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Geared for growth
Page 24
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With turnover up more than 1 9% and profits up more than 230/01
rental giant Northgate is clearly doing something right. To find out
what, Andy Salter headed to its Darlington HQ.
Before researching for this interview I have to admit to not knowing a great deal about Northgate. Sure, I was aware they were one of the giants of the rental business, they were a Plc and they had been growing at a rapid rate over three or four years but, as I soon discovered, the scale of the business is even bigger than I had thought.
The week after our interview took place Northgate announced its interim figures to the City With turnover up 19.3% to £222.6m and profit rising 23.2% to £27.8m, its little wonder managing director Phil Moorhouse was in confident mood when we spoke.
And it's not only the financial returns that make impressive reading, the current UK fleet accounts for some 52.000 of the light commercials on the roads of this country, while the completion of the acquisition of Spanish rental outfit Fualsa last year has seen the fleet increase by an extra 17,000 vehicles.
To complete the fact file, Northgate buys, on average, 20,000 new vehicles a year, giving it enormous leverage with the van and truck manufacturers. The fleet comprises predominantly commercial vehicles, from vans through to 7.5-tonners. Although there are some heavy vehicles in the fleet, these are only offered to valued customers as a special service.
Northgate was founded in the early '80s as a privately owned van rental firm, but given that its major growth has come during the past five years, we were intrigued to discover the secret of its success. Moorhouse points to one main factor: customer service. It may be an old chestnut, but the whole company is geared around ensuring maximum satisfaction and thereby maximum utilisation of the vehicles.
"The structure of our business has always been the same since 1981," says Moorhouse. "We have autonomous hire companies which trade under their own identity and we currently have 36 of them.A typical business will be 30 to 40 people running a fleet of 1,500 vehicles. At each depot there will be full administration, a full workshop facility and a full sales force. In the eyes of the customer, that's a fully-fledged. independent business that can deal with all their requirements.
Acquisitions This is one of the reasons Northgate may not be the most familiar name in van rental, but when you look at the list of the hire companies in the front line it's a veritable who's who of local rental firms "If you go to Liverpool it's Maincrest, in Milton Keynes it's'Three Counties, for Kidderminster it's Foley Self Drive the most recent of our acquisitions.says Moorhouse.
"As the main outlets have developed we've also been able to spin off satellite depots, which are effectively remote sales offices supporting those local areas which wouldn't have the business to support a main outlet.
"The whole culture of the organisation is that we have these autonomous hire companies that give a very high service level, we're not the cheapest, but we give the best service. That's because we control our own destiny."
Surprisingly, each Northgate hire company has its own workshop facility. It seems like an enormous investment for a service which the local Ford, Vauxhall, Mercedes or Iveco the predominant makes in the fleet dealer could surely deliver.
Not true, says Moorhouse. "The most important issue for our customer base is service.They want the vehicle on the road and if you go to a dealership in London you won't get the vehicle hack for five days."
So Northgate carries out its own maintenance because the manufacturers can't deliver the required service levels, we venture. Moorhouse dons his politician's hat. "No, I prefer to see it the other way around. For us to give the best service levels we can, we need to be in control of the maintenance of the vehicles ourselves," he says. "We aim to run 90%-plus utilisation all the time.That's a key measure of our business, so you've got to have the maintenance fully under control."As we said...
The service levels underpin the success, or otherwise, of Northgate as this drives utilisation which is how it makes its money sweating the assets to use modern parlance.
The other thing that has differentiated Northgate from the competition is its willingness to offer flexible rental deals, though others are now following suit. Basically, its Norflex offering is thus: if you've finished with your van earlier than you anticipated you can send it back rather than having to hold onto it for the fixed term.
"Back in the early '90s we were the only company offering flexible rental as a business solution," says Moorhouse. -The perception of rental had been poor vans around the corner from an Arthur Daley type affair. We've changed all that. Our vehicle hire offering Norflex on any time period. Part of the issue i our early experience of Norflex was: That OK, but what's the catch?' But there isn't on You can have whatever type of vehicle, ft whatever period you want. We have a rent agreement that is completely open-ended effectively it's a daily rental agreement and th prices will be volume driven."
Returns Northgate's track record is an impressive ond the five-year plan it presented to the City i 1999 to double the size of the company durin that period, was completed within four year It's now midway through a further three-yea plan due to be completed by 2006, though w wouldn't mind betting the boxes will be ticke. ahead of schedule once again. The financk returns speak for themselves and with share holders hungry for growth and increase' returns Northgate will need to confirm, expanding its business.
The recent foray into Spain is an indication a the future direction and other countries ma: follow. Yet before shifting focus to oversew Moorhouse reckons there's plenty of grown opportunity left in the UK. "You've got a vehi cle parc of over 2.5m light commercials in thi country," he says. 'And you've probably got 10 15% of it rented.
"There's a massive potential for growth it converting people from contract hire or out right purchase to a rental offering and that': where we'll be focusing our future activities."
Who'd bet against them? •