Northgate plc
Norflex House, Allington Way
Darlington, DL1 4DY
Tel
01325 467558
Fax
01325 363204
Web
northgateplc.com
Northgate plc
Annual report and accounts 2014
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Northgate plc is the leading light commercial
vehicle hire business in the UK, Ireland and Spain
by fleet size and has been operating in the sector
since 1981. Our core business is the hire of light
commercial vehicles to businesses on a flexible
basis, giving customers the ability to manage their
vehicle fleet requirements without a long term
commitment.
Contents
Review
2 Highlights
4 Chairman’s statement
6
Board of Directors
8 At a glance
Strategic report
10 Strategic report
12 Key performance indicators
14 Strategy for growth
16 Review of the year
22 Financial review
28 Principal risks and uncertainties
30 Corporate social responsibility
Governance
33 Report of the Directors
37 Remuneration report
52 Report of the audit and risk committee
54 Corporate governance
57 Directors’ responsibilities
58
Independent auditor’s report to the members of Northgate plc
Accounts
62 Consolidated income statement
63 Statements of comprehensive income
64 Balance sheets
65 Cash flow statements
66 Notes to the cash flow statements
67 Statements of changes in equity
68 Notes to the accounts
108 Five year financial summary
109 Notice of Annual General Meeting
112 Shareholder information
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Printed on Core Silk, an environmentally friendly
stock certified as FSC mixed sources – a blend of
FSC 100%, recycled and/or controlled fibre.
“ In both countries
in which we operate,
we aim to be the first
choice for LCV rental,
fulfilling all our
customers’ vehicle
needs and allowing
them to concentrate
on better service
to their customers”
Bob Contreras
Chief Executive
1
Northgate plc
Annual report and
accounts 2014
Review
Highlights
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Highlights
Underlying profit before tax1 (£m)
Profit (loss) before tax (£m)
Underlying basic earnings per share2 (p)
Basic earnings (loss) per share (p)
Net debt (£m)
Gearing3 (%)
Return on capital employed4 (%)
Dividend per share (p)
2014
60.3
51.2
35.1
29.9
2013
49.5
(11.4)
29.2
(5.5)
346.1 362.7
102
91
11.8
9.9
7.3
10.0
– 22% increase in underlying profit before tax1
to £60.3m (2013 – £49.5m);
– 37% increase in dividend per share to 10.0p
(2013 – 7.3p);
– Vehicles on hire growth of 4,500 in the UK,
including 1,800 from new sites opened since
February 2013 (2013 – reduction of 3,300);
– Vehicles on hire growth of 2,600 in Spain
(2013 – reduction of 1,900);
– Four new sites opened in the UK since
30 April 2013.
2
Northgate plc
Annual report and
accounts 2014
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UK Locations*: 68
New locations opened in year
Spain Locations†: 23
*Includes operations in the Republic of Ireland
†Not shown: two locations in the Canary Islands
ROCE%
Gearing%
UK vehicles
on hire 000’s
Spain vehicles
on hire 000’s
8.4
11.9
13.1
11.8
9.9
213
163
105
102
91
54.8
53.8
46.4
43.1
47.6
44.0
39.4
34.0
32.1
34.7
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
3
Northgate plc
Annual report and
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Review Highlights
Chairman’s statement
We are pleased that as a result of the work
done over recent years, the business has
returned to growth in both the UK and
Spain, with increases in the number of
vehicles on hire over the year, partly driven
by the opening of new sites in the UK to
increase customer coverage.
The Group is growing again in both the UK and Spain
after five years of decline. The Board remains committed
to exploiting opportunities to drive growth, where an
appropriate level of return exists, as we believe this is key to
delivering significant returns to shareholders.
Our strategy remains:
• In the UK, the primary focus is on growing the business
through our existing network and by adding new sites to
increase our customer coverage;
• In Spain, we continue to target improved returns.
• Profit before tax1 of £60.3m (2013 – £49.5m);
• Basic earnings per share2 of 35.1p (2013 – 29.2p);
• Return on capital employed4 of 9.9% (April 2013 – 11.8%).
Operating profit5 and ROCE4 have fallen compared to the
prior year, mainly due to a 30% reduction in the number of
vehicles sold and the investment made in the UK business.
As the Group has returned to growth, the decision was
taken to increase the fleet by selling fewer vehicles rather
than buying more, utilising the Group’s existing assets and
conserving cash. Had the Group sold the same numbers of
vehicles as it did in the prior year (at current year residual
values) the operating profit14 would have been higher by
£11.6m, with ROCE increasing to 11.5%.
The current year ROCE has also been impacted by the costs
of opening and operating the seven new sites in the UK since
February 2013. The impact of these new sites in the year was
a reduction in operating profit of £2.3m, leading to a 0.5%
reduction in ROCE.
Profit before tax1 has benefitted from a £24.5m reduction in
interest following the Group’s refinancing in April 2013.
We are encouraged by the progress made against our strategy
and the underlying results for the Group are:
Group net debt reduced by 5% to £346.1m. Gearing3 has
reduced to 91% (April 2013 – 102%).
• Operating profit5 of £72.6m (2013 – £86.4m);
UK
Our operating margin6 reduced to 17.4% (2013 – 22.1%)
and return on capital employed to 11.2% (April 2013 –
14.8%). Return on capital employed and operating margin
have reduced as anticipated due to lower volumes of vehicles
being sold in response to improved rental demand, coupled
with upfront investment relating to the start-up of new sites
and the strengthening of the commercial and operational
teams. Progress to date supports these investment decisions.
Had the UK sold the same number of vehicles as it did in the
prior year at current year residual values, the operating profit14
would have been higher by £9.6m, with ROCE increasing to
13.3%. The impact of the new sites opened since February
2013 resulted in a further 0.8% reduction in the UK ROCE.
We are encouraged by the initial impact of the changes made
to the commercial team and the investment in new sites.
Vehicles on hire increased by 4,500 (10.4%) in the year ended
30 April 2014, compared to a decline of 3,300 vehicles in the
previous year. Customer numbers increased 21% in the year.
It is also pleasing to see vehicles on hire growth in both
customers managed by our regional teams (4,200) and with
our national customers (300).
Historically, Northgate grew by acquisition and incorporated
the acquired sites into its operations rather than establishing
the optimum location for sites based on proximity to
Bob Mackenzie
4
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Annual report and
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Chairman’s statement
existing and potential customers. As noted previously, we
have identified large areas of the country where significant
numbers of potential customers are not presently serviced by
an accessible Northgate site. To address this, we commenced
our branch expansion plans.
To date the majority of these new sites are in London and the
South East, which require a different logistical and operational
model. The typical Northgate site has a customer reception
area and a workshop facility, coupled with considerable
parking space for vehicles. This is prohibitively expensive in
these areas, so we are leasing smaller sites with fewer parking
spaces but with excellent accessibility. For success, it depends
on reacting quickly and efficiently to customer demand.
We have recruited further expertise in this area and we will
continue to carefully monitor costs.
Three new sites were opened in the year ended 30 April 2013
and a further four sites were opened in the year ended 30
April 2014 (Slough, Charlton, Basildon and Wimbledon). The
sites continue to trade ahead of our initial expectations. It is
estimated that these new sites will become profitable on a
trading to date basis after two years with ROCE exceeding
16% in year four as the sites reach maturity.
We anticipate opening a further 22 sites over the next
three years.
Spain
Our focus on increasing returns drove ROCE in our Spanish
business to 9.2% (April 2013 – 8.4%). Vehicles sold in our
Spanish operation reduced by 2,900 as the business returned
to growth. Had Spain sold the same numbers of vehicles
as it did in the prior year at current year residual values, the
operating profit14 would have been higher by £2.0m, with
ROCE increasing to 9.9%.
We were encouraged by the growth achieved, with vehicles
on hire increasing by 2,600 (8.1%), compared to a fall of
1,900 in the year ended 30 April 2013. This is mainly due
to the investment made in the commercial team over the
past two years, which has led to increased new business
wins across a range of sectors, offsetting declines seen in
our traditional markets with increases in higher margin
SME business.
We will continue to focus on improved returns. This will be
targeted in a number of ways, including increasing prices to
our existing customer base and through a continued focus on
growth with SME customers. This will build upon the 20%
increase in customer numbers experienced in the year.
This revised £534.5m committed multi-currency bank facility
matures in June 2018. In addition to the increase of £112.7m
in facilities, the refinancing includes a reduction in pricing.
Dividend
The Board considers that, due to the strength of the balance
sheet and opportunities in the markets in which we operate,
there is scope to invest organically to strengthen and grow
returns over the medium term whilst increasing dividends.
A final dividend of 6.8p is proposed in respect of the year
ended 30 April 2014, giving a total dividend for the year
of 10.0p (2013 – 7.3p). This represents a 3.5x cover on
underlying earnings2 and a 37% increase on the dividend paid
in respect of the year ended 30 April 2013.
Northgate recognises the importance of the dividend to
investors and sets its annual dividend after taking into account
the desire to have a progressive dividend, the intention to
keep net debt:EBITDA between 1.25 and 2.00 and to keep
dividend cover in the range of 3.75x – 2.50x.
Board changes
Tom Brown has decided to retire from the Group at the AGM
in September following nine years of service. Tom is Chair
of the Remuneration Committee and Senior Independent
Director and I would like to thank Tom for his tremendous
efforts and wise counsel over the past nine years.
Jill Caseberry will take over as Chair of the Remuneration
Committee following the AGM and we are in the process of
recruiting a new non-executive Director.
Current trading and outlook
We are pleased that as a result of the work done over recent
years, the business has returned to growth in both the UK and
Spain, with increases in the number of vehicles on hire over
the year, partly driven by the opening of new sites in the UK
to increase customer coverage.
There is good momentum in both businesses as a result of
investment and changes to the commercial and operational
teams and whilst we remain committed to investing in future
growth, we believe that the strength of our balance sheet will
allow us to further enhance shareholder returns through a
continuation of our progressive dividend policy.
The Group continues to trade in line with our expectations
and the Board remains confident that the business is well
positioned to maximise further opportunities for continued
growth.
Refinancing
As announced on 13 June 2014, since the year end the Group
has successfully increased, amended and extended its existing
bank facility to support the growth opportunities identified.
Bob Mackenzie
Chairman
24 June 2014
5
Northgate plc
Annual report and
accounts 2014
Review
Chairman’s statement
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Board of Directors
Bob Mackenzie ACA
Chairman
Bob Contreras ACA
Chief Executive
Chris Muir ACA
Group Finance Director
Appointed Chief Executive
in 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 Mölnlycke Healthcare
Group. Age 51.
Appointed to the Board as
Group Finance Director in
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 38.
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 advisor to
a number of private equity
funds. More recently, in June
2014, he was appointed
Executive Chairman of The
AA plc. He qualified as a
Chartered Accountant with
KPMG in 1978. Age 61.
Board committees
Audit and Risk
• Andrew Allner (Chairman)
•
Jill Caseberry
• Tom Brown
Remuneration
• Tom Brown (Chairman)
• Andrew Allner
• Bob Mackenzie
•
Jill Caseberry
Nominations
• Bob Mackenzie (Chairman)
• Andrew Allner
• Tom Brown
•
Jill Caseberry
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Annual report and
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Tom Brown MA (Oxon)
MBA IMD
Non-executive Director
Appointed to the Board as
a non-executive 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 65.
Jill Caseberry
Non-executive Director
Appointed to the Board as
a non-executive 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 of Enhance Drinks Ltd,
a beverage start-up business.
Prior to setting up these
businesses Jill was general
manager of a Premier Foods
division. Age 49.
Andrew Allner FCA
Non-executive Director
Jan Astrand MBA
Non-executive Director
Appointed to the Board as
a non-executive Director in
February 2001. A Swedish
national, Jan was a non-
executive Director of Lavendon
Group plc from December
2010 until February 2014. He
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 67.
Appointed to the Board as a
non-executive Director and
to the Chair of the Audit and
Risk Committee in September
2007. Andrew is currently
non-executive Chairman of
Marshalls plc, the Go-Ahead
Group plc and Fox Marble
Holdings plc. He was Group
Finance Director of RHM
plc, taking a lead role in its
flotation in July 2005 on the
London Stock Exchange. 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
also a non-executive Director
of AZ Electronic Materials
SA from 2010 to 2014, a
non-executive Director of CSR
plc from 2008 to 2013 and
of Moss Bros 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 60.
7
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Annual report and
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Review
Board of Directors
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At a glance
UK
Our UK business operates over 53,000 vehicles from 68
locations, servicing over 6,000 customers ranging from blue
chip corporations and public sector organisations to small and
medium sized enterprises and owner operators.
Vehicle sales
Number of vehicles
2014: 14,000
Revenue from vehicles sold
2014: £91m
2013: 20,700
2013: £125m
Vehicle purchases
Number of vehicles
Investment in new vehicles
2014: 17,000
2014: £201m
2013: 16,500
2013: £187m
Fleet mix
Medium vans 41%
Small vans 35%
Large commercial vehicles 13%
Cars 7%
Buses, 4x4 and other
specialist vehicles 4%
Fleet by customer size
Corporate fleets (>100) 35%
Small and medium fleets
(10 – 100) 36%
Micro-fleets (<10) 29%
Spain
Our business in Spain operates over 37,000 vehicles from
23 locations with over 5,000 customers varying in size and
operating in a range of sectors. Our 865 employees work
hard to support the widest range of commercial vehicle hire
solutions available across the largest geographical branch
network in Spain.
Fleet mix
Small vans 38%
Cars 44%
Large vans 10%
4x4 5%
Large commercial
and other 3%
Fleet by customer size
Small and medium fleets
(10 – 100) 33%
Corporate fleets (>100) 36%
Micro-fleets (<10) 31%
8
Northgate plc
Annual report and
accounts 2014
Operating profit11
2014: £51.0m
2013: £64.2m
Operating margin6
2014: 17.4%
2013: 22.1%
Number of employees (closing)
2014: 1,968
2013: 1,856
Closing fleet
2014: 53,900
2013: 49,900
Locations
2014: 68
2013: 65
Vehicle sales
Number of vehicles
2014: 8,300
2013: 11,200
Vehicle purchases
Number of vehicles
2014: 10,700
2013: 7,300
Operating profit12
2014: £25.6m
2013: £25.2m
Operating margin7
2014: 17.1%
2013: 16.7%
Number of employees (closing)
2014: 865
2013: 858
Closing fleet
2014: 37,800
2013: 35,100
Locations
2014: 23
2013: 23
Revenue from vehicles sold
2014: £38.5m
2013: £43.4m
Investment in new vehicles
2014: £100m
2013: £72m
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Strategic report
9
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Annual report and
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Strategic report
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, the
flexible rental of light commercial vehicles
continues to be 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, fulfilling
all our customers’ vehicle needs and
allowing them to concentrate on better
service to their customers.
Our Business Model
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.
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.
Why choose flexible rental?
Flexible Contract hire Purchase
Manage
Buy
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Sell
Decision
No capital or contractual
commitment
No mileage penalties
No residual market risk
Ability to flex vehicle size
Inclusive of maintenance
24/7 support
No early termination costs
Available at additional cost
10 Northgate plc
Annual report and
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23%vehicle sales
through retail channels
19
22
27
5
9
16
14
17
23
2012
2013
2014
UK retail sales %
2012
2013
2014
Spain retail sales %
2012
2013
2014
Group retail sales %
11 Northgate plc
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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
92% in Spain.
A total of 14,000 vehicles were sold in
the UK and 8,300 in Spain at improved
residual values. Vehicle purchases were
balanced against these disposals
to manage the average fleet age to
22.3 months in the UK and 24.3 months
in Spain at 30 April 2014.
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 1% 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.
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.
The restructuring of commercial
operations has positioned the Group
well to target profitable growth in
vehicles on hire and customer numbers
going forward.
Vehicles on hire have increased in the year.
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.
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.
ROCE4 is maximised through a
combination of managing utilisation,
hire rates, vehicle holding costs and
improvements in operational efficiency.
Group ROCE for the year was 9.9%
(2013 – 11.8%).
Earnings per share (EPS)
Basic EPS is considered to be a key short
term measure of performance.
Basic EPS2 was 35.1p compared to 29.2p
in the prior year.
Earnings of £46.8m compare to £38.8m
in the prior year. The weighted average
number of shares was 133.2m in
both years.
Each KPI has been targeted for
improvement to contribute to an overall
increase in ROCE of the Group.
In the short term, in a period of
growth, ROCE will not increase 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
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Employee
engagement
The Group has always been fortunate in having
extremely dedicated and passionate employees
and their retention and development is key to
our continued success. To secure this we are
delivering an employee engagement strategy
to ensure that all of our employees understand
the strategy of the business, their role in
delivering it and motivating them to do so. This is
underpinned with enhanced communication and
recognition processes to both support and drive
its success.
Core values
• Professionalism –
utilising our skills to meet
customers’ and colleagues’
needs.
• Team work – working
together to create an
effective and efficient
organisation.
• Can-do attitude –
enthusiastic and resourceful
in all that we do.
13 Northgate plc
13 Northgate plc
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Review HighlightsStrategic Report Key Performance IndicatorGovernance Board of DirectorsAccounts Cash flow statement
Strategy for growth
Despite our strength compared to our nearest
competitors, the Group is not dominant in terms of our
share of the market. This provides good opportunities
for growth from our existing core product offering
of flexible vehicle hire. With our increased market
understanding, the businesses in both the UK and Spain
are focused on:
• Quality of our service offering, including gaining feedback
from our customers;
• Understanding why we win and lose business;
• Identifying the key markets where our offering is most suited,
and
• Ensuring the business is properly structured to service our
customers.
The Group is focused on finding new growth opportunities
through three simple drivers:
Customer numbers: attracting and retaining customers
is a key area of focus, with specific programmes being
implemented to improve customer retention and increase
new customers working with the Group. Progress to date has
been pleasing with the total number of customers increasing
1,900 (21%) since 30 April 2013.
Increasing share of customer spend: improved account
management has identified that a number of our customers
use more than one solution provider for their flexible
hire needs. This is often driven by customers having to
source vehicles from more than one partner due to vehicle
availability or network reach issues. By improving our account
management process and service offering we have seen an
increased level of activity from our existing larger customers.
Pricing efficiently: improved access to information allows
the Group to make informed pricing decisions, taking into
account whole life vehicle running costs. This ensures that
customers are charged appropriately for their vehicle usage.
Our new Wimbledon site opened in April 2014.
14 Northgate plc
Annual report and
accounts 2014
c109372.indb 14
15/07/2014 12:59
21%customer growth
We have seen an increase
in customer numbers in
both countries in which we
operate.
In the UK customer numbers
have increased by 21%,
continuing the improvement
seen last year.
Specific targetting of SMEs
in Spain has led to a 20%
increase in customer numbers.
4,518
5,016
6,081
4,063
4,393
5,274
2012
2013
2014
UK customer numbers
2012
2013
2014
Spain customer numbers
15 Northgate plc
Annual report and
accounts 2014
Strategic report
Strategy for growth
c109372.indb 15
15/07/2014 12:59
Review of the year
The seven sites opened in the UK since
February 2013 now have 2,000 vehicles on
hire, of which 1,800 have been generated
in the year ended 30 April 2014.
Group
The Group continues to build upon its solid financial and
operational foundation. We are targeting increasing returns
by growing the business with customers who have a flexible
vehicle hire requirement.
Flexible rental
Our view is that, for many businesses, the flexible rental of
light commercial vehicles (“LCV”) continues to be 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,
fulfilling all our customers’ vehicle needs and allowing them
to concentrate on better service to their customers. To achieve
this aim, we have three simple areas of focus:
• 100% vehicle availability, allowing our customers to have the
right vehicle in the right place at the right time;
• Keeping our customers on the road for longer, whether this
is via our own national service network or by partnering with
national operators, and
• Being hassle free, dealing with unforeseen events quickly and
professionally.
This focus on customer service will help the business maintain
its market leading position and is key to our strategy for
growth.
UK
Despite the improvements achieved in pricing and used
vehicle residual values, the reduction in the number of vehicles
sold and the investment made in the UK business has led to
a decrease in operating margin6 from 22.1% to 17.4%. The
number of vehicles being disposed of has been reduced in
response to the increasing demand for rental.
If the UK business had sold the same number of vehicles as it
did in the year ended 30 April 2013 at current year residual
values the operating margin14 would have been 20.7%. The
impact of new sites opened since February 2013 has reduced
the operating margin by 1.2%.
Proposition
1. 100% vehicle availability – allowing
customers to have the right vehicle in the
right place at the right time.
2. Keeping customers on the road
– whether this is via our own national
service network or by partnering with
national operators.
3. Hassle free – dealing with unforeseen
events quickly and professionally.
Bob Contreras
16 Northgate plc
Annual report and
accounts 2014
c109372.indb 16
15/07/2014 12:59
9%vehicles on hire
growth
The number of vehicles on
hire has increased in both
countries in which we
operate.
The UK business has grown
by 10% with both new
sites and organic growth
contributing to this increase.
The Spanish number grew
by 8% after five years of
decline.
54,800
53,800
46,400
43,100
47,600
44,000
39,400
34,000
32,100
34,700
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
UK vehicles on hire
Spain vehicles on hire
17 Northgate plc
Annual report and
accounts 2014
Strategic report
Review of the year
c109372.indb 17
15/07/2014 12:59
Review of the year continued
Vehicles on hire and hire rates
strategy and have identified the following opportunities:
Vehicles on hire increased from 43,100 at 30 April 2013 to
47,600 at 30 April 2014, an increase of 4,500 compared to a
decline of 3,300 in the same period last year and comprises:
• Growth from regional customers of 4,200, and
• An increase in the number of vehicles on hire to national
customers of 300.
As previously outlined, a number of improvement
programmes in the commercial area of the business were
implemented in the previous 18 months, focusing on
increasing the skills, resource and support within the sales
team. The initial focus of these programmes was within our
regional business, which represents two-thirds of our vehicles
on hire, followed by our national business.
This investment is generating returns through growth in
vehicles on hire and customer numbers have increased by
21% since 30 April 2013.
Average hire revenue per rented vehicle has increased by
1% compared to the same period last year.
Network
In the prior year we identified large areas of the country
where significant numbers of potential customers were not
effectively serviced by an accessible Northgate site. In the
final three months of the year ended 30 April 2013, we
commenced our expansion plans with three sites opening.
Four more sites have been opened in the year to 30 April
2014 (Slough, Charlton, Basildon and Wimbledon) bringing
the branch network to 68.
The initial signs are encouraging with the level of growth from
these new sites exceeding our initial plans. The seven sites
opened since February 2013 now have 2,000 vehicles on hire,
of which 1,800 have been generated in the year ended 30
April 2014. Of the 2,000 vehicles on hire, 1,400 are on hire to
regional customers and 600 to national customers. This mix
of regional to national customers is in line with our existing
business.
The impact of the seven sites opened since February 2013
(including the new sites project team costs) was an operating
loss of £2.3m. It is estimated that these new sites will become
profitable on a trading to date basis after two years with
ROCE exceeding 16% in year four as the sites reach maturity.
We have initially focused on establishing an enhanced branch
network within the London area which provides the largest
commercial opportunity. We will continue to pursue this
• A further four sites in Greater London, bringing the total
number of branches supporting this area to 13, and
• A further 18 sites across the remainder of the UK as areas
that would support a site at our required level of return.
We are aiming to open an average of eight to ten sites per
year. This will take the branch network to approximately 90
by 31 December 2016.
We are also seeing vehicles on hire growth from the existing
network and believe that there is further opportunity for
growth within these branches.
Asset management
Growth in the number of vehicles on hire has led to an
increase in the UK fleet size from 49,900 at 30 April 2013
to 53,900 at 30 April 2014. Vehicle utilisation for the period
was 88% (2013 – 88%). Whilst utilisation remains a priority,
we are also focused on ensuring that each branch has the
right range of vehicles available for customers at all times to
support the growth opportunities available. The UK business
increased the level of vehicles available to rent throughout the
year, which will support the growth plans, whilst allowing the
UK to target a higher level of utilisation in the medium term.
Despite the 4,500 vehicles on hire growth, continued strong
asset management meant UK purchases were 17,000 in
the year ended 30 April 2014 compared to 16,500 in the
same period last year. The average age of the rental fleet is
22.3 months at 30 April 2014, compared to 21.4 months at
30 April 2013.
In response to the 4,500 vehicles on hire growth, a total of
14,000 units were sold compared to 20,700 in the year ended
30 April 2013.
The used vehicle market remained strong, with sales via our
more profitable retail sales operation increasing to 27%
(2013 – 22%), contributing to increased residual values in
comparison to those attained in the year ended 30 April
2013. The reduced number of vehicles disposed of, offset by
the improvement in the residual values achieved, resulted in
a decrease of £20.0m (2013 – £20.8m) in the depreciation
charge.
Given the continuing strength of used vehicle residual values,
UK depreciation rates on the vehicle fleet have been reduced
by 1.8%, taking effect from 1 May 2014. Based on the
composition of the fleet as at 30 April 2014, this is expected
to reduce the depreciation charge by £9m in the year ending
30 April 2015, which will reverse over the next four years as
the current fleet is sold.
18 Northgate plc
Annual report and
accounts 2014
c109372.indb 18
15/07/2014 12:59
+1,800
growth from
new sites
Four new sites have
opened during FY14
and by year end had
an accretive impact of
almost 700 vehicles.
Growth of over 1,100
vehicles was seen from
the three sites opened
during FY13.
s
e
l
c
i
h
e
v
.
o
N
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
19 Northgate plc
Annual report and
accounts 2014
Strategic report
Review of the year
c109372.indb 19
15/07/2014 12:59
Review of the year continued
Spain
Improved operational efficiencies and residual values in Spain
led to an increase in our operating margin7 in the period to
17.1% (2013 – 16.7%). If the Spanish business had sold the
same number of vehicles as it did in the year ended 30 April
2013 at current year residual values the operating margin14
would have been 18.4%.
Vehicles on hire and hire rates
Vehicles on hire at 30 April 2014 were 34,700, an increase of
2,600 in the year ended 30 April 2014, compared to a decline
of 1,900 in the same period last year.
The continued efforts in the commercial area of the business
have led to the growth of the number of vehicles on hire after
five years of decline.
Spain continues to target growth in the SME market. This
was the first year where increased new business offset the
decline in the traditional construction market. For the second
year running, customer numbers increased. Closing customers
increased by 900 (20%), compared to an increase of 300 in
the previous year.
After adjusting for fleet mix, average hire revenue per rented
vehicle has fallen by 1% compared to the same period last
year. This reduction has been mitigated by an increasing
proportion of customers operating our fleet in such a way that
running costs are reduced and residual values are improved.
Return on capital employed
Return on capital employed at 30 April 2014 was 9.2%
compared to 8.4% for the year ended 30 April 2013.
Progress in targeting increased returns has been made in the
following areas:
Pricing increases and customer profiling: whilst headline
rental rate increases continue to be sought, we will work
with new and existing customers who meet our required rate
of return, with the aim of increasing our return on capital
employed over the medium term.
Vehicle utilisation: changes in customer mix, coupled with
other improvements made over the past 12 months, will
allow the Spanish business to run at utilisation levels in excess
of 90%. The year ended 30 April 2014 saw utilisation at
92%, exceeding the 90% level achieved in the year ended
30 April 2013.
Holding costs: with depreciation being the largest cost in the
business, customer profiling allows the Spanish business to
minimise these costs. The improvement in the usage profile
of new customers allows a greater proportion of the vehicles
being removed from the rental fleet at the end of their life
20 Northgate plc
Annual report and
accounts 2014
to be sold through our retail disposal channel, leading to
increased residual values and lower whole life holding costs.
Vehicle ageing: the changing customer profile and improved
maintenance regime implemented over the past two years is
allowing the Group to age the Spanish fleet whilst minimising
the capital investment required. This results in a reduction in
capital employed per vehicle operating in Spain. The average
age of the fleet has increased from 22.9 months at 30 April
2013 to 24.3 months at 30 April 2014. We do not anticipate
any impact on customer service as we continue to run a
young fleet in comparison to the rest of the market.
Operational efficiency: the implementation of our
workshop efficiency programme, coupled with improved
management and reporting of our internal workshops has
led to a reduction in workshop costs per vehicle, with total
workshop costs falling 16%.
Asset management
Utilisation for the period was 92% (2013 – 90%). The
fleet size in our Spanish operation increased from 35,100
at 30 April 2013 to 37,800 at 30 April 2014. In the year
ended 30 April 2014, 10,700 vehicles have been purchased
compared to 7,300 in the same period last year.
A total of 8,300 units were sold (2013 – 11,200), with the
reduction being driven by the increased vehicles on hire
achieved in the period.
The used vehicle market remains strong, with continued
progress in establishing and expanding sales through our
more profitable retail sales operation, which increased to
16% (2013 – 9%), contributing to increased residual values
in comparison to those achieved in the year ended 30 April
2013. 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 €6.8m,
compared to a reduction of €6.1m in the prior year.
Given the continuing strength of used vehicle residual values,
Spanish depreciation rates on the vehicle fleet have been
reduced by 0.9%, taking effect from 1 May 2014. Based
on the composition of the fleet as at 30 April 2014, this is
expected to reduce the depreciation charge by £3m in the
year ending 30 April 2015, which will reverse over the next
five years as the current fleet is sold.
c109372.indb 20
15/07/2014 12:59
90%utilisation
UK: 88% Spain: 92%
The Group continues to
build upon its solid financial
and operational foundation.
We are targeting increasing
returns by growing the
business with customers who
have a flexible vehicle hire
requirement.
Whilst utilisation remains a
priority, we are also focused
on ensuring that each branch
has the right range of vehicles
available for customers at all
times to support the growth
opportunities available.
21 Northgate plc
Annual report and
accounts 2014
Strategic report
Review of the year
c109372.indb 21
15/07/2014 12:59
Financial review
In June 2014 the Group successfully
increased, amended and extended its
existing multi bank facility. The revised
£534.5m committed multi-currency
bank facility matures in June 2018. The
amended facility includes a reduction in
pricing.
Financial reporting
Group
A summary of the Group’s underlying financial performance
for 2014, with a comparison to 2013, is shown below:
Revenue
Operating profit5
Profit before tax1
Profit after tax2
Basic earnings per share2
Return on capital employed4
2014
£m
571.5
72.6
60.3
46.8
35.1p
9.9%
2013
£m
609.9
86.4
49.5
38.8
29.2p
11.8%
Group revenue in 2014 decreased by 6% to £571.5m
(2013 – £609.9m) or 7% at constant exchange rates. Hire
revenue was £442.3m (2013 – £441.9m).
Net underlying cash generation9 was £25.4m (2013 – £92.6m)
after net capital expenditure of £194.4m (2013 – £117.7m)
resulting in closing net debt of £346.1m (2013 – £362.7m).
Gearing3 improved to 91% (2013 – 102%).
On a statutory basis, operating profit was £63.5m
(2013 – £79.5m) and profit before tax was £51.2m
(2013 – loss of £11.4m). Basic earnings per share were
29.9p (2013 – (5.5)p). Net cash from operations, including
net capital expenditure on vehicles for hire was £30.7m
(2013 – £100.9m).
Return on capital employed
Group return on capital employed4 was 9.9% compared to
11.8% in the prior year.
Group return on equity, calculated as profit after tax (excluding
intangible amortisation and exceptional items) divided by
average shareholders’ funds, was 12.4% (2013 – 10.6%).
Borrowing facilities
Taken together with other loans of the Group, £346.1m
was drawn against total committed facilities of £437.9m as
at 30 April 2014, giving headroom10 of £91.8m as detailed
below:
UK bank facility
Other loans
Facility
£m
421.8
16.1
Drawn
£m
338.1
8.0
Headroom
£m
83.7
June-17
8.1 Up to Nov-14
Maturity
437.9
346.1
91.8
In June 2014 the Group successfully increased, amended and
extended its existing multi bank facility. The revised £534.5m
Chris Muir
22 Northgate plc
Annual report and
accounts 2014
c109372.indb 22
15/07/2014 12:59
37%dividend growth
Due to the strength of
the balance sheet and
opportunities in the markets
in which we operate, there
is scope to invest organically
to strengthen and grow
returns over the medium
term whilst increasing
dividends.
A final dividend of 6.8p is
proposed in respect of the year
ended 30 April 2014, giving
a total dividend for the year
of 10.0p (2013 – 7.3p). This
represents a 3.5x cover on
underlying earnings.
3.0
7.3
10.0
2012
2013
2014
Dividend per share (p)
23 Northgate plc
23 Northgate plc
Annual report and
Annual report and
accounts 2014
accounts 2014
Strategic report
Financial review
c109372.indb 23
15/07/2014 12:59
Review HighlightsStrategic Report Key Performance IndicatorGovernance Board of DirectorsAccounts Cash flow statement
The Group made net borrowing repayments of £6.3m in the
year. Scheduled total bank repayments on the amended bank
facilities of £25.4m commencing in November 2016 are due
before they mature in June 2018.
Revenue
Vehicle hire
Vehicle sales
Financial review continued
committed multi-currency bank facility matures in June 2018.
The amended facility includes a reduction in pricing.
The net debt to EBITDA ratio at 30 April 2014 corresponds
to a bank margin of 2.375%. The margin charged on bank
debt is dependent upon the Group’s net debt to EBITDA
ratio, ranging from a maximum of 2.875% to a minimum
of 2.125%.
Following the amendment to the facility in June 2014, the
margin charged on bank debt will range from a maximum of
2.55% to a minimum of 1.80%. Based on the net debt to
EBITDA ratio at 30 April 2014, the margin on the amended
facility would be 2.05%.
Interest rate swap contracts have been taken out which fix a
proportion of bank debt at 3.1%, giving an overall cost of the
Group’s borrowings at 30 April 2014 of 3.0%. This compares
to an overall rate of 2.8% at 30 April 2013.
There are three financial covenants under the Group’s facilities
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 12-month basis. The covenant to be exceeded is 3.0x
(2013 – 2.0x).
Interest cover at 30 April 2014 was 5.6x (2013 – 2.7x) with
EBIT headroom, all else being equal, of £33m.
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 2014 was 46% (2013 – 50%) giving
net debt headroom, all else being equal, of £177m.
3. Debt leverage cover ratio
A maximum ratio of net debt to earnings before interest, tax,
depreciation and amortisation (“EBITDA”), tested quarterly
on a rolling historic 12-month basis. The covenant ratio which
must not be exceeded is 2.0x.
Debt leverage cover at 30 April 2014 was 1.5x (2013 – 1.5x)
with EBITDA headroom, all else being equal, of £63m.
24 Northgate plc
Annual report and
accounts 2014
Dividend
The Directors recommend the payment of a final dividend of
6.8p per share in relation to the Ordinary shares for the year
ended 30 April 2014 (2013 – 6.0p). Subject to approval by
shareholders, the dividend will be paid on 23 September 2014
to ordinary shareholders on the register as at close of business
on 15 August 2014.
Including the interim dividend paid of 3.2p (2013 – 1.3p),
the total dividend relating to the year would be 10.0p
(2013 – 7.3p). The dividend is covered 3.5 times by
underlying earnings.
UK
The composition of the Group’s UK revenue and operating
profit is set out below:
2014
£m
2013
£m
292.4
90.7
383.1
291.1
124.6
415.7
Operating profit11
51.0
64.2
Hire revenue of £292.4m was in line with the prior year
(2013 – £291.1m), with a 1% increase in the average number
of vehicles on hire being offset by a 1% reduction in revenue
per vehicle (including fleet management). Excluding fleet
management, revenue per vehicle increased by 1%.
An improvement in residual values was offset by a reduction
in the volume of used vehicles sold, which contributed to
£0.8m of the decrease in operating profit.
The UK operating margin was as follows:
Operating margin6
2014
2013
17.4%
22.1%
The UK operating margin6 has decreased to 17.4% (2013 –
22.1%) mainly as a result of the upfront investment relating
to the start-up of our new sites and the strengthening of our
commercial and operational teams.
International Accounting Standards require that the residual
value and useful life of an asset shall be reviewed at least each
financial year-end and, if expectations differ from previous
estimates, the changes shall be accounted for as a change in
an accounting estimate.
Our depreciation rates are therefore set in order to depreciate
an asset so that, at the end of its useful life, its net book value
c109372.indb 24
15/07/2014 12:59
approximates closely to the expected proceeds on disposal,
taking into account all attributable costs incurred to sell
the asset.
Following our review and due to the ongoing strength of the
residual values of the vehicle hire fleet, the Board has decided
to reduce the depreciation rate prospectively by 1.8% from
1 May 2014.
Exceptional items
During the year £1.8m of restructuring costs, £1.9m relating
to property impairment, £2.4m of costs related to a pension
scheme buyout and £0.1m of property losses were incurred,
of which £5.5m related to the UK, £0.6m related to Spain
and £0.1m related to Corporate.
Spain
The revenue and operating profit generated by our Spanish
operations are set out below:
Revenue
Vehicle hire
Vehicle sales
2014
£m
2013
£m
149.9
38.5
188.4
150.8
43.4
194.2
Operating profit12
25.6
25.2
Hire revenue decreased by 1%. The decrease was 3% at
constant exchange rates, which was caused by a reduction
in revenue per vehicle. Adjusted for the change in fleet mix,
revenue per vehicle decreased by 1%.
The Spanish operating margin was as follows:
Interest
Net finance charges for the year before exceptional items
were £12.4m (2013 – £36.9m).
The prior year charge includes £6.5m of non-cash interest.
The net cash interest charge has reduced by £18.0m to
£12.4m, with a £0.4m saving as a result of the reduction
in average net debt throughout the year, a £17.8m saving
due to lower borrowing rates of the Group in the year and
a £0.2m increase due to the impact of exchange rates.
Taxation
The Group’s underlying effective tax charge for its UK and
overseas operations was 22% (2013 – 22%).
The underlying tax charge excludes the tax on intangible
amortisation and exceptional items.
Including these items the Group’s statutory effective tax
charge was 22% (2013 – 35%).
Operating margin7
Earnings per share
2014
2013
17.1%
16.7%
Basic earnings per share (“EPS”)2, were 35.1p (2013 – 29.2p).
Basic statutory earnings per share were 29.9p (2013 – (5.5)p).
Underlying earnings for the purposes of calculating EPS2 were
£46.8m (2013 – £38.8m). The weighted average number of
shares for the purposes of calculating EPS was 133.2m, in line
with the previous year.
Balance sheet
Net tangible assets at 30 April 2014 were £381.7m
(2013 – £355.6m), equivalent to a tangible net asset value of
286.5p per share (2013 – 266.9p per share).
Gearing3 at 30 April 2014 was 91% (2013 – 102%) reflecting
a £16.6m reduction in net debt.
Vehicle hire revenue and operating profit12 in 2014, expressed
at constant exchange rates, would have been lower than
reported by £3.9m and £0.7m respectively.
Days sales outstanding continued to reduce from 64
days at 30 April 2013 to 54 days at 30 April 2014 due to
the continued improvements in controls, processes and
customer mix.
Used vehicle residual values continued to improve and
contributed £5.7m (2013 – £5.0m) to operating profit in
the year with 8,300 vehicles sold (2013 – 11,200). As in the
UK, the fleet depreciation rate was reviewed. Due to the
ongoing strength of the residual values of the vehicle hire
fleet, the Board has decided to reduce the depreciation rate
prospectively by 0.9% from 1 May 2014.
Corporate
Corporate costs13 were £3.9m compared to £3.0m in the
prior year.
25 Northgate plc
Annual report and
accounts 2014
Strategic report
Financial review
c109372.indb 25
15/07/2014 12:59
Financial review continued
Cash flow
Credit risk
A summary of the Group’s cash flows is shown below:
Underlying operational cash
generation
Net capital expenditure
Net taxation and interest payments
Net underlying cash generation9
Net refinancing payments (April
2013 refinancing)
Dividends
Other
Net cash generated
Opening net debt
Net cash generated
Other non-cash items
Exchange differences
Closing net debt
2014
£m
2013
£m
235.4
(194.4)
(15.6)
258.4
(117.7)
(48.1)
25.4
92.6
–
(12.2)
(2.8)
10.4
362.7
(10.4)
(0.6)
(5.6)
346.1
(39.1)
(5.7)
(2.3)
45.5
371.3
(45.5)
17.1
19.8
362.7
Underlying cash generation9 was £25.4m compared to
£92.6m in the previous year.
A total of £301.4m was invested in new vehicles in order
to replace fleet compared to £255.2m in the prior year. The
Group’s new vehicle outlay was partially funded by £112.3m
of cash generated from the sale of used vehicles. Other net
capital expenditure amounted to £5.3m.
After capital expenditure, payments of interest and tax of
£15.6m, dividends of £12.2m and other items of £2.8m, net
cash generation (as defined in the table above) was £10.4m,
compared to £45.5m in the previous year.
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.
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.
Capital management
The Group’s objective is to maintain a balance sheet structure
that is efficient in terms of providing long term returns to
shareholders and safeguards the Group’s financial position
through economic cycles.
Operating subsidiary undertakings are financed by a
combination of retained earnings 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, gearing3 at 30 April 2014 was 91%
compared to 102% at 30 April 2013.
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 proportion of
gross borrowings hedged into fixed rates was 76% at 30 April
2014. In the prior year, 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.
Foreign exchange risk
The Group’s reporting currency is, and the majority of its
revenue (65%) 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.
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
Stated before intangible amortisation of £2.9m (2013 – £3.6m), exceptional
administrative expenses of £6.2m (2013 – £3.3m) and exceptional finance
costs of £Nil (2013 – £54.0m).
Stated before intangible amortisation of £2.9m (2013 – £3.6m), exceptional
administrative expenses of £6.2m (2013 – £3.3m), exceptional finance costs
of £Nil (2013 – £54.0m) and tax on intangible amortisation, exceptional
items and exceptional tax credit of £2.2m (2013 – £14.7m).
Calculated as net debt divided by tangible net assets, with tangible net assets
being net assets less goodwill and other intangible assets.
Calculated as operating profit5 divided by average capital employed, being
shareholders’ funds plus net debt.
Stated before intangible amortisation of £2.9m (2013 – £3.6m) and
exceptional administrative expenses of £6.2m (2013 – £3.3m).
Calculated as operating profit11 divided by revenue of £292.4m
(2013 – £291.1m), excluding vehicle sales.
Calculated as operating profit12 divided by revenue of £149.9m
(2013 – £150.8m), excluding vehicle sales.
Stated before exceptional finance costs of £Nil (2013 – £54.0m).
Net increase in cash and cash equivalents before financing activities.
Headroom calculated as facilities of £437.9m less net borrowings of
£346.1m. Net borrowings represent net debt of £346.1m stated after the
deduction of £19.1m of cash balances, which are available to offset against
borrowings.
Stated before intangible amortisation of £2.3m (2013 – £2.9m) and
exceptional administrative expenses of £5.5m (2013 – £2.1m).
Stated before intangible amortisation of £0.6m (2013 – £0.7m), exceptional
administrative expenses of £0.6m (2013 – £1.3m) and a brand name royalty
charge of £5.0m (2013 – £Nil).
Stated before exceptional administrative expenses of £0.1m (2013 – £Nil) and
a brand name royalty credit of £5.0m (2013 – £Nil).
Based on the sale of an additional 6,700 vehicles in the UK at current year
residual values, and an additional 2,900 vehicles in Spain at current year
residual values.
The average and year end exchange rates used to translate
the Group’s overseas operations were as follows:
Average
Year end
2014
£ : €
1.19
1.22
2013
£ : €
1.22
1.18
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 2014 accounts
should be prepared on a going concern basis the Directors
considered all factors likely to affect its future development,
performance and its financial position, including cash flows,
liquidity position and borrowings facilities and the risks and
uncertainties relating to its business activities in the current
economic climate.
The principal risks and uncertainties of the Group are outlined
on pages 28 to 29. 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 2014 accounts.
Chris Muir
Group Finance Director
24 June 2014
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Financial review
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Principal risks and uncertainties
The operation of a public company
involves a number of risks and
uncertainties across a full range of
commercial, operational and financial
areas. The principal risks and uncertainties
that have been identified as being capable
of impacting the Group’s performance
over the next financial year are set
out below.
Economic environment
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
trading volumes. The underlying macro-economic conditions
also increased the risk of customer failure in the recent past,
particularly in Spain, which led to the occurrence of increased
bad debt charges. However, economic conditions have
improved over the course of the year.
The construction industry in Spain and other key markets of
the Group were particularly sensitive to the downturn in the
economic climate, which led to a decline in the number of
vehicles rented in recent years.
The Spanish business continues to generate a large proportion
of revenue from customers in the construction industry, but
has successfully sought and is continuing to seek 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.
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.
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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 effect
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.
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 extent.
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.
Access to capital
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. Since
the year end the Group has refinanced and current bank
facilities are due to mature in June 2018. 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 above.
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Strategic Report
Principal risks and
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Corporate social responsibility
Our corporate 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.
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.
Common and consistent standards in accordance with
legislative and best practice requirements are applied across
all Group operations. Risks, 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.
Health & safety
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.
The AFR’s reported are as follows:
UK
Spain
Group
Ethics
2014
1.5
3.4
2.2
2013
1.4
1.7
1.5
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 approach to health & safety is simple: to ensure that no
harm comes to anyone engaged with Northgate.
Our employees
We realise that excellence in health & 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 colleagues feel able to identify and
raise concerns about working practices and conditions.
The Group provides training for employees in a wide range
of health & 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.
As a Group we value our employees because 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 2014 we had 2,833 (2013 – 2,714)
employees across the Group, 1,968 in the UK (2013 – 1,856)
and 865 in Spain (2013 – 858).
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
professionalism, teamwork and can-do attitude and these
values apply throughout the Group regardless of seniority
of position.
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Northgate is committed to equality, judging applications
for employment neither by race, nationality, gender, age,
disability, sexual orientation nor political bias.
As at 30 April 2014, the gender breakdown of the workforce
across the Group was:
Directors
Senior Managers
All Employees
Male 6
Male 17
Male 1,996 Female 837
Female 1
Female 0
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. In addition,
Northgate offer colleagues a suite of ongoing bespoke
training to various disciplines throughout their career.
During the year we have introduced a Managerial
Assessment of Proficiency (MAP) programme for the
management population in the business. The MAP
assessment has enabled an in house management
development programme to be rolled out.
In 2014 Northgate have been successful in becoming an
Institute of Leadership and Management (ILM) accredited
centre. ILM approved status allows Northgate’s own
internally designed training to be recognised by the
ILM. ILM recognition denotes a standard of high quality,
bespoke leadership and management training. Following
the completion of the MAP assessment, we now have
our managers attending the relevant ILM accredited
development programme.
Northgate currently have 30 technical apprentices around
the UK. In 2014 28 technical apprentices achieved the level
3 technical qualification. Following a successful proposal,
the Northgate technical apprentice programme is in the final
short list of four companies in the Motor Transport Awards.
In June 2014 Northgate launched its e-learning platform.
This allows all colleagues throughout the business to access
e-learning modules specific to their role.
Regular communication and engagement with everyone
across the business is vital to our success, ensuring we all
share in our values, vision and goals. A number of activities
are undertaken across the business to achieve this and the
implementation of a new internal communication strategy
and toolkit will enhance employee engagement, as we look
to maximise the use of channels available.
Going forward an emphasis will be placed on monthly
briefings, face-to-face meetings and discussions between
managers and their teams. This will be supported by
developments in technology and communications training.
We understand that communication and engagement is
critical, so we are constantly improving and evolving to
ensure everyone feels part of Northgate in order to achieve
company objectives.
Human rights
Given the territories in which we operate and the nature
of our business no specific human rights information is
contained here. Information on equality is contained above
and our corporate responsibility policy information can be
found on our website – www.northgateplc.com.
Environment
For all environmental matters our policy is to promote
and operate processes and procedures, which, so far as is
reasonably practicable, avoid or minimise the contamination
of water, air and the ground. We manage the waste streams
which are generated through our activities responsibly
and we aim to dispose of waste properly in ways which
minimise the likelihood of harming the environment.
Waste is separated at source and stored until specialist
contractors can dispose it of in the most appropriate and
effective manner. This includes recycling and reducing
the amount of waste being sent to landfill across our
locations. The company continues to work closely with its
waste management partners to improve performance and
continually monitors these aspects and the impacts our
operations have on the environment.
In both the UK and Spain, Northgate have maintained
the internationally recognised Environmental Standard
ISO 14001.
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 72% of all waste streams generated and collected
from our vehicle repair workshops in Spain.
As at 30 April 2014, the UK business operated from a
total of 74 locations including 68 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.
Greenhouse gas emissions
This section incorporates the mandatory reporting of
greenhouse gas emissions required by the Companies Act
2006 (Strategic Report and Directors’ Report) Regulations
2013 (‘the Regulations’).
31 Northgate plc
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Strategic report
Corporate social
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Corporate social responsibility continued
Reporting and baseline year
Our customers and suppliers
The information presented covers the period from
1 May 2013 to 30 April 2014. This period has also been
designated as the baseline year for future calculations.
The emissions data presented has been derived using
the operational control approach, required under the
Regulations. Each facility under operational control has
been included within the figures. Northgate has used the
principles of the GHG Protocol Corporate Accounting and
Reporting Standard (revised edition), ISO 14064-1.
Methodology
Defra’s 2013 conversion factors have been used in arriving
at the information supplied below. All six greenhouse gases
are reported as appropriate.
Greenhouse gas emissions figures
Greenhouse Gas Emissions Source
Scope 1 – Combustion of fuel and operation of
facilities
Scope 2 – Electricity, heat, steam and cooling
Intensity ratio: Tonnes of CO2e per £m of hire
revenue
Tonnes of
CO2e
5,980
4,348
23.4
The above data has been verified by an independent, UCAS
accredited, third party assessor.
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.
As at 30 April 2014 the UK fleet of 53,900 vehicles had an
average age of 22.3 months. The total fleet in Spain was
37,800 vehicles with an average age of 24.3 months. All
vehicle purchases in the year ended 30 April 2014 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.
By order of the Board
D Henderson
Secretary
24 June 2014
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Report of the Directors
The Directors present their report and the audited accounts
for the year ended 30 April 2014.
Results
Profit for the year after taxation was £39,883,000
(2013 – loss of £7,357,000).
An interim dividend of 3.2p per share was paid on the
Ordinary shares on 10 January 2014.
The Directors recommend the payment of a final dividend
of 6.8p per share on the Ordinary shares. This dividend,
if approved, will be paid on 23 September 2014 to
shareholders on the register at close of business on
15 August 2014.
Principal activities
The Company is an investment holding company.
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 the Articles, 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.
The principal subsidiaries are listed in Note 17 to the
accounts.
Interests in shares
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 may result in restrictions on the
transfer of securities or on voting rights.
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 2014
24 June 2014
12,465,075 (9.36%) 12,465,075 (9.36%)
11,461,891 (8.60%) 11,461,891 (8.60%)
9,324,443 (7.00%) 10,810,933 (8.11%)
6,672,204 (5.01%) 6,672,204 (5.01%)
6,632,743 (4.98%) 6,632,743 (4.98%)
6,603,080 (4.96%) 6,603,080 (4.96%)
6,536,818 (4.90%) 6,536,818 (4.90%)
Capital Group
Old Mutual plc
Standard Life
Investments Ltd
Aviva plc
Aberforth Partners
Legal & General
Group plc
Artemis Investment
Management Ltd
Directors
Details of the present Directors are listed on pages 6 and 7.
All have served throughout the year.
Resolutions to re-appoint each of the Directors in office
at the date of this report will be proposed at the Annual
General Meeting except for Tom Brown, who will be retiring
from office at the conclusion of that meeting.
The termination provisions in respect of executive Directors’
contracts are set out in the Remuneration Report on
pages 37 to 51.
33 Northgate plc
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Governance
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Report of the Directors continued
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.
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.
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.
Political donations
No political donations were made by any Group company in
the year.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions
required by the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations are included in
the CSR section of the Strategic report on pages 30 to 32.
Remuneration report
There are new requirements this year in relation to the
content of the Directors' Remuneration Report and the
approval of the Report, following changes made to the
Companies Act 2006.
In accordance with the new Companies Act 2006 provisions,
the Directors' Remuneration Report contains:
• a statement by Tom Brown, Chairman of the Company's
Remuneration Committee;
• the annual report on remuneration, which sets out
payments made in the financial year ended 30 April 2014,
and
• the Directors' remuneration policy in relation to future
payments to the Directors and former Directors.
The statement by the Remuneration Committee Chair and
the Annual Report on Remuneration will, as in the past, be
put to an advisory shareholder vote by ordinary resolution.
The policy part of the Report, which sets out the Company's
forward looking policy on Directors' remuneration (including
the approach to exit payments to directors), is subject to a
binding shareholder vote by ordinary resolution at least every
three years.
The Directors' Remuneration Report is set out in full in the
Annual Report on pages 37 to 51.
Resolution 3 is the ordinary resolution to approve the
Directors' Remuneration Report, other than the part
containing the Directors' Remuneration Policy. Resolution
3 is an advisory resolution and does not affect the future
remuneration paid to any director.
Resolution 4 is the ordinary resolution to approve the
Directors' Remuneration Policy which is set out on
pages 39 to 43.
As noted on page 38, the Directors' Remuneration Policy
will take effect from the conclusion of the Annual General
Meeting. Payments will continue to be made to Directors in
line with existing contractual arrangements until this date.
Once the Directors' Remuneration Policy has been approved,
all payments by the Company to the Directors and any
former Directors must be made in accordance with the
policy (unless a payment has been separately approved by a
shareholder resolution).
If the Directors' Remuneration Policy is approved and
remains unchanged, it will be valid for up to three financial
years without a new shareholder approval. If the Company
wishes to change the Directors' Remuneration Policy, it will
need to put the revised policy to a further vote before it can
be implemented.
If the Directors' Remuneration Policy is not approved,
the Company will, if and to the extent permitted by
the Companies Act 2006, continue to make payments
to Directors in accordance with existing contractual
arrangements and will seek shareholder approval for a
revised policy as soon as is practicable.
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Power to allot shares
The present authority of the Directors to allot shares was
granted at the Annual General Meeting held in September
2013 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 2015 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
of the Pre-emption Group’s Statement of Principles
regarding cumulative use of such authorities within a rolling
three year period. The Principles provide that companies
should not issue shares for cash representing more than
7.5% of the Company’s issued share capital in any rolling
three year period, other than to existing shareholders,
without prior consultation with shareholders.
Length of notice of general meetings
The minimum notice period permitted by the Companies Act
2006 for general meetings of listed companies is 21 days,
but the Act provides that companies may reduce this
period to 14 days (other than for AGMs) provided that two
conditions are met. The first condition is that the Company
offers a facility for shareholders to vote by electronic means.
This condition is met if the Company offers a facility,
accessible to all shareholders, to appoint a proxy by means
of a website. Please refer to Note 6 to the Notice of Annual
General Meeting on page 111 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.
Articles of Association
The Company proposes to adopt amended and restated
articles of association (the “Amended and Restated
Articles“) subject to a special resolution being passed by
the shareholders. The Amended and Restated Articles are
substantially the same as the current articles of association
(the “Current Articles“), the main changes to the Current
Articles being in relation to:
• Article 80 which deals with the retirement of directors.
Under the Current Articles, only directors who had held
office for the preceding two AGMs and at least a third of
the board were required to retire at an AGM. Under new
Article 80, all of the directors shall retire from office and be
re-elected by the shareholders at each AGM, which is in line
with the recommendations laid out for FTSE 350 companies
in the Corporate Governance Code.
• Article 91 which deals with directors' fees. A cap of
£400,000 per annum on directors' fees under the Current
Articles has been increased to £700,000 per annum under
the Amended and Restated Articles.
A copy of the proposed new Articles will be available for
inspection at the Company's registered office until 18
September 2014 and also at the Annual General Meeting.
Copies are available to shareholders on request and can be
viewed on the Company's website.
Financial instruments
Details of the Group’s use of financial instruments are given
in the Financial Review on page 24 and in Notes 22 and 37
to the accounts.
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Report of the Directors continued
Auditor
In the case of each of the persons who are Directors of the
Company at the date when this report was approved:
• so far as each of the Directors is aware, there is no relevant
audit information of which the Company’s 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.
A resolution for the re-appointment of Deloitte LLP as
auditor 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 2014
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Remuneration report
Chairman’s Annual Statement
Basic Pay
Dear Shareholder,
In accordance with the new regulations our remuneration
report is presented in two parts:
• A Policy Report which is being put to the forthcoming AGM
as a binding resolution; and
• The Annual Report on Remuneration which, along with
this Chairman’s Statement summarising the key issues dealt
with by the Remuneration Committee during the last year, is
being put to the AGM as an advisory resolution.
Corporate Context
The financial year just ended represented a watershed
for your Company. The economic crisis of 2008 made a
significant impact resulting in the need for major refinancing,
followed by extensive change of management and strategy.
A period ensued during which the priority was major
restructuring against a background of shrinking vehicle
fleets in both the UK and Spain, where the economy was
particularly badly affected.
FY2014 was the year in which the results of all the hard
work started to show. Statutory PBT moved from a loss
of £11.4m to a profit of £51.2m and underlying PBT was
£60.3m, an increase of 21.8% over the prior year. Very
importantly the vehicle fleets in both countries returned to
growth during the year. In the UK a programme of opening
new branches, especially to seize the opportunities around
the London area, was progressed, despite the inevitable
short term impact of such growth on some metrics and
in Spain excellent all round progress was made including
improving ROCE.
These advances saw the Company’s share price and
consequent market capitalisation increase significantly,
resulting in its restoration to the FTSE250 index.
Overall Reward Structure
The Committee continues to believe that total reward should
normally be around the median level for a company of
Northgate’s size and type. Within this total we believe that
applying greater weighting to the variable rather than fixed
elements is appropriate in providing increased incentive and
greater alignment with the interests of shareholders.
It is the Company’s policy to promote internally when
suitable candidates exist and in such cases the individual will
normally be appointed at a below mid-market level and then
receive above average awards as they prove themselves,
thus providing an added incentive for the individual and
mitigating risk for the company.
The CEO had received no pay rise for three years and so,
in the light of the much improved performance, has been
awarded an increase of 6.7%.
The FD was an internal promotion whose salary increases
have been phased and this year's rise is 11.1%. This is
the last increase regarded as necessary to bring his total
remuneration up to the appropriate level.
Annual Bonus
In FY2014 executive directors’ bonuses were based on UK
marginal contribution, Spanish net debt and ROCE, and
group ROCE. During the year it became apparent that the
definition used for UK marginal contribution would have
encouraged the retention of certain unprofitable business
and accordingly the Committee exercised its discretion to
adjust the definition to reflect changed business strategy.
As a result overall bonuses of 43.59% of the permitted
maximum were awarded to both CEO and FD.
The Committee has become aware that the policy of higher
than average incentives with lower fixed pay was being
progressively eroded in the case of the CEO and for the new
year his maximum bonus opportunity has therefore been
increased to 150% of annual salary, coupled with stretching
performance targets and with any bonus earned over 100%
being paid entirely in deferred shares.
To reflect the change in group priorities from recovery to
growth, the bonus criteria for the year ahead have also
been adjusted. 75% of the maximum will now depend on
achieving demanding PBT targets, with 25% on personal
objectives and with the retention of a threshold level of
ROCE (excluding the effect of new branch openings) as an
underpin.
Executive Performance Share Plan (EPSP)
The level of awards relative to salary is unchanged and EPS
and ROCE continue to be the target metrics. However, to
reflect the change in group priorities, the balance between
these metrics has been adjusted to 60% on EPS and 40% on
ROCE which will now be measured excluding the effects of
new branch openings.
For the last 2 years the EPS growth targets have been
a threshold of CPI + 3% p.a. and a stretch of CPI +
11% p.a. These targets are intended to be long term
to encourage consistent and progressive growth of
earnings for shareholders and it is not the Committee’s
intention to juggle them according to perceived short term
circumstances. They are therefore retained for the new year.
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Remuneration report continued
Other Points
The Committee conducted a shareholder consultation
exercise concerning the changes to basic pay and the CEO’s
bonus opportunity. Respondents were broadly supportive
of the changes so long as the bonus targets are sufficiently
challenging. I would note though, that despite extending
the consultation period to some 3 months, we received no
reply from a number of parties consulted and were therefore
unable to take their views into account.
As reported elsewhere in the Annual Report the Company
has decided to adjust the depreciation rates used in both
the UK and Spain with effect from FY2015. Naturally the
Committee has taken these changes into account where
appropriate in setting new targets. In the case of currently
running EPSP awards, it has been agreed that at the end
Definitions
of each relevant year the Committee will reappraise the
situation when the actual impact of the changes on that year
can be quantified and make any adjustments then deemed
appropriate.
I have now been Chairman of the Northgate Remuneration
Committee for 9 years, and as previously announced, I
shall be retiring at the forthcoming AGM. The Board has
determined that my successor will be Jill Caseberry and I
wish her great success in the role.
Yours sincerely
Tom Brown
Chairman of the Remuneration Committee
24 June 2014
The Remuneration Committee of the Board of Northgate plc
Annual General Meeting
The Company and its subsidiaries
Chief Executive Officer
Environmental, Social and Governance
That section of the Report which is subject to a binding shareholder vote
The Committee
AGM
The Group
CEO
ESG
Remuneration Policy
Annual Report on Remuneration That section of the Report which is subject to an advisory shareholder vote
HMRC
EPSP
DABP
EPS
ROCE
SIP
HM Revenue & Customs
Executive Performance Share Plan
Deferred Annual Bonus Plan
Basic or underlying earnings per share
Return on capital employed
The Company’s HMRC-approved share incentive plan, also known as the
All Employee Share Scheme
Key performance indicators
The Listing Rules of the Financial Conduct Authority
All revenue except from the sale of used vehicles, less the depreciation charge on hire vehicles
Consumer Price Index
Management Performance Share Plan (closed to new awards from 2013)
New Bridge Street, a trading name of Aon plc
Total Shareholder Return
KPI’s
Listing Rules
Marginal Contribution
CPI
MPSP
NBS
TSR
Remuneration Policy Report
This part of the Directors’ Remuneration Report sets out
the remuneration policy for the Company and has been
prepared in accordance with The Large and Medium-
sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The policy has been
developed taking into account the principles of the UK
Corporate Governance Code 2012. The policy to be put to a
binding shareholder vote at the 2014 AGM will be operated
by the Committee from 1 May 2014. However, it will not
take effect as an approved policy until the date of our AGM,
18 September 2014.
How the views of shareholders are taken into account
The Committee takes seriously the views of its shareholders.
Shareholder feedback received in relation to the AGM each
year, and any other meetings and communications with
shareholders, is considered by the Committee as part of its
annual review of remuneration policy.
When any material changes are proposed to be made to the
Remuneration Policy, the Committee Chairman will inform
major shareholders and will offer a meeting to discuss
the changes.
If any shareholders raise concerns with regard to
remuneration issues, we would endeavour to understand
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and respond to those concerns either by meetings or
correspondence, as appropriate.
Details of votes cast for and against the resolution to
approve last year’s Remuneration Report and principal
matters discussed with shareholders during the year are
provided in the Annual Remuneration Report.
Consideration of employment conditions elsewhere
in the Group
When setting remuneration policy for the Executive Directors
the Committee takes into account the overall approach to
reward for and the pay and employment conditions of other
employees in the Group and salary increases will ordinarily,
in percentage terms, be in line with those of the wider
workforce in the UK. The Committee is also provided with
periodic updates on employee remuneration practices and
trends across the Group which inform the Committee’s
discussions on executive remuneration. The Company
does not formally consult with employees on the directors’
remuneration policy.
The remuneration policy for Directors
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 incentives. Only basic salary is
pensionable.
The Committee’s policy is to apply greater weighting to
the variable elements of executive remuneration and,
by incentivising the longer term performance of the
Company, to provide greater alignment with the interests
of shareholders.
It is also the Committee’s policy to pay a significant
proportion of the potential remuneration package in equity,
to ensure that executives have a strong ongoing alignment
with shareholders through the Company’s share price
performance.
However when setting the levels of short-term and long-
term variable remuneration, consideration is given to setting
the right balance between equity and cash so as not to
encourage unnecessary risk-taking.
The Committee will seek to ensure that the incentive
structure will not raise ESG risks by inadvertently motivating
irresponsible behaviour and will take account of ESG matters
generally in determining overall remuneration policy and
structure.
The table below summarises the key aspects of the Company’s remuneration policy for its Directors.
Key aspects of the remuneration policy for Directors
Element
Base
salary
Purpose and link
to strategy
Operation
To recruit and reward
executives of a suitable
calibre for the role and
duties required
Reviewed annually by the Committee, taking account of Company
performance, individual performance, changes in responsibility and
levels of increase for the broader UK population.
Reference is also made to remuneration levels within relevant FTSE
and industry comparator companies.
The Committee considers the impact of any basic salary increase on
the total remuneration package.
Benefits
To provide
market competitive
benefits to ensure the
wellbeing of executives
The Company typically provides:
A car or cash allowance in lieu
Medical insurance
Death in service benefits
Critical illness insurance
Maximum opportunity
Salary increases for Executive Directors will
not normally exceed the general increase
for the broader UK employee population
but on occasions may need to recognise,
for example, changes in the scale, scope,
complexity or responsibility of the role, and/
or specific retention issues, and to allow the
base salary of newly appointed executives
to increase in line with their experience and
contribution.
Details of the outcome of the most recent
salary review are provided in the Annual
Remuneration Report.
The value of benefits is based on the cost to
the Company and is not pre-determined. It
is a relatively small part of the overall value of
the total remuneration package.
Other ancillary benefits, including relocation expenses (as required)
Executive Directors are also entitled to 30 days’ leave per annum.
Pension
To provide
market competitive
benefits
A Company contribution to a group personal pension plan or
provision of cash allowance in lieu at the request of the individual.
Up to 18% of salary
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Remuneration report continued
The annual bonus is based on performance against one or more
financial targets. A proportion (not exceeding 25%) may also be
based on non-financial strategic KPIs.
Details of the performance measures and targets (where these are
not considered commercially sensitive) set for the year under review
is provided in the Annual Remuneration Report.
Up to 100%, half of any bonus earned is paid in shares and any
bonus earned in excess of 100% of salary will be paid entirely in
shares, which are available to Executive Directors after three years
ordinarily subject to continued employment.
The Remuneration Committee has the discretion to adjust the final
outcome upwards or downwards in the event that an exceptional
event outside of the directors' control occurs, which, in the
Committee's opinion, materially affected the bonus out-turn.
Clawback provisions apply to all participants in the event of a
restatement of the Group's accounts, error in assessing performance
criteria, poor risk management, misrepresentation or such other
exceptional circumstances as the Committee determines.
Annual awards of performance shares (or nil cost options) to
Executive Directors.
Awards are granted subject to continued employment and
satisfaction of challenging performance conditions measured over
three years.
Since the EPSP was approved by shareholders in 2010, awards have
been granted subject to both an EPS and a ROCE performance
condition.
Other measures and/or longer performance periods may be
proposed in the future if the Committee feels that they would
better support the Company's medium or long term objectives. If
the Committee considers that the changes are substantive it will
consult with the Company's major shareholders prior to making any
changes.
Clawback provisions apply to all participants in the event of a
restatement of the Group's accounts, error in assessing performance
criteria, poor risk management, misrepresentation or such other
exceptional circumstances as the Committee determines.
The SIP has standard terms under which all UK employees can
participate. The rules for this plan were last approved by the
shareholders at the 2011 AGM.
The Chairman is paid a single fee for all his responsibilities. The
Non-Executives are paid a basic fee. The Chairmen of the main
board committees and the senior independent director are paid an
additional fee to reflect their extra responsibilities.
The level of these fees is reviewed every two to three years by
the Committee and Chief Executive for the Chairman and by the
Chairman and Executive Directors for the Non-Executive Directors
within the overall limit set by the Articles of Association and with
reference to market levels in comparably sized FTSE companies, time
commitment and responsibilities of the Non-Executive Directors.
Fees are paid in cash.
For CEO only:
150% of salary at stretch performance
62.5% of salary at target performance
25% of salary at threshold performance
Other Executive Directors:
100% of salary at stretch performance
50% of salary at target performance
25% of salary at threshold performance
For performance below threshold, no bonus
is payable.
The maximum grant limit in the plan rules is
150% of salary (face value of shares at grant)
although exceptionally 250% may be used,
e.g. in recruitment.
The normal grant policy is 150% of salary for
each Executive Director.
25% of the grant vests for threshold
performance increasing in a straight line to
100% for maximum performance.
If performance is below threshold for a
measure, then the proportion of the award
subject to that measure will lapse.
Employees can elect to contribute up to
a maximum amount determined by the
Company and within the statutory limits for
SIPs per month from pre-tax salary which
is used to buy shares in the Company. The
Company may in addition make an award of
free Matching shares at a ratio not exceeding
the statutory limit for SIPs.
The Company may also make awards of Free
shares to all employees including Executive
Directors, on an equal basis. The maximum
award would not exceed the maximum limit
for SIPs.
The maximum aggregate amount is currently
£400,000 as provided in the Articles of
Association. A resolution to amend the
Articles of Association to increase this amount
to £700,000 is to be proposed at the 2014
Annual General Meeting.
Details of the outcome of the most recent
fee review are provided in the Annual
Remuneration Report.
Annual
bonus
To encourage and
reward delivery of the
Company’s operational
objectives and to
provide alignment with
shareholders through
the deferred share
element
Long-term
incentives
To encourage and
reward delivery of the
Company’s strategic
objectives and provide
alignment with
shareholders through
the use of shares
All
employee
share
scheme
Non-
Executive
Director
fees
All employees
including Executive
Directors are
encouraged to become
shareholders through
the operation of an
all-employee HMRC
approved SIP. The
Board believes that
encouraging wider
share ownership by all
staff will have longer
term benefits for the
Company and for
shareholders
To attract and retain a
high-calibre Chairman
and Non-Executive
Directors by offering
a market competitive
fee level
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Choice of performance measures and approach
to target setting
The annual bonus is based on performance against one or
more financial measures and may also include an element
of non-financial strategic KPIs if the Committee feels it
appropriate, all based on the priorities for the business in the
year ahead. The Committee will set stretching performance
targets taking into account market and investor expectations,
prevailing market conditions and the Company’s business
plan for the year.
The Committee may also set an overarching financial hurdle,
for example and depending on the actual metrics set, ROCE
or budgeted operating profit of the Group (or another
appropriate measure) for the year, which, if not achieved,
would result in no bonus being awarded, regardless of
performance against the set targets.
Awards under the EPSP will be based on performance
against one or more financial measures. The measures since
2010 have been ROCE and EPS. The Committee has selected
these measures to closely reflect the importance the Board
places on profitability and balance sheet management.
The Committee considers EPS and ROCE are the most
appropriate measures at the time of setting this Executive
Directors' Remuneration Policy 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. The Committee will review
the choice of performance measures and set appropriately
challenging targets prior to each award being made based
on market conditions and the Company’s long-term priorities
and business plan at that time. The targets for outstanding
awards are set out in the Annual Report on Remuneration.
Annual bonus plan and share plan policy
The Committee will operate the DABP, EPSP and SIP
according to the rules of each respective plan and consistent
with normal market practice and the Listing Rules, including
flexibility in a number of regards. Factors over which the
Committee will retain flexibility include (albeit with quantum
and performance targets restricted to the descriptions
detailed above):
• Who participates in the plans.
• When to make awards and payments.
• How to determine the size of an award, a payment, or
when and how much of an award should vest.
• How to deal with a change of control or restructuring
of the Group.
• Other than in the case of stated good leaver reasons
whether a director is a good/bad leaver for incentive plan
purposes and whether and what proportion of awards
vest at the time of leaving or at the original vesting date(s)
as relevant.
• How and whether an award may be adjusted in certain
circumstances (e.g. for a rights issue, a corporate
restructuring or for special dividends).
• What the weighting, measures and targets should be for the
annual bonus plan and EPSP from year to year.
The Committee also retains the discretion within the policy
to adjust targets and/or set different measures and alter
weightings for the annual bonus plan and to adjust targets
for the EPSP if events happen that cause it to determine that
the conditions are unable to fulfil their original intended
purpose provided that they are not in all circumstances
considered by the Committee to be materially less difficult
to satisfy.
All historic awards that were granted under any current
or previous share schemes operated by the Company but
remain outstanding (detailed on pages 48 and 49 of the
Annual Report on Remuneration), remain eligible to vest
based on their original award terms.
Share ownership requirements
Executive Directors are required 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 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.
Differences in remuneration policy for Executive
Directors compared to other employees
The remuneration policy for the Executive Directors is
designed with regard to the policy for employees across the
group as a whole. For example, the Committee takes into
account the general basic salary increase for the broader
UK employee population when determining the annual
salary review for the Executive Directors. There are some
differences in the structure of the remuneration policy for
the Executive Directors and other senior employees, which
the Remuneration Committee believes are necessary to
reflect the different levels of responsibility of employees
across the Company. The key differences in remuneration
policy between the Executive Directors and employees across
the Group are the increased emphasis on performance
related pay and the inclusion of a significant share based
long-term incentive plan for Executive Directors. Long-
term incentives are not provided outside of the most
senior executives as they are reserved for those considered
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Remuneration report continued
as having the greatest potential to influence Group
performance.
External non-executive director positions
Subject to Board approval, Executive Directors will normally
be permitted to take on one non-executive position with
another company. The Director will normally not be
permitted to retain their fees in respect of such positions.
Details of outside directorships held by the Executive
Directors, if any, and any fees that they received are provided
in the Annual Remuneration Report.
Approach to recruitment and promotions
The remuneration package for a new Director would be set
in accordance with the terms of the Company’s approved
Remuneration Policy in force at the time of appointment.
Currently, for an Executive Director, this would facilitate
awards of no more than 150% of salary per annum for each
of the DABP and EPSP, although exceptionally an EPSP award
of up to 250% may be made.
The salary for a new Executive, particularly one with no
experience at listed company main board level, may be set
below the normal market rate, with phased increases over
the first few years as the executive gains experience in their
new role.
The Committee may offer additional cash and/or share-based
elements when it considers these to be in the best interests
of the Company and its shareholders to take account
of remuneration relinquished when leaving the former
employer and would reflect (as far as possible) the nature
and time horizons attaching to that remuneration and the
impact of any performance conditions.
For an internal executive appointment, any variable pay
element awarded in respect of the prior role will be allowed
to pay out according to its terms. In addition, any other on-
going remuneration obligations existing prior to appointment
may continue, if relevant.
For external and internal executive appointments, the
Committee may agree that the Company will meet certain
relocation and other incidental expenses as appropriate.
For the appointment of a new Chairman or Non-Executive
Director, the fee arrangement would be set in accordance
with the approved remuneration policy in force at that time.
Service contracts & payments for loss of office
The Remuneration Committee reviews the contractual
terms for new Executive Directors to ensure that these reflect
best practice.
Service contracts normally continue until the director’s
agreed retirement date or such other date as the parties
agree. The service contracts contain provision for early
termination. Notice periods given by the employing company
are limited to 12 months or less.
An Executive Director’s service contract may be terminated
without notice and without any further payment or
compensation, except for sums accrued up to the date of
termination, on the occurrence of certain events such as
gross misconduct. If the employing company terminates the
employment of an Executive Director in other circumstances,
compensation is limited to salary due for any unexpired
notice period and any amount assessed by the Committee
as representing the value of other contractual benefits
(including pension) which would have been received
during the period. In the event of a change of control of
the Company there is no enhancement to contractual
terms. Service contracts are available for inspection at the
Company’s registered office.
In summary, the contractual provisions are as follows:
Provision
Detailed terms
Notice period
12 months’ notice from the Company and
six months’ notice from the Director.
Termination
payment
Base salary plus benefits (including
pension), subject to mitigation and paid on
a phased basis for notice period.
Remuneration
entitlements
In addition, any statutory entitlements or
sums to settle or compromise claims in
connection with the termination would be
paid as necessary.
A pro-rata bonus may also become
payable for the period of active service
along with vesting for outstanding share
awards (in certain circumstances – see
below).
In all cases performance targets would
apply.
Change of
control
There are no enhanced terms in relation to a
change of control.
Any share-based entitlements granted to an Executive
Director under the Company’s share plans will be
determined based on the relevant plan rules. The default
treatment is that any outstanding awards lapse on
cessation of employment. However, in certain prescribed
circumstances, such as death, ill-health, redundancy, transfer
of the employee’s employing business out of the Group
or other circumstances at the discretion of the Committee
(taking into account the individual’s performance and
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the reasons for their departure) ‘good leaver’ status can
be applied. Under the EPSP, awards held by good leavers
will usually be scaled back for the actual period of service
and vest at the date of cessation although the Committee
has the discretion to not scale back if it considers this is
appropriate and also to determine that vesting should be
at the usual time. DABP awards held by good leavers will
usually vest on cessation or if the Committee determines
at the usual vesting date. For share awards under the EPSP
and held by good leavers, awards remain subject to the
performance conditions.
All Non-Executive Directors have letters of appointment with
the Company for an initial period of three years, subject
to annual re-appointment at the AGM. The Chairman’s
appointment may be terminated by the Company with one
month's notice. The appointment of the other Non-Executive
Directors are terminable without notice. The appointment
letters for the Chairman and Non-Executive Directors provide
that no compensation is payable on termination, other than
accrued fees and expenses.
Legacy arrangements
For the avoidance of doubt, in approving this Remuneration
Policy, authority is given to the Company to honour any
commitments entered into with current or former Directors
(such as the payment of a pension or the vesting of share
awards) that have been disclosed to shareholders in previous
Remuneration Reports. Details of any payments to former
Directors will be set out in the Annual Remuneration Report
as they arise.
Reward scenarios
The Company’s policy results in a significant portion
of remuneration received by Executive Directors being
dependent on Company performance. The chart below
illustrates how the total pay opportunities for the Executive
Directors vary under three different performance scenarios:
maximum, on-target and fixed pay only. These charts are
indicative as share price movement and dividend accrual
have been excluded. All assumptions made are noted below
the chart.
Executive Director total remuneration at different
levels of performance
£1,800,000
£1,600,000
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£0
£1,690,000
35.5%
35.5%
£1,040,000
29%
24%
£490,000
£938,000
40%
27%
£625,000
30%
20%
£313,000
100%
47%
29%
100%
50%
33%
y
l
n
o
d
e
x
i
F
t
e
g
r
a
T
-
n
O
Chief Executive
m
u
m
i
x
a
M
y
l
n
o
d
e
x
i
F
t
e
g
r
a
T
-
n
O
Finance Director
m
u
m
i
x
a
M
■ Fixed Pay
■ Annual bonus
■ EPSP
Assumptions:
Fixed Pay = salary + benefits + pension
On-target = Fixed plus 50% vesting of the EPSP awards and, for the CEO, 41.7%
of the annual bonus opportunity and, for the FD, 50% of the annual bonus
opportunity
Maximum = Fixed plus 100% vesting of the annual bonus opportunity and
100% of the EPSP awards
Salary levels (on which other elements of the package are calculated) are based
on those applying on 1 May 2014. The value of taxable benefits is based on the
cost of supplying those benefits (as disclosed) for the year ending 30 April 2014.
The Executive Directors can participate in the SIP on the same basis as other
employees. The value that may be received under this scheme is subject to
tax approved limits. For simplicity and uncertainty over the value that may be
received from participating in this scheme it has been excluded from the above
charts.
43 Northgate plc
Annual report and
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Governance
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Remuneration report continued
Annual Report on Remuneration
This part of the report has been prepared in accordance
with Part 3 of the revised Schedule 8 set out in The Large
and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, and 9.8.6R of
the Listing Rules. The Annual Remuneration Report will be
put to an advisory shareholder vote at the 2014 AGM. The
information on pages 44 to 51 has been audited.
The Remuneration Committee
The members of the Committee are listed in the table
below. All are independent Non-Executive Directors, as
defined under the Corporate Governance Code, with the
exception of the Group Chairman, R D Mackenzie, who was
independent on his appointment, and J G Astrand, who
stood down from the Committee on 29 November 2013.
The members of the Committee during the last financial
year and their attendance at the meetings of the
Committee were:
Number of meetings
attended out of potential
maximum
T H P Brown (Committee Chairman)
A J Allner
J G Astrand
G Caseberry
R D Mackenzie
5 out of 5
5 out of 5
2 out of 2
4 out of 5
5 out of 5
The CEO attends meetings by invitation and assists the
Committee in its deliberations, except when issues relating
to his own remuneration are discussed. No directors are
involved in deciding their own remuneration. The Company
Secretary acts as Secretary to the Committee.
The Committee is advised by NBS, who were first appointed
by the Committee in 2003. NBS advises the Committee
on executive remuneration matters including topical
remuneration issues which are of particular relevance to
the Company, on incentive arrangements for the Directors
and senior staff, on all-employee share plans and on
remuneration reporting and compliance matters. NBS liaises
with the Committee Chairman and considers how best it can
work with the Company to meet the Committee’s needs.
The total fees paid to NBS in respect of its services to the
Committee during the year were £26,994. The fees are
predominantly charged on a ‘time spent’ basis.
NBS is a signatory to the Remuneration Consultants’ Code of
Conduct. Neither NBS nor Aon provide any other services to
the Company and the Committee is satisfied that the advice
that it receives is objective and independent.
The Committee’s terms of reference are available on the
Company’s website.
The Committee is responsible for making recommendations
to the Board on the remuneration packages and terms
and conditions of employment of the Chairman and
the Executive Directors of the Company as well as the
Company Secretary. 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 employees generally.
The Committee also reviews remuneration policy generally
throughout the Group.
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Remuneration for the year ended 30 April 2014
The table below sets out the remuneration received by the Directors in relation to performance in FY2014 (or for performance
periods ending in FY2014 in respect of long-term incentives) and FY2013.
£’000 Executive Directors
R L Contreras
C J R Muir
Chairman
R D Mackenzie
Non-Executive Directors
A J Allner
J G Astrand
T H P Brown
G Caseberry (7)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Salary & Fees
Taxable
Benefits
(1)
Annual
Bonus
(3)
Long-Term
incentive
(4)
Pension
(2)
Other
375
375
225
200
160
160
60
60
50
50
68
68
51
21
18
18
18
18
–
–
–
–
–
–
–
–
–
–
163
Nil
98
Nil
Nil
395
Nil
Nil
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
68
68
40
36
–
–
–
–
–
–
–
–
–
–
4(5)
3(5)
4(5)
3(5)
–
–
–
–
–
54(6)
–
–
–
–
Total
628
859
385
257
160
160
60
60
50
104
68
68
51
21
There have been no payments to past directors and no payments for loss of office.
Note 1: Taxable Benefits:
Car allowance
Medical insurance
R L Contreras
£’000
17
1
C J R Muir
£’000
17
1
Note 2: The Executive Directors are members of a group
personal pension plan. They contribute 4% of basic salary
and are entitled to a contribution from the Company of
18% of basic salary. In view of the Annual Allowance cap
of £50,000, part of Bob Contreras’ entitlement was paid to
him in cash. In last year’s accounts this cash element was
included in Benefits.
Note 3: This relates to the payment of the annual bonus for
the year ending 30 April 2014. The bonus is paid 50% in
cash and 50% in shares. Details of the performance targets
are provided below. No bonus was paid in 2013.
Note 4: This relates to the the 2011 EPSP award which, as
disclosed below, resulted in a nil vesting. The value of the
award vesting in 2013 is calculated using the closing share
price on the date of vesting (11 August 2013) of 391.75p.
Note 5: This represents the value of Matching shares
awarded under the SIP which have fully vested in the year
(i.e. they are no longer subject to forfeiture), valued at the
market price on the date of vesting.
Note 6: As disclosed last year, these fees relate to his
consultancy work in Spain. This assignment finished in
November 2012.
Note 7: Jill Caseberry joined the Company on
10 December 2012.
Annual bonus for the year ended 30 April 2014
Deferred annual bonus plan
The bonus for the Executive Directors in respect of the
year under review comprised three elements reflecting the
Group’s near term priorities:
1 UK Marginal Contribution.
2 Spain. Performance to be measured against a matrix of local
net debt and ROCE.
3 Group ROCE.
No element of bonus to be paid unless Group operating
profit is at least 95% of the Group’s budgeted operating
profit for the year. The maximum bonus entitlement is 100%
of salary, with each element of bonus paying up to one-third
of annual salary.
45 Northgate plc
Annual report and
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Governance
Remuneration report
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Remuneration report continued
The outcome is set out below:
Measure
Budget Group
operating profit
1 UK Marginal
Contribution (1)
2 Spain – net debt
Spain ROCE
3 Group ROCE
Amount
of bonus
achievable as
% of salary
95% x
£73.0m
= £69.35m
Threshold
On target
Stretch
Actual
Achievement
as % of
maximum
available
Bonus
earned as
% of
basic salary
–
–
–
£72.6m
–
–
33.3% £160,955k £163,842k £166,729k £164,391k
59.51% 19.83%
33.3%
£154m
8.32%
£154m
8.32%
£74m £134.5m
9.22%
9.8%
71.3% 23.76%
33.3% >10.4%
10.8%
11.2%
9.9%
Nil
Nil
(1) Adjusted for change in strategy as explained in Chairman's statement.
The resulting bonuses for 2014 were as follows:
Total bonus for 2014
Executive
R L Contreras
C J R Muir
Total
43.59%
43.59%
£’000
163.5
98.0
Cash
81.75
49.0
Shares
81.75
49.0
The bonus is paid 50% in cash and 50% in shares. The shares are released to executives after three years subject to continued
employment. Both the cash and share element of the bonus are subject to clawback. See page 40 for further details.
Vesting of EPSP awards
The EPSP award granted on 28 July 2011 is based on performance over the three years ended 30 April 2014. As disclosed in
previous annual reports, the performance condition for this award was as follows:
Metric
EPS in third year (50%)
ROCE – average over the 3 years (50%)
Total Vesting
Threshold
Target Stretch Target
Actual
%
Vesting
38.5p
47.2p
13.5% 13.85%
35.1p
11.6%
Nil
Nil
Nil
EPSP awards made during the year
On 9 July 2013, the following EPSP awards were granted to Executive Directors:
Executive
Type of award
R L Contreras
Nil cost option
C J R Muir
Nil cost option
Basis of award
granted
150% of
salary of
£375,000
150% of
salary of
£225,000
Share price at
25 June 2013
Number of
shares over
which award
(1) was granted
Face value of
award
(£)
% of face
value that
would vest at
threshold
performance
Vesting determined by
performance
over
339.5p
165,684
562,497
25%
339.5p
99,410
337,497
25%
Three financial
years to
30 April 2016
Note 1: The closing price on the date of the Preliminary Announcement of the results for FY2012/13.
46 Northgate plc
Annual report and
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15/07/2014 12:59
Percentage change in remuneration levels
CEO (£’000)
salary
–
– benefits
– bonus
Average per UK employee (£)
salary
–
– benefits
– bonus
2013
2014
% change
375
18
–
375
18
163
Nil
Nil
–
21,791
1,488
49
22,826
1,612
701
4.7
8.3
1,330.3
This shows the movement in the salary, benefits and annual bonus for the CEO between the current and previous financial
year compared to that for the average UK employee. The Committee has chosen this comparator as it feels that it provides a
more appropriate reflection of the earnings of the average worker than the movement in the group’s total wage bill, which is
distorted by movements in the number of employees and variations in wage practices in Spain.
Performance Graph
As required by Schedule 8 of the Large and Medium-sized 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 benchmark. The mid-market price of the Company’s Ordinary shares at 30 April 2014 was 518.5p (30 April
2013 – 339p). The range during the year was 325p to 615p.
The chart below shows the Company’s TSR performance against the performance of the FTSE 250 index from 30 April 2009
to 30 April 2014. The FTSE 250 index was chosen as being a broad equity market index, which includes companies of a
comparable size and complexity.
Total shareholder return
Source: Thomson Reuters
)
£
(
e
u
l
a
V
300
250
200
150
100
50
0
30-Apr-09
30-Apr-10
30-Apr-11
30-Apr-12
30-Apr-13
30-Apr-14
This graph shows the value, by the 30 April 2014, of £100 invested in Northgate on 30 April 2009 compared with that of £100 invested in the FTSE
250 (Excl. Inv. Trusts) Index. The other points ploˆed are the values at intervening financial year-ends.
Northgate plc
FTSE 250 (Excl. Inv. Trusts) Index
47 Northgate plc
Annual report and
accounts 2014
Governance
Remuneration report
c109372.indb 47
15/07/2014 12:59
Remuneration report continued
Total remuneration for CEO
Total Remuneration (£’000)
Annual bonus (% of maximum)
Long term incentive vesting (% of maximum)
2010
831
76%
0%
Year ended 30 April
2011
2012
2013
2014
821
100%
0%
1,115
100%
100%
859
628
0% 43.59%
0%
331⁄3%
This shows the total remuneration figure for the CEO during each of those financial years. The total remuneration figure
includes the annual bonus and EPSP awards which vested based on performance periods ending in those years. The annual
bonus and EPSP percentages show the payout for each year as a percentage of the maximum. In years when there was a
change of CEO, the figures shown are the aggregate for the office holders during that year.
Relative importance of spend on pay
Staff costs
Dividends
2013
2014
% increase
£77.7m
£5.7m
£85.0m
£12.3m
9.4%
115.8%
The table above shows the movement in spend on staff costs versus that in dividends.
Outstanding share awards
The tables below set out details of Executive Directors’ outstanding share awards.
R L Contreras
Scheme
Grant
Date
EPSP 12.10.09
EPSP 11.08.10
EPSP 28.07.11
EPSP 17.08.12
EPSP 09.07.13
DABP 11.08.10
DABP 30.08.11
DABP 30.08.11
DABP 30.08.11
DABP 20.07.12
Exercise
Price
(p)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
327.9
Nil
Nil
Number of
shares at
1 May
2013
130,952
302,593
171,546
269,138
–
29,719(1)
9,149(2)
9,149(3)
44,220(1)
78,947(1)
Granted
during
year
–
–
–
–
165,684
–
–
–
–
–
Vested
during
year
–
100,864
–
–
–
29,719
–
–
–
–
Exercised
during
year
–
–
–
–
–
–
–
–
–
–
Lapsed
during
year
–
201,729
–
–
–
–
–
–
–
–
Number of
shares at
30 April
2014
130,952
100,864
171,546
269,138
165,684
29,719
9,149
9,149
44,220
78,947
End of Per-
formance
Period
30.04.12
30.04.13
30.04.14
30.04.15
30.04.16
–
–
–
–
–
Vesting
date
Exercise
period
12.10.12 12.10.12 – 12.10.19
11.08.13 11.08.13 – 11.08.20
28.07.14 28.07.14 – 28.07.21
17.08.15 17.08.15 – 17.08.22
09.07.16 09.07.16 – 09.07.23
11.08.13 11.08.13 – 11.08.15
30.08.14 30.08.14 – 30.08.21
30.08.14 30.08.14 – 30.08.21
30.08.14 30.08.14 – 30.08.21
20.07.15 20.07.15 – 20.07.22
48 Northgate plc
Annual report and
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C J R Muir
Scheme
Grant
Date
EPSP 28.07.11
EPSP 17.08.12
EPSP 09.07.13
MPSP 12.10.09
MPSP 11.08.10
DABP 12.10.09
DABP 11.08.10
DABP 30.08.11
DABP 30.08.11
DABP 20.07.12
DABP 20.07.12
DABP 20.07.12
Exercise
Price
(p)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
327.9
Nil
209
Nil
Number of
shares at
1 May
2013
80,054
143,450
–
28,571
14,973
15,873(1)
9,337(1)
7,295(4)
7,295(3)
2,908(5)
2,908(3)
33,934(1)
Granted
during
year
–
–
99,410
–
–
–
–
–
–
–
–
–
Vested
during
year
–
–
–
–
6,328
–
9,337
–
–
–
–
–
Exercised
during
year
–
–
–
28,571
–
15,873
–
–
–
–
–
–
Lapsed
during
year
–
–
–
–
8,645
–
–
–
–
–
–
–
Number of
shares at
30 April
2014
80,054
143,450
99,410
–
6,328
–
9,337
7,295
7,295
2,908
2,908
33,934
End of Per-
formance
Period
30.04.14
30.04.15
30.04.16
30.04.12
30.04.13
–
–
–
–
–
–
–
Vesting
date
Exercise
period
28.07.14 28.07.14 – 28.07.21
17.08.15 17.08.15 – 17.08.22
09.07.16 09.07.16 – 09.07.23
12.10.12
11.08.13 11.08.13 – 11.08.20
12.10.12
11.08.13 11.08.13 – 11.08.15
30.08.14 30.08.14 – 30.08.21
30.08.14 30.08.14 – 30.08.21
20.07.15 20.07.15 – 20.07.22
20.07.15 20.07.15 – 20.07.22
20.07.15 20.07.15 – 20.07.22
The share price at 30 April 2014 was 518.5p.
DABP: 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 an HMRC Approved Option (an ’Approved Option’). The face value of Approved Options held at any one
time may not exceed £30,000. The value of a Linked Deferred Award is capped at the original face value. Related Linked Deferred Awards and Approved Options
must be exercised at the same time unless the Approved Option is ‘underwater’ and therefore lapses.
Note 1: Deferred Award
Note 2: Linked Deferred Award with a capped value of £30,000
Note 3: Approved Option
Note 4: Linked Deferred Award with a capped value of £23,920
Note 5: Linked Deferred Award with a capped value of £6,078
Outstanding EPSP awards
2010 – The performance period for this award ended on
30 April 2013 and details of the award are set out in last
year’s Remuneration Report. The performance condition was
partially met and one-third of the award vested. The share
price on the date of vesting was 391.75p.
2011 – The performance period for this award ended on
30 April 2014. Details of the performance condition of these
awards and the number of shares to vest are set out above.
2012 and 2013 awards – The performance period for these
awards end on 30 April 2015 and 2016 respectively. Both
awards are subject to the same EPS target, requiring EPS
growth of CPI + 3% to CPI + 11% p.a. They also have a
ROCE target, being the average over the three years of the
performance period, being 13.75% to 14.41% for the 2012
award and 11.5% to 12.4% for the 2013 award.
SIP
The SIP, which is approved by HMRC 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 SIP operates under a trust deed, the Trustees being
Capita IRG Trustees Limited (“the Capita Trust”).
To participate in the SIP, 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 thirteenth annual cycle ended in December 2013 and
resulted in 366 employees acquiring 103,237 Partnership
shares at 309.75p each and being allocated the same
number of Matching shares. As at 30 April 2014 the Capita
Trust held 1,542,981 50p Ordinary shares that have been
allocated to employees from the first 13 cycles.
The fourteenth annual cycle started in January 2014 and
currently some 476 employees are making contributions to
the scheme at an annualised rate of £429,000.
During the year, an award of 150 Free shares was made
to all eligible employees with one year’s service. The total
number of shares awarded was 183,300.
The Executive Directors are entitled to participate in this
scheme and to receive both Matching and Free shares.
49 Northgate plc
Annual report and
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Remuneration report continued
Sourcing of shares
Shares to satisfy the requirements of the Group’s existing
share schemes are currently sourced as follows:
At 30 April 2014 the Capita Trust held 32,079 (2013 –
22,891) Ordinary shares which had been forfeited as a result
of early withdrawals post January 2014.
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 790,000 (2013 – 875,000) Ordinary shares
were purchased by the Guernsey Trust and 451,141 (2013 –
457,582) were used to satisfy the exercise of awards under
the DABP and MPSP. At 30 April 2014 the Guernsey Trust
held 116,063 (2013 – 98,037) 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.
SIP
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
2014 was 206,474 (2013 – 291,024) of which 137,833
were transferred from the Guernsey Trust, with the balance
of 68,641 (2013 – 51,525) being shares already held by the
Capita Trust from forfeiture during the year. The 183,300
free shares referred to above were also sourced from the
Guernsey Trust.
Overall plan limits and clawback
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 2014 was 1.79% under
the EPSP, MPSP and DABP and 2.26% under the SIP.
In line with current best practice guidelines, the Committee
has introduced clawback provisions into the rules of all
discretionary schemes, which can be invoked in the event of
financial misstatement, gross misconduct or fraud and which
apply to all awards made from 2010 onwards.
Directors’ shareholding and share interests
The Executive Directors are required to build up a
shareholding equivalent to 100% of salary, to be achieved
primarily through the retention, after tax, of share options
exercised under the long term incentive share plans, until
such time as their share ownership target has been met.
Directors are not required to go into the market to purchase
shares, although any shares so acquired would count
towards meeting the guidelines. The Chairman and Non-
Executive Directors are not subject to a formal shareholding
guideline. Details of the Directors’ interests in shares are
shown in the table below:
Share Interests
Director
R L Contreras
C J R Muir
R D Mackenzie
A J Allner
J G Astrand
T H P Brown
G Caseberry
Beneficially
owned at
30 April
2014
119,286
59,171
100,000
13,090
51,920
52,634
–
Outstanding EPSP awards
Outstanding DABP awards
Vested but not
exercised
231,816
6,328
–
–
–
–
–
Not vested
606,368
322,914
–
–
–
–
–
Vested but not
exercised
29,719
9,337
–
–
–
–
–
Interests in SIP
subject to
forfeiture
2,194
2,195
–
–
–
–
–
Not vested
132,316
44,137
–
–
–
–
–
%
shareholding
guideline
achieved at
30 April
2014
161.9
131.3
N/A
N/A
N/A
N/A
N/A
No changes in the above interests have occurred between 30 April 2014 and the date of this report.
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Remuneration for FY2015
2014 Salary Review
The Executive Directors' salaries were reviewed in April 2014
and increased as set out in the Chairman's Annual Statement
on page 37.
The current salaries as at 1 May 2014 are as follows:
R L Contreras
C J R Muir
Salary as at
1 May 2013
Salary as at
1 May 2014
£375,000
£225,000
£400,000
£250,000
Increase
6.7%
11.1%
Fees for the Chairman and Non Executive Directors
As detailed in the Remuneration Policy, the company’s
approach to setting Non-Executive Directors’ remuneration
is with reference to market levels in comparably sized FTSE
companies, levels of responsibility and time commitments. A
summary of current fees is as follows:
Chairman
Base fee
Senior Independent
Director
Audit Committee
Chairman
Remuneration
Committee Chairman
Fee as at
1 May 2013
Fee as at
1 May 2014
£160,000
£50,000
£160,000
£55,000
£10,000
£10,000
£10,000
£10,000
Increase
0%
10%
0%
0%
£8,000
£10,000
25%
Fees were last reviewed at 1 May 2011.
Performance targets for the annual bonus and EPSP
awards to be granted in 2014
For 2014, the annual bonus will be based on PBT as to 75%
and a range of strategic and operational objectives for the
remaining 25%, with a ROCE underpin.
The Committee has chosen not to disclose, in advance,
the performance targets for the annual bonus for
the forthcoming year as these include items which
the Committee considers commercially sensitive. Full
retrospective disclosure of the targets and performance
against them will be seen in next year’s Annual
Remuneration Report.
The EPSP awards granted in 2014 will be subject to two separate performance conditions, with EPS accounting for 60% of
the award and ROCE for the remaining 40%. The performance conditions are as follows:
Performance condition
EPS (60% of award)
ROCE (40% of award)
Threshold Target
(25% vesting)
Stretch Target
(100% vesting)
End Measurement
Point
CPI + 3% p.a.
11.7%
CPI + 11% p.a.
12.6%
Final year of the performance period
Average of the three years of the performance period
In addition, no awards will vest unless the Committee
is satisfied that the underlying financial and operational
performance of the business has been satisfactory.
Award levels for 2014 will be 150% of salary for the EPSP
for both the CEO and FD and 150% of salary for the CEO
and 100% of salary for the FD for the DABP.
Statement of shareholder voting and shareholder
feedback
At last year's AGM, voting against the Remuneration Report,
at 2% of the total votes cast, was not significant.
Approval
This Directors’ Remuneration Report, including both the
Remuneration Policy and Annual Remuneration Report has
been approved by the Board of Directors.
Signed on behalf of the Board of Directors.
Tom Brown
Chairman of the Remuneration Committee
24 June 2014
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Governance
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Report of the audit and
risk committee
Role
Meetings
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:
• monitoring the integrity of financial reporting, reviewing the
Group’s internal controls and risk management systems and
monitoring the effectiveness of the Group’s internal audit
function;
The Committee is required to meet at least three times a
year. Details of attendance at meetings held in the year
ended 30 April 2014 are given on page 54.
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 2013, the Committee has:
• making recommendations to the Board regarding the
• reviewed the financial statements for the years ended
appointment of the external auditor including responsibilities
for the statutory audit tender process and approving their
remuneration and terms of engagement;
• monitoring the independence and objectivity of the external
auditor and developing a policy for the provision of non-
audit services by the external auditor;
• monitoring the audit process and any issues arising
therefrom, and
• 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
30 April 2013 and 2014, the half yearly report issued in
December 2013 and Interim Management Statements
issued in September 2013 and March 2014. As part of
this review process, the Committee received reports from
Deloitte LLP on the full and half year results;
• reviewed and agreed the scope of the audit work to be
undertaken by Deloitte LLP and agreed their fees;
• monitored the Group’s risk management process and
business continuity procedures;
• reviewed the effectiveness of the Group’s system of
internal controls;
• reviewed the Group’s whistleblowing procedures;
• reviewed a report on completeness of income;
• reviewed the Group’s depreciation policy;
• reviewed the Group’s corporate taxation arrangements;
The members of the Committee, who are all non-executive
Directors of the Company, are:
• monitored and reviewed the activities of the Group’s
internal audit department;
• reviewed a report on impairment;
• monitored the Group’s going concern status;
• approved the reappointment 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
• reviewed its own effectiveness and terms of reference.
Date of appointment
Qualification
AJ Allner (Chairman) 26 September 2007
THP Brown
G Caseberry
10 December 2012
FCA
8 June 2005 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.
Jan Astrand stood down from the Committee in
November 2013.
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account input from management, consideration of
responses to questions from the Committee and the audit
findings reported to the Committee, including conducting
one-to-one meetings with the audit partner. Based on all of
this information the Committee concluded that the external
audit process was operating effectively.
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 77.
Re-appointment of the external auditor
The re-appointment of Deloitte LLP as the Group’s external
auditor (incumbent since 1988) was reviewed during the
year. The Group intends to put the audit out to tender to
allow appointment for the year ending April 2016 audit,
coinciding with the requirement for the Group audit partner
to rotate off. The Group intends to then put the audit out
to tender at least every ten years as required by the UK
Corporate Governance Code.
Internal audit
In fulfilling its duty to monitor the effectiveness of the
internal audit function, the Committee has:
• reviewed the adequacy of the resources of the internal
audit department for both the UK and Spain;
• ensured that the head of internal audit has direct access
to the Chairman of the Board and to all members of the
Committee;
• conducted a one-to-one meeting with the head of
internal audit, approved the internal audit programme and
reviewed 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 2014
Significant issues considered in relation to the financial
statements
During the year the Committee considered, discussed with
the external auditor and concluded on what the significant
risks and issues were in relation to the financial statements
and how these would be addressed:
• Determining appropriate depreciation rates for
vehicles available for hire – in addition to a monthly
review of profits on disposal (or profits per unit), the
Committee reviewed formal papers prepared by
management at each reporting date which included a
qualitative assessment of the current and forecast trends in
the used vehicle market. After due challenge and debate,
the Committee were content with the assumptions and
judgments made;
• The recoverability of aged debtors – throughout
the period, ageing analysis is reported in the monthly
management accounts and commentary against prior year
and plan is provided, with specific assessments of at risk
customers. The Committee ensured that management
dedicated sufficient resources to mitigate bad debt risk
across the Group;
• Presumed risk of fraud in revenue recognition and
management override of controls – the Committee
considered the presumed risks of fraud as defined by
auditing standards and was content that there were no
issues arising, and
• Financial statements – the Committee considered the
presentation of the financial statements, and in particular,
the analysis between underlying and statutory disclosures.
We were satisfied with management’s presentation.
External auditor
The Board’s policy on non-audit services provided by the
external auditor, developed and recommended by the
Committee, is:
• 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
• Tax compliance, tax advisory and other non-audit related
and general consultancy work: this type of work will
either be placed on the basis of the lowest fee quote or
to consultants who are felt to be best able to provide the
expertise and working relationship required. Generally, the
external auditor will not be invited to compete for this type
of work.
During the year, the Committee reviewed the effectiveness
and independence of the external auditor, taking into
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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:
1 Leadership
The business of the Company is managed by the Board of
Directors, currently comprising two executive and five non-
executive Directors, details of whom are shown on pages 6
and 7.
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.
2 Effectiveness
The Chairman ensures that all Directors are properly briefed
to enable them to discharge their duties. In particular,
detailed management accounts are prepared and copies sent
to all Board members every month and, in advance of each
Board meeting, appropriate documentation on all items to
be discussed is circulated.
Directors’ attendance at Board and Committee meetings
during the year is detailed below.
Board
Audit and risk
Remuneration
No. of Meetings
RD Mackenzie
AJ Allner
JG Astrand*
THP Brown
G Caseberry
RL Contreras
CJR Muir
9
9
9
9
9
8
9
9
4
–
4
2
4
4
–
–
5
5
5
2
5
4
–
–
*
Jan Astrand stood down from the Audit and Remuneration Committees in
November 2013.
All Directors in office at that time were present at the Annual
General Meeting held in September 2013.
The external auditor and the head of internal audit attended
all Audit and Risk Committee meetings.
Before appointment, non-executive Directors are required to
assure the Board that they can give the time commitment
necessary to properly fulfil their duties, both in terms of
availability to attend meetings and discuss matters on the
telephone and meeting preparation time.
Jan Astrand’s appointment in December 2011 as non-
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.
The Board has established a Nominations Committee, which
is chaired by Bob Mackenzie. All the non-executive Directors
are members except for Jan Astrand. 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.
Pursuant to those provisions of the Companies Act 2006
relating to conflicts of interest and in accordance with the
authority contained in the Company’s Articles of Association,
the Board has put in place procedures to deal with the
notification, authorisation, recording and monitoring of
Directors’ conflicts of interest and these procedures have
operated effectively throughout the year and to the date of
signing of this report and accounts.
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, the Board has endorsed an 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
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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.
Board review
The Board undertook a formal evaluation of its own
performance and that of its committees and individual
Directors during the year. The Code requires that the
Company conduct an externally facilitated evaluation every
three years and accordingly after a thorough competitive
process the 2014 Board performance evaluation was
facilitated by Duncan Reed of Condign Board Consulting Ltd,
a company which specialises in board effectiveness work.
Mr Reed and Condign have no other connection with the
Company.
The evaluation process consisted of a structured interview
with the Chairman, each Director, the Company Secretary
and the Managing Director of the Spanish business, with
an outline of the topics to be covered in the interview sent
to each in advance. The evaluation also included the review
of relevant board papers and Mr Reed attended both board
and board committee meetings. The outcome of the review
was initially discussed with the Chairman and the Senior
Independent Director, followed by a presentation to the full
board and an open discussion.
The review concluded that basic board governance is in
good repair and that the board was ‘notably commercial’
and ‘business-focussed’. Robust and challenging discussions
are had, in an open and cooperative environment. The
engagement by the board with new strategy development at
a group level was highlighted and accepted as an increasing
priority, alongside the need to set risk appetite appropriately,
as was the board’s proactive succession planning function
through the Nominations Committee.
The non-executive Directors, led by the Senior Independent
Director, will shortly evaluate the performance of the
Chairman with input from the externally facilitated
evaluation. The Chairman will do the same in relation to the
Directors. The Board continues to believe that the Directors
have strong familiarity with the Group and its businesses and
contribute multiple perspectives and, importantly, ongoing
independent judgment.
Recommendations which will be implemented following
the 2014 Board performance evaluation include making
time available for the board to discuss the forward agenda
planner, to ensure that the right topics are being covered
at the right times and to flag opportunities for further input
from the directors; the board reporting is to be overhauled
to reduce its length and to inject more narrative and
improve selectivity of information; in addition to current
arrangements, the board will meet with the CEO alone
once a year and once as an occasion for non-executive
Directors only; and there will be an ongoing emphasis – at
the Nominations Committee and at the Board – on formal
succession planning to ensure the composition of the Board
is progressively refreshed over the next two years to reflect
the needs of the Group as it develops and expected rotation.
3 Accountability
An assessment of the Company’s position and prospects is
included in the Chairman’s Statement on pages 4 and 5 and
in the Strategic report on pages 9 to 32.
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:
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
55 Northgate plc
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Corporate governance continued
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.
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
52 and 53.
4 Remuneration
The Company’s policy on remuneration and details of the
remuneration of each Director are given in the Remuneration
Report on pages 37 to 51.
5 Relations with shareholders
Throughout the year the Company maintains a regular
dialogue with institutional investors and brokers’ analysts,
providing them with such information on the Company’s
progress and future plans as is permitted within the
guidelines of the Listing Rules. In particular, twice a year,
at the time of announcing the Company’s half and full
year results, they are invited to briefings given by the Chief
Executive and 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
other non-executives may attend these briefings and, in any
event, would attend if requested to do so.
All shareholders are given the opportunity to raise matters
for discussion at the Annual General Meeting, of which
more than the recommended minimum 20 working days
notice is given. In compliance with the Transparency Rules,
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.
By order of the Board
D Henderson
Secretary
24 June 2014
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.
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
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Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and accounts in accordance with applicable law and
regulations.
Responsibility statement
We confirm that to the best of our knowledge:
• 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 strategic 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.
The directors are responsible for preparing the Annual
Report in accordance with applicable law and regulations.
Having taken advice from the Audit Committee, the Board
considers the report and accounts, taken as a whole, to
be fair, balanced and understandable and that it provides
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
By order of the Board
Bob Contreras
Chief Executive Officer
24 June 2014
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:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance, and
• make an assessment of the 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.
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Independent auditor’s report
to the members of Northgate plc
Opinion on financial statements of Northgate plc
In our opinion:
• the financial statements give a true and fair view of the
state of the group’s and of the parent company’s affairs as
at 30 April 2014 and of the group’s profit for the year then
ended;
• the group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
• the parent company financial statements have been
properly prepared in accordance with IFRSs 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.
The financial statements comprise the Consolidated Income
Statement, the Group and Parent Company Statement of
Comprehensive Income, the Group and Parent Company
Balance Sheets, the Group and Parent Company Cash Flow
Statements, the Notes to the Group and Parent Company
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 IFRSs 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.
Going concern
As required by the Listing Rules we have reviewed the
directors’ statement contained within the strategic report on
page 27 that the group is a going concern. We confirm that:
• we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the
financial statements is appropriate; and
• we have not identified any material uncertainties that may
cast significant doubt on the group’s ability to continue as a
going concern.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the group’s
ability to continue as a going concern.
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Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
Determining appropriate depreciation rates for vehicles
available for hire
This requires an estimate to be made of the sales proceeds
at the time of disposal. Determining likely sales proceeds for
future vehicle disposals is judgemental and requires estimates
to be made of future vehicle market values.
The recoverability of aged trade receivables
Determining the appropriate levels of provision for
irrecoverable trade receivables requires judgement relating
to the assessment across a large number of customers of the
likely levels of recovery of these receivables.
We reviewed the underlying assumptions used in the
calculation of expected future market values for each category
of hire vehicle by comparison to external third party data
for expected future market prices and likely vehicle disposal
volumes, including CAP valuations.
We performed detailed testing of the calculations supporting
these judgements, including comparison to recent actual
market prices achieved for vehicle disposals of similar vehicles.
We evaluated that provisions were calculated in accordance
with group policy.
To assess the reasonableness of provisions recorded we
reviewed the levels of post year end cash collections against
year end trade receivables and investigated the significant
individual overdue balances by reference to recent history of
recoveries on these balances and review of correspondence
with the customers.
The Audit Committee’s consideration of these risks is set out in the report of the Audit and Risk committee.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a
whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above, and we do not express an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of misstatement
in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.
We determined materiality for the group to be £3.6 million,
which is 7% of pre-tax profit, and below 1% of equity.
We agreed with the Audit Committee that we would report
to the Committee all audit differences in excess of £72,000,
as well as differences below that threshold which, in our
view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding
of the group and its environment, including group-wide
controls, and assessing the risks of material misstatement
at the group level. Based on that assessment, we focused
our group audit scope primarily on the audit work at two
locations, in Darlington and Madrid, which represent all of
the group’s principal trading activities. The group audit team,
led by the senior statutory auditor, perform the audit work
at the head office and centralised UK finance function in
Darlington and an audit team from Deloitte in Spain perform
the audit work at the Spanish head office in Madrid.
The operations at these two locations were subject to a full
audit and represent the principal business units of the group,
accounting for 99% of the group’s net assets, the group’s
revenue and the group’s profit before tax. They were also
selected to provide an appropriate basis for undertaking
audit work to address the risks of material misstatement
identified above. Our audit work at these two locations was
executed at levels of materiality applicable to each individual
entity which were lower than group materiality. The other
components of the group, in Ireland and Malta, are not
significant to the group audit but were subject to full scope
audits at levels of materiality applicable to each individual
entity, for local statutory purposes.
59 Northgate plc
Annual report and
accounts 2014
Governance
Independent auditor’s
report
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Independent auditor’s report
to the members of Northgate plc continued
At the parent entity level we also tested the consolidation
process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material
misstatement of the aggregated financial information of
the remaining components not subject to audit or audit of
specified account balances.
The group audit team continue to follow a programme of
planned visits that has been designed so that the Senior
Statutory Auditor visits the significant component in Spain at
least annually.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006; and
• the information given in the Strategic Report and 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
Adequacy of explanations received and accounting
records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• we have not received all the information and explanations
we require for our audit; or
• 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 are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to
report if in our opinion certain disclosures of directors’
remuneration have not been made or the part of the
Directors’ Remuneration Report to be audited is not in
agreement with the accounting records and returns. We
have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the
part of the Corporate Governance Statement relating to
the company’s compliance with nine provisions of the UK
Corporate Governance Code. We have nothing to report
arising from our review.
Our duty to read other information in the
Annual Report
Under International Standards on Auditing (UK and
Ireland), we are required to report to you if, in our opinion,
information in the annual report is:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the group acquired in
the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the directors’ statement
that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately
discloses those matters that we communicated to the
audit committee which we consider should have been
disclosed. We confirm that we have not identified any such
inconsistencies or misleading statements.
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. Our audit methodology and tools aim to ensure
that our quality control procedures are effective, understood
and applied. Our quality controls and systems include our
dedicated professional standards review team, strategically
focused second partner reviews and independent partner
reviews.
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.
60 Northgate plc
Annual report and
accounts 2014
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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.
In addition, we read all the financial and non-financial
information in the annual report to identify material
inconsistencies with the audited financial statements and
to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
Christopher Powell FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
24 June 2014
61 Northgate plc
Annual report and
accounts 2014
Governance
Independent auditor’s
report
c109372.indb 61
15/07/2014 12:59
Consolidated income statement
For the year ended 30 April 2014
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
2014
£000
442,271
129,207
Statutory
2014
£000
442,271
129,207
Underlying
2013
£000
441,944
167,936
Statutory
2013
£000
441,944
167,936
571,478
571,478
609,880
609,880
(434,777)
(434,777)
(466,405)
(466,405)
136,701
136,701
143,475
143,475
(64,065)
–
–
(64,065)
(6,197)
(2,900)
(57,071)
–
–
(57,071)
(3,337)
(3,589)
(64,065)
(73,162)
(57,071)
(63,997)
72,636
24
63,539
24
86,404
123
79,478
123
(12,386)
–
(12,386)
–
(37,029)
–
(37,029)
(53,954)
(12,386)
(12,386)
(37,029)
(90,983)
60,274
(13,456)
51,177
(11,294)
49,498
(10,657)
(11,382)
4,025
9
46,818
39,883
38,841
(7,357)
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
35.1p
34.3p
29.9p
29.3p
29.2p
28.3p
(5.5)p
(5.5)p
62 Northgate plc
Annual report and
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15/07/2014 12:59
Statements of comprehensive income
For the year ended 30 April 2014
Amounts attributable to the owners of the Parent
Company
Profit (loss) 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
Foreign exchange difference on revaluation reserve
Net fair value gains on cash flow hedges
Deferred tax charge 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
2014
£000
2013
£000
Company
2014
£000
2013
£000
Notes
39,883
(7,357)
4,842
23,888
30
30
26
29
29
32
32
(3,589)
6,725
1,772
(32)
48
(4,132)
46
16,115
–
–
–
48
–
–
–
14,817
(10)
(4,301)
(10)
(3,984)
(199)
(490)
42
115
–
–
–
–
Total other comprehensive income
(1,968)
14,078
38
10,833
Total comprehensive income for the year
37,915
6,721
4,880
34,721
* These items will not be reclassified subsequently to the consolidated income statement.
63 Northgate plc
Annual report and
accounts 2014
Accounts
Statements of
comprehensive income
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15/07/2014 12:59
Balance sheets
As at 30 April 2014
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
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
2014
£000
2013
£000
Company
2014
£000
Notes
2013
£000
–
77
–
2,582
2,582
3,589
5,467
614,927
73,575
3,589
7,431
589,161
78,321
688,502
667,482
–
47
–
2,520
2,520
712
9,396
–
–
4,688
–
712
926
120,893
–
997
122,892
707,666
683,190
125,098
126,548
19,076
78,861
–
19,056
19,192
77,417
5,862
14,962
–
806,502
–
1,120
–
889,274
–
3,396
116,993
117,433
807,622
892,670
824,659
800,623
932,720 1,019,218
58,931
–
6,320
7,465
52,592
–
1,090
7,314
287,829
–
–
21,403
375,581
1,517
–
442
72,716
60,996
309,232
377,540
44,277
56,437
498,390
515,130
664
357,668
2,878
–
370,371
2,604
664
357,668
–
–
370,371
–
361,210
372,975
358,332
370,371
433,926
433,971
667,564
747,911
390,733
366,652
265,156
271,307
66,616
113,508
1,082
(653)
67,463
(611)
(7,187)
40
150,475
66,616
113,508
1,235
(303)
67,463
(649)
(5,370)
40
124,112
66,616
113,508
1,371
–
63,159
38
–
40
20,424
66,616
113,508
1,371
–
63,159
–
–
40
26,613
390,733
366,652
265,156
271,307
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 2014.
They were signed on its behalf by: RD Mackenzie Director CJR Muir Director
64 Northgate plc
Annual report and
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Cash flow statements
For the year ended 30 April 2014
Group
2014
£000
2013
£000
Company
2014
£000
2013
£000
Net cash from (used in) operations
(a)
30,723
100,850
(11,189)
(28,870)
Investing activities
Interest received
Dividends received from subsidiary undertakings
Proceeds from disposal of other property, plant and equipment
Purchases of other property, plant and equipment
Purchases of intangible assets
Liquidation of subsidiary undertaking
24
–
1,182
(5,509)
(945)
–
123
–
1,760
(8,744)
(1,396)
–
1
35,000
–
–
–
–
80
123,000
–
–
(90)
2
Net cash (used in) from investing activities
(5,248)
(8,257)
35,001
122,992
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 subsidiary undertakings
Settlement of financial instruments with subsidiary undertaking
Payments to acquire own shares for share schemes
Termination of financial instruments
(12,234)
1,140
(7,469)
–
–
–
–
(2,803)
–
(5,719)
369,871
(410,140)
(3,354)
(23,202)
–
–
(1,988)
(12,830)
(12,234)
–
(7,102)
–
–
(19,298)
(5,367)
(2,803)
–
(5,719)
369,871
(399,643)
(3,354)
(23,202)
(21,296)
5,479
(1,988)
(12,830)
Net cash used in financing activities
(21,366)
(87,362)
(46,804)
(92,682)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 May
Effect of foreign exchange movements
4,109
14,962
(15)
5,231
9,707
24
(22,992)
2,954
(245)
Cash and cash equivalents at 30 April
(b)
19,056
14,962
(20,283)
1,440
964
550
2,954
65 Northgate plc
Annual report and
accounts 2014
Accounts
Cash flow statements
c109372.indb 65
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Notes to the cash flow statements
For the year ended 30 April 2014
(a) Net cash from (used in) operations
Operating profit (loss)
Adjustments for:
Depreciation of property, plant and equipment
Impairment 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
Increase in non-vehicle inventories
(Increase) decrease in receivables
Increase (decrease) in payables
Cash generated from operations
Income taxes (paid) received, net
Interest paid
Net cash generated from (used in) operations
Purchase of vehicles
Proceeds from disposal of vehicles
Group
2014
£000
2013
£000
Company
2014
£000
2013
£000
63,539
79,478
(15,305)
(2,912)
165,327
1,916
7
2,900
51
1,203
234,943
(1,637)
(1,172)
3,315
235,449
(4,338)
(11,302)
163,313
–
(5)
3,589
445
1,502
248,322
(166)
20,185
(9,911)
258,430
(16,828)
(31,448)
219,809
(301,365)
112,279
210,154
(255,193)
145,889
62
–
–
30
–
1,203
(14,010)
–
19,993
(3,893)
2,090
2,897
(16,176)
(11,189)
–
–
61
–
–
13
–
1,502
(1,336)
–
1,671
694
1,029
–
(29,899)
(28,870)
–
–
Net cash from (used in) operations
30,723
100,850
(11,189)
(28,870)
(b) Cash and cash equivalents
Cash and cash equivalents comprise:
Cash and bank balances
Bank overdrafts
Cash and cash equivalents
Group
2014
£000
2013
£000
Company
2014
£000
2013
£000
19,056
–
14,962
–
1,120
(21,403)
3,396
(442)
19,056
14,962
(20,283)
2,954
66 Northgate plc
Annual report and
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Statements of changes in equity
For the year ended 30 April 2014
Group
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
Total equity at 1 May 2013
Share options fair value charge
Share options exercised
Profit 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 from revaluation reserve
Share
capital
and share
premium
£000
180,124
–
–
–
–
–
–
–
–
180,124
–
–
–
–
–
–
–
–
Own
shares
reserve
£000
(685)
–
–
–
–
(1,988)
2,370
–
–
(303)
–
–
–
–
(2,803)
2,453
–
–
Hedging
reserve
£000
Translation
reserve
£000
(14,247)
–
–
(7,963)
–
–
Other
reserves
£000
68,692
–
–
Retained
earnings
£000
140,215
1,502
(2,370)
Total
£000
366,136
1,502
(2,370)
(7,357)
(5,719)
(1,988)
2,370
14,078
–
–
–
–
–
46
–
(7,357)
(5,719)
–
–
(375)
(1,784)
68,738
–
–
124,112
1,203
(2,453)
366,652
1,203
(2,453)
–
–
–
39,883
(12,234)
–
39,883
(12,234)
(2,803)
–
(1,817)
–
–
(32)
(121)
–
(157)
121
2,453
(1,968)
–
–
–
–
–
6,112
(3,519)
(5,370)
–
–
–
–
–
–
–
–
–
8,295
5,303
(649)
–
–
–
–
–
–
38
–
Total equity at 30 April 2014
180,124
(653)
(611)
(7,187)
68,585
150,475
390,733
Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve.
Company
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
Total equity at 1 May 2013
Share options fair value charge
Profit attributable to owners of the
Parent Company
Dividends paid
Other comprehensive income
Share
capital
and share
premium
£000
180,124
–
Revaluation
reserve
£000
1,371
–
–
–
–
–
–
–
–
–
180,124
–
1,371
–
–
–
–
–
–
–
Total equity at 30 April 2014
180,124
1,371
Hedging
reserve
£000
(12,617)
–
–
–
10,833
1,784
–
–
–
–
38
38
Merger
reserve
£000
63,159
–
–
–
–
–
63,159
–
–
–
–
Capital
redemption
reserve
£000
Retained
earnings
£000
Total
£000
40
–
–
–
–
–
40
–
–
–
–
8,727
1,502
240,804
1,502
23,887
(5,719)
–
(1,784)
26,613
1,203
23,887
(5,719)
10,833
–
271,307
1,203
4,842
(12,234)
–
4,842
(12,234)
38
63,159
40
20,424
265,156
67 Northgate plc
Annual report and
accounts 2014
Accounts
Statements of changes
in equity
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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 112. The nature of the Group’s operations and its principal activities are set out in Note 4 and in the
strategic report on pages 9 to 32.
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
page 27 of the Financial Review.
Changes in accounting policy
IAS 19, ‘Employee benefits’ was amended in June 2011. The impact on the Group was to replace interest cost and expected
return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit
asset or liability. The impact of this in the income statement is less than £0.1 million. Prior year numbers have not been
restated as the amounts are not considered material.
IFRS 13, 'Fair value measurement' has not been applied as the impact is not considered to be material.
Various other new accounting standards and amendments were issued during the year, none of which have had or are
expected to have any significant impact on the Group and effects will principally relate to amendment and extension of
current disclosures.
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 2013 and
30 April 2014.
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary undertaking are measured at their fair values
at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is
recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired
(i.e. discount on acquisition) is credited to the income statement in the period of acquisition.
Where necessary, adjustments are made to the accounts of subsidiary undertakings to bring the accounting policies used
into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
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2 Principal accounting policies continued
Revenue recognition
Group revenue is measured at the fair value of the consideration received or receivable in respect of the hire of vehicles,
sale of used vehicles and the supply of related goods and services in the normal course of business, net of value added tax
and discounts.
Revenue from vehicle 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.
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.
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2 Principal accounting policies continued
Fixed asset investments
Fixed asset investments are shown at cost less any provision for impairment.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less selling costs and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been
adjusted.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable
amount. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of
any goodwill allocated to cash generating units and then to reduce the carrying amount of other assets in the unit on a pro
rata basis.
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.
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.
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Notes to the accounts continued
2 Principal accounting policies continued
Financial instruments and hedge accounting
Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provision of the instrument.
Trade receivables are non-interest bearing and are stated at their nominal value less any appropriate provision for irrecoverable
amounts. Trade payables are non-interest bearing and are stated at their nominal value.
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from
operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue
derivative financial instruments for trading purposes.
Derivative financial instruments are stated at fair value. Any gain or loss on remeasurement to fair value is recognised
immediately in the income statement except where derivatives qualify for hedge accounting, where recognition of the
resultant gain or loss depends on the nature of the items being hedged.
The fair value of cross-currency and interest rate derivatives is the estimated amount that the Group would receive or pay to
terminate the derivative at the balance sheet date, taking into account current interest rates and the current creditworthiness
of the derivative counterparties.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows
are recognised directly in equity and the ineffective portion is recognised in the income statement. 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 forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the
gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the
cost of the non-financial asset or non-financial liability.
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.
Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand and bank overdrafts.
Bank loans, other loans, loan notes and issue costs
Bank loans, other loans and loan notes are stated at the amount of proceeds after deduction of issue costs, which are
amortised over the period of the loan. Finance charges, including premiums payable on settlement or redemption and direct
issue costs, are accounted for in the income statement on an accruals basis.
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2 Principal accounting policies continued
Foreign currencies
Transactions in foreign currencies other than UK Sterling are recorded at the rate prevailing at the date of the transaction or at
the contracted rate if the transaction is covered by a forward exchange contract. At each balance sheet date, monetary assets
and liabilities 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.
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.
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Notes to the accounts continued
2 Principal accounting policies continued
The Group also operates group personal pension plans. The costs of these plans are charged to the income statement as they
fall due.
Employee share schemes and share based payments
The Group has applied the requirements of IFRS 2 (Share-based Payment). The Group issues equity-settled payments to certain
employees.
Equity-settled employee schemes, including employee share options and deferred annual bonuses, provide employees with
the option to acquire shares of the Company. Employee share options and deferred annual bonuses are generally subject to
performance or service conditions.
The fair value of equity-settled payments is measured at the date of grant and charged to the income statement over the
period during which performance or service conditions are required to be met or immediately where no performance or
service criteria exist. The fair value of equity-settled payments granted is measured using the Black-Scholes model. The amount
recognised as an expense is adjusted to reflect the actual number of employee share options that vest, except where forfeiture
is only due to market based performance criteria not being met.
The Group also operates a share incentive plan under which employees each have the option to purchase an amount of
shares annually and receive an equivalent number of free shares. The Group recognises the free shares as an expense evenly
throughout the period over which the employees must remain in the employ of the Group in order to receive the free shares.
Interest income and finance costs
Interest income and finance costs are recognised in the income statement 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 material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
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.
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3 Critical accounting judgments and key sources of estimation uncertainty
In the process of applying the Group’s accounting policies, which are described in Note 2, the Directors have made the
following judgments that have the most significant effect on the amounts recognised in the accounts.
Depreciation
Vehicles for hire are depreciated on a straight line basis using depreciation rates that reflect economic lives of between three
and six years. These depreciation rates have been determined with the anticipation that the net book values at the point the
vehicles are transferred into inventories is in line with the open market values for those vehicles.
Under IAS 16 (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.
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.
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Notes to the accounts continued
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 strategic report.
Revenue: hire of vehicles
Revenue: sale of vehicles
Total revenue
Underlying operating profit (loss) *
Exceptional administrative expenses
Brand royalty charge
Intangible amortisation
Operating profit (loss)
Interest income
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
2014
£000
292,393
90,660
Spain
2014
£000
149,878
38,547
Corporate
2014
£000
–
–
Total
2014
£000
442,271
129,207
383,053
188,425
–
571,478
51,007
(5,450)
–
(2,284)
25,555
(626)
(5,029)
(586)
(3,926)
(121)
5,029
(30)
72,636
(6,197)
–
(2,900)
43,273
19,314
952
63,539
206,827
99,084
100,588
66,181
527,913
286,638
–
62
–
271,248
152,816
–
24
(12,386)
51,177
307,415
165,327
814,551
712
9,396
824,659
424,064
664
9,198
433,926
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Annual report and
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Accounts
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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
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
123
(37,029)
(53,954)
(11,382)
193,514
93,501
75,272
69,751
–
61
268,786
163,313
492,818
297,255
288,268
142,009
–
–
790,073
10,550
800,623
430,277
3,694
433,971
*
Underlying operating profit (loss) stated before intangible amortisation, intra-group brand royalty charge 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
2014
£000
Non-current
assets
2014
£000
Revenue
2013
£000
383,053
188,425
446,011
251,547
415,687
194,193
Non-current
assets
2013
£000
419,418
259,084
571,478
697,558
609,880
678,502
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.
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Notes to the accounts continued
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)
Auditor’s remuneration for non-audit services (below)
2014
£000
2013
£000
165,327
84,993
163,159
2,395
364
167
163,313
77,683
205,437
1,544
364
107
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
2014
£000
237
127
364
21
137
9
167
2013
£000
237
127
364
21
62
24
107
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed
because the consolidated financial statements are required to disclose such fees on a consolidated basis.
A description of the work of the Audit and Risk Committee is set out on pages 52 and 53 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
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
2014
Number
2013
Number
1,403
495
1,898
732
132
864
1,369
500
1,869
757
131
888
2,762
2,757
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6 Staff costs continued
The aggregate remuneration of Group employees comprised:
Wages and salaries
Social security costs
Other pension costs
2014
£000
2013
£000
73,690
9,769
1,534
67,646
8,791
1,246
84,993
77,683
Wages and salaries include £1,778,000 (2013 – £2,944,000) 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 44 to 51.
7 Interest income
Interest on bank and other deposits
8 Finance costs
Interest on bank overdrafts and loans
Amortisation of arrangement fees
Amortisation of cross-currency derivatives
Cross-currency derivatives ineffectiveness
Interest rate derivatives ineffectiveness
Change in fair value of cross-currency derivatives
Change in fair value of interest rate derivatives
Amortisation of de-designated Sterling interest rate swaps
Preference share dividends
Finance costs (excluding exceptional items)
Exceptional finance costs
Financing costs incurred on extinguishment of bank loans, loan notes and other loans
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 loans
Total exceptional finance costs
2014
£000
24
2013
£000
123
2014
£000
12,361
–
–
–
–
–
–
–
25
2013
£000
30,535
7,480
(610)
368
(12)
(133)
(445)
(179)
25
12,386
37,029
–
–
–
–
35,903
(1,446)
19,497
53,954
12,386
90,983
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Notes to the accounts continued
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
2014
£000
2013
£000
8,461
–
7,295
15,756
1,285
118
6,466
7,869
(3,575)
(1,216)
329
(6,595)
(5,301)
2
(4,462)
(11,894)
11,294
(4,025)
Corporation tax is calculated at 22.83% (2013 – 23.92%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in those respective jurisdictions.
The net charge (credit) for the year can be reconciled to the profit before taxation as stated in the income statement as
follows:
Profit (loss) before taxation
Tax at the UK corporation tax rate of 22.83% (2013 – 23.92%)
Tax effect of expenses that are not deductible 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 charge (credit) and effective tax rate for the year
2014
£000
51,177
11,684
1,294
(666)
245
(1,263)
11,294
%
22.8
2.5
(1.3)
0.5
(2.5)
22.0
2013
£000
(11,382)
(2,723)
4,015
(406)
2
(4,913)
(4,025)
%
23.9
(35.3)
3.6
–
43.2
35.4
In addition to the amount charged to the income statement, a net deferred tax amount of £85,000 has been charged (2013 –
£4,183,000) directly to equity (Note 23).
The underlying tax charge of £13,456,000 (2013 – £10,657,000) excludes exceptional tax credits of £1,458,000
(2013 – £13,783,000) as set out in Note 33, and tax credits on intangible amortisation of £704,000 (2013 – £899,000).
There has been no recognition of deferred tax assets previously derecognised.
On 1 April 2014 the UK Corporation tax rate changed from 23% to 21%. A further change to the UK Corporation tax rate
was announced in the March 2013 budget and subsequently enacted, to reduce the rate to 20% from 1 April 2015. Based
on the expected timing of the reversal of temporary differences, the tax disclosures reflect deferred tax measured at 21%.
10 Dividends
An interim dividend of 3.2p per ordinary share was paid in January 2014 (2013 – 1.3p). The Directors propose a final dividend
for the year ended 30 April 2014 of 6.8p per ordinary share (2013 – 6.0p) which is subject to approval at the Annual General
Meeting and has not been included as a liability as at 30 April 2014. No dividends have been paid between 30 April 2014 and
the date of signing the Accounts.
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Accounts
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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
2014
£000
Statutory
2014
£000
Underlying
2013
£000
Statutory
2013
£000
46,818
39,883
38,841
(7,357)
Number
Number
Number
Number
133,232,518 133,232,518 133,232,518 133,232,518
3,072,264
3,072,264
4,223,706
–
136,304,782 136,304,782 137,456,224 133,232,518
35.1p
34.3p
29.9p
29.3p
29.2p
28.3p
(5.5)p
(5.5)p
A total of 4,223,706 potential Ordinary shares were not included within the calculation of statutory diluted earnings per share
for the year ended 30 April 2013 as they were antidilutive.
12 Result of the parent company
A profit of £4,842,000 (2013 – £23,887,000) 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 2013 and 30 April 2014
2014
£000
2013
£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 to 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 Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money
and the risks specific to the CGUs. The growth rates are based on industry growth rates forecasts. Changes in selling prices
and direct costs are based on past practices and expectations of future changes in the market.
80 Northgate plc
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Notes to the accounts continued
13 Goodwill continued
In addition to the annual test of impairment, and as required by IAS 36, there has also been an assessment as to whether
there has been any indication that an impairment loss of other non-current assets recognised in an earlier year has decreased
or no longer exists.
The impairment assessment was based on risk-adjusted cash flow forecasts derived from a two year business plan approved
by the Directors in May 2014 using growth rates of 1% over a 10 year period, including terminal values, using a discount
rate of 9.6% for the UK CGU and 9.9% for the Spain CGU. The projected terminal value is 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 of other non-current assets
previously charged for both the UK CGU and Spain CGU.
In the prior year, the impairment assessment was based on risk-adjusted cash flow forecasts derived from a two year business
plan approved by 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. 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 either the UK CGU or Spanish CGU resulted in an additional
impairment charge being required.
14 Other intangible assets
Cost:
At 1 May 2012
Additions
Disposals
Exchange differences
At 1 May 2013
Additions
Disposals
Exchange differences
At 30 April 2014
Amortisation:
At 1 May 2012
Charge for the year
Disposals
Exchange differences
At 1 May 2013
Charge for the year
Disposals
Exchange differences
At 30 April 2014
Carrying amount:
At 30 April 2014
At 30 April 2013
81 Northgate plc
Annual report and
accounts 2014
Customer
relationships
£000
Group
Other
software
£000
22,109
–
(7,185)
177
15,101
–
–
(113)
11,010
1,396
–
45
12,451
945
(10)
(30)
Total
£000
33,119
1,396
(7,185)
222
27,552
945
(10)
(143)
14,988
13,356
28,344
15,519
1,642
(7,185)
161
10,137
1,304
–
(114)
8,009
1,947
–
28
9,984
1,596
(1)
(29)
23,528
3,589
(7,185)
189
20,121
2,900
(1)
(143)
11,327
11,550
22,877
3,661
4,964
1,806
2,467
5,467
7,431
Company
Other
software
£000
–
90
–
–
90
–
–
–
90
–
13
–
–
13
30
–
–
43
47
77
Accounts
Notes to the accounts
c109372.indb 81
15/07/2014 12:59
15 Property, plant and equipment: vehicles for hire
Group
Cost:
At 1 May 2012
Additions
Transfer from plant, equipment & fittings
Transfer to motor vehicles
Transfer to inventories
Exchange differences
At 1 May 2013
Additions
Transfer to motor vehicles
Transfer to inventories
Exchange differences
At 30 April 2014
Depreciation:
At 1 May 2012
Charge for the year
Transfer from plant, equipment & fittings
Transfer to motor vehicles
Transfer to inventories
Exchange differences
At 1 May 2013
Charge for the year
Transfer to motor vehicles
Transfer to inventories
Exchange differences
At 30 April 2014
Carrying amount:
At 30 April 2014
At 30 April 2013
£000
964,581
258,961
1,233
(467)
(322,071)
14,012
916,249
301,004
(46)
(235,375)
(9,973)
971,859
341,478
158,608
1,173
(91)
(179,434)
5,354
327,088
159,215
(3)
(125,356)
(4,012)
356,932
614,927
589,161
At 30 April 2014, the Group had entered into contractual commitments for the acquisition of vehicles for hire amounting to
£35,254,000 (2013 – £29,935,000).
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 £3m in the year ended 30 April 2014 (2013 – £4m).
82 Northgate plc
Annual report and
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Notes to the accounts continued
16 Other property, plant and equipment
Group
Cost:
At 1 May 2012
Additions
Transfer (to) from vehicles for hire
Exchange differences
Disposals
At 1 May 2013
Additions
Transfer from vehicles for hire
Exchange differences
Disposals
At 30 April 2014
Depreciation:
At 1 May 2012
Charge for the year
Transfer (to) from vehicles for hire
Exchange differences
Disposals
At 1 May 2013
Charge for the year
Impairment of property
Transfer from vehicles for hire
Exchange differences
Disposals
At 30 April 2014
Carrying amount:
At 30 April 2014
At 30 April 2013
Land and buildings by category:
Freehold and long leasehold
Short leasehold
Land &
buildings
£000
Plant,
equipment
& fittings
£000
81,735
3,849
–
1,765
(1,399)
85,950
919
–
(1,135)
(3,290)
16,868
3,946
(1,233)
350
(1,542)
18,389
3,537
–
(257)
(344)
Motor
vehicles
£000
2,381
634
467
–
(1,107)
2,375
1,010
46
–
(619)
Total
£000
100,984
8,429
(766)
2,115
(4,048)
106,714
5,466
46
(1,392)
(4,253)
82,444
21,325
2,812
106,581
16,553
1,827
–
339
(437)
18,282
2,223
1,916
–
(242)
(2,064)
9,151
2,372
(1,173)
187
(1,263)
9,274
3,133
–
–
(149)
(272)
828
506
91
–
(588)
837
592
–
3
–
(527)
26,532
4,705
(1,082)
526
(2,288)
28,393
5,948
1,916
3
(391)
(2,863)
20,115
11,986
905
33,006
62,329
67,668
9,339
9,115
1,907
1,538
73,575
78,321
2014
£000
2013
£000
58,583
3,746
62,864
4,804
62,329
67,668
At 30 April 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £90,500 (2013 – £81,000).
During the year an impairment loss of €2,084,000 was recognised with respect to a property in Dublin. This was as a result of
a problem with the building's foundations. This impairment is reflected in the UK figures in the segmental analysis in Note 4.
Other property impairment losses totalled €200,000.
83 Northgate plc
Annual report and
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Accounts
Notes to the accounts
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16 Other property, plant and equipment continued
Company
Cost:
At 1 May 2012, 1 May 2013 and 30 April 2014
Depreciation:
At 1 May 2012
Charge for the year
At 1 May 2013
Charge for the year
At 30 April 2014
Carrying amount:
At 30 April 2014
At 30 April 2013
17 Investments
Company
Cost:
At 1 May 2012
Liquidation of subsidiary undertaking
At 1 May 2013
Liquidation of subsidiary undertaking
At 30 April 2014
Accumulated provisions:
At 1 May 2012, 1 May 2013 and 30 April 2014
Carrying amount:
At 30 April 2014
At 30 April 2013
Land &
buildings
£000
3,239
596
61
657
62
719
2,520
2,582
Shares in
subsidiary
undertakings
£000
Loans
to subsidiary
undertakings
£000
Total
£000
78,329
(2)
78,327
(1,999)
47,000
–
47,000
–
125,329
(2)
125,327
(1,999)
76,328
47,000
123,328
2,435
–
2,435
73,893
47,000
120,893
75,892
47,000
122,892
A full list of the Company’s subsidiaries was included with the Annual Return filed with the Registrar of Companies.
At 30 April 2014, 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
84 Northgate plc
Annual report and
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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
2014
£000
12,732
6,344
2013
£000
14,410
4,782
19,076
19,192
Group
2014
£000
65,094
–
–
13,767
2013
£000
68,633
–
–
8,784
Company
2014
£000
2013
£000
–
806,306
39
157
–
889,090
86
98
78,861
77,417
806,502
889,274
2014
2013
UK
Spain
39 days
54 days
38 days
64 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
2014
£000
27,512
–
3,714
27,705
2013
£000
24,188
–
4,789
23,615
Company
2014
£000
2013
£000
176
285,054
104
2,495
445
370,066
165
4,905
58,931
52,592
287,829
375,581
2014
2013
UK
Spain
33 days
59 days
36 days
59 days
The Directors consider that the carrying amount of trade and other payables approximates to their fair value due to their short
term nature.
85 Northgate plc
Annual report and
accounts 2014
Accounts
Notes to the accounts
c109372.indb 85
15/07/2014 12:59
21 Borrowings
The Directors consider that the carrying amounts of the Group’s borrowings approximate to their fair value.
Bank loans and overdrafts
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
Property loans
Confirming facilities
In the second year
Bank loans
In the third to fifth years
Bank loans
Due after more than five years
Cumulative Preference shares
Total borrowings
Less: Amount due for settlement within one year
(shown within current liabilities)
Group
2014
£000
363,819
500
–
814
2013
£000
375,549
500
223
1,413
Company
2014
£000
2013
£000
378,571
500
–
–
370,313
500
–
–
365,133
377,685
379,071
370,813
Group
2014
£000
2013
£000
Company
2014
£000
6,651
–
814
7,465
8,451
8,451
5,678
223
1,413
7,314
–
–
21,403
–
–
21,403
8,451
8,451
2013
£000
442
–
–
442
–
–
348,717
369,871
348,717
369,871
348,717
369,871
348,717
369,871
500
500
500
500
500
500
500
500
365,133
377,685
379,071
370,813
7,465
7,314
21,403
442
Amount due for settlement after one year
357,668
370,371
357,668
370,371
The UK syndicated bank loans, totalling £357,168,000 at 30 April 2014, would become repayable in full in the event of a
change in control of the Group.
Bank loans
Bank loans and overdrafts are secured and bear interest at rates of 2.37% to 2.55% (2013 – 2.38% to 2.85%) above the
relevant interest rate index, being LIBOR for Sterling denominated debt and EURIBOR for Euro denominated debt.
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.
86 Northgate plc
Annual report and
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15/07/2014 12:59
Notes to the accounts continued
21 Borrowings continued
The total number of authorised cumulative Preference shares of 50p each is 1,300,000 (2013 – 1,300,000), of which
1,000,000 (2013 – 1,000,000) were allotted and fully paid at the balance sheet date.
Property loans
All property loans related to land and buildings held in Spain and were accounted for as finance lease obligations. The loans
were secured on the properties to which they related.
At 30 April 2014, the average remaining lease term was one year and the average borrowing rate was 2.0%.
Confirming facilities
Spanish confirming facilities of £814,000 (2013 – £1,413,000) 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.
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
2014
£000
8,172
64,617
2013
£000
7,262
58,197
72,789
65,459
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
Cumulative Preference shares
Property loans and other borrowings
Consolidated net debt
At 1 May
2013
£000
(14,962)
375,549
500
1,636
Cash flow
£000
(4,109)
(6,106)
–
(223)
362,723
(10,438)
Other
non-cash
changes
£000
Foreign
exchange
movements
£000
At 30 April
2014
£000
(19,056)
363,819
500
814
15
(5,624)
–
–
(5,609)
346,077
–
–
–
(599)
(599)
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 2014, the gearing of
the Group amounted to 90.7% (2013 – 102.0%) where net borrowings are £346,077,000 (2013 – £362,723,000) and
shareholders’ funds less goodwill and the net book value of intangible assets are £381,677,000 (2013 – £355,632,000).
87 Northgate plc
Annual report and
accounts 2014
Accounts
Notes to the accounts
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21 Borrowings continued
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
credit ratings assigned by international credit rating agencies.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and
customers. The credit risk associated with trade receivables in Spain is more concentrated in larger customers than the UK
and, consequently, as in the UK the Group has a credit insurance policy in place to mitigate this risk.
Treasury policies and the management of risk
The function of Group Treasury is to mitigate financial risk, to ensure sufficient liquidity is available to meet foreseeable
requirements, to secure finance at minimum cost and to invest cash assets securely and profitably. Treasury operations
manage the Group’s funding, liquidity and exposure to interest rate risks within a framework of policies and guidelines
authorised by the Board of Directors.
The Group uses derivative financial instruments for risk management purposes only. Consistent with Group policy, Group
Treasury does not engage in speculative activity and it is policy to avoid using more complex financial instruments. Further
details regarding derivative financial instruments are shown in Note 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. At 30 April 2014 79.8% (2013 – 0.5%)
of net borrowings were at fixed rates of interest comprising interest rate swaps of £105,000,000 and £206,500,000,
£500,000 of preference shares and £814,000 of confirming facilities (30 April 2013 – £500,000 of preference shares and
£1,413,000 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) as explained above.
88 Northgate plc
Annual report and
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Notes to the accounts continued
21 Borrowings continued
An analysis of the Group’s borrowings by currency is given below:
Group
At 30 April 2014
Bank loans
Cumulative Preference shares
Confirming facilities
Group
At 30 April 2013
Bank loans
Cumulative Preference shares
Property loans
Confirming facilities
Sterling
£000
Euro
£000
Total
£000
125,000
500
–
238,819
–
814
363,819
500
814
125,500
239,633
365,133
Sterling
£000
Euro
£000
Total
£000
136,000
500
–
–
239,549
–
223
1,413
375,549
500
223
1,413
136,500
241,185
377,685
22 Derivative financial instruments
The Group’s derivative financial instruments at the balance sheet date comprise interest rate swaps.
Their net estimated fair values are as follows:
Interest rate derivatives
Cross-currency derivatives
They are represented in the balance sheet as follows:
Non-current derivative financial instrument assets
Current derivative financial instrument liabilities
Non-current derivative financial instrument liabilities
Group
2014
£000
48
–
48
712
–
(664)
48
2013
£000
Company
2014
£000
2013
£000
–
(1,517)
(1,517)
–
(1,517)
–
48
–
48
712
–
(664)
48
(1,517)
–
–
–
–
–
–
–
89 Northgate plc
Annual report and
accounts 2014
Accounts
Notes to the accounts
c109372.indb 89
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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 date all the then existing interest rate and cross-currency swaps were cancelled. New interest rate swaps were entered
into on 2 May 2013. The Group was therefore not party to any interest rate derivatives at 30 April 2013. Additional interest
rate hedging was executed in April 2014. The interest rate derivatives to which the Group was party as at 30 April 2014 are
summarised below:
At 30 April 2014
Sterling interest rate swaps
Euro interest rate swaps
Total
nominal
values
Weighted
average fixed
contract net
pay rates
Weighted
average
remaining
life
£105,000,000
€206,500,000
1.02%
0.48%
2.9 years
2.6 years
In May 2013, £55,000,000 and €206,500,000 of interest rate swaps commenced. These had weighted average pay rates of
0.68% and 0.48% respectively and all had weighted average lives of 3.6 years.
In April 2014, £50,000,000 of interest rate swaps commenced. These had weighted average pay rates of 1.40% and
weighted average lives of 3.2 years.
During the prior 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.
All the Group’s interest rate swaps are 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, has been deferred in equity. To the extent that the interest
rate swaps are not 100% effective, a net amount of £Nil (2013 – £12,000) 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 £Nil (2013 – £445,000) is
shown within finance costs (Note 8).
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.
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.
To mitigate this risk, the Group previously entered into a series of Sterling/US Dollar cross-currency swaps. The effective start
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.
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Notes to the accounts continued
22 Derivative financial instruments continued
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 prior year was 8.86%.
All the Group’s Sterling/US Dollar cross-currency swaps entered into in September 2009 were designated and were highly
effective 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 cross-currency swaps were not 100% effective, a net
amount of £368,000 was charged to the income statement (Note 8).
In November 2012 cross-currency swaps with a total notional amount of $71,335,000 matured.
In April 2013 cross-currency swaps with a total notional amount of $178,502,000 and weighted average remaining life of
2.4 years were cancelled with a cash outflow of $400,000.
Euro/Sterling cross-currency swaps
In November 2012, cross currency swaps with a total notional amount of €27,623,000 matured.
In April 2013 the Group cancelled all remaining Euro/Sterling cross-currency swaps with a total notional value of
€114,157,000. 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 prior year was 8.18%.
Gross movement in fair values initially deferred in hedging reserve:
At 30 April 2013 and 30 April 2014
Cumulative amounts recycled to the income statement:
At 30 April 2013 and 30 April 2014
Cumulative amounts recycled to the currency translation reserve:
At 30 April 2013 and 30 April 2014
Cumulative amounts recycled to retained earnings
At 30 April 2013 and 30 April 2014
Net fair value deferred in hedging reserve:
At 30 April 2013 and 30 April 2014
Sterling/
US Dollar
£000
Euro/
Sterling
£000
34,665
(3,154)
(36,449)
4
–
2,306
1,784
–
–
(844)
In prior years, 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 matched 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
30 April 2013 was a loss of £68,000. In addition, the amount included the amortisation of the interest legs of the terminated
swaps over their residual life. The amount recycled to the translation reserve represented 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 represented 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
addition in prior years, the Group entered into a number of Sterling/Euro cross-currency swaps which were designated
as net investment 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.
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22 Derivative financial instruments continued
The hedges are considered highly effective in the current and prior year.
Forward exchange contracts
At 30 April 2014, the Company held Sterling/Euro forward exchange contracts with a notional value of €177,007,000
(2013 – €Nil) with a subsidiary undertaking which had a fair value of £Nil (2013 – £Nil) and weighted average remaining life
of 0.5 years (2013 – Nil years).
Company cross-currency swaps
At 30 April 2013, the Company held Sterling/Euro cross-currency swaps with a subsidiary undertaking which had a fair value
of £(1,517,000) and weighted average remaining life of one year with a weighted average Euro interest receivable rate of
1.20% and weighted average GBP interest payable rate of 1.53%. The Company had no cross-currency swaps at 30 April
2014.
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 2012
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
At 1 May 2013
(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
35,880
(12,558)
–
815
1,469
(56)
–
13
35
(45)
–
(4,662)
19,510
(11,203)
–
(289)
–
–
1,381
555
–
(9)
296
168
–
(1,143)
–
–
Share
based
payment
£000
(1,037)
129
–
–
38
–
–
(870)
–
–
–
16
–
–
Intangible
assets
£000
1,693
(430)
–
6
(49)
–
–
1,220
(159)
–
–
Losses
£000
(24,649)
4,862
–
(799)
–
–
–
(20,586)
7,767
–
358
Other
timing
differences
£000
(7,690)
1,458
4,175
(74)
23
8
(639)
(2,739)
(535)
(118)
50
Total
£000
5,666
(6,595)
4,175
(39)
2
8
(5,301)
(2,084)
(3,575)
(118)
110
(95)
–
(56)
329
–
–
–
(118)
33
48
33
(1,213)
At 30 April 2014
7,171
2,095
(854)
966
(12,579)
(3,317)
(6,518)
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Notes to the accounts continued
23 Deferred tax continued
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 2014
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
At 30 April 2013
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
(9,396)
2,878
(6,518)
(4,688)
2,604
(2,084)
In the current year, the net charge to equity of £85,000 (2013 – £4,183,000), in respect of other timing differences included
£10,000 (2013 – £4,301,000) 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 £12,579,000
(2013 – £20,586,000) 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 £3,317,000 (2013 – £2,739,000) 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.
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 2012
Charge to income
Charge to equity
Change in UK tax rate charged to income
At 1 May 2013
Charge to income
Change in UK tax rate charged to income
At 30 April 2014
24 Share capital
Group and Company
Allotted and fully paid:
133,232,518 (2013 – 133,232,518) Ordinary shares of 50p each
Share
based
payment
£000
Other
timing
differences
£000
(1,037)
129
–
38
(870)
–
16
(854)
(4,161)
47
3,984
3
(127)
47
8
(72)
Total
£000
(5,198)
176
3,984
41
(997)
47
24
(926)
2014
£000
2013
£000
66,616
66,616
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25 Share premium account
Group and Company
At 1 May 2012, 1 May 2013 and 30 April 2014
26 Revaluation reserve
At 1 May 2012
Foreign exchange differences
At 1 May 2013
Transfer to retained earnings on disposal of revalued properties
Foreign exchange differences
At 30 April 2014
27 Own shares reserve
At 1 May 2012
Purchase of own shares
Transfer of shares on vesting of share options
At 1 May 2013
Purchase of own shares
Transfer of shares on vesting of share options
At 30 April 2014
2014
£000
2013
£000
113,508
113,508
Group
£000
1,189
46
1,235
(121)
(32)
1,082
Company
£000
1,371
–
1,371
–
–
1,371
Group
£000
Company
£000
(685)
(1,988)
2,370
(303)
(2,803)
2,453
(653)
–
–
–
–
–
–
–
The own shares reserve represents shares held by employee trusts in order to meet commitments under the Group’s various
share schemes (Note 35). At 30 April 2014 the Guernsey Trust held 116,063 (2013 – 98,037) 50p Ordinary shares and the
Capita Trust held 32,079 (2013 – 22,891) 50p Ordinary shares. The total number of shares held by these employee trusts
represents 0.1% of the allotted 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 2012, 1 May 2013 and 30 April 2014
Group
£000
Company
£000
67,463
63,159
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Notes to the accounts continued
29 Hedging reserve
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 1 May 2013
Movement in fair value of hedged interest rate derivatives
Deferred tax on fair value of interest rate derivatives
At 30 April 2014
Group
£000
Company
£000
(14,247)
(3,236)
(4,272)
(4,301)
(610)
20,714
1,784
3,519
(649)
48
(10)
(611)
(12,617)
(3,236)
(2,059)
(3,984)
(602)
20,714
1,784
–
–
48
(10)
38
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 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 1 May 2013
Foreign exchange differences on retranslation of net assets of subsidiary undertakings
Net foreign exchange differences on long term borrowings held as hedges
At 30 April 2014
Group
£000
Company
£000
(7,963)
6,725
(613)
(3,519)
(5,370)
(3,589)
1,772
(7,187)
–
–
–
–
–
–
–
–
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 2012, 1 May 2013 and 30 April 2014
Group
£000
40
Company
£000
40
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32 Retained earnings
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
At 1 May 2013
Profit for the year
Transfer from revaluation reserve on disposal of revalued properties
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
At 30 April 2014
33 Exceptional items
During the year, the Group recognised exceptional items in the income statement made up as follows:
Restructuring costs
Impairment of property
Net property losses
Defined benefit pension scheme buyout
Exceptional administrative expenses
Costs associated with April 2013 refinancing (Note 8)
Exceptional finance costs
Total pre-tax exceptional items
Exceptional tax credit
Restructuring costs
Group
£000
Company
£000
140,215
(7,357)
(5,719)
(2,370)
1,502
(490)
115
(1,784)
124,112
39,883
121
(12,234)
(2,453)
1,203
(199)
42
8,727
23,887
(5,719)
–
1,502
–
–
(1,784)
26,613
4,842
–
(12,234)
–
1,203
–
–
150,475
20,424
2014
£000
1,826
1,916
51
2,404
6,197
2013
£000
2,892
–
445
–
3,337
–
–
53,954
53,954
6,197
57,291
(1,458)
(13,783)
During the year, the Group incurred total exceptional restructuring costs of £1,826,000 (2013 – £2,892,000), of which
£1,414,000 (2013 – £2,075,000) arose in the United Kingdom and £412,000 (2013 – £817,000) in Spain.
Impairment of property
Impairment of property was £1,916,000 (2013 - £Nil). £1,752,000 was booked against a property in the United Kingdom
segment and £164,000 against a property in Spain.
Net property losses
Net property losses were £51,000 (2013 – £445,000), of which £Nil (2013 – £24,000 profit) arose in the United Kingdom and
£51,000 (2013 – £469,000) arose in Spain.
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Notes to the accounts continued
33 Exceptional items continued
Defined benefit pension scheme buyout
Pension scheme buyout costs of £2,404,000 (2013 - £Nil) were incurred in relation to the deferred members of the Group’s
defined benefit pension scheme.
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 loans, and termination of related hedging arrangements. These costs comprised £42,752,000 of cash costs and
£11,202,000 of non-cash costs. Other net cash inflows of £3,652,000 not included within the income statement, were
received in relation to cancellation of certain cross-currency swaps on the refinancing date. The net cash outflow relating to
the extinguishment of debt and cancellation of previous hedging arrangements was therefore £39,100,000.
34 Operating lease arrangements
As lessee
Group
2014
£000
2013
£000
Minimum lease payments under operating leases recognised in the income statement for the year
5,357
5,193
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases, which fall due as follows:
Group
Within one year
In the second to fifth years inclusive
After five years
2014
£000
5,183
14,363
17,893
2013
£000
4,581
13,549
20,163
37,439
38,293
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 11 years (2013 – 13 years) and rentals are fixed for an average term of seven
years (2013 – 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 37 to 51.
The Group and Company recognised total expenses of £1,203,000 (2013 – £1,502,000) related to equity-settled share-based
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.
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35 Share based payments continued
Matching shares are forfeited if the employee either sells the related partnership shares or leaves the Group before the three
years have elapsed.
The Board may make discretionary awards of free shares to eligible employees. Employees must remain in the employ of the
Group during the vesting period of three years in order to receive the free shares.
Details regarding the plans in the year ended 30 April 2014 are outlined below:
At 1 May 2013
Granted/allocated during the year
Exercised/vested during the year
Forfeited/lapsed during the year
DABP
Number of
share options
2014
MPSP
Number of
share options
2014
EPSP
Number of
share options
2014
AESS Number of
matching
shares
2014
623,603
12,558
(244,941)
(3,170)
1,187,059
–
(159,774)
(244,926)
1,097,733
292,103
–
(201,279)
363,069
103,237
(102,602)
(51,806)
Free Shares
Number of
free shares
2014
298,500
183,550
(31,800)
(48,850)
At 30 April 2014
388,050
782,359
1,188,557
311,898
401,400
Exercisable at the end of the year
51,821
61,203
232,266
–
–
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
The inputs into the Black-Scholes model were as
follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
DABP
2014
MPSP
2014
EPSP
2014
AESS
2014
Free Shares
2014
2.9 years
3.1 years
4.8 years
1.7 years
1.7 years
£4.06
August 2013
£4.06
–
£35,000
£3.03
£Nil
57.8%
3 years
1.54%
3.6%
–
–
–
–
–
–
–
–
£4.48
July 2013 January 2014 August 2013
£5.61
£690,000
£534,000
£513,000
£2.87
£Nil
57.4%
3 years
1.34%
3.8%
£3.71
£Nil
56.5%
3 years
1.99%
2.7%
£3.03
£Nil
57.8%
3 years
1.54%
3.6%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three
years.
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
592,839
160,332
(117,015)
(12,553)
MPSP
Number of
share options
2013
1,320,542
691,157
(337,915)
(486,725)
EPSP
Number of
share options
2013
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
–
–
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Notes to the accounts continued
35 Share based payments continued
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
The inputs into the Black-Scholes model were as
follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividends
36 Retirement benefit schemes
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%
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 £1,534,000 (2013 – £1,246,000) 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.
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
2014
Valuation
% pa
2013
Valuation
% pa
4.4
3.5
2.8
n/a
2.8
23 to 26 years
25 to 28 years
4.3
3.3
2.6
n/a
2.6
23 to 26 years
25 to 28 years
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36 Retirement benefit schemes continued
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
2014
£000
200
(200)
–
2013
£000
201
(106)
95
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 £2,977,000 (2013 – £9,000).
The actual return on the scheme assets was a loss of £2,777,000 (2013 – gain £591,000). 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
2014
£000
(4,334)
4,363
29
(29)
–
2013
£000
(4,901)
5,515
614
(614)
–
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 were as follows:
At 1 May
Pension credit (charge) recognised in the income statement
Actuarial (losses) gains
Contributions
At 30 April
Movements in the present value of the defined benefit obligations were as follows:
At 1 May
Interest cost
Actuarial (gains) losses
Benefits paid
At 30 April
100 Northgate plc
Annual report and
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2014
£000
614
–
(2,968)
2,383
29
2014
£000
4,901
200
(9)
(758)
4,334
2013
£000
75
(95)
124
510
614
2013
£000
4,402
201
361
(63)
4,901
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Notes to the accounts continued
36 Retirement benefit schemes continued
Movements in the fair value of Scheme assets were as follows:
At 1 May
Expected return on Scheme assets
Contributions
Benefits paid
Actuarial (losses) gains
At 30 April
2014
£000
5,515
200
2,383
(758)
(2,977)
4,363
2013
£000
4,477
106
510
(63)
485
5,515
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:
Debt instruments
Cash
Insurance policy
2014
Expected
return
%
–
–
–
2014
Fair value
of assets
£000
–
29
4,334
4,363
2013
Expected
return
%
1.9
1.9
–
2013
Fair value
of assets
£000
5,461
54
–
5,515
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 £2,383,000 in accordance with latest actuarial advice received.
IAS 19, ‘Employee benefits’ was amended in June 2011. The impact on the Group was to replace interest cost and expected
return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit
asset or liability. The impact of this in the income statement is less than £0.1 million. Prior year numbers have not been
restated as the amounts are not considered material.
101 Northgate plc
Annual report and
accounts 2014
Accounts
Notes to the accounts
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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
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
(4,334)
4,363
(4,901)
5,515
(4,402)
4,477
(4,832)
4,690
(4,501)
3,962
Surplus (deficit) in the Scheme
29
614
75
(142)
(539)
Experience adjustments on Scheme obligations:
Amount
Percentage of Scheme obligations (%)
Experience adjustments on Scheme assets:
Amount
Percentage of Scheme assets (%)
37 Financial instruments
–
0%
(2,977)
(68.2)%
6
0.1%
485
8.8%
(75)
(1.7)%
115
2.6%
35
0.7%
64
1.4%
65
1.4%
539
13.6%
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, where Sterling
is the functional currency of the Group.
102 Northgate plc
Annual report and
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Notes to the accounts continued
37 Financial instruments continued
The following tables detail the Group’s sensitivity to a €0.10 (2013 – €0.10) increase and decrease in the Euro/Sterling
exchange rate.
A €0.10 (2013 – €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 (2013 – €0.10) change in foreign
currency rates.
2014
Total equity
2013
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
390,733
386,456
395,784
As stated in
annual report
£000
As would be
As would be
stated if
€0.10 increase
£000
stated if
€0.10 decrease
£000
366,652
362,338
371,763
There is no material impact on the income statement in either year.
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.
A 1.0% (2013 – 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.
2014
Profit before taxation
Total equity
2013
Loss before taxation
Total equity
103 Northgate plc
Annual report and
accounts 2014
As stated in
annual report
£000
As would be
stated if
1.0% increase
£000
As would be
stated if
1.0%
decrease
£000
51,177
49,868
52,487
390,733
389,724
391,744
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
Accounts
Notes to the accounts
c109372.indb 103
15/07/2014 12:59
37 Financial instruments continued
Interest rate swap contracts
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 the third to fifth years inclusive
Euro
In the third to fifth years inclusive
Liquidity risk management
Average contract
fixed interest rate
Notional principal
amount
2014
%
2013
%
2014
£000
2013
£000
Fair value
2014
£000
2013
£000
1.02%
0.48%
–
–
105,000
206,500
–
–
685
(637)
–
–
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.
Liquidity and interest risk tables
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has
been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group
can be required to pay. The table includes both interest and principal cash flows. All interest cash flows and the weighted
average effective interest rate have been calculated using interest rate conditions prevailing at the balance sheet date.
Weighted
average
effective
interest
rate
0.00%
5.00%
2.73%
Weighted
average
effective
interest
rate
0.00%
5.00%
2.67%
<1 year
£000
28,326
25
16,680
2nd year
£000
–
25
18,134
3-5 years
£000
–
75
359,635
45,031
18,159
359,710
<1 year
£000
25,601
25
15,877
41,503
2nd year
£000
–
25
9,868
3-5 years
£000
–
75
389,093
9,893
389,168
>5 years
£000
–
500
–
500
>5 years
£000
–
500
–
500
Total
£000
28,326
625
394,449
423,400
Total
£000
25,601
625
414,838
441,064
2014
Non-interest bearing
Fixed interest rate instruments
Variable interest rate instruments
2013
Non-interest bearing
Fixed interest rate instruments
Variable interest rate instruments
104 Northgate plc
Annual report and
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Notes to the accounts continued
37 Financial instruments continued
At the prior year end, there were no derivative financial instruments in existence. The following table details the Group’s
liquidity analysis for its derivative financial instruments at 30 April 2014. It includes both liabilities and assets to illustrate how
the cashflows are matched in each period.
2014
Liabilities
Net settled:
Interest rate swaps
<1 year
£000
2nd year
£000
3-5 years
£000
Total
£000
892
887
686
2,465
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:
• 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.
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
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis.
The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements
approximate their fair values or, in the case of interest rate swaps and cross-currency derivatives, are held at fair value.
Credit risk management
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.
105 Northgate plc
Annual report and
accounts 2014
Accounts
Notes to the accounts
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15/07/2014 12:59
37 Financial instruments continued
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
2014
£000
2013
£000
79,564
(14,470)
85,457
(16,824)
65,094
68,633
58,687
5,062
249
1,096
61,545
5,023
517
1,548
65,094
68,633
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 £355,000 (2013 – £685,000) 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 £6,407,000 (2013 – £7,088,000)
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
2014
£000
2013
£000
16,824
6,038
(4,442)
(3,643)
(307)
20,378
5,894
(5,615)
(4,350)
517
14,470
16,824
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.
106 Northgate plc
Annual report and
accounts 2014
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15/07/2014 12:59
Notes to the accounts continued
37 Financial instruments continued
Included in the allowance for doubtful receivables are trade receivables which have been placed under liquidation of £46,000
(2013 – £164,000).
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
2014
£000
2013
£000
298
1,780
1,315
384
10,693
481
419
3,078
736
12,110
14,470
16,824
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 £6,464,000 (2013 –
£7,394,000) interest payable and £5,028,000 (2013 – £Nil) royalty charge.
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 £Nil (2013 – £55,000) 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 54 to 56.
In respect of the compensation of key management personnel, the short term employee benefits, post-employment (pension)
benefits, termination benefits and details of share options granted are set out in the audited part of the Remuneration
Report on pages 44 to 51. The fair value charged to the income statement in respect of equity-settled share-based payment
transactions with the Directors is £273,000 (2013 – £299,000). 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.
107 Northgate plc
Annual report and
accounts 2014
Accounts
Notes to the accounts
c109372.indb 107
15/07/2014 12:59
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
442,271
441,944
503,659
537,285
563,698
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
Operating profit
Net finance costs
Profit (loss) before taxation
Taxation
Profit (loss) for the year
63,539
(12,362)
51,177
(11,294)
79,478
(90,860)
(11,382)
4,025
94,478
(48,491)
45,987
(5,519)
82,575
(56,035)
71,109
(61,494)
26,540
2,853
9,615
14,741
39,883
(7,357)
40,468
29,393
24,356
Basic earnings (loss) per Ordinary share
Dividends
Dividends per Ordinary share
29.9p
12,234
9.2p
(5.5)p
5,719
4.3p
30.4p
–
–
22.1p
–
–
23.1p
–
–
Balance sheet
Assets employed
Non-current assets
Net current assets (liabilities)
Non-current liabilities
Financed by
Share capital
Share premium account
Reserves
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
707,666
44,277
(361,210)
683,190
56,437
(372,975)
723,675
(74,744)
(282,795)
819,082
145,170
(624,493)
885,124
(6,024)
(573,994)
390,733
366,652
366,136
339,759
305,106
66,616
113,508
210,609
66,616
113,508
186,528
66,616
113,508
186,012
66,616
113,508
159,635
66,475
113,269
125,362
390,733
366,652
366,136
339,759
305,106
Net asset value per Ordinary share
286p
275p
275p
255p
229p
108 Northgate plc
Annual report and
accounts 2014
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15/07/2014 12:59
Notice of Annual General Meeting
Notice is hereby given that the one hundred and sixteenth
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 18 September 2014 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 to 17 will be
proposed as special resolutions:
1.
To receive the Directors’ report and audited accounts
of the Company for the year ended 30 April 2014.
agreement as if the authority conferred hereby had not
expired.
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 if sub-section (1) of s561 of the Act did
not apply to any such allotment provided that this
power shall be limited:
2. To declare a final dividend of 6.8p per Ordinary share.
a.
3.
4.
5.
To approve the Directors' Remuneration Report, other
than the part containing the Directors' Remuneration
Policy, in the form set out on pages 37 to 51 of the
2014 Annual Report and Accounts.
To approve the Directors' Remuneration Policy in
the form set out on pages 39 to 43 of the Directors'
Remuneration Report in the 2014 Annual Report and
Accounts.
To re-appoint Deloitte LLP as auditor of the Company
to hold office until the conclusion of the next Annual
General Meeting.
6.
To authorise the Audit and Risk Committee to
determine the remuneration of the auditor.
7.
To re-elect Mr RD Mackenzie as a director.
8.
To re-elect Mr AJ Allner as a director.
9.
To re-elect Mr JG Astrand as a director.
10. To re-elect Miss G Caseberry as a director.
11. To re-elect Mr RL Contreras as a director.
12. To re-elect Mr CJR Muir as a director.
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
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 sub-
paragraph (a) above) of equity securities up to 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 2014;
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
109 Northgate plc
Annual report and
accounts 2014
Accounts
Notice of Annual General
Meeting
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Notice of Annual General Meeting continued
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 396,101 shares representing
approximately 0.3% of the issued Ordinary share capital of
the Company.
24 June 2014
By Order of the Board
D Henderson
Secretary
Registered office:
Norflex House
Allington Way
Darlington, DL1 4DY
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.
17. That the Regulations contained in the document
submitted to the Meeting marked ‘A’ and signed
by the Chairman of the meeting for the purposes
of identification be and the same are hereby
adopted as the Articles of Association of the
Company to the exclusion of and in substitution
for all existing Articles of Association of the
Company.
110 Northgate plc
Annual report and
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c109372.indb 110
15/07/2014 12:59
Notes
1. 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.
2. 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.
3. 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.
5.
4. 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.
6.
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 2014 (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 6 August 2014, 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.
7. 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.
8. 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.
9. 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.
111 Northgate plc
Annual report and
accounts 2014
Accounts
Notice for Annual General
Meeting
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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
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tel: 0871 6640300 (calls cost 10p per minute plus network extras)
Overseas: (+44) 208 6393399
112 Northgate plc
Annual report and
accounts 2014
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Northgate plc is the leading light commercial
vehicle hire business in the UK, Ireland and Spain
by fleet size and has been operating in the sector
since 1981. Our core business is the hire of light
commercial vehicles to businesses on a flexible
basis, giving customers the ability to manage their
vehicle fleet requirements without a long term
commitment.
Contents
Review
2 Highlights
4 Chairman’s statement
6
Board of Directors
8 At a glance
Strategic report
10 Strategic report
12 Key performance indicators
14 Strategy for growth
16 Review of the year
22 Financial review
28 Principal risks and uncertainties
30 Corporate social responsibility
Governance
33 Report of the Directors
37 Remuneration report
52 Report of the audit and risk committee
54 Corporate governance
57 Directors’ responsibilities
58
Independent auditor’s report to the members of Northgate plc
Accounts
62 Consolidated income statement
63 Statements of comprehensive income
64 Balance sheets
65 Cash flow statements
66 Notes to the cash flow statements
67 Statements of changes in equity
68 Notes to the accounts
108 Five year financial summary
109 Notice of Annual General Meeting
112 Shareholder information
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Printed on Core Silk, an environmentally friendly
stock certified as FSC mixed sources – a blend of
FSC 100%, recycled and/or controlled fibre.
Northgate plc
Norflex House, Allington Way
Darlington, DL1 4DY
Tel
01325 467558
Fax
01325 363204
Web
northgateplc.com
Northgate plc
Annual report and accounts 2014
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