Northgate Regulatory News (NTG)

10 Jan 2006 07:01

Northgate PLC10 January 2006 10 January 2006 NORTHGATE PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2005 Northgate plc ("Northgate", the "Company" or the "Group"), the UK's leadingspecialist in light commercial vehicle hire, announces its interim results forthe half-year ended 31 October 2005. Highlights: •Group revenue increased by 5.9% to £176.9m (2004 - £167.1m). •Pre-tax profit up by 2.4%* to £28.3m (2004 - £27.6m). •Earnings per share up by 3.4% to 30.7p (2004 - 29.7p). •Dividend increased by 12.5% to 9.0p (2004 - 8.0p). •Excellent first time contribution from Spanish associate Record Rent with a fleet size in excess of 20,000 vehicles. •Fleet size in Fualsa (Spain) increased by 26% per annum to 21,500. •Fleet size of 52,400 vehicles in the UK. •New Strategic Plan announced today. *Northgate's profit before tax under UK GAAP would have shown an increase of5.6% but this is reduced to 2.4% under IFRS. Martin Ballinger, Chairman, commented: "The Board remains confident of asatisfactory outcome for the full financial year and further believes that itsstrategy will enable Northgate to retain its leading positions in commercialvehicle rental in both the UK and Spain and as a result continue to generate agrowing return for shareholders." Full statement and results attached. For further information, please contact: Northgate plc 01325 467558Steve Smith, Chief ExecutiveGerard Murray, Finance Director Hogarth Partnership Limited 020 7357 9477Andrew JaquesBarnaby Fry Notes to Editors: Northgate plc rents light commercial vehicles and sells a range of fleetproducts to businesses via a network of hire companies. Their NORFLEX productgives businesses access to a flexible method to acquire as many commercialvehicles as they require. Further information regarding Northgate plc can be found on the Company'swebsite: http://www.northgateplc.com Chairman's Statement In the six months to 31 October 2005, the Group has continued to take advantageof the undoubted opportunities that exist within its main markets of the UK andSpain. As described in my statement to the AGM in September, conditions in the UK havebecome more competitive. Management has responded positively to these conditionsby taking specific actions to mitigate the impact of a market characterised byweaker residuals and lower hire rates. In August 2005 the Group successfully concluded the initial purchase of 49% ofRecord Rent a Car S.A. ("Record" or "Record Rent") strengthening its position asa leading player in the growing Spanish vehicle rental market. The remaining 51%of Record's equity is scheduled to be acquired in April or May 2006. Group vehicle rental and associated revenue in the six months to 31 October 2005is up 5.9%, profit before tax is up 2.4% and earnings per share up 3.4%. Theimpact of International Financial Reporting Standards ("IFRS") on these resultsis such that the Group's profit before tax under UK GAAP would have shown anincrease of 5.6% but this is reduced to 2.4% under IFRS. The Board has declared a 12.5% increase in the interim dividend to 9p per share(2004 - 8p) indicating its confidence in the Group's future prospects. Thisdividend is payable on 9 February 2006 to shareholders on the register at theclose of business on 20 January 2006. Results The six month trading period to 31 October 2005 is the first accounting periodthat the Group has prepared its results under IFRS. The Group released anannouncement on 21 December 2005 detailing the impact of IFRS on the comparativeaccounting period including the six months to 31 October 2004. The fullannouncement is available on the Group's website www.northgateplc.com. The main presentational change to the Group's financial results arises fromproceeds received from the disposal of used vehicles no longer being classifiedas revenue. This change in policy has had the effect of reducing Group revenueas previously defined under UK GAAP. Group revenue now comprises the hire ofvehicles and the supply of related goods and services in the normal course ofbusiness. The impact of IFRS on profit before tax for the six months to 31 October 2004was limited, with the primary difference arising from the treatment of goodwillamortisation (IFRS 3) and intangible amortisation (IAS 38). In the IFRSannouncement the Board detailed a number of elections that it had made under IFRS 1 regarding the first time implementation of IFRS. One of these elections concerned financial instruments (IAS 32 & IAS 39) whereby the Board elected to implement the provisions of the standard with effect from 1 May 2005. The period to 31 October 2004 does not show any effect of IAS 39 because it hadnot been implemented. At 1 May 2005, and subsequently in June 2005 in relation to new derivative contracts, the Group designated the majority of its financialinstruments as hedges against specific variable rate borrowings. These hedgedinstruments had a net fair value gain of £1m in the six month period which hasbeen credited directly to equity. The remaining instruments, being interest ratecollars matched against £115m of debt were not accounted for as hedges and gaverise to a £0.4m additional non-cash finance cost in the income statement for thesix months to 31 October 2005. In August 2005 the Group's purchase of 49% of the equity in Record Rent, aleading Spanish rental operator became unconditional. In accordance with IAS 1the Group's share of Record's after tax contribution has been shown as part ofthe Group's profit before tax. UK revenue increased by 1.4% reflecting the limited increase in the UK fleetsize to 52,400 vehicles (2004 - 52,000). Margins have slightly decreased partlyas a consequence of lower values being obtained for vehicles sold at the end oftheir life and partly as a result of lower hire rates being obtained in a morecompetitive market. The revenue and profit from operations that are shown as arising in Spain in thetable below are wholly attributable to Fualsa. The Group's share of profits after tax generated from its investment in Record is shown in the consolidated income statement as 'Share of profit of associate'. Fualsa's revenue has increased by 30.8% as a result of the fleet size increasingto 21,500 vehicles (2004 - 17,000). The operating margin for Fualsa hasdecreased by 1.2% in line with our expectations, as the cost base increased toaccommodate the expanded network, changes in regional and senior managementrequired for future growth, an upgrade to the IT system and the introduction ofcredit insurance. Values obtained for used vehicle disposals have been in linewith our expectations. A reconciliation between profit before intangible amortisation and tax under UKGAAP and IFRS is set out below: 2005 2004 £'000 £'000Profit before intangible amortisation and tax UK GAAP 29,380 27,774IAS 1 - tax on profit of associates (511) -IAS 39 - unhedged financial instruments (422) -Other differences 218 274 ------- -------IFRS 28,665 28,048 ------- ------- The composition of Group revenue and profit from operations is set out below: 2005 2004 £'000 £'000Revenue UK 143,218 141,254Spain 33,772 25,828 -------- -------- 176,990 167,082 -------- --------Profit from operations UK 29,850 31,859Spain 7,723 6,234Intangible amortisation (374) (409) -------- -------- 37,199 37,684 -------- --------Operating margins (excluding intangible amortisation)UK 20.8% 22.6%Spain 22.9% 24.1% Operational Review United Kingdom and Republic of Ireland In the six months to 31 October 2005 the Group was affected by some weakness indemand from those UK customers operating in the construction, retail anddistribution sectors. To ensure we continued to achieve our utilisation targetof 90%, it was necessary to reduce the fleet from 52,600 vehicles at 30 April2005 to 51,400 vehicles at the end of August, the low point in the period. Sincethe start of September demand has returned to more normal levels and, as aconsequence, fleet growth resumed such that the fleet had reached 52,400vehicles at 31 October 2005. This growth has continued in line with ourexpectations throughout November and December. As a consequence of the fleet movement described above we have taken action onthe cost base including a decision to defer the opening of some new sites. Thishas resulted in our network of hire locations only increasing to 79 from the 76that existed at 30 April 2005, with the majority of the new locations beingopened early in the financial year. Whilst the 79 locations that we operate fromprovide full national coverage, there still exists the opportunity for infillsites, in particular smaller branches, over the coming years. Competitive pressures have always existed in the market place but becameparticularly evident from the beginning of August 2005, when as a result ofspecific competitor activity we experienced lower hire rates. The reduction inhire rates in the period was over 1% and we expect a further reduction in thesecond half of the financial year. The impact of lower fleet growth in the summer and weaker hire rates has beenbalanced by our continued tight grip on utilisation and a focus on reducingcentral and administrative costs. We sold 11,300 vehicles (2004 - 7,800) in the six months under review. Ashighlighted in our preliminary results announcement in July 2005, we haveexperienced a weaker market for used vehicle values. The effect of this hasreduced operating profits by £2.4m in the period. This was particularlynoticeable in the early part of the period when our vehicle stock was at itspeak and the fall in residual values of long wheel base product was largest.Under IFRS the operating profit for used vehicle disposals is no longeraccounted for separately. Depreciation is adjusted in order that vehicles areretired from the fleet at their anticipated market value less any direct costsincurred in their disposal. If this operating profit arising from the usedvehicle disposals had been calculated on the same basis as last year, applyingUK GAAP, the UK would have recorded an operating loss per vehicle on disposal of£24 (2004 - £276 profit). The overall result is a decline in the UK operating margin (excluding intangibleamortisation) to 20.8% (2004 - 22.6%). Eliminating the effect of the reductionin residual values shows that the underlying rental activities produce anoperating margin of just under 21%, consistent with the prior period. Continental Europe Fualsa, our first business in Spain, continued to grow strongly. The fleetincreased from 19,000 vehicles at 1 May 2005 to 21,500 at 31 October 2005, anincrease of 13%. When compared to the fleet at 31 October 2004, the annualgrowth rate remains in line with previous years at an excellent 26%. New locations have been opened in Leon, Cordoba, Pamplona and Madrid during theperiod and the company now has a network of 19 locations offering good nationalcoverage. Utilisation has averaged 88% (2004 - 89%) which is close to our target of 90%but is still influenced by the number of new locations opened during the lasttwo years. Hire rates are not experiencing the same competitive pressures as theUK since the market in Spain is growing at a much faster rate. The residualvalue market is steady and the disposal proceeds that we have achieved are inline with our expectations. Having recognised the increasing number of disposalsthat Fualsa will have to undertake in the future as its fleet growth continues,we have invested in the infrastructure of the disposal process. Consequently, calculating operating profit from used vehicle disposals on the same basis aslast year (applying UK GAAP), Fualsa would have recorded such an operating profit per vehicle of £92 (2004 - £219). On 5 July 2005 we announced the purchase of 49% of Record Rent, which similar toFualsa, is one of Spain's leading vehicle rental companies. The acquisition wasconditional on the approval of the Spanish competition authorities, which wasreceived on 5 August 2005. We have been delighted with the performance of this business since ourinvestment. The fleet has grown to over 20,000 vehicles at 31 October 2005 from18,000 at 5 July 2005 and utilisations have been maintained at over 90%. Two newlocations are planned to open during the second half of the financial year. Thecombination of all these factors has produced a share of profit before taxationfor the Group of £1.7m and a share of taxation of £0.5m. The Group's share ofafter tax profits is, therefore, £1.2m for the three month period since ourinvestment was made. The remaining 51% of the share capital of Record Rent will be purchasedfollowing the completion of the audited accounts for the year ended 31 December2005, scheduled for April or May 2006. Strategic Plan In November 2005 the Board approved a new Strategic Plan. Rather than the fixedfive and three year periods that have been the basis of planning since 1999, weare moving to a three year rolling business plan which will be updated eachyear. The Group Strategic Plan builds on the key issues identified in our lastpublished plan and aims to maintain double digit earnings growth across theGroup. Our first venture into Spain has worked well and we are now able todevelop this fast-growing market with our subsequent acquisition of Record,whilst planning to continue moving forward in the UK, albeit at more modestlevels of growth. In the UK, a more mature market than Spain, there remain opportunities toincrease market penetration, which is still relatively low at around 10% of thetotal commercial vehicle parc. There is capacity in the Group's UK network toincrease the fleet by both acquisition, in what is still a fragmented market,and through organic growth whilst at the same time enhancing returns through theintroduction of related fleet management products. The provision of fleetmanagement to those customers who both own and rent their fleets will allow usto capitalise on our key skills of buying, selling and maintaining large volumesof commercial vehicles whilst providing the opportunity to generate additionalrental business from fleet customers. This will further strengthen our positionas the market leader in the delivery of flexible vehicle solutions to businesseson both a local and national level. The result of these actions will also be amore cost-effective structure capable of responding to a wider range of customerneeds. In Spain we consider there is potential for organic fleet growth at the rate ofapproximately 15% per annum over the next three years. The most important issuesto deal with in Spain, therefore, focus on the integration of Fualsa and Recordand ensuring we obtain the maximum benefit from the size of the combined entityin terms of purchasing power, revenue growth and efficiency of operation. We arevery pleased with the capability of the management we have in both businessesand feel that we have in place the right people to create a team capable ofdelivering the plan. Our success in Spain gives us confidence that our model can transfer to anotherjurisdiction at an appropriate time, although we recognise that the managementfocus required for our plans in the UK and Spain make it likely that this willbe deferred until the later stages of the plan. Current Trading and Outlook The Board believes that the more competitive conditions in the UK vehicle rentalmarket are being matched by continuing management actions to reduce costs andimprove vehicle utilisation and efficiencies. In Spain, both Fualsa and Recordcontinue to trade well and are taking advantage of an expanding market. The Board remains confident of a satisfactory outcome for the full financialyear and further believes that its strategy will enable Northgate to retain itsleading positions in commercial vehicle rental in both the UK and Spain and as aresult continue to generate a growing return for shareholders. Consolidated Income Statementfor the six months ended 31 October 2005 Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) Notes £000 £000 £000 Revenue 2 176,990 167,082 339,382Cost of sales (116,326) (102,499) (215,097) --------- --------- -------- Gross profit 60,664 64,583 124,285 --------- --------- --------Administrativeexpenses(excludingamortisation) (23,091) (26,490) (47,193)Amortisation (374) (409) (855) --------- --------- --------Totaladministrativeexpenses (23,465) (26,899) (48,048) --------- --------- -------- --------- --------- -------- Profit fromoperations 2 37,199 37,684 76,237 Investment income 1,009 871 1,814Finance costs (11,108) (10,916) (23,063) --------- --------- --------Share of profit beforetaxation of associate 1,702 - -Share of taxation of associate (511) - - --------- --------- --------Share of profit of associate 1,191 - - --------- --------- -------- --------- --------- --------Profit before taxation 28,291 27,639 54,988 Taxation 3 (8,345) (8,449) (15,757) --------- --------- -------- Profit for the period 19,946 19,190 39,231 --------- --------- -------- Profit for the period is wholly attributableto equity holders of the parent Company. All results arise from continuing operations. Basic earningsper Ordinaryshare 4 30.7p 29.7p 60.7p Dilutedearnings perOrdinary share 4 30.5p 29.5p 60.3p Consolidated Statement of Recognised Income and Expensefor the six months ended 31 October 2005 Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) £000 £000 £000 Gains on revaluation ofland and properties - 579 1,031Foreign exchange differences onretranslation of net assetsof subsidiaries 365 944 (153)Foreign exchange differences onretranslation of interest inassociate (237) - -Net foreign exchange differences onlong term borrowings held as hedges (91) - 1,635Net fair value gains on cashflow hedges 1,027 - -Adjustment for share optionsgranted 63 (19) 88Net deferred tax credit recogniseddirectly in equity 807 1,508 1,084 -------- --------- -------- Net income recognised directly inequity 1,934 3,012 3,685 Profit attributable to equityholders 19,946 19,190 39,231 -------- --------- --------Total recognised income andexpense for the period 21,880 22,202 42,916 -------- --------- -------- Consolidated Balance Sheet31 October 2005 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) Notes £000 £000 £000 Non-current assetsGoodwill 12,599 13,427 12,448Other intangibleassets 4,533 5,302 4,866 -------- --------- ----------Property,plant andequipment: vehicles for hire 545,517 516,697 531,843Other property,plant and equipment 40,080 33,417 37,851 -------- --------- ----------Total property, plant and equipment 585,597 550,114 569,694 -------- --------- ----------Interest inassociate 7 38,915 - - -------- --------- ---------- 641,644 568,843 587,008 -------- --------- ----------Current assetsInventories 8,443 6,121 6,696Trade and otherreceivables 99,728 87,257 92,841Cash and cashequivalents 7,288 22,570 41,375 -------- --------- ---------- 115,459 115,948 140,912 -------- --------- ---------- Non-currentassets held for sale 10,588 12,652 11,464 -------- --------- ---------- TOTAL ASSETS 767,691 697,443 739,384 -------- --------- ---------- Total currentliabilities 77,023 196,386 100,410 Non-current liabilitiesBorrowings 441,716 281,249 403,819Deferred taxliabilities 9,270 9,745 10,124 -------- --------- ---------- 450,986 290,994 413,943 -------- --------- ---------- TOTALLIABILITIES 528,009 487,380 514,353 -------- --------- ---------- -------- --------- ----------NET ASSETS 239,682 210,063 225,031 -------- --------- ---------- EquityShare capital 3,223 3,206 3,209Share premiumaccount 63,980 62,201 62,544Revaluationreserve 1,054 602 1,054Merger reserve 4,721 4,721 4,721Own sharesreserve (2,582) (1,515) (2,471)Hedgingreserve 1,027 - -Translationreserve 1,519 944 1,482Retainedearnings 166,740 139,904 154,492 -------- --------- ----------TOTAL EQUITY 239,682 210,063 225,031 -------- --------- ---------- Total equity is wholly attributable to equity holders of the parent Company. Consolidated Cash Flow Statementfor the six months ended 31 October 2005 Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) Notes £000 £000 £000 Net cash fromoperatingactivities 6(a) 72,250 73,766 150,457 -------- --------- ---------- Investing activitiesInterestreceived 1,046 265 1,957Proceeds ofdisposal ofvehicles forhire 69,795 50,039 116,895Purchases ofvehicles forhire (151,023) (134,107) (274,517)Proceeds ofdisposal ofotherproperty,plant andequipment 218 221 378Purchases ofotherproperty,plant andequipment (3,804) (2,350) (7,613)Purchases ofintangibleassets (41) (11) (19)Acquisition ofsubsidiaries - (19,360) (19,353)Purchase ofinterest inassociate 7 (37,961) - - -------- --------- ---------- Net cash used in investingactivities (121,770) (105,303) (182,272) -------- --------- ---------- Financing activitiesDividends paid (7,665) (6,764) (11,874)Repayments ofobligationsunder financeleases (21,260) (124,030) (279,243)New financeleaseagreementsentered into - 78,680 93,663Repayments ofbank loans andotherborrowings (48,660) - -Increase inbank loans andotherborrowings 94,258 47,136 221,166Proceeds fromissue of sharecapital 1,450 376 722Payments toacquire ownshares (111) - (1,141) -------- --------- ---------- Net cash from (used in)financingactivities 18,012 (4,602) 23,293 -------- --------- ---------- Net decrease in cash and cashequivalents (31,508) (36,139) (8,522) Cash and cash equivalents atthe beginning of the period 34,057 42,675 42,675 Effect of foreign exchangemovements 46 58 (96) -------- --------- ---------- Cash and cash equivalentsat the end of the period 2,595 6,594 34,057 -------- --------- ---------- Consolidated Statement of Changes in Equityfor the six months ended 31October 2005 Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) Notes £000 £000 £000 Amounts attributable toequity holders of the parent CompanyGains on revaluation of land andproperties - 579 1,031Foreign exchange differences onretranslation of net assets ofsubsidiaries 365 944 (153)Foreign exchange differences onretranslation of interest inassociate (237) - -Net foreign exchangedifferences on long termborrowings held as hedges (91) - 1,635Net fair value gains on cashflow hedges 1,027 - -Adjustment forshare optionsgranted 63 (19) 88Net deferredtax creditrecogniseddirectly inequity 807 1,508 1,084 -------- --------- ----------Net incomerecogniseddirectly inequity 1,934 3,012 3,685Profitattributableto equityholders 19,946 19,190 39,231 -------- --------- ----------Totalrecognisedincome andexpense forthe period 21,880 22,202 42,916Dividends (7,645) (6,780) (11,916)Issue ofOrdinary sharecapital (netof expenses) 1,450 376 722Net increasein own sharesheld (111) (185) (1,141) -------- --------- ----------Net changes intotal equity 15,574 15,613 30,581 -------- --------- ---------- Opening totalequity 225,031 194,450 194,450Transitionaladjustment onadoption ofIAS 32 & IAS39 8 (923) - - -------- --------- ----------Opening totalequity afteradoption ofIAS 32 & IAS39 224,108 194,450 194,450 -------- --------- ---------- -------- --------- ----------Closing totalequity 239,682 210,063 225,031 -------- --------- ---------- In accordance with the transitional provisions of IFRS 1, the date oftransition of the Group to IFRS for the purposes of IAS 32 and IAS 39only is 1 May 2005. See Note 8 for further details. Unaudited Notes 1. Basis of preparation and accounting policies The interim financial information for the six months ended 31 October2005, including comparative financial information, has been prepared inaccordance with International Financial Reporting Standards ("IFRS"), asissued by the International Accounting Standards Board, that areendorsed, or are expected to be endorsed, by the European Commission. Northgate plc ("the Group") has adopted all IFRS in issue, with theexception of IAS 34 (Interim Financial Reporting) which is not mandatoryfor UK groups. The Group previously prepared its annual and interim consolidatedaccounts under UK GAAP. The date of transition of the Group to IFRS is 1May 2004, with the exception of IAS 32 and IAS 39. The date oftransition of the Group for IAS32 and IAS39 only is 1 May 2005 (see Note8). As part of the transition to IFRS, on 21 December 2005 the Grouppublished the restatement of certain comparative financial informationunder IFRS for the year ended 30 April 2005 and for the six months ended31 October 2004. This information is available from the Group's websiteat www.northgateplc.com. IFRS 1 (First-time Adoption of IFRS) contains several transitionalexemptions from the full requirements of IFRS for those companiesadopting IFRS for the first time. The details of the IFRS 1 transitionalexemptions that the Group has taken advantage of, along with all of theaccounting policies adopted by the Group, are detailed within therestatement of comparative information under IFRS published on 21December 2005, as referred to above. The accounts for the year ended 30 April 2005 were prepared under UKGAAP and have been filed with the Registrar of Companies. They containedan unqualified audit report and did not include a statement underSection 237 (2) or (3) of the Companies Act 1985. The restatement ofcertain information for the year ended 30 April 2005 published on 21December 2005, which does not constitute statutory accounts, alsocontained an unqualified audit report. 2. Segmental analysis Business segmentsFor management purposes, the Group currently has one material businesssegment, which is the hire of vehicles. As such, the Directors consider that this is the only business segmenton which the Group should report. Geograpical segmentsThe Group's operations are located in the UnitedKingdom, Republic of Ireland and Spain. The Directors consider the United Kingdom and Republic of Ireland to bea single geographical segment on the grounds that the results and netassets of operations in the Republic of Ireland are immaterial to theGroup as a whole. Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) £000 £000 £000 United Kingdomand Republicof Ireland 143,218 141,254 283,414Spain 33,772 25,828 55,968 -------- --------- ----------Total revenue 176,990 167,082 339,382 -------- --------- ---------- United Kingdomand Republicof Ireland 29,744 31,718 62,542Spain 7,455 5,966 13,695 -------- --------- ----------Total profitfromoperations 37,199 37,684 76,237 -------- --------- ---------- 3. Taxation The charge for taxation for the six months to 31 October 2005 is basedon the estimated effective rate for the year. 4. Earnings per share Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) The calculation of basic anddiluted earnings per shareis based on the following data: Earnings £000 £000 £000 Earnings for the purposesof basic and diluted earnings pershare, being net profitattributable to equityholders of theparent Company 19,946 19,190 39,231 -------- --------- ---------- Number of shares Number Number Number Weighted average numberof Ordinary shares for thepurposes of basic earningsper share 64,981,565 64,600,406 64,598,909 Effect of dilutive potentialOrdinary shares:- shareoptions 489,231 382,037 465,690 -------- --------- ----------Weighted average numberof Ordinary shares for thepurposes of dilutedearnings pershare 65,470,796 64,982,443 65,064,599 -------- --------- ---------- 5. Dividends The proposed interim dividend of 9p per Ordinary share was approved bythe Board of Directors on 9 January 2006 and has not been included as aliability as at 31 October 2005. 6. Notes to the consolidated cash flow statement (a) Net cash from operating activities Six months Six months Year to to to 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) £000 £000 £000 Profit fromoperations 37,199 37,684 76,237 Adjustments for:Depreciationof property,plant andequipment 65,674 59,149 120,831Amortisationof intangibleassets 374 409 855(Gain) loss ondisposal ofproperty,plant andequipment (2) 19 39Share optionsfair valueamountcredited(charged)directlytoequity 63 (19) 88 -------- --------- ---------- Operating cashflows beforemovements inworkingcapital 103,308 97,242 198,050 (Increase)decrease ininventories (1,725) 2,313 1,665Increase inreceivables (6,195) (703) (7,735)Decrease inpayables (3,948) (7,689) (3,634) -------- --------- ---------- Cash generatedby operations 91,440 91,163 188,346 Income taxespaid (8,658) (7,775) (15,241)Interest paid (10,532) (9,622) (22,648) -------- --------- ---------- Net cash fromoperatingactivities 72,250 73,766 150,457 -------- --------- ---------- (b) Cash and cash equivalents Cash and cash equivalents consist of cash in hand and at bank,investments in money market instruments and bank overdrafts.Bank overdrafts are included within cash equivalents on the grounds thatthey are repayable on demand and form an integral part of the Group's cashmanagement. Cash and cash equivalents, as described above, included in the cash flowstatement comprise the following balance sheet amounts: 31.10.05 31.10.04 30.4.05 (Unaudited) (Unaudited) (Audited) £000 £000 £000 Cash in handand at bank 5,500 20,817 39,601Short terminvestments 1,788 1,753 1,774 -------- --------- ---------Gross cash andcashequivalents asreported 7,288 22,570 41,375Bankoverdrafts (4,693) (15,976) (7,318) -------- --------- ---------Net cash andcashequivalents 2,595 6,594 34,057 -------- --------- --------- 7. Interest in associate On 5 August 2005, the Group acquired a 49% share in Record Rent A CarS.A. ("Record"), a company registered in Spain, for a cashconsideration, payable to the vendors, of €54,800,000. In accordancewith IAS 28, this investment, including associated costs, has beenaccounted as an associate. The book value of the 49% share of the net assets of Record, that wasacquired on 5 August 2005, was €38,124,000. 8. Financial instruments: transitional adoption of IAS 32 and IAS 39 Under the transitional provisions of IFRS 1, the date of transition of theGroup for IAS 32 (Financial Instruments: Disclosure and Presentation) andIAS 39 (Financial Instruments: Recognition and Measurement) is 1 May 2005.The Group has not applied IAS 32 or IAS 39 retrospectively from this date, with the exception of preference shares. A reconciliation of equity, in respect of IAS 32 and IAS 39 only, at 1 May 2005 is provided below: 30.4.05 Adjustments 1.5.05 Prior to on After adoption of adoption of adoption of IAS 32 & IAS 32 & IAS 32 & IAS 39 IAS 39 IAS 39 (Audited) (Unaudited) (Unaudited) £000 £000 £000 TOTAL ASSETS 739,384 - 739,384 ------- --------- --------- Total currentliabilities 100,410 923 101,333Totalnon-currentliabilities 413,943 - 413,943 ------- --------- --------- TOTALLIABILITIES 514,353 923 515,276 ------- --------- --------- ------- --------- ---------NET ASSETS 225,031 (923) 224,108 ------- --------- --------- Share capital 3,209 - 3,209Share premiumaccount 62,544 - 62,544Revaluationreserve 1,054 - 1,054Merger reserve 4,721 - 4,721Own sharesreserve (2,471) - (2,471)Translationreserve 1,482 - 1,482Retainedearnings 154,492 (923) 153,569 ------- --------- --------- TOTAL EQUITY 225,031 (923) 224,108 ------- --------- --------- As explained in Note 1, all other reconciliations relating to the transition of the Group to IFRS were published on 21 December 2005 and are available on the Group's website www.northgateplc.com. 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