Northgate PLC Depreciation Rate Change Announcement (5328I)

TIDMNTG

RNS Number : 5328I

Northgate PLC

22 March 2018

22 March 2018

NORTHGATE PLC

DEPRECIATION RATE CHANGE ANNOUNCEMENT

Northgate plc ("Northgate", the "Company" or the "Group"), the UK, Spain and Ireland's leading specialist in light commercial vehicle hire, announces a change to depreciation rates applicable from 1 May 2018.

On 22 February 2018 the Group published its Q3 trading statement and announced a new fleet optimisation strategy. This strategy optimises the holding periods of all vehicles across the Group with a focus on maximising shareholder returns.

This fleet optimisation strategy will deliver a more efficient capital base for the business as net book values are allowed to reduce with more moderate capital expenditure and funding requirements in the short term supporting targeted increases in ROCE. As previously announced the impact of this change in fleet strategy will increase cash returns and improve the leverage profile. The decision to extend holding periods, combined with continued progress in increasing the volume of disposals through the retail channel, will result in higher profits on disposal(1) going forwards on the basis of current depreciation rates.

Following the 22 February 2018 announcement, the Board has reviewed depreciation rates in line with accounting standards and has made a decision to reduce depreciation rates by 3% in Spain and Ireland and by 0.5% in the UK.

Indicative Adjustment

The reduction in depreciation rates will be applied prospectively from 1 May 2018. Based on an indicative fleet size(2) and assuming an equalised level of defleeting in each of the four years (as set out in the appendix), the above changes will increase reported operating profit by GBP17.4m in the year ending 30 April 2019. Applying the same methodology, the earlier recognition of accounting profit will be unwound over the forthcoming years (as set out in the appendix).

(1) Profits on disposal - This is a Non-GAAP measure used to describe the adjustment in depreciation charge made in the year for vehicles sold at an amount different to their net book value at the date of sale (net of attributable selling costs).

2UK c48,000, Spain c47,000 and Ireland c4,000

For further information, please contact:

 
 Northgate plc 01325 467558 
 Kevin Bradshaw, Chief Executive Officer 
  David Tilston, Interim Chief Financial Officer 
 MHP Communications 020 3128 8100 
 Andrew Jaques 
 Barnaby Fry 
 Simon Hockridge 
  Ollie Hoare 
 

Notes to Editors:

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.

Northgate's core business is the hire of light commercial vehicles to businesses on a flexible or term basis, giving customers the ability to manage their vehicle fleet requirements in a way which can adapt to changing business needs without the requirement to enter into a long term commitment.

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

www.northgateplc.com

Appendix - Indicative impact

The table below shows the indicative impact of the new depreciation policy based on the indicative fleet size and assuming an equalised level of defleeting in each of the four years.

 
 GBPm profit increase    FY19    FY20     FY21     FY22     FY23 
  (decrease) 
 Spain 
                        ------  ------  -------  -------  ------- 
 Fleet depreciation      15.4    15.4     15.4     15.4     15.4 
                        ------  ------  -------  -------  ------- 
 Profit on disposal      (2.1)   (6.1)   (10.1)   (14.1)   (15.4) 
                        ------  ------  -------  -------  ------- 
 Operating profit        13.3     9.3     5.3      1.3       - 
                        ------  ------  -------  -------  ------- 
 Year-on-year            13.3    (4.0)   (4.0)    (4.0)    (1.3) 
                        ------  ------  -------  -------  ------- 
 
 UK 
                        ------  ------  -------  -------  ------- 
 Fleet depreciation       2.9     2.9     2.9      2.9      2.9 
                        ------  ------  -------  -------  ------- 
 Profit on disposal      (0.4)   (1.3)   (2.1)    (2.9)    (2.9) 
                        ------  ------  -------  -------  ------- 
 Operating profit         2.5     1.6     0.8       -        - 
                        ------  ------  -------  -------  ------- 
 Year-on-year             2.5    (0.9)   (0.8)    (0.8)      - 
                        ------  ------  -------  -------  ------- 
 
 Ireland 
                        ------  ------  -------  -------  ------- 
 Fleet depreciation       1.9     1.9     1.9      1.9      1.9 
                        ------  ------  -------  -------  ------- 
 Profit on disposal      (0.3)   (0.8)   (1.4)    (1.9)    (1.9) 
                        ------  ------  -------  -------  ------- 
 Operating profit         1.6     1.1     0.5       -        - 
                        ------  ------  -------  -------  ------- 
 Year-on-year             1.6    (0.5)   (0.6)    (0.5)      - 
                        ------  ------  -------  -------  ------- 
 
 Group 
                        ------  ------  -------  -------  ------- 
 Fleet depreciation      20.2    20.2     20.2     20.2     20.2 
                        ------  ------  -------  -------  ------- 
 Profit on disposal      (2.8)   (8.2)   (13.6)   (18.9)   (20.2) 
                        ------  ------  -------  -------  ------- 
 Operating profit        17.4    12.0     6.6      1.3       - 
                        ------  ------  -------  -------  ------- 
 Year-on-year            17.4    (5.4)   (5.4)    (5.3)    (1.3) 
                        ------  ------  -------  -------  ------- 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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March 22, 2018 03:01 ET (07:01 GMT)