Redde Northgate
Annual Report 2013

Plain-text annual report

Northgate plc Annual report and accounts 2013 Contents Review Highlights of the year Chairman’s statement Strategy and business model Key performance indicators 1 8 10 11 12 Group at a glance 14 Operational review 17 22 24 Corporate social responsibility Financial review Principal risks and uncertainties Governance Board of Directors Report of the Directors Remuneration report Report of the audit and risk committee 28 30 33 40 42 Corporate governance 45 Directors’ responsibilities Accounts 46 Independent auditor’s report to the members of Northgate plc 48 Consolidated income statement Statements of comprehensive income 49 50 Balance sheets 51 Cash flow statements 52 Notes to the cash flow statements 53 54 Notes to the accounts 97 Five year financial summary 98 Notice of Annual General Meeting 101 Shareholder information Statements of changes in equity Northgate plc Northgate plc is the leading light commercial vehicle hire business in both the UK and Spain by fleet size and has been operating in the sector since 1981. Our core business is the hire of vehicles to other businesses on a non-contract basis, giving customers the flexibility to manage their vehicle fleet without a long term commitment. ROCE1 % Gearing7 % 5.8 8.4 11.9 13.1 11.8 571 213 163 105 102 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 UK vehicle fleet 000’s Spanish vehicle fleet 000’s 62.9 60.9 61.2 52.9 49.9 60.4 48.9 43.5 38.4 35.1 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Highlights of the year Return on capital employed1 (%) Underlying profit before taxation2 (£m) Statutory (loss) profit before taxation (£m) Underlying basic earnings per share3 (p) Statutory basic earnings per share (p) Net debt4 (£m) Dividend per share5 (p) 2013 2012 11.8 49.5 (11.4) 29.2 (5.5) 362.7 7.3 13.1 59.7 46.0 31.5 30.4 371.3 3.0 (cid:115)(cid:0) (cid:50)(cid:69)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:83)(cid:85)(cid:67)(cid:67)(cid:69)(cid:83)(cid:83)(cid:70)(cid:85)(cid:76)(cid:76)(cid:89)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:76)(cid:69)(cid:84)(cid:69)(cid:68)(cid:12)(cid:0)(cid:76)(cid:69)(cid:65)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:79)(cid:0)(cid:83)(cid:73)(cid:71)(cid:78)(cid:73)(cid:108)(cid:67)(cid:65)(cid:78)(cid:84)(cid:0)(cid:82)(cid:69)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:73)(cid:78)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0) charges going forward and increased operational and financial flexibility (cid:115)(cid:0) (cid:46)(cid:69)(cid:84)(cid:0)(cid:85)(cid:78)(cid:68)(cid:69)(cid:82)(cid:76)(cid:89)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:71)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)6 of £92.6m (2012 – £138.2m) (cid:115)(cid:0) (cid:35)(cid:79)(cid:77)(cid:77)(cid:69)(cid:82)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:82)(cid:85)(cid:67)(cid:84)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:76)(cid:69)(cid:84)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:43) (cid:115)(cid:0) (cid:53)(cid:43)(cid:0)(cid:66)(cid:82)(cid:65)(cid:78)(cid:67)(cid:72)(cid:0)(cid:69)(cid:88)(cid:80)(cid:65)(cid:78)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:80)(cid:76)(cid:65)(cid:78)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:69)(cid:78)(cid:67)(cid:69)(cid:68)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:82)(cid:69)(cid:69)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:83)(cid:73)(cid:84)(cid:69)(cid:83)(cid:0)(cid:79)(cid:80)(cid:69)(cid:78)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82) (cid:115)(cid:0) (cid:53)(cid:78)(cid:68)(cid:69)(cid:82)(cid:76)(cid:89)(cid:73)(cid:78)(cid:71)(cid:0)(cid:80)(cid:82)(cid:73)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:18)(cid:5)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:43)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:82)(cid:69)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:17)(cid:5)(cid:0)(cid:73)(cid:78)(cid:0)(cid:51)(cid:80)(cid:65)(cid:73)(cid:78) (cid:115)(cid:0) (cid:33)(cid:86)(cid:69)(cid:82)(cid:65)(cid:71)(cid:69)(cid:0)(cid:85)(cid:84)(cid:73)(cid:76)(cid:73)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:24)(cid:24)(cid:5)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:43)(cid:0)(cid:8)(cid:18)(cid:16)(cid:17)(cid:18)(cid:0)(cid:110)(cid:0)(cid:24)(cid:25)(cid:5)(cid:9)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:25)(cid:16)(cid:5)(cid:0)(cid:73)(cid:78)(cid:0)(cid:51)(cid:80)(cid:65)(cid:73)(cid:78)(cid:0) (2012 – 90%) (cid:115)(cid:0) (cid:35)(cid:76)(cid:79)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0)(cid:109)(cid:69)(cid:69)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:20)(cid:25)(cid:12)(cid:25)(cid:16)(cid:16)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:43)(cid:0)(cid:8)(cid:18)(cid:16)(cid:17)(cid:18)(cid:0)(cid:110)(cid:0)(cid:21)(cid:18)(cid:12)(cid:25)(cid:16)(cid:16)(cid:9)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:19)(cid:21)(cid:12)(cid:17)(cid:16)(cid:16)(cid:0)(cid:73)(cid:78)(cid:0)(cid:51)(cid:80)(cid:65)(cid:73)(cid:78)(cid:0) (2012 – 38,400) (cid:115)(cid:0) (cid:35)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:69)(cid:68)(cid:0)(cid:83)(cid:84)(cid:82)(cid:79)(cid:78)(cid:71)(cid:0)(cid:85)(cid:83)(cid:69)(cid:68)(cid:0)(cid:86)(cid:69)(cid:72)(cid:73)(cid:67)(cid:76)(cid:69)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:66)(cid:79)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:43)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:51)(cid:80)(cid:65)(cid:73)(cid:78) r a e y e h t f r r o e e d d s t a a h e e g h h i l e e h g g g a a i H P P w w w e e e i i i v v v e e e R R R 1 Northgate plc Annual report and accounts 2013 All footnotes are located on page 21 Our customers We recognise that continuing to provide industry leading service excellence is critical to our customers across the UK and Spain. By continuing to improve our operations, there are now more vehicles available to rent at short notice, and the improved efficiency of our workshops has maximised the time our vehicles are kept on the road, allowing our customers to focus 100% on their business. 1 Our new Customer Service Centre opened in the year which allows us to provide a high level of service and responsiveness to our customers. 2 Our ‘Ready for Rent’ line means that there are an increased number and range of vehicles available to customers at short notice. 1 2 2 Northgate plc Annual report and accounts 2013 3 Northgate plc Annual report and accounts 2013 4 Northgate plc Annual report and accounts 2013 Our people As a Group we value our employees as we understand that they are the key resource required to deliver the high levels of customer service that maintains our competitive advantage. Investing in the training and development of our workforce enables a high level of retention and allows everyone to contribute to their full potential. 1 During the year we have delivered 4,000 training days to our employees through our internal training team. 2 We are currently training 64 workshop apprentices under programmes approved by two of our vehicle manufacturers. 1 2 5 Northgate plc Annual report and accounts 2013 Our network The final quarter of the financial year saw the opening of three new sites in the UK taking the number of hire locations to 65. These new sites mark the start of a wider branch expansion which will fill in existing regional gaps by adding up to 20 new locations over the next three years, and support the overall strategy for growth in our UK business. 1 Our new Luton depot opened in February 2013. 2 Launch of the new Brent Cross site in March 2013. 3 Huddersfield, our third new site in the year opened in March 2013. 6 Northgate plc Annual report and accounts 2013 1 2 3 7 Northgate plc Annual report and accounts 2013 Chairman’s statement Improvements implemented over the past four years have established a strong financial and operational foundation for the Group. Whilst we will maintain our focus on key disciplines of asset management, cash generation and cost control, we aim to maximise returns in both countries and will target growth in the UK where the appropriate return exists. The successful refinancing completed in April 2013 marks an important milestone in the Group’s improvement programme. Over the past four years, the Group has focused on increasing the strength and resilience of the Group’s balance sheet, whilst improving return on capital employed (ROCE). Key financial improvements over the four years include: (cid:115)(cid:0) (cid:48)(cid:82)(cid:79)(cid:108)(cid:84)(cid:0)(cid:66)(cid:69)(cid:70)(cid:79)(cid:82)(cid:69)(cid:0)(cid:84)(cid:65)(cid:88)2 of £49.5m, an increase of £22.0m compared to £27.5m in the year ended 30 April 2009; (cid:115)(cid:0) (cid:50)(cid:47)(cid:35)(cid:37)1 of 11.8%, more than double the 5.8% achieved in the year ended 30 April 2009; (cid:115)(cid:0) (cid:46)(cid:69)(cid:84)(cid:0)(cid:68)(cid:69)(cid:66)(cid:84)4 of £363m, reduced by £523m from £886m at 30 April 2009; (cid:115)(cid:0) (cid:39)(cid:69)(cid:65)(cid:82)(cid:73)(cid:78)(cid:71)7 of 102%, a substantial reduction compared to 571% at 30 April 2009; (cid:115)(cid:0) (cid:50)(cid:69)(cid:13)(cid:73)(cid:78)(cid:84)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:86)(cid:73)(cid:68)(cid:69)(cid:78)(cid:68)(cid:14) Operational highlights include: (cid:115)(cid:0) (cid:50)(cid:69)(cid:83)(cid:84)(cid:82)(cid:85)(cid:67)(cid:84)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:70)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:53)(cid:43)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:51)(cid:80)(cid:65)(cid:78)(cid:73)(cid:83)(cid:72)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:27) (cid:115)(cid:0) (cid:50)(cid:69)(cid:66)(cid:82)(cid:65)(cid:78)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:70)(cid:0)(cid:66)(cid:79)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:53)(cid:43)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:51)(cid:80)(cid:65)(cid:78)(cid:73)(cid:83)(cid:72)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:27) (cid:115)(cid:0) (cid:41)(cid:77)(cid:80)(cid:76)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:73)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:68)(cid:0)(cid:41)(cid:52)(cid:0)(cid:83)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:83)(cid:14) Looking forward, the Group strategy is clear. In the UK, the primary focus will be on growing the business through our existing network and by adding new sites, where opportunities exist at our target levels of return. In Spain, the Group will continue to maximise cash generation and target improved returns in order to reduce our exposure to the troubled Spanish economy. The Group’s ROCE1 was 11.8% (2012 – 13.1%). This compares to the Group’s year end weighted average cost of capital (WACC) of 7.9%. Individual country ROCE levels were 14.8% in the UK and 8.4% in Spain. Net underlying cash generation6 was £92.6m (2012 – £138.2m). This continued strong cash generation reduced gearing7 from 105% to 102%. Headroom8 on our committed debt facilities of £443m was £80m at 30 April 2013. Our balance sheet now allows the Company to move towards a more normal dividend policy whilst supporting ongoing investment in the Group’s organic growth initiatives. UK In a continuing difficult trading environment, vehicles on hire declined by 3,300 vehicles in the year to 43,100. As a result, our operating margin9 decreased to 22.1% in the year, compared to 23.2% in 2012. Whilst the on hire decline is lower than the 7,400 reduction in the previous year, it was still disappointing and in hindsight was compounded by poor operational control within our depots which reduced the level of vans available for rental. We have now changed the management structure and organisation of our operations and have seen immediate improvement in these areas which we had allowed to fall below our own standards. 8 Northgate plc Annual report and accounts 2013 UK continued Dividend t n e m e t a t s s ’ n a m r i a h C w e i v e R In recognition of the improvements noted in the Group’s (cid:80)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:86)(cid:73)(cid:68)(cid:69)(cid:78)(cid:68)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:82)(cid:69)(cid:13)(cid:73)(cid:78)(cid:84)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:69)(cid:78)(cid:68)(cid:69)(cid:68)(cid:0) 30 April 2012. The refinancing, balance sheet strength and our confidence in the business outlook allow the Group to move towards a more normal dividend policy. The Board proposes a final dividend in respect of the year ended 30 April 2013 of 6.0p, giving a total dividend for the year of 7.3p (2012 – 3.0p). This represents a 4x cover on underlying earnings3 and a 143% increase on the dividend paid in respect of the year ended 30 April 2012. It continues to be the Board’s intention to pay out a percentage of earnings having established over time the underlying profitability, cash generation and cash requirements of the Group taking into consideration the long term growth prospects of our restructured business. The Board considers the balance sheet of the Group to be appropriately geared and there to be scope to invest organically to strengthen and grow returns over the medium term whilst establishing a long term dividend policy. Board changes I am delighted to report that Jill Caseberry was appointed (cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0)(cid:73)(cid:78)(cid:0)(cid:36)(cid:69)(cid:67)(cid:69)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:18)(cid:16)(cid:17)(cid:18)(cid:14)(cid:0) Jill has extensive sales, marketing and general management experience across a number of blue chip companies including Mars, PepsiCo and Premier Foods. She currently runs her own sales and marketing consultancy and is CEO of a food/beverage start up business. Jill’s experience is proving invaluable as we continue to build on our platform for growth. Current trading and outlook Improvements implemented over the past four years have established a strong financial and operational foundation for the Group. Whilst we will maintain our focus on key disciplines of asset management, cash generation and cost control, we aim to maximise returns in both countries and will target growth in the UK where the appropriate return exists. The Group has begun the new financial year in line with the Board’s expectations and we are confident that it is well placed to deliver significant value to shareholders. Bob Mackenzie Chairman A number of changes have been made to our Commercial Sales operation, increasing the skills, resources and support within the sales team. This was initially focused on the Regional Sales area of the business and took place in the second half of the financial year. Changes to the National Sales function have been completed since the year end. We are encouraged by the initial impact of these changes with vehicles on hire for our sub 100 vehicle customers (mainly managed by our Regional teams) stabilising during the year compared to a 13% fall noted in the same customer segment in the previous year. With the changes now completed we expect to see growth in the sub 100 vehicle sector in the current financial year. During the year we have identified large areas of the country where significant numbers of potential customers are not effectively serviced by an accessible Northgate site. To address this, we have commenced our branch expansion plans, with three new sites opened in the year ended 30 April 2013. We anticipate opening up to 20 new sites over the next three years. We expect the majority of sites to be on short term leases with moderate levels of capital expenditure. The financial impact of these new sites is estimated at break even in year one and is targeted to exceed the current UK ROCE in year three as the sites reach maturity. Spain Whilst our Spanish business now operates at a ROCE above the Group’s WACC, the focus remains on increasing returns and generating cash. However, the economic backdrop continues to present very difficult trading conditions. Vehicles on hire declined by 1,900 vehicles in the year ended 30 April 2013 to 32,100, compared to a decline of 5,400 in the year ended 30 April 2012. As a result, our operating margin10 reduced to 16.7% in the year (2012 – 19.1%). Cash generation continues to be a primary focus in Spain and underlying cash generation was €64m in the year ended 30 April 2013. Over the last four years capital employed has been reduced from €829m to €333m with net debt, before any inter group dividend payments, falling from €556m to €102m. Capital investment continues to fall with vehicle purchases decreasing 39% from 11,900 in the year ended 30 April 2012 to 7,300 in the year ended 30 April 2013. We have also implemented a new commercial structure which has increased new business wins across a range of sectors, partially offsetting declines seen in our traditional construction markets which now represent 31% of our business compared to 57% in 2009. Refinancing During the year the Group successfully replaced its legacy (cid:72)(cid:73)(cid:71)(cid:72)(cid:13)(cid:67)(cid:79)(cid:85)(cid:80)(cid:79)(cid:78)(cid:0)(cid:80)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:69)(cid:0)(cid:80)(cid:76)(cid:65)(cid:67)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:12)(cid:0)(cid:73)(cid:78)(cid:83)(cid:84)(cid:73)(cid:84)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:76)(cid:79)(cid:65)(cid:78)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:77)(cid:85)(cid:76)(cid:84)(cid:73)(cid:0) bank facility with a £428m single new committed multi bank facility maturing in June 2017. The revised facility will lead to a significant reduction in future interest payments. The revised covenant package also gives the Group increased operational and financial flexibility. 9 Northgate plc Annual report and accounts 2013 Strategy and business model Our business model Looking forward, the Group strategy is clear. In the UK, the primary focus will be on growing the business through our existing network and by adding new sites, where opportunities exist at our target levels of return. In Spain, the Group will continue to maximise cash generation and target improved returns. Our view is that for many businesses rental of light commercial vehicles is the best sourcing method. It allows them to flex their requirements in line with their business needs. In both countries in which we operate, we aim to be the first choice for LCV rental, providing all our customers’ vehicle needs and allowing them to concentrate on better service to their customers. 10 Northgate plc Annual report and accounts 2013 Buy Manage Sell Buy Our customers can choose from the widest range of vehicle makes and models available in our sector, with the flexibility to switch vehicle types as their needs evolve. In order to achieve this, we partner with a range of manufacturers. Pricing is negotiated directly and the purchasing mix is managed in order to minimise the overall holding cost of vehicles to the business. The volume of purchases is balanced against vehicle sales in order to manage fleet age, condition and vehicle utilisation to an optimal level. Manage With over 30 years experience in the fleet management sector, we are in the best position to partner our customers and complement their fleet requirements, whether this is by providing a single short term hire or a fully outsourced fleet management solution. Vehicle hire is at the heart of our business. We offer a fully flexible product which allows customers to tailor vehicles to their exact requirements and manage the size and composition of their fleet without penalty. Our national network of branches and workshops in the UK and Spain provide 24/7 support with replacement vehicles on hand to keep customers on the move. We offer a range of ancillary services which enable customers to enjoy operational benefits through efficient fleet management, with our fully outsourced fleet management service providing the ultimate solution. Internally we aim to deliver the very best service levels whilst maintaining operating efficiency and vehicle utilisation in order to maximise return on capital employed. Sell In order to provide the best possible service to our customers we maintain a modern fleet. When vehicles reach the end of their hire lives we aim to minimise overall holding costs through the effective use of our retail and trade sales channels. As we are not affiliated to any single manufacturer, we offer our customers the best available range of quality used commercial vehicles in the market. Key performance indicators Performance Target Asset management The overall holding cost of vehicles needs to be minimised and utilisation needs to be maintained at a high level in order to maximise return on capital employed (ROCE) whilst holding enough vehicles to meet the flexible demands of our customers. Utilisation was 88% in the UK and 90% in Spain. A total of 20,700 vehicles were sold in the UK and 11,200 in Spain at improved residual values. Vehicle purchases were balanced against these disposals to manage the average fleet age to 21.4 months in the UK and 22.9 months in Spain at 30 April 2013. Pricing The revenue per vehicle achieved is a key contributor to ROCE. Hire rates need to reflect the level of flexibility and service offered to our customers. Underlying revenue per rented vehicle improved by 2% in the UK and reduced by 1% in Spain. Customer service In order to grow the business we must deliver the highest possible levels of customer service to set us apart from our competitors. We have various measures of assessing customer service, with the number of vehicles on hire and the number of customers being two of those indicators. Vehicles on hire have reduced in the year, reflecting the difficult trading conditions, particularly in relation to our larger customers. However, customer numbers have increased in our SME segments in both the UK and Spain, which indicates that our offering is well suited to their needs. ROCE is maximised through a combination of managing utilisation, hire rates, vehicle holding costs and improvements in operational efficiency. Group ROCE1 for the year was 11.8% (2012 – 13.1%). Return on capital employed (ROCE) In a capital intensive business, ROCE 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. Basic EPS3 was 29.2p compared to 31.5p in the prior year. Earnings3 of £38.8m compare to £41.9m in the prior year. The weighted average number of shares was 133.2m in both years. 11 Northgate plc Annual report and accounts 2013 s r o t a c i d n i e c n a m r o f r e p y e K w e i v e R The target for both segments is to maintain utilisation above 90%. However, this will be balanced against the need to ensure that each branch has the right range of vehicles for hire at all times. The holding cost of vehicles will be minimised through managing the mix of purchases and improving the quality and volume of vehicles sold through higher margin retail sales channels. Minimum hire rate thresholds have been set for new vehicles so that the fleet is grown at rates that are beneficial to ROCE. Further improvements are targeted through the recovery of other costs incurred. Whilst trading conditions are expected to remain challenging, the restructuring of commercial operations positions the Group well to target profitable growth going forward. Each KPI has been targeted for improvement to contribute to an overall increase in ROCE of the Group. In the short term ROCE will not increase in a period of growth as capital investment is required up front. In the longer term ROCE is targeted to increase above levels previously achieved. The target is to maximise shareholder value by increasing EPS in the short term alongside longer term return on equity. 12 Northgate plc Annual report and accounts 2013 Group at a glance Northgate partners over 9,000 customers in the UK and Spain, operating across a range of sectors from owners operators to corporate customers. With such a variety of customers, we must deliver a service which complements the needs of each business. e c n a l g a t a p u o r G w e i v e R 2013 2012 415.7 194.2 609.9 49,900 35,100 85,000 1,835 818 21 2,714 65 23 88 457.1 249.6 706.7 52,900 38,400 91,300 1,869 915 20 2,804 62 23 85 Total revenue (£m) UK Spain Vehicles operated UK Spain Closing employees UK Spain Corporate Hire locations UK Spain Fleet mix UK Spain % (cid:115) Small vans (cid:115) Medium vans (cid:115)(cid:0) Cars (cid:115) Large commercial vehicles, 4x4 and other UK Spain 35 40 8 17 37 10 43 10 13 Northgate plc Annual report and accounts 2013 Operational review Group The Group now has a solid financial and operational foundation. We will now target increasing returns by growing the business with customers who have a flexible vehicle hire requirement. Our view is that for many businesses rental of light commercial vehicles (LCV) is the best sourcing method. It allows them to flex their requirements in line with their business needs. In both countries in which we operate, we aim to be the first choice for LCV rental, providing all our customers’ vehicle needs and allowing them to concentrate on better service to their customers. UK Despite the improvements achieved in pricing, operational efficiencies and used vehicle residuals, the reduction in the number of vehicles on hire has led to a decrease in operating margin9 from 23.2% to 22.1%. Vehicle fleet and utilisation In the year the fleet size reduced by 3,000 to 49,900 vehicles (2012 – 52,900 vehicles). Average utilisation rates for the year ended 30 April 2013 were 88% (2012 – 89%). Whilst vehicle utilisation remains a priority and the target is to return to 2012 levels or above, the UK is also focused on ensuring that each branch has the right range of vehicles available for hire at all times. Vehicle purchases remained constant at 16,500 for the year ended 30 April 2013. The average fleet age remained at 21.4 months, reflecting the Group’s commitment to run a fleet with a suitable ageing profile, efficiency and reliability. Hire rates and vehicles on hire In the year ended 30 April 2013, vehicle hire revenue per rented vehicle (excluding fleet management income) was 1% higher than the prior year. Adjusted for the change in fleet mix, the increase was 2%. Year on year closing vehicles on hire fell by 3,300 (2012 – 7,400). During the year we have made key changes to our Commercial Sales operations including: (cid:115)(cid:0) (cid:33)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:51)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0) (September 2012); (cid:115)(cid:0) (cid:41)(cid:78)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0)(cid:82)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:86)(cid:69)(cid:82)(cid:72)(cid:65)(cid:85)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:67)(cid:82)(cid:85)(cid:73)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) and the training and development process for sales people. By April 2013 the number of sales people had increased by 20% over the year and of the 118 sales people 58 had been here less than a year, the majority being recruited in the second half of the financial year. Our commercial operations cover both regional and national customers. Our 4,800 regional customers, who have an average of six vehicles on hire, operate close to our branch network and accounted for 63% of the vehicles on hire at 30 April 2013. Given the difficult economies in which we operate, improving the resilience and strength of the Group’s balance sheet has been critical. This has been achieved in parallel with improving the operating platforms in both the UK and Spain. 14 Northgate plc Annual report and accounts 2013 w e i v e r l a n o i t a r e p O w e i v e R UK continued Due to its relative size, the initial changes were prioritised in Regional Sales and were completed in the final quarter of the financial year. Planned changes in National Sales have taken place since the year end. Typically our regional customers have less than 100 vehicles on hire. The changes made in Regional Sales have started to make an impact. For these customers there was a reduction year on year of 300 (1%) vehicles on hire compared to a 4,000 (13%) reduction in the prior year. Additionally, the total number of regional customers increased by 9% over the year compared to a 12% fall experienced in the prior year. Addressing the needs of this large local customer base underpins our growth strategy. Vehicles on hire to customers with more than 100 vehicles, typically national, declined by 3,000 (15%) in the year compared to a fall of 3,400 (15%) in the year ended 30 April 2012. This decline is predominantly the result of short term price pressures originating in the current economic environment. We believe that opportunities still exist for growth with larger customers who would benefit from our flexible offering. We are seeking to address these opportunities more successfully through the changes made in our National Sales function. Depot network During the year we completed an analysis of the existing branch locations across the UK. We concluded that there were significant gaps in our ability to attract potential customers, particularly in the South of England. Based upon industry standard drive times, our national coverage is c.60%, highlighting that there are potentially over 20 locations that could successfully support a Northgate branch, allowing access to a wider customer base. In response to this opportunity, the final quarter saw the opening of three sites, taking the number of hire locations at 30 April 2013 to 65. The new sites are performing in line with our plans, however, we are cognisant that they are in their infancy. During the next financial year we will focus on establishing an enhanced branch network within the London area which provides the largest commercial opportunity. Subject to availability of property, we plan to open six to eight sites within the London area over the next 12 months. We estimate that the sites will take three years to reach maturity and at this point will operate a fleet of approximately 500 vehicles per site. Each new site will have an initial set up cost of c.£0.2m, covering property, personnel and marketing costs. If the new sites perform in line with our expectations, they should break even in year one and by year three have a ROCE in excess of 16%. The Group will look to accelerate opportunities to invest in the network where there is an economic benefit in doing so. 15 Northgate plc Annual report and accounts 2013 Operational review continued UK continued Used vehicle sales Vehicle sales continue to perform strongly with 20,700 vehicles (2012 – 25,200 vehicles) sold during the year at increased values. Disposal volumes fell year on year due to a reduction in the number of vehicles taken off the hire fleet in response to lower on hire decline levels. We expect used vehicle sales volume to continue to fall as we target growth in vehicles on hire, whilst maintaining strict control over new vehicle purchase volumes. Higher margin retail and semi retail channels accounted for 22% (2012 – 19%) of disposals. Plans are being implemented to continue to grow the proportion of vehicles being disposed via the retail and semi retail channels. The reduced number of vehicles disposed of, partially offset by the improvement in the values achieved, resulted in a decrease of £20.8m (2012 – £22.5m) in the depreciation charge. Spain Trading conditions in Spain remain extremely difficult. Improved cost control, debtor management, vehicle residuals and continued strong fleet management helped to partially mitigate the impact from the fall in revenue. Despite this, the operating margin10 fell to 16.7% (2012 – 19.1%). Vehicle fleet and utilisation The fleet size reduced from 38,400 vehicles as at 30 April 2012 to 35,100 as at 30 April 2013. The average utilisation for the year was 90% (2012 – 90%). In line with the target of cash generation and reducing the capital employed in Spain, vehicles purchased fell 4,600 to 7,300 (2012 – 11,900). The ageing profile remains highly competitive compared to the industry average with the average age of the fleet being 22.9 months at 30 April 2013, an increase from 21.8 months at 30 April 2012. Hire rates and vehicles on hire Revenue per vehicle has also been impacted by a change in customer profile. On average, our customers are now cleaner users of our vehicles and are driving lower mileages. Average miles at point of disposal, adjusting for disposal age, are 3% lower than that experienced in the year ended 30 April 2012 and 6% lower than in the year ended 30 April 2011. This is evidenced by lower maintenance costs and the continued increase in the resale values of vehicles. Vehicles on hire fell 1,900 in the year ended 30 April 2013, from 34,000 vehicles at 30 April 2012. This compares to a decline of 5,400 in the prior year. As in the UK, investment has been made in the commercial area in Spain. The primary focus of this investment has been to grow the SME business with the aim of offsetting the decline experienced in Spain’s construction markets. Whilst the number of vehicles on hire continued to fall in the year to 30 April 2013, the number of customers increased by 300 to 4,400, reversing the reduction of 300 customers experienced in the year ended 30 April 2012. Increasing commercial activity, coupled with targeted marketing initiatives, provides encouragement that this trend will continue to improve. Depot network Existing sites are continually reviewed for suitability, with consideration given to location, size and functionality. Having (cid:82)(cid:69)(cid:13)(cid:69)(cid:86)(cid:65)(cid:76)(cid:85)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:70)(cid:79)(cid:79)(cid:84)(cid:80)(cid:82)(cid:73)(cid:78)(cid:84)(cid:12)(cid:0)(cid:78)(cid:79)(cid:0)(cid:67)(cid:72)(cid:65)(cid:78)(cid:71)(cid:69)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:69)(cid:84)(cid:87)(cid:79)(cid:82)(cid:75)(cid:0) infrastructure were made in the year. Based on the current fleet size, the 23 locations provide the appropriate level of operational efficiency and geographical coverage. Used vehicle sales A total of 11,200 vehicles were disposed of in the year (2012 – 16,800 vehicles). The reduced volume year on year is a direct consequence of the reduced level of vehicles purchased in the year combined with a lower level of vehicles being removed from the rental fleet in response to the reducing rate of on hire decline. Sales to the higher margin retail market improved, with 9% of total vehicles sold through these channels compared to 5% in the prior year. The improved resale values achieved were partially offset by the reduced number of vehicles being disposed of, resulting in a reduction in the depreciation charge of €6.1m compared to a €4.9m reduction in the prior year. Average hire revenue per rented vehicle in the year ended 30 April 2013 was 2% lower than the prior year. The mix of vehicles on hire has been impacted by customer demand moving towards smaller vehicles. Adjusting for this mix impact, revenue per vehicle was 1% lower than the prior year. Bob Contreras Chief Executive 16 Northgate plc Annual report and accounts 2013 Financial review Group In April 2013 the Group successfully (cid:82)(cid:69)(cid:80)(cid:76)(cid:65)(cid:67)(cid:69)(cid:68)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0)(cid:76)(cid:69)(cid:71)(cid:65)(cid:67)(cid:89)(cid:0)(cid:72)(cid:73)(cid:71)(cid:72)(cid:13)(cid:67)(cid:79)(cid:85)(cid:80)(cid:79)(cid:78)(cid:0)(cid:80)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:69)(cid:0) placements, institutional loan and (cid:77)(cid:85)(cid:76)(cid:84)(cid:73)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:66)(cid:65)(cid:78)(cid:75)(cid:0)(cid:70)(cid:65)(cid:67)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:83)(cid:73)(cid:78)(cid:71)(cid:76)(cid:69)(cid:0) new committed bank facility maturing in June 2017. The Group estimates that had the new facility been in place at 1 May 2012, the cash interest savings would have been in excess of £15m for the year ended 30 April 2013. w e i v e r l a i c n a n i F w e i v e R A summary of the Group’s underlying financial performance for 2013, with a comparison to 2012, is shown below: Revenue Operating profit11 Net interest expense12 Profit before tax2 Profit after tax3 Basic earnings per share3 Return on capital employed1 2013 £m 609.9 86.4 (36.9) 49.5 38.8 29.2p 11.8% 2012 £m 706.7 105.2 (45.4) 59.7 41.9 31.5p 13.1% Group revenue in 2013 decreased by 13.7% to £609.9m (2012 – £706.7m) or 12.4% at constant exchange rates. Net underlying cash generation6 was £92.6m (2012 – £138.2m) after net capital expenditure of £117.7m (2012 – £133.8m) resulting in closing net debt4 of £362.7m (2012 – £371.3m). Gearing7 improved to 102% (2012 – 105%). On a statutory basis, operating profit was £79.5m (2012 – £94.5m) and loss before tax was £11.4m (2012 – profit of £46.0m). Basic earnings per share were (5.5)p (2012 – 30.4p). Net cash from operations, including net capital expenditure on vehicles for hire was £100.9m (2012 – £145.8m), with net debt falling by £22.6m from £385.3m at 30 April 2012 to £362.7m at 30 April 2013. Gearing improved to 102% (2012 – 109%). Return on capital employed Group return on capital employed1 was 11.8% compared to 13.1% in the prior year. This represents a substantial improvement on the levels achieved in 2009 of 5.8% when restructuring of the Group commenced. Group return on equity, calculated as profit after tax (excluding intangible amortisation and exceptional items) divided by average shareholders’ funds, was 10.6% (2012 – 11.9%). Borrowing facilities In April 2013 the Group successfully replaced its legacy (cid:72)(cid:73)(cid:71)(cid:72)(cid:13)(cid:67)(cid:79)(cid:85)(cid:80)(cid:79)(cid:78)(cid:0)(cid:80)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:69)(cid:0)(cid:80)(cid:76)(cid:65)(cid:67)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:12)(cid:0)(cid:73)(cid:78)(cid:83)(cid:84)(cid:73)(cid:84)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:76)(cid:79)(cid:65)(cid:78)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) (cid:77)(cid:85)(cid:76)(cid:84)(cid:73)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:66)(cid:65)(cid:78)(cid:75)(cid:0)(cid:70)(cid:65)(cid:67)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:83)(cid:73)(cid:78)(cid:71)(cid:76)(cid:69)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:73)(cid:84)(cid:84)(cid:69)(cid:68)(cid:0)(cid:66)(cid:65)(cid:78)(cid:75)(cid:0) facility maturing in June 2017. Taken together with other loans of the Group, £362.7m was drawn against total committed facilities of £443.1m giving headroom8 of £80.4m as detailed below: Facility Drawn £m £m Headroom £m Maturity (cid:53)(cid:43)(cid:0)(cid:66)(cid:65)(cid:78)(cid:75)(cid:0)(cid:70)(cid:65)(cid:67)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0) (cid:20)(cid:18)(cid:24)(cid:14)(cid:16)(cid:0)(cid:0) (cid:19)(cid:21)(cid:20)(cid:14)(cid:25)(cid:0)(cid:0) (cid:23)(cid:14)(cid:24)(cid:0) (cid:47)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:76)(cid:79)(cid:65)(cid:78)(cid:83)(cid:0) (cid:17)(cid:21)(cid:14)(cid:17)(cid:0) (cid:23)(cid:19)(cid:14)(cid:17)(cid:0) (cid:42)(cid:85)(cid:78)(cid:13)(cid:17)(cid:23) (cid:23)(cid:14)(cid:19)(cid:0) (cid:53)(cid:80)(cid:0)(cid:84)(cid:79)(cid:0)(cid:46)(cid:79)(cid:86)(cid:13)(cid:17)(cid:19) 443.1 362.7 80.4 17 Northgate plc Annual report and accounts 2013 Financial review continued Dividend Borrowing facilities continued A one off charge of £54.0m was incurred as a consequence of extinguishing previous facilities and cancelling hedging arrangements. The net cash outflow relating to the refinancing was £39.1m. The Group estimates that had the new facility been in place at 1 May 2012, the cash interest savings would have been in excess of £15m for the year ended 30 April 2013. The margin charged on bank debt is dependent upon the Group’s net debt to EBITDA ratio, and ranges from a maximum of 2.875% to a minimum of 2.125%. The net debt to EBITDA ratio at 30 April 2013 corresponds to a bank margin of 2.375%. The Directors recommend the payment of a final dividend of 6.0p per share in relation to the Ordinary shares for the year ended 30 April 2013 (2012 – 3.0p). Subject to approval by shareholders, the dividend will be paid on 21 September 2013 to ordinary shareholders on the register as at close of business on 16 August 2013. Including the interim dividend paid of 1.3p (2012 – £Nil), the total dividend relating to the year would be 7.3p (2012 – 3.0p). The dividend is covered four times by underlying earnings. Going forward it is the intention of the Board to pay an interim dividend and a final dividend split in line with normal practice. UK The composition of the Group’s UK revenue and operating profit is set out below: Following the completion of the refinancing on 29 April 2013, interest rate swap contracts were taken out on 2 May 2013 in order to fix a proportion of bank debt at 2.9% giving an overall cost of the Group’s borrowings of 2.8%. This compares to an overall rate of 7.1% at 30 April 2012. Revenue Vehicle hire Vehicle sales 2013 £m 291.1 124.6 415.7 64.2 2012 £m 320.8 136.3 457.1 74.4 Operating profit14 Hire revenue reduced by 9% to £291.1m (2012 – £320.8m) driven by an 11% reduction in the average number of vehicles on hire, partially offset by a 2% increase in revenue per vehicle. An improvement in residual values was offset by a reduction in volume of used vehicles sold, which contributed to £1.7m of the decrease in operating profit. The UK operating margin was as follows: Operating margin9 2013 22.1% 2012 23.2% The UK operating profit margin9 has decreased to 22.1% (2012 – 23.2%) as a result of the decrease in vehicles on hire in the year. Spain The revenue and operating profit generated by our Spanish operations are set out below: Revenue Vehicle hire Vehicle sales Operating profit15 2013 £m 150.8 43.4 194.2 25.2 2012 £m 182.9 66.7 249.6 35.0 Hire revenue reduced by 18%. The reduction was 14% at constant exchange rates, of which 12% related to the reduction in vehicles on hire and 2% related to a reduction in revenue per vehicle. The Group made total borrowing repayments of £410.1m in the year. Scheduled total bank repayments on the new bank facilities of £25.9m commencing in November 2015 are due before they mature in June 2017. The revised financing arrangements allow the Group increased operational and financial flexibility with a new set of financial covenants13 in place as follows: 1 Interest cover ratio A minimum ratio of earnings before interest and taxation (EBIT) to net interest costs tested quarterly on a rolling historic (cid:17)(cid:18)(cid:13)(cid:77)(cid:79)(cid:78)(cid:84)(cid:72)(cid:0)(cid:66)(cid:65)(cid:83)(cid:73)(cid:83)(cid:14) The covenant ratio to be exceeded ranges between 2.0x and 3.0x, reflecting the reduced interest charges associated with the new financing arrangements. Interest cover at 30 April 2013 was 2.7x (2012 – 2.4x) with EBIT headroom, all else being equal, of £22m. 2 Loan to value A maximum ratio of total consolidated net borrowings to the book value of vehicles for hire, vehicles held for resale, trade receivables and freehold property, tested quarterly. The covenant ratio which must not be exceeded is 70%. Loan to value at 30 April 2013 was 50% (2012 – 53%) giving net debt headroom, all else being equal, of £149m. 3 Debt leverage cover ratio A maximum ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA), tested quarterly (cid:79)(cid:78)(cid:0)(cid:65)(cid:0)(cid:82)(cid:79)(cid:76)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:72)(cid:73)(cid:83)(cid:84)(cid:79)(cid:82)(cid:73)(cid:67)(cid:0)(cid:17)(cid:18)(cid:13)(cid:77)(cid:79)(cid:78)(cid:84)(cid:72)(cid:0)(cid:66)(cid:65)(cid:83)(cid:73)(cid:83)(cid:14) The covenant ratio which must not be exceeded is 2.0x. Debt leverage cover at 30 April 2013 was 1.5x (2012 – 1.3x) with EBITDA headroom, all else being equal, of £66m. 18 Northgate plc Annual report and accounts 2013 Spain continued Taxation An improvement in used vehicle residual values has contributed £5.0m to operating profit in the year with 11,200 vehicles sold (2012 – 16,800). The Spanish operating margin was as follows: The Group’s underlying effective tax charge for its UK and overseas operations was 22% (2012 – 30%). The underlying tax charge excludes the tax on intangible amortisation and exceptional items. Operating margin10 2013 16.7% 2012 19.1% Vehicle hire revenue and operating profit15 in 2013, expressed at constant exchange rates, would have been higher than reported by £7.1m and £1.2m respectively. Adjusting for the change in mix of the fleet, revenue per rented vehicle reduced by 1%, demonstrating continued pricing discipline in a difficult trading environment. The incidence of bad debt was £Nil compared to £2.7m in the prior year, with the reduction being driven by the collection of previously provided debt. Days sales outstanding continued to reduce from 71 days at 30 April 2012 to 64 days at 30 April 2013 due to the continued improvements in controls and processes. Corporate Corporate costs16 were £3.0m compared to £4.2m in the prior year. Exceptional items During the year £2.9m of restructuring costs and £0.4m of property disposal losses were incurred, of which £2.0m related to the UK and £1.3m related to Spain. Financing costs of £54.0m were incurred during the year which includes the costs of exiting the Group’s legacy debt and hedging. The related cash impact of these costs and of cancelling previous hedging arrangements was £39.1m. Interest Net finance charges for the year before exceptional items were £36.9m (2012 – £45.4m). (cid:52)(cid:72)(cid:69)(cid:0)(cid:67)(cid:72)(cid:65)(cid:82)(cid:71)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:69)(cid:83)(cid:0)(cid:97)(cid:22)(cid:14)(cid:21)(cid:77)(cid:0)(cid:79)(cid:70)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:12)(cid:0)(cid:80)(cid:82)(cid:73)(cid:77)(cid:65)(cid:82)(cid:73)(cid:76)(cid:89)(cid:0) from borrowing fees amortised in the year (2012 – £6.6m). The net cash interest charge has reduced by £8.4m to £30.4m, with a £7.2m saving as a result of the reduction in average net debt throughout the year, a £0.2m saving due to lower borrowing rates of the Group in the year and a £1.0m decrease due to the impact of exchange rates. The prior year underlying tax charge also excludes an £11.5m credit following settlement with the UK tax authorities on an outstanding tax matter and a charge of £2.9m to reflect the change in UK tax rates. Including these items the Group’s statutory effective tax charge was 35% (2012 – 12%). Earnings per share Basic earnings per share (EPS)3, were 29.2p (2012 – 31.5p). Basic statutory earnings per share were (5.5)p (2012 – 30.4p). Underlying earnings for the purposes of calculating EPS3 were £38.8m (2012 – £41.9m). The weighted average number of shares for the purposes of calculating EPS was 133.2m, in line with the previous year. w e i v e r l a i c n a n i F w e i v e R Balance sheet Net tangible assets at 30 April 2013 were £355.6m (2012 – £353.0m), equivalent to a tangible net asset value of 266.9p per share (2012 – 264.9p per share). Gearing7 at 30 April 2013 was 102% (2012 – 105%) reflecting an £8.6m reduction in net debt4. This demonstrates significant progress in strengthening the balance sheet over the previous four years from a gearing level of 571% at 30 April 2009. Cash flow A summary of the Group’s cash flows is shown below: 2013 £m Underlying operational cash generation 258.4 (117.7) Net capital expenditure (48.1) Net taxation and interest payments Net underlying cash generation6 92.6 Net refinancing payments (April 2013 refinancing) Dividends Other Net cash generated Opening net debt4 Net cash generated (cid:47)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:73)(cid:84)(cid:69)(cid:77)(cid:83)(cid:0) Exchange differences Closing net debt4 (39.1) (5.7) (2.3) 45.5 371.3 (45.5) 17.1 19.8 362.7 2012 £m 312.9 (133.8) (40.9) 138.2 – – (2.7) 135.5 529.9 (135.5) 6.8 (29.9) 371.3 Underlying cash generation6 was £92.6m compared to £138.2m in the previous year. 19 Northgate plc Annual report and accounts 2013 Financial review continued Capital management Cashflow continued A total of £255.2m was invested in new vehicles in order to replace fleet compared to £306.3m in the prior year. The Group’s new vehicle outlay was partially funded by £145.9m of cash generated from the sale of used vehicles. Other net capital expenditure amounted to £8.4m. After capital expenditure, payments of interest and tax of £48.1m, net payments of £39.1m in relation to the refinancing in the year, dividends of £5.7m and other items of £2.3m, net cash generation (as defined in the table above) was £45.5m, compared to £135.5m in the previous year. Excluding net refinancing payments relating the April 2013 refinancing, net cash generation was £84.6m. Treasury 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. 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. Our credit exposure is limited to banks which maintain an A rating. Individual aggregate credit exposures are also 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. 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 and bank borrowings. 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, gearing7 at 30 April 2013 was 102% compared to 105% at 30 April 2012. Interest rate management The Group’s bank facilities and other loan 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 at least 50% of its borrowings at any time. The Group’s borrowing facilities were refinanced on 29 April 2013. All existing interest rate swaps were cancelled at that time and new instruments were put in place on 2 May 2013 which hedged 64% of gross borrowings into fixed rates (30 April 2012 – 96%). Foreign exchange risk The Group’s reporting currency is, and the majority of its revenue (67%) 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 and Irish 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 2013 £: € 1.22 1.18 2012 £: € 1.17 1.23 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 exchange differences arising on these borrowings have been recognised directly within equity along with the exchange differences on retranslation of the net assets of the Euro subsidiaries. Going concern In determining whether the Group’s 2013 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. 20 Northgate plc Annual report and accounts 2013 w e i v e r l a i c n a n i F w e i v e R 1 Calculated as operating profit11 divided by average capital employed, being shareholders funds plus net debt4. 2 Stated before intangible amortisation of £3.6m (2012 – £4.0m, 2009 – £5.3m), exceptional administrative expenses of £3.3m (2012 – £6.7m, 2009 – £3.1m), impairment of assets of £Nil (2012 – £Nil, 2009 – £180.9m) and exceptional finance costs of £54.0m (2012 – £3.0m, 2009 – £33.8m). 3 Stated before intangible amortisation of £3.6m (2012 – £4.0m), exceptional administrative expenses of £3.3m (2012 – £6.7m), exceptional finance costs of £54.0m (2012 – £3.0m) and tax on intangible amortisation, exceptional items and exceptional tax credit of £14.7m (2012 – £12.3m). 4 Net debt taking into account swapped exchange rates for US loan notes and other loan swapped into Euro being retranslated to Sterling at closing exchange rates. 5 Full year dividend relating to the year, comprising interim dividend paid of 1.3p (2012 – £Nil) and final dividend proposed of 6.0p (2012 – 3.0p). 6 Net increase in cash and cash equivalents before financing activities and partial recovery of acquisition cost of subsidiary undertaking. 7 Calculated as net debt4 divided by tangible net assets with tangible net assets being net assets less goodwill and other intangible assets. 8 Headroom calculated as facilities of £443.1m less net borrowings of £362.7m. Net borrowings represent net debt of £362.7m stated after the deduction of £15.0m of cash balances, which are available to offset against borrowings. 9 Calculated as operating profit14 divided by revenue of £291.1m (2012 – £320.8m), excluding vehicle sales. 10 Calculated as operating profit15 divided by revenue of £150.8m (2012 – £182.9m), excluding vehicle sales. 11 Stated before intangible amortisation of £3.6m (2012 – £4.0m, 2009 – £5.3m), exceptional administrative expenses of £3.3m (2012 – £6.7m, 2009 – £3.1m) and impairment of assets of £Nil (2012 – £Nil, 2009 – £180.9m). 12 Stated before exceptional finance costs of £54.0m (2012 – £3.0m). 13 Calculated in accordance with covenant requirements of the Group’s financing arrangements. 14 Excluding amortisation of intangible assets of £2.9m (2012 – £3.1m) and exceptional administrative expenses of £2.1m (2012 – £5.7m). 15 Excluding amortisation of intangible assets of £0.7m (2012 – £0.9m) and exceptional administrative expenses of £1.3m (2012 – £1.7m). 16 Excluding exceptional administrative expenses of £Nil (2012 – £(0.7)m). Going concern continued The principal risks and uncertainties of the Group are outlined on pages 22 to 23. 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 2013 accounts. 21 Northgate plc Annual report and accounts 2013 Principal risks and uncertainties Economic environment The operation of a public company involves a number of risks and uncertainties across a full range of commercial, operational and financial areas. The following principal risks and uncertainties have been identified as being capable of impacting the Group’s performance over the next financial year. There is a link in our business between the demand for our products and services and the levels of economic activity in the countries in which the Group operates. The high level of operational gearing in our business model means that changes in demand can lead to higher levels of variation in profitability. The Group operates in Spain, where austerity measures have been implemented. These measures could impact on future (cid:84)(cid:82)(cid:65)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:86)(cid:79)(cid:76)(cid:85)(cid:77)(cid:69)(cid:83)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:85)(cid:78)(cid:68)(cid:69)(cid:82)(cid:76)(cid:89)(cid:73)(cid:78)(cid:71)(cid:0)(cid:77)(cid:65)(cid:67)(cid:82)(cid:79)(cid:13)(cid:69)(cid:67)(cid:79)(cid:78)(cid:79)(cid:77)(cid:73)(cid:67)(cid:0)(cid:67)(cid:79)(cid:78)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0) have also increased the risk of customer failure, particularly in Spain, which may lead to the occurrence of increased bad debt charges. The construction industry in Spain 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 years. The Spanish business 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. 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. No individual customer contributes more than five per cent of total revenue generated, and ongoing credit analysis is performed on new and existing customers to assess credit risk. Eurozone The Group operates in and generates 32% of its revenue in Spain, where the functional currency is the Euro. The risks of trading in this country are assessed in the ‘Economic Environment’ risk. Of the Group’s net assets, £273m (2012 – £294m) are located in Spain, against which the Group holds £234m (2012 – £240m) of Euro denominated borrowings providing a net investment hedge. There is a possibility that Spain may leave the Euro. If this occurred and Spain were to reintroduce its own national currency, the Group could be materially affected by a weakening of this currency and higher volatility on trading results when translated into Sterling. Local net assets could depreciate while the Group’s Euro debt located in the UK could appreciate. 22 Northgate plc Annual report and accounts 2013 Eurozone continued Access to capital The Board has conducted a detailed review of the impact of possible scenarios that may arise from the Eurozone crisis and the risks are being continually monitored. In order to minimise the Group’s net exposure to the Spanish currency, regular dividend payments of cash flow generated from the Spanish business have been implemented, and the Board has the ability to increase the level of funding to the Spanish business from locally denominated borrowings. Vehicle holding costs 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 a vehicle at the end of its 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 returns and cash generation. 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. Competition and hire rates 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. As our business is highly operationally geared, any increase or decrease in hire rates will impact profit and shareholder returns to a greater effect. As the Group is focused on maximising return on capital, all hire rates must exceed certain hurdle rates. Our current pricing strategy is focused on charging the correct price for the service provided and all ancillary services offered which will attract customers for whom flexible rental is the most appropriate solution but not necessarily the cheapest. This means that the Group will be better positioned against solely price led competition going forward. s e i t n i a t r e c n u d n a s k s i r l a p i c n i r P w e i v e R 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 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 facilities. Current bank facilities are due to mature in June 2017. There is a risk that the Group cannot successfully extend its facilities past this date. Failure to access sufficient financing or meet financial covenants could potentially adversely affect the prospects of the Group. Financial covenants are reviewed on a monthly basis in conjunction with cash flow forecasts to ensure ongoing 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 impact of access to capital on the wider risk of going concern is considered on pages 20 and 21. IT systems 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 could have a materially adverse affect on its business. 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. 23 Northgate plc Annual report and accounts 2013 Corporate social responsibility We understand that we have a wider obligation to run our business in a responsible and sustainable way for all our stakeholders. We believe that supporting the communities in which we operate and providing a safe environment for our employees is integral to the overall performance of the Group. 24 Northgate plc Annual report and accounts 2013 y t i l i b i s n o p s e r l a i c o s e t a r o p r o C w e i v e R 25 Northgate plc Annual report and accounts 2013 Corporate social responsibility continued The AFR’s reported are as follows: How we manage corporate responsibility Taking corporate responsibility and sustainability seriously is of the utmost importance to Northgate. Sound and robust health & safety and environmental (HS&E) arrangements and risk controls therefore form a key part of the Group’s overall business strategy. The Group’s arrangements for HS&E governance and management systems are monitored by the Audit and Risk Committee who have designated the Chief Executive as the person ultimately responsible for implementing best practice throughout the Group. UK Spain Group 2013 1.4 1.7 1.5 2012 1.2 5.5 2.5 During the year, the Group was prosecuted in the UK by the HSE for one breach of the Construction (Design and Management) Regulations which occurred in November 2010. Following this, a review of internal controls was undertaken which allowed the Group to adopt new and improved procedures. We continue to work closely with all authorities and encourage any support and advice they may provide. Ethics Common and consistent standards in accordance with legislative and best practice requirements are applied across all Group operations. Risk controls and procedures are continually assessed to ensure that everything is being done to meet the highest possible standards of HS&E requirements using comprehensive and robust HS&E operating controls. Northgate holds the highest levels of ethical standards and communicates this to all employees by way of the Group’s Code of Business Conduct, which covers bribery, competition, conflicts of interest, inside information, confidentiality, gifts and entertainment, discrimination, harassment and fair dealing with customers and suppliers. In addition, the Group’s Whistleblowing Policy and Procedure enables every Group employee to have a voice and a means by which they may draw concerns to our attention. Our employees As a Group we value our employees as we understand that they are the key resource required to deliver the high levels of customer service that maintains our competitive advantage. At 30 April 2013 we had 2,714 (2012 – 2,804) employees across the Group, 1,856 in the UK (2012 – 1,889) and 858 in Spain (2012 – 915). We recognise that our employees depend on us and we continually work on improving their engagement and motivation as the key to delivering high levels of customer service. Our employees are rewarded through a combination of competitive pay and incentive programmes which enable them to share in the progress towards the Group’s objectives. The Group’s policy is to recruit the best available people who are aligned with and embody our core values of (cid:80)(cid:82)(cid:79)(cid:70)(cid:69)(cid:83)(cid:83)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:73)(cid:83)(cid:77)(cid:12)(cid:0)(cid:84)(cid:69)(cid:65)(cid:77)(cid:87)(cid:79)(cid:82)(cid:75)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:65)(cid:78)(cid:13)(cid:68)(cid:79)(cid:0)(cid:65)(cid:84)(cid:84)(cid:73)(cid:84)(cid:85)(cid:68)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:83)(cid:69)(cid:0) values apply throughout the Group regardless of seniority of position. Health & safety Our approach to health & safety is simple: to ensure that no harm comes to anyone engaged with Northgate. We realise that excellence in health and safety can only be achieved if it forms part of every individual’s responsibility within the Group. Our ‘Safe & Sound’ programme was established to create an environment of openness and awareness, where all employees feel able to identify and raise concerns about working practices and conditions. The Group provides training for employees in a wide range of health and safety disciplines, most of which is carried out internally by the Group’s HS&E department, which in the UK is accredited by the British Safety Council. During the year the Group’s HS&E department carried out formal audit reviews to measure performance of our HS&E management system at all locations and where necessary identified improvements and subsequently monitored compliance. The main objective of the HS&E department is to ensure continuous improvement across the Group and provide pragmatic and practical solutions to the operational risks within the business to all levels of employees with a strong focus on behavioural safety and employee involvement. The main way that health & safety across the business is monitored is by the Accident Frequency Rate (AFR) during the course of our work. The AFR is calculated as the number of accidents reportable under the Reporting of Injuries, Diseases and Dangerous Occurences Regulations 1995 (RIDDOR) per 100,000 employee hours worked. Although the legislation in Spain defines reportable accidents under different rules to the UK, the data reported is in line with RIDDOR. 26 Northgate plc Annual report and accounts 2013 As at 30 April 2013, the UK business operated from a total of 74 locations including 65 rental sites. The Spanish business operates from a total of 32 locations including 23 rental sites. 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 customers and suppliers Northgate recognises the need to support our customers in managing a sustainable business. We work with our suppliers to make a fleet available to our customers comprised entirely of modern vehicles, achieving the highest levels of exhaust emission standards. In Spain we are one of the first businesses to offer hire of electric vehicles to our customers and our vehicle monitoring systems in the UK have enabled certain customers to reduce fuel costs by up to 15% by reviewing the usage of their fleets and identifying training needs to educate employees on more fuel efficient driving methods. As at 30 April 2013 the UK fleet of 49,900 vehicles had an average age of 21.4 months. The total fleet in Spain was 35,100 vehicles with an average age of 22.9 months. All vehicles purchases in the year ended 30 April 2013 met the latest Euro V standards. Our community We must be a responsible employer, neighbour and member of the local community and therefore operate our business in a way that continuously improves our relationship with employees, customers, neighbours and the environment. The Group is a member of the British Safety Council and the Royal Society for the Prevention of Accidents (RoSPA), which supports our commitment to corporate social responsibility. y t i l i b i s n o p s e r l a i c o s e t a r o p r o C w e i v e R Our employees continued Northgate is committed to equality, judging applications for employment neither by race, nationality, gender, age, disability, sexual orientation nor political bias. Investing in the training and development of our workforce not only improves the quality and standard of our service delivery but enables a high level of retention and allows everyone to contribute to their full potential. Regular training (cid:80)(cid:82)(cid:79)(cid:71)(cid:82)(cid:65)(cid:77)(cid:77)(cid:69)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:0)(cid:83)(cid:85)(cid:73)(cid:84)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:64)(cid:79)(cid:70)(cid:70)(cid:13)(cid:84)(cid:72)(cid:69)(cid:13)(cid:83)(cid:72)(cid:69)(cid:76)(cid:70)(cid:7)(cid:0) training courses are available to employees in the UK. Our new employee induction programme has also been fully rolled out in the UK across the year. In the UK, the company continues to work with two vehicle manufacturers to recruit apprentices. Currently, we are training 64 workshop apprentices. Regular communication with our employees is vital in ensuring that we all share in the common goals and values of the Group. Our intranet provides daily updates on the progress of the Group and the Chief Executive hosts regular briefing updates, with an invitation to all staff to directly raise any issues concerning them. Environment Northgate is committed to taking reasonable actions to minimise the risk of adverse impact on the environment from our business. We achieve this by adopting a set of environmental principles to promote and operate processes and procedures which avoid or minimise the contamination of water, air or the ground whilst maintaining a responsibility to (cid:77)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:0)(cid:84)(cid:72)(cid:79)(cid:83)(cid:69)(cid:0)(cid:66)(cid:89)(cid:13)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:87)(cid:65)(cid:83)(cid:84)(cid:69)(cid:0)(cid:77)(cid:65)(cid:84)(cid:69)(cid:82)(cid:73)(cid:65)(cid:76)(cid:83)(cid:0)(cid:71)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0) our activities, particularly from our vehicle repair workshops. Our ‘Team Green’ environmental campaign was rolled out across the Group during the year to improve awareness and performance across all business units. In the UK, Northgate have been awarded the internationally recognised Environmental Standard ISO 14001. In Spain, Northgate also maintained its accreditation to the ISO 14001 Standard. During the year, we were able to recycle or recover 100% of all waste streams generated and collected from our vehicle repair workshops in the UK. We were able to recycle or recover 71% of all waste streams generated and collected from our business operations located in Spain. We continue to work closely with our waste management partners to improve waste management arrangements and performance across the Group. 27 Northgate plc Annual report and accounts 2013 Board of Directors I am delighted to report that Jill Caseberry was appointed to the (cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0) in December 2012. Jill’s experience is proving invaluable as we continue to build on our platform for growth. 1 Bob Mackenzie Chairman 2 Bob Contreras Chief Executive 3 Chris Muir Group Finance Director 4 Andrew Allner (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) 5 Jan Astrand (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) 6 Tom Brown (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) 7 Jill Caseberry (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0) Board committees Audit and Risk (cid:115)(cid:0) (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:87)(cid:0)(cid:33)(cid:76)(cid:76)(cid:78)(cid:69)(cid:82)(cid:0)(cid:8)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:9) (cid:115)(cid:0) (cid:42)(cid:65)(cid:78)(cid:0)(cid:33)(cid:83)(cid:84)(cid:82)(cid:65)(cid:78)(cid:68) (cid:115)(cid:0) (cid:52)(cid:79)(cid:77)(cid:0)(cid:34)(cid:82)(cid:79)(cid:87)(cid:78) (cid:115)(cid:0) (cid:42)(cid:73)(cid:76)(cid:76)(cid:0)(cid:35)(cid:65)(cid:83)(cid:69)(cid:66)(cid:69)(cid:82)(cid:82)(cid:89) Remuneration (cid:115)(cid:0) (cid:52)(cid:79)(cid:77)(cid:0)(cid:34)(cid:82)(cid:79)(cid:87)(cid:78)(cid:0)(cid:8)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:9) (cid:115)(cid:0) (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:87)(cid:0)(cid:33)(cid:76)(cid:76)(cid:78)(cid:69)(cid:82) (cid:115)(cid:0) (cid:42)(cid:65)(cid:78)(cid:0)(cid:33)(cid:83)(cid:84)(cid:82)(cid:65)(cid:78)(cid:68) (cid:115)(cid:0) (cid:42)(cid:73)(cid:76)(cid:76)(cid:0)(cid:35)(cid:65)(cid:83)(cid:69)(cid:66)(cid:69)(cid:82)(cid:82)(cid:89) (cid:115)(cid:0) (cid:34)(cid:79)(cid:66)(cid:0)(cid:45)(cid:65)(cid:67)(cid:75)(cid:69)(cid:78)(cid:90)(cid:73)(cid:69) Nominations (cid:115)(cid:0) (cid:34)(cid:79)(cid:66)(cid:0)(cid:45)(cid:65)(cid:67)(cid:75)(cid:69)(cid:78)(cid:90)(cid:73)(cid:69)(cid:0)(cid:8)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:9) (cid:115)(cid:0) (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:87)(cid:0)(cid:33)(cid:76)(cid:76)(cid:78)(cid:69)(cid:82) (cid:115)(cid:0) (cid:42)(cid:65)(cid:78)(cid:0)(cid:33)(cid:83)(cid:84)(cid:82)(cid:65)(cid:78)(cid:68) (cid:115)(cid:0) (cid:52)(cid:79)(cid:77)(cid:0)(cid:34)(cid:82)(cid:79)(cid:87)(cid:78) (cid:115)(cid:0) (cid:42)(cid:73)(cid:76)(cid:76)(cid:0)(cid:35)(cid:65)(cid:83)(cid:69)(cid:66)(cid:69)(cid:82)(cid:82)(cid:89) 1 2 3 28 Northgate plc Annual report and accounts 2013 Bob Mackenzie ACA Chairman Andrew Allner FCA (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Appointed to the Board as Chairman in February 2010. Prior to his appointment, he was Chief Executive of Sea Containers Ltd, including the Chairmanship of its subsidiary GNER. He was formerly Chairman of Dometic Holdings AB, a Swedish based manufacturing company, 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 60. Bob Contreras ACA Chief Executive Appointed Chief Executive on 7 June 2010 having been Group Finance Director since 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 50. Chris Muir ACA Group Finance Director Appointed to the Board as Group Finance Director on 19 May 2011. Chris originally joined Northgate as Group Accountant in 2003, being appointed Group Financial Controller in March 2004 and UK Finance Director in May 2006. Qualifying as a Chartered Accountant in 1999, Chris worked for Deloitte LLP from 1997 until 2003, leaving as a manager. Chris has a first class honours degree in Economics and Accountancy from the University of Newcastle upon Tyne. Age 37. (cid:33)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0) Director and to the Chair of the Audit and Risk Committee in September 2007. Andrew (cid:73)(cid:83)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:76)(cid:89)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0) (cid:45)(cid:65)(cid:82)(cid:83)(cid:72)(cid:65)(cid:76)(cid:76)(cid:83)(cid:0)(cid:80)(cid:76)(cid:67)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:79)(cid:13)(cid:33)(cid:72)(cid:69)(cid:65)(cid:68)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:80)(cid:76)(cid:67)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) Fox Marble Holdings plc. He is also Senior Independent Director and Chairman of the Audit Committee at AZ Electronic Materials (cid:51)(cid:33)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:69)(cid:83)(cid:0)(cid:65)(cid:83)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) Chairman of the Audit Committee at CSR plc. He was Group Finance Director of RHM plc, taking a lead role in its flotation on the London Stock exchange in July 2005. Prior to joining RHM plc, Andrew was CEO of Enodis plc and has served in senior executive positions with Dalgety plc, Amersham International plc and Guinness plc. He was (cid:65)(cid:76)(cid:83)(cid:79)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:45)(cid:79)(cid:83)(cid:83)(cid:0)(cid:34)(cid:82)(cid:79)(cid:83)(cid:0) Group plc from 2001 to 2005. A graduate of Oxford University, he is a former partner of Price Waterhouse and is a Fellow of the Institute of Chartered Accountants in England and Wales. Age 59. Jan Astrand MBA (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:33)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0) Director in February 2001. Jan is also currently (cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:44)(cid:65)(cid:86)(cid:69)(cid:78)(cid:68)(cid:79)(cid:78)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0) plc. A Swedish national, 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 and before that he was Chief Financial Officer of Commodore International Ltd based in the US. Age 65. Tom Brown MA (Oxon) MBA IMD (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:33)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0) Director in April 2005 and appointed Senior Independent Director in June 2007. Tom is a Director of a number of private companies and a member of the Economics Committee of the EEF. He was previously Chairman of Chamberlin plc, Group Chief Executive of United Industries plc and before that Group Managing Director of Fenner plc. In all he has served on the boards of UK quoted companies for some 25 years, following executive roles with GKN plc and a period consulting with McKinsey & Co Inc. Age 63. Jill Caseberry (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0) (cid:33)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0) Director in December 2012. Jill has extensive sales, marketing and general management experience across a number of blue chip companies including Mars, PepsiCo and Premier Foods. She currently runs her own sales and marketing consultancy and is CEO (cid:79)(cid:70)(cid:0)(cid:65)(cid:0)(cid:70)(cid:79)(cid:79)(cid:68)(cid:15)(cid:66)(cid:69)(cid:86)(cid:69)(cid:82)(cid:65)(cid:71)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:82)(cid:84)(cid:13)(cid:85)(cid:80)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:14)(cid:0)(cid:48)(cid:82)(cid:73)(cid:79)(cid:82)(cid:0)(cid:84)(cid:79)(cid:0) setting up these businesses Jill was general manager of a Premier Foods division. Age 48. s r o t c e r i D f o d r a o B e c n a n r e v o G 4 5 6 7 29 Northgate plc Annual report and accounts 2013 Report of the Directors The Directors present their report and the audited accounts for the year ended 30 April 2013. may result in restrictions 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. With regards to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the UK Corporate Governance Code, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are set out in the Articles. 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 change of control. 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: 30 April 2013 24 June 2013 9,323,756 (7.0%) 9,323,756 (7.00%) 12,465,075 (9.36%) 12,465,075 (9.36%) Capital Group Standard Life Investments Ltd Henderson Global Investors Ltd 7,835,483 (5.88%) 8,022,055 (6.02%) Aberforth Partners 7,481,552 (5.62%) 7,481,552 (5.62%) Legal & General Group plc Aviva plc Artemis Investment Management Ltd 6,698,272 (5.03%) 6,698,272 (5.03%) 6,672,204 (5.01%) 6,672,204 (5.01%) 7,115,776 (5.34%) 6,536,818 (4.90%) Directors Details of the present Directors are listed on pages 28 and 29. All have served throughout the year except Jill Caseberry who was appointed on 10 December 2012. (cid:50)(cid:69)(cid:83)(cid:79)(cid:76)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:0)(cid:69)(cid:65)(cid:67)(cid:72)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:79)(cid:70)(cid:70)(cid:73)(cid:67)(cid:69)(cid:0) at the date of this report will be proposed at the Annual General Meeting. The termination provisions in respect of executive Directors’ contracts are set out in the Remuneration Report on pages 33 to 39. Results Loss for the year after taxation was £7,357,000 (2012 – profit of £40,468,000). An interim dividend of 1.3p per share was paid on the Ordinary shares on 11 January 2013. The Directors recommend the payment of a final dividend of 6.0p per share on the Ordinary shares. This dividend, if approved, will be paid on 21 September 2013 to shareholders on the register at close of business on 16 August 2013. Principal activities and business review The Company is an investment holding company. The principal subsidiaries are listed in Note 17 to the accounts. The information that fulfils the requirements of the Business Review, together with a description of the principal activities of the business, can be found in the Operational Review and Financial Review on pages 14 to 23, which are incorporated in this report by reference. A description of the principal risks and uncertainties facing the Company and the Group is set out on pages 22 and 23 which are incorporated into 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 24. The Company has one class of Ordinary share 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 cumulative 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 99.255% 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 (‘the Articles’) and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that 30 Northgate plc Annual report and accounts 2013 Report of the Directors Directors continued 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. Ordinary Shares of 50p each 30 April 2013 Ordinary Shares of 50p each 1 May 2012 13,090 51,920 52,634 Nil 118,168 100,000 19,053 13,090 51,920 52,634 Nil* 116,608 100,000 17,493 AJ Allner JG Astrand THP Brown G Caseberry RL Contreras RD Mackenzie CJR Muir *On date of appointment. No Director has an interest in the Preference shares of the Company. No changes in the above interests have occurred between 30 April 2013 and the date of this report. Details of options held by the Directors under the Company’s various share schemes are given in the Remuneration Report on pages 33 to 39. 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 £5,000 (2012 – £3,000) 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 2013 the Group’s creditor days were as shown in Note 20 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 Chief Executive briefing updates, announcements on the Group’s intranet, 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. 31 Northgate plc Annual report and accounts 2013 Disabled employees Applications for employment by disabled persons are given full consideration, taking into account the aptitudes of the applicant concerned. Every effort is made to try to ensure that employees who become disabled whilst already employed are able to continue in employment by making reasonable adjustments in the workplace, arranging appropriate training or providing suitable alternative employment. It is Group policy that the training, career development and promotion of disabled persons should, as far as possible, be the same as that of other employees. The Group’s equal opportunity policy is available on the Company’s website. Remuneration report As required by the Directors’ Remuneration Report Regulations 2002, the Remuneration Report, set out on pages 33 to 39, 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 2012 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 2014 will be proposed at the Annual General Meeting. The authority will permit the Directors to allot up to an aggregate nominal amount of £22m of share capital which represents less than 33% 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. 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 £3,330,000 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 (cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:48)(cid:82)(cid:69)(cid:13)(cid:69)(cid:77)(cid:80)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:7)(cid:83)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:48)(cid:82)(cid:73)(cid:78)(cid:67)(cid:73)(cid:80)(cid:76)(cid:69)(cid:83)(cid:0)(cid:82)(cid:69)(cid:71)(cid:65)(cid:82)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0) 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. s r o t c e r i D e h t f o t r o p e R e c n a n r e v o G Report of the Directors continued 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 6 to the Notice of Annual General Meeting on page 100 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. It is the Board’s intention that this authority would not be used as a matter of routine, but only when merited by the circumstances of the meeting and in the best interests of shareholders. Authority for the Company to purchase its own shares The Directors propose to renew the general authority of the Company to make market purchases of its own shares to a total of 13,300,000 Ordinary shares (representing approximately 10% of the issued Ordinary share capital) and within the price constraints set out in the special resolution to be proposed at the Annual General Meeting. There is no present intention to make any purchase of own shares and, if granted, the authority would only be exercised if to do so would result in an improvement in earnings per share for remaining shareholders. Financial instruments Details of the Group’s use of financial instruments are given in the Financial Review on page 20 and in Notes 22 and 37 to the accounts. Auditor In the case of each of the persons who are Directors of the Company at the date when this report was approved: (cid:115)(cid:0) (cid:115)(cid:0) so far as each of the Directors is aware, there is no relevant audit information of which the Company’s auditor is 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 auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 Companies Act 2006. (cid:33)(cid:0)(cid:82)(cid:69)(cid:83)(cid:79)(cid:76)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:13)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:36)(cid:69)(cid:76)(cid:79)(cid:73)(cid:84)(cid:84)(cid:69)(cid:0)(cid:44)(cid:44)(cid:48)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:0) of the Company will be proposed at the forthcoming Annual General Meeting. This proposal is supported by the Audit and Risk Committee. By order of the Board D Henderson Secretary 24 June 2013 32 Northgate plc Annual report and accounts 2013 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 28. 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 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. The Committee has access to external independent advice on matters relating to remuneration. During the year the Committee took advice from New Bridge Street (NBS) (an Aon plc company) on remuneration matters and share scheme implementation. NBS is appointed by the Committee. Neither NBS nor any other Aon plc company undertakes other work for the Company or the Group. The terms of engagement between the Committee and NBS are available on request from the Company Secretary. Whilst the Committee has followed closely the consultation and pending introduction of the new Directors' Remuneration Reporting Regulations, these Regulations have not yet been approved by Parliament and are not expected to come into effect until 1 October 2013. This report has therefore been prepared in compliance with the existing Regulations. The Committee will report fully under the new Regulations, as required, in 2014. 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. The Committee believes that its current policy of applying greater weighting to the variable elements of executive remuneration continues to be appropriate for the business going forward and, in incentivising the longer term performance of the Company, provides greater alignment with the interests of shareholders. In line with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure, the Committee will seek 33 Northgate plc Annual report and accounts 2013 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 The executive Directors have rolling service contracts, which may be terminated by 12 months’ notice from the Company or by six months‘ notice from the Director. The dates of the contracts are: RL Contreras CJR Muir 27 May 2011 19 May 2011 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 In accordance with the Company’s policy of paying lower basic salaries coupled with higher incentives, the current basic salaries paid to the executive Directors are as follows: RL Contreras CJR Muir £375,000 £225,000 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. Bob Contreras has received no increase in basic pay this year. On his appointment in May 2011, Chris Muir’s salary was set significantly below market level at £175,000. The Committee’s intention was to increase his salary to the market level over several years subject to both his and the Company’s performance. On 1 May 2012 his basic salary was increased by 14.0% to £200,000. Effective 1 May 2013 his basic salary has been further increased by 12.5% to £225,000. This increase has moved Chris Muir closer to the market rate. Subject to performance, further increases may be made in subsequent years. t r o p e r n o i t a r e n u m e R e c n a n r e v o G Remuneration report continued Total remuneration The chart below shows the balance between fixed and variable performance based pay for Bob Contreras and Chris Muir for the year ended 30 April 2013 and projections for the year ending 30 April 2014. For 2013 an expected value of 55% of the face value has been used in respect of the performance shares awarded in that year. Total reward for 2014 can only be estimated, because the actual value of the cash and deferred bonus will not be known until the end of the relevant performance period. 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. RL Contreras 2013 2014 375 375 98 309 98 94 94 309 CJR Muir 2013 200 56 165 2014 225 58 56 56 185 Base salary (cid:40) Pension & benefits (cid:40) (cid:40) Annual bonus – cash (cid:40) Annual bonus – deferred shares (cid:40) Performance shares External appointments The Board recognises that executive Directors may be invited (cid:84)(cid:79)(cid:0)(cid:66)(cid:69)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:73)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) 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 (cid:83)(cid:69)(cid:69)(cid:75)(cid:73)(cid:78)(cid:71)(cid:0)(cid:83)(cid:85)(cid:67)(cid:72)(cid:0)(cid:80)(cid:79)(cid:83)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:73)(cid:83)(cid:0)(cid:83)(cid:69)(cid:76)(cid:70)(cid:13)(cid:69)(cid:68)(cid:85)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:82)(cid:65)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:84)(cid:72)(cid:65)(cid:78)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0) 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. Pension schemes Throughout the year all pension arrangements (other than the Willhire Pension Scheme – see Note 36 of the accounts) operated by the Group were defined contribution type schemes. The executive Directors receive a pension contribution of 18% of salary. Non-executive directors (cid:52)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:77)(cid:85)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:8)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:84)(cid:72)(cid:65)(cid:78)(cid:0) the Chairman) is determined by the Board as a whole, within (cid:84)(cid:72)(cid:69)(cid:0)(cid:79)(cid:86)(cid:69)(cid:82)(cid:65)(cid:76)(cid:76)(cid:0)(cid:76)(cid:73)(cid:77)(cid:73)(cid:84)(cid:0)(cid:83)(cid:69)(cid:84)(cid:0)(cid:66)(cid:89)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:33)(cid:82)(cid:84)(cid:73)(cid:67)(cid:76)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:33)(cid:83)(cid:83)(cid:79)(cid:67)(cid:73)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:14)(cid:0)(cid:46)(cid:79)(cid:78)(cid:13) executive Directors are not eligible for performance related payments nor may they participate in the Company’s share (cid:73)(cid:78)(cid:67)(cid:69)(cid:78)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:79)(cid:82)(cid:0)(cid:80)(cid:69)(cid:78)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:83)(cid:67)(cid:72)(cid:69)(cid:77)(cid:69)(cid:83)(cid:14)(cid:0)(cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:72)(cid:65)(cid:86)(cid:69)(cid:0) letters of appointment with the Company under which their appointments are terminable without notice. 34 Northgate plc Annual report and accounts 2013 The original dates of appointment to the Board and of their current letters of appointment are: RD Mackenzie AJ Allner JG Astrand THP Brown G Caseberry Date of appointment 5 February 2010 26 September 2007 13 February 2001 13 April 2005 Letter of appointment 28 May 2013 22 June 2011 22 June 2011 22 June 2011 10 December 2012 10 December 2012 (cid:52)(cid:72)(cid:69)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:70)(cid:69)(cid:69)(cid:83)(cid:0)(cid:80)(cid:65)(cid:73)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0) shown below: RD Mackenzie Chairman AJ Allner JG Astrand THP Brown Chairman of Audit and Risk Committee (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Senior Independent Director and Chairman of Remuneration Committee G Caseberry (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) £160,000 £60,000† £50,000 £68,000* £50,000 † Including £10,000 in respect of his Chairmanship of the Audit and Risk Committee. * Including £8,000 in respect of his Chairmanship of the Remuneration Committee and £10,000 as Senior Independent Director. No fees were increased on review this year. The fee structure (cid:70)(cid:79)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:82)(cid:69)(cid:70)(cid:76)(cid:69)(cid:67)(cid:84)(cid:83)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:84)(cid:73)(cid:77)(cid:69)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:73)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0)(cid:82)(cid:69)(cid:83)(cid:80)(cid:79)(cid:78)(cid:83)(cid:73)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:67)(cid:65)(cid:82)(cid:82)(cid:89)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:85)(cid:84)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:68)(cid:85)(cid:84)(cid:73)(cid:69)(cid:83)(cid:14)(cid:0)(cid:38)(cid:69)(cid:69)(cid:83)(cid:0) are set taking into account market practice for similar roles in companies of a comparable size. Performance graph (cid:33)(cid:83)(cid:0)(cid:82)(cid:69)(cid:81)(cid:85)(cid:73)(cid:82)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:51)(cid:67)(cid:72)(cid:69)(cid:68)(cid:85)(cid:76)(cid:69)(cid:0)(cid:24)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:44)(cid:65)(cid:82)(cid:71)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:45)(cid:69)(cid:68)(cid:73)(cid:85)(cid:77)(cid:13)(cid:83)(cid:73)(cid:90)(cid:69)(cid:68)(cid:0) Companies and Groups (Accounts and Reports) 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 (cid:66)(cid:69)(cid:78)(cid:67)(cid:72)(cid:77)(cid:65)(cid:82)(cid:75)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:77)(cid:73)(cid:68)(cid:13)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:80)(cid:82)(cid:73)(cid:67)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:7)(cid:83)(cid:0) Ordinary shares at 30 April 2013 was 339p (30 April 2012 – 199p). The range during the year was 160p to 350p. Total shareholder return ) £ ( e u a V l 180 160 140 120 100 80 60 40 20 0 30-Apr-08 30-Apr-09 30-Apr-10 30-Apr-11 30-Apr-12 30-Apr-13 Northgate plc FTSE 250 (Excl. Inv. Trusts) Index Source: Thomson Reuters This graph shows the value, by 30 April 2013, of £100 invested in Northgate plc on 30 April 2008 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. The following parts of this report have been audited: RD Mackenzie AJ Allner JG Astrand THP Brown G Caseberry*** RL Contreras CJR Muir Total emoluments excluding pension contributions Total pension contributions Salary/ fees £000 160 60 50 68 21 375 200 934 – Bonus £000 – – – – – – – – – Benefits* £000 – – – – – 63 20 Total 2013 £000 160 60 50 68 21 438 220 Total 2012 £000 160 60 50 68 – 766 339 83 – 1,017 1,443 – – Pension contributions** 2013 £000 – – – – – 35 36 – 71 2012 £000 – – – – – 35 30 – 65 * These benefits include: company car, private medical insurance, permanent health insurance, life assurance and payments in lieu of pension contributions. ** All contributions are to a defined contribution type scheme. *** From 10 December 2012 In addition to the fees shown above, paid in respect of his office as a Director of the Company, Jan Astrand also received fees of €64,800 (2012 – €129,600) in respect of his consultancy work in Spain referred to in the Corporate Governance Report on pages 42 to 44. Incentive plans (cid:40)(cid:73)(cid:83)(cid:84)(cid:79)(cid:82)(cid:73)(cid:67)(cid:65)(cid:76)(cid:76)(cid:89)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:72)(cid:65)(cid:83)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:72)(cid:82)(cid:69)(cid:69)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:13)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0) 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 has participated in all three schemes at the same time. 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). After reviewing the effectiveness of the MPSP, the Committee has determined that it no longer serves the purpose for which it was originally intended and no further awards will be made under the plan, the last award therefore being that made in August 2012. Instead, the Committee is introducing a new long term incentive plan (the 'Equity Value Management Incentive Plan') for the benefit of the UK senior management team only. The UK senior management team currently comprises four individuals, although the Committee has the discretion to include new joiners in future. Participants in this scheme will continue to participate in the DABP. The participants will share in the growth in the notional equity value of the UK and Irish business over the five year life of the plan from 1 May 2013. Benefits will be paid wholly in cash. The Committee believes this arrangement will provide a strong incentive to grow the business over that period and at the same time will aid retention of a relatively new management team. The executive Directors will not participate in this new plan. In line with current best practice guidelines, the Committee has introduced claw back provisions into the rules of all (cid:83)(cid:67)(cid:72)(cid:69)(cid:77)(cid:69)(cid:83)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:67)(cid:65)(cid:78)(cid:0)(cid:66)(cid:69)(cid:0)(cid:73)(cid:78)(cid:86)(cid:79)(cid:75)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:86)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:77)(cid:73)(cid:83)(cid:13) statement, gross misconduct or fraud and which apply to all awards made from 2010 onwards. Awards held by Directors during the year are shown in the table on page 37. 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. 50% of the total bonus actually earned is paid in cash and 50% is (cid:68)(cid:69)(cid:70)(cid:69)(cid:82)(cid:82)(cid:69)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:83)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:76)(cid:69)(cid:86)(cid:69)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)(cid:66)(cid:79)(cid:78)(cid:85)(cid:83)(cid:0)(cid:80)(cid:65)(cid:89)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:64)(cid:79)(cid:78)(cid:13)(cid:84)(cid:65)(cid:82)(cid:71)(cid:69)(cid:84)(cid:7)(cid:0) performance is 50% of salary. The deferred shares may be received by the employee after 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. Awards over 623,603 deferred shares to 70 executives were outstanding at 30 April 2013. t r o p e r n o i t a r e n u m e R e c n a n r e v o G 35 Northgate plc Annual report and accounts 2013 Remuneration report continued Deferred annual bonus plan continued The relevant targets are: No bonuses are payable to the executive Directors in respect of the year ended 30 April 2013. The bonus for the executive Directors in respect of the year ending 30 April 2014 will comprise three elements reflecting the Group’s near term priorities: UK Marginal Contribution (MC). MC is defined as all revenue except from the sale of used vehicles, less the depreciation charge on hire vehicles. A UK MC of £180,028,000 pays zero bonus, £187,502,000 pays one third of annual salary, with a straight line in between. 2010 award 2011 award 2012 award† 2013 award† EPS in 3rd Year Threshold 31.45p 38.50p ROCE average over 3 years Threshold Stretch 10.20% 12.00% 13.50% 13.85% CPI +3% CPI +11% 13.75% 14.41% CPI +3% CPI +11% 11.50% 12.40% Stretch 37.00p 47.20p † The EPS targets will be calculated by applying the compound annual growth to the prior year's actual The ROCE target for the 2013 award reflects the difficult economic environment in Spain and the short term effects of the new branch opening programme in the UK. Spain. Performance to be measured against a matrix of local net debt and ROCE, with a maximum bonus of one third of annual salary. Group ROCE. 10.4% pays zero bonus, 11.2% pays one third of annual salary, with a straight line in between. The EPS target for the 2010 award was not achieved at the threshold level while the stretch ROCE target was achieved. With two thirds of the award based on EPS and one third on ROCE, this will result in a total vesting of one third of the original award, equating to 100,864 shares for the Chief Executive. 1. 2. 3. No element of bonus will be paid unless Group operating profit is at least 95% of the Group's budgeted operating profit for the year. Executive performance share plan Only executive Directors and the Company Secretary participate in the EPSP. Awards under the EPSP vest after three years subject to continued employment and the satisfaction of challenging performance targets. In line with the Committee’s policy of placing greater emphasis on variable pay than on base salaries, grants for executive Directors are currently being made at 150% of salary face value, being the maximum permitted under the rules. Consistent with the approach used in recent years, the performance targets applying to the grants to be made in 2013 will be a mixture of underlying EPS and ROCE. 50% of the award will apply to each measure to closely reflect the importance the Board places on balance sheet management. 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 manage balance sheet efficiency (important for a capital intensive business), both of which should flow through to superior returns for 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. 36 Northgate plc Annual report and accounts 2013 Directors’ interests in share awards At 1 May 2012 Number granted Market price at grant p Number exercised Date of exercise Exercise price p Share price on date of exercise p Gross gain on exercise £ Number lapsed At 30 April 2013 Executive performance share plan RL Contreras CJR Muir 130,952 302,593 171,546 – – – – 269,138 605,091 269,138 157.5 173.5 327.9 209.0 80,054 – – 143,450 327.9 209.0 80,054 143,450 Management performance share plan CJR Muir 9,6021 28,5711 23,6181 61,791 Deferred annual bonus plan2 292.0 157.5 173.5 – – – – – RL Contreras CJR Muir 29,7195 9,149 (with capped value of £30,000)3 9,1494 44,2205 – – – – 78,9475 327.9 83,088 78,947 15,8731 9,3371 7,295 (with capped value of £23,920)3 7,2954 – – 327.9 – – 2,908 (with capped value of – – – £6,078)3 2,9084 33,9345 209.0 32,505 36,842 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 327.9 – – – – – 327.9 – 209.0 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Normally exercisable Oct 2012 – Oct 2019 Aug 2013 – Aug 2020 Jul 2014 – Jul 2021 Aug 2015 – Aug 2022 Jul 2014 – Jul 2021 Aug 2015 – Aug 2022 – 130,952 – 302,593 171,546 – – 269,138 – 874,229 – 80,054 – 143,450 – 223,504 9,602 – 8,645 – 28,571 14,973 18,247 43,544 Jul 2012 Oct 2012 – Oct 2019 Jul 2013 – Jul 2020 – – – – – – – – – – – – – – 29,719 9,149 (with capped value of £30,000) 9,149 44,220 78,947 162,035 15,873 9,337 7,295 (with capped value of £23,920) 7,295 2,908 (with capped value of £6,078) 2,908 33,934 69,347 Aug 2013 – Aug 2015 Aug 2014 – Aug 2021 Aug 2014 – Aug 2021 Aug 2014 – Aug 2021 Jul 2015 – Jul 2022 Oct 2012 – Oct 2014 Aug 2013 – Aug 2015 Aug 2014 – Aug 2021 Aug 2014 – Aug 2021 Jul 2015 – Jul 2022 Jul 2015 – Jul 2022 Jul 2015 – Jul 2022 t r o p e r n o i t a r e n u m e R e c n a n r e v o G 1 These awards were made prior to his appointment to the Board 2 Awards can be granted in two forms: (i) a nil cost option over a number of shares (a ‘Deferred Award’) or (ii) a nil cost option over a fixed value of shares (a ‘Linked Deferred Award’) granted in association with a HMRC Approved Option (an ‘Option’). The value of a Linked Deferred Award is capped at the original face value. When calculating the maximum value of the shares under a Linked Deferred Award that may be granted under such award the value of the shares under the associated Option is not counted. All DABP awards ordinarily become exercisable on the third anniversary of their grant. Related Linked Deferred Awards and Options must be exercised at the same time unless the Option has been waived. In the table above, the awards made during the year were made under the revised Rules. 3 Linked Deferred Award 4 Option associated with the relevant linked Deferred Award 5 Deferred award 37 Northgate plc Annual report and accounts 2013 Remuneration report continued Management performance share plan As mentioned above, no further awards are to be made under this scheme. The position as at 30 April 2013 with regard to awards already made is as follows: Original award of shares Lapsed Vested 2009 872,638 350,941 521,697 2010 604,664 282,437 194,309 2011 362,372 140,915 49,401 2012 Total 691,157 2,530,831 873,503 765,407 99,210 – Remaining subject to performance – 127,918 172,056 591,947 891,921 The above awards are held by 37 executives, including 19 in Spain. All employee share scheme The All Employee Share Scheme (‘the 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 twelfth annual cycle ended in December 2012 and resulted in 301 employees acquiring 145,512 Partnership shares at 192p each and being allocated the same number of Matching shares. As at 30 April 2013 the Capita Trust held 1,588,439 50p Ordinary shares that have been allocated to employees from the first 12 cycles. The thirteenth annual cycle started in January 2013 and currently some 410 employees are making contributions to the scheme at an annualised rate of £364,000. During the year, an award of 250 free shares was made to all eligible employees with one year’s service. The total number of shares awarded was 345,750. Share ownership guidelines The executive Directors of the Company are expected to comply with Share Ownership Guidelines. Broadly, these 38 Northgate plc Annual report and accounts 2013 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. As at 30 April 2013, the value of Bob Contreras’ shareholding expressed as a percentage of his basic salary on that date was 107% (2012 – 62%) and of Chris Muir, 32% (2012 – 20%). 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 To date, awards under these two schemes have been satisfied through open market purchases by an employee benefit trust based in Guernsey (‘the Guernsey Trust’). During the year 875,000 (2012 – 300,000) Ordinary shares were purchased by the Guernsey Trust and 457,582 (2012 – 254,717) were used to satisfy the exercise of awards under the DABP and MPSP. At 30 April 2013 the Guernsey Trust held 98,037 (2012 – 265,868) Ordinary shares as a hedge against the Group’s obligations under these schemes. The rules of both these schemes also allow new issue and treasury shares to be used to satisfy the vesting and exercise of awards, but to date the Board have chosen not to do so. EPSP Shares to satisfy the vesting of awards under the EPSP may be sourced either from new issue or through open market purchases. No options have yet been exercised under this scheme. AESS Awards may be satisfied either by new issue or market purchase or by a combination of the two. The total number of shares required to satisfy the allocation made in January 2013 was 291,024 (2012 – 334,998) of which 239,499 were transferred from the Guernsey Trust, with the balance of 51,525 (2012 – 76,825) being shares already held by the AESS continued Capita Trust from forfeitures during the year. The 345,750 free shares referred to above were also sourced from the Guernsey Trust. At 30 April 2013 the Capita Trust held 22,891 (2012 – 23,715) Ordinary shares which had been forfeited as a result of early withdrawals post January 2013. Overall plan limits All the above schemes operate within the following limits: In any 10 calendar year period, the Company may not issue (or grant rights to issue) more than: a) b) 10% of the issued Ordinary share capital under all the share plans; and 5% of the issued Ordinary share capital under the executive share plans (EPSP, DABP and MPSP). The dilution position as at 30 April 2013 was 2.78% under the EPSP, MPSP and DABP and 3.25% under the AESS. Tom Brown Chairman of the Remuneration Committee 24 June 2013 39 Northgate plc Annual report and accounts 2013 t r o p e r n o i t a r e n u m e R e c n a n r e v o G Report of the audit and risk committee Role The Audit and Risk Committee is appointed by, and reports to, the Board. The Committee’s terms of reference, which include all matters referred to in the UK Corporate Governance Code (‘the Code’), are reviewed annually by the Committee and are available on the Company’s website. In summary these include: (cid:115)(cid:0) 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; (cid:115)(cid:0) making recommendations to the Board regarding the appointment of the external auditor and approving its remuneration and terms of engagement; (cid:115)(cid:0) monitoring the independence and objectivity of the external auditor and developing a policy for the (cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:83)(cid:0)(cid:66)(cid:89)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:88)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:76)(cid:0)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:27) (cid:115)(cid:0) monitoring the audit process and any issues arising therefrom; and (cid:115)(cid:0) all aspects of Group risk. The terms of reference have recently been amended to take account of the Committee’s additional responsibilities arising from the FRC revisions to the UK Corporate Governance Code and Guidance on Audit Committees, which will impact on the work of the Committee in respect of the financial year ending 30 April 2014 and future years. Membership (cid:52)(cid:72)(cid:69)(cid:0)(cid:77)(cid:69)(cid:77)(cid:66)(cid:69)(cid:82)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:77)(cid:73)(cid:84)(cid:84)(cid:69)(cid:69)(cid:12)(cid:0)(cid:87)(cid:72)(cid:79)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0) Directors of the Company, are: AJ Allner (Chairman) JG Astrand THP Brown G Caseberry Date of appointment Qualification 26 September 2007 FCA 6 June 2001 8 June 2005 10 December 2012 MBA MA (Oxon), MBA IMD The 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. Whereas Andrew Allner, Tom Brown and Jill Caseberry are considered to be independent, as is stated in the report on Corporate Governance on pages 42 to 44, Jan Astrand is not currently considered to be independent in terms of the Code. 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 2013 are given on page 42. 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 auditor, are normally invited to attend all meetings. Activity Since May 2012, the Committee has: (cid:115)(cid:0) reviewed the financial statements for the years ended 30 April 2012 and 2013, the half yearly report issued in December 2012 and Interim Management Statements issued in September 2012 and March 2013. As part of this review process, the Committee received reports from Deloitte LLP on the full and half year results; (cid:115)(cid:0) reviewed and agreed the scope of the audit work to be undertaken by Deloitte LLP and agreed their fees; (cid:115)(cid:0) monitored the Group’s risk management process and business continuity procedures; (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) reviewed the effectiveness of the Group’s system of internal controls; reviewed the Group’s whistle blowing procedures; reviewed a report on completeness of income; reviewed the Group’s depreciation policy; reviewed the Group’s corporate taxation arrangements; (cid:115)(cid:0) monitored and reviewed the activities of the Group’s internal audit department; (cid:115)(cid:0) reviewed a report on impairment; (cid:115)(cid:0) monitored the Group’s going concern status; (cid:115)(cid:0) (cid:115)(cid:0) approved the appointment of PwC as the Company’s adviser on tax compliance in place of Deloitte LLP; reviewed the Group's Code of Business conduct, including the requirements of the Bribery Act 2010, and the effective monitoring of the giving and receiving of gifts and hospitality; and (cid:115)(cid:0) reviewed its own effectiveness and terms of reference. 40 Northgate plc Annual report and accounts 2013 External auditor (cid:52)(cid:72)(cid:69)(cid:0)(cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:7)(cid:83)(cid:0)(cid:80)(cid:79)(cid:76)(cid:73)(cid:67)(cid:89)(cid:0)(cid:79)(cid:78)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:83)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) external auditor, developed and recommended by the Committee, is: (cid:115)(cid:0) (cid:115)(cid:0) certain audit related work, being work that, in its capacity as auditor, it is best placed to carry out and will generally be asked to do so. Nevertheless, where appropriate, it will be asked for a fee quote; and (cid:84)(cid:65)(cid:88)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:76)(cid:73)(cid:65)(cid:78)(cid:67)(cid:69)(cid:12)(cid:0)(cid:84)(cid:65)(cid:88)(cid:0)(cid:65)(cid:68)(cid:86)(cid:73)(cid:83)(cid:79)(cid:82)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0) 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. Generally, the external auditor will not be invited to compete for this type of work. During the year, the Committee reviewed and was satisfied as to the effectiveness and independence of the external (cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:12)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:79)(cid:78)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:78)(cid:69)(cid:13)(cid:84)(cid:79)(cid:13)(cid:79)(cid:78)(cid:69)(cid:0)(cid:77)(cid:69)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) 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 5 on page 63. Internal audit In fulfilling its duty to monitor the effectiveness of the internal audit function, the Committee has: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) 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; (cid:67)(cid:79)(cid:78)(cid:68)(cid:85)(cid:67)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:0)(cid:79)(cid:78)(cid:69)(cid:13)(cid:84)(cid:79)(cid:13)(cid:79)(cid:78)(cid:69)(cid:0)(cid:77)(cid:69)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:72)(cid:69)(cid:65)(cid:68)(cid:0)(cid:79)(cid:70)(cid:0) internal audit, approved the internal audit programme, and reviewed quarterly 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 and Risk Committee 24 June 2013 41 Northgate plc Annual report and accounts 2013 e e t t i m m o c k s i r d n a t i d u a e h t f o t r o p e R e c n a n r e v o G Corporate governance UK Listed Companies are required by the Financial Conduct 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 UK Corporate Governance Code (‘the Code’). The provisions of the Code applicable to listed companies are divided into five parts, as set out below: Leadership 1 The business of the Company is managed by the Board of (cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:12)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:76)(cid:89)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:82)(cid:73)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:87)(cid:79)(cid:0)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:70)(cid:73)(cid:86)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13) executive Directors, details of whom are shown on pages 28 and 29. 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. Effectiveness 2 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. No. of Meetings RD Mackenzie AJ Allner JG Astrand THP Brown G Caseberry* RL Contreras CJR Muir *Since appointment. Board 9 9 8 9 9 3 9 9 Audit and risk 4 – 3 4 4 1 – – Remuneration 7 7 7 7 7 3 – – All Directors in office at that time were present at the Annual General Meeting held in September 2012. The external auditor and the head of internal audit attended all Audit and Risk Committee meetings. (cid:34)(cid:69)(cid:70)(cid:79)(cid:82)(cid:69)(cid:0)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:12)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:82)(cid:69)(cid:81)(cid:85)(cid:73)(cid:82)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0) assure the Board that they can give the time commitment necessary to properly fulfill their duties, both in terms of 42 Northgate plc Annual report and accounts 2013 availability to attend meetings and discuss matters on the telephone and meeting preparation time. In accordance with the provisions of the Code, resolutions to (cid:82)(cid:69)(cid:13)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:76)(cid:89)(cid:0)(cid:73)(cid:78)(cid:0)(cid:79)(cid:70)(cid:70)(cid:73)(cid:67)(cid:69)(cid:0)(cid:87)(cid:73)(cid:76)(cid:76)(cid:0)(cid:66)(cid:69)(cid:0)(cid:80)(cid:82)(cid:79)(cid:80)(cid:79)(cid:83)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0) the Annual General Meeting. (cid:42)(cid:65)(cid:78)(cid:0)(cid:33)(cid:83)(cid:84)(cid:82)(cid:65)(cid:78)(cid:68)(cid:7)(cid:83)(cid:0)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:36)(cid:69)(cid:67)(cid:69)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:18)(cid:16)(cid:17)(cid:17)(cid:0)(cid:65)(cid:83)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13) executive Chairman of the Board of our Spanish subsidiary, Northgate España Renting Flexible S.A., is ongoing. It is a role for which Jan is ideally suited, as he is permanently resident in Spain and fluent in Spanish. He receives no additional remuneration for this appointment. The Board considers that the above appointment is in the best interests of the Company and of the shareholders and, whilst Jan cannot be considered to be independent in terms of the Code or by the National Association of Pension Funds, the Board is satisfied that it does not affect his independence of judgment when carrying out his duties as a Director of the Company. As envisaged in last year’s report, Jan’s involvement in project work in Spain ceased in November 2012. Details of the consultancy fees paid in the year are shown in Note 38 on page 96. The Board has established a Nominations Committee, which (cid:73)(cid:83)(cid:0)(cid:67)(cid:72)(cid:65)(cid:73)(cid:82)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:34)(cid:79)(cid:66)(cid:0)(cid:45)(cid:65)(cid:67)(cid:75)(cid:69)(cid:78)(cid:90)(cid:73)(cid:69)(cid:14)(cid:0)(cid:33)(cid:76)(cid:76)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0) 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 consultants to help in the search for candidates. The Committee has written terms of reference which are available on the Company’s website. During the year, the Committee, with the help of management consultants Board Mentoring, led the search (cid:70)(cid:79)(cid:82)(cid:0)(cid:65)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0)(cid:72)(cid:65)(cid:86)(cid:73)(cid:78)(cid:71)(cid:12)(cid:0)(cid:73)(cid:78)(cid:0)(cid:80)(cid:65)(cid:82)(cid:84)(cid:73)(cid:67)(cid:85)(cid:76)(cid:65)(cid:82)(cid:12)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0) and marketing experience. This resulted in the appointment of Jill Caseberry, whose biographical details are given on page 29, in December 2012. Board Mentoring have no other connection with the Northgate group of companies. During the year, the Chairman led an evaluation process of the performance of individual Directors, of the Board as a whole and of its committees. The process consisted of a formal and detailed questionnaire completed by each (cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:12)(cid:0)(cid:79)(cid:78)(cid:69)(cid:13)(cid:84)(cid:79)(cid:13)(cid:79)(cid:78)(cid:69)(cid:0)(cid:77)(cid:69)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) a Board discussion. Having conducted this evaluation, the Chairman remains of the view that each individual Director’s performance continues to be effective and each (cid:68)(cid:69)(cid:77)(cid:79)(cid:78)(cid:83)(cid:84)(cid:82)(cid:65)(cid:84)(cid:69)(cid:83)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:73)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:79)(cid:76)(cid:69)(cid:14)(cid:0)(cid:41)(cid:78)(cid:0)(cid:65)(cid:68)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13) executive Directors, led by the Senior Independent Director, have reviewed the performance of the Chairman, taking into account the views of the executive Directors. Pursuant to those provisions of the Companies Act 2006 relating to conflicts of interest and in accordance with the 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. 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. Control procedures The Board and the Group’s management have adopted a schedule of matters which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. Measures taken include clearly defined procedures for capital expenditure appraisal and authorisation, physical controls, segregation of duties and routine and ad hoc checks. e c n a n r e v o g e t a r o p r o C e c n a n r e v o G Effectiveness continued 2 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. Diversity The Board has considered the recommendations of the Davies Review into Women on Boards in the light of the provisions of both section B.2 of the Code, with which we are compliant, and of our existing policies and procedures. The Board recognises the benefits of diversity at all levels of the business and in order to reinforce the Board’s commitment to equality, we have endorsed a new Equal Opportunities Policy (which may be found on our website). Whilst the overriding criteria for Board appointments will always be based on merit, so as to encourage an appropriate balance of skills, experience and knowledge on the Board at all times, for all future appointments we will only use executive search firms who have committed to the Voluntary Code of Conduct on gender diversity. At the same time the Board recognises that, particularly given the nature of its business, the development of a pool of suitably qualified candidates may take time to achieve and therefore do not believe it is appropriate to set targets, however aspirational, at the present time. Currently, 38% of our total workforce in the UK is female and 34% in Spain. 3 Accountability An assessment of the Company’s position and prospects is included in the Chairman’s Statement and in the Operational Review and Financial Review on pages 14 to 23. Internal control Provision C.2.1 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. 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 accounts, are described below: 43 Northgate plc Annual report and accounts 2013 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. Compliance with the Code The Board considers that the Company complied with the provisions of the Code throughout the year with the exception of those relating to Board and Committee composition. The Code states that at least half the Board, excluding the Chairman, should be comprised of (cid:73)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:84)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:26)(cid:0)(cid:65)(cid:83)(cid:0)(cid:82)(cid:69)(cid:70)(cid:69)(cid:82)(cid:82)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:65)(cid:66)(cid:79)(cid:86)(cid:69)(cid:12)(cid:0) at the start of the year, only two out of the five relevant Directors were independent. Similarly, the Code states that both the Audit and Remuneration Committees should (cid:67)(cid:79)(cid:77)(cid:80)(cid:82)(cid:73)(cid:83)(cid:69)(cid:0)(cid:65)(cid:84)(cid:0)(cid:76)(cid:69)(cid:65)(cid:83)(cid:84)(cid:0)(cid:84)(cid:72)(cid:82)(cid:69)(cid:69)(cid:0)(cid:73)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:84)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:12)(cid:0) whereas there were only two. However, since December 2012, with the appointment of Jill Caseberry, the Company has been in full compliance with all aspects of the Code. By order of the Board D Henderson Secretary 24 June 2013 Corporate governance continued Monitoring The Board has delegated to executive management implementation of the system of internal control. The Board, including the Audit and Risk Committee, receives reports on the system of control from the external auditor and from management. An independent internal audit function reports quarterly to the Audit and Risk 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 accounts in accordance with the Turnbull guidance. Audit An account of the work of the Audit and Risk Committee is given in the Report of the Audit and Risk Committee on pages 40 and 41. Remuneration 4 The Company’s policy on remuneration and details of the remuneration of each Director are given in the Remuneration Report on pages 33 to 39. Relations with shareholders 5 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 Group 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 (cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:0)(cid:77)(cid:65)(cid:89)(cid:0)(cid:65)(cid:84)(cid:84)(cid:69)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:83)(cid:69)(cid:0)(cid:66)(cid:82)(cid:73)(cid:69)(cid:70)(cid:73)(cid:78)(cid:71)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:12)(cid:0)(cid:73)(cid:78)(cid:0)(cid:65)(cid:78)(cid:89)(cid:0) 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 44 Northgate plc Annual report and accounts 2013 Responsibility statement We confirm that to the best of our knowledge: (cid:115)(cid:0) (cid:115)(cid:0) the financial statements, prepared in accordance with IFRS, 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 24 June 2013 s e i t i l i b i s n o p s e r ’ s r o t c e r i D e c n a n r e v o G Directors’ responsibilities The Directors are responsible for preparing the annual report and accounts 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 accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing these financial statements, IAS 1 (Presentation of Financial Statements) requires that Directors: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) 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 (cid:115)(cid:0) make an assessment of the Group’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 Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and 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 Group and 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. 45 Northgate plc Annual report and accounts 2013 Independent auditor’s report to the members of Northgate plc We have audited the financial statements of Northgate plc for the year ended 30 April 2013 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 notes to the cash flow statements, the Group and Parent Company statements of changes in equity and the related notes 1 to 38. 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 auditor’s 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 auditor 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 and express an opinion on 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 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. (cid:41)(cid:78)(cid:0)(cid:65)(cid:68)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:12)(cid:0)(cid:87)(cid:69)(cid:0)(cid:82)(cid:69)(cid:65)(cid:68)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0) information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) 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 2013 and of the Group’s loss 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: (cid:115)(cid:0) (cid:115)(cid:0) 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 Directors’ Report 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: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) 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 (cid:115)(cid:0) we have not received all the information and explanations we require for our audit. 46 Northgate plc Annual report and accounts 2013 Matters on which we are required to report by exception continued Under the Listing Rules we are required to review: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) the Directors’ statement, contained within the Financial Review, in relation to going concern; the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and certain elements of the report to shareholders by the Board on Directors’ remuneration. Christopher Powell FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Leeds, United Kingdom 24 June 2013 47 Northgate plc Annual report and accounts 2013 c l p e t a g h t r o N f o s r e b m e m e h t o t t r o p e r s ’ r o t i d u a t n e d n e p e d n I s t n u o c c A Consolidated income statement For the year ended 30 April 2013 Revenue: hire of vehicles Revenue: sale of vehicles Total revenue Cost of sales Gross profit Administrative expenses (excluding exceptional items and intangible amortisation) Exceptional administrative expenses Intangible amortisation Total administrative expenses Operating profit 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 4 4 33 14 4,5 7 8 8,33 Underlying 2013 £000 441,944 167,936 Statutory 2013 £000 441,944 167,936 Underlying 2012 £000 503,659 203,039 Statutory 2012 £000 503,659 203,039 609,880 609,880 706,698 706,698 (466,405) (466,405) (540,915) (540,915) 143,475 143,475 165,783 165,783 (57,071) – – (57,071) (3,337) (3,589) (60,607) – – (60,607) (6,702) (3,996) (57,071) (63,997) (60,607) (71,305) 86,404 123 79,478 123 105,176 165 94,478 165 (37,029) – (37,029) (53,954) (45,610) – (45,610) (3,046) (37,029) (90,983) (45,610) (48,656) 49,498 (10,657) (11,382) 4,025 59,731 (17,803) 45,987 (5,519) 9 38,841 (7,357) 41,928 40,468 Profit (loss) for the year is wholly attributable to owners of the Parent Company. All results arise from continuing operations. Underlying profit excludes exceptional items as set out in Note 33, 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 11 11 29.2p 28.3p (5.5)p (5.5)p 31.5p 30.8p 30.4p 29.7p 48 Northgate plc Annual report and accounts 2013 Statements of comprehensive income For the year ended 30 April 2013 Amounts attributable to the owners of the Parent Company (Loss) profit attributable to the owners Other comprehensive income Foreign exchange differences on retranslation of net assets of subsidiary undertakings Net foreign exchange differences on long term borrowings and derivatives held as hedges Deferred taxation on disposal of revalued property Foreign exchange difference on revaluation reserve Net fair value gains (losses) on cash flow hedges Deferred tax (charge) credit recognised directly in equity relating to cash flow hedges Actuarial losses/derecognition of assets on defined benefit pension scheme Deferred tax credit recognised directly in equity relating to defined benefit pension scheme Group 2013 £000 2012 £000 Company 2013 £000 2012 £000 Notes (7,357) 40,468 23,888 (2,957) 30 30 26 29 29 32 32 6,725 (16,711) – – (4,132) – 46 16,115 13,486 5 (120) (16,188) – – – 14,817 – – – (14,201) (4,301) 3,834 (3,984) 3,360 (490) (227) 115 60 – – – – Total other comprehensive income 14,078 (15,861) 10,833 (10,841) Total comprehensive income for the year 6,721 24,607 34,721 (13,798) 49 Northgate plc Annual report and accounts 2013 e m o c n i e v i s n e h e r p m o c f o s t n e m e t a t S s t n u o c c A Balance sheets As at 30 April 2013 Non-current assets Goodwill Other intangible assets Property, plant and equipment: vehicles for hire Other property, plant and equipment Total property, plant and equipment Derivative financial instrument assets Deferred tax assets Investments Total non-current assets Current assets Inventories Trade and other receivables Current tax assets Cash and bank balances Total current assets Total assets Current liabilities Trade and other payables Derivative financial instrument liabilities Current tax liabilities Short term borrowings Total current liabilities Net current assets (liabilities) Non-current liabilities Derivative financial instrument liabilities Long term borrowings Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium account Revaluation reserve Own shares reserve Merger reserve Hedging reserve Translation reserve Capital redemption reserve Retained earnings Total equity Group 2013 £000 Notes 2012 £000 3,589 9,591 3,589 7,431 589,161 78,321 623,103 74,452 667,482 697,555 Company 2013 £000 – 77 – 2,582 2,582 2012 £000 – – – 2,643 2,643 – 4,688 – 11,249 1,691 – – 997 122,892 11,249 5,198 122,894 683,190 723,675 126,548 141,984 19,192 77,417 5,862 14,962 22,213 97,278 – 9,707 – 889,274 – 3,396 – 882,710 – 964 117,433 129,198 892,670 883,674 800,623 852,873 1,019,218 1,025,658 52,592 – 1,090 7,314 63,188 1,046 4,150 135,558 375,581 1,517 – 442 394,345 1,631 – 113,654 60,996 203,942 377,540 509,630 56,437 (74,744) 515,130 374,044 – 370,371 2,604 15,951 259,487 7,357 – 370,371 – 15,951 259,273 – 372,975 282,795 370,371 275,224 433,971 486,737 747,911 784,854 366,652 366,136 271,307 240,804 66,616 113,508 1,235 (303) 67,463 (649) (5,370) 40 124,112 66,616 113,508 1,189 (685) 67,463 (14,247) (7,963) 40 140,215 66,616 113,508 1,371 – 63,159 – – 40 26,613 66,616 113,508 1,371 – 63,159 (12,617) – 40 8,727 366,652 366,136 271,307 240,804 13 14 15 16 22 23 17 18 19 20 22 21 22 21 23 24 25 26 27 28 29 30 31 32 Total equity is wholly attributable to the owners of the Parent Company. The financial statements were approved by the Board of Directors and authorised for issue on 24 June 2013. They were signed on its behalf by: RD Mackenzie Director CJR Muir Director 50 Northgate plc Annual report and accounts 2013 Cash flow statements For the year ended 30 April 2013 Group 2013 £000 2012 £000 Company 2013 £000 2012 £000 Net cash from (used in) operations (a) 100,850 145,826 (28,870) (39,688) Investing activities Interest received Partial recovery of acquisition cost of subsidiary undertaking 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 Liquidation of subsidiary undertaking 123 – – 1,760 (8,744) (1,396) – 165 775 – 1,876 (7,705) (1,982) – 80 – 123,000 – – (90) 2 77 – 45,000 – – – – Net cash (used in) from investing activities (8,257) (6,871) 122,992 45,077 Financing activities Dividends paid Receipt of bank loans Repayments of bank loans and other borrowings Debt issue costs paid relating to previous facilities Costs paid for extinguishment of previous facilities (Repayments to) loans from subsidiary undertakings Settlement of financial instruments with subsidiary undertaking Payments to acquire own shares for share schemes Termination of financial instruments (5,719) 369,871 (410,140) (3,354) (23,202) – – (1,988) (12,830) – – (222,592) (86) – – (5,719) 369,871 (399,643) (3,354) (23,202) (21,296) – – (213,852) (86) – 214,160 – (293) (3,046) 5,479 (1,988) (12,830) (18,950) (293) (3,046) Net cash used in financing activities (87,362) (226,017) (92,682) (22,067) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at 1 May Effect of foreign exchange movements 5,231 9,707 24 (87,062) 96,885 (116) Cash and cash equivalents at 30 April (b) 14,962 9,707 1,440 964 550 2,954 (16,678) 18,937 (1,295) 964 51 Northgate plc Annual report and accounts 2013 s t n e m e t a t s w o l f h s a C s t n u o c c A Notes to the cash flow statements For the year ended 30 April 2013 (a) Net cash from (used in) operations Operating profit (loss) Adjustments for: Depreciation of property, plant and equipment Exchange differences Amortisation of intangible assets Loss on disposal of property, plant and equipment Share options fair value charge Operating cash flows before movements in working capital (cid:8)(cid:41)(cid:78)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)(cid:9)(cid:0)(cid:68)(cid:69)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:86)(cid:69)(cid:72)(cid:73)(cid:67)(cid:76)(cid:69)(cid:0)(cid:73)(cid:78)(cid:86)(cid:69)(cid:78)(cid:84)(cid:79)(cid:82)(cid:73)(cid:69)(cid:83) Decrease in receivables (Decrease) increase in payables Cash generated from (used in) operations Income taxes paid Interest paid Net cash generated from (used in) operations Purchase of vehicles Proceeds from disposal of vehicles Group 2013 £000 2012 £000 Company 2013 £000 2012 £000 79,478 94,478 (2,912) (4,207) 163,313 (5) 3,589 445 1,502 248,322 (166) 20,185 (9,911) 258,430 (16,828) (31,448) 192,729 25 3,996 443 2,063 293,734 229 22,456 (3,538) 312,881 (2,582) (38,487) 210,154 (255,193) 145,889 271,812 (306,311) 180,325 61 – 13 – 1,502 (1,336) – 1,671 694 1,029 – (29,899) (28,870) – – 62 – – – 2,063 (2,082) – 329 (1,403) (3,156) – (36,532) (39,688) – – Net cash from (used in) operations 100,850 145,826 (28,870) (39,688) (b) Cash and cash equivalents Cash and cash equivalents comprise: Cash and bank balances Bank overdrafts Cash and cash equivalents Group 2013 £000 14,962 – 14,962 2012 £000 9,707 – 9,707 Company 2013 £000 3,396 (442) 2,954 2012 £000 964 – 964 52 Northgate plc Annual report and accounts 2013 Statements of changes in equity For the year ended 30 April 2013 Group Total equity at 1 May 2011 Share options fair value charge Share options exercised Transfer on disposal of revalued property Profit attributable to owners of the Parent Company Purchase of own shares Transfer of shares on vesting of share options Other comprehensive income Transfers between equity reserves Total equity at 1 May 2012 Share options fair value charge Share options exercised Loss attributable to owners of the Parent Company Dividends paid Purchase of own shares Transfer of shares on vesting of share options Other comprehensive income Transfers between equity reserves Share capital and share premium £000 180,124 – – – – – – – – 180,124 – – – – – – – – Own shares reserve £000 (1,630) – – – – (293) 1,238 – – (685) – – – – (1,988) 2,370 – – Hedging reserve £000 Translation reserve £000 (1,893) – – (4,738) – – Other reserves £000 68,866 – – Retained earnings £000 99,030 2,063 (1,238) Total £000 339,759 2,063 (1,238) – – – – – – (54) 54 – – – 40,468 – 40,468 (293) – (1,478) (10,876) (14,247) – – – (14,101) 10,876 (7,963) – – – (120) – – (162) – 68,692 – – 140,215 1,502 (2,370) – – – – – – – 8,295 5,303 – 6,112 (3,519) – – – – 46 – (7,357) (5,719) – – (375) (1,784) 1,238 (15,861) – 366,136 1,502 (2,370) (7,357) (5,719) (1,988) 2,370 14,078 – Total equity at 30 April 2013 180,124 (303) (649) (5,370) 68,738 124,112 366,652 Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve. Company Total equity at 1 May 2011 Share options fair value charge Loss attributable to owners of the Parent Company Other comprehensive income Total equity at 1 May 2012 Share options fair value charge Profit attributable to owners of the Parent Company Dividends paid Other comprehensive income Transfers between equity reserves Share capital and share premium £000 180,124 – – – 180,124 – – – – – Revaluation reserve £000 1,371 – – – 1,371 – – – – – Hedging reserve £000 (1,776) – – (10,841) (12,617) – – – 10,833 1,784 Merger reserve £000 63,159 – – – 63,159 – – – – – Capital redemption reserve £000 Retained earnings £000 Total £000 40 – – – 40 – – – – – 9,621 2,063 252,539 2,063 (2,957) – 8,727 1,502 23,887 (5,719) – (1,784) (2,957) (10,841) 240,804 1,502 23,887 (5,719) 10,833 – Total equity at 30 April 2013 180,124 1,371 – 63,159 40 26,613 271,307 53 Northgate plc Annual report and accounts 2013 y t i u q e n i s e g n a h c f o s t n e m e t a t S s t n u o c c A 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 101. The nature of the Group’s operations and its principal activities are set out in Note 4 and in the Operational Review and Financial Review on pages 14 to 23. 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 been prepared in accordance with International Financial Reporting Standards (IFRS). The accounts have also been prepared in accordance with IFRS adopted by the European Union (EU) and therefore the Group accounts comply with Article 4 of the EU IAS Regulation. Basis of preparation The financial information has been prepared on the historical cost basis, except for the revaluation 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 pages 20 and 21 of the Financial Review. Changes in accounting policy (a) New standards and interpretations becoming effective in the current financial year The following new standards, amendments to standards and interpretations are mandatory for the financial year beginning 1 May 2012 but have no material impact on the consolidated results or financial position of the Group. IFRS 7 IAS 12 Financial Instruments: Disclosures – Transfers of financial assets Income Taxes – Amendments for deferred tax and recovery of underlying assets (b) New standards and interpretations issued but not yet effective The following relevant new standards, amendments to standards and interpretations which have not been applied in these accounts, were in issue (and in some cases have not yet been adopted by the EU) with an effective date for financial years beginning on or after the dates disclosed below. IFRS 7 IFRS 9 IFRS 10 IFRS 12 IFRS 13 IAS 1 IAS 19 IAS 27 Financial Instruments: Disclosures – Offsetting financial assets and financial liabilities 1 January 2013 Financial Instruments Consolidated Financial Statements Disclosure of Interests in Other Entities Fair Value Measurement Presentation of Financial Statements – Amendments relating to the disclosures of other comprehensive income Employee Benefits (amended) Consolidated and Separate Financial Statements – Cost of an investment in a subsidiary, jointly controlled entity or associate 1 January 2015 1 January 2013 1 January 2013 1 January 2013 1 July 2012 1 January 2013 1 January 2013 IAS 32 Financial Instruments: Presentation – Offsetting financial assets and financial liabilities 1 January 2013 Improvements to IFRS 2011 1 January 2013 54 Northgate plc Annual report and accounts 2013 2 Principal accounting policies continued The Directors are currently assessing the impact of IFRS 9 on its results, financial position and cash flows and do not expect that there will be any material impact on the Group’s accounts on adoption of any of the other 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 2012 and 30 April 2013. 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 (cid:8)(cid:73)(cid:14)(cid:69)(cid:14)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:79)(cid:78)(cid:0)(cid:65)(cid:67)(cid:81)(cid:85)(cid:73)(cid:83)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:9)(cid:0)(cid:73)(cid:83)(cid:0)(cid:67)(cid:82)(cid:69)(cid:68)(cid:73)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:80)(cid:69)(cid:82)(cid:73)(cid:79)(cid:68)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:67)(cid:81)(cid:85)(cid:73)(cid:83)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0) (cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:83)(cid:0)(cid:73)(cid:83)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:7)(cid:83)(cid:0)(cid:80)(cid:82)(cid:79)(cid:80)(cid:79)(cid:82)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:71)(cid:78)(cid:73)(cid:83)(cid:69)(cid:68)(cid:14)(cid:0) (cid:51)(cid:85)(cid:66)(cid:83)(cid:69)(cid:81)(cid:85)(cid:69)(cid:78)(cid:84)(cid:76)(cid:89)(cid:0)(cid:65)(cid:78)(cid:89)(cid:0)(cid:76)(cid:79)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0)(cid:65)(cid:80)(cid:80)(cid:76)(cid:73)(cid:67)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:69)(cid:88)(cid:67)(cid:69)(cid:83)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:79)(cid:76)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0) allocated against the interests of the parent. Where necessary, adjustments are made to the accounts of subsidiary undertakings to bring the accounting policies used (cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:76)(cid:73)(cid:78)(cid:69)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:79)(cid:83)(cid:69)(cid:0)(cid:85)(cid:83)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:14)(cid:0)(cid:33)(cid:76)(cid:76)(cid:0)(cid:73)(cid:78)(cid:84)(cid:82)(cid:65)(cid:13)(cid:71)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:84)(cid:82)(cid:65)(cid:78)(cid:83)(cid:65)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:12)(cid:0)(cid:66)(cid:65)(cid:76)(cid:65)(cid:78)(cid:67)(cid:69)(cid:83)(cid:12)(cid:0)(cid:73)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:78)(cid:83)(cid:69)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:69)(cid:76)(cid:73)(cid:77)(cid:73)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:79)(cid:78)(cid:0) consolidation. 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 hire is recognised evenly over the hire 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 acquisition 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 5 to 13 years Intangible assets – other Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Software assets are amortised on a straight line basis over their estimated useful lives, which do not exceed three years. 55 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 2 Principal accounting policies continued Property, plant and equipment Property, plant and equipment is stated at historical cost, less accumulated depreciation and any provision for impairment. Certain properties were revalued prior to the adoption of IFRS. These valuations were treated as deemed cost at the time of adopting IFRS for the first time. 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 & 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. On the subsequent sale or retirement of properties revalued prior to the adoption of IFRS, 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. 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 (cid:70)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:70)(cid:76)(cid:79)(cid:87)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0)(cid:80)(cid:82)(cid:69)(cid:83)(cid:69)(cid:78)(cid:84)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:85)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:0)(cid:80)(cid:82)(cid:69)(cid:13)(cid:84)(cid:65)(cid:88)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:82)(cid:69)(cid:70)(cid:76)(cid:69)(cid:67)(cid:84)(cid:83)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:83)(cid:83)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0) 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. If an impairment no longer exists, an impairment reversal is recognised in the income statement to the extent required. 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. 56 Northgate plc Annual report and accounts 2013 2 Principal accounting policies continued 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. (cid:52)(cid:82)(cid:65)(cid:68)(cid:69)(cid:0)(cid:82)(cid:69)(cid:67)(cid:69)(cid:73)(cid:86)(cid:65)(cid:66)(cid:76)(cid:69)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:66)(cid:69)(cid:65)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0)(cid:78)(cid:79)(cid:77)(cid:73)(cid:78)(cid:65)(cid:76)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:76)(cid:69)(cid:83)(cid:83)(cid:0)(cid:65)(cid:78)(cid:89)(cid:0)(cid:65)(cid:80)(cid:80)(cid:82)(cid:79)(cid:80)(cid:82)(cid:73)(cid:65)(cid:84)(cid:69)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:73)(cid:82)(cid:82)(cid:69)(cid:67)(cid:79)(cid:86)(cid:69)(cid:82)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0) (cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:83)(cid:14)(cid:0)(cid:52)(cid:82)(cid:65)(cid:68)(cid:69)(cid:0)(cid:80)(cid:65)(cid:89)(cid:65)(cid:66)(cid:76)(cid:69)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:66)(cid:69)(cid:65)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0)(cid:78)(cid:79)(cid:77)(cid:73)(cid:78)(cid:65)(cid:76)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:14) 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 except where derivatives qualify for hedge accounting, where recognition of the resultant gain or loss depends on the nature of the items being hedged. (cid:52)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:0)(cid:73)(cid:83)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:83)(cid:84)(cid:73)(cid:77)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:87)(cid:79)(cid:85)(cid:76)(cid:68)(cid:0)(cid:82)(cid:69)(cid:67)(cid:69)(cid:73)(cid:86)(cid:69)(cid:0)(cid:79)(cid:82)(cid:0)(cid:80)(cid:65)(cid:89)(cid:0)(cid:84)(cid:79)(cid:0) 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. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the (cid:70)(cid:79)(cid:82)(cid:69)(cid:67)(cid:65)(cid:83)(cid:84)(cid:0)(cid:84)(cid:82)(cid:65)(cid:78)(cid:83)(cid:65)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:73)(cid:83)(cid:0)(cid:72)(cid:69)(cid:68)(cid:71)(cid:69)(cid:68)(cid:0)(cid:82)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:71)(cid:78)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:0)(cid:79)(cid:82)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:71)(cid:65)(cid:73)(cid:78)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the (cid:78)(cid:79)(cid:78)(cid:13)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:0)(cid:79)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:14) 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. Changes in the fair value of derivative financial instruments that are designated and effective as net investment hedges are recognised directly in equity and the ineffective portion is recognised in the income statement. Exchange differences arising on the net investment hedges are transferred to the translation reserve. 57 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 2 Principal accounting policies continued Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances and bank overdrafts. Bank loans, other loan, loan notes and issue costs Bank loans, other loan 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. 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 that are denominated in foreign currencies are retranslated at the rates prevailing at that date. 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. 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. 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. 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 customers under operating leases are included within property, plant and equipment. Income from such leases is taken to the income statement evenly over the period of the operating lease agreement. Retirement benefit costs The Group predominantly operates defined contribution pension schemes 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 updates to 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. 58 Northgate plc Annual report and accounts 2013 2 Principal accounting policies continued 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 (cid:52)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:73)(cid:83)(cid:83)(cid:85)(cid:69)(cid:83)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:13)(cid:83)(cid:69)(cid:84)(cid:84)(cid:76)(cid:69)(cid:68)(cid:0)(cid:80)(cid:65)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:67)(cid:69)(cid:82)(cid:84)(cid:65)(cid:73)(cid:78)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:83)(cid:14) (cid:37)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:13)(cid:83)(cid:69)(cid:84)(cid:84)(cid:76)(cid:69)(cid:68)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:0)(cid:83)(cid:67)(cid:72)(cid:69)(cid:77)(cid:69)(cid:83)(cid:12)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:0)(cid:79)(cid:80)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:68)(cid:69)(cid:70)(cid:69)(cid:82)(cid:82)(cid:69)(cid:68)(cid:0)(cid:65)(cid:78)(cid:78)(cid:85)(cid:65)(cid:76)(cid:0)(cid:66)(cid:79)(cid:78)(cid:85)(cid:83)(cid:69)(cid:83)(cid:12)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0) the option to acquire shares of the Company. Employee share options and deferred annual bonuses are generally subject to performance or service conditions. (cid:52)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:13)(cid:83)(cid:69)(cid:84)(cid:84)(cid:76)(cid:69)(cid:68)(cid:0)(cid:80)(cid:65)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:73)(cid:83)(cid:0)(cid:77)(cid:69)(cid:65)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:71)(cid:82)(cid:65)(cid:78)(cid:84)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:72)(cid:65)(cid:82)(cid:71)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:86)(cid:69)(cid:82)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:80)(cid:69)(cid:82)(cid:73)(cid:79)(cid:68)(cid:0) during which performance or service conditions are required to be met or immediately where no performance or service criteria (cid:69)(cid:88)(cid:73)(cid:83)(cid:84)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:13)(cid:83)(cid:69)(cid:84)(cid:84)(cid:76)(cid:69)(cid:68)(cid:0)(cid:80)(cid:65)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:71)(cid:82)(cid:65)(cid:78)(cid:84)(cid:69)(cid:68)(cid:0)(cid:73)(cid:83)(cid:0)(cid:77)(cid:69)(cid:65)(cid:83)(cid:85)(cid:82)(cid:69)(cid:68)(cid:0)(cid:85)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:76)(cid:65)(cid:67)(cid:75)(cid:13)(cid:51)(cid:67)(cid:72)(cid:79)(cid:76)(cid:69)(cid:83)(cid:0)(cid:77)(cid:79)(cid:68)(cid:69)(cid:76)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:71)(cid:78)(cid:73)(cid:83)(cid:69)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0) 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 two other employee share incentive plans. Under one plan, employees each have the option to purchase an amount of shares annually and receive an equivalent number of free shares. In the other plan, the Board may make discretionary awards of free shares to eligible employees. The Group recognises all 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 using the effective interest rate method. Exceptional items Items are classified as exceptional gains or losses where they are considered by the Directors 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 (cid:77)(cid:65)(cid:84)(cid:69)(cid:82)(cid:73)(cid:65)(cid:76)(cid:12)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:68)(cid:69)(cid:84)(cid:69)(cid:82)(cid:77)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:67)(cid:84)(cid:69)(cid:68)(cid:0)(cid:70)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:70)(cid:76)(cid:79)(cid:87)(cid:83)(cid:0)(cid:65)(cid:84)(cid:0)(cid:65)(cid:0)(cid:80)(cid:82)(cid:69)(cid:13)(cid:84)(cid:65)(cid:88)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:82)(cid:69)(cid:70)(cid:76)(cid:69)(cid:67)(cid:84)(cid:83)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0) assessments of the time value of money and, where appropriate, the risks specific to the liability. Own shares The Group makes open market purchases of its own shares in order to satisfy the requirements of the Group’s existing share schemes. Own shares are recognised at cost as a reduction in shareholder equity. The carrying values of own shares are compared to their market values at each reporting date and adjustments are made to write down the carrying value of own shares when, in the opinion of the Directors, there is a significant market value reduction. 59 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 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 at that time. Under IAS 16 (Property, Plant and Equipment), 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 (cid:36)(cid:69)(cid:84)(cid:69)(cid:82)(cid:77)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:87)(cid:72)(cid:69)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:71)(cid:79)(cid:79)(cid:68)(cid:87)(cid:73)(cid:76)(cid:76)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:73)(cid:77)(cid:80)(cid:65)(cid:73)(cid:82)(cid:69)(cid:68)(cid:0)(cid:79)(cid:82)(cid:0)(cid:87)(cid:72)(cid:69)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:86)(cid:69)(cid:82)(cid:83)(cid:65)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:0)(cid:80)(cid:82)(cid:69)(cid:86)(cid:73)(cid:79)(cid:85)(cid:83)(cid:76)(cid:89)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:71)(cid:78)(cid:73)(cid:83)(cid:69)(cid:68)(cid:0) impairment is necessary 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. 60 Northgate plc Annual report and accounts 2013 4 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 two main operating divisions, UK and Spain. The UK division includes operations in the Republic of Ireland. The principal activities of these divisions are set out in the Operational Review and Financial Review. Revenue: hire of vehicles Revenue: sale of vehicles Total revenue Underlying operating profit (loss) * Exceptional administrative expenses Intangible amortisation Operating profit (loss) Interest income Finance costs (excluding exceptional items) Exceptional finance costs Loss before taxation Other information Capital expenditure Depreciation Reportable segment assets Income tax assets Total assets Reportable segment liabilities Income tax liabilities Total liabilities UK 2013 £000 Spain 2013 £000 Corporate 2013 £000 291,104 124,583 150,840 43,353 415,687 194,193 – – – 64,241 (2,051) (2,886) 25,189 (1,286) (690) (3,026) – (13) Total 2013 £000 441,944 167,936 609,880 86,404 (3,337) (3,589) 59,304 23,213 (3,039) 79,478 193,514 93,501 75,272 69,751 492,818 297,255 – 61 – 288,268 142,009 – 123 (37,029) (53,954) (11,382) 268,786 163,313 790,073 10,550 800,623 430,277 3,694 433,971 61 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 4 Segmental reporting continued Revenue: hire of vehicles Revenue: sale of vehicles Total revenue Underlying operating profit (loss) * Exceptional administrative expenses Intangible amortisation Operating profit (loss) Interest income Finance costs (excluding exceptional items) Exceptional finance costs Profit before taxation Other information Capital expenditure Depreciation Reportable segment assets Derivative financial instrument assets Income tax assets Total assets Reportable segment liabilities Derivative financial instrument liabilities Income tax liabilities Total liabilities UK 2012 £000 Spain 2012 £000 Corporate 2012 £000 320,772 136,312 182,887 66,727 457,084 249,614 – – – 74,402 (5,670) (3,135) 34,989 (1,724) (861) (4,215) 692 – Total 2012 £000 503,659 203,039 706,698 105,176 (6,702) (3,996) 65,597 32,404 (3,523) 94,478 194,697 110,933 120,259 81,734 510,448 329,485 – 62 – 306,477 151,756 – 165 (45,610) (3,046) 45,987 314,956 192,729 839,933 11,249 1,691 852,873 458,233 16,997 11,507 486,737 * Underlying operating profit (loss) stated before intangible 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 IAS 16 which requires used vehicle assets to be classified as inventories. Used vehicle sales are included within UK and Spain operating segments, which reflects the level at which the executive Board of Directors allocate resources and review performance of the Group. There is no significant intersegment trading. 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 2013 £000 Non-current assets 2013 £000 Revenue 2012 £000 415,687 194,193 419,418 259,084 457,084 249,614 (cid:46)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0) assets 2012 £000 429,714 281,021 609,880 678,502 706,698 710,735 There are no external customers from whom the Group derives more than 10 per cent of total revenue. Segment assets and liabilities exclude derivative financial instrument assets and liabilities and current and deferred tax assets and liabilities, since these balances are not included in the segments’ assets and liabilities as reviewed by the chief operating decision maker. 62 Northgate plc Annual report and accounts 2013 5 Operating profit Operating profit is stated after charging: Depreciation of property, plant and equipment (Notes 15 and 16) Staff costs (Note 6) Cost of inventories recognised as an expense Net impairment of trade receivables (Note 37) Auditor’s remuneration for audit services (below) (cid:33)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:7)(cid:83)(cid:0)(cid:82)(cid:69)(cid:77)(cid:85)(cid:78)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:83)(cid:0)(cid:8)(cid:66)(cid:69)(cid:76)(cid:79)(cid:87)(cid:9)(cid:0) 2013 £000 2012 £000 163,313 77,683 205,437 1,544 364 107 192,729 82,834 248,665 4,961 397 171 The above cost of inventories recognised as an expense includes movements in stock provisions which are immaterial. Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and its 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 2013 £000 237 127 364 21 62 24 107 2012 £000 240 157 397 21 95 55 171 (cid:38)(cid:69)(cid:69)(cid:83)(cid:0)(cid:80)(cid:65)(cid:89)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:84)(cid:79)(cid:0)(cid:36)(cid:69)(cid:76)(cid:79)(cid:73)(cid:84)(cid:84)(cid:69)(cid:0)(cid:44)(cid:44)(cid:48)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0)(cid:65)(cid:83)(cid:83)(cid:79)(cid:67)(cid:73)(cid:65)(cid:84)(cid:69)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:78)(cid:79)(cid:84)(cid:0)(cid:82)(cid:69)(cid:81)(cid:85)(cid:73)(cid:82)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:66)(cid:69)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:76)(cid:79)(cid:83)(cid:69)(cid:68)(cid:0) because the consolidated financial statements are required to disclose such fees on a consolidated basis. A description of the work of the Audit and Risk Committee is set out on pages 40 and 41 and includes an explanation of how (cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:0)(cid:79)(cid:66)(cid:74)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:73)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:67)(cid:69)(cid:0)(cid:73)(cid:83)(cid:0)(cid:83)(cid:65)(cid:70)(cid:69)(cid:71)(cid:85)(cid:65)(cid:82)(cid:68)(cid:69)(cid:68)(cid:0)(cid:87)(cid:72)(cid:69)(cid:78)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:0)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:14) 63 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 6 Staff costs The average number of persons employed by the Group: United Kingdom and Republic of Ireland: Direct operations Administration Spain: Direct operations Administration The aggregate remuneration of Group employees comprised: Wages and salaries Social security costs Other pension costs 2013 Number 2012 Number 1,369 500 1,869 757 131 888 1,514 481 1,995 800 123 923 2,757 2,918 2013 £000 2012 £000 67,646 8,791 1,246 71,870 9,557 1,407 77,683 82,834 Wages and salaries include £2,944,000 (2012 – £5,319,000) in respect of redundancies and loss of office. Details of Directors’ remuneration, pension contributions and share options are provided in the audited part of the Remuneration Report on pages 33 to 39. 7 Interest income Interest on bank and other deposits 2013 £000 123 2012 £000 165 64 Northgate plc Annual report and accounts 2013 8 Finance costs Interest on bank overdrafts and loans Amortisation of arrangement fees (cid:33)(cid:77)(cid:79)(cid:82)(cid:84)(cid:73)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83) (cid:35)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:0)(cid:73)(cid:78)(cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:78)(cid:69)(cid:83)(cid:83) Interest rate derivatives ineffectiveness (cid:35)(cid:72)(cid:65)(cid:78)(cid:71)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83) Change in fair value of interest rate derivatives (cid:33)(cid:77)(cid:79)(cid:82)(cid:84)(cid:73)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:68)(cid:69)(cid:13)(cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83) Preference share dividends Finance costs (excluding exceptional items) Exceptional finance costs Financing costs incurred on extinguishment of bank loans, loan notes and other loan Terminated cross currency derivatives recycled from hedging reserve on extinguishment of loan notes Amounts recycled from hedging reserve on termination of interest rate and currency derivatives on extinguishment of banks loans, loan notes and other loan Termination of Euro interest rate swaps Total exceptional finance costs 9 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 UK rate adjustment 2013 £000 30,535 7,480 (610) 368 (12) (133) (445) (179) 25 2012 £000 38,991 7,799 (605) 459 (28) (147) (453) (431) 25 37,029 45,610 35,903 (1,446) 19,497 – 53,954 – – – 3,046 3,046 90,983 48,656 2013 £000 2012 £000 1,285 118 6,466 7,869 1,897 (11,505) 488 (9,120) (6,595) (5,301) 2 12,044 (285) 2,880 (11,894) 14,639 (4,025) 5,519 Corporation tax is calculated at 23.92% (2012 – 25.83%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in those respective jurisdictions. 65 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 9 Taxation continued The net (credit) charge for the year can be reconciled to the profit before taxation as stated in the income statement as follows: (Loss) profit before taxation Tax at the UK corporation tax rate of 23.92% (2012 – 25.83%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of income not taxable in determining taxable profit Difference in taxation in overseas subsidiary undertakings Reduction in UK tax rate Adjustment to tax charge in respect of prior years Tax (credit) charge and effective tax rate for the year 2013 £000 (11,382) (2,723) 4,015 – (406) 2 (4,913) (4,025) % 23.9 (35.3) – 3.6 – 43.2 2012 £000 45,987 11,880 4,396 (652) (1,195) 2,880 (11,790) 35.4 5,519 % 25.8 9.6 (1.4) (2.6) 6.3 (25.6) 12.0 In addition to the amount charged to the income statement, a net deferred tax amount of £4,183,000 has been charged (2012 – £3,899,000 credited) directly to equity (Note 23). The underlying tax charge of £10,657,000 (2012 – £17,803,000) excludes exceptional tax credits of £13,783,000 (2012 – £11,216,000) as set out in Note 33, and tax credits on intangible amortisation of £899,000 (2012 – £1,068,000). There has been no recognition of deferred tax assets previously derecognised. On 1 April 2013 the UK Corporation tax rate changed from 24% to 23%. Accordingly, the tax disclosures reflect deferred tax measured on the new 23% rate. A further change to the UK Corporation tax rate was announced in the March 2013 budget, to reduce the rate to 21% from 1 April 2014, with a further reduction to 20% from 1 April 2015. These changes are expected to be enacted in July 2013. Any rate changes that have not been substantively enacted at the balance sheet date are not recognised in the accounts of the Group. 10 Dividends An interim dividend of 1.3p per ordinary share was paid in January 2013 (2012 – £Nil). The Directors propose a final dividend for the year ended 30 April 2013 of 6.0p per ordinary share (2012 – 3.0p) which is subject to approval at the Annual General Meeting and has not been included as a liability as at 30 April 2013. No dividends have been paid between 30 April 2013 and the date of signing the Accounts. 66 Northgate plc Annual report and accounts 2013 11 Earnings per share Basic and diluted earnings per share The calculation of basic and diluted earnings per share is based on the following data: Earnings Earnings for the purposes of basic and diluted earnings per share, being net profit (loss) attributable to the owners of the Parent Company 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 (loss) per share Diluted earnings (loss) per share Underlying 2013 £000 Statutory 2013 £000 Underlying 2012 £000 Statutory 2012 £000 38,841 (7,357) 41,928 40,468 Number Number Number Number 133,232,518 133,232,518 133,232,518 133,232,518 4,223,706 – 3,074,242 3,074,242 137,456,224 133,232,518 136,306,760 136,306,760 29.2p 28.3p (5.5)p (5.5)p 31.5p 30.8p 30.4p 29.7p A total of 4,223,706 potential ordinary shares have not been included within the calculation of statutory diluted earnings per share for the year ended 30 April 2013 (2012 – Nil) as they are antidilutive. However, these potential Ordinary shares could dilute earnings per share in the future. 12 Result of the parent company A profit of £23,887,000 (2012 – loss of £2,957,000) is dealt with in the accounts of the Company. The Directors have taken advantage of the exemption available under s408(3) of the Companies Act 2006 and not presented an income statement for the Company alone. 13 Goodwill Group Carrying value: At 1 May 2012 and 30 April 2013 2013 £000 2012 £000 3,589 3,589 Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from the business combination. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The Group has two cash generating units: the UK and Spain. The goodwill balance all relates the UK CGU. The Group tests its 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 (cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:69)(cid:83)(cid:84)(cid:73)(cid:77)(cid:65)(cid:84)(cid:69)(cid:0)(cid:68)(cid:73)(cid:83)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:83)(cid:0)(cid:85)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0)(cid:80)(cid:82)(cid:69)(cid:13)(cid:84)(cid:65)(cid:88)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:83)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:82)(cid:69)(cid:70)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:83)(cid:83)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:84)(cid:73)(cid:77)(cid:69)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:77)(cid:79)(cid:78)(cid:69)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) 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 addition to the annual test of impairment, and as required by IAS 36, there has also been an assessment as to whether there (cid:72)(cid:65)(cid:83)(cid:0)(cid:66)(cid:69)(cid:69)(cid:78)(cid:0)(cid:65)(cid:78)(cid:89)(cid:0)(cid:73)(cid:78)(cid:68)(cid:73)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:65)(cid:78)(cid:0)(cid:73)(cid:77)(cid:80)(cid:65)(cid:73)(cid:82)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:76)(cid:79)(cid:83)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:71)(cid:78)(cid:73)(cid:83)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:65)(cid:78)(cid:0)(cid:69)(cid:65)(cid:82)(cid:76)(cid:73)(cid:69)(cid:82)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:72)(cid:65)(cid:83)(cid:0)(cid:68)(cid:69)(cid:67)(cid:82)(cid:69)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:79)(cid:82)(cid:0)(cid:78)(cid:79)(cid:0) longer exists. 67 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 13 Goodwill continued (cid:52)(cid:72)(cid:69)(cid:0)(cid:73)(cid:77)(cid:80)(cid:65)(cid:73)(cid:82)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:83)(cid:83)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:79)(cid:78)(cid:0)(cid:82)(cid:73)(cid:83)(cid:75)(cid:13)(cid:65)(cid:68)(cid:74)(cid:85)(cid:83)(cid:84)(cid:69)(cid:68)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:70)(cid:76)(cid:79)(cid:87)(cid:0)(cid:70)(cid:79)(cid:82)(cid:69)(cid:67)(cid:65)(cid:83)(cid:84)(cid:83)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:69)(cid:68)(cid:0)(cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:65)(cid:0)(cid:84)(cid:87)(cid:79)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:80)(cid:76)(cid:65)(cid:78)(cid:0)(cid:65)(cid:80)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0) the Directors in April 2013 using growth rates of 1% over a 10 year period, including terminal values, using a discount rate of 9.9% for the UK CGU and 11.2% for the Spain CGU. The projected terminal value is calculated based on the Gordon Growth Model assuming cash flows are generated into perpetuity. (cid:41)(cid:84)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:67)(cid:79)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:69)(cid:68)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:82)(cid:69)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:78)(cid:79)(cid:0)(cid:73)(cid:78)(cid:68)(cid:73)(cid:67)(cid:65)(cid:84)(cid:79)(cid:82)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:68)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:73)(cid:77)(cid:80)(cid:65)(cid:73)(cid:82)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:82)(cid:0)(cid:82)(cid:69)(cid:86)(cid:69)(cid:82)(cid:83)(cid:65)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)(cid:73)(cid:77)(cid:80)(cid:65)(cid:73)(cid:82)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0) previously charged for both the UK CGU and Spain CGU. (cid:41)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:80)(cid:82)(cid:73)(cid:79)(cid:82)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:73)(cid:77)(cid:80)(cid:65)(cid:73)(cid:82)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:83)(cid:83)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:79)(cid:78)(cid:0)(cid:82)(cid:73)(cid:83)(cid:75)(cid:13)(cid:65)(cid:68)(cid:74)(cid:85)(cid:83)(cid:84)(cid:69)(cid:68)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:70)(cid:76)(cid:79)(cid:87)(cid:0)(cid:70)(cid:79)(cid:82)(cid:69)(cid:67)(cid:65)(cid:83)(cid:84)(cid:83)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:69)(cid:68)(cid:0)(cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:65)(cid:0)(cid:84)(cid:87)(cid:79)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0) plan approved by the Directors in April 2012 using growth rates of 1% to 2% over a 10 year period, including terminal values, using a discount rate of 10.3% for the UK CGU and 11.7% for the Spain CGU. The projected terminal value was calculated based on the Gordon Growth Model assuming cash flows are generated into perpetuity. It was concluded that there were no indicators of additional impairment or reversal of impairment previously charged for both the UK CGU and Spain CGU. The value in use assessment is sensitive to changes in the key assumptions used, most notably the discount rate and growth rates. A sensitivity analysis has been performed on the UK CGU and Spain CGU. Based on this sensitivity analysis, no reasonably possible changes to the assumptions used for the UK CGU resulted in an additional impairment charge being required. The Spain CGU had headroom of £55m at the balance sheet date. An increase in the discount rate of 2.03% would eliminate the headroom in the Spain CGU. 14 Other intangible assets Customer relationships £000 Group Other software £000 Company Other software £000 Total £000 22,680 – – (571) 22,109 – (7,185) 177 9,558 1,982 (408) (122) 11,010 1,396 – 45 32,238 1,982 (408) (693) 33,119 1,396 (7,185) 222 15,101 12,451 27,552 13,742 2,212 – (435) 15,519 1,642 (7,185) 161 10,137 4,964 6,590 6,687 1,784 (357) (105) 8,009 1,947 – 28 9,984 2,467 3,001 20,429 3,996 (357) (540) 23,528 3,589 (7,185) 189 20,121 7,431 9,591 – – – – – 90 – – 90 – – – – – 13 – – 13 77 – Cost: At 1 May 2011 Additions Disposals Exchange differences At 1 May 2012 Additions Disposals Exchange differences At 30 April 2013 Amortisation: At 1 May 2011 Charge for the year Disposals Exchange differences At 1 May 2012 Charge for the year Disposals Exchange differences At 30 April 2013 Carrying amount: At 30 April 2013 At 30 April 2012 68 Northgate plc Annual report and accounts 2013 15 Property, plant and equipment: vehicles for hire Group Cost: At 1 May 2011 Additions Transfer to motor vehicles Transfer to inventories Exchange differences At 1 May 2012 Additions Transfer from plant, equipment & fittings Transfer to motor vehicles Transfer to inventories Exchange differences At 30 April 2013 Depreciation: At 1 May 2011 Charge for the year Transfer to motor vehicles Transfer to inventories Exchange differences At 1 May 2012 Charge for the year Transfer from plant, equipment & fittings Transfer to motor vehicles Transfer to inventories Exchange differences At 30 April 2013 Carrying amount: At 30 April 2013 At 30 April 2012 £000 1,153,675 305,401 (223) (454,236) (40,036) 964,581 258,961 1,233 (467) (322,071) 14,012 916,249 439,633 188,443 (93) (271,213) (15,292) 341,478 158,608 1,173 (91) (179,434) 5,354 327,088 589,161 623,103 At 30 April 2013, the Group had entered into contractual commitments for the acquisition of vehicles for hire amounting to £29,935,000 (2012 – £27,784,000). The depreciation rate on vehicles for hire in the UK was reduced by 1% on 1 May 2012. This resulted in a reduction in the depreciation charge of £4m in the year ended 30 April 2013. 69 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 16 Other property, plant and equipment Group Cost: At 1 May 2011 Additions Transfer from vehicles for hire Exchange differences Disposals At 1 May 2012 Additions Transfer (to) from vehicles for hire Exchange differences Disposals At 30 April 2013 Depreciation: At 1 May 2011 Charge for the year Transfer from vehicles for hire Exchange differences Disposals At 1 May 2012 Charge for the year Transfer (to) from vehicles for hire Exchange differences Disposals At 30 April 2013 Carrying amount: At 30 April 2013 At 30 April 2012 Land and buildings by category: Freehold and long leasehold Short leasehold Land & buildings £000 Plant, equipment & fittings £000 87,599 3,092 – (4,366) (4,590) 81,735 3,849 – 1,765 (1,399) 20,010 3,541 – (811) (5,872) 16,868 3,946 (1,233) 350 (1,542) Motor vehicles £000 1,769 940 223 – (551) 2,381 634 467 – (1,107) Total £000 109,378 7,573 223 (5,177) (11,013) 100,984 8,429 (766) 2,115 (4,048) 85,950 18,389 2,375 106,714 18,336 1,831 – (818) (2,796) 16,553 1,827 – 339 (437) 13,182 1,940 – (358) (5,613) 9,151 2,372 (1,173) 187 (1,263) 552 515 93 – (332) 828 506 91 – (588) 32,070 4,286 93 (1,176) (8,741) 26,532 4,705 (1,082) 526 (2,288) 18,282 9,274 837 28,393 67,668 65,182 9,115 7,717 1,538 78,321 1,553 74,452 2013 £000 2012 £000 62,864 4,804 59,984 5,198 67,668 65,182 At 30 April 2013, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £81,000 (2012 – £309,000). 70 Northgate plc Annual report and accounts 2013 16 Other property, plant and equipment continued Company Cost: At 1 May 2011, 1 May 2012 and 30 April 2013 Depreciation: At 1 May 2011 Charge for the year At 1 May 2012 Charge for the year At 30 April 2013 Carrying amount: At 30 April 2013 At 30 April 2012 17 Investments Company Cost: At 1 May 2011 Capital reduction of subsidiary undertaking At 1 May 2012 Liquidation of subsidiary undertaking At 30 April 2013 Accumulated provisions: At 1 May 2011, 1 May 2012 and 30 April 2013 Carrying amount: At 30 April 2013 At 30 April 2012 Land & buildings £000 3,239 534 62 596 61 657 2,582 2,643 Shares in subsidiary undertakings £000 Loans to subsidiary undertaking £000 Total £000 103,329 (25,000) 78,329 (2) 47,000 – 47,000 – 150,329 (25,000) 125,329 (2) 78,327 47,000 125,327 2,435 – 2,435 75,892 47,000 122,892 75,894 47,000 122,894 A full list of the Company’s subsidiaries was included with the Annual Return filed with the Registrar of Companies. At 30 April 2013, the principal subsidiary undertakings of the Group, all of which are wholly owned and are registered in England and Wales unless otherwise stated, were as follows: Northgate (CB) Limited* Northgate (CB2) Limited* Northgate España Renting Flexible S.A.* (incorporated in Spain) Northgate (Europe) Limited Northgate (Malta) Limited* (incorporated in Malta) Northgate (MT) Limited* (incorporated in Malta) Northgate Vehicle Hire (Ireland) Limited* (incorporated in the Republic of Ireland) Northgate Vehicle Hire Limited *interest held indirectly by the Company 71 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 18 Inventories Vehicles held for resale Spare parts and consumables 19 Trade and other receivables Trade receivables Amounts due from subsidiary undertakings Other taxes Other debtors and prepayments The average credit period given on trade sales is Group 2013 £000 14,410 4,782 2012 £000 17,771 4,442 19,192 22,213 Group 2013 £000 68,633 – – 8,784 2012 £000 84,930 – – 12,348 Company 2013 £000 2012 £000 – 889,090 86 98 – 880,854 1,827 29 77,417 97,278 889,274 882,710 UK Spain 2013 38 days 64 days 2012 42 days 71 days Allowances for estimated irrecoverable amounts and the Group’s credit risk are considered in Note 37. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value due to their short term nature. 20 Trade and other payables Trade payables Amounts due to subsidiary undertakings Social security and other taxes Accruals and deferred income Trade payables comprise amounts outstanding for trade purchases. The average credit period taken on trade purchases is Group 2013 £000 24,188 – 4,789 23,615 2012 £000 23,446 – 9,655 30,087 Company 2013 £000 2012 £000 445 370,066 165 4,905 34 381,936 97 12,278 52,592 63,188 375,581 394,345 UK Spain 2013 36 days 59 days 2012 48 days 78 days The Directors consider that the carrying amount of trade and other payables approximates to their fair value due to their short term nature. 72 Northgate plc Annual report and accounts 2013 21 Borrowings Except as detailed in Note 37, the Directors consider that the carrying amounts of the Group’s borrowings approximate to their fair value. Bank loans and overdrafts Loan notes Other loan Cumulative Preference shares Property loans Confirming facilities The borrowings are repayable as follows: On demand or within one year (shown within current liabilities) Bank loans and overdrafts Loan notes Property loans Confirming facilities In the second year Loan notes Property loans In the third to fifth years Bank loans Loan notes Due after more than five years Other loan Cumulative Preference shares Group 2013 £000 375,549 – – 500 223 1,413 2012 £000 129,282 161,002 97,752 500 862 5,647 Company 2013 £000 2012 £000 370,313 – – 500 – – 113,673 161,002 97,752 500 – – 377,685 395,045 370,813 372,927 Group 2013 £000 2012 £000 Company 2013 £000 2012 £000 5,678 – 223 1,413 83,312 45,951 648 5,647 7,314 135,558 – – – 42,717 214 42,931 442 – – – 442 – – – 67,703 45,951 – – 113,654 42,717 – 42,717 369,871 – 45,970 72,334 369,871 – 45,970 72,334 369,871 118,304 369,871 118,304 – 500 500 97,752 500 98,252 – 500 500 97,752 500 98,252 Total borrowings 377,685 395,045 370,813 372,927 Less: Amount due for settlement within one year (shown within current liabilities) 7,314 135,558 442 113,654 Amount due for settlement after one year 370,371 259,487 370,371 259,273 The UK syndicated bank loans, totalling £369,871,000 at 30 April 2013, would become repayable in full in the event of a change in control of the Group. 73 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 21 Borrowings continued Bank loans Bank loans and overdrafts are secured and bear interest at rates of 2.38% to 2.85% (2012 – 1.50% to 2.75%) above the relevant interest rate index, being LIBOR for Sterling denominated debt and EURIBOR for Euro denominated debt. 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 year, the Group repaid the remaining loan notes in full in advance of their maturity date with total repayments in the year amounting to $249,837,000 and £15,631,000 respectively (2012 – $7,070,000 and £Nil). In accordance with the terms of the US Notes, on early repayment (cid:77)(cid:65)(cid:75)(cid:69)(cid:13)(cid:87)(cid:72)(cid:79)(cid:76)(cid:69)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:79)(cid:0)(cid:4)(cid:18)(cid:16)(cid:12)(cid:21)(cid:23)(cid:19)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:97)(cid:18)(cid:12)(cid:18)(cid:19)(cid:17)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:80)(cid:65)(cid:73)(cid:68)(cid:14)(cid:0)(cid:53)(cid:78)(cid:65)(cid:77)(cid:79)(cid:82)(cid:84)(cid:73)(cid:83)(cid:69)(cid:68)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:70)(cid:69)(cid:69)(cid:83)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:82)(cid:69)(cid:77)(cid:65)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0) early repayment were recognised as finance costs in the income statement in the year with total costs recognised in the year of £8,315,000 (2012 – £3,054,000). The comparative information at 30 April 2012 was as follows: Value of loan notes $37,201,000 5 year loan notes $86,620,000 7 year loan notes $89,318,000 10 year loan notes £15,631,000 10 year loan notes $36,698,000 10 year loan notes Unamortised finance fees relating to the US Dollar denominated loan Notes Unamortised finance fees relating to the Sterling denominated loan Notes Weighted average fixed interest rate on the US Notes Overall weighted average fixed interest rate 7.72% 7.86% 7.99% 7.89% 7.99% 8.19% 9.02% 8.91% 7.89% 8.89% Carrying value £000 22,867 53,245 54,904 15,631 22,558 (7,202) (1,001) 161,002 Other loan The other loan was repaid in full in April 2013 six years prior to maturity in the amount of £100,000,000. Unamortised finance fees remaining at the date of early repayment were recognised in finance costs within the income statement in the year with total costs recognised in the year of £2,248,000 (2012 – £250,000). 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 cumulative 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 (2012 – 1,300,000), of which 1,000,000 (2012 – 1,000,000) were allotted and fully paid at the balance sheet date. 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 one year (2012 – one year). At 30 April 2013, the average borrowing rate for property loans was 2.0% (2012 – 2.8%). All loans are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. Confirming facilities Spanish confirming facilities of £1,413,000 (2012 – £5,647,000) are unsecured and all fall due within one year. It is common practice in Spain for businesses to have a bank facility which enables their suppliers to be paid earlier than under normal credit terms. When this is the case the supplier pays to Northgate España’s bank a discount fee for early settlement. When invoices fall due for payment, Northgate España settles such invoices with its bank. The Group pays no interest on confirming. 74 Northgate plc Annual report and accounts 2013 21 Borrowings continued Total borrowing facilities The Group has various borrowing 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 2013 £000 2012 £000 7,262 58,197 3,946 261,998 65,459 265,944 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. Analysis of consolidated net debt An analysis of movements in the Group’s consolidated net debt is as follows: Cash at bank and in hand Bank loans Loan notes Other loan Cumulative Preference shares Property loans and other borrowings At 1 May 2012 £000 (9,707) 129,282 161,002 97,752 500 6,509 Cash flow £000 (5,231) 229,643 (169,273) (100,000) – (639) Other (cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:65)(cid:83)(cid:72) changes £000 – 10,891 8,203 2,248 – (4,234) Foreign exchange movements £000 (24) 5,733 68 – – – At 30 April 2013 £000 (14,962) 375,549 – – 500 1,636 385,338 (45,500) 17,108 5,777 362,723 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. At 30 April 2013, the gearing of the Group amounted to 102.0% (2012 – 109.2%) where net borrowings are £362,723,000 (2012 – £385,338,000) and shareholders’ funds less goodwill and the net book value of intangible assets are £355,632,000 (2012 – £352,956,000). Financial instruments (see also Note 37) Financial assets The Group’s principal financial assets are bank balances and cash, and trade and other receivables. The Group’s credit risk is primarily attributable to its trade receivables. 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 (cid:67)(cid:82)(cid:69)(cid:68)(cid:73)(cid:84)(cid:13)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:83)(cid:0)(cid:65)(cid:83)(cid:83)(cid:73)(cid:71)(cid:78)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:67)(cid:82)(cid:69)(cid:68)(cid:73)(cid:84)(cid:13)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:71)(cid:69)(cid:78)(cid:67)(cid:73)(cid:69)(cid:83)(cid:14) 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 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. 75 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 21 Borrowings continued 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 22. 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 rating agencies. Deals are authorised only with banks with which dealing mandates have been agreed and which maintain an 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, and medium term bank loans. Cash at bank and on deposit yield interest based principally on interest rate indices applicable to periods of less than three months, those indices being LIBOR for Sterling denominated cash and EURIBOR for Euro denominated cash. The Group’s exposure to interest rate fluctuations on its borrowings and deposits is managed through the use of interest rate derivatives as detailed in Note 22. 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 Group’s borrowing facilities were (cid:82)(cid:69)(cid:83)(cid:84)(cid:82)(cid:85)(cid:67)(cid:84)(cid:85)(cid:82)(cid:69)(cid:68)(cid:0)(cid:79)(cid:78)(cid:0)(cid:18)(cid:25)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0)(cid:18)(cid:16)(cid:17)(cid:19)(cid:0)(cid:79)(cid:78)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:69)(cid:88)(cid:73)(cid:83)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:67)(cid:65)(cid:78)(cid:67)(cid:69)(cid:76)(cid:76)(cid:69)(cid:68)(cid:14)(cid:0)(cid:33)(cid:84)(cid:0)(cid:19)(cid:16)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0) 2013 0.5% (2012 – 96%) of gross borrowings were at fixed rates of interest comprising £500,000 of preference shares and £1,413,000 of confirming facilities. New interest rate swaps were entered into on 2 May 2013. On that date 61% of gross borrowings were at fixed rates of interest, comprising £55,000,000 and €206,500,000 of interest rate swaps, £500,000 of preference shares and £1,413,000 of confirming facilities (30 April 2012 – £100,000,000 and €152,832,000 of interest rate (cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:12)(cid:0)(cid:4)(cid:18)(cid:20)(cid:25)(cid:12)(cid:24)(cid:19)(cid:23)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:79)(cid:70)(cid:0)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:15)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:12)(cid:0)(cid:97)(cid:17)(cid:21)(cid:12)(cid:22)(cid:19)(cid:17)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:79)(cid:70)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:68)(cid:69)(cid:78)(cid:79)(cid:77)(cid:73)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:76)(cid:79)(cid:65)(cid:78)(cid:0)(cid:78)(cid:79)(cid:84)(cid:69)(cid:83)(cid:12)(cid:0)(cid:97)(cid:21)(cid:16)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0) of preference shares and £5,647,000 of confirming facilities), as detailed in Note 22. 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 22) 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 2013 Bank loans Cumulative Preference shares Property loans Confirming facilities Group At 30 April 2012 Bank loans Loan notes Other loan Cumulative Preference shares Property loans Confirming facilities 76 Northgate plc Annual report and accounts 2013 Sterling £000 Euro £000 US Dollars £000 Total £000 136,000 500 – – 239,549 – 223 1,413 136,500 241,185 – – – – – 375,549 500 223 1,413 377,685 Sterling £000 Euro £000 US Dollars £000 Total £000 – 14,630 97,752 500 – – 129,282 – – – 862 5,647 – 146,372 – – – – 129,282 161,002 97,752 500 862 5,647 112,882 135,791 146,372 395,045 21 Borrowings continued (cid:52)(cid:72)(cid:69)(cid:82)(cid:69)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:78)(cid:79)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:80)(cid:76)(cid:65)(cid:67)(cid:69)(cid:0)(cid:65)(cid:84)(cid:0)(cid:19)(cid:16)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0)(cid:18)(cid:16)(cid:17)(cid:19)(cid:14)(cid:0)(cid:46)(cid:69)(cid:84)(cid:0)(cid:66)(cid:79)(cid:82)(cid:82)(cid:79)(cid:87)(cid:73)(cid:78)(cid:71)(cid:83)(cid:0)(cid:65)(cid:78)(cid:65)(cid:76)(cid:89)(cid:83)(cid:69)(cid:68)(cid:0)(cid:66)(cid:89)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:12)(cid:0)(cid:84)(cid:65)(cid:75)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:65)(cid:67)(cid:67)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0) swapped exchange rates for the US loan notes and the other loan swapped into Euro being retranslated to Sterling at closing exchange rates, are as follows: Group At 30 April 2013 Cash at bank and in hand Bank loans Cumulative Preference shares Property loans Confirming facilities Group At 30 April 2012 Cash at bank and in hand Bank loans Loan notes Other loan Cumulative Preference shares Property loans Confirming facilities Sterling £’000 Euro £’000 Total £’000 (11,616) 136,000 500 – – (3,346) 239,549 – 223 1,413 (14,962) 375,549 500 223 1,413 124,884 237,839 362,723 Sterling £’000 Euro £’000 Total £’000 (8,382) – 132,122 – 500 – – (1,325) 129,282 22,780 89,815 – 862 5,647 (9,707) 129,282 154,902 89,815 500 862 5,647 124,240 247,061 371,301 At 30 April 2012, the gearing of the Group reflecting the above fixed swapped exchange rates amounted to 105.2% where net borrowings were £371,301,000 and shareholders’ funds less goodwill and the net book value of intangible assets were £352,956,000. 22 Derivative financial instruments (cid:52)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:7)(cid:83)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:73)(cid:78)(cid:83)(cid:84)(cid:82)(cid:85)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:66)(cid:65)(cid:76)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:83)(cid:72)(cid:69)(cid:69)(cid:84)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:82)(cid:73)(cid:83)(cid:69)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:14) Their net estimated fair values are as follows: Interest rate derivatives (cid:35)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83) They are represented in the balance sheet as follows: (cid:46)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:73)(cid:78)(cid:83)(cid:84)(cid:82)(cid:85)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83) Current derivative financial instrument liabilities (cid:46)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:108)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:73)(cid:78)(cid:83)(cid:84)(cid:82)(cid:85)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) Group 2013 £000 2012 £000 Company 2013 £000 2012 £000 – – – – – – – (16,314) 10,566 – (1,517) (16,314) 9,981 (5,748) (1,517) (6,333) 11,249 (1,046) (15,951) – (1,517) – 11,249 (1,631) (15,951) (5,748) (1,517) (6,333) 77 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 22 Derivative financial instruments continued Interest rate derivatives The Group’s exposure to interest fluctuations on its borrowings 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 a substantial element of the interest cost on outstanding debt. The Group’s borrowing facilities were restructured on 29 April 2013 on which (cid:68)(cid:65)(cid:84)(cid:69)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:69)(cid:88)(cid:73)(cid:83)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:67)(cid:65)(cid:78)(cid:67)(cid:69)(cid:76)(cid:76)(cid:69)(cid:68)(cid:14)(cid:0)(cid:46)(cid:69)(cid:87)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:69)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:79)(cid:78)(cid:0)(cid:18)(cid:0)(cid:45)(cid:65)(cid:89)(cid:0) 2013. The Group was therefore not party to any interest rate derivatives at 30 April 2013. The interest rate derivatives to which the Group was party as at 30 April 2012 are summarised below: 30 April 2012 Sterling denominated interest rate swaps Euro denominated interest rate swaps Total nominal values Weighted average fixed contract net pay rates Weighted average remaining life £100,000,000 €152,832,000 4.45% 9.0 years 2.35% 0.4 years During the year, the following transactions relating to interest rate derivatives occurred: £25,000,000 and €152,832,000 of interest rate swaps with a weighted average fixed contract pay rate of 2.44% and 2.35% matured; £25,000,000 of interest rate swaps with a weighted average fixed contract receive rate of 1.13% matured; €76,416,000 of interest rate swaps which were entered into in the year ended 30 April 2011 commenced with a weighted average fixed contract pay rate of 3.12% and a weighted average life of 2.0 years; €76,416,000 of interest rate swaps with a weighted average fixed contract pay rate of 3.12% and a remaining weighted average life of 1.4 years were cancelled at a cash cost of £2,709,000. This was in connection with the extinguishment of bank debt; and £100,000,000 Sterling interest rate swaps with a weighted average fixed contract pay rate of 3.62% and weighted average remaining life of 8.0 years were cancelled at a cash cost of £16,841,000. This was in connection with the early repayment of the other loan. During the prior year the following transactions relating to interest rate derivatives occurred: £38,000,000 and €60,000,000 of interest rate swaps with a weighted average fixed contract pay rate of 2.44% and 2.35% respectively matured; €59,000,000 of interest rate swaps due to commence in September 2012 with a weighted average fixed contract pay rate of 3.13% and a remaining weighted average life of 2.4 years were cancelled at a cash cost of £3,046,000. This was in connection with a voluntary prepayment of the bank term debt; and £38,000,000 of interest rate swaps with a weighted average fixed contract receive rate of 1.13% matured. Subsequent to completing the Group's refinancing of its borrowing facilities, on 2 May 2013, £55,000,000 and €206,500,000 of interest rate swaps with a weighted average fixed contract pay rate of 0.68% and 0.48% respectively, all of which had a maturity of 3.6 years, commenced. 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 £12,000 (2012 – £28,000) has been credited to the income statement (Note 8). The total change in fair values of interest rate derivatives credited to the income statement of £445,000 (2012 – £453,000) is shown within finance costs (Note 8). 78 Northgate plc Annual report and accounts 2013 22 Derivative financial instruments continued Cross-currency derivatives (cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:83)(cid:0)(cid:72)(cid:65)(cid:86)(cid:69)(cid:0)(cid:66)(cid:69)(cid:69)(cid:78)(cid:0)(cid:85)(cid:83)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:68)(cid:69)(cid:84)(cid:69)(cid:82)(cid:77)(cid:73)(cid:78)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:0)(cid:65)(cid:84)(cid:0)(cid:69)(cid:65)(cid:67)(cid:72)(cid:0)(cid:66)(cid:65)(cid:76)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:83)(cid:72)(cid:69)(cid:69)(cid:84)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:14) The estimated fair values are as follows: (cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83) (cid:37)(cid:85)(cid:82)(cid:79)(cid:15)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83) 2013 £000 – – – 2012 £000 2,702 7,864 10,566 Sterling/US Dollar cross-currency swaps In April 2013 the Group made early repayment of all outstanding US Dollar denominated loan notes with a capital value of $178,502,000 with total repayments in the year of $249,837,000 (2012 – closing capital value of $249,837,000 with repayments in the year of $7,070,000). During the period in which these US Dollar denominated notes were in issue they bore fixed rate interest in US Dollars. The payment of this interest and the capital repayment of the loan notes at maturity exposed the Group to foreign exchange risk. (cid:52)(cid:79)(cid:0)(cid:77)(cid:73)(cid:84)(cid:73)(cid:71)(cid:65)(cid:84)(cid:69)(cid:0)(cid:84)(cid:72)(cid:73)(cid:83)(cid:0)(cid:82)(cid:73)(cid:83)(cid:75)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:80)(cid:82)(cid:69)(cid:86)(cid:73)(cid:79)(cid:85)(cid:83)(cid:76)(cid:89)(cid:0)(cid:69)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:65)(cid:0)(cid:83)(cid:69)(cid:82)(cid:73)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:82)(cid:84)(cid:0) dates and termination dates of these contracts were the same as the loan notes against which hedging relationships were designated and which are shown in Note 21. The Group had interest cash outflows in 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 paid a principal amount in Sterling and received a principal amount in US Dollars. The weighted average interest rate that the Group paid in Sterling in the year was 8.86% (2012 – 8.86%). (cid:33)(cid:76)(cid:76)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:7)(cid:83)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:69)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:73)(cid:78)(cid:0)(cid:51)(cid:69)(cid:80)(cid:84)(cid:69)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:18)(cid:16)(cid:16)(cid:25)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:72)(cid:73)(cid:71)(cid:72)(cid:76)(cid:89)(cid:0) effective as cash flow hedges and their fair value to the point of either maturity or termination, along with changes in fair (cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:12)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:68)(cid:69)(cid:70)(cid:69)(cid:82)(cid:82)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:14)(cid:0)(cid:52)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:69)(cid:88)(cid:84)(cid:69)(cid:78)(cid:84)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:78)(cid:79)(cid:84)(cid:0)(cid:17)(cid:16)(cid:16)(cid:5)(cid:0)(cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:12)(cid:0)(cid:65)(cid:0)(cid:78)(cid:69)(cid:84)(cid:0) amount of £368,000 has been charged (2012 – £459,000) to the income statement (Note 8). (cid:41)(cid:78)(cid:0)(cid:46)(cid:79)(cid:86)(cid:69)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:18)(cid:16)(cid:17)(cid:18)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:84)(cid:79)(cid:84)(cid:65)(cid:76)(cid:0)(cid:78)(cid:79)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:4)(cid:23)(cid:17)(cid:12)(cid:19)(cid:19)(cid:21)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:77)(cid:65)(cid:84)(cid:85)(cid:82)(cid:69)(cid:68)(cid:14) (cid:41)(cid:78)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0)(cid:18)(cid:16)(cid:17)(cid:19)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:84)(cid:79)(cid:84)(cid:65)(cid:76)(cid:0)(cid:78)(cid:79)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:4)(cid:17)(cid:23)(cid:24)(cid:12)(cid:21)(cid:16)(cid:18)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:87)(cid:69)(cid:73)(cid:71)(cid:72)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:86)(cid:69)(cid:82)(cid:65)(cid:71)(cid:69)(cid:0)(cid:82)(cid:69)(cid:77)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:76)(cid:73)(cid:70)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0) 2.4 years were cancelled with a cash outflow of $400,000. In the prior year, the following transactions occurred: (cid:41)(cid:78)(cid:0)(cid:38)(cid:69)(cid:66)(cid:82)(cid:85)(cid:65)(cid:82)(cid:89)(cid:0)(cid:18)(cid:16)(cid:17)(cid:18)(cid:12)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:84)(cid:79)(cid:84)(cid:65)(cid:76)(cid:0)(cid:78)(cid:79)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:4)(cid:23)(cid:12)(cid:16)(cid:23)(cid:16)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:69)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:73)(cid:78)(cid:0)(cid:67)(cid:79)(cid:78)(cid:78)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0) a voluntary prepayment offer to the note holders. At that time, these swaps had a weighted average life of 1.3 years and a weighted average contract Sterling receive rate of 8.08%. The change in fair value between that date and 30 April 2012 was taken to the income statement. Euro/Sterling cross-currency swaps In November 2012, cross currency swaps with a total notional amount of €27,623,000 matured. (cid:41)(cid:78)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0)(cid:18)(cid:16)(cid:17)(cid:19)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:67)(cid:65)(cid:78)(cid:67)(cid:69)(cid:76)(cid:76)(cid:69)(cid:68)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:82)(cid:69)(cid:77)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:37)(cid:85)(cid:82)(cid:79)(cid:15)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:84)(cid:79)(cid:84)(cid:65)(cid:76)(cid:0)(cid:78)(cid:79)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)€114,157,000 (2012 – €141,780,000). The Group had interest cash inflows in Sterling and interest cash outflows in Euro over the life of the contract. On termination date of the contract, the Group paid a principal amount in Euro and received a principal amount in Sterling. The interest rate that the Group paid in Euro during the year was 8.18% (2012 – 8.18%). In the prior year the following transactions occurred: (cid:41)(cid:78)(cid:0)(cid:33)(cid:85)(cid:71)(cid:85)(cid:83)(cid:84)(cid:0)(cid:18)(cid:16)(cid:17)(cid:17)(cid:12)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:78)(cid:79)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:65)(cid:77)(cid:79)(cid:85)(cid:78)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)€17,145,000 commenced. At that time, these swaps had a weighted average life of 3.1 years and a weighted average contract Euro pay rate of 7.90%. The change in fair value from that date has been deferred into equity. 79 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 22 Derivative financial instruments continued Gross movement in fair values initially deferred in hedging reserve: At 30 April 2012 Movement in fair value of hedged instruments At 30 April 2013 Cumulative amounts recycled to the income statement: At 30 April 2012 Movement for the year At 30 April 2013 Cumulative amounts recycled to the currency translation reserve: At 30 April 2012 Movement for the year At 30 April 2013 Cumulative amounts recycled to retained earnings At 30 April 2012 Movement for the year At 30 April 2013 Net fair value deferred in hedging reserve: At 30 April 2013 At 30 April 2012 Sterling/ US Dollar £000 Euro/ Sterling £000 36,724 (2,059) (941) (2,213) 34,665 (3,154) (36,712) 263 (36,449) 12 (8) 4 – – – (1,213) 3,519 2,306 – 1,784 1,784 – – – – 12 (844) (2,142) 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. The gross exchange difference on retranslation of the loan notes at the exchange rate prevailing at the balance sheet date was a loss of £68,000 (2012 – £3,887,000). In addition, the amount includes 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 29). 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 in Euro by maintaining a proportion of its borrowings in the same currency. In (cid:65)(cid:68)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:69)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:65)(cid:0)(cid:78)(cid:85)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:37)(cid:85)(cid:82)(cid:79)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:78)(cid:69)(cid:84)(cid:0)(cid:73)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) hedges. The hedging objective is to reduce the risk of spot retranslation of the Euro subsidiaries from Euro to Sterling at each reporting date. Exchange differences arising on the borrowings and net investment hedges have been recognised directly within equity along with the exchange differences on retranslation of the net assets of the Euro subsidiaries. The hedges are considered highly effective in the current and prior year. Company cross-currency swaps (cid:33)(cid:84)(cid:0)(cid:19)(cid:16)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0)(cid:18)(cid:16)(cid:17)(cid:19)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:0)(cid:72)(cid:69)(cid:76)(cid:68)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:37)(cid:85)(cid:82)(cid:79)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:65)(cid:0)(cid:83)(cid:85)(cid:66)(cid:83)(cid:73)(cid:68)(cid:73)(cid:65)(cid:82)(cid:89)(cid:0)(cid:85)(cid:78)(cid:68)(cid:69)(cid:82)(cid:84)(cid:65)(cid:75)(cid:73)(cid:78)(cid:71)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:72)(cid:65)(cid:68)(cid:0)(cid:65)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0) of £(1,517,000) (2012 – £(585,000)) and weighted average remaining life of one year (2012 – one year) with a weighted average Euro interest receivable rate of 1.20% (2012 – 2.02%) and weighted average GBP interest payable rate of 1.53% (2012 – 2.50%). 80 Northgate plc Annual report and accounts 2013 23 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: Group At 1 May 2011 Charge (credit) to income Credit to equity Exchange differences Adjustment to UK tax rate charged (credited) to income Adjustment to UK tax rate charged to equity Adjustments in respect of prior years Transfer from current tax At 1 May 2012 (Credit) charge to income Charge to equity Exchange differences Adjustment to UK tax rate charged (credited) to income Adjustment to UK tax rate charged to equity Adjustments in respect of prior years Accelerated capital allowances £000 Revaluation of buildings £000 (191) 34,185 – (1,433) 1,743 (136) (5) (38) 2,855 (95) – (42) 506 35,880 (12,558) – 815 – – – 1,469 (56) – 13 35 (45) – (4,662) – – Share based payment £000 (1,072) (51) – – 86 – – – (1,037) 129 – – 38 – – Intangible assets £000 2,377 (605) – (38) Losses £000 (3,317) (22,196) – 1,491 Other timing differences £000 (5,486) 847 (4,267) 287 Total £000 (5,946) 12,044 (4,272) 269 (41) – 75 2,880 – – – 1,693 (430) – 6 (49) – – – (627) – (24,649) 4,862 – (799) – – – 373 384 97 (7,690) 1,458 4,175 (74) 23 8 (639) 373 (285) 603 5,666 (6,595) 4,175 (39) 2 8 (5,301) At 30 April 2013 19,510 1,381 (870) 1,220 (20,586) (2,739) (2,084) Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The analysis of the deferred tax balances after offset is as follows: At 30 April 2013 Deferred tax assets Deferred tax liabilities Net deferred tax assets At 30 April 2012 Deferred tax assets Deferred tax liabilities Net deferred tax liabilities (4,688) 2,604 (2,084) (1,691) 7,357 5,666 In the current year, the net charge to equity of £4,183,000 (2012 – £3,894,000 credit), in respect of other timing differences included £4,301,000 (2012 – £3,834,000 credit) relating to derivative financial instruments which has been reflected in the hedging reserve (Note 29). There are no deferred tax assets which are not recognised in the balance sheet. Deferred tax assets of £20,586,000 (2012 – £24,649,000) have been recognised in the balance sheet in respect of losses, as it is considered probable that there will be sufficient future taxable profits against which these losses will be utilised. Net deferred tax assets of £2,739,000 (2012 – £7,690,000) classified as other timing differences relate to movements on fair values of interest rate and foreign currency derivatives, retirement benefit obligations, other timing differences in relation to tax payable in various tax jurisdictions in which the Group operates and other timing differences within the UK. 81 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 23 Deferred tax continued The following are the major deferred tax assets recognised by the Company and movements thereon during the current and prior years: Company At 1 May 2011 (Credit) charge to income Credit to equity Change in UK tax rate charged to income Change in UK tax rate charged to equity At 1 May 2012 Charge to income Charge to equity Change in UK tax rate charged to income At 30 April 2013 24 Share capital Group and Company Allotted and fully paid: 133,232,518 (2012 – 133,232,518) Ordinary shares of 50p each 25 Share premium account Group and Company At 1 May 2011, 1 May 2012 and 30 April 2013 26 Revaluation reserve At 1 May 2011 Transfer to retained earnings on disposal of revalued property Foreign exchange differences At 1 May 2012 Foreign exchange differences At 30 April 2013 27 Own shares reserve At 1 May 2011 Purchase of own shares Transfer of shares on vesting of share options At 1 May 2012 Purchase of own shares Transfer of shares on vesting of share options At 30 April 2013 82 Northgate plc Annual report and accounts 2013 Share based payment £000 Other timing differences £000 (1,072) (51) – 86 – (1,037) 129 – 38 (838) 34 (3,692) 3 332 (4,161) 47 3,984 3 Total £000 (1,910) (17) (3,692) 89 332 (5,198) 176 3,984 41 (870) (127) (997) 2013 £000 2012 £000 66,616 66,616 2013 £000 2012 £000 113,508 113,508 Group £000 1,363 (54) (120) 1,189 46 1,235 Company £000 1,371 – – 1,371 – 1,371 Group £000 Company £000 (1,630) (293) 1,238 (685) (1,988) 2,370 (303) – – – – – – – 27 Own shares reserve continued The own shares reserve represents shares held by employee trusts in order to meet commitments under the Group’s various share schemes (Note 36). At 30 April 2013 the Guernsey Trust held 98,037 (2012 – 265,868) 50p Ordinary shares and the Capita Trust held 22,891 (2012 – 23,715) 50p Ordinary shares. The total number of shares held by these employee trusts represents 0.1% of the alloted and fully paid share capital of the Group. The results of the trusts are consolidated into the results of the Group in accordance with SIC 12 (Consolidation – Special Purpose Entities). 28 Merger reserve At 1 May 2011, 1 May 2012 and 30 April 2013 29 Hedging reserve At 1 May 2011 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 foreign currency derivatives Transfer to income statement Transfer to translation reserve (Note 30) At 1 May 2012 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 foreign currency derivatives Transfer to income statement Transfer to retained earnings (Note 32) Transfer to translation reserve (Note 30) At 30 April 2013 Group £000 Company £000 67,463 63,159 Group £000 Company £000 (1,893) (11,368) 11,176 3,834 (605) (4,515) (10,876) (14,247) (3,236) (4,272) (4,301) (610) 20,714 1,784 3,519 (1,776) (11,368) 2,280 3,360 (598) (4,515) – (12,617) (3,236) (2,059) (3,984) (602) 20,714 1,784 – (649) – 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 22, less amounts transferred to the income statement and other components of equity. 30 Translation reserve At 1 May 2011 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 29) At 1 May 2012 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 29) At 30 April 2013 83 Northgate plc Annual report and accounts 2013 Group £000 Company £000 (4,738) (16,711) 2,610 10,876 (7,963) 6,725 (613) (3,519) (5,370) – – – – – – – – – s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 30 Translation reserve continued 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 22. 31 Capital redemption reserve At 1 May 2011, 1 May 2012 and 30 April 2013 32 Retained earnings At 1 May 2011 Profit (loss) for the year Transfer from revaluation reserve on disposal of revalued property Deferred taxation on disposal of revalued property Share options exercised Share options fair value charge Defined benefit pension charge recognised directly in equity Net deferred tax credit recognised directly in equity At 1 May 2012 (Loss) profit for the year Dividends paid Share options exercised Share options fair value charge Defined benefit pension charge recognised directly in equity Net deferred tax credit recognised directly in equity Transfer from hedging reserve Group £000 40 Company £000 40 Group £000 Company £000 99,030 40,468 54 5 (1,238) 2,063 (227) 60 140,215 (7,357) (5,719) (2,370) 1,502 (490) 115 (1,784) 9,621 (2,957) – – – 2,063 – – 8,727 23,887 (5,719) – 1,502 – – (1,784) At 30 April 2013 124,112 26,613 84 Northgate plc Annual report and accounts 2013 33 Exceptional items During the year, the Group recognised exceptional items in the income statement made up as follows: Restructuring costs Partial recovery of acquisition cost of subsidiary undertaking Net property losses Exceptional administrative expenses Costs associated with April 2013 refinancing (Note 8) Termination of Euro interest rate swaps Exceptional finance costs Total pre-tax exceptional items Tax credit on exceptional items Exceptional tax credit relating to prior year items (Note 9) Exceptional tax charge to recognise change in UK tax rate (Note 9) Exceptional tax credit Restructuring costs 2013 £000 2,892 – 445 3,337 53,954 – 53,954 57,291 (13,783) – – 2012 £000 7,034 (775) 443 6,702 – 3,046 3,046 9,748 (2,591) (11,505) 2,880 (13,783) (11,216) During the year, the Group incurred total exceptional restructuring costs of £2,892,000 (2012 – £7,034,000), of which £2,075,000 (2012 – £5,562,000) arose in the United Kingdom and £817,000 (2012 – £1,472,000) in Spain. Partial recovery of acquisition cost of subsidiary undertaking During the prior year, the Group received an exceptional credit of £775,000 relating to the partial recovery of the cost of a previous acquisition. Net property losses Net property losses were £445,000 (2012 – £443,000), of which £24,000 profit (2012 – £191,000 loss) arose in the United Kingdom and £469,000 (2012 – £252,000) arose in Spain. Costs associated with April 2013 refinancing In April 2013 the group incurred £53,954,000 of costs relating to the extinguishment of the Group's bank loans, loan notes and other loan, and termination of related hedging arrangements. These costs comprised £42,752,000 of cash costs and (cid:97)(cid:17)(cid:17)(cid:12)(cid:18)(cid:16)(cid:18)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:79)(cid:70)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:83)(cid:14)(cid:0)(cid:47)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:69)(cid:84)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:73)(cid:78)(cid:70)(cid:76)(cid:79)(cid:87)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:97)(cid:19)(cid:12)(cid:22)(cid:21)(cid:18)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:78)(cid:79)(cid:84)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:69)(cid:68)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:12)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0) (cid:82)(cid:69)(cid:67)(cid:69)(cid:73)(cid:86)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:82)(cid:69)(cid:76)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:84)(cid:79)(cid:0)(cid:67)(cid:65)(cid:78)(cid:67)(cid:69)(cid:76)(cid:76)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:67)(cid:69)(cid:82)(cid:84)(cid:65)(cid:73)(cid:78)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:78)(cid:69)(cid:84)(cid:0)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:79)(cid:85)(cid:84)(cid:70)(cid:76)(cid:79)(cid:87)(cid:0)(cid:82)(cid:69)(cid:76)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) extinguishment of debt and cancellation of previous hedging arrangements was therefore £39,100,000. Termination of Euro interest rate swaps During the prior year, €59,000,000 interest rate swaps were closed out at a cash cost of £3,046,000. At that time, these swaps were in a hedging relationship with the Euro term loan. The notional amount closed out was the amount of Euro term loan which was repaid and cancelled on that date. The net amount deferred into equity at that date of £3,046,000 was expensed in the prior year income statement. 85 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 34 Operating lease arrangements As lessee Group 2013 £000 2012 £000 Minimum lease payments under operating leases recognised in the income statement for the year 5,193 5,224 (cid:33)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:66)(cid:65)(cid:76)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:83)(cid:72)(cid:69)(cid:69)(cid:84)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:72)(cid:65)(cid:68)(cid:0)(cid:79)(cid:85)(cid:84)(cid:83)(cid:84)(cid:65)(cid:78)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:73)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:70)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:77)(cid:73)(cid:78)(cid:73)(cid:77)(cid:85)(cid:77)(cid:0)(cid:76)(cid:69)(cid:65)(cid:83)(cid:69)(cid:0)(cid:80)(cid:65)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:85)(cid:78)(cid:68)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13) cancellable operating leases, which fall due as follows: Group Within one year In the second to fifth years inclusive After five years 2013 £000 4,581 13,549 20,163 2012 £000 4,367 11,683 17,145 38,293 33,195 Operating lease payments represent rentals payable by the Group for certain of its operating sites as well as rentals for certain equipment. Leases are negotiated for an average term of 13 years (2012 – 13 years) and rentals are fixed for an average term of seven years (2012 – seven years). As lessor The revenue of the Group is principally 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. 35 Share based payments The Group’s and Company’s various share incentive plans are explained in the Remuneration Report on pages 33 to 39. (cid:52)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:71)(cid:78)(cid:73)(cid:83)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:84)(cid:65)(cid:76)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:78)(cid:83)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:97)(cid:17)(cid:12)(cid:21)(cid:16)(cid:18)(cid:12)(cid:16)(cid:16)(cid:16)(cid:0)(cid:8)(cid:18)(cid:16)(cid:17)(cid:18)(cid:0)(cid:110)(cid:0)(cid:97)(cid:18)(cid:12)(cid:16)(cid:22)(cid:19)(cid:12)(cid:16)(cid:16)(cid:16)(cid:9)(cid:0)(cid:82)(cid:69)(cid:76)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:13)(cid:83)(cid:69)(cid:84)(cid:84)(cid:76)(cid:69)(cid:68)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:13)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0) payment transactions in the year. All options granted under the Deferred Annual Bonus Plan (DABP), Management Performance Share Plan (MPSP) and Executive Performance Share Plan (EPSP) are nil cost options. The All Employee Share Scheme (AESS) 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. In August 2012 Free Share awards were granted to all eligible employees of the UK business who had completed one year’s service and have a vesting period of three years. 86 Northgate plc Annual report and accounts 2013 35 Share based payments continued Details regarding the plans in the year ended 30 April 2013 are outlined below. At 1 May 2012 Granted/allocated during the year Exercised during the year Forfeited/lapsed during the year DABP Number of share options 2013 MPSP Number of share options 2013 EPSP Number of share options 2013 592,839 160,332 (117,015) (12,553) 1,320,542 691,157 (337,915) (486,725) 685,145 412,588 – – AESS Number of matching shares 2013 475,716 145,512 (230,958) (27,201) Free Shares Number of free shares 2013 – 345,750 (23,750) (23,500) At 30 April 2013 623,603 1,187,059 1,097,733 363,069 298,500 Exercisable at the end of the year 23,799 51,428 130,952 – – Weighted average remaining contractual life at the end of the year Weighted average share price at the date of exercise of options in the year Date options granted/allocated in the year Aggregate estimated fair value of options at the date of grant (cid:52)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:80)(cid:85)(cid:84)(cid:83)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:76)(cid:65)(cid:67)(cid:75)(cid:13)(cid:51)(cid:67)(cid:72)(cid:79)(cid:76)(cid:69)(cid:83)(cid:0)(cid:77)(cid:79)(cid:68)(cid:69)(cid:76)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:65)(cid:83)(cid:0) follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends DABP 2013 MPSP 2013 EPSP 2013 AESS 2013 Free Shares 2013 3.0 years 3.4 years 3.2 years 1.8 years 2.3 years £2.57 £2.80 July 2012 August 2012 August 2012 January 2013 August 2012 £3.29 £2.48 – £242,000 £1,050,000 £628,000 £410,000 £506,000 £2.07 £Nil 83.2% 3 years 0.8% 3.0% £2.10 £Nil 69.4% 3 years 0.7% 3.2% £2.10 £Nil 69.4% 3 years 0.7% 3.2% £3.31 £Nil 62.1% 5 years 0.9% 3.1% £2.02 £Nil 74.7% 3 years 0.6% 3.1% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. 87 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 35 Share based payments continued Details regarding the plans in the year ended 30 April 2012 are outlined below. At 1 May 2011 Granted/allocated during the year Exercised during the year Forfeited/lapsed during the year At 30 April 2012 DABP Number of share options 2012 520,119 260,080 (153,344) (34,016) MPSP Number of share options 2012 1,285,859 362,372 (87,786) (239,903) EPSP Number of share options 2012 482,858 251,600 – (49,313) AESS Number of matching shares 2012 625,949 167,499 (255,999) (61,733) 592,839 1,320,542 685,145 475,716 Exercisable at the end of the year 74,591 64,814 130,952 DABP 2012 MPSP 2012 EPSP 2012 – AESS 2012 Weighted average remaining contractual life at the end of the year Weighted average share price at the date of exercise of options in the year Date options granted/allocated in the year Aggregate estimated fair value of options at the date of grant 3.5 years 1.2 years 0.7 years 1.6 years £3.24 August 2011 £652,000 £2.58 July 2011 £925,000 – £2.09 July 2011 January 2012 £297,000 £643,000 (cid:52)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:80)(cid:85)(cid:84)(cid:83)(cid:0)(cid:73)(cid:78)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:34)(cid:76)(cid:65)(cid:67)(cid:75)(cid:13)(cid:51)(cid:67)(cid:72)(cid:79)(cid:76)(cid:69)(cid:83)(cid:0)(cid:77)(cid:79)(cid:68)(cid:69)(cid:76)(cid:0)(cid:87)(cid:69)(cid:82)(cid:69)(cid:0)(cid:65)(cid:83)(cid:0)(cid:70)(cid:79)(cid:76)(cid:76)(cid:79)(cid:87)(cid:83)(cid:26) Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends £2.70 £Nil 133.2% 3 years 1.5% 2.5% £2.76 £Nil 133.3% 3 years 1.9% 2.5% £2.76 £Nil 133.3% 3 years 1.9% 2.5% £2.09 £Nil 117.7% 5 years 1.0% 3.2% In the prior year, 12,323 options with a weighted average exercise price of £19.39 were forfeited in relation to the Northgate Share Option Scheme. No share options were granted or exercised in relation to this scheme and no options remained at 30 April 2012. In the prior year, 3,809 options with a weighted average exercise price of £9.53 lapsed in relation to the Executive Incentive Scheme. No share options were granted or exercised in relation to this scheme and no options remained at 30 April 2012. 36 Retirement benefit schemes During the year the Group operated two group personal pension plans and The Willhire Pension Scheme (‘the Scheme’) or (‘Scheme’), which includes both defined benefit and defined contribution sections. The total operating pension cost to the Group of all these arrangements was £1,246,000 (2012 – £1,407,000) 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. The most recent actuarial valuation of the Scheme was performed at 6 April 2010 by JLT Pension Capital Strategies. 88 Northgate plc Annual report and accounts 2013 36 Retirement benefit schemes continued 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 – RPI Inflation rate – CPI Salary increases Future pension increases Life expectancy of retirees in current year Life expectancy of retirees 25 years hence 2013 Valuation % pa 2012 Valuation % pa 4.3 3.3 2.6 n/a 2.6 4.6 3.1 2.4 n/a 2.4 23 to 26 years 23 to 26 years 25 to 28 years 25 to 28 years The Directors do not consider that the Group is materially sensitive to changes in these key assumptions. Amounts recognised as costs (income) in respect of the Scheme are as follows: Interest cost Expected return on plan assets Total pension charge 2013 £000 201 (106) 95 2012 £000 231 (165) 66 Actuarial gains and losses have been reported directly in equity, within retained earnings. The cumulative net amount of actuarial losses reflected directly in equity since 3 February 2006 is £9,000 (2012 – £133,000). The actual return on the scheme assets was a gain of £591,000 (2012 – £280,000). 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 Scheme assets Surplus in the Scheme Amounts not recognised Asset recognised in the balance sheet 2013 £000 (4,901) 5,515 614 (614) – 2012 £000 (4,402) 4,477 75 – 75 The surplus in the Scheme has not been recognised since the present value of the economic benefits of the surplus on a reduction in contributions is £Nil. The net movements in the surplus (deficit) were as follows: At 1 May Pension charge recognised in the income statement Actuarial gains (losses) Contributions At 30 April 89 Northgate plc Annual report and accounts 2013 2013 £000 75 (95) 124 510 614 2012 £000 (142) (66) (227) 510 75 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 36 Retirement benefit schemes continued Movements in the present value of the defined benefit obligations were as follows: At 1 May Interest cost Actuarial losses 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 At 30 April 2013 £000 4,402 201 361 (63) 4,901 2013 £000 4,477 106 510 (63) 485 5,515 2012 £000 4,832 231 342 (1,003) 4,402 2012 £000 4,690 165 510 (1,003) 115 4,477 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. 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 2013 Expected return % 2013 Fair value of assets £000 – 1.9 1.9 – 5,461 54 5,515 2012 Expected return % 3.9 1.9 1.9 2012 Fair value of assets £000 813 3,530 134 4,477 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 totalled £510,000 in accordance with latest actuarial advice received. The estimated amount of contributions expected to be paid to the Scheme during the year ending 30 April 2014 is £510,000. 90 Northgate plc Annual report and accounts 2013 36 Retirement benefit schemes continued The history of experience adjustments for the last five years is as follows: Funded status: Present value of defined benefit obligation Fair value of Scheme assets Surplus (deficit) in the Scheme Experience adjustments on Scheme obligations: Amount Percentage of Scheme obligations (%) Experience adjustments on Scheme assets: Amount Percentage of Scheme assets (%) 2013 £000 2012 £000 2011 £000 2010 £000 2009 £000 (4,901) 5,515 614 (4,402) 4,477 75 (4,832) 4,690 (142) (4,501) 3,962 (539) (3,659) 3,194 (465) 6 0.1% (75) (1.7)% 485 8.8% 115 2.6% 35 0.7% 64 1.4% 65 1.4% (59) (1.6)% 539 13.6% (609) (19.1)% 37 Financial instruments The following disclosures and analysis relate to the Group’s financial instruments. 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 21, 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 24 to 32. 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 21 and 22. Foreign currency sensitivity analysis During the year, the Group has been 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 22, identical (cid:75)(cid:69)(cid:89)(cid:0)(cid:84)(cid:69)(cid:82)(cid:77)(cid:83)(cid:0)(cid:66)(cid:69)(cid:84)(cid:87)(cid:69)(cid:69)(cid:78)(cid:0)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:68)(cid:69)(cid:78)(cid:79)(cid:77)(cid:73)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:76)(cid:79)(cid:65)(cid:78)(cid:0)(cid:78)(cid:79)(cid:84)(cid:69)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:0)(cid:77)(cid:69)(cid:65)(cid:78)(cid:84)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) 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 (2012 – €0.10) increase and decrease in the Euro/Sterling exchange rate. 91 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 37 Financial instruments continued A €0.10 (2012 – €0.10) 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 (2012 – €0.10) change in foreign currency rates. 2013 Total equity 2012 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 £000 366,652 362,338 371,763 As stated in annual report £000 As would be stated if €0.10 increase £000 As would be stated if €0.10 decrease £000 366,136 363,577 369,146 There is no material impact on the income statement in either year. Sterling/US Dollar cross-currency derivatives (cid:33)(cid:83)(cid:0)(cid:69)(cid:88)(cid:80)(cid:76)(cid:65)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:46)(cid:79)(cid:84)(cid:69)(cid:0)(cid:18)(cid:18)(cid:12)(cid:0)(cid:85)(cid:78)(cid:84)(cid:73)(cid:76)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:73)(cid:78)(cid:0)(cid:33)(cid:80)(cid:82)(cid:73)(cid:76)(cid:0)(cid:18)(cid:16)(cid:17)(cid:19)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:72)(cid:65)(cid:68)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0) 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 was a function of both the Sterling/US Dollar exchange rate and market interest rates prevailing in the United Kingdom and United States. (cid:33)(cid:83)(cid:0)(cid:65)(cid:0)(cid:82)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:75)(cid:69)(cid:89)(cid:0)(cid:84)(cid:69)(cid:82)(cid:77)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:76)(cid:79)(cid:65)(cid:78)(cid:0)(cid:78)(cid:79)(cid:84)(cid:69)(cid:83)(cid:12)(cid:0)(cid:65)(cid:71)(cid:65)(cid:73)(cid:78)(cid:83)(cid:84)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0)(cid:65)(cid:0)(cid:72)(cid:69)(cid:68)(cid:71)(cid:73)(cid:78)(cid:71)(cid:0)(cid:82)(cid:69)(cid:76)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:72)(cid:73)(cid:80)(cid:0)(cid:73)(cid:83)(cid:0) (cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:65)(cid:84)(cid:69)(cid:68)(cid:12)(cid:0)(cid:66)(cid:69)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:68)(cid:69)(cid:78)(cid:84)(cid:73)(cid:67)(cid:65)(cid:76)(cid:12)(cid:0)(cid:65)(cid:78)(cid:89)(cid:0)(cid:71)(cid:65)(cid:73)(cid:78)(cid:83)(cid:0)(cid:79)(cid:82)(cid:0)(cid:76)(cid:79)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0)(cid:79)(cid:78)(cid:0)(cid:70)(cid:79)(cid:82)(cid:69)(cid:73)(cid:71)(cid:78)(cid:0)(cid:69)(cid:88)(cid:67)(cid:72)(cid:65)(cid:78)(cid:71)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:51)(cid:84)(cid:69)(cid:82)(cid:76)(cid:73)(cid:78)(cid:71)(cid:15)(cid:53)(cid:51)(cid:0)(cid:36)(cid:79)(cid:76)(cid:76)(cid:65)(cid:82)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13) currency swaps was transferred to the income statement and was 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 22. 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 contracts. Hedging activities are reviewed regularly to align with interest rate views and defined risk appetite, ensuring optimal hedging strategies are applied. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. 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. 92 Northgate plc Annual report and accounts 2013 37 Financial instruments continued A 1.0% (2012 – 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. 2013 Loss before taxation Total equity 2012 Profit 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 (11,382) (11,800) (10,965) 366,652 366,335 366,970 As stated in annual report £000 As would be stated if 1.0% increase £000 As would be stated if 1.0% decrease £000 45,987 45,022 46,952 366,136 365,421 366,850 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 In less than one year After five years Euro In less than one year In the third to fifth years inclusive Outstanding pay floating receive fixed contracts Sterling In less than one year Liquidity risk management Average contract fixed interest rate Notional principal amount 2013 % 2012 % 2013 £000 2012 £000 Fair value 2013 £000 2012 £000 – – – – – 2.44% 3.62% 2.35% 3.12% 1.13% – – – – – 25,000 100,000 152,832 76,416 25,000 – – – – – (152) (12,251) (894) (3,036) 19 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 21 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. 93 Northgate plc Annual report and accounts 2013 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 37 Financial instruments continued Liquidity and interest risk tables (cid:52)(cid:72)(cid:69)(cid:0)(cid:70)(cid:79)(cid:76)(cid:76)(cid:79)(cid:87)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:68)(cid:69)(cid:84)(cid:65)(cid:73)(cid:76)(cid:83)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:7)(cid:83)(cid:0)(cid:82)(cid:69)(cid:77)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:79)(cid:78)(cid:84)(cid:82)(cid:65)(cid:67)(cid:84)(cid:85)(cid:65)(cid:76)(cid:0)(cid:77)(cid:65)(cid:84)(cid:85)(cid:82)(cid:73)(cid:84)(cid:89)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:72)(cid:65)(cid:83)(cid:0) 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. 2013 (cid:46)(cid:79)(cid:78)(cid:13)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:66)(cid:69)(cid:65)(cid:82)(cid:73)(cid:78)(cid:71) Fixed interest rate instruments Variable interest rate instruments 2012 (cid:46)(cid:79)(cid:78)(cid:13)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:66)(cid:69)(cid:65)(cid:82)(cid:73)(cid:78)(cid:71) Fixed interest rate instruments Variable interest rate instruments Weighted average effective interest rate 0.00% 5.00% 2.67% Weighted average effective interest rate 0.00% 7.89% 4.46% <1 year £000 25,601 25 15,877 41,503 <1 year £000 29,093 58,102 93,106 2nd year £000 – 25 9,868 3-5 years £000 – 75 389,093 9,893 389,168 >5 years £000 – 500 – 500 Total £000 25,601 625 414,838 414,064 2nd year £000 – 52,947 8,022 (cid:19)(cid:13)(cid:21)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:83) £000 – 94,894 73,714 >5 years £000 – 500 106,140 Total £000 29,093 206,443 280,982 180,301 60,969 168,608 106,640 516,518 At the balance sheet date, there are no derivative financial instruments in existence. The following table details the Group’s liquidity analysis for its derivative financial instruments at 30 April 2012. It includes both liabilities and assets to illustrate how the cashflows are matched in each period. 2012 Liabilities Net settled: Interest rate swaps Gross settled: (cid:35)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83) Assets Gross settled: (cid:35)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83) <1 year £000 2nd year £000 (cid:19)(cid:13)(cid:21)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:83) £000 >5 years £000 Total £000 4,472 4,110 8,436 8,242 25,260 64,592 59,047 81,860 – 205,499 69,064 63,157 90,296 8,242 230,759 62,396 59,818 82,251 62,396 59,818 82,251 – – 204,465 204,465 Fair value of financial instruments 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: (cid:115)(cid:0) (cid:115)(cid:0) (cid:115)(cid:0) 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. 94 Northgate plc Annual report and accounts 2013 37 Financial instruments continued 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; and (cid:52)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:78)(cid:79)(cid:78)(cid:13)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:68)(cid:69)(cid:84)(cid:69)(cid:82)(cid:77)(cid:73)(cid:78)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:65)(cid:67)(cid:67)(cid:79)(cid:82)(cid:68)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:71)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:76)(cid:89)(cid:0) 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 (cid:67)(cid:79)(cid:83)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:65)(cid:80)(cid:80)(cid:82)(cid:79)(cid:88)(cid:73)(cid:77)(cid:65)(cid:84)(cid:69)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:83)(cid:0)(cid:79)(cid:82)(cid:12)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:65)(cid:83)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:69)(cid:83)(cid:84)(cid:0)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:83)(cid:87)(cid:65)(cid:80)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:67)(cid:82)(cid:79)(cid:83)(cid:83)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:67)(cid:89)(cid:0)(cid:68)(cid:69)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:73)(cid:86)(cid:69)(cid:83)(cid:12)(cid:0) are held at fair value: Financial liabilities Loan notes Credit risk management Carrying amount 2013 £000 2012 £000 Fair value 2013 £000 2012 £000 – 161,002 – 173,316 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 2013 £000 2012 £000 85,457 (16,824) 105,308 (20,378) 68,633 84,930 61,545 5,023 517 1,548 63,363 17,789 2,361 1,417 68,633 84,930 Before accepting any new customers, the Group will perform credit analysis 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 £685,000 (2012 – £1,688,000) is due from the Group’s largest customer. There are no 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. Included in the Group’s trade receivables balance are debtors with a carrying amount of £7,088,000 (2012 – £21,567,000) 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 95 Northgate plc Annual report and accounts 2013 2013 £000 2012 £000 20,378 5,894 (5,615) (4,350) 517 22,210 9,364 (5,319) (4,403) (1,474) 16,824 20,378 s t n u o c c a e h t o t s e t o N s t n u o c c A Notes to the accounts continued 37 Financial instruments continued 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 £164,000 (2012 – £260,000). 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 2013 £000 2012 £000 481 419 3,078 736 12,110 1,605 862 4,926 733 12,252 16,824 20,378 The Directors consider that the carrying amount of trade and other receivables approximates their fair value. The Company has no trade receivables and no intercompany receivables past due date. 38 Related party transactions Transactions with subsidiary undertakings Transactions between the Company and its subsidiary undertakings, which are related parties, are £7,394,000 (2012 – £5,868,000) net interest payable. Balances with subsidiary undertakings at the balance sheet date are shown in Notes 19 and 20. 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. During the year, consultancy fees of £55,000 (2012 – £111,000) were paid by Northgate España Renting Flexible S.A to JG Astrand. The details of the consultancy are set out in the Corporate Governance report on pages 42 to 44. (cid:41)(cid:78)(cid:0)(cid:82)(cid:69)(cid:83)(cid:80)(cid:69)(cid:67)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:79)(cid:77)(cid:80)(cid:69)(cid:78)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:75)(cid:69)(cid:89)(cid:0)(cid:77)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:80)(cid:69)(cid:82)(cid:83)(cid:79)(cid:78)(cid:78)(cid:69)(cid:76)(cid:12)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:83)(cid:72)(cid:79)(cid:82)(cid:84)(cid:0)(cid:84)(cid:69)(cid:82)(cid:77)(cid:0)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:0)(cid:66)(cid:69)(cid:78)(cid:69)(cid:70)(cid:73)(cid:84)(cid:83)(cid:12)(cid:0)(cid:80)(cid:79)(cid:83)(cid:84)(cid:13)(cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:8)(cid:80)(cid:69)(cid:78)(cid:83)(cid:73)(cid:79)(cid:78)(cid:9)(cid:0) benefits, termination benefits and details of share options granted are set out in the audited part of the Remuneration (cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:79)(cid:78)(cid:0)(cid:80)(cid:65)(cid:71)(cid:69)(cid:83)(cid:0)(cid:19)(cid:19)(cid:0)(cid:84)(cid:79)(cid:0)(cid:19)(cid:25)(cid:14)(cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:73)(cid:82)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)(cid:0)(cid:67)(cid:72)(cid:65)(cid:82)(cid:71)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:73)(cid:78)(cid:0)(cid:82)(cid:69)(cid:83)(cid:80)(cid:69)(cid:67)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:13)(cid:83)(cid:69)(cid:84)(cid:84)(cid:76)(cid:69)(cid:68)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:13)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:80)(cid:65)(cid:89)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) transactions with the Directors is £299,000 (2012 – £418,000). 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. 96 Northgate plc Annual report and accounts 2013 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 Operating profit (loss) Net finance costs (Loss) profit before taxation Taxation (Loss) profit for the year Basic (loss) earnings per Ordinary share Dividends Dividends per Ordinary share Balance sheet Assets employed (cid:46)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:65)(cid:83)(cid:83)(cid:69)(cid:84)(cid:83) Net current assets (liabilities) (cid:46)(cid:79)(cid:78)(cid:13)(cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0)(cid:76)(cid:73)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) Financed by Share capital Share premium account Reserves 2013 £000 2012 £000 2011 £000 2010 £000 2009 £000 441,944 503,659 537,285 563,698 609,645 79,478 (90,860) (11,382) 4,025 94,478 (48,491) 45,987 (5,519) (7,357) 40,468 (5.5)p 5,719 4.3p 30.4p – – 82,575 (56,035) 26,540 2,853 29,393 22.1p – – 71,109 (61,494) 9,615 14,741 (117,531) (78,083) (195,614) 9,912 24,356 (185,702) 23.1p – – (572.6)p 19,359 25.0p 2013 £000 2012 £000 2011 £000 2010 £000 2009 £000 683,190 56,437 (372,975) 723,675 (74,744) (282,795) 819,082 145,170 (624,493) 885,124 (6,024) (573,994) 983,173 172,373 (972,787) 366,652 366,136 339,759 305,106 182,759 66,616 113,508 186,528 66,616 113,508 186,012 66,616 113,508 159,635 66,475 113,269 125,362 3,527 67,972 111,260 366,652 366,136 339,759 305,106 182,759 Net asset value per Ordinary share 275p 275p 255p 229p 563p 97 Northgate plc Annual report and accounts 2013 y r a m m u s l a i c n a n i f r a e y e v i F s t n u o c c A Notice of Annual General Meeting Notice is hereby given that the one hundred and fifteenth Annual General Meeting of Northgate plc (‘the Company‘) will be held at 60 Great Portland Street, London W1W 7RT at 11.30 a.m. on 19 September 2013 for the purpose of considering and, if thought fit, passing the following resolutions of which resolutions 1 to 13 will be proposed as ordinary resolutions and resolutions 14, 15 and 16 will be proposed as special resolutions: 14. That subject to the passing of Resolution 13 the Board be and it is hereby empowered pursuant to s570 of the Companies Act 2006 to allot equity securities (within the meaning of s560 of the Act) for cash pursuant to the authority conferred by the previous resolution as (cid:73)(cid:70)(cid:0)(cid:83)(cid:85)(cid:66)(cid:13)(cid:83)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:8)(cid:17)(cid:9)(cid:0)(cid:79)(cid:70)(cid:0)(cid:83)(cid:21)(cid:22)(cid:17)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:33)(cid:67)(cid:84)(cid:0)(cid:68)(cid:73)(cid:68)(cid:0)(cid:78)(cid:79)(cid:84)(cid:0)(cid:65)(cid:80)(cid:80)(cid:76)(cid:89)(cid:0)(cid:84)(cid:79)(cid:0) any such allotment provided that this power shall be limited: 1. To receive the Directors’ report and audited accounts of the Company for the year ended 30 April 2013. 2. To declare a final dividend of 6p per Ordinary share. 3. (cid:20)(cid:14)(cid:0) 5. (cid:22)(cid:14)(cid:0) (cid:23)(cid:14)(cid:0) (cid:24)(cid:14)(cid:0) (cid:25)(cid:14)(cid:0) To receive and approve the Remuneration Report for the financial year ended 30 April 2013 set out on pages 33 to 39 of the 2013 Annual Report and Accounts. (cid:0)(cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:65)(cid:80)(cid:80)(cid:79)(cid:73)(cid:78)(cid:84)(cid:0)(cid:36)(cid:69)(cid:76)(cid:79)(cid:73)(cid:84)(cid:84)(cid:69)(cid:0)(cid:44)(cid:44)(cid:48)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:0) to hold office until the conclusion of the next Annual General Meeting. To authorise the Audit and Risk Committee to determine the remuneration of the auditor. (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:82)(cid:0)(cid:50)(cid:36)(cid:0)(cid:45)(cid:65)(cid:67)(cid:75)(cid:69)(cid:78)(cid:90)(cid:73)(cid:69)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:82)(cid:0)(cid:33)(cid:42)(cid:0)(cid:33)(cid:76)(cid:76)(cid:78)(cid:69)(cid:82)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:82)(cid:0)(cid:42)(cid:39)(cid:0)(cid:33)(cid:83)(cid:84)(cid:82)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:82)(cid:0)(cid:52)(cid:40)(cid:48)(cid:0)(cid:34)(cid:82)(cid:79)(cid:87)(cid:78)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) (cid:17)(cid:16)(cid:14)(cid:0) (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:82)(cid:0)(cid:50)(cid:44)(cid:0)(cid:35)(cid:79)(cid:78)(cid:84)(cid:82)(cid:69)(cid:82)(cid:65)(cid:83)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) (cid:17)(cid:17)(cid:14)(cid:0) (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:82)(cid:0)(cid:35)(cid:42)(cid:50)(cid:0)(cid:45)(cid:85)(cid:73)(cid:82)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) (cid:17)(cid:18)(cid:14)(cid:0) (cid:52)(cid:79)(cid:0)(cid:82)(cid:69)(cid:13)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:0)(cid:45)(cid:73)(cid:83)(cid:83)(cid:0)(cid:39)(cid:0)(cid:35)(cid:65)(cid:83)(cid:69)(cid:66)(cid:69)(cid:82)(cid:82)(cid:89)(cid:0)(cid:65)(cid:83)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:14) 13. That the Board be and it is hereby generally and unconditionally authorised pursuant to s551 of the Companies Act 2006 (‘the Act’) 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. a. b. 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 to the allotment (otherwise than pursuant to (cid:83)(cid:85)(cid:66)(cid:13)(cid:80)(cid:65)(cid:82)(cid:65)(cid:71)(cid:82)(cid:65)(cid:80)(cid:72)(cid:0)(cid:8)(cid:65)(cid:9)(cid:0)(cid:65)(cid:66)(cid:79)(cid:86)(cid:69)(cid:9)(cid:0)(cid:79)(cid:70)(cid:0)(cid:69)(cid:81)(cid:85)(cid:73)(cid:84)(cid:89)(cid:0)(cid:83)(cid:69)(cid:67)(cid:85)(cid:82)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83)(cid:0)(cid:85)(cid:80)(cid:0)(cid:84)(cid:79)(cid:0) an aggregate nominal value of £3,330,000 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. 15. That a general meeting, other than an annual general meeting, may be called on not less than 14 clear days’ notice. 16. That the Company be generally and unconditionally authorised to make market purchases (within the meaning of s693(4) of the Companies Act 2006) of Ordinary shares of 50p each of the Company on such terms and in such manner as the Directors may from time to time determine, provided that: a. b. c. the maximum number of Ordinary shares hereby authorised to be acquired is 13,300,000 representing approximately 10% of the issued Ordinary share capital of the Company as at 24 June 2013; the minimum price which may be paid for any such Ordinary share is 50p; the maximum price (excluding expenses) which may be paid for any such Ordinary share is an amount equal to 105% of the average of the middle market quotations for an Ordinary share in the Company as derived from The London Stock 98 Northgate plc Annual report and accounts 2013 d. e. Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased; the authority hereby conferred shall expire at the end of the next annual general meeting of the Company after the passing of this resolution unless previously renewed, varied or revoked by the Company in general meeting; and the Company may make a contract to purchase its Ordinary shares under the authority hereby conferred prior to the expiry of such authority, which contract will or may be executed wholly or partly after the expiry of such authority, and may purchase its Ordinary shares in pursuance of any such contract. The Directors of the Company consider that all the proposals set out in the above Resolutions are in the best interests of the Company and of the shareholders as a whole. They unanimously recommend that you vote in favour of them as they intend to do in respect of their own beneficial holdings which amount in aggregate to 354,865 shares representing approximately 0.27% of the issued Ordinary share capital of the Company. 24 June 2013 By Order of the Board D Henderson Secretary Registered office: Norflex House Allington Way Darlington, DL1 4DY 99 Northgate plc Annual report and accounts 2013 g n i t e e M l a r e n e G l a u n n A f o e c i t o N s t n u o c c A Notice of Annual General Meeting continued NOTES 1. 2. 3. 4. 5. 6. 7. A member entitled to attend and vote at the Annual General Meeting (‘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 does not need to be a member of the Company but must attend the Meeting to represent you. Your proxy could be the Chairman, another director of the Company or another person who has agreed to attend to represent you. Your proxy must vote as you instruct and must attend the Meeting for your vote to be counted. Appointing a proxy does not preclude you from attending the Meeting and voting in person. 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 6 below. CREST members may appoint proxies using the CREST electronic proxy appointment service (see Note 7 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 Act (‘a Nominated Person’). The rights to appoint a proxy cannot 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, whether in person or by proxy, 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 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. 100 Northgate plc Annual report and accounts 2013 8. 9. A member of the Company which is a corporation may authorise a person or persons to act as its representative(s) at the Meeting. In accordance with the provisions of the Act, each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. It is no longer necessary to nominate a designated corporate representative. Members satisfying the thresholds in section 527 of the Act 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 auditor 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. 10. 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 would interfere unduly with the preparation for the Meeting or 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. 11. As at 24 June 2013 (being the latest practicable date prior to the publication of this notice), the Company’s issued share capital consists of 133,232,518 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 133,232,518. 12. 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. 13. 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. 14. Under sections 338 and 338A of the 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 7 August 2013, 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. Shareholder information Classification Information concerning day to day movements in the price of the Company’s Ordinary shares can be found on the Company’s website at www.northgateplc.com. The Company’s listing symbol on the London Stock Exchange is NTG. The Company’s joint corporate brokers are Barclays Bank plc and Numis Securities Limited and the Company’s Ordinary shares are traded on SETSmm. Financial calendar December Publication of Half Yearly Report January Payment of interim dividend March Publication of Interim Management Statement June Announcement of year end results July Report and accounts posted to shareholders September Annual General Meeting Payment of final dividend Publication of Interim Management Statement Secretary and registered office D Henderson FCIS Norflex House Allington Way Darlington DL1 4DY Tel: 01325 467558 Registrars Capita Registrars Shareholder Administration Support 34 Beckenham Road Beckenham Kent BR3 9ZA Tel: 0871 6640300 (calls cost 10p per minute plus network extras) Overseas: (+44) 208 6393399 101 Northgate plc Annual report and accounts 2013 Northgate plc Norflex House, Allington Way Darlington, DL1 4DY Tel 01325 467558 Fax 01325 363204 Web northgateplc.com 

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