Northgate on Tuesday likened the current economic climate to that of the recession of 1990-91 as it warned profits from its van rental business would be below market expectations.

However, Steve Smith, chief executive, said in an interim management statement coinciding with its annual meeting that, as the recession in the early 1990s progressed, customers realised the benefit of renting rather than owning vehicles which led to a period of sustained growth for Northgate. "We believe that, at some stage in the year ahead, we will see this transition in our markets in the UK and Spain".

The group's shares fell sharply in early trading as analysts slashed profit forecasts. The shares were down 12.7 per cent or 38p at 261½p after hitting a low of 241p in opening trade.

Robert Morton, analyst at Investec Securities, cut his profit forecast for the year to next April from £81.5m to £54m, while the team at Panmure Gordon dropped their estimate from £75.1m to £50.6m. Both also cut forecasts for the following year. In the last financial year profits before tax were £83.1m.

Northgate said that although its rental business was holding up at present, it was finding that sales prices of vehicles - which the group typically sells when they are 30 months old - had dropped. In the UK these residual values were 5 or 10 per cent lower so far in this financial year, which began on May 1, while in Spain the fall was 10 per cent. This would result in a higher depreciation charge.

In the UK the group had maintained the utilisation rate of its hire vehicles at 90 per cent and held rates, although customers were taking advantage of the flexibility of renting by returning vehicles more frequently. The group rents mainly light commercial vehicles, but also cars and trucks, to a range of industries with the construction sector the largest of its customer groups.

In Spain, however, the weak economy had made it difficult to maintain utilisation rates and as a consequence the group did not expect to increase the size of the fleet in coming months.

Northgate also said it had renegotiated banking facilities to push back maturity dates, a policy a number of companies have pursued recently sacrificing cheaper debt for the certainty of longer repayment schedules.

It had previously had £769m of facilities due to mature by the end of 2009, but now most of its £1.044bn of available debt was not repayable before September 2011 with some extended to January 2017. The facilities exceeded the current debt level of £894m by £150m.

However, while the covenants were not changed, the higher cost of debt had added 60 basis points to the group's interest charge, which would be £5.4m higher in a full financial year.

The analysts said the debt renegotiation was one piece of good news among the gloom.