Preliminary Results
Wincanton PLC
07 June 2007
For immediate release 7 June 2007
WINCANTON plc
Preliminary Announcement of Results
for the financial year ended 31 March 2007
'Focusing on leadership'
2007 2006 Change
£m £m
Revenue 1,933.1 1,809.3 +6.8%
Underlying operating profit 45.5 42.0 +8.3%
Net financing costs (9.9) (9.7)
Underlying profit before tax 35.6 32.3 +10.2%
Net other items (note) (3.0) (1.0)
Profit before tax 32.6 31.3
Underlying earnings per share 21.0p 19.2p +9.4%
Basic earnings per share 19.7p 19.9p
Proposed final dividend 9.29p 8.6p
Full year dividend 13.55p 12.54p +8.1%
Note: Underlying profit before tax and earnings per share are stated before net
other items of £3.0m (2006: £1.0m), comprising exceptional restructuring costs
of £6.0m (2006: £8.1m), exceptional property profits of £6.2m (2006: £8.1m) and
amortisation of acquired intangibles of £3.2m (2006: £1.0m). Operating profit,
including these items, amounted to £42.5m (2006: £41.0m) up 3.7%. Profit before
tax, including these items, amounted to £32.6m (2006: £31.3m) up 4.2%.
FINANCIAL HIGHLIGHTS
• Underlying profit before tax up by 10.2%, to £35.6m
• Underlying earnings per share up by 9.4%, to 21.0p
• Full year dividend increase of 8.1% to 13.55p
• Free cash flow (after net capex) of £72.2m, ROCE of 55.2%
OPERATIONAL HIGHLIGHTS
• High levels of new business wins and contract start ups
• Continuing opportunity in the UK, both through organic growth and
acquisitions
• Building momentum in Mainland Europe, through investment in people,
marketing and systems
Graeme McFaull, Wincanton Group Chief Executive commented:
'Wincanton is reporting another good profit performance. There are significant
opportunities for continuing growth in the UK. Our investment in Mainland Europe
will deliver profit progress in the medium term. All our initiatives are focused
on confirming Wincanton as a European leader in our sector.'
For further enquiries please contact:
Wincanton plc
Graeme McFaull, Chief Executive Tel: 020 7466 5000 today, thereafter
Gerard Connell, Group Finance Director Tel: 01249 710899
Buchanan Communications Ltd
Charles Ryland, Jeremy Garcia Tel: 020 7466 5000
Chairman's Statement
The year to 31 March 2007 was another year of profit progress for Wincanton,
allowing your Board to again recommend a dividend increase significantly in
excess of inflation. The proposed full year dividend of 13.55p per share, an
increase of 8.1 per cent, builds further on the Group's track record of strong
dividend growth. On average, the Wincanton dividend has grown by approximately 8
per cent per year.
In addition to funding this dividend growth, the consistently high levels of
cash flow generated by the Group have also financed a series of acquisitions
which have transformed Wincanton's industry position. In the six years since
demerger, Wincanton has generated some £390m of free cash flow after net capital
expenditure. Of this total, approximately £75m has been paid out to shareholders
as dividends, over £200m has been reinvested in acquisitions which have made
Wincanton a European leader in its sector, and the balance has been applied
primarily to meet the Group's financing, tax and pension liabilities. Year end
net debt of £65.8m, even after funding these significant outflows, is little
changed from the £50m net debt of the Group at demerger in 2001.
The pre-tax underlying profit of £35.6m being reported for the year to 31 March
2007 represents an increase on the previous year of 10.2 per cent, which was
itself a 9.9 per cent increase on the pre-tax underlying profit reported in the
year to 31 March 2005. These are high levels of growth in challenging markets.
The Group's profit performance has been driven by a combination of organic
growth and acquisitions. Our acquisitions have successfully reinforced and
expanded our geographic presence and service offering. We welcome this year the
employees of Lane Group and RDL Distribution, two UK businesses acquired for a
total cost of £34.7m. Lane gives us a strong position in the fast-growing home
delivery market and RDL establishes us as a leader in logistics services for the
construction industry. Both businesses have already been successfully integrated
and now operate under the Wincanton brand.
The year to 31 March 2007 was another successful year for new business wins,
contract renewals and operational start-ups. The high levels of customer and
operational activity that we experienced confirmed once more the strength of our
relationships and the consistent quality of our service performance. Certain of
the Group's competitors are larger, more diverse groups, but our customer focus,
our operational excellence and the quality and enthusiasm of our people are
proving to be competitive advantages for Wincanton.
In the UK & Ireland we are continuing to add new contracts with existing
customers, bring new customers into the portfolio and extend our range of
services. We remain encouraged by the profit momentum of the UK & Ireland
business, the strength of its market position and the new opportunities which
have been identified to sustain and accelerate its growth.
Our Mainland European operations remain important to the Group's longer-term
industry position. Meaningful profit progress has yet to be reported in Mainland
Europe and we have conducted a thoroughgoing review of our operations there. We
have closed our loss-making Spanish business and we expect future progress to be
underpinned by our focus on our most important markets in Germany, France and
Poland where we have strengthened our management resource and increased our
financial support for the marketing of the Wincanton brand.
The drive towards a single company culture under the 'One Wincanton' programme,
and to ensure that the same high standards of customer care and operational
excellence are consistently delivered across all our operations, is being
enthusiastically and successfully pursued. I would like to take this opportunity
to offer the thanks of the Board to all our employees for the commitment and
professionalism which continues to create value for shareholders by adding value
for customers. It is our people who make the difference.
Our business development teams have remained very active across the Group, and
we have been encouraged both by further recent contract wins and the new
opportunities under active review as we begin the 2007/08 financial year. We
have set ourselves stretching objectives for this new financial year which, as
always, will bring its share of challenges. We nonetheless continue to have
confidence in Wincanton's ability to build further on the achievements of recent
years. Our objective is for 2007/08 to be another period of earnings growth and
strategic progress, confirming Wincanton's position as a leader in its sector.
Chief Executive Overview
Wincanton has a strong, and growing, portfolio of customers and services in its
core markets. We are successfully establishing a track record of dividend and
share price growth for our shareholders through a combination of organic growth
and the successful integration of acquisitions. We can, and will, continue to
build on our leading position in European supply chain services.
We are pleased with the progress we are able to report to shareholders for 2006/
07.
The year to 31 March 2007 saw high levels of activity in all areas of the
business. Operationally, our focus on the consistent delivery of the highest
standards of performance further reinforced our reputation for service
excellence. Financially, our profit growth and cash flow generation again
confirmed our ability to drive returns in challenging markets. Strategically, we
defined our core markets and our target sectors for the future, and fixed
objectives for the new services and sectors into which we intend to expand.
Culturally, our 'One Wincanton' programme, underpinned by our 'Four Pillars'
customer framework, now capture, illustrate and drive all areas of our customer
service philosophy and human resources development. The 'One Wincanton'
programme ensures that we operate across the Group, across borders, with a
shared vision and common standards. Our 'Four Pillars' of operational
excellence, customer intimacy, innovation and value represent the core of our
service offering. They are the key differentiators which have enabled us to
build the Group's substantial existing portfolio of blue-chip customers. They
are fundamental to both the detailed customer account planning process and the
broader strategic market analysis on which our continuing success depends.
We are excited by the Group's prospects for continuing growth.
Our vision for Wincanton is for the Group to be recognised as the first choice
for supply chain services across Europe. For our customers we will be the
service provider of choice. For our people we will be the employer of choice.
For our investors we will be the reliable and rewarding stock of choice in our
sector.
We have strong foundations on which to build. Our UK & Ireland business has an
excellent market position, a development pipeline which is as good as we have
known it, and a number of new sectors and services either already in the
portfolio, or planned to be added to the portfolio, which offer attractive
prospects for future growth. In our Mainland Europe operations we have new
management teams in key markets, we are raising brand awareness through higher
investment in marketing, and cultural change across the business means that we
are working together more efficiently and consistently for the benefit of
customers. Profit progress in Mainland Europe will follow.
Acquisitions have played an important role in our progress to date. We expect
acquisitions to be equally important in the Group's future development. In the
fragmented markets in which we operate there are many opportunities for both
infill and larger acquisitions. We monitor market developments very closely and
routinely have a number of potential acquisitions under active review at any one
time.
Wincanton has doubled its market capitalisation since demerger in 2001 and the
Group's Total Shareholder Return over the period has outperformed both the
FTSE-100 and FTSE-250 indices. This excellent share price and dividend
performance represents our challenging benchmark for the next five years.
Business Review
Strategy
The European market is our core geographic focus, our home market. It is a
market of 490 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. Six of the
world's ten largest trade flows, as identified by recent market research on
global forwarding volumes, are intra-European movements in the consumer goods,
industrial, high-tech, automotive, chemical and agricultural industries. It is
business-critical trade flows such as these that Wincanton manages on behalf of
customers. Europe is a geographic market in which the Group is building a
leading presence and which offers substantial opportunities for future growth.
There is neither a customer need nor a financial imperative for Wincanton to
have a global presence.
The Group's existing activities across Europe give a competitive advantage in an
industry which remains fragmented, with large numbers of small operators and a
very limited number of Pan-European or global service providers. We have more
significant scale and a broader geographic reach than these small operators and
a higher degree of service specialisation and customer focus than the
diversified global service providers in our sector.
We have a strong portfolio of customers across Europe, including long-standing
relationships with 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 are
now able to serve their needs on a national, regional and Pan-European basis. We
have successfully expanded our geographic presence without losing either the
customer service ethos or the people culture which represent the core of our
business offering.
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 vision and strategy which we
believe will generate further value for shareholders by continuing to add value
for customers. We see growth opportunities both in our existing portfolio of
customers, sectors and services and in newly-targeted customers, sectors and
services identified through our rigorous business development and strategy
processes.
We look to the future with confidence.
2006/07 Summary
Our strong customer base, our growing range of services, our expansion into new
sectors and our geographic coverage again provided attractive opportunities for
the Group.
In challenging markets, Wincanton once more made good overall profit progress,
building further on the Group's track record of consistent profitable growth.
Strong continuing momentum in our UK & Ireland business more than compensated
for difficulties in certain operations in Mainland Europe. At this stage, the UK
& Ireland operations continue to be the key driver of Wincanton's performance,
representing some 92 per cent of our reported underlying operating profit.
As indicated in our half-year results to 30 September 2006, our second half
performance in Mainland Europe was an improvement on the first half but the
result for the full year was nonetheless below the prior year.
We are continuing to invest to ensure both that our UK & Ireland business can
maintain and enhance its current growth momentum and that we can deliver
meaningful profit growth in our Mainland Europe businesses.
UK & Ireland: Performance Highlights
Our UK & Ireland business reported underlying operating profit of £22.0m in the
second half, an increase of 12.2 per cent on the same period last year and a
10.0 per cent increase on the £20.0m reported in the first half of this
financial year, to give a full-year underlying operating profit of £42.0m, an
annual increase of 11.1 per cent. Turnover in the UK & Ireland increased in the
year by 5.0 per cent, to £1,214.5m.
2006/07 was another very active year with our retail customers against a
background of continuing change, with increasing focus on areas such as inbound
supply chain management, the accelerating growth into non-food products of our
grocery customers, the rapid expansion into multi-channel retailing of many of
our general merchandise customers and a growing awareness of the supply chain
implications of new reverse and recycling legislation for all our retail
customers.
We have positioned ourselves well, both organically and through acquisition, to
anticipate and respond to these changing requirements. We are investing in
inland ports to reduce container management costs for those of our customers who
are major importers. We have been awarded a number of new contracts by grocery
customers expanding their non-food offering. We have acquired to build national
coverage in two-man home delivery, and we have continued to invest to develop
our waste recycling capabilities.
Contract wins and renewals in the year with our retail customers included a very
significant 5-year contract renewal and extension with Somerfield, a 3-year
non-food warehousing operation for Asda, a new direct import centre for Argos, a
new composite distribution centre for Sainsbury's and a significant expansion of
our Comet activities through the award of their transport operations. Our inland
container port secured volumes from customers such as Dixons and Argos, we were
awarded a second automated warehousing facility for Screwfix and also a new
non-food operation for Dunnes Stores in Ireland. The most significant contract
renewal in the period in the retail sector was the food procurement and service
delivery operation for Punch Taverns which was renewed for a further 10 years.
We are seeing similar changes to the future requirements of our existing
manufacturing and industrial customers, and are also identifying new sectors and
activities with service and growth potential for Wincanton. Many of our existing
customers in these areas, from consumer goods companies to petroleum
distributors, are considering outsourcing further internal processes, including
elements of their production processes, and are keen to consider collaboration
with other manufacturers, particularly in the area of optimising transport
networks and resources. In terms of new activities, having previously identified
the construction and building materials sectors as offering opportunity for
Wincanton, we acquired and have successfully integrated RDL Distribution. RDL is
a leader in its industry and brings us a national network capable of further
significant product and customer expansion.
Contract gains and renewals with manufacturing and industrial customers included
a new primary transport contract for Britvic, a substantial co-packing and
manufacturing operation for Nestle Purina and new business with CEMEX UK, which
confirmed the potential for further expansion of our customer base in the
construction industry. Other wins in these sectors included a nationwide,
specialist bulk fuel operation for the MoD, distribution of bathroom fittings
for Jacuzzi and a regional warehouse operation for Carlsberg Tetley. The toy
distribution and rework operation for Mattel was successfully renewed and
relocated in the year.
Towards the end of the financial year we announced a strategic joint venture
with Kerry Logistics, a major Hong Kong-based logistics and freight forwarding
company. The joint venture will allow us to offer full inbound supply chain
management services, including warehousing and consolidation services in the
markets of origin, to those existing or potential customers who may wish to
re-organise or re-focus their current inbound requirements.
Our portfolio of ancillary support services also made progress in the year,
although the results of Pullman Fleet Services, our contract maintenance
business, were affected by start-up costs on new business. Pullman nonetheless
delivered new business with customers such as Tesco.com, Kerry Foods DTS and
Sainsbury's. Two substantial wins, in the second half of the year, both with
leading financial institutions, will generate significant new volume for our
recently-expanded document and media storage facility in London. Our
waste-recycling business has been positioning itself with retailers,
manufacturers, local authorities and recycling compliance schemes for the
implementation of the new European recycling directive and we remain confident
that this is another area of high growth potential for the Group. Our in-store
services unit also secured further business with B&Q and new business with
Staples, and Consilium, our consultancy operation, was awarded assignments by,
amongst others, B&Q, Chevron, British Bakeries and Wyevale Garden Centres. We
are actively considering opportunities in Mainland Europe for a number of these
ancillary support services.
Mainland Europe: Performance Highlights
We reported a weaker first half this year in our Mainland Europe activities,
principally as a consequence of margin pressure in our transport management
activities caused by a shortage of sub-contractor capacity. Price increases to
customers subsequently mitigated this pressure and, although contract start-up
costs affected our performance in Central and Eastern Europe, profitability in
the second half did improve as expected.
One of the most critical factors in our ability to report substantial profit
progress in Mainland Europe will be the generation of higher volumes through our
existing asset infrastructure. Under-utilised sites in Germany and France, for
example, are holding back profit improvement in the short-term but will
contribute materially to future profit progress when new business volume is
delivered. With this aim we have been restructuring our sales and business
development teams, investing in marketing to raise brand awareness and
reinforcing the 'Four Pillars' approach to customer service and development
which has been, and continues to be, so important to our success in the UK &
Ireland.
Underlying operating profit of £3.5m, down on last year's £4.2m, is still
significantly below what we believe to represent the profit potential of these
businesses. Although some of our operations are expected, structurally, to
deliver lower margins, we are nonetheless committed to delivering a significant
improvement on the sub-one per cent margin reported on this year's turnover of
£718.6m. It is our objective to increase our margin in Mainland Europe to not
less than 2 per cent over the next three years, with further progress
anticipated in the longer term.
Germany accounts for 68 per cent of our turnover in Mainland Europe, France for
16 per cent, and Poland for a further 6 per cent. These are the countries in
which we have the best developed infrastructures, in which we have been
reinforcing our management teams and on which we are focusing our marketing and
business development initiatives. We have a geographic presence in other
countries, and an operational reach across the whole of Mainland Europe and
beyond, but these three countries in Mainland Europe represent our principal
areas of focus at this stage.
Our German business has a strong domestic road network which guarantees
overnight delivery throughout the country, a market leading intermodal and
freight management business on the Rhine and a growing portfolio of contract
logistics customers. Our Polish business also offers national transport
capability, warehousing capability at key strategic locations and an ability to
manage pan-regional contracts across Central and Eastern Europe. Our
recently-enlarged French business has warehousing capacity on a national scale,
both own transport and transport management capability and sector expertise
which complements many areas of our UK & Ireland operations.
Whilst the quantum of wins and renewals in Mainland Europe is not of the same
scale as the UK & Ireland, the year has seen good new business being secured
across all our major markets. Examples of this success include a national paper
products distribution contract for Zanders in Germany and a Pan-European parts
collection contract for Pininfarina managed through our international transport
hub in the Netherlands. In Central Europe, and in Poland in particular, the year
has seen a high level of business wins with new customers such as Rieber Foods,
industrial silicone company Selena, and consumer goods manufacturer Cussons. A
growing number of customers are recognising our cross-border capabilities,
secure in the knowledge that they will benefit from the same, consistently high,
quality of service in all our markets. New business in the year with customers
such as JohnsonDiversey in Poland and SSL International in Hungary is testament
to our investment in operational excellence across the whole Group and to the
growth potential of this Pan-European customer management approach.
As previously indicated, further action was required to address our loss-making
activities in Spain. The decision was taken to substantially exit our existing
activities in Spain, closing three sites but leaving an operation in Tarragona
to manage Group transport flows to and from the Iberian Peninsula. The sites
vacated were freehold properties which were subsequently sold, broadly covering
both the profit and cash costs of closure.
We believe that good profit progress can be delivered over time in Mainland
Europe. If results cannot be improved as anticipated we will not hesitate to
take steps to address under-performance as we have done this year in Spain.
Wincanton Group Consolidated results
Total revenue for the Group for the financial year was 6.8 per cent higher than
the previous year, at £1,933.1m, and with underlying operating profit of £45.5m,
up 8.3 per cent, accounting margin increased to 2.4 per cent. Underlying
operating profit is stated before exceptionals and amortisation of acquired
intangibles.
The level of revenue growth and accounting margin are not amongst the Group's
key financial performance measures due to the 'cost plus' or 'open book' nature
of much of Wincanton's underlying business model. Our key financial measures are
the net rate of growth in underlying operating profit, up 8.3 per cent in the
year, free cash flow generation and return on capital. These latter measures
demonstrate the further progress made this year, with positive cash inflow of
£72.2m after net capital expenditure. Return on capital improved from 35.1 per
cent to 55.2 per cent.
The revenues of the Group increased in the year by £123.8m as a consequence of
the acquisitions made plus new business wins, net of business losses. In the
year annualised new wins and renewals of £395m were achieved; £305m in the UK &
Ireland and £90m in Mainland Europe. 72.5 per cent of the wins were with
existing customers, building on our track record of growing business and market
share with our blue-chip customer base.
This year, as is the case in most years, we have had ground to make up for both
contract losses and fee pressure on renewals, but the very strong underlying new
business momentum has nonetheless allowed the Group to make good net progress.
Net financing costs
The net financing costs of the Group of £9.9m are marginally higher than in 2005
/06. This is after outflows in excess of £60m for acquisitions and incremental
pension contributions since March last year. Strong financial controls and cash
flow management remain key areas of focus across the Group. The average
borrowing rate in the year was 5.0 per cent, up on the previous year due to the
rise in market rates in the period. Net financing costs are 4.6 times covered by
underlying operating profit.
Exceptionals
The net exceptional credit for the year of £0.2m was the result of exceptional
costs of £6.0m, offset by profits from surplus property disposals and the sale
and leaseback of the Group's head office building in Chippenham of £6.2m.
The key exceptional costs arose from the £2.2m integration of our two UK
acquisitions, the net costs of exit from Spain of £1.0m (after £3.8m of profits
from the sales of property) and the further costs of reorganisations,
integration and site closure programmes in the French and German businesses, of
£1.8m and £1.0m respectively. The Chippenham property deal, which took advantage
of the reducing yields on quality UK office space, delivered a cash inflow of
£14.2m and a profit of £5.0m. The building, completed in 2005, was originally
funded on-balance sheet in anticipation of further favourable moves in property
values. Sales of other surplus properties contributed the balance of £1.2m. We
expect our current programme of disposal of surplus properties to be completed
in the new financial year.
Wincanton retains operational freehold properties on its balance sheet with a
net book value of some £60m. These properties have not been subject to
revaluation.
Taxation
The Group's underlying accounting tax rate of 31.2 per cent is consistent with
prior years and gives rise to a charge of £11.1m. The overall tax rate of 29.4
per cent (2006: 26.8 per cent) is also consistent and is at a reduced level due
to the level of capital profits covered by past capital losses. The current cash
tax rate of 4.6 per cent is reduced principally due to the tax impact of the
incremental pension contributions. The Group's activities are across the UK and
Europe where tax rates vary between 40 per cent to 12.5 per cent. The level of
brought-forward plus current year unrecognised losses may reduce the level of
the Group's accounting tax rate in future years.
Minority interest, earnings and dividend
The Group has a small number of activities in its Mainland European operations
with minority shareholdings, although these were reduced in the year with the
acquisition of one such minority interest, in Germany, for £0.1m. The profits
attributable to minorities were £0.1m (2006: £0.2m) in the year, primarily
arising in the 25.8 per cent minority share in the Rhinecontainer BV operation.
The level of underlying earnings per share (EPS) of 21.0p was 9.4 per cent
greater than the prior year 19.2p.
A final dividend of 9.29p per share is proposed, to give a full year total of
13.55p; an 8.1 per cent increase on the 12.54p proposed and paid in respect of
2005/06. This level of dividend growth, relative to underlying EPS growth, is
considered to be consistent with our declared strategy of pursuing a progressive
dividend policy. As in previous years, the dividend increase proposed represents
a rate of increase significantly in excess of inflation.
The dividend cover for this level of full year dividend is 1.55 times, broadly
equal to the prior year 1.53 times. Given Wincanton's track record of consistent
profitable growth, and confidence in the Group's ability to continue building on
this track record, this is considered to be an appropriate and sustainable level
of dividend cover.
Cash flow and net debt
The Group recognises the cash return on investment and a consistently high level
of free cash flow generation as key performance measures. After a £1.2m working
capital inflow the total free cash inflow including capital expenditure was
£72.2m (2006: £54.4m).
The two UK acquisitions led to cash outflows of £29.7m in the year, with further
payments in respect of RDL expected in the current and future years of up to
£5.0m subject to 'earn out' performance.
Capital expenditure is clearly a significant cash flow item for the Group and
considerable management focus is directed at whether to buy or 'operating lease'
assets for use in solutions for customers. In the year a further £29.5m of
capital expenditure, equal to 92 per cent of the depreciation charge for the
year, was incurred and £31.1m of additional vehicle and plant operating lease
commitments taken on. Since demerger the Group's ratio of capital spend to
depreciation has been approximately 80 per cent. This year's expenditure was
split as to £22.5m on expansion projects and £7.0m on replacements, compared to
£28.6m and £10.9m respectively in the prior year. Highlights of this spend in
the UK were £5.1m for the fit-out of a second large warehouse for Argos in
Kettering, £1.2m for racking and other fit-out at our expanding document storage
facility in Dagenham and £1.8m for specialist milk collection tankers for First
Milk. In Mainland Europe, whilst individual projects were smaller, the
cumulative total spend on projects greater than £0.3m was £1.6m in France and
£2.6m in Germany. These projects covered warehouse fit-out and IT projects, the
latter including a new 'point of delivery' track and trace system which is
expected to improve accuracy and efficiency in the German road network.
The additional vehicle and plant operating lease commitments taken on related to
£12.2m for expansion projects and £18.9m for replacements. These projects were
for a diverse range of customers and activities, including a national transport
structure for Britvic and a fleet of home delivery vehicles for Tesco.com.
The Group's operating lease commitments in respect of land and buildings, which
are determined to the first available break date after the sub-letting of
properties surplus to requirements, are substantially offset by contractual
commitments of customers, as are a significant proportion of the Group's
commitments in respect of vehicles and plant.
All expansion, replacement and acquisition spend proposals are appraised using
discounted cash flow models and subject to authorisation at appropriate levels
in the Group up to and including the main Board. The projected implementation
timescale and returns on projects are subsequently scrutinised at the same level
after the first operational year. All of the capital backchecks in the year
either met or exceeded their projected rate of return.
There were substantial cash inflows from the disposal of assets in the year,
totalling £32.2m. The site closures in Spain generated £10.4m, office
relocations and sales of surplus operational sites £2.5m, and the sale of the
Group's head office building in Chippenham £14.2m. The sale of the Chippenham
head office is further evidence of our policy of making the most efficient use
of the Group's asset base and financial resources to focus available liquidity
on Wincanton's many opportunities for both organic growth and further
acquisitions.
The aforementioned cash flow items, plus the £31.0m of incremental pension
contributions paid, were offset by strong operational cash flows. As a result
the Group's net debt brought forward of £60.6m was not materially higher at this
year end at £65.8m. This is reported after deducting £27.4m of cash held in the
Group's captive insurer (last year £29.8m) to cover the potential claims
underwritten by that company.
The Group continued to enjoy solid banking support, with £210m of committed
funds from a banking syndicate, due for renewal in 2010, plus $150m of 7 and
10-year funding raised from the US private placement market in late 2005 and
subsequently swapped into floating rate sterling and euro liabilities. £168m of
this total of £297m of committed facilities was undrawn at 31 March 2007. The
Group also has £25m of uncommitted money market facilities now in place which,
together with the approximately £40m of overdraft facilities currently
available, give further flexibility in the day-to-day management of the net
'drawn down' position.
The scale of the Group and the size of individual operations means that the
working capital position can vary significantly over a monthly cycle.
Flexibility of funding, based on an appropriate mix of committed and uncommitted
facilities with a range of maturities, helps to reduce overall borrowing costs.
The Group has a mix of sterling and euro denominated bank debt and derivatives
(to convert the US$ placement funds) which match the currencies of the Group's
assets. Interest rate exposures have been limited by the purchase of a €100m 4.3
per cent cap and a £30m 6.3 per cent cap.
The central Treasury function monitors all currency and interest rate exposures
and ensures appropriate hedge arrangements are in place. The Group operates
sterling and euro 'pools' such that surplus cash is netted against overdrawn
balances, to maximise the efficiency of short term liquidity. No speculative
trading is carried out and all financial instrument trades are designed to meet
the operational needs of the business.
Return on capital employed
Return on capital employed is another of the Group's key performance measures.
At 31 March 2007 this return improved further to 55.2 per cent, from 35.1 per
cent in the prior year and 29.8 per cent in the year before. Capital employed at
£82.5m has been consistently reduced in recent years (2006: £119.7m, 2005:
£132.1m) as the measures outlined above to maximise the efficiency of the
Group's funding, and the 'asset light' business model which enables the Group to
deliver significant growth without extensive utilisation of balance sheet
capacity, have progressively reduced our balance sheet commitments.
Goodwill and intangibles
The two acquisitions in the second half of the year gave rise to an additional
£47.1m of goodwill and acquired intangibles. The first year anniversary review
of the balance sheet of the 2005 French acquisition necessitated an increase of
£2.9m in the goodwill recognised. Acquired intangibles are being amortised over
their useful lives of between 1 and 15 years and the charge of £3.2m is shown
separately in the income statement.
Pensions
This key area for the Group continues to receive substantial management
attention, not least as a consequence of a likely increase in the fund's
liabilities following a review of longevity assumptions as part of the
forthcoming triennial valuation in 2008. At the start of the financial year the
second part of the £40.0m 'upfront' payment was made to the Scheme (£23.0m)
which, together with the further £8.0m annual contribution, is expected to
progressively address the past service deficit. Following wide consultation it
has also been agreed with employees that certain changes would be made to future
benefits which has led to a reduction in the deficit. Through this combination
of cash injection by the Group and changes to employee benefits, the Scheme
deficit has been reduced from £116.3m last year to £72.1m at 31 March 2007,
£50.5m net of deferred tax. No further measures are currently contemplated,
pending the outcome of the 2008 valuation and consideration of the prevailing
market conditions at that time.
Risks
The Group has a well developed structure and set of processes for identifying
and mitigating the key business risks it faces, and certain of these key risks
are discussed elsewhere in this Business review.
The Group's ability to source new contracts, at an appropriate financial return
for an acceptable level of risk, represents the principal area of commercial
risk. Both new and existing contracts must then perform consistently within the
demanding performance requirements of our customers. This is the Group's
principal area of operational risk. As a service business delivering high levels
of added-value to our customers, our principal human resources risk lies in the
sourcing, motivation and retention of sufficient numbers of quality people to
meet the demands of both our current business and our future growth. Wincanton's
principal strategic risk is the requirement to continue to identify sufficient
new areas of potential growth, both organically and through acquisition, to
enable the Group to continue to build on its strong track record of profit
growth and cash flow generation.
PGN
Since the previous Annual Report the dispute involving PGN, a jointly owned
entity of the Group, has progressed to arbitration and whilst the outcome is
still unknown, the Group remains confident of recovery, as a minimum, of the
year end trading assets of £7.4m. Final judgement in respect of the arbitration
is currently expected no later than the third quarter of the new financial year.
Consolidated income statement
for the year ended 31 March 2007
Total Total
2007 2006
£m £m
Note
Revenue 2 1,933.1 1,809.3
Underlying operating profit 45.5 42.0
Amortisation of acquired intangibles 2 (3.2) (1.0)
Exceptional restructuring costs 3 (6.0) (8.1)
Exceptional property profits 3 6.2 8.1
Operating profit 3 42.5 41.0
Financial income 4 33.7 26.6
Financial expenses 4 (43.6) (36.3)
Net financing costs (9.9) (9.7)
Share of results of associates - -
Profit before tax 32.6 31.3
Income tax expense 5 (9.6) (8.4)
Profit for the year 23.0 22.9
Attributable to
- equity shareholders of Wincanton plc 22.9 22.7
- minority interests 0.1 0.2
Profit for the year 23.0 22.9
Earnings per share
- basic 6 19.7p 19.9p
- diluted 6 19.4p 19.5p
Dividends declared and paid in the year (£m) 7 14.9 13.3
Consolidated statement of recognised income and expense
for the year ended 31 March 2007
2007 2006
£m £m
Actuarial gains/(losses) on defined benefit pension 9.4 (46.7)
schemes (net of deferred tax)
Net foreign exchange gain on investment in foreign - 0.3
subsidiaries net of hedged items
Tax taken directly to equity 0.7 0.7
Net gain/(loss) recognised directly in equity 10.1 (45.7)
Profit for the year 23.0 22.9
Total recognised income and expense for the year 33.1 (22.8)
Attributable to
- equity shareholders of Wincanton plc 33.0 (23.0)
- minority interests 0.1 0.2
Total recognised income and expense for the year 33.1 (22.8)
Consolidated balance sheet
at 31 March 2007
2007 2006
Restated
£m £m
Non-current assets
Goodwill and intangible assets 113.2 71.7
Property, plant and equipment 211.4 232.5
Investments 0.6 0.8
Deferred tax assets 11.8 32.3
337.0 337.3
Current assets
Inventories 8.2 7.4
Trade and other receivables 331.1 310.8
Cash and cash equivalents 60.9 56.1
400.2 374.3
Current liabilities
Income tax payable (4.4) (5.6)
Borrowings (1.6) (3.2)
Trade and other payables (444.1) (412.9)
Employee benefits (7.7) (7.5)
Provisions (20.1) (16.5)
(477.9) (445.7)
Net current liabilities (77.7) (71.4)
Total assets less current liabilities 259.3 265.9
Non-current liabilities
Borrowings (125.1) (113.5)
Other payables (5.0) (1.3)
Employee benefits (99.6) (144.8)
Provisions (42.0) (42.9)
Deferred tax liabilities (1.3) (1.1)
(273.0) (303.6)
Net liabilities (13.7) (37.7)
Equity
Issued share capital 12.0 11.8
Share premium 9.6 6.5
Merger reserve 3.5 3.5
Translation reserve 2.7 2.7
Retained earnings (41.8) (62.5)
Equity deficit attributable to shareholders of (14.0) (38.0)
Wincanton plc
Minority interest 0.3 0.3
Total equity deficit (13.7) (37.7)
Consolidated statement of cash flows
for the year ended 31 March 2007
2007 2006
£m £m
Operating activities
Profit before tax 32.6 31.3
Adjustments for
- depreciation and amortisation 35.1 33.8
- interest expense 9.9 9.7
- profit on sale of property, plant and (9.3) (8.1)
equipment
- share-based payments fair 1.6 1.1
value charges
Operating profit before changes in working capital and 69.9 67.8
provisions
Increase in trade and other (10.3) (2.8)
receivables
Increase in inventories (0.4) (1.1)
Increase in trade and other 15.0 9.0
payables
Decrease in provisions (3.1) (1.1)
Decrease in employee benefits (29.6) (17.3)
Income taxes paid (1.4) (3.0)
Cash generated from operations (29.8) (16.3)
Cash flows from operating 40.1 51.5
activities
Investing activities
Proceeds from sale of property, plant and 32.2 24.0
equipment
Proceeds from sale of unlisted trade 0.1 -
investments
Interest received 1.7 2.0
Acquisitions net of cash acquired and debt repaid on (29.7) (21.4)
acquisition
Acquisition of property, plant and (29.5) (40.3)
equipment
Interest paid (10.9) (7.6)
Cash flows from investing (36.1) (43.3)
activities
Financing activities
Proceeds from the issue of 3.1 2.2
share capital
Disposal of own shares on 1.2 -
exercise of options
Increase/(decrease) in 13.4 (1.5)
borrowings
Payment of finance lease (1.6) (1.5)
liabilities
Dividends paid to minority interest in (0.1) (0.3)
subsidiary undertakings
Equity dividends paid (14.9) (13.3)
Cash flows from financing activities 1.1 (14.4)
Net increase/(decrease) in cash and 5.1 (6.2)
cash equivalents
Cash and cash equivalents at 56.1 61.9
beginning of year
Effect of exchange rate fluctuations (0.3) 0.4
on cash held
Cash and cash equivalents at end of 60.9 56.1
year
Represented by
- cash at bank and in hand 33.5 26.3
- restricted cash, being deposits held by the Group's 27.4 29.8
captive insurer
60.9 56.1
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 2007
and 31 March 2006. Statutory accounts for the year ended 31 March 2007 will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting. Statutory accounts for the year ended 31 March 2006 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 segmental analysis is required.
The Group operates in two principal geographical areas, the UK & Ireland, and
Mainland 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 Mainland Europe Consolidated
2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
Revenue 1,214.5 1,156.3 718.6 653.0 1,933.1 1,809.3
Underlying operating 42.0 37.8 3.5 4.2 45.5 42.0
profit by segment
Amortisation of acquired (1.7) - (1.5) (1.0) (3.2) (1.0)
intangibles
Exceptional restructuring (2.0) (3.9) (4.0) (4.2) (6.0) (8.1)
costs
Exceptional property 5.8 8.0 0.4 0.1 6.2 8.1
profits
Operating profit 44.1 41.9 (1.6) (0.9) 42.5 41.0
Total assets 457.4 410.2 279.8 301.4 737.2 711.6
Total liabilities (574.1) (528.3) (176.8) (221.0) (750.9) (749.3)
Depreciation charges (21.5) (21.2) (8.4) (8.8) (29.9) (30.0)
Amortisation of software (1.1) (2.0) (0.9) (0.8) (2.0) (2.8)
intangibles
Capital expenditure
- property, plant and 20.3 27.7 8.3 10.1 28.6 37.8
equipment
- software intangibles 0.1 - 0.8 0.6 0.9 0.6
In addition to the above external revenue, there were intra-segment sales of
£1.6m from UK & Ireland to Mainland Europe (2006: £1.6m) and £1.4m from Mainland
Europe to UK & Ireland (2006: £1.0m). All such sales are priced on an
arm's-length basis.
The investments in and profits of associated undertakings are all included in
the Mainland Europe segment.
3 Operating profit
The Group's results are analysed as follows:
2007 2006
Underlying Amortisation Total Underlying Amortisation Total
(1) of acquired (1) of acquired
intangibles £m intangibles £m
£m and £m and
exceptionals exceptionals
£m £m
Revenue 1,933.1 - 1,933.1 1,809.3 - 1,809.3
Cost of sales (1,850.2) (3.9) (1,854.1) (1,728.4) 4.2 (1,724.2)
Gross profit 82.9 (3.9) 79.0 80.9 4.2 85.1
Administrative (37.4) 0.9 (36.5) (38.9) (5.2) (44.1)
expenses
Operating 45.5 (3.0) 42.5 42.0 (1.0) 41.0
profit
(1) Underlying operating profit is stated before amortisation of acquired
intangibles and exceptionals.
2007 2006
£m £m
Operating 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 0.6
Non-audit fees
- fees paid to the Auditors and their associates for 0.3 0.2
tax advisory services
- fees paid to the Auditors and their associates for 0.1 0.1
assurance services
- fees paid to the Auditors and their associates for 0.1 0.1
other services
Depreciation and other impairment amounts written off
property, plant and equipment
- owned 29.4 29.6
- leased 0.5 0.4
Amortisation and other amounts written off software 2.0 2.8
intangibles
Operating lease rentals
- plant and equipment 43.3 39.3
- land and buildings 62.2 52.8
In the prior year £0.2m was paid to the Auditors in respect of their services
in connection with acquisitions which was capitalised as a cost of investment,
current year £nil.
Exceptionals 2007 2006
£m £m
Exceptional restructuring costs
Reorganisation of operating structures (4.0) (0.9)
post-acquisition
Relocation of UK head office and business 0.2 (4.2)
rationalisation
Closure and reorganisation of operations in Spain and (2.2) (3.0)
Germany (2006: Germany)
(6.0) (8.1)
Exceptional property profits - sale of freehold land 6.2 8.1
and buildings
4 Net financing costs
2007 2006
£m £m
Interest income 1.7 2.0
Expected return on defined benefit pension 32.0 24.6
scheme assets
33.7 26.6
Interest expense (11.0) (8.2)
Finance charges payable in respect of (0.5) (0.5)
finance leases
Interest on defined benefit pension scheme (30.0) (26.0)
obligations
Unwinding of discount on insurance and other (2.1) (2.0)
provisions
(43.6) (36.7)
Less finance costs capitalised - 0.4
(43.6) (36.3)
Net financing costs (9.9) (9.7)
The interest income relates primarily to the deposits held by the Group's
captive insurer.
5 Income tax expense
2007 2006
£m £m
Recognised in the income statement
Current tax expense
Current year 1.5 2.3
Adjustments for prior years (1.5) (0.9)
- 1.4
Deferred tax expense
Current year 8.8 6.4
Adjustments for prior years 0.8 0.6
9.6 7.0
Total income tax expense in the income statement 9.6 8.4
Reconciliation of effective tax rate
2007 2006
£m £m
Profit before tax 32.6 31.3
Income tax using the UK corporation tax rate of 30% 9.8 9.4
(2006: 30%)
Effect of tax rates in foreign jurisdictions - (0.1)
Trading losses not utilised 1.9 1.2
Non-deductible expenditure 0.7 0.6
Capital profits offset by capital losses (2.1) (2.4)
Prior year adjustment
- current tax (1.5) (0.9)
- deferred tax 0.8 0.6
Total tax charge for the year 9.6 8.4
Recognised in equity
2007 2006
£m £m
Tax taken directly to 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 £22.9m (2006: £22.7m) and the weighted
average of 116.1m (2006:114.3m) shares which have been in issue throughout the
year. The diluted earnings per share are calculated on the basis of an
additional 1.8m (2006: 2.0m) 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:
Weighted average number of ordinary shares 2007 2006
millions millions
Issued ordinary shares at the beginning of the 114.9 113.9
year
Net effect of shares issued during the year 1.2 0.4
116.1 114.3
Weighted average number of ordinary shares
(diluted)
Weighted average number of ordinary shares at the 116.1 114.3
end of the year
Effect of share options on issue 1.8 2.0
117.9 116.3
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:
2007 2006
pence pence
Underlying earnings per share
- basic 21.0 19.2
- diluted 20.7 18.9
Underlying earnings are determined as follows:
2007 2006
£m £m
Profit for the year attributable to the equity 22.9 22.7
shareholders of Wincanton plc
Exceptional restructuring costs 6.0 8.1
Exceptional property profits (6.2) (8.1)
Amortisation of acquired intangibles 3.2 1.0
Tax on the above items (1.5) (1.7)
Underlying earnings 24.4 22.0
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 10 January 2007 and the
final for the year ended 31 March 2006, paid on 11 August 2006.
These are detailed in the following table:
2007 2006
£m £m
Interim dividend of 4.26p (2006: 3.94p) paid in 2007 5.0 4.5
and 2006 respectively
Final dividend of 8.60p for 2006 (2005: 7.74p) paid in 9.9 8.8
2007 and 2006 respectively
Total dividend paid in the year 14.9 13.3
The final dividend proposed for the year ended 31 March 2007 is 9.29p, which if
approved will be paid on 10 August 2007, to shareholders on the register on 13
July 2007, total £10.9m.
8 Acquisitions
Current year acquisitions
In October 2006 the Group acquired the entire share capital of RDL Holdings
Limited (RDL) and Lane Group plc (Lane) for £29.5m and £0.7m in cash
respectively, of which £5.0m of the former is deferred pending 'earn out'
performance. Both acquired entities operate in the UK and each provides contract
logistics services; RDL to the building products and construction sector and
Lane to the home delivery market.
In the six months since acquisition RDL contributed £1.4m and Lane £0.2m of
operating profit. If the acquisitions had occurred on the first date of the year
it is estimated that the totals of Group underlying operating profit and revenue
would have been approximately £47m and £1,992m respectively.
The acquisitions have given rise to values of goodwill of £11.5m and £7.4m for
RDL and Lane respectively, being the difference between the cash consideration
payable and the net assets acquired at fair value.
The acquired net assets at acquisition are summarised in the combined table
below:
Acquiree's Fair value Acquisition
book value adjustments amounts
£m £m £m
Intangible assets - 28.2 28.2
Property, plant and equipment 3.8 0.3 4.1
Deferred tax assets - 0.5 0.5
Inventories 0.4 - 0.4
Trade and other receivables 13.0 - 13.0
Cash and cash equivalents 2.3 - 2.3
Income tax payable (0.4) - (0.4)
Borrowings (6.8) - (6.8)
Trade and other payables (17.0) (0.5) (17.5)
Provisions (0.3) (3.5) (3.8)
Deferred tax liabilities (0.1) (8.6) (8.7)
Net identifiable assets and (5.1) 16.4 11.3
liabilities
Goodwill on acquisition 18.9
Consideration payable including 30.2
expenses of £1.3m
Cash acquired and debt repaid on 4.5
acquisition
34.7
Less deferred consideration (5.0)
Net cash outflow 29.7
The fair value adjustments above are required to align the accounting policies
of the acquired businesses with those of the Group. These adjustments can, if
necessary, be amended for up to 12 months following acquisition. The total
goodwill of £18.9m arising on the acquisitions reflects the strategic importance
of broadening Wincanton's business offering in these two growing sectors of the
UK economy, the value of the management and workforce and some of the expected
synergies to be gained as the acquired entities are fully integrated into the
Group.
Prior year acquisitions
The fair value adjustments relating to the acquisition of Premium Logistics on 7
October 2005 have been reviewed and revised, as permitted under IFRS 3 'Business
Combinations'. As a result the value of intangible assets recognised has been
reduced and the fair values of property, plant and equipment and of provisions
have been revised, to reflect the increased understanding of the contractual
obligations acquired. An additional amount of goodwill has been recognised and
in line with IFRS 3 these adjustments have been reflected at the date of
acquisition and the prior year balance sheet restated accordingly.
These adjustments are set out in the following amended acquisition table:
As reported at 31 March 2006
Acquiree's Fair value Acquisition Revisions Restated
book value adjustments amounts to fair acquisition
value amounts
adjustments
£m £m £m £m £m
Intangible assets - 10.4 10.4 (1.2) 9.2
Property, plant and 8.9 (1.4) 7.5 (2.2) 5.3
equipment
Deferred tax assets 0.3 2.7 3.0 1.3 4.3
Inventories 0.3 - 0.3 - 0.3
Trade and other receivables 23.5 - 23.5 - 23.5
Cash and cash equivalents 4.5 - 4.5 - 4.5
Income tax payable (0.2) - (0.2) - (0.2)
Borrowings (6.6) - (6.6) - (6.6)
Trade and other payables (20.9) - (20.9) - (20.9)
Employee benefits (2.0) - (2.0) - (2.0)
Provisions (0.4) (6.6) (7.0) (1.0) (8.0)
Deferred tax liabilities - (3.5) (3.5) 0.2 (3.3)
Net identifiable assets and 7.4 1.6 9.0 (2.9) 6.1
liabilities
Goodwill on acquisition 11.3 2.9 14.2
Consideration payable including 20.3 - 20.3
expenses of £1.2m
Net debt acquired 2.1 - 2.1
Net cash outflow 22.4 - 22.4
9 Capital employed
The Group defines capital employed as being Net assets/(liabilities) adjusted
for goodwill, acquired intangibles, debt, tax, employee benefits and insurance
provisions, as set out in the table below:
2007 2006
£m £m
Net liabilities (13.7) (37.7)
Goodwill and acquired intangibles (110.2) (67.1)
Debt 65.8 60.6
Tax (6.1) (25.6)
Employee benefits 107.3 152.3
Insurance provisions 39.4 37.2
Capital employed 82.5 119.7
Return on capital employed (ROCE) is calculated as underlying operating profit
over capital employed.
10 Free cash flow
The Group defines free cash flow as being EBITDA plus working capital and net
capital expenditure flows, as set out in the table below:
2007 2006
£m £m
Operating profit 42.5 41.0
Depreciation and amortisation 35.1 33.8
Working capital inflow 1.2 4.0
Net capital expenditure (6.6) (24.4)
Free cash flow 72.2 54.4
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