Redde Northgate full year performance ahead of Board expectations

Redde Northgate plc (LON:REDD) has announced its preliminary results for the 12 months ended 30 April 2021.

Adjusted results   
Year ended 30 April20212020Change
 £m£m%
Revenue (excluding vehicle sales)879.7585.650.2%
Underlying1 EBIT109.874.846.8%
Underlying1 Profit before Tax93.259.058.0%
Underlying1 Earnings per Share31.0p30.8p0.6%
Statutory results   
Total revenue1,109.5779.342.4%
EBIT83.829.9180%
Profit before Tax67.213.5398%
Earnings per Share26.6p5.0p432%
Other measures   
Net debt530.3575.97.9%
Group net debt (exc IFRS 16 leases)2437.9512.914.6%
Steady state cash generation1140.175.485.7%
Free cash flow197.810.1870%
ROCE19.5%7.0%2.5ppt
Dividend per Share15.4p13.1p17.6%

Key highlights

·    Performance for the year was ahead of Board expectations notwithstanding COVID-19, including strong momentum in H2 and into FY2022.

·    Revenue (excluding vehicle sales) increased 50.2% to £879.7m (2020: £585.6m), due to the inclusion of Redde for a full year and with the vehicle rental businesses performing better than expected. 

·    Underlying EBIT, underlying PBT and underlying EPS were all ahead of expectations at £109.8m (2020: £74.8m), £93.2m (2020: £59.0m) and 31.0p (2020: 30.8p) respectively, driven by successful strategic execution in the year.

·    FY2022 merger integration savings target of £15m, already increased at Interims from £10m, was fully achieved as at the end of June 2021, ten months ahead of schedule. A further £5.5m of permanent annualised cost savings were also achieved, giving a total of £20.5m of annual run rate savings.

·    Revenue synergies gathered momentum, including the October 2020 Accident and Incident management product launch, several new product initiatives in Spain, and strong new wins activity.

·    Integration of FMG RS, following the acquisition of Nationwide on 4 September 2020, is progressing well.  

·    The purchase of c2,000 vehicles, most with existing customer contracts, from a Scottish vehicle rental business was completed post year-end in June 2021.

·    ROCE improved to 9.5% (2020: 7.0%), reflecting the EBIT performance as well as initiatives to improve capital employed including working capital management and contract hire vehicle funding.

·    Final dividend proposed of 12.0p per share (2020: 6.8p), taking the total dividend payable for the year to 15.4p per share (2020: 13.1p). 

Refer to GAAP reconciliation and Glossary of terms note. Underlying excludes exceptional costs and amortisation of acquired intangible assets. 

2 Excluding IFRS 16 (leases) as defined in the Glossary

Martin Ward, CEO of Redde Northgate, commented:

“This year has been a challenging year but also one of exceptional progress against our Focus, Drive and Broaden strategic framework, and I am proud of our people and the way they responded to the pandemic.

“Last year we focused on the integration of the businesses following the Merger. That work is largely complete, ahead of time, with £20.5m of cost savings secured.  Our next strategic priority is to grow revenue under our Drive phase and to utilise the services and infrastructure platform we have built to extend our market reach.

“Cash generation was strong, providing headroom to finance future growth. All our core KPIs have improved and the return on our capital employed is growing.

 “There is significant sustainable compounding growth and quality earnings potential in the combined business. The actions and measures we are taking are already creating value which will be further enhanced as we deliver on our priorities. Recent trading has been strong and we enter FY2022 from a position of strength.”

Full year results summary

·    Group trading was ahead of Board expectations for the year. 

·    Revenue (excluding vehicle sales) was 50.2% higher than the prior year, with the increase mainly due to the inclusion of Redde for a full year. Northgate UK&I and Northgate Spain revenue (excluding vehicle sales)1 was broadly flat at £311.6m (2020: £314.0m) and £205.5m (2020: £204.2m) respectively and included the impact of £3.4m of COVID-19 customer support packages in H1 2021 (£3.8m H2 2020).  Redde revenue1 was £371.7m (2020: £67.4m), reflecting the short period post-Merger in prior year and including the impact of reduced traffic and thereby accident volumes due to COVID-19.

·    Total Group revenue, including vehicle sales, was 42.4% higher. Vehicle sales revenues were 18.6% higher, mainly due to higher UK&I sales prices, which were driven by both reduced supply from OEMs and increased demand for used vehicles since re-opening post the first lockdown.

·    Underlying PBT of £93.2m (2020: £59.0m) was ahead of Board expectations driven by both improving UK&I margins, which include the impact of higher merger integration savings, and higher disposals profits, offset by lower volumes and profits in Redde due to COVID-19.

·    Underlying EPS was 31.0p (2020: 30.8p), 0.6% higher than prior year, including the impact of COVID-19 on Redde.

·    Statutory EBIT of £83.8m and statutory PBT of £67.2m were 180% and 398% higher respectively than prior year. Statutory measures include £8.0m of exceptional items (2020: £41.8m and £42.3m respectively), £1.5m gain on acquisition (2020: £nil) and £19.5m of amortisation on acquired intangibles (2020: £3.2m). Exceptional costs in the current year relates to restructuring costs, mainly to deliver cost synergies and the restructure of FMG RS post acquisition.   

·    There was continued strong net cash inflows with free cash flow of £97.8m (2020: £10.1m) benefitting from lower total net capex (including lease principal payments) of £143.1m (2020: £225.2m) driven mainly by higher disposal sales prices and some fleet ageing. Steady state cash generation also remained strong at £140.1m (2020: £75.4m). Net debt closed at £530.3m including IFRS 16, or £437.9m excluding IFRS 16 (leases), resulting in increased headroom to bank facilities of £304.9m (2020: £234.1m).  Year-end leverage remained stable at 1.5x (2020: 1.6x).

Focus, Drive and Broaden strategic progress

·    The Group continues to make excellent progress on its strategic framework of Focus, Drive and Broaden, and has achieved its already increased Merger integration savings target of £15m ten months ahead of schedule. The Merger integration synergies and additional permanent cost savings achieved are now £15.0m and £5.5m annualised run rates respectively, to give total savings of £20.5m.  Whilst some further cost synergies and savings are still in train, the Group is now including the integration activities within BAU change activities and as such will not be reporting further on Merger integration cost synergy targets.

·    In addition to these savings, the Group has also improved utilisation over the year from 89% to 90% primarily due to the UK where improvements have been driven from centralising the fleet management and combining this with the national branch rationalisation. 

·    The Group has also developed contract hire as a source of vehicle funding in order to reduce exposure to residual values, expanding to LCVs in the fleet, and at year-end £17m of credit lines (2020: £nil) had been utilised on 1,600 commercial vehicles. 

·    On the revenue side, the Group has secured new wins in the second half and post year-end that further underline the value of the Merger. The roll-out of the new accident and incident management product to Northgate customers, following its launch in October, is progressing well and has seen good take-up with several thousand vehicles signed up to date. The Group also completed several important renewals in the period and extended the contract length of some long-standing partner relationships.

·    As part of developing the Company’s products and services and its channels to communicate with its customers, Redde Northgate has also made progress in the year in several digitalisation projects.  These include the UK and Spain digital eAuction platform, which have been further developed alongside our ‘click and collect’ capabilities and saw over ten thousand vehicles sold via the platforms in the year, an increase of 67% year-on-year.  Elsewhere in the business we have created a new small claims system called Pilot to manage claims post accident whiplash reforms, a new traffic officer app to support Highways Agency traffic officers at the roadside and a new online claims portal to enable more efficient processing of claims. 

1 Including intersegment revenue

COVID-19 and trading

·    Alongside delivering the strategy, the COVID-19 pandemic has been the factor that has impacted the business most during FY2021.

·    From the start of the pandemic the Board took decisive actions to put measures in place to protect the welfare of employees and customers and to mitigate the financial impact of the pandemic on the Group.

·    All of the Group businesses were impacted by the pandemic in different ways.  After a challenging first couple of months of the year, the main performance indicators across the Group started to improve and by the end of H1 were fully recovered or substantially improved. Over H2, volumes of activity in some parts of the business initially reduced as COVID-19 case numbers increased but the Group responded quickly to changing levels of demand and the impact was, in aggregate, less severe than in H1.  In more detail the path of the main performance indicators were:

·    Customer support packages, which were a core part of measures to support customers during the first national lockdowns and totalled £3.4m in H1, reduced to nil monthly cost at the end of September and there have not been further customer support packages for subsequent lockdowns.

·    In vehicle rental, VOH, which started the year 7% lower due to the first lockdown, recovered by the end of H1 to 2% above pre-COVID levels and over H2 grew by a further 2% across the Group, with no discernible impact of the pandemic over the winter, and with strong demand in several key sectors, particularly in the UK.

·    In vehicle sales, channels re-opened over the course of May such that they were fully operational from June and whilst in November the UK&I retail sites had to close again, vehicles continued to be sold via our digital channels.  Once UK&I markets re-opened in June residual values on LCVs strengthened quickly to approximately 15% higher than prior year driven by strong market pricing across all channels, and pricing has remained strong during H2 2021.  Residual values in Spain were not as impacted but were slightly higher than prior year.

·    Accident and incident volumes have moved broadly with the levels of traffic volumes on the road. Post the first national lockdown, accident and incident volumes started to increase as traffic volumes picked up. They remained below expectations approximately 20-30% below pre-COVID levels in September to October and then reduced to approximately 30-50% below pre-COVID levels in November to April, mainly due to the third lockdown, only starting to materially recover again post year-end.  With volumes varying through the year the cost base was kept continuously under review. 

Acquisition and asset purchase

·    The integration of FMG RS, following the acquisition of Nationwide on 4 September 2020, progressed well in the second half of the year, including the appointment of a new management team.  This acquisition significantly extends the Group’s capabilities in repairs.  The business has continued to be impacted by lower repair volumes during COVID-19 lockdowns and was loss-making through FY2021, but the Board remains confident that the acquisition will be earnings enhancing in FY2022, the first full financial year of ownership.

·    On 11 June 2021 the Group completed the purchase of c.2,000 vehicles, many with existing customers, from a Scottish vehicle rental business, for approximately £25m. This purchase will strengthen our offering in Scotland and bring significant benefits from the ongoing customer relationships, which we would hope to further strengthen through our expanded Group offerings.

Delivering value for all our stakeholders

·    The Group has endeavoured to deliver value for all stakeholders in the year, including starting to develop more detail around its ESG plans.  These include:

·    Customers – as referred to above, the Group provided customer support packages by way of waiver, discount or deferral to customers assessed on need, which reduced revenue by £3.4m in current year in addition to the £3.8m provided in March and April in FY2020.  In addition, the Group has improved its products and services and this can be seen in improved customer scores and ratings as detailed further in the ESG and stakeholder sections of our Annual Report.

·    Employees – our colleagues are at the heart of everything we do and to respond to the uncertainty of the pandemic the Group increased the level of communications across the business.  The Company also put in place a new home working policy, a new mental health initiative including workshops, guidance and champions, all-employee access to an Employee Assistance Programme, as well as commencing a review of all employees’ benefits to widen provision across the Group, including new SAYE, life assurance and cycle2work schemes.  The Group also continued with its apprenticeship programmes in many of the businesses, including technical apprenticeships, such as motor vehicle technicians.

·    Environment – the Merger presented the Group with the opportunity to reset the environmental agenda and enhance and formalise the Group’s environmental strategy for the future.  The Group takes its environmental responsibilities seriously and has initiated a project focussed on the transition to EV as well as other initiatives to improve its operations and reduce carbon emissions and impact.

·    The Group provides further detail on ESG initiatives and the impact on different stakeholder groups within the ESG section of the Annual Report.

Outlook

·    Over the first two months of FY2022 we have continued to see strong momentum building in the Group including the delivery of the cost synergy target and significant run-rate revenue synergies.

·    In the vehicle rental businesses, VOH has continued to grow and margins remain strong, including H2 Spain margin holding.  

·    In the vehicle sales businesses, LCV used vehicle prices in UK&I have continued to be strong, with the dislocation of new supply improving the margin on used vehicle sales. Digital e-auction sales are increasing and the sales business is well-positioned as more trade and retail buyers find the ease and convenience of using the digital sales platform hassle free.

·    In the Redde businesses, as the UK government has reduced COVID-19 restrictions, traffic volumes, and subsequent accident and incident volumes have rebounded strongly, and faster than we expected.  May/June volumes have been around 10-20% below pre-COVID levels with significant potential when volumes revert back to historic norms.

·    Given this context the Board is confident that the strategy set out at the time of the Merger will deliver the value it envisaged and that it is positioned well for further growth in FY2022.

GAAP reconciliation and glossary of terms

Throughout this document we refer to underlying results and measures; the underlying measures allow management and other stakeholders to better compare the performance of the Group between the current and prior period without the effects of one-off or non-operational items.  Underlying measures exclude certain one-off items such as those arising from restructuring activities and recurring non-operational items including amortisation of acquired intangible assets. Specifically, we refer to disposal profit(s). This is a non-GAAP measure used to describe the adjustment in depreciation charge made in the year for vehicles sold at an amount different to their net book value at the date of sale (net of attributable selling costs).

A reconciliation of GAAP to Non-GAAP underlying measures and a glossary of terms used in this document are outlined below the financial review.

Interim Results

The Group will provide an interim result update for the six months to 31 October 2021 in early December 2021.

Analyst Briefing

There will be a presentation for sell-side analysts at 9.30 a.m. today.  If you are interested in attending, please email Buchanan on reddenorthgate@buchanan.uk.com.

This presentation will also be made available via a link on the Company’s web-site www.reddenorthgate.com  

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