Van hire specialist Northgate plc, which operates the Northgate Vehicle Hire, Norflex and Van Monster businesses in the UK, issued a fairly cautious trading statement today, warning that “tough economic conditions” were continuing to impact its business and that it was currently trading at the lower end of expectations.
The statement was something of a contrast to its last update, which was comparatively optimistic. In today’s statement, Darlington-based Northgate said that the number of vehicles on hire had fallen from 45,000 at 31 October 2012 to 44,200 at 28 February 2013, a decrease of 800 units compared to a fall of 3,900 in the same period last year.
In response to this fall the firm has reduced down the fleet by 1,100 since 31 October 2012, which by my reckoning means it now has approximately 49,900 vehicles in its UK hire fleet.
Stable revenue and utilisation
Northgate has been trimming its fleet to maintain utilisation levels for some time now, and in fairness it appears to have been a successful policy that has allowed it to rebuild its operating margin (up from 7.5% in 2010 to 13.2%), reduce debt (from £615m in 2010 to £360m) and restart dividend payments.
According to today’s update, rental fleet utilisation has been stable at 88% for the last four months, down slightly from 89% for the previous six months (which did include the Olympics).
Northgate said that underlying hire revenue per vehicle had remained stable, suggesting that it is not being forced to cut its rates to secure business, and said that it had continued filling the regional gaps it had previously identified by opening new branches. A new branch opened in Luton on 18 February 2013 and further branches in Brent Cross and Huddersfield are scheduled to open by 30 April 2013.
One aspect of Nortgate’s business that may have helped its recovery is Van Monster, its chain of used van dealers. In its update today, Northgate said that “the used vehicle market continues to remain strong” and residual values were in line with those experienced in the year to 30 April 2012.
As I’ve reported several times, residual values for nearly-new vans are extremely strong at present, due to a shortage of supply. Van Monster enables Northgate to choose between selling de-fleeted vehicles at auction or through its retail branches, which it has previously said produce higher profit margins than other methods of disposal.
The outlook is undeniably challenging, but Northgate’s recovery plans have been successful so far and the company has returned itself to a stable, profitable footing.