Redde Northgate PLC Preliminary Results (0978Z)

TIDMREDD

RNS Number : 0978Z

Redde Northgate PLC

16 September 2020

REDDE NORTHGATE PLC

("Redde Northgate" or the "Group" or the "Company")

PRELIMINARY AUDITED RESULTS FOR THE 12 MONTHSED 30 APRIL 2020

Merger synergies target delivered and now increased, Nationwide transaction completed and dividend declared

 
 Adjusted results 
 Year ended 30 April              2020    2019    Change 
                                  GBPm    GBPm         % 
------------------------------  ------  ------  -------- 
 Revenue (excluding vehicle 
  sales)                         585.6   517.6     13.1% 
 Underlying [1] EBIT              74.8    76.2    (1.8%) 
 Underlying(1) Profit 
  before Tax                      59.0    61.1    (3.5%) 
 Underlying(1) Earnings 
  per Share                      30.8p   38.7p   (20.6%) 
------------------------------  ------  ------  -------- 
 Statutory results 
 Total revenue                   779.3   745.5      4.5% 
 EBIT                             29.9    75.5   (60.4%) 
 Profit before Tax                13.5    60.4   (77.7%) 
 Earnings per Share               5.0p   38.6p   (87.1%) 
------------------------------  ------  ------  -------- 
 Other measures 
------------------------------  ------  ------  -------- 
 Net debt [2]                    575.9   436.9     31.8% 
  Group net debt (exc IFRS 
   16 and Redde)                 459.5   436.9      5.2% 
  Redde net debt (exc IFRS        53.4       -       n/m 
   16) 
  IFRS 16                         63.0       -       n/m 
 Steady state cash generation 
  (1)                             86.9    67.1     29.5% 
 Free cash flow(1)                21.6    20.5      5.5% 
 ROCE(1)                          7.0%    7.7%   (70bps) 
 Dividend per Share              13.1p   18.3p   (28.4%) 
------------------------------  ------  ------  -------- 
 

Key highlights

-- Trading was materially impacted by COVID-19 in March and April, reducing FY2020 EBIT by approximately GBP7m compared to expectations, but since year-end the Group has seen sequential monthly improvements in trading.

-- Merger integration savings of GBP10.2m annualised run rate have been achieved as at the end of August, 18 months ahead of schedule. Targets are increased to GBP12m by the end of FY2021 and GBP15m by the end of FY2022, an increase of 50% on the original target.

-- A further GBP3.8m of permanent annualised cost savings have also been achieved to date, giving a total of GBP14.0m of run rate savings to date.

-- On 4 September 2020 the Group announced the acquisition, by a wholly owned subsidiary, of certain businesses and certain assets of Nationwide Accident Repair Services ("Nationwide") by way of a purchase from administrators, for up to GBP16m, further progressing the strategic vision to become the leading supplier of mobility solutions and automotive services.

-- Final dividend proposed of 6.8p per share (2019: 12.1p) taking the total dividend payable for the year to 13.1p per share (2019: 18.3p).

Martin Ward, CEO of Redde Northgate, commented:

"The main priority following the Merger of Northgate and Redde in February 2020, was to integrate the businesses, achieve our targeted synergies and capitalise on the new opportunities available to the Combined Group. Despite the COVID-19 lockdown happening within weeks following the Merger, we were able, in the months during lockdown, to execute the majority of our plans and deliver cost synergies and other savings well ahead of schedule and target. Clearly, new priorities took precedence during the lockdown with the main one being to ensure a safe and effective work environment for our employees and safe contact with our customers who required our services. I cannot emphasise how immensely proud I have been of the response from all our colleagues who stepped up to ensure that we could operate as effectively as possible and deliver our services during these very difficult times. Thank you to all.

"COVID-19 also acted as a catalyst to speed up plans on tightening internal controls and procedures, as well as bringing greater scrutiny on capex and costs management spend, which ultimately led to the business generating significant additional cash which continued beyond the year end.

"Our stated aim is to become the leading integrated mobility solutions provider and this will come about under our strategic framework of Focus, Drive and Broaden. We are in the Focus phase which builds the solid foundations for our next phase of delivering growth. One of the Focus priorities was to bring about a change to the capital model for funding vehicles. This has already commenced with our first transactions, taking several hundred vans on contract hire rather than purchasing outright, and we expect to be able to show the progress of this over time. The benefit of these changes is to lower up-front cash expenditure, which reduces bank debt, and match the timing of monthly operational costs to that of revenues, whilst generating a similar profit margin.

"Post the lifting of lockdown restrictions, we have seen a good level of run rate recovery in both Northgate UK&I and Northgate Spain which has been better than expected, whilst in Redde there has been a more gradual pickup which has been slower than expected.

"More recently, on 4 September, we completed the acquisition of certain businesses and certain assets of Nationwide, which ties in with our strategy and vision to become the leading integrated mobility solutions provider, and I welcome our new colleagues to the Group.

"I believe there is significant sustainable compounding growth and resilient value in the combined business which in many ways has emerged stronger following the COVID-19 lockdown. I am confident that the actions and measures we are taking are already creating value which will be further enhanced as we deliver on our strategic priorities. The Board is proposing a final dividend of 6.8p to shareholders."

Full year results summary

-- Trading for the Group was in line with market expectations until the emergence of COVID-19 in late February 2020. However, trading in March and April was materially impacted, such that underlying EBIT, underlying PBT and underlying EPS were 1.8%, 3.5% and 20.6% lower respectively, and ROCE was 70bps lower at 7.0% (2019: 7.7%).

-- Revenue (excluding vehicle sales) was 13.1% higher than the prior year. The increase was all attributable to Redde, which is included in revenue following the Merger on 21 February 2020.

-- Total Group revenue, including vehicle sales, was 4.5% higher, and total revenue from Northgate businesses was 4.5% lower, with hire revenue flat including the impact of off hires during lockdown and vehicle sales revenue lower due to temporary closure of sales sites during lockdown.

-- Statutory EBIT and statutory PBT were lower than underlying measures due mainly to exceptional costs of GBP41.8m and GBP42.3m respectively, of which GBP18.3m related to Merger expenses and GBP14.9m related to the impairment of pre-Merger Northgate software intangibles [3] .

-- There was continued strong net cash inflows with free cash flow of GBP21.6m (2019: GBP20.5m) benefitting from lower total net capex of GBP213.7m (2019: GBP243.9m) driven by lower fleet growth, offset by exceptional costs paid in the year. Steady state cash generation also remained strong at GBP86.9m (2019: GBP67.1m).

-- Net debt closed at GBP575.9m including IFRS 16, or GBP512.9m excluding IFRS 16, resulting in headroom to bank facilities of GBP234m, increasing from pre COVID-19 February 2020 headroom of GBP200m as a result of the cash and cost measures put in place. Year-end leverage remained stable at 1.62x (2019: 1.64x).

Focus, Drive and Broaden strategy

-- To achieve the Group's vision, the Board and management team, who together have a proven track record of delivering strategic initiatives, plan to evolve the strategy of the enlarged Group through three phases:

Ø Focus: complete the integration of the two businesses alongside initiation of the delivery of the anticipated cost synergies, development of the enlarged Group's products and services, and start to leverage the platform to enable revenue growth based on the broader offering;

Ø Drive: complete the initiatives around the cost synergies, product and service portfolio and platform, and initiate service diversification into complementary markets alongside exploring further market and geographic growth opportunities; and

Ø Broaden: accelerate the service diversification and exploration of market and geographic growth opportunities.

-- We expect the Focus phase to last until April 2021 and are well progressed in that phase, and the Drive and Broaden phases to follow thereafter.

-- The recent transaction with Nationwide is an example of a Broaden initiative, but was accelerated due to the timing of the Administration.

Merger integration and synergies

-- A new Group Management team appointed for the UK & Ireland businesses shortly after the Merger and the experienced Northgate Spain leadership team continue to manage the Spanish business. An Integration Management Office has been set up to drive the integration programme.

-- The Group has carried out a detailed review of the operations of both businesses to assess how they can work most effectively and efficiently together. This review underpins the integration programme and is designed to minimise disruption to customers and employees while delivering the expected opportunities and benefits for the enlarged Group's stakeholders. It covers all areas, including the Group's capital and funding model.

-- Excellent progress has been made in integrating the two businesses and annual run rate cost synergies achieved to date are GBP10.2m, with implementation costs of GBP3.7m, thus achieving our second year target 18 months ahead of schedule. We are therefore increasing our synergy targets to GBP12m by end of FY2021 and GBP15m by end of FY2022. Implementation costs are expected to remain less than GBP10m in total.

-- Additionally, in implementing the review, a further GBP3.8m of permanent annual costs savings have been delivered to date. These permanent savings are not classed as synergies because they are not contingent on the Merger having happened and could have been achieved independently and include the closure of six Van Monster sites.

-- Together a total annual run rate of GBP14.0m of cost synergies and permanent cost savings have been achieved to the end of August since the Merger in February.

-- Since the Merger the Group has also made good progress in developing its plans for revenue synergies, which have included FMG winning new contracts with three of Northgate's major customers and, leveraging Redde's expertise, Northgate preparing to launch a new accident and incident management product later in FY2021.

Trading and COVID-19 impact

-- The Board and management team took decisive actions to put measures in place to protect the welfare of our employees and customers and to mitigate the financial impact of COVID-19 on the Group. These proactive measures included new guidelines and controls to enable social distancing, furloughing employees, limiting new fleet capex, voluntary pay reductions across Board and senior leadership positions and cost control measures including freezing of recruitment and pay reviews.

-- The revenues and profits of all three businesses were impacted by COVID-19 in March and April. These impacts led to a reduction in FY2020 PBT of approximately GBP7m, and included:

Ø A comprehensive customer support package, leading to a temporary reduction in revenues of GBP3-4m per month whilst in place;

Ø A reduction in vehicles on hire ("VOH") with net vehicles returned to branches from lockdown up until the end of April of 6% in Northgate UK&I and 7% in Northgate Spain;

Ø Lower volumes of vehicle sales from the temporary closure of disposal markets;

Ø Lower volumes of accidents and incidents in the Redde businesses; and

Ø Proactive cost measures, including those detailed above.

-- In the first four months of FY2021 performance indicators across the Group have fully recovered or substantially improved, including:

Ø Customer support packages, which have reduced to a minimal level;

Ø A recovery in VOH, such that VOH in Northgate UK&I is now marginally below pre-COVID levels and Northgate Spain is broadly in line with pre-COVID levels;

Ø The re-opening of vehicle disposal channels over the course of May such that they were fully operational from June, with recent significant improvement in residual values compared to prior year driven by buoyant market pricing;

Ø Accident and incident volumes have started to increase as traffic volumes pick up; and

Ø A reduction in furloughed colleagues.

-- The Board is pleased with the performance since year-end and, whilst significant uncertainties remain given the current economic environment and risks of future lockdowns, the Board is confident of the vision and strategy of the Group and the opportunities created by the Merger and is cautiously optimistic on performance for the remainder of FY2021.

-- As such, the Board confirms, absent a deeper or more prolonged impact of COVID-19 than currently expected, it is comfortable with the consensus of FY2021 analyst forecasts that have been updated since April 2020.

GAAP reconciliation and glossary of terms

Throughout this document we refer to underlying results and measures; the underlying measures allow management and other stakeholders to better compare the performance of the Group between the current and prior period without the effects of one-off or non-operational items. Underlying measures exclude certain one-off items such as those arising from restructuring activities and recurring non-operational items. Specifically, we refer to disposal profit(s). 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).

A reconciliation of GAAP to Non-GAAP underlying measures and a glossary of terms used in this document are outlined below the financial review.

Interim Results

The Group will provide an interim result update for the six months to 31 October 2020 in early December 2020.

Analyst Briefing

There will be a presentation for sell-side analysts at 9.30 a.m. today. If you are interested in attending, please email Buchanan on [e-mail].

This presentation will also be made available via a link on the Company's web-site www.reddenorthgate.com

For further information contact:

Buchanan

   David Rydell/Jamie Hooper/Tilly Abraham                            [phone] 

Notes to Editors:

Redde Northgate plc is a leading integrated mobility solutions platform formed in February 2020 following the all-share Merger of light commercial hire business Northgate plc and Redde plc, the provider of incident and accident management, legal and other mobility-related services.

The Group provides mobility solutions and automotive services to a wide range of businesses and customers spanning the vehicle life cycle across vehicle supply, service, maintenance, repair, recovery, accident and incident management and disposal through sale or salvage.

With an extensive network and diversified fleet of over 110,000 owned vehicles and over 500,000 managed vehicles in more than 170 branches across the UK, Ireland and Spain, the Group aims to utilise its scale, reach and comprehensive suite of integrated services to offer a market-leading customer proposition and drive enhanced returns for shareholders.

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

www.reddenorthgate.com

CHIEF EXECUTIVE REVIEW

Merger

On 21 February 2020 we completed the Merger, via a share exchange, of Northgate plc and Redde plc, two leading mobility solutions companies, forming Redde Northgate plc.

The Merger brought together Northgate plc, a leading light commercial vehicle rental business and Redde plc, a leading provider of incident and accident management, legal and other mobility-related services, creating a leading integrated mobility solutions platform.

The enlarged Group is positioned to benefit from several key market trends. These include; the shift from vehicle ownership to rental, the convergence of mobility solutions, the differentiation of propositions through end-to-end service offerings, big data in automotive services and the trend towards hybrid and electric commercial vehicles.

Redde Northgate is uniquely positioned to capitalise on these trends, and we will take decisive and proactive action to achieve our vision. This energy and proactivity has already been illustrated in several ways since the Merger: in our swift response to COVID-19 lockdowns and the measures put in place to effectively support customers and colleagues; in our delivery of the integration and cost synergies well ahead of target despite COVID-19; in our early wins as a Combined Group; and in our recent acquisition of certain businesses and certain assets of Nationwide Accident Repair Services ("Nationwide"), which will further complement the Group, building on the foundations created by the Merger.

Strategic rationale for Merger

The compelling strategic rationale for the Merger included:

-- Complementary combination bringing together a comprehensive suite of mobility services - Redde Northgate's combined offering now spans the vehicle lifecycle across vehicle supply, service, maintenance, repair, recovery, accident and incident management and disposal through sale, and is now further bolstered in repair by the acquisition of Nationwide.

-- A market-leading customer proposition - fleet customers benefit from greater choice and fulfilment ability through a combined network, and insurance customers benefit from enhanced service levels and a fleet more cost effectively serviced and maintained.

-- Cost synergies - underpinned by enhanced scale and optimisation potential - and attractive revenue synergies.

-- A strong financial profile - including a diversified revenue mix with good growth potential underpinned by market trends, attractive margin profile further enhanced through synergies and operational leverage from growth and strong cash flow generation expected to strengthen the balance sheet over time.

Purpose and vision

Our purpose is to keep customers mobile, whether through meeting their regular mobility needs or by servicing and supporting them when unforeseen events occur.

Our vision is to be the leading supplier of mobility solutions and automotive services to a wide range of businesses.

We have a combined and complementary skill set for product supply and service delivery, a breadth of offering across long and short-term mobility solutions and are a significant scale operator with a fleet of over 110,000 vehicles and 500,000 managed vehicles and over 170 branches.

Our markets

Redde Northgate principally operates across three markets within mobility solutions and automotive services: LCV rental and term hire, used LCV sales and accident management.

LCV rental and term hire

In Northgate's two territories there are over 8 million Light Commercial Vehicles (LCVs) on the roads of which approximately 1 million were operated on hire or leased terms. The rental and term hire segments present the greatest opportunities for future growth within the LCV sector, driven by the major structural shift in the market from vehicle ownership to 'usership'. Customers are increasingly attracted to a rental proposition that avoids the high initial capital outlay of vehicle ownership and brings them certainty of future cash outflows.

We expect COVID-19 could both increase demand and market size and also further accelerate the ownership to 'usership' trend, as customers seek flexibility and lower initial capital outlay due to the weaker economic environment. Northgate's fleet is currently less than 10% of this market and around 1% of LCVs on the road, although its market share in the specific segments where each territory focuses is between 20 and 30%.

Used LCV sales

Northgate also has a successful used LCV sales business, operating physically from its extensive vehicle disposal network and also, increasingly, via online auction. The used vehicle market offers opportunities from own fleet sales but also from selling other customers' vehicles. As an example of the opportunities in this market, the Group has recently licensed its eAuction technology to an OEM to enable their sale of used vehicles. This market, which was initially closed by COVID-19 lockdowns, has re-opened with stronger residual values than expected.

Accident management

Within accident management Redde principally operates in the credit hire, accident and incident management and legal services markets. The Group works with both fleet operators and insurers to provide services to customers who have had an accident. Credit hire providers supply replacement vehicle hire and repair services primarily to non-fault customers who have been involved in traffic accidents, normally at no direct cost to the individual, by seeking compensation from the at-fault party's insurers. Accident and incident management companies handle the claim, repair and other processes relating to an accident or incident. Redde's legal services business assists customers with legal services covering personal injury, as well as employers' liability, wills and probate, clinical negligence and public liability legal advice. The UK crash repair market is a key indicator for the overall accident management market with a report prepared by TrendTracker in January 2019 suggesting expected growth of over 14% over the next five years to 2023. The Group's position in this market is further bolstered by the Nationwide acquisition.

Strategy

To achieve the Group's vision, the Board and management team, who together have a proven track record of delivering strategic initiatives, plan to evolve the strategy of the enlarged Group through three phases:

1. Focus: complete the integration of the two businesses alongside initiation of the delivery of the anticipated cost synergies, development of the enlarged Group's products and services, and start to leverage the platform to enable revenue growth based on the broader offering;

2. Drive: complete the initiatives around the cost synergies, product and service portfolio and platform, and initiate service diversification into complementary markets alongside exploring further market and geographic growth opportunities; and

3. Broaden: accelerate the service diversification and exploration of market and geographic growth opportunities.

We expect the Focus phase to last until April 2021, and the Drive and Broaden phases to follow thereafter.

Within the Focus phase, as part of the development of the enlarged Group's products and services, we are reviewing the existing Northgate strategy which was in place for FY2020 and included four principal market objectives:

   1.    Defend and grow our share of flexible rental markets; 
   2.    Selectively gain share in minimum term markets; 
   3.    Broaden our provision of capital-light fleet solutions; and 
   4.    Optimise and increase participation in the disposal market. 

During FY2020 Northgate followed this strategy and the Merger was an example of the Group broadening provision of capital-light fleet solutions.

The Focus phase includes a review of the Group's capital and funding model and has also been re-planned to include our response to COVID-19. The recent transaction with Nationwide is an example of a Broaden initiative, the initiative was accelerated into this phase due to the timing of Nationwide going into Administration.

COVID-19 update

COVID-19 has had a profound impact in all countries in which Redde Northgate operates, and the Board took decisive actions to put measures in place to protect the welfare of our employees and customers and to mitigate the financial impact of the pandemic on the Group.

These measures included implementing new guidelines and controls to enable employees to work with social distancing in branches and offices; furloughing employees across all areas of the business as necessary; limiting capital expenditure on new fleet purchasing for essential requirements only; using nearly new vehicles to stand in for new purchases where suitable; voluntary pay reductions across the Board, senior leadership team and managers; introducing other cost control measures, including a freeze on recruitment and pay reviews, and limiting all non-essential spend and capital expenditure projects.

The Group has also provided flexibility to its rental customers to support them through these difficult times. Our COVID-19 package of support, assessed on an individual basis, has helped many customers retain rental vehicles during the current COVID-19 uncertainty on terms that meet their needs.

The revenues and profits of all three businesses were impacted by COVID-19. These impacts led to a reduction in FY2020 PBT of approximately GBP7m, and included:

-- A comprehensive customer support package, leading to a temporary reduction in revenues of GBP3-4m per month whilst in place;

-- A reduction in vehicles on hire ("VOH") with net vehicles returned to branches from lockdown up until the end of April of 6% in Northgate UK&I and 7% in Northgate Spain;

   --    Lower volumes of vehicle sales from the temporary closure of disposal markets; 
   --    Lower volumes of accidents and incidents in the Redde businesses; and 

-- Cost actions, including furlough, pay reductions and limiting capital expenditure, to partially mitigate the financial impact on the Group.

During the crisis, we also initiated a number of additional schemes to support our communities. These have included deploying cars to support an NHS and key worker replacement vehicle scheme launched by a long-standing insurer partner and providing vehicles to the Red Cross in Spain at cost.

In the first four months of FY2021 performance indicators across the Group have fully recovered or substantially improved, including:

   --    Customer support packages reduced to a minimal level; 

-- A recovery in VOH, such that VOH in Northgate UK&I is now marginally below pre-COVID levels and Northgate Spain is broadly in line with pre-COVID levels;

-- The re-opening of vehicle disposal channels over the course of May such that they were fully operational from June, with recent significant improvement in residual values compared to prior year;

   --    Accident and incident volumes have started to increase as traffic volumes pick up; and 
   --    A reduction in furloughed colleagues. 

The Board is pleased with the performance since year end and, whilst significant uncertainties remain given the current economic environment and risks of future lockdowns, the Board remains confident of the vision and strategy of the Group and the opportunities created by the Merger and is cautiously optimistic on performance for the remainder of FY2021.

Integration and cost synergies

A key component of the Focus phase of the strategy is to complete the integration of the two businesses.

Following the Merger, integration plans started well with a new Group Management team being appointed for the UK & Ireland businesses and continuity of the Northgate Spain leadership team. An Integration Management Office was established to drive the integration programme.

The Board and management carried out a detailed review of the operations of both businesses to assess how they can work most effectively and efficiently together. This review underpins the integration programme and is designed to minimise disruption to customers and employees whilst delivering the expected opportunities and benefits for the enlarged Group's stakeholders.

We expect to deliver both cost synergies and revenue synergies as part of the Merger. The cost synergies are being delivered at pace in three principal areas:

o Corporate and support functions - from rationalisation and consolidation of corporate and support functions, removal of duplicate corporate costs and optimisation of procurement;

o Network -the Group will retain extensive operations across the UK, Ireland and Spain, and these are being reviewed to identify the optimal network by removing overlap and enhancing overall scale along with greater density to align with the needs of the Group's portfolio of services and its efficient delivery to customers; and

o Accident and fleet management - rationalisation and consolidation of accident and fleet management operations.

Excellent progress has been made in integrating the businesses and annual run rate cost synergies achieved to date are GBP10.2m, with implementation costs of GBP3.7m, thus achieving our second year target 18 months ahead of schedule. The majority of these synergies have been achieved in corporate and support functions, although we have also started the work on our network optimisation activities. Some of the highest value synergies included the consolidation of a single Board, creating a new Group Management team across UK & Ireland with a reduced number of leadership roles, and a reduction in support function costs and headcount.

Given that this is well ahead of our initial cost synergy targets set out in the shareholder Circular, we are increasing our first year synergy target, taken for this purpose to be as at end of April 2021, from GBP7m of annual run rate cost synergies to GBP12m of annual run rate cost synergies and increasing the second year synergy target, taken for this purpose to be as at end of April 2022, from GBP10m to GBP15m.

Whilst COVID-19 has had many impacts on the Group as a whole, we have ensured it had limited impact on our integration work, and at times we have used it to accelerate decisions ahead of our initial timeline, for example around network overlap.

Additionally, in implementing the review, a further GBP3.8m of permanent annual costs savings have been delivered to date. These permanent savings are not classed as synergies because they are not contingent on the Merger having happened and could have been achieved independently and include the closure of six Van Monster sites.

Therefore, together a total annual run rate of GBP14.0m of cost synergies and permanent cost savings have been achieved so far since the Merger in February, and a target of a further GBP5m of synergies has been set for FY2022.

Revenue synergies

The Merger is expected to generate revenue synergies as well as cost synergies, benefitting from the complementary nature of the two businesses and the customers' need for a broader end-to-end experience with more service and product differentiators.

Revenue synergies are expected to be realised from several areas including:

o Cross-selling of products, for example the cross-selling of Northgate vehicle hire to FMG customers or the cross-sell of FMG fleet incident and accident management to Northgate customers;

o Channelling accidents involving Northgate vehicles through Redde; and

o Broadening of mobility solutions to our customers, through the launch of additional mobility products.

Since the Merger the Group has made good progress in developing its plans for revenue synergies, which have included winning new contracts with three of Northgate's major customers and, leveraging Redde's expertise, Northgate preparing to launch a new accident and incident management product later in FY2021.

Group performance

Revenue (excluding vehicle sales) was 13.1% higher than the prior year. The increase was attributable to Redde, which is included in Group trading following completion of the Merger on 21 February 2020. Total Group revenue, including vehicle sales, was 4.5% higher, although revenue from Northgate businesses was 4.5% lower, with hire revenue flat including the impact of off hires during lockdown and vehicle sales revenue lower due to temporary closure during lockdown. In Northgate UK&I VOH declined 3.2% offset by pricing improvements resulting in hire revenue being broadly flat. Northgate Spain VOH grew 3.6% offset by pricing reductions, partly due to competition and partly due to mix, resulting in hire revenue 1.1% higher year on year. Vehicle sales revenue was lower principally due to volumes of units sold which were 14.9% lower year on year, due to reduced volumes in March and April.

In Redde, total hire cases and repair cases in March and April were substantially lower due to COVID-19, as lockdown resulted in accident and incident volumes declining steeply with fewer vehicles on the roads and a sharp reduction in road miles driven.

Underlying EBIT from the Northgate businesses (excluding corporate costs) was 4.7% lower at GBP77.6m (2019: GBP81.5m), with rental profit 5.0% higher at GBP67.6m (2019: GBP64.3m) and disposal profit [4] 41.4% lower at GBP10.0m (2019: GBP17.1m). Substantial rental margin improvements were made in the Northgate UK&I which improved to 9.9% (2019: 7.8%), offset by continuing rental margin pressure in Northgate Spain which declined to 17.8% (2019: 19.7%), such that overall Group rental margin improved 0.6 ppts, from 12.4% (FY2019) to 13.0%. Disposal profits were GBP7.1m lower driven by both reduced volumes of disposals in the year and the impact of depreciation unwind of around GBP5m. There were no changes to existing depreciation rates during the year but the change made in FY2019 is expected to unwind through disposal profit until FY2023 as illustrated in the table in the Financial Review. Underlying EBIT relating to Redde was GBP3.3m (2019: GBPnil) and corporate costs were GBP6.1m (2019: GBP5.3m).

During the year the business incurred exceptional costs of GBP42.3m with GBP18.3m relating to the Merger and GBP14.9m relating to the impairment of software intangibles, with the balance from restructuring expenses and refinancing expenses. The Group is in dispute with the provider of certain IT and software development services in relation to the delivery of the planned development of Northgate's new IT system and has therefore paused the project. Given the uncertainty over the outcome of this dispute a decision has been made to write down the carrying values of the related assets.

Underlying earnings per share of 30.8p (2019: 38.7p) was 20.6% lower including the impact of COVID-19 in March and April with lower EBIT across all businesses and a higher number of shares due to the Merger. Redde's profits in March and April were substantially lower than was expected pre COVID-19. Statutory earning per share of 5.0p decreased from 38.6p in the prior year, due to both the underlying impacts and the exceptional costs taken in the year.

Free cash flow improved to GBP21.6m (2019: GBP20.5m) and was delivered primarily from lower total capex, which included the COVID-19 actions in March and April. Steady state cash generation [5] increased 29.5% to GBP86.9m. Year end net debt of GBP575.9m was 31.8% higher than prior year but included GBP63.0m relating to IFRS 16 liabilities. On a like-for-like basis excluding IFRS 16 and Redde, net debt was GBP459.5m (2019: GBP436.9m) 5.2% higher. Leverage remained stable at 1.62x at year end (2019: 1.64x), within our target range post Merger of 1.0 - 2.0x.

The Board has considered the importance of dividends to its shareholders and, after careful consideration of the factors impacting this decision, has concluded to maintain a final dividend. For the year ended 30 April 2020, the Board is proposing a final dividend of 6.8p (2019: 12.1p) which, together with the interim dividend of 6.3p (2019: 6.2p), gives a full year dividend of 13.1p (2019: 18.3p), a decrease of 5.2p or 28% on 2019. If approved by shareholders, the final dividend will be paid on 3 November 2020 to shareholders on the register on 25 September 2020.

People

We have made several Board changes since the Merger, including both the consolidation of Board members as announced on 24 March 2020 and the passing of former director Steve Oakley, announced with great sadness on 18 May 2020.

In addition, with the creation of the new Group Management team structure across UK & Ireland, we have removed the need for an MD of Northgate UK&I, and appointed a new MD of Redde, effective from May 2020.

The MD of Northgate Spain continues to be Jorge Alarcon, who joined Northgate on 22 August 2019, bringing with him a wealth of experience of the industrials and services markets in Spain.

Impact of the UK leaving the European Union without a new free trade agreement

The Group continues to monitor the potential impact on its business of the UK leaving the European Union without a new free trade agreement in place on 31 January 2021. The greatest risks identified would be a disruption to the supply of new vehicles and vehicle components imported into the UK from the EU, including additional import costs which may be imposed:

o Around 90% of vehicles purchased or leased by the Group from UK OEMs are imported from the EU. Assurances have been sought from these OEMs, who are confident that there will be no material long-term disruption. Any potential short-term supply disruption can also be mitigated by Northgate itself, by slowing the rate of vehicle de-fleets in order to maintain vehicle availability for customers as has been seen in the response to COVID-19.

o Components for vehicles manufactured in the UK are also imported from the EU. However, normal OEM stock levels are considered to be sufficient to address any potential short-term supply issues.

o The introduction of import costs could potentially create some margin pressure in the short-term. However, the Company believes that in the longer-term, it will be able to pass through to end-users any significant additional costs that might be imposed on imported vehicles.

A potential upside for Northgate in the event of supply disruptions or higher purchase costs, would be the likely increase in rental demand and stronger residual values that would result.

OUR FY2020 PERFORMANCE

Northgate UK&I

 
 Year ended 30 April             2020     2019     Change 
 KPI                           ('000)   ('000)          % 
----------------------------  -------  -------  --------- 
 Average VOH                     46.9     48.4     (3.2%) 
 Closing VOH                     43.5     47.1     (7.5%) 
 Average utilisation %            88%      88%          - 
 Year ended 30 April             2020     2019     Change 
 PROFIT & LOSS (Underlying)      GBPm     GBPm          % 
----------------------------  -------  -------  --------- 
 Revenue - Vehicle hire         313.9    315.6     (0.5%) 
 Revenue - Vehicle sales        137.1    166.5    (17.6%) 
 Total Revenue                  451.0    482.0     (6.4%) 
 Rental profit                   31.2     24.6      26.5% 
 Rental Margin %                 9.9%     7.8%   2.1 ppts 
 Disposal profit                  6.7     10.8    (37.3%) 
 EBIT                            37.9     35.4       7.1% 
 EBIT Margin % [6]               8.4%     7.3%   1.1 ppts 
 ROCE %                          6.6%     6.4%   0.2 ppts 
----------------------------  -------  -------  --------- 
 

Rental business

Hire revenue in the Northgate UK&I business declined 0.5% compared to the prior year to GBP313.9m (2019: GBP315.6m), driven by average VOH which declined 3.2%, offset by improved pricing. Regular rate increases were introduced in FY2019 and rates were again increased in FY2020 across our full range of rental products and continued to be well planned, communicated and executed. Closing VOH declined 7.5% to 43,500 and included a reduction of 5.9% from lockdown until the end of April.

At the year end, Northgate's minimum term proposition accounted for around 33% (2019: 24%) of average VOH. The average term of these contracts is approximately three years, providing both improved visibility of future rental revenue and earnings, as well as lower transactional costs.

The rental margin has continued to grow since H2 2018 having steadily improved for the past four half year periods, increasing from 6.0% in H2 2018, to 7.1% in H1 2019 to 8.5% in H2 2019, to 9.8% in H1 2020 and 10.0% in H2 2020. This improvement reflects the more competitive pricing introduced to the market as well as the execution of the strategic priorities.

The net impact of the lower hire revenue and higher rental margin was a 26.5% increase in Northgate UK&I rental profits to GBP31.2m (2019: GBP24.6m).

Management of fleet and vehicle sales

The total Northgate UK&I year end rental fleet size of 51,400 vehicles declined from 54,600 in the prior year. The contraction of 5.8% was similar to the reduction in closing VOH of 7.5%. 14,600 vehicles were purchased during the year and approximately 17,800 vehicles were de-fleeted. The average age of the fleet at the end of the year was two months higher than at the same time last year. This was partly due to the impact of the fleet optimisation policy and partly due to managing the fleet to mitigate impacts of COVID-19 in the last two months of the year, action which led to reduced purchases and de-fleets and thus increased the average age of the fleet.

A total of 17,200 vehicles were sold in Northgate UK&I during the year, 18.1% lower than prior year. The sales in March and April were impacted by COVID-19 and the temporary closure of disposal markets.

Disposal profits of GBP6.7m (2019: GBP10.8m) declined 37.3% versus the prior year, as a result of both the reduced sales volumes and a 24% reduction in the average profit per unit (PPU) on disposals to GBP391 (2019: GBP512) due to the GBP1.4m unwind of depreciation rate changes (approximately GBP80 of the PPU reduction) and lower sales volumes, particularly during COVID-19 when sales volumes were close to nil.

EBIT and ROCE

Underlying EBIT of GBP37.9m grew 7.1% over the prior year (2019: GBP35.4m) driven by higher rental profits, offset by lower disposal profits as explained above.

The ROCE in Northgate UK&I was 6.6% (2019: 6.4%) reflecting an increase in EBIT partially offset by an increase in capital employed due mainly to higher year end stock due to the closure of disposal markets in April and lower creditors due to reduced vehicle purchases during lockdown.

A higher EBIT and ROCE was expected before the impact of COVID-19.

Capex and cash flow

 
 Year ended 30 April                2020    2019     Change 
                                    GBPm    GBPm          % 
--------------------------------  ------  ------  --------- 
 Underlying EBITDA                 158.1   151.9       4.1% 
 Net Replacement Capex             129.8   122.8       5.7% 
 Underlying EBITDA less 
  Net Replacement Capex             28.3    29.1     (3.0%) 
 Growth Capex (incl. inorganic)    (0.8)    21.0   (103.8%) 
--------------------------------  ------  ------  --------- 
 

Underlying EBITDA improved by 4.1% to GBP158.1m (2019: GBP151.9m) mainly due to a GBP2.5m increase in underlying EBIT as well as an increase in depreciation as a result of IFRS 16 of GBP3.8m.

Net replacement capex [7] in the year was GBP129.8m, 5.7% higher than in 2019, driven mainly by OEM price inflation and vehicle mix. Underlying EBITDA less net replacement capex reduced by 3.0% to GBP28.3m (2019: GBP29.1m) reflecting increased EBITDA offset by higher replacement capex in the year. Growth capex was a contraction of GBP0.8m, which includes a working capital outflow of GBP2.3m and net underlying contraction capex of GBP3.1m, relating to the reduction in fleet of 500 vehicles.

Northgate Spain

 
 Year ended 30 April             2020     2019       Change 
 KPI                           ('000)   ('000)              % 
----------------------------  -------  -------  ------------- 
 Average VOH                     46.4     44.8        3.6 % 
 Closing VOH                     43.1     46.0       (6.1%) 
 Average utilisation %            91%      91%            - 
 
 Year ended 30 April             2020     2019         Change 
 PROFIT & LOSS (Underlying)      GBPm     GBPm              % 
----------------------------  -------  -------  ------------- 
 Revenue - Vehicle hire         204.2    202.1        1.1 % 
 Revenue - Vehicle sales         56.7     61.4       (7.6%) 
 Total Revenue                  260.9    263.4       (1.0%) 
 Rental profit                   36.4     39.7       (8.3%) 
 Rental margin %                17.8%    19.7%   (1.9) ppts 
 Disposal profit                  3.3      6.4      (48.3%) 
 EBIT                            39.7     46.1      (13.8%) 
 EBIT Margin % [8]              15.2%    17.5%     (2.3) ppts 
 ROCE %                          8.8%    10.6%   (1.8) ppts 
----------------------------  -------  -------  ----------- 
 
 

Rental business

Hire revenue in Northgate Spain grew 1.1% to GBP204.2m (2019: GBP202.1m) driven by growth in average VOH of 3.6% but offset by average hire rates which were 2.5% lower. This was due both to mix, with the proportion of minimum term higher in FY2020, and continuing pricing pressure from competition. At constant exchange rates, removing the headwind of foreign exchange, the reported growth in rental revenue was 1.7%.

Closing VOH declined 6.1% to 43,100 since 30 April 2019. This decline included a reduction of 6.5% from lockdown until the end of April. Closing VOH grew in H1 FY2020 by 3.0% from 46,000 at end of FY2019 to 47,400 in October 2019, but then fell back to broadly flat by the end of February due to weakening economic outlook and some seasonality. There continues to be a structural shift away from LCV ownership to 'usership', most notably into minimum term hire which at year end accounted for 37% (2019: 31%) of average VOH, but there were signs even before COVID-19 of weaker macro-economic conditions in Spain.

The FY2020 rental margin of 17.8% (2019: 19.7%) declined year-on-year driven primarily by the 2.5% decline in average hire rates. Cost inflation was offset by some cost saving initiatives such that overall cost reductions improved margin by 0.6%.

The net impact of the increased hire revenue and lower rental margin was an 8.3% decline in Northgate Spain rental profits to GBP36.4m (2019: GBP39.7m). Rental profits declined 7.7% at constant exchange rates.

Management of fleet and vehicle sales

The total rental fleet size in Northgate Spain increased by 0.9% to 51,500 vehicles, driven by the growth in VOH in the period up until COVID-19. 11,200 vehicles were purchased during the year and approximately 10,800 vehicles were de-fleeted. The average age of the fleet at the end of the year was two months higher than at the same time last year, partly due to fleet optimisation policy and partly due to actions taken in response to the pandemic in the last two months of the year. This resulted in fewer purchases and de-fleets and thus increased the average age of the fleet.

A total of 9,900 vehicles were sold by Northgate Spain during the year, 14.7% less than in the previous year. The sales in March and April were impacted by COVID-19 and the temporary closure of disposal markets.

Disposal profits of GBP3.3m (2019: GBP6.4m) declined 48.3% versus the prior year, driven by both reduced sales volumes above and a 39% reduction in the average profit per unit (PPU) on disposals to GBP334 (2019: GBP551) due to the GBP4.0m unwind of previous depreciation rate changes (approximately GBP400 of PPU reduction) offset by some mix impacts and some improvements in the operations implemented in the year.

EBIT and ROCE

The decline in both rental profit and disposal profit explained above led to a decline in EBIT of 13.8% to GBP39.7m (2019: GBP46.1m). At constant exchange rates, operating profits in Northgate Spain declined 13.3%.

The ROCE in Northgate Spain was 8.8% (2019: 10.6%) reflecting primarily the decline in EBIT but also the increase in capital employed driven by the growth and mix of the fleet.

A higher EBIT and ROCE was expected before the impact of COVID-19.

Capex and cash flow

 
 Year ended 30 April        2020    2019    Change 
                            GBPm    GBPm         % 
------------------------  ------  ------  -------- 
 Underlying EBITDA         125.6   121.8      3.1% 
 Net Replacement Capex      69.6    78.5   (11.4%) 
 Underlying EBITDA less 
  Net Replacement Capex     56.0    43.3     29.3% 
 Growth Capex               17.5    21.7     19.1% 
------------------------  ------  ------  -------- 
 

Underlying EBITDA increased by 3.1% to GBP125.6m (2019: GBP121.8m) and net replacement capex [9] was GBP69.6m, 11.4% lower than in 2019, with OEM price inflation offset by vehicle ageing impacts such that Underlying EBITDA less net replacement capex grew by 29.3%, to GBP56.0m (2019: GBP43.3m). Growth capex was GBP17.5m, 19.1% lower than the prior year due to lower growth in the fleet.

Redde

The Merger completed on 21 February 2020 therefore the tables below relate to financial performance since that date.

 
 Year ended 30 April               2020 
 PROFIT & LOSS (Underlying)        GBPm 
-------------------------------  ------ 
 Revenue - Claims and Services     67.4 
 Gross profit                      10.0 
 Gross margin %                   14.9% 
 EBIT                               3.3 
 EBIT margin % [10]                4.9% 
-------------------------------  ------ 
 

Revenue, Gross margin and EBIT

Revenue for the period post Merger was GBP67.4m and gross profit was GBP10.0m with a gross margin of 14.9%, EBIT of GBP3.3m and EBIT margin of 4.9%.

These results were all substantially below Board expectations set pre COVID-19, due to the lower volumes of accidents and incidents impacting the Redde businesses over March and April.

Overall revenue for the two months was on average around 27% below expectations for the period, gross profit around 25% below expectation and gross margin was broadly in line with expectations. EBIT was around 55% below expectations as overheads, whilst partially reduced through cost actions, still created a substantial headwind to margins. EBIT margin was around 3.1 ppts below expectations for the period.

Management of fleet

The total fleet size in Redde closed the year at 9,000 vehicles, reduced from the level in Redde's June 2019 accounts of 10,700 vehicles due to the loss of contract with a large insurer as previously announced by Redde.

The average fleet age was 15 months reflecting the lower fleet holding period than in the Northgate businesses due to the different usage of the vehicles and business economics.

The Redde fleet continues to operate through a hybrid solution of ownership, contract hire and, during peak periods, cross-hiring from daily rental companies.

Capex and cash flow

 
 Year ended 30 April          2020 
                              GBPm 
-----------------------  --------- 
 Underlying EBITDA             6.3 
 Total net capex [11]          1.0 
 Statutory debtor days    123 days 
-----------------------  --------- 
 

Underlying EBITDA was GBP6.3m for the period.

Debtor days were 123 days at 30 April 2020. This measure is based upon net trade receivables and contract assets, other receivables and accrued income as a proportion of the related underlying sales revenue for the past 12 months multiplied by 365 days.

Capital expenditure typically follows seasonal trends in business demand with a net reduction in fleet size anticipated for the period. Net capital expenditure was GBP1.0m with principal repayments on finance leases being higher than the disposal of surplus vehicles during COVID-19.

Martin Ward, Chief Executive Officer

FINANCIAL REVIEW

Group summary

A summary of the Group's financial performance is as follows:

 
Year ended 30 April             2020   2019   Change   Change 
                                GBPm   GBPm     GBPm        % 
-----------------------------  -----  -----  -------  ------- 
Revenue                        779.3  745.5     33.9     4.5% 
EBIT                            29.9   75.5   (45.6)  (60.4%) 
Profit before tax               13.5   60.4   (46.9)  (77.7%) 
EPS                             5.0p  38.6p  (33.6p)  (87.1%) 
Underlying EBIT                 74.8   76.2    (1.4)   (1.8%) 
Underlying profit before tax    59.0   61.1    (2.1)   (3.5%) 
Underlying EPS                 30.8p  38.7p   (8.0p)  (20.6%) 
Dividend per share             13.1p  18.3p   (5.2p)  (28.4%) 
Free cash flow                  21.6   20.5      1.1     5.5% 
Underlying free cash flow       38.4   63.1   (24.8)  (39.2%) 
-----------------------------  -----  -----  -------  ------- 
 

Revenue

Group revenue increased by 4.5% to GBP779.3m, 4.8% at constant exchange rates.

Group revenue comprised:

 
Year ended 30 April    2020   2019  Change   Change 
                       GBPm   GBPm    GBPm        % 
--------------------  -----  -----  ------  ------- 
Vehicle hire          518.2  517.6     0.5     0.1% 
Vehicle sales         193.8  227.8  (34.1)  (14.9%) 
Claims and services    67.4      -    67.4      n/m 
--------------------  -----  -----  ------  ------- 
 

Vehicle hire revenue of GBP518.2m was in line with the prior year but was impacted by COVID-19 in March and April.

Group vehicle sales revenue declined by 14.9% reflecting lower sales volumes, impacted during lockdown when disposal markets were closed in all territories.

Total Group revenue grew 4.5%, with the increase year on year attributable to Claims and Services income in the Redde business, following the Merger on 21 February 2020.

Underlying EBIT

Underlying Group EBIT decreased by 1.8% (1.5% at constant exchange rates) to GBP74.8m and is stated before exceptional costs (GBP41.8m).

Underlying Group EBIT comprised:

 
                            2020   2019  Change   Change 
Year ended 30 April         GBPm   GBPm    GBPm        % 
-------------------------  -----  -----  ------  ------- 
Group rental profit         67.6   64.3     3.2     5.0% 
Group disposal profit       10.0   17.1   (7.1)  (41.4%) 
-------------------------  -----  -----  ------  ------- 
Northgate businesses        77.6   81.5   (3.9)   (4.7%) 
Redde operating profit       2.4      -     2.4        - 
Corporate costs            (6.1)  (5.3)   (0.8)  (15.7%) 
Associate income (Redde)     0.9      -     0.9        - 
Total                       74.8   76.2   (1.4)   (1.8%) 
-------------------------  -----  -----  ------  ------- 
 

Group vehicle rental profit increased GBP3.2m reflecting improved profit margins in Northgate UK&I (+GBP6.5m) partly offset by a decrease in Northgate Spain (-GBP3.3m).

The reduction in Group disposal profit by 41.4% to GBP10.0m resulted primarily from fewer vehicle sales, largely as a result of the suspension of the disposal market during COVID-19 lockdown period in the final two months of the year and included a GBP5.4m decrease relating to the unwind of previous depreciation rate changes.

The Group EBIT in FY2020 has benefitted from GBP3.3m of contributions from operating profit of GBP2.4m and GBP0.9m of associate income arising from the Redde business in the period following the Merger.

Business combinations

The Company acquired Redde plc on 21 February 2020 via a share exchange at an agreed ratio resulting in total fair value consideration of GBP318.4m. A purchase price allocation exercise has been undertaken in order to identify and recognise intangible assets with finite useful lives amounting to GBP186.6m with GBP35.5m of associated deferred tax liability and other net assets of GBP54.8m resulting in goodwill of GBP112.5m.

The valuation methodologies used for estimating fair values of consideration and net assets acquired were based on accepted valuation techniques and intangible assets are estimated to have useful lives ranging from five to fifteen years.

Goodwill arising on acquisition has been subsequently tested for impairment at 30 April 2020 based on updated cash flow forecasts which have been prepared taking into account the expected impacts of COVID-19, and no adjustment for impairment losses was required.

Impact of IFRS 16 adoption

IFRS 16 has been adopted for the first time from 1 May 2019. The Group has recognised lease liabilities in relation to land and buildings and vehicles which would have previously been classified as 'operating leases' under the principles of IAS 17.

Adoption of this new standard on 1 May 2019 led to the recognition of 'Right-of-use' assets and corresponding Lease liabilities in the balance sheet of GBP48.5m. The resulting depreciation and interest costs replaced costs that would formerly have been recognised as operating lease expenses within the consolidated income statement. The adoption of the standard has resulted in an increase in depreciation costs of GBP7.9m and finance costs of GBP1.2m. Other operating expenses have decreased by GBP8.9m giving a net decrease in profit before tax of GBP0.3m and a net decrease in underlying EPS of 0.1p.

Depreciation rate changes

The accounting requirements to adjust depreciation rates due to changes in expectations of future residual values of used vehicles make it more difficult to identify the underlying profit trends in the business. When a vehicle is acquired it is recognised as a fixed asset at its cost net of any discount or rebate receivable. The cost is then depreciated evenly over its rental life, matching its pattern of usage.

Matching of future market values to net book value on the disposal date requires significant judgement for the following key reasons:

1. Used vehicle prices are subject to short term volatility which makes it challenging to estimate future residual values;

2. The exact disposal age is not known at the point at which rates are set and therefore the book value at disposal date is not certain; and

3. Mileage and condition are the key factors in influencing the market value of a vehicle. This can vary significantly through a vehicle's life depending upon how the vehicle is used.

Due to the above uncertainties, a difference normally arises between the net book value of a vehicle and its actual market value at the date of disposal. Where those differences are within an acceptable range these are adjusted against the depreciation charge in the income statement. Where these differences are outside of the acceptable range, changes are made to depreciation rate estimates to better reflect market conditions and the usage of vehicles.

In FY2020 the impact of previous rate changes is a GBP5.4m year on year reduction in disposal profits arising due to disposed vehicles having a higher NBV as result of the lower depreciation rates.

The impacts of previous rate changes on FY2020 operating profit, and the estimated impact on future years of the previous changes, is set out below:

 
                 Cumulative 
                     impact    Year on year impact 
---------------  ----------  ----------------------- 
                      Group    Group    UK&I   Spain 
Year:                  GBPm     GBPm    GBPm    GBPm 
---------------  ----------  -------  ------  ------ 
30 April 2013           5.3      5.3     5.3       - 
30 April 2014           4.3    (1.0)   (1.0)       - 
30 April 2015          15.7     11.4     8.4     3.0 
30 April 2016          12.0    (3.7)   (5.9)     2.2 
30 April 2017           6.3    (5.7)   (4.1)   (1.6) 
30 April 2018           2.1    (4.2)   (2.7)   (1.5) 
30 April 2019          17.4     15.3     4.1    11.2 
30 April 2020          12.0    (5.4)   (1.4)   (4.0) 
30 April 2021*          6.6    (5.4)   (1.4)   (4.0) 
30 April 2022*          1.2    (5.4)   (1.4)   (4.0) 
30 April 2023*            -    (1.2)       -   (1.2) 
---------------  ----------  -------  ------  ------ 
 

*These are management estimates based on indicative fleet size and assuming an equalised level of defleeting in each year .

Interest

Net underlying finance charges stated before exceptional finance costs of GBP0.6m, increased by 4.9% to GBP15.8m (2019: GBP15.1m) as a result of higher net debt. The net cash interest charge for the year was GBP14.5m (2019: GBP14.1m) as a result of higher borrowings and inclusion of HP for the first time this year. Non-cash interest was GBP1.3m (2019: GBP1.0m).

Underlying profit before tax

Underlying profit before tax was GBP59.0m (GBP59.2m at constant exchange rates), GBP2.1m lower than in FY2019 (2019: GBP61.1m).

Taxation

The Group's underlying tax charge was GBP11.5m (2019: GBP9.5m) and the underlying effective tax rate was 19% (2019: 16%). The statutory effective tax rate was 43% (2019: 15%), impacted mainly by non-deductible Merger expenses.

Earnings per share

Underlying EPS was 30.8p compared to 38.7p in the prior year. Statutory EPS was 5.0p compared to 38.6p in the prior year.

Underlying earnings for the purpose of calculating EPS were GBP47.5m (2019: GBP51.6m). The weighted average number of shares for the purposes of calculating EPS was 154.5m (2019: 133.2m).

Exceptional items

During the year the Group incurred exceptional costs of GBP42.3m (2019: GBPnil).

Intangible impairment

The Group is in dispute with the provider of certain IT and software development services in relation to the delivery of the planned development of Northgate's new IT system and has therefore paused the project. Given the uncertainty over the outcome of this dispute a decision has been made to write down the carrying values of the related assets. The Group therefore incurred exceptional costs in relation to this impairment of GBP14.9m (2019: GBPnil).

Restructuring expenses

The Group incurred total exceptional restructuring costs of GBP8.6m (2019: GBPnil), of which GBP4.7m arose in Northgate UK&I (2019: GBPnil), GBP1.5m in Northgate Spain (2019: GBPnil) and GBP2.4m in Corporate (2019: GBPnil).

Restructuring costs of GBP4.7m (2019: GBPnil) were incurred in relation to restructuring activities that were undertaken both during the year and following the acquisition of Redde plc, as part of the integration of the Combined Group. These costs primarily related to a reduction in headcount and associated redundancy and loss of office costs.

As part of the post-acquisition reorganisation, an exceptional impairment of property, plant and equipment of GBP1.3m (2019: GBPnil) and an onerous contract provision of GBP0.4m (2019: GBPnil) were incurred in relation to property.

Exceptional share based payment charges of GBP1.7m (2019: GBPnil) were incurred in relation to outstanding EPSP awards previously made to continuing employees that were forfeited following the completion of the acquisition of Redde plc.

Exceptional costs of GBP0.6m (2019: GBPnil) were incurred in relation to the closure of certain sites.

Merger expenses

The Group incurred expenses of GBP18.3m (2019: GBPnil) in executing the Merger transaction.

Refinancing expenses

The Group incurred exceptional finance costs of GBP0.6m (2019: GBPnil) in relation to debt partially extinguished as part of the refinancing of Group bank facilities.

Dividend and capital allocation

Subject to approval, the final dividend proposed of 6.8p per share (2019: 12.1p) will be paid on 3 November 2020 to shareholders on the register as at close of business on 25 September 2020.

Including the interim dividend paid of 6.3p (2019: 6.2p), the total dividend relating to the year would be 13.1p (2019: 18.3p). The dividend is covered 1.9x by underlying earnings.

The Group's objective is to employ a disciplined approach to investment, returns and capital efficiency to deliver sustainable compounding growth. Capital will be allocated within the business in accordance with the framework outlined below:

   1.   Dividend: appropriate dividend distribution. 

2. Core business growth: organic capital investment to grow the core business at returns substantially ahead of WACC.

3. Disposal: potential disposal of non-core assets where investment returns can be maximised through sale.

4. Inorganic: bolt-on acquisitions into product or geographic adjacencies at returns substantially ahead of WACC.

The Group plans to maintain a balance sheet within a target leverage range of 1.0x to 2.0x net debt to EBITDA, and during periods of significant growth net debt would be expected to be towards the higher end of this range. This is consistent with the Group's objective of maintaining a balance sheet that is efficient in terms of providing long term returns to shareholders and safeguards the Group's financial position through economic cycles.

Cash flow

A summary of the Group's cash generation is as follows:

 
Year ended 30 April                            2020     2019 
                                               GBPm     GBPm 
------------------------------------------  -------  ------- 
Cash generated from operations                264.4    283.2 
Net capital expenditure                     (213.7)  (243.9) 
Net taxation and interest payments           (24.8)   (15.7) 
Net share purchases and refinancing costs     (4.9)    (3.2) 
Distributions from associates                   0.6        - 
------------------------------------------  -------  ------- 
Free cash flow                                 21.6     20.5 
------------------------------------------  -------  ------- 
Dividends                                    (24.3)   (23.4) 
Net cash consumed                             (2.7)    (3.0) 
------------------------------------------  -------  ------- 
 

A total of GBP362.0m was invested in new vehicles compared to GBP403.5m in the prior year. The Group's new vehicle capital expenditure was partially funded by GBP156.3m generated from the sale of used vehicles (2019: GBP174.5m). Other net capital expenditure amounted to GBP7.9m (2019: GBP14.9m).

The cash flow generation of the Group in any year is influenced by the capital expenditure to grow the business or cash generated by adjusting the fleet size downwards if VOH reduce. If the impact of increasing or reducing the rental fleet size in the year is removed from net capital expenditure, the underlying free cash generation of the Group was as follows:

 
Year ended 30 April          2020   2019 
                             GBPm   GBPm 
--------------------------  -----  ----- 
Free cash flow               21.6   20.5 
Add back: Growth capex       16.8   42.6 
Underlying free cash flow    38.4   63.1 
--------------------------  -----  ----- 
 

Net debt reconciles as follows:

 
Year ended 30 April            2020   2019 
                               GBPm   GBPm 
----------------------------  -----  ----- 
Opening net debt              436.9  439.3 
IFRS 16 transition             48.5      - 
Net debt acquired in Merger    84.1      - 
Net cash consumed               2.7    3.0 
Other non-cash items            1.8    0.6 
Exchange differences            1.8  (6.0) 
Closing net debt              575.9  436.9 
----------------------------  -----  ----- 
 

Free cash inflow was GBP21.6m (2019: GBP20.5m) after net capital expenditure of GBP213.7m (2019: GBP243.9m). If the impact of growth capex in the year is removed from net capital expenditure in each year, the underlying free cash flow of the Group was GBP38.4m (2019: GBP63.1m).

Net cash consumption was GBP2.7m (2019: GBP3.0m). After the introduction of IFRS 16 lease liabilities of GBP48.5m (2019: GBPnil) and net debt acquired from Redde of GBP84.1m (2019: GBPnil), closing net debt was GBP575.9m (2019: GBP436.9m).

Borrowing facilities

As at 30 April 2020 the Group had headroom on facilities of GBP234m, with GBP477m drawn (net of available cash balances) against total committed facilities of GBP711m as detailed below:

 
                     Facility  Drawn  Headroom            Borrowing 
                         GBPm   GBPm      GBPm  Maturity       Cost 
-------------------  --------  -----  --------  --------  --------- 
UK bank facilities        610    386       224    Nov-23       2.1% 
Loan notes                 87     87         -    Aug-22       2.4% 
Other loans                14      4        10    Nov-20       2.4% 
                          711    477       234                 2.3% 
-------------------  --------  -----  --------  --------  --------- 
 

The other loans consist of GBP13m of local borrowings in Spain and GBP0.5m of preference shares.

During the year the existing Northgate UK bank facilities were refinanced increasing those facilities by GBP51m. UK bank facilities of GBP55m were acquired from Redde on completion of the Merger.

The above drawn amounts reconcile to net debt as follows:

 
                                       Drawn 
                                        GBPm 
------------------------------------   ----- 
Borrowing facilities                     477 
Unamortised finance fees                 (5) 
Leases arising following adoption 
 of IFRS 16                               63 
Leases arising under HP obligations       41 
Net debt                                 576 
-------------------------------------  ----- 
 

The overall cost of borrowings at 30 April 2020 is 2.3% (2019: 2.5%).

The margin charged on bank debt is dependent upon the Group's net debt to EBITDA ratio, ranging from a minimum of 1.35% to a maximum of 3.1%. The net debt to EBITDA ratio at 30 April 2020 corresponds to a margin of 1.85% (2019: 2%).

Interest rate swap contracts have been taken out which fix a proportion of bank debt at 2.4% (2019: 2.6%).

The split of net debt by currency is as follows:

 
 Year ended 30 April                                   2020   2019 
                                                       GBPm   GBPm 
----------------------------------------------------  -----  ----- 
Euro                                                    370    296 
Sterling                                                211    143 
----------------------------------------------------  -----  ----- 
Borrowings and lease obligations before unamortised 
 arrangement fees                                       581    439 
Unamortised finance fees                                (5)    (2) 
----------------------------------------------------  -----  ----- 
                                                        576    437 
----------------------------------------------------  -----  ----- 
 

There are three financial covenants under the Group's facilities as follows:

 
                  Threshold  April 2020          Headroom  April 2019 
---------------  ----------  ----------  ----------------  ---------- 
Interest cover           3x        5.3x     GBP30m (EBIT)        5.3x 
                                             GBP243m (Net 
Loan to value           70%         48%             debt)         43% 
Debt leverage         2.75x        1.6x  GBP132m (EBITDA)        1.6x 
---------------  ----------  ----------  ----------------  ---------- 
 

The covenant calculations have been prepared in accordance with the requirements of the facilities that they relate to.

Balance sheet

Net assets at 30 April 2020 were GBP871.6m (2019: GBP563.6m), equivalent to net assets per share of 354p (2019: 423p). Net tangible assets at 30 April 2020 were GBP569.8m (2019: GBP548.5m), equivalent to a net tangible asset value of 232p per share (2019: 412p per share).

As outlined above, on acquisition of Redde, net assets of GBP318.4m were recognised on the balance sheet, including GBP112.5m of goodwill, GBP186.6m other intangible assets and GBP19.3m of other net tangible assets.

Gearing at 30 April 2020 was 101.1% (2019: 79.6%) and ROCE was 7.0% (2019: 7.7%).

The expected impact of COVID-19 has been considered in the impairment testing of each category of assets and adjustments have been made if required.

Treasury

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 Group policy to avoid using more complex financial instruments.

Credit risk

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. Group credit exposure for material deposits is limited to banks which maintain an A rating. Individual aggregate credit exposures are also limited accordingly.

Liquidity and funding

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 outlined above are not restrictive to the Group's operations.

Capital management

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 subsidiaries are financed by a combination of retained earnings and 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.

Interest rate management

The Group's bank facilities, other loan agreements and lease obligations 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 (including leases arising under HP obligations) hedged into fixed rates was 60% at 30 April 2020 (2019: 68%).

Foreign exchange risk

The Group's reporting currency is Sterling and 63% of its revenue is generated in Sterling during the year (2019: 65%). 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:

 
                 2020        2019 
            GBP : EUR   GBP : EUR 
---------  ----------  ---------- 
Average          1.14        1.14 
Year end         1.15        1.16 
---------  ----------  ---------- 
 

The Group manages its exposure to currency fluctuations on retranslation of the balance sheets of those subsidiaries whose functional currency is in Euros 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. At 30 April 2020 71% of Euro net assets were hedged against Euro borrowings (2019: 62%).

Going concern

Having considered the Group's current trading, cash flow generation and debt maturity including severe but plausible stress testing scenarios including the impacts of COVID-19 (as detailed further in Note 8 to the financial statements), the Directors have concluded that it is appropriate to prepare the Group financial statements on a going concern basis.

Philip Vincent

Chief Financial Officer

GLOSSARY OF TERMS

The following defined terms have been used throughout this document:

 
 Term                 Definition 
 Certain intangible   Intangible assets recognised on business combinations 
  assets               and other non-recurring items 
                     ------------------------------------------------------ 
 Disposal profit(s)   This is a non-GAAP measure used to describe 
                       the adjustment in the 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) 
                     ------------------------------------------------------ 
 EBIT                 Earnings before interest and taxation 
                     ------------------------------------------------------ 
 EBITDA               Earnings before interest, taxation, depreciation 
                       and amortisation 
                     ------------------------------------------------------ 
 EPS                  Basic earnings per share 
                     ------------------------------------------------------ 
 EPSP                 Executive Performance Share Plan 
                     ------------------------------------------------------ 
 Facility headroom    Calculated as facilities of GBP711m less net 
                       borrowings of GBP477m. Net borrowings represent 
                       net debt of GBP576m excluding lease liabilities 
                       of GBP104m and unamortised arrangement fees 
                       of GBP5m and are stated after the deduction 
                       of GBP17m of net cash and overdraft balances 
                       which are available to offset against borrowings 
                     ------------------------------------------------------ 
 Free cash flow       Net cash generated before the payment of dividends 

                     ------------------------------------------------------ 
 FY2019               The year ended 30 April 2019 
                     ------------------------------------------------------ 
 FY2020               The year ended 30 April 2020 
                     ------------------------------------------------------ 
 FY2021               The year ending 30 April 2021 
                     ------------------------------------------------------ 
 GAAP                 Generally Accepted Accounting Practice: meaning 
                       compliance with IFRS 
                     ------------------------------------------------------ 
 Gearing              Calculated as net debt divided by net tangible 
                       assets 
                     ------------------------------------------------------ 
 Growth capex         Growth capex represents the cash consumed in 
                       order to grow the total rental fleet or the 
                       cash generated if the fleet size is reduced 
                       in periods of contraction 
                     ------------------------------------------------------ 
 H1/H2                Half year period: H1 being the first half and 
                       H2 being the second half of the financial year 
                     ------------------------------------------------------ 
 HP (leases)          Leases recognised on the balance sheet that 
                       would previously have been classified as finance 
                       leases prior to the adoption of IFRS 16 
                     ------------------------------------------------------ 
 IFRS                 International Financial Reporting Standards 
                     ------------------------------------------------------ 
 IFRS 16 (leases)     Leases recognised on the balance sheet that 
                       would previously have been classified as operating 
                       leases prior to the adoption of IFRS 16 
                     ------------------------------------------------------ 
 LCV                  Light commercial vehicle: the official term 
                       used within the European Union for a commercial 
                       carrier vehicle with a gross vehicle weight 
                       of not more than 3.5 tonnes 
                     ------------------------------------------------------ 
 Net replacement      Net capital expenditure other than that defined 
  capex                as growth capex 
                     ------------------------------------------------------ 
 Net tangible         Net assets less goodwill and other intangible 
  assets               assets 
                     ------------------------------------------------------ 
 Northgate            The Company and its subsidiaries prior to the 
                       Merger or that part of the business following 
                       the Merger 
                     ------------------------------------------------------ 
 Northgate Spain      The Northgate Spain operating segment representing 
                       the commercial vehicle hire part of the Group 
                       located in Spain 
                     ------------------------------------------------------ 
 Northgate UK&I       The Northgate UK&I operating segment representing 
                       the commercial vehicle hire part of the Group 
                       located in the United Kingdom and the Republic 
                       of Ireland 
                     ------------------------------------------------------ 
 OEM                  Original Equipment Manufacturer: a reference 
                       to our vehicle suppliers 
                     ------------------------------------------------------ 
 PBT                  Profit before taxation 
                     ------------------------------------------------------ 
 PPU                  Profit per unit/loss per unit - this is a non-GAAP 
                       measure used to describe disposal profit (as 
                       defined), divided by the number of vehicles 
                       sold 
                     ------------------------------------------------------ 
 Redde                The Redde operating segment representing the 
                       insurance claims and services part of the group 
                       or the Redde plc company and its subsidiaries 
                       prior to the Merger 
                     ------------------------------------------------------ 
 ROCE                 Underlying return on capital employed: calculated 
                       as underlying EBIT (see non-GAAP reconciliation) 
                       divided by average capital employed excluding 
                       acquired goodwill and intangible assets 
                     ------------------------------------------------------ 
 Steady state         Underlying EBITDA less net replacement capex 
  cash generation 
                     ------------------------------------------------------ 
 The Combined         The Company and its subsidiaries following 
  Group                the Merger 
                     ------------------------------------------------------ 
 The Company          Redde Northgate plc 
                     ------------------------------------------------------ 
 The Group            The Company and its subsidiaries 
                     ------------------------------------------------------ 
 The Merger           The acquisition by the Company of 100% of the 
                       share capital of Redde plc on 21 February 2020 
                     ------------------------------------------------------ 
 Underlying free      Free cash flow excluding growth capex 
  cash flow 
                     ------------------------------------------------------ 
 Utilisation          Calculated as the average number of vehicles 
                       on hire divided by average rentable fleet in 
                       any period 
                     ------------------------------------------------------ 
 VOH                  Vehicles on hire. Average unless otherwise 
                       stated 
                     ------------------------------------------------------ 
 WACC                 Weighted average cost of capital 
                     ------------------------------------------------------ 
 

GAAP Reconciliation

A reconciliation of GAAP to non-GAAP underlying measures is as follows:

 
                                      Group    Group 
                                       2020     2019 
                                     GBP000   GBP000 
----------------------------------  -------  ------- 
Operating profit                     28,916   75,491 
Income from associates                  952        - 
EBIT                                 29,868   75,491 
Add back: 
Restructuring costs                   8,609        - 
Merger expenses                      18,256        - 
Exceptional intangible impairment    14,910        - 
Certain intangible amortisation       3,178      709 
Underlying EBIT                      74,821   76,200 
----------------------------------  -------  ------- 
 
 
                                      Group    Group 
                                       2020     2019 
                                     GBP000   GBP000 
----------------------------------  -------  ------- 
Profit before tax                    13,479   60,406 
Add back: 
Restructuring costs                   8,609        - 
Merger expenses                      18,256        - 
Exceptional intangible impairment    14,910        - 
Exceptional finance costs               566        - 
Certain intangible amortisation       3,178      709 
Underlying profit before tax         58,998   61,115 
----------------------------------  -------  ------- 
 
 
                                                        Group        Group 
                                                         2020         2019 
                                                       GBP000       GBP000 
------------------------------------------------  -----------  ----------- 
Profit for the year                                     7,676       51,418 
Add back: 
Restructuring costs                                     8,609            - 
Merger expenses                                        18,256            - 
Exceptional intangible impairment                      14,910            - 
Exceptional finance costs                                 566            - 
Certain intangible amortisation                         3,178          709 
Tax on exceptional items and certain intangible 
 amortisation                                         (5,676)        (545) 
------------------------------------------------  -----------  ----------- 
Underlying profit for the year                         47,519       51,582 
------------------------------------------------  -----------  ----------- 
Weighted average number of Ordinary shares        154,509,197  133,232,518 
------------------------------------------------  -----------  ----------- 
Underlying basic earnings per share                     30.8p        38.7p 
------------------------------------------------  -----------  ----------- 
 
 
                                                            Group      Group 
                                                             2020       2019 
                                                           GBP000     GBP000 
------------------------------------------------------  ---------  --------- 
Underlying EBIT                                            74,821     76,200 
Add back: 
Fleet depreciation                                        194,856    185,794 
Other depreciation                                         13,219      5,522 
Loss on disposal of assets                                    144        274 
Intangible amortisation (excluding certain intangible 
 amortisation)                                                809        657 

------------------------------------------------------  ---------  --------- 
Underlying EBITDA                                         283,849    268,447 
------------------------------------------------------  ---------  --------- 
Net replacement capex                                   (196,904)  (201,304) 
Steady state cash generation                               86,945     67,143 
------------------------------------------------------  ---------  --------- 
 
 
                                   Northgate   Northgate        Group 
                                        UK&I       Spain    Sub-total 
                                        2020        2020         2020 
                                      GBP000      GBP000       GBP000 
--------------------------------   ---------  ----------  ----------- 
Underlying operating profit           37,899      39,731       77,630 
Exclude: 
Adjustments to depreciation 
 charge in relation to vehicles 
 sold in the period                  (6,742)     (3,297)     (10,039) 
Rental profit                         31,157      36,434       67,591 
Divided by: Revenue: hire of 
 vehicles                            313,922     204,235      518,157 
---------------------------------  ---------  ----------  ----------- 
Rental margin                           9.9%       17.8%        13.0% 
---------------------------------  ---------  ----------  ----------- 
 
 
                                   Northgate   Northgate        Group 
                                        UK&I       Spain    Sub-total 
                                        2019        2019         2019 
                                      GBP000      GBP000       GBP000 
--------------------------------   ---------  ----------  ----------- 
Underlying operating profit           35,396      46,086       81,482 
Exclude: 
Adjustments to depreciation 
 charge in relation to vehicles 
 sold in the period                 (10,762)     (6,374)     (17,136) 
Rental profit                         24,634      39,712       64,346 
Divided by: Revenue: hire of 
 vehicles                            315,559     202,065      517,624 
---------------------------------  ---------  ----------  ----------- 
Rental margin                           7.8%       19.7%        12.4% 
---------------------------------  ---------  ----------  ----------- 
 
 
                                                           Group     Group 
                                                            2020      2019 
                                                          GBP000    GBP000 
-----------------------------------------------------  ---------  -------- 
Net increase (decrease) in cash and cash equivalents      16,746  (13,616) 
Add back: 
Cash acquired on acquisition                             (8,036)         - 
Receipt of bank loans and other borrowings             (137,257)         - 
Repayments of bank loans and other borrowings            114,289    10,651 
Principal element of lease payments under IFRS 
 16                                                        8,034         - 
Principal element of lease payments under HP 
 obligations                                               3,490         - 
-----------------------------------------------------  ---------  -------- 
Net cash consumed                                        (2,734)   (2,965) 
-----------------------------------------------------  ---------  -------- 
Add back: dividends paid                                  24,333    23,431 
-----------------------------------------------------  ---------  -------- 
Free cash flow                                            21,599    20,466 
-----------------------------------------------------  ---------  -------- 
Add back: growth capex                                    16,753    42,641 
-----------------------------------------------------  ---------  -------- 
Underlying free cash flow                                 38,352    63,107 
-----------------------------------------------------  ---------  -------- 
 
 
CONSOLIDATED INCOME STATEMENT 
FOR THE YEARED 30 APRIL 2020 
                                                         Underlying  Statutory  Underlying   Statutory 
                                                               2020       2020        2019        2019 
                                                   Note      GBP000     GBP000      GBP000      GBP000 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
Revenue: hire of vehicles                                   518,157    518,157     517,624     517,624 
Revenue: sale of vehicles                                   193,795    193,795     227,846     227,846 
Revenue: claims and services                                 67,397     67,397           -           - 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
Total revenue                                         1     779,349    779,349     745,470     745,470 
Cost of sales                                             (621,446)  (621,446)   (592,598)   (592,598) 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
Gross profit                                                157,903    157,903     152,872     152,872 
 
Administrative expenses (excluding exceptional 
 items and certain intangible amortisation)                (84,034)   (84,034)    (76,672)    (76,672) 
Exceptional administrative expenses: impairment 
 of property, plant and equipment                     6           -    (1,304)           -           - 
Exceptional administrative expenses: impairment 
 of intangible assets                                 6           -   (14,910)           -           - 
Exceptional administrative expenses: other costs      6           -   (25,561)           -           - 
Certain intangible amortisation                                   -    (3,178)           -       (709) 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
Total administrative expenses                              (84,034)  (128,987)    (76,672)    (77,381) 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
Operating profit                                             73,869     28,916      76,200      75,491 
Income from associates                                          952        952           -           - 
EBIT                                                  1      74,821     29,868      76,200      75,491 
Interest income                                                 122        122          39          39 
Finance costs (excluding exceptional items)                (15,945)   (15,945)    (15,124)    (15,124) 
Exceptional finance costs                             6           -      (566)           -           - 
Profit before taxation                                       58,998     13,479      61,115      60,406 
Taxation                                                   (11,479)    (5,803)     (9,533)     (8,988) 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
Profit for the year                                          47,519      7,676      51,582      51,418 
-------------------------------------------------  ----  ----------  ---------  ----------  ---------- 
 
 

Profit 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 6, as well as certain intangible amortisation and the taxation thereon, in order to provide a better indication of the Group's underlying business performance.

 
Earnings per share 
Basic                230.8p  5.0p  38.7p  38.6p 
-------------------   -----  ----  -----  ----- 
Diluted              230.5p  4.9p  38.0p  37.8p 
-------------------   -----  ----  -----  ----- 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
FOR THE YEARED 30 APRIL 2020 
-----------------------------------------------------------------------------------------   -------  --------- 
                                                                                               2020       2019 
                                                                                             GBP000     GBP000 
-----------------------------------------------------------------------------------------   -------  --------- 
Amounts attributable to owners of the Parent Company 
Profit attributable to the owners                                                             7,676     51,418 
 
  Other comprehensive income (expense) 
  Foreign exchange differences on retranslation of net assets of subsidiary undertakings      3,998    (9,366) 
Net foreign exchange differences on long term borrowings held as hedges                     (1,682)      5,687 
Foreign exchange difference on revaluation reserve                                                9       (23) 
Net fair value gains on cash flow hedges                                                        807        398 
Deferred tax charge recognised directly in equity relating to cash flow hedges                (153)       (76) 
Total other comprehensive income (expense)                                                    2,979    (3,380) 
Total comprehensive income for the year                                                      10,655     48,038 
==========================================================================================  =======  ========= 
 

All items will subsequently be reclassified to the consolidated income statement. Profit attributable to the owners of the Parent Company includes amortisation of intangible assets.

 
CONSOLIDATED BALANCE SHEET 
AS AT 30 APRIL 2020 
                                                                 2020       2019 
                                                               GBP000     GBP000 
--------------------------------------------------------    ---------  --------- 
Non-current assets 
Goodwill                                                      116,105      3,589 
Other intangible assets                                       185,710     11,495 
 
Property, plant and equipment: vehicles for hire              884,711    900,335 
Property, plant and equipment: vehicles for credit hire        51,040          - 
Other property, plant and equipment                           126,009     68,843 
Total property, plant and equipment                         1,061,760    969,178 
----------------------------------------------------------  ---------  --------- 
Deferred tax assets                                            10,133      6,620 
Interest in associates                                          6,008          - 
Total non-current assets                                    1,379,716    990,882 
----------------------------------------------------------  ---------  --------- 
Current assets 
Inventories                                                    48,762     29,826 
Receivables and contract assets                               295,765     71,802 
Current tax assets                                                  -        116 
Cash and bank balances                                         67,843     35,742 
Total current assets                                          412,370    137,486 
----------------------------------------------------------  ---------  --------- 
Total assets                                                1,792,086  1,128,368 
----------------------------------------------------------  ---------  --------- 
Current liabilities 
Trade and other payables                                      222,342     72,487 
Provisions                                                      3,369          - 
Derivative financial instrument liabilities                       184         77 
Current tax liabilities                                        12,393     13,425 
Lease liabilities                                              33,691          - 
Short term borrowings                                          54,684     44,190 
----------------------------------------------------------  ---------  --------- 
Total c urrent liabilities                                    326,663    130,179 
----------------------------------------------------------  ---------  --------- 
Net current assets                                             85,707      7,307 
----------------------------------------------------------  ---------  --------- 
Non-current liabilities 
Provisions                                                      1,208          - 
Derivative financial instrument liabilities                         -        914 
Lease liabilities                                              70,261          - 
Long term borrowings                                          485,073    428,409 
Deferred tax liabilities                                       37,314      5,250 
----------------------------------------------------------  ---------  --------- 
Total non-current liabilities                                 593,856    434,573 
----------------------------------------------------------  ---------  --------- 
Total liabilities                                             920,519    564,752 
----------------------------------------------------------  ---------  --------- 
NET ASSETS                                                    871,567    563,616 
----------------------------------------------------------  ---------  --------- 
EQUITY 
Share capital                                                 123,046     66,616 
Share premium account                                         113,510    113,508 
Own shares reserve                                            (3,090)    (3,359) 
Hedging reserve                                                 (149)      (803) 
Translation reserve                                           (2,509)    (4,825) 
Other reserves                                                330,477     68,637 
Retained earnings                                             310,282    323,842 
TOTAL EQUITY                                                  871,567    563,616 
----------------------------------------------------------  ---------  --------- 
 

Total equity is wholly attributable to owners of the Parent Company.

 
CONSOLIDATED CASH FLOW STATEMENT 
FOR THE YEARED 30 APRIL 2020 
--------------------------------------------------------  ------  ---------  -------- 
 
                                                                       2020      2019 
                                                            Note     GBP000    GBP000 
Net cash generated from operations                             4     33,699    38,528 
--------------------------------------------------------  ------  ---------  -------- 
Investing activities 
Interest received                                                       122        39 
Distributions from associates                                           590         - 
Cash acquired on acquisition                                          8,036         - 
Proceeds from disposal of other property, plant and equipment         3,823     1,128 
Purchases of other property, plant and equipment                    (5,250)   (8,370) 
Purchases of intangible assets                                      (6,509)   (7,684) 
--------------------------------------------------------  ------  ---------  -------- 
Net cash generated from (used in) investing activities                  812  (14,887) 
--------------------------------------------------------  ------  ---------  -------- 
Financing activities 
Issue of shares                                                           2         - 
Dividends paid                                                     (24,333)  (23,431) 
Receipts of bank loans and other borrowings                         137,257         - 
Repayments of bank loans and other borrowings                     (114,289)  (10,651) 
Debt issue costs                                                    (4,878)   (1,737) 
Principal element of lease payments under IFRS 16                   (8,034)         - 
Principal element of HP payments                                    (3,490)         - 
Net payments to acquire own shares for share schemes                      -   (1,438) 
Net cash used in financing activities                              (17,765)  (37,257) 
--------------------------------------------------------  ------  ---------  -------- 
Net increase (decrease) in cash and cash equivalents                 16,746  (13,616) 
Cash and cash equivalents at 1 May                                      805    14,127 
Effect of foreign exchange movements                                  (771)       294 
--------------------------------------------------------  ------  ---------  -------- 
Cash and cash equivalents at 30 April                                16,780       805 
--------------------------------------------------------  ------  ---------  -------- 
 
 
Cash and cash equivalents comprise: 
Cash and bank balances                   67,843    35,742 
Bank overdrafts                        (51,063)  (34,937) 
-------------------------------------  --------  -------- 
                                         16,780       805 
 ------------------------------------  --------  -------- 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 30 APRIL 2020

 
                                    Share 
                                  capital 
                                and share     Own shares    Hedging   Translation       Other    Retained 
                                  premium        reserve    reserve       reserve    reserves    earnings      Total 
                                   GBP000         GBP000     GBP000        GBP000      GBP000      GBP000     GBP000 
----------------------------  -----------  -------------  ---------  ------------  ----------  ----------  --------- 
 Total equity at 1 
  May 2018                        180,124        (3,238)    (1,125)       (1,146)      68,660     295,853    539,128 
 Share options fair 
  value charge                          -              -          -             -           -       1,249      1,249 
 Share options exercised                -              -          -             -           -     (1,317)    (1,317) 
 Profit attributable 
  to owners of the 
  Parent Company                        -              -          -             -           -      51,418     51,418 
 Dividends paid                         -              -          -             -           -    (23,431)   (23,431) 
 Net purchase of own 
  shares                                -        (1,438)          -             -           -           -    (1,438) 
 Transfer of shares 
  on vesting of share 
  options                               -          1,317          -             -           -           -      1,317 
 Deferred tax on share 
  based payments recognised 
  in equity                             -              -          -             -           -          70         70 
 Other comprehensive 
  income (expense)                      -              -        322       (3,679)        (23)           -    (3,380) 
 Total equity at 1 
  May 2019                        180,124        (3,359)      (803)       (4,825)      68,637     323,842    563,616 
 Share options fair 
  value charge                          -              -          -             -           -       4,203      4,203 

 Share options exercised                -              -          -             -           -          19         19 
 Profit attributable 
  to owners of the 
  Parent Company                        -              -          -             -           -       7,676      7,676 
 Dividends paid                         -              -          -             -           -    (24,333)   (24,333) 
 Issue of share capital            56,432              -          -             -     261,831           -    318,263 
 Transfer of shares 
  on vesting of share 
  options                               -            269          -             -           -           -        269 
 Deferred tax on share 
  based payments recognised 
  in equity                             -              -          -             -           -     (1,125)    (1,125) 
 Other comprehensive 
  income                                -              -        654         2,316           9           -      2,979 
 Total equity at 30 
  April 2020                      236,556        (3,090)      (149)       (2,509)     330,477     310,282    871,567 
----------------------------  -----------  -------------  ---------  ------------  ----------  ----------  --------- 
 

Other reserves comprise the capital redemption reserve, revaluation reserve and merger reserve.

NOTES TO THE ACCOUNTS

FOR THE YEARED 30 APRIL 2020

1. SEGMENTAL ANALYSIS

 
                                                         Northgate 
                                         NorthgateUK&I       Spain     Redde   Corporate      Total 
                                                  2020        2020      2020        2020       2020 
                                                GBP000      GBP000    GBP000      GBP000     GBP000 
--------------------------------------  --------------  ----------  --------  ----------  --------- 
 Revenue: hire of vehicles                     313,922     204,235         -           -    518,157 
 Revenue: sale of vehicles                     137,124      56,671         -           -    193,795 
 Revenue: claims and services                        -           -    67,397           -     67,397 
--------------------------------------  --------------  ----------  --------  ----------  --------- 
 Total revenue                                 451,046     260,906    67,397           -    779,349 
 
 Underlying operating profit 
  (loss)                                        37,899      39,731     2,352     (6,113)     73,869 
 Income from associates                              -           -       952           -        952 
 Underlying EBIT*                               37,899      39,731     3,304     (6,113)     74,821 
 Exceptional items (Note 6)                                                                (41,775) 
 Certain intangible amortisation                                                            (3,178) 
 EBIT                                                                                        29,868 
 Interest income                                                                                122 
 Finance costs (excluding exceptional 
  items)                                                                                   (15,945) 
 Exceptional finance costs                                                                    (566) 
 Profit before taxation                                                                      13,479 
--------------------------------------  --------------  ----------  --------  ----------  --------- 
 
 
                                                     Northgate 
                                     NorthgateUK&I       Spain   Corporate      Total 
                                              2019        2019        2019       2019 
                                            GBP000      GBP000      GBP000     GBP000 
---------------------------------   --------------  ----------  ----------  --------- 
 Revenue: hire of vehicles                 315,559     202,065           -    517,624 
 Revenue: sale of vehicles                 166,488      61,358           -    227,846 
 Total revenue                             482,047     263,423           -    745,470 
 
 Underlying operating profit 
  (loss) / EBIT*                            35,396      46,086     (5,282)     76,200 
 Certain intangible amortisation                                                (709) 
 EBIT                                                                          75,491 
 Interest income                                                                   39 
 Finance costs                                                               (15,124) 
----------------------------------  --------------  ----------  ----------  --------- 
 Profit before taxation                                                        60,406 
----------------------------------  --------------  ----------  ----------  --------- 
 

*Underlying EBIT stated before certain intangible amortisation and exceptional items is the measure used by the Board of Directors to assess segment performance.

 
2. EARNINGS PER SHARE 
                                                                     Underlying    Statutory   Underlying    Statutory 
                                                                           2020         2020         2019         2019 
Basic and diluted earnings per share                                     GBP000       GBP000       GBP000       GBP000 
------------------------------------------------------------------  -----------  -----------  -----------  ----------- 
 
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 profit for the year 
 attributable to owners of the Parent Company                            47,519        7,676       51,582       51,418 
------------------------------------------------------------------  -----------  -----------  -----------  ----------- 
Number of shares 
Weighted average number of Ordinary shares 
for the purposes of basic earnings per share                        154,509,197  154,509,197  133,232,518  133,232,518 
Effect of dilutive potential Ordinary shares: 
 
  *    share options                                                  1,048,391    1,048,391    2,660,697    2,660,697 
------------------------------------------------------------------  -----------  -----------  -----------  ----------- 
Weighted average number of Ordinary shares for the purposes of 
 diluted earnings per share                                         155,557,588  155,557,588  135,893,215  135,893,215 
------------------------------------------------------------------  -----------  -----------  -----------  ----------- 
Basic earnings per share                                                  30.8p         5.0p        38.7p        38.6p 
------------------------------------------------------------------  -----------  -----------  -----------  ----------- 
Diluted earnings per share                                                30.5p         4.9p        38.0p        37.8p 
------------------------------------------------------------------  -----------  -----------  -----------  ----------- 
 

3. DIVIDS

Dividends paid in the year were GBP24,333,000 (2019 - GBP23,431,000).

An interim dividend of 6.3p per Ordinary share was paid in January 2020 (2019: 6.2p). The Directors propose a final dividend of 6.8p per share for the year ended 30 April 2020 (2019: 12.1p), which is subject to approval at the Annual General Meeting and has not been included as a liability as at 30 April 2020.

4. NOTES TO THE CASH FLOW STATEMENT

 
FOR THE YEARED 30 APRIL 2020 
                                                                2020       2019 
Net cash generated from operations                            GBP000     GBP000 
---------------------------------------------------------  ---------  --------- 
Operating profit                                              28,916     75,491 
Adjustments for: 
Depreciation of property, plant and equipment                208,075    191,316 
Impairment of property, plant and equipment                    1,304          - 
Amortisation of intangible assets                              3,987      1,366 
Impairment of intangible assets                               14,910          - 
Loss on disposal of property, plant and equipment                135        272 
Loss on disposal of intangible assets                              9          2 
Share options fair value charge                                4,203      1,249 
---------------------------------------------------------  ---------  --------- 
Operating cash flows before movements in working capital     261,539    269,696 
(Increase) decrease in non-vehicle inventories                  (36)        841 
Decrease in receivables                                        4,250      7,037 
(Decrease) increase in payables                              (1,355)      5,722 
Decrease in provisions                                          (39)          - 
---------------------------------------------------------  ---------  --------- 
Cash generated from operations                               264,359    283,296 
Income taxes paid, net                                      (10,165)    (1,586) 
Interest paid                                               (14,774)   (14,163) 
---------------------------------------------------------  ---------  --------- 
Net cash generated from operations                           239,420    267,547 
Purchases of vehicles for hire                             (362,011)  (403,487) 
Proceeds from disposal of vehicles for hire                  156,290    174,468 
---------------------------------------------------------  ---------  --------- 
Net cash generated from operations                            33,699     38,528 
---------------------------------------------------------  ---------  --------- 
 
  5. ANALYSIS OF CONSOLIDATED NET DEBT 

---------------------------------------------------------  ---------  --------- 
                                                                2020       2019 
                                                              GBP000     GBP000 
---------------------------------------------------------  ---------  --------- 
Cash and bank balances                                      (67,843)   (35,742) 
Bank overdrafts                                               51,063     34,937 
Bank loans                                                   400,847    350,608 
Loan notes                                                    86,868     86,194 
Leases arising following adoption of IFRS 16                  62,999          - 
Leases arising under HP obligations                           40,953          - 
Cumulative preference shares                                     500        500 
Confirming facilities                                            479        360 
---------------------------------------------------------  ---------  --------- 
Consolidated net debt                                        575,866    436,857 
---------------------------------------------------------  ---------  --------- 
 
 
 
6. EXCEPTIONAL ITEMS 
 
Details of exceptional items recognised in the income statement are as follows: 
 
                                                                               2020       2019 
                                                                             GBP000     GBP000 
------------------------------------------------------------------   --------------  --------- 
Restructuring expenses                                                        8,609          - 
Merger expenses                                                              18,256          - 
Intangible impairment                                                        14,910          - 
Exceptional administrative expenses                                          41,775          - 
Refinancing expenses                                                            566          - 
Exceptional finance costs                                                       566          - 
Total pre-tax exceptional items                                              42,341          - 
Tax credits relating to exceptional items                                   (4,661)          - 
-------------------------------------------------------------------  --------------  --------- 
 
 

Restructuring expenses

The Group incurred total exceptional restructuring costs of GBP8,609,000 (2019: GBPnil) of which GBP4,701,000 arose in Northgate UK&I (2019: GBPnil), GBP1,531,000 in Northgate Spain (2019: GBPnil) and GBP2,377,000 Corporate (2019: GBPnil).

Restructuring costs of GBP4,708,000 (2019: GBPnil) were incurred in relation to restructuring activities that were undertaken during the year and following the acquisition of Redde plc, as part of the integration of the Combined Group. These costs primarily related to a reduction in headcount and associated redundancy and loss of office costs.

As part of the post-acquisition reorganisation, an exceptional impairment of property, plant and equipment of GBP1,304,000 (2019: GBPnil) and an onerous contract provision of GBP369,000 (2019: GBPnil) were incurred in relation to property.

Exceptional share based payment charges of GBP1,659,000 (2019: GBPnil) were incurred in relation to outstanding EPSP awards previously made to continuing employees that were forfeited following the completion of the acquisition of Redde plc.

Exceptional costs of GBP569,000 (2019: GBPnil) were incurred in relation to the closure of sites.

Merger expenses

The Group incurred acquisition expenses of GBP18,256,000 (2019: GBPnil). These related to expenses directly attributable to the acquisition such as advisor fees, accountancy services, arranging continuation of bank facilities and other acquisition related costs.

Intangible impairment

The Group is in dispute with the provider of certain IT and software development services in relation to the delivery of the planned development of Northgate's new IT system and has therefore paused the project. Given the uncertainty over the outcome of this dispute a decision has been made to write down the carrying values of the related assets. The Group therefore incurred exceptional costs in relation to this impairment of GBP14,910,000 (2019: GBPnil).

Refinancing expenses

The Group incurred exceptional finance costs of GBP566,000 (2019: GBPnil) relating to debt partially extinguished as part of the refinancing of Group bank facilities.

7. CONTINGENT LIABILITIES

The Group is currently in legal dispute with a provider of certain IT and software development services over the failure to deliver agreed software and services to the Group. Both parties are claiming against each other. However, the Group has disclaimed liability and is defending the action. No provision in relation to the claim has been recognised in the financial statements as legal advice indicates that on the balance of probabilities significant liability will not arise.

8. BASIS OF PREPARATION

The results for the year ended 30 April 2020, including comparative financial information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and their interpretations adopted by the European Union.

Redde Northgate plc ("the Company") has adopted all IFRS in issue and effective for the year.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in October 2020.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 April 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The financial information presented in respect of the year ended 30 April 2020 has been prepared on a basis consistent with that presented in the annual report for the year ended 30 April 2019, with the exception of the application of the following standards IFRS 16 which has been newly applied in the year ended 30 April 2020.

Having considered the Group's current trading, cash flow generation and debt maturity including severe but plausible stress testing scenarios including the impacts of COVID-19, the Directors have concluded that it is appropriate to prepare the Group financial statements on a going concern basis as explained further below.

Assessment of prospects

The Merger has allowed the Group to further increase the service offering and widen our customer base. The Northgate business continues to maintain its position as a market leader in its core market of flexible commercial vehicle hire and has distinct competitive advantages in the minimum term rental and used vehicle sales markets. The Redde business is a leading provider of incident and accident management, legal and other mobility-related services. The integration of both businesses will deliver cost synergies and provide a platform for new revenue opportunities as the commercial proposition matures. The Combined Group is well established within the markets it operates and has demonstrated resilience through previous economic cycles.

The Group's prospects are assessed through its strategic planning process. This process includes an annual review of the ongoing strategic plan, led by the CEO, together with the involvement of business functions in all territories. The Board engages closely with executive management throughout this process and challenges delivery of the strategic plan during regular Board meetings. Part of the Board's role is to challenge the plan to ensure it is robust and makes due consideration of the appropriate external environment.

Impact of COVID-19

The COVID-19 pandemic and ensuing government counter measures have significantly reduced business activity across all areas of the Group, impacting trading in the final two months of the year ended 30 April 2020 and in the commencement of FY2021. A decrease in revenue has resulted from a reduction in vehicles on hire, temporary closure of vehicle sales operations within the rental business of the Group and a lower volume of accidents and incidents handled through the insurance claims and services business of the Group. The impact on revenue included actions to support customers through this period and was mitigated through cost actions, resulting in a net impact of GBP7m in underlying profit before tax for the year ended 30 April 2020.

In the first four months of FY2021, most of the key operational performance indicators have recovered or substantially improved, including a reduction in customer support packages, increases in vehicles on hire, the re-opening of vehicle sales operations and an increase in volumes of accidents and incidents managed through the Redde business.

Significant actions were also taken by management in order to conserve cash and manage the liquidity of the Group throughout this period. This included but was not limited to deferral of capital expenditure and re-negotiation of certain payment terms with creditors. Overall, this resulted in an increase of headroom against committed facilities of GBP34m from GBP200m at 29 February 2020 to GBP234m at 30 April 2020. Headroom against related debt covenants also remained adequate as outlined in the Financial Review which included GBP30m EBIT headroom against the interest cover covenant. Cash continued to be closely managed into FY2021 with headroom on committed facilities increasing by a further GBP57m to GBP291m as at 31 August 2020. This demonstrates the resilience of the Group's balance sheet and business model, and its ability to preserve liquidity throughout periods of uncertainty.

The strategic plan (the Plan), has been updated, taking into account the impact of COVID-19 experienced to date and the expected impact throughout FY2021, with detailed financial forecasts also prepared for the three year period to 30 April 2023. The first year of the financial forecast forms the Group's operating budget which has therefore been risk adjusted for COVID-19 and will be continuously reviewed throughout the financial year. Subsequent years are forecast from the base year, using historical experience and expected measures within the overall strategic plan.

Assessment of going concern

The strategy and associated principal risks underpin the Group's three year strategic planning process, which is updated annually. This process considers the current and prospective macro-economic conditions in the countries in which we operate and the competitive tension that exists within the markets that we trade in.

The Plan also encompasses the projected cash flows, dividend cover assuming operation of stated policy at the time of the Merger and headroom against borrowing facilities and financial covenants under the Group's existing facilities and the reasonable expectation of similar facilities being replaced if required throughout the planned period. The Plan makes certain assumptions about the normal level of capital recycling likely to occur and therefore considers whether additional financing will be required. Headroom against the Group's existing facilities at 30 April 2020 was GBP234m as detailed in the Financial Review. This compares to headroom of GBP165m at 30 April 2019 including a GBP51m increase in banking facilities that was agreed in September 2019. All of the Group's principal borrowing facilities have maturity dates outside of the period under review, therefore the Group's facilities provide sufficient headroom to fund the capital expenditure and working capital requirements for at least 12 months following the date of this report.

As outlined above, the Plan was risk adjusted for the impact of COVID-19 experience to date and the expected impact on subsequent trading. The Plan was separately stress tested for the potential impact of a COVID-19 "second wave" during 2020 and 2021. The scenario assumed a similar impact as observed in the "first wave" including the revenue impact of a reduction in vehicles on hire, closure of vehicle sales operations, and similar reduction in the volume of insurance related accident and repair claims handled. Costs were assumed to be mitigated to the extent that they are directly related to revenue, with an assumption being made that there would be no further reduction in the indirect cost base of the Group and no further government support schemes would be available to access. Capital expenditure was only deferred to the extent of the reduction in demand and the working capital impact was assumed to be similar to that experienced in the first wave without taking further action to re-arrange payment terms with creditors. After taking into account all of the above variables, sufficient headroom remained against available debt facilities and the covenants attached to those facilities, therefore whilst COVID-19 will continue to have a significant impact on the trading performance of the Group, it does not create a material uncertainty on the Group's ability to continue as a going concern.

In addition to the continuance of COVID-19 government restrictions, the Directors have further considered the resilience of the Group, considering its current position and the principal risks facing the business. The Plan was stress tested for severe but reasonable scenarios over the planned period as follows:

   --      Reduction in vehicles on hire with rental customers 
   --      Reduction in pricing of rental hire rates 

-- Increase in the purchase cost of vehicles and other operating expenses not passed on to customers

   --      Reduction in the residual value of used vehicles 

-- Significant volume reduction in insurance claims and services revenue, either in aggregate through lower demand or through ending the commercial relationship with a key insurance partner

   --      Slow down in the time taken to settle outstanding claims with insurers 

-- Failure to integrate the combined business as planned, and therefore not fully deliver Merger synergies

The above scenarios, took into account the effectiveness of mitigating actions that would be reasonably taken, such as reducing variable costs that are directly related to revenue, but did not take into account further management actions that would likely be taken, such as a change to the indirect cost base of the Group or a reduction in capital expenditure and ageing of the vehicle fleet, both of which would generate cash and reduce debt.

After taking into account the above sensitivities and reasonable mitigating actions, sufficient headroom remained against available debt facilities and the covenants attached to those and the Directors have a reasonable expectation that the Group will continue to be meet its obligations as they fall due for at least 12 months from the date of this report.

[1] Refer to GAAP reconciliation and Glossary of terms note. Underlying excludes exceptional costs and certain intangible asset amortisation.

[2] Net debt includes GBP63.0m IFRS 16 liabilities and GBP53.4m Redde net debt not included in FY2019.

[3] Remaining GBP9.1m of exceptional costs relates to GBP8.6m restructuring costs and GBP0.6m one-off re-financing costs. Refer to Financial Review page 24.

[4] Defined as the adjustment in the 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)

[5] Defined as Underlying EBITDA less Net replacement capex. Steady state cash generation is stated before cash flows for interest, taxation and other financing costs.

[6] Calculated as underlying EBIT divided by total revenue

[7] Net replacement capex is total capex less growth capex. Growth capex represents the cash consumed in order to grow the fleet or the cash generated if the fleet size is reduced in periods of contraction.

[8] Calculated as underlying EBIT divided by total revenue

[9] Net replacement capex is total capex less growth capex. Growth capex represents the cash consumed in order to grow the fleet or the cash generated if the fleet size is reduced in periods of contraction.

[10] Calculated as underlying EBIT divided by total revenue

[11] Redde net capex has been adjusted to include the principal element of lease payments under HP.

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September 16, 2020 02:00 ET (06:00 GMT)