8th Jun 2006 07:01
Wincanton PLC08 June 2006 Immediate release WINCANTON plc 8 June 2006 Preliminary Announcement of Results for the financial year ended 31 March 2006 "Another year of profit growth and strong cashflow" 2006 £m 2005 £m Change Revenue 1,809.3 1,651.5 + 9.6% ------- -------Underlying operating profit 42.0 39.3 + 6.9% ------- -------Net financing costs (9.7) (9.9) Associates - 0.1 ------- -------Underlying profit before tax 32.3 29.5 + 9.5% ------- -------Other items (net) (1.0) (1.9) ------- -------Profit before tax 31.3 27.6 ------- -------Underlying earnings per share 19.2p 16.3p + 17.8% Basic earnings per share 19.9p 16.4p Proposed final Dividend 8.6p 7.74p Full Year Dividend 12.54p 11.40p + 10.0% Note: Underlying profit before tax and earnings per share are stated beforeexceptional restructuring costs of £8.1m (2005: £9.4m), exceptional propertyprofits of £8.1m (2005: £7.6m profits on asset disposals) and amortisation ofacquired intangibles of £1.0m (2005: £0.1m). Operating profit, including theseitems, amounted to £41.0m (2005: £37.4m). FINANCIAL HIGHLIGHTS • Underlying profit before tax up by 9.5 per cent, to £32.3m• Underlying earnings per share up by 17.8 per cent, to 19.2p• Full-year dividend increase of 10.0 per cent, to 12.54p per share• Marginal increase in net debt in spite of significant pension scheme and acquisition cash outflows OPERATIONAL HIGHLIGHTS • High levels of new business activity; annualised turnover from new wins and renewals of approximately £385m• Substantial programme of contract start-ups successfully delivered• Acquisition significantly strengthens French operational and customer base Graeme McFaull, Wincanton Chief Executive, commented: "The year to 31 March 2006 was another year of profit growth and strong cashflowfor Wincanton. Strategically and operationally we also made good progress.We are increasingly well-positioned to take advantage of the many growthopportunities in our target markets." For further enquiries please contact:Wincanton plc Graeme McFaull, Chief Executive Tel: 020 7466 5000 today, thereafterGerard Connell, Group Finance Director Tel: 01249 710742Charles Carr, Group Communications DirectorBuchanan Communications Ltd Tel: 020 7466 5000Charles Ryland, Richard Oldworth Chairman's Statement On behalf of the Board I thank all the Group's employees, whose enthusiasm,commitment and professionalism have produced another year of strong operationaland financial performance. The strength of our customer relationships and thequality of our services have been, and will continue to be, key to our successand are a direct consequence of the quality of our people. Wincanton has reported another period of financial and strategic progress forthe year to 31 March 2006. Group operating profit of £42.0m (2005 : £39.3m) grewby 6.9 per cent, profit before tax by 9.5 per cent and earnings per share by17.8 per cent (in each case stated on an underlying basis which excludesamortisation of acquired intangibles and exceptionals). Group operating profit,including these items was £41.0m (2005 : £37.4m). Cash flow performance wasagain strong, with only a marginal increase in year-end net debt to £60.6m, inspite of a near £38m outflow as a result of an acquisition and a cash injectioninto the Group's pension fund. The underlying strength of Wincanton's trading performance and another year ofgood cash flow generation have given the Board the confidence to propose a fullyear dividend of 12.54p per share. This represents a 10.0 per cent increase onthe dividend paid last year. Including this dividend the Group's annualised rate of dividend increase sinceits demerger in May 2001 now stands at 7.9 per cent per annum. These dividendincreases, combined with a good share price performance, have generated a TotalShareholder Return of 90.8 per cent since demerger. This represents, as at 31March 2006, an out-performance relative to the FTSE-250 of 26.4 per cent. In the five years since demerger, Wincanton has strengthened its position in theUK & Ireland and established a platform for growth across Continental Europe.The Group's full growth potential is yet to be realised, but solid progress isbeing made towards our goal of leadership in European supply chain services. Our markets are fragmented, and there are opportunities for furtherconsolidation through acquisition. In October 2005 we announced the purchase ofthe principal French logistics activities of Premium Logistics ("Premium").Premium significantly strengthens our operational capabilities in the importantFrench market. Our enlarged French business now offers national coverage fromsome 30 sites, giving a substantially stronger and broader business base fromwhich we will be able to serve both the French and cross-border requirements ofour blue-chip customer base. Other potential acquisitions are under review as ameans of accelerating either the expansion of our service offering or thefurther strengthening of our European presence. I take this opportunity of welcoming Graeme McFaull to his new role as ChiefExecutive. Graeme, who took over from Paul Bateman in December 2005, previouslyled our operations in the UK & Ireland through a period of very significantgrowth and development. He has the support of a highly experienced and committedsenior team and I am sure that Wincanton will enjoy continuing success under hisleadership. The Board also welcomes Jonson Cox who has joined us as a non-executive Directorduring the year and whose contribution is much appreciated. Peter Brown left the Board in February 2006, and I thank him for hiscontribution to the Group over many years. Our markets remained challenging and competitive in the year under review. Highlevels of new business activity nonetheless again enabled us to take marketpressures and contract losses in our stride and still show good net profitprogress. Annualised turnover from contract wins and renewals totalledapproximately £385m compared to last year's £250m. Our operations in the UK & Ireland reported underlying operating profit of£37.8m, up 3.6 per cent on the previous year. Fee pressure is evident in certainof the more mature areas of our activities but we continue to see opportunitiesfor growth across our retail, manufacturing and industrial customer bases. Themarket for supply chain services in the UK & Ireland has become more polarisedin recent years, and Wincanton, as one of the two leading operators, hasbenefited from its greater scale and the loss of market share by smalleroperators. This trend is expected to continue to be of benefit to the Group inthe future. We also continue to have confidence in the growth potential of ourportfolio of ancillary services, which includes consultancy, data recordsmanagement, waste recycling and fleet maintenance. Underlying operating profit in Continental Europe grew by 7.1 per cent,excluding our French acquisition, and by 50.0 per cent, to £4.2m, including ourFrench acquisition. The progress in underlying profit was achieved in spite ofthe early termination in February 2005 of the key customer contract managed byPGN, a jointly owned entity. This contract, which remains subject to arbitrationproceedings, was an important contributor to Continental European profitabilityin 2004/05. A more rapid and substantial improvement in the profit performance ofContinental Europe remains a key objective for us. There is a high degree ofoperational leverage in our asset base which, if volume growth can beaccelerated, will have a positive effect upon reported profit. Management teamshave been strengthened in a number of countries, including the recruitment of anew managing director in Germany, and the new teams will be supported by higherlevels of investment in marketing and business development. Raising the brandawareness of Wincanton across Continental Europe, improving the performance ofcertain loss-making activities and ensuring the delivery of consistent serviceexcellence across borders will be key to further performance improvement. TheContinental European businesses remain fundamental to our strategy and we areconfident that, over time, they will generate significant profit and cash flowfor the Group. Our strategy of offering our customers national, regional and Pan-Europeanservices is generating enhanced opportunities for growth. As a consequence ofsuccessful acquisition and the continuing organic growth of existing operations,Wincanton has positioned itself as one of the leading supply chain managementcompanies in Europe. We continue to see attractive potential, both organicallyand through acquisition, for Wincanton to consolidate and develop this positionas a European industry leader. We have confidence in the Group's ability tobuild further on the achievements of recent years. Sustaining growth momentum in the UK & Ireland and delivering more satisfactorylevels of profitability in Continental Europe will bring many challenges in 2006/07. Our objective is nonetheless for the new year to be another period ofprogress towards realising our operational, financial and strategic goals. Weexpect 2006/07 to again confirm Wincanton's ability to generate value forshareholders by adding value for customers. Business Review Strategy Wincanton's strategic objective is to become the leading provider of Europeansupply chain management services. Already challenging for leadership in the UKand Ireland, we also aim to be amongst the leaders in each of our chosen marketsin Continental Europe. The Group's existing presence across Europe is acompetitive advantage in an industry which remains fragmented, with largenumbers of small operators and a very limited number of Pan-European serviceproviders. The European market is our core geographic focus, our home market. It is amarket of 460 million consumers. It has a substantial manufacturing andretailing infrastructure and significant national, cross-border andinternational flows of raw materials, finished products and services. It isthese supply chain flows that we manage on behalf of customers. This is ageographic market in which we have a leading presence and which offerssubstantial opportunities for future growth. We have a strong portfolio of customers across Europe, including many of theworld's major retailers and manufacturers. Maintaining and enhancing supplychain efficiency is business-critical to our customers. We have a proven trackrecord of growth with these customers and we are now able to serve their needson a national, regional and Pan-European basis. 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 strategy which we believe willgenerate further value for shareholders by continuing to add value forcustomers. We look to the future with confidence. 2005/06 Summary Wincanton made further encouraging progress in the financial year to 31 March2006. Our UK and Ireland operations, which continue to generate most of the profit andcash flow of the Group, produced another solid operational and financialperformance. New business activity levels remained high and overall contractcontribution margins were stable, with fee pressure in certain cases offset byperformance bonuses and higher levels of gainshare elsewhere. A substantialprogramme of contract start-ups was successfully delivered. In Continental Europe, we significantly strengthened our French presence throughacquisition and made further profit progress overall in spite of a disappointingperformance in certain operations. UK and Ireland: Performance Highlights Our businesses in the UK and Ireland reported underlying operating profit of£19.6m in the second half, an increase of 3.2 per cent on the same period lastyear and a 7.7 per cent increase on the £18.2m reported in the first six monthsof this financial year, to give a full year underlying operating profit of£37.8m, an annual increase of 3.6 per cent. Turnover in the UK and Irelandincreased by 5.3 per cent, to £1,156.3m. Growth with our retailer customer base, particularly in DIY and generalmerchandise, was again a key feature of the year. Contract gains in the periodincluded a new direct import centre for Argos, a Christmas relief operation forSainsbury's and a home delivery platform for Comet. Further expansion of otherexisting relationships gave rise to gains with customers such as B&Q, Morrisonsand Woolworths. Contracts were also renewed with long-standing customers such asACC, New Look and W H Smith. Lower volumes at certain shared user sitesrestricted an otherwise strong retail performance. Our portfolio of manufacturing customers reported a higher profit contributionon a slightly reduced level of turnover. Co-packing services were furtherexpanded through contract gains with Heinz and Procter & Gamble. Our growingpresence in the drinks sector was reflected in a new national warehousing anddistribution contract for SABMiller and the award of a contract to manageBritvic's national primary transport. Last year's substantial gain withGlaxoSmithKline, a 10-year contract to design and operate a new automatedwarehouse, was successfully delivered. Profit progress in this sector was heldback by continued weak trading in our chilled consolidation operations in thefirst half of the year, although performance improved materially in the secondhalf. Our contract base of industrial customers saw a marginal year-on-year reductionin profit with a strong performance within our petroleum customer base failingto offset several small year-on-year negatives, including a reduced contributionfrom our fridge recycling activities following the delayed implementation of theWEEE Directive. Contract wins included Shell Gas and First Milk. Contractrenewals included Dairy Crest, Novartis, Texaco and Statoil. In terms ofoperational performance we worked hard, and successfully, on behalf oflong-standing customers Texaco and Total, to mitigate the adverse effect ontheir operations of the major explosion at their Buncefield depot. In terms of ancillary services, the year to 31 March 2006 was another good yearfor Pullman Fleet Services. Pullman delivered strong growth, continuing todevelop its national network of vehicle maintenance and assistance services bothorganically and through in-fill acquisition. New contracts were added withcustomers such as Arla Foods, Cemex, Sainsbury's and Tesco. Consilium, ourconsulting operation, produced another good performance. The costs of increasingcapacity in our data records management business in the year had a negativeeffect on profit performance but growth prospects remain encouraging in thisarea. Wincanton is a strong number two in a UK market which has become increasinglypolarised in recent years. A number of our competitors have either been sold,are in the process of being sold, or are facing uncertainty as to either theirfuture ownership or their ability to sustain critical mass. In certain instancesthis has created short term pricing pressure, but has generally createdincremental opportunities for Wincanton. The scale of our operations in the UK and Ireland allows us to offer flexiblesolutions combining both dedicated and shared-user options and the opportunityfor customers to benefit from reduced costs overall. We seek to combine thebenefits of scale without the loss of the specialist service focus or thecloseness of personal relationships which remain critical to our customers. Continental Europe: Performance Highlights Underlying operating profit growth of 50.0 per cent, including our Frenchacquisition, and of 7.1 per cent excluding this acquisition, is indicative ofanother year of change, investment and strategic development in our ContinentalEuropean activities. The progress in underlying profit was achieved in spite ofthe early termination in February 2005 of the key customer contract managed byPGN, a jointly owned entity. Underlying operating profit of £4.2 m, on turnover up 17.9 per cent to £653.0m,is still some way below what we believe to represent the profit potential ofthese businesses. Progress is nonetheless being achieved in terms of brandawareness, customer account management, the consistency of our operationalstandards and the strength and depth of our senior management teams. Operationally, our Continental European activities are generally strong and ourbusiness infrastructure is capable of handling the higher volumes that willdeliver faster profit growth. Investment in the year, for example, to expand thecapacity of our Eisenach site, a key hub location in our German transportnetwork, is indicative of our commitment to ensure that the business continuesto be well-positioned for the future. There are also plans to expand thecapacity of our international freight management facility at 's-Heerenberg onthe Dutch-German border. In terms of further strategic development, the highlight of the year was theacquisition of Premium. Our enlarged French business now has a good nationalpresence, an enhanced portfolio of customers and both the operational capabilityand credibility to serve the needs of potential new customers. The integrationprocess has gone well and we are re-building the development pipeline. Someearly new business wins, most recently a new distribution centre for a majordrinks company, confirm our belief that the French market will bring attractiveopportunities for future growth. Profitability in our existing French activities, based in Strasbourg, was heldback by the effect of fuel price increases on our fleet operations. In France,as across the rest of Continental Europe, our transport activities areprincipally carried out through sub-contractors. In certain countries, however,we do operate our own vehicles, generally small fleets for specific customers,routes or regions. Difficulties and delays in recovering the full effect of thesignificant fuel price increases in the year in respect of these fleets isestimated to have reduced Continental European profitability by approximately •1m. Volumes were generally strong in our German business, particularly in ourintermodal and freight management activities. Container traffic on the Rhineshowed good year-on-year growth, albeit with a weaker final quarter as a resultof low water levels. The performance of our road network was mixed, with goodresults in certain depots offset by customer loss elsewhere. The integration oflast year's midiData acquisition with our existing hi-tech network had apositive effect on profitability. There was also good growth across the networkwith customers such as Honeywell, Goodyear Dunlop and Johnson Diversey. Adjusting capacity in anticipation of future opportunity led us to invest in theexpansion of Eisenach, a key hub in our network activities. It also led us toterminate the lease on one of our Hamburg sites, following customer change. Theclosure costs of the Hamburg operation are included within the exceptionalrestructuring charge further explained below. Our Dutch operations reported a good performance, particularly in internationalfreight management. Gains and renewals in this area were recorded with customerssuch as Diolen and Rohm and Haas. Our growing business in automotive componentsshowed further progress with contract gains with Mitsubishi and Pininfarina. ForPininfarina we are consolidating component supply from 160 suppliers acrossEurope for just-in-time delivery into its specialist manufacturing facilities inTurin. The Dutch business also has considerable expertise in complex freightmanagement into the former Soviet republics, for example for oilfieldconstruction customers in Central Asia, and there was good year-on-year growthin this activity. Financial performance in Central and Eastern Europe was down compared to 2004/05. There was good progress in the region, particularly in Poland, withcustomers such as Numico, Leroy Merlin and Exxon. Our forwarding operation inGdansk also contributed well. New operations commenced in the year included awarehouse for Goodyear Dunlop in Slovakia. Contract gains in Hungary withcustomers such as Hipp, M-Real, Henkel and Philips were not sufficient infinancial terms to offset prior-year customer losses. The financial performance of our Spanish operations improved in 2005/06,following the closure of our Valencia site last year, but further action will berequired to deliver a return to profitability. A new management team in Spain ismaking good progress in addressing the structural issues that have led tocontinuing under-performance and our focus on sales and business development isbeginning to produce new business wins. We are actively reviewing potentialopportunities to strengthen our presence in the Spanish market. Overall, the 2005/06 results for Continental Europe showed progressstrategically, operationally and financially. Management changes have been madein several countries which, together with increased investment in businessdevelopment and marketing, will enable us to make more rapid and substantialprogress. Wincanton Group : Consolidated Results Consolidated Group turnover of £1,809.3m was 9.6 per cent higher than in 2004/05. Underlying operating profit increased by 6.9 per cent to £42.0m, leading toa slight reduction in accounting margin on turnover, to 2.3 per cent. Neither turnover growth nor percentage margin on turnover are key performanceindicators for us. We measure the progress of the Group principally in terms ofgrowth in operating profit, cashflow and return on capital. Turnover growth cannonetheless give a broad indication of underlying business momentum. Annualisedturnover from new business wins and contract renewals totalled £300m in the UKand Ireland and £85m in Continental Europe, giving a Group total of £385m,compared to last year's £250m. Approximately 70 per cent of the annualised turnover from new wins in the periodcame from existing customers. This compares to last year's 85 per cent andconfirms again the importance of strong customer relationships and a diversifiedsector portfolio to both Wincanton's current performance and its future growthpotential. Interest costs The interest charge of £9.7m represents a slight reduction on last year's £9.9m.Strong cash inflows from operations were offset by cash outflows relating to theacquisition of Premium Logistics. Towards the end of the financial year the cashinjection into the pension fund was offset by the proceeds from propertydisposals. Average debt levels were therefore similar to the previous year. Theaverage interest rate payable on the Group's borrowings in the year was 4.3 percent. The interest charge for the year was covered 4.3 times by underlying operatingprofit. Exceptionals Net exceptional restructuring costs of approximately £8.1m were offset by netexceptional profits of £8.1m arising from the disposal of a number of surplusfreehold properties. Net exceptional costs included the final phase of the moveto our new head office in Chippenham and a subsequent senior managementrestructuring ( £4.2m), the costs of closure of a number of European sites andoperations, principally a site in Hamburg ( £3.0m) and post-acquisitionrestructuring costs in France ( £0.9m). Net exceptional profits aroseprincipally from the disposal of five surplus freehold properties in the UK. Taxation The tax charge of £10.1m on underlying profits gives an accounting rate of taxfor the year of 31.3 per cent. The overall tax rate was lower, at 26.8 per cent,because the gains on property disposals were offset by brought-forward capitallosses. Wincanton operates in jurisdictions across Europe, with corporate tax rates thatrange from 12.5 per cent to 40.0 per cent. Brought-forward trading losses incertain countries may lead in due course to a further reduction in the Group'saccounting rate of tax. Minority interests, earnings and dividends A small number of the Group's activities are carried out through companies inwhich there are minority shareholdings. Wincanton holds the majority controllingshare in these companies and therefore fully consolidates the activities in theGroup's results. The largest such operation is RhineContainer BV, a freightforwarding activity in the Netherlands and Germany, in which the Group has a74.2% holding. The profits attributable to minority interests of £0.2m werelower than last year's £0.6m. Underlying earnings per share of 19.2p represents a 17.8 per cent increase onlast year's 16.3p per share. The Board proposes a final dividend of 8.6p which, together with the interimdividend announced at the half year, gives a total dividend for 2005/06 of12.54p per share. This represents a 10.0 per cent increase on the full-yeardividend for 2004/05. On this basis, the full-year dividend for 2005/06 is covered 1.53 times. Cash flow and net debt Underlying EBITDA (being underlying operating profit plus depreciation andamortisation) totalled £74.8m. This inflow, plus a working capital inflow of£4.0m gave rise to a total cash inflow from operating activities of £78.8mbefore capital expenditure and exceptionals. Gross capital expenditure of £40.3m was higher than in recent years, atapproximately 123 per cent of the £32.8m charge for depreciation. The total of£40.3m included some £28.6m of expansion capital and £10.9m of replacementcapital. Investments in expansion capital and replacement capital last yeartotalled £23.6m and £14.7m respectively. The principal items of expansioncapital included the balance of the investment in a new automated warehouse forGlaxoSmithKline, the kitting-out of a new warehouse for Argos in Corby and thecommissioning of a second recycling machine at our waste management centre inBillingham. In evaluating growth opportunities, either organic or through acquisition, ourfocus is significantly weighted towards cash flow return on investment andreturn on capital employed. All capital expenditure proposals are subject toreview and approval at appropriate levels, including the Wincanton Board. Thefirst year results of approved projects are subsequently 'backchecked' againstprojected returns. Gross capital expenditure was offset by £24.0m of asset sales in the year,principally the disposal of surplus freehold properties referred to above.Further surplus property disposals are expected in the new financial year. The Group also finances its growth through operating leases, which in our UK andIreland operations, in particular, are generally underwritten by our customersunder the terms of our contracts. The Group's annual commitments under operatingleases are £93m, of which £55m arise in the UK and Ireland. Across the Groupapproximately 32 per cent of these commitments were either fully or partiallyunderwritten by customers, increasing to approximately 45 per cent in the UK andIreland. In assessing the return on new projects financed by operating leasesthe Group attributes a memorandum value to these underlying assets. Other cash movements in the year included £20.3m in respect of our Frenchacquisition, and the additional payment of £17m into the Group pension fund,further discussed below. The net effect of these and other cash flow movements was a slight increase inyear-end net debt, up from £56.5m last year to £60.6m at 31 March 2006. The 31March 2006 position is net of £29.8m of cash held within our captive insurancecompany to fund future insurance claims (£33.5m at 31 March 2005). The Group hastherefore been able to fund an infill acquisition and a cash injection into thepension fund with only a marginal increase in its net debt position. We alsopropose a double-digit percentage increase in the full-year dividend. Thisstrong cash flow performance is further evidence of Wincanton's ability togenerate significant liquidity from both its operations and its asset base. The Group's committed banking facilities were increased during the year from£200m to £210m and the facilities were amended to a fully revolving basis withthe maturity extended to 2010, significantly enhancing the flexibility of theGroup's bank funding. £190m of this committed facility was undrawn at 31 March2006. The Group also took advantage of low long-term interest rates by raising$150m of 7- and 10-year money in the US private placement market. This furtherextended the maturity of our committed borrowings on attractive terms and gave auseful diversification in our sources of funding. The placement monies have beenswapped back into euros to give a fixed cost of borrowings of 0.85 per cent overEURIBOR. In addition to these committed facilities the Group has available arange of overdraft and leasing facilities. Through the year our borrowings are drawn approximately two-thirds in euros andone third in sterling. The Group has entered into an interest rate cap to cover€100m of its potential exposure to rising interest rates. The interest rate and foreign exchange positions of the Group are subject toregular review. No speculative trading is entered into and all activities of thetreasury function are designed to support the Group's commercial operations. Return on capital employed Capital employed at 31 March 2006 was £122.9m, of which 35 per cent related toour UK and Ireland operations and 65 per cent to Continental Europe. The returnon capital employed, at 34.2 per cent represents an increase on last year's 29.8per cent. This rate of return is believed to compare favourably with the returnsof our peer group. Goodwill The total of balance sheet goodwill and intangibles of £70.0m consistsprincipally of acquisition goodwill and acquired intangibles of £65.4m including£11.3m of goodwill and £10.4m of acquired intangibles arising on the Premiumacquisition in the year. The balance of £4.6m is the net book value ofcapitalised software in use across the Group. Pensions Following the results of the triennial actuarial valuation of the principalWincanton pension scheme as at 31 March 2005, the Group's pension policy andfunding approach has been subject to detailed review. A number of changes topension policy have been considered and are currently subject to consultationwith employees. An up-front injection of £40.0m in cash to address the pastservice deficit of the fund has been agreed with the pension scheme trustees.Incremental annual cash contributions to further address the deficit, up from£2.0m per annum to £8.0m per annum, have also been agreed. £17.0m of theup-front contribution was paid prior to the 2005/06 year end and the balance ofthe payment was made early in the new financial year. All these incrementalcontributions are tax deductible and will lead to a reduction in the cash taxpayable by Wincanton in the future. Wincanton expects the after-tax cost of theup-front contribution to be substantially covered by the proceeds of itsprogramme of disposal of surplus properties. Following the up-front cash injection, and subject to satisfactory completion ofthe employee consultation process, Wincanton expects the actuarial deficit ofthe pension scheme to be approximately £70m. The principal issues that havecaused this increase in the deficit, up from approximately £15m as at 31 March2002, are investment performance, lower bond yields and a change in assumptionsto reflect increased longevity. On an IAS 19 basis the pension fund deficit of the scheme at 31 March 2006 was£116.3m. Taking account of the up-front contributions made just prior to andimmediately after the year end and the scheme changes currently subject toemployee consultation, this deficit would have been reduced to approximately£73m. Very careful consideration has been given to the appropriate measures requiredto respond to the growth in the past service deficit and the costs of futureservice accrual. It is believed that both the steps being implemented and thosewhich remain subject to consultation, which are facilitated by the strong cashflow generation of the Group, will address the deficit prudently andprogressively. The currently low levels of bond yields will increase the service cost chargedto operating profit for pensions in 2006/07, partially offset at the pre-taxlevel by the positive effect on the Group interest charge of the up-frontcontribution and investment returns. PGN As explained in last year's Annual report, PGN, a jointly owned entity in whichWincanton has a 50.0 per cent stake, is in dispute with its sole customer inrespect of the early termination of the contract. The arbitration process, whichincludes financial claims and counter-claims, is continuing, with the finaloutcome unlikely to be known before mid-2007. Wincanton's share of the netassets of PGN, which consist principally of working capital, was consolidated at£6.7m in the balance sheet as at 31 March 2006. International Financial Reporting Standards (IFRS) The Group has adopted IFRS in the current financial year, as required by the EUfor all listed companies. The Group published a full IFRS Transition statementin November 2005 to explain the effect of the transition. The key areas ofimpact for the Group of adoption are, in common with most entities, in relationto jointly owned entities; employee benefits (including pensions); leases andshare-based payments. These have combined to reduce the comparative underlyingearnings of the Group for the year ended 31 March 2005 from 17.5p to 16.3p andthe net assets on transition at 1 April 2004 from £25.6m to £(3.7)m. The latterbeing primarily the result of the recognition on the balance sheet of the netpension deficit of £25.7m, which is made up of the IAS19 deficit of £69.9moffset by the reversal of the SSAP 24 provision of £33.2m both net of deferredtax. The adoption of IFRS has had no impact on the cash flows of the Group. Consolidated income statementfor the year ended 31 March 2006 Total Total 2006 2005 £m £m Note Revenue 2 1,809.3 1,651.5 ========= ========= Underlying operating profit 3 42.0 39.3 -------------------------------------------------------------------------------- Amortisation of acquired intangibles 3 (1.0) (0.1) Exceptional restructuring costs 3 (8.1) (9.4) Exceptional property profits 3 8.1 - Exceptional profits on asset disposals 3 - 7.6-------------------------------------------------------------------------------- Operating profit 3 41.0 37.4 Financial income 4 26.6 24.9 Financial expenses 4 (36.3) (34.8) -------------------------------------------------------------------------------- Net financing costs (9.7) (9.9)-------------------------------------------------------------------------------- Share of results of associates - 0.1 Profit before tax 31.3 27.6 --------- --------- Income tax expense 5 (8.4) (8.3) --------- --------- Profit for the year 22.9 19.3 ========= ========= Attributable to: Equity shareholders of Wincanton plc 22.7 18.7 Minority interests 0.2 0.6 --------- --------- Profit for the year 22.9 19.3 ========= ========= Earnings per share - basic 6 19.9p 16.4p - diluted 6 19.5p 16.2p Dividends declared and paid in the year (£m) 7 13.3 12.3 ========= ========= Consolidated statement of recognised income and expense for the year ended 31 March 2006 2006 2005 £m £m Actuarial losses on defined benefit pension schemes (net of (46.7) (4.9)deferred tax) Net foreign exchange gain on investment in foreign 0.3 2.4subsidiaries net of hedged items Tax taken directly to or transferred from equity 0.7 0.7 ------- ------- Net loss recognised directly in equity (45.7) (1.8) Profit for the year 22.9 19.3 ------- ------- (22.8) 17.5 Effect of change in accounting policy Adoption of IAS 39, net of tax, on 1 April 2005 (0.1) - ------- ------- Total recognised income and expense for the year (22.9) 17.5 ======= =======Attributable to: Equity shareholders of Wincanton plc (23.1) 16.9 Minority interests 0.2 0.6 ------- ------- Total recognised income and expense for the year (22.9) 17.5 ======= ======= Consolidated balance sheetat 31 March 2006 2006 2005 £m £mNon-current assets Goodwill and intangible assets 70.0 51.1Property, plant and equipment 234.7 234.1Investments 0.8 0.5Deferred tax assets 31.0 19.6 ------- ------- 336.5 305.3 ------- ------- Current assets Inventories 7.4 6.0Trade and other receivables 310.8 284.3Cash and cash equivalents 56.1 61.9 ------- ------- 374.3 352.2 ------- ------- Current liabilities Income tax payable (5.6) (6.9)Borrowings (3.2) (6.1)Trade and other payables (412.9) (378.6)Employee benefits (7.5) (4.6)Provisions (15.6) (13.6) ------- ------- (444.8) (409.8) ------- -------Net current liabilities (70.5) (57.6) ------- -------Total assets less current liabilities 266.0 247.7 ------- ------- Non-current liabilities Borrowings (113.5) (112.3)Other payables (1.3) (3.8)Employee benefits (144.8) (98.4)Provisions (42.8) (36.0)Deferred tax liabilities (1.3) (1.7) ------- ------- (303.7) (252.2) ------- -------Net liabilities (37.4) (4.5) ======= ======= Equity Issued share capital 11.8 11.7Share premium 6.5 4.4Merger reserve 3.5 3.5Translation reserve 2.7 2.4Retained earnings (62.5) (26.9) ------- -------Equity deficit attributable to shareholders of Wincanton plc (38.0) (4.9) Minority interest 0.3 0.4 ------- ------- Total equity deficit (37.7) (4.5) ======= ======= Consolidated statement of cash flows for the year ended 31 March 2006 2006 2005 £m £m Operating activities Profit before tax 31.3 27.6Adjustments for:Depreciation and amortisation 33.8 35.1Interest expense 9.7 9.9Profit on sale of property, plant and equipment (8.1) (7.6)Share-based payments fair value charges 1.1 0.3 ------- ------- Operating profit before changes in working capital and provisions 67.8 65.3 Increase in trade and other receivables (2.8) (38.0)Increase in inventories (1.1) (0.1)Increase in trade and other payables 9.0 35.7(Decrease)/increase in provisions (1.1) 4.5Decrease in employee benefits (17.3) (0.8) ------- -------Cash generated from operations (13.3) 1.3 ------- ------- Cash flows from operating activities 54.5 66.6 Investing activities Proceeds from sale of property, plant and equipment 24.0 20.0Interest received 2.0 2.3Trans European completion settlement - 7.8Acquisitions net of cash acquired (21.4) (6.7)Acquisition of property, plant and equipment (40.3) (34.4)Interest paid (7.6) (10.7)Income taxes paid (3.0) (2.0) ------- ------- Cash flows from investing activities (46.3) (23.7) ======= ======= Financing activities Proceeds from the issue of share capital 2.2 2.6Purchase of own shares - (8.5)Decrease in borrowings (1.5) (16.2)Payment of finance lease liabilities (1.5) (0.9)Dividends paid to minority interest in subsidiary undertakings (0.3) (0.4)Equity dividends paid (13.3) (12.3) ------- ------- Cash flows from financing activities (14.4) (35.7) ------- ------- Net (decrease)/increase in cash and cash equivalents (6.2) 7.2Cash and cash equivalents at beginning of year 61.9 54.2Effect of exchange rate fluctuations on cash held 0.4 0.5 ------- ------ Cash and cash equivalents at end of year 56.1 61.9 ======= ====== Represented by:Cash at bank and in hand 26.3 28.4Restricted cash, being deposits held by the Group's captive insurer 29.8 33.5 ------- ------ 56.1 61.9 ======= ====== 1. Accounting policies The financial information set out in this preliminary announcement does notconstitute Wincanton plc's statutory accounts for the years ended 31 March 2006and 31 March 2005. Statutory accounts for the year ended 31 Mach 2006 will bedelivered to the Registrar of Companies following the Company's Annual GeneralMeeting. Statutory accounts for the year ended 31 March 2005 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 segment analysis is required. The Group operates in two principal geographical areas, the United Kingdom &Ireland, and mainland Continental Europe. In presenting information on the basisof geographical segments, segment revenue and assets are based on thegeographical location of the 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 Continental Europe Consolidated 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m Revenue 1,156.3 1,097.8 653.0 553.7 1,809.3 1,651.5 ======= ======= ======= ======= ======= =======Underlying operating profit by segment 37.8 36.5 4.2 2.8 42.0 39.3 ======= ======= ======= ======= ======= =======Amortisation of acquired intangibles - - (1.0) (0.1) (1.0) (0.1) Exceptional restructuring costs (3.9) (4.3) (4.2) (5.1) (8.1) (9.4) Exceptional property profits 8.0 - 0.1 - 8.1 - Exceptional profits on asset disposals - 7.6 - - - 7.6 ------- ------- ------- ------- ------- -------Operating profit 41.9 39.8 (0.9) (2.4) 41.0 37.4 ======= ======= ======= ======= ======= ======= In addition to the above external revenue, there were intra segment sales of£1.6m from UK & Ireland to Continental Europe (2005: £1.6m) and £1.0m fromContinental Europe to UK & Ireland (2005: £2.7m). All such sales are priced onan arms length basis. 3. Operating profit The Group's results are analysed as follows: 2006 2005 Underlying* Amortisation Total Underlying* Amortisation Total of acquired of acquired intangibles intangibles and and exceptionals exceptionals £m £m £m £m £m £m Revenue 1,809.3 - 1,809.3 1,651.5 - 1,651.5 Cost of sales (1,728.4) 4.2 (1,724.2) (1,570.4) 0.9 (1,569.5) ------- ------- ------- ------- ------- ------- Gross Profit 80.9 4.2 85.1 81.1 0.9 82.0 Administrative expenses (38.9) (5.2) (44.1) (41.8) (2.8) (44.6) ------- ------- ------- ------- ------- ------- Operating profit 42.0 (1.0) 41.0 39.3 (1.9) 37.4 ======= ======= ======= ======= ======= ======= * Underlying operating profit is stated before amortisation of acquiredintangibles and exceptionals. 2006 2005 £m £m Operating profit before net financing costs is stated after charging: Auditors' remuneration: - Group fees for statutory audit services 0.7 0.6 - fees paid to the Auditors and their associates for tax advisory services 0.2 0.2 - fees paid to the Auditors and their associates for assurance services 0.1 0.1 - fees paid to the Auditors and their associates for other services 0.1 - Depreciation and other amounts written off property, plant and equipment: - owned 29.6 30.5 - leased 0.4 1.1 Amortisation and other amounts written off software intangibles 2.8 3.4 Operating lease rentals - plant and equipment 39.3 40.4 - land and buildings 52.8 43.1 ======= ======= In addition £0.2m was paid to the Auditors in respect of their services inconnection with the acquisition of Premium Logistics which has been capitalisedas a cost of investment. Exceptionals 2006 2005 £m £m Exceptional restructuring costs Reorganisation of operating structure post-acquisition (0.9) (2.0) Relocation of UK head office and business rationalisation (4.2) (2.6) Closure of operations in Germany (2005: Spain, France and UK) (3.0) (4.8) ------- ------- (8.1) (9.4) ======= ======= Exceptional property profits - sale of freehold land and buildings 8.1 - ======= ======= Exceptional profits on asset disposals - sale of trailer assets - 7.6 ======= ======= 4. Net financing costs 2006 2005 £m £m Interest income 2.0 2.8 Expected return on defined benefit pension scheme assets 24.6 22.1 ------- ------- 26.6 24.9 ======= ======= Interest expense (8.2) (10.1) Finance charges payable in respect of finance leases (0.5) (0.6) Interest on defined benefit pension scheme obligations (26.0) (23.4) Unwinding of discount on insurance and other provisions (2.0) (1.1) ------- ------- (36.7) (35.2) Less finance costs capitalised 0.4 0.4 ------- ------- (36.3) (34.8) ======= =======Net financing costs (9.7) (9.9) ======= ======= The interest income relates primarily to the cash deposits held by the Group'scaptive insurer. 5. Income tax expense 2006 2005 £m £m Recognised in the income statement Current tax expense Current year 2.3 6.6 Adjustments for prior years (0.9) 1.0 1.4 7.6 ======= ======= Deferred tax expense Current year 6.4 2.2 Adjustments for prior years 0.6 (1.5) ------- ------- 7.0 0.7 ======= ======= Total income tax expense in the income statement 8.4 8.3 ======= ======= Reconciliation of effective tax rate 2006 2005 £m £m Profit before tax 31.3 27.6 ======= ======= Income tax using the UK corporation tax rate of 30% (2005: 30%) 9.4 8.3Effect of tax rates in foreign jurisdictions (0.1) (0.8)Trading losses not utilised 1.2 2.6Non-deductible expenditure 0.6 1.1Capital profits offset by capital losses (2.4) (2.4)Prior year adjustment - current tax (0.9) 1.0 - deferred tax 0.6 (1.5) ------- -------Total tax charge for the year 8.4 8.3 ======= ======= Recognised in equity 2006 2005 £m £m Tax taken directly to or transferred from equity 0.7 0.7 ======= ======= 6. Earnings per share Earnings per share are calculated on the basis of earnings attributable to theequity shareholders of Wincanton plc of £22.7m (2005: £18.7m) and the weightedaverage of 114.3m (2005:114.3m) shares which have been in issue throughout theyear. The diluted earnings per share are calculated on the basis of anadditional 2.0m (2005: 1.2m) 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: 2006 2005 Weighted average number of ordinary shares Millions Millions Issued ordinary shares at the beginning of the year 113.9 115.8 Net effect of shares issued less shares purchased by the Employee Benefit Trust during the year 0.4 (1.5) ------- ------- 114.3 114.3 ======= ======= Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares at the end of the year 114.3 114.3 Effect of share options on issue 2.0 1.2 ------- ------- 116.3 115.5 ======= ======= An alternative earnings per share number is set out below, being beforeexceptionals, amortisation of acquired intangibles, goodwill impairment andrelated tax, since the Directors consider that this provides further informationon the underlying performance of the Group: 2006 2005 p p Underlying earnings per share - basic 19.2p 16.3p - diluted 18.9p 16.1p ======= ======= Underlying earnings are determined as follows: 2006 2005 £m £m Profit for the year attributable to the equity 22.7 18.7 shareholders of Wincanton plc Exceptional restructuring costs 8.1 9.4 Exceptional property profits (8.1) - Exceptional profits on asset disposals - (7.6) Amortisation of acquired intangibles 1.0 0.1 Tax on the above items (1.7) (2.0) ------- ------- Underlying earnings 22.0 18.6 ======= ======= 7. Dividends Under Adopted IFRS dividends are only provided in the financial statements whenthey become a liability of the Company. The dividends per ordinary share paid inthe year are the interim for the current year, paid on 11 January 2006 and thefinal for the prior year ended 31 March 2005, paid on 12 August 2005. These are detailed in the following table: 2006 2005 £m £mInterim dividend of 3.94p (2005: 3.66p) paid in 2006 and 2005 respectively 4.5 4.2 Final dividend of 7.74p for 2005 (2004: 7.08p) paid in 2006 and 2005 respectively 8.8 8.1 ------- -------Total dividend paid in the year 13.3 12.3 ======= ======= The final dividend proposed for the year ended 31 March 2006 is 8.60p, which ifapproved will be paid in August 2006, total £9.9m. 8. Cash and cash equivalents 2006 2005 £m £m Cash at bank and in hand 26.3 28.4 Restricted cash deposits held by the Group's captive 29.8 33.5insurer ------- -------Cash and cash equivalents 56.1 61.99 ======= ======= 9. Borrowings 2006 2005 £m £mCurrent Bank loans and overdrafts 2.1 4.9 Finance lease liabilities 1.1 1.2 ------- ------- 3.2 6.1 ======= ======= Non current Bank loans 109.3 107.1 Finance lease liabilities 4.2 5.2 ------- ------- 113.5 112.3 ======= ======= 10. Acquisitions Current year acquisitions On 7 October 2005 the Group acquired the entire share capital of PremiumLogistics (now renamed Wincanton S.A.S.) for £20.3m in cash. The acquired company provides contract logistics services in France and in thesix months since acquisition contributed £1.2m of net profit. If the acquisitionhad occurred on the first day of the year it is estimated that the totals ofGroup underlying operating profit and revenue would have been approximately £43mand £1,848m respectively. The acquisition has given rise to a value of goodwill of £11.3m, being thedifference between the cash consideration paid and the net assets acquired atfair value. The acquired net assets at acquisition are summarised in the table below ; Acquiree's Fair value Acquisition book value adjustments amounts £m £m £m Intangible assets - 10.4 10.4 Property, plant and equipment 8.9 (1.4) 7.5 Deferred tax assets 0.3 2.7 3.0 Inventories 0.3 - 0.3 Trade and other receivables 23.5 - 23.5 Cash and cash equivalents 4.5 - 4.5 Income tax payable (0.2) - (0.2) Borrowings (6.6) - (6.6) Trade and other payables (20.9) - (20.9) Employee benefits (2.0) - (2.0) Provisions (0.4) (6.6) (7.0) Deferred tax liabilities - (3.5) (3.5) ------- ------- -------Net identifiable assets and liabilities 7.4 1.6 9.0 ======= ======= =======Goodwill on acquisition 11.3 -------Consideration payable including expenses of £1.2m 20.3 Net debt acquired 2.1 -------Net cash outflow 22.4 ======= The fair value adjustments above are required to align the accounting policiesof the acquired business with those of the Group. These adjustments can, ifnecessary, be amended for up to 12 months following acquisition. Goodwill of£11.3m has arisen on the acquisition reflecting the strategic importance ofbroadening Wincanton's business base in France and achieving national coveragein that important logistics market, the value of the management and workforceand some of the expected synergies to be gained as the acquired entity is fullyintegrated into the Group. Following the acquisition of a 26.0 per cent interest in PSL Trans EuropeanSpedition und Logistik GmbH (PSL) in December 2002, the Group increased itsshareholding by 74.0 per cent in April 2005 for consideration of £0.1m,resulting in an increase in goodwill of £0.6m. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WIN.L