Annual Report • Apr 30, 2014
Annual Report
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Northgate plc is the leading light commercial vehicle hire business in the UK, Ireland and Spain by fleet size and has been operating in the sector since 1981. Our core business is the hire of light commercial vehicles to businesses on a flexible basis, giving customers the ability to manage their vehicle fleet requirements without a long term commitment.
"In both countries in which we operate, we aim to be the first choice for LCV rental, fulfilling all our customers' vehicle needs and allowing them to concentrate on better service to their customers"
Bob Contreras Chief Executive
1 Northgate plc Annual report and accounts 2014
Review Highlights
| 2014 | 2013 | |
|---|---|---|
| Underlying profit before tax1 (£m) | 60.3 | 49.5 |
| Profit (loss) before tax (£m) | 51.2 | (11.4) |
| Underlying basic earnings per share2 (p) | 35.1 | 29.2 |
| Basic earnings (loss) per share (p) | 29.9 | (5.5) |
| Net debt (£m) | 346.1 | 362.7 |
| Gearing3 (%) |
91 | 102 |
| Return on capital employed4 (%) | 9.9 | 11.8 |
| Dividend per share (p) | 10.0 | 7.3 |
New locations opened in year
*Includes operations in the Republic of Ireland †
ROCE% Gearing% UK vehicles
2012
2013
2014
2011
44.0 39.4 34.0 32.1 34.7
2010 2011 2012 2013 2014
Not shown: two locations in the Canary Islands
on hire 000's
Spain vehicles on hire 000's
3 Northgate plc Annual report and accounts 2014
Review Highlights
We are pleased that as a result of the work done over recent years, the business has returned to growth in both the UK and Spain, with increases in the number of vehicles on hire over the year, partly driven by the opening of new sites in the UK to increase customer coverage.
The Group is growing again in both the UK and Spain after five years of decline. The Board remains committed to exploiting opportunities to drive growth, where an appropriate level of return exists, as we believe this is key to delivering significant returns to shareholders.
Our strategy remains:
We are encouraged by the progress made against our strategy and the underlying results for the Group are:
• Operating profit5 of £72.6m (2013 – £86.4m);
Bob Mackenzie
Operating profit5 and ROCE4 have fallen compared to the prior year, mainly due to a 30% reduction in the number of vehicles sold and the investment made in the UK business.
As the Group has returned to growth, the decision was taken to increase the fleet by selling fewer vehicles rather than buying more, utilising the Group's existing assets and conserving cash. Had the Group sold the same numbers of vehicles as it did in the prior year (at current year residual values) the operating profit14 would have been higher by £11.6m, with ROCE increasing to 11.5%.
The current year ROCE has also been impacted by the costs of opening and operating the seven new sites in the UK since February 2013. The impact of these new sites in the year was a reduction in operating profit of £2.3m, leading to a 0.5% reduction in ROCE.
Profit before tax1 has benefitted from a £24.5m reduction in interest following the Group's refinancing in April 2013.
Group net debt reduced by 5% to £346.1m. Gearing3 has reduced to 91% (April 2013 – 102%).
Our operating margin6 reduced to 17.4% (2013 – 22.1%) and return on capital employed to 11.2% (April 2013 – 14.8%). Return on capital employed and operating margin have reduced as anticipated due to lower volumes of vehicles being sold in response to improved rental demand, coupled with upfront investment relating to the start-up of new sites and the strengthening of the commercial and operational teams. Progress to date supports these investment decisions.
Had the UK sold the same number of vehicles as it did in the prior year at current year residual values, the operating profit14 would have been higher by £9.6m, with ROCE increasing to 13.3%. The impact of the new sites opened since February 2013 resulted in a further 0.8% reduction in the UK ROCE.
We are encouraged by the initial impact of the changes made to the commercial team and the investment in new sites. Vehicles on hire increased by 4,500 (10.4%) in the year ended 30 April 2014, compared to a decline of 3,300 vehicles in the previous year. Customer numbers increased 21% in the year.
It is also pleasing to see vehicles on hire growth in both customers managed by our regional teams (4,200) and with our national customers (300).
Historically, Northgate grew by acquisition and incorporated the acquired sites into its operations rather than establishing the optimum location for sites based on proximity to
existing and potential customers. As noted previously, we have identified large areas of the country where significant numbers of potential customers are not presently serviced by an accessible Northgate site. To address this, we commenced our branch expansion plans.
To date the majority of these new sites are in London and the South East, which require a different logistical and operational model. The typical Northgate site has a customer reception area and a workshop facility, coupled with considerable parking space for vehicles. This is prohibitively expensive in these areas, so we are leasing smaller sites with fewer parking spaces but with excellent accessibility. For success, it depends on reacting quickly and efficiently to customer demand. We have recruited further expertise in this area and we will continue to carefully monitor costs.
Three new sites were opened in the year ended 30 April 2013 and a further four sites were opened in the year ended 30 April 2014 (Slough, Charlton, Basildon and Wimbledon). The sites continue to trade ahead of our initial expectations. It is estimated that these new sites will become profitable on a trading to date basis after two years with ROCE exceeding 16% in year four as the sites reach maturity.
We anticipate opening a further 22 sites over the next three years.
Our focus on increasing returns drove ROCE in our Spanish business to 9.2% (April 2013 – 8.4%). Vehicles sold in our Spanish operation reduced by 2,900 as the business returned to growth. Had Spain sold the same numbers of vehicles as it did in the prior year at current year residual values, the operating profit14 would have been higher by £2.0m, with ROCE increasing to 9.9%.
We were encouraged by the growth achieved, with vehicles on hire increasing by 2,600 (8.1%), compared to a fall of 1,900 in the year ended 30 April 2013. This is mainly due to the investment made in the commercial team over the past two years, which has led to increased new business wins across a range of sectors, offsetting declines seen in our traditional markets with increases in higher margin SME business.
We will continue to focus on improved returns. This will be targeted in a number of ways, including increasing prices to our existing customer base and through a continued focus on growth with SME customers. This will build upon the 20% increase in customer numbers experienced in the year.
As announced on 13 June 2014, since the year end the Group has successfully increased, amended and extended its existing bank facility to support the growth opportunities identified.
This revised £534.5m committed multi-currency bank facility matures in June 2018. In addition to the increase of £112.7m in facilities, the refinancing includes a reduction in pricing.
The Board considers that, due to the strength of the balance sheet and opportunities in the markets in which we operate, there is scope to invest organically to strengthen and grow returns over the medium term whilst increasing dividends.
A final dividend of 6.8p is proposed in respect of the year ended 30 April 2014, giving a total dividend for the year of 10.0p (2013 – 7.3p). This represents a 3.5x cover on underlying earnings2 and a 37% increase on the dividend paid in respect of the year ended 30 April 2013.
Northgate recognises the importance of the dividend to investors and sets its annual dividend after taking into account the desire to have a progressive dividend, the intention to keep net debt:EBITDA between 1.25 and 2.00 and to keep dividend cover in the range of 3.75x – 2.50x.
Tom Brown has decided to retire from the Group at the AGM in September following nine years of service. Tom is Chair of the Remuneration Committee and Senior Independent Director and I would like to thank Tom for his tremendous efforts and wise counsel over the past nine years.
Jill Caseberry will take over as Chair of the Remuneration Committee following the AGM and we are in the process of recruiting a new non-executive Director.
We are pleased that as a result of the work done over recent years, the business has returned to growth in both the UK and Spain, with increases in the number of vehicles on hire over the year, partly driven by the opening of new sites in the UK to increase customer coverage.
There is good momentum in both businesses as a result of investment and changes to the commercial and operational teams and whilst we remain committed to investing in future growth, we believe that the strength of our balance sheet will allow us to further enhance shareholder returns through a continuation of our progressive dividend policy.
The Group continues to trade in line with our expectations and the Board remains confident that the business is well positioned to maximise further opportunities for continued growth.
Chairman
24 June 2014
5 Northgate plc Annual report and accounts 2014
Review Chairman's statement
Bob Mackenzie ACA Chairman
Appointed to the Board as Chairman in February 2010. Prior to his appointment, he was Chief Executive of Sea Containers Ltd, including the Chairmanship of its subsidiary, GNER. He was formerly Chairman of Dometic Holdings AB, a Swedish based manufacturing company, Chairman of PHS Group plc and held senior executive board appointments with National Parking Corporation, BET plc, Storehouse plc and Hanson plc. He has also acted as a senior advisor to a number of private equity funds. More recently, in June 2014, he was appointed Executive Chairman of The AA plc. He qualified as a Chartered Accountant with
KPMG in 1978. Age 61.
Bob Contreras ACA Chief Executive
Appointed Chief Executive in June 2010 having been Group Finance Director since June 2008 when he joined the Group. A Chartered Accountant, Bob has held senior positions with Azlan Group plc, Damovo Group SA and Mölnlycke Healthcare Group. Age 51.
Chris Muir ACA Group Finance Director
Appointed to the Board as Group Finance Director in May 2011. Chris originally joined Northgate as Group Accountant in 2003, being appointed Group Financial Controller in March 2004 and UK Finance Director in May 2006. Qualifying as a Chartered Accountant in 1999, Chris worked for Deloitte LLP from 1997 until 2003, leaving as a manager. Chris has a first class honours degree in Economics and Accountancy from the University of Newcastle upon Tyne. Age 38.
Audit and Risk
Remuneration
Andrew Allner FCA Non-executive Director
Appointed to the Board as a non-executive Director and to the Chair of the Audit and Risk Committee in September 2007. Andrew is currently non-executive Chairman of Marshalls plc, the Go-Ahead Group plc and Fox Marble Holdings plc. He was Group Finance Director of RHM plc, taking a lead role in its flotation in July 2005 on the London Stock Exchange. Prior to joining RHM plc, Andrew was CEO of Enodis plc and has served in senior executive positions with Dalgety plc, Amersham International plc and Guinness plc. He was also a non-executive Director of AZ Electronic Materials SA from 2010 to 2014, a non-executive Director of CSR plc from 2008 to 2013 and of Moss Bros Group plc from 2001 to 2005. A graduate of Oxford University, he is a former partner of Price Waterhouse and is a Fellow of the Institute of Chartered Accountants in England and Wales. Age 60.
Jan Astrand MBA Non-executive Director
Appointed to the Board as a non-executive Director in February 2001. A Swedish national, Jan was a nonexecutive Director of Lavendon Group plc from December 2010 until February 2014. He was Chairman of CRC Group plc until January 2007. Prior to this, he was Chairman of Car Park Group AB in Stockholm and also Senior Independent Director of PHS Group Plc. From 1994 to 1999 he was President and Chief Executive of Axus (International) Inc. (previously known as Hertz Leasing International). From 1989 to 1994 he was Vice President, Finance and Administration and Chief Financial Officer of Hertz (Europe) Ltd and before that he was Chief Financial Officer of Commodore International Ltd based in the US. Age 67.
Tom Brown MA (Oxon) MBA IMD Non-executive Director
Appointed to the Board as a non-executive Director in April 2005 and appointed Senior Independent Director in June 2007. Tom is a Director of a number of private companies and a member of the Economics Committee of the EEF. He was previously Chairman of Chamberlin plc, Group Chief Executive of United Industries plc and before that Group Managing Director of Fenner plc. In all he has served on the boards of UK quoted companies for some 25 years, following executive roles with GKN plc and a period consulting with McKinsey & Co Inc. Age 65.
Jill Caseberry Non-executive Director
Appointed to the Board as a non-executive Director in December 2012. Jill has extensive sales, marketing and general management experience across a number of blue chip companies including Mars, PepsiCo and Premier Foods. She currently runs her own sales and marketing consultancy and is CEO of Enhance Drinks Ltd, a beverage start-up business. Prior to setting up these businesses Jill was general manager of a Premier Foods division. Age 49.
7 Northgate plc Annual report and accounts 2014
Review Board of Directors
Our UK business operates over 53,000 vehicles from 68 locations, servicing over 6,000 customers ranging from blue chip corporations and public sector organisations to small and medium sized enterprises and owner operators.
2014: £91m 2013: £125m
Investment in new vehicles
2014: £201m 2013: £187m
Medium vans 41%
Cars 7% Buses, 4x4 and other specialist vehicles 4%
Corporate fleets (>100) 35% Small and medium fleets
Our business in Spain operates over 37,000 vehicles from 23 locations with over 5,000 customers varying in size and operating in a range of sectors. Our 865 employees work hard to support the widest range of commercial vehicle hire solutions available across the largest geographical branch network in Spain.
| Operating profit11 | |
|---|---|
| 2014: £51.0m | |
| 2013: £64.2m | |
| Operating margin6 | |
| 2014: 17.4% | |
| 2013: 22.1% | |
| Number of employees (closing) | |
| 2014: 1,968 | |
| 2013: 1,856 | |
| Closing fleet | |
| 2014: 53,900 | |
| 2013: 49,900 | |
| Locations | |
| 2014: 68 | |
| 2013: 65 |
Vehicle sales Number of vehicles 2014: 8,300 2013: 11,200 Vehicle purchases Number of vehicles 2014: 10,700 2013: 7,300
Revenue from vehicles sold 2014: £38.5m
2013: £43.4m
Investment in new vehicles 2014: £100m
2013: £72m
| Operating profit12 | |
|---|---|
| 2014: £25.6m | |
| 2013: £25.2m | |
| Operating margin7 | |
| 2014: 17.1% | |
| 2013: 16.7% | |
| Number of employees (closing) | |
| 2014: 865 | |
| 2013: 858 | |
| Closing fleet | |
| 2014: 37,800 | |
| 2013: 35,100 | |
| Locations | |
| 2014: 23 | |
| 2013: 23 |
9 Northgate plc Annual report and accounts 2014
Looking forward, the Group strategy is clear. In the UK, the primary focus will be on growing the business through our existing network and by adding new sites, where opportunities exist at our target levels of return. In Spain, the Group will continue to maximise cash generation and target improved returns.
Our view is that, for many businesses, the flexible rental of light commercial vehicles continues to be the best sourcing method. It allows them to flex their requirements in line with their business needs. In both countries in which we operate, we aim to be the first choice for LCV rental, fulfilling all our customers' vehicle needs and allowing them to concentrate on better service to their customers.
Our customers can choose from the widest range of vehicle makes and models available in our sector, with the flexibility to switch vehicle types as their needs evolve. In order to achieve this, we partner with a range of manufacturers. Pricing is negotiated directly and the purchasing mix is managed in
| Decision | Flexible | Contract hire | Purchase |
|---|---|---|---|
| No capital or contractual commitment |
• | • | • |
| No mileage penalties | • | • | • |
| No residual market risk | • | • | • |
| Ability to flex vehicle size | • | • | • |
| Inclusive of maintenance | • | • | • |
| 24/7 support | • | • | |
| No early termination costs | • | • | • |
| Available at additional cost |
order to minimise the overall holding cost of vehicles to the business. The volume of purchases is balanced against vehicle sales in order to manage fleet age, condition and vehicle utilisation to an optimal level.
With over 30 years' experience in the fleet management sector, we are in the best position to partner our customers and complement their fleet requirements, whether this is by providing a single short term hire or a fully outsourced fleet management solution.
Vehicle hire is at the heart of our business. We offer a fully flexible product which allows customers to tailor vehicles to their exact requirements and manage the size and composition of their fleet without penalty. Our national network of branches and workshops in the UK and Spain provide 24/7 support with replacement vehicles on hand to keep customers on the move. We offer a range of ancillary services which enable customers to enjoy operational benefits through efficient fleet management, with our fully outsourced fleet management service providing the ultimate solution.
We aim to deliver the very best service levels whilst maintaining operating efficiency and vehicle utilisation in order to maximise return on capital employed.
In order to provide the best possible service to our customers we maintain a modern fleet. When vehicles reach the end of their hire lives we aim to minimise overall holding costs through the effective use of our retail and trade sales channels.
As we are not affiliated to any single manufacturer, we offer our customers the best available range of quality used commercial vehicles in the market.
Northgate plc Annual report and accounts 2014
Strategic report
| Performance | Target | ||
|---|---|---|---|
| Asset management | |||
| The overall holding cost of vehicles needs to be minimised and utilisation needs to be maintained at a high level in order to maximise return on capital employed |
Utilisation was 88% in the UK and 92% in Spain. A total of 14,000 vehicles were sold in the UK and 8,300 in Spain at improved |
The target for both segments is to maintain utilisation above 90%. However, this will be balanced against the need to ensure that each branch |
|
| (ROCE) whilst holding enough vehicles to meet the flexible demands of our |
residual values. Vehicle purchases were balanced against these disposals |
has the right range of vehicles for hire at all times. |
|
| customers. to manage the average fleet age to 22.3 months in the UK and 24.3 months in Spain at 30 April 2014. |
The holding cost of vehicles will be minimised through managing the mix of purchases and improving the quality and volume of vehicles sold through higher margin retail sales channels. |
||
| Pricing | |||
| The revenue per vehicle achieved is a key contributor to ROCE. Hire rates need to reflect the level of flexibility and service offered to our customers. |
Underlying revenue per rented vehicle improved by 1% in the UK and reduced by 1% in Spain. |
Minimum hire rate thresholds have been set for new vehicles so that the fleet is grown at rates that are beneficial to ROCE. Further improvements are targeted through the recovery of other costs incurred. |
|
| Customer service | |||
| In order to grow the business we must deliver the highest possible levels of customer service to set us apart from our competitors. |
We have various measures of assessing customer service, with the number of vehicles on hire and the number of customers being two of those indicators. |
The restructuring of commercial operations has positioned the Group well to target profitable growth in vehicles on hire and customer numbers |
|
| Vehicles on hire have increased in the year. Customer numbers have increased in our SME segments in both the UK and Spain, which indicates that our offering is well suited to their needs. |
going forward. | ||
| Return on capital employed (ROCE) | |||
| In a capital intensive business, ROCE is a more important measure of performance than profitability alone, as |
ROCE4 is maximised through a combination of managing utilisation, hire rates, vehicle holding costs and |
Each KPI has been targeted for improvement to contribute to an overall increase in ROCE of the Group. |
|
| low margin business returns low value to shareholders. |
improvements in operational efficiency. | In the short term, in a period of | |
| Group ROCE for the year was 9.9% (2013 – 11.8%). |
|||
| Earnings per share (EPS) | |||
| Basic EPS is considered to be a key short Basic EPS2 was 35.1p compared to 29.2p term measure of performance. in the prior year. |
The target is to maximise shareholder value by increasing EPS in the short term |
||
| Earnings of £46.8m compare to £38.8m in the prior year. The weighted average number of shares was 133.2m in both years. |
alongside longer term return on equity. |
The Group has always been fortunate in having extremely dedicated and passionate employees and their retention and development is key to our continued success. To secure this we are delivering an employee engagement strategy to ensure that all of our employees understand the strategy of the business, their role in delivering it and motivating them to do so. This is underpinned with enhanced communication and recognition processes to both support and drive its success.
utilising our skills to meet customers' and colleagues' needs.
• Team work – working together to create an effective and efficient organisation.
enthusiastic and resourceful in all that we do.
Strategic Report report
Despite our strength compared to our nearest competitors, the Group is not dominant in terms of our share of the market. This provides good opportunities for growth from our existing core product offering of flexible vehicle hire. With our increased market understanding, the businesses in both the UK and Spain are focused on:
The Group is focused on finding new growth opportunities through three simple drivers:
Customer numbers: attracting and retaining customers is a key area of focus, with specific programmes being implemented to improve customer retention and increase new customers working with the Group. Progress to date has been pleasing with the total number of customers increasing 1,900 (21%) since 30 April 2013.
Increasing share of customer spend: improved account management has identified that a number of our customers use more than one solution provider for their flexible hire needs. This is often driven by customers having to source vehicles from more than one partner due to vehicle availability or network reach issues. By improving our account management process and service offering we have seen an increased level of activity from our existing larger customers.
Pricing efficiently: improved access to information allows the Group to make informed pricing decisions, taking into account whole life vehicle running costs. This ensures that customers are charged appropriately for their vehicle usage.
Our new Wimbledon site opened in April 2014.
We have seen an increase in customer numbers in both countries in which we operate.
In the UK customer numbers have increased by 21%, continuing the improvement seen last year.
Specific targetting of SMEs in Spain has led to a 20% increase in customer numbers.
15 Northgate plc Annual report and accounts 2014
Strategic report Strategy for growth
The seven sites opened in the UK since February 2013 now have 2,000 vehicles on hire, of which 1,800 have been generated in the year ended 30 April 2014.
The Group continues to build upon its solid financial and operational foundation. We are targeting increasing returns by growing the business with customers who have a flexible vehicle hire requirement.
Our view is that, for many businesses, the flexible rental of light commercial vehicles ("LCV") continues to be the best sourcing method. It allows them to flex their requirements in line with their business needs. In both countries in which we operate, we aim to be the first choice for LCV rental,
fulfilling all our customers' vehicle needs and allowing them to concentrate on better service to their customers. To achieve this aim, we have three simple areas of focus:
This focus on customer service will help the business maintain its market leading position and is key to our strategy for growth.
Despite the improvements achieved in pricing and used vehicle residual values, the reduction in the number of vehicles sold and the investment made in the UK business has led to a decrease in operating margin6 from 22.1% to 17.4%. The number of vehicles being disposed of has been reduced in response to the increasing demand for rental.
If the UK business had sold the same number of vehicles as it did in the year ended 30 April 2013 at current year residual values the operating margin14 would have been 20.7%. The impact of new sites opened since February 2013 has reduced the operating margin by 1.2%.
1. 100% vehicle availability – allowing customers to have the right vehicle in the right place at the right time.
2. Keeping customers on the road – whether this is via our own national service network or by partnering with national operators.
3. Hassle free – dealing with unforeseen events quickly and professionally.
Bob Contreras
The number of vehicles on hire has increased in both countries in which we operate.
The UK business has grown by 10% with both new sites and organic growth contributing to this increase.
The Spanish number grew by 8% after five years of decline.
17 Northgate plc Annual report and accounts 2014
Strategic report Review of the year
Vehicles on hire increased from 43,100 at 30 April 2013 to 47,600 at 30 April 2014, an increase of 4,500 compared to a decline of 3,300 in the same period last year and comprises:
As previously outlined, a number of improvement programmes in the commercial area of the business were implemented in the previous 18 months, focusing on increasing the skills, resource and support within the sales team. The initial focus of these programmes was within our regional business, which represents two-thirds of our vehicles on hire, followed by our national business.
This investment is generating returns through growth in vehicles on hire and customer numbers have increased by 21% since 30 April 2013.
Average hire revenue per rented vehicle has increased by 1% compared to the same period last year.
In the prior year we identified large areas of the country where significant numbers of potential customers were not effectively serviced by an accessible Northgate site. In the final three months of the year ended 30 April 2013, we commenced our expansion plans with three sites opening.
Four more sites have been opened in the year to 30 April 2014 (Slough, Charlton, Basildon and Wimbledon) bringing the branch network to 68.
The initial signs are encouraging with the level of growth from these new sites exceeding our initial plans. The seven sites opened since February 2013 now have 2,000 vehicles on hire, of which 1,800 have been generated in the year ended 30 April 2014. Of the 2,000 vehicles on hire, 1,400 are on hire to regional customers and 600 to national customers. This mix of regional to national customers is in line with our existing business.
The impact of the seven sites opened since February 2013 (including the new sites project team costs) was an operating loss of £2.3m. It is estimated that these new sites will become profitable on a trading to date basis after two years with ROCE exceeding 16% in year four as the sites reach maturity.
We have initially focused on establishing an enhanced branch network within the London area which provides the largest commercial opportunity. We will continue to pursue this
strategy and have identified the following opportunities:
We are aiming to open an average of eight to ten sites per year. This will take the branch network to approximately 90 by 31 December 2016.
We are also seeing vehicles on hire growth from the existing network and believe that there is further opportunity for growth within these branches.
Growth in the number of vehicles on hire has led to an increase in the UK fleet size from 49,900 at 30 April 2013 to 53,900 at 30 April 2014. Vehicle utilisation for the period was 88% (2013 – 88%). Whilst utilisation remains a priority, we are also focused on ensuring that each branch has the right range of vehicles available for customers at all times to support the growth opportunities available. The UK business increased the level of vehicles available to rent throughout the year, which will support the growth plans, whilst allowing the UK to target a higher level of utilisation in the medium term.
Despite the 4,500 vehicles on hire growth, continued strong asset management meant UK purchases were 17,000 in the year ended 30 April 2014 compared to 16,500 in the same period last year. The average age of the rental fleet is 22.3 months at 30 April 2014, compared to 21.4 months at 30 April 2013.
In response to the 4,500 vehicles on hire growth, a total of 14,000 units were sold compared to 20,700 in the year ended 30 April 2013.
The used vehicle market remained strong, with sales via our more profitable retail sales operation increasing to 27% (2013 – 22%), contributing to increased residual values in comparison to those attained in the year ended 30 April 2013. The reduced number of vehicles disposed of, offset by the improvement in the residual values achieved, resulted in a decrease of £20.0m (2013 – £20.8m) in the depreciation charge.
Given the continuing strength of used vehicle residual values, UK depreciation rates on the vehicle fleet have been reduced by 1.8%, taking effect from 1 May 2014. Based on the composition of the fleet as at 30 April 2014, this is expected to reduce the depreciation charge by £9m in the year ending 30 April 2015, which will reverse over the next four years as the current fleet is sold.
Four new sites have opened during FY14 and by year end had an accretive impact of almost 700 vehicles.
Growth of over 1,100 vehicles was seen from the three sites opened during FY13.
19 Northgate plc Annual report and accounts 2014
Strategic report Review of the year
Improved operational efficiencies and residual values in Spain led to an increase in our operating margin7 in the period to 17.1% (2013 – 16.7%). If the Spanish business had sold the same number of vehicles as it did in the year ended 30 April 2013 at current year residual values the operating margin14 would have been 18.4%.
Vehicles on hire at 30 April 2014 were 34,700, an increase of 2,600 in the year ended 30 April 2014, compared to a decline of 1,900 in the same period last year.
The continued efforts in the commercial area of the business have led to the growth of the number of vehicles on hire after five years of decline.
Spain continues to target growth in the SME market. This was the first year where increased new business offset the decline in the traditional construction market. For the second year running, customer numbers increased. Closing customers increased by 900 (20%), compared to an increase of 300 in the previous year.
After adjusting for fleet mix, average hire revenue per rented vehicle has fallen by 1% compared to the same period last year. This reduction has been mitigated by an increasing proportion of customers operating our fleet in such a way that running costs are reduced and residual values are improved.
Return on capital employed at 30 April 2014 was 9.2% compared to 8.4% for the year ended 30 April 2013. Progress in targeting increased returns has been made in the following areas:
Pricing increases and customer profiling: whilst headline rental rate increases continue to be sought, we will work with new and existing customers who meet our required rate of return, with the aim of increasing our return on capital employed over the medium term.
Vehicle utilisation: changes in customer mix, coupled with other improvements made over the past 12 months, will allow the Spanish business to run at utilisation levels in excess of 90%. The year ended 30 April 2014 saw utilisation at 92%, exceeding the 90% level achieved in the year ended 30 April 2013.
Holding costs: with depreciation being the largest cost in the business, customer profiling allows the Spanish business to minimise these costs. The improvement in the usage profile of new customers allows a greater proportion of the vehicles being removed from the rental fleet at the end of their life
to be sold through our retail disposal channel, leading to increased residual values and lower whole life holding costs.
Vehicle ageing: the changing customer profile and improved maintenance regime implemented over the past two years is allowing the Group to age the Spanish fleet whilst minimising the capital investment required. This results in a reduction in capital employed per vehicle operating in Spain. The average age of the fleet has increased from 22.9 months at 30 April 2013 to 24.3 months at 30 April 2014. We do not anticipate any impact on customer service as we continue to run a young fleet in comparison to the rest of the market.
Operational efficiency: the implementation of our workshop efficiency programme, coupled with improved management and reporting of our internal workshops has led to a reduction in workshop costs per vehicle, with total workshop costs falling 16%.
Utilisation for the period was 92% (2013 – 90%). The fleet size in our Spanish operation increased from 35,100 at 30 April 2013 to 37,800 at 30 April 2014. In the year ended 30 April 2014, 10,700 vehicles have been purchased compared to 7,300 in the same period last year.
A total of 8,300 units were sold (2013 – 11,200), with the reduction being driven by the increased vehicles on hire achieved in the period.
The used vehicle market remains strong, with continued progress in establishing and expanding sales through our more profitable retail sales operation, which increased to 16% (2013 – 9%), contributing to increased residual values in comparison to those achieved in the year ended 30 April 2013. The improved resale values achieved were partially offset by the reduced number of vehicles being disposed of, resulting in a reduction in the depreciation charge of €6.8m, compared to a reduction of €6.1m in the prior year.
Given the continuing strength of used vehicle residual values, Spanish depreciation rates on the vehicle fleet have been reduced by 0.9%, taking effect from 1 May 2014. Based on the composition of the fleet as at 30 April 2014, this is expected to reduce the depreciation charge by £3m in the year ending 30 April 2015, which will reverse over the next five years as the current fleet is sold.
We are targeting increasing returns by growing the business with customers who have a flexible vehicle hire requirement.
Whilst utilisation remains a priority, we are also focused on ensuring that each branch has the right range of vehicles available for customers at all times to support the growth opportunities available.
21 Northgate plc Annual report and accounts 2014
Strategic report Review of the year
In June 2014 the Group successfully increased, amended and extended its existing multi bank facility. The revised £534.5m committed multi-currency bank facility matures in June 2018. The amended facility includes a reduction in pricing.
Chris Muir
A summary of the Group's underlying financial performance for 2014, with a comparison to 2013, is shown below:
| 2014 £m |
2013 £m |
|
|---|---|---|
| Revenue | 571.5 | 609.9 |
| Operating profit5 | 72.6 | 86.4 |
| Profit before tax1 | 60.3 | 49.5 |
| Profit after tax2 | 46.8 | 38.8 |
| Basic earnings per share2 | 35.1p | 29.2p |
| Return on capital employed4 | 9.9% | 11.8% |
Group revenue in 2014 decreased by 6% to £571.5m (2013 – £609.9m) or 7% at constant exchange rates. Hire revenue was £442.3m (2013 – £441.9m).
Net underlying cash generation9 was £25.4m (2013 – £92.6m) after net capital expenditure of £194.4m (2013 – £117.7m) resulting in closing net debt of £346.1m (2013 – £362.7m). Gearing3 improved to 91% (2013 – 102%).
On a statutory basis, operating profit was £63.5m (2013 – £79.5m) and profit before tax was £51.2m (2013 – loss of £11.4m). Basic earnings per share were 29.9p (2013 – (5.5)p). Net cash from operations, including net capital expenditure on vehicles for hire was £30.7m (2013 – £100.9m).
Group return on capital employed4 was 9.9% compared to 11.8% in the prior year.
Group return on equity, calculated as profit after tax (excluding intangible amortisation and exceptional items) divided by average shareholders' funds, was 12.4% (2013 – 10.6%).
Taken together with other loans of the Group, £346.1m was drawn against total committed facilities of £437.9m as at 30 April 2014, giving headroom10 of £91.8m as detailed below:
| Facility £m |
Drawn £m |
Headroom £m |
Maturity | |
|---|---|---|---|---|
| UK bank facility | 421.8 | 338.1 | 83.7 | June-17 |
| Other loans | 16.1 | 8.0 | 8.1 Up to Nov-14 | |
| 437.9 | 346.1 | 91.8 |
In June 2014 the Group successfully increased, amended and extended its existing multi bank facility. The revised £534.5m
Due to the strength of the balance sheet and opportunities in the markets in which we operate, there is scope to invest organically to strengthen and grow returns over the medium term whilst increasing dividends.
A final dividend of 6.8p is proposed in respect of the year ended 30 April 2014, giving a total dividend for the year of 10.0p (2013 – 7.3p). This represents a 3.5x cover on underlying earnings.
Dividend per share (p)
23 Northgate plc Annual report and accounts 2014
Strategic Report Key Performance Indicator report Financial review
committed multi-currency bank facility matures in June 2018. The amended facility includes a reduction in pricing.
The net debt to EBITDA ratio at 30 April 2014 corresponds to a bank margin of 2.375%. The margin charged on bank debt is dependent upon the Group's net debt to EBITDA ratio, ranging from a maximum of 2.875% to a minimum of 2.125%.
Following the amendment to the facility in June 2014, the margin charged on bank debt will range from a maximum of 2.55% to a minimum of 1.80%. Based on the net debt to EBITDA ratio at 30 April 2014, the margin on the amended facility would be 2.05%.
Interest rate swap contracts have been taken out which fix a proportion of bank debt at 3.1%, giving an overall cost of the Group's borrowings at 30 April 2014 of 3.0%. This compares to an overall rate of 2.8% at 30 April 2013.
The Group made net borrowing repayments of £6.3m in the year. Scheduled total bank repayments on the amended bank facilities of £25.4m commencing in November 2016 are due before they mature in June 2018.
There are three financial covenants under the Group's facilities as follows:
A minimum ratio of earnings before interest and taxation ("EBIT") to net interest costs tested quarterly on a rolling historic 12-month basis. The covenant to be exceeded is 3.0x (2013 – 2.0x).
Interest cover at 30 April 2014 was 5.6x (2013 – 2.7x) with EBIT headroom, all else being equal, of £33m.
A maximum ratio of total consolidated net borrowings to the book value of vehicles for hire, vehicles held for resale, trade receivables and freehold property, tested quarterly. The covenant ratio which must not be exceeded is 70%.
Loan to value at 30 April 2014 was 46% (2013 – 50%) giving net debt headroom, all else being equal, of £177m.
A maximum ratio of net debt to earnings before interest, tax, depreciation and amortisation ("EBITDA"), tested quarterly on a rolling historic 12-month basis. The covenant ratio which must not be exceeded is 2.0x.
Debt leverage cover at 30 April 2014 was 1.5x (2013 – 1.5x) with EBITDA headroom, all else being equal, of £63m.
The Directors recommend the payment of a final dividend of 6.8p per share in relation to the Ordinary shares for the year ended 30 April 2014 (2013 – 6.0p). Subject to approval by shareholders, the dividend will be paid on 23 September 2014 to ordinary shareholders on the register as at close of business on 15 August 2014.
Including the interim dividend paid of 3.2p (2013 – 1.3p), the total dividend relating to the year would be 10.0p (2013 – 7.3p). The dividend is covered 3.5 times by underlying earnings.
The composition of the Group's UK revenue and operating profit is set out below:
| 2014 £m |
2013 £m |
|
|---|---|---|
| Revenue | ||
| Vehicle hire | 292.4 | 291.1 |
| Vehicle sales | 90.7 | 124.6 |
| 383.1 | 415.7 | |
| Operating profit11 | 51.0 | 64.2 |
Hire revenue of £292.4m was in line with the prior year (2013 – £291.1m), with a 1% increase in the average number of vehicles on hire being offset by a 1% reduction in revenue per vehicle (including fleet management). Excluding fleet management, revenue per vehicle increased by 1%.
An improvement in residual values was offset by a reduction in the volume of used vehicles sold, which contributed to £0.8m of the decrease in operating profit.
The UK operating margin was as follows:
| 2014 | 2013 | |
|---|---|---|
| Operating margin6 | 17.4% | 22.1% |
The UK operating margin6 has decreased to 17.4% (2013 – 22.1%) mainly as a result of the upfront investment relating to the start-up of our new sites and the strengthening of our commercial and operational teams.
International Accounting Standards require that the residual value and useful life of an asset shall be reviewed at least each financial year-end and, if expectations differ from previous estimates, the changes shall be accounted for as a change in an accounting estimate.
Our depreciation rates are therefore set in order to depreciate an asset so that, at the end of its useful life, its net book value approximates closely to the expected proceeds on disposal, taking into account all attributable costs incurred to sell the asset.
Following our review and due to the ongoing strength of the residual values of the vehicle hire fleet, the Board has decided to reduce the depreciation rate prospectively by 1.8% from 1 May 2014.
The revenue and operating profit generated by our Spanish operations are set out below:
| 2014 £m |
2013 £m |
|
|---|---|---|
| Revenue | ||
| Vehicle hire | 149.9 | 150.8 |
| Vehicle sales | 38.5 | 43.4 |
| 188.4 | 194.2 | |
| Operating profit12 | 25.6 | 25.2 |
Hire revenue decreased by 1%. The decrease was 3% at constant exchange rates, which was caused by a reduction in revenue per vehicle. Adjusted for the change in fleet mix, revenue per vehicle decreased by 1%.
The Spanish operating margin was as follows:
| 2014 | 2013 | |
|---|---|---|
| Operating margin7 | 17.1% | 16.7% |
Vehicle hire revenue and operating profit12 in 2014, expressed at constant exchange rates, would have been lower than reported by £3.9m and £0.7m respectively.
Days sales outstanding continued to reduce from 64 days at 30 April 2013 to 54 days at 30 April 2014 due to the continued improvements in controls, processes and customer mix.
Used vehicle residual values continued to improve and contributed £5.7m (2013 – £5.0m) to operating profit in the year with 8,300 vehicles sold (2013 – 11,200). As in the UK, the fleet depreciation rate was reviewed. Due to the ongoing strength of the residual values of the vehicle hire fleet, the Board has decided to reduce the depreciation rate prospectively by 0.9% from 1 May 2014.
Corporate costs13 were £3.9m compared to £3.0m in the prior year.
During the year £1.8m of restructuring costs, £1.9m relating to property impairment, £2.4m of costs related to a pension scheme buyout and £0.1m of property losses were incurred, of which £5.5m related to the UK, £0.6m related to Spain and £0.1m related to Corporate.
Net finance charges for the year before exceptional items were £12.4m (2013 – £36.9m).
The prior year charge includes £6.5m of non-cash interest.
The net cash interest charge has reduced by £18.0m to £12.4m, with a £0.4m saving as a result of the reduction in average net debt throughout the year, a £17.8m saving due to lower borrowing rates of the Group in the year and a £0.2m increase due to the impact of exchange rates.
The Group's underlying effective tax charge for its UK and overseas operations was 22% (2013 – 22%).
The underlying tax charge excludes the tax on intangible amortisation and exceptional items.
Including these items the Group's statutory effective tax charge was 22% (2013 – 35%).
Basic earnings per share ("EPS")2 , were 35.1p (2013 – 29.2p). Basic statutory earnings per share were 29.9p (2013 – (5.5)p).
Underlying earnings for the purposes of calculating EPS2 were £46.8m (2013 – £38.8m). The weighted average number of shares for the purposes of calculating EPS was 133.2m, in line with the previous year.
Net tangible assets at 30 April 2014 were £381.7m (2013 – £355.6m), equivalent to a tangible net asset value of 286.5p per share (2013 – 266.9p per share).
Gearing3 at 30 April 2014 was 91% (2013 – 102%) reflecting a £16.6m reduction in net debt.
Strategic report Financial review
A summary of the Group's cash flows is shown below:
| 2014 £m |
2013 £m |
|
|---|---|---|
| Underlying operational cash generation Net capital expenditure Net taxation and interest payments |
235.4 (194.4) (15.6) |
258.4 (117.7) (48.1) |
| Net underlying cash generation9 Net refinancing payments (April 2013 refinancing) Dividends |
25.4 – (12.2) |
92.6 (39.1) (5.7) |
| Other Net cash generated |
(2.8) 10.4 |
(2.3) 45.5 |
| Opening net debt Net cash generated Other non-cash items Exchange differences |
362.7 (10.4) (0.6) (5.6) |
371.3 (45.5) 17.1 19.8 |
| Closing net debt | 346.1 | 362.7 |
Underlying cash generation9 was £25.4m compared to £92.6m in the previous year.
A total of £301.4m was invested in new vehicles in order to replace fleet compared to £255.2m in the prior year. The Group's new vehicle outlay was partially funded by £112.3m of cash generated from the sale of used vehicles. Other net capital expenditure amounted to £5.3m.
After capital expenditure, payments of interest and tax of £15.6m, dividends of £12.2m and other items of £2.8m, net cash generation (as defined in the table above) was £10.4m, compared to £45.5m in the previous year.
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 policy to avoid using more complex financial instruments.
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. Our credit exposure is limited to banks which maintain an A rating. Individual aggregate credit exposures are also limited accordingly.
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 discussed above are not restrictive to the Group's operations.
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 subsidiary undertakings are financed by a combination of retained earnings and bank 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. As discussed above, gearing3 at 30 April 2014 was 91% compared to 102% at 30 April 2013.
The Group's bank facilities and other loan agreements 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 hedged into fixed rates was 76% at 30 April 2014. In the prior year, the Group's borrowing facilities were refinanced on 29 April 2013. All existing interest rate swaps were cancelled at that time and new instruments were put in place on 2 May 2013 which hedged 64% of gross borrowings into fixed rates.
The Group's reporting currency is, and the majority of its revenue (65%) is generated in, pounds Sterling. 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:
| 2014 £ : € |
2013 £ : € |
|
|---|---|---|
| Average | 1.19 | 1.22 |
| Year end | 1.22 | 1.18 |
The Group manages its exposure to currency fluctuations on retranslation of the balance sheets of those subsidiary undertakings whose functional currency is in Euro 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.
In determining whether the Group's 2014 accounts should be prepared on a going concern basis the Directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowings facilities and the risks and uncertainties relating to its business activities in the current economic climate.
The principal risks and uncertainties of the Group are outlined on pages 28 to 29. Measures taken by the Directors in order to mitigate those risks are also outlined.
The Directors have reviewed trading and cash flow forecasts as part of their going concern assessment, including reasonably possible downside sensitivities, which take into account the uncertainties in the current operating environment.
The Group has sufficient headroom compared to its committed borrowing facilities and against all covenants as detailed in this report.
Having considered all the factors above impacting the Group's businesses, including reasonably possible downside sensitivities, the Directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's 2014 accounts.
Group Finance Director
24 June 2014
Strategic report Financial review
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.
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 also increased the risk of customer failure in the recent past, particularly in Spain, which led to the occurrence of increased bad debt charges. However, economic conditions have improved over the course of the year.
The construction industry in Spain and other key markets of the Group were particularly sensitive to the downturn in the economic climate, which led to a decline in the number of vehicles rented in recent years.
The Spanish business continues to generate a large proportion of revenue from customers in the construction industry, but has successfully sought and is continuing to seek 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.
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 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.
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 extent.
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.
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 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. Since the year end the Group has refinanced and current bank facilities are due to mature in June 2018. 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 ongoing 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.
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 effect 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.
Strategic Report Principal risks and uncertainties
We understand that we have a wider obligation to run our business in a responsible and sustainable way for all our stakeholders. We believe that supporting the communities in which we operate and providing a safe environment for our employees is integral to the overall performance of the Group.
Taking corporate responsibility and sustainability seriously is of the utmost importance to Northgate. Sound and robust health & safety and environmental (HS&E) arrangements and risk controls therefore form a key part of the Group's overall business strategy.
The Group's arrangements for HS&E governance and management systems are monitored by the Audit and Risk Committee, who have designated the Chief Executive as the person ultimately responsible for implementing best practice throughout the Group.
Common and consistent standards in accordance with legislative and best practice requirements are applied across all Group operations. Risks, controls and procedures are continually assessed to ensure that everything is being done to meet the highest possible standards of HS&E requirements using comprehensive and robust HS&E operating controls.
Our approach to health & safety is simple: to ensure that no harm comes to anyone engaged with Northgate.
We realise that excellence in health & safety can only be achieved if it forms part of every individual's responsibility within the Group. Our 'Safe & Sound' programme was established to create an environment of openness and awareness, where all colleagues feel able to identify and raise concerns about working practices and conditions.
The Group provides training for employees in a wide range of health & safety disciplines, most of which is carried out internally by the Group's HS&E department, which in the UK is accredited by the British Safety Council.
During the year the Group's HS&E department carried out formal audit reviews to measure performance of our HS&E management system at all locations and where necessary identified improvements and subsequently monitored compliance. The main objective of the HS&E department is to ensure continuous improvement across the Group and provide pragmatic and practical solutions to the operational risks within the business to all levels of employees with a strong focus on behavioural safety and employee involvement.
The main way that health & safety across the business is monitored is by the Accident Frequency Rate (AFR) during the course of our work. The AFR is calculated as the number of accidents reportable under the Reporting of Injuries, Diseases and Dangerous Occurences Regulations 1995 (RIDDOR) per 100,000 employee hours worked. Although the legislation in Spain defines reportable accidents under different rules to the UK, the data reported is in line with RIDDOR.
The AFR's reported are as follows:
| 2014 | 2013 | |
|---|---|---|
| UK | 1.5 | 1.4 |
| Spain | 3.4 | 1.7 |
| Group | 2.2 | 1.5 |
Northgate holds the highest levels of ethical standards and communicates this to all employees by way of the Group's Code of Business Conduct, which covers bribery, competition, conflicts of interest, inside information, confidentiality, gifts and entertainment, discrimination, harassment and fair dealing with customers and suppliers.
In addition, the Group's Whistleblowing Policy and Procedure enables every Group employee to have a voice and a means by which they may draw concerns to our attention.
As a Group we value our employees because we understand that they are the key resource required to deliver the high levels of customer service that maintains our competitive advantage. At 30 April 2014 we had 2,833 (2013 – 2,714) employees across the Group, 1,968 in the UK (2013 – 1,856) and 865 in Spain (2013 – 858).
We recognise that our employees depend on us and we continually work on improving their engagement and motivation as the key to delivering high levels of customer service. Our employees are rewarded through a combination of competitive pay and incentive programmes which enable them to share in the progress towards the Group's objectives.
The Group's policy is to recruit the best available people who are aligned with and embody our core values of professionalism, teamwork and can-do attitude and these values apply throughout the Group regardless of seniority of position.
Northgate is committed to equality, judging applications for employment neither by race, nationality, gender, age, disability, sexual orientation nor political bias.
As at 30 April 2014, the gender breakdown of the workforce across the Group was:
| Directors | Male 6 | Female 1 |
|---|---|---|
| Senior Managers | Male 17 | Female 0 |
| All Employees | Male 1,996 Female 837 |
Investing in the training and development of our workforce not only improves the quality and standard of our service delivery but enables a high level of retention and allows everyone to contribute to their full potential. In addition, Northgate offer colleagues a suite of ongoing bespoke training to various disciplines throughout their career.
During the year we have introduced a Managerial Assessment of Proficiency (MAP) programme for the management population in the business. The MAP assessment has enabled an in house management development programme to be rolled out.
In 2014 Northgate have been successful in becoming an Institute of Leadership and Management (ILM) accredited centre. ILM approved status allows Northgate's own internally designed training to be recognised by the ILM. ILM recognition denotes a standard of high quality, bespoke leadership and management training. Following the completion of the MAP assessment, we now have our managers attending the relevant ILM accredited development programme.
Northgate currently have 30 technical apprentices around the UK. In 2014 28 technical apprentices achieved the level 3 technical qualification. Following a successful proposal, the Northgate technical apprentice programme is in the final short list of four companies in the Motor Transport Awards.
In June 2014 Northgate launched its e-learning platform. This allows all colleagues throughout the business to access e-learning modules specific to their role.
Regular communication and engagement with everyone across the business is vital to our success, ensuring we all share in our values, vision and goals. A number of activities are undertaken across the business to achieve this and the implementation of a new internal communication strategy and toolkit will enhance employee engagement, as we look to maximise the use of channels available.
Going forward an emphasis will be placed on monthly briefings, face-to-face meetings and discussions between managers and their teams. This will be supported by developments in technology and communications training. We understand that communication and engagement is critical, so we are constantly improving and evolving to ensure everyone feels part of Northgate in order to achieve company objectives.
Given the territories in which we operate and the nature of our business no specific human rights information is contained here. Information on equality is contained above and our corporate responsibility policy information can be found on our website – www.northgateplc.com.
For all environmental matters our policy is to promote and operate processes and procedures, which, so far as is reasonably practicable, avoid or minimise the contamination of water, air and the ground. We manage the waste streams which are generated through our activities responsibly and we aim to dispose of waste properly in ways which minimise the likelihood of harming the environment. Waste is separated at source and stored until specialist contractors can dispose it of in the most appropriate and effective manner. This includes recycling and reducing the amount of waste being sent to landfill across our locations. The company continues to work closely with its waste management partners to improve performance and continually monitors these aspects and the impacts our operations have on the environment.
In both the UK and Spain, Northgate have maintained the internationally recognised Environmental Standard ISO 14001.
During the year, we were able to recycle or recover 100% of all waste streams generated and collected from our vehicle repair workshops in the UK. We were able to recycle or recover 72% of all waste streams generated and collected from our vehicle repair workshops in Spain.
As at 30 April 2014, the UK business operated from a total of 74 locations including 68 rental sites. The Spanish business operates from a total of 32 locations including 23 rental sites. The vast majority of these sites are located on industrial estates, so our activities have minimal impact on the local community.
This section incorporates the mandatory reporting of greenhouse gas emissions required by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 ('the Regulations').
Strategic report Corporate social responsibility
The information presented covers the period from 1 May 2013 to 30 April 2014. This period has also been designated as the baseline year for future calculations.
The emissions data presented has been derived using the operational control approach, required under the Regulations. Each facility under operational control has been included within the figures. Northgate has used the principles of the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), ISO 14064-1.
Defra's 2013 conversion factors have been used in arriving at the information supplied below. All six greenhouse gases are reported as appropriate.
| Greenhouse Gas Emissions Source | Tonnes of CO2 e |
|---|---|
| Scope 1 – Combustion of fuel and operation of facilities Scope 2 – Electricity, heat, steam and cooling |
5,980 4,348 |
| Intensity ratio: Tonnes of CO2 e per £m of hire revenue |
23.4 |
The above data has been verified by an independent, UCAS accredited, third party assessor.
Northgate recognises the need to support our customers in managing a sustainable business. We work with our suppliers to make a fleet available to our customers comprised entirely of modern vehicles, achieving the highest levels of exhaust emission standards. In Spain we are one of the first businesses to offer hire of electric vehicles to our customers.
As at 30 April 2014 the UK fleet of 53,900 vehicles had an average age of 22.3 months. The total fleet in Spain was 37,800 vehicles with an average age of 24.3 months. All vehicle purchases in the year ended 30 April 2014 met the latest Euro V standards.
We must be a responsible employer, neighbour and member of the local community and therefore operate our business in a way that continuously improves our relationship with employees, customers, neighbours and the environment.
The Group is a member of the British Safety Council and the Royal Society for the Prevention of Accidents (RoSPA), which supports our commitment to corporate social responsibility.
By order of the Board
Secretary 24 June 2014
The Directors present their report and the audited accounts for the year ended 30 April 2014.
Profit for the year after taxation was £39,883,000 (2013 – loss of £7,357,000).
An interim dividend of 3.2p per share was paid on the Ordinary shares on 10 January 2014.
The Directors recommend the payment of a final dividend of 6.8p per share on the Ordinary shares. This dividend, if approved, will be paid on 23 September 2014 to shareholders on the register at close of business on 15 August 2014.
The Company is an investment holding company.
The principal subsidiaries are listed in Note 17 to the accounts.
So far as the Directors are aware the close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the Company.
Details of the issued share capital, together with details of any movements during the year are shown in Note 24. The Company has one class of Ordinary share which carries no right to fixed income. Each share carries the right to one vote at general meetings of the Company.
The cumulative Preference shares of 50p each entitle the holder to receive a cumulative preferential dividend at the rate of 5% on the paid up capital and the right to a return of capital at either winding up or a repayment of capital. The cumulative Preference shares do not entitle the holders to any further or other participation in the profits or assets of the Company.
The percentage of the issued nominal value of the Ordinary shares is 99.255% of the total issued nominal value of all share capital.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association ('the Articles') and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.
Details of employee share schemes are set out in the Remuneration Report. Shares held by the Capita Trust are voted on the instructions of the employees on whose behalf they are held. Shares in the Guernsey Trust are voted at the discretion of the Trustees.
No person has any special rights of control over the Company's share capital and all issued shares are fully paid.
With regards to the appointment and replacement of Directors, the Company is governed by the Articles, the UK Corporate Governance Code, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are set out in the Articles.
The Directors are not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a change of control.
The following interests in the issued Ordinary share capital of the Company have been notified to the Company in accordance with the provisions of Chapter 5 of the Disclosure and Transparency Rules:
| 30 April 2014 | 24 June 2014 |
|---|---|
| 12,465,075 (9.36%) 12,465,075 (9.36%) | |
| 11,461,891 (8.60%) 11,461,891 (8.60%) | |
| 9,324,443 (7.00%) 10,810,933 (8.11%) | |
| 6,672,204 (5.01%) | 6,672,204 (5.01%) |
| 6,632,743 (4.98%) | 6,632,743 (4.98%) |
| 6,603,080 (4.96%) | 6,603,080 (4.96%) |
| 6,536,818 (4.90%) | 6,536,818 (4.90%) |
Details of the present Directors are listed on pages 6 and 7. All have served throughout the year.
Resolutions to re-appoint each of the Directors in office at the date of this report will be proposed at the Annual General Meeting except for Tom Brown, who will be retiring from office at the conclusion of that meeting.
The termination provisions in respect of executive Directors' contracts are set out in the Remuneration Report on pages 37 to 51.
As permitted by the Company's Articles of Association, qualifying third party indemnities for each Director of the Company were in place throughout the year and remained in force as at the date of signing of this report. The Company's Articles of Association are available on the Company's website.
Employees are kept informed on matters affecting them as employees and on various issues affecting the performance of the Group through Chief Executive briefing updates, announcements on the Group's intranet, formal and informal meetings at local level and direct written communications. All employees are eligible to participate on an equal basis in the Group's share incentive plan, which has been running successfully since its inception in 2000.
Applications for employment by disabled persons are given full consideration, taking into account the aptitudes of the applicant concerned. Every effort is made to try to ensure that employees who become disabled whilst already employed are able to continue in employment by making reasonable adjustments in the workplace, arranging appropriate training or providing suitable alternative employment. It is Group policy that the training, career development and promotion of disabled persons should, as far as possible, be the same as that of other employees. The Group's equal opportunity policy is available on the Company's website.
No political donations were made by any Group company in the year.
The disclosures concerning greenhouse gas emissions required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations are included in the CSR section of the Strategic report on pages 30 to 32.
There are new requirements this year in relation to the content of the Directors' Remuneration Report and the approval of the Report, following changes made to the Companies Act 2006.
In accordance with the new Companies Act 2006 provisions, the Directors' Remuneration Report contains:
The statement by the Remuneration Committee Chair and the Annual Report on Remuneration will, as in the past, be put to an advisory shareholder vote by ordinary resolution. The policy part of the Report, which sets out the Company's forward looking policy on Directors' remuneration (including the approach to exit payments to directors), is subject to a binding shareholder vote by ordinary resolution at least every three years.
The Directors' Remuneration Report is set out in full in the Annual Report on pages 37 to 51.
Resolution 3 is the ordinary resolution to approve the Directors' Remuneration Report, other than the part containing the Directors' Remuneration Policy. Resolution 3 is an advisory resolution and does not affect the future remuneration paid to any director.
Resolution 4 is the ordinary resolution to approve the Directors' Remuneration Policy which is set out on pages 39 to 43.
As noted on page 38, the Directors' Remuneration Policy will take effect from the conclusion of the Annual General Meeting. Payments will continue to be made to Directors in line with existing contractual arrangements until this date.
Once the Directors' Remuneration Policy has been approved, all payments by the Company to the Directors and any former Directors must be made in accordance with the policy (unless a payment has been separately approved by a shareholder resolution).
If the Directors' Remuneration Policy is approved and remains unchanged, it will be valid for up to three financial years without a new shareholder approval. If the Company wishes to change the Directors' Remuneration Policy, it will need to put the revised policy to a further vote before it can be implemented.
If the Directors' Remuneration Policy is not approved, the Company will, if and to the extent permitted by the Companies Act 2006, continue to make payments to Directors in accordance with existing contractual arrangements and will seek shareholder approval for a revised policy as soon as is practicable.
The present authority of the Directors to allot shares was granted at the Annual General Meeting held in September 2013 and expires at the forthcoming Annual General Meeting. A resolution to renew that authority for a period expiring at the conclusion of the Annual General Meeting to be held in 2015 will be proposed at the Annual General Meeting. The authority will permit the Directors to allot up to an aggregate nominal amount of £22m of share capital which represents less than 33% of the present issued Ordinary share capital and is within the limits approved by the Investment Committees of the Association of British Insurers and the National Association of Pension Funds.
The Directors have no present intention of exercising such authority and no issue of shares which would effectively alter the control of the Company will be made without the prior approval of shareholders in general meeting.
A special resolution will be proposed to renew the authority of the Directors to allot Ordinary shares for cash other than to existing shareholders on a proportionate basis. The authority will be limited to an aggregate nominal amount of £3,330,000 representing approximately 5% of the current issued Ordinary share capital.
The Directors have no present intention of exercising this authority and confirm their intention to follow the provisions of the Pre-emption Group's Statement of Principles regarding cumulative use of such authorities within a rolling three year period. The Principles provide that companies should not issue shares for cash representing more than 7.5% of the Company's issued share capital in any rolling three year period, other than to existing shareholders, without prior consultation with shareholders.
The minimum notice period permitted by the Companies Act 2006 for general meetings of listed companies is 21 days, but the Act provides that companies may reduce this period to 14 days (other than for AGMs) provided that two conditions are met. The first condition is that the Company offers a facility for shareholders to vote by electronic means. This condition is met if the Company offers a facility, accessible to all shareholders, to appoint a proxy by means of a website. Please refer to Note 6 to the Notice of Annual General Meeting on page 111 for details of the Company's arrangements for electronic proxy appointment. The second condition is that there is an annual resolution of shareholders approving the reduction of the minimum notice period from 21 days to 14 days.
A resolution to approve 14 days as the minimum period of notice for all general meetings of the Company other than AGMs will be proposed at the Annual General Meeting. The approval will be effective until the Company's next AGM, when it is intended that the approval be renewed.
It is the Board's intention that this authority would not be used as a matter of routine but only when merited by the circumstances of the meeting and in the best interests of shareholders.
The Directors propose to renew the general authority of the Company to make market purchases of its own shares to a total of 13,300,000 Ordinary shares (representing approximately 10% of the issued Ordinary share capital) and within the price constraints set out in the special resolution to be proposed at the Annual General Meeting.
There is no present intention to make any purchase of own shares and, if granted, the authority would only be exercised if to do so would result in an improvement in earnings per share for remaining shareholders.
The Company proposes to adopt amended and restated articles of association (the "Amended and Restated Articles") subject to a special resolution being passed by the shareholders. The Amended and Restated Articles are substantially the same as the current articles of association (the "Current Articles"), the main changes to the Current Articles being in relation to:
A copy of the proposed new Articles will be available for inspection at the Company's registered office until 18 September 2014 and also at the Annual General Meeting. Copies are available to shareholders on request and can be viewed on the Company's website.
Details of the Group's use of financial instruments are given in the Financial Review on page 24 and in Notes 22 and 37 to the accounts.
35 Northgate plc Annual report and accounts 2014
In the case of each of the persons who are Directors of the Company at the date when this report was approved:
This confirmation is given and should be interpreted in accordance with the provisions of s418 Companies Act 2006.
A resolution for the re-appointment of Deloitte LLP as auditor of the Company will be proposed at the forthcoming Annual General Meeting. This proposal is supported by the Audit and Risk Committee.
By order of the Board
D Henderson Secretary
24 June 2014
Dear Shareholder,
In accordance with the new regulations our remuneration report is presented in two parts:
The financial year just ended represented a watershed for your Company. The economic crisis of 2008 made a significant impact resulting in the need for major refinancing, followed by extensive change of management and strategy. A period ensued during which the priority was major restructuring against a background of shrinking vehicle fleets in both the UK and Spain, where the economy was particularly badly affected.
FY2014 was the year in which the results of all the hard work started to show. Statutory PBT moved from a loss of £11.4m to a profit of £51.2m and underlying PBT was £60.3m, an increase of 21.8% over the prior year. Very importantly the vehicle fleets in both countries returned to growth during the year. In the UK a programme of opening new branches, especially to seize the opportunities around the London area, was progressed, despite the inevitable short term impact of such growth on some metrics and in Spain excellent all round progress was made including improving ROCE.
These advances saw the Company's share price and consequent market capitalisation increase significantly, resulting in its restoration to the FTSE250 index.
The Committee continues to believe that total reward should normally be around the median level for a company of Northgate's size and type. Within this total we believe that applying greater weighting to the variable rather than fixed elements is appropriate in providing increased incentive and greater alignment with the interests of shareholders.
It is the Company's policy to promote internally when suitable candidates exist and in such cases the individual will normally be appointed at a below mid-market level and then receive above average awards as they prove themselves, thus providing an added incentive for the individual and mitigating risk for the company.
The CEO had received no pay rise for three years and so, in the light of the much improved performance, has been awarded an increase of 6.7%.
The FD was an internal promotion whose salary increases have been phased and this year's rise is 11.1%. This is the last increase regarded as necessary to bring his total remuneration up to the appropriate level.
In FY2014 executive directors' bonuses were based on UK marginal contribution, Spanish net debt and ROCE, and group ROCE. During the year it became apparent that the definition used for UK marginal contribution would have encouraged the retention of certain unprofitable business and accordingly the Committee exercised its discretion to adjust the definition to reflect changed business strategy. As a result overall bonuses of 43.59% of the permitted maximum were awarded to both CEO and FD.
The Committee has become aware that the policy of higher than average incentives with lower fixed pay was being progressively eroded in the case of the CEO and for the new year his maximum bonus opportunity has therefore been increased to 150% of annual salary, coupled with stretching performance targets and with any bonus earned over 100% being paid entirely in deferred shares.
To reflect the change in group priorities from recovery to growth, the bonus criteria for the year ahead have also been adjusted. 75% of the maximum will now depend on achieving demanding PBT targets, with 25% on personal objectives and with the retention of a threshold level of ROCE (excluding the effect of new branch openings) as an underpin.
The level of awards relative to salary is unchanged and EPS and ROCE continue to be the target metrics. However, to reflect the change in group priorities, the balance between these metrics has been adjusted to 60% on EPS and 40% on ROCE which will now be measured excluding the effects of new branch openings.
For the last 2 years the EPS growth targets have been a threshold of CPI + 3% p.a. and a stretch of CPI + 11% p.a. These targets are intended to be long term to encourage consistent and progressive growth of earnings for shareholders and it is not the Committee's intention to juggle them according to perceived short term circumstances. They are therefore retained for the new year.
37 Northgate plc Annual report and accounts 2014
The Committee conducted a shareholder consultation exercise concerning the changes to basic pay and the CEO's bonus opportunity. Respondents were broadly supportive of the changes so long as the bonus targets are sufficiently challenging. I would note though, that despite extending the consultation period to some 3 months, we received no reply from a number of parties consulted and were therefore unable to take their views into account.
As reported elsewhere in the Annual Report the Company has decided to adjust the depreciation rates used in both the UK and Spain with effect from FY2015. Naturally the Committee has taken these changes into account where appropriate in setting new targets. In the case of currently running EPSP awards, it has been agreed that at the end
of each relevant year the Committee will reappraise the situation when the actual impact of the changes on that year can be quantified and make any adjustments then deemed appropriate.
I have now been Chairman of the Northgate Remuneration Committee for 9 years, and as previously announced, I shall be retiring at the forthcoming AGM. The Board has determined that my successor will be Jill Caseberry and I wish her great success in the role.
Yours sincerely
Chairman of the Remuneration Committee
24 June 2014
| The Committee | The Remuneration Committee of the Board of Northgate plc |
|---|---|
| AGM | Annual General Meeting |
| The Group | The Company and its subsidiaries |
| CEO | Chief Executive Officer |
| ESG | Environmental, Social and Governance |
| Remuneration Policy | That section of the Report which is subject to a binding shareholder vote |
| Annual Report on Remuneration That section of the Report which is subject to an advisory shareholder vote | |
| HMRC | HM Revenue & Customs |
| EPSP | Executive Performance Share Plan |
| DABP | Deferred Annual Bonus Plan |
| EPS | Basic or underlying earnings per share |
| ROCE | Return on capital employed |
| SIP | The Company's HMRC-approved share incentive plan, also known as the |
| All Employee Share Scheme | |
| KPI's | Key performance indicators |
| Listing Rules | The Listing Rules of the Financial Conduct Authority |
| Marginal Contribution | All revenue except from the sale of used vehicles, less the depreciation charge on hire vehicles |
| CPI | Consumer Price Index |
| MPSP | Management Performance Share Plan (closed to new awards from 2013) |
| NBS | New Bridge Street, a trading name of Aon plc |
| TSR | Total Shareholder Return |
This part of the Directors' Remuneration Report sets out the remuneration policy for the Company and has been prepared in accordance with The Large and Mediumsized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The policy has been developed taking into account the principles of the UK Corporate Governance Code 2012. The policy to be put to a binding shareholder vote at the 2014 AGM will be operated by the Committee from 1 May 2014. However, it will not take effect as an approved policy until the date of our AGM, 18 September 2014.
The Committee takes seriously the views of its shareholders.
Shareholder feedback received in relation to the AGM each year, and any other meetings and communications with shareholders, is considered by the Committee as part of its annual review of remuneration policy.
When any material changes are proposed to be made to the Remuneration Policy, the Committee Chairman will inform major shareholders and will offer a meeting to discuss the changes.
If any shareholders raise concerns with regard to remuneration issues, we would endeavour to understand and respond to those concerns either by meetings or correspondence, as appropriate.
Details of votes cast for and against the resolution to approve last year's Remuneration Report and principal matters discussed with shareholders during the year are provided in the Annual Remuneration Report.
When setting remuneration policy for the Executive Directors the Committee takes into account the overall approach to reward for and the pay and employment conditions of other employees in the Group and salary increases will ordinarily, in percentage terms, be in line with those of the wider workforce in the UK. The Committee is also provided with periodic updates on employee remuneration practices and trends across the Group which inform the Committee's discussions on executive remuneration. The Company does not formally consult with employees on the directors' remuneration policy.
The Committee aims to ensure that Executive Directors are fairly and competitively rewarded for their individual contributions by means of basic salary, benefits in kind and pension benefits. High levels of performance are recognised by annual bonuses and the motivation to achieve the maximum benefit for shareholders in the future is provided by the allocation of long term incentives. Only basic salary is pensionable.
The Committee's policy is to apply greater weighting to the variable elements of executive remuneration and, by incentivising the longer term performance of the Company, to provide greater alignment with the interests of shareholders.
It is also the Committee's policy to pay a significant proportion of the potential remuneration package in equity, to ensure that executives have a strong ongoing alignment with shareholders through the Company's share price performance.
However when setting the levels of short-term and longterm variable remuneration, consideration is given to setting the right balance between equity and cash so as not to encourage unnecessary risk-taking.
The Committee will seek to ensure that the incentive structure will not raise ESG risks by inadvertently motivating irresponsible behaviour and will take account of ESG matters generally in determining overall remuneration policy and structure.
The table below summarises the key aspects of the Company's remuneration policy for its Directors.
| Element | Purpose and link to strategy |
Operation | Maximum opportunity |
|---|---|---|---|
| Base salary |
To recruit and reward executives of a suitable calibre for the role and duties required |
Reviewed annually by the Committee, taking account of Company performance, individual performance, changes in responsibility and levels of increase for the broader UK population. Reference is also made to remuneration levels within relevant FTSE and industry comparator companies. The Committee considers the impact of any basic salary increase on the total remuneration package. |
Salary increases for Executive Directors will not normally exceed the general increase for the broader UK employee population but on occasions may need to recognise, for example, changes in the scale, scope, complexity or responsibility of the role, and/ or specific retention issues, and to allow the base salary of newly appointed executives to increase in line with their experience and contribution. Details of the outcome of the most recent salary review are provided in the Annual Remuneration Report. |
| Benefits | To provide market competitive benefits to ensure the wellbeing of executives |
The Company typically provides: A car or cash allowance in lieu Medical insurance Death in service benefits Critical illness insurance Other ancillary benefits, including relocation expenses (as required) Executive Directors are also entitled to 30 days' leave per annum. |
The value of benefits is based on the cost to the Company and is not pre-determined. It is a relatively small part of the overall value of the total remuneration package. |
| Pension | To provide market competitive benefits |
A Company contribution to a group personal pension plan or provision of cash allowance in lieu at the request of the individual. |
Up to 18% of salary |
| Annual bonus |
To encourage and reward delivery of the Company's operational objectives and to provide alignment with shareholders through the deferred share element |
The annual bonus is based on performance against one or more financial targets. A proportion (not exceeding 25%) may also be based on non-financial strategic KPIs. Details of the performance measures and targets (where these are not considered commercially sensitive) set for the year under review is provided in the Annual Remuneration Report. Up to 100%, half of any bonus earned is paid in shares and any bonus earned in excess of 100% of salary will be paid entirely in shares, which are available to Executive Directors after three years ordinarily subject to continued employment. The Remuneration Committee has the discretion to adjust the final outcome upwards or downwards in the event that an exceptional event outside of the directors' control occurs, which, in the Committee's opinion, materially affected the bonus out-turn. Clawback provisions apply to all participants in the event of a restatement of the Group's accounts, error in assessing performance criteria, poor risk management, misrepresentation or such other exceptional circumstances as the Committee determines. |
For CEO only: 150% of salary at stretch performance 62.5% of salary at target performance 25% of salary at threshold performance Other Executive Directors: 100% of salary at stretch performance 50% of salary at target performance 25% of salary at threshold performance For performance below threshold, no bonus is payable. |
|---|---|---|---|
| Long-term incentives |
To encourage and reward delivery of the Company's strategic objectives and provide alignment with shareholders through the use of shares |
Annual awards of performance shares (or nil cost options) to Executive Directors. Awards are granted subject to continued employment and satisfaction of challenging performance conditions measured over three years. Since the EPSP was approved by shareholders in 2010, awards have been granted subject to both an EPS and a ROCE performance condition. Other measures and/or longer performance periods may be proposed in the future if the Committee feels that they would better support the Company's medium or long term objectives. If the Committee considers that the changes are substantive it will consult with the Company's major shareholders prior to making any changes. Clawback provisions apply to all participants in the event of a restatement of the Group's accounts, error in assessing performance criteria, poor risk management, misrepresentation or such other exceptional circumstances as the Committee determines. |
The maximum grant limit in the plan rules is 150% of salary (face value of shares at grant) although exceptionally 250% may be used, e.g. in recruitment. The normal grant policy is 150% of salary for each Executive Director. 25% of the grant vests for threshold performance increasing in a straight line to 100% for maximum performance. If performance is below threshold for a measure, then the proportion of the award subject to that measure will lapse. |
| All employee share scheme |
All employees including Executive Directors are encouraged to become shareholders through the operation of an all-employee HMRC approved SIP. The Board believes that encouraging wider share ownership by all staff will have longer term benefits for the Company and for shareholders |
The SIP has standard terms under which all UK employees can participate. The rules for this plan were last approved by the shareholders at the 2011 AGM. |
Employees can elect to contribute up to a maximum amount determined by the Company and within the statutory limits for SIPs per month from pre-tax salary which is used to buy shares in the Company. The Company may in addition make an award of free Matching shares at a ratio not exceeding the statutory limit for SIPs. The Company may also make awards of Free shares to all employees including Executive Directors, on an equal basis. The maximum award would not exceed the maximum limit for SIPs. |
| Non Executive Director fees |
To attract and retain a high-calibre Chairman and Non-Executive Directors by offering a market competitive fee level |
The Chairman is paid a single fee for all his responsibilities. The Non-Executives are paid a basic fee. The Chairmen of the main board committees and the senior independent director are paid an additional fee to reflect their extra responsibilities. The level of these fees is reviewed every two to three years by the Committee and Chief Executive for the Chairman and by the Chairman and Executive Directors for the Non-Executive Directors within the overall limit set by the Articles of Association and with reference to market levels in comparably sized FTSE companies, time commitment and responsibilities of the Non-Executive Directors. Fees are paid in cash. |
The maximum aggregate amount is currently £400,000 as provided in the Articles of Association. A resolution to amend the Articles of Association to increase this amount to £700,000 is to be proposed at the 2014 Annual General Meeting. Details of the outcome of the most recent fee review are provided in the Annual Remuneration Report. |
The annual bonus is based on performance against one or more financial measures and may also include an element of non-financial strategic KPIs if the Committee feels it appropriate, all based on the priorities for the business in the year ahead. The Committee will set stretching performance targets taking into account market and investor expectations, prevailing market conditions and the Company's business plan for the year.
The Committee may also set an overarching financial hurdle, for example and depending on the actual metrics set, ROCE or budgeted operating profit of the Group (or another appropriate measure) for the year, which, if not achieved, would result in no bonus being awarded, regardless of performance against the set targets.
Awards under the EPSP will be based on performance against one or more financial measures. The measures since 2010 have been ROCE and EPS. The Committee has selected these measures to closely reflect the importance the Board places on profitability and balance sheet management. The Committee considers EPS and ROCE are the most appropriate measures at the time of setting this Executive Directors' Remuneration Policy since they incentivise the executives to both improve the earnings profile of the Group and manage balance sheet efficiency (important for a capital intensive business), both of which should flow through to superior returns for shareholders. The Committee will review the choice of performance measures and set appropriately challenging targets prior to each award being made based on market conditions and the Company's long-term priorities and business plan at that time. The targets for outstanding awards are set out in the Annual Report on Remuneration.
The Committee will operate the DABP, EPSP and SIP according to the rules of each respective plan and consistent with normal market practice and the Listing Rules, including flexibility in a number of regards. Factors over which the Committee will retain flexibility include (albeit with quantum and performance targets restricted to the descriptions detailed above):
purposes and whether and what proportion of awards vest at the time of leaving or at the original vesting date(s) as relevant.
The Committee also retains the discretion within the policy to adjust targets and/or set different measures and alter weightings for the annual bonus plan and to adjust targets for the EPSP if events happen that cause it to determine that the conditions are unable to fulfil their original intended purpose provided that they are not in all circumstances considered by the Committee to be materially less difficult to satisfy.
All historic awards that were granted under any current or previous share schemes operated by the Company but remain outstanding (detailed on pages 48 and 49 of the Annual Report on Remuneration), remain eligible to vest based on their original award terms.
Executive Directors are required to accumulate, over a period of five years from the date of appointment, a holding of Ordinary shares of the Company equivalent in value to their basic annual salary, measured annually. It is intended that this should be achieved primarily through the exercise of share incentive awards and that directors are not required to go into the market to purchase shares, although any shares so acquired would count towards meeting the guidelines.
The remuneration policy for the Executive Directors is designed with regard to the policy for employees across the group as a whole. For example, the Committee takes into account the general basic salary increase for the broader UK employee population when determining the annual salary review for the Executive Directors. There are some differences in the structure of the remuneration policy for the Executive Directors and other senior employees, which the Remuneration Committee believes are necessary to reflect the different levels of responsibility of employees across the Company. The key differences in remuneration policy between the Executive Directors and employees across the Group are the increased emphasis on performance related pay and the inclusion of a significant share based long-term incentive plan for Executive Directors. Longterm incentives are not provided outside of the most senior executives as they are reserved for those considered
as having the greatest potential to influence Group performance.
Subject to Board approval, Executive Directors will normally be permitted to take on one non-executive position with another company. The Director will normally not be permitted to retain their fees in respect of such positions. Details of outside directorships held by the Executive Directors, if any, and any fees that they received are provided in the Annual Remuneration Report.
The remuneration package for a new Director would be set in accordance with the terms of the Company's approved Remuneration Policy in force at the time of appointment. Currently, for an Executive Director, this would facilitate awards of no more than 150% of salary per annum for each of the DABP and EPSP, although exceptionally an EPSP award of up to 250% may be made.
The salary for a new Executive, particularly one with no experience at listed company main board level, may be set below the normal market rate, with phased increases over the first few years as the executive gains experience in their new role.
The Committee may offer additional cash and/or share-based elements when it considers these to be in the best interests of the Company and its shareholders to take account of remuneration relinquished when leaving the former employer and would reflect (as far as possible) the nature and time horizons attaching to that remuneration and the impact of any performance conditions.
For an internal executive appointment, any variable pay element awarded in respect of the prior role will be allowed to pay out according to its terms. In addition, any other ongoing remuneration obligations existing prior to appointment may continue, if relevant.
For external and internal executive appointments, the Committee may agree that the Company will meet certain relocation and other incidental expenses as appropriate.
For the appointment of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved remuneration policy in force at that time.
The Remuneration Committee reviews the contractual terms for new Executive Directors to ensure that these reflect best practice.
Service contracts normally continue until the director's agreed retirement date or such other date as the parties agree. The service contracts contain provision for early termination. Notice periods given by the employing company are limited to 12 months or less.
An Executive Director's service contract may be terminated without notice and without any further payment or compensation, except for sums accrued up to the date of termination, on the occurrence of certain events such as gross misconduct. If the employing company terminates the employment of an Executive Director in other circumstances, compensation is limited to salary due for any unexpired notice period and any amount assessed by the Committee as representing the value of other contractual benefits (including pension) which would have been received during the period. In the event of a change of control of the Company there is no enhancement to contractual terms. Service contracts are available for inspection at the Company's registered office.
In summary, the contractual provisions are as follows:
| Provision | Detailed terms |
|---|---|
| Notice period | 12 months' notice from the Company and six months' notice from the Director. |
| Termination payment |
Base salary plus benefits (including pension), subject to mitigation and paid on a phased basis for notice period. |
| In addition, any statutory entitlements or sums to settle or compromise claims in connection with the termination would be paid as necessary. |
|
| Remuneration entitlements |
A pro-rata bonus may also become payable for the period of active service along with vesting for outstanding share awards (in certain circumstances – see below). |
| In all cases performance targets would apply. |
|
| Change of control |
There are no enhanced terms in relation to a change of control. |
Any share-based entitlements granted to an Executive Director under the Company's share plans will be determined based on the relevant plan rules. The default treatment is that any outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, ill-health, redundancy, transfer of the employee's employing business out of the Group or other circumstances at the discretion of the Committee (taking into account the individual's performance and
the reasons for their departure) 'good leaver' status can be applied. Under the EPSP, awards held by good leavers will usually be scaled back for the actual period of service and vest at the date of cessation although the Committee has the discretion to not scale back if it considers this is appropriate and also to determine that vesting should be at the usual time. DABP awards held by good leavers will usually vest on cessation or if the Committee determines at the usual vesting date. For share awards under the EPSP and held by good leavers, awards remain subject to the performance conditions.
All Non-Executive Directors have letters of appointment with the Company for an initial period of three years, subject to annual re-appointment at the AGM. The Chairman's appointment may be terminated by the Company with one month's notice. The appointment of the other Non-Executive Directors are terminable without notice. The appointment letters for the Chairman and Non-Executive Directors provide that no compensation is payable on termination, other than accrued fees and expenses.
For the avoidance of doubt, in approving this Remuneration Policy, authority is given to the Company to honour any commitments entered into with current or former Directors (such as the payment of a pension or the vesting of share awards) that have been disclosed to shareholders in previous Remuneration Reports. Details of any payments to former Directors will be set out in the Annual Remuneration Report as they arise.
The Company's policy results in a significant portion of remuneration received by Executive Directors being dependent on Company performance. The chart below illustrates how the total pay opportunities for the Executive Directors vary under three different performance scenarios: maximum, on-target and fixed pay only. These charts are indicative as share price movement and dividend accrual have been excluded. All assumptions made are noted below the chart.
Fixed Pay = salary + benefits + pension
On-target = Fixed plus 50% vesting of the EPSP awards and, for the CEO, 41.7% of the annual bonus opportunity and, for the FD, 50% of the annual bonus opportunity
Maximum = Fixed plus 100% vesting of the annual bonus opportunity and 100% of the EPSP awards
Salary levels (on which other elements of the package are calculated) are based on those applying on 1 May 2014. The value of taxable benefits is based on the cost of supplying those benefits (as disclosed) for the year ending 30 April 2014.
The Executive Directors can participate in the SIP on the same basis as other employees. The value that may be received under this scheme is subject to tax approved limits. For simplicity and uncertainty over the value that may be received from participating in this scheme it has been excluded from the above charts.
This part of the report has been prepared in accordance with Part 3 of the revised Schedule 8 set out in The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, and 9.8.6R of the Listing Rules. The Annual Remuneration Report will be put to an advisory shareholder vote at the 2014 AGM. The information on pages 44 to 51 has been audited.
The members of the Committee are listed in the table below. All are independent Non-Executive Directors, as defined under the Corporate Governance Code, with the exception of the Group Chairman, R D Mackenzie, who was independent on his appointment, and J G Astrand, who stood down from the Committee on 29 November 2013.
The members of the Committee during the last financial year and their attendance at the meetings of the Committee were:
| Number of meetings attended out of potential maximum |
|
|---|---|
| T H P Brown (Committee Chairman) | 5 out of 5 |
| A J Allner | 5 out of 5 |
| J G Astrand | 2 out of 2 |
| G Caseberry | 4 out of 5 |
| R D Mackenzie | 5 out of 5 |
The CEO attends meetings by invitation and assists the Committee in its deliberations, except when issues relating to his own remuneration are discussed. No directors are involved in deciding their own remuneration. The Company Secretary acts as Secretary to the Committee.
The Committee is advised by NBS, who were first appointed by the Committee in 2003. NBS advises the Committee on executive remuneration matters including topical remuneration issues which are of particular relevance to the Company, on incentive arrangements for the Directors and senior staff, on all-employee share plans and on remuneration reporting and compliance matters. NBS liaises with the Committee Chairman and considers how best it can work with the Company to meet the Committee's needs.
The total fees paid to NBS in respect of its services to the Committee during the year were £26,994. The fees are predominantly charged on a 'time spent' basis.
NBS is a signatory to the Remuneration Consultants' Code of Conduct. Neither NBS nor Aon provide any other services to the Company and the Committee is satisfied that the advice that it receives is objective and independent.
The Committee's terms of reference are available on the Company's website.
The Committee is responsible for making recommendations to the Board on the remuneration packages and terms and conditions of employment of the Chairman and the Executive Directors of the Company as well as the Company Secretary. The senior executives below Board level, both in the UK and Spain, also have a significant influence on the ability of the Company to achieve its goals. Accordingly, in addition to setting the remuneration of the Executive Directors, the Committee also reviews the remuneration for these senior employees to ensure that rewards are competitive with the market and that they are appropriate relative to the Board and employees generally. The Committee also reviews remuneration policy generally throughout the Group.
The table below sets out the remuneration received by the Directors in relation to performance in FY2014 (or for performance periods ending in FY2014 in respect of long-term incentives) and FY2013.
| £'000 Executive Directors | Salary & Fees | Taxable Benefits (1) |
Annual Bonus (3) |
Long-Term incentive (4) |
Pension (2) |
Other | Total | |
|---|---|---|---|---|---|---|---|---|
| R L Contreras | 2014 | 375 | 18 | 163 | Nil | 68 | 4(5) | 628 |
| 2013 | 375 | 18 | Nil | 395 | 68 | 3(5) | 859 | |
| C J R Muir | 2014 | 225 | 18 | 98 | Nil | 40 | 4(5) | 385 |
| 2013 | 200 | 18 | Nil | Nil | 36 | 3(5) | 257 | |
| Chairman | ||||||||
| R D Mackenzie | 2014 | 160 | – | – | – | – | – | 160 |
| 2013 | 160 | – | – | – | – | – | 160 | |
| Non-Executive Directors | ||||||||
| A J Allner | 2014 | 60 | – | – | – | – | – | 60 |
| 2013 | 60 | – | – | – | – | – | 60 | |
| J G Astrand | 2014 | 50 | – | – | – | – | – | 50 |
| 2013 | 50 | – | – | – | – | 54(6) | 104 | |
| T H P Brown | 2014 | 68 | – | – | – | – | – | 68 |
| 2013 | 68 | – | – | – | – | – | 68 | |
| G Caseberry (7) | 2014 | 51 | – | – | – | – | – | 51 |
| 2013 | 21 | – | – | – | – | – | 21 |
There have been no payments to past directors and no payments for loss of office. Note 1: Taxable Benefits:
| R L Contreras | C J R Muir | |
|---|---|---|
| £'000 | £'000 | |
| Car allowance | 17 | 17 |
| Medical insurance | 1 | 1 |
Note 2: The Executive Directors are members of a group personal pension plan. They contribute 4% of basic salary and are entitled to a contribution from the Company of 18% of basic salary. In view of the Annual Allowance cap of £50,000, part of Bob Contreras' entitlement was paid to him in cash. In last year's accounts this cash element was included in Benefits.
Note 3: This relates to the payment of the annual bonus for the year ending 30 April 2014. The bonus is paid 50% in cash and 50% in shares. Details of the performance targets are provided below. No bonus was paid in 2013.
Note 4: This relates to the the 2011 EPSP award which, as disclosed below, resulted in a nil vesting. The value of the award vesting in 2013 is calculated using the closing share price on the date of vesting (11 August 2013) of 391.75p.
Note 5: This represents the value of Matching shares awarded under the SIP which have fully vested in the year (i.e. they are no longer subject to forfeiture), valued at the market price on the date of vesting.
Note 6: As disclosed last year, these fees relate to his consultancy work in Spain. This assignment finished in November 2012.
Note 7: Jill Caseberry joined the Company on 10 December 2012.
The bonus for the Executive Directors in respect of the year under review comprised three elements reflecting the Group's near term priorities:
No element of bonus to be paid unless Group operating profit is at least 95% of the Group's budgeted operating profit for the year. The maximum bonus entitlement is 100% of salary, with each element of bonus paying up to one-third of annual salary.
45 Northgate plc Annual report and accounts 2014
Governance Remuneration report
The outcome is set out below:
| Measure | Amount of bonus achievable as % of salary |
Threshold | On target | Stretch | Actual | Achievement as % of maximum available |
Bonus earned as % of basic salary |
||
|---|---|---|---|---|---|---|---|---|---|
| Budget Group operating profit |
95% x £73.0m = £69.35m |
– | – | – | £72.6m | – | – | ||
| 1 UK Marginal Contribution (1) |
33.3% | £160,955k | £163,842k | £166,729k | £164,391k | 59.51% | 19.83% | ||
| 2 | Spain – net debt Spain ROCE |
33.3% | £154m 8.32% |
£154m 8.32% |
£74m 9.8% |
£134.5m 9.22% |
71.3% | 23.76% | |
| 3 | Group ROCE | 33.3% | >10.4% | 10.8% | 11.2% | 9.9% | Nil | Nil |
(1) Adjusted for change in strategy as explained in Chairman's statement.
The resulting bonuses for 2014 were as follows:
| Executive | Total | £'000 | Cash | Shares |
|---|---|---|---|---|
| R L Contreras | 43.59% | 163.5 | 81.75 | 81.75 |
| C J R Muir | 43.59% | 98.0 | 49.0 | 49.0 |
The bonus is paid 50% in cash and 50% in shares. The shares are released to executives after three years subject to continued employment. Both the cash and share element of the bonus are subject to clawback. See page 40 for further details.
The EPSP award granted on 28 July 2011 is based on performance over the three years ended 30 April 2014. As disclosed in previous annual reports, the performance condition for this award was as follows:
| Metric | Threshold | Target Stretch Target | Actual | % Vesting |
|---|---|---|---|---|
| EPS in third year (50%) | 38.5p | 47.2p | 35.1p | Nil |
| ROCE – average over the 3 years (50%) | 13.5% | 13.85% | 11.6% | Nil |
| Total Vesting | Nil |
On 9 July 2013, the following EPSP awards were granted to Executive Directors:
| Executive | Type of award | Basis of award granted |
Share price at 25 June 2013 (1) |
Number of shares over which award was granted |
Face value of award (£) |
% of face value that would vest at threshold performance |
Vesting determined by performance over |
|---|---|---|---|---|---|---|---|
| 150% of | |||||||
| salary of | Three financial | ||||||
| R L Contreras | Nil cost option | £375,000 | 339.5p | 165,684 | 562,497 | 25% | years to |
| 150% of | 30 April 2016 | ||||||
| salary of | |||||||
| C J R Muir | Nil cost option | £225,000 | 339.5p | 99,410 | 337,497 | 25% |
Note 1: The closing price on the date of the Preliminary Announcement of the results for FY2012/13.
| 2013 | 2014 | % change | |
|---|---|---|---|
| CEO (£'000) | |||
| salary – |
375 | 375 | Nil |
| benefits – |
18 | 18 | Nil |
| bonus – |
– | 163 | – |
| Average per UK employee (£) | |||
| salary – |
21,791 | 22,826 | 4.7 |
| benefits – |
1,488 | 1,612 | 8.3 |
| bonus – |
49 | 701 | 1,330.3 |
This shows the movement in the salary, benefits and annual bonus for the CEO between the current and previous financial year compared to that for the average UK employee. The Committee has chosen this comparator as it feels that it provides a more appropriate reflection of the earnings of the average worker than the movement in the group's total wage bill, which is distorted by movements in the number of employees and variations in wage practices in Spain.
As required by Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, the graph below illustrates the performance of Northgate plc measured by Total Shareholder Return (share price growth plus dividends paid) against a 'broad equity market index' over the last five years. As the Company has been a constituent of the FTSE 250 index for the majority of the last five years, that index (excluding investment companies) is considered to be the most appropriate benchmark. The mid-market price of the Company's Ordinary shares at 30 April 2014 was 518.5p (30 April 2013 – 339p). The range during the year was 325p to 615p.
The chart below shows the Company's TSR performance against the performance of the FTSE 250 index from 30 April 2009 to 30 April 2014. The FTSE 250 index was chosen as being a broad equity market index, which includes companies of a comparable size and complexity.
Northgate plc FTSE 250 (Excl. Inv. Trusts) Index
| Year ended 30 April | ||||||
|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | ||
| Total Remuneration (£'000) | 831 | 821 | 1,115 | 859 | 628 | |
| Annual bonus (% of maximum) | 76% | 100% | 100% | 0% | 43.59% | |
| Long term incentive vesting (% of maximum) | 0% | 0% | 100% | 331 ⁄3% |
0% |
This shows the total remuneration figure for the CEO during each of those financial years. The total remuneration figure includes the annual bonus and EPSP awards which vested based on performance periods ending in those years. The annual bonus and EPSP percentages show the payout for each year as a percentage of the maximum. In years when there was a change of CEO, the figures shown are the aggregate for the office holders during that year.
| 2013 | 2014 | % increase | |
|---|---|---|---|
| Staff costs | £77.7m | £85.0m | 9.4% |
| Dividends | £5.7m | £12.3m | 115.8% |
The table above shows the movement in spend on staff costs versus that in dividends.
The tables below set out details of Executive Directors' outstanding share awards.
| Scheme | Grant Date |
Exercise Price (p) |
Number of shares at 1 May 2013 |
Granted during year |
Vested during year |
Exercised during year |
Lapsed during year |
Number of shares at 30 April 2014 |
End of Per formance Period |
Vesting date |
Exercise period |
|---|---|---|---|---|---|---|---|---|---|---|---|
| EPSP | 12.10.09 | Nil | 130,952 | – | – | – | – | 130,952 | 30.04.12 | 12.10.12 12.10.12 – 12.10.19 | |
| EPSP | 11.08.10 | Nil | 302,593 | – | 100,864 | – | 201,729 | 100,864 | 30.04.13 | 11.08.13 11.08.13 – 11.08.20 | |
| EPSP | 28.07.11 | Nil | 171,546 | – | – | – | – | 171,546 | 30.04.14 | 28.07.14 28.07.14 – 28.07.21 | |
| EPSP | 17.08.12 | Nil | 269,138 | – | – | – | – | 269,138 | 30.04.15 | 17.08.15 17.08.15 – 17.08.22 | |
| EPSP | 09.07.13 | Nil | – | 165,684 | – | – | – | 165,684 | 30.04.16 | 09.07.16 09.07.16 – 09.07.23 | |
| DABP | 11.08.10 | Nil | 29,719(1) | – | 29,719 | – | – | 29,719 | – | 11.08.13 11.08.13 – 11.08.15 | |
| DABP | 30.08.11 | Nil | 9,149(2) | – | – | – | – | 9,149 | – | 30.08.14 30.08.14 – 30.08.21 | |
| DABP | 30.08.11 | 327.9 | 9,149(3) | – | – | – | – | 9,149 | – | 30.08.14 30.08.14 – 30.08.21 | |
| DABP | 30.08.11 | Nil | 44,220(1) | – | – | – | – | 44,220 | – | 30.08.14 30.08.14 – 30.08.21 | |
| DABP | 20.07.12 | Nil | 78,947(1) | – | – | – | – | 78,947 | – | 20.07.15 20.07.15 – 20.07.22 |
| Scheme | Grant Date |
Exercise Price (p) |
Number of shares at 1 May 2013 |
Granted during year |
Vested during year |
Exercised during year |
Lapsed during year |
Number of shares at 30 April 2014 |
End of Per formance Period |
Vesting date |
Exercise period |
|---|---|---|---|---|---|---|---|---|---|---|---|
| EPSP | 28.07.11 | Nil | 80,054 | – | – | – | – | 80,054 | 30.04.14 | 28.07.14 28.07.14 – 28.07.21 | |
| EPSP | 17.08.12 | Nil | 143,450 | – | – | – | – | 143,450 | 30.04.15 | 17.08.15 17.08.15 – 17.08.22 | |
| EPSP | 09.07.13 | Nil | – | 99,410 | – | – | – | 99,410 | 30.04.16 | 09.07.16 09.07.16 – 09.07.23 | |
| MPSP | 12.10.09 | Nil | 28,571 | – | – | 28,571 | – | – | 30.04.12 | 12.10.12 | |
| MPSP | 11.08.10 | Nil | 14,973 | – | 6,328 | – | 8,645 | 6,328 | 30.04.13 | 11.08.13 11.08.13 – 11.08.20 | |
| DABP | 12.10.09 | Nil | 15,873(1) | – | – | 15,873 | – | – | – | 12.10.12 | |
| DABP | 11.08.10 | Nil | 9,337(1) | – | 9,337 | – | – | 9,337 | – | 11.08.13 11.08.13 – 11.08.15 | |
| DABP | 30.08.11 | Nil | 7,295(4) | – | – | – | – | 7,295 | – | 30.08.14 30.08.14 – 30.08.21 | |
| DABP | 30.08.11 | 327.9 | 7,295(3) | – | – | – | – | 7,295 | – | 30.08.14 30.08.14 – 30.08.21 | |
| DABP | 20.07.12 | Nil | 2,908(5) | – | – | – | – | 2,908 | – | 20.07.15 20.07.15 – 20.07.22 | |
| DABP | 20.07.12 | 209 | 2,908(3) | – | – | – | – | 2,908 | – | 20.07.15 20.07.15 – 20.07.22 | |
| DABP | 20.07.12 | Nil | 33,934(1) | – | – | – | – | 33,934 | – | 20.07.15 20.07.15 – 20.07.22 | |
The share price at 30 April 2014 was 518.5p.
DABP: Awards can be granted in two forms: (i) a Nil Cost Option over a number of shares (a 'Deferred Award') or (ii) a Nil Cost Option over a fixed value of shares (a 'Linked Deferred Award') granted in association with an HMRC Approved Option (an 'Approved Option'). The face value of Approved Options held at any one time may not exceed £30,000. The value of a Linked Deferred Award is capped at the original face value. Related Linked Deferred Awards and Approved Options must be exercised at the same time unless the Approved Option is 'underwater' and therefore lapses.
Note 1: Deferred Award
Note 2: Linked Deferred Award with a capped value of £30,000
Note 3: Approved Option
Note 4: Linked Deferred Award with a capped value of £23,920
Note 5: Linked Deferred Award with a capped value of £6,078
2010 – The performance period for this award ended on 30 April 2013 and details of the award are set out in last year's Remuneration Report. The performance condition was partially met and one-third of the award vested. The share price on the date of vesting was 391.75p.
2011 – The performance period for this award ended on 30 April 2014. Details of the performance condition of these awards and the number of shares to vest are set out above.
2012 and 2013 awards – The performance period for these awards end on 30 April 2015 and 2016 respectively. Both awards are subject to the same EPS target, requiring EPS growth of CPI + 3% to CPI + 11% p.a. They also have a ROCE target, being the average over the three years of the performance period, being 13.75% to 14.41% for the 2012 award and 11.5% to 12.4% for the 2013 award.
The SIP, which is approved by HMRC under Schedule 8 Finance Act 2000, was introduced in 2000 to provide employees at all levels with the opportunity to acquire shares in the Company on preferential terms. The Board believes that encouraging wider share ownership by all staff will have longer term benefits for the Company and for shareholders. The SIP operates under a trust deed, the Trustees being Capita IRG Trustees Limited ("the Capita Trust").
To participate in the SIP, which operates on a yearly cycle, employees are required to make regular monthly savings
(on which tax relief is obtained), by deduction from pay, for a year at the end of which these payments are used to buy shares in the Company ("Partnership shares").
For each Partnership share acquired, the employee will receive one additional free share ("Matching shares"). Matching shares will normally be forfeited if, within three years of acquiring the Partnership shares, the employee either sells the Partnership shares or leaves the Group. After this three year period Partnership and Matching shares may be sold, although there are significant tax incentives to continue holding the shares in the scheme for a further two years. Those employees who are most committed to the Company will therefore receive the most benefit.
The thirteenth annual cycle ended in December 2013 and resulted in 366 employees acquiring 103,237 Partnership shares at 309.75p each and being allocated the same number of Matching shares. As at 30 April 2014 the Capita Trust held 1,542,981 50p Ordinary shares that have been allocated to employees from the first 13 cycles.
The fourteenth annual cycle started in January 2014 and currently some 476 employees are making contributions to the scheme at an annualised rate of £429,000.
During the year, an award of 150 Free shares was made to all eligible employees with one year's service. The total number of shares awarded was 183,300.
The Executive Directors are entitled to participate in this scheme and to receive both Matching and Free shares.
49 Northgate plc Annual report and accounts 2014
Governance Remuneration report
Shares to satisfy the requirements of the Group's existing share schemes are currently sourced as follows:
To date, awards under these two schemes have been satisfied through open market purchases by an employee benefit trust based in Guernsey ("the Guernsey Trust"). During the year 790,000 (2013 – 875,000) Ordinary shares were purchased by the Guernsey Trust and 451,141 (2013 – 457,582) were used to satisfy the exercise of awards under the DABP and MPSP. At 30 April 2014 the Guernsey Trust held 116,063 (2013 – 98,037) Ordinary shares as a hedge against the Group's obligations under these schemes.
The rules of both these schemes also allow new issue and treasury shares to be used to satisfy the vesting and exercise of awards, but to date the Board have chosen not to do so.
Shares to satisfy the vesting of awards under the EPSP may be sourced either from new issue or through open market purchases. No options have yet been exercised under this scheme.
Awards may be satisfied either by new issue or market purchase or by a combination of the two. The total number of shares required to satisfy the allocation made in January 2014 was 206,474 (2013 – 291,024) of which 137,833 were transferred from the Guernsey Trust, with the balance of 68,641 (2013 – 51,525) being shares already held by the Capita Trust from forfeiture during the year. The 183,300 free shares referred to above were also sourced from the Guernsey Trust.
Share Interests
At 30 April 2014 the Capita Trust held 32,079 (2013 – 22,891) Ordinary shares which had been forfeited as a result of early withdrawals post January 2014.
All the above schemes operate within the following limits:
In any 10 calendar year period, the Company may not issue (or grant rights to issue) more than:
The dilution position as at 30 April 2014 was 1.79% under the EPSP, MPSP and DABP and 2.26% under the SIP.
In line with current best practice guidelines, the Committee has introduced clawback provisions into the rules of all discretionary schemes, which can be invoked in the event of financial misstatement, gross misconduct or fraud and which apply to all awards made from 2010 onwards.
The Executive Directors are required to build up a shareholding equivalent to 100% of salary, to be achieved primarily through the retention, after tax, of share options exercised under the long term incentive share plans, until such time as their share ownership target has been met. Directors are not required to go into the market to purchase shares, although any shares so acquired would count towards meeting the guidelines. The Chairman and Non-Executive Directors are not subject to a formal shareholding guideline. Details of the Directors' interests in shares are shown in the table below:
| Beneficially owned at |
Outstanding EPSP awards Outstanding DABP awards |
% shareholding guideline achieved at |
|||||
|---|---|---|---|---|---|---|---|
| Director | 30 April 2014 |
Vested but not exercised |
Not vested | Vested but not exercised |
Not vested | Interests in SIP subject to forfeiture |
30 April 2014 |
| R L Contreras | 119,286 | 231,816 | 606,368 | 29,719 | 132,316 | 2,194 | 161.9 |
| C J R Muir | 59,171 | 6,328 | 322,914 | 9,337 | 44,137 | 2,195 | 131.3 |
| R D Mackenzie | 100,000 | – | – | – | – | – | N/A |
| A J Allner | 13,090 | – | – | – | – | – | N/A |
| J G Astrand | 51,920 | – | – | – | – | – | N/A |
| T H P Brown | 52,634 | – | – | – | – | – | N/A |
| G Caseberry | – | – | – | – | – | – | N/A |
No changes in the above interests have occurred between 30 April 2014 and the date of this report.
The Executive Directors' salaries were reviewed in April 2014 and increased as set out in the Chairman's Annual Statement on page 37.
The current salaries as at 1 May 2014 are as follows:
| Salary as at 1 May 2013 |
Salary as at 1 May 2014 |
Increase | |
|---|---|---|---|
| R L Contreras | £375,000 | £400,000 | 6.7% |
| C J R Muir | £225,000 | £250,000 | 11.1% |
As detailed in the Remuneration Policy, the company's approach to setting Non-Executive Directors' remuneration is with reference to market levels in comparably sized FTSE companies, levels of responsibility and time commitments. A summary of current fees is as follows:
| Fee as at 1 May 2013 |
Fee as at 1 May 2014 |
Increase | |
|---|---|---|---|
| Chairman | £160,000 | £160,000 | 0% |
| Base fee | £50,000 | £55,000 | 10% |
| Senior Independent | |||
| Director | £10,000 | £10,000 | 0% |
| Audit Committee | |||
| Chairman | £10,000 | £10,000 | 0% |
| Remuneration | |||
| Committee Chairman | £8,000 | £10,000 | 25% |
Fees were last reviewed at 1 May 2011.
For 2014, the annual bonus will be based on PBT as to 75% and a range of strategic and operational objectives for the remaining 25%, with a ROCE underpin.
The Committee has chosen not to disclose, in advance, the performance targets for the annual bonus for the forthcoming year as these include items which the Committee considers commercially sensitive. Full retrospective disclosure of the targets and performance against them will be seen in next year's Annual Remuneration Report.
The EPSP awards granted in 2014 will be subject to two separate performance conditions, with EPS accounting for 60% of the award and ROCE for the remaining 40%. The performance conditions are as follows:
| Performance condition | Threshold Target (25% vesting) |
Stretch Target (100% vesting) |
End Measurement Point |
|---|---|---|---|
| EPS (60% of award) | CPI + 3% p.a. | CPI + 11% p.a. | Final year of the performance period |
| ROCE (40% of award) | 11.7% | 12.6% | Average of the three years of the performance period |
In addition, no awards will vest unless the Committee is satisfied that the underlying financial and operational performance of the business has been satisfactory.
Award levels for 2014 will be 150% of salary for the EPSP for both the CEO and FD and 150% of salary for the CEO and 100% of salary for the FD for the DABP.
At last year's AGM, voting against the Remuneration Report, at 2% of the total votes cast, was not significant.
This Directors' Remuneration Report, including both the Remuneration Policy and Annual Remuneration Report has been approved by the Board of Directors.
Signed on behalf of the Board of Directors.
Chairman of the Remuneration Committee
24 June 2014
The Audit and Risk Committee is appointed by, and reports to, the Board.
The Committee's terms of reference, which include all matters referred to in the UK Corporate Governance Code ('the Code'), are reviewed annually by the Committee and are available on the Company's website. In summary these include:
The terms of reference have recently been amended to take account of the Committee's additional responsibilities arising from the FRC revisions to the UK Corporate Governance Code and Guidance on Audit Committees, which will impact on the work of the Committee in respect of the financial year ending 30 April 2014 and future years.
The members of the Committee, who are all non-executive Directors of the Company, are:
| Date of appointment | Qualification | |
|---|---|---|
| AJ Allner (Chairman) 26 September 2007 | FCA | |
| THP Brown | 8 June 2005 MA (Oxon), MBA IMD | |
| G Caseberry | 10 December 2012 |
The Code requires that at least one member of the Committee should have recent and relevant financial experience: currently, the Chairman of the Committee fulfils this requirement. All members of the Committee are expected to be financially literate.
Jan Astrand stood down from the Committee in November 2013.
The Committee is required to meet at least three times a year. Details of attendance at meetings held in the year ended 30 April 2014 are given on page 54.
Due to the cyclical nature of its agenda, which is linked to events in the Group's financial calendar, the Committee will generally meet four times a year. The other Directors, together with the head of internal audit and the external auditor, are normally invited to attend all meetings.
Since May 2013, the Committee has:
During the year the Committee considered, discussed with the external auditor and concluded on what the significant risks and issues were in relation to the financial statements and how these would be addressed:
The Board's policy on non-audit services provided by the external auditor, developed and recommended by the Committee, is:
During the year, the Committee reviewed the effectiveness and independence of the external auditor, taking into
account input from management, consideration of responses to questions from the Committee and the audit findings reported to the Committee, including conducting one-to-one meetings with the audit partner. Based on all of this information the Committee concluded that the external audit process was operating effectively.
Consequently, the Committee has recommended to the Board the reappointment of Deloitte LLP at the Annual General Meeting.
Fees paid and payable to Deloitte LLP in respect of the year under review are as shown in Note 5 on page 77.
The re-appointment of Deloitte LLP as the Group's external auditor (incumbent since 1988) was reviewed during the year. The Group intends to put the audit out to tender to allow appointment for the year ending April 2016 audit, coinciding with the requirement for the Group audit partner to rotate off. The Group intends to then put the audit out to tender at least every ten years as required by the UK Corporate Governance Code.
In fulfilling its duty to monitor the effectiveness of the internal audit function, the Committee has:
The Chairman of the Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee.
Chairman of the Audit and Risk Committee
24 June 2014
53 Northgate plc Annual report and accounts 2014
Governance Report of the audit and risk committee
UK Listed Companies are required by the Financial Conduct Authority (the designated UK Listing Authority) to include a statement in their annual accounts on compliance with the principles of good corporate governance and code of best practice set out in the UK Corporate Governance Code ('the Code').
The provisions of the Code applicable to listed companies are divided into five parts, as set out below:
The business of the Company is managed by the Board of Directors, currently comprising two executive and five nonexecutive Directors, details of whom are shown on pages 6 and 7.
The offices of the Chairman and Chief Executive Officer are separate. The division of their responsibilities has been set out in writing, approved by the Board and is available on the Company's website.
The Board meets regularly to review trading results and has responsibility for the major areas of Group strategy, the annual Business Plan, financial reporting to and relationships with shareholders, dividend policy, internal financial and other controls, financing and treasury policy, insurance policy, major capital expenditure, acquisitions and disposals, Board structure, remuneration policy, corporate governance and compliance.
The Chairman ensures that all Directors are properly briefed to enable them to discharge their duties. In particular, detailed management accounts are prepared and copies sent to all Board members every month and, in advance of each Board meeting, appropriate documentation on all items to be discussed is circulated.
Directors' attendance at Board and Committee meetings during the year is detailed below.
| Board | Audit and risk | Remuneration | ||
|---|---|---|---|---|
| No. of Meetings | 9 | 4 | 5 | |
| RD Mackenzie | 9 | – | 5 | |
| AJ Allner | 9 | 4 | 5 | |
| JG Astrand* | 9 | 2 | 2 | |
| THP Brown | 9 | 4 | 5 | |
| G Caseberry | 8 | 4 | 4 | |
| RL Contreras | 9 | – | – | |
| CJR Muir | 9 | – | – |
* Jan Astrand stood down from the Audit and Remuneration Committees in November 2013.
All Directors in office at that time were present at the Annual General Meeting held in September 2013.
The external auditor and the head of internal audit attended all Audit and Risk Committee meetings.
Before appointment, non-executive Directors are required to assure the Board that they can give the time commitment necessary to properly fulfil their duties, both in terms of availability to attend meetings and discuss matters on the telephone and meeting preparation time.
Jan Astrand's appointment in December 2011 as nonexecutive Chairman of the Board of our Spanish subsidiary, Northgate España Renting Flexible S.A., is ongoing. It is a role for which Jan is ideally suited, as he is permanently resident in Spain and fluent in Spanish. He receives no additional remuneration for this appointment.
The Board considers that the above appointment is in the best interests of the Company and of the shareholders and, whilst Jan cannot be considered to be independent in terms of the Code or by the National Association of Pension Funds, the Board is satisfied that it does not affect his independence of judgment when carrying out his duties as a Director of the Company.
The Board has established a Nominations Committee, which is chaired by Bob Mackenzie. All the non-executive Directors are members except for Jan Astrand. Its main function is to lead the process for Board appointments by selecting and proposing to the Board suitable candidates of appropriate calibre. The Committee would normally expect to use the services of professional consultants to help in the search for candidates.
The Committee has written terms of reference which are available on the Company's website.
Pursuant to those provisions of the Companies Act 2006 relating to conflicts of interest and in accordance with the authority contained in the Company's Articles of Association, the Board has put in place procedures to deal with the notification, authorisation, recording and monitoring of Directors' conflicts of interest and these procedures have operated effectively throughout the year and to the date of signing of this report and accounts.
The Board has considered the recommendations of the Davies Review into Women on Boards in the light of the provisions of both section B.2 of the Code, with which we are compliant, and of our existing policies and procedures. The Board recognises the benefits of diversity at all levels of the business and in order to reinforce the Board's commitment to equality, the Board has endorsed an Equal Opportunities Policy (which may be found on our website). Whilst the overriding criteria for Board appointments will always be based on merit, so as to encourage an appropriate balance of skills, experience and knowledge on the Board at all times, for all future appointments we will only use executive search firms who have committed to the Voluntary Code of Conduct on gender diversity. At the same time the Board recognises that, particularly given the nature of its business, the development of a pool of suitably qualified candidates may take time to achieve and therefore do not believe it is appropriate to set targets, however aspirational, at the present time.
The Board undertook a formal evaluation of its own performance and that of its committees and individual Directors during the year. The Code requires that the Company conduct an externally facilitated evaluation every three years and accordingly after a thorough competitive process the 2014 Board performance evaluation was facilitated by Duncan Reed of Condign Board Consulting Ltd, a company which specialises in board effectiveness work. Mr Reed and Condign have no other connection with the Company.
The evaluation process consisted of a structured interview with the Chairman, each Director, the Company Secretary and the Managing Director of the Spanish business, with an outline of the topics to be covered in the interview sent to each in advance. The evaluation also included the review of relevant board papers and Mr Reed attended both board and board committee meetings. The outcome of the review was initially discussed with the Chairman and the Senior Independent Director, followed by a presentation to the full board and an open discussion.
The review concluded that basic board governance is in good repair and that the board was 'notably commercial' and 'business-focussed'. Robust and challenging discussions are had, in an open and cooperative environment. The engagement by the board with new strategy development at a group level was highlighted and accepted as an increasing priority, alongside the need to set risk appetite appropriately, as was the board's proactive succession planning function through the Nominations Committee.
The non-executive Directors, led by the Senior Independent Director, will shortly evaluate the performance of the Chairman with input from the externally facilitated evaluation. The Chairman will do the same in relation to the Directors. The Board continues to believe that the Directors have strong familiarity with the Group and its businesses and contribute multiple perspectives and, importantly, ongoing independent judgment.
Recommendations which will be implemented following the 2014 Board performance evaluation include making time available for the board to discuss the forward agenda planner, to ensure that the right topics are being covered at the right times and to flag opportunities for further input from the directors; the board reporting is to be overhauled to reduce its length and to inject more narrative and improve selectivity of information; in addition to current arrangements, the board will meet with the CEO alone once a year and once as an occasion for non-executive Directors only; and there will be an ongoing emphasis – at the Nominations Committee and at the Board – on formal succession planning to ensure the composition of the Board is progressively refreshed over the next two years to reflect the needs of the Group as it develops and expected rotation.
An assessment of the Company's position and prospects is included in the Chairman's Statement on pages 4 and 5 and in the Strategic report on pages 9 to 32.
Provision C.2.1 of the Code requires the Directors to conduct an annual review of the effectiveness of the Group's system of internal controls. The Turnbull guidance provides relevant guidance for Directors on compliance with the internal control provisions of the Code.
The Directors are responsible for the Group's system of internal controls which aims to safeguard Group assets, ensure proper accounting records are maintained and that the financial information used within the business and for publication is reliable. Although no system of internal controls can provide absolute assurance against material misstatement or loss, the Group's system is designed to provide the Directors with reasonable assurance that, should any problems occur, these are identified on a timely basis and dealt with appropriately. The key features of the Group's system of internal controls, which was in place throughout the period covered by the accounts, are described below:
The Group has a clearly defined organisational structure within which individual responsibilities of line and financial management for the maintenance of strong internal controls and the production of accurate and timely financial management information are identified and can be monitored. Where appropriate, the business is required to comply with the procedures set out in written manuals.
To demonstrate the Board's commitment to maintaining the highest business and ethical standards and to promote a culture of honesty and integrity amongst all staff, the Board has established a confidential telephone service, operated by
55 Northgate plc Annual report and accounts 2014
Governance Corporate governance
an independent external organisation, which may be used by all staff to report any issues of concern relating to dishonesty or malpractice within the Group. All issues reported are investigated by senior management.
The Board and the Group's management have a clearly defined responsibility for identifying the major business risks facing the Group and for developing systems to mitigate and manage those risks. The control of key risks is reviewed by the Board and the Group's management at their monthly meetings. The Board is therefore able to confirm that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that it has been in place for the year under review and up to the date of approval of these accounts and accords with the Turnbull guidance.
The Group has a comprehensive system for reporting financial results to the Board. Each operating unit prepares monthly accounts with a comparison against their business plan and against the previous year, with regular review by management of variances from targeted performance levels. A business plan is prepared by management and approved by the Board annually. Each operating unit prepares a two year business plan with performance reported against key performance indicators on a monthly basis together with comparisons to plan and prior year. These are reviewed regularly by management. Forecasts are updated regularly throughout the year.
The Board and the Group's management have adopted a schedule of matters which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. Measures taken include clearly defined procedures for capital expenditure appraisal and authorisation, physical controls, segregation of duties and routine and ad hoc checks.
The Board has delegated to executive management implementation of the system of internal control. The Board, including the Audit and Risk Committee, receives reports on the system of control from the external auditor and from management. An independent internal audit function reports quarterly to the Audit and Risk Committee primarily on the key areas of risk within the business. The Directors confirm that they have reviewed the effectiveness of the system of internal controls covering financial, operational
and compliance matters and risk management, for the period covered by these accounts in accordance with the Turnbull guidance.
An account of the work of the audit and risk committee is given in the Report of the audit and risk committee on pages 52 and 53.
The Company's policy on remuneration and details of the remuneration of each Director are given in the Remuneration Report on pages 37 to 51.
Throughout the year the Company maintains a regular dialogue with institutional investors and brokers' analysts, providing them with such information on the Company's progress and future plans as is permitted within the guidelines of the Listing Rules. In particular, twice a year, at the time of announcing the Company's half and full year results, they are invited to briefings given by the Chief Executive and Group Finance Director.
The Company's major institutional shareholders have been advised by the Chief Executive that, in line with the provisions of the Code, the Senior Independent Director and other non-executives may attend these briefings and, in any event, would attend if requested to do so.
All shareholders are given the opportunity to raise matters for discussion at the Annual General Meeting, of which more than the recommended minimum 20 working days notice is given. In compliance with the Transparency Rules, the Company publishes Interim Management Statements in March and September each year.
Details of proxies lodged in respect of the Annual General Meeting will be published on the Company's website immediately following the meeting.
The Board considers that the Company complied with the provisions of the Code throughout the year.
By order of the Board
Secretary
24 June 2014
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:
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.
We confirm that to the best of our knowledge:
The directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Board considers the report and accounts, taken as a whole, to be fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
By order of the Board
Bob Contreras Chief Executive Officer
24 June 2014
to the members of Northgate plc
The financial statements comprise the Consolidated Income Statement, the Group and Parent Company Statement of Comprehensive Income, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow
Statements, the Notes to the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Equity and the related notes 1 to 38. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
As required by the Listing Rules we have reviewed the directors' statement contained within the strategic report on page 27 that the group is a going concern. We confirm that:
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group's ability to continue as a going concern.
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:
| Risk | How the scope of our audit responded to the risk | |||
|---|---|---|---|---|
| Determining appropriate depreciation rates for vehicles available for hire This requires an estimate to be made of the sales proceeds at the time of disposal. Determining likely sales proceeds for |
We reviewed the underlying assumptions used in the calculation of expected future market values for each category of hire vehicle by comparison to external third party data for expected future market prices and likely vehicle disposal volumes, including CAP valuations. |
|||
| future vehicle disposals is judgemental and requires estimates to be made of future vehicle market values. |
We performed detailed testing of the calculations supporting these judgements, including comparison to recent actual market prices achieved for vehicle disposals of similar vehicles. |
|||
| The recoverability of aged trade receivables | We evaluated that provisions were calculated in accordance | |||
| Determining the appropriate levels of provision for | with group policy. | |||
| irrecoverable trade receivables requires judgement relating to the assessment across a large number of customers of the likely levels of recovery of these receivables. |
To assess the reasonableness of provisions recorded we reviewed the levels of post year end cash collections against year end trade receivables and investigated the significant individual overdue balances by reference to recent history of recoveries on these balances and review of correspondence with the customers. |
The Audit Committee's consideration of these risks is set out in the report of the Audit and Risk committee.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters.
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
We determined materiality for the group to be £3.6 million, which is 7% of pre-tax profit, and below 1% of equity.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £72,000, as well as differences below that threshold which, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing the risks of material misstatement
at the group level. Based on that assessment, we focused our group audit scope primarily on the audit work at two locations, in Darlington and Madrid, which represent all of the group's principal trading activities. The group audit team, led by the senior statutory auditor, perform the audit work at the head office and centralised UK finance function in Darlington and an audit team from Deloitte in Spain perform the audit work at the Spanish head office in Madrid.
The operations at these two locations were subject to a full audit and represent the principal business units of the group, accounting for 99% of the group's net assets, the group's revenue and the group's profit before tax. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at these two locations was executed at levels of materiality applicable to each individual entity which were lower than group materiality. The other components of the group, in Ireland and Malta, are not significant to the group audit but were subject to full scope audits at levels of materiality applicable to each individual entity, for local statutory purposes.
59 Northgate plc Annual report and accounts 2014
Governance Independent auditor's report
to the members of Northgate plc continued
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances.
The group audit team continue to follow a programme of planned visits that has been designed so that the Senior Statutory Auditor visits the significant component in Spain at least annually.
In our opinion:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the Directors' Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters.
Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to
the company's compliance with nine provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
As explained more fully in the Directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team, strategically focused second partner reviews and independent partner reviews.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Leeds, United Kingdom
24 June 2014
For the year ended 30 April 2014
| Notes | Underlying 2014 £000 |
Statutory 2014 £000 |
Underlying 2013 £000 |
Statutory 2013 £000 |
|
|---|---|---|---|---|---|
| Revenue: hire of vehicles | 4 | 442,271 | 442,271 | 441,944 | 441,944 |
| Revenue: sale of vehicles | 4 | 129,207 | 129,207 | 167,936 | 167,936 |
| Total revenue | 4 | 571,478 | 571,478 | 609,880 | 609,880 |
| Cost of sales | (434,777) | (434,777) | (466,405) | (466,405) | |
| Gross profit | 136,701 | 136,701 | 143,475 | 143,475 | |
| Administrative expenses (excluding exceptional items and | |||||
| intangible amortisation) | (64,065) | (64,065) | (57,071) | (57,071) | |
| Exceptional administrative expenses | 33 | – | (6,197) | – | (3,337) |
| Intangible amortisation | 14 | – | (2,900) | – | (3,589) |
| Total administrative expenses | (64,065) | (73,162) | (57,071) | (63,997) | |
| Operating profit | 4,5 | 72,636 | 63,539 | 86,404 | 79,478 |
| Interest income | 7 | 24 | 24 | 123 | 123 |
| Finance costs (excluding exceptional items) | 8 | (12,386) | (12,386) | (37,029) | (37,029) |
| Exceptional finance costs | 8,33 | – | – | – | (53,954) |
| Total finance costs | (12,386) | (12,386) | (37,029) | (90,983) | |
| Profit (loss) before taxation | 60,274 | 51,177 | 49,498 | (11,382) | |
| Taxation | 9 | (13,456) | (11,294) | (10,657) | 4,025 |
| Profit (loss) for the year | 46,818 | 39,883 | 38,841 | (7,357) |
Profit (loss) 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 33, as well as intangible amortisation and the taxation thereon, in order to provide a better indication of the Group's underlying business performance.
| Earnings per share | |||||
|---|---|---|---|---|---|
| Basic | 11 | 35.1p | 29.9p | 29.2p | (5.5)p |
| Diluted | 11 | 34.3p | 29.3p | 28.3p | (5.5)p |
For the year ended 30 April 2014
| Group | Company | ||||
|---|---|---|---|---|---|
| Notes | 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Amounts attributable to the owners of the Parent | |||||
| Company | |||||
| Profit (loss) attributable to the owners | 39,883 | (7,357) | 4,842 | 23,888 | |
| Other comprehensive income | |||||
| Foreign exchange differences on retranslation of net assets of | |||||
| subsidiary undertakings | 30 | (3,589) | 6,725 | – | – |
| Net foreign exchange differences on long term borrowings and | |||||
| derivatives held as hedges | 30 | 1,772 | (4,132) | – | – |
| Foreign exchange difference on revaluation reserve | 26 | (32) | 46 | – | – |
| Net fair value gains on cash flow hedges | 29 | 48 | 16,115 | 48 | 14,817 |
| Deferred tax charge recognised directly in equity relating to cash | |||||
| flow hedges | 29 | (10) | (4,301) | (10) | (3,984) |
| Actuarial losses/derecognition of assets on defined benefit | |||||
| pension scheme * | 32 | (199) | (490) | – | – |
| Deferred tax credit recognised directly in equity relating to defined | |||||
| benefit pension scheme * | 32 | 42 | 115 | – | – |
| Total other comprehensive income | (1,968) | 14,078 | 38 | 10,833 | |
| Total comprehensive income for the year | 37,915 | 6,721 | 4,880 | 34,721 |
* These items will not be reclassified subsequently to the consolidated income statement.
Accounts Statements of comprehensive income
As at 30 April 2014
| Group | Company | ||||
|---|---|---|---|---|---|
| Notes | 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Non-current assets | |||||
| Goodwill | 13 | 3,589 | 3,589 | – | – |
| Other intangible assets | 14 | 5,467 | 7,431 | 47 | 77 |
| Property, plant and equipment: vehicles for hire | 15 | 614,927 | 589,161 | – | – |
| Other property, plant and equipment | 16 | 73,575 | 78,321 | 2,520 | 2,582 |
| Total property, plant and equipment | 688,502 | 667,482 | 2,520 | 2,582 | |
| Derivative financial instrument assets | 22 | 712 | – | 712 | – |
| Deferred tax assets | 23 | 9,396 | 4,688 | 926 | 997 |
| Investments | 17 | – | – | 120,893 | 122,892 |
| Total non-current assets | 707,666 | 683,190 | 125,098 | 126,548 | |
| Current assets | |||||
| Inventories | 18 | 19,076 | 19,192 | – | – |
| Trade and other receivables | 19 | 78,861 | 77,417 | 806,502 | 889,274 |
| Current tax assets | – | 5,862 | – | – | |
| Cash and bank balances | 19,056 | 14,962 | 1,120 | 3,396 | |
| Total current assets | 116,993 | 117,433 | 807,622 | 892,670 | |
| Total assets | 824,659 | 800,623 | 932,720 | 1,019,218 | |
| Current liabilities | |||||
| Trade and other payables | 20 | 58,931 | 52,592 | 287,829 | 375,581 |
| Derivative financial instrument liabilities | 22 | – | – | – | 1,517 |
| Current tax liabilities | 6,320 | 1,090 | – | – | |
| Short term borrowings | 21 | 7,465 | 7,314 | 21,403 | 442 |
| Total current liabilities | 72,716 | 60,996 | 309,232 | 377,540 | |
| Net current assets | 44,277 | 56,437 | 498,390 | 515,130 | |
| Non-current liabilities | |||||
| Derivative financial instrument liabilities | 22 | 664 | – | 664 | – |
| Long term borrowings | 21 | 357,668 | 370,371 | 357,668 | 370,371 |
| Deferred tax liabilities | 23 | 2,878 | 2,604 | – | – |
| Total non-current liabilities | 361,210 | 372,975 | 358,332 | 370,371 | |
| Total liabilities | 433,926 | 433,971 | 667,564 | 747,911 | |
| Net assets | 390,733 | 366,652 | 265,156 | 271,307 | |
| Equity | |||||
| Share capital | 24 | 66,616 | 66,616 | 66,616 | 66,616 |
| Share premium account | 25 | 113,508 | 113,508 | 113,508 | 113,508 |
| Revaluation reserve | 26 | 1,082 | 1,235 | 1,371 | 1,371 |
| Own shares reserve | 27 | (653) | (303) | – | – |
| Merger reserve | 28 | 67,463 | 67,463 | 63,159 | 63,159 |
| Hedging reserve | 29 | (611) | (649) | 38 | – |
| Translation reserve | 30 | (7,187) | (5,370) | – | – |
| Capital redemption reserve | 31 | 40 | 40 | 40 | 40 |
| Retained earnings | 32 | 150,475 | 124,112 | 20,424 | 26,613 |
| Total equity | 390,733 | 366,652 | 265,156 | 271,307 |
Total equity is wholly attributable to the owners of the Parent Company. The financial statements were approved by the Board of Directors and authorised for issue on 24 June 2014.
They were signed on its behalf by: RD Mackenzie Director CJR Muir Director
For the year ended 30 April 2014
| Group | Company | ||||
|---|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
||
| Net cash from (used in) operations | (a) | 30,723 | 100,850 | (11,189) | (28,870) |
| Investing activities | |||||
| Interest received | 24 | 123 | 1 | 80 | |
| Dividends received from subsidiary undertakings | – | – | 35,000 | 123,000 | |
| Proceeds from disposal of other property, plant and equipment | 1,182 | 1,760 | – | – | |
| Purchases of other property, plant and equipment | (5,509) | (8,744) | – | – | |
| Purchases of intangible assets | (945) | (1,396) | – | (90) | |
| Liquidation of subsidiary undertaking | – | – | – | 2 | |
| Net cash (used in) from investing activities | (5,248) | (8,257) | 35,001 | 122,992 | |
| Financing activities | |||||
| Dividends paid | (12,234) | (5,719) | (12,234) | (5,719) | |
| Receipt of bank loans | 1,140 | 369,871 | – | 369,871 | |
| Repayments of bank loans and other borrowings | (7,469) | (410,140) | (7,102) | (399,643) | |
| Debt issue costs paid relating to previous facilities | – | (3,354) | – | (3,354) | |
| Costs paid for extinguishment of previous facilities | – | (23,202) | – | (23,202) | |
| Repayments to subsidiary undertakings | – | – | (19,298) | (21,296) | |
| Settlement of financial instruments with subsidiary undertaking | – | – | (5,367) | 5,479 | |
| Payments to acquire own shares for share schemes | (2,803) | (1,988) | (2,803) | (1,988) | |
| Termination of financial instruments | – | (12,830) | – | (12,830) | |
| Net cash used in financing activities | (21,366) | (87,362) | (46,804) | (92,682) | |
| Net increase (decrease) in cash and cash equivalents | 4,109 | 5,231 | (22,992) | 1,440 | |
| Cash and cash equivalents at 1 May | 14,962 | 9,707 | 2,954 | 964 | |
| Effect of foreign exchange movements | (15) | 24 | (245) | 550 | |
| Cash and cash equivalents at 30 April | (b) | 19,056 | 14,962 | (20,283) | 2,954 |
For the year ended 30 April 2014
| Group | Company | |||
|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Operating profit (loss) | 63,539 | 79,478 | (15,305) | (2,912) |
| Adjustments for: | ||||
| Depreciation of property, plant and equipment | 165,327 | 163,313 | 62 | 61 |
| Impairment of property, plant and equipment | 1,916 | – | – | – |
| Exchange differences | 7 | (5) | – | – |
| Amortisation of intangible assets | 2,900 | 3,589 | 30 | 13 |
| Loss on disposal of property, plant and equipment | 51 | 445 | – | – |
| Share options fair value charge | 1,203 | 1,502 | 1,203 | 1,502 |
| Operating cash flows before movements in working capital | 234,943 | 248,322 | (14,010) | (1,336) |
| Increase in non-vehicle inventories | (1,637) | (166) | – | – |
| (Increase) decrease in receivables | (1,172) | 20,185 | 19,993 | 1,671 |
| Increase (decrease) in payables | 3,315 | (9,911) | (3,893) | 694 |
| Cash generated from operations | 235,449 | 258,430 | 2,090 | 1,029 |
| Income taxes (paid) received, net | (4,338) | (16,828) | 2,897 | – |
| Interest paid | (11,302) | (31,448) | (16,176) | (29,899) |
| Net cash generated from (used in) operations | 219,809 | 210,154 | (11,189) | (28,870) |
| Purchase of vehicles | (301,365) | (255,193) | – | – |
| Proceeds from disposal of vehicles | 112,279 | 145,889 | – | – |
| Net cash from (used in) operations | 30,723 | 100,850 | (11,189) | (28,870) |
| Group | Company | |||
|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Cash and cash equivalents comprise: | ||||
| Cash and bank balances | 19,056 | 14,962 | 1,120 | 3,396 |
| Bank overdrafts | – | – | (21,403) | (442) |
| Cash and cash equivalents | 19,056 | 14,962 | (20,283) | 2,954 |
For the year ended 30 April 2014
| Group | Share capital and share premium £000 |
Own shares reserve £000 |
Hedging reserve £000 |
Translation reserve £000 |
Other reserves £000 |
Retained earnings £000 |
Total £000 |
|---|---|---|---|---|---|---|---|
| Total equity at 1 May 2012 | 180,124 | (685) | (14,247) | (7,963) | 68,692 | 140,215 | 366,136 |
| Share options fair value charge | – | – | – | – | – | 1,502 | 1,502 |
| Share options exercised | – | – | – | – | – | (2,370) | (2,370) |
| Loss attributable to owners of the | |||||||
| Parent Company | – | – | – | – | – | (7,357) | (7,357) |
| Dividends paid | – | – | – | – | – | (5,719) | (5,719) |
| Purchase of own shares | – | (1,988) | – | – | – | – | (1,988) |
| Transfer of shares on vesting of share | |||||||
| options | – | 2,370 | – | – | – | – | 2,370 |
| Other comprehensive income | – | – | 8,295 | 6,112 | 46 | (375) | 14,078 |
| Transfers between equity reserves | – | – | 5,303 | (3,519) | – | (1,784) | – |
| Total equity at 1 May 2013 | 180,124 | (303) | (649) | (5,370) | 68,738 | 124,112 | 366,652 |
| Share options fair value charge | – | – | – | – | – | 1,203 | 1,203 |
| Share options exercised | – | – | – | – | – | (2,453) | (2,453) |
| Profit attributable to owners of the | |||||||
| Parent Company | – | – | – | – | – | 39,883 | 39,883 |
| Dividends paid | – | – | – | – | – | (12,234) | (12,234) |
| Purchase of own shares | – | (2,803) | – | – | – | – | (2,803) |
| Transfer of shares on vesting of share | |||||||
| options | – | 2,453 | – | – | – | – | 2,453 |
| Other comprehensive income | – | – | 38 | (1,817) | (32) | (157) | (1,968) |
| Transfers from revaluation reserve | – | – | – | – | (121) | 121 | – |
| Total equity at 30 April 2014 | 180,124 | (653) | (611) | (7,187) | 68,585 | 150,475 | 390,733 |
Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve.
| Company | Share capital and share premium £000 |
Revaluation reserve £000 |
Hedging reserve £000 |
Merger reserve £000 |
Capital redemption reserve £000 |
Retained earnings £000 |
Total £000 |
|---|---|---|---|---|---|---|---|
| Total equity at 1 May 2012 | 180,124 | 1,371 | (12,617) | 63,159 | 40 | 8,727 | 240,804 |
| Share options fair value charge Profit attributable to owners of the |
– | – | – | – | – | 1,502 | 1,502 |
| Parent Company | – | – | – | – | – | 23,887 | 23,887 |
| Dividends paid | – | – | – | – | – | (5,719) | (5,719) |
| Other comprehensive income | – | – | 10,833 | – | – | – | 10,833 |
| Transfers between equity reserves | – | – | 1,784 | – | – | (1,784) | – |
| Total equity at 1 May 2013 | 180,124 | 1,371 | – | 63,159 | 40 | 26,613 | 271,307 |
| Share options fair value charge Profit attributable to owners of the |
– | – | – | – | – | 1,203 | 1,203 |
| Parent Company | – | – | – | – | – | 4,842 | 4,842 |
| Dividends paid | – | – | – | – | – | (12,234) | (12,234) |
| Other comprehensive income | – | – | 38 | – | – | – | 38 |
| Total equity at 30 April 2014 | 180,124 | 1,371 | 38 | 63,159 | 40 | 20,424 | 265,156 |
Northgate plc is a Company incorporated in England and Wales under the Companies Act 2006. The address of the registered office is given on page 112. The nature of the Group's operations and its principal activities are set out in Note 4 and in the strategic report on pages 9 to 32.
The accounts are presented in UK Sterling because this is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in Note 2.
The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS). The accounts have also been prepared in accordance with IFRS adopted by the European Union (EU) and therefore the Group accounts comply with Article 4 of the EU IAS Regulation.
The financial information has been prepared on the historical cost basis, except for the revaluation of certain financial instruments.
The accounts continue to be prepared on a going concern basis since the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future as set out on page 27 of the Financial Review.
IAS 19, 'Employee benefits' was amended in June 2011. The impact on the Group was to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit asset or liability. The impact of this in the income statement is less than £0.1 million. Prior year numbers have not been restated as the amounts are not considered material.
IFRS 13, 'Fair value measurement' has not been applied as the impact is not considered to be material.
Various other new accounting standards and amendments were issued during the year, none of which have had or are expected to have any significant impact on the Group and effects will principally relate to amendment and extension of current disclosures.
Subsidiary undertakings are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The consolidated accounts include the accounts of the Company and its subsidiary undertakings made up to 30 April 2013 and 30 April 2014.
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary undertaking are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.
Where necessary, adjustments are made to the accounts of subsidiary undertakings to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Group revenue is measured at the fair value of the consideration received or receivable in respect of the hire of vehicles, sale of used vehicles and the supply of related goods and services in the normal course of business, net of value added tax and discounts.
Revenue from vehicle hire is recognised evenly over the hire period and revenue from sales of other related goods and services is recognised at the point of sale.
Revenue from the sale of used vehicles is recognised at the point of sale.
All business combinations are accounted for by applying the acquisition method. Goodwill represents amounts arising on acquisition of subsidiary undertakings and interests in associates and is the difference between the cost of the acquisition and the fair value of the net identifiable assets and liabilities acquired.
Goodwill is stated at cost less any accumulated impairment losses identified through annual or other tests for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
Amortisation of intangible assets is charged to the income statement on a straight line basis over the estimated useful lives of each intangible asset. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Customer relationships 5 to 13 years
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Software assets are amortised on a straight line basis over their estimated useful lives, which do not exceed three years.
Property, plant and equipment is stated at historical cost, less accumulated depreciation and any provision for impairment. Certain properties were revalued prior to the adoption of IFRS. These valuations were treated as deemed cost at the time of adopting IFRS for the first time. Depreciation is provided so as to write off the cost of assets to residual values on a straight line basis over the assets' useful estimated lives as follows:
| Freehold buildings | 50 years |
|---|---|
| Leasehold buildings | 50 years or over the life of the lease, whichever is shorter |
| Plant, equipment & fittings | 3 to 10 years |
| Vehicles for hire | 3 to 6 years |
| Motor vehicles | 3 to 6 years |
Vehicles for hire are depreciated on a straight line basis using depreciation rates that reflect economic lives of between three and six years. These depreciation rates have been determined with the anticipation that the net book values at the point the vehicles are transferred into inventories is in line with the open market values for those vehicles. Depreciation charges reflect adjustments made as a result of differences between expected and actual residual values of used vehicles, taking into account the further directly attributable costs to sell the vehicles.
Property under construction is not depreciated. Depreciation commences when these assets are ready for their intended use. Freehold land is not depreciated.
On the subsequent sale or retirement of properties revalued prior to the adoption of IFRS, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. The residual value, if not insignificant, is reassessed annually.
Fixed asset investments are shown at cost less any provision for impairment.
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The recoverable amount is the higher of fair value less selling costs and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units and then to reduce the carrying amount of other assets in the unit on a pro rata basis.
Where an impairment loss has been recognised in an earlier period, the Group reassesses whether there are any indications that such impairment has decreased or no longer exists. If an impairment no longer exists, an impairment reversal is recognised in the income statement to the extent required.
Used vehicles held for resale are valued at the lower of cost or net realisable value. Net realisable value represents the estimated selling price less costs to be incurred in marketing, selling and distribution.
Other inventories comprise spare parts and consumables and are valued at the lower of cost or net realisable value.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
Current and deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the current or deferred tax is also dealt with in equity.
Financial assets and liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provision of the instrument.
Trade receivables are non-interest bearing and are stated at their nominal value less any appropriate provision for irrecoverable amounts. Trade payables are non-interest bearing and are stated at their nominal value.
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.
Derivative financial instruments are stated at fair value. Any gain or loss on remeasurement to fair value is recognised immediately in the income statement except where derivatives qualify for hedge accounting, where recognition of the resultant gain or loss depends on the nature of the items being hedged.
The fair value of cross-currency and interest rate derivatives is the estimated amount that the Group would receive or pay to terminate the derivative at the balance sheet date, taking into account current interest rates and the current creditworthiness of the derivative counterparties.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised in the income statement. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.
Hedge accounting for cash flow hedges is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement as a net profit or loss for the period.
Changes in the fair value of derivative financial instruments that are designated and effective as net investment hedges are recognised directly in equity and the ineffective portion is recognised in the income statement. Exchange differences arising on the net investment hedges are transferred to the translation reserve.
Cash and cash equivalents consist of cash at bank and in hand and bank overdrafts.
Bank loans, other loans and loan notes are stated at the amount of proceeds after deduction of issue costs, which are amortised over the period of the loan. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for in the income statement on an accruals basis.
Transactions in foreign currencies other than UK Sterling are recorded at the rate prevailing at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date.
The net assets of overseas subsidiary undertakings are translated into UK Sterling at the rate of exchange ruling at the balance sheet date. The exchange difference arising on the retranslation of opening net assets is recognised directly in equity. The results of overseas subsidiary undertakings and joint ventures are translated into UK Sterling using average exchange rates for the financial period and variances compared with the exchange rate at the balance sheet date are recognised directly in equity. All other translation differences are taken to the income statement with the exception of exchange differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against Group equity investments in foreign enterprises, which are recognised directly in equity, together with the exchange difference on the net investment in these enterprises.
Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity. They are denominated in the functional currency of the foreign entity and translated at the exchange rate prevailing at the balance sheet date, with any variances reflected directly in equity.
All foreign exchange differences reflected directly in equity are shown in the translation reserve component of equity.
Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet at their fair value or, if lower, the present value of the future minimum lease payments and are depreciated over their useful economic lives using Group policies. The capital elements of future obligations under finance leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged to the income statement over the periods of the leases and hire purchase contracts so as to produce a constant rate of return on the outstanding balance.
Rentals payable under operating leases are charged to the income statement on a straight line basis over the lease term.
Motor vehicles and equipment hired to customers under operating leases are included within property, plant and equipment. Income from such leases is taken to the income statement evenly over the period of the operating lease agreement.
The Group predominantly operates defined contribution pension schemes but has one defined benefit scheme. Contributions in respect of defined contribution arrangements are charged to the income statement in the period they fall due. Pension contributions in respect of one of these arrangements are held in trustee administered funds, independently of the Group's finances.
For the defined benefit scheme, the cost of providing benefits is determined using the Projected Unit Credit Method, with updates to actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the income statement and presented in the statement of other comprehensive income.
Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost and as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
The Group also operates group personal pension plans. The costs of these plans are charged to the income statement as they fall due.
The Group has applied the requirements of IFRS 2 (Share-based Payment). The Group issues equity-settled payments to certain employees.
Equity-settled employee schemes, including employee share options and deferred annual bonuses, provide employees with the option to acquire shares of the Company. Employee share options and deferred annual bonuses are generally subject to performance or service conditions.
The fair value of equity-settled payments is measured at the date of grant and charged to the income statement over the period during which performance or service conditions are required to be met or immediately where no performance or service criteria exist. The fair value of equity-settled payments granted is measured using the Black-Scholes model. The amount recognised as an expense is adjusted to reflect the actual number of employee share options that vest, except where forfeiture is only due to market based performance criteria not being met.
The Group also operates a share incentive plan under which employees each have the option to purchase an amount of shares annually and receive an equivalent number of free shares. The Group recognises the free shares as an expense evenly throughout the period over which the employees must remain in the employ of the Group in order to receive the free shares.
Interest income and finance costs are recognised in the income statement using the effective interest rate method.
Items are classified as exceptional gains or losses where they are considered by the Directors to be material and which individually or, if of a similar type, in aggregate need to be disclosed by virtue of their size or incidence if the accounts are to be properly understood.
Dividends on Ordinary shares are recognised in the period in which they are either paid or formally approved, whichever is earlier.
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
The Group makes open market purchases of its own shares in order to satisfy the requirements of the Group's existing share schemes. Own shares are recognised at cost as a reduction in shareholder equity. The carrying values of own shares are compared to their market values at each reporting date and adjustments are made to write down the carrying value of own shares when, in the opinion of the Directors, there is a significant market value reduction.
In the process of applying the Group's accounting policies, which are described in Note 2, the Directors have made the following judgments that have the most significant effect on the amounts recognised in the accounts.
Vehicles for hire are depreciated on a straight line basis using depreciation rates that reflect economic lives of between three and six years. These depreciation rates have been determined with the anticipation that the net book values at the point the vehicles are transferred into inventories is in line with the open market values for those vehicles.
Under IAS 16 (Property, Plant and Equipment), the Group is required to review its depreciation rates and estimated useful lives regularly to ensure that the net book value of disposals of tangible fixed assets are broadly equivalent to their market value.
Depreciation charges reflect adjustments made as a result of differences between expected and actual residual values of used vehicles, taking into account the further directly attributable costs to sell the vehicles.
Trade receivables are stated in the balance sheet at their nominal value less any appropriate provision for irrecoverable amounts. In determining whether provision is required against any trade receivable, judgment is required in estimating the likely levels of recovery. In exercising this judgment, consideration is given to both the overall economic environment in which a debtor operates, as well as specific indicators that the recovery of the nominal balance may be in doubt, for example days' sales outstanding in excess of agreed credit terms or other qualitative information in respect of a customer.
The Group carries out tax planning consistent with a Group of its size and makes appropriate provision, based on best estimates, until tax computations are agreed with the tax authorities. To the extent that tax estimates result in the recognition of deferred tax assets, those assets are only carried in the balance sheet to the extent that it is considered that they are likely to be recovered in the short term.
Management has determined the operating segments based upon the information provided to the executive Board of Directors which is considered to be the chief operating decision maker. The Group is managed and reports internally on a basis consistent with its two main operating divisions, UK and Spain. The UK division includes operations in the Republic of Ireland. The principal activities of these divisions are set out in the strategic report.
| UK 2014 £000 |
Spain 2014 £000 |
Corporate 2014 £000 |
Total 2014 £000 |
|
|---|---|---|---|---|
| Revenue: hire of vehicles | 292,393 | 149,878 | – | 442,271 |
| Revenue: sale of vehicles | 90,660 | 38,547 | – | 129,207 |
| Total revenue | 383,053 | 188,425 | – | 571,478 |
| Underlying operating profit (loss) * | 51,007 | 25,555 | (3,926) | 72,636 |
| Exceptional administrative expenses | (5,450) | (626) | (121) | (6,197) |
| Brand royalty charge | – | (5,029) | 5,029 | – |
| Intangible amortisation | (2,284) | (586) | (30) | (2,900) |
| Operating profit (loss) | 43,273 | 19,314 | 952 | 63,539 |
| Interest income | 24 | |||
| Finance costs | (12,386) | |||
| Profit before taxation | 51,177 | |||
| Other information | ||||
| Capital expenditure | 206,827 | 100,588 | – | 307,415 |
| Depreciation | 99,084 | 66,181 | 62 | 165,327 |
| Reportable segment assets | 527,913 | 286,638 | – | 814,551 |
| Derivative financial instrument assets | 712 | |||
| Income tax assets | 9,396 | |||
| Total assets | 824,659 | |||
| Reportable segment liabilities | 271,248 | 152,816 | – | 424,064 |
| Derivative financial instrument liabilities | 664 | |||
| Income tax liabilities | 9,198 | |||
| Total liabilities | 433,926 |
| UK 2013 £000 |
Spain 2013 £000 |
Corporate 2013 £000 |
Total 2013 £000 |
|
|---|---|---|---|---|
| Revenue: hire of vehicles | 291,104 | 150,840 | – | 441,944 |
| Revenue: sale of vehicles | 124,583 | 43,353 | – | 167,936 |
| Total revenue | 415,687 | 194,193 | – | 609,880 |
| Underlying operating profit (loss) * | 64,241 | 25,189 | (3,026) | 86,404 |
| Exceptional administrative expenses | (2,051) | (1,286) | – | (3,337) |
| Intangible amortisation | (2,886) | (690) | (13) | (3,589) |
| Operating profit (loss) | 59,304 | 23,213 | (3,039) | 79,478 |
| Interest income | 123 | |||
| Finance costs (excluding exceptional items) | (37,029) | |||
| Exceptional finance costs | (53,954) | |||
| Loss before taxation | (11,382) | |||
| Other information | ||||
| Capital expenditure | 193,514 | 75,272 | – | 268,786 |
| Depreciation | 93,501 | 69,751 | 61 | 163,313 |
| Reportable segment assets | 492,818 | 297,255 | – | 790,073 |
| Income tax assets | 10,550 | |||
| Total assets | 800,623 | |||
| Reportable segment liabilities | 288,268 | 142,009 | – | 430,277 |
| Income tax liabilities | 3,694 | |||
| Total liabilities | 433,971 |
* Underlying operating profit (loss) stated before intangible amortisation, intra-group brand royalty charge and exceptional items is the measure used by the executive Board of Directors to assess segment performance.
Revenue from sale of vehicles is included as revenue in accordance with IAS 16 which requires used vehicle assets to be classified as inventories. Used vehicle sales are included within UK and Spain operating segments, which reflects the level at which the executive Board of Directors allocate resources and review performance of the Group.
There is no significant intersegment trading.
Revenues are attributed to countries on the basis of the company's location. The Directors consider the United Kingdom and Republic of Ireland to be a single geographical segment on the grounds that the results and net assets of operations in the Republic of Ireland are immaterial to the Group as a whole.
| Revenue 2014 £000 |
Non-current assets 2014 £000 |
Revenue 2013 £000 |
Non-current assets 2013 £000 |
|
|---|---|---|---|---|
| United Kingdom & Republic of Ireland | 383,053 | 446,011 | 415,687 | 419,418 |
| Spain | 188,425 | 251,547 | 194,193 | 259,084 |
| 571,478 | 697,558 | 609,880 | 678,502 |
There are no external customers from whom the Group derives more than 10 per cent of total revenue. Segment assets and liabilities exclude derivative financial instrument assets and liabilities and current and deferred tax assets and liabilities, since these balances are not included in the segments' assets and liabilities as reviewed by the chief operating decision maker.
| 2014 £000 |
2013 £000 |
|---|---|
| Operating profit is stated after charging: | |
| Depreciation of property, plant and equipment (Notes 15 and 16) 165,327 |
163,313 |
| 84,993 Staff costs (Note 6) |
77,683 |
| Cost of inventories recognised as an expense 163,159 |
205,437 |
| Net impairment of trade receivables (Note 37) 2,395 |
1,544 |
| Auditor's remuneration for audit services (below) 364 |
364 |
| Auditor's remuneration for non-audit services (below) 167 |
107 |
The above cost of inventories recognised as an expense includes movements in stock provisions which are immaterial.
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Fees payable to the Company's auditor for the audit of the Company's annual accounts Fees payable to the Company's auditor and its associates for the audit of the |
237 | 237 |
| Company's subsidiaries pursuant to legislation | 127 | 127 |
| Total audit fees | 364 | 364 |
| Other services pursuant to legislation | 21 | 21 |
| Tax services | 137 | 62 |
| Other services | 9 | 24 |
| Total non-audit fees | 167 | 107 |
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis.
A description of the work of the Audit and Risk Committee is set out on pages 52 and 53 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
| 2014 Number |
2013 Number |
|
|---|---|---|
| The average number of persons employed by the Group: | ||
| United Kingdom and Republic of Ireland: | ||
| Direct operations | 1,403 | 1,369 |
| Administration | 495 | 500 |
| 1,898 | 1,869 | |
| Spain: | ||
| Direct operations | 732 | 757 |
| Administration | 132 | 131 |
| 864 | 888 | |
| 2,762 | 2,757 |
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| The aggregate remuneration of Group employees comprised: | ||
| Wages and salaries | 73,690 | 67,646 |
| Social security costs | 9,769 | 8,791 |
| Other pension costs | 1,534 | 1,246 |
| 84,993 | 77,683 |
Wages and salaries include £1,778,000 (2013 – £2,944,000) in respect of redundancies and loss of office.
Details of Directors' remuneration, pension contributions and share options are provided in the audited part of the Remuneration Report on pages 44 to 51.
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Interest on bank and other deposits | 24 | 123 |
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Interest on bank overdrafts and loans | 12,361 | 30,535 |
| Amortisation of arrangement fees | – | 7,480 |
| Amortisation of cross-currency derivatives | – | (610) |
| Cross-currency derivatives ineffectiveness | – | 368 |
| Interest rate derivatives ineffectiveness | – | (12) |
| Change in fair value of cross-currency derivatives | – | (133) |
| Change in fair value of interest rate derivatives | – | (445) |
| Amortisation of de-designated Sterling interest rate swaps | – | (179) |
| Preference share dividends | 25 | 25 |
| Finance costs (excluding exceptional items) | 12,386 | 37,029 |
| Exceptional finance costs | ||
| Financing costs incurred on extinguishment of bank loans, loan notes and other loans | – | 35,903 |
| Terminated cross currency derivatives recycled from hedging reserve on extinguishment of loan notes | – | (1,446) |
| Amounts recycled from hedging reserve on termination of interest rate and currency derivatives on | ||
| extinguishment of banks loans, loan notes and other loans | – | 19,497 |
| Total exceptional finance costs | – | 53,954 |
| 12,386 | 90,983 |
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Current tax: | ||
| UK corporation tax | 8,461 | 1,285 |
| Adjustment in respect of prior years | – | 118 |
| Foreign tax | 7,295 | 6,466 |
| 15,756 | 7,869 | |
| Deferred tax: | ||
| Origination and reversal of timing differences | (3,575) | (6,595) |
| Adjustment in respect of prior years | (1,216) | (5,301) |
| UK rate adjustment | 329 | 2 |
| (4,462) | (11,894) | |
| 11,294 | (4,025) |
Corporation tax is calculated at 22.83% (2013 – 23.92%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in those respective jurisdictions.
The net charge (credit) for the year can be reconciled to the profit before taxation as stated in the income statement as follows:
| 2014 £000 |
% | 2013 £000 |
% | |
|---|---|---|---|---|
| Profit (loss) before taxation | 51,177 | (11,382) | ||
| Tax at the UK corporation tax rate of 22.83% (2013 – 23.92%) | 11,684 | 22.8 | (2,723) | 23.9 |
| Tax effect of expenses that are not deductible in determining taxable profit | 1,294 | 2.5 | 4,015 | (35.3) |
| Difference in taxation in overseas subsidiary undertakings | (666) | (1.3) | (406) | 3.6 |
| Reduction in UK tax rate | 245 | 0.5 | 2 | – |
| Adjustment to tax charge in respect of prior years | (1,263) | (2.5) | (4,913) | 43.2 |
| Tax charge (credit) and effective tax rate for the year | 11,294 | 22.0 | (4,025) | 35.4 |
In addition to the amount charged to the income statement, a net deferred tax amount of £85,000 has been charged (2013 – £4,183,000) directly to equity (Note 23).
The underlying tax charge of £13,456,000 (2013 – £10,657,000) excludes exceptional tax credits of £1,458,000 (2013 – £13,783,000) as set out in Note 33, and tax credits on intangible amortisation of £704,000 (2013 – £899,000).
There has been no recognition of deferred tax assets previously derecognised.
On 1 April 2014 the UK Corporation tax rate changed from 23% to 21%. A further change to the UK Corporation tax rate was announced in the March 2013 budget and subsequently enacted, to reduce the rate to 20% from 1 April 2015. Based on the expected timing of the reversal of temporary differences, the tax disclosures reflect deferred tax measured at 21%.
An interim dividend of 3.2p per ordinary share was paid in January 2014 (2013 – 1.3p). The Directors propose a final dividend for the year ended 30 April 2014 of 6.8p per ordinary share (2013 – 6.0p) which is subject to approval at the Annual General Meeting and has not been included as a liability as at 30 April 2014. No dividends have been paid between 30 April 2014 and the date of signing the Accounts.
| Underlying 2014 £000 |
Statutory 2014 £000 |
Underlying 2013 £000 |
Statutory 2013 £000 |
|
|---|---|---|---|---|
| Basic and diluted earnings per share 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 net profit (loss) attributable to the owners of the Parent |
||||
| Company | 46,818 | 39,883 | 38,841 | (7,357) |
| Number | Number | Number | Number | |
| Number of shares Weighted average number of Ordinary shares |
||||
| for the purposes of basic earnings per share Effect of dilutive potential Ordinary shares: |
133,232,518 | 133,232,518 | 133,232,518 | 133,232,518 |
| – share options | 3,072,264 | 3,072,264 | 4,223,706 | – |
| Weighted average number of Ordinary shares for the purposes of diluted earnings per share |
136,304,782 | 136,304,782 | 137,456,224 | 133,232,518 |
| Basic earnings (loss) per share | 35.1p | 29.9p | 29.2p | (5.5)p |
| Diluted earnings (loss) per share | 34.3p | 29.3p | 28.3p | (5.5)p |
A total of 4,223,706 potential Ordinary shares were not included within the calculation of statutory diluted earnings per share for the year ended 30 April 2013 as they were antidilutive.
A profit of £4,842,000 (2013 – £23,887,000) is dealt with in the accounts of the Company. The Directors have taken advantage of the exemption available under s408(3) of the Companies Act 2006 and not presented an income statement for the Company alone.
| Group | 2014 £000 |
2013 £000 |
|---|---|---|
| Carrying value: At 1 May 2013 and 30 April 2014 |
3,589 | 3,589 |
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from the business combination. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The Group has two cash generating units: the UK and Spain. The goodwill balance all relates to the UK CGU. The Group tests its CGUs annually for impairment, or more frequently if there are indications that assets might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on industry growth rates forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.
In addition to the annual test of impairment, and as required by IAS 36, there has also been an assessment as to whether there has been any indication that an impairment loss of other non-current assets recognised in an earlier year has decreased or no longer exists.
The impairment assessment was based on risk-adjusted cash flow forecasts derived from a two year business plan approved by the Directors in May 2014 using growth rates of 1% over a 10 year period, including terminal values, using a discount rate of 9.6% for the UK CGU and 9.9% for the Spain CGU. The projected terminal value is calculated based on the Gordon Growth Model assuming cash flows are generated into perpetuity.
It was concluded that there were no indicators of additional impairment or reversal of impairment of other non-current assets previously charged for both the UK CGU and Spain CGU.
In the prior year, the impairment assessment was based on risk-adjusted cash flow forecasts derived from a two year business plan approved by the Directors in April 2013 using growth rates of 1% over a 10 year period, including terminal values, using a discount rate of 9.9% for the UK CGU and 11.2% for the Spain CGU. The projected terminal value is calculated based on the Gordon Growth Model assuming cash flows are generated into perpetuity. It was concluded that there were no indicators of additional impairment or reversal of impairment previously charged for both the UK CGU and Spain CGU.
The value in use assessment is sensitive to changes in the key assumptions used, most notably the discount rate and growth rates. A sensitivity analysis has been performed on the UK CGU and Spain CGU. Based on this sensitivity analysis, no reasonably possible changes to the assumptions used for either the UK CGU or Spanish CGU resulted in an additional impairment charge being required.
| Group | ||||
|---|---|---|---|---|
| Customer relationships £000 |
Other software £000 |
Total £000 |
Other software £000 |
|
| Cost: | ||||
| At 1 May 2012 | 22,109 | 11,010 | 33,119 | – |
| Additions | – | 1,396 | 1,396 | 90 |
| Disposals | (7,185) | – | (7,185) | – |
| Exchange differences | 177 | 45 | 222 | – |
| At 1 May 2013 | 15,101 | 12,451 | 27,552 | 90 |
| Additions | – | 945 | 945 | – |
| Disposals | – | (10) | (10) | – |
| Exchange differences | (113) | (30) | (143) | – |
| At 30 April 2014 | 14,988 | 13,356 | 28,344 | 90 |
| Amortisation: | ||||
| At 1 May 2012 | 15,519 | 8,009 | 23,528 | – |
| Charge for the year | 1,642 | 1,947 | 3,589 | 13 |
| Disposals | (7,185) | – | (7,185) | – |
| Exchange differences | 161 | 28 | 189 | – |
| At 1 May 2013 | 10,137 | 9,984 | 20,121 | 13 |
| Charge for the year | 1,304 | 1,596 | 2,900 | 30 |
| Disposals | – | (1) | (1) | – |
| Exchange differences | (114) | (29) | (143) | – |
| At 30 April 2014 | 11,327 | 11,550 | 22,877 | 43 |
| Carrying amount: | ||||
| At 30 April 2014 | 3,661 | 1,806 | 5,467 | 47 |
| At 30 April 2013 | 4,964 | 2,467 | 7,431 | 77 |
| Group | £000 |
|---|---|
| Cost: | |
| At 1 May 2012 | 964,581 |
| Additions | 258,961 |
| Transfer from plant, equipment & fittings | 1,233 |
| Transfer to motor vehicles | (467) |
| Transfer to inventories | (322,071) |
| Exchange differences | 14,012 |
| At 1 May 2013 | 916,249 |
| Additions | 301,004 |
| Transfer to motor vehicles | (46) |
| Transfer to inventories | (235,375) |
| Exchange differences | (9,973) |
| At 30 April 2014 | 971,859 |
| Depreciation: | |
| At 1 May 2012 | 341,478 |
| Charge for the year | 158,608 |
| Transfer from plant, equipment & fittings | 1,173 |
| Transfer to motor vehicles | (91) |
| Transfer to inventories | (179,434) |
| Exchange differences | 5,354 |
| At 1 May 2013 | 327,088 |
| Charge for the year | 159,215 |
| Transfer to motor vehicles | (3) |
| Transfer to inventories | (125,356) |
| Exchange differences | (4,012) |
| At 30 April 2014 | 356,932 |
| Carrying amount: | |
| At 30 April 2014 | 614,927 |
| At 30 April 2013 | 589,161 |
At 30 April 2014, the Group had entered into contractual commitments for the acquisition of vehicles for hire amounting to £35,254,000 (2013 – £29,935,000).
The depreciation rate on vehicles for hire in the UK was reduced by 1% on 1 May 2012. This resulted in a reduction in the depreciation charge of £3m in the year ended 30 April 2014 (2013 – £4m).
| Group | Land & buildings £000 |
Plant, equipment & fittings £000 |
Motor vehicles £000 |
Total £000 |
|---|---|---|---|---|
| Cost: | ||||
| At 1 May 2012 | 81,735 | 16,868 | 2,381 | 100,984 |
| Additions | 3,849 | 3,946 | 634 | 8,429 |
| Transfer (to) from vehicles for hire | – | (1,233) | 467 | (766) |
| Exchange differences | 1,765 | 350 | – | 2,115 |
| Disposals | (1,399) | (1,542) | (1,107) | (4,048) |
| At 1 May 2013 | 85,950 | 18,389 | 2,375 | 106,714 |
| Additions | 919 | 3,537 | 1,010 | 5,466 |
| Transfer from vehicles for hire | – | – | 46 | 46 |
| Exchange differences | (1,135) | (257) | – | (1,392) |
| Disposals | (3,290) | (344) | (619) | (4,253) |
| At 30 April 2014 | 82,444 | 21,325 | 2,812 | 106,581 |
| Depreciation: | ||||
| At 1 May 2012 | 16,553 | 9,151 | 828 | 26,532 |
| Charge for the year | 1,827 | 2,372 | 506 | 4,705 |
| Transfer (to) from vehicles for hire | – | (1,173) | 91 | (1,082) |
| Exchange differences | 339 | 187 | – | 526 |
| Disposals | (437) | (1,263) | (588) | (2,288) |
| At 1 May 2013 | 18,282 | 9,274 | 837 | 28,393 |
| Charge for the year | 2,223 | 3,133 | 592 | 5,948 |
| Impairment of property | 1,916 | – | – | 1,916 |
| Transfer from vehicles for hire | – | – | 3 | 3 |
| Exchange differences | (242) | (149) | – | (391) |
| Disposals | (2,064) | (272) | (527) | (2,863) |
| At 30 April 2014 | 20,115 | 11,986 | 905 | 33,006 |
| Carrying amount: | ||||
| At 30 April 2014 | 62,329 | 9,339 | 1,907 | 73,575 |
| At 30 April 2013 | 67,668 | 9,115 | 1,538 | 78,321 |
| 2014 £000 |
2013 £000 |
|||
| Land and buildings by category: | ||||
| Freehold and long leasehold | 58,583 | 62,864 | ||
| Short leasehold | 3,746 | 4,804 | ||
| 62,329 | 67,668 |
At 30 April 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £90,500 (2013 – £81,000).
During the year an impairment loss of €2,084,000 was recognised with respect to a property in Dublin. This was as a result of a problem with the building's foundations. This impairment is reflected in the UK figures in the segmental analysis in Note 4. Other property impairment losses totalled €200,000.
| Company | Land & buildings £000 |
|---|---|
| Cost: At 1 May 2012, 1 May 2013 and 30 April 2014 |
3,239 |
| Depreciation: At 1 May 2012 Charge for the year |
596 61 |
| At 1 May 2013 Charge for the year |
657 62 |
| At 30 April 2014 | 719 |
| Carrying amount: At 30 April 2014 |
2,520 |
| At 30 April 2013 | 2,582 |
| Company | Shares in subsidiary undertakings £000 |
Loans to subsidiary undertakings £000 |
Total £000 |
|---|---|---|---|
| Cost: | |||
| At 1 May 2012 | 78,329 | 47,000 | 125,329 |
| Liquidation of subsidiary undertaking | (2) | – | (2) |
| At 1 May 2013 | 78,327 | 47,000 | 125,327 |
| Liquidation of subsidiary undertaking | (1,999) | – | (1,999) |
| At 30 April 2014 | 76,328 | 47,000 | 123,328 |
| Accumulated provisions: At 1 May 2012, 1 May 2013 and 30 April 2014 |
2,435 | – | 2,435 |
| Carrying amount: | |||
| At 30 April 2014 | 73,893 | 47,000 | 120,893 |
| At 30 April 2013 | 75,892 | 47,000 | 122,892 |
A full list of the Company's subsidiaries was included with the Annual Return filed with the Registrar of Companies.
At 30 April 2014, the principal subsidiary undertakings of the Group, all of which are wholly owned and are registered in England and Wales unless otherwise stated, were as follows:
Northgate (CB) Limited* Northgate (CB2) Limited* Northgate España Renting Flexible S.A.* (incorporated in Spain) Northgate (Europe) Limited Northgate (Malta) Limited* (incorporated in Malta) Northgate (MT) Limited* (incorporated in Malta) Northgate Vehicle Hire (Ireland) Limited* (incorporated in the Republic of Ireland) Northgate Vehicle Hire Limited
*interest held indirectly by the Company
| Group | |||
|---|---|---|---|
| 2014 £000 |
2013 £000 |
||
| Vehicles held for resale | 12,732 | 14,410 | |
| Spare parts and consumables | 6,344 | 4,782 | |
| 19,076 | 19,192 |
| Group | Company | |||
|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Trade receivables | 65,094 | 68,633 | – | – |
| Amounts due from subsidiary undertakings | – | – | 806,306 | 889,090 |
| Other taxes | – | – | 39 | 86 |
| Other debtors and prepayments | 13,767 | 8,784 | 157 | 98 |
| 78,861 | 77,417 | 806,502 | 889,274 | |
| 2014 | 2013 | |||
| The average credit period given on trade sales is | UK | 39 days | 38 days | |
| Spain | 54 days | 64 days |
Allowances for estimated irrecoverable amounts and the Group's credit risk are considered in Note 37.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value due to their short term nature.
| Group | Company | ||||
|---|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
||
| Trade payables | 27,512 | 24,188 | 176 | 445 | |
| Amounts due to subsidiary undertakings | – | – | 285,054 | 370,066 | |
| Social security and other taxes | 3,714 | 4,789 | 104 | 165 | |
| Accruals and deferred income | 27,705 | 23,615 | 2,495 | 4,905 | |
| 58,931 | 52,592 | 287,829 | 375,581 |
Trade payables comprise amounts outstanding for trade purchases.
| 2014 | 2013 | ||
|---|---|---|---|
| The average credit period taken on trade purchases is | UK | 33 days | 36 days |
| Spain | 59 days | 59 days |
The Directors consider that the carrying amount of trade and other payables approximates to their fair value due to their short term nature.
The Directors consider that the carrying amounts of the Group's borrowings approximate to their fair value.
| Group | Company | |||
|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Bank loans and overdrafts | 363,819 | 375,549 | 378,571 | 370,313 |
| Cumulative Preference shares | 500 | 500 | 500 | 500 |
| Property loans | – | 223 | – | – |
| Confirming facilities | 814 | 1,413 | – | – |
| 365,133 | 377,685 | 379,071 | 370,813 | |
| The borrowings are repayable as follows: | ||||
| Group | Company | |||
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| On demand or within one year | ||||
| (shown within current liabilities) | ||||
| Bank loans and overdrafts | 6,651 | 5,678 | 21,403 | 442 |
| Property loans | – | 223 | – | – |
| Confirming facilities | 814 | 1,413 | – | – |
| 7,465 | 7,314 | 21,403 | 442 | |
| In the second year | ||||
| Bank loans | 8,451 | – | 8,451 | – |
| 8,451 | – | 8,451 | – | |
| In the third to fifth years | ||||
| Bank loans | 348,717 | 369,871 | 348,717 | 369,871 |
| 348,717 | 369,871 | 348,717 | 369,871 | |
| Due after more than five years | ||||
| Cumulative Preference shares | 500 | 500 | 500 | 500 |
| 500 | 500 | 500 | 500 | |
| Total borrowings | 365,133 | 377,685 | 379,071 | 370,813 |
| Less: Amount due for settlement within one year | ||||
| (shown within current liabilities) | 7,465 | 7,314 | 21,403 | 442 |
| Amount due for settlement after one year | 357,668 | 370,371 | 357,668 | 370,371 |
The UK syndicated bank loans, totalling £357,168,000 at 30 April 2014, would become repayable in full in the event of a change in control of the Group.
Bank loans and overdrafts are secured and bear interest at rates of 2.37% to 2.55% (2013 – 2.38% to 2.85%) above the relevant interest rate index, being LIBOR for Sterling denominated debt and EURIBOR for Euro denominated debt.
The cumulative Preference shares of 50p each entitle the holder to receive a cumulative preferential dividend at the rate of 5% on the paid up capital and the right to a return of capital at either winding up or a repayment of capital. The cumulative Preference shares do not entitle the holders to any further or other participation in the profits or assets of the Company. These shares have no voting rights other than in exceptional circumstances.
The total number of authorised cumulative Preference shares of 50p each is 1,300,000 (2013 – 1,300,000), of which 1,000,000 (2013 – 1,000,000) were allotted and fully paid at the balance sheet date.
All property loans related to land and buildings held in Spain and were accounted for as finance lease obligations. The loans were secured on the properties to which they related.
At 30 April 2014, the average remaining lease term was one year and the average borrowing rate was 2.0%.
Spanish confirming facilities of £814,000 (2013 – £1,413,000) are unsecured and all fall due within one year. It is common practice in Spain for businesses to have a bank facility which enables their suppliers to be paid earlier than under normal credit terms. When this is the case the supplier pays to Northgate España's bank a discount fee for early settlement. When invoices fall due for payment, Northgate España settles such invoices with its bank. The Group pays no interest on confirming.
The Group has various borrowing facilities available to it. The undrawn committed facilities at the balance sheet date, in respect of which all conditions precedent had been met at that date, are as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Less than one year | 8,172 | 7,262 |
| In one year to five years | 64,617 | 58,197 |
| 72,789 | 65,459 |
The total amount permitted to be borrowed by the Company and its subsidiary undertakings in terms of the Articles of Association shall not exceed six times the aggregate of the issued share capital of the Company and Group reserves, as defined in those Articles.
An analysis of movements in the Group's consolidated net debt is as follows:
| At 1 May 2013 £000 |
Cash flow £000 |
Other non-cash changes £000 |
Foreign exchange movements £000 |
At 30 April 2014 £000 |
|
|---|---|---|---|---|---|
| Cash at bank and in hand | (14,962) | (4,109) | – | 15 | (19,056) |
| Bank loans | 375,549 | (6,106) | – | (5,624) | 363,819 |
| Cumulative Preference shares | 500 | – | – | – | 500 |
| Property loans and other borrowings | 1,636 | (223) | (599) | – | 814 |
| Consolidated net debt | 362,723 | (10,438) | (599) | (5,609) | 346,077 |
The Group calculates gearing to be net borrowings as a percentage of shareholders' funds less goodwill and the net book value of intangible assets, where net borrowings comprise borrowings less cash at bank. At 30 April 2014, the gearing of the Group amounted to 90.7% (2013 – 102.0%) where net borrowings are £346,077,000 (2013 – £362,723,000) and shareholders' funds less goodwill and the net book value of intangible assets are £381,677,000 (2013 – £355,632,000).
The Group's principal financial assets are bank balances and cash, and trade and other receivables.
The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.
The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The credit risk associated with trade receivables in Spain is more concentrated in larger customers than the UK and, consequently, as in the UK the Group has a credit insurance policy in place to mitigate this risk.
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 policy to avoid using more complex financial instruments. Further details regarding derivative financial instruments are shown in Note 22.
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 rating agencies. Deals are authorised only with banks with which dealing mandates have been agreed and which maintain an A rating. Individual aggregate credit exposures are limited accordingly.
The Group's policy is to finance operating subsidiary undertakings by a combination of retained earnings and medium term bank loans.
Cash at bank and on deposit yield interest based principally on interest rate indices applicable to periods of less than three months, those indices being LIBOR for Sterling denominated cash and EURIBOR for Euro denominated cash. The Group's exposure to interest rate fluctuations on its borrowings and deposits is managed through the use of interest rate derivatives as detailed in Note 22. These derivatives are also used to manage the Group's desired mix of fixed and floating rate debt. The policy is to fix or cap a substantial element of the interest cost on outstanding debt. At 30 April 2014 79.8% (2013 – 0.5%) of net borrowings were at fixed rates of interest comprising interest rate swaps of £105,000,000 and £206,500,000, £500,000 of preference shares and £814,000 of confirming facilities (30 April 2013 – £500,000 of preference shares and £1,413,000 of confirming facilities), as detailed in Note 22.
The Group maintains borrowings in the same currency as its cash requirements, with the exception of borrowings maintained in Euro as net investment hedges against its Euro denominated investments (Note 22) as explained above.
An analysis of the Group's borrowings by currency is given below:
| Group | Sterling £000 |
Euro £000 |
Total £000 |
|---|---|---|---|
| At 30 April 2014 | |||
| Bank loans | 125,000 | 238,819 | 363,819 |
| Cumulative Preference shares | 500 | – | 500 |
| Confirming facilities | – | 814 | 814 |
| 125,500 | 239,633 | 365,133 | |
| Sterling | Euro | Total | |
| Group At 30 April 2013 |
£000 | £000 | £000 |
| Bank loans | 136,000 | 239,549 | 375,549 |
| Cumulative Preference shares | 500 | – | 500 |
| Property loans | – | 223 | 223 |
| Confirming facilities | – | 1,413 | 1,413 |
| 136,500 | 241,185 | 377,685 |
The Group's derivative financial instruments at the balance sheet date comprise interest rate swaps.
Their net estimated fair values are as follows:
| Group | Company | |||
|---|---|---|---|---|
| 2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
|
| Interest rate derivatives | 48 | – | 48 | – |
| Cross-currency derivatives | – | – | – | (1,517) |
| 48 | – | 48 | (1,517) | |
| They are represented in the balance sheet as follows: | ||||
| Non-current derivative financial instrument assets | 712 | – | 712 | – |
| Current derivative financial instrument liabilities | – | – | – | (1,517) |
| Non-current derivative financial instrument liabilities | (664) | – | (664) | – |
| 48 | – | 48 | (1,517) |
The Group's exposure to interest fluctuations on its borrowings is managed through the use of interest rate derivatives. These derivatives are also used to manage the Group's desired mix of fixed and floating rate debt. The policy is to fix a substantial element of the interest cost on outstanding debt. The Group's borrowing facilities were restructured on 29 April 2013 on which date all the then existing interest rate and cross-currency swaps were cancelled. New interest rate swaps were entered into on 2 May 2013. The Group was therefore not party to any interest rate derivatives at 30 April 2013. Additional interest rate hedging was executed in April 2014. The interest rate derivatives to which the Group was party as at 30 April 2014 are summarised below:
| Total nominal values |
Weighted average fixed contract net pay rates |
Weighted average remaining life |
|
|---|---|---|---|
| At 30 April 2014 | |||
| Sterling interest rate swaps | £105,000,000 | 1.02% | 2.9 years |
| Euro interest rate swaps | €206,500,000 | 0.48% | 2.6 years |
In May 2013, £55,000,000 and €206,500,000 of interest rate swaps commenced. These had weighted average pay rates of 0.68% and 0.48% respectively and all had weighted average lives of 3.6 years.
In April 2014, £50,000,000 of interest rate swaps commenced. These had weighted average pay rates of 1.40% and weighted average lives of 3.2 years.
During the prior year the following transactions relating to interest rate derivatives occurred:
£25,000,000 and €152,832,000 of interest rate swaps with a weighted average fixed contract pay rate of 2.44% and 2.35% matured;
£25,000,000 of interest rate swaps with a weighted average fixed contract receive rate of 1.13% matured;
€76,416,000 of interest rate swaps which were entered into in the year ended 30 April 2011 commenced with a weighted average fixed contract pay rate of 3.12% and a weighted average life of 2.0 years;
€76,416,000 of interest rate swaps with a weighted average fixed contract pay rate of 3.12% and a remaining weighted average life of 1.4 years were cancelled at a cash cost of £2,709,000. This was in connection with the extinguishment of bank debt; and
£100,000,000 Sterling interest rate swaps with a weighted average fixed contract pay rate of 3.62% and weighted average remaining life of 8.0 years were cancelled at a cash cost of £16,841,000. This was in connection with the early repayment of the other loan.
All the Group's interest rate swaps are designated as cash flow hedges and their fair value to the point of either maturity or termination, along with changes in fair value in the current year, has been deferred in equity. To the extent that the interest rate swaps are not 100% effective, a net amount of £Nil (2013 – £12,000) has been credited to the income statement (Note 8).
The total change in fair values of interest rate derivatives credited to the income statement of £Nil (2013 – £445,000) is shown within finance costs (Note 8).
In April 2013 the Group made early repayment of all outstanding US Dollar denominated loan notes with a capital value of \$178,502,000 with total repayments in the year of \$249,837,000.
During the period in which these US Dollar denominated notes were in issue they bore fixed rate interest in US Dollars. The payment of this interest and the capital repayment of the loan notes at maturity exposed the Group to foreign exchange risk. To mitigate this risk, the Group previously entered into a series of Sterling/US Dollar cross-currency swaps. The effective start dates and termination dates of these contracts were the same as the loan notes against which hedging relationships were designated and which are shown in Note 21.
The Group had interest cash outflows in Sterling and interest cash inflows in US Dollars over the life of the contracts. On the termination date of each of the contracts, the Group paid a principal amount in Sterling and received a principal amount in US Dollars. The weighted average interest rate that the Group paid in Sterling in the prior year was 8.86%.
All the Group's Sterling/US Dollar cross-currency swaps entered into in September 2009 were designated and were highly effective as cash flow hedges and their fair value to the point of either maturity or termination, along with changes in fair value in the current year, were deferred in equity. To the extent that the cross-currency swaps were not 100% effective, a net amount of £368,000 was charged to the income statement (Note 8).
In November 2012 cross-currency swaps with a total notional amount of \$71,335,000 matured.
In April 2013 cross-currency swaps with a total notional amount of \$178,502,000 and weighted average remaining life of 2.4 years were cancelled with a cash outflow of \$400,000.
In November 2012, cross currency swaps with a total notional amount of €27,623,000 matured.
In April 2013 the Group cancelled all remaining Euro/Sterling cross-currency swaps with a total notional value of €114,157,000. The Group had interest cash inflows in Sterling and interest cash outflows in Euro over the life of the contract. On termination date of the contract, the Group paid a principal amount in Euro and received a principal amount in Sterling. The interest rate that the Group paid in Euro during the prior year was 8.18%.
| Sterling/ US Dollar £000 |
Euro/ Sterling £000 |
|
|---|---|---|
| Gross movement in fair values initially deferred in hedging reserve: At 30 April 2013 and 30 April 2014 |
34,665 | (3,154) |
| Cumulative amounts recycled to the income statement: At 30 April 2013 and 30 April 2014 |
(36,449) | 4 |
| Cumulative amounts recycled to the currency translation reserve: At 30 April 2013 and 30 April 2014 |
– | 2,306 |
| Cumulative amounts recycled to retained earnings At 30 April 2013 and 30 April 2014 |
1,784 | – |
| Net fair value deferred in hedging reserve: At 30 April 2013 and 30 April 2014 |
– | (844) |
In prior years, amounts recycled to the income statement from the hedging reserve represent the movements on the foreign exchange elements of the total fair value of the Sterling/US Dollar swaps. This matched the exchange difference on retranslation of the loan notes at the exchange rate prevailing at the balance sheet date, leaving a net impact of £Nil in the income statement. The gross exchange difference on retranslation of the loan notes at the exchange rate prevailing at 30 April 2013 was a loss of £68,000. In addition, the amount included the amortisation of the interest legs of the terminated swaps over their residual life. The amount recycled to the translation reserve represented the movement on the foreign exchange elements of the total fair value of the derivative subsequent to the designation of the Euro/Sterling swap as a net investment hedge. The net fair value remaining in the hedging reserve represented the fair value of the interest rate element of the derivatives (Note 29).
The Group manages its exposure to currency fluctuations on retranslation of the balance sheets of those subsidiary undertakings whose functional currency is in Euro by maintaining a proportion of its borrowings in the same currency. In addition in prior years, the Group entered into a number of Sterling/Euro cross-currency swaps which were designated as net investment hedges. The hedging objective is to reduce the risk of spot retranslation of the Euro subsidiaries from Euro to Sterling at each reporting date. Exchange differences arising on the borrowings and net investment hedges have been recognised directly within equity along with the exchange differences on retranslation of the net assets of the Euro subsidiaries.
The hedges are considered highly effective in the current and prior year.
At 30 April 2014, the Company held Sterling/Euro forward exchange contracts with a notional value of €177,007,000 (2013 – €Nil) with a subsidiary undertaking which had a fair value of £Nil (2013 – £Nil) and weighted average remaining life of 0.5 years (2013 – Nil years).
At 30 April 2013, the Company held Sterling/Euro cross-currency swaps with a subsidiary undertaking which had a fair value of £(1,517,000) and weighted average remaining life of one year with a weighted average Euro interest receivable rate of 1.20% and weighted average GBP interest payable rate of 1.53%. The Company had no cross-currency swaps at 30 April 2014.
The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current and prior years:
| Group | Accelerated capital allowances £000 |
Revaluation of buildings £000 |
Share based payment £000 |
Intangible assets £000 |
Losses £000 |
Other timing differences £000 |
Total £000 |
|---|---|---|---|---|---|---|---|
| At 1 May 2012 | 35,880 | 1,469 | (1,037) | 1,693 | (24,649) | (7,690) | 5,666 |
| Charge (credit) to income | (12,558) | (56) | 129 | (430) | 4,862 | 1,458 | (6,595) |
| Credit to equity | – | – | – | – | – | 4,175 | 4,175 |
| Exchange differences | 815 | 13 | – | 6 | (799) | (74) | (39) |
| Adjustment to UK tax rate charged | |||||||
| (credited) to income | 35 | (45) | 38 | (49) | – | 23 | 2 |
| Adjustment to UK tax rate charged to | |||||||
| equity | – | – | – | – | – | 8 | 8 |
| Adjustments in respect of prior years | (4,662) | – | – | – | – | (639) | (5,301) |
| At 1 May 2013 | 19,510 | 1,381 | (870) | 1,220 | (20,586) | (2,739) | (2,084) |
| (Credit) charge to income | (11,203) | 555 | – | (159) | 7,767 | (535) | (3,575) |
| Charge to equity | – | – | – | – | – | (118) | (118) |
| Exchange differences | (289) | (9) | – | – | 358 | 50 | 110 |
| Adjustment to UK tax rate charged | |||||||
| (credited) to income | 296 | 168 | 16 | (95) | – | (56) | 329 |
| Adjustment to UK tax rate charged to | |||||||
| equity | – | – | – | – | – | 33 | 33 |
| Adjustments in respect of prior years | (1,143) | – | – | – | (118) | 48 | (1,213) |
| At 30 April 2014 | 7,171 | 2,095 | (854) | 966 | (12,579) | (3,317) | (6,518) |
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The analysis of the deferred tax balances after offset is as follows:
| Deferred tax assets Deferred tax liabilities |
(9,396) 2,878 |
|---|---|
| Net deferred tax assets | (6,518) |
| At 30 April 2013 | |
| Deferred tax assets | (4,688) |
| Deferred tax liabilities | 2,604 |
| Net deferred tax assets | (2,084) |
In the current year, the net charge to equity of £85,000 (2013 – £4,183,000), in respect of other timing differences included £10,000 (2013 – £4,301,000) relating to derivative financial instruments which has been reflected in the hedging reserve (Note 29).
There are no deferred tax assets which are not recognised in the balance sheet. Deferred tax assets of £12,579,000 (2013 – £20,586,000) have been recognised in the balance sheet in respect of losses, as it is considered probable that there will be sufficient future taxable profits against which these losses will be utilised.
Net deferred tax assets of £3,317,000 (2013 – £2,739,000) classified as other timing differences relate to movements on fair values of interest rate and foreign currency derivatives, retirement benefit obligations, other timing differences in relation to tax payable in various tax jurisdictions in which the Group operates and other timing differences within the UK.
The following are the major deferred tax assets recognised by the Company and movements thereon during the current and prior years:
| Share based payment £000 |
Other timing differences £000 |
Total £000 |
|---|---|---|
| (1,037) | (4,161) | (5,198) |
| 176 | ||
| 3,984 | ||
| 38 | 3 | 41 |
| (997) | ||
| 47 | ||
| 16 | 8 | 24 |
| (854) | (72) | (926) |
| 129 – (870) – |
47 3,984 (127) 47 |
| Group and Company | 2014 £000 |
2013 £000 |
|---|---|---|
| Allotted and fully paid: 133,232,518 (2013 – 133,232,518) Ordinary shares of 50p each |
66,616 | 66,616 |
| Group and Company | 2014 £000 |
2013 £000 |
|---|---|---|
| At 1 May 2012, 1 May 2013 and 30 April 2014 | 113,508 | 113,508 |
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012 | 1,189 | 1,371 |
| Foreign exchange differences | 46 | – |
| At 1 May 2013 | 1,235 | 1,371 |
| Transfer to retained earnings on disposal of revalued properties | (121) | – |
| Foreign exchange differences | (32) | – |
| At 30 April 2014 | 1,082 | 1,371 |
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012 | (685) | – |
| Purchase of own shares | (1,988) | – |
| Transfer of shares on vesting of share options | 2,370 | – |
| At 1 May 2013 | (303) | – |
| Purchase of own shares | (2,803) | – |
| Transfer of shares on vesting of share options | 2,453 | – |
| At 30 April 2014 | (653) | – |
The own shares reserve represents shares held by employee trusts in order to meet commitments under the Group's various share schemes (Note 35). At 30 April 2014 the Guernsey Trust held 116,063 (2013 – 98,037) 50p Ordinary shares and the Capita Trust held 32,079 (2013 – 22,891) 50p Ordinary shares. The total number of shares held by these employee trusts represents 0.1% of the allotted and fully paid share capital of the Group.
The results of the trusts are consolidated into the results of the Group in accordance with SIC 12 (Consolidation – Special Purpose Entities).
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012, 1 May 2013 and 30 April 2014 | 67,463 | 63,159 |
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012 | (14,247) | (12,617) |
| Movement in fair value of hedged interest rate derivatives | (3,236) | (3,236) |
| Movement in fair value of hedged foreign currency derivatives | (4,272) | (2,059) |
| Deferred tax on fair value of interest rate and foreign currency derivatives | (4,301) | (3,984) |
| Amortisation of terminated foreign currency derivatives | (610) | (602) |
| Transfer to income statement | 20,714 | 20,714 |
| Transfer to retained earnings (Note 32) | 1,784 | 1,784 |
| Transfer to translation reserve (Note 30) | 3,519 | – |
| At 1 May 2013 | (649) | – |
| Movement in fair value of hedged interest rate derivatives | 48 | 48 |
| Deferred tax on fair value of interest rate derivatives | (10) | (10) |
| At 30 April 2014 | (611) | 38 |
The hedging reserve represents the cumulative amounts of changes in fair values of hedged interest rate and foreign currency derivatives that are deferred in equity, as explained in Note 2 and Note 22, less amounts transferred to the income statement and other components of equity.
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012 | (7,963) | – |
| Foreign exchange differences on retranslation of net assets of subsidiary undertakings | 6,725 | – |
| Net foreign exchange differences on long term borrowings held as hedges Foreign exchange element of fair value movement of hedged derivatives transferred |
(613) | – |
| from hedging reserve (Note 29) | (3,519) | – |
| At 1 May 2013 | (5,370) | – |
| Foreign exchange differences on retranslation of net assets of subsidiary undertakings | (3,589) | – |
| Net foreign exchange differences on long term borrowings held as hedges | 1,772 | – |
| At 30 April 2014 | (7,187) | – |
The translation reserve represents the aggregate of the cumulative exchange differences arising from the retranslation of the balance sheets of the Euro based subsidiary undertakings and the cumulative exchange differences arising from long term borrowings held as hedges and the foreign exchange element of fair value movements of hedged derivatives.
The management of the Group's foreign exchange translation risks is detailed in Note 22.
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012, 1 May 2013 and 30 April 2014 | 40 | 40 |
| Group £000 |
Company £000 |
|
|---|---|---|
| At 1 May 2012 | 140,215 | 8,727 |
| (Loss) profit for the year | (7,357) | 23,887 |
| Dividends paid | (5,719) | (5,719) |
| Share options exercised | (2,370) | – |
| Share options fair value charge | 1,502 | 1,502 |
| Defined benefit pension charge recognised directly in equity | (490) | – |
| Net deferred tax credit recognised directly in equity | 115 | – |
| Transfer from hedging reserve | (1,784) | (1,784) |
| At 1 May 2013 | 124,112 | 26,613 |
| Profit for the year | 39,883 | 4,842 |
| Transfer from revaluation reserve on disposal of revalued properties | 121 | – |
| Dividends paid | (12,234) | (12,234) |
| Share options exercised | (2,453) | – |
| Share options fair value charge | 1,203 | 1,203 |
| Defined benefit pension charge recognised directly in equity | (199) | – |
| Net deferred tax credit recognised directly in equity | 42 | – |
| At 30 April 2014 | 150,475 | 20,424 |
During the year, the Group recognised exceptional items in the income statement made up as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Restructuring costs | 1,826 | 2,892 |
| Impairment of property | 1,916 | – |
| Net property losses | 51 | 445 |
| Defined benefit pension scheme buyout | 2,404 | – |
| Exceptional administrative expenses | 6,197 | 3,337 |
| Costs associated with April 2013 refinancing (Note 8) | – | 53,954 |
| Exceptional finance costs | – | 53,954 |
| Total pre-tax exceptional items | 6,197 | 57,291 |
| Exceptional tax credit | (1,458) | (13,783) |
During the year, the Group incurred total exceptional restructuring costs of £1,826,000 (2013 – £2,892,000), of which £1,414,000 (2013 – £2,075,000) arose in the United Kingdom and £412,000 (2013 – £817,000) in Spain.
Impairment of property was £1,916,000 (2013 - £Nil). £1,752,000 was booked against a property in the United Kingdom segment and £164,000 against a property in Spain.
Net property losses were £51,000 (2013 – £445,000), of which £Nil (2013 – £24,000 profit) arose in the United Kingdom and £51,000 (2013 – £469,000) arose in Spain.
Pension scheme buyout costs of £2,404,000 (2013 - £Nil) were incurred in relation to the deferred members of the Group's defined benefit pension scheme.
In April 2013 the group incurred £53,954,000 of costs relating to the extinguishment of the Group's bank loans, loan notes and other loans, and termination of related hedging arrangements. These costs comprised £42,752,000 of cash costs and £11,202,000 of non-cash costs. Other net cash inflows of £3,652,000 not included within the income statement, were received in relation to cancellation of certain cross-currency swaps on the refinancing date. The net cash outflow relating to the extinguishment of debt and cancellation of previous hedging arrangements was therefore £39,100,000.
| Group | 2014 £000 |
2013 £000 |
|---|---|---|
| Minimum lease payments under operating leases recognised in the income statement for the year | 5,357 | 5,193 |
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under noncancellable operating leases, which fall due as follows:
| Group | 2014 £000 |
2013 £000 |
|---|---|---|
| Within one year | 5,183 | 4,581 |
| In the second to fifth years inclusive | 14,363 | 13,549 |
| After five years | 17,893 | 20,163 |
| 37,439 | 38,293 |
Operating lease payments represent rentals payable by the Group for certain of its operating sites as well as rentals for certain equipment.
Leases are negotiated for an average term of 11 years (2013 – 13 years) and rentals are fixed for an average term of seven years (2013 – seven years).
The revenue of the Group is principally generated from the hire of vehicles under operating lease arrangements. There is no minimum contracted rental period. The revenue of the Group under these arrangements is as shown in the income statement. There are no contingent rentals recognised in income.
The Group's and Company's various share incentive plans are explained in the Remuneration Report on pages 37 to 51.
The Group and Company recognised total expenses of £1,203,000 (2013 – £1,502,000) related to equity-settled share-based payment transactions in the year.
All options granted under the Deferred Annual Bonus Plan (DABP), Management Performance Share Plan (MPSP) and Executive Performance Share Plan (EPSP) are nil cost options.
The All Employee Share Scheme (AESS) has a 12 month accumulation period. Partnership shares are purchased by the employee at the end of the accumulation period from the amount contributed by the employee during that period. The Company allocates an amount of free matching shares equivalent to the number of partnership shares purchased. The vesting period for matching shares is three years.
Matching shares are forfeited if the employee either sells the related partnership shares or leaves the Group before the three years have elapsed.
The Board may make discretionary awards of free shares to eligible employees. Employees must remain in the employ of the Group during the vesting period of three years in order to receive the free shares.
Details regarding the plans in the year ended 30 April 2014 are outlined below:
| DABP Number of share options 2014 |
MPSP Number of share options 2014 |
EPSP Number of share options 2014 |
AESS Number of matching shares 2014 |
Free Shares Number of free shares 2014 |
|
|---|---|---|---|---|---|
| At 1 May 2013 | 623,603 | 1,187,059 | 1,097,733 | 363,069 | 298,500 |
| Granted/allocated during the year | 12,558 | – | 292,103 | 103,237 | 183,550 |
| Exercised/vested during the year | (244,941) | (159,774) | – | (102,602) | (31,800) |
| Forfeited/lapsed during the year | (3,170) | (244,926) | (201,279) | (51,806) | (48,850) |
| At 30 April 2014 | 388,050 | 782,359 | 1,188,557 | 311,898 | 401,400 |
| Exercisable at the end of the year | 51,821 | 61,203 | 232,266 | – | – |
| DABP 2014 |
MPSP 2014 |
EPSP 2014 |
AESS 2014 |
Free Shares 2014 |
|
| Weighted average remaining contractual life at the | |||||
| end of the year | 2.9 years | 3.1 years | 4.8 years | 1.7 years | 1.7 years |
| Weighted average share price at the date of exercise | |||||
| of options in the year | £4.06 | £4.06 | – | £5.61 | £4.48 |
| Date options granted/allocated in the year Aggregate estimated fair value of options at the |
August 2013 | – | July 2013 | January 2014 | August 2013 |
| date of grant | £35,000 | – | £690,000 | £534,000 | £513,000 |
| The inputs into the Black-Scholes model were as follows: |
|||||
| Weighted average share price | £3.03 | – | £2.87 | £3.71 | £3.03 |
| Weighted average exercise price | £Nil | – | £Nil | £Nil | £Nil |
| Expected volatility | 57.8% | – | 57.4% | 56.5% | 57.8% |
| Expected life | 3 years | – | 3 years | 3 years | 3 years |
| Risk free rate | 1.54% | – | 1.34% | 1.99% | 1.54% |
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous three years.
Expected dividends 3.6% – 3.8% 2.7% 3.6%
Details regarding the plans in the year ended 30 April 2013 are outlined below:
| DABP Number of share options 2013 |
MPSP Number of share options 2013 |
EPSP Number of share options 2013 |
AESS Number of matching shares 2013 |
Free Shares Number of free shares 2013 |
|
|---|---|---|---|---|---|
| At 1 May 2012 | 592,839 | 1,320,542 | 685,145 | 475,716 | – |
| Granted/allocated during the year | 160,332 | 691,157 | 412,588 | 145,512 | 345,750 |
| Exercised during the year | (117,015) | (337,915) | – | (230,958) | (23,750) |
| Forfeited/lapsed during the year | (12,553) | (486,725) | – | (27,201) | (23,500) |
| At 30 April 2013 | 623,603 | 1,187,059 | 1,097,733 | 363,069 | 298,500 |
| Exercisable at the end of the year | 23,799 | 51,428 | 130,952 | – | – |
| DABP 2013 |
MPSP 2013 |
EPSP 2013 |
AESS 2013 |
Free Shares 2013 |
|
|---|---|---|---|---|---|
| Weighted average remaining contractual life at the end of the year Weighted average share price at the date of exercise |
3.0 years | 3.4 years | 3.2 years | 1.8 years | 2.3 years |
| of options in the year | £2.57 | £2.48 | – | £3.29 | £2.80 |
| Date options granted/allocated in the year Aggregate estimated fair value of options at the |
July 2012 | August 2012 | August 2012 | January 2013 | August 2012 |
| date of grant | £242,000 | £1,050,000 | £628,000 | £410,000 | £506,000 |
| The inputs into the Black-Scholes model were as follows: |
|||||
| Weighted average share price | £2.07 | £2.10 | £2.10 | £3.31 | £2.02 |
| Weighted average exercise price | £Nil | £Nil | £Nil | £Nil | £Nil |
| Expected volatility | 83.2% | 69.4% | 69.4% | 62.1% | 74.7% |
| Expected life | 3 years | 3 years | 3 years | 5 years | 3 years |
| Risk free rate | 0.8% | 0.7% | 0.7% | 0.9% | 0.6% |
| Expected dividends | 3.0% | 3.2% | 3.2% | 3.1% | 3.1% |
During the year the Group operated two group personal pension plans and The Willhire Pension Scheme ('the Scheme' or 'Scheme'), which includes both defined benefit and defined contribution sections. The total operating pension cost to the Group of all these arrangements was £1,534,000 (2013 – £1,246,000) all of which related to the defined contribution schemes.
The Scheme, which is established under Trust, is financed through separate trustee administered funds managed by independent professional fund managers on behalf of the Trustees.
The Scheme is closed to both new members and to future service accrual for existing members.
Contributions to the Scheme are based upon actuarial advice following the most recent actuarial valuation of the fund. The most recent actuarial valuation of the Scheme was performed at 6 April 2010 by JLT Pension Capital Strategies.
The present value of the defined benefit obligation, the related current service cost and the past service cost were measured using the projected unit credit method and the following principal assumptions set out below:
| 2014 Valuation % pa |
2013 Valuation % pa |
|---|---|
| 4.4 | 4.3 |
| 3.5 | 3.3 |
| 2.8 | 2.6 |
| n/a | n/a |
| 2.8 | 2.6 |
| 23 to 26 years | 23 to 26 years |
| 25 to 28 years | 25 to 28 years |
The Directors do not consider that the Group is materially sensitive to changes in these key assumptions.
Amounts recognised as costs (income) in respect of the Scheme are as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Interest cost | 200 | 201 |
| Expected return on plan assets | (200) | (106) |
| Total pension charge | – | 95 |
Actuarial gains and losses have been reported directly in equity, within retained earnings. The cumulative net amount of actuarial losses reflected directly in equity since 3 February 2006 is £2,977,000 (2013 – £9,000).
The actual return on the scheme assets was a loss of £2,777,000 (2013 – gain £591,000). There are no reimbursement rights.
The amount included in the balance sheet arising from the Group's obligations in respect of its defined retirement benefit scheme is as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Present value of defined benefit obligations Fair value of Scheme assets |
(4,334) 4,363 |
(4,901) 5,515 |
| Surplus in the Scheme | 29 | 614 |
| Amounts not recognised | (29) | (614) |
| Asset recognised in the balance sheet | – | – |
The surplus in the Scheme has not been recognised since the present value of the economic benefits of the surplus on a reduction in contributions is £Nil.
The net movements in the surplus were as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| At 1 May | 614 | 75 |
| Pension credit (charge) recognised in the income statement | – | (95) |
| Actuarial (losses) gains | (2,968) | 124 |
| Contributions | 2,383 | 510 |
| At 30 April | 29 | 614 |
Movements in the present value of the defined benefit obligations were as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| At 1 May | 4,901 | 4,402 |
| Interest cost | 200 | 201 |
| Actuarial (gains) losses | (9) | 361 |
| Benefits paid | (758) | (63) |
| At 30 April | 4,334 | 4,901 |
Movements in the fair value of Scheme assets were as follows:
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| At 1 May | 5,515 | 4,477 |
| Expected return on Scheme assets | 200 | 106 |
| Contributions | 2,383 | 510 |
| Benefits paid | (758) | (63) |
| Actuarial (losses) gains | (2,977) | 485 |
| At 30 April | 4,363 | 5,515 |
The derivation of the overall expected return on assets reflects the actual asset allocation at the measurement date combined with an expected return for each asset class. The bond return is based on the prevailing return available on bonds. The return on equities and property is based on a number of factors including the income yield at the measurement date, the long term growth prospects for the economy in general, the long term relationship between each asset class and the bond returns and the movement in market indices since the previous measurement date.
The analysis of the Scheme assets and the expected rate of return at the balance sheet date was as follows:
| 2014 Expected return % |
2014 Fair value of assets £000 |
2013 Expected return % |
2013 Fair value of assets £000 |
|
|---|---|---|---|---|
| Debt instruments | – | – | 1.9 | 5,461 |
| Cash | – | 29 | 1.9 | 54 |
| Insurance policy | – | 4,334 | – | – |
| 4,363 | 5,515 |
The Scheme assets do not comprise any of the Group's own financial instruments nor does the Group occupy any property or use any other assets held by the Scheme.
During the current year, contributions totalled £2,383,000 in accordance with latest actuarial advice received.
IAS 19, 'Employee benefits' was amended in June 2011. The impact on the Group was to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit asset or liability. The impact of this in the income statement is less than £0.1 million. Prior year numbers have not been restated as the amounts are not considered material.
The history of experience adjustments for the last five years is as follows:
| 2014 £000 |
2013 £000 |
2012 £000 |
2011 £000 |
2010 £000 |
|
|---|---|---|---|---|---|
| Funded status: | |||||
| Present value of defined benefit obligation | (4,334) | (4,901) | (4,402) | (4,832) | (4,501) |
| Fair value of Scheme assets | 4,363 | 5,515 | 4,477 | 4,690 | 3,962 |
| Surplus (deficit) in the Scheme | 29 | 614 | 75 | (142) | (539) |
| Experience adjustments on Scheme obligations: | |||||
| Amount | – | 6 | (75) | 35 | 65 |
| Percentage of Scheme obligations (%) | 0% | 0.1% | (1.7)% | 0.7% | 1.4% |
| Experience adjustments on Scheme assets: | |||||
| Amount | (2,977) | 485 | 115 | 64 | 539 |
| Percentage of Scheme assets (%) | (68.2)% | 8.8% | 2.6% | 1.4% | 13.6% |
The following disclosures and analysis relate to the Group's financial instruments.
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 21, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in Notes 24 to 32.
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters as discussed in Notes 21 and 22.
During the year, the Group has been exposed to movements in the exchange rate between Euro and Sterling, where Sterling is the functional currency of the Group.
The following tables detail the Group's sensitivity to a €0.10 (2013 – €0.10) increase and decrease in the Euro/Sterling exchange rate.
A €0.10 (2013 – €0.10) movement in the rate in either direction is management's assessment of the reasonably possible change in foreign exchange rates in the near term. The sensitivity analysis includes only any outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a €0.10 (2013 – €0.10) change in foreign currency rates.
| 2014 £000 £000 |
stated if €0.10 decrease £000 |
|---|---|
| Total equity 390,733 386,456 |
395,784 |
| 2013 | As stated in annual report £000 |
As would be stated if 0.10 increase £000 |
As would be stated if 0.10 decrease £000 |
|---|---|---|---|
| Total equity | 366,652 | 362,338 | 371,763 |
There is no material impact on the income statement in either year.
The Group is exposed to interest rate risk, as entities within the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate swap contracts. Hedging activities are reviewed regularly to align with interest rate views and defined risk appetite, ensuring optimal hedging strategies are applied.
The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
The sensitivity analyses below have been determined on the exposure to interest rates for floating rate liabilities and related derivatives. For the floating rate liabilities, the analysis is prepared on the basis of both the average liability outstanding over the period and average rate applicable for the period. In all instances it is assumed that any derivatives designated in hedging relationships are 100% effective.
A 1.0% (2013 – 1.0%) increase or decrease has been used in the analyses and represents management's best estimate of a reasonably possible change in interest rate in the near term.
| 2014 | As stated in annual report £000 |
As would be stated if 1.0% increase £000 |
As would be stated if 1.0% decrease £000 |
|---|---|---|---|
| Profit before taxation | 51,177 | 49,868 | 52,487 |
| Total equity | 390,733 | 389,724 | 391,744 |
| 2013 | As stated in annual report £000 |
As would be stated if 1.0% increase £000 |
As would be stated if 1.0% decrease £000 |
| Loss before taxation | (11,382) | (11,800) | (10,965) |
| Total equity | 366,652 | 366,335 | 366,970 |
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates and the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contract and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding at the reporting date:
| Average contract fixed interest rate |
Notional principal amount | Fair value | ||||
|---|---|---|---|---|---|---|
| Outstanding receive floating pay fixed contracts |
2014 % |
2013 % |
2014 £000 |
2013 £000 |
2014 £000 |
2013 £000 |
| Sterling In the third to fifth years inclusive |
1.02% | – | 105,000 | – | 685 | – |
| Euro In the third to fifth years inclusive |
0.48% | – | 206,500 | – | (637) | – |
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long term funding and liquidity requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in Note 21 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. All interest cash flows and the weighted average effective interest rate have been calculated using interest rate conditions prevailing at the balance sheet date.
| 2014 | Weighted average effective interest rate |
<1 year £000 |
2nd year £000 |
3-5 years £000 |
>5 years £000 |
Total £000 |
|---|---|---|---|---|---|---|
| Non-interest bearing | 0.00% | 28,326 | – | – | – | 28,326 |
| Fixed interest rate instruments | 5.00% | 25 | 25 | 75 | 500 | 625 |
| Variable interest rate instruments | 2.73% | 16,680 | 18,134 | 359,635 | – | 394,449 |
| 45,031 | 18,159 | 359,710 | 500 | 423,400 | ||
| 2013 | Weighted average effective interest rate |
<1 year £000 |
2nd year £000 |
3-5 years £000 |
>5 years £000 |
Total £000 |
| Non-interest bearing | 0.00% | 25,601 | – | – | – | 25,601 |
| Fixed interest rate instruments | 5.00% | 25 | 25 | 75 | 500 | 625 |
| Variable interest rate instruments | 2.67% | 15,877 | 9,868 | 389,093 | – | 414,838 |
| 41,503 | 9,893 | 389,168 | 500 | 441,064 |
At the prior year end, there were no derivative financial instruments in existence. The following table details the Group's liquidity analysis for its derivative financial instruments at 30 April 2014. It includes both liabilities and assets to illustrate how the cashflows are matched in each period.
| 2014 | <1 year £000 |
2nd year £000 |
3-5 years £000 |
Total £000 |
|---|---|---|---|---|
| Liabilities | ||||
| Net settled: | ||||
| Interest rate swaps | 892 | 887 | 686 | 2,465 |
The Group is required to analyse financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which fair value is observable:
All the financial instruments below are categorised as Level 2.
The fair values of financial assets and financial liabilities are determined as follows:
Derivative financial instruments are measured at the present value of future cash flows estimated and discounted based on applicable yield curves derived from quoted interest rates; and
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values or, in the case of interest rate swaps and cross-currency derivatives, are held at fair value.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group's credit risk is primarily attributable to its trade receivables. The trade receivable amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Trade receivables | ||
| Trade receivables (maximum exposure to credit risk) | 79,564 | 85,457 |
| Allowance for doubtful receivables | (14,470) | (16,824) |
| 65,094 | 68,633 | |
| Ageing of trade receivables not impaired | ||
| Not overdue | 58,687 | 61,545 |
| Past due not more than two months | 5,062 | 5,023 |
| Past due more than two months but not more than four months | 249 | 517 |
| Past due more than four months but not more than six months | 1,096 | 1,548 |
| 65,094 | 68,633 |
Before accepting any new customers, the Group will perform credit analysis to assess the credit risk on an individual basis. This enables the Group only to deal with creditworthy customers therefore reducing the risk of financial loss from defaults. Of the trade receivables balance at the end of the year, approximately £355,000 (2013 – £685,000) is due from the Group's largest customer. There are no customers who represent more than five per cent of the total balance of trade receivables.
The Group has no significant concentration of credit risk as trade receivables consist of a large number of customers, spread across diverse industries and geographical areas in the UK and Spain.
Included in the Group's trade receivables balance are debtors with a carrying amount of £6,407,000 (2013 – £7,088,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable.
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Movement in the allowance for doubtful receivables | ||
| At 1 May | 16,824 | 20,378 |
| Impairment losses recognised | 6,038 | 5,894 |
| Amounts written off as uncollectible | (4,442) | (5,615) |
| Impaired losses reversed | (3,643) | (4,350) |
| Exchange differences | (307) | 517 |
| At 30 April | 14,470 | 16,824 |
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and mainly unrelated. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for doubtful receivables.
Included in the allowance for doubtful receivables are trade receivables which have been placed under liquidation of £46,000 (2013 – £164,000).
| 2014 £000 |
2013 £000 |
|
|---|---|---|
| Ageing of impaired trade receivables | ||
| Not overdue | 298 | 481 |
| Past due not more than two months | 1,780 | 419 |
| Past due more than two months but not more than four months | 1,315 | 3,078 |
| Past due more than four months but not more than six months | 384 | 736 |
| Past due more than six months but not more than one year | 10,693 | 12,110 |
| 14,470 | 16,824 |
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The Company has no trade receivables and no intercompany receivables past due date.
Transactions between the Company and its subsidiary undertakings, which are related parties, are £6,464,000 (2013 – £7,394,000) interest payable and £5,028,000 (2013 – £Nil) royalty charge.
Balances with subsidiary undertakings at the balance sheet date are shown in Notes 19 and 20.
In the current and prior year, the Directors of Northgate plc are determined to be the key management personnel of the Group. There are other senior executives in the Group who are able to influence the Company in the achievement of its goals. However, in the opinion of the Directors, only the Directors of the Company have significant authority for planning, directing and controlling the activities of the Group.
During the year, consultancy fees of £Nil (2013 – £55,000) were paid by Northgate España Renting Flexible S.A. to JG Astrand. The details of the consultancy are set out in the Corporate governance report on pages 54 to 56.
In respect of the compensation of key management personnel, the short term employee benefits, post-employment (pension) benefits, termination benefits and details of share options granted are set out in the audited part of the Remuneration Report on pages 44 to 51. The fair value charged to the income statement in respect of equity-settled share-based payment transactions with the Directors is £273,000 (2013 – £299,000). There are no other long term benefits accruing to key management personnel, other than as set out in the audited part of the Remuneration Report.
Based on the consolidated accounts for years ended 30 April and adjusted to reflect the effect of subsequent changes in accounting policy.
| 2014 | 2013 | 2012 | 2011 | 2010 | |
|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | |
| Revenue: hire of vehicles | 442,271 | 441,944 | 503,659 | 537,285 | 563,698 |
| Operating profit | 63,539 | 79,478 | 94,478 | 82,575 | 71,109 |
| Net finance costs | (12,362) | (90,860) | (48,491) | (56,035) | (61,494) |
| Profit (loss) before taxation | 51,177 | (11,382) | 45,987 | 26,540 | 9,615 |
| Taxation | (11,294) | 4,025 | (5,519) | 2,853 | 14,741 |
| Profit (loss) for the year | 39,883 | (7,357) | 40,468 | 29,393 | 24,356 |
| Basic earnings (loss) per Ordinary share | 29.9p | (5.5)p | 30.4p | 22.1p | 23.1p |
| Dividends | 12,234 | 5,719 | – | – | – |
| Dividends per Ordinary share | 9.2p | 4.3p | – | – | – |
| Balance sheet | |||||
| 2014 | 2013 | 2012 | 2011 | 2010 | |
| £000 | £000 | £000 | £000 | £000 | |
| Assets employed Non-current assets Net current assets (liabilities) Non-current liabilities |
707,666 44,277 (361,210) |
683,190 56,437 (372,975) |
723,675 (74,744) (282,795) |
819,082 145,170 (624,493) |
885,124 (6,024) (573,994) |
| 390,733 | 366,652 | 366,136 | 339,759 | 305,106 | |
| Financed by | 66,616 | 66,616 | 66,616 | 66,616 | 66,475 |
| Share capital | 113,508 | 113,508 | 113,508 | 113,508 | 113,269 |
| Share premium account | 210,609 | 186,528 | 186,012 | 159,635 | 125,362 |
| Reserves | 390,733 | 366,652 | 366,136 | 339,759 | 305,106 |
| Net asset value per Ordinary share | 286p | 275p | 275p | 255p | 229p |
Notice is hereby given that the one hundred and sixteenth Annual General Meeting of Northgate plc ('the Company') will be held at 60 Great Portland Street, London W1W 7RT at 11.30 a.m. on 18 September 2014 for the purpose of considering and, if thought fit, passing the following resolutions of which resolutions 1 to 13 will be proposed as ordinary resolutions and resolutions 14 to 17 will be proposed as special resolutions:
agreement as if the authority conferred hereby had not expired.
Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased;
The Directors of the Company consider that all the proposals set out in the above Resolutions are in the best interests of the Company and of the shareholders as a whole. They unanimously recommend that you vote in favour of them as they intend to do in respect of their own beneficial holdings which amount in aggregate to 396,101 shares representing approximately 0.3% of the issued Ordinary share capital of the Company.
24 June 2014 By Order of the Board
D Henderson Secretary
Registered office: Norflex House Allington Way Darlington, DL1 4DY
Accounts Notice for Annual General Meeting
Information concerning day to day movements in the price of the Company's Ordinary shares can be found on the Company's website at www.northgateplc.com.
The Company's listing symbol on the London Stock Exchange is NTG.
The Company's joint corporate brokers are Barclays Bank plc and Numis Securities Limited and the Company's Ordinary shares are traded on SETSmm.
Publication of Half Yearly Report
Payment of interim dividend
Publication of Interim Management Statement
Announcement of year end results
Report and accounts posted to shareholders
Annual General Meeting Payment of final dividend Publication of Interim Management Statement
D Henderson FCIS Norflex House Allington Way Darlington DL1 4DY
Tel: 01325 467558
Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Tel: 0871 6640300 (calls cost 10p per minute plus network extras) Overseas: (+44) 208 6393399
Printed on Core Silk, an environmentally friendly stock certified as FSC mixed sources – a blend of FSC 100%, recycled and/or controlled fibre.
Northgate plc Norflex House, Allington Way Darlington, DL1 4DY
01325 467558
Fax 01325 363204
northgateplc.com
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