Preliminary Results
Wincanton PLC
08 June 2006
Immediate release WINCANTON plc 8 June 2006
Preliminary Announcement of Results
for the financial year ended 31 March 2006
'Another year of profit growth and strong cashflow'
2006 £m 2005 £m Change
Revenue 1,809.3 1,651.5 + 9.6%
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Underlying operating profit 42.0 39.3 + 6.9%
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Net financing costs (9.7) (9.9)
Associates - 0.1
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Underlying profit before tax 32.3 29.5 + 9.5%
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Other items (net) (1.0) (1.9)
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Profit before tax 31.3 27.6
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Underlying earnings per share 19.2p 16.3p + 17.8%
Basic earnings per share 19.9p 16.4p
Proposed final Dividend 8.6p 7.74p
Full Year Dividend 12.54p 11.40p + 10.0%
Note: Underlying profit before tax and earnings per share are stated before
exceptional restructuring costs of £8.1m (2005: £9.4m), exceptional property
profits of £8.1m (2005: £7.6m profits on asset disposals) and amortisation of
acquired intangibles of £1.0m (2005: £0.1m). Operating profit, including these
items, amounted to £41.0m (2005: £37.4m).
FINANCIAL HIGHLIGHTS
• Underlying profit before tax up by 9.5 per cent, to £32.3m
• Underlying earnings per share up by 17.8 per cent, to 19.2p
• Full-year dividend increase of 10.0 per cent, to 12.54p per share
• Marginal increase in net debt in spite of significant pension scheme
and acquisition cash outflows
OPERATIONAL HIGHLIGHTS
• High levels of new business activity; annualised turnover from new
wins and renewals of approximately £385m
• Substantial programme of contract start-ups successfully delivered
• Acquisition significantly strengthens French operational and
customer base
Graeme McFaull, Wincanton Chief Executive, commented:
'The year to 31 March 2006 was another year of profit growth and strong cashflow
for Wincanton. Strategically and operationally we also made good progress.
We are increasingly well-positioned to take advantage of the many growth
opportunities in our target markets.'
For further enquiries please contact:
Wincanton plc
Graeme McFaull, Chief Executive Tel: 020 7466 5000 today, thereafter
Gerard Connell, Group Finance Director Tel: 01249 710742
Charles Carr, Group Communications Director
Buchanan Communications Ltd Tel: 020 7466 5000
Charles Ryland, Richard Oldworth
Chairman's Statement
On behalf of the Board I thank all the Group's employees, whose enthusiasm,
commitment and professionalism have produced another year of strong operational
and financial performance. The strength of our customer relationships and the
quality of our services have been, and will continue to be, key to our success
and are a direct consequence of the quality of our people.
Wincanton has reported another period of financial and strategic progress for
the year to 31 March 2006. Group operating profit of £42.0m (2005 : £39.3m) grew
by 6.9 per cent, profit before tax by 9.5 per cent and earnings per share by
17.8 per cent (in each case stated on an underlying basis which excludes
amortisation of acquired intangibles and exceptionals). Group operating profit,
including these items was £41.0m (2005 : £37.4m). Cash flow performance was
again strong, with only a marginal increase in year-end net debt to £60.6m, in
spite of a near £38m outflow as a result of an acquisition and a cash injection
into the Group's pension fund.
The underlying strength of Wincanton's trading performance and another year of
good cash flow generation have given the Board the confidence to propose a full
year dividend of 12.54p per share. This represents a 10.0 per cent increase on
the dividend paid last year.
Including this dividend the Group's annualised rate of dividend increase since
its demerger in May 2001 now stands at 7.9 per cent per annum. These dividend
increases, combined with a good share price performance, have generated a Total
Shareholder Return of 90.8 per cent since demerger. This represents, as at 31
March 2006, an out-performance relative to the FTSE-250 of 26.4 per cent.
In the five years since demerger, Wincanton has strengthened its position in the
UK & Ireland and established a platform for growth across Continental Europe.
The Group's full growth potential is yet to be realised, but solid progress is
being made towards our goal of leadership in European supply chain services.
Our markets are fragmented, and there are opportunities for further
consolidation through acquisition. In October 2005 we announced the purchase of
the principal French logistics activities of Premium Logistics ('Premium').
Premium significantly strengthens our operational capabilities in the important
French market. Our enlarged French business now offers national coverage from
some 30 sites, giving a substantially stronger and broader business base from
which we will be able to serve both the French and cross-border requirements of
our blue-chip customer base. Other potential acquisitions are under review as a
means of accelerating either the expansion of our service offering or the
further strengthening of our European presence.
I take this opportunity of welcoming Graeme McFaull to his new role as Chief
Executive. Graeme, who took over from Paul Bateman in December 2005, previously
led our operations in the UK & Ireland through a period of very significant
growth and development. He has the support of a highly experienced and committed
senior team and I am sure that Wincanton will enjoy continuing success under his
leadership.
The Board also welcomes Jonson Cox who has joined us as a non-executive Director
during the year and whose contribution is much appreciated.
Peter Brown left the Board in February 2006, and I thank him for his
contribution to the Group over many years.
Our markets remained challenging and competitive in the year under review. High
levels of new business activity nonetheless again enabled us to take market
pressures and contract losses in our stride and still show good net profit
progress. Annualised turnover from contract wins and renewals totalled
approximately £385m compared to last year's £250m.
Our operations in the UK & Ireland reported underlying operating profit of
£37.8m, up 3.6 per cent on the previous year. Fee pressure is evident in certain
of the more mature areas of our activities but we continue to see opportunities
for growth across our retail, manufacturing and industrial customer bases. The
market for supply chain services in the UK & Ireland has become more polarised
in recent years, and Wincanton, as one of the two leading operators, has
benefited from its greater scale and the loss of market share by smaller
operators. This trend is expected to continue to be of benefit to the Group in
the future. We also continue to have confidence in the growth potential of our
portfolio of ancillary services, which includes consultancy, data records
management, waste recycling and fleet maintenance.
Underlying operating profit in Continental Europe grew by 7.1 per cent,
excluding our French acquisition, and by 50.0 per cent, to £4.2m, including our
French acquisition. The progress in underlying profit was achieved in spite of
the early termination in February 2005 of the key customer contract managed by
PGN, a jointly owned entity. This contract, which remains subject to arbitration
proceedings, was an important contributor to Continental European profitability
in 2004/05.
A more rapid and substantial improvement in the profit performance of
Continental Europe remains a key objective for us. There is a high degree of
operational leverage in our asset base which, if volume growth can be
accelerated, will have a positive effect upon reported profit. Management teams
have been strengthened in a number of countries, including the recruitment of a
new managing director in Germany, and the new teams will be supported by higher
levels of investment in marketing and business development. Raising the brand
awareness of Wincanton across Continental Europe, improving the performance of
certain loss-making activities and ensuring the delivery of consistent service
excellence across borders will be key to further performance improvement. The
Continental European businesses remain fundamental to our strategy and we are
confident that, over time, they will generate significant profit and cash flow
for the Group.
Our strategy of offering our customers national, regional and Pan-European
services is generating enhanced opportunities for growth. As a consequence of
successful acquisition and the continuing organic growth of existing operations,
Wincanton has positioned itself as one of the leading supply chain management
companies in Europe. We continue to see attractive potential, both organically
and through acquisition, for Wincanton to consolidate and develop this position
as a European industry leader. We have confidence in the Group's ability to
build further on the achievements of recent years.
Sustaining growth momentum in the UK & Ireland and delivering more satisfactory
levels of profitability in Continental Europe will bring many challenges in 2006
/07. Our objective is nonetheless for the new year to be another period of
progress towards realising our operational, financial and strategic goals. We
expect 2006/07 to again confirm Wincanton's ability to generate value for
shareholders by adding value for customers.
Business Review
Strategy
Wincanton's strategic objective is to become the leading provider of European
supply chain management services. Already challenging for leadership in the UK
and Ireland, we also aim to be amongst the leaders in each of our chosen markets
in Continental Europe. The Group's existing presence across Europe is a
competitive advantage in an industry which remains fragmented, with large
numbers of small operators and a very limited number of Pan-European service
providers.
The European market is our core geographic focus, our home market. It is a
market of 460 million consumers. It has a substantial manufacturing and
retailing infrastructure and significant national, cross-border and
international flows of raw materials, finished products and services. It is
these supply chain flows that we manage on behalf of customers. This is a
geographic market in which we have a leading presence and which offers
substantial opportunities for future growth.
We have a strong portfolio of customers across Europe, including many of the
world's major retailers and manufacturers. Maintaining and enhancing supply
chain efficiency is business-critical to our customers. We have a proven track
record of growth with these customers and we are now able to serve their needs
on a national, regional and Pan-European basis.
Changes in legislation, strategy, technology and the economy lead to both
tactical and strategic change in the supply chain needs of our customers. We
continue to invest in our people, our services, our systems technology and our
processes to ensure that we offer the innovation, operational excellence and
value which deliver the solutions to meet these changing customer needs and
enable us to compete successfully in our chosen markets.
Our strong profit and cash flow performance gives us the financial capacity to
take advantage of new opportunities. We actively consider opportunities to
expand our portfolio of services and sector expertise, both organically and
through acquisition. Acquisitions are also expected to contribute to the further
strengthening and expansion of our geographic presence across Europe.
We serve a well-diversified customer base, deliver a wide range of
business-critical solutions and offer a Pan-European presence which is already
amongst the best in the sector. We have a clear strategy which we believe will
generate further value for shareholders by continuing to add value for
customers.
We look to the future with confidence.
2005/06 Summary
Wincanton made further encouraging progress in the financial year to 31 March
2006.
Our UK and Ireland operations, which continue to generate most of the profit and
cash flow of the Group, produced another solid operational and financial
performance. New business activity levels remained high and overall contract
contribution margins were stable, with fee pressure in certain cases offset by
performance bonuses and higher levels of gainshare elsewhere. A substantial
programme of contract start-ups was successfully delivered.
In Continental Europe, we significantly strengthened our French presence through
acquisition and made further profit progress overall in spite of a disappointing
performance in certain operations.
UK and Ireland: Performance Highlights
Our businesses in the UK and Ireland reported underlying operating profit of
£19.6m in the second half, an increase of 3.2 per cent on the same period last
year and a 7.7 per cent increase on the £18.2m reported in the first six months
of this financial year, to give a full year underlying operating profit of
£37.8m, an annual increase of 3.6 per cent. Turnover in the UK and Ireland
increased by 5.3 per cent, to £1,156.3m.
Growth with our retailer customer base, particularly in DIY and general
merchandise, was again a key feature of the year. Contract gains in the period
included a new direct import centre for Argos, a Christmas relief operation for
Sainsbury's and a home delivery platform for Comet. Further expansion of other
existing relationships gave rise to gains with customers such as B&Q, Morrisons
and Woolworths. Contracts were also renewed with long-standing customers such as
ACC, New Look and W H Smith. Lower volumes at certain shared user sites
restricted an otherwise strong retail performance.
Our portfolio of manufacturing customers reported a higher profit contribution
on a slightly reduced level of turnover. Co-packing services were further
expanded through contract gains with Heinz and Procter & Gamble. Our growing
presence in the drinks sector was reflected in a new national warehousing and
distribution contract for SABMiller and the award of a contract to manage
Britvic's national primary transport. Last year's substantial gain with
GlaxoSmithKline, a 10-year contract to design and operate a new automated
warehouse, was successfully delivered. Profit progress in this sector was held
back by continued weak trading in our chilled consolidation operations in the
first half of the year, although performance improved materially in the second
half.
Our contract base of industrial customers saw a marginal year-on-year reduction
in profit with a strong performance within our petroleum customer base failing
to offset several small year-on-year negatives, including a reduced contribution
from our fridge recycling activities following the delayed implementation of the
WEEE Directive. Contract wins included Shell Gas and First Milk. Contract
renewals included Dairy Crest, Novartis, Texaco and Statoil. In terms of
operational performance we worked hard, and successfully, on behalf of
long-standing customers Texaco and Total, to mitigate the adverse effect on
their operations of the major explosion at their Buncefield depot.
In terms of ancillary services, the year to 31 March 2006 was another good year
for Pullman Fleet Services. Pullman delivered strong growth, continuing to
develop its national network of vehicle maintenance and assistance services both
organically and through in-fill acquisition. New contracts were added with
customers such as Arla Foods, Cemex, Sainsbury's and Tesco. Consilium, our
consulting operation, produced another good performance. The costs of increasing
capacity in our data records management business in the year had a negative
effect on profit performance but growth prospects remain encouraging in this
area.
Wincanton is a strong number two in a UK market which has become increasingly
polarised in recent years. A number of our competitors have either been sold,
are in the process of being sold, or are facing uncertainty as to either their
future ownership or their ability to sustain critical mass. In certain instances
this has created short term pricing pressure, but has generally created
incremental opportunities for Wincanton.
The scale of our operations in the UK and Ireland allows us to offer flexible
solutions combining both dedicated and shared-user options and the opportunity
for customers to benefit from reduced costs overall. We seek to combine the
benefits of scale without the loss of the specialist service focus or the
closeness of personal relationships which remain critical to our customers.
Continental Europe: Performance Highlights
Underlying operating profit growth of 50.0 per cent, including our French
acquisition, and of 7.1 per cent excluding this acquisition, is indicative of
another year of change, investment and strategic development in our Continental
European activities. The progress in underlying profit was achieved in spite of
the early termination in February 2005 of the key customer contract managed by
PGN, a jointly owned entity.
Underlying operating profit of £4.2 m, on turnover up 17.9 per cent to £653.0m,
is still some way below what we believe to represent the profit potential of
these businesses. Progress is nonetheless being achieved in terms of brand
awareness, customer account management, the consistency of our operational
standards and the strength and depth of our senior management teams.
Operationally, our Continental European activities are generally strong and our
business infrastructure is capable of handling the higher volumes that will
deliver faster profit growth. Investment in the year, for example, to expand the
capacity of our Eisenach site, a key hub location in our German transport
network, is indicative of our commitment to ensure that the business continues
to be well-positioned for the future. There are also plans to expand the
capacity of our international freight management facility at 's-Heerenberg on
the Dutch-German border.
In terms of further strategic development, the highlight of the year was the
acquisition of Premium. Our enlarged French business now has a good national
presence, an enhanced portfolio of customers and both the operational capability
and credibility to serve the needs of potential new customers. The integration
process has gone well and we are re-building the development pipeline. Some
early new business wins, most recently a new distribution centre for a major
drinks company, confirm our belief that the French market will bring attractive
opportunities for future growth.
Profitability in our existing French activities, based in Strasbourg, was held
back by the effect of fuel price increases on our fleet operations. In France,
as across the rest of Continental Europe, our transport activities are
principally carried out through sub-contractors. In certain countries, however,
we do operate our own vehicles, generally small fleets for specific customers,
routes or regions. Difficulties and delays in recovering the full effect of the
significant fuel price increases in the year in respect of these fleets is
estimated to have reduced Continental European profitability by approximately €
1m.
Volumes were generally strong in our German business, particularly in our
intermodal and freight management activities. Container traffic on the Rhine
showed good year-on-year growth, albeit with a weaker final quarter as a result
of low water levels. The performance of our road network was mixed, with good
results in certain depots offset by customer loss elsewhere. The integration of
last year's midiData acquisition with our existing hi-tech network had a
positive effect on profitability. There was also good growth across the network
with customers such as Honeywell, Goodyear Dunlop and Johnson Diversey.
Adjusting capacity in anticipation of future opportunity led us to invest in the
expansion of Eisenach, a key hub in our network activities. It also led us to
terminate the lease on one of our Hamburg sites, following customer change. The
closure costs of the Hamburg operation are included within the exceptional
restructuring charge further explained below.
Our Dutch operations reported a good performance, particularly in international
freight management. Gains and renewals in this area were recorded with customers
such as Diolen and Rohm and Haas. Our growing business in automotive components
showed further progress with contract gains with Mitsubishi and Pininfarina. For
Pininfarina we are consolidating component supply from 160 suppliers across
Europe for just-in-time delivery into its specialist manufacturing facilities in
Turin. The Dutch business also has considerable expertise in complex freight
management into the former Soviet republics, for example for oilfield
construction customers in Central Asia, and there was good year-on-year growth
in this activity.
Financial performance in Central and Eastern Europe was down compared to 2004/
05. There was good progress in the region, particularly in Poland, with
customers such as Numico, Leroy Merlin and Exxon. Our forwarding operation in
Gdansk also contributed well. New operations commenced in the year included a
warehouse for Goodyear Dunlop in Slovakia. Contract gains in Hungary with
customers such as Hipp, M-Real, Henkel and Philips were not sufficient in
financial terms to offset prior-year customer losses.
The financial performance of our Spanish operations improved in 2005/06,
following the closure of our Valencia site last year, but further action will be
required to deliver a return to profitability. A new management team in Spain is
making good progress in addressing the structural issues that have led to
continuing under-performance and our focus on sales and business development is
beginning to produce new business wins. We are actively reviewing potential
opportunities to strengthen our presence in the Spanish market.
Overall, the 2005/06 results for Continental Europe showed progress
strategically, operationally and financially. Management changes have been made
in several countries which, together with increased investment in business
development and marketing, will enable us to make more rapid and substantial
progress.
Wincanton Group : Consolidated Results
Consolidated Group turnover of £1,809.3m was 9.6 per cent higher than in 2004/
05. Underlying operating profit increased by 6.9 per cent to £42.0m, leading to
a slight reduction in accounting margin on turnover, to 2.3 per cent.
Neither turnover growth nor percentage margin on turnover are key performance
indicators for us. We measure the progress of the Group principally in terms of
growth in operating profit, cashflow and return on capital. Turnover growth can
nonetheless give a broad indication of underlying business momentum. Annualised
turnover from new business wins and contract renewals totalled £300m in the UK
and Ireland and £85m in Continental Europe, giving a Group total of £385m,
compared to last year's £250m.
Approximately 70 per cent of the annualised turnover from new wins in the period
came from existing customers. This compares to last year's 85 per cent and
confirms again the importance of strong customer relationships and a diversified
sector portfolio to both Wincanton's current performance and its future growth
potential.
Interest costs
The interest charge of £9.7m represents a slight reduction on last year's £9.9m.
Strong cash inflows from operations were offset by cash outflows relating to the
acquisition of Premium Logistics. Towards the end of the financial year the cash
injection into the pension fund was offset by the proceeds from property
disposals. Average debt levels were therefore similar to the previous year. The
average interest rate payable on the Group's borrowings in the year was 4.3 per
cent.
The interest charge for the year was covered 4.3 times by underlying operating
profit.
Exceptionals
Net exceptional restructuring costs of approximately £8.1m were offset by net
exceptional profits of £8.1m arising from the disposal of a number of surplus
freehold properties. Net exceptional costs included the final phase of the move
to our new head office in Chippenham and a subsequent senior management
restructuring ( £4.2m), the costs of closure of a number of European sites and
operations, principally a site in Hamburg ( £3.0m) and post-acquisition
restructuring costs in France ( £0.9m). Net exceptional profits arose
principally from the disposal of five surplus freehold properties in the UK.
Taxation
The tax charge of £10.1m on underlying profits gives an accounting rate of tax
for the year of 31.3 per cent. The overall tax rate was lower, at 26.8 per cent,
because the gains on property disposals were offset by brought-forward capital
losses.
Wincanton operates in jurisdictions across Europe, with corporate tax rates that
range from 12.5 per cent to 40.0 per cent. Brought-forward trading losses in
certain countries may lead in due course to a further reduction in the Group's
accounting rate of tax.
Minority interests, earnings and dividends
A small number of the Group's activities are carried out through companies in
which there are minority shareholdings. Wincanton holds the majority controlling
share in these companies and therefore fully consolidates the activities in the
Group's results. The largest such operation is RhineContainer BV, a freight
forwarding activity in the Netherlands and Germany, in which the Group has a
74.2% holding. The profits attributable to minority interests of £0.2m were
lower than last year's £0.6m.
Underlying earnings per share of 19.2p represents a 17.8 per cent increase on
last year's 16.3p per share.
The Board proposes a final dividend of 8.6p which, together with the interim
dividend announced at the half year, gives a total dividend for 2005/06 of
12.54p per share. This represents a 10.0 per cent increase on the full-year
dividend for 2004/05.
On this basis, the full-year dividend for 2005/06 is covered 1.53 times.
Cash flow and net debt
Underlying EBITDA (being underlying operating profit plus depreciation and
amortisation) totalled £74.8m. This inflow, plus a working capital inflow of
£4.0m gave rise to a total cash inflow from operating activities of £78.8m
before capital expenditure and exceptionals.
Gross capital expenditure of £40.3m was higher than in recent years, at
approximately 123 per cent of the £32.8m charge for depreciation. The total of
£40.3m included some £28.6m of expansion capital and £10.9m of replacement
capital. Investments in expansion capital and replacement capital last year
totalled £23.6m and £14.7m respectively. The principal items of expansion
capital included the balance of the investment in a new automated warehouse for
GlaxoSmithKline, the kitting-out of a new warehouse for Argos in Corby and the
commissioning of a second recycling machine at our waste management centre in
Billingham.
In evaluating growth opportunities, either organic or through acquisition, our
focus is significantly weighted towards cash flow return on investment and
return on capital employed. All capital expenditure proposals are subject to
review and approval at appropriate levels, including the Wincanton Board. The
first year results of approved projects are subsequently 'backchecked' against
projected returns.
Gross capital expenditure was offset by £24.0m of asset sales in the year,
principally the disposal of surplus freehold properties referred to above.
Further surplus property disposals are expected in the new financial year.
The Group also finances its growth through operating leases, which in our UK and
Ireland operations, in particular, are generally underwritten by our customers
under the terms of our contracts. The Group's annual commitments under operating
leases are £93m, of which £55m arise in the UK and Ireland. Across the Group
approximately 32 per cent of these commitments were either fully or partially
underwritten by customers, increasing to approximately 45 per cent in the UK and
Ireland. In assessing the return on new projects financed by operating leases
the Group attributes a memorandum value to these underlying assets.
Other cash movements in the year included £20.3m in respect of our French
acquisition, and the additional payment of £17m into the Group pension fund,
further discussed below.
The net effect of these and other cash flow movements was a slight increase in
year-end net debt, up from £56.5m last year to £60.6m at 31 March 2006. The 31
March 2006 position is net of £29.8m of cash held within our captive insurance
company to fund future insurance claims (£33.5m at 31 March 2005). The Group has
therefore been able to fund an infill acquisition and a cash injection into the
pension fund with only a marginal increase in its net debt position. We also
propose a double-digit percentage increase in the full-year dividend. This
strong cash flow performance is further evidence of Wincanton's ability to
generate significant liquidity from both its operations and its asset base.
The Group's committed banking facilities were increased during the year from
£200m to £210m and the facilities were amended to a fully revolving basis with
the maturity extended to 2010, significantly enhancing the flexibility of the
Group's bank funding. £190m of this committed facility was undrawn at 31 March
2006. The Group also took advantage of low long-term interest rates by raising
$150m of 7- and 10-year money in the US private placement market. This further
extended the maturity of our committed borrowings on attractive terms and gave a
useful diversification in our sources of funding. The placement monies have been
swapped back into euros to give a fixed cost of borrowings of 0.85 per cent over
EURIBOR. In addition to these committed facilities the Group has available a
range of overdraft and leasing facilities.
Through the year our borrowings are drawn approximately two-thirds in euros and
one third in sterling. The Group has entered into an interest rate cap to cover
€100m of its potential exposure to rising interest rates.
The interest rate and foreign exchange positions of the Group are subject to
regular review. No speculative trading is entered into and all activities of the
treasury function are designed to support the Group's commercial operations.
Return on capital employed
Capital employed at 31 March 2006 was £122.9m, of which 35 per cent related to
our UK and Ireland operations and 65 per cent to Continental Europe. The return
on capital employed, at 34.2 per cent represents an increase on last year's 29.8
per cent. This rate of return is believed to compare favourably with the returns
of our peer group.
Goodwill
The total of balance sheet goodwill and intangibles of £70.0m consists
principally of acquisition goodwill and acquired intangibles of £65.4m including
£11.3m of goodwill and £10.4m of acquired intangibles arising on the Premium
acquisition in the year. The balance of £4.6m is the net book value ofcapitalised
software in use across the Group.
Pensions
Following the results of the triennial actuarial valuation of the principal
Wincanton pension scheme as at 31 March 2005, the Group's pension policy and
funding approach has been subject to detailed review. A number of changes to
pension policy have been considered and are currently subject to consultation
with employees. An up-front injection of £40.0m in cash to address the past
service deficit of the fund has been agreed with the pension scheme trustees.
Incremental annual cash contributions to further address the deficit, up from
£2.0m per annum to £8.0m per annum, have also been agreed. £17.0m of the
up-front contribution was paid prior to the 2005/06 year end and the balance of
the payment was made early in the new financial year. All these incremental
contributions are tax deductible and will lead to a reduction in the cash tax
payable by Wincanton in the future. Wincanton expects the after-tax cost of the
up-front contribution to be substantially covered by the proceeds of its
programme of disposal of surplus properties.
Following the up-front cash injection, and subject to satisfactory completion of
the employee consultation process, Wincanton expects the actuarial deficit of
the pension scheme to be approximately £70m. The principal issues that have
caused this increase in the deficit, up from approximately £15m as at 31 March
2002, are investment performance, lower bond yields and a change in assumptions
to reflect increased longevity.
On an IAS 19 basis the pension fund deficit of the scheme at 31 March 2006 was
£116.3m. Taking account of the up-front contributions made just prior to and
immediately after the year end and the scheme changes currently subject to
employee consultation, this deficit would have been reduced to approximately
£73m.
Very careful consideration has been given to the appropriate measures required
to respond to the growth in the past service deficit and the costs of future
service accrual. It is believed that both the steps being implemented and those
which remain subject to consultation, which are facilitated by the strong cash
flow generation of the Group, will address the deficit prudently and
progressively.
The currently low levels of bond yields will increase the service cost charged
to operating profit for pensions in 2006/07, partially offset at the pre-tax
level by the positive effect on the Group interest charge of the up-front
contribution and investment returns.
PGN
As explained in last year's Annual report, PGN, a jointly owned entity in which
Wincanton has a 50.0 per cent stake, is in dispute with its sole customer in
respect of the early termination of the contract. The arbitration process, which
includes financial claims and counter-claims, is continuing, with the final
outcome unlikely to be known before mid-2007. Wincanton's share of the net
assets of PGN, which consist principally of working capital, was consolidated at
£6.7m in the balance sheet as at 31 March 2006.
International Financial Reporting Standards (IFRS)
The Group has adopted IFRS in the current financial year, as required by the EU
for all listed companies. The Group published a full IFRS Transition statement
in November 2005 to explain the effect of the transition. The key areas of
impact for the Group of adoption are, in common with most entities, in relation
to jointly owned entities; employee benefits (including pensions); leases and
share-based payments. These have combined to reduce the comparative underlying
earnings of the Group for the year ended 31 March 2005 from 17.5p to 16.3p and
the net assets on transition at 1 April 2004 from £25.6m to £(3.7)m. The latter
being primarily the result of the recognition on the balance sheet of the net
pension deficit of £25.7m, which is made up of the IAS19 deficit of £69.9m
offset by the reversal of the SSAP 24 provision of £33.2m both net of deferred
tax. The adoption of IFRS has had no impact on the cash flows of the Group.
Consolidated income statement
for the year ended 31 March 2006
Total Total
2006 2005
£m £m
Note
Revenue 2 1,809.3 1,651.5
========= =========
Underlying operating profit 3 42.0 39.3
--------------------------------------------------------------------------------
Amortisation of acquired intangibles 3 (1.0) (0.1)
Exceptional restructuring costs 3 (8.1) (9.4)
Exceptional property profits 3 8.1 -
Exceptional profits on asset disposals 3 - 7.6
--------------------------------------------------------------------------------
Operating profit 3 41.0 37.4
Financial income 4 26.6 24.9
Financial expenses 4 (36.3) (34.8)
--------------------------------------------------------------------------------
Net financing costs (9.7) (9.9)
--------------------------------------------------------------------------------
Share of results of associates - 0.1
Profit before tax 31.3 27.6
--------- ---------
Income tax expense 5 (8.4) (8.3)
--------- ---------
Profit for the year 22.9 19.3
========= =========
Attributable to:
Equity shareholders of Wincanton plc 22.7 18.7
Minority interests 0.2 0.6
--------- ---------
Profit for the year 22.9 19.3
========= =========
Earnings per share
- basic 6 19.9p 16.4p
- diluted 6 19.5p 16.2p
Dividends declared and paid in the year (£m) 7 13.3 12.3
========= =========
Consolidated statement of recognised income and expense
for the year ended 31 March 2006
2006 2005
£m £m
Actuarial losses on defined benefit pension schemes (net of (46.7) (4.9)
deferred tax)
Net foreign exchange gain on investment in foreign 0.3 2.4
subsidiaries net of hedged items
Tax taken directly to or transferred from equity 0.7 0.7
------- -------
Net loss recognised directly in equity (45.7) (1.8)
Profit for the year 22.9 19.3
------- -------
(22.8) 17.5
Effect of change in accounting policy
Adoption of IAS 39, net of tax, on 1 April 2005 (0.1) -
------- -------
Total recognised income and expense for the year (22.9) 17.5
======= =======
Attributable to:
Equity shareholders of Wincanton plc (23.1) 16.9
Minority interests 0.2 0.6
------- -------
Total recognised income and expense for the year (22.9) 17.5
======= =======
Consolidated balance sheet
at 31 March 2006
2006 2005
£m £m
Non-current assets
Goodwill and intangible assets 70.0 51.1
Property, plant and equipment 234.7 234.1
Investments 0.8 0.5
Deferred tax assets 31.0 19.6
------- -------
336.5 305.3
------- -------
Current assets
Inventories 7.4 6.0
Trade and other receivables 310.8 284.3
Cash and cash equivalents 56.1 61.9
------- -------
374.3 352.2
------- -------
Current liabilities
Income tax payable (5.6) (6.9)
Borrowings (3.2) (6.1)
Trade and other payables (412.9) (378.6)
Employee benefits (7.5) (4.6)
Provisions (15.6) (13.6)
------- -------
(444.8) (409.8)
------- -------
Net current liabilities (70.5) (57.6)
------- -------
Total assets less current liabilities 266.0 247.7
------- -------
Non-current liabilities
Borrowings (113.5) (112.3)
Other payables (1.3) (3.8)
Employee benefits (144.8) (98.4)
Provisions (42.8) (36.0)
Deferred tax liabilities (1.3) (1.7)
------- -------
(303.7) (252.2)
------- -------
Net liabilities (37.4) (4.5)
======= =======
Equity
Issued share capital 11.8 11.7
Share premium 6.5 4.4
Merger reserve 3.5 3.5
Translation reserve 2.7 2.4
Retained earnings (62.5) (26.9)
------- -------
Equity deficit attributable to
shareholders of Wincanton plc (38.0) (4.9)
Minority interest 0.3 0.4
------- -------
Total equity deficit (37.7) (4.5)
======= =======
Consolidated statement of cash flows
for the year ended 31 March 2006
2006 2005
£m £m
Operating activities
Profit before tax 31.3 27.6
Adjustments for:
Depreciation and amortisation 33.8 35.1
Interest expense 9.7 9.9
Profit on sale of property, plant and
equipment (8.1) (7.6)
Share-based payments fair value
charges 1.1 0.3
------- -------
Operating profit before changes in working capital and
provisions 67.8 65.3
Increase in trade and other
receivables (2.8) (38.0)
Increase in inventories (1.1) (0.1)
Increase in trade and other payables 9.0 35.7
(Decrease)/increase in provisions (1.1) 4.5
Decrease in employee benefits (17.3) (0.8)
------- -------
Cash generated from operations (13.3) 1.3
------- -------
Cash flows from operating activities 54.5 66.6
Investing activities
Proceeds from sale of property, plant and
equipment 24.0 20.0
Interest received 2.0 2.3
Trans European completion settlement - 7.8
Acquisitions net of cash acquired (21.4) (6.7)
Acquisition of property, plant and equipment (40.3) (34.4)
Interest paid (7.6) (10.7)
Income taxes paid (3.0) (2.0)
------- -------
Cash flows from investing activities (46.3) (23.7)
======= =======
Financing activities
Proceeds from the issue of
share capital 2.2 2.6
Purchase of own shares - (8.5)
Decrease in borrowings (1.5) (16.2)
Payment of finance lease liabilities (1.5) (0.9)
Dividends paid to minority interest in
subsidiary undertakings (0.3) (0.4)
Equity dividends paid (13.3) (12.3)
------- -------
Cash flows from financing activities (14.4) (35.7)
------- -------
Net (decrease)/increase in cash and cash equivalents (6.2) 7.2
Cash and cash equivalents at beginning of year 61.9 54.2
Effect of exchange rate fluctuations on cash held 0.4 0.5
------- ------
Cash and cash equivalents at end of year 56.1 61.9
======= ======
Represented by:
Cash at bank and in hand 26.3 28.4
Restricted cash, being deposits held by the Group's
captive insurer 29.8 33.5
------- ------
56.1 61.9
======= ======
1. Accounting policies
The financial information set out in this preliminary announcement does not
constitute Wincanton plc's statutory accounts for the years ended 31 March 2006
and 31 March 2005. Statutory accounts for the year ended 31 Mach 2006 will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting. Statutory accounts for the year ended 31 March 2005 have been delivered
to the Registrar of Companies. The Auditors have reported on those accounts;
their reports were unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985.
This preliminary announcement has been prepared and approved by the Directors in
accordance with International Financial Reporting Standards (IFRS) and its
interpretations as adopted by the International Accounting Standards Board
(IASB) and by the EU (Adopted IFRS).
2. Segment information
Segment information is presented in respect of the Group's geographical
segments, being the primary segmentation format based on the Group's management
and internal reporting structure. As the secondary segment is the business of
providing contract logistics services which encompasses the entire scope of
Wincanton's operations, no further segment analysis is required.
The Group operates in two principal geographical areas, the United Kingdom &
Ireland, and mainland Continental Europe. In presenting information on the basis
of geographical segments, segment revenue and assets are based on the
geographical location of the business operations.
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis.
Geographical segments
UK & Ireland Continental Europe Consolidated
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
Revenue 1,156.3 1,097.8 653.0 553.7 1,809.3 1,651.5
======= ======= ======= ======= ======= =======
Underlying operating
profit by segment 37.8 36.5 4.2 2.8 42.0 39.3
======= ======= ======= ======= ======= =======
Amortisation of acquired
intangibles - - (1.0) (0.1) (1.0) (0.1)
Exceptional restructuring
costs (3.9) (4.3) (4.2) (5.1) (8.1) (9.4)
Exceptional property profits 8.0 - 0.1 - 8.1 -
Exceptional profits on
asset disposals - 7.6 - - - 7.6
------- ------- ------- ------- ------- -------
Operating profit 41.9 39.8 (0.9) (2.4) 41.0 37.4
======= ======= ======= ======= ======= =======
In addition to the above external revenue, there were intra segment sales of
£1.6m from UK & Ireland to Continental Europe (2005: £1.6m) and £1.0m from
Continental Europe to UK & Ireland (2005: £2.7m). All such sales are priced on
an arms length basis.
3. Operating profit
The Group's results are analysed as follows:
2006 2005
Underlying* Amortisation Total Underlying* Amortisation Total
of acquired of acquired
intangibles intangibles
and and
exceptionals exceptionals
£m £m £m £m £m £m
Revenue 1,809.3 - 1,809.3 1,651.5 - 1,651.5
Cost of sales (1,728.4) 4.2 (1,724.2) (1,570.4) 0.9 (1,569.5)
------- ------- ------- ------- ------- -------
Gross Profit 80.9 4.2 85.1 81.1 0.9 82.0
Administrative
expenses (38.9) (5.2) (44.1) (41.8) (2.8) (44.6)
------- ------- ------- ------- ------- -------
Operating profit 42.0 (1.0) 41.0 39.3 (1.9) 37.4
======= ======= ======= ======= ======= =======
* Underlying operating profit is stated before amortisation of acquired
intangibles and exceptionals.
2006 2005
£m £m
Operating profit before net financing costs is stated
after charging:
Auditors' remuneration:
- Group fees for statutory audit services 0.7 0.6
- fees paid to the Auditors and their associates for
tax advisory services 0.2 0.2
- fees paid to the Auditors and their associates for
assurance services 0.1 0.1
- fees paid to the Auditors and their associates for
other services 0.1 -
Depreciation and other amounts written off property,
plant and equipment:
- owned 29.6 30.5
- leased 0.4 1.1
Amortisation and other amounts written off software
intangibles 2.8 3.4
Operating lease rentals
- plant and equipment 39.3 40.4
- land and buildings 52.8 43.1
======= =======
In addition £0.2m was paid to the Auditors in respect of their services in
connection with the acquisition of Premium Logistics which has been capitalised
as a cost of investment.
Exceptionals 2006 2005
£m £m
Exceptional restructuring costs
Reorganisation of operating structure post-acquisition (0.9) (2.0)
Relocation of UK head office and business
rationalisation (4.2) (2.6)
Closure of operations in Germany (2005: Spain, France
and UK) (3.0) (4.8)
------- -------
(8.1) (9.4)
======= =======
Exceptional property profits - sale of freehold land
and buildings 8.1 -
======= =======
Exceptional profits on asset disposals - sale of
trailer assets - 7.6
======= =======
4. Net financing costs
2006 2005
£m £m
Interest income 2.0 2.8
Expected return on defined benefit pension scheme
assets 24.6 22.1
------- -------
26.6 24.9
======= =======
Interest expense (8.2) (10.1)
Finance charges payable in respect of finance leases (0.5) (0.6)
Interest on defined benefit pension scheme obligations (26.0) (23.4)
Unwinding of discount on insurance and other provisions (2.0) (1.1)
------- -------
(36.7) (35.2)
Less finance costs capitalised 0.4 0.4
------- -------
(36.3) (34.8)
======= =======
Net financing costs (9.7) (9.9)
======= =======
The interest income relates primarily to the cash deposits held by the Group's
captive insurer.
5. Income tax expense
2006 2005
£m £m
Recognised in the income statement
Current tax expense
Current year 2.3 6.6
Adjustments for prior years (0.9) 1.0
1.4 7.6
======= =======
Deferred tax expense
Current year 6.4 2.2
Adjustments for prior years 0.6 (1.5)
------- -------
7.0 0.7
======= =======
Total income tax expense in the income statement 8.4 8.3
======= =======
Reconciliation of effective tax rate
2006 2005
£m £m
Profit before tax 31.3 27.6
======= =======
Income tax using the UK corporation tax rate of 30%
(2005: 30%) 9.4 8.3
Effect of tax rates in foreign jurisdictions (0.1) (0.8)
Trading losses not utilised 1.2 2.6
Non-deductible expenditure 0.6 1.1
Capital profits offset by capital losses (2.4) (2.4)
Prior year adjustment - current tax (0.9) 1.0
- deferred tax 0.6 (1.5)
------- -------
Total tax charge for the year 8.4 8.3
======= =======
Recognised in equity 2006 2005
£m £m
Tax taken directly to or transferred from equity 0.7 0.7
======= =======
6. Earnings per share
Earnings per share are calculated on the basis of earnings attributable to the
equity shareholders of Wincanton plc of £22.7m (2005: £18.7m) and the weighted
average of 114.3m (2005:114.3m) shares which have been in issue throughout the
year. The diluted earnings per share are calculated on the basis of an
additional 2.0m (2005: 1.2m) shares deemed to be issued at £nil consideration
under the Company's share option schemes. The weighted average number of
ordinary shares for both basic and diluted earnings per share are calculated as
follows:
2006 2005
Weighted average number of ordinary shares Millions Millions
Issued ordinary shares at the beginning of the year 113.9 115.8
Net effect of shares issued less shares purchased by
the Employee Benefit Trust during the year 0.4 (1.5)
------- -------
114.3 114.3
======= =======
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares at the end
of the year 114.3 114.3
Effect of share options on issue 2.0 1.2
------- -------
116.3 115.5
======= =======
An alternative earnings per share number is set out below, being before
exceptionals, amortisation of acquired intangibles, goodwill impairment and
related tax, since the Directors consider that this provides further information
on the underlying performance of the Group:
2006 2005
p p
Underlying earnings per share
- basic 19.2p 16.3p
- diluted 18.9p 16.1p
======= =======
Underlying earnings are determined as follows:
2006 2005
£m £m
Profit for the year attributable to the equity 22.7 18.7
shareholders of Wincanton plc
Exceptional restructuring costs 8.1 9.4
Exceptional property profits (8.1) -
Exceptional profits on asset disposals - (7.6)
Amortisation of acquired intangibles 1.0 0.1
Tax on the above items (1.7) (2.0)
------- -------
Underlying earnings 22.0 18.6
======= =======
7. Dividends
Under Adopted IFRS dividends are only provided in the financial statements when
they become a liability of the Company. The dividends per ordinary share paid in
the year are the interim for the current year, paid on 11 January 2006 and the
final for the prior year ended 31 March 2005, paid on 12 August 2005.
These are detailed in the following table:
2006 2005
£m £m
Interim dividend of 3.94p (2005: 3.66p) paid in 2006 and
2005 respectively 4.5 4.2
Final dividend of 7.74p for 2005 (2004: 7.08p) paid in
2006 and 2005 respectively 8.8 8.1
------- -------
Total dividend paid in the year 13.3 12.3
======= =======
The final dividend proposed for the year ended 31 March 2006 is 8.60p, which if
approved will be paid in August 2006, total £9.9m.
8. Cash and cash equivalents
2006 2005
£m £m
Cash at bank and in hand 26.3 28.4
Restricted cash deposits held by the Group's captive 29.8 33.5
insurer
------- -------
Cash and cash equivalents 56.1 61.99
======= =======
9. Borrowings
2006 2005
£m £m
Current
Bank loans and overdrafts 2.1 4.9
Finance lease liabilities 1.1 1.2
------- -------
3.2 6.1
======= =======
Non current
Bank loans 109.3 107.1
Finance lease liabilities 4.2 5.2
------- -------
113.5 112.3
======= =======
10. Acquisitions
Current year acquisitions
On 7 October 2005 the Group acquired the entire share capital of Premium
Logistics (now renamed Wincanton S.A.S.) for £20.3m in cash.
The acquired company provides contract logistics services in France and in the
six months since acquisition contributed £1.2m of net profit. If the acquisition
had occurred on the first day of the year it is estimated that the totals of
Group underlying operating profit and revenue would have been approximately £43m
and £1,848m respectively.
The acquisition has given rise to a value of goodwill of £11.3m, being the
difference between the cash consideration paid and the net assets acquired at
fair value.
The acquired net assets at acquisition are summarised in the table below ;
Acquiree's Fair value Acquisition
book value adjustments amounts
£m £m £m
Intangible assets - 10.4 10.4
Property, plant and equipment 8.9 (1.4) 7.5
Deferred tax assets 0.3 2.7 3.0
Inventories 0.3 - 0.3
Trade and other receivables 23.5 - 23.5
Cash and cash equivalents 4.5 - 4.5
Income tax payable (0.2) - (0.2)
Borrowings (6.6) - (6.6)
Trade and other payables (20.9) - (20.9)
Employee benefits (2.0) - (2.0)
Provisions (0.4) (6.6) (7.0)
Deferred tax liabilities - (3.5) (3.5)
------- ------- -------
Net identifiable assets and liabilities 7.4 1.6 9.0
======= ======= =======
Goodwill on acquisition 11.3
-------
Consideration payable including expenses
of £1.2m 20.3
Net debt acquired 2.1
-------
Net cash outflow 22.4
=======
The fair value adjustments above are required to align the accounting policies
of the acquired business with those of the Group. These adjustments can, if
necessary, be amended for up to 12 months following acquisition. Goodwill of
£11.3m has arisen on the acquisition reflecting the strategic importance of
broadening Wincanton's business base in France and achieving national coverage
in that important logistics market, the value of the management and workforce
and some of the expected synergies to be gained as the acquired entity is fully
integrated into the Group.
Following the acquisition of a 26.0 per cent interest in PSL Trans European
Spedition und Logistik GmbH (PSL) in December 2002, the Group increased its
shareholding by 74.0 per cent in April 2005 for consideration of £0.1m,
resulting in an increase in goodwill of £0.6m.
This information is provided by RNS
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