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Northgate plc Annual report and accounts 2010 We are the leading light commercial vehicle hire business in the UK and Spain Registered offce: Norfex House, Allington Way, Darlington DL1 4DY Telephone: 01325 467558 Fax: 01325 363204 www.northgateplc.com Northgate plc Annual report and accounts 2010 UK: Vehicle feet Who we are 2010: 60,900 Northgate plc is the leading light commercial vehicle 2009: 62,900 hire business in both the UK and Spain by feet size 2008: 68,600 and has been operating since 1981. Our core business is the 2007: 65,300 rental of vehicles to other businesses on fexible length 2006: 64,000 agreements, giving customers the fexibility to manage their vehicle feet without a long-term commitment. Spain: Vehicle feet What we do 2010: 48,900 2009: 60,400 2008: 62,750 The business in the UK and Ireland operates from 2007: 55,000 65 sites with a feet of 60,900 vehicles. In addition, we sell former rental vehicles to both retail and trade 2006: 47,000 customers. We also offer an increasing range of services and products to help customers manage their feets Underlying group proft 2 effectively, such as vehicle monitoring and parts before tax £m procurement. Our Fleet Technique business offers the 2010: 36.5 opportunity for customers to outsource feet management whilst retaining ownership. 2009: 27.5 2008: 83.1 In Spain, we operate through two separate brands, 2007: 79.3 Fualsa and Record. With 32 branches and a combined 2006: 61.3 feet of 48,900 vehicles we are the market leaders in light commercial vehicle hire in Spain. 1 Group operating proft £m Our customers operate in a wide range of industries, of which construction and support services are the two 2010: 82.8 largest. Other major sectors include local authorities, 2009: 71.8 public utilities and retailers. 2008: 121.8 2007: 111.0 Our vision 2006: 73.8 We always put our customers frst, providing tailored vehicle solutions which match the needs of each individual Contents business and offer only the leading manufacturers’ products in each weight category – from a single van to a Review feet of thousands. We offer access to a vehicle feet 01 Highlights of the year 02 Chairman’s statement of more than 100,000 vehicles. These principles ensure that 04 Group at a glance all of our customers beneft from a friendly, focused and 05 Key performance indicators personal service. 06 Operational review 12 Financial review 16 Principal risks and uncertainties 18 Board of directors Our strategy 20 Report of the Directors Corporate governance Going forward our strategy is to concentrate on increasing 23 Remuneration report 29 Audit committee report the proftability and operational effciency of the Group 30 Corporate governance without compromising on the quality of service and 32 Health & safety and environmental fexibility offered to our customers. We will achieve this by 33 Directors’ responsibilities managing the feet effciently and concentrating on doing Auditors‘ Report the simple things very well. 34 Independent Auditors’ Report to the Members of Northgate plc Primary Statements 35 Consolidated income statement 36 Statements of comprehensive income 37 Balance sheets 38 Cash fow statements 39 Notes to the cash fow statements 40 Statements of changes in equity Notes to the accounts 41 Notes to the accounts 84 Five year fnancial summary 85 Notice of annual general meeting 88 Appendix of notice of AGM 90 Shareholder Information Operational highlights Highlights of the year Average utilisation in the year of 91% in the UK (2009 – 88%) and 88% in Spain (2009 – 83%) Pricing improvement of 3% in the UK since April 2009 Benefted from strong used vehicle markets in both the UK and Spain Closing feet of 60,900 in the UK (2009 – 62,900) and 48,900 in Spain (2009 – 60,400) Reorganisation of the UK business underway Underlying fnancial highlights 2010 2009 Group operating proft1 £82.8m £71.8m Underlying proft before tax2 £36.5m £27.5m Basic earnings per share3 26.8p 59.2p4 Earnings3 £28.2m £19.2m Net debt5 £598m £886m Return on capital employed1 8.4% 5.8% Successful completion of debt refnancing and equity Group operating proft1 fundraising during the year. Statutory fnancial highlights +15.4% 2010 £82.8m Proft from operations increased to £71.1m (2009 – loss of £117.5m) 2009 £71.8m Proft before taxation of £9.6m after exceptional items of £21.9m (2009 – loss of £195.6m after exceptional items Underlying proft before tax2 of £217.9m) Basic earnings per share increased to 23.1p (2009 – loss per share of 572.6p4) + 32.8% Proft for the year increased to £24.4m (2009 – loss of £185.7m) 2010 £36.5m 2009 £27.5m 1 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items of £6.7m (2009 – £3.1m) and impairment of £Nil (2009 – £180.9m). 2 Stated before intangible amortisation of £5.0m (2009 – £5.3m), exceptional items of £6.7m (2009 – £3.1m), impairment of £Nil (2009 – £180.9m) and exceptional Net Debt5 fnance costs of £15.2m (2009 – £33.8m). 3 oStfa £te6d.7 bme f(o2r0e0 i9n t–a n£g3i.b1lme a),m imorptaisiarmtioen to of f£ £5N.0ilm (2 (020090 9– –£ 1£850.3.9mm),) ,e exxcceepptitoionnaal li tfenmasn ce costs of £15.2m (2009 – £33.8m) and tax credit of £23.0m (2009 – £18.2m). 4 As restated for the bonus element of the ten for one rights issue at seven pence per -£288m Oefrfdeicntaivrey 2sh3a Sre petfefemcbtievre 21020 A9.u gust 2009 and the one for ten consolidation 2010 £598m 5 Net debt taking into account the fxed swapped exchange rates for US loan notes. 2009 £886m Northgate plc Annual report and accounts 2010 Review 1 I am pleased to present my frst report outright purchase or do not wish to Chairman’s statement since joining the Group in February. Let commit to long-term lease or contract me start with an historical perspective. hire. As we focus our efforts on SME customers we will carefully monitor By the end of the 2008 fnancial year the debtor age profles. We will continue Group had aggressively expanded its feet to concentrate on conserving cash and to a level of 68,600 vehicles in the UK and paying down debt. 62,750 in Spain, but some of this growth had been at the expense of margins. When the recession hit, utilisation levels UK fell in 2009 to 88% in the UK and 83% in Spain, compared to historic rates 5 Our underlying UK rental margin of over 90% and the problem was increased to 18.5%, compared to 12.8% exacerbated by a dramatic fall in vehicle in 2009 and utilisation rates in the UK residual values in both the UK and Spain. averaged 91% (2009 – 88%). This was This put inordinate strain on the balance achieved by continuing the actions taken sheet and, at the beginning of the in 2009 to improve feet management fnancial year, the Group raised £108m and to focus on hire rate improvement. (£77m net of equity and debt This was alongside improved market arrangement fees) from a rights issue, conditions, particularly in the used vehicle thus refnancing its debt and securing the market, where much improved residual capital structure up until September 2012. prices for second-hand vehicles contributed £6.5m towards operating By the end of 2009 the UK feet numbers proft (2009 – £14.4m reduction in had fallen to 62,900 vehicles and in operating proft). Spain to 60,400. This process continued in 2010 with the UK feet falling by 3% Historically, the Group had operated to 60,900 vehicles and in Spain falling through 20 hire companies across the by 19% to 48,900. UK, each with its own local brand and management. There was a great degree “Since the refnancing last year, we Going forward, the focus of the Group of rivalry between these businesses have met substantially all of our will be to maintain utilisation in excess which did not always operate in the targets. Going forward, we will of 90%, improve operating effciency best interests of either the Group or the concentrate on doing simple things to reduce costs and to concentrate on customer. By the end of August 2010, very well. We will complete the UK increasing the return on capital employed the 20 companies will become restructuring. We will develop (ROCE), the key performance measure for 12 business areas operating under the further plans for Spain, which is the Group, above levels previously Northgate Vehicle Hire brand. already signifcantly more achieved. operationally effcient than the UK, A decision was taken in April to The combination of the rights issue, and will continue to focus on margin. commence a restructuring of the UK strong cash generation and improved business to signifcantly improve our Our aim is 90% utilisation and if we proftability has produced the following effciency and establish a solid base for need to further reduce the feet so results for the year ended 30 April 2010: growing the business and improving be it. Maximising returns and 1 • Underlying proft before tax customer service whilst also increasing the charging fully for ancillary services increased by 32.8% to £36.5m operating margin. Along with this radical will be our prime targets. (2009 – £27.5m); overhaul of the UK operating structure, The Group has begun the new we see the opportunity for signifcant cost 2 • Net debt reduced by £288m to £598m fnancial year in line with savings, for example in maintenance, (2009 – £886m); expectations”. repair and overheads. 3 • ROCE 8.4% (2009 – 5.8%); An inordinate amount of time had been • Basic earnings per share increased dedicated in trying to develop an IT system to 23.1p (2009 – loss per share of to meet the requirements of all the 4 572.6p ). separate companies within the Group. This could not be achieved. We are now The Board has debated the dividend issue adopting standardised operating long and hard and, on balance, has procedures for all of our units and have decided that it is not yet prudent to pay a chosen a proprietary IT solution to meet dividend. The Company is facing diffcult our needs. The implementation of this economic conditions in both the UK and Group wide IT system should be complete Spain. There will be major government by April 2011. This will reduce our costs cutbacks which will reduce demand for and give us much better information some vehicle units, but our fexible model about the proftability of our activities, may well prove attractive to customers processes and services. Taken together who struggle to raise the capital for Northgate plc Annual report and accounts 2010 Review 2 with the consolidation of operating units Balance sheet As part of the review, Phil Moorhouse, and the Board changes set out below, this UK Managing Director, agreed to bring should result in annualised cost savings forward his retirement from 31 December During the year net debt has reduced by of over £10m from April 2011. 2010 to 31 March 2010. I would like to £288m to £598m. This was primarily as a personally thank Phil for the objective We are also establishing a national result of the rights issue proceeds of £77m insights into the UK business which he sales team to concentrate on our core (net of equity and debt arrangement fees), has given me. SME customers. continued strong EBITDA (earnings before interest, taxation, depreciation and Bob Contreras, our Group Finance Director amortisation) of £306m and working since June 2008, was appointed Chief Spain capital of £39m, with net interest Executive on 7 June 2010. I am confdent payments of £48m and net capital that he will drive the business forward, Our Spanish business operates in an expenditure on vehicles of £110m being implement the necessary changes agreed extremely diffcult environment, £61m lower than in the previous year. by the Board and focus on maximising particularly in the construction and related returns over the coming years. We are It is important that the Group has secure sectors. Despite approximately 60% of currently conducting a thorough search fnancing to support the business across our business coming from these sectors, for a Finance Director and will make an the economic cycle. At 30 April 2010 we we have made progress in a number of announcement in due course. 6 had net debt of £598m, which gave us operational areas. Improved feet headroom of £240m on our committed Paul Tallentire, the Deputy Chief Executive, management has, in turn, improved debt facilities of £865m. Net debt to decided that his future lay outside average utilisation. Indeed, utilisation in EBITDA was 2.0 (2009 – 2.5) and the Group and we thank him for his the last two months of the year averaged headroom on all covenants improved contribution and wish him well for 90%. A major contributory factor has since the date of refnancing. the future. been the successful introduction of a used vehicle disposal capability based Our committed facilities mature in on our UK experience. We introduced September 2012 and we will assess the Current trading and future outlook a retail website and further developed appropriate timing of refnancing well our wholesale disposal channel. As a ahead of its maturity. Since the refnancing last year, we have direct consequence we were able to met substantially all of our targets. Going dispose of 19,800 vehicles (an increase Board changes forward, we will concentrate on doing of 50% on the previous year) at higher simple things very well. We will complete residual values. the UK restructuring. We will develop On becoming Chairman one of my frst In Spring 2009, the Record head offce further plans for Spain, which is already tasks, with the assistance of the in Castellón was closed and its operations signifcantly more operationally effcient Nominations Committee, has been to were integrated into the Fualsa head than the UK, and will continue to focus decide on the future management offce in Madrid. I have to report that on margin. structure of the Group. this resulted in considerable operating Our aim is 90% utilisation and if we need problems. This compounded the bad The Chief Executive, Steve Smith, to further reduce the feet so be it. debt situation which was already under originally intended to retire on 31 July Maximising returns and charging fully for pressure from high levels of bankruptcy 2009 but had agreed to stay on to guide ancillary services will be our prime targets. within the local economy. The bad debt the Group through its refnancing, placing charge for the year increased to €10.3m and rights issue during very diffcult The Group has begun the new fnancial (2009 – €3.7m). Both the CEO and CFO trading conditions. Having successfully year in line with expectations. in Spain have been replaced and our new completed the task, Steve stood down on team in Spain has made an excellent start 31 March 2010. I would like to thank him and is concentrating on resolving the not only for his efforts in the last 12 Bob Mackenzie inherited administration problems. The months but also for more than 20 years Chairman bad debt charge in the second half of the of dedicated service. He was very helpful in year was reduced by €1.3m compared to introducing me to the Group when I 1 S tated before intangible amortisation of £5.0m (2009 the frst half of the year and there was a became Chairman. – £5.3m), exceptional items of £6.7m (2009 – £3.1m), signifcant improvement in debt collection impairment of £Nil (2009 – £180.9m) and exceptional Alan Noble founded the business in fnance costs of £15.2m (2009 – £33.8m). resulting in a €50.6m (35.2%) reduction February 1981 and was the driving force 2 N et debt taking into account the fxed swapped in Spanish debtors compared with exchange rates for US loan notes. behind its early growth. Regrettably due 31 October 2009. 3 S tated before intangible amortisation of £5.0m (2009 to ill health, he retired from the business – £5.3m), exceptional items of £6.7m (2009 – £3.1m) on 31 March 2010. I would like to thank and impairment of £Nil (2009 – £180.9m). 4 A s restated for the bonus element of the ten for one him for his many years of dedicated Rights Issue at seven pence per Ordinary share service to the Group. effective 12 August 2009 and the one for ten consolidation effective 23 September 2009. 5 Calculated as operating proft before intangible amortisation of £2.3m (2009 – £2.6m), exceptional items of £5.8m (2009 – £0.8m) and impairment of £Nil (2009 – £61.5m), divided by revenue of £312.0m (2009 – £334.7m), excluding vehicle sales. 6 Net of £27m of unamortised arrangement fees. Northgate plc Annual report and accounts 2010 Review 3 Group at a glance UK Hire and Fleet Technique Spain Hire Revenue 2010 £328.2m £235.5m (excluding vehicle sales) 2009 £352.7m £257.0m 1 Operating proft 2010 £58.9m £30.0m 2009 £43.8m £32.6m 2 Operating margin 2010 18.0% 12.7% 2009 12.4% 12.7% Number of employees 2010 2,122 974 2009 2,253 956 Closing feet 2010 60,900 48,900 2009 62,900 60,400 Vehicle sales 2010 £114m 22,700 vehicles £72m 19,800 vehicles 2009 £116m 23,400 vehicles £45m 13,200 vehicles Vehicle purchases 2010 £211m 18,800 vehicles £99m 9,100 vehicles 2009 £198m 16,900 vehicles £96m 8,800 vehicles Average utilisation 2010 91% 88% 2009 88% 83% Locations 65 32 Vehicle types Car Car Car derived van Car derived van Large van Large van Medium van Medium van Minibus Minibus Short wheel base van Short wheel base van 4x4 4x4 Customers by sector Construction & civil Engineering 30% Construction 57% Support services 16% Support services 17% Logistics 14% Manufacturing 8% Hire of plant and vehicles 8% Retail 4% Government bodies 7% Engineering 3% Business supplies & services 6% Logistics 3% Others (less than 5%) 19% Others (less than 3%) 8% Customers by feet size Corporate feets (>100) 39% Corporate feets (>100) 32% Small and medium feets (5–100) 49% Small and medium feets (5–100) 53% Micro-feets (< 5) 12% Micro-feets (< 5) 15% Main trading subsidiaries Northgate Vehicle Hire Limited Furgonetas de Alquiler S.A Northgate Vehicle Hire (Ireland) Ltd Record Rent a Car S.A Fleet Technique Limited 1 Before intangible asset amortisation and exceptional items. Excludes corporate costs. 2 Operating proft as per (1) and excluding vehicle sales revenue. . Northgate plc Annual report and accounts 2010 Review 4 Key performance Going forward, the focus of the Group will be to maintain utilisation in excess of 90%, improve operating effciency indicators to reduce costs and to concentrate on increasing the return on capital employed (ROCE), the key performance measure for the Group, above levels previously achieved. Performance Target Key performance indicators Utilisation Utilisations have improved in both The target for both segments is to Utilisation improvement Utilisation needs to be hire segments as a result of effcient maintain average utilisation above maintained at a high level in management of a lower feet. 9in0 t%he. TUhKis w isi tchu trhren trlye nbde ing S apcahinie ved UK +3% order to maximise return UK Average utilisation has improved leading towards this being achieved on capital employed whilst to 91% (209 – 8%). in the next fnancial year. Spain +5% mhoeledtin tgh ee nfoeuxigbhle v deehmiclaensd tso Scopmaipna rAevde rtaog 8e3 u%til isna tihoen porfi o8r8 y%ea r, 2010 2009 of our customers. with utilisation in the last two UK 91% 88% months of the year averaging 90%. Spain 88% 83% Hire rate UK Increase in average hire revenue Minimum hire rate thresholds have Hire rate improvement The hire rate achieved is a per vehicle of 0.6% (although >3% been set for new vehicles. Further key contributor to return on since fnal quarter of prior year) rate increases are targeted in the UK UK +0.6% capital employed. Hire rates achieved through a combination and Spain through improved sales of rate increases, increased pricing analysis to eliminate low margin need to refect for new vehicles and improvements customers, and improved recovery Spain-2.4% the level of fexibility and in recharging of other costs. on recharging of costs such as service offered to our colection, delivery and damage c ustomers. rS2iucptnehoa.npcd4emruarut %elt ipaconialta isf spit nAoeetrsinhvrdiem e ea psivrn naaayea rdreghtfitl ae yielmcor e.larfwe itan Rs stt esiah remitretzeos eseru asury,hme etlitotedna lstuocrirh d grcfifnera eoeha ydtltsil serhoh reibdenewodyn glr e idtain na tglr e l ya r ecovery. rates for new customers. Fleet management The level of vehicle purchases and The overall feet size in the UK and Closing feet The size and age of the feet sales is controlled in order to manage Spain is expected to remain relatively needs to be managed in order feet size and ageing. Overal holding stable in the short term with focus UK 60,900 to maximise utilisations and costs are minimised through remaining on maximising utilisations minimise the overal holding managing the mix and volume of and hire rates. Further holding cost Spain 48,900 cost of vehicles. p anudrc hbay siems pfrovmin ega tchhe m efafneuctfiavcetnueressr smaavinnaggsi nagre t htaer gmeitxe do ft hverohuicgleh of vehicle sales channels. purchased through each manufacturer and maximising disposals through higher margin retail and semi-retail channels. Return on capital employed ROCE is maximised through a Each KPI above has been targeted ROCE Group In a capital intensive business, combination of managing utilisation, for improvement to contribute to return on capital employed is hire rates, vehicle holding and an overal increase in ROCE of the +2.6% a more important measure of other costs. Group. Overall ROCE for the Group p a r teoleot rusnfhroenar,ms rae lshao nowlocld weve a trmhlsu.aenr g pinro bfutasibnielistys G ( 2r0o0u9p –R O5.C8E%1 )f. or the year was 8.4% isn teaxrcgestse do ft o1 0re%co. ver to a level 200190 85.84% Earnings per share (EPS) Earnings3 Basic EPS is considered to be Basic EPS2 of 26.8p compared to The target is to maximise shareholder a key short term measure of 59.2p in the prior year but with value by increasing EPS in the short +47.2% performance used by earnings increasing by 47.2% to term alongside longer term return shareholders. £28.2m (2009 – £19.2m). on equity. Basic EPS 2010 26.8p 2009 59.2p 1 Before intangible amortisation, exceptionals items and impairment. 2 Stated before intangible amortisation, exceptional items, impairment and the tax effect thereon. Shares as restated for the bonus element of the ten for one rights issue at seven pence per Ordinary share effective 12 August 2009 and the one for ten consolidation effective 23 September 2009. 3 E arnings as adjusted for items stated in (2) have increased year on year, whilst basic EPS have decreased due to the increased number of shares in issue following the rights issue in September 2009. Northgate plc Annual report and accounts 2010 Review 5 all stages of the economic cycle, and Operational and fnancial Operational Review therefore we aim to maintain an average reviews rate of at least 91% going forward. Group As part of the process to increase utilisation we purchased 18,800 vehicles After the severe economic downturn in in the year (2009 – 16,900) but increased the latter part of 2008, the Group the average age of the feet from began the implementation of several 19.4 months to 20.8 months. Whilst this operational measures in order to improve does not represent a signifcant ageing performance. In particular, in February of the feet, it has made a contribution 2009, the Board approved a three-year to the substantial level of operating cash strategic plan, which was effective from generation of the Group in the year, as May 2009. That plan focused on the referred to in the Financial Review. following key performance improvements in both the UK and Spain: Hire rates • Improved feet management; Average hire revenue per vehicle in the year was 0.6% higher than in the previous • Pricing increases; year. However, since increased hire rates • Cost reduction; and were specifcally targeted in the fnal quarter of the previous fnancial year, the • Improvement in vehicle disposal increase in revenue has been in excess of capabilities. 3%. This is a combination of increased We are pleased that we have been able to headline hire rates with both new and meet substantially all of our targets for the existing customers, as well as initiatives year ended 30 April 2010, as explained to improve the levels of recharges in areas in more detail below, despite a backdrop such as collection and delivery and of continuing economic uncertainty, and damage recovery. generate a much improved return on Depot network 1 capital employed of 8.4% (2009 – 5.8%). As part of the ongoing rationalisation of The Group also successfully refnanced its operating costs and increased effciency, debt and completed a placing and rights we reduced the network of hire locations issue in the year. The fnancial stability that by 15 from 80 to 65 during the year. This “We are pleased that we have been these measures produced will allow the is part of the continuing move towards able to meet substantially all of our Group to focus on the implementation of a structure of larger hubs with a smaller targets for the year ended 30 April longer-term operational improvements. number of satellite locations. Customer 2010, despite a backdrop of continuing accounts managed by those closed economic uncertainty, and generate a United Kingdom hire of vehicles branches have been transferred elsewhere much improved return on capital within the network. employed of 8.4% (2009 – 5.8%).” The successful management of feet As part of the ongoing focus on effciency, utilisation, from an average of 88% in headcount has reduced by 131 (6%) since the previous fnancial year to 91% in the the start of the fnancial year. The full year current fnancial year, combined with saving in payroll costs in relation to these improvements achieved in pricing, individuals is approximately £2.6m. operational effciencies and increases in We have also driven additional effciencies used vehicle residual values have led to in our vehicle repair workshops, with a 2 an increase in operating margin from 1% reduction in the net maintenance 12.8% to 18.5%. cost of each of our vehicles in the year, Vehicle feet and utilisation compared to 2009; this is despite the slight increase in the ageing of the feet We managed the UK feet size down by during the year noted above. 3% to 60,900 vehicles at 30 April 2010 (2009 – 62,900). However, the closing number of vehicles on hire fell by only 600 compared to 30 April 2009 and utilisation for the year averaged 91% (2009 – 88%), better than anticipated in our three-year plan. As part of our goal to increase return on capital employed, utilisation remains a key area of focus, at Northgate plc Annual report and accounts 2010 Review 6 One Northgate During the 2011 fnancial year we will conduct a fundamental reorganisation of the UK business. We will create ‘One Northgate’ – what does this mean? A best in class support services company under one brand and one set of operating procedures, maximising operating effciencies and eliminating duplication. Our employees will receive improved training allowing them to provide the customer with a consistent service throughout our network. One Northgate will initially involve: • Consolidating 20 hire companies down to 12 business areas rebranded as Northgate Vehicle Hire • A new IT system and roll-out of a business blueprint which will allow us to operate as one business • The same consistent service throughout our network • Centralisation of certain administrative functions • Annualised savings of over £10m by April 2011 with other areas being identifed for review c. £10m Annualised costs savings to be implemented by April 2011 Substantiation picture of printed material/ advert with new branding applied. Fugit ut voluptatibus recabori commodi sitendero min nonsequis ne voluptatur Ximus, omnimol orepellessi tet asim voluptatus dolent lis remquis quaspe porit dolorro tecatenda paoluptate ent et ium repuda doluptiundae. Northgate plc Annual report and accounts 2010 Review 7 Restructuring Fleet Technique The latter part of the fnancial year has seen the commencement of a Fleet Technique, which manages feet on restructuring of the UK business. A key behalf of those of our customers that own part of this restructuring is the reduction their own vehicles, increased its level of in the number of hire companies from operating proft to £1.3m (2009 – £0.9m), 20 to 12, as well as the movement to a despite the number of jobs managed single common brand. Northgate Vehicle slightly falling by 1.9% to 86,500 Hire will replace the existing local brands (2009 – 88,200). The Fleet Technique of each of the hire companies. It is business continues to add value to the expected that this restructuring will be Group as a whole as we leverage its completed during the frst half of the systems capability to coordinate external fnancial year ending 30 April 2011. repairs for the vehicle rental business. Once the overall rationalisation of the business is complete, it is anticipated Spain hire of vehicles that the ongoing cost savings will be approximately £10m per annum from Improved feet management together with April 2011 with total implementation signifcant improvements in our used costs by that date of a similar amount, vehicle disposal capability, despite the majority of which has been incurred challenging economic conditions, has led in the year ended 30 April 2010. to current feet utilisation in excess of Used vehicle sales 90% and better residual values achieved for used vehicles when sold. Alongside There has been a signifcant improvement this, ongoing operational effciency in the resale values achieved for used improvements have offset reductions in vehicles during the fnancial year, mainly vehicles on hire and hire rates charged due to the recovery in market prices. per vehicle, as well as a higher incidence During the year, a total of 22,700 vehicles of bad debts to maintain the operating 10 (2009 – 23,400) were sold with the retail margin at 12.7% (2009 – 12.7%). and semi-retail channels accounting for Vehicle feet and utilisation 19% (2009 – 18%) of those disposals. As anticipated in the three-year plan, The improvement in the values achieved the total feet fell from 60,400 vehicles for the vehicles disposed, above our at 30 April 2009 to 48,900 vehicles at expectations, has been refected in 30 April 2010. Of this fall, vehicles on a decrease of £6.5m (2009 – £14.4m hire fell by 6,400 and we reduced the increase, as restated) in the feet by a further 5,100 vehicle to increase depreciation charge. utilisation. The average utilisation rate IT for the fnancial year was 88% (2009 – 83%) and utilisation at the year The UK will complete the roll-out of the end exceeded 90%. Group-wide Enterprise Resource Planning (ERP) system by April 2011 as part of One of the reasons for the achievement of the restructuring of that business. This will 90% utilisation in the last quarter of the cover operations, asset management and year was the focus on a reduction in the fnance and will be used as a basis to number of vehicles under repair, from 9% improve customer service and reduce costs at December 2009 to 4% at April 2010. through further operational effciencies. Another factor in achieving this increased utilisation level was the continued low level of vehicle purchases, with only 9,100 vehicles purchased in the year (2009 – 8,800). This, in conjunction with the level of vehicle disposals explained below, resulted in an increase in the average age of the feet from 25.5 to 27.2 months. Northgate plc Annual report and accounts 2010 Review 8

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