RNS Number : 8427I
Northgate PLC
30 July 2012

Annual Report and Accounts 2012


Northgate plc ('Northgate' or the 'Company') has today submitted a copy of the above documents to the National Storage Mechanism where they will shortly be available for inspection at www.Hemscott.com/nsm.do

Copies of the Annual Report and Accounts for the year ended 30 April 2012 and the Notice of Annual General Meeting are also available on the Company's website at www.northgateplc.com.

Explanatory note and warning

The primary purpose of this announcement is to inform the market about the publication of the Company's Annual Report and Accounts for the year ended 30 April 2012 (the "2012 Annual Report and Accounts").

The information below, which is extracted from the 2012 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's Preliminary Announcement issued on 27 June 2012. Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2012 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-reference in the 2012 Annual Report and Accounts.


Directors' responsibilities

The Annual Report and Accounts for the year ended 30 April 2012 contains a responsibility statement in the form set out below:

The Directors are responsible for preparing the annual report and accounts in accordance with applicable law and regulations.


Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements under

IFRS as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company

and of the profit or loss of the Group for that period.


In preparing these financial statements, IAS 1 (Presentation of Financial Statements) requires that Directors:


·     properly select and apply accounting policies;


·     present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;


·     provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events  and conditions on the entity's financial position and financial performance; and


·     make an assessment of the Group's ability to continue as a going concern.


The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at

any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.


The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Responsibility statement


We confirm that to the best of our knowledge:


·     the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and


·     the management report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.


By order of the Board


Bob Contreras

Chief Executive Officer

26 June 2012


The information contained in this announcement does not comprise statutory accounts for the purposes of the Companies Act 2006. The Company's consolidated financial statements as set out in the 2012 Annual Report and Accounts have been audited by Deloitte LLP. A copy of the audit report, which was unqualified, is set out at page 37 of the 2012 Annual Report and Accounts.

Principal risks & uncertainties

The following description of principal risks and uncertainties is set out on pages 20 and 21 of the 2012 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.

The operation of a public company involves a number of risks and uncertainties across a full range of commercial, operational and financial areas. The principal risks and uncertainties that have been identified as being capable of impacting the Group's performance over the next financial year are set out below.

Economic environment

There is a link in our business between the demand for our products and services and the levels of economic activity in the countries in which the Group operates.  The high level of operational gearing in our business model means that changes in demand can lead to higher levels of variation in profitability.

The Group operates in Spain, where austerity measures have been implemented. These measures could impact on future trading volumes. The underlying macro-economic conditions have also increased the risk of customer failure, particularly in Spain, which may lead to the occurrence of increased bad debt charges.

The construction industry in Spain and other key markets of the Group have been particularly sensitive to the downturn in the economic climate which has led to a decline in the number of vehicles rented in recent years.

The Spanish business generates a large proportion of revenue from customers in the construction industry but is seeking to diversify its customer base across a range of market segments.

Should there be a further significant economic downturn the flexible nature of the Group's business model enables vehicles to be placed with other customers.  Alternatively, utilisation can be maintained through a combination of a decrease in vehicle purchases and increase in disposals, which although affecting short-term profitability, generates cash and reduces debt levels.

An economic downturn also presents opportunities to increase rentals to customers wishing to benefit from the Group's flexible renting solutions, either due to a lack of available finance or an unwillingness to commit to long term rental or outright purchase.

No individual customer contributes more than five per cent of total revenue generated, and ongoing credit analysis is performed on new and existing customers to assess credit risk.



The Group operates in and generates 35% of its revenue in Spain, where the functional currency is the Euro. The risks of trading in this country are assessed in the "Economic Environment" risk.  Of the Group's net assets, £294m (2011 - £366m) are located in Spain, against which the Group holds £240m (2011 - £356m) of Euro denominated borrowings providing a net investment hedge.


There is a possibility that Spain may leave the Euro. If this occurred and Spain were to reintroduce its own national currency, the Group could be materially affected by a weakening of this currency and higher volatility on trading results when translated into sterling. Local net assets could depreciate while the Group's Euro debt located in the UK could appreciate.


The Board has conducted a detailed review of the impact of possible scenarios that may arise from the Eurozone crisis and the risks are being continually monitored. In order to minimise the Group's net exposure to the Spanish currency, regular dividend payments of cash flow generated from the Spanish business have been implemented, and consideration is being given to increasing the level of funding to the Spanish business from locally denominated borrowings.


Vehicle holding costs

The overall holding cost of a vehicle is affected by the pricing levels of new vehicles and the disposal value of vehicles sold.


The Group purchases substantially all of its fleet from suppliers with no agreement for the repurchase of a vehicle at the end of its hire life cycle.  The Group is therefore exposed to fluctuations in residual values in the used vehicle market.


An increase in the holding cost of vehicles, if not recovered through hire rate increases, would affect profitability, shareholder returns and cash generation.


Risk is managed on new pricing by negotiating fixed pricing terms with manufacturers a year in advance.  Flexibility is maintained to make purchases throughout the year under variable supply terms.


Flexibility in our business model allows us to determine the period over which we hold a vehicle and therefore in the event of a decline in residual values we would attempt to mitigate the impact by ageing out our existing fleet.


Competition and hire rates


The Group operates in highly competitive markets with competitors often pursuing aggressive pricing actions to increase hire volumes.  The market is also fragmented with numerous competitors at a local and national level.


As our business is highly operationally geared, any increase or decrease in hire rates will impact profit and shareholder returns to a greater effect.


As the Group is focused on maximising return on capital, all hire rates must exceed certain hurdle rates.


Our current pricing strategy is focused on charging the correct price for the service provided and all ancillary services offered which will attract customers for whom flexible rental is the most appropriate solution but not necessarily the cheapest.  This means that the Group will be better positioned against solely price led competition going forward.


Access to capital


The Group requires capital to both replace vehicles that have reached the end of their useful life and for growth in the fleet.  Additionally, due to the level of the Group's indebtedness, a significant proportion of the Group's cash flow is required to service its debt obligations.  In order to continue to access its credit facilities the Group needs to remain in compliance with its financial covenants throughout the term of its facilities.  Current bank facilities are due to mature in September 2014 with other facilities having varying maturity dates up to April 2019.  There is a risk that the Group cannot successfully extend its facilities past this date.  Failure to access sufficient financing or meet financial covenants could potentially adversely affect the prospects of the Group. 


Financial covenants are reviewed on a monthly basis in conjunction with cash flow forecasts to ensure on-going compliance.  If there is a shortfall in cash generated from operations and/or available under its credit facilities the Group would reduce its capital requirements.


The Group believes that its existing facilities provide adequate resources for present requirements.


The impact of access to capital on the wider risk of going concern is considered above.


IT systems


The Group's business involves a high volume of transactions and the need to track assets which are located at numerous sites. 


Reliance is placed upon the proper functioning of IT systems for the effective running of operations.  Any interruption to the Group's IT systems could have a materially adverse affect on its business.


Prior to any material systems changes being implemented the Board approves a project plan.  The project is then led by a member of the executive team, with an ongoing implementation review being carried out by internal audit and external consultants where appropriate.  The objective is always to minimise the risk that business interruption could occur as a result of the system changes.


Additionally, the Group has an appropriate business continuity plan in the event of interruption arising from an IT systems failure.


Change management


The UK and Spain businesses have undertaken restructuring programmes to improve the operational efficiency of the Group.


Following the successful execution of the programmes, the new processes and procedures need to be embedded into the business and applied consistently, otherwise the Group will not be in a position to achieve its objectives, and profitability and shareholder returns could be impacted.


The Board and its advisors conducted detailed reviews of the restructuring strategy before it commenced, and the results of each project continue to be monitored at Board level. The new processes and procedures have been communicated to all employees and risks arising are continually monitored and mitigating actions are taken when required.


Legal Notice


The Annual Report and Accounts contains certain forward-looking statements. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that occur in the future. There may be a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.

For further information, please contact:

Northgate plc

Bob Contreras, Chief Executive
Chris Muir, Group Finance Director
01325 467558

MHP Communications
Andrew Jaques
Barnaby Fry
Simon Hockridge
020 3128 8753

Notes to Editors:

Northgate plc rents light commercial vehicles and sells a range of fleet products to businesses via a network of locations in the UK, Republic of Ireland and Spain. Their NORFLEX product gives businesses access to a flexible method to acquire as many commercial vehicles as they require.

Further information regarding Northgate plc can be found on the Company's website:


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