UPDATE 1-Northgate sees signs of growth in UK business after 8 years

Tue Jun 25, 2013 5:19am EDT

* Full-year pretax profit falls 17 pct

* UK hire revenue rises 1 percent

* Shares fall 3 pct

By Richa Naidu

June 25 (Reuters) - Van rental company Northgate Plc said it expects its core UK business to stabilise over the next year, growing for the first time in eight years, propped up by the opening of new hiring locations.

Northgate, which rents out vans to engineering, distribution and retail companies in Spain, Britain and the Republic of Ireland, on Tuesday reported a decline in full-year profit as lacklustre consumer spending in Britain and economic turmoil in Spain took a toll on demand.

"(The UK business) will see stabilisation in the first half and we'll look to increase growth through the second half as the benefit of new sites comes through," Chief Executive Bob Contreras told Reuters.

Over the next three years the company plans to open 20 new UK outlets, half of which will be in London.

Consumer spending in Britain has remained under pressure after years of below-inflation wage growth and belt tightening by the government have squeezed discretionary incomes.

Northgate said full-year hire revenue in the UK rose 1 percent despite its exposure to gloomy consumer spending in Britain and Ireland, which together account for almost two-thirds of total revenue.

Hire revenue in Spain fell 2 percent.

Amid dire business sentiment, shrinking consumer demand and banks that are reluctant to lend, Spain hit its second recession in 2011 and is widely expected to keep contracting into next year. April marked Spain's 24th straight month of shrinking manufacturing activity.

While Northgate's Spanish business will still see some decline in the current year, its rate of decline is going to reduce significantly, Chief Executive Contreras said. The unit underwent cost cuts and debt-management last year.

DEBT REFINANCING

Northgate said in April that it had refinanced its debt to cut interest payments, helping its struggling Spanish business.

The main benefit of the debt refinancing was that interest costs for the next year would likely reduce by about 65 percent to close to 13 million pounds, Contreras said.

The Darlington-based company said it had reduced net debt by 2 percent to 362.7 million pounds, after cutting its fleet and selling vehicles over the year.

Numis analyst Mike Murphy upgraded his rating on the stock to "add", saying he saw a gradual improvement in outlook as Northgate continues to manage the capital employed in its Spanish business and the initiatives in the UK drive growth in the second half.

Northgate, which also helps customers manage vehicle fleets, said underlying pretax profit fell 17 percent to 49.5 million pounds ($76.22 million) in the year ended April. Revenue decreased 14 percent to 609.9 million pounds.

Northgate's shares, which have gained 17 percent since its profit warning in March, were trading down 3 percent at 342 pence at 0911 GMT on Tuesday on the London Stock Exchange.

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