Demand for UK van hire is rising, according to business hire giant Northgate, which operates a fleet of 57,000 vans and minibuses in the UK, along with 40,000 in Spain.

In its half-yearly results, Northgate reported that utilisation of its UK fleet had risen from 88% to 89%, despite the number of vehicles on hire rising by 1,800 since 30 April 2014.

Growth story?

The company has opened five new sites since the end of April, and plans a further three before the end of April 2015. These new sites accounted for 1,100 of the 1,800 new vehicles on hire, suggesting that Northgate’s growth is largely being driven by expansion, rather than organic growth.

This conclusion is backed up by the firm’s admission today that all of its growth so far this year has been driven by its regional sites — i.e. those away from the London area. Growth at existing branches was a relatively modest 1.3%, and although the company believes this can be increased, I reckon this low number highlights the intense competition between van hire suppliers, especially in large urban areas around major cities.

Bumper profits

Northgate reported a 33% rise in operating profit for the first half of the year, despite revenue only rising by 5.6%.

How do they do that, you might ask? Well, one area where the firm has made big improvements is in reducing the holding cost, or depreciation, of each vehicle — the difference between its purchase price and its eventual resale price. Northgate says that it has managed to improve residual values over the last five years, with an emphasis on several key areas:

• Van Monster retail network expanded from 7 to 11 branches — ex-rental vans sell for more at retail than through auctions or trade sales;
• Using “customer profiling and pricing” to target rental customers who won’t trash their vans;
• Increased marketing, especially online;
• Using expert in-house sales professionals to select the most appropriate disposal channel for defleeted vans, rather than obeying a fixed formula.

As a result of these changes, 29% of Northgate’s ex-rental vans are now sold through the Van Monster network, up from 18% in the year ending April 2009.

Of course, this rate of profit growth is unlikely to last forever — as a general rule, profits can only grow faster than sales for a limited time, before the two come back into line. It’s also worth noting that if used van prices weaken, Northgate could be affected.

However, despite these risks, Northgate’s near-term outlook does appear to be pretty healthy.