7th Jun 2007 07:01
Wincanton PLC07 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 £mRevenue 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 19.9pProposed final dividend 9.29p 8.6pFull year dividend 13.55p 12.54p +8.1% Note: Underlying profit before tax and earnings per share are stated before netother items of £3.0m (2006: £1.0m), comprising exceptional restructuring costsof £6.0m (2006: £8.1m), exceptional property profits of £6.2m (2006: £8.1m) andamortisation 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 beforetax, 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 significantopportunities for continuing growth in the UK. Our investment in Mainland Europewill 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 inexcess of inflation. The proposed full year dividend of 13.55p per share, anincrease of 8.1 per cent, builds further on the Group's track record of strongdividend growth. On average, the Wincanton dividend has grown by approximately 8per cent per year. In addition to funding this dividend growth, the consistently high levels ofcash flow generated by the Group have also financed a series of acquisitionswhich have transformed Wincanton's industry position. In the six years sincedemerger, Wincanton has generated some £390m of free cash flow after net capitalexpenditure. Of this total, approximately £75m has been paid out to shareholdersas dividends, over £200m has been reinvested in acquisitions which have madeWincanton a European leader in its sector, and the balance has been appliedprimarily to meet the Group's financing, tax and pension liabilities. Year endnet debt of £65.8m, even after funding these significant outflows, is littlechanged 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 March2007 represents an increase on the previous year of 10.2 per cent, which wasitself a 9.9 per cent increase on the pre-tax underlying profit reported in theyear 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 organicgrowth and acquisitions. Our acquisitions have successfully reinforced andexpanded our geographic presence and service offering. We welcome this year theemployees of Lane Group and RDL Distribution, two UK businesses acquired for atotal cost of £34.7m. Lane gives us a strong position in the fast-growing homedelivery market and RDL establishes us as a leader in logistics services for theconstruction industry. Both businesses have already been successfully integratedand 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 andoperational activity that we experienced confirmed once more the strength of ourrelationships and the consistent quality of our service performance. Certain ofthe Group's competitors are larger, more diverse groups, but our customer focus,our operational excellence and the quality and enthusiasm of our people areproving to be competitive advantages for Wincanton. In the UK & Ireland we are continuing to add new contracts with existingcustomers, bring new customers into the portfolio and extend our range ofservices. We remain encouraged by the profit momentum of the UK & Irelandbusiness, the strength of its market position and the new opportunities whichhave been identified to sustain and accelerate its growth. Our Mainland European operations remain important to the Group's longer-termindustry position. Meaningful profit progress has yet to be reported in MainlandEurope and we have conducted a thoroughgoing review of our operations there. Wehave closed our loss-making Spanish business and we expect future progress to beunderpinned by our focus on our most important markets in Germany, France andPoland where we have strengthened our management resource and increased ourfinancial 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 operationalexcellence are consistently delivered across all our operations, is beingenthusiastically and successfully pursued. I would like to take this opportunityto offer the thanks of the Board to all our employees for the commitment andprofessionalism which continues to create value for shareholders by adding valuefor customers. It is our people who make the difference. Our business development teams have remained very active across the Group, andwe have been encouraged both by further recent contract wins and the newopportunities under active review as we begin the 2007/08 financial year. Wehave set ourselves stretching objectives for this new financial year which, asalways, will bring its share of challenges. We nonetheless continue to haveconfidence in Wincanton's ability to build further on the achievements of recentyears. Our objective is for 2007/08 to be another period of earnings growth andstrategic 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 itscore markets. We are successfully establishing a track record of dividend andshare price growth for our shareholders through a combination of organic growthand the successful integration of acquisitions. We can, and will, continue tobuild 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 thebusiness. Operationally, our focus on the consistent delivery of the higheststandards of performance further reinforced our reputation for serviceexcellence. Financially, our profit growth and cash flow generation againconfirmed our ability to drive returns in challenging markets. Strategically, wedefined our core markets and our target sectors for the future, and fixedobjectives 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 customerservice philosophy and human resources development. The 'One Wincanton'programme ensures that we operate across the Group, across borders, with ashared vision and common standards. Our 'Four Pillars' of operationalexcellence, customer intimacy, innovation and value represent the core of ourservice offering. They are the key differentiators which have enabled us tobuild the Group's substantial existing portfolio of blue-chip customers. Theyare fundamental to both the detailed customer account planning process and thebroader 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 choicefor supply chain services across Europe. For our customers we will be theservice 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 oursector. We have strong foundations on which to build. Our UK & Ireland business has anexcellent market position, a development pipeline which is as good as we haveknown it, and a number of new sectors and services either already in theportfolio, or planned to be added to the portfolio, which offer attractiveprospects for future growth. In our Mainland Europe operations we have newmanagement teams in key markets, we are raising brand awareness through higherinvestment in marketing, and cultural change across the business means that weare working together more efficiently and consistently for the benefit ofcustomers. Profit progress in Mainland Europe will follow. Acquisitions have played an important role in our progress to date. We expectacquisitions to be equally important in the Group's future development. In thefragmented markets in which we operate there are many opportunities for bothinfill and larger acquisitions. We monitor market developments very closely androutinely have a number of potential acquisitions under active review at any onetime. Wincanton has doubled its market capitalisation since demerger in 2001 and theGroup's Total Shareholder Return over the period has outperformed both theFTSE-100 and FTSE-250 indices. This excellent share price and dividendperformance 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 amarket of 490 million consumers. It has a substantial manufacturing andretailing infrastructure and significant national, cross-border andinternational flows of raw materials, finished products and services. Six of theworld's ten largest trade flows, as identified by recent market research onglobal forwarding volumes, are intra-European movements in the consumer goods,industrial, high-tech, automotive, chemical and agricultural industries. It isbusiness-critical trade flows such as these that Wincanton manages on behalf ofcustomers. Europe is a geographic market in which the Group is building aleading presence and which offers substantial opportunities for future growth.There is neither a customer need nor a financial imperative for Wincanton tohave a global presence. The Group's existing activities across Europe give a competitive advantage in anindustry which remains fragmented, with large numbers of small operators and avery limited number of Pan-European or global service providers. We have moresignificant scale and a broader geographic reach than these small operators anda higher degree of service specialisation and customer focus than thediversified global service providers in our sector. We have a strong portfolio of customers across Europe, including long-standingrelationships with many of the world's major retailers and manufacturers.Maintaining and enhancing supply chain efficiency is business-critical to ourcustomers. We have a proven track record of growth with these customers and arenow able to serve their needs on a national, regional and Pan-European basis. Wehave successfully expanded our geographic presence without losing either thecustomer service ethos or the people culture which represent the core of ourbusiness offering. Changes in legislation, strategy, technology and the economy lead to bothtactical and strategic change in the supply chain needs of our customers. Wecontinue to invest in our people, our services, our systems technology and ourprocesses to ensure that we offer the innovation, operational excellence andvalue which deliver the solutions to meet these changing customer needs andenable us to compete successfully in our chosen markets. Our strong profit and cash flow performance gives us the financial capacity totake advantage of new opportunities. We actively consider opportunities toexpand our portfolio of services and sector expertise, both organically andthrough acquisition. Acquisitions are also expected to contribute to the furtherstrengthening and expansion of our geographic presence across Europe. We serve a well diversified customer base, deliver a wide range ofbusiness-critical solutions and offer a Pan-European presence which is alreadyamongst the best in the sector. We have a clear vision and strategy which webelieve will generate further value for shareholders by continuing to add valuefor customers. We see growth opportunities both in our existing portfolio ofcustomers, sectors and services and in newly-targeted customers, sectors andservices identified through our rigorous business development and strategyprocesses. We look to the future with confidence. 2006/07 Summary Our strong customer base, our growing range of services, our expansion into newsectors and our geographic coverage again provided attractive opportunities forthe 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 compensatedfor 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 halfperformance in Mainland Europe was an improvement on the first half but theresult for the full year was nonetheless below the prior year. We are continuing to invest to ensure both that our UK & Ireland business canmaintain and enhance its current growth momentum and that we can delivermeaningful profit growth in our Mainland Europe businesses. UK & Ireland: Performance Highlights Our UK & Ireland business reported underlying operating profit of £22.0m in thesecond half, an increase of 12.2 per cent on the same period last year and a10.0 per cent increase on the £20.0m reported in the first half of thisfinancial year, to give a full-year underlying operating profit of £42.0m, anannual increase of 11.1 per cent. Turnover in the UK & Ireland increased in theyear by 5.0 per cent, to £1,214.5m. 2006/07 was another very active year with our retail customers against abackground of continuing change, with increasing focus on areas such as inboundsupply chain management, the accelerating growth into non-food products of ourgrocery customers, the rapid expansion into multi-channel retailing of many ofour general merchandise customers and a growing awareness of the supply chainimplications of new reverse and recycling legislation for all our retailcustomers. We have positioned ourselves well, both organically and through acquisition, toanticipate and respond to these changing requirements. We are investing ininland ports to reduce container management costs for those of our customers whoare major importers. We have been awarded a number of new contracts by grocerycustomers expanding their non-food offering. We have acquired to build nationalcoverage in two-man home delivery, and we have continued to invest to developour waste recycling capabilities. Contract wins and renewals in the year with our retail customers included a verysignificant 5-year contract renewal and extension with Somerfield, a 3-yearnon-food warehousing operation for Asda, a new direct import centre for Argos, anew composite distribution centre for Sainsbury's and a significant expansion ofour Comet activities through the award of their transport operations. Our inlandcontainer port secured volumes from customers such as Dixons and Argos, we wereawarded a second automated warehousing facility for Screwfix and also a newnon-food operation for Dunnes Stores in Ireland. The most significant contractrenewal in the period in the retail sector was the food procurement and servicedelivery operation for Punch Taverns which was renewed for a further 10 years. We are seeing similar changes to the future requirements of our existingmanufacturing and industrial customers, and are also identifying new sectors andactivities with service and growth potential for Wincanton. Many of our existingcustomers in these areas, from consumer goods companies to petroleumdistributors, are considering outsourcing further internal processes, includingelements of their production processes, and are keen to consider collaborationwith other manufacturers, particularly in the area of optimising transportnetworks and resources. In terms of new activities, having previously identifiedthe construction and building materials sectors as offering opportunity forWincanton, we acquired and have successfully integrated RDL Distribution. RDL isa leader in its industry and brings us a national network capable of furthersignificant product and customer expansion. Contract gains and renewals with manufacturing and industrial customers includeda new primary transport contract for Britvic, a substantial co-packing andmanufacturing operation for Nestle Purina and new business with CEMEX UK, whichconfirmed the potential for further expansion of our customer base in theconstruction industry. Other wins in these sectors included a nationwide,specialist bulk fuel operation for the MoD, distribution of bathroom fittingsfor Jacuzzi and a regional warehouse operation for Carlsberg Tetley. The toydistribution and rework operation for Mattel was successfully renewed andrelocated in the year. Towards the end of the financial year we announced a strategic joint venturewith Kerry Logistics, a major Hong Kong-based logistics and freight forwardingcompany. The joint venture will allow us to offer full inbound supply chainmanagement services, including warehousing and consolidation services in themarkets of origin, to those existing or potential customers who may wish tore-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 maintenancebusiness, were affected by start-up costs on new business. Pullman nonethelessdelivered new business with customers such as Tesco.com, Kerry Foods DTS andSainsbury's. Two substantial wins, in the second half of the year, both withleading financial institutions, will generate significant new volume for ourrecently-expanded document and media storage facility in London. Ourwaste-recycling business has been positioning itself with retailers,manufacturers, local authorities and recycling compliance schemes for theimplementation of the new European recycling directive and we remain confidentthat this is another area of high growth potential for the Group. Our in-storeservices unit also secured further business with B&Q and new business withStaples, and Consilium, our consultancy operation, was awarded assignments by,amongst others, B&Q, Chevron, British Bakeries and Wyevale Garden Centres. Weare actively considering opportunities in Mainland Europe for a number of theseancillary 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 managementactivities caused by a shortage of sub-contractor capacity. Price increases tocustomers subsequently mitigated this pressure and, although contract start-upcosts affected our performance in Central and Eastern Europe, profitability inthe second half did improve as expected. One of the most critical factors in our ability to report substantial profitprogress in Mainland Europe will be the generation of higher volumes through ourexisting asset infrastructure. Under-utilised sites in Germany and France, forexample, are holding back profit improvement in the short-term but willcontribute materially to future profit progress when new business volume isdelivered. With this aim we have been restructuring our sales and businessdevelopment teams, investing in marketing to raise brand awareness andreinforcing the 'Four Pillars' approach to customer service and developmentwhich 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 stillsignificantly below what we believe to represent the profit potential of thesebusinesses. Although some of our operations are expected, structurally, todeliver lower margins, we are nonetheless committed to delivering a significantimprovement 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 notless than 2 per cent over the next three years, with further progressanticipated in the longer term. Germany accounts for 68 per cent of our turnover in Mainland Europe, France for16 per cent, and Poland for a further 6 per cent. These are the countries inwhich we have the best developed infrastructures, in which we have beenreinforcing our management teams and on which we are focusing our marketing andbusiness development initiatives. We have a geographic presence in othercountries, and an operational reach across the whole of Mainland Europe andbeyond, but these three countries in Mainland Europe represent our principalareas of focus at this stage. Our German business has a strong domestic road network which guaranteesovernight delivery throughout the country, a market leading intermodal andfreight management business on the Rhine and a growing portfolio of contractlogistics customers. Our Polish business also offers national transportcapability, warehousing capability at key strategic locations and an ability tomanage pan-regional contracts across Central and Eastern Europe. Ourrecently-enlarged French business has warehousing capacity on a national scale,both own transport and transport management capability and sector expertisewhich complements many areas of our UK & Ireland operations. Whilst the quantum of wins and renewals in Mainland Europe is not of the samescale as the UK & Ireland, the year has seen good new business being securedacross all our major markets. Examples of this success include a national paperproducts distribution contract for Zanders in Germany and a Pan-European partscollection contract for Pininfarina managed through our international transporthub in the Netherlands. In Central Europe, and in Poland in particular, the yearhas seen a high level of business wins with new customers such as Rieber Foods,industrial silicone company Selena, and consumer goods manufacturer Cussons. Agrowing 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 customerssuch as JohnsonDiversey in Poland and SSL International in Hungary is testamentto our investment in operational excellence across the whole Group and to thegrowth potential of this Pan-European customer management approach. As previously indicated, further action was required to address our loss-makingactivities in Spain. The decision was taken to substantially exit our existingactivities in Spain, closing three sites but leaving an operation in Tarragonato manage Group transport flows to and from the Iberian Peninsula. The sitesvacated were freehold properties which were subsequently sold, broadly coveringboth the profit and cash costs of closure. We believe that good profit progress can be delivered over time in MainlandEurope. If results cannot be improved as anticipated we will not hesitate totake 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 thanthe 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. Underlyingoperating profit is stated before exceptionals and amortisation of acquiredintangibles. The level of revenue growth and accounting margin are not amongst the Group'skey financial performance measures due to the 'cost plus' or 'open book' natureof much of Wincanton's underlying business model. Our key financial measures arethe net rate of growth in underlying operating profit, up 8.3 per cent in theyear, free cash flow generation and return on capital. These latter measuresdemonstrate the further progress made this year, with positive cash inflow of£72.2m after net capital expenditure. Return on capital improved from 35.1 percent to 55.2 per cent. The revenues of the Group increased in the year by £123.8m as a consequence ofthe acquisitions made plus new business wins, net of business losses. In theyear 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 withexisting customers, building on our track record of growing business and marketshare with our blue-chip customer base. This year, as is the case in most years, we have had ground to make up for bothcontract losses and fee pressure on renewals, but the very strong underlying newbusiness 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 incrementalpension contributions since March last year. Strong financial controls and cashflow management remain key areas of focus across the Group. The averageborrowing rate in the year was 5.0 per cent, up on the previous year due to therise in market rates in the period. Net financing costs are 4.6 times covered byunderlying operating profit. Exceptionals The net exceptional credit for the year of £0.2m was the result of exceptionalcosts of £6.0m, offset by profits from surplus property disposals and the saleand 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 UKacquisitions, the net costs of exit from Spain of £1.0m (after £3.8m of profitsfrom 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 advantageof 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 originallyfunded on-balance sheet in anticipation of further favourable moves in propertyvalues. Sales of other surplus properties contributed the balance of £1.2m. Weexpect our current programme of disposal of surplus properties to be completedin the new financial year. Wincanton retains operational freehold properties on its balance sheet with anet book value of some £60m. These properties have not been subject torevaluation. Taxation The Group's underlying accounting tax rate of 31.2 per cent is consistent withprior years and gives rise to a charge of £11.1m. The overall tax rate of 29.4per cent (2006: 26.8 per cent) is also consistent and is at a reduced level dueto the level of capital profits covered by past capital losses. The current cashtax rate of 4.6 per cent is reduced principally due to the tax impact of theincremental pension contributions. The Group's activities are across the UK andEurope where tax rates vary between 40 per cent to 12.5 per cent. The level ofbrought-forward plus current year unrecognised losses may reduce the level ofthe 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 operationswith minority shareholdings, although these were reduced in the year with theacquisition of one such minority interest, in Germany, for £0.1m. The profitsattributable to minorities were £0.1m (2006: £0.2m) in the year, primarilyarising 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 centgreater than the prior year 19.2p. A final dividend of 9.29p per share is proposed, to give a full year total of13.55p; an 8.1 per cent increase on the 12.54p proposed and paid in respect of2005/06. This level of dividend growth, relative to underlying EPS growth, isconsidered to be consistent with our declared strategy of pursuing a progressivedividend policy. As in previous years, the dividend increase proposed representsa rate of increase significantly in excess of inflation. The dividend cover for this level of full year dividend is 1.55 times, broadlyequal to the prior year 1.53 times. Given Wincanton's track record of consistentprofitable growth, and confidence in the Group's ability to continue building onthis track record, this is considered to be an appropriate and sustainable levelof dividend cover. Cash flow and net debt The Group recognises the cash return on investment and a consistently high levelof free cash flow generation as key performance measures. After a £1.2m workingcapital 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 furtherpayments 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 andconsiderable 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 ofcapital expenditure, equal to 92 per cent of the depreciation charge for theyear, was incurred and £31.1m of additional vehicle and plant operating leasecommitments taken on. Since demerger the Group's ratio of capital spend todepreciation has been approximately 80 per cent. This year's expenditure wassplit 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 inthe UK were £5.1m for the fit-out of a second large warehouse for Argos inKettering, £1.2m for racking and other fit-out at our expanding document storagefacility in Dagenham and £1.8m for specialist milk collection tankers for FirstMilk. In Mainland Europe, whilst individual projects were smaller, thecumulative 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, thelatter including a new 'point of delivery' track and trace system which isexpected 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 werefor a diverse range of customers and activities, including a national transportstructure for Britvic and a fleet of home delivery vehicles for Tesco.com. The Group's operating lease commitments in respect of land and buildings, whichare determined to the first available break date after the sub-letting ofproperties surplus to requirements, are substantially offset by contractualcommitments of customers, as are a significant proportion of the Group'scommitments in respect of vehicles and plant. All expansion, replacement and acquisition spend proposals are appraised usingdiscounted cash flow models and subject to authorisation at appropriate levelsin the Group up to and including the main Board. The projected implementationtimescale and returns on projects are subsequently scrutinised at the same levelafter the first operational year. All of the capital backchecks in the yeareither 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, officerelocations and sales of surplus operational sites £2.5m, and the sale of theGroup's head office building in Chippenham £14.2m. The sale of the Chippenhamhead office is further evidence of our policy of making the most efficient useof the Group's asset base and financial resources to focus available liquidityon Wincanton's many opportunities for both organic growth and furtheracquisitions. The aforementioned cash flow items, plus the £31.0m of incremental pensioncontributions paid, were offset by strong operational cash flows. As a resultthe Group's net debt brought forward of £60.6m was not materially higher at thisyear end at £65.8m. This is reported after deducting £27.4m of cash held in theGroup's captive insurer (last year £29.8m) to cover the potential claimsunderwritten by that company. The Group continued to enjoy solid banking support, with £210m of committedfunds from a banking syndicate, due for renewal in 2010, plus $150m of 7 and10-year funding raised from the US private placement market in late 2005 andsubsequently swapped into floating rate sterling and euro liabilities. £168m ofthis total of £297m of committed facilities was undrawn at 31 March 2007. TheGroup also has £25m of uncommitted money market facilities now in place which,together with the approximately £40m of overdraft facilities currentlyavailable, give further flexibility in the day-to-day management of the net'drawn down' position. The scale of the Group and the size of individual operations means that theworking capital position can vary significantly over a monthly cycle.Flexibility of funding, based on an appropriate mix of committed and uncommittedfacilities with a range of maturities, helps to reduce overall borrowing costs. The Group has a mix of sterling and euro denominated bank debt and derivatives(to convert the US$ placement funds) which match the currencies of the Group'sassets. Interest rate exposures have been limited by the purchase of a €100m 4.3per cent cap and a £30m 6.3 per cent cap. The central Treasury function monitors all currency and interest rate exposuresand ensures appropriate hedge arrangements are in place. The Group operatessterling and euro 'pools' such that surplus cash is netted against overdrawnbalances, to maximise the efficiency of short term liquidity. No speculativetrading is carried out and all financial instrument trades are designed to meetthe 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 percent 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 theGroup's funding, and the 'asset light' business model which enables the Group todeliver significant growth without extensive utilisation of balance sheetcapacity, 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 reviewof the balance sheet of the 2005 French acquisition necessitated an increase of£2.9m in the goodwill recognised. Acquired intangibles are being amortised overtheir useful lives of between 1 and 15 years and the charge of £3.2m is shownseparately in the income statement. Pensions This key area for the Group continues to receive substantial managementattention, not least as a consequence of a likely increase in the fund'sliabilities following a review of longevity assumptions as part of theforthcoming triennial valuation in 2008. At the start of the financial year thesecond 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 toprogressively address the past service deficit. Following wide consultation ithas also been agreed with employees that certain changes would be made to futurebenefits which has led to a reduction in the deficit. Through this combinationof cash injection by the Group and changes to employee benefits, the Schemedeficit 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 prevailingmarket conditions at that time. Risks The Group has a well developed structure and set of processes for identifyingand mitigating the key business risks it faces, and certain of these key risksare discussed elsewhere in this Business review. The Group's ability to source new contracts, at an appropriate financial returnfor an acceptable level of risk, represents the principal area of commercialrisk. Both new and existing contracts must then perform consistently within thedemanding performance requirements of our customers. This is the Group'sprincipal area of operational risk. As a service business delivering high levelsof added-value to our customers, our principal human resources risk lies in thesourcing, motivation and retention of sufficient numbers of quality people tomeet the demands of both our current business and our future growth. Wincanton'sprincipal strategic risk is the requirement to continue to identify sufficientnew areas of potential growth, both organically and through acquisition, toenable the Group to continue to build on its strong track record of profitgrowth and cash flow generation. PGN Since the previous Annual Report the dispute involving PGN, a jointly ownedentity of the Group, has progressed to arbitration and whilst the outcome isstill unknown, the Group remains confident of recovery, as a minimum, of theyear end trading assets of £7.4m. Final judgement in respect of the arbitrationis currently expected no later than the third quarter of the new financial year. Consolidated income statementfor 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 expensefor 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 - 0.3subsidiaries 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 sheetat 31 March 2007 2007 2006 Restated £m £mNon-current assetsGoodwill and intangible assets 113.2 71.7Property, plant and equipment 211.4 232.5Investments 0.6 0.8Deferred tax assets 11.8 32.3 337.0 337.3 Current assetsInventories 8.2 7.4Trade and other receivables 331.1 310.8Cash and cash equivalents 60.9 56.1 400.2 374.3 Current liabilitiesIncome 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 liabilitiesBorrowings (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) EquityIssued share capital 12.0 11.8Share premium 9.6 6.5Merger reserve 3.5 3.5Translation reserve 2.7 2.7Retained 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 flowsfor the year ended 31 March 2007 2007 2006 £m £mOperating activitiesProfit before tax 32.6 31.3Adjustments 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 1.1value charges Operating profit before changes in working capital and 69.9 67.8provisions Increase in trade and other (10.3) (2.8)receivablesIncrease in inventories (0.4) (1.1)Increase in trade and other 15.0 9.0payablesDecrease 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 51.5activities Investing activitiesProceeds from sale of property, plant and 32.2 24.0equipmentProceeds from sale of unlisted trade 0.1 -investmentsInterest received 1.7 2.0Acquisitions net of cash acquired and debt repaid on (29.7) (21.4)acquisitionAcquisition of property, plant and (29.5) (40.3)equipmentInterest paid (10.9) (7.6) Cash flows from investing (36.1) (43.3)activities Financing activitiesProceeds from the issue of 3.1 2.2share capitalDisposal of own shares on 1.2 -exercise of optionsIncrease/(decrease) in 13.4 (1.5)borrowingsPayment of finance lease (1.6) (1.5)liabilitiesDividends paid to minority interest in (0.1) (0.3)subsidiary undertakingsEquity 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 equivalentsCash and cash equivalents at 56.1 61.9beginning of yearEffect of exchange rate fluctuations (0.3) 0.4on cash held Cash and cash equivalents at end of 60.9 56.1year Represented by- cash at bank and in hand 33.5 26.3- restricted cash, being deposits held by the Group's 27.4 29.8captive insurer 60.9 56.1 1 Accounting policies The financial information set out in this preliminary announcement does notconstitute Wincanton plc's statutory accounts for the years ended 31 March 2007and 31 March 2006. Statutory accounts for the year ended 31 March 2007 will bedelivered to the Registrar of Companies following the Company's Annual GeneralMeeting. Statutory accounts for the year ended 31 March 2006 have been deliveredto 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 inaccordance with International Financial Reporting Standards (IFRS) and itsinterpretations 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 geographicalsegments, being the primary segmentation format based on the Group's managementand internal reporting structure. As the secondary segment is the business ofproviding contract logistics services which encompasses the entire scope ofWincanton's operations, no further segmental analysis is required. The Group operates in two principal geographical areas, the UK & Ireland, andMainland Europe. In presenting information on the basis of geographicalsegments, segment revenue and assets are based on the geographical location ofthe business operations. Segment results include items directly attributable to a segment as well asthose 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 1,809.3Underlying operating 42.0 37.8 3.5 4.2 45.5 42.0profit by segmentAmortisation of acquired (1.7) - (1.5) (1.0) (3.2) (1.0)intangiblesExceptional restructuring (2.0) (3.9) (4.0) (4.2) (6.0) (8.1)costsExceptional property 5.8 8.0 0.4 0.1 6.2 8.1profitsOperating profit 44.1 41.9 (1.6) (0.9) 42.5 41.0Total assets 457.4 410.2 279.8 301.4 737.2 711.6Total 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)intangiblesCapital expenditure- property, plant and 20.3 27.7 8.3 10.1 28.6 37.8equipment- 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 MainlandEurope to UK & Ireland (2006: £1.0m). All such sales are priced on anarm's-length basis. The investments in and profits of associated undertakings are all included inthe 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 - 1,809.3Cost 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 85.1Administrative (37.4) 0.9 (36.5) (38.9) (5.2) (44.1)expensesOperating 45.5 (3.0) 42.5 42.0 (1.0) 41.0profit (1) Underlying operating profit is stated before amortisation of acquiredintangibles and exceptionals. 2007 2006 £m £mOperating profit before net financing costs is statedafter charging:Auditors' remunerationAudit fees for statutory audit services- parent company and consolidation 0.1 0.1- subsidiary undertakings 0.6 0.6Non-audit fees- fees paid to the Auditors and their associates for 0.3 0.2tax advisory services- fees paid to the Auditors and their associates for 0.1 0.1assurance services- fees paid to the Auditors and their associates for 0.1 0.1other servicesDepreciation and other impairment amounts written offproperty, plant and equipment- owned 29.4 29.6- leased 0.5 0.4Amortisation and other amounts written off software 2.0 2.8intangiblesOperating 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 servicesin 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 £mInterest income 1.7 2.0Expected return on defined benefit pension 32.0 24.6scheme assets 33.7 26.6 Interest expense (11.0) (8.2)Finance charges payable in respect of (0.5) (0.5)finance leasesInterest on defined benefit pension scheme (30.0) (26.0)obligationsUnwinding 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'scaptive insurer. 5 Income tax expense 2007 2006 £m £mRecognised in the income statementCurrent tax expenseCurrent year 1.5 2.3Adjustments for prior years (1.5) (0.9) - 1.4Deferred tax expenseCurrent year 8.8 6.4Adjustments 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 1.2Non-deductible expenditure 0.7 0.6Capital 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 theequity shareholders of Wincanton plc of £22.9m (2006: £22.7m) and the weightedaverage of 116.1m (2006:114.3m) shares which have been in issue throughout theyear. The diluted earnings per share are calculated on the basis of anadditional 1.8m (2006: 2.0m) shares deemed to be issued at £nil considerationunder the Company's share option schemes. The weighted average number ofordinary shares for both basic and diluted earnings per share are calculated asfollows: Weighted average number of ordinary shares 2007 2006 millions millions Issued ordinary shares at the beginning of the 114.9 113.9yearNet 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 116.1 114.3end of the yearEffect of share options on issue 1.8 2.0 117.9 116.3 An alternative earnings per share number is set out below, being beforeexceptionals, amortisation of acquired intangibles, goodwill impairment andrelated tax, since the Directors consider that this provides further informationon the underlying performance of the Group: 2007 2006 pence penceUnderlying earnings per share- basic 21.0 19.2- diluted 20.7 18.9 Underlying earnings are determined as follows: 2007 2006 £m £mProfit for the year attributable to the equity 22.9 22.7shareholders of Wincanton plcExceptional restructuring costs 6.0 8.1Exceptional property profits (6.2) (8.1)Amortisation of acquired intangibles 3.2 1.0Tax 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 whenthey become a liability of the Company. The dividends per ordinary share paid inthe year are the interim for the current year, paid on 10 January 2007 and thefinal for the year ended 31 March 2006, paid on 11 August 2006. These are detailed in the following table: 2007 2006 £m £mInterim dividend of 4.26p (2006: 3.94p) paid in 2007 5.0 4.5and 2006 respectivelyFinal dividend of 8.60p for 2006 (2005: 7.74p) paid in 9.9 8.82007 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 ifapproved will be paid on 10 August 2007, to shareholders on the register on 13July 2007, total £10.9m. 8 Acquisitions Current year acquisitions In October 2006 the Group acquired the entire share capital of RDL HoldingsLimited (RDL) and Lane Group plc (Lane) for £29.5m and £0.7m in cashrespectively, of which £5.0m of the former is deferred pending 'earn out'performance. Both acquired entities operate in the UK and each provides contractlogistics services; RDL to the building products and construction sector andLane to the home delivery market. In the six months since acquisition RDL contributed £1.4m and Lane £0.2m ofoperating profit. If the acquisitions had occurred on the first date of the yearit is estimated that the totals of Group underlying operating profit and revenuewould have been approximately £47m and £1,992m respectively. The acquisitions have given rise to values of goodwill of £11.5m and £7.4m forRDL and Lane respectively, being the difference between the cash considerationpayable and the net assets acquired at fair value. The acquired net assets at acquisition are summarised in the combined tablebelow: Acquiree's Fair value Acquisition book value adjustments amounts £m £m £m Intangible assets - 28.2 28.2Property, plant and equipment 3.8 0.3 4.1Deferred tax assets - 0.5 0.5Inventories 0.4 - 0.4Trade and other receivables 13.0 - 13.0Cash and cash equivalents 2.3 - 2.3Income 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 11.3liabilities Goodwill on acquisition 18.9 Consideration payable including 30.2expenses of £1.3mCash acquired and debt repaid on 4.5acquisition 34.7Less deferred consideration (5.0) Net cash outflow 29.7 The fair value adjustments above are required to align the accounting policiesof the acquired businesses with those of the Group. These adjustments can, ifnecessary, be amended for up to 12 months following acquisition. The totalgoodwill of £18.9m arising on the acquisitions reflects the strategic importanceof broadening Wincanton's business offering in these two growing sectors of theUK economy, the value of the management and workforce and some of the expectedsynergies to be gained as the acquired entities are fully integrated into theGroup. Prior year acquisitions The fair value adjustments relating to the acquisition of Premium Logistics on 7October 2005 have been reviewed and revised, as permitted under IFRS 3 'BusinessCombinations'. As a result the value of intangible assets recognised has beenreduced and the fair values of property, plant and equipment and of provisionshave been revised, to reflect the increased understanding of the contractualobligations acquired. An additional amount of goodwill has been recognised andin line with IFRS 3 these adjustments have been reflected at the date ofacquisition 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) 9.2Property, plant and 8.9 (1.4) 7.5 (2.2) 5.3equipmentDeferred tax assets 0.3 2.7 3.0 1.3 4.3Inventories 0.3 - 0.3 - 0.3Trade and other receivables 23.5 - 23.5 - 23.5Cash and cash equivalents 4.5 - 4.5 - 4.5Income 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) 6.1liabilities Goodwill on acquisition 11.3 2.9 14.2 Consideration payable including 20.3 - 20.3expenses of £1.2mNet 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) adjustedfor goodwill, acquired intangibles, debt, tax, employee benefits and insuranceprovisions, as set out in the table below: 2007 2006 £m £mNet liabilities (13.7) (37.7)Goodwill and acquired intangibles (110.2) (67.1)Debt 65.8 60.6Tax (6.1) (25.6)Employee benefits 107.3 152.3Insurance provisions 39.4 37.2 Capital employed 82.5 119.7 Return on capital employed (ROCE) is calculated as underlying operating profitover capital employed. 10 Free cash flow The Group defines free cash flow as being EBITDA plus working capital and netcapital expenditure flows, as set out in the table below: 2007 2006 £m £mOperating profit 42.5 41.0Depreciation and amortisation 35.1 33.8Working capital inflow 1.2 4.0Net capital expenditure (6.6) (24.4) Free cash flow 72.2 54.4 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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