Annual Financial Report

Wincanton plc (the `Company') Annual Financial Report Further to the Preliminary Results announcement made by the Company on 5 June2014, which is available at www.wincanton.co.uk, the Company announces that ithas issued its Annual Report and Accounts for the year ended 31 March 2014 andits Notice of Annual General Meeting 2014. These documents, together with associated Proxy Form and Notice ofAvailability, will be submitted to the UK Listing Authority and will shortly beavailable to the public for inspection at www.hemscott.com/nsm.do. Copies of the Annual Report 2014 and the Notice of Annual General Meeting 2014are available on the Company's website at www.wincanton.co.uk. The 2014 Annual General Meeting will be held at 1:00pm on Wednesday, 16 July2014 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN. In accordance with DTR 6.3.5, the Company provides the following informationthat is extracted from the Annual Report and Accounts for the year ended 31March 2014 and which is not otherwise included in the Preliminary Resultsannouncement. Page numbers and cross-references in the extracted informationbelow refer to page numbers and sections in the Annual Report and Accounts forthe year ended 31 March 2014: Principal risk and uncertainties (pages 32 and 33) Principal risks and uncertainties In this section, we describe our key risk management and assurance mechanismsand the principal risks and uncertainties that we consider to be material andthat may have a significant effect on the Group's financial position, resultsof operations and/or reputation. Risk agenda The Group faces a diverse range of risks and uncertainties that may adverselyaffect it. The Group's approach to risk management is designed to encourageclear decision making as to which risks the Group takes and how these aremanaged, based on an understanding of the potential strategic, commercial,financial, compliance, legal and reputational implications of these risks. The Group works to ensure that effective risk management processes are in placeto support the delivery of its strategy. The Group monitors its activities andexternal and internal environments for new, emerging and changing risks toensure that these are appropriately managed as they arise. The Board believes that the processes that are in place provide it withsufficient information on the key risks and uncertainties faced by the Group.The lines of responsibility for managing risk in the Group are set out asfollows: Risk assessment Ultimate responsibility for setting the Group's risk appetite and for theeffective management of risk rests with the Board. Acting within authoritydelegated by the Board, each key risk is owned by a member of the ExecutiveManagement Team. The following structures are in place to support theassessment of risks. * Key business risk reviews: An annual assessment of key risks throughout the Group with the outputs presented to the Executive Management Team and the Audit Committee. * Risk Committee: A Committee introduced to monitor the risk management structures and support management in embedding risk management throughout the Group. * Control risk self-assessment: A self-assessment programme introduced to support the mitigation of key operating risks throughout the Group. A risk register for each business segment is maintained and regularly reviewedby the relevant segment management team. The Executive Management Teamconsolidates the business segment risk registers to form the Group riskregister, which is monitored by the Board. All risks are scored, using a 5 x 5 matrix, taking into consideration thelikelihood of an event occurring and the impact of that event. Likelihood isbased on the chance of an event occurring in the next 12 months on a five pointscale from `rare' (less than five per cent change) to `almost certain' (with achance greater than 80%). The impact of an event is considered within fivecategories; financial; operational; personal injury; reputation; or compliance.Each impact category has a detailed definition across a five point scale from`insignificant' to `fundamental'. Where appropriate, impact is considered inrelation to the scale of the business sector in which the risk has beenidentified. Risk response Once risks have been assessed, an appropriate mitigation response is determinedfor each significant risk identified. The mitigation response will depend uponthe impact and likelihood assessment and, for example, may consist of a controlaction or insurance. The risk mitigation response reduces either the likelihoodof the risk occurring or the impact on the Group if the risk does occur, orboth. Business continuity planning The Group has detailed plans in place to ensure an immediate and appropriateresponse to a disaster. During the year under review, the Group has enhancedits resilience in terms of IT disaster recovery by migrating certain businesscritical applications and services to a new data centre. Whistleblowing The Group has in place a code of conduct, which all employees are required toadhere to. The code of conduct sets out the ethical standards expected andincludes details of how matters can be raised in strict confidence. Employeesare encouraged to first talk to their line manager, their manager's linemanager or to call the central HR team directly. Principal risks The Group risk register identifies the principal risks facing the business as awhole, including those that are managed directly at Group level. Summarisedbelow are the key risks that have been identified and that could have amaterial impact on the Group's reputation, operations or financial performance.A number of other risks reflect social and ethical issues. Risk Mitigation Health and The Group's operations take The Group maintains detailedsafety place in a diverse range of health and safety procedures and operating environments. processes which are managed by a These operations require team of dedicated health and ongoing monitoring and safety professionals. The team management of health and focus on developing behaviours safety risks in order to which identify situations that ensure a safe working could lead to accidents as well environment for our as supporting and advising employees and others we operational management and engage with. A failure to running a programme of site manage these risks properly reviews and audits. may give rise to significant potential liabilities from the Group's interaction either with the public or employees. Strategic market The Group acts in a The Group maintains aposition and competitive and complex consistently high level ofongoing market and with large and operational performance.commercial sophisticated customers. The Furthermore, a high qualityoperations Group has distinct business development team exists commercial pressures in to identify opportunities in the maintaining levels of third party logistics market and revenue and margin from the benefits to Wincanton in that existing customers, building market. Dedicated teams exist to new business relationships manage ongoing customer and maximising the relationships and contract utilisation of assets. renewal processes within the Group's defined frameworks. In addition the Group is focused on clearly articulating its existing as well as developing innovative solutions in the logistics market place. Legal compliance The Group acts within The Group employs internal and jurisdictions, markets and external subject matter experts, sectors which are highly supported by legal counsel, to regulated or covered by set policy and monitor significant legislation. application including risk-based testing programmes. The Group maintains programmes of appropriate staff training to ensure legal compliance, operational efficiencies and to minimise mistakes. This is backed up with comprehensive record keeping policies. Finally, appropriate IS management processes and governance exist to ensure system access controls operate and to monitor movements of our own and, where relevant, our customers' data. Net debt and The compliance with the The Group is acutely focused onpensions deficit covenant structures in the growing operating profit and Group's financing generating free cash flow to arrangement, the future enable it to address these refinancing of the existing issues. The Group maintains debt and the management of comprehensive relationship the Group pension fund are management with its banking key to the future financial partners and provides senior sustainability of the Group. management resources to the management of bank covenant compliance. The Group monitors both the external financing market and changes occurring in the way pension arrangements are provided including maintaining detailed financial planning and forecasting models. The Group maintains senior management focus on these balance sheet areas and a close relationship exists between the Group and the Pension Trustee board. During the year the Group closed the defined pension arrangements to future accrual thereby preventing the build-up of further risk. People The inability to recruit and The Group has an appropriate retain management and human resources structure which employees with the necessary maintains the necessary standard and appropriate of recruitment processes, based competencies, values and on key competencies, plus behaviours may restrict the monitors and develops the talent Group's ability to grow. pool within the Group's employee base. IS The Group is highly The Group completes regularinfrastructure dependent on the provision reviews to consider the corporateand product of a high quality IS IS roadmap and agree its ISdevelopment infrastructure as it is approach. Particular focus is essential to the smooth given to the approach and running of the business as infrastructure required to ensure well as that of its adequate disaster recovery customers where we operate processes and procedures are in key systems such as place. The Group maintains an warehouse management and extensive IS team, including transport planning systems. teams charged with innovating new products and services and others who maintain and secure the existing infrastructure. The IS team also includes change experts working with appropriate project management methodologies. Related Party Transactions (Note 26 to the consolidated financial statements onpage 90) 26. Related parties Identity of related parties The Group has a controlling related party relationship with its parent CompanyWincanton plc. In addition the Group has related party relationships with itsExecutive and non-executive Directors and with its subsidiaries and jointlycontrolled entities. Transactions with Executive and non-executive Directors The interests of the Executive and non-executive Directors in the share capitalof the Company, plus full details of the individual Director's emoluments,bonuses deferred in shares, share options and pension entitlements are given inthe Annual report on remuneration on pages 48 to 55. The total of short term employee remuneration and benefits receivable by theDirectors is set out in note 4. Independent auditor's report to the members of Wincanton plc (pages 58 and 59) Opinions and conclusions arising from our audit 1. Our opinion on the financial statements is unmodified We have audited the financial statements of Wincanton plc for the year ended 31March 2014 which comprise the Consolidated income statement, the Consolidatedstatement of comprehensive income, the Consolidated and Company balance sheets,the Consolidated statement of changes in equity, the Consolidated statement ofcash flows and the related notes. In our opinion: • the financial statements give a true and fair view of the state of theGroup's and of the parent Company's affairs as at 31 March 2014 and of theGroup's profit for the year then ended; • the Group financial statements have been properly prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union(IFRS as adopted by the EU); • the parent Company financial statements have been properly prepared inaccordance with UK Accounting Standards; and • the financial statements have been prepared in accordance with therequirements of the Companies Act 2006 and, as regards the Group financialstatements, Article 4 of the IAS Regulation. 2. Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks ofmaterial misstatement that had the greatest effect on our audit were asfollows. Property provisions (£33.4 million) Refer to page 41 (Audit Committee report), page 67 (accounting policy) and page79 (financial disclosures). • The risk - In the year ended 31 March 2012, an onerous lease provision wasrecognised in relation to the empty or under-utilised sites which formed partof the Group portfolio. This was as a result of significant unexpectedwithdrawals by customers from sites in response to the external marketenvironment and a deterioration in both general economic conditions and theoverall property market. The calculation of this provision required theDirectors to make a number of judgements and estimates at the time of initialcalculation, but also requires ongoing trading conditions and market sentimentto be reflected as time progresses. This remains an area of significant judgement in the current year as changes inassumptions, particularly relating to the forecasting of cash flows and changesin market sentiment could lead to a material impact on the profit for theperiod. The forecasting of cash flows and assessment of market sentiment aretherefore key judgemental areas that our audit is concentrated on. • Our response - In this area our audit procedures included, among others, theuse of our own property specialists to critically assess the Group'smeasurement of market confidence, in particular to challenge the assumptionsrelating to the length of time currently marketed properties will remain emptyprior to letting and the rent-free periods which would be required to beoffered by comparing to industry norms for the particular location. Wechallenged the key inputs to the calculation of the provision; the discountrate used, through comparison with industry competitors; the forecast cashflows by assessing the historical accuracy of these cash flows, and theassessment of market confidence by performing sensitivity analysis on the keyvoid and rent-free period assumptions. Goodwill (£77.3 million) Refer to page 41 (Audit Committee report), page 66 (accounting policy) andpages 74 and 75 (financial disclosures). • The risk - Goodwill acquired in a business combination is allocated to theGroup's Cash Generating Units (CGUs), which are aligned with its operatingsegments; Contract Logistics and Specialist Businesses. The recoverable amountsof the CGUs are determined from value in use calculations and where thecarrying value of a CGU exceeds its recoverable amount an impairment charge isrequired. This is a key judgement area as adverse changes in assumptions,particularly relating to forecast cash flows and discount rates could reducethe recoverable amount below the carrying amount, and potentially give rise toa material impairment charge. The forecasting of cash flows and the selection of an appropriate discount rateare therefore key judgemental areas that our audit is concentrated on. • Our response - In this area our audit procedures included, among others,evaluating the Group's budgeting procedures upon which the forecast cash flowsare based by performing an assessment of the historical accuracy of budgets. Wechallenged the Group's selection of the discount rate used by considering thebasis of the calculation of the discount rate and used external data (includingcompetitor analysis) to determine an appropriate range and compared the actualrate used to that range. For the period beyond the three year financial budgetsand forecasts, we considered whether the growth rate used was consistent withboth historical performance and future business strategies. We evaluated the Group's sensitivity analysis, by performing our own analysisto assess the sensitivity of the impairment reviews to changes in the keyassumptions of the discount rate, growth rate and the forecast cash flows. We considered the adequacy of the Group's disclosures in respect of theimpairment testing of goodwill and whether disclosures about the sensitivity ofthe outcome of the impairment assessment to changes in key assumptions properlyreflected the risks inherent in it. Pension scheme deficit (£110.9 million) Refer to page 41 (Audit Committee report), pages 66 and 67 (accounting policy)and pages 81 to 84 (financial disclosures). • The risk - Significant estimates are made in valuing the defined benefitsection of the Group's post-retirement Scheme and small changes in either theassumptions or estimates used to value the Group's net pension deficit may havea significant effect on the results and financial position of the Group. Thekey assumptions in the calculation of the net deficit are the discount rate,inflation rate and mortality/life expectancy. The defined benefit section of the Scheme was closed to future accrual from 31March 2014, which resulted in a curtailment gain of £15.0 million. During theperiod the Group also changed the benefits of the plan to offer a PensionIncrease Exchange (PIE) option, resulting in a gain of £5.2 million; a combinedgain of £20.2 million. There are a number of inherent assumptions made in thecalculation of these items, small changes in which might have a significantimpact on the Group's results and financial position. The key assumptions arethe inflation rate and salary increases in respect of the curtailment gain andin calculating the PIE past service gain the assumed uptake of the PIE optionin future. The selection of the inflation rate, salary increase and uptake of the PIEoption are therefore key judgemental areas that our audit is concentrated on. • Our response - With the support of our own actuarial specialists, wechallenged the key assumptions applied to the membership data to determine theGroup's net deficit, the curtailment gain and the PIE gain, as identifiedabove. This included a comparison of these key assumptions against externallyderived data. Also with the support of our actuarial specialists, we challenged themethodology underlying the calculation of both the £15.0 million curtailmentgain recognised in the year on the closure of the defined benefit section tofuture accrual and the £5.2 million gain recognised on the completion of thePIE. We also considered the adequacy of the Group's disclosures in respect of thesensitivity of the deficit to these assumptions and in relation to the impactof the closure of the defined benefit section to future accrual and theimplementation of the PIE exercise. 3. Our application of materiality and an overview of the scope of our audit The materiality for the financial statements as a whole was set at £1.3million. This has been determined with reference to a benchmark of Group profitbefore taxation, which we consider to be one of the principal considerationsfor members of the Company in assessing the financial performance of the Group.Materiality represents 3.7% of group profit before tax and 5.1% of underlyingGroup profit before tax as disclosed in the financial review. We agreed with the Audit Committee to report to it all corrected anduncorrected misstatements we identified through our audit with a value inexcess of £0.1 million, in addition to other audit misstatements below thatthreshold that we believe warranted reporting on qualitative grounds. Audits for group reporting purposes were performed by component auditors at thekey reporting component in Guernsey and by the group audit team in the UK.These group procedures covered 100% of total Group revenue; 100% of underlyingGroup profit before taxation; and 100% of total Group assets. The audits undertaken for group reporting purposes at the key reportingcomponents of the Group were all performed to materiality levels set by, oragreed with, the group audit team. These materiality levels were setindividually for each component and ranged from £1.0 million to £1.3 million. 4. Our opinion on other matters prescribed by the Companies Act 2006 isunmodified In our opinion: • the part of the Directors' Remuneration Report to be audited has beenproperly prepared in accordance with the Companies Act 2006; and • the information given in the Strategic Report and the Directors' Report forthe financial year for which the financial statements are prepared isconsistent with the financial statements; and • the information given in the Corporate governance report set out on page 38with respect to internal control and risk management systems in relation tofinancial reporting processes and about share capital structures is consistentwith the financial statements. 5. We have nothing to report in respect of the matters on which we are requiredto report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on theknowledge we acquired during our audit, we have identified other information inthe annual report that contains a material inconsistency with either thatknowledge or the financial statements, a material misstatement of fact, or thatis otherwise misleading. In particular, we are required to report to you if: • we have identified material inconsistencies between the knowledge we acquiredduring our audit and the Directors' statement that they consider that theannual report and financial statements taken as a whole is fair, balanced andunderstandable and provides the information necessary for shareholders toassess the Group's performance, business model and strategy; or • the Corporate Governance Report does not appropriately address matterscommunicated by us to the Audit Committee. Under the Companies Act 2006 we are required to report to you if, in ouropinion: • adequate accounting records have not been kept by the parent Company, orreturns adequate for our audit have not been received from branches not visitedby us; or • the parent Company financial statements and the part of the Directors'Remuneration Report to be audited are not in agreement with the accountingrecords and returns; or • certain disclosures of Directors' remuneration specified by law are not made;or • we have not received all the information and explanations we require for ouraudit; or • a Corporate Governance Statement has not been prepared by the Company. Under the Listing Rules we are required to review: • the Directors' statement, set out on page 57, in relation to going concern;and • the part of the Corporate governance report on page 36 relating to theCompany's compliance with the nine provisions of the 2010 UK CorporateGovernance Code specified for our review. We have nothing to report in respect of the above responsibilities. Scope of report and responsibilities As explained more fully in the Directors' Responsibilities Statement set out onpage 57, the Directors are responsible for the preparation of the financialstatements and for being satisfied that they give a true and fair view. Adescription of the scope of an audit of financial statements is provided on theFinancial Reporting Council's website at www.frc.org.uk/auditscopeukprivate.This report is made solely to the Company's members as a body and is subject toimportant explanations and disclaimers regarding our responsibilities,published on our website at www.kpmg.com/uk/auditscopeukco2013a, which areincorporated into this report as if set out in full and should be read toprovide an understanding of the purpose of this report, the work we haveundertaken and the basis of our opinions. Andrew Campbell-Orde (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory AuditorChartered Accountants100 Temple StreetBristolBS1 6AG4 June 2014 Responsibility statement of the Directors in respect of the Annual Report andAccounts (page 57) The Directors confirm that to the best of their knowledge: • the financial statements, prepared in accordance with the applicable set ofaccounting standards, give a true and fair view of the assets, liabilities,financial position and profit or loss of the Company and the undertakingsincluded in the consolidation taken as a whole; and • the management report required by DTR 4.1.8R (contained in the Strategicreport and the Directors' report) includes a fair review of the development andperformance of the business and the position of the Company and theundertakings included in the consolidation taken as a whole, together with adescription of the principal risks and uncertainties that they face. The Directors approved the above Responsibility statement on 4 June 2014. Stephen Williams Company Secretary

18 June 2014