Northgate talks with bank precautionary

Feb 26 2009 by Graeme King, The Journal

SHARES in van hire specialist Northgate suffered a 43% slide yesterday as the Darlington company said it would have to talk to its bankers to avoid the danger of breaching its banking covenants.

Northgate also warned that second half profits were likely to be below market expectations, due to poor trading in January, and a bleak outlook for the period up to the year end on April 30. It was Northgate’s third profit warning in the last six months.

The company said yesterday that moves to talk to its bankers had been triggered by having to revalue its assets, after big falls in the value of used vans. Overall, the company said the value of its assets had dropped from around £380m to £230m, hence the need for discussions with its bankers and yesterday’s steep drop in the share price, ending the day at just 39p.

Northgate said in December that it was cutting 380 jobs from its Europe-wide workforce of 3,500, though only a handful have gone from the company’s headquarters in Darlington. While no further major cost cuts are now expected, Northgate said yesterday it had to address the “unprecedented” 20% drop in the price of vans over the last year, as its existing depreciation policy did not go far enough.