July 1, 2011 3:53 am

Northgate beats earnings expectations

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Northgate preliminary results – year to April 30 2011
Sales Pre-tax profit Earnings per share Dividend
£715.5m £26.5m 22.1p -
↓ 4.5% ↑ 56.8% ↓ 4.3% -

Northgate, the largest van rental company in the UK and Spain, beats earnings expectations in the year to April 30, despite economic uncertainty in the countries in which it operates.

Underlying pre-tax profit was up 47 per cent to £53.8m (£36.5m); after exceptionals and impairments, pre-tax profit was £26.5m (£9.6m). The shares rose 5.7 per cent to close at 327.9p.

Revenues dropped to £715.5m from £749.6m, reflecting challenging trading conditions in Spain. But Northgate said its Spanish business managed to reduce its reliance on the construction sector from 55 per cent in 2010 to 37 per cent in 2011 by increasing its presence in areas such as distribution.

It said management were working effectively in both the UK and Spain to maximise returns, and the practice of chasing volume at lower prices had ceased.

The business is rebuilding itself from a calamitous period in the recession, during which it made a £195.6m ($313.5m) pre-tax loss, after exceptionals, in 2008-2009, with net debt peaking at £900m.

Underlying net debt was reduced by £68.4m to £529.9m (£598.3m) and gearing improved to 163 per cent (213 per cent).

In April, the group announced a refinancing, giving it total committed facilities of £781m and providing headroom, at April 30, of £225m.

Bob Contreras, chief executive, said Northgate’s “mantra” now as a business was to do simple things well. “Sometimes we have made what is a relatively simple thing quite difficult,” he said.

It has restructured its operations in both countries. In Spain, the former Fualsa and Record businesses now trade under the Northgate brand and in the UK, 20 separate companies with their own brands and management structure have been reduced to seven regions, all operating under the Northgate Vehicle Hire brand.

Average utilisation rose in Spain to 91 per cent (88 per cent) and remained at 90 per cent in the UK. The closing fleet was 61,200 in the UK (60,900) and 43,500 in Spain (48,900).

Return on capital employed rose to 11.9 per cent (8.4 per cent), on a par with the best level of the last nine years. Diluted earnings per share rose 8 per cent to 28.5p (26.4p). No dividend will be paid.

Mr Contreras said that once the business had established a more solid base it would investigate opportunities for growth, for example through ancillary services.

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