Northgate (NTG) chief executive Bob Contreras says the van hire operation he heads is in a much better position to withstand any potential downturn than it was in the financial crisis.

Admitting ‘no-one really knows’ what will happen following Britain’s exit from the EU, Contreras argues lower debt levels, secured financing out to 2018 and a smaller, more diversified business model means the business is well placed.

Contreras spoke to Shares after Northgate published full-year results which showed sales increased 1% to £618 million, helped by proceeds from the sale of surplus vehicles.

Underlying earnings per share declined 4% to 49p, while shares traded 3.3% higher at 317p at the close (28 June).

‘I think it will take time for people to think through the implications of what has happened, it is still early days,’ says Contreras.

‘It is hard to know how different companies will be affected in different scenarios.

‘We have a solid presence across different regions, 50% of our profit is outside the UK.

‘Last time we went into a downturn we had £1 billion of debt and gearing of 600% which meant we had to raise finance, do a rescue rights issue.

‘As well as the financial structure, the problems were compounded by the business being internally much weaker than it is now.’

Northgate - long term total return

NTG - Comparison Line Chart (Rebased to first)

Results for the year to 30 April 2016 show Northgate’s gearing almost one-tenth of its pre-crisis peak, at 67%, down from 81% a year earlier.

Net debt is £310 million versus earnings before interest, tax depreciation and amortisation (EBITDA) of £233 million giving a net debt/EBITDA ratio of 1.33.

Covenants on Northgate’s loans require a ratio of less than two.

Northgate’s fleet age could be allowed to increase if business drops off, Contreras said, via lower spending on new vans.

Vehicles owned by Northgate are 20 months old on average and ‘each one to two months of ageing of the fleet creates significant cash flow, it really is very material, so we are in a strong position’.

But Contreras says a rundown of the fleet remains Plan B at the moment: ‘It is our intention to grow the business from here, not to shrink’.

In the UK, new management has been installed and Northgate is increasing its marketing spend.

Revenue at Northgate’s business in Ireland has grown 35% a year for the last three years, representing another opportunity for growth.

And in Spain, among the fastest growing large economies in the world, Contreras is optimistic after the business reduced its exposure to the construction industry and grew market share elsewhere, particularly in the small and medium-sized business segment.

Issue Date: 28 Jun 2016