Preliminary Results

RNS Number : 1231I

Wincanton PLC

09 June 2011

 



For immediate release

9 June 2011

WINCANTON plc

Preliminary Announcement of Results

for the financial year ended 31 March 2011

	2011		2010		Change
	£m		£m
Revenue	2,180.4		2,182.9		(0.1)%
Underlying operating profit	53.0		54.6		(2.9)%
Net financing costs	(18.6)		(19.9)
Underlying profit before tax	34.4		34.7		(0.9)%
Net other items (note)	(60.3)		(31.7)
(Loss)/profit before tax	(25.9)		3.0
Underlying earnings per share	21.2p		20.9p		1.4%
Basic (loss)/earnings per share	(22.1)p		1.6p
Proposed final dividend	-		10.08p
Full year dividend	4.83p		14.91p

Note:  Underlying profit before tax and earnings per share are stated before net other items of £60.3m (2010: £31.7m), comprising exceptional restructuring and other costs of £33.7m (2010: £20.5m), exceptional profit on the disposal of the Recycling business of £7.0m (2010: £nil), impairment of goodwill and acquired intangibles of £22.5m (2010: £nil) and amortisation of acquired intangibles of £11.1m (2010: £11.2m).  Operating loss, including these items, amounted to £(7.3)m (2010: profit of £22.9m).  Loss before tax, including these items, amounted to £(25.9)m (2010: profit of £3.0m).

KEY POINTS

·      UK & Ireland business stable in a competitive market

·      Contract wins and renewals demonstrate strength of operations and customer service

·      Mainland Europe businesses constant, progress in Germany offset by losses in France

·      Actions taken to reduce overhead cost base in the UK, Germany and France

·      Balance sheet management prioritised with reduction in debt a key objective

·      No final dividend recommended - temporarily suspended

Eric Born, Wincanton Chief Executive commented:

"Wincanton is a strong operating business delivering value and service excellence to its customers every day. Following a strategic review, we have developed a plan to return the business to sustainable profit growth, based on leveraging our core strengths, reducing our cost base and creating flexibility in the balance sheet. Our objective is to turn around or exit underperforming parts of our business so that we can focus on areas with strong growth potential and capitalise on the significant opportunities presented by a changing market.

We have targeted a reduction in our debt levels through better operating profit performance, disposals and a temporary suspension of the dividend to assist the overall preservation of cash."

For further enquiries please contact: Wincanton plc Eric Born, Chief Executive Jon Kempster, Group Finance Director Buchanan Communications Ltd       Charles Ryland, Jeremy Garcia, Helen Chan

Tel: [phone] today, thereafter Tel: [phone] Tel: [phone]

Chairman's statement

2010/11: A year of changes

There has been significant change at Wincanton in the last year.  Whilst the operating performance has been relatively resilient, it had become apparent that there was an overall trend within the contract renewal cycle and in the core UK business that was leading to a declining profit profile.

Eric Born was appointed as the new Chief Executive in December 2010, and led a strategic review of the business.  Further detail is in the Chief Executive's strategic overview, but the principal objective is to drive costs out of the business, by recognising that our customers' demands are changing and that we need to adapt our business model in order to achieve a stable level of profits from these long-standing relationships.

In addition, we need to address the sub-scale and underperforming businesses and reduce the Group's borrowings. Over the past decade, the Group has made a series of acquisitions, which has increased debt to a level which now constrains the Group's ability to invest in the higher growth and more profitable parts of the business. In time the improved profitability will drive a more positive cash flow, but in the short term the cash flow will be assisted by business disposals.

In light of the Group's strategic focus on cash generation and debt reduction, the Board considers it prudent not to recommend a final dividend payment, making the full year dividend 4.83p. It is expected that this suspension will be temporary and that a new dividend policy will be formulated and announced in 2012/13 to reflect the Group's capital structure and the shape of the business following the implementation of the new initiatives arising from the strategic review. The combination of these initiatives will put the balance sheet in a better position ahead of negotiations later this year to renew the Group's banking facilities, which expire in November 2012 and reduce the interest burden in the income statement.

A solid performance in competitive markets

In 2010/11, Group revenue remained constant at some £2.2 billion while underlying operating profit reduced slightly from £54.6m to £53.0m.  However, as a consequence of net exceptional costs incurred, including the impairment of goodwill in the French part of our Western European business following a disappointing performance, and the write down of the re-scoped back office IT project, the Group made a loss before tax of £25.9m in the year.

From an operational perspective, we have made good progress particularly in Construction, Defence, and Containers with a flow of profitable contract wins and renewals. Our leading position and strong reputation across many of the sectors we operate in has been reinforced by the retention of key contracts and protection of our market share. During 2010/11, long-standing customers, such as BAE Systems and WHSmith have extended their strategic partnerships with Wincanton.  We have also secured our first major contract in the public sector through our partnership with Serco, leveraging our core competencies and building on our reputation for expertise in logistics and transport.

We have had to take some difficult decisions in the year.  The Board's decision to stop, and then re-scope, a major back office IT project has resulted in lower cash outflows than originally envisaged but, more importantly, has lessened the distraction to the business in a period when we need to focus on delivering service excellence.  The revised project is expected to drive greater levels of standardisation and efficiency in our HR, payroll and procurement back office systems and processes.

To meet the strategic challenges ahead, we have a new management team on the Board. Eric Born, who joined as Chief Operating Officer in April 2009, was appointed an Executive Director in October 2010 and subsequently became Chief Executive in December 2010.  Jon Kempster joined the Board in July 2010 as Group Finance Director. They are working with the management team on a strategic plan to drive growth through new business, to reinforce our culture of service excellence in Wincanton's operations and improve the underlying performance of the Group by reducing cost, increasing profit and preserving cash.

I have been on the Board for seven years, Chairman for the last three and consider that now would be the right time for the new management team to forge a partnership with a new Chairman to develop the Group's business into the future.  As a result, a search for a new Chairman will be carried out.  I will remain on the Board until my successor is recruited and inducted into the Company.  Walter Hasselkus, based in Germany, one of our non-executive Directors will also leave the Board but will continue to chair the German Supervisory board. 

Outlook: A stronger business with positive profit growth potential

While we face short term challenges in order to return the Group to profitable growth, we are optimistic of improving margins in the medium term through a combination of cost actions, efficiency improvements and, most importantly, making sure we create a product offering to support our customers in achieving their objectives.

The Group is constrained by its balance sheet, however our objective is to reduce our overall debt levels thereby creating flexibility for the future to reinvest in areas of growth and higher returns. As a result, we have begun a process to sell certain businesses which are classified as underperforming or sub-scale.

A strong focus on new business wins and on renewing key contracts has delivered an encouraging start to the new financial year and reinforces our position as a market leader. This positive momentum in the new business pipeline highlights increasing demand for agile, flexible supply chain solutions and demonstrates clear opportunities to leverage our scale, assets and infrastructure to deliver efficient, cost-competitive warehousing and transport services.

My thanks go to all of our 26,000 employees on behalf of the Board for their hard work and commitment, which are the key drivers of our reputation in the market and instrumental in creating a positive experience for our customers.

Chief Executive's strategic overview

The strategic priorities for the Group

We have just concluded a strategic review and developed a five-year plan focusing on the growth potential across all our market sectors and geographies.

A key focus area will be to lower our operating cost base and either turn around or exit sectors and geographies where we are either underperforming or sub-scale. Our objective is to continue to build on our core competencies in the design, implementation and management of supply chain solutions. We aim to further strengthen our leadership position in markets such as Retail, Construction, Defence and Containers and further develop our warehousing and multi-modal transport solutions.  Furthermore, we continue to develop new markets such as the public sector, where we can leverage our skills and core competencies in new areas.  The full details of the market segmentation are given below.

Growth markets - targeting 10% annual profit growth: 11% of Group revenue

-       Construction

-       Defence and Aerospace

-       Containers

-       Records Management

-       Public sector

Performing businesses - profit growth conditional on net contract wins: 55% of Group revenue

-       Retail (includes Home Delivery)

-       Pullman Fleet Services

-       German contract logistics

-       German intermodal

Mature business segments - maintain market share and profits: 9% of Group revenue

-       Energy

-       Milk / bulk foods

-       Consumer goods

Sub-scale or underperforming businesses - turn around or exit: 25% of Group revenue

-       Foodservice

-       France

-       Netherlands

-       CEE

-       German road network

My priority is to strengthen and build the core business where we have proven skills and a solid track record, and proactively drive new business where Wincanton can add value.

The performance of the business

The unprecedented global economic slowdown has impacted on volumes, as well as putting pressure on pricing across the European region. With consumer caution prevailing and customers in some sectors taking a shorter term view of supply chain investment, the pipeline of new opportunities slowed and markets became more competitive.

The slow economic recovery is now filtering through to our operations, with increased volumes through import/export activity, a recovering manufacturing base and growth in online retailing. Current thinking favours greater flexibility in supply chains to manage more volatile demand and change. The good news is that Wincanton as a leading third party logistics provider is ideally placed to deliver this. 

The main challenges that Wincanton currently faces

The first challenge is to drive sustainable profit growth by focusing on leveraging existing assets, accelerating the growth of our higher margin services and markets as well as progressively lowering our cost base by applying Lean Six Sigma principles.

Secondly, we need to finalise strategies for areas of the business that are either sub-scale or underperforming. In some cases that will mean selling businesses but in others it is getting an acceptable return through operational improvement.

Thirdly, we need to reduce our existing level of debt which will assist the Group to secure its refinancing in 2012. This would reduce overall gearing and therefore provide us with the flexibility to invest more into future growth areas.

Restoring the Group to growth

Wincanton has committed and passionate people, a long track record of delivering operational excellence for our customers and a leading position in many market segments - this is a very solid foundation to build on.

Sustainable profit growth will be achieved by maintaining profitability in stable and mature markets and accelerating progress in our growth segments while reducing our overall cost base.

Our core skills are proving to be invaluable as we enter new markets, where customers are looking to operate their supply chains more efficiently. The partnership announced in June last year with Serco in the UK is an excellent example of this. Serco recognised the value of combining their expertise and knowledge of the public sector with our competencies in fleet management and transport, and we successfully secured our first contract in January 2011. 

In a competitive market, however, we must also actively defend the business we have by maintaining close relationships with our customers and understanding their drivers for ongoing supply chain development. This is an area where our managers have excelled in recent months, successfully renewing 10 contracts in the final quarter of the year.  Significant renewals in the year included WHSmith, Sainsbury's, Wavin, BP Gas and Nestlé Purina.

To underpin these efforts, we must continue to reduce costs and preserve cash by removing unnecessary spend, challenging inefficiency and optimising capital allocation. Part of this will be achieved through the continuing review of our corporate and central support functions to ensure that value is being added and processes are as efficient as possible.

The long term prospects for the Group

Despite the current challenging market conditions, I am confident about the long term prospects of Wincanton. As outsourcing to third party logistics providers continues to grow, Wincanton has many opportunities to win more contracts and customers in the future.

We have an excellent customer base and a track record in designing, implementing and operating supply chain solutions across many different industry segments. Our focus on accelerating growth in key markets, driving operational excellence and cost improvements and our commitment to address underperforming businesses will enable us to deliver sustainable profit growth.

Finally, in the longer term, as the markets develop and change, further opportunities will arise for Wincanton to add value, whether this is supporting online retail growth, facilitating more sustainable transport models or driving more efficient inventory management in Defence. Over time, our customer relationships may take us into new areas, drive extensions to our services or even open up new geographic markets. It is the strength of these relationships that are the backbone of Wincanton and this strength is testament to the unrivalled commitment of our people.

Financial Review

Summary

In the year ended 31 March 2011, Wincanton reported revenue of £2,180.4m, broadly in line with the previous year's revenue of £2,182.9m.  Underlying operating profit was £53.0m, providing an underlying operating profit margin of 2.4%, marginally below the prior year's underlying profit of £54.6m and margin of 2.5%.

Net exceptional charges in the year totalled £26.7m.  The largest item being the write down of £19.7m following the re-scope of the back office IT project announced at the time of the half year results.  In addition restructuring costs were incurred totalling £7.7m.

The remaining exceptionals net to a small credit of £0.7m, being the £7.0m gain on the disposal of the Recycling business, the £5.4m loss on disposal of a loss-making German road jointly controlled entity and the net bad debt charge of £0.9m, arising after a final settlement was reached with Uniq relating to a historic dispute dating back to 2005/06.

In line with accounting standards we have reviewed the carrying value of all on balance sheet intangibles including acquired intangibles and goodwill.  As a result we have impaired £4.2m of the acquired intangibles arising from the acquisition, in October 2008, of the ELI road business in Germany.  The remaining acquired intangible balance at the year end related to this acquisition is £nil.  The goodwill in respect of the ELI acquisition is not separately identifiable and remains part of the total rest of Mainland Europe goodwill balance of £31.4m.

We have also reassessed the acquired intangibles and goodwill balances held in relation to the Premium Logistics business in France.  As a result we have incurred an impairment charge of £1.8m in respect of the acquired intangibles and £16.5m in respect of the goodwill.  The remaining acquired intangible and goodwill balances for Premium are £1.9m and £1.8m respectively.  These impairment charges reflect the position of this business which had a disappointing year and was loss-making. The restructuring at the end of the year is expected to address the cost base and a break even performance is targeted in the short term. 

Overall, we recorded a loss before tax of £25.9m in 2010/11, which compares to a profit before tax of £3.0m in the prior year. Tax in the year was a small credit of £1.0m compared with a small charge of £0.5m in the prior year. 

The underlying earnings per share of 21.2p is a marginal increase of 1.4% from 20.9p in 2009/10.  On an overall basis the loss per share was 22.1p compared with an earnings per share of 1.6p in 2009/10.

UK & Ireland

Revenue increased marginally from £1,326.4m to £1,328.3m, with an underlying operating profit of £46.8m, representing a decrease of £1.6m from the prior year.  Overall, the 2010/11 operating margin was 3.5%, compared with 3.7% in the prior year.

In addition to our core UK sectors of Retail, Manufacturing and Pullman Fleet Services, we have previously identified the Construction, Containers, Records Management, Foodservice, Home Delivery and Defence businesses as areas where we see opportunities for accelerated growth.  In 2010/11 these businesses had revenues of £306.0m (2009/10: £272.5m) and made an operating contribution, before allocation of central overheads, of £10.0m (2009/10: £10.0m).  These results include, in the current year, a significant operating loss from the Foodservice operations as discussed below.

These businesses have seen varied levels of profitability, with Containers, Construction, Records Management and Defence now seen as providing the Group with the best opportunity to benefit from their market position and growth potential.  The Home Delivery business provides a very beneficial extension to our Retail portfolio and we will look to leverage this capability with our existing retail customers, as we have done successfully with M&S.  Our expectations for this business remain positive, albeit with growth rates below the above mentioned sectors.  Foodservice was loss-making in the period following the relocation of one of its two sites and as a result of under-utilised capacity.  With the operation now fully integrated efforts will focus on winning new customers, however lead times for securing and commencing new contracts mean that the business is expected to remain loss-making through the current year.

Within our core Retail and Manufacturing sectors we enjoyed a period of successful renewals and contract extensions.  In Retail specifically we retain our market-leading position and the Group benefits from some £600m of revenue from this customer base.  Significant wins and renewals in the year included WHSmith, Superquinn and Sainsbury's.  Revenue has increased year-on-year, principally due to increased volumes across most of the open book customer base.  The sector remains challenging as many retailers seek to reorganise their networks, consolidate their operating bases and place a high degree of focus on cost reductions as standard warehousing becomes commoditised.  As market leader we need to adapt with our customers and capitalise on the opportunities presented by a changing market.  The accelerated development of multi-channel retail strategies has generated new business opportunities with customers such as Rocket Dog and World Design & Trade Co. as they reconfigure inventory and distribution models to enable e-fulfilment, home delivery and returns management activities to sit alongside the traditional 'bricks and mortar' operations.

The volume impact seen in the Retail customer base  also benefited our Containers business with volumes increasing by 29% from the prior year recession levels, reflecting the resurgence of import/export activity.

As retailers and manufacturers seek to maximise their assets and optimise their infrastructure, Wincanton's capabilities as one of the UK's largest fleet operators has presented opportunities to facilitate collaborative working. Our integrated transport solutions, where we combine core dedicated fleets with shared user vehicles on a single planning platform not only present cost savings, but also have clear environmental benefits.  Our investment in integrated transport solutions in the year will enable us to roll out a number of key regional solutions in due course.

The Manufacturing sector also saw a successful year of contract renewals and extensions across many of its long standing customers, including Shell Gas, Wavin, BP Gas, Nestlé Purina and Procter & Gamble.  Some of our more mature areas of operation have been challenged by further market consolidation, which leads to new business opportunities being concentrated across a smaller customer base with the potential for increased pressure on margins. Our long heritage and track record of operational excellence in these activities  helps us to cement partnerships with customers and add value as their supply chain provider of choice.

Our Defence business continues to record strong progress.  It enjoys a blue-chip customer list and we are highly valued for the expertise we provide. During the year we extended our activities further to support marine supply chains and broadened services to incorporate parts reconditioning. Our capabilities and achievements in Defence were recognised with the award of the 'Supply Chains of the 21^st Century' Gold Award, making us the first third party logistics provider to achieve such an accolade.

Our partnership with Serco has opened up new opportunities to leverage our core logistics expertise into the public sector, as civil government contracts demand greater efficiency and fresh approaches.  The award of a Ministry of Justice prisoner escort and custody services contract highlights the efficiency improvements we can bring to the planning of complex prisoner movements and the management of extensive fleets.

Mainland Europe

In Mainland Europe, revenue decreased marginally from £856.5m to £852.1m in 2010/11.  Underlying operating profit remained unchanged from the prior year at £6.2m, principally due to improvements in the German business offsetting losses incurred in the French business.  Operating margin remains unchanged from last year at 0.7%.

The European business has 'own' operations in 10 countries plus strong partnership arrangements in a number of others.  The most significant country of operation is Germany, where our business had a successful year. Following the restructuring of the German road network in 2009/10, the benefits flowed through to deliver a much improved performance.  The final element of the restructuring, the disposal of the loss-making jointly controlled entity in Stuttgart was completed in the year and a loss on disposal of £5.4m recognised as an exceptional charge.

Strong results were recorded by our contract logistics business in particular. This includes the market-leading High tech business, where our services extend beyond traditional warehousing and transport solutions into the installation and commissioning of high specification, high value equipment such as medical scanners and cash machines. The German intermodal business performed well but encountered an unforeseen issue in the last quarter due to a blockage in the Rhine which disrupted traffic flows for just over a month and resulted in a loss of contribution of over €1m.

The improved German result was offset by the disappointing performance in France, where the business recorded a loss and as a result in the final quarter restructuring of the central overhead was carried out to lower the break even position. More positively the empty space issue that has held the business back since acquisition has eased with in excess of 50,000m² of surplus space exited in the year and a further 20,000m² due to come to an end by mid 2012. Overall the French business will target break even in the short term and is expected to secure significant contract renewals in the current financial year. A pharmaceutical start up which hampered the result in the 2010/11 is now achieving a more acceptable operating performance level and will assist the improvement in the current financial year.

The CEE group of businesses encompasses operations in Poland, Hungary, the Czech Republic and Slovakia.  In their current shape and size the businesses operate successfully but have the potential to grow more aggressively if the Group were to direct investment into that region to both accelerate the growth rate and provide necessary scale. In the short term, however, this does not form part of our plans.

Net financing costs

Net financing costs were £18.6m, £1.3m lower than last year.  However, this charge includes a £0.6m net pension credit, whereas 2009/10 net financing costs included a net pension charge of £5.4m.

Funding costs can be analysed into cash items being primarily the interest paid on underlying debt, which forms the basis of the Group's covenant compliance, and non-cash items which include pension charges calculated in accordance with IAS 19, amortisation of bank arrangement fees and discounting.

Although average debt levels remained broadly flat year-on-year at approximately £270m, the Group's cash interest charge increased from £11.5m to £14.8m, principally as a result of the full year impact of higher margins and commitment fees, following the signing of new bank facilities in November 2009.  The average borrowing rate on core debt was 3.6% as anticipated in last year's annual report.  The overall cost of our debt including all fees and non cash items, however, is some 6%.

Non-cash financing costs fell from £8.4m to £3.8m, mainly as a result of the £0.6m credit in the current year compared with a £5.4m charge in the prior year in respect of the IAS 19 pension financing item.  This expected movement arose as a result of an increase in the market value of pension fund investments coupled with changes in corporate bond yields.  The benefit from the movement in the IAS 19 pension amount was partly offset by an increase in the charge arising from the amortisation of the bank arrangement fees which were paid on the refinancing in November 2009.

Financing and covenants

Having renewed our principal bank facilities in November 2009, the Group's committed facilities, including the fully drawn US private placement, remained unchanged throughout the year at approximately £400m.  Headroom in committed facilities at 31 March 2011 was some £175m.

The Group also has a series of uncommitted money market lines and overdrafts which provide 'day to day' flexibility.  Sterling and euro pools are operated, so that whenever possible, surplus cash is netted against overdrafts.

The Group maintains a mix of swap and cap instruments to give an appropriate level of protection against changes in interest rates.  Whilst the vast majority of debt was at floating rates during the year, £70m of interest rate swaps became effective on 31 March 2011.

Wincanton operates comfortably within its banking covenants, as summarised in the table below:

	Covenant	At 31 March 2011
Adjusted net debt : EBITDA	<3.0:1	2.3
Adjusted net interest : EBITDA	>3.5:1	5.4
Fixed charge cover	>1.4:1	1.60

Net Debt

Group net debt at the year end was £151.8m (2010: £151.9m).

Exceptionals

1. Re-scoped IT project, £19.7m.  As announced at the half year, the back office IT project has been re-scoped to both lessen the implementation impact on the business and to preserve cash.  The disruption and distraction to the business of the full implementation would have severely restricted our ability to address the ongoing challenges to profitability in the core UK business.  The contracted original project has been re-scoped but the incurred and future cashflows remain significant due to the project design and scale.  At the year end, the total cost incurred was £21.8m, of which £2.1m is carried forward on the balance sheet whilst the remainder has been written off as an exceptional charge.  The future costs to complete the re-scoped project are expected to be some £12.4m, which will give rise to an overall investment carried forward of £14.5m.  This investment will provide updated key back office systems for payroll, HR, procurement and payment functions which will link to our existing financial and reporting systems.

2. Restructuring costs, £7.7m.  Two restructuring exercises were carried out in the year.  In the last quarter a programme was undertaken to reduce the UK central overhead at a cost of £4.7m, which will give rise to an ongoing benefit of an equivalent amount in the current financial year.  The short term actions available in order to address the challenges we face in the operating profit profile of the core UK business are limited, and cost actions provide the best and most appropriate way to tackle short term margin pressure.  In Mainland Europe a restructuring charge of £3.0m was incurred, of which £2.3m was in respect of the loss-making French business which took action to reduce the overhead cost and provide the overall business with a break even target in the short term.  The overhead change and the refocused management team now have the opportunity to improve the underlying profitability of the business and to eliminate the loss-making nature of the business in the short term.

3. Other net exceptionals

-     The Recycling business was sold in September 2010 for £17.5m, and the net gain on disposal was £7.0m.  The business had been highlighted as one of the seven businesses with above average growth potential, however the instability of earnings driven by the recyclate prices was seen as too volatile a risk profile as compared with the largely contract based business elsewhere in the Group and hence inconsistent with the desire to maintain stability in the Group's earnings.

-     The Group's 50% holding in a loss-making jointly controlled entity, part of the German road network, was disposed of and a loss on disposal of £5.4m recognised.

-     A long running dispute with Uniq, the former parent company, was settled in the year and a net write off of £0.9m incurred.  This brought to an end the dispute and having fully provided against the receivable at the half year, in February 2011 we received a cash payment of over £2m in final settlement of amounts owed.

Taxation

The Group's underlying rate of tax is 29.5% (2010: 29.4%), giving a tax charge of £10.0m.  The rate largely reflects the standard rate of UK corporation tax which has remained at 28% this year.

The overall tax credit is £1.0m (2010: charge £0.5m) with a much lower rate of 4% (2010: 17.2%).  This results from the significant non-deductible items incurred in Mainland Europe such as the impairment of goodwill, restructuring costs and the loss on disposal of the German jointly controlled entity, included in the overall loss.

The cash tax rate on profits remains below the underlying rate due to the impact of cash contributions on the pension scheme deficit, but has increased over the previous year to 25.6% (2010: 10.3%) due to other short term timing differences. 

The Group's activities across the UK, Ireland and Mainland Europe are subject to effective tax rates varying from 12.5% to 38%, with the UK rate being the most significant factor.  The Group's underlying rate of tax is expected to reduce next year reflecting the reduction in the main UK corporation tax rate from 28% to 26% in April 2011.

Capital expenditure

Capital expenditure including investment in computer software intangibles in the year totalled £44.8m (2010: £32.8m) which is 84.4% of depreciation.  Within this sum is £17.7m related to the now re-scoped back office IT project, which is more fully explained in the Exceptionals note.  Of the balance of £27.1m, £18.1m was incurred in respect of expansion projects and the balance of £9.0m replacement spend.

Within the expansion spend we invested £2.7m in specialist racking and other fit out to increase the capacity of our records management sites both in London and elsewhere in the UK.  We spent £0.9m in upgrading our co-packing capability for Nestlé and £0.4m to set up a dedicated storage facility for the Aircraft Carrier Alliance in Scotland.  In Europe we incurred £1.4m in expanding our 'on factory' activities for Lanxess and £1.4m to complete the warehousing fit out for a major pharmaceutical customer in Eastern France.  In Germany we invested in expanding a number of our River Rhine  container sites and incurred the initial spend on a specialist gantry for 'in warehouse' tyre movements.  Replacement expenditure included £2.0m for vehicles for the Punch and Dairy Crest contracts in the UK.

Pensions

The Group operates a number of pension schemes.  The principal defined benefit scheme in the UK had a deficit of £74.8m at the year end, significantly reduced from the prior year balance of £135.9m.  The scheme is closed to new members and the triennial valuation as at 31 March 2011 has commenced.  The cash contribution to the scheme, in order to fund the deficit, was £12.4m in the year and a recovery period of 14 years was set at the conclusion of the last valuation.

The membership data split by key categories is as follows:

Actives	2,034
Deferred	8,016
Pensioners	6,434
	16,484

The scheme has benefited from strong equity performance in recent months and the deficit on an IAS 19 basis has reduced accordingly.  The Trustee Board have instigated an investment review and have targeted a de-risking strategy on a phased basis linked to a self sufficiency funding level. As a consequence of this the target equity portion was reduced to 60% from 70% when a funding trigger was reached earlier in 2011.  The scheme remains exposed to interest rates, inflation and mortality risks and work is underway to look at mechanisms to reduce the risks associated with interest rates and inflation specifically.  The results of the triennial valuation are expected to be available later in 2011 in draft and completed in early 2012.

The Group's other major pension scheme relates to an unfunded scheme in Germany.  At the year end this liability was £27.6m compared with £30.1m last year. It has been closed to future accrual for a number of years and the membership data is as follow:

Deferred	301
Pensioners	605
	906

Consolidated income statement

for the year ended 31 March 2011

	Note		2011 £m		2010 £m
Revenue	2		2,180.4		2,182.9
Share of results of associates	2		1.2		0.7
Total underlying operating profit	2		53.0		54.6
Impairment of goodwill and acquired intangibles	2		(22.5)		-
Amortisation of acquired intangibles			(11.1)		(11.2)
Exceptional restructuring and other costs	3		(33.7)		(20.5)
Other exceptional income	3		7.0		-
Operating (loss)/profit	3		(7.3)		22.9
Financing income	4		1.1		0.9
Financing cost	4		(19.7)		(20.8)
Net financing costs			(18.6)		(19.9)
(Loss)/profit before tax			(25.9)		3.0
Income tax credit/(expense)	5		1.0		(0.5)
(Loss)/profit for the year			(24.9)		2.5
Attributable to
- equity shareholders of Wincanton plc			(25.3)		1.8
- minority interests			0.4		0.7
(Loss)/profit for the year			(24.9)		2.5
(Loss)/earnings per share
- basic (loss)/earnings	6		(22.1)p		1.6p
- diluted (loss)/earnings	6		(22.1)p		1.6p
Dividends paid in the year to equity shareholders of Wincanton plc (£m)	7		17.0		17.1

Consolidated statement of comprehensive income

for the year ended 31 March 2011

		2011 £m		2010 £m
(Loss)/profit for the year		(24.9)		2.5
Other comprehensive income
Actuarial gains/(losses) on defined benefit pension schemes, net of deferred tax		33.4		(54.6)
Net foreign exchange gain on investment in foreign subsidiaries net of hedged items		0.9		0.9
Effective portion of changes in fair value of cash flow hedges		(1.6)		-
Net change in fair value of cash flow hedges transferred to profit or loss		0.1		-
Income tax relating to components of other comprehensive income		(0.4)		1.1
Other comprehensive income/(expense) for the year, net of income tax		32.4		(52.6)
Total comprehensive income/(expense) for the year		7.5		(50.1)
Attributable to
- equity shareholders of Wincanton plc		7.1		(50.8)
- minority interests		0.4		0.7
Total comprehensive income/(expense) for the year		7.5		(50.1)

Consolidated balance sheet

at 31 March 2011

		2011 £m		2010 £m
Non-current assets
Goodwill and intangible assets		157.4		193.6
Property, plant and equipment		208.6		233.6
Investments, including those equity accounted		15.7		15.0
Deferred tax assets		9.6		23.6
		391.3		465.8
Current assets
Inventories		10.3		9.3
Trade and other receivables		368.5		363.4
Cash and cash equivalents		88.3		96.8
		467.1		469.5
Current liabilities
Income tax payable		(7.4)		(6.6)
Borrowings and other financial liabilities		(11.1)		(15.4)
Trade and other payables		(544.0)		(533.6)
Employee benefits		(10.2)		(10.4)
Provisions		(22.6)		(26.5)
		(595.3)		(592.5)
Net current liabilities		(128.2)		(123.0)
Total assets less current liabilities		263.1		342.8
Non-current liabilities
Borrowings and other financial liabilities		(229.0)		(233.3)
Other payables		(1.0)		(1.4)
Employee benefits		(106.8)		(171.9)
Provisions		(31.3)		(32.1)
Deferred tax liabilities		(2.0)		(4.1)
		(370.1)		(442.8)
Net liabilities		(107.0)		(100.0)
Add back: pension deficit, net of deferred tax		86.4		132.0
Net (liabilities)/assets before net pension deficit		(20.6)		32.0
Equity
Issued share capital		12.2		12.1
Share premium		12.8		12.2
Merger reserve		3.5		3.5
Translation reserve		5.2		4.3
Hedging reserve		(1.5)		-
Retained earnings		(139.7)		(132.6)
Equity deficit attributable to shareholders of Wincanton plc		(107.5)		(100.5)
Minority interest		0.5		0.5
Total equity deficit		(107.0)		(100.0)

Consolidated statement of changes in equity

at 31 March 2011

											Retained earnings
	Issued share capital £m		Share premium£m		Merger reserve £m		Hedging reserve £m		Transla- tion reserve £m		IFRS 2 reserve £m		Own  shares £m		Profit and loss £m		Total £m		Minority interests £m		Total (equity deficit)/ equity £m
Balance at 1 April 2009	12.1		12.2		3.5		-		3.4		8.1		(17.1)		(56.1)		(33.9)		0.6		(33.3)
Total comprehensive income/(expense)	-		-		-		-		0.9		-		-		(51.7)		(50.8)		0.7		(50.1)
Increase in IFRS 2 reserve	-		-		-		-		-		3.3		-		-		3.3		-		3.3
Own shares disposed of on exercise of options	-		-		-		-		-		-		0.5		(0.5)		-		-		-
Own shares acquired	-		-		-		-		-		-		(2.0)		-		(2.0)		-		(2.0)
Dividends paid to shareholders	-		-		-		-		-		-		-		(17.1)		(17.1)		(0.8)		(17.9)
Balance at 31 March 2010	12.1		12.2		3.5		-		4.3		11.4		(18.6)		(125.4)		(100.5)		0.5		(100.0)
Balance at 1 April 2010	12.1		12.2		3.5		-		4.3		11.4		(18.6)		(125.4)		(100.5)		0.5		(100.0)
Total comprehensive income	-		-		-		(1.5)		0.9		-		-		7.7		7.1		0.4		7.5
Increase in IFRS 2 reserve	-		-		-		-		-		2.5		-		-		2.5		-		2.5
Shares issued	0.1		0.6		-		-		-		-		-		-		0.7		-		0.7
Own shares disposed of on exercise of options	-		-		-		-		-		-		0.2		(0.2)		-		-		-
Own shares acquired	-		-		-		-		-		-		(0.3)		-		(0.3)		-		(0.3)
Dividends paid to shareholders	-		-		-		-		-		-		-		(17.0)		(17.0)		(0.4)		(17.4)
Balance at 31 March 2011	12.2		12.8		3.5		(1.5)		5.2		13.9		(18.7)		(134.9)		(107.5)		0.5		(107.0)

Consolidated statement of cash flows

for the year ended 31 March 2011

		2011 £m		2010 £m
Operating activities
(Loss)/profit before tax		(25.9)		3.0
Adjustments for
- depreciation and amortisation		44.5		49.8
- impairment of goodwill and acquired intangibles		22.5		-
- write down of back office IT project		19.7		-
- interest expense		18.6		19.9
- share of results of associates		(1.2)		(0.7)
- (profit)/loss on sale of property, plant and equipment		(0.2)		0.1
- share-based payments fair value charges		2.5		3.3
		80.5		75.4
(Increase)/decrease in trade and other receivables		(7.3)		19.6
Increase in inventories		(1.1)		(0.5)
Increase in trade and other payables		9.3		26.2
Decrease in provisions		(5.5)		(4.9)
Decrease in employee benefits		(15.6)		(21.4)
Income taxes paid		(1.8)		(3.7)
Cash generated from operations		(22.0)		15.3
Cash flows from operating activities		58.5		90.7
Investing activities
Proceeds from sale of property, plant and equipment		5.2		3.1
Net proceeds from business disposals		10.6		-
Interest received		0.2		0.9
Dividends received from associates		0.4		0.1
Acquisitions net of cash acquired and debt repaid on acquisition		-		(3.0)
Additions of property, plant and equipment		(24.9)		(27.9)
Additions of computer software costs		(19.9)		(4.9)
Cash flows from investing activities		(28.4)		(31.7)
Financing activities
Proceeds from the issue of share capital		0.7		-
Own shares acquired		(0.3)		(2.0)
(Decrease)/increase in borrowings		(4.6)		26.2
Payment of finance lease liabilities		(2.0)		(0.3)
Dividends paid to minority interest in subsidiary undertakings		(0.4)		(0.8)
Equity dividends paid		(17.0)		(17.1)
Interest paid		(14.9)		(15.8)
Cash flows from financing activities		(38.5)		(9.8)
Net (decrease)/increase in cash and cash equivalents		(8.4)		49.2
Cash and cash equivalents at beginning of year		96.8		48.3
Effect of exchange rate fluctuations on cash held		(0.1)		(0.7)
Cash and cash equivalents at end of year		88.3		96.8
Represented by
- cash at bank and in hand		68.4		72.6
- restricted cash, being deposits held by the Group's captive insurer		19.9		24.2
		88.3		96.8

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 2011 and 31 March 2010.  Statutory accounts for the year ended 31 March 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.  Statutory accounts for the year ended 31 March 2010 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 498 (2) or (3) of the Companies Act 2006.

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.  Operating Segments

Wincanton plc provides contract logistics services. The Group manages its operations in two geographic operating segments, comprised of United Kingdom & Ireland and Mainland Europe. The results of these two operating segments are regularly reviewed by the Board to allocate resources to these segments and to assess their performance. The Group evaluates performance of the operating segments on the basis of underlying operating profit.

		UK & Ireland				Mainland Europe				Consolidated
		2011 £m		2010 £m		2011 £m		2010 £m		2011 £m		2010 £m
Revenue from external customers1		1,328.3		1,326.4		852.1		856.5		2,180.4		2,182.9
Inter-segment revenues2		-		-		0.7		1.0		0.7		1.0
Depreciation		(22.3)		(27.4)		(9.6)		(9.8)		(31.9)		(37.2)
Amortisation of software intangibles		(0.1)		(0.5)		(1.4)		(0.9)		(1.5)		(1.4)
Share of results of associates		1.2		0.6		-		0.1		1.2		0.7
Reportable segment underlying operating profit3		46.8		48.4		6.2		6.2		53.0		54.6
Other material non-cash items:
- impairment of goodwill and acquired     intangibles		-		-		(22.5)		-		(22.5)		-
- write down of back office IT project		(19.7)		-		-		-		(19.7)		-
Reportable segment assets4,5		331.8		351.1		275.9		276.3		607.7		627.4
Other assets										250.7		307.9
Total Group assets										858.4		935.3
Investment in associates		14.9		14.2		0.5		0.4		15.4		14.6
Additions to reportable segment non-current assets:
- property, plant and equipment		15.4		17.8		9.2		8.5		24.6		26.3
- computer software costs		17.8		4.2		2.1		0.7		19.9		4.9
Reportable segment liabilities5		(371.7)		(360.6)		(189.7)		(194.5)		(561.4)		(555.1)
Other liabilities										(404.0)		(480.2)
Total Group liabilities										(965.4)		(1,035.3)

¹ Revenues are based on the geographic location of the business operations. Included in the UK & Ireland segment revenue is £1,287.9m (2010: £1,280.8m) in respect of customers based in the UK and in the Mainland Europe segment £548.2m (2010: £566.1m) in respect of customers based in Germany.

² The Group accounts for inter-segment sales on commercial terms.

³ Underlying operating profit includes the share of results of associates and is stated before amortisation of acquired intangibles, any impairment of goodwill and acquired intangibles, and exceptionals.

⁴ Reportable segment assets include non-current assets of £117.4m (2010: £140.3m) for the UK, £49.3m (2010: £48.6m) for Germany, and £105.2m (2010: £107.3m) for Mainland Europe overall.

⁵ Reportable segment assets and liabilities comprise total assets and total liabilities adjusted for goodwill, acquired intangibles, debt, tax, employee benefits and insurance provisions, such that the net of segment assets and liabilities is equal to the capital employed definition used by the Group in calculating return on capital employed. The reconciling other assets and other liabilities in the table above comprise, as applicable, the same adjusting items.

3. Operating (Loss)/profit

		2011						2010
		Underlying1 £m		Amortisation, impairment and   exceptionals3 £m		Total £m		Underlying1 £m		Amortisation and   exceptionals2 £m		Total £m
Revenue		2,180.4		-		2,180.4		2,182.9		-		2,182.9
Cost of sales		(2,106.2)		(26.7)		(2,132.9)		(2,100.0)		(20.5)		(2,120.5)
Gross profit		74.2		(26.7)		47.5		82.9		(20.5)		62.4
Administrative expenses		(22.4)		(33.6)		(56.0)		(29.0)		(11.2)		(40.2)
Share of results of associates		1.2		-		1.2		0.7		-		0.7
Operating (loss)/profit		53.0		(60.3)		(7.3)		54.6		(31.7)		22.9

¹ Underlying operating profit includes the share of results of associates, and is stated before amortisation of acquired intangibles, any impairment of goodwill and acquired   intangibles, and exceptionals.

² Comprises the amortisation of acquired intangibles, exceptional restructuring and other costs and other exceptional income.

³ Comprises the impairment of goodwill and acquired intangibles, amortisation of acquired intangibles, exceptional restructuring and other costs, and other exceptional income.

		2011 £m		2010 £m
Operating (loss)/profit before net financing costs is stated after charging:
Auditors' remuneration
Audit fees for statutory audit services
- parent Company and consolidation		0.1		0.1
- subsidiary undertakings		0.6		0.7
Non-audit fees
- fees paid to the Auditors and their associates for tax advisory services		0.3		0.3
- 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		0.2		0.1
Depreciation and other amounts written off property, plant and equipment
- owned		31.0		34.4
- leased		0.9		2.8
Amortisation and other amounts written off software intangibles		21.2		1.4
Impairment of goodwill and acquired intangibles		22.5		-
Operating lease rentals
- plant and equipment		46.8		45.2
- land and buildings		72.3		82.9

Exceptionals

		2011 £m		2010 £m
Exceptional restructuring and other costs
Costs of acquisitions and post-acquisition reorganisation of operating structures		-		(0.7)
Closure and restructuring of operations
- UK & Ireland		(4.7)		(4.9)
- Mainland Europe1		(8.4)		(14.9)
Provision for aged non trading receivable		(0.9)		-
Write down of back office IT project		(19.7)		-
		(33.7)		(20.5)
Other exceptional income
Disposal of Recycling business		7.0		-
		7.0		-

¹ Includes £5.4m loss on disposal of a German jointly controlled entity.

Costs and incomes are included as exceptionals where they are non-recurring and where not to do so would distort the reported underlying profit performance of the Group.

On 4 August 2010 the Group disposed of its Recycling business for a consideration of £17.5m, resulting in a profit on disposal of £7.0m.

4. Net financing costs

Recognised in the income statement

		2011 £m		2010 £m
Interest income		0.5		0.9
Expected return on defined benefit pension scheme assets		41.7		-
Interest on defined benefit pension scheme obligations		(41.1)		-
		1.1		0.9
Interest expense		(17.8)		(12.0)
Finance charges payable in respect of finance leases		(1.0)		(1.2)
Unwinding of discount on insurance and other provisions		(0.9)		(2.2)
Interest on defined benefit pension scheme obligations		-		(36.5)
Expected return on defined benefit pension scheme assets		-		31.1
		(19.7)		(20.8)
Net financing costs		(18.6)		(19.9)

The interest income relates primarily to the deposits held by the Group's captive insurer.

Recognised in other comprehensive income

		2011 £m		2010 £m
Foreign currency translation differences for foreign operations		0.9		0.9
		0.9		0.9
Recognised in:
Translation reserve		0.9		0.9
		0.9		0.9

5. Income tax (credit)/expense

Recognised in the income statement

		2011 £m		2010 £m
Current tax expense/(credit)
Current year		2.4		4.0
Adjustments for prior years		(0.2)		(4.5)
		2.2		(0.5)
Deferred tax (credit)/expense
Current year		(2.3)		1.1
Adjustments for prior years		(0.9)		(0.1)
		(3.2)		1.0
Total income tax (credit)/expense		(1.0)		0.5
Reconciliation of effective tax rate
		2011 £m		2010 £m
(Loss)/profit before tax		(25.9)		3.0
Income tax using the UK corporation tax rate of 28% (2010: 28%)		(7.2)		0.8
Effect of tax rates in foreign jurisdictions		(0.3)		(0.6)
Trading losses not recognised		1.4		3.2
Non-deductible expenditure		1.0		1.2
Capital profits offset by capital losses		1.5		-
Impairment losses on goodwill		4.6		-
Change in UK corporation tax rate		(0.9)		-
Other		-		0.5
Adjustments for prior years
- current tax		(0.2)		(4.5)
- deferred tax		(0.9)		(0.1)
Total tax charge for the year		(1.0)		0.5
Recognised in other comprehensive income
Actuarial losses on defined benefit pension schemes		(15.3)		21.3
Income tax relating to other components		(0.4)		1.1
		(15.7)		22.4

Income tax relating to other components includes £(0.4)m (2010: £1.1m) on foreign exchange movements.

The main UK Corporation tax rate reduced from 28% to 26% on 1 April 2011.  The closing UK deferred tax provision is calculated at 26%.

6. (Loss)/earnings per share

(Loss)/earnings per share are calculated on the basis of (loss)/earnings attributable to the equity shareholders of Wincanton plc of £(25.3)m (2010: £1.8m) and the weighted average of 114.4m (2010: 114.6m) shares which have been in issue throughout the year. The diluted (loss)/earnings per share are calculated on the basis of no additional shares (2010: nil) 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 (loss)/earnings per share are calculated as follows:

		2011 millions		2010 millions
Weighted average number of ordinary shares
Issued ordinary shares at the beginning of the year		114.3		115.3
Net effect of shares issued and purchased during the year		0.1		(0.7)
		114.4		114.6
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares at the end of the year		114.4		114.6
Effect of share options on issue		-		-
		114.4		114.6

An alternative earnings per share number is set out below, being before amortisation of acquired intangibles, any impairment of goodwill and acquired intangibles, and exceptionals plus related tax, since the Directors consider that this provides further information on the underlying performance of the Group:

		2011 pence		2010 pence
Underlying earnings per share
- basic		21.2		20.9
- diluted		21.2		20.9

Underlying earnings are determined as follows:

		2011 £m		2010 £m
(Loss)/profit for the year attributable to equity shareholders of Wincanton plc		(25.3)		1.8
Exceptional restructuring and other costs		33.7		20.5
Other exceptional income		(7.0)		-
Impairment of goodwill and acquired intangibles		22.5		-
Amortisation of acquired intangibles		11.1		11.2
Tax		(10.8)		(9.5)
Underlying earnings		24.2		24.0

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 2011, and the final for the year ended 31 March 2010, paid on 6 August 2010.

These are detailed in the following table:

		2011 £m		2010 £m
Interim dividend of 4.83p (2010: 4.83p) paid in January 2011 and 2010 respectively		5.5		5.5
Final dividend of 10.08p for 2010 (2009: 10.08p) paid in August 2010 and 2009 respectively		11.5		11.6
Total dividend paid in the year		17.0		17.1

The Directors do not recommend the payment of a final dividend for the year ended 31 March 2011.

8. Net pension deficit

The Group is reporting net liabilities of £107.0m (2010: £100.0m) primarily due to the pension deficit of £86.4m net of deferred tax.  To  provide greater visibility of the Group's underlying balance sheet position, net (liabilities)/assets before the net pension deficit are also shown on the face of the balance sheet.

 

END

 

 

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