UPDATE: Northgate To Raise Rates After Return To Profit

30th Jun 2010 10:25

(Adds executive and analyst comment.) By Jason Douglas Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Van rental company Northgate PLC (NTG.LN) Wednesday said it will continue to increase its rental rates and finish restructuring its U.K. operations in an effort to grow earnings, after raising rates and trimming its fleet helped it swing back to a fiscal-year profit. Northgate, which operates in the U.K. and Spain, said its aim is to ensure 90% or more of its fleet is on rent at any one time so vehicles aren't idling and costing it money. Chief Executive Officer Bob Contreras told Dow Jones Newswires the company raised rates an average of 3% in the U.K. over the fiscal year and it intends to push rates up further in both the U.K. and Spain. He added that lingering uncertainty about economic recovery may benefit Northgate as more companies and traders may choose to rent vans rather than buy new ones. Northgate Wednesday reported a pretax profit of GBP9.62 million for the year to April 30, compared with a loss of GBP195.6 million a year earlier. Revenue declined 7.5% to GBP563.7 million after demand dipped and Northgate cut the size of its fleet. Earnings were aided by an improvement in operating margin driven by higher rental rates and by trimming its fleet so a higher proportion of its vans were on hire. Higher prices for used vans also helped. The company's earnings were weighed on by financing fees and restructuring charges, but the previous year's earnings were hit by a GBP180.9 million impairment charge. Northgate wrote down the value of its businesses and its fleet when trading slumped. Excluding these and some other items, pretax profit increased 33% to GBP36.5 million. Panmure Gordon analyst Mike Allen said this result was better than forecast and he expects to upgrade his earnings estimates for fiscal 2011. At 0911 GMT, shares in Northgate were up 18 pence, or 12%, at 170.25 pence, outperforming a 0.25% higher Dow Jones U.K. Smaller Companies index. Allen added questions remain about whether Northgate has the resources to fund future growth when rental activity picks up. Contreras said the company will be able to expand its fleet to meet rising demand if needed. It has GBP240 million of unused credit to call on, he said. He added that the company is nearing the completion of a restructuring of its U.K. business. It intends to replace its 20 individually branded U.K. businesses with 12 Northgate-branded regional operating units, which will trim costs and ensure it has a better grasp of demand for vans, said Contreras. -By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; [email protected] (END) Dow Jones Newswires June 30, 2010 05:25 ET (09:25 GMT)