Redde Northgate plc (LON:REDD) has announced its interim results for the six months ended 31 October 2020.
Adjusted results
| Six months ended 31 October | H1 2021 | H1 2020 | Change |
| £m | £m | % | |
| Revenue (excluding vehicle sales) | 429.0 | 265.9 | 61.3% |
| Underlying EBIT | 48.7 | 35.1 | 38.7% |
| Underlying1 Profit before Tax | 40.6 | 27.6 | 47.2% |
| Underlying1 Earnings per Share | 13.4p | 17.6p | (24.1%) |
| Statutory results | |||
| Total revenue | 556.0 | 357.8 | 55.4% |
| EBIT | 34.0 | 32.9 | 3.3% |
| Profit before Tax | 25.9 | 24.8 | 4.3% |
| Earnings per Share | 8.6p | 16.1p | (46.8%) |
| Other measures | |||
| Net debt[2] | 530.9 | 504.6 | (5.2%) |
| Steady state cash generation1 | 80.4 | 59.2 | 35.7% |
| Free cash flow1 | 58.6 | (12.8) | 557% |
| ROCE1 | 8.1% | 7.1% | 100bps |
| Dividend per Share | 3.4p | 6.3p | (46.0%) |
Key highlights
· Encouraging momentum in the Group. Against the backdrop of COVID-19, Northgate UK&I and Northgate Spain performed ahead of expectations in the first half of FY2021, with a full recovery in VOH to slightly above pre-COVID levels and with strong used vehicle prices and disposal profits above expectations, whilst Redde was impacted by a slower recovery in volumes due to continuing regional and national lockdowns.
· Continued excellent progress under the strategic framework of Focus, Drive and Broaden, with a further increase in Merger integration synergies and additional permanent cost savings achieved to £11.7m and £4.2m annualised run rates respectively, in context of the original year 2 Merger integration synergy target of £10m, giving a total of £15.9m of run rate savings to date. Further progress in revenue synergies with the launch of a new accident and incident management product to Northgate customers in October.
· Accelerated integration of FMG Repair Services (“FMG RS”), the trading name for the Nationwide Accident Repair Services business and assets acquired on 4 September 2020, including the securing of external and internal repair volumes and supply chains.
· Continued development of contract hire as a source of vehicle funding with substantial new contract hire credit lines approved by several lenders in the period thus expanding provision to LCVs in the Northgate fleet. £6m of these credit lines has already been utilised.
· The November lockdown in the UK did not have a discernible impact on UK VOH and VOH in both UK&I and Spain are ahead of expectations but Redde volumes were lower than October.
· Overall, the Board is pleased with the performance in the first half of the year and, whilst significant uncertainties remain given the current economic environment and the risk of future more severe lockdowns, the Board is confident of the vision and strategy of the Group and the opportunities created by the Merger and remains confident in meeting market expectations for FY2021.
· An interim dividend of 3.4p per share (2020: 6.3p) has been declared, in line with dividend policy, as stated at the time of the Merger, to pay an interim dividend that is half of the prior final dividend.
Martin Ward, CEO of Redde Northgate, commented:
“Since our preliminary year end results announcement on 16 September 2020 we have continued to make excellent progress in delivering on our strategy to become the leading integrated mobility solutions provider. Our integration plan has now delivered synergies and permanent cost savings of £15.9m run rate savings to date and we fully expect to reach the increased targets we set out of £19m in year 2.
“We have also commenced the integration of FMG RS which broadens our service proposition and capabilities in repairs and, in October, building on Redde’s expertise, we launched our accident and incident management product to Northgate customers. We have had a good early response to this and are confident it will be a source of revenue growth for the Group.
“I have been immensely proud of the way the team has stepped up to ensure we can operate as effectively as possible and deliver our services during these difficult times. COVID-19 continues to impact us all and we remain primarily focussed on ensuring a safe and effective work environment for our employees and safe contact with our customers who require our services. We can clearly see the impact of COVID-19 in this set of results, particularly in Redde where accident volumes were depressed in the first quarter. However, these have significant potential to increase when road traffic volumes and incidents revert back closer to historic norms. Meanwhile, the buoyancy in used vehicle markets, particularly in the UK, has led to higher disposal profits, and the Northgate businesses have also both benefitted from an increase in VOH since year-end such that VOH is now above pre-COVID levels. Recent regional lockdowns and the second national lockdown in the UK have highlighted the need for agility and we continue to keep cost and cash controls in place in order to monitor and manage the business closely. We currently do not expect the impact of these new lockdowns to be as severe as the original national lockdowns in April and May. We are confident on performance in FY2021 and our views on FY2022 will be determined by the exit run rate we see at the end of FY2021.
“Our cash position has remained strong in the first half with continued good steady state cash generation and free cash flow. We have made good progress with our new capital model for funding vehicles and now have over five hundred vans on contract hire, with substantial LCV contract hire credit lines agreed with lenders and now in place.
“I am confident that the actions and measures we are taking are already creating value which will be further enhanced as we continue to deliver on our strategic priorities.”
Half year results summary
· Total revenue was 55.4% higher than the prior period, including £181.3m of revenues from Redde. Revenue from the Northgate businesses was £376.5m, 5.2% higher than H1 2020, and comprised hire revenues which were 6.2% lower due to the impact of both off-hires and customer support packages during the first lockdowns and vehicle sales revenues which were 38.2% higher due to higher volumes (mainly from reducing stock impacted by April lockdown) and strong market pricing in the UK.
· Revenue (excluding vehicle sales) was 61.3% higher than the prior period with the increase attributable to Redde, which is included in revenue following the Merger on 21 February 2020.
· Underlying EBIT and underlying PBT were 38.7% and 47.2% higher respectively, reflecting the strong performance in the Northgate UK&I business, a resilient performance in the Northgate Spain business and the profits from the Redde business.
· Statutory EBIT and statutory PBT are stated after £9.6m of amortisation of acquisition intangibles and £5.4m of exceptional costs, of which £2.6m related to restructuring and £2.6m related to FMG RS.
· Underlying EPS of 13.4p was 24.1% lower, reflecting the lower profits from the Redde business in the period driven primarily by lower volumes due to COVID-19, particularly in the first quarter.
· Statutory EPS of 8.6p was 46.8% lower, reflecting the trading of the Redde business and the impact of amortisation and exceptional items.
· There were strong net cash inflows with free cash inflow of £58.6m (2020: £12.8m outflow) benefitting from lower total net capex of £48.8m (2020: £127.0m) driven by lower purchases and higher disposal proceeds. Steady state cash generation also remained strong at £80.4m (2020: £59.2m).
· Net debt (inc. IFRS 16) closed at £530.9m, 5.2% higher than H1 2020 due to the net debt acquired from Redde in H2 2020 of £84.1m, partially offset by the cash generated in the year.
Trading and COVID-19 impact
· The Board and management continued with decisive actions put in place at the end of FY2020 to protect employees and customers and to mitigate the financial impact of COVID-19 on the Group. These proactive measures included new guidelines and controls to enable social distancing, furloughing employees, limiting new fleet capex, voluntary pay reductions across Board and senior leadership positions and cost control measures including freezing of recruitment and pay reviews.
· In the first six months of FY2021 performance indicators across the Group have fully recovered or substantially improved, including:
· Customer support packages, which were a core part of measures to support customers during the first national lockdowns and totalled £3.4m in the period, reduced to nil monthly cost at the end of September. We are currently not expecting to need to provide material customer support packages for subsequent lockdowns;
· VOH has now recovered to above pre-COVID levels with closing VOH at the end of October 2020 9% higher than April 2020 in both Northgate UK&I and Northgate Spain. There has been no discernible impact of the November lockdown on VOH in the UK;
· Vehicle disposal channels re-opened over the course of May such that they were fully operational from June, with significant improvement in residual values compared to prior year in the UK driven by strong market pricing, which has been approximately 15% above expected levels. Retail disposal channels closed again in November in the UK but vehicles have continued to be sold via other channels such that this impact of the November lockdown has been managed. We expect the strength of market pricing to reduce over H2 2021;
· Post the first national lockdown accident and incident volumes started to increase as traffic volumes picked up but remained below expectations and as a result there exists significant opportunity for Redde profits to rise back to historic levels in the future. Having recovered to approximately 20% below normal volumes in September, the volumes in October were approximately 30% below normal volumes and in November were lower than this due to the lockdown and we continue to review our cost base accordingly.
Focus, Drive and Broaden strategy
· To achieve the Group’s vision, the Board and management team, who together have a proven track record of delivering strategic initiatives, plan to evolve the strategy of the enlarged Group through three phases: Focus, Drive and Broaden.
· In the Focus phase, during FY2021, the Group is completing:
· the Merger integration alongside initiation of the delivery of the anticipated cost synergies, as detailed further below;
· developing the enlarged Group’s products and services, as exemplified by the new accident and incident management product detailed further below; and
· starting to leverage the platform to enable revenue growth based on the broader offering, for which we have had good traction with our customers and will update on further in due course.
Merger integration and synergies
· Excellent progress continues to be made in integrating Redde and Northgate and annual run rate cost synergies achieved to date have increased to £11.7m, with implementation costs of £3.9m. Our synergy targets remain at £12m by end of FY2021 and £15m by end of FY2022, an increase from the original targets at the time of the Merger of £7m and £10m respectively.
· Together with £4.2m of permanent annual costs savings[5], £0.4m higher than previously announced, a total annual run rate of £15.9m of cost synergies and permanent cost savings have been achieved to the end of October since the Merger in February.
· The Group has also continued to make good progress in developing its plans for the enlarged Group’s products and services, which have included Northgate recently launching a new accident and incident management product, which has already had several customers sign up with several hundred managed vehicles, and a good pipeline of several thousand more managed vehicles.
FMG RS integration
· The integration of FMG RS into Redde and the Group was a key focus in the last two months of the period following the acquisition of Nationwide Accident Repair Services at the beginning of September, both in terms of securing the supply chain and in managing volumes between external insurer customers and internal work referred from other Redde businesses and the Board is pleased with progress to date.
· Initial trading has, as expected, been loss-making whilst the integration is completed and the 90 day plan executed. We have now secured over 95% of the supply chain and are continuing discussions with many prior and future customers to maximise external revenues.
· The Group remains confident that the acquisition will be earnings enhancing in the first full financial year of ownership.
ESG
· Following the Merger, the Group has been developing its ESG positioning, and enhancing and formalising its strategy for the future.
· From an environmental perspective the Group has already outlined the main measures it uses to assess its environmental impact and is in the process of developing its wider carbon strategy as well as its EV strategy. It is progressively aligning its fleet policy with changing market dynamics to be at the forefront of electric vehicles.
· From a social perspective, during COVID-19 the Group has supported employees and stakeholders in a variety of different ways which included increased flexible working, customer support packages (waivers, discounts and deferrals) and other initiatives including an NHS and key worker replacement vehicle scheme and the provision of vehicles to the Red Cross in Spain and British Heart Foundation in the UK at significant discounts.
· The Group will update further on its detailed ESG plans and targets in the next reporting period.
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 intangible amortisation from acquisitions and certain one-off items such as those arising from restructuring activities. 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.
Analyst Briefing
There will be a remote 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 later today via a link on the Company’s website www.reddenorthgate.com
