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Northgate expect 25% profits drop as it launches fleet optimisation strategy
Commercial vehicle hire group Northgate told investors that pre-tax profits from its current trading year were expected to come in roughly 25% lower than seen a year earlier on Thursday while announcing a new fleet optimisation strategy.
Following on from its interim results, where Northgate posted greater than expected declines in profit per unit, the firm warned that underlying pre-tax profit would drop to around three-quarters of 2017's figure of £75m.
As part of its trading update for the three months ended 31 January, Northgate launched a new vehicle disposal and fleet optimisation strategy that would see the firm hold onto its vehicles in Spain and the UK "substantially longer" than had been the case, saying the "optimal" holding period to maximise cash returns was "3 to 9 months longer than the current disposal ages in both the UK and Spain."
"The profile of disposal profits in recent years and under previous management has been made up of ever-higher volumes of ever younger vehicles at ever lower profits per unit. This is not viewed as a route that has led to the maximisation of long-term shareholder value," Northgate said in its quarterly trading update.
Following a "substantial review" that considered several short-term trading alternatives, Northgate chose to optimise its holding periods across all its territories, effective immediately.
In terms of the quarterly results themselves, Northgate said the number of vehicles it closed on hire figures grew for the first time in three years in the UK, up 0.7%, due to the "development of a clear and compelling strategy, rapid execution of senior operational management change, and increased trading focus from the company's executive team."
Northgate posted an "outstanding" third-quarter growth over the prior year, as average vehicle on hire rates expanded 14.0% in Spain.
The Darlington-based firm also noted that it had achieved a 5.0% growth in average vehicles on hire throughout the third quarter, thanks to the progress in its turnaround of its UK wing and the continued strong growth witnessed in the Spanish market.
Northgate expects to achieve "higher single-digit growth" in the fourth quarter, in line with its KPI range.
As of 1400 GMT, shares had fallen off 5.98% to 330.00p.