in equity
Net deferred tax charge recognised directly in retained earnings
At 30 April 2010
35. EXCEPTIONAL ITEMS
During the year, the Group recognised exceptional items in the income statement made up as follows:
Restructuring costs
Net property losses
Impairment of assets
Exceptional administrative expenses
Covenant deferral fees
Make-whole premium on US loan notes
Write off of unamortised fees relating to bilateral debt facilities
Other financing fees
Termination of interest rate swaps
Exceptional finance costs
Total pre-tax exceptional items
Tax credit on exceptional items
Net (recognition) derecognition of deferred tax assets (Note 10)
Exceptional net tax credit
Restructuring costs
Group
£000
256,423
(185,702)
(19,359)
(1,600)
(5,520)
788
(109)
31
547
45,499
24,356
(1,984)
1,154
(221)
(8)
68,796
2010
£000
6,324
396
–
6,720
2,199
8,842
3,751
424
–
15,216
Company
£000
35,078
21,565
(19,359)
–
–
788
–
–
–
38,072
(13,118)
–
1,154
–
–
26,108
2009
£000
3,123
–
180,921
184,044
1,164
–
–
–
32,666
33,830
21,936
217,874
(6,142)
(15,456)
(21,598)
(38,417)
21,692
(16,725)
During the year, the Group incurred total exceptional restructuring costs of £6,324,000 (2009 – £3,123,000), of which £6,065,000
(2009 – £846,000) arose in the United Kingdom and £259,000 (2009 – £2,277,000) in Spain.
Net property losses
Net property losses were £396,000 (2009 – £Nil), of which £782,000 losses (2009 – £Nil) arose in the United Kingdom and £386,000
profit (2009 – £Nil) arose in Spain.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
71
35. EXCEPTIONAL ITEMS (continued)
Impairment of assets
The Group tests its cash generating units (CGUs) annually for impairment, or more frequently if there are indications that assets might be
impaired. The recoverable amounts of the CGUs are determined from 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. In the prior year an additional impairment review was
carried out, due to a deterioration in macroeconomic conditions. This review resulted in a shortfall in the value in use of certain CGUs
compared to their book value.
In accordance with IAS 36, the impairment of a particular CGU was allocated firstly against goodwill and then to the extent that the
impairment exceeded the book value of the goodwill, the excess impairment was then allocated against the remaining assets of the CGU
on a pro-rata basis with the exception of assets already carried at their recoverable amount or otherwise excluded from the scope of the
Standard.
The Group prepared cash flow forecasts derived from a three year business plan approved by the Directors in February 2009 with growth
rates of 1 to 3.5% over a ten year period using a discount rate of 4% for the UK CGUs and 4% for the Spanish CGUs. The periods over
which cash flows were extrapolated exceeded five years on the basis that economic benefits were expected to flow to the Group over a
longer period.
In addition to the annual test of impairment referred to above, and as required by IAS 36, in the current year there has been an
assessment as to whether there has been any indication that the impairment loss recognised in the previous year has decreased or no
longer exists. This assessment was based on cash flow forecasts derived from a two year business plan approved by the Directors in April
2010 using growth rates of 1 to 4% over a ten year period using a discount rate of 7% for the UK CGUs and 7% for the Spanish CGUs.
It was concluded that there were no indicators of additional impairment or reversal of impairment previously charged for the UK CGUs.
In respect of Record Rent a Car S.A. and Alquiservicios LSL S.A. there was an aggregate reversal of £11,600,000 (of which £11,000,000
related to vehicles for hire, £300,000 to other intangible assets and £300,000 to other plant and equipment). In respect of Furgonetas
de Alquiler S.A. there was an additional impairment charge of £11,600,000 (of which £11,000,000 related to vehicles for hire, £300,000
to other intangible assets and £300,000 to other plant and equipment).
Covenant deferral fees
In the early part of the year, the Group was engaged in renegotiating the terms of certain of its borrowings. As a result, the Group
incurred fees of £2,199,000 (2009 - £1,164,000) payable to certain lenders to defer testing of covenants at 31 July 2009.
Make-whole premium on US loan notes
As part of the refinancing of its borrowings, the Group incurred fees of £8,842,000 (2009 - £Nil) in relation to make-whole notes issed
to the private placement noteholders, which arise from amortisation of the existing notes during the year and in respect of future
scheduled borrowing amortisations.
Unamortised fees
Unamortised financing fees of £3,751,000 (2009 – £Nil) were written off in respect of the borrowing facilities replaced in September
2009.
Other financing fees
Other financing fees of £424,000 (2009 – £Nil) were payable relating to the refinancing of borrowings in September 2009.
Termination of interest rate swaps
As explained in Note 23, in the prior year the Group terminated all of its Euro-denominated interest rate swaps, of total notional value
€475,000,000, at a cash cost of £32,666,000. This is reflected in the income statement as the write off of terminated interest rate
derivatives of £31,006,000 and amortisation of terminated interest rate derivatives of £1,660,000 both reflected as exceptional items
within finance costs (Note 9).
Northgate plc
Annual report and accounts 2010
Notes to the accounts
72
36. OPERATING LEASE ARRANGEMENTS
As lessee
Group
Minimum lease payments under operating leases recognised in the income statement for the year
2010
£000
8,845
2009
£000
8,722
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
2010
£000
6,128
14,707
25,172
46,007
2009
£000
6,218
15,385
20,732
42,335
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 13 (2009 – 12) years and rentals are fixed for an average number of 6 (2009 – 6) 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 income statement. There are no contingent rentals
recognised in income.
37. SHARE BASED PAYMENTS
The Group’s and Company’s various share incentive plans are explained on pages 25 to 28.
The Group and Company recognised total expenses of £1,154,000 (2009 – £788,000) related to equity-settled share-based payment
transactions in the year.
Further details regarding the plans are outlined below. In all the tables that follow within this Note, the prior year number of shares and
exercise prices have been adjusted for the bonus element of the ten for one rights issue at seven pence per Ordinary share effective 12
August 2009 and the one for ten consolidation effective 23 September 2009.
Northgate Share Option Scheme
At 1 May
Forfeited during the year
At 30 April
Exercisable at the end of the year
2010
Weighted
average
exercise price
£
20.18
18.96
21.08
19.39
Number
of share
options
181,237
(77,348)
103,890
46,467
2009
Weighted
average
exercise price
£
19.45
12.89
20.18
17.68
Number
of share
options
201,467
(20,230)
181,237
78,201
No share options were exercised during the year. The options outstanding at 30 April 2010 have a weighted average remaining
contractual life of 6.4 years (2009 – 6.5 years). No options were granted in the year or in the prior year.
Executive Incentive Scheme
No options have been granted since 24 January 2002 under this scheme.
At 1 May
Lapsed during the year
At 30 April
Exercisable at the end of the year
2010
Weighted
average
exercise price
£
10.18
10.26
9.41
9.41
Number
of share
options
122,544
(112,052)
10,492
10,492
2009
Weighted
average
exercise price
£
10.14
9.29
10.18
10.18
Number
of share
options
128,858
(6,314)
122,544
122,544
Northgate plc
Annual report and accounts 2010
Notes to the accounts
73
37. SHARE BASED PAYMENTS (continued)
No share options were granted or exercised in the current or prior year. The options outstanding at 30 April 2010 had a weighted
average remaining contractual life of 1.2 years (2009 – 0.6 years).
Deferred Annual Bonus Plan
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
2010
Number of
share options
2009
Number of
share options
220,241
25,396
(74,472)
(2,696)
104,051
156,734
(36,526)
(4,018)
168,469
220,241
12,374 (2009 – 10,845) options were exercisable at the end of the year.
The weighted average share price at the date of exercise of options in the current year was £2.28 (2009 – £4.81).
The options outstanding at 30 April 2010 had a weighted average remaining contractual life of 3.0 years (2009 – 3.7 years). In the
current year, options were granted in October 2009. The aggregate of the estimated fair values of the options granted on this date was
considered to be £51,000. In the prior year, options were granted in July 2008. The aggregate of the estimated fair values of the options
granted on this date was £Nil.
The inputs into the Black-Scholes model were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2010
2009
£2.78
£Nil
133.1%
3 years
2.7%
10.7%
£7.06
£Nil
56.1%
3 years
5.2%
1.5%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
All Employee Share Scheme
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
2010
Number of
shares
447,333
346,584
(114,612)
(88,530)
590,776
2009
Number of
shares
78,766
402,994
(5,874)
(28,553)
447,333
Northgate plc
Annual report and accounts 2010
Notes to the accounts
74
37. SHARE BASED PAYMENTS (continued)
The share price at the date of vesting for matching shares during the year was £2.26 (2009 – £1.73). The non-vested matching shares
outstanding at 30 April 2010 had a weighted average remaining period until vesting of 1.9 years (2009 – 2.5 years). In the current year,
matching shares were allocated in January 2010. The aggregate of the estimated fair values of the matching shares allocated on this
date was £750,000. In the prior year, matching shares were allocated in January 2009. The aggregate of the estimated fair values of the
matching shares allocated on this date was £480,000.
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
2010
2009
£2.17
£Nil
134.7%
5 years
2.9%
0.0%
£1.37
£Nil
49.2%
5 years
2.9%
1.7%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
Management Performance Share Plan
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
Exercised during the year
Forfeited during the year
At 30 April
2010
Number of
share
options
352,961
872,638
(22,705)
(145,332)
1,057,562
2009
Number of
share
options
116,366
273,920
(1,041)
(36,284)
352,961
No options were exercisable at the end of either year.
The options outstanding at 30 April 2010 had a weighted average remaining contractual life of 2.2 years (2009 – 2.9 years). In the
current year, share options were granted in October 2009. The aggregate of the estimated fair values of the options granted on this date
was £1,379,000. In the prior year, share options were granted in July 2008 and December 2008. The aggregate of the estimated fair
values of the options granted on these dates was £Nil.
The inputs into the Black-Scholes model were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2010
2009
£2.78
£Nil
133.1%
3 years
2.7%
10.7%
£2.87
£Nil
75.7%
3 years
3.4%
2.5%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
75
37. SHARE BASED PAYMENTS (continued)
Executive Performance Share Plan
All options granted under this scheme are nil cost options. The first grant of options under this scheme occurred in July 2008.
Details of the share options outstanding during the year are as follows:
At 1 May
Granted during the year
Lapsed during the year
At 30 April
2010
Number of
share
options
363,506
330,952
(162,285)
532,173
2009
Number of
share
options
–
363,506
–
363,506
No options were exercisable at the end of the year.
The options outstanding at 30 April 2010 had a weighted average remaining contractual life of 2.5 years (2009 - 2.3 years). In the
current year, share options were granted in October 2009. The aggregate of the estimated fair values of the options granted on this date
was £666,000. In the prior year, share options were granted in July 2008 and October 2008. The aggregate of the estimated fair values
of the options granted on these dates was £Nil.
The inputs into the Black-Scholes model were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
2010
2009
£2.78
£Nil
133.1%
3 years
2.7%
10.7%
£6.00
£Nil
59.5%
3 years
4.8%
1.7%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years.
38. RETIREMENT BENEFIT SCHEMES
During the year the Group operated two group personal pension plans and The Willhire Pension Scheme (‘the Scheme’), which includes
both defined benefit and defined contribution sections. The total operating pension cost to the Group of all these arrangements was
£1,948,000 (2009 – £1,403,000) all of which related to the defined contribution schemes.
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.
The Scheme is 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, 30 April 2008, 30 April 2009 and 30 April 2010 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 and the following principal assumptions set out below.
Discount rate
Inflation rate
Salary increases
Future pension increases
Life expectancy of retirees in current year
Life expectancy of retirees 25 years hence
Valuation at
30 April 2010
% pa
5.5
3.7
n/a
3.6
22 to 25 years
23 to 26 years
Valuation at
30 April 2009
% pa
6.3
3.4
n/a
3.3
22 to 25 years
23 to 26 years
The Directors do not consider that the Group is materially sensitive to changes in these key assumptions.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
76
38. RETIREMENT BENEFIT SCHEMES (continued)
Amounts recognised as costs (income) in respect of the Scheme are as follows:
Interest cost
Expected return on plan assets
Total pension charge
2010
£000
229
(125)
104
2009
£000
238
(183)
55
Actuarial gains and losses have been reported directly in equity, within retained earnings. The cumulative net amount of actuarial gains
reflected directly in equity since 3 February 2006 is £263,000 (2009 – £484,000 gain).
The actual return on the scheme assets was a loss of £664,000 (2009 – loss of £426,000). There are no reimbursement rights.
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined retirement benefit 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
Pension charge recognised in the income statement
Actuarial losses
Contributions
At 30 April
Movements in the present value of the defined benefit obligations were as follows:
At 1 May
Interest cost
Actuarial losses (gains)
Benefits paid
At 30 April
Movements in the fair value of Scheme assets were as follows:
At 1 May
Expected return on Scheme assets
Contributions
Benefits paid
Actuarial gains (losses)
At 30 April
2010
£000
(4,501)
3,962
(539)
2010
£000
465
104
221
(251)
539
2010
£000
3,659
229
760
(147)
4,501
2010
£000
3,194
125
251
(147)
539
3,962
2009
£000
(3,659)
3,194
(465)
2009
£000
553
55
109
(252)
465
2009
£000
4,055
238
(500)
(134)
3,659
2009
£000
3,502
183
252
(134)
(609)
3,194
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.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
77
38. RETIREMENT BENEFIT SCHEMES (continued)
The analysis of the Scheme assets and the expected rate of return at the balance sheet date was as follows:
Equity instruments
Debt instruments
Other
30 April 2010
30 April 2009
Expected
return
%
5.0
3.0
3.0
Fair value
of assets
£000
1,559
2,148
255
3,962
Expected
return
%
5.9
3.9
3.9
Fair value
of assets
£000
1,301
1,682
211
3,194
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 totaled £251,000 in accordance with latest actuarial advice received. The estimated amount of
contributions expected to be paid to the Scheme during the year ended 30 April 2011 is £510,000.
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
30 April 2010
£000
Year ended
30 April 2009
£000
Year ended
30 April 2008
£000
Year ended
30 April 2007
£000
Period ended
30 April 2006
£000
4,501
3,962
539
65
1.4%
539
13.6%
3,659
3,194
465
(59)
(1.6)%
(609)
(19.1)%
4,055
3,502
553
(185)
(5.0)%
(176)
(5.0)%
3,900
3,345
555
738
19.0%
(483)
(14.0)%
4,595
3,151
1,444
48
1.5%
493
10.7%
39. FINANCIAL INSTRUMENTS
The following disclosures and analysis relate to the Group’s financial instruments, as defined by IFRS 7 (Financial Instruments:
Disclosures).
The Group is required to analyse financial instruments that are measured subsequent to initial recognition at fair value, grouped into
Levels 1 to 3 based on the degree to which fair value is observable:
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
•
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability either directly (i.e. prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs)
All the financial instruments below are categorised as Level 2.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt,
which includes the borrowings disclosed in Note 22, cash and cash equivalents and equity attributable to equity holders of the parent,
comprising issued share capital, reserves and retained earnings as disclosed in Notes 26 to 34.
Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters as discussed in Notes 22 and 23.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
78
39. FINANCIAL INSTRUMENTS (continued)
Foreign currency sensitivity analysis
The Group is exposed to movements in the exchange rate between Euro and Sterling and US Dollars and Sterling, where Sterling is the
functional currency of the Group. As explained in more detail below and in Note 23, identical key terms between US Dollar denominated
loan note liabilities and Sterling/US Dollar cross-currency derivatives mean that the profit and loss and equity of the Group is not
materially sensitive to fluctuations in the exchange rate between US Dollars and Sterling.
This means that the material sensitivity of the profit or loss and equity of the Group to exchange rate movements arises due to
fluctuations in the exchange rate between Euro and Sterling only.
The following tables detail the Group’s sensitivity to a (0.10 (2009 – €0.20) increase and decrease in the Euro/Sterling exchange rate.
A (0.10 (2009 – (0.20) movement in the rate in either direction is management’s assessment of the reasonably possible change in
foreign exchange rates in the near term. The sensitivity analysis includes only any outstanding foreign currency denominated monetary
items and adjusts their translation at the period end for a (0.10 (2009 – (0.20) change in foreign currency rates.
2010
Total equity
2009
Total equity
As stated in
annual report
£000
As would be
stated if
€0.10 increase
£000
As would be
stated if
€0.10 decrease
£000
305,106
304,250
306,564
As stated in
annual report
£000
As would be
stated if
€0.20 increase
£000
As would be
stated if
€0.20 decrease
£000
182,759
197,528
161,564
There is no material impact on the income statement in either year.
Sterling/US Dollar Cross-currency derivatives
As explained in Note 23, the Group has Sterling/US Dollar cross-currency derivatives to manage its exposure to foreign exchange
movements between US Dollars, the denomination of loan note liabilities, and Sterling, the functional currency of the Group. The
movement in fair value of these derivatives is a function of both the Sterling/US Dollar exchange rate and market interest rates prevailing
in the United Kingdom and United States.
As a result of the key terms of the cross-currency derivatives and the loan notes, against which a hedging relationship is designated,
being identical, any gains or losses on foreign exchange included in the fair value of the Sterling/US Dollar cross currency-swaps are
transferred to the income statement and are exactly offset in the income statement by an equal and opposite amount on retranslation of
the US dollar loan notes to the closing rate prevailing at the balance sheet date, leaving a net impact of £Nil on the income statement
for all Sterling/US Dollar exchange rates.
The net impact on the hedging reserve, arising from these particular derivatives, therefore represents only the gain or loss on the interest
rate element of the fair value of the derivatives, as explained further in Note 23. Consequently, any fluctuation in the rate of the US
Dollar has no impact on either profit and loss or equity.
Interest rate risk management
The Group is exposed to interest rate risk, as entities within the Group borrow funds at both fixed and floating interest rates. The risk is
managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate
swap and collar contracts. Hedging activities are reviewed regularly to align with interest rate views and defined risk appetite, ensuring
optimal hedging strategies are applied, by either positioning the balance sheet or protecting interest expense through different interest
rate cycles.
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of
this note.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
79
39. FINANCIAL INSTRUMENTS (continued)
Interest rate sensitivity analysis
The sensitivity analyses below have been determined on the exposure to interest rates for floating rate liabilities and related derivatives.
For the floating rate liabilities, the analysis is prepared on the basis of both the average liability outstanding over the period and average
rate applicable for the period. In all instances it is assumed that any derivatives designated in hedging relationships are 100% effective.
A 1.0% (2009 – 1.0%) increase or decrease has been used in the analyses and represents management’s best estimate of a reasonably
possible change in interest rate in the near term.
2010
Profit before taxation
Total equity
2009
Loss before taxation
Total equity
Interest rate swap contracts
As stated in
annual report
£000
As would be
stated if
1.0% increase
£000
As would be
stated if
1.0% decrease
£000
9,615
305,106
4,999
301,783
14,231
308,429
As stated in
annual report
£000
As would be
stated if
1.0% increase
£000
As would be
stated if
1.0% decrease
£000
(195,614)
(198,127)
(193,101)
182,759
180,950
184,568
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts
calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates and the
cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by
discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contract and is disclosed
below. The average interest rate is based on the outstanding balances at the end of the financial year.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding at the
reporting date:
Outstanding receive floating pay fixed contracts
Sterling
2 to 5 years
Euro
2 to 5 years
Liquidity risk management
Average contract
fixed interest rate
Notional principal
amount
2010
%
2.44%
2.35%
2009
%
–
–
2010
£000
63,000
174,060
2009
£000
–
–
Fair value
2010
£000
(1,060)
(5,833)
2009
£000
–
–
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk
management framework for the management of the Group’s short, medium and long term funding and liquidity requirements. The
Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in Note 22 is a
description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
80
39. FINANCIAL INSTRUMENTS (continued)
Liquidity and interest risk tables
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn
up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.
The table includes both interest and principal cash flows. All interest cash flows and the weighted average effective interest rate have
been calculated using interest rate conditions prevailing at the balance sheet date.
2010
Non-interest bearing
Fixed interest rate instruments
Variable interest rate instruments
2009
Non-interest bearing
Finance lease liability
Fixed interest rate instruments
Variable interest rate instruments
Weighted
average
effective
interest
rate
0.00%
7.89%
3.74%
Weighted
average
effective
interest
rate
0.00%
2.84%
5.70%
2.01%
<1 year
£000
44,601
118,573
67,658
230,832
<1 year
£000
35,975
38
15,040
94,275
145,328
2nd year
£000
–
23,090
9,144
32,234
2nd year
£000
–
–
15,040
165,697
180,737
3-5 years
£000
–
314,429
201,111
515,540
3-5 years
£000
–
–
166,284
531,047
697,331
>5 years
£000
–
111,570
–
111,570
>5 years
£000
–
–
156,711
–
Total
£000
44,601
567,662
277,913
890,176
Total
£000
35,975
38
353,075
791,019
156,711
1,180,107
The following table details the Group’s liquidity analysis for its derivative financial instruments. It includes both liabilities and assets to
illustrate how the cashflows are matched in each period.
The table has been drawn up based on the undiscounted net cash inflows (outflows) on the derivative instruments that settle on a net
basis and the undiscounted gross cash inflows (outflows) on those derivatives that require gross settlement. When the amount payable
or receivable is not fixed, the amounts disclosed have been determined by reference to the floating rates applicable at the balance sheet
date, which have then been used to project future cash flows.
2010
Liabilities
Net settled:
Interest rate swaps
Gross settled:
Cross currency derivatives
Assets
Gross settled:
Cross currency derivatives
2009
Liabilities
Net settled:
Interest rate collars
Gross settled:
Cross currency derivatives
Assets
Gross settled:
Cross currency derivatives
<1 year
£000
2nd year
£000
3-5 years
£000
>5 years
£000
Total
£000
5,829
5,022
1,908
–
12,759
33,844
39,673
15,236
20,258
126,632
128,540
92,975
92,975
268,687
281,446
34,893
34,893
14,885
14,885
131,938
131,938
99,662
99,662
281,378
281,378
<1 year
£000
2nd year
£000
3-5 years
£000
>5 years
£000
Total
£000
(660)
(305)
(305)
–
(1,270)
(12,885)
(13,545)
(12,885)
(99,999)
(167,405)
(293,174)
(13,190)
(100,304)
(167,405)
(294,444)
15,731
15,731
15,731
15,731
110,805
110,805
217,154
217,154
359,421
359,421
Northgate plc
Annual report and accounts 2010
Notes to the accounts
81
39. FINANCIAL INSTRUMENTS (continued)
Fair value of financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
Derivative financial instruments are measured at the present value of future cash flows estimated and discounted based on applicable
yield curves derived from quoted interest rates.
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted
pricing models based on discounted cash flow analysis.
Except as detailed in the following table, the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the
financial statements approximate their fair values or, in the case of interest rate swaps and collars and cross-currency derivatives, are held
at fair value:
Financial liabilities
Loan notes
Credit risk management
Carrying amount
Fair value
2010
£000
2009
£000
2010
£000
2009
£000
223,324
263,560
255,090
336,020
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group’s credit risk is primarily attributable to its trade receivables. 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.
Trade receivables
Trade receivables (maximum exposure to credit risk)
Allowance for doubtful receivables
Ageing of trade receivables not impaired
Not overdue
Past due not more than two months
Past due more than two months but not more than four months
Past due more than four months but not more than six months
2010
£000
2009
£000
147,150
(17,080)
130,070
173,824
(7,949)
165,875
2010
£000
2009
£000
112,112
14,610
2,688
660
130,070
135,734
23,887
5,406
848
165,875
Before accepting any new customers, the Group will perform credit analysis on any new customers to assess the credit risk on an
individual basis. This enables the Group only to deal with creditworthy customers therefore reducing the risk of financial loss from
defaults. Of the trade receivables balance at the end of the year, approximately £2,203,000 (2009 – £2,356,000) is due from the Group’s
largest customer. There are no other customers who represent more than five per cent of the total balance of trade receivables.
The Group has no significant concentration of credit risk as trade receivables consist of a large number of customers, spread across
diverse industries and geographical areas in the UK and Spain.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
82
39. FINANCIAL INSTRUMENTS (continued)
Included in the Group’s trade receivables balance are debtors with a carrying amount of £17,958,000 (2009 – £30,141,000) which are
past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the
amounts are still considered recoverable.
Movement in the allowance for doubtful receivables
At 1 May
Impairment losses recognised
Amounts written off as uncollectible
Impaired losses reversed
Exchange differences
At 30 April
2010
£000
7,949
14,400
(2,663)
(2,335)
(271)
17,080
2009
£000
6,126
9,071
(4,020)
(3,796)
568
7,949
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from
the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being
large and mainly unrelated. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance
for doubtful receivables.
Included in the allowance for doubtful receivables are trade receivables which have been placed under liquidation of £43,000 (2009 –
£23,000).
Ageing of impaired trade receivables
Not overdue
Past due not more than two months
Past due more than two months but not more than four months
Past due more than four months but not more than six months
Past due more than six months but not more than one year
2010
£000
1,005
387
2,267
463
12,958
17,080
2009
£000
1,559
446
857
239
4,848
7,949
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Trade receivables (Note 20), cash and cash equivalents and trade payables (Note 21) are shown at amortised cost. All other financial
instruments are at fair value.
The Company has no trade receivables and no intercompany receivables past due date.
40. RELATED PARTY TRANSACTIONS
Transactions with subsidiary undertakings
Transactions between the Company and its subsidiary undertakings, which are related parties, are as follows:
Net interest (payable) receivable
Management charges
2010
£000
(2,612)
300
(2,312)
2009
£000
1,451
300
1,751
Balances with subsidiary undertakings at the balance sheet date are shown in Notes 20 and 21.
Remuneration of key management personnel
In the current and prior year, the Directors of Northgate plc are determined to be the key management personnel of the Group. There
are other senior executives in the Group who are able to influence the Company in the achievement of its goals. However, in the opinion
of the Directors, only the Directors of the Company have significant authority for planning, directing and controlling the activities of the
Group.
Dividends received by the Directors of the Company amounted to £Nil (2009 – £254,000).
In respect of the compensation of key management personnel, the short term employee benefits, post-employment (pension) benefits,
termination benefits and details of share options granted are set out in the audited part of the Remuneration Report on pages 23 to 28.
The fair value charged to the income statement in respect of equity-settled share-based payment transactions with the Directors is
£130,000 (2009 – £123,000). There are no other long term benefits accruing to key management personnel, other than as set out in the
audited part of the Remuneration Report.
Northgate plc
Annual report and accounts 2010
Notes to the accounts
83
Five year financial summary
Based on the consolidated accounts for years ended 30 April and adjusted to reflect the effect of subsequent changes in accounting
policy.
Income statement
Revenue: hire of vehicles and fleet management
563,698
609,645
Profit (loss) from operations
71,109
(117,531)
2010
£000
2009
£000
(As restated)
Net finance costs
Share of profit before taxation of associate
Share of taxation of associate
Profit (loss) before taxation
Taxation
Profit (loss) for the year
Basic earnings per Ordinary share*
Dividends
Dividends per Ordinary share*
Balance sheet
Assets employed
Non-current assets
Net current (liabilities) assets
Non-current liabilities
Financed by
Share capital
Share premium account
Reserves
Net asset value per Ordinary share*
2008
£000
(As restated)
578,462
118,206
(38,714)
–
–
79,492
(18,158)
61,334
188.6p
18,982
60.9p
2007
£000
(As restated)
526,465
107,056
(31,688)
–
–
75,368
(20,885)
54,483
165.5p
16,949
55.5p
2006
£000
(As restated)
372,609
72,598
(20,078)
4,964
(1,422)
56,062
(15,468)
40,594
132.9p
13,437
50.0p
(61,494)
–
–
9,615
14,741
24,356
23.1p
–
–
(78,083)
–
–
(195,614)
9,912
(185,702)
(572.6)p
19,359
25.0p
2010
£000
2009
£000
(As restated)
2008
£000
(As restated)
2007
£000
(As restated)
2006
£000
(As restated)
885,124
(6,024)
(573,994)
983,173
172,373
(972,787)
1,209,207
164,221
(974,875)
1,034,896
136,806
(809,271)
803,498
52,566
(535,775)
305,106
182,759
398,553
362,431
320,289
66,475
113,269
125,362
305,106
229p
3,527
67,972
111,260
182,759
563p
3,527
67,972
327,054
398,553
1,227p
3,560
67,230
291,641
362,431
1,107p
3,538
64,998
251,753
320,289
985p
* prior year number of shares adjusted for the bonus element of the ten for one rights issue at seven pence per Ordinary share effective
12 August 2009 and the one for ten consolidation effective 23 September 2009.
Northgate plc
Annual report and accounts 2010
Five year financial summary
84
11.
That subject to the passing of Resolution 10 the Board be and
it is hereby empowered pursuant to Section 570 of the
Companies Act 2006 to allot equity securities (within the
meaning of Section 560 of the said Act) for cash pursuant to
the authority conferred by the previous resolution as if
sub-section (1) of Section 561 of the said Act did not apply to
any such allotment provided that this power shall be limited:
i
to the allotment of equity securities in connection with a
rights issue in favour of Ordinary shareholders where the
equity securities respectively attributable to the interests of
all Ordinary shareholders are proportionate (as nearly as
may be) to the respective numbers of Ordinary shares held
by them; and
ii
to the allotment (otherwise than pursuant to sub-
paragraph i. above) of equity securities up to an aggregate
nominal value of £3,320,000
and shall expire on the date of the next annual general
meeting of the Company after the passing of this resolution
save that the Company may before such expiry make an offer
or agreement which would or might require equity securities
to be allotted after such expiry and the Board may allot equity
securities in pursuance of such an offer or agreement as if the
power conferred hereby had not expired.
12.
That a general meeting, other than an annual general
meeting, may be called on not less than 14 clear days’ notice.
13.
That the renewal of the rules of the Northgate All Employee
Share Scheme (‘the Scheme’), in the form produced to this
meeting and, for the purposes of identification, initialled by
the Chairman, be approved and the Directors be authorised to:
i
ii
do all such acts and things as they may consider
appropriate for the renewal of the Scheme; and
establish further plans based on the Scheme but modified
to take account of local tax, exchange control or securities
laws in overseas territories, provided that any shares made
available under such further plans are treated as counting
against the limits on individual or overall participation in
the Scheme.
29 June 2010
By Order of the Board
D Henderson
Secretary
Registered office:
Norflex House
Allington Way
Darlington
DL1 4DY
Notice of annual general meeting
Notice is hereby given that the one hundred and twelfth Annual
General Meeting of Northgate plc (‘the Company’) will be held at
Norflex House, Allington Way, Darlington DL1 4DY at 11.30a.m.
on 9 September 2010 for the purpose of considering and, if
thought fit, passing the following resolutions of which resolutions
1 to 10 and 13 will be proposed as ordinary resolutions and
resolutions 11 and 12 will be proposed as special resolutions:
1.
2.
3.
To receive and approve the Directors’ report and audited
accounts of the Company for the year ended 30 April 2010.
To receive and approve the Remuneration Report for the
financial year ended 30 April 2010 set out on pages 23 to 28
of the 2010 Annual Report and Accounts.
To re-appoint Deloitte LLP as auditors of the Company to hold
office until the conclusion of the next Annual General
Meeting.
4.
To authorise the Audit Committee to determine the
remuneration of the auditors.
5.
To re-elect Mr R Mackenzie as a Director.
6.
To re-elect Mr A Allner as a Director.
7.
To re-elect Mr J Astrand as a Director.
8.
To re-elect Mr T Brown as a Director.
9.
To re-elect Mr R Contreras as a Director.
10.
That the Board be and it is hereby generally and
unconditionally authorised:
i
ii
pursuant to Section 551 of the Companies Act 2006, to
exercise all powers of the Company to allot shares in the
Company and to grant rights to subscribe for or to convert
any security into shares in the Company up to an
aggregate nominal amount of £22,000,000 provided that
this authority shall expire on the date of the next annual
general meeting of the Company after the passing of this
resolution save that the Company may before such expiry
make an offer or agreement which would or might require
shares to be allotted or rights to subscribe for or convert
securities into shares to be granted after such expiry and
the Board may allot shares or grant rights to subscribe for
or convert securities into shares in pursuance of such an
offer or agreement as if the authority conferred hereby
had not expired; and further
to exercise all powers of the Company to allot equity
securities (within the meaning of Section 560 of the said
Act) in connection with a rights issue in favour of Ordinary
shareholders where the equity securities respectively
attributable to the interests of all Ordinary shareholders are
proportionate (as nearly as may be) to the respective
numbers of Ordinary shares held by them up to an
aggregate nominal amount of £22,000,000 provided that
this authority shall expire on the date of the next annual
general meeting of the Company after the passing of this
resolution save that the Company may before such expiry
make an offer or agreement which would or might require
equity securities to be allotted after such expiry and the
Board may allot equity securities in pursuance of such an
offer or agreement as if the authority conferred hereby
had not expired.
Northgate plc
Annual report and accounts 2010
Notice of annual general meeting
85
Notes
1.
2.
3.
4.
5.
6.
A member entitled to attend and vote at the meeting
may appoint another person(s) (who need not be a
member of the Company) to exercise all or any of his
rights to attend, speak and vote at the Meeting. A
member can appoint more than one proxy in relation to
the Meeting, provided that each proxy is appointed to
exercise the rights attaching to different shares held by
him.
A proxy form which may be used to make this appointment
and give proxy instructions accompanies this notice. Details of
how to appoint a proxy are set out in the notes to the proxy
form. As an alternative to completing a hard copy proxy form,
proxies may be appointed by using the electronic proxy
appointment service in accordance with the procedures set out
in Note 5 below. CREST members may appoint proxies using
the CREST electronic proxy appointment service (see Note 6
below). In each case the appointment must be received by the
Company not less than 48 hours before the time of the
meeting.
A copy of this notice has been sent for information only to
persons who have been nominated by a member to enjoy
information rights under section 146 of the Companies Act
2006 (a ‘Nominated Person’). The rights to appoint a proxy
can not be exercised by a Nominated Person: they can only be
exercised by the member. However, a Nominated Person may
have a right under an agreement between him and the
member by whom he was nominated to be appointed as a
proxy for the meeting or to have someone else so appointed.
If a Nominated Person does not have such a right or does not
wish to exercise it, he may have a right under such an
agreement to give instructions to the member as to the
exercise of voting rights.
To be entitled to attend and vote at the Meeting, members
must be registered in the register of members of the Company
48 hours before the time of the Meeting (or, if the Meeting is
adjourned, 48 hours before the adjourned meeting). Changes
to entries on the register after this time shall be disregarded in
determining the rights of persons to attend or vote (and the
number of votes they may cast) at the Meeting or adjourned
meeting.
Shareholders wishing to appoint a proxy online should visit
www.capitashareportal.com and follow the instructions on
screen. (If you have not already registered with The Share
Portal you will need to identify yourself with your personal
Investor Code (see Attendance Card)). To be valid your proxy
appointment(s) and instructions should reach Capita Registrars
no later than 48 hours before the time set for the Meeting.
CREST members who wish to appoint a proxy or proxies by
utilising the CREST electronic proxy appointment service may
do so by utilising the procedures described in the CREST
Manual on the Euroclear website (www.euroclear.com/CREST).
CREST Personal Members or other CREST sponsored members,
and those CREST members who have appointed a voting
service provider(s), should refer to their CREST sponsor or
voting service provider(s), who will be able to take the
appropriate action on their behalf. In order for a proxy
appointment made by means of CREST to be valid, the
appropriate CREST message (a ‘CREST Proxy Instruction’) must
be properly authenticated in accordance with Euroclear UK &
Ireland Limited’s (EUI) specifications and must contain the
information required for such instructions, as described in the
CREST Manual. The message regardless of whether it
constitutes the appointment of a proxy or an amendment to
the instruction given to a previously appointed proxy must, in
order to be valid, be transmitted so as to be received by the
issuer’s agent (ID RA10) by the latest time(s) for receipt of
proxy appointments specified in the notice of meeting. For this
purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the
CREST Applications Host) from which the issuer’s agent is able
to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. The Company may treat as invalid a
CREST Proxy Instruction in the circumstances set out in
regulation 35(5)(a) of the Uncertificated Securities Regulations
2001.
Members satisfying the thresholds in Section 527 of the
Companies Act 2006 can require the Company to publish a
statement on its website setting out any matter relating to (a)
the audit of the Company’s accounts (including the Auditor’s
Report and the conduct of the audit) that are to be laid before
the Meeting; or (b) any circumstances connected with an
auditor of the Company ceasing to hold office since the last
Annual General Meeting, that the members propose to raise
at the Meeting. The Company cannot require the members
requesting the publication to pay its expenses. Any statement
placed on the website must also be sent to the Company’s
auditors no later than the time it makes its statement available
on the website. The business which may be dealt with at the
Meeting includes any statement that the Company has been
required to publish on its website.
The Company must cause to be answered at the Meeting any
question relating to the business being dealt with at the
Meeting which is put by a member attending the Meeting,
except in certain circumstances, including if it is undesirable in
the interests of the Company or the good order of the
Meeting that the question be answered or if to do so would
involve the disclosure of confidential information.
As at 22 June 2010 (being the latest practicable day prior to
the publication of this notice), the Company’s issued share
capital consists of 132,949,433 ordinary shares of 50 pence
each, carrying one vote each and 1,000,000 preference shares
of 50 pence each, which do not carry any rights to vote on the
above resolutions. Therefore the total voting rights in the
Company are 132,949,433.
7.
8.
9.
10.
The contents of this notice of meeting, details of the total
number of shares in respect of which members are entitled to
exercise voting rights at the Meeting, the total voting rights
that members are entitled to exercise at the Meeting and, if
applicable, any members’ statements, members’ resolutions or
members’ matters of business received by the Company after
the date of this notice will be available on the Company’s
website: www.northgateplc.com.
11.
Copies of the rules of the proposed new employee share
incentive plan will be available for inspection at Norflex House,
Allington Way, Darlington DL1 4DY and at the offices of
Hewitt Associates Limited, 6 More London Place, London SE1
2DA during normal business hours on any weekday
(Saturdays, Sundays and English public holidays excepted) until
the close of the Meeting and at the place of the Meeting for
at least 15 minutes prior to and during the Meeting.
Northgate plc
Annual report and accounts 2010
Notice of annual general meeting
86
12.
You may not use any electronic address provided in this notice
of meeting to communicate with the Company for any
purposes other than those expressly stated.
13.
Under sections 338 and 338A of the 2006 Act, members
meeting the threshold requirements in those sections have the
right to require the Company (i) to give, to members of the
Company entitled to receive notice of the Meeting, notice of a
resolution which those members intend to move (and which
may properly be moved) at the Meeting; and/or (ii) to include
in the business to be dealt with at the Meeting any matter
(other than a proposed resolution) which may properly be
included in the business at the Meeting. A resolution may
properly be moved, or a matter properly included in the
business, unless (a) (in the case of a resolution only) it would,
if passed, be ineffective (whether by reason of any
inconsistency with any enactment or the Company’s
constitution or otherwise); (b) it is defamatory of any person;
or (c) it is frivolous or vexatious. A request made pursuant to
this right may be in hard copy or electronic form, must identify
the resolution of which notice is to be given or the matter to
be included in the business, must be authenticated by the
person(s) making it and must be received by the Company not
later than 28 July 2010, being the date 6 clear weeks before
the Meeting, and (in the case of a matter to be included in the
business only) must be accompanied by a statement setting
out the grounds for the request.
Northgate plc
Annual report and accounts 2010
Notice of annual general meeting
87
Appendix to notice of AGM
employment of up to 18 months in order to be eligible to
participate.
Summary of the principal terms of the Northgate
All Employee Share Scheme
Operation
The Remuneration Committee of the Board of Directors of the
Company (‘the Committee’) supervises the operation of the
Scheme. The Scheme is approved by HM Revenue & Customs.
Retention of shares
The trustee of the Scheme trust acquires and holds Partnership
Shares on behalf of participants. Participants can withdraw their
Partnership Shares from the Scheme at any time. If a participant
ceases to be employed by the Company’s group after acquiring
Partnership Shares then his/her Shares are transferred out of the
Scheme.
The Scheme is currently used to offer all eligible UK employees an
opportunity to buy shares in the Company at the end of a one
year savings period using deductions from their gross salary of up
to £1,500 over such period. This element of the Scheme is known
as the ‘Partnership Shares’ element. Such Partnership Shares are
currently matched with free ‘Matching Shares’ on a 1:1 basis
under the Matching Shares element of the Plan. The relevant tax
legislation allows companies to also offer ‘Free Shares’
(unconnected to Partnership Shares), and the Scheme contains the
facility to also offer such an element.
If any Matching Shares and/or Free Shares are awarded then those
Shares would usually be held by the Scheme trustee for a period
of at least three years. The Committee may decide that such
Shares will be forfeited if participants cease to be employed in the
Company’s group within three years of the award unless they
leave by reason of death, injury, disability, redundancy, retirement
on or after reaching 55, or if the business or company for which
they work ceases to be part of the Company’s group. In any of
those cases, the participants’ Shares will be transferred out of the
Plan.
More details on each of the three elements are set out below.
Partnership shares
The market value of Partnership Shares which an employee can
agree to purchase in any tax year may not exceed £1,500 (or 10%
of the employee’s salary, if lower), or such other limit as may be
permitted by the relevant legislation. If the Committee so decides
(as per the current policy), salary deductions may be accumulated
over a period of up to 12 months and then used to buy Shares at
the lower of the market value of the Shares at the start and at the
end of the accumulation period.
The Committee could also allow monthly purchases of Shares.
Matching shares
Matching Shares are free Shares which may be awarded to an
employee who purchases Partnership Shares. The Committee may
award Matching Shares to an employee who purchases
Partnership Shares up to a maximum of two Matching Shares for
every one Partnership Share purchased (or such other maximum
ratio as may be permitted by the relevant legislation). The same
Matching Share ratio will apply to all employees who purchase
Partnership Shares on the same occasion. The Committee currently
allows a matching ratio of 1:1.
Free shares
Free Shares are free Shares which may be awarded to eligible
employees. The market value of Free Shares awarded to any
employee in any tax year may not exceed £3,000 or such other
limit as may be permitted by the relevant legislation. Free Shares
may be awarded on a number of bases: equally for all employees;
on the basis of salary, length of service or hours worked; or on the
basis of performance, as permitted by legislation. This element of
the Scheme is not currently used.
Eligibility
Employees of the Company and any designated participating
subsidiary who are UK resident taxpayers are eligible to participate
and all eligible employees must be invited. The Board may also
allow non-UK tax resident taxpayers to participate. The Board may
require employees to have completed a qualifying period of
Dividends
Any dividends paid on Shares held by the Scheme trustee on
behalf of participants may be either used to acquire additional
Shares for participants or distributed to participants. The current
policy of the Committee is for dividends to be distributed to
participants.
Other rights attaching to scheme shares
A participant is treated as the beneficial owner of the Shares held
on his behalf by the Scheme trustee. Accordingly, in the case of
corporate transactions affecting the Company and variations of
share capital of the Company, Shares held in the Scheme are
usually treated in the same way as any other Shares. In the event
of a corporate reorganisation, Shares held on behalf of
participants may be replaced by equivalent shares in a new
holding company.
Any Shares allotted under the Scheme rank equally with Shares
then in issue except for rights attaching to such Shares by
reference to a record date prior to their allotment.
Overall scheme limits
The Scheme may operate over new issue Shares, treasury Shares
or Shares purchased in the market. In any ten calendar year
period, the Company may not issue (or grant rights to issue) more
than 10 per cent of the issued ordinary share capital of the
Company under the Scheme and any other employee share
Scheme adopted by the Company. Treasury Shares will count as
new issue Shares for the purposes of this limit unless institutional
investor bodies decide that they need not count.
Alterations to the scheme
The Committee may, at any time, amend the Scheme in any
respect, except that the prior approval of shareholders in general
meeting is required for any amendments that are to the advantage
of participants in respect of the rules governing eligibility, limits on
participation, the overall limits on the issue of Shares or the
transfer of treasury Shares, the basis for determining a participant’s
entitlement to, and the terms of, Shares to be acquired and the
adjustment of awards.
Northgate plc
Annual report and accounts 2010
Notice of annual general meeting
88
The requirement to obtain prior shareholder approval does not,
however, apply to any minor alteration to benefit the
administration of the Scheme, to take account of a change in
legislation or to obtain or maintain favourable tax, exchange
control or regulatory treatment for any participant or any company
in the Company’s group.
General
An award of Shares may not be made under the Scheme later
than ten years after shareholder approval of the renewal of the
Scheme.
No benefits received under the Scheme are pensionable.
Overseas plans
The shareholder resolution to approve the Scheme will allow the
Committee, without further shareholder approval, to establish
further plans for overseas territories, any such Scheme to be
similar to the Scheme, but modified to take account of local tax,
exchange control or securities laws, provided that any Shares
made available under such further plans are treated as counting
against the limits on individual and overall participation in the
Scheme.
Northgate plc
Annual report and accounts 2010
Notice of annual general meeting
89
Shareholder information
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 RBS Hoare Govett Limited and Oriel Securities Limited and the Company’s Ordinary shares are
traded on SETSmm.
Financial calendar
December
Publication of Half Yearly Report
January
March
July
September
Payment of interim dividend (if applicable)
Publication of Interim Management Statement
Announcement of year end results
Report and accounts posted to shareholders
Annual General Meeting
Payment of final dividend (if applicable)
Publication of Interim Management Statement
Secretary and registered office
D Henderson FCIS
Norflex House
Allington Way
Darlington
DL1 4DY
Tel: 01325 467558
The Group’s website address is www.northgateplc.com
Registrars
Capita Registrars
Shareholder Adminstration Support
34 Beckenham Road
Beckenham
Kent
BR3 9ZA
Tel: 0871 6640300 (calls cost 10p per minute plus network extras)
Overseas: (+44) 208 6393399
Northgate plc
Annual report and accounts 2010
Shareholder information
90
Shareholder notes
Northgate plc
Annual report and accounts 2010
Shareholder notes
91
Shareholder notes
Northgate plc
Annual report and accounts 2010
Shareholder notes
92
Who we are
Northgate plc is the leading light commercial vehicle
hire business in both the UK and Spain by fleet size
and has been operating since 1981. Our core business is the
rental of vehicles to other businesses on flexible length
agreements, giving customers the flexibility to manage
their vehicle fleet without a long-term commitment.
What we do
The business in the UK and Ireland operates from
65 sites with a fleet of 60,900 vehicles. In addition, we
sell former rental vehicles to both retail and trade
customers. We also offer an increasing range of services
and products to help customers manage their fleets
effectively, such as vehicle monitoring and parts
procurement. Our Fleet Technique business offers the
opportunity for customers to outsource fleet management
whilst retaining ownership.
In Spain, we operate through two separate brands,
Fualsa and Record. With 32 branches and a combined
fleet of 48,900 vehicles we are the market leaders in
light commercial vehicle hire in Spain.
Our customers operate in a wide range of industries, of
which construction and support services are the two
largest. Other major sectors include local authorities,
public utilities and retailers.
Our vision
We always put our customers first, providing tailored
vehicle solutions which match the needs of each individual
business and offer only the leading manufacturers’
products in each weight category – from a single van to a
fleet of thousands. We offer access to a vehicle fleet
of more than 100,000 vehicles. These principles ensure that
all of our customers benefit from a friendly, focused and
personal service.
Our strategy
Going forward our strategy is to concentrate on increasing
the profitability and operational efficiency of the Group
without compromising on the quality of service and
flexibility offered to our customers. We will achieve this by
managing the fleet efficiently and concentrating on doing
the simple things very well.
UK: Vehicle fleet
2010: 60,900
2009: 62,900
2008: 68,600
2007: 65,300
2006: 64,000
Spain: Vehicle fleet
2010: 48,900
2009: 60,400
2008: 62,750
2007: 55,000
2006: 47,000
Underlying group profit
before tax2 £m
2010: 36.5
2009: 27.5
2008: 83.1
2007: 79.3
2006: 61.3
Group operating profit1 £m
2010: 82.8
2009: 71.8
2008: 121.8
2007: 111.0
2006: 73.8
Contents
Key performance indicators
Review
01 Highlights of the year
02 Chairman’s statement
04 Group at a glance
05
06 Operational review
12
16
18
20
Financial review
Principal risks and uncertainties
Board of directors
Report of the Directors
Remuneration report
Corporate governance
23
29 Audit committee report
30 Corporate governance
32 Health & safety and environmental
33 Directors’ responsibilities
Auditors‘ Report
34
Independent Auditors’ Report to the Members of
Northgate plc
Primary Statements
35 Consolidated income statement
Statements of comprehensive income
36
37
Balance sheets
38 Cash flow statements
39 Notes to the cash flow statements
40
Statements of changes in equity
Notes to the accounts
41 Notes to the accounts
84
Five year financial summary
85 Notice of annual general meeting
88 Appendix of notice of AGM
Shareholder Information
90
Northgate plc
Annual report and accounts 2010
We are the leading light commercial vehicle
hire business in the UK and Spain
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Registered office:
Norflex House, Allington Way, Darlington DL1 4DY
Telephone: 01325 467558 Fax: 01325 363204
www.northgateplc.com