TIDMREDD
RNS Number : 0978Z
Redde Northgate PLC
16 September 2020
REDDE NORTHGATE PLC
("Redde Northgate" or the "Group" or the "Company")
PRELIMINARY AUDITED RESULTS FOR THE 12 MONTHSED 30 APRIL
2020
Merger synergies target delivered and now increased, Nationwide
transaction completed and dividend declared
Adjusted results
Year ended 30 April 2020 2019 Change
GBPm GBPm %
------------------------------ ------ ------ --------
Revenue (excluding vehicle
sales) 585.6 517.6 13.1%
Underlying [1] EBIT 74.8 76.2 (1.8%)
Underlying(1) Profit
before Tax 59.0 61.1 (3.5%)
Underlying(1) Earnings
per Share 30.8p 38.7p (20.6%)
------------------------------ ------ ------ --------
Statutory results
Total revenue 779.3 745.5 4.5%
EBIT 29.9 75.5 (60.4%)
Profit before Tax 13.5 60.4 (77.7%)
Earnings per Share 5.0p 38.6p (87.1%)
------------------------------ ------ ------ --------
Other measures
------------------------------ ------ ------ --------
Net debt [2] 575.9 436.9 31.8%
Group net debt (exc IFRS
16 and Redde) 459.5 436.9 5.2%
Redde net debt (exc IFRS 53.4 - n/m
16)
IFRS 16 63.0 - n/m
Steady state cash generation
(1) 86.9 67.1 29.5%
Free cash flow(1) 21.6 20.5 5.5%
ROCE(1) 7.0% 7.7% (70bps)
Dividend per Share 13.1p 18.3p (28.4%)
------------------------------ ------ ------ --------
Key highlights
-- Trading was materially impacted by COVID-19 in March and
April, reducing FY2020 EBIT by approximately GBP7m compared to
expectations, but since year-end the Group has seen sequential
monthly improvements in trading.
-- Merger integration savings of GBP10.2m annualised run rate
have been achieved as at the end of August, 18 months ahead of
schedule. Targets are increased to GBP12m by the end of FY2021 and
GBP15m by the end of FY2022, an increase of 50% on the original
target.
-- A further GBP3.8m of permanent annualised cost savings have
also been achieved to date, giving a total of GBP14.0m of run rate
savings to date.
-- On 4 September 2020 the Group announced the acquisition, by a
wholly owned subsidiary, of certain businesses and certain assets
of Nationwide Accident Repair Services ("Nationwide") by way of a
purchase from administrators, for up to GBP16m, further progressing
the strategic vision to become the leading supplier of mobility
solutions and automotive services.
-- Final dividend proposed of 6.8p per share (2019: 12.1p)
taking the total dividend payable for the year to 13.1p per share
(2019: 18.3p).
Martin Ward, CEO of Redde Northgate, commented:
"The main priority following the Merger of Northgate and Redde
in February 2020, was to integrate the businesses, achieve our
targeted synergies and capitalise on the new opportunities
available to the Combined Group. Despite the COVID-19 lockdown
happening within weeks following the Merger, we were able, in the
months during lockdown, to execute the majority of our plans and
deliver cost synergies and other savings well ahead of schedule and
target. Clearly, new priorities took precedence during the lockdown
with the main one being to ensure a safe and effective work
environment for our employees and safe contact with our customers
who required our services. I cannot emphasise how immensely proud I
have been of the response from all our colleagues who stepped up to
ensure that we could operate as effectively as possible and deliver
our services during these very difficult times. Thank you to
all.
"COVID-19 also acted as a catalyst to speed up plans on
tightening internal controls and procedures, as well as bringing
greater scrutiny on capex and costs management spend, which
ultimately led to the business generating significant additional
cash which continued beyond the year end.
"Our stated aim is to become the leading integrated mobility
solutions provider and this will come about under our strategic
framework of Focus, Drive and Broaden. We are in the Focus phase
which builds the solid foundations for our next phase of delivering
growth. One of the Focus priorities was to bring about a change to
the capital model for funding vehicles. This has already commenced
with our first transactions, taking several hundred vans on
contract hire rather than purchasing outright, and we expect to be
able to show the progress of this over time. The benefit of these
changes is to lower up-front cash expenditure, which reduces bank
debt, and match the timing of monthly operational costs to that of
revenues, whilst generating a similar profit margin.
"Post the lifting of lockdown restrictions, we have seen a good
level of run rate recovery in both Northgate UK&I and Northgate
Spain which has been better than expected, whilst in Redde there
has been a more gradual pickup which has been slower than
expected.
"More recently, on 4 September, we completed the acquisition of
certain businesses and certain assets of Nationwide, which ties in
with our strategy and vision to become the leading integrated
mobility solutions provider, and I welcome our new colleagues to
the Group.
"I believe there is significant sustainable compounding growth
and resilient value in the combined business which in many ways has
emerged stronger following the COVID-19 lockdown. I am confident
that the actions and measures we are taking are already creating
value which will be further enhanced as we deliver on our strategic
priorities. The Board is proposing a final dividend of 6.8p to
shareholders."
Full year results summary
-- Trading for the Group was in line with market expectations
until the emergence of COVID-19 in late February 2020. However,
trading in March and April was materially impacted, such that
underlying EBIT, underlying PBT and underlying EPS were 1.8%, 3.5%
and 20.6% lower respectively, and ROCE was 70bps lower at 7.0%
(2019: 7.7%).
-- Revenue (excluding vehicle sales) was 13.1% higher than the
prior year. The increase was all attributable to Redde, which is
included in revenue following the Merger on 21 February 2020.
-- Total Group revenue, including vehicle sales, was 4.5%
higher, and total revenue from Northgate businesses was 4.5% lower,
with hire revenue flat including the impact of off hires during
lockdown and vehicle sales revenue lower due to temporary closure
of sales sites during lockdown.
-- Statutory EBIT and statutory PBT were lower than underlying
measures due mainly to exceptional costs of GBP41.8m and GBP42.3m
respectively, of which GBP18.3m related to Merger expenses and
GBP14.9m related to the impairment of pre-Merger Northgate software
intangibles [3] .
-- There was continued strong net cash inflows with free cash
flow of GBP21.6m (2019: GBP20.5m) benefitting from lower total net
capex of GBP213.7m (2019: GBP243.9m) driven by lower fleet growth,
offset by exceptional costs paid in the year. Steady state cash
generation also remained strong at GBP86.9m (2019: GBP67.1m).
-- Net debt closed at GBP575.9m including IFRS 16, or GBP512.9m
excluding IFRS 16, resulting in headroom to bank facilities of
GBP234m, increasing from pre COVID-19 February 2020 headroom of
GBP200m as a result of the cash and cost measures put in place.
Year-end leverage remained stable at 1.62x (2019: 1.64x).
Focus, Drive and Broaden strategy
-- To achieve the Group's vision, the Board and management team,
who together have a proven track record of delivering strategic
initiatives, plan to evolve the strategy of the enlarged Group
through three phases:
Ø Focus: complete the integration of the two businesses
alongside initiation of the delivery of the anticipated cost
synergies, development of the enlarged Group's products and
services, and start to leverage the platform to enable revenue
growth based on the broader offering;
Ø Drive: complete the initiatives around the cost synergies,
product and service portfolio and platform, and initiate service
diversification into complementary markets alongside exploring
further market and geographic growth opportunities; and
Ø Broaden: accelerate the service diversification and
exploration of market and geographic growth opportunities.
-- We expect the Focus phase to last until April 2021 and are
well progressed in that phase, and the Drive and Broaden phases to
follow thereafter.
-- The recent transaction with Nationwide is an example of a
Broaden initiative, but was accelerated due to the timing of the
Administration.
Merger integration and synergies
-- A new Group Management team appointed for the UK &
Ireland businesses shortly after the Merger and the experienced
Northgate Spain leadership team continue to manage the Spanish
business. An Integration Management Office has been set up to drive
the integration programme.
-- The Group has carried out a detailed review of the operations
of both businesses to assess how they can work most effectively and
efficiently together. This review underpins the integration
programme and is designed to minimise disruption to customers and
employees while delivering the expected opportunities and benefits
for the enlarged Group's stakeholders. It covers all areas,
including the Group's capital and funding model.
-- Excellent progress has been made in integrating the two
businesses and annual run rate cost synergies achieved to date are
GBP10.2m, with implementation costs of GBP3.7m, thus achieving our
second year target 18 months ahead of schedule. We are therefore
increasing our synergy targets to GBP12m by end of FY2021 and
GBP15m by end of FY2022. Implementation costs are expected to
remain less than GBP10m in total.
-- Additionally, in implementing the review, a further GBP3.8m
of permanent annual costs savings have been delivered to date.
These permanent savings are not classed as synergies because they
are not contingent on the Merger having happened and could have
been achieved independently and include the closure of six Van
Monster sites.
-- Together a total annual run rate of GBP14.0m of cost
synergies and permanent cost savings have been achieved to the end
of August since the Merger in February.
-- Since the Merger the Group has also made good progress in
developing its plans for revenue synergies, which have included FMG
winning new contracts with three of Northgate's major customers
and, leveraging Redde's expertise, Northgate preparing to launch a
new accident and incident management product later in FY2021.
Trading and COVID-19 impact
-- The Board and management team took decisive actions to put
measures in place to protect the welfare of our employees and
customers and to mitigate the financial impact of COVID-19 on the
Group. These proactive measures included new guidelines and
controls to enable social distancing, furloughing employees,
limiting new fleet capex, voluntary pay reductions across Board and
senior leadership positions and cost control measures including
freezing of recruitment and pay reviews.
-- The revenues and profits of all three businesses were
impacted by COVID-19 in March and April. These impacts led to a
reduction in FY2020 PBT of approximately GBP7m, and included:
Ø A comprehensive customer support package, leading to a
temporary reduction in revenues of GBP3-4m per month whilst in
place;
Ø A reduction in vehicles on hire ("VOH") with net vehicles
returned to branches from lockdown up until the end of April of 6%
in Northgate UK&I and 7% in Northgate Spain;
Ø Lower volumes of vehicle sales from the temporary closure of
disposal markets;
Ø Lower volumes of accidents and incidents in the Redde
businesses; and
Ø Proactive cost measures, including those detailed above.
-- In the first four months of FY2021 performance indicators
across the Group have fully recovered or substantially improved,
including:
Ø Customer support packages, which have reduced to a minimal
level;
Ø A recovery in VOH, such that VOH in Northgate UK&I is now
marginally below pre-COVID levels and Northgate Spain is broadly in
line with pre-COVID levels;
Ø The re-opening of vehicle disposal channels over the course of
May such that they were fully operational from June, with recent
significant improvement in residual values compared to prior year
driven by buoyant market pricing;
Ø Accident and incident volumes have started to increase as
traffic volumes pick up; and
Ø A reduction in furloughed colleagues.
-- The Board is pleased with the performance since year-end and,
whilst significant uncertainties remain given the current economic
environment and risks of future lockdowns, the Board is confident
of the vision and strategy of the Group and the opportunities
created by the Merger and is cautiously optimistic on performance
for the remainder of FY2021.
-- As such, the Board confirms, absent a deeper or more
prolonged impact of COVID-19 than currently expected, it is
comfortable with the consensus of FY2021 analyst forecasts that
have been updated since April 2020.
GAAP reconciliation and glossary of terms
Throughout this document we refer to underlying results and
measures; the underlying measures allow management and other
stakeholders to better compare the performance of the Group between
the current and prior period without the effects of one-off or
non-operational items. Underlying measures exclude certain one-off
items such as those arising from restructuring activities and
recurring non-operational items. Specifically, we refer to disposal
profit(s). This is a non-GAAP measure used to describe the
adjustment in depreciation charge made in the year for vehicles
sold at an amount different to their net book value at the date of
sale (net of attributable selling costs).
A reconciliation of GAAP to Non-GAAP underlying measures and a
glossary of terms used in this document are outlined below the
financial review.
Interim Results
The Group will provide an interim result update for the six
months to 31 October 2020 in early December 2020.
Analyst Briefing
There will be a presentation for sell-side analysts at 9.30 a.m.
today. If you are interested in attending, please email Buchanan on
reddenorthgate@buchanan.uk.com.
This presentation will also be made available via a link on the
Company's web-site www.reddenorthgate.com
For further information contact:
Buchanan
David Rydell/Jamie Hooper/Tilly Abraham +44 (0) 207 466 5000
Notes to Editors:
Redde Northgate plc is a leading integrated mobility solutions
platform formed in February 2020 following the all-share Merger of
light commercial hire business Northgate plc and Redde plc, the
provider of incident and accident management, legal and other
mobility-related services.
The Group provides mobility solutions and automotive services to
a wide range of businesses and customers spanning the vehicle life
cycle across vehicle supply, service, maintenance, repair,
recovery, accident and incident management and disposal through
sale or salvage.
With an extensive network and diversified fleet of over 110,000
owned vehicles and over 500,000 managed vehicles in more than 170
branches across the UK, Ireland and Spain, the Group aims to
utilise its scale, reach and comprehensive suite of integrated
services to offer a market-leading customer proposition and drive
enhanced returns for shareholders.
Further information regarding Redde Northgate plc can be found
on the Company's website:
www.reddenorthgate.com
CHIEF EXECUTIVE REVIEW
Merger
On 21 February 2020 we completed the Merger, via a share
exchange, of Northgate plc and Redde plc, two leading mobility
solutions companies, forming Redde Northgate plc.
The Merger brought together Northgate plc, a leading light
commercial vehicle rental business and Redde plc, a leading
provider of incident and accident management, legal and other
mobility-related services, creating a leading integrated mobility
solutions platform.
The enlarged Group is positioned to benefit from several key
market trends. These include; the shift from vehicle ownership to
rental, the convergence of mobility solutions, the differentiation
of propositions through end-to-end service offerings, big data in
automotive services and the trend towards hybrid and electric
commercial vehicles.
Redde Northgate is uniquely positioned to capitalise on these
trends, and we will take decisive and proactive action to achieve
our vision. This energy and proactivity has already been
illustrated in several ways since the Merger: in our swift response
to COVID-19 lockdowns and the measures put in place to effectively
support customers and colleagues; in our delivery of the
integration and cost synergies well ahead of target despite
COVID-19; in our early wins as a Combined Group; and in our recent
acquisition of certain businesses and certain assets of Nationwide
Accident Repair Services ("Nationwide"), which will further
complement the Group, building on the foundations created by the
Merger.
Strategic rationale for Merger
The compelling strategic rationale for the Merger included:
-- Complementary combination bringing together a comprehensive
suite of mobility services - Redde Northgate's combined offering
now spans the vehicle lifecycle across vehicle supply, service,
maintenance, repair, recovery, accident and incident management and
disposal through sale, and is now further bolstered in repair by
the acquisition of Nationwide.
-- A market-leading customer proposition - fleet customers
benefit from greater choice and fulfilment ability through a
combined network, and insurance customers benefit from enhanced
service levels and a fleet more cost effectively serviced and
maintained.
-- Cost synergies - underpinned by enhanced scale and
optimisation potential - and attractive revenue synergies.
-- A strong financial profile - including a diversified revenue
mix with good growth potential underpinned by market trends,
attractive margin profile further enhanced through synergies and
operational leverage from growth and strong cash flow generation
expected to strengthen the balance sheet over time.
Purpose and vision
Our purpose is to keep customers mobile, whether through meeting
their regular mobility needs or by servicing and supporting them
when unforeseen events occur.
Our vision is to be the leading supplier of mobility solutions
and automotive services to a wide range of businesses.
We have a combined and complementary skill set for product
supply and service delivery, a breadth of offering across long and
short-term mobility solutions and are a significant scale operator
with a fleet of over 110,000 vehicles and 500,000 managed vehicles
and over 170 branches.
Our markets
Redde Northgate principally operates across three markets within
mobility solutions and automotive services: LCV rental and term
hire, used LCV sales and accident management.
LCV rental and term hire
In Northgate's two territories there are over 8 million Light
Commercial Vehicles (LCVs) on the roads of which approximately 1
million were operated on hire or leased terms. The rental and term
hire segments present the greatest opportunities for future growth
within the LCV sector, driven by the major structural shift in the
market from vehicle ownership to 'usership'. Customers are
increasingly attracted to a rental proposition that avoids the high
initial capital outlay of vehicle ownership and brings them
certainty of future cash outflows.
We expect COVID-19 could both increase demand and market size
and also further accelerate the ownership to 'usership' trend, as
customers seek flexibility and lower initial capital outlay due to
the weaker economic environment. Northgate's fleet is currently
less than 10% of this market and around 1% of LCVs on the road,
although its market share in the specific segments where each
territory focuses is between 20 and 30%.
Used LCV sales
Northgate also has a successful used LCV sales business,
operating physically from its extensive vehicle disposal network
and also, increasingly, via online auction. The used vehicle market
offers opportunities from own fleet sales but also from selling
other customers' vehicles. As an example of the opportunities in
this market, the Group has recently licensed its eAuction
technology to an OEM to enable their sale of used vehicles. This
market, which was initially closed by COVID-19 lockdowns, has
re-opened with stronger residual values than expected.
Accident management
Within accident management Redde principally operates in the
credit hire, accident and incident management and legal services
markets. The Group works with both fleet operators and insurers to
provide services to customers who have had an accident. Credit hire
providers supply replacement vehicle hire and repair services
primarily to non-fault customers who have been involved in traffic
accidents, normally at no direct cost to the individual, by seeking
compensation from the at-fault party's insurers. Accident and
incident management companies handle the claim, repair and other
processes relating to an accident or incident. Redde's legal
services business assists customers with legal services covering
personal injury, as well as employers' liability, wills and
probate, clinical negligence and public liability legal advice. The
UK crash repair market is a key indicator for the overall accident
management market with a report prepared by TrendTracker in January
2019 suggesting expected growth of over 14% over the next five
years to 2023. The Group's position in this market is further
bolstered by the Nationwide acquisition.
Strategy
To achieve the Group's vision, the Board and management team,
who together have a proven track record of delivering strategic
initiatives, plan to evolve the strategy of the enlarged Group
through three phases:
1. Focus: complete the integration of the two businesses
alongside initiation of the delivery of the anticipated cost
synergies, development of the enlarged Group's products and
services, and start to leverage the platform to enable revenue
growth based on the broader offering;
2. Drive: complete the initiatives around the cost synergies,
product and service portfolio and platform, and initiate service
diversification into complementary markets alongside exploring
further market and geographic growth opportunities; and
3. Broaden: accelerate the service diversification and
exploration of market and geographic growth opportunities.
We expect the Focus phase to last until April 2021, and the
Drive and Broaden phases to follow thereafter.
Within the Focus phase, as part of the development of the
enlarged Group's products and services, we are reviewing the
existing Northgate strategy which was in place for FY2020 and
included four principal market objectives:
1. Defend and grow our share of flexible rental markets;
2. Selectively gain share in minimum term markets;
3. Broaden our provision of capital-light fleet solutions; and
4. Optimise and increase participation in the disposal market.
During FY2020 Northgate followed this strategy and the Merger
was an example of the Group broadening provision of capital-light
fleet solutions.
The Focus phase includes a review of the Group's capital and
funding model and has also been re-planned to include our response
to COVID-19. The recent transaction with Nationwide is an example
of a Broaden initiative, the initiative was accelerated into this
phase due to the timing of Nationwide going into
Administration.
COVID-19 update
COVID-19 has had a profound impact in all countries in which
Redde Northgate operates, and the Board took decisive actions to
put measures in place to protect the welfare of our employees and
customers and to mitigate the financial impact of the pandemic on
the Group.
These measures included implementing new guidelines and controls
to enable employees to work with social distancing in branches and
offices; furloughing employees across all areas of the business as
necessary; limiting capital expenditure on new fleet purchasing for
essential requirements only; using nearly new vehicles to stand in
for new purchases where suitable; voluntary pay reductions across
the Board, senior leadership team and managers; introducing other
cost control measures, including a freeze on recruitment and pay
reviews, and limiting all non-essential spend and capital
expenditure projects.
The Group has also provided flexibility to its rental customers
to support them through these difficult times. Our COVID-19 package
of support, assessed on an individual basis, has helped many
customers retain rental vehicles during the current COVID-19
uncertainty on terms that meet their needs.
The revenues and profits of all three businesses were impacted
by COVID-19. These impacts led to a reduction in FY2020 PBT of
approximately GBP7m, and included:
-- A comprehensive customer support package, leading to a
temporary reduction in revenues of GBP3-4m per month whilst in
place;
-- A reduction in vehicles on hire ("VOH") with net vehicles
returned to branches from lockdown up until the end of April of 6%
in Northgate UK&I and 7% in Northgate Spain;
-- Lower volumes of vehicle sales from the temporary closure of disposal markets;
-- Lower volumes of accidents and incidents in the Redde businesses; and
-- Cost actions, including furlough, pay reductions and limiting
capital expenditure, to partially mitigate the financial impact on
the Group.
During the crisis, we also initiated a number of additional
schemes to support our communities. These have included deploying
cars to support an NHS and key worker replacement vehicle scheme
launched by a long-standing insurer partner and providing vehicles
to the Red Cross in Spain at cost.
In the first four months of FY2021 performance indicators across
the Group have fully recovered or substantially improved,
including:
-- Customer support packages reduced to a minimal level;
-- A recovery in VOH, such that VOH in Northgate UK&I is now
marginally below pre-COVID levels and Northgate Spain is broadly in
line with pre-COVID levels;
-- The re-opening of vehicle disposal channels over the course
of May such that they were fully operational from June, with recent
significant improvement in residual values compared to prior
year;
-- Accident and incident volumes have started to increase as traffic volumes pick up; and
-- A reduction in furloughed colleagues.
The Board is pleased with the performance since year end and,
whilst significant uncertainties remain given the current economic
environment and risks of future lockdowns, the Board remains
confident of the vision and strategy of the Group and the
opportunities created by the Merger and is cautiously optimistic on
performance for the remainder of FY2021.
Integration and cost synergies
A key component of the Focus phase of the strategy is to
complete the integration of the two businesses.
Following the Merger, integration plans started well with a new
Group Management team being appointed for the UK & Ireland
businesses and continuity of the Northgate Spain leadership team.
An Integration Management Office was established to drive the
integration programme.
The Board and management carried out a detailed review of the
operations of both businesses to assess how they can work most
effectively and efficiently together. This review underpins the
integration programme and is designed to minimise disruption to
customers and employees whilst delivering the expected
opportunities and benefits for the enlarged Group's
stakeholders.
We expect to deliver both cost synergies and revenue synergies
as part of the Merger. The cost synergies are being delivered at
pace in three principal areas:
o Corporate and support functions - from rationalisation and
consolidation of corporate and support functions, removal of
duplicate corporate costs and optimisation of procurement;
o Network -the Group will retain extensive operations across the
UK, Ireland and Spain, and these are being reviewed to identify the
optimal network by removing overlap and enhancing overall scale
along with greater density to align with the needs of the Group's
portfolio of services and its efficient delivery to customers;
and
o Accident and fleet management - rationalisation and
consolidation of accident and fleet management operations.
Excellent progress has been made in integrating the businesses
and annual run rate cost synergies achieved to date are GBP10.2m,
with implementation costs of GBP3.7m, thus achieving our second
year target 18 months ahead of schedule. The majority of these
synergies have been achieved in corporate and support functions,
although we have also started the work on our network optimisation
activities. Some of the highest value synergies included the
consolidation of a single Board, creating a new Group Management
team across UK & Ireland with a reduced number of leadership
roles, and a reduction in support function costs and headcount.
Given that this is well ahead of our initial cost synergy
targets set out in the shareholder Circular, we are increasing our
first year synergy target, taken for this purpose to be as at end
of April 2021, from GBP7m of annual run rate cost synergies to
GBP12m of annual run rate cost synergies and increasing the second
year synergy target, taken for this purpose to be as at end of
April 2022, from GBP10m to GBP15m.
Whilst COVID-19 has had many impacts on the Group as a whole, we
have ensured it had limited impact on our integration work, and at
times we have used it to accelerate decisions ahead of our initial
timeline, for example around network overlap.
Additionally, in implementing the review, a further GBP3.8m of
permanent annual costs savings have been delivered to date. These
permanent savings are not classed as synergies because they are not
contingent on the Merger having happened and could have been
achieved independently and include the closure of six Van Monster
sites.
Therefore, together a total annual run rate of GBP14.0m of cost
synergies and permanent cost savings have been achieved so far
since the Merger in February, and a target of a further GBP5m of
synergies has been set for FY2022.
Revenue synergies
The Merger is expected to generate revenue synergies as well as
cost synergies, benefitting from the complementary nature of the
two businesses and the customers' need for a broader end-to-end
experience with more service and product differentiators.
Revenue synergies are expected to be realised from several areas
including:
o Cross-selling of products, for example the cross-selling of
Northgate vehicle hire to FMG customers or the cross-sell of FMG
fleet incident and accident management to Northgate customers;
o Channelling accidents involving Northgate vehicles through
Redde; and
o Broadening of mobility solutions to our customers, through the
launch of additional mobility products.
Since the Merger the Group has made good progress in developing
its plans for revenue synergies, which have included winning new
contracts with three of Northgate's major customers and, leveraging
Redde's expertise, Northgate preparing to launch a new accident and
incident management product later in FY2021.
Group performance
Revenue (excluding vehicle sales) was 13.1% higher than the
prior year. The increase was attributable to Redde, which is
included in Group trading following completion of the Merger on 21
February 2020. Total Group revenue, including vehicle sales, was
4.5% higher, although revenue from Northgate businesses was 4.5%
lower, with hire revenue flat including the impact of off hires
during lockdown and vehicle sales revenue lower due to temporary
closure during lockdown. In Northgate UK&I VOH declined 3.2%
offset by pricing improvements resulting in hire revenue being
broadly flat. Northgate Spain VOH grew 3.6% offset by pricing
reductions, partly due to competition and partly due to mix,
resulting in hire revenue 1.1% higher year on year. Vehicle sales
revenue was lower principally due to volumes of units sold which
were 14.9% lower year on year, due to reduced volumes in March and
April.
In Redde, total hire cases and repair cases in March and April
were substantially lower due to COVID-19, as lockdown resulted in
accident and incident volumes declining steeply with fewer vehicles
on the roads and a sharp reduction in road miles driven.
Underlying EBIT from the Northgate businesses (excluding
corporate costs) was 4.7% lower at GBP77.6m (2019: GBP81.5m), with
rental profit 5.0% higher at GBP67.6m (2019: GBP64.3m) and disposal
profit [4] 41.4% lower at GBP10.0m (2019: GBP17.1m). Substantial
rental margin improvements were made in the Northgate UK&I
which improved to 9.9% (2019: 7.8%), offset by continuing rental
margin pressure in Northgate Spain which declined to 17.8% (2019:
19.7%), such that overall Group rental margin improved 0.6 ppts,
from 12.4% (FY2019) to 13.0%. Disposal profits were GBP7.1m lower
driven by both reduced volumes of disposals in the year and the
impact of depreciation unwind of around GBP5m. There were no
changes to existing depreciation rates during the year but the
change made in FY2019 is expected to unwind through disposal profit
until FY2023 as illustrated in the table in the Financial Review.
Underlying EBIT relating to Redde was GBP3.3m (2019: GBPnil) and
corporate costs were GBP6.1m (2019: GBP5.3m).
During the year the business incurred exceptional costs of
GBP42.3m with GBP18.3m relating to the Merger and GBP14.9m relating
to the impairment of software intangibles, with the balance from
restructuring expenses and refinancing expenses. The Group is in
dispute with the provider of certain IT and software development
services in relation to the delivery of the planned development of
Northgate's new IT system and has therefore paused the project.
Given the uncertainty over the outcome of this dispute a decision
has been made to write down the carrying values of the related
assets.
Underlying earnings per share of 30.8p (2019: 38.7p) was 20.6%
lower including the impact of COVID-19 in March and April with
lower EBIT across all businesses and a higher number of shares due
to the Merger. Redde's profits in March and April were
substantially lower than was expected pre COVID-19. Statutory
earning per share of 5.0p decreased from 38.6p in the prior year,
due to both the underlying impacts and the exceptional costs taken
in the year.
Free cash flow improved to GBP21.6m (2019: GBP20.5m) and was
delivered primarily from lower total capex, which included the
COVID-19 actions in March and April. Steady state cash generation
[5] increased 29.5% to GBP86.9m. Year end net debt of GBP575.9m was
31.8% higher than prior year but included GBP63.0m relating to IFRS
16 liabilities. On a like-for-like basis excluding IFRS 16 and
Redde, net debt was GBP459.5m (2019: GBP436.9m) 5.2% higher.
Leverage remained stable at 1.62x at year end (2019: 1.64x), within
our target range post Merger of 1.0 - 2.0x.
The Board has considered the importance of dividends to its
shareholders and, after careful consideration of the factors
impacting this decision, has concluded to maintain a final
dividend. For the year ended 30 April 2020, the Board is proposing
a final dividend of 6.8p (2019: 12.1p) which, together with the
interim dividend of 6.3p (2019: 6.2p), gives a full year dividend
of 13.1p (2019: 18.3p), a decrease of 5.2p or 28% on 2019. If
approved by shareholders, the final dividend will be paid on 3
November 2020 to shareholders on the register on 25 September
2020.
People
We have made several Board changes since the Merger, including
both the consolidation of Board members as announced on 24 March
2020 and the passing of former director Steve Oakley, announced
with great sadness on 18 May 2020.
In addition, with the creation of the new Group Management team
structure across UK & Ireland, we have removed the need for an
MD of Northgate UK&I, and appointed a new MD of Redde,
effective from May 2020.
The MD of Northgate Spain continues to be Jorge Alarcon, who
joined Northgate on 22 August 2019, bringing with him a wealth of
experience of the industrials and services markets in Spain.
Impact of the UK leaving the European Union without a new free
trade agreement
The Group continues to monitor the potential impact on its
business of the UK leaving the European Union without a new free
trade agreement in place on 31 January 2021. The greatest risks
identified would be a disruption to the supply of new vehicles and
vehicle components imported into the UK from the EU, including
additional import costs which may be imposed:
o Around 90% of vehicles purchased or leased by the Group from
UK OEMs are imported from the EU. Assurances have been sought from
these OEMs, who are confident that there will be no material
long-term disruption. Any potential short-term supply disruption
can also be mitigated by Northgate itself, by slowing the rate of
vehicle de-fleets in order to maintain vehicle availability for
customers as has been seen in the response to COVID-19.
o Components for vehicles manufactured in the UK are also
imported from the EU. However, normal OEM stock levels are
considered to be sufficient to address any potential short-term
supply issues.
o The introduction of import costs could potentially create some
margin pressure in the short-term. However, the Company believes
that in the longer-term, it will be able to pass through to
end-users any significant additional costs that might be imposed on
imported vehicles.
A potential upside for Northgate in the event of supply
disruptions or higher purchase costs, would be the likely increase
in rental demand and stronger residual values that would
result.
OUR FY2020 PERFORMANCE
Northgate UK&I
Year ended 30 April 2020 2019 Change
KPI ('000) ('000) %
---------------------------- ------- ------- ---------
Average VOH 46.9 48.4 (3.2%)
Closing VOH 43.5 47.1 (7.5%)
Average utilisation % 88% 88% -
Year ended 30 April 2020 2019 Change
PROFIT & LOSS (Underlying) GBPm GBPm %
---------------------------- ------- ------- ---------
Revenue - Vehicle hire 313.9 315.6 (0.5%)
Revenue - Vehicle sales 137.1 166.5 (17.6%)
Total Revenue 451.0 482.0 (6.4%)
Rental profit 31.2 24.6 26.5%
Rental Margin % 9.9% 7.8% 2.1 ppts
Disposal profit 6.7 10.8 (37.3%)
EBIT 37.9 35.4 7.1%
EBIT Margin % [6] 8.4% 7.3% 1.1 ppts
ROCE % 6.6% 6.4% 0.2 ppts
---------------------------- ------- ------- ---------
Rental business
Hire revenue in the Northgate UK&I business declined 0.5%
compared to the prior year to GBP313.9m (2019: GBP315.6m), driven
by average VOH which declined 3.2%, offset by improved pricing.
Regular rate increases were introduced in FY2019 and rates were
again increased in FY2020 across our full range of rental products
and continued to be well planned, communicated and executed.
Closing VOH declined 7.5% to 43,500 and included a reduction of
5.9% from lockdown until the end of April.
At the year end, Northgate's minimum term proposition accounted
for around 33% (2019: 24%) of average VOH. The average term of
these contracts is approximately three years, providing both
improved visibility of future rental revenue and earnings, as well
as lower transactional costs.
The rental margin has continued to grow since H2 2018 having
steadily improved for the past four half year periods, increasing
from 6.0% in H2 2018, to 7.1% in H1 2019 to 8.5% in H2 2019, to
9.8% in H1 2020 and 10.0% in H2 2020. This improvement reflects the
more competitive pricing introduced to the market as well as the
execution of the strategic priorities.
The net impact of the lower hire revenue and higher rental
margin was a 26.5% increase in Northgate UK&I rental profits to
GBP31.2m (2019: GBP24.6m).
Management of fleet and vehicle sales
The total Northgate UK&I year end rental fleet size of
51,400 vehicles declined from 54,600 in the prior year. The
contraction of 5.8% was similar to the reduction in closing VOH of
7.5%. 14,600 vehicles were purchased during the year and
approximately 17,800 vehicles were de-fleeted. The average age of
the fleet at the end of the year was two months higher than at the
same time last year. This was partly due to the impact of the fleet
optimisation policy and partly due to managing the fleet to
mitigate impacts of COVID-19 in the last two months of the year,
action which led to reduced purchases and de-fleets and thus
increased the average age of the fleet.
A total of 17,200 vehicles were sold in Northgate UK&I
during the year, 18.1% lower than prior year. The sales in March
and April were impacted by COVID-19 and the temporary closure of
disposal markets.
Disposal profits of GBP6.7m (2019: GBP10.8m) declined 37.3%
versus the prior year, as a result of both the reduced sales
volumes and a 24% reduction in the average profit per unit (PPU) on
disposals to GBP391 (2019: GBP512) due to the GBP1.4m unwind of
depreciation rate changes (approximately GBP80 of the PPU
reduction) and lower sales volumes, particularly during COVID-19
when sales volumes were close to nil.
EBIT and ROCE
Underlying EBIT of GBP37.9m grew 7.1% over the prior year (2019:
GBP35.4m) driven by higher rental profits, offset by lower disposal
profits as explained above.
The ROCE in Northgate UK&I was 6.6% (2019: 6.4%) reflecting
an increase in EBIT partially offset by an increase in capital
employed due mainly to higher year end stock due to the closure of
disposal markets in April and lower creditors due to reduced
vehicle purchases during lockdown.
A higher EBIT and ROCE was expected before the impact of
COVID-19.
Capex and cash flow
Year ended 30 April 2020 2019 Change
GBPm GBPm %
-------------------------------- ------ ------ ---------
Underlying EBITDA 158.1 151.9 4.1%
Net Replacement Capex 129.8 122.8 5.7%
Underlying EBITDA less
Net Replacement Capex 28.3 29.1 (3.0%)
Growth Capex (incl. inorganic) (0.8) 21.0 (103.8%)
-------------------------------- ------ ------ ---------
Underlying EBITDA improved by 4.1% to GBP158.1m (2019:
GBP151.9m) mainly due to a GBP2.5m increase in underlying EBIT as
well as an increase in depreciation as a result of IFRS 16 of
GBP3.8m.
Net replacement capex [7] in the year was GBP129.8m, 5.7% higher
than in 2019, driven mainly by OEM price inflation and vehicle mix.
Underlying EBITDA less net replacement capex reduced by 3.0% to
GBP28.3m (2019: GBP29.1m) reflecting increased EBITDA offset by
higher replacement capex in the year. Growth capex was a
contraction of GBP0.8m, which includes a working capital outflow of
GBP2.3m and net underlying contraction capex of GBP3.1m, relating
to the reduction in fleet of 500 vehicles.
Northgate Spain
Year ended 30 April 2020 2019 Change
KPI ('000) ('000) %
---------------------------- ------- ------- -------------
Average VOH 46.4 44.8 3.6 %
Closing VOH 43.1 46.0 (6.1%)
Average utilisation % 91% 91% -
Year ended 30 April 2020 2019 Change
PROFIT & LOSS (Underlying) GBPm GBPm %
---------------------------- ------- ------- -------------
Revenue - Vehicle hire 204.2 202.1 1.1 %
Revenue - Vehicle sales 56.7 61.4 (7.6%)
Total Revenue 260.9 263.4 (1.0%)
Rental profit 36.4 39.7 (8.3%)
Rental margin % 17.8% 19.7% (1.9) ppts
Disposal profit 3.3 6.4 (48.3%)
EBIT 39.7 46.1 (13.8%)
EBIT Margin % [8] 15.2% 17.5% (2.3) ppts
ROCE % 8.8% 10.6% (1.8) ppts
---------------------------- ------- ------- -----------
Rental business
Hire revenue in Northgate Spain grew 1.1% to GBP204.2m (2019:
GBP202.1m) driven by growth in average VOH of 3.6% but offset by
average hire rates which were 2.5% lower. This was due both to mix,
with the proportion of minimum term higher in FY2020, and
continuing pricing pressure from competition. At constant exchange
rates, removing the headwind of foreign exchange, the reported
growth in rental revenue was 1.7%.
Closing VOH declined 6.1% to 43,100 since 30 April 2019. This
decline included a reduction of 6.5% from lockdown until the end of
April. Closing VOH grew in H1 FY2020 by 3.0% from 46,000 at end of
FY2019 to 47,400 in October 2019, but then fell back to broadly
flat by the end of February due to weakening economic outlook and
some seasonality. There continues to be a structural shift away
from LCV ownership to 'usership', most notably into minimum term
hire which at year end accounted for 37% (2019: 31%) of average
VOH, but there were signs even before COVID-19 of weaker
macro-economic conditions in Spain.
The FY2020 rental margin of 17.8% (2019: 19.7%) declined
year-on-year driven primarily by the 2.5% decline in average hire
rates. Cost inflation was offset by some cost saving initiatives
such that overall cost reductions improved margin by 0.6%.
The net impact of the increased hire revenue and lower rental
margin was an 8.3% decline in Northgate Spain rental profits to
GBP36.4m (2019: GBP39.7m). Rental profits declined 7.7% at constant
exchange rates.
Management of fleet and vehicle sales
The total rental fleet size in Northgate Spain increased by 0.9%
to 51,500 vehicles, driven by the growth in VOH in the period up
until COVID-19. 11,200 vehicles were purchased during the year and
approximately 10,800 vehicles were de-fleeted. The average age of
the fleet at the end of the year was two months higher than at the
same time last year, partly due to fleet optimisation policy and
partly due to actions taken in response to the pandemic in the last
two months of the year. This resulted in fewer purchases and
de-fleets and thus increased the average age of the fleet.
A total of 9,900 vehicles were sold by Northgate Spain during
the year, 14.7% less than in the previous year. The sales in March
and April were impacted by COVID-19 and the temporary closure of
disposal markets.
Disposal profits of GBP3.3m (2019: GBP6.4m) declined 48.3%
versus the prior year, driven by both reduced sales volumes above
and a 39% reduction in the average profit per unit (PPU) on
disposals to GBP334 (2019: GBP551) due to the GBP4.0m unwind of
previous depreciation rate changes (approximately GBP400 of PPU
reduction) offset by some mix impacts and some improvements in the
operations implemented in the year.
EBIT and ROCE
The decline in both rental profit and disposal profit explained
above led to a decline in EBIT of 13.8% to GBP39.7m (2019:
GBP46.1m). At constant exchange rates, operating profits in
Northgate Spain declined 13.3%.
The ROCE in Northgate Spain was 8.8% (2019: 10.6%) reflecting
primarily the decline in EBIT but also the increase in capital
employed driven by the growth and mix of the fleet.
A higher EBIT and ROCE was expected before the impact of
COVID-19.
Capex and cash flow
Year ended 30 April 2020 2019 Change
GBPm GBPm %
------------------------ ------ ------ --------
Underlying EBITDA 125.6 121.8 3.1%
Net Replacement Capex 69.6 78.5 (11.4%)
Underlying EBITDA less
Net Replacement Capex 56.0 43.3 29.3%
Growth Capex 17.5 21.7 19.1%
------------------------ ------ ------ --------
Underlying EBITDA increased by 3.1% to GBP125.6m (2019:
GBP121.8m) and net replacement capex [9] was GBP69.6m, 11.4% lower
than in 2019, with OEM price inflation offset by vehicle ageing
impacts such that Underlying EBITDA less net replacement capex grew
by 29.3%, to GBP56.0m (2019: GBP43.3m). Growth capex was GBP17.5m,
19.1% lower than the prior year due to lower growth in the
fleet.
Redde
The Merger completed on 21 February 2020 therefore the tables
below relate to financial performance since that date.
Year ended 30 April 2020
PROFIT & LOSS (Underlying) GBPm
------------------------------- ------
Revenue - Claims and Services 67.4
Gross profit 10.0
Gross margin % 14.9%
EBIT 3.3
EBIT margin % [10] 4.9%
------------------------------- ------
Revenue, Gross margin and EBIT
Revenue for the period post Merger was GBP67.4m and gross profit
was GBP10.0m with a gross margin of 14.9%, EBIT of GBP3.3m and EBIT
margin of 4.9%.
These results were all substantially below Board expectations
set pre COVID-19, due to the lower volumes of accidents and
incidents impacting the Redde businesses over March and April.
Overall revenue for the two months was on average around 27%
below expectations for the period, gross profit around 25% below
expectation and gross margin was broadly in line with expectations.
EBIT was around 55% below expectations as overheads, whilst
partially reduced through cost actions, still created a substantial
headwind to margins. EBIT margin was around 3.1 ppts below
expectations for the period.
Management of fleet
The total fleet size in Redde closed the year at 9,000 vehicles,
reduced from the level in Redde's June 2019 accounts of 10,700
vehicles due to the loss of contract with a large insurer as
previously announced by Redde.
The average fleet age was 15 months reflecting the lower fleet
holding period than in the Northgate businesses due to the
different usage of the vehicles and business economics.
The Redde fleet continues to operate through a hybrid solution
of ownership, contract hire and, during peak periods, cross-hiring
from daily rental companies.
Capex and cash flow
Year ended 30 April 2020
GBPm
----------------------- ---------
Underlying EBITDA 6.3
Total net capex [11] 1.0
Statutory debtor days 123 days
----------------------- ---------
Underlying EBITDA was GBP6.3m for the period.
Debtor days were 123 days at 30 April 2020. This measure is
based upon net trade receivables and contract assets, other
receivables and accrued income as a proportion of the related
underlying sales revenue for the past 12 months multiplied by 365
days.
Capital expenditure typically follows seasonal trends in
business demand with a net reduction in fleet size anticipated for
the period. Net capital expenditure was GBP1.0m with principal
repayments on finance leases being higher than the disposal of
surplus vehicles during COVID-19.
Martin Ward, Chief Executive Officer
FINANCIAL REVIEW
Group summary
A summary of the Group's financial performance is as
follows:
Year ended 30 April 2020 2019 Change Change
GBPm GBPm GBPm %
----------------------------- ----- ----- ------- -------
Revenue 779.3 745.5 33.9 4.5%
EBIT 29.9 75.5 (45.6) (60.4%)
Profit before tax 13.5 60.4 (46.9) (77.7%)
EPS 5.0p 38.6p (33.6p) (87.1%)
Underlying EBIT 74.8 76.2 (1.4) (1.8%)
Underlying profit before tax 59.0 61.1 (2.1) (3.5%)
Underlying EPS 30.8p 38.7p (8.0p) (20.6%)
Dividend per share 13.1p 18.3p (5.2p) (28.4%)
Free cash flow 21.6 20.5 1.1 5.5%
Underlying free cash flow 38.4 63.1 (24.8) (39.2%)
----------------------------- ----- ----- ------- -------
Revenue
Group revenue increased by 4.5% to GBP779.3m, 4.8% at constant
exchange rates.
Group revenue comprised:
Year ended 30 April 2020 2019 Change Change
GBPm GBPm GBPm %
-------------------- ----- ----- ------ -------
Vehicle hire 518.2 517.6 0.5 0.1%
Vehicle sales 193.8 227.8 (34.1) (14.9%)
Claims and services 67.4 - 67.4 n/m
-------------------- ----- ----- ------ -------
Vehicle hire revenue of GBP518.2m was in line with the prior
year but was impacted by COVID-19 in March and April.
Group vehicle sales revenue declined by 14.9% reflecting lower
sales volumes, impacted during lockdown when disposal markets were
closed in all territories.
Total Group revenue grew 4.5%, with the increase year on year
attributable to Claims and Services income in the Redde business,
following the Merger on 21 February 2020.
Underlying EBIT
Underlying Group EBIT decreased by 1.8% (1.5% at constant
exchange rates) to GBP74.8m and is stated before exceptional costs
(GBP41.8m).
Underlying Group EBIT comprised:
2020 2019 Change Change
Year ended 30 April GBPm GBPm GBPm %
------------------------- ----- ----- ------ -------
Group rental profit 67.6 64.3 3.2 5.0%
Group disposal profit 10.0 17.1 (7.1) (41.4%)
------------------------- ----- ----- ------ -------
Northgate businesses 77.6 81.5 (3.9) (4.7%)
Redde operating profit 2.4 - 2.4 -
Corporate costs (6.1) (5.3) (0.8) (15.7%)
Associate income (Redde) 0.9 - 0.9 -
Total 74.8 76.2 (1.4) (1.8%)
------------------------- ----- ----- ------ -------
Group vehicle rental profit increased GBP3.2m reflecting
improved profit margins in Northgate UK&I (+GBP6.5m) partly
offset by a decrease in Northgate Spain (-GBP3.3m).
The reduction in Group disposal profit by 41.4% to GBP10.0m
resulted primarily from fewer vehicle sales, largely as a result of
the suspension of the disposal market during COVID-19 lockdown
period in the final two months of the year and included a GBP5.4m
decrease relating to the unwind of previous depreciation rate
changes.
The Group EBIT in FY2020 has benefitted from GBP3.3m of
contributions from operating profit of GBP2.4m and GBP0.9m of
associate income arising from the Redde business in the period
following the Merger.
Business combinations
The Company acquired Redde plc on 21 February 2020 via a share
exchange at an agreed ratio resulting in total fair value
consideration of GBP318.4m. A purchase price allocation exercise
has been undertaken in order to identify and recognise intangible
assets with finite useful lives amounting to GBP186.6m with
GBP35.5m of associated deferred tax liability and other net assets
of GBP54.8m resulting in goodwill of GBP112.5m.
The valuation methodologies used for estimating fair values of
consideration and net assets acquired were based on accepted
valuation techniques and intangible assets are estimated to have
useful lives ranging from five to fifteen years.
Goodwill arising on acquisition has been subsequently tested for
impairment at 30 April 2020 based on updated cash flow forecasts
which have been prepared taking into account the expected impacts
of COVID-19, and no adjustment for impairment losses was
required.
Impact of IFRS 16 adoption
IFRS 16 has been adopted for the first time from 1 May 2019. The
Group has recognised lease liabilities in relation to land and
buildings and vehicles which would have previously been classified
as 'operating leases' under the principles of IAS 17.
Adoption of this new standard on 1 May 2019 led to the
recognition of 'Right-of-use' assets and corresponding Lease
liabilities in the balance sheet of GBP48.5m. The resulting
depreciation and interest costs replaced costs that would formerly
have been recognised as operating lease expenses within the
consolidated income statement. The adoption of the standard has
resulted in an increase in depreciation costs of GBP7.9m and
finance costs of GBP1.2m. Other operating expenses have decreased
by GBP8.9m giving a net decrease in profit before tax of GBP0.3m
and a net decrease in underlying EPS of 0.1p.
Depreciation rate changes
The accounting requirements to adjust depreciation rates due to
changes in expectations of future residual values of used vehicles
make it more difficult to identify the underlying profit trends in
the business. When a vehicle is acquired it is recognised as a
fixed asset at its cost net of any discount or rebate receivable.
The cost is then depreciated evenly over its rental life, matching
its pattern of usage.
Matching of future market values to net book value on the
disposal date requires significant judgement for the following key
reasons:
1. Used vehicle prices are subject to short term volatility
which makes it challenging to estimate future residual values;
2. The exact disposal age is not known at the point at which
rates are set and therefore the book value at disposal date is not
certain; and
3. Mileage and condition are the key factors in influencing the
market value of a vehicle. This can vary significantly through a
vehicle's life depending upon how the vehicle is used.
Due to the above uncertainties, a difference normally arises
between the net book value of a vehicle and its actual market value
at the date of disposal. Where those differences are within an
acceptable range these are adjusted against the depreciation charge
in the income statement. Where these differences are outside of the
acceptable range, changes are made to depreciation rate estimates
to better reflect market conditions and the usage of vehicles.
In FY2020 the impact of previous rate changes is a GBP5.4m year
on year reduction in disposal profits arising due to disposed
vehicles having a higher NBV as result of the lower depreciation
rates.
The impacts of previous rate changes on FY2020 operating profit,
and the estimated impact on future years of the previous changes,
is set out below:
Cumulative
impact Year on year impact
--------------- ---------- -----------------------
Group Group UK&I Spain
Year: GBPm GBPm GBPm GBPm
--------------- ---------- ------- ------ ------
30 April 2013 5.3 5.3 5.3 -
30 April 2014 4.3 (1.0) (1.0) -
30 April 2015 15.7 11.4 8.4 3.0
30 April 2016 12.0 (3.7) (5.9) 2.2
30 April 2017 6.3 (5.7) (4.1) (1.6)
30 April 2018 2.1 (4.2) (2.7) (1.5)
30 April 2019 17.4 15.3 4.1 11.2
30 April 2020 12.0 (5.4) (1.4) (4.0)
30 April 2021* 6.6 (5.4) (1.4) (4.0)
30 April 2022* 1.2 (5.4) (1.4) (4.0)
30 April 2023* - (1.2) - (1.2)
--------------- ---------- ------- ------ ------
*These are management estimates based on indicative fleet size
and assuming an equalised level of defleeting in each year .
Interest
Net underlying finance charges stated before exceptional finance
costs of GBP0.6m, increased by 4.9% to GBP15.8m (2019: GBP15.1m) as
a result of higher net debt. The net cash interest charge for the
year was GBP14.5m (2019: GBP14.1m) as a result of higher borrowings
and inclusion of HP for the first time this year. Non-cash interest
was GBP1.3m (2019: GBP1.0m).
Underlying profit before tax
Underlying profit before tax was GBP59.0m (GBP59.2m at constant
exchange rates), GBP2.1m lower than in FY2019 (2019: GBP61.1m).
Taxation
The Group's underlying tax charge was GBP11.5m (2019: GBP9.5m)
and the underlying effective tax rate was 19% (2019: 16%). The
statutory effective tax rate was 43% (2019: 15%), impacted mainly
by non-deductible Merger expenses.
Earnings per share
Underlying EPS was 30.8p compared to 38.7p in the prior year.
Statutory EPS was 5.0p compared to 38.6p in the prior year.
Underlying earnings for the purpose of calculating EPS were
GBP47.5m (2019: GBP51.6m). The weighted average number of shares
for the purposes of calculating EPS was 154.5m (2019: 133.2m).
Exceptional items
During the year the Group incurred exceptional costs of GBP42.3m
(2019: GBPnil).
Intangible impairment
The Group is in dispute with the provider of certain IT and
software development services in relation to the delivery of the
planned development of Northgate's new IT system and has therefore
paused the project. Given the uncertainty over the outcome of this
dispute a decision has been made to write down the carrying values
of the related assets. The Group therefore incurred exceptional
costs in relation to this impairment of GBP14.9m (2019:
GBPnil).
Restructuring expenses
The Group incurred total exceptional restructuring costs of
GBP8.6m (2019: GBPnil), of which GBP4.7m arose in Northgate
UK&I (2019: GBPnil), GBP1.5m in Northgate Spain (2019: GBPnil)
and GBP2.4m in Corporate (2019: GBPnil).
Restructuring costs of GBP4.7m (2019: GBPnil) were incurred in
relation to restructuring activities that were undertaken both
during the year and following the acquisition of Redde plc, as part
of the integration of the Combined Group. These costs primarily
related to a reduction in headcount and associated redundancy and
loss of office costs.
As part of the post-acquisition reorganisation, an exceptional
impairment of property, plant and equipment of GBP1.3m (2019:
GBPnil) and an onerous contract provision of GBP0.4m (2019: GBPnil)
were incurred in relation to property.
Exceptional share based payment charges of GBP1.7m (2019:
GBPnil) were incurred in relation to outstanding EPSP awards
previously made to continuing employees that were forfeited
following the completion of the acquisition of Redde plc.
Exceptional costs of GBP0.6m (2019: GBPnil) were incurred in
relation to the closure of certain sites.
Merger expenses
The Group incurred expenses of GBP18.3m (2019: GBPnil) in
executing the Merger transaction.
Refinancing expenses
The Group incurred exceptional finance costs of GBP0.6m (2019:
GBPnil) in relation to debt partially extinguished as part of the
refinancing of Group bank facilities.
Dividend and capital allocation
Subject to approval, the final dividend proposed of 6.8p per
share (2019: 12.1p) will be paid on 3 November 2020 to shareholders
on the register as at close of business on 25 September 2020.
Including the interim dividend paid of 6.3p (2019: 6.2p), the
total dividend relating to the year would be 13.1p (2019: 18.3p).
The dividend is covered 1.9x by underlying earnings.
The Group's objective is to employ a disciplined approach to
investment, returns and capital efficiency to deliver sustainable
compounding growth. Capital will be allocated within the business
in accordance with the framework outlined below:
1. Dividend: appropriate dividend distribution.
2. Core business growth: organic capital investment to grow the
core business at returns substantially ahead of WACC.
3. Disposal: potential disposal of non-core assets where
investment returns can be maximised through sale.
4. Inorganic: bolt-on acquisitions into product or geographic
adjacencies at returns substantially ahead of WACC.
The Group plans to maintain a balance sheet within a target
leverage range of 1.0x to 2.0x net debt to EBITDA, and during
periods of significant growth net debt would be expected to be
towards the higher end of this range. This is consistent with the
Group's objective of maintaining a balance sheet that is efficient
in terms of providing long term returns to shareholders and
safeguards the Group's financial position through economic
cycles.
Cash flow
A summary of the Group's cash generation is as follows:
Year ended 30 April 2020 2019
GBPm GBPm
------------------------------------------ ------- -------
Cash generated from operations 264.4 283.2
Net capital expenditure (213.7) (243.9)
Net taxation and interest payments (24.8) (15.7)
Net share purchases and refinancing costs (4.9) (3.2)
Distributions from associates 0.6 -
------------------------------------------ ------- -------
Free cash flow 21.6 20.5
------------------------------------------ ------- -------
Dividends (24.3) (23.4)
Net cash consumed (2.7) (3.0)
------------------------------------------ ------- -------
A total of GBP362.0m was invested in new vehicles compared to
GBP403.5m in the prior year. The Group's new vehicle capital
expenditure was partially funded by GBP156.3m generated from the
sale of used vehicles (2019: GBP174.5m). Other net capital
expenditure amounted to GBP7.9m (2019: GBP14.9m).
The cash flow generation of the Group in any year is influenced
by the capital expenditure to grow the business or cash generated
by adjusting the fleet size downwards if VOH reduce. If the impact
of increasing or reducing the rental fleet size in the year is
removed from net capital expenditure, the underlying free cash
generation of the Group was as follows:
Year ended 30 April 2020 2019
GBPm GBPm
-------------------------- ----- -----
Free cash flow 21.6 20.5
Add back: Growth capex 16.8 42.6
Underlying free cash flow 38.4 63.1
-------------------------- ----- -----
Net debt reconciles as follows:
Year ended 30 April 2020 2019
GBPm GBPm
---------------------------- ----- -----
Opening net debt 436.9 439.3
IFRS 16 transition 48.5 -
Net debt acquired in Merger 84.1 -
Net cash consumed 2.7 3.0
Other non-cash items 1.8 0.6
Exchange differences 1.8 (6.0)
Closing net debt 575.9 436.9
---------------------------- ----- -----
Free cash inflow was GBP21.6m (2019: GBP20.5m) after net capital
expenditure of GBP213.7m (2019: GBP243.9m). If the impact of growth
capex in the year is removed from net capital expenditure in each
year, the underlying free cash flow of the Group was GBP38.4m
(2019: GBP63.1m).
Net cash consumption was GBP2.7m (2019: GBP3.0m). After the
introduction of IFRS 16 lease liabilities of GBP48.5m (2019:
GBPnil) and net debt acquired from Redde of GBP84.1m (2019:
GBPnil), closing net debt was GBP575.9m (2019: GBP436.9m).
Borrowing facilities
As at 30 April 2020 the Group had headroom on facilities of
GBP234m, with GBP477m drawn (net of available cash balances)
against total committed facilities of GBP711m as detailed
below:
Facility Drawn Headroom Borrowing
GBPm GBPm GBPm Maturity Cost
------------------- -------- ----- -------- -------- ---------
UK bank facilities 610 386 224 Nov-23 2.1%
Loan notes 87 87 - Aug-22 2.4%
Other loans 14 4 10 Nov-20 2.4%
711 477 234 2.3%
------------------- -------- ----- -------- -------- ---------
The other loans consist of GBP13m of local borrowings in Spain
and GBP0.5m of preference shares.
During the year the existing Northgate UK bank facilities were
refinanced increasing those facilities by GBP51m. UK bank
facilities of GBP55m were acquired from Redde on completion of the
Merger.
The above drawn amounts reconcile to net debt as follows:
Drawn
GBPm
------------------------------------ -----
Borrowing facilities 477
Unamortised finance fees (5)
Leases arising following adoption
of IFRS 16 63
Leases arising under HP obligations 41
Net debt 576
------------------------------------- -----
The overall cost of borrowings at 30 April 2020 is 2.3% (2019:
2.5%).
The margin charged on bank debt is dependent upon the Group's
net debt to EBITDA ratio, ranging from a minimum of 1.35% to a
maximum of 3.1%. The net debt to EBITDA ratio at 30 April 2020
corresponds to a margin of 1.85% (2019: 2%).
Interest rate swap contracts have been taken out which fix a
proportion of bank debt at 2.4% (2019: 2.6%).
The split of net debt by currency is as follows:
Year ended 30 April 2020 2019
GBPm GBPm
---------------------------------------------------- ----- -----
Euro 370 296
Sterling 211 143
---------------------------------------------------- ----- -----
Borrowings and lease obligations before unamortised
arrangement fees 581 439
Unamortised finance fees (5) (2)
---------------------------------------------------- ----- -----
576 437
---------------------------------------------------- ----- -----
There are three financial covenants under the Group's facilities
as follows:
Threshold April 2020 Headroom April 2019
--------------- ---------- ---------- ---------------- ----------
Interest cover 3x 5.3x GBP30m (EBIT) 5.3x
GBP243m (Net
Loan to value 70% 48% debt) 43%
Debt leverage 2.75x 1.6x GBP132m (EBITDA) 1.6x
--------------- ---------- ---------- ---------------- ----------
The covenant calculations have been prepared in accordance with
the requirements of the facilities that they relate to.
Balance sheet
Net assets at 30 April 2020 were GBP871.6m (2019: GBP563.6m),
equivalent to net assets per share of 354p (2019: 423p). Net
tangible assets at 30 April 2020 were GBP569.8m (2019: GBP548.5m),
equivalent to a net tangible asset value of 232p per share (2019:
412p per share).
As outlined above, on acquisition of Redde, net assets of
GBP318.4m were recognised on the balance sheet, including GBP112.5m
of goodwill, GBP186.6m other intangible assets and GBP19.3m of
other net tangible assets.
Gearing at 30 April 2020 was 101.1% (2019: 79.6%) and ROCE was
7.0% (2019: 7.7%).
The expected impact of COVID-19 has been considered in the
impairment testing of each category of assets and adjustments have
been made if required.
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 Group
policy to avoid using more complex financial instruments.
Credit risk
The policy followed in managing credit risk permits only minimal
exposures, with banks and other institutions meeting required
standards as assessed normally by reference to major credit
agencies. Group credit exposure for material deposits 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 outlined 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 subsidiaries are financed by a combination of retained
earnings and 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.
Interest rate management
The Group's bank facilities, other loan agreements and lease
obligations 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 (including leases arising under HP obligations) hedged
into fixed rates was 60% at 30 April 2020 (2019: 68%).
Foreign exchange risk
The Group's reporting currency is Sterling and 63% of its
revenue is generated in Sterling during the year (2019: 65%). The
Group's principal currency translation exposure is to the Euro, as
the results of operations, assets and liabilities of its Spanish
and Irish businesses must be translated into Sterling to produce
the Group's consolidated financial statements.
The average and year end exchange rates used to translate the
Group's overseas operations were as follows:
2020 2019
GBP : EUR GBP : EUR
--------- ---------- ----------
Average 1.14 1.14
Year end 1.15 1.16
--------- ---------- ----------
The Group manages its exposure to currency fluctuations on
retranslation of the balance sheets of those subsidiaries whose
functional currency is in Euros 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. At 30 April 2020 71% of Euro net
assets were hedged against Euro borrowings (2019: 62%).
Going concern
Having considered the Group's current trading, cash flow
generation and debt maturity including severe but plausible stress
testing scenarios including the impacts of COVID-19 (as detailed
further in Note 8 to the financial statements), the Directors have
concluded that it is appropriate to prepare the Group financial
statements on a going concern basis.
Philip Vincent
Chief Financial Officer
GLOSSARY OF TERMS
The following defined terms have been used throughout this
document:
Term Definition
Certain intangible Intangible assets recognised on business combinations
assets and other non-recurring items
------------------------------------------------------
Disposal profit(s) This is a non-GAAP measure used to describe
the adjustment in the depreciation charge made
in the year for vehicles sold at an amount
different to their net book value at the date
of sale (net of attributable selling costs)
------------------------------------------------------
EBIT Earnings before interest and taxation
------------------------------------------------------
EBITDA Earnings before interest, taxation, depreciation
and amortisation
------------------------------------------------------
EPS Basic earnings per share
------------------------------------------------------
EPSP Executive Performance Share Plan
------------------------------------------------------
Facility headroom Calculated as facilities of GBP711m less net
borrowings of GBP477m. Net borrowings represent
net debt of GBP576m excluding lease liabilities
of GBP104m and unamortised arrangement fees
of GBP5m and are stated after the deduction
of GBP17m of net cash and overdraft balances
which are available to offset against borrowings
------------------------------------------------------
Free cash flow Net cash generated before the payment of dividends
------------------------------------------------------
FY2019 The year ended 30 April 2019
------------------------------------------------------
FY2020 The year ended 30 April 2020
------------------------------------------------------
FY2021 The year ending 30 April 2021
------------------------------------------------------
GAAP Generally Accepted Accounting Practice: meaning
compliance with IFRS
------------------------------------------------------
Gearing Calculated as net debt divided by net tangible
assets
------------------------------------------------------
Growth capex Growth capex represents the cash consumed in
order to grow the total rental fleet or the
cash generated if the fleet size is reduced
in periods of contraction
------------------------------------------------------
H1/H2 Half year period: H1 being the first half and
H2 being the second half of the financial year
------------------------------------------------------
HP (leases) Leases recognised on the balance sheet that
would previously have been classified as finance
leases prior to the adoption of IFRS 16
------------------------------------------------------
IFRS International Financial Reporting Standards
------------------------------------------------------
IFRS 16 (leases) Leases recognised on the balance sheet that
would previously have been classified as operating
leases prior to the adoption of IFRS 16
------------------------------------------------------
LCV Light commercial vehicle: the official term
used within the European Union for a commercial
carrier vehicle with a gross vehicle weight
of not more than 3.5 tonnes
------------------------------------------------------
Net replacement Net capital expenditure other than that defined
capex as growth capex
------------------------------------------------------
Net tangible Net assets less goodwill and other intangible
assets assets
------------------------------------------------------
Northgate The Company and its subsidiaries prior to the
Merger or that part of the business following
the Merger
------------------------------------------------------
Northgate Spain The Northgate Spain operating segment representing
the commercial vehicle hire part of the Group
located in Spain
------------------------------------------------------
Northgate UK&I The Northgate UK&I operating segment representing
the commercial vehicle hire part of the Group
located in the United Kingdom and the Republic
of Ireland
------------------------------------------------------
OEM Original Equipment Manufacturer: a reference
to our vehicle suppliers
------------------------------------------------------
PBT Profit before taxation
------------------------------------------------------
PPU Profit per unit/loss per unit - this is a non-GAAP
measure used to describe disposal profit (as
defined), divided by the number of vehicles
sold
------------------------------------------------------
Redde The Redde operating segment representing the
insurance claims and services part of the group
or the Redde plc company and its subsidiaries
prior to the Merger
------------------------------------------------------
ROCE Underlying return on capital employed: calculated
as underlying EBIT (see non-GAAP reconciliation)
divided by average capital employed excluding
acquired goodwill and intangible assets
------------------------------------------------------
Steady state Underlying EBITDA less net replacement capex
cash generation
------------------------------------------------------
The Combined The Company and its subsidiaries following
Group the Merger
------------------------------------------------------
The Company Redde Northgate plc
------------------------------------------------------
The Group The Company and its subsidiaries
------------------------------------------------------
The Merger The acquisition by the Company of 100% of the
share capital of Redde plc on 21 February 2020
------------------------------------------------------
Underlying free Free cash flow excluding growth capex
cash flow
------------------------------------------------------
Utilisation Calculated as the average number of vehicles
on hire divided by average rentable fleet in
any period
------------------------------------------------------
VOH Vehicles on hire. Average unless otherwise
stated
------------------------------------------------------
WACC Weighted average cost of capital
------------------------------------------------------
GAAP Reconciliation
A reconciliation of GAAP to non-GAAP underlying measures is as
follows:
Group Group
2020 2019
GBP000 GBP000
---------------------------------- ------- -------
Operating profit 28,916 75,491
Income from associates 952 -
EBIT 29,868 75,491
Add back:
Restructuring costs 8,609 -
Merger expenses 18,256 -
Exceptional intangible impairment 14,910 -
Certain intangible amortisation 3,178 709
Underlying EBIT 74,821 76,200
---------------------------------- ------- -------
Group Group
2020 2019
GBP000 GBP000
---------------------------------- ------- -------
Profit before tax 13,479 60,406
Add back:
Restructuring costs 8,609 -
Merger expenses 18,256 -
Exceptional intangible impairment 14,910 -
Exceptional finance costs 566 -
Certain intangible amortisation 3,178 709
Underlying profit before tax 58,998 61,115
---------------------------------- ------- -------
Group Group
2020 2019
GBP000 GBP000
------------------------------------------------ ----------- -----------
Profit for the year 7,676 51,418
Add back:
Restructuring costs 8,609 -
Merger expenses 18,256 -
Exceptional intangible impairment 14,910 -
Exceptional finance costs 566 -
Certain intangible amortisation 3,178 709
Tax on exceptional items and certain intangible
amortisation (5,676) (545)
------------------------------------------------ ----------- -----------
Underlying profit for the year 47,519 51,582
------------------------------------------------ ----------- -----------
Weighted average number of Ordinary shares 154,509,197 133,232,518
------------------------------------------------ ----------- -----------
Underlying basic earnings per share 30.8p 38.7p
------------------------------------------------ ----------- -----------
Group Group
2020 2019
GBP000 GBP000
------------------------------------------------------ --------- ---------
Underlying EBIT 74,821 76,200
Add back:
Fleet depreciation 194,856 185,794
Other depreciation 13,219 5,522
Loss on disposal of assets 144 274
Intangible amortisation (excluding certain intangible
amortisation) 809 657
------------------------------------------------------ --------- ---------
Underlying EBITDA 283,849 268,447
------------------------------------------------------ --------- ---------
Net replacement capex (196,904) (201,304)
Steady state cash generation 86,945 67,143
------------------------------------------------------ --------- ---------
Northgate Northgate Group
UK&I Spain Sub-total
2020 2020 2020
GBP000 GBP000 GBP000
-------------------------------- --------- ---------- -----------
Underlying operating profit 37,899 39,731 77,630
Exclude:
Adjustments to depreciation
charge in relation to vehicles
sold in the period (6,742) (3,297) (10,039)
Rental profit 31,157 36,434 67,591
Divided by: Revenue: hire of
vehicles 313,922 204,235 518,157
--------------------------------- --------- ---------- -----------
Rental margin 9.9% 17.8% 13.0%
--------------------------------- --------- ---------- -----------
Northgate Northgate Group
UK&I Spain Sub-total
2019 2019 2019
GBP000 GBP000 GBP000
-------------------------------- --------- ---------- -----------
Underlying operating profit 35,396 46,086 81,482
Exclude:
Adjustments to depreciation
charge in relation to vehicles
sold in the period (10,762) (6,374) (17,136)
Rental profit 24,634 39,712 64,346
Divided by: Revenue: hire of
vehicles 315,559 202,065 517,624
--------------------------------- --------- ---------- -----------
Rental margin 7.8% 19.7% 12.4%
--------------------------------- --------- ---------- -----------
Group Group
2020 2019
GBP000 GBP000
----------------------------------------------------- --------- --------
Net increase (decrease) in cash and cash equivalents 16,746 (13,616)
Add back:
Cash acquired on acquisition (8,036) -
Receipt of bank loans and other borrowings (137,257) -
Repayments of bank loans and other borrowings 114,289 10,651
Principal element of lease payments under IFRS
16 8,034 -
Principal element of lease payments under HP
obligations 3,490 -
----------------------------------------------------- --------- --------
Net cash consumed (2,734) (2,965)
----------------------------------------------------- --------- --------
Add back: dividends paid 24,333 23,431
----------------------------------------------------- --------- --------
Free cash flow 21,599 20,466
----------------------------------------------------- --------- --------
Add back: growth capex 16,753 42,641
----------------------------------------------------- --------- --------
Underlying free cash flow 38,352 63,107
----------------------------------------------------- --------- --------
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 30 APRIL 2020
Underlying Statutory Underlying Statutory
2020 2020 2019 2019
Note GBP000 GBP000 GBP000 GBP000
------------------------------------------------- ---- ---------- --------- ---------- ----------
Revenue: hire of vehicles 518,157 518,157 517,624 517,624
Revenue: sale of vehicles 193,795 193,795 227,846 227,846
Revenue: claims and services 67,397 67,397 - -
------------------------------------------------- ---- ---------- --------- ---------- ----------
Total revenue 1 779,349 779,349 745,470 745,470
Cost of sales (621,446) (621,446) (592,598) (592,598)
------------------------------------------------- ---- ---------- --------- ---------- ----------
Gross profit 157,903 157,903 152,872 152,872
Administrative expenses (excluding exceptional
items and certain intangible amortisation) (84,034) (84,034) (76,672) (76,672)
Exceptional administrative expenses: impairment
of property, plant and equipment 6 - (1,304) - -
Exceptional administrative expenses: impairment
of intangible assets 6 - (14,910) - -
Exceptional administrative expenses: other costs 6 - (25,561) - -
Certain intangible amortisation - (3,178) - (709)
------------------------------------------------- ---- ---------- --------- ---------- ----------
Total administrative expenses (84,034) (128,987) (76,672) (77,381)
------------------------------------------------- ---- ---------- --------- ---------- ----------
Operating profit 73,869 28,916 76,200 75,491
Income from associates 952 952 - -
EBIT 1 74,821 29,868 76,200 75,491
Interest income 122 122 39 39
Finance costs (excluding exceptional items) (15,945) (15,945) (15,124) (15,124)
Exceptional finance costs 6 - (566) - -
Profit before taxation 58,998 13,479 61,115 60,406
Taxation (11,479) (5,803) (9,533) (8,988)
------------------------------------------------- ---- ---------- --------- ---------- ----------
Profit for the year 47,519 7,676 51,582 51,418
------------------------------------------------- ---- ---------- --------- ---------- ----------
Profit 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
6, as well as certain intangible amortisation and the taxation
thereon, in order to provide a better indication of the Group's
underlying business performance.
Earnings per share
Basic 230.8p 5.0p 38.7p 38.6p
------------------- ----- ---- ----- -----
Diluted 230.5p 4.9p 38.0p 37.8p
------------------- ----- ---- ----- -----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 APRIL 2020
----------------------------------------------------------------------------------------- ------- ---------
2020 2019
GBP000 GBP000
----------------------------------------------------------------------------------------- ------- ---------
Amounts attributable to owners of the Parent Company
Profit attributable to the owners 7,676 51,418
Other comprehensive income (expense)
Foreign exchange differences on retranslation of net assets of subsidiary undertakings 3,998 (9,366)
Net foreign exchange differences on long term borrowings held as hedges (1,682) 5,687
Foreign exchange difference on revaluation reserve 9 (23)
Net fair value gains on cash flow hedges 807 398
Deferred tax charge recognised directly in equity relating to cash flow hedges (153) (76)
Total other comprehensive income (expense) 2,979 (3,380)
Total comprehensive income for the year 10,655 48,038
========================================================================================== ======= =========
All items will subsequently be reclassified to the consolidated
income statement. Profit attributable to the owners of the Parent
Company includes amortisation of intangible assets.
CONSOLIDATED BALANCE SHEET
AS AT 30 APRIL 2020
2020 2019
GBP000 GBP000
-------------------------------------------------------- --------- ---------
Non-current assets
Goodwill 116,105 3,589
Other intangible assets 185,710 11,495
Property, plant and equipment: vehicles for hire 884,711 900,335
Property, plant and equipment: vehicles for credit hire 51,040 -
Other property, plant and equipment 126,009 68,843
Total property, plant and equipment 1,061,760 969,178
---------------------------------------------------------- --------- ---------
Deferred tax assets 10,133 6,620
Interest in associates 6,008 -
Total non-current assets 1,379,716 990,882
---------------------------------------------------------- --------- ---------
Current assets
Inventories 48,762 29,826
Receivables and contract assets 295,765 71,802
Current tax assets - 116
Cash and bank balances 67,843 35,742
Total current assets 412,370 137,486
---------------------------------------------------------- --------- ---------
Total assets 1,792,086 1,128,368
---------------------------------------------------------- --------- ---------
Current liabilities
Trade and other payables 222,342 72,487
Provisions 3,369 -
Derivative financial instrument liabilities 184 77
Current tax liabilities 12,393 13,425
Lease liabilities 33,691 -
Short term borrowings 54,684 44,190
---------------------------------------------------------- --------- ---------
Total c urrent liabilities 326,663 130,179
---------------------------------------------------------- --------- ---------
Net current assets 85,707 7,307
---------------------------------------------------------- --------- ---------
Non-current liabilities
Provisions 1,208 -
Derivative financial instrument liabilities - 914
Lease liabilities 70,261 -
Long term borrowings 485,073 428,409
Deferred tax liabilities 37,314 5,250
---------------------------------------------------------- --------- ---------
Total non-current liabilities 593,856 434,573
---------------------------------------------------------- --------- ---------
Total liabilities 920,519 564,752
---------------------------------------------------------- --------- ---------
NET ASSETS 871,567 563,616
---------------------------------------------------------- --------- ---------
EQUITY
Share capital 123,046 66,616
Share premium account 113,510 113,508
Own shares reserve (3,090) (3,359)
Hedging reserve (149) (803)
Translation reserve (2,509) (4,825)
Other reserves 330,477 68,637
Retained earnings 310,282 323,842
TOTAL EQUITY 871,567 563,616
---------------------------------------------------------- --------- ---------
Total equity is wholly attributable to owners of the Parent
Company.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 30 APRIL 2020
-------------------------------------------------------- ------ --------- --------
2020 2019
Note GBP000 GBP000
Net cash generated from operations 4 33,699 38,528
-------------------------------------------------------- ------ --------- --------
Investing activities
Interest received 122 39
Distributions from associates 590 -
Cash acquired on acquisition 8,036 -
Proceeds from disposal of other property, plant and equipment 3,823 1,128
Purchases of other property, plant and equipment (5,250) (8,370)
Purchases of intangible assets (6,509) (7,684)
-------------------------------------------------------- ------ --------- --------
Net cash generated from (used in) investing activities 812 (14,887)
-------------------------------------------------------- ------ --------- --------
Financing activities
Issue of shares 2 -
Dividends paid (24,333) (23,431)
Receipts of bank loans and other borrowings 137,257 -
Repayments of bank loans and other borrowings (114,289) (10,651)
Debt issue costs (4,878) (1,737)
Principal element of lease payments under IFRS 16 (8,034) -
Principal element of HP payments (3,490) -
Net payments to acquire own shares for share schemes - (1,438)
Net cash used in financing activities (17,765) (37,257)
-------------------------------------------------------- ------ --------- --------
Net increase (decrease) in cash and cash equivalents 16,746 (13,616)
Cash and cash equivalents at 1 May 805 14,127
Effect of foreign exchange movements (771) 294
-------------------------------------------------------- ------ --------- --------
Cash and cash equivalents at 30 April 16,780 805
-------------------------------------------------------- ------ --------- --------
Cash and cash equivalents comprise:
Cash and bank balances 67,843 35,742
Bank overdrafts (51,063) (34,937)
------------------------------------- -------- --------
16,780 805
------------------------------------ -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 APRIL 2020
Share
capital
and share Own shares Hedging Translation Other Retained
premium reserve reserve reserve reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ----------- ------------- --------- ------------ ---------- ---------- ---------
Total equity at 1
May 2018 180,124 (3,238) (1,125) (1,146) 68,660 295,853 539,128
Share options fair
value charge - - - - - 1,249 1,249
Share options exercised - - - - - (1,317) (1,317)
Profit attributable
to owners of the
Parent Company - - - - - 51,418 51,418
Dividends paid - - - - - (23,431) (23,431)
Net purchase of own
shares - (1,438) - - - - (1,438)
Transfer of shares
on vesting of share
options - 1,317 - - - - 1,317
Deferred tax on share
based payments recognised
in equity - - - - - 70 70
Other comprehensive
income (expense) - - 322 (3,679) (23) - (3,380)
Total equity at 1
May 2019 180,124 (3,359) (803) (4,825) 68,637 323,842 563,616
Share options fair
value charge - - - - - 4,203 4,203
Share options exercised - - - - - 19 19
Profit attributable
to owners of the
Parent Company - - - - - 7,676 7,676
Dividends paid - - - - - (24,333) (24,333)
Issue of share capital 56,432 - - - 261,831 - 318,263
Transfer of shares
on vesting of share
options - 269 - - - - 269
Deferred tax on share
based payments recognised
in equity - - - - - (1,125) (1,125)
Other comprehensive
income - - 654 2,316 9 - 2,979
Total equity at 30
April 2020 236,556 (3,090) (149) (2,509) 330,477 310,282 871,567
---------------------------- ----------- ------------- --------- ------------ ---------- ---------- ---------
Other reserves comprise the capital redemption reserve,
revaluation reserve and merger reserve.
NOTES TO THE ACCOUNTS
FOR THE YEARED 30 APRIL 2020
1. SEGMENTAL ANALYSIS
Northgate
NorthgateUK&I Spain Redde Corporate Total
2020 2020 2020 2020 2020
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- -------------- ---------- -------- ---------- ---------
Revenue: hire of vehicles 313,922 204,235 - - 518,157
Revenue: sale of vehicles 137,124 56,671 - - 193,795
Revenue: claims and services - - 67,397 - 67,397
-------------------------------------- -------------- ---------- -------- ---------- ---------
Total revenue 451,046 260,906 67,397 - 779,349
Underlying operating profit
(loss) 37,899 39,731 2,352 (6,113) 73,869
Income from associates - - 952 - 952
Underlying EBIT* 37,899 39,731 3,304 (6,113) 74,821
Exceptional items (Note 6) (41,775)
Certain intangible amortisation (3,178)
EBIT 29,868
Interest income 122
Finance costs (excluding exceptional
items) (15,945)
Exceptional finance costs (566)
Profit before taxation 13,479
-------------------------------------- -------------- ---------- -------- ---------- ---------
Northgate
NorthgateUK&I Spain Corporate Total
2019 2019 2019 2019
GBP000 GBP000 GBP000 GBP000
--------------------------------- -------------- ---------- ---------- ---------
Revenue: hire of vehicles 315,559 202,065 - 517,624
Revenue: sale of vehicles 166,488 61,358 - 227,846
Total revenue 482,047 263,423 - 745,470
Underlying operating profit
(loss) / EBIT* 35,396 46,086 (5,282) 76,200
Certain intangible amortisation (709)
EBIT 75,491
Interest income 39
Finance costs (15,124)
---------------------------------- -------------- ---------- ---------- ---------
Profit before taxation 60,406
---------------------------------- -------------- ---------- ---------- ---------
*Underlying EBIT stated before certain intangible amortisation
and exceptional items is the measure used by the Board of Directors
to assess segment performance.
2. EARNINGS PER SHARE
Underlying Statutory Underlying Statutory
2020 2020 2019 2019
Basic and diluted earnings per share GBP000 GBP000 GBP000 GBP000
------------------------------------------------------------------ ----------- ----------- ----------- -----------
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 profit for the year
attributable to owners of the Parent Company 47,519 7,676 51,582 51,418
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Number of shares
Weighted average number of Ordinary shares
for the purposes of basic earnings per share 154,509,197 154,509,197 133,232,518 133,232,518
Effect of dilutive potential Ordinary shares:
* share options 1,048,391 1,048,391 2,660,697 2,660,697
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Weighted average number of Ordinary shares for the purposes of
diluted earnings per share 155,557,588 155,557,588 135,893,215 135,893,215
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Basic earnings per share 30.8p 5.0p 38.7p 38.6p
------------------------------------------------------------------ ----------- ----------- ----------- -----------
Diluted earnings per share 30.5p 4.9p 38.0p 37.8p
------------------------------------------------------------------ ----------- ----------- ----------- -----------
3. DIVIDS
Dividends paid in the year were GBP24,333,000 (2019 -
GBP23,431,000).
An interim dividend of 6.3p per Ordinary share was paid in
January 2020 (2019: 6.2p). The Directors propose a final dividend
of 6.8p per share for the year ended 30 April 2020 (2019: 12.1p),
which is subject to approval at the Annual General Meeting and has
not been included as a liability as at 30 April 2020.
4. NOTES TO THE CASH FLOW STATEMENT
FOR THE YEARED 30 APRIL 2020
2020 2019
Net cash generated from operations GBP000 GBP000
--------------------------------------------------------- --------- ---------
Operating profit 28,916 75,491
Adjustments for:
Depreciation of property, plant and equipment 208,075 191,316
Impairment of property, plant and equipment 1,304 -
Amortisation of intangible assets 3,987 1,366
Impairment of intangible assets 14,910 -
Loss on disposal of property, plant and equipment 135 272
Loss on disposal of intangible assets 9 2
Share options fair value charge 4,203 1,249
--------------------------------------------------------- --------- ---------
Operating cash flows before movements in working capital 261,539 269,696
(Increase) decrease in non-vehicle inventories (36) 841
Decrease in receivables 4,250 7,037
(Decrease) increase in payables (1,355) 5,722
Decrease in provisions (39) -
--------------------------------------------------------- --------- ---------
Cash generated from operations 264,359 283,296
Income taxes paid, net (10,165) (1,586)
Interest paid (14,774) (14,163)
--------------------------------------------------------- --------- ---------
Net cash generated from operations 239,420 267,547
Purchases of vehicles for hire (362,011) (403,487)
Proceeds from disposal of vehicles for hire 156,290 174,468
--------------------------------------------------------- --------- ---------
Net cash generated from operations 33,699 38,528
--------------------------------------------------------- --------- ---------
5. ANALYSIS OF CONSOLIDATED NET DEBT
--------------------------------------------------------- --------- ---------
2020 2019
GBP000 GBP000
--------------------------------------------------------- --------- ---------
Cash and bank balances (67,843) (35,742)
Bank overdrafts 51,063 34,937
Bank loans 400,847 350,608
Loan notes 86,868 86,194
Leases arising following adoption of IFRS 16 62,999 -
Leases arising under HP obligations 40,953 -
Cumulative preference shares 500 500
Confirming facilities 479 360
--------------------------------------------------------- --------- ---------
Consolidated net debt 575,866 436,857
--------------------------------------------------------- --------- ---------
6. EXCEPTIONAL ITEMS
Details of exceptional items recognised in the income statement are as follows:
2020 2019
GBP000 GBP000
------------------------------------------------------------------ -------------- ---------
Restructuring expenses 8,609 -
Merger expenses 18,256 -
Intangible impairment 14,910 -
Exceptional administrative expenses 41,775 -
Refinancing expenses 566 -
Exceptional finance costs 566 -
Total pre-tax exceptional items 42,341 -
Tax credits relating to exceptional items (4,661) -
------------------------------------------------------------------- -------------- ---------
Restructuring expenses
The Group incurred total exceptional restructuring costs of
GBP8,609,000 (2019: GBPnil) of which GBP4,701,000 arose in
Northgate UK&I (2019: GBPnil), GBP1,531,000 in Northgate Spain
(2019: GBPnil) and GBP2,377,000 Corporate (2019: GBPnil).
Restructuring costs of GBP4,708,000 (2019: GBPnil) were incurred
in relation to restructuring activities that were undertaken during
the year and following the acquisition of Redde plc, as part of the
integration of the Combined Group. These costs primarily related to
a reduction in headcount and associated redundancy and loss of
office costs.
As part of the post-acquisition reorganisation, an exceptional
impairment of property, plant and equipment of GBP1,304,000 (2019:
GBPnil) and an onerous contract provision of GBP369,000 (2019:
GBPnil) were incurred in relation to property.
Exceptional share based payment charges of GBP1,659,000 (2019:
GBPnil) were incurred in relation to outstanding EPSP awards
previously made to continuing employees that were forfeited
following the completion of the acquisition of Redde plc.
Exceptional costs of GBP569,000 (2019: GBPnil) were incurred in
relation to the closure of sites.
Merger expenses
The Group incurred acquisition expenses of GBP18,256,000 (2019:
GBPnil). These related to expenses directly attributable to the
acquisition such as advisor fees, accountancy services, arranging
continuation of bank facilities and other acquisition related
costs.
Intangible impairment
The Group is in dispute with the provider of certain IT and
software development services in relation to the delivery of the
planned development of Northgate's new IT system and has therefore
paused the project. Given the uncertainty over the outcome of this
dispute a decision has been made to write down the carrying values
of the related assets. The Group therefore incurred exceptional
costs in relation to this impairment of GBP14,910,000 (2019:
GBPnil).
Refinancing expenses
The Group incurred exceptional finance costs of GBP566,000
(2019: GBPnil) relating to debt partially extinguished as part of
the refinancing of Group bank facilities.
7. CONTINGENT LIABILITIES
The Group is currently in legal dispute with a provider of
certain IT and software development services over the failure to
deliver agreed software and services to the Group. Both parties are
claiming against each other. However, the Group has disclaimed
liability and is defending the action. No provision in relation to
the claim has been recognised in the financial statements as legal
advice indicates that on the balance of probabilities significant
liability will not arise.
8. BASIS OF PREPARATION
The results for the year ended 30 April 2020, including
comparative financial information, have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), and
their interpretations adopted by the European Union.
Redde Northgate plc ("the Company") has adopted all IFRS in
issue and effective for the year.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Company
expects to publish full financial statements that comply with IFRS
in October 2020.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30 April 2020 or
2019 but is derived from those accounts. Statutory accounts for
2019 have been delivered to the Registrar of Companies and those
for 2020 will be delivered following the Company's Annual General
Meeting. The auditors have reported on those accounts: their
reports were unqualified, did not draw attention to any matters by
way of emphasis and did not contain statements under s498 (2) or
(3) of the Companies Act 2006.
The financial information presented in respect of the year ended
30 April 2020 has been prepared on a basis consistent with that
presented in the annual report for the year ended 30 April 2019,
with the exception of the application of the following standards
IFRS 16 which has been newly applied in the year ended 30 April
2020.
Having considered the Group's current trading, cash flow
generation and debt maturity including severe but plausible stress
testing scenarios including the impacts of COVID-19, the Directors
have concluded that it is appropriate to prepare the Group
financial statements on a going concern basis as explained further
below.
Assessment of prospects
The Merger has allowed the Group to further increase the service
offering and widen our customer base. The Northgate business
continues to maintain its position as a market leader in its core
market of flexible commercial vehicle hire and has distinct
competitive advantages in the minimum term rental and used vehicle
sales markets. The Redde business is a leading provider of incident
and accident management, legal and other mobility-related services.
The integration of both businesses will deliver cost synergies and
provide a platform for new revenue opportunities as the commercial
proposition matures. The Combined Group is well established within
the markets it operates and has demonstrated resilience through
previous economic cycles.
The Group's prospects are assessed through its strategic
planning process. This process includes an annual review of the
ongoing strategic plan, led by the CEO, together with the
involvement of business functions in all territories. The Board
engages closely with executive management throughout this process
and challenges delivery of the strategic plan during regular Board
meetings. Part of the Board's role is to challenge the plan to
ensure it is robust and makes due consideration of the appropriate
external environment.
Impact of COVID-19
The COVID-19 pandemic and ensuing government counter measures
have significantly reduced business activity across all areas of
the Group, impacting trading in the final two months of the year
ended 30 April 2020 and in the commencement of FY2021. A decrease
in revenue has resulted from a reduction in vehicles on hire,
temporary closure of vehicle sales operations within the rental
business of the Group and a lower volume of accidents and incidents
handled through the insurance claims and services business of the
Group. The impact on revenue included actions to support customers
through this period and was mitigated through cost actions,
resulting in a net impact of GBP7m in underlying profit before tax
for the year ended 30 April 2020.
In the first four months of FY2021, most of the key operational
performance indicators have recovered or substantially improved,
including a reduction in customer support packages, increases in
vehicles on hire, the re-opening of vehicle sales operations and an
increase in volumes of accidents and incidents managed through the
Redde business.
Significant actions were also taken by management in order to
conserve cash and manage the liquidity of the Group throughout this
period. This included but was not limited to deferral of capital
expenditure and re-negotiation of certain payment terms with
creditors. Overall, this resulted in an increase of headroom
against committed facilities of GBP34m from GBP200m at 29 February
2020 to GBP234m at 30 April 2020. Headroom against related debt
covenants also remained adequate as outlined in the Financial
Review which included GBP30m EBIT headroom against the interest
cover covenant. Cash continued to be closely managed into FY2021
with headroom on committed facilities increasing by a further
GBP57m to GBP291m as at 31 August 2020. This demonstrates the
resilience of the Group's balance sheet and business model, and its
ability to preserve liquidity throughout periods of
uncertainty.
The strategic plan (the Plan), has been updated, taking into
account the impact of COVID-19 experienced to date and the expected
impact throughout FY2021, with detailed financial forecasts also
prepared for the three year period to 30 April 2023. The first year
of the financial forecast forms the Group's operating budget which
has therefore been risk adjusted for COVID-19 and will be
continuously reviewed throughout the financial year. Subsequent
years are forecast from the base year, using historical experience
and expected measures within the overall strategic plan.
Assessment of going concern
The strategy and associated principal risks underpin the Group's
three year strategic planning process, which is updated annually.
This process considers the current and prospective macro-economic
conditions in the countries in which we operate and the competitive
tension that exists within the markets that we trade in.
The Plan also encompasses the projected cash flows, dividend
cover assuming operation of stated policy at the time of the Merger
and headroom against borrowing facilities and financial covenants
under the Group's existing facilities and the reasonable
expectation of similar facilities being replaced if required
throughout the planned period. The Plan makes certain assumptions
about the normal level of capital recycling likely to occur and
therefore considers whether additional financing will be required.
Headroom against the Group's existing facilities at 30 April 2020
was GBP234m as detailed in the Financial Review. This compares to
headroom of GBP165m at 30 April 2019 including a GBP51m increase in
banking facilities that was agreed in September 2019. All of the
Group's principal borrowing facilities have maturity dates outside
of the period under review, therefore the Group's facilities
provide sufficient headroom to fund the capital expenditure and
working capital requirements for at least 12 months following the
date of this report.
As outlined above, the Plan was risk adjusted for the impact of
COVID-19 experience to date and the expected impact on subsequent
trading. The Plan was separately stress tested for the potential
impact of a COVID-19 "second wave" during 2020 and 2021. The
scenario assumed a similar impact as observed in the "first wave"
including the revenue impact of a reduction in vehicles on hire,
closure of vehicle sales operations, and similar reduction in the
volume of insurance related accident and repair claims handled.
Costs were assumed to be mitigated to the extent that they are
directly related to revenue, with an assumption being made that
there would be no further reduction in the indirect cost base of
the Group and no further government support schemes would be
available to access. Capital expenditure was only deferred to the
extent of the reduction in demand and the working capital impact
was assumed to be similar to that experienced in the first wave
without taking further action to re-arrange payment terms with
creditors. After taking into account all of the above variables,
sufficient headroom remained against available debt facilities and
the covenants attached to those facilities, therefore whilst
COVID-19 will continue to have a significant impact on the trading
performance of the Group, it does not create a material uncertainty
on the Group's ability to continue as a going concern.
In addition to the continuance of COVID-19 government
restrictions, the Directors have further considered the resilience
of the Group, considering its current position and the principal
risks facing the business. The Plan was stress tested for severe
but reasonable scenarios over the planned period as follows:
-- Reduction in vehicles on hire with rental customers
-- Reduction in pricing of rental hire rates
-- Increase in the purchase cost of vehicles and other operating
expenses not passed on to customers
-- Reduction in the residual value of used vehicles
-- Significant volume reduction in insurance claims and services
revenue, either in aggregate through lower demand or through ending
the commercial relationship with a key insurance partner
-- Slow down in the time taken to settle outstanding claims with insurers
-- Failure to integrate the combined business as planned, and
therefore not fully deliver Merger synergies
The above scenarios, took into account the effectiveness of
mitigating actions that would be reasonably taken, such as reducing
variable costs that are directly related to revenue, but did not
take into account further management actions that would likely be
taken, such as a change to the indirect cost base of the Group or a
reduction in capital expenditure and ageing of the vehicle fleet,
both of which would generate cash and reduce debt.
After taking into account the above sensitivities and reasonable
mitigating actions, sufficient headroom remained against available
debt facilities and the covenants attached to those and the
Directors have a reasonable expectation that the Group will
continue to be meet its obligations as they fall due for at least
12 months from the date of this report.
[1] Refer to GAAP reconciliation and Glossary of terms note.
Underlying excludes exceptional costs and certain intangible asset
amortisation.
[2] Net debt includes GBP63.0m IFRS 16 liabilities and GBP53.4m
Redde net debt not included in FY2019.
[3] Remaining GBP9.1m of exceptional costs relates to GBP8.6m
restructuring costs and GBP0.6m one-off re-financing costs. Refer
to Financial Review page 24.
[4] Defined as the adjustment in the depreciation charge made in
the year for vehicles sold at an amount different to their net book
value at the date of sale (net of attributable selling costs)
[5] Defined as Underlying EBITDA less Net replacement capex.
Steady state cash generation is stated before cash flows for
interest, taxation and other financing costs.
[6] Calculated as underlying EBIT divided by total revenue
[7] Net replacement capex is total capex less growth capex.
Growth capex represents the cash consumed in order to grow the
fleet or the cash generated if the fleet size is reduced in periods
of contraction.
[8] Calculated as underlying EBIT divided by total revenue
[9] Net replacement capex is total capex less growth capex.
Growth capex represents the cash consumed in order to grow the
fleet or the cash generated if the fleet size is reduced in periods
of contraction.
[10] Calculated as underlying EBIT divided by total revenue
[11] Redde net capex has been adjusted to include the principal
element of lease payments under HP.
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END
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