Northgate still plans to deliver dividend

Challenging market conditions in the UK and Spain hit Northgate’s turnover and profits in the six months to October 31, but the van rental business nevertheless planned to issue a dividend payment.

Northgate, the biggest van rental company in both countries, said it had decided to pay a 1.3p interim dividend in recognition of its strong cash generation and confidence in its long-term prospects. However, the shares lost 4.8 per cent to close at 254.25p.

The group, which has been reducing its net debt from more than £900m in early 2009, maintained its focus on debt reduction in the six months, cutting it by £28.1m since April to £343.2m.

In the six months it pruned its UK fleet from 52,900 to 51,000; its Spanish fleet dropped from 38,400 to 37,700. Vehicle utilisation for the period was 89 per cent in the UK, against 90 per cent in the first half of 2011, and 90 per cent in Spain (91 per cent). In both countries the used vehicle market remained strong.

Northgate has undergone two years of restructuring. In the UK, the Darlington-headquartered business plans to open four new sites this financial year, in the home counties around the M25 and M4, to increase its presence in an economically important area.

It has also increased its sales force around the country by more than 50 per cent since May with 45 new recruits. Strengthening the sales team helped stabilise its regional business in the first half, with vehicles on hire increasing by 200. However, the national business, which manages large customers, saw a reduction of 1,600 vehicles as some customers moved to cheaper contract hire deals.

“Regionally and nationally we have to do a better job of getting over what our product is,” said Bob Contreras, chief executive. “We think there are great opportunities. Now our biggest challenge is our ability to grow the market.”

Spain, he said, remained “very tough”. Northgate is focusing there on improving its return on capital employed. Its underlying operating margin fell in Spain from 18.7 per cent to 16.8 per cent, while increasing in the UK from 24 per cent to 24.4 per cent. Overall, ROCE remained at 12.5 per cent.

In the six months, revenue dropped from £375.7m to £314.5m; underlying pre-tax profit dropped from £32.3m to £28.1m. Adjusted pre-tax profit, after amortisation and exceptionals, was £24.6m from £26.9m. Underlying basic earnings per share were 15.1p from 17.4p.

Joint house broker Oriel cut its full-year adjusted pre-tax profit forecast by 7 per cent to £53m.