Northgate reverses sharply after profits warning

Commercial vehicle hire specialist Northgate said tough conditions in the UK and Spain mean the company is driving with the brakes on, as a result of which it looks like the company is heading for a full year destination that is at the southern end of the range of market expectations.

In the UK, vehicle utilisation in the four months to February 29th has averaged 88% compared to 90% in the six months ended 31st October 2011 (the halfway point of the group's financial year).

Actions are being taken which the board anticipate will result in utilisation returning to 90%, but the group has also taken the precaution of reducing the fleet size while the used vehicle market is strong.

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The reduction in vehicles on hire largely occurred towards the end of December and was due partly to the reduction in the level of Northgate's customers' business activities as a direct consequence of the economic conditions.

During the reporting period some 1,000 vehicles were returned to Northgate due to reductions in energy tariffs and grants. Northgate's UK fleet size is 54,000 so that represents a chunky level of returns.

On the plus side, underlying hire revenue per rented vehicle in the UK continues to improve, with an underlying increase of 3% since the beginning of May last year.

In Spain, vehicle utilisation in the four months to February 29th has averaged 88% compared to 91% in the six months ended 31st October 2011, due to the continued reduction in economic activity across the country.

Since the end of February, utilisation has improved and Northgate anticipates a return to its target level of 90%. The Spanish fleet size has been reduced by 4,300 vehicles since 31st October 2011 to 38,600 at 29th February 2012.

Underlying hire revenue per rented vehicle has decreased by 1% since the beginning of May last year, but has been stable since 31st October 2011.

Bad debts continue to blight the Spanish business but the situation is improving, with the bad debt charge for the four months to 29th February standing at €0.8m, a €0.1m improvement compared to €0.9m in the same period last year.

The shares fell by 9% in early trading after the profits warning but there was some good news in that negotiations with the UK tax-man have resulted in a one-off tax rebate of £12m in the current financial year.

"We remain focused on maintaining utilisation levels above 90% and improving the group's return on capital employed. We have continued to reduce our net debt and we anticipate strong cash generation in the final two months of the current financial year," the group said.

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