TIDMWIN
RNS Number : 1815Z
Wincanton PLC
16 May 2019
16 May 2019
WINCANTON plc
Preliminary Announcement of Results
for the financial year ended 31 March 2019
"Operational strength driving robust earnings growth"
Wincanton plc ("Wincanton" or the "Group"), the largest British
third party logistics company, today announces its preliminary
results for the year ended 31 March 2019.
Key financial measures 2019 2018 Change (%)
---------------------------------------- -------- -------- -----------
Revenue (GBPm) 1,141.5 1,171.9 (2.6)%
Underlying EBITDA (GBPm)(1) 66.7 64.8 2.9%
Underlying operating profit (GBPm)(2) 55.3 52.9 4.5%
Underlying profit before tax (GBPm)(2) 49.3 46.4 6.3%
Underlying EPS(2) 33.5p 30.8p 8.8%
Dividend per share 10.89p 9.90p 10.0%
Free cash flow (GBPm)(3) 57.0 25.0 128.0%
Net debt (GBPm)(4) (19.3) (29.5) (34.6)%
Statutory results
---------------------------------------- -------- -------- -----------
Operating profit (GBPm)(2) 54.6 44.4 23.0%
Profit before tax (GBPm) 48.6 37.9 28.2%
Basic EPS 34.5p 25.2p 36.9%
(1) Underlying EBITDA refers to underlying operating profit
before depreciation and amortisation and is reconciled in Note 2 in
the disclosure notes below.
(2) The section on Alternative Performance Measures (APMs) below
provides further information on these measures, including
definitions and a reconciliation of APMs to statutory measures.
(3) Free cash flow is defined as the movement in net debt,
before pension payments, dividends and the acquisition of own
shares. Further information is provided in the Financial Review
below.
(4) Net debt is the sum of cash and bank balances, bank loans
and overdrafts and other financial liabilities. Note 8 in the
disclosure notes below provides a breakdown of net debt for the
current and prior periods.
Operational highlights
-- Strong level of new business wins, include EDF Energy,
Weetabix, Co-op, HMRC, Aggregate Industries, Roper Rhodes,
Hapag-Lloyd, Jollyes and DCS
-- High customer satisfaction drove successful renewals of major
contracts in the year including Asda, Loaf.com, Halfords,
Micheldever Tyre Services, Lucozade Ribena Suntory, Marley,
Ibstock, British Sugar and Valero
-- Ongoing growth in Retail General Merchandise of 9.0% reflects
strong growth in multichannel fulfilment and in our market leading
two-man home delivery solutions
-- W(2) innovation programmes driving differentiated market position
Financial highlights
-- Contract wins largely offset impact of losses from prior year
and first half; revenue decline of 2.6% to GBP1,141.5m (2018:
GBP1,171.9m)
-- Underlying operating profit increased by 4.5% to GBP55.3m
(2018: GBP52.9m) due to exit from lower margin contracts in year,
benefits of restructuring last year and ongoing improvement
initiatives
-- Underlying profit before tax increased by 6.3% to GBP49.3m
(2018: GBP46.4m) generating underlying EPS growth of 8.8% to 33.5p
(2018: 30.8p)
-- Robust free cash flow generation of GBP57.0m (2018:
GBP25.0m), with net debt reduced to GBP19.3m (2018: GBP29.5m) and
pension deficit on an IAS 19 basis reduced to GBP7.1m (2018:
GBP49.5m)
-- Strong growth of 10.0% in dividend over prior year with
proposed final dividend of 7.29p giving a total dividend for
FY18/19 of 10.89p
As announced earlier this month, Adrian Colman will step down as
Chief Executive and be succeeded by James Wroath no later than the
end of October. Adrian will remain as Chief Executive until that
time.
Adrian Colman, Chief Executive, commented:
"This year, we have seen key areas such as our Retail General
Merchandise business grow strongly, demonstrating the real value
that we deliver to our customers. In the second half of the year we
secured substantial new contract wins that should position the
Group well in the coming periods. Revenue performance overall in
the year was impacted by the loss of certain contracts at the end
of the previous financial year and the first half of this year.
Disciplined contract selection, performance improvement and cost
management initiatives across the Group, including the benefits
from restructuring actions taken last year, have combined to
deliver underlying operating profit growth of 4.5% and underlying
earnings per share growth of 8.8%. Our dividend per share growth of
10.0%, demonstrates our healthy balance sheet, strong cash
generation and our confidence in delivering returns for all
stakeholders. We will continue to develop our market-leading
capabilities to enhance our excellent customer service and
operational delivery, enabling us to make further progress in the
years ahead."
For further enquiries please
contact:
Wincanton plc Tel: 020 7466 5000 today, thereafter
Adrian Colman, Chief Executive Tel: 01249 710000
Officer investor.relations@wincanton.co.uk
Tim Lawlor, Chief Financial
Officer Tel: 020 7466 5000
Buchanan
Richard Oldworth, Victoria Hayns
A meeting for analysts will be held at Buchanan, 107 Cheapside,
London, EC2V 6DN on 16 May 2019 commencing at 9.30am. Wincanton's
Preliminary Results 2019 are available at www.wincanton.co.uk
An audio webcast of the analysts' meeting will be available
shortly after 12 noon today:
https://webcasting.buchanan.uk.com/broadcast/5c6bc42ce6e1d92d38f4ed64
Chairman's review
Introduction
I was delighted to have been appointed Chairman of Wincanton in
August of last year. One of the things that particularly struck me
as I visited our sites is the commitment of our people to doing a
good job for our customers. This is one of the core reasons that
has made Wincanton such a trusted brand. Our people's commitment to
doing things well also underlies the Group's impressive track
record in health and safety.
Over recent years, Wincanton has successfully rebuilt its
financial position. Its balance sheet and cash flow are much
healthier and the reliability of its earnings much improved. Our
challenge now is to use the Group's respected market position, its
extensive national coverage in the UK and its strong operational
base to develop and grow profitably. I believe Wincanton can
deliver much better value for its shareholders in the years
ahead.
Results
The Group delivered good growth in underlying profit before tax
of 6.3% in the year and underlying earnings per share were up by
2.7p over the prior year to 33.5p, an increase of 8.8%. Revenue
performance was impacted by the loss of certain contracts at the
end of the previous financial year and first half of this year. We
have, however, been seeking to shift our business increasingly
towards more value-added activities with improved profit margins.
Pleasingly, there was a strong level of new business wins and a
high level of contract renewals in the second half of the financial
year which positions us well to grow in the year ahead. Our cash
generation remains strong. This enables us to invest in our organic
growth strategy as well as satisfying the needs of our various
stakeholders such as our shareholders and pension scheme.
Dividends
The Board is pleased to be recommending an increased final
dividend of 7.29p per ordinary share for the year ended 31 March
2019 (2018: 6.63p), bringing the total dividend for the year to
10.89p (2018: 9.90p). This reflects the Group's progressive
dividend policy, with the annual dividend growth broadly matched to
the growth in underlying earnings.
Our People
As always, our people are our most important asset. Their
dedication to delivering the best for our customers is the
cornerstone of Wincanton's position as a trusted partner for our
clients. I would therefore like to thank our 17,600 colleagues for
their efforts over the last year.
In building an organisation that people aspire to work for, we
must continually ensure that we live our values every day. We have
a strong focus on maintaining a safe working environment and our
Health and Safety record shows continued year-on-year improvement
for the sixth year in a row.
Inclusion is also important to us and we are continuing to train
all our leaders on unconscious bias. The pay data for Wincanton,
like many other organisations, shows a gender pay gap and we have
reported a median overall gap of 10% compared to the national
average of 9%. We have therefore established working groups to
better understand how we can attract more females into our industry
in higher paid roles and help fulfil our growth strategy in the
coming years.
We recognise the increasing need to consider the employee voice
at Board level as well as throughout the business. We have
therefore appointed Stewart Oades, our Senior Independent Director,
as our employee representative Non-executive Director. This is in
line with the recently announced changes to the UK Corporate
Governance Code, due to come into effect in 2019-2020.
The Board
My focus is on building a strong and collaborative Board that
provides the leadership and experience to help manage Wincanton's
next phase of development. We have recently developed a skills
matrix and conducted a Board effectiveness review to ensure that
the Board collectively possesses the necessary breadth and depth of
skills.
In May of this year, we announced that Adrian Colman will step
down as Chief Executive no later than the end of October. Adrian
has been with the Group for six years, the last four as Chief
Executive. He has made a significant contribution to the
development of the Group and I thank him for his commitment and
hard work. Adrian will be succeeded as Chief Executive by James
Wroath who will be appointed to the Board no later than the end of
October. Adrian will remain on the Board as Chief Executive until
that time. James joins us from LSG Sky Chefs and brings with him
significant experience in contract logistics and business services
generally, having held senior roles in logistics, transportation
and distribution.
I am also delighted to welcome Debbie Lentz to our Board from
June 2019. Debbie brings a strong track record in digital and
supply chain management, both of which are highly relevant to the
further development of Wincanton's e-commerce propositions.
I should particularly like to thank our Senior Independent
Director, Stewart Oades, for standing in as Interim Chairman
following the sudden death of our previous Chairman, Steve
Marshall, through to the date of my appointment in August 2018.
Our thanks are also due to Martin Sawkins, who retired from the
Board in December 2018, for his six years of service. Gill Barr,
who was appointed a Director and member of the Remuneration
Committee in September 2017, succeeded Martin as our Remuneration
Committee Chair with effect from November 2018.
David Radcliffe will retire as a Non-executive Director, with
effect from 31 December 2019 after seven years' service. We thank
him for his diligence and his contribution and will be carrying out
a search for his successor in the coming months.
Some Key Issues and Initiatives
The Group concluded the negotiations of the triennial valuation
of the defined benefit pension scheme in August 2018. This
agreement provides an affordable and sustainable solution.
Crucially, it retains the Group's ability to invest in the business
and to maintain its progressive dividend policy. The Group has also
extended its GBP141m of bank finance facilities through to October
2023. Both these agreements provide increased certainty and
stability for the Group.
Looking ahead, the Group's main priority is to make further
progress in the delivery of our organic growth strategy and it is
encouraging that we have recently added a number of new, high
quality customers to our portfolio.
During the year, we launched the second round of our W(2) Labs
initiative, following the success of the first round in the
previous year. This initiative is focused on identifying and
developing new areas of innovation to help our customers. This
year, we are concentrating on driving innovative solutions in areas
such as robotics, data analytics and cloud-based warehouse
optimisation systems.
Outlook
The Group remains well positioned in its chosen markets and
continues to deliver strong service levels to its customers. We are
putting in place the teams and structures to underpin growth, build
on Wincanton's market positions and deliver long-term sustainable
growth in the business. We remain focused on ensuring that this
growth is both profitable and cash generative and will continue to
pursue a disciplined approach in our delivery. Healthy cash flow
sustains our growth capability, our significant investment in
talent and innovation, and our distributions to our shareholders
and the pension scheme. During the coming year, the Board expects
Wincanton to make continued progress.
Chief Executive's Statement
Performance summary
We delivered a strong operational performance with increased
margins and profits translating into healthy cash generation,
allowing us to invest in the growth of the business and
progressively increase our returns to shareholders.
In our target markets we continued to leverage our
differentiated network, service and technological innovation, to
grow the business organically with existing customers and to win
new business in an increasingly competitive and evolving market
place. This is highlighted by the strong 9.0% growth that we have
delivered in Retail General Merchandise revenues in the year. This
reflects the impact of growth in existing accounts and in new
contract wins. Our strength in this area highlights our
capabilities in the important multichannel eFulfilment arena where
we excel in areas such as services to the Home & DIY market
place, including our market leading two-man home delivery service
proposition. Overall revenue declined marginally in the year due to
the timing of contract wins being heavily biased towards the final
quarter and therefore not contributing to in year revenue.
Our business model focuses on the products across all retail and
industrial sectors that are the staples of consumption of the
population of the UK. Whatever the outcome of the Brexit
deliberations, we expect that the population will continue to
consume these products in similar volumes. This gives us great
stability in our model irrespective of decisions that may affect
the broader relationships between the UK and its international
partners.
Our teams delivered another successful retail peak season in the
months leading up to December, which is a testament to our
dedicated drivers and amazing warehouse colleagues who all put the
hard work in to make sure that our customers - and their end
consumers across the UK - get everything that they need, when they
need it, across this key trading period. By being able to deliver
all around the country, either via traditional warehouse to store
operation, or via our eFulfilment processes, this has been a
performance which our colleagues can all be very proud of.
We continue to provide innovative solutions to help our
customers through the challenges they are facing in the market
place, such as changing consumer trends, ways of shopping and
planning for Brexit. We have explored and deployed new innovations
that will drive the logistics sector in the immediate future as
well as the years ahead.
2019 2018 Change
-------------------------------------- -------- ------- ------
Revenue (GBPm) 1,141.5 1,171.9 (2.6)%
Underlying EBITDA (GBPm)(1) 66.7 64.8 2.9%
Underlying operating profit (GBPm)(2) 55.3 52.9 4.5%
Underlying operating margin (%)(2) 4.8% 4.5% 30bps
Underlying EPS (p)(2) 33.5p 30.8p 8.8%
-------------------------------------- -------- ------- ------
1 Underlying EBITDA refers to underlying operating profit before
depreciation and amortisation and is reconciled in Note 2 to the
disclosure notes below.
2 Further information on Alternative Performance Measures
(APMs), including definitions and a reconciliation of APMs to
statutory measures are provided in the Financial Review.
Revenue in the year ended 31 March 2019 was GBP1,141.5m (2018:
GBP1,171.9m), which represents a year-on-year decrease of 2.6% and
was primarily driven by the timing of contract wins and losses. The
business delivered a strong level of new business wins in the year,
however, these were contracted predominantly in the second half of
the year and made little or no contribution to revenue in the year
to 31 March 2019. As such these strong wins did not fully mitigate
the revenue impact from contracts lost at the end of the previous
financial year and first half of this year. However, as some of the
contracts were lower margin their loss has contributed to an
overall increase in the Group's operating profit margin in the
year.
The underlying operating profit margin increased to 4.8%, a 30
bps increase on the 4.5% achieved in the prior year partly due to
the loss of contracts that were not delivering an appropriate
operating margin for the Group. Underlying operating profit
increased by 4.5% to GBP55.3m (2018: GBP52.9m) benefitting from
strong operational performance as well as the impact of ongoing
performance improvement initiatives implemented in the previous
year.
The positive actions taken last year to address the cost base
have made our business more competitive in bidding, winning and
retaining business. Additionally, we have been able to continue to
improve our operating profitability despite pressures on costs,
predominantly in respect of labour costs from wage inflation
together with statutory increases in auto-enrolment pension rates
and the national minimum wage.
Strong underlying EPS growth of 8.8% reflects the growth in
underlying operating profit and lower net financing costs as we
continued to manage down the pension liabilities during the year.
This growth in underlying earnings enables us to also increase our
recommended final dividend per share to 7.29p, resulting in a total
dividend per share of 10.89p for the year, reflecting a dividend
cover level of approximately three times.
Retail & Consumer
2019 2018 Change
----------------------------------- ----- ----- ------
Revenue (GBPm) 708.9 691.7 2.5%
Underlying operating profit (GBPm) 31.2 29.7 5.1%
Underlying margin (%) 4.4% 4.3% 10bps
----------------------------------- ----- ----- ------
Retail & Consumer reported revenues of GBP708.9m for the
year, an increase of 2.5% compared with the GBP691.7m reported in
the previous year. The contractual split in this segment, between
open and closed book, remains relatively unchanged with 83% under
open book terms (2018: 85%). Margins increased due to an
improvement in mix arising from higher margins in new business than
from lost contracts. The resulting underlying operating profit for
the year was GBP31.2m (2018: GBP29.7m), up 5.1%, representing a
good performance in a retail environment that provided significant
commercial and operational challenges during the year.
The split of Retail & Consumer revenue by the industry
sectors it serves is as follows:
2019 2018(1)
GBPm GBPm Change
--------------------------- ----- ------- ------
Retail General Merchandise 423.8 388.8 9.0%
Retail Grocery 180.8 193.2 (6.4)%
Consumer Products 104.3 109.7 (4.9)%
--------------------------- ----- ------- ------
708.9 691.7 2.5%
--------------------------- ----- ------- ------
1 Certain contracts within Retail General Merchandise and Retail
Grocery have been realigned within the segment split, in line with
how management reviews the business.
The overall revenue growth in the segment was primarily due to
the full year benefit from new contracts including IKEA, wilko and
Wickes together with volume growth in Retail General Merchandise,
partly offset by the loss of contracts with Tesco and Premier
Foods. The growth was largely achieved through our continued focus
on helping our customers deliver a better experience to their own
customers, with strong growth in eFulfilment, particularly from
two-man home delivery activities.
During the year we signed a three-year contract to provide a
full multichannel logistics solution for Jollyes, The Pet
Superstore. Our new service will deploy Wincanton's latest
eFulfilment technology to create a pick, pack and ship operation,
including customer returns, carrier management and
supplier-to-customer capabilities.
We won a number of other major contracts during the year,
including two five-year contracts with The Weetabix Food Company,
as a result of which we are now responsible for providing both the
warehouse and the transport services to support the iconic
breakfast brand in its growth ambitions. We won a contract with
Roper Rhodes, one of the UK's leading independent suppliers of
bathroom furniture and products, who have entrusted us to create
and run a dedicated delivery solution structured around our IT
expertise and use of in-cab technology. We also won a three-year
contract with the Co-op which will see Wincanton manage all
warehouse and store delivery operations from a facility near
Northampton to new and existing stores in the surrounding area.
Satisfied customers are our most important ambassadors and so
contract renewals or extensions are sound endorsements of the
benefits that our services deliver in practice. Consequently it was
very pleasing to see our agreement to provide dedicated transport
and warehousing for Asda extended for another three years. Our
relationship with Asda dates back to 2005, underlining the
importance that we, and our customers, place on trust, mutual
respect and long-term partnerships. Additionally, our relationship
with Micheldever Tyre Services (MTS), which has flourished for many
years, led to a new ten-year contract to provide warehousing and
transport services as MTS itself targets doubling the size of its
supply chain operations within the M25.
In addition, the UK's leading cycling and car accessories
retailer, Halfords, extended our contract as the sole supplier of
transport services in the UK by a further five years. We also
agreed an extension to our eFulfilment contract with high-growth
furniture supplier, Loaf.com. Meanwhile, we secured an extension to
our contract to provide supply chain services for Lucozade Ribena
Suntory, with this latest agreement taking the association between
our companies to over 25 years.
Industrial & Transport
2019 2018 Change
----------------------------------- ----- ----- ------
Revenue (GBPm) 432.6 480.2 (9.9)%
Underlying operating profit (GBPm) 24.1 23.2 3.9%
Underlying margin (%) 5.6% 4.8% 80bps
----------------------------------- ----- ----- ------
Industrial & Transport reported revenues for the year of
GBP432.6m (2018: GBP480.2m), a reduction of 9.9% on the prior year.
We exited or reduced the level of activity in a number of lower
margin areas including transport activities with Britvic and
Tarmac, while still retaining these important customers in areas
where we can generate value for them and us. This proactive
approach to contract management, together with actions taken to
reduce the cost base and right-size some areas of capacity has
resulted in an 80bps increase in underlying operating margin to
5.6%. The underlying operating profit increased by 3.9% to GBP24.1m
(2018: GBP23.2m).
The split of Industrial & Transport revenue by the
activities undertaken is as follows:
2019 2018(1)
GBPm GBPm Change
------------------- ----- ------- -------
Transport Services 171.4 210.6 (18.6)%
Construction 136.7 150.3 (9.0)%
Other 124.5 119.3 4.4%
------------------- ----- ------- -------
432.6 480.2 (9.9)%
------------------- ----- ------- -------
1 Certain contracts within Transport Services and Construction
have been realigned within the segment split, in line with how
management reviews the business.
This year saw a series of notable new contract wins. In
Transport Services, Banbury-based health, beauty and household
brand distributor DCS Group who distribute for the biggest health,
beauty and household brands including P&G, Unilever, J&J,
SC Johnson, Colgate, RB and PZ Cussons, awarded Wincanton a
three-year contract to provide nationwide transport, delivery and
management of inter-site transfers of finished goods and stock.
Construction remains an important area for Wincanton and we were
delighted to be appointed by EDF Energy as the official warehouse
and transport service partner for the nuclear new build project at
Hinkley Point. We also expanded our partnership with Aggregate
Industries, with a five-year deal for the distribution of concrete
products from the majority of its UK manufacturing sites.
Also within Other business, we were pleased to win a contract
with HMRC, who appointed us to provide logistics services to
support air and sea freight inspections. This five-year agreement
will see us work together with HMRC to check inbound shipments into
the UK, operating two newly established Inland Pre-Clearance sites,
with associated transport. HMRC and Border Force undertake targeted
checks inland, which help prevent wrongly-declared goods from
flowing into the country.
However, the timing of these wins was too late to contribute in
the financial year and fully mitigate the loss of certain contracts
earlier in the year in Construction and Transport Services, which
resulted in an overall revenue decrease in the year.
Contract renewals are the mark of operational excellence and the
Industrial & Transport business was successful in securing a
good number of major contracts up for renewal during the year.
These included agreements with Marley and Ibstock in the
Construction sector and with British Sugar in Transport
Services.
Our Energy business, which is included within Other revenues,
successfully negotiated a new five-year contract with leading LPG
supplier AvantiGas, which will extend our strong relationship
through to 2023. This contract will incorporate new levels of
innovation such as our vehicle telematics system. We also renewed
our Valero fuels distribution contract for another five years in
part due to our solution for Vendor Managed Inventory. As part of
this, Wincanton will monitor and control stocks at key retail sites
across the country, enhancing customer service and product
availability.
Strategic Progress
Our aim is to deliver organic growth. The Group's strategy is
designed to support a resilient and predictable profit and cash
stream with increasing returns for all stakeholders. We do this
by:
1. Differentiating our position in the logistics industry
through delivering innovation, collaboration and safe, sustainable
operations
2. Growing by putting customers at the centre of what we do
3. Driving efficient operations through integrated and
consistent services
4. Being an organisation that people aspire to work for and
with
We have set out our progress against these below:
1. Differentiating our position in the logistics industry
Innovation
We continually monitor our sector and other related areas in
order to identify new technologies and better ways of working that
have the potential to transform services for our customers. Our
ground-breaking W(2) programme is building a powerful track record
as a business incubator. W(2) is all about the power of two:
combining the power of Wincanton with that of our colleagues, our
customers or our partners. 2018 was again a year where W(2) was the
starting point for several bright ideas that are already making
their way into a variety of customer-centric solutions.
W(2) Labs: The second year of our W(2) Labs programme saw
another exceptional cohort of start-ups work with us to explore new
approaches to some of the challenges our industry faces, including
two different types of low-cost robotics, a customer service
chatbot and tools for deriving data-driven insight from across the
value chain. Six start-ups were selected to take part in an
intensive 10-week programme, during which time we helped them
refine and adapt their business propositions. Those we judged to
have the greatest potential to improve our services will now be
given the opportunity to work with Wincanton on a wider basis, long
term.
One of the outcomes of the first year of W(2) Labs is the
development of an online trading platform for warehouse space
called VAST (Virtual Access to Storage and Transport) which we
launched in the first half of 2019. oneVASTwarehouse.com will
enable us, and our customers, to make spare warehouse space visible
to a wide audience and trade this with other customers to improve
the utilisation of warehouse space more effectively.
We continued to digitise our own business during the year. For
example, we invested in our new Transport Management System, which
will underpin our transport strategy to support safety, growth and
fleet optimisation. The new solution will allow us to better plan
and model delivery scenarios, while operational data can be used to
simulate routes and loads in a virtual environment, informing
real-world operations. It will bring measurable benefits to us and
our customers in the form of improved efficiencies and
communication.
Collaboration
There is something special that we bring to our customers by
collaborating for mutual benefit. As we operate across a wide
cross-section of the physical goods economy, we have gathered a
wealth of experience and data on the cyclicality of our customers'
businesses on a daily, weekly and annual basis.
We are able to analyse and interpret this data, flexibly
deploying the capability and assets from sectors undergoing quieter
times to those experiencing seasonal peaks. This enables our
customers to cost-effectively access the resources and services
they need, when they need them. For example, over the 2018
Christmas period, we again redirected drivers and vehicle assets
from our Construction business, which is traditionally quiet at
that time of year, into the busy Retail 'peak season'. We have also
brought through a number of collaborative space sharing initiatives
to customers across our portfolio during the year.
Safety and Sustainability
The health, safety and wellbeing of our people is paramount in
Wincanton. The year saw a continued reduction in reported safety
incidents and a continued improvement in our Lost Time Incident
Frequency Rate performance indicator from 0.62 last year to 0.51
this year. Our people continue to recognise our effort and priority
focus towards health and safety, with our Your Pulse colleague
engagement survey again reporting high scores on awareness and
responsibilities.
We are never complacent and continue to work hard to improve our
performance, ensuring strong cultural engagement around behavioural
approaches to health and safety, as well as technical training and
robust processes. During the last 12 months, we became the first
third party logistics company to fully roll out Alcumus
SafeContractor, which is regarded as one of the UK's leading Health
& Safety accreditation schemes, with over 30,000 contractors
and 400 clients. We also won the Health & Safety award at the
2018 CILT Annual Awards for Excellence, for our work with Wickes,
and partnered with Network Rail at the launch of a new campaign to
educate lorry drivers about the dangers of low bridges, and how to
avoid them.
Environmentally friendly and cost effective, electric vehicles
are having a huge impact on all forms of transport, and during the
previous year we took delivery of our first five fully electric
trucks from Daimler. These 7.5 tonne vehicles have now been in use
for several months in our own fleet and with customers, primarily
in inner cities where the challenges of emissions, noise and
congestion are greatest.
By introducing production-level electric vehicles to our fleet,
we can address the challenges listed above, that are increasingly
important to customers, regulators and society. In mid-2018, we
took another stage towards a more environmentally-friendly fleet
when we commenced trials of LNG (Liquified Natural Gas) powered
vehicles as part of our ongoing commitment to exploring alternative
fuels.
2. Growth
Top-line growth in the Retail & Consumer business was offset
by a decrease in Industrial & Transport in the year, but
profits grew again in both sectors. The underlying business remains
strong as evidenced by the combination of new business wins, the
successful extension of services we provide to many of our existing
customers and the growth in our underlying operating profit.
New customers to join the Wincanton portfolio during the year
included HMRC, for whom we are now providing logistics services to
support air and sea freight inspections and Roper Rhodes, where our
investment in technology gave us the competitive edge in securing
the contract to provide a delivery solution based around our IT
expertise and in-cab solutions. In addition, we were delighted to
win our first contracts with Weetabix, which will see us provide
the full-service logistics package, for both the warehouse and
transport services. We also won new business from customers such as
Co-op, Aggregate Industries, the DCS Group and Jollyes, The Pet
Superstore, towards the end of the year. These contracts are
expected to drive growth in the future.
3. Driving efficient operations
Logistics never stands still, and we operate a strategy of
continuous improvement - introducing new technology, fine-tuning
services and finding new ways of working to help customers. This
reduces customers' cost of operations in open book contracts and
supports our margins in closed book contracts.
When existing customers renew or extend contracts, it is always
a welcome sign that we are meeting or exceeding expectations. For
example, we expanded our relationship with Micheldever Tyre
Services via a new ten-year contract to provide warehousing and
transport services. We also extended our contract as the sole
supplier of transport services to Halfords in the UK by a further
five years, and successfully negotiated extensions to our
agreements to provide services to a number of leading firms.
4. Be an organisation that people aspire to work for and
with
We aim to be the industry's employer of choice. Providing career
and development opportunities is essential for all our colleagues,
so we continued our ambitious apprenticeship scheme during 2018,
providing 57 programmes as part of our commitment to develop a
pipeline of logistics talent.
Attracting, training and retaining great people is the
foundation of our business, and we have continued to strive to
ensure that we have access to a pool of experienced,
customer-focused drivers in order to deliver on our promises to
customers. Good drivers are challenging to find and recruit, so we
complement our extensive training programmes with additional
support, for example by providing help with licence acquisition. We
also help people in warehouse roles at Wincanton to make the step
up to driver status, through our 'Warehouse to Wheels' programme.
We also do all that we can to ensure we retain our driving talent
by recognising their skills through events such as the Wincanton
Driver of the Year competition. This long-established event is a
powerful engagement tool for our drivers and differentiates them
from their counterparts at other companies.
Our efforts to support our people have continued to be
recognised. For example, during the year we were immensely proud to
be named 'Training Team of the Year' in the Talent in Logistics
Awards 2018 who commented, "The team from Wincanton has shown its
commitment to continuously improve and strive for 'best practice'
within the company, and to promote its industry leader status".
We gather feedback from our people at every opportunity, through
both formal and informal interactions. The Your Pulse employee
engagement survey once again saw high levels of participation and
provided helpful feedback for management across the
organisation.
As we move into a new financial year, I know that our people
have the commitment and skills to deliver further improvements and
to push the boundaries of what is possible. I would like to thank
them for their continued dedication over the last year.
Financial Review
The Directors present the results of the business on an
underlying basis (excluding amortisation of acquired intangibles
and exceptional items, the related tax and exceptional tax items)
for operating profit, profit before tax and EPS where applicable,
as they believe this better represents the performance of the
business. A reconciliation of these measures to their statutory
equivalent is shown in the table at the end of this review.
The Group's revenue of GBP1,141.5m in the year ended 31 March
2019 was 2.6% lower than the prior year (2018: GBP1,171.9m). This
reflects the net impact of contract losses in the prior year which
have not yet been offset by the significant new business wins in
the second half of the current year.
Underlying operating profit grew by 4.5% to GBP55.3m as a result
of an improved mix in the contract portfolio, together with the
impact of performance improvement and cost management initiatives
across the Group, including the benefits from restructuring actions
taken last year. The exit in the prior year from certain contracts
which were not capable of delivering appropriate operating margins
for the Group has helped drive improvements in the Industrial &
Transport sector in particular and, as a result, the Group's
underlying operating margin has increased to 4.8% (2018: 4.5%).
Performance summary
2019 2018 Change
-------------------------------------------- ------- ------- -------
Revenue (GBPm) 1,141.5 1,171.9 (2.6)%
-------------------------------------------- ------- ------- -------
Underlying EBITDA (GBPm) 66.7 64.8 2.9%
-------------------------------------------- ------- ------- -------
Underlying operating profit (GBPm) 55.3 52.9 4.5%
Underlying operating margin (%) 4.8 4.5 30bps
Net financing costs (GBPm) (6.0) (6.5)
-------------------------------------------- ------- ------- -------
Underlying profit before tax (GBPm) 49.3 46.4 6.3%
Amortisation of acquired intangibles (GBPm) - (2.3)
Exceptional items (GBPm) (0.7) (6.2)
-------------------------------------------- ------- ------- -------
Profit before tax (GBPm) 48.6 37.9 28.2%
Income tax (GBPm) (5.8) (6.7)
-------------------------------------------- ------- ------- -------
Profit after tax (GBPm) 42.8 31.2 37.2%
-------------------------------------------- ------- ------- -------
Underlying EPS 33.5p 30.8p 8.8%
Basic EPS 34.5p 25.2p 36.9%
Dividend per share 10.89p 9.90p
Closing net debt (GBPm) (19.3) (29.5) (34.6)%
-------------------------------------------- ------- ------- -------
Net financing costs
2019 2018
GBPm GBPm
------------------------------------------------------ ----- -----
Net bank interest payable on loans 4.2 4.1
Unwinding of discount on provisions 0.8 0.6
Interest on the net defined benefit pension liability 1.0 1.8
------------------------------------------------------ ----- -----
Net financing costs 6.0 6.5
------------------------------------------------------ ----- -----
Net financing costs were GBP6.0m (2018: GBP6.5m), GBP0.5m lower
year on year.
Bank interest payable on loans was GBP4.2m (2018: GBP4.1m), an
increase of GBP0.1m reflecting the higher bank base rate year on
year.
The non-cash financing items total GBP1.8m (2018: GBP2.4m) and
comprise the discount unwinding on the Group's provisions for
property and insurance claims, which has increased primarily due to
changes in the discount rate applied to insurance provisions; plus
the financing charge in respect of the defined benefit deficit,
which is significantly lower in the year due to a reduced opening
deficit and a one-off lump sum contribution of GBP15.0m in the
first half of the year.
Exceptional items
2019 2018
GBPm GBPm
-------------------------------------------------------------------------------- ----- -----
Net profit on disposal of freehold property 6.0 -
Pension scheme - Guaranteed Minimum Pension ('GMP') (8.2) -
Revision to property provisions previously recognised through exceptional items 1.5 -
Restructuring costs - (8.2)
Pension scheme liability management exercise - 2.0
-------------------------------------------------------------------------------- ----- -----
Net exceptional items (0.7) (6.2)
-------------------------------------------------------------------------------- ----- -----
During the year we completed the disposal of a freehold property
receiving gross sales proceeds of GBP14.5m and incurring costs of
disposal and transitioning operations to another site of GBP1.2m
and GBP0.5m respectively. The carrying value of the property was
GBP6.8m generating a net profit on the disposal and transition of
GBP6.0m.
On 26 October 2018, the High Court of Justice of England and
Wales issued a judgement relating to Lloyds Banking Group requiring
equality of treatment of historic pension benefits for men and
women. We continue to work with the Trustee on the detail of
implementing this judgement and have recognised a non-cash past
service cost of GBP8.2m in the year. This is based on a number of
assumptions and the final actual impact may be different.
The Group negotiated an exit from a long-standing onerous
property lease in Dublin on favourable terms during the course of
the year. The full novation of this lease, partly offset by an
increase in provision for another long-standing lease, resulted in
a net exceptional credit of GBP1.5m.
We undertook a restructuring programme in the prior year to
competitively position the business for the future. A charge of
GBP8.2m was included as an exceptional charge in the prior year
principally comprising costs in relation to the exit of people and
associated property costs.
The conclusion of the pension scheme liability management
exercise in the prior year resulted in a settlement gain of GBP1.8m
together with a release of GBP0.2m due to the actual costs of the
exercise being lower than expected.
Taxation
2019 2018
------------------------------------------------------- ----- -----
Underlying profit before tax (GBPm) 49.3 46.4
------------------------------------------------------- ----- -----
Underlying tax (GBPm) 7.8 8.3
Tax on amortisation of acquired intangibles (GBPm) - (0.4)
Exceptional tax (GBPm) (2.0) (1.2)
------------------------------------------------------- ----- -----
Tax as reported (GBPm) 5.8 6.7
------------------------------------------------------- ----- -----
Effective tax rate on underlying profit before tax (%) 15.9% 18.0%
------------------------------------------------------- ----- -----
Underlying tax of GBP7.8m (2018: GBP8.3m) represents an
effective tax rate of 15.9% (2018: 18.0%) on underlying profit
before tax and is stated before tax credits of GBPnil (2018:
GBP0.4m) in respect of the amortisation of acquired intangibles and
net tax credits in respect of exceptional items of GBP2.0m (2018:
GBP1.2m).
The effective tax rate of 15.9% is lower than the statutory rate
of 19.0% due to adjustments arising from finalising prior year
positions and tax credits related to pension payments. The
exceptional tax credit of GBP2.0m in the year arises principally on
recognition of a deferred tax asset in relation to the exceptional
GMP charge.
The total net deferred tax asset has reduced to GBP4.2m (2018:
GBP11.5m), primarily as a result of the reduction in the pension
deficit and the deferred tax asset thereon.
Profit after tax and earnings per share
Underlying profit before tax for the year increased to GBP49.3m
(2018: GBP46.4m) due to improved operational performance in the
year.
Underlying profit after tax for the year is GBP41.5m (2018:
GBP38.1m). The increase of GBP3.4m is due to the improved
underlying operating profit and the lower effective tax rate of
15.9% (2018: 18.0%).
Profit after tax for the year on a statutory basis is GBP42.8m
(2018: GBP31.2m), the increase of GBP11.6m being due to
improvements in underlying operating profit and net financing costs
and higher exceptional costs in the prior year.
Underlying EPS, which excludes from earnings amortisation of
acquired intangibles and exceptional items, increased by 8.8% to
33.5p (2018: 30.8p). Basic EPS was 34.5p (2018: 25.2p) with the
increase again being explained by the lower exceptional costs in
the year and the higher amortisation cost in the prior year.
The calculation of these EPS measures is set out in Note 6 in
the disclosure notes below.
Dividends
2019 2018
pence pence
----------------- ------ ------
Interim 3.60 3.27
Final (proposed) 7.29 6.63
----------------- ------ ------
Total 10.89 9.90
----------------- ------ ------
In setting the dividend the Board considers a range of factors,
including the Group's strategy (including downside sensitivities),
the current and projected level of distributable reserves and
projected cash flows including cash payments to the pension
scheme.
The Board has proposed a final dividend of 7.29p per share for
the year ended 31 March 2019, an increase of 10.0% compared to the
final dividend paid in respect of the year ended 31 March 2018. The
dividend is approximately three times covered by earnings.
Dividend payments of GBP12.7m (2018: GBP11.6m) in the year
comprised the final dividend of 6.63p per share for the period
ended 31 March 2018 and the 2019 interim dividend of 3.60p per
share.
Financial position
The summary financial position of the Group is set out
below:
2019 2018
GBPm GBPm
--------------------------------------------------------- ------- -------
Non-current assets 122.9 136.0
Net current liabilities (excl. net debt) (133.2) (136.4)
Non-current liabilities (excl. net debt/pension deficit) (30.4) (33.1)
Net debt (19.3) (29.5)
Pensions deficit (gross of deferred tax) (7.1) (49.5)
--------------------------------------------------------- ------- -------
Net liabilities (67.1) (112.5)
--------------------------------------------------------- ------- -------
The reduction in net liabilities of GBP45.4m is represented by
the profit after tax of GBP42.8m, the continued reduction of the
pension deficit net of deferred tax of GBP16.8m, less dividends
paid in the year of GBP12.7m and other movements in equity of
GBP1.5m.
Cash flows and net debt
The Group delivered a GBP10.2m movement in net debt (2018:
GBP5.2m outflow) in the year, with a free cash inflow before
capital expenditure of GBP52.9m (2018: GBP39.0m) and a free cash
flow of GBP57.0m (2018: GBP25.0m). Free cash flow is defined as the
movement in net debt, before pension payments, dividends and the
acquisition of own shares.
2019 2018
GBPm GBPm
------------------------------------------ ------ ------
Underlying EBITDA 66.7 64.8
Working capital 0.8 (8.3)
Tax (1.5) (4.0)
Net interest (4.2) (4.1)
Other items (8.9) (9.4)
------------------------------------------ ------ ------
Free cash flow before capital expenditure 52.9 39.0
Capital expenditure (9.7) (14.5)
Net proceeds from asset disposals 13.8 0.5
------------------------------------------ ------ ------
Free cash flow 57.0 25.0
Pension recovery payment (32.3) (14.6)
Pension liability management exercise - (2.2)
Dividends (12.7) (11.6)
Own shares acquired (1.8) (1.8)
------------------------------------------ ------ ------
Reduction/(increase) in Net Debt 10.2 (5.2)
------------------------------------------ ------ ------
Working capital was broadly flat over the course of the year,
with an inflow of GBP0.8m (2018: GBP8.3m outflow). The prior year
movement was primarily due to investment in mobilising new
contracts.
The Group paid cash tax in the current year of GBP1.5m (2018:
GBP4.0m) with the reduction compared to the prior year driven by
the tax benefits from a one-off contribution to the pension fund of
GBP15.0m in August 2018. The cash tax payable continues to trend
below the underlying charge primarily due to the impact of tax
relief on the pension deficit recovery payments made in the
year.
The amount of cash net interest paid, excluding fees, of GBP4.2m
(2018: GBP4.1m) increased marginally in the year, reflecting the
increase in the bank base rate year on year.
Other items represent payments in relation to exceptional items,
including restructuring costs provided for in the prior year,
movements on property provisions, including onerous lease and
dilapidations payments, and movements in other provisions.
Capital expenditure of GBP9.7m (2018: GBP14.5m) includes
investment in IT systems including the enhancement of our transport
management system and warehouse management system
implementations.
Net proceeds from asset disposals comprise an under-utilised
freehold property which was disposed of for gross proceeds of
GBP14.5m, with costs of disposal and transition of GBP1.2m and
GBP0.5m respectively and proceeds from other asset disposals of
GBP1.0m (2018: GBP0.5m).
The cash contribution to fund the pension deficit of GBP32.3m
comprises GBP18.0m of annual deficit contributions, less GBP0.7m of
administrative expenses incurred by the Company, plus a one-off
lump sum payment of GBP15.0m. Contributions for the year ended 31
March 2020 are expected to be GBP17.7m, being the annual deficit
contribution of GBP18.4m less the administrative costs incurred
directly by the Company.
Equity dividends of GBP12.7m (2018: GBP11.6m) were paid in the
year, up 9.5% from the prior year.
The Group acquired 600,000 of its own shares (2018: 850,000)
during the year for a total payment of GBP1.5m (2018: GBP1.8m) to
provide shares for the Employee Benefit Trust in respect of its
long term incentive plan commitments. In addition, GBP0.3m (2018:
GBPnil) was paid at the beginning of the year in respect of shares
acquired immediately before the previous year end.
The Group has a committed syndicated bank facility of GBP141m as
at 31 March 2019 (2018: GBP141m) and the headroom between this
facility and reported net debt at 31 March 2019 was GBP122m (2018:
GBP112m). The Group also has operating overdrafts and a Receivables
Purchase Facility with Santander UK plc which provide day to day
flexibility, amounting to a further GBP8m and GBP50m respectively
in uncommitted facilities. GBP4.2m of the Receivables Purchase
Facility was utilised as at 31 March 2019.
The Group was successful in amending its syndicated bank
facility during the year, extending the term by an additional two
years to October 2023 and removing the mandatory prepayments of
GBP8.8m previously due in October 2019 and October 2020.
The Group maintains a swap instrument to give an appropriate
level of protection against changes in interest rates. At the year
end, GBP20m of debt was at fixed rates and the balance at floating
rates.
Wincanton operates comfortably within its banking covenants, as
summarised in the table below:
Covenant Ratio At 31 March 2019
-------------------------- -------- ----------------
Adjusted net debt: EBITDA <2.75:1 0.67
Interest cover >3.5:1 18.3
Fixed charge cover >1.4:1 3.3
-------------------------- -------- ----------------
Pensions
The Group operates a number of pension arrangements in the UK
and Ireland.
Defined benefit arrangements
The Wincanton plc Pension Scheme (the Scheme) includes defined
benefit sections which were closed to future accrual on 31 March
2014.
The membership data split by key categories is as follows:
2019 2018
----------- ------ ------
Deferred 7,102 7,404
Pensioners 5,887 5,810
----------- ------ ------
12,989 13,214
----------- ------ ------
During the year the Company reached an agreement with the
Trustee on the 2017 triennial valuation and recovery plan. The net
annual deficit contributions have been agreed at GBP17.3m per annum
increasing by RPI over the three years to March 2021 and GBP24.3m
per annum increasing by RPI from April 2022 to March 2027. In
addition, the Company made a one-off contribution of GBP15.0m in
August 2018. These payments are deductible for UK corporation tax
purposes in the year they are paid and therefore materially reduce
the net cash impact of the contributions to the Group.
At 31 March 2019, the Group has reported an IAS 19 deficit of
GBP7.1m (2018: GBP49.5m).
The deficit has reduced primarily due to cash contributions of
GBP32.3m in the year, comprising the lump-sum payment of GBP15.0m
and the agreed annual payment of GBP17.3m. The remainder of the
movement is primarily due to favourable movements in demographic
assumptions which have resulted in a reduction in liabilities of
approximately GBP25m, partly offset by an GBP8.2m increase in
liabilities in respect of Guaranteed Minimum Pensions.
On 26 October 2018, the High Court of Justice of England and
Wales issued a judgment relating to Lloyds Banking Group requiring
equality of treatment of historic pension benefits for men and
women (Guaranteed Minimum Pensions). We continue to work with the
Trustee on the detail of implementing this judgement, and have
recognised a past service cost of GBP8.2m as an estimate of this
impact. This is based on a number of assumptions and the final
actual impact may be different.
The interest and inflation rate risks facing the Scheme are
hedged and the Trustee has maintained the level of this hedge
during the year to 100% of the Scheme's assets. The discount rate
for calculating liabilities has reduced by 0.2% compared to the
prior year and on the IAS 19 basis of measurement, each 0.1%
reduction in the rate increases the liabilities of the Scheme by
approximately GBP22m. However, due to the hedging in place, assets
would also increase by approximately GBP24m.
Over recent years, the Trustee has pursued a diversification of
the investment portfolio as part of a de-risking strategy, and this
programme continued in the year ended 31 March 2019. As at 31 March
2019 the Scheme's investments were split between 31.0% in
return-seeking assets and 69.0% in defensive assets.
Defined contribution arrangements
The Group's defined contribution arrangements include the
Retirement Savings Section including the Auto Enrolment section,
and the Pension Builder Plan in the UK and a separate similar local
scheme in Ireland. Active membership of these schemes was 15,661
(2018: 15,728) in the year. The charge incurred for these
arrangements totals GBP24.6m (2018: GBP19.0m).
Brexit
Although uncertainty remains as to the outcome of the UK's
proposed withdrawal from the European Union ("Brexit"), our
understanding of potential risks and impacts are being regularly
reviewed and assessed.
We have, for example, reviewed the potential impact of Brexit,
including adverse economic consequences, on our existing contract
base, workforce, bidding activities and supply chain.
We do not believe that Wincanton will be materially affected by
the UK withdrawing from the European Union. This is based on the
following key points:
-- Our operations are generally delivered locally in-country and
are not critically dependent on a cross-border supply chain or
workforce. Wincanton's operations in Ireland are not a significant
part of the Group and represent c.1% of Group revenue.
-- As a UK-focused logistics business there is potential for
additional demand for our services under most Brexit scenarios,
including demand for warehouse space and management, management of
bonded goods and supply of container storage and
transportation.
-- Most of our existing contracts have provisions which allow
for inflationary and other adjustments (e.g. fuel price movements)
to be charged to our customers and 60% of our contracts are open
book contracts in which we do not bear the direct impact of
increasing costs.
-- A 'hard' Brexit without a transition period and/or an orderly
withdrawal may cause regulatory and compliance uncertainty on some
contracts that require performance under EU regulation, bodies
and/or standards; however, we believe such uncertainties will be
addressed under proposed new UK regulations following any
withdrawal.
-- Tariffs may affect the procurement of certain goods, such as
vehicles. In most instances, increases in the cost of imported
vehicles would be included in prices charged to customers.
-- We have reviewed our supply chain and are broadly comfortable
with our key suppliers' ability to maintain the provision of goods
and services on key contracts.
IFRS 16
IFRS 16 Leases was issued by the IASB in January 2016 and
becomes effective for the Group for the year ended 31 March 2020.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases for both lessees and lessors.
The Group intends to apply IFRS 16 on 1 April 2019 using the
modified retrospective approach; the cumulative effect of initial
adoption being recognised as an adjustment to the opening balance
of retained earnings as at 1 April 2019 with no restatement of
comparative information. The Group expects to recognise
right-of-use assets of approximately GBP130m and lease liabilities
of approximately GBP150m on 1 April 2019, together with a deferred
tax asset of approximately GBP2m. There is no cash impact of
adopting IFRS 16.
The final impact of IFRS 16 in the period of initial application
will depend on a number of factors including new leases agreed in
the period, the estimated lease term, extensions and termination
agreements and economic conditions. We will hold a briefing session
in advance of the half year results to explain the impact of IFRS
16 in more detail.
Alternative Performance Measures
Alternative performance measures (APMs) are used by the Board to
assess the Group's performance and are applied consistently from
one period to the next. They therefore provide additional useful
information for shareholders on the underlying performance and
position of the Group. Additionally, underlying profit before tax
is used in determining Annual bonus payments and underlying EPS is
used as a key performance indicator for the Long Term Incentive
Plan. These measures are not defined by IFRS and are not intended
to be a substitute for IFRS measures.
The Group presents underlying EBITDA, operating profit, profit
before tax and EPS which are calculated as the statutory measures
stated before amortisation of acquired intangibles and exceptional
items, including related tax and exceptional tax items where
applicable. The table below reconciles the APMs to the statutory
reported measures.
2019 2018
------------ ------------------------------------------------ --------------------------------------------------
Amortisation Amortisation
of acquired Exceptional of acquired Exceptional
Statutory intangibles items(1) Underlying Statutory intangibles(2) items(1) Underlying
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
Revenue
(GBPm) 1,141.5 - - 1,141.5 1,171.9 - - 1,171.9
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
EBITDA
(GBPm)(3) 66.0 - 0.7 66.7 58.6 - 6.2 64.8
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
Operating
profit
(GBPm) 54.6 - 0.7 55.3 44.4 2.3 6.2 52.9
Operating
margin (%) 4.8 - - 4.8 3.8 0.2 0.5 4.5
Net
financing
costs
(GBPm) (6.0) - - (6.0) (6.5) - - (6.5)
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
Profit
before tax
(GBPm) 48.6 - 0.7 49.3 37.9 2.3 6.2 46.4
Income tax
(GBPm) (5.8) - (2.0) (7.8) (6.7) (0.4) (1.2) (8.3)
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
Profit after
tax (GBPm) 42.8 - (1.3) 41.5 31.2 1.9 5.0 38.1
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
Earnings per
share(4) 34.5p 33.5p 25.2p 30.8p
Dividend per
share 10.89p 10.89p 9.90p 9.90p
Closing net
debt
(GBPm)(5) (19.3) (29.5)
------------ --------- ------------ ----------- ---------- --------- -------------- ----------- ----------
1 Notes 3 and 5 in the disclosure notes below provide further
detail of exceptional items and also includes any tax
releases/credits that are classed as exceptional.
2 Acquired intangibles were fully amortised at 31 March 2018 and
therefore there is no amortisation required for the year ended 31
March 2019.
3 EBITDA refers to operating profit before depreciation and
amortisation and is reconciled in Note 2 in the disclosure notes
below. EBITDA is not a statutory measure, but it is included in the
table above for completeness.
4 Note 6 in the disclosure notes below provides further detail
of underlying earnings per share.
5 Net debt is the sum of cash and bank balances, bank loans and
overdrafts and other financial liabilities. Note 8 in the
disclosure notes below provides a breakdown of net debt for the
current and prior periods.
Consolidated income statement
FOR THE YEARED 31 MARCH 2019
2019 2018
Note GBPm GBPm
------------------------------------------------------------ ---- ------- -------
Revenue 1,141.5 1,171.9
Underlying operating profit 2 55.3 52.9
------------------------------------------------------------ ---- ------- -------
Amortisation of acquired intangibles - (2.3)
Exceptional items 3 (0.7) (6.2)
------------------------------------------------------------ ---- ------- -------
Operating profit 2 54.6 44.4
Financing income 4 0.1 -
Financing cost 4 (6.1) (6.5)
------------------------------------------------------------ ---- ------- -------
Net financing costs 4 (6.0) (6.5)
------------------------------------------------------------ ---- ------- -------
Profit before tax 48.6 37.9
Income tax expense 5 (5.8) (6.7)
------------------------------------------------------------ ---- ------- -------
Profit attributable to equity shareholders of Wincanton plc 42.8 31.2
------------------------------------------------------------ ---- ------- -------
Earnings per share
- basic 6 34.5p 25.2p
- diluted 6 34.2p 24.8p
------------------------------------------------------------ ---- ------- -------
Consolidated statement of comprehensive income
FOR THE YEARED 31 MARCH 2019
2019 2018
Note GBPm GBPm
------------------------------------------------------------------------------------------ ---- ----- -----
Profit for the year 42.8 31.2
------------------------------------------------------------------------------------------ ---- ----- -----
Other comprehensive income/(expense)
Items which will not subsequently be reclassified to the income statement
Remeasurements of defined benefit liability 9 20.3 13.8
Income tax relating to items that will not subsequently be reclassified to profit or loss 5 (3.5) (2.4)
------------------------------------------------------------------------------------------ ---- ----- -----
16.8 11.4
Items which are or may subsequently be reclassified to the income statement
Effective portion of changes in fair value of cash flow hedges 0.1 (0.1)
Net change in fair value of cash flow hedges transferred to the income statement - 0.1
------------------------------------------------------------------------------------------ ---- ----- -----
0.1 -
------------------------------------------------------------------------------------------ ---- ----- -----
Other comprehensive income for the year, net of income tax 16.9 11.4
------------------------------------------------------------------------------------------ ---- ----- -----
Total comprehensive income attributable to equity shareholders of Wincanton plc 59.7 42.6
------------------------------------------------------------------------------------------ ---- ----- -----
Consolidated balance sheet
AT 31 MARCH 2019
2019 2018
Note GBPm GBPm
---------------------------------------------- ---- ------- -------
Non-current assets
Goodwill and intangible assets 84.0 82.7
Property, plant and equipment 34.5 41.7
Investments, including those equity accounted 0.2 0.1
Deferred tax assets 4.2 11.5
---------------------------------------------- ---- ------- -------
122.9 136.0
---------------------------------------------- ---- ------- -------
Current assets
Inventories 3.7 4.4
Trade and other receivables 137.7 140.7
Assets classified as held for sale 2.4 6.1
Cash and cash equivalents 8 12.7 17.6
---------------------------------------------- ---- ------- -------
156.5 168.8
---------------------------------------------- ---- ------- -------
Current liabilities
Income tax payable (6.1) (5.7)
Trade and other payables (260.8) (264.1)
Provisions (10.1) (17.8)
---------------------------------------------- ---- ------- -------
(277.0) (287.6)
---------------------------------------------- ---- ------- -------
Net current liabilities (120.5) (118.8)
---------------------------------------------- ---- ------- -------
Total assets less current liabilities 2.4 17.2
---------------------------------------------- ---- ------- -------
Non-current liabilities
Borrowings and other financial liabilities 8 (32.0) (47.1)
Employee benefits 9 (7.1) (49.5)
Provisions (30.4) (33.1)
---------------------------------------------- ---- ------- -------
(69.5) (129.7)
---------------------------------------------- ---- ------- -------
Net liabilities (67.1) (112.5)
---------------------------------------------- ---- ------- -------
Equity
Issued share capital 12.5 12.5
Share premium 12.9 12.9
Merger reserve 3.5 3.5
Hedging reserve - (0.1)
Translation reserve (0.3) (0.3)
Retained earnings (95.7) (141.0)
---------------------------------------------- ---- ------- -------
Total equity deficit (67.1) (112.5)
---------------------------------------------- ---- ------- -------
These financial statements were approved by the Board of
Directors on 15 May 2019 and were signed on their behalf by:
A Colman T Lawlor
Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
FOR THE YEARED 31 MARCH 2019
Retained earnings
-------------------
Issued Total
share Share Merger Hedging Translation Own Profit and equity
capital premium reserve reserve reserve shares loss deficit
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Balance at 1 April 2017 12.4 12.9 3.5 (0.1) (0.3) (0.5) (167.3) (139.4)
Profit for the year - - - - - - 31.2 31.2
Other comprehensive income - - - - - - 11.4 11.4
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Total comprehensive income - - - - - - 42.6 42.6
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Share based payment transactions - - - - - 0.7 (2.8) (2.1)
Current tax on share based payment
transactions - - - - - - 0.1 0.1
Own shares acquired - - - - - (2.1) - (2.1)
Shares issued 0.1 - - - - (0.1) - -
Dividends paid to shareholders - - - - - - (11.6) (11.6)
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Balance at 31 March 2018 12.5 12.9 3.5 (0.1) (0.3) (2.0) (139.0) (112.5)
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Balance at 1 April 2018 12.5 12.9 3.5 (0.1) (0.3) (2.0) (139.0) (112.5)
Profit for the year - - - - - - 42.8 42.8
Other comprehensive income - - - 0.1 - - 16.8 16.9
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Total comprehensive income - - - 0.1 - - 59.6 59.7
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Share based payment transactions - - - - - 1.3 (1.5) (0.2)
Current tax on share based payment
transactions - - - - - - 0.1 0.1
Own shares acquired - - - - - (1.5) - (1.5)
Dividends paid to shareholders - - - - - - (12.7) (12.7)
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Balance at 31 March 2019 12.5 12.9 3.5 - (0.3) (2.2) (93.5) (67.1)
---------------------------------- -------- -------- -------- -------- ----------- ------- ---------- --------
Consolidated statement of cash flows
FOR THE YEARED 31 MARCH 2019
2019 2018
GBPm GBPm
--------------------------------------------------------------------------- ------ ------
Operating activities
Profit before tax 48.6 37.9
Adjustments for
- depreciation and amortisation 11.4 14.2
- interest expense 6.0 6.5
- profit on disposal of property, plant and equipment (6.0) -
- share based payment transactions (0.2) (2.1)
--------------------------------------------------------------------------- ------ ------
59.8 56.5
Decrease/(increase) in trade and other receivables 3.0 (7.2)
Decrease/(increase) in inventories 0.7 (0.4)
Decrease in trade and other payables (2.9) (1.6)
(Decrease)/increase in provisions (11.2) 0.2
Increase/(decrease) in employee benefits before pension deficit payment 9.2 (2.6)
Income taxes paid (1.5) (4.0)
--------------------------------------------------------------------------- ------ ------
Cash generated before pension deficit payment 57.1 40.9
Pension deficit payment (32.3) (14.6)
--------------------------------------------------------------------------- ------ ------
Cash flows from operating activities 24.8 26.3
--------------------------------------------------------------------------- ------ ------
Investing activities
Proceeds from sale of property, plant and equipment 13.8 0.4
Proceeds from sale of computer software - 0.1
Interest received 0.1 -
Trade Investment (0.1) -
Additions of property, plant and equipment (6.4) (14.5)
Additions of computer software (3.3) -
--------------------------------------------------------------------------- ------ ------
Cash flows from investing activities 4.1 (14.0)
--------------------------------------------------------------------------- ------ ------
Financing activities
Own shares acquired (1.8) (1.8)
Borrowings repaid - (25.0)
(Decrease)/increase in borrowings (15.0) 6.9
Equity dividends paid (12.7) (11.6)
Interest paid (4.3) (4.1)
--------------------------------------------------------------------------- ------ ------
Cash flows from financing activities (33.8) (35.6)
--------------------------------------------------------------------------- ------ ------
Net decrease in cash and cash equivalents (4.9) (23.3)
Cash and cash equivalents at beginning of year 17.6 40.9
--------------------------------------------------------------------------- ------ ------
Cash and cash equivalents at end of year 12.7 17.6
--------------------------------------------------------------------------- ------ ------
Represented by:
- cash at bank and in hand 7.9 11.7
- restricted cash, being deposits held by the Group's insurance subsidiary 4.8 5.9
--------------------------------------------------------------------------- ------ ------
12.7 17.6
--------------------------------------------------------------------------- ------ ------
Notes to the consolidated financial statements
1. Accounting policies
The financial information set out in this preliminary
announcement does not constitute Wincanton plc's statutory accounts
for the years ended 31 March 2019 and 31 March 2018. Statutory
accounts for the year ended 31 March 2019 will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting. Statutory accounts for the year ended 31 March 2018 have
been delivered to the Registrar of Companies. The Auditor has
reported on those accounts; their reports were unqualified and did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The preliminary announcement has been prepared and approved by
the Directors in accordance with International Financial Reporting
Standards (IFRS) and its interpretations as adopted by the
International Accounting Standards Board (IASB) and by the EU
(Adopted IFRS).
2. Operating segments
Wincanton plc provides contract logistics services in the UK and
Ireland. The Group manages its operations in two distinct operating
segments; Retail & Consumer (including Retail General
Merchandise, Retail Grocery and Consumer Products) and Industrial
& Transport (including Transport Services, Construction and
Other).
The results of the operating segments are regularly reviewed by
the Executive Management Team (EMT) to allocate resources to these
segments and to assess their performance. The Group evaluates the
performance of the operating segments on the basis of revenue and
underlying operating profit. Assets and liabilities are reviewed at
a consolidated level only, therefore segmental information is not
provided.
Industrial & Industrial &
Retail & Consumer Transport Total Retail & Consumer Transport Total
2019 2019 2019 2018 2018 2018
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
Revenue from
external
customers(1) 708.9 432.6 1,141.5 691.7 480.2 1,171.9
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
Underlying
EBITDA(2) 36.9 29.8 66.7 36.4 28.4 64.8
Depreciation (4.5) (5.0) (9.5) (5.6) (4.4) (10.0)
Amortisation of
software
intangibles (1.2) (0.7) (1.9) (1.1) (0.8) (1.9)
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
Underlying
operating
profit(2) 31.2 24.1 55.3 29.7 23.2 52.9
Amortisation of
acquired
intangibles - (2.3)
Exceptional items 3 (0.7) (6.2)
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
Operating profit 54.6 44.4
Net financing
costs 4 (6.0) (6.5)
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
Profit before tax 48.6 37.9
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
Total Group
assets(3) 279.4 304.8
Additions to
reportable segment
non-current
assets:
- property, plant
and equipment 3.6 2.8 6.4 3.7 10.8 14.5
- computer
software costs 2.0 1.3 3.3 - - -
Total Group
liabilities (346.5) (417.3)
------------------ ---- ----------------- ----------------- ------- ----------------- ----------------- -------
1 Included in segment revenue is GBP1,129.0m (2018: GBP1,160.4m)
in respect of customers based in the UK.
2 Underlying EBITDA refers to underlying operating profit before
depreciation and amortisation. Underlying operating profit is
stated before amortisation of acquired intangibles and exceptional
items.
3 Total Group assets include non-current assets of GBP122.9m
(2018: GBP136.0m), of which GBP122.9m (2018: GBP135.9m) are held in
the UK.
Revenue of GBP213.1m (2018: GBP212.5m) and GBP131.9m (2018:
GBP145.7m) arose from sales to the Group's two largest single
customers, being groups of companies under common control, and is
reported within the Retail & Consumer segment above. No other
single customer or group of customers under common control
contributed 10% or more to the Group's revenue in either the
current or prior year.
3. Operating profit
Exceptional items
2019 2018
GBPm GBPm
-------------------------------------------- ----- -----
Impact of GMP equalisation (8.2) -
Profit on disposal of asset held for resale 6.0 -
Property provision movements 1.5 -
Restructuring costs - (8.2)
Pension liability management exercise - 2.0
-------------------------------------------- ----- -----
(0.7) (6.2)
-------------------------------------------- ----- -----
On 26 October 2018, the High Court of Justice of England and
Wales issued a judgment relating to Lloyds Banking Group requiring
equality of treatment of historic pension benefits for men and
women. We have recognised a past service cost of GBP8.2m as an
estimate of the impact of equalising this benefit. We are
continuing to work with the Trustee on the details of implementing
this judgement.
During the year we completed the disposal of a freehold property
previously reported as an asset held for sale, receiving gross sale
proceeds of GBP14.5m and incurring costs of disposal and
transitioning to another site of GBP1.2m and GBP0.5m respectively.
The carrying value of the property was GBP6.8m generating a net
profit on disposal and transition of GBP6.0m.
In the year the Group has revised estimates of property
provisions which had previously been set up via exceptionals. A
full novation of one lease on favourable terms has been partly
offset by the increase in the estimated costs on another.
In the prior year, the Group undertook a restructuring
programme, within the Industrial & Transport sector and the
Group's support functions, to competitively position the business
for the future. A charge of GBP8.2m was included as exceptional
comprising primarily of the costs of exit of people and associated
property costs.
The Group completed a pension scheme liability management
exercise in conjunction with the Trustee in the prior year with the
settlement gains and adjustment to the estimated costs of GBP2.0m
being recognised in the prior year.
4. Net financing costs
Recognised in the income statement
2019 2018
Note GBPm GBPm
------------------------------------------------------ ---- ----- -----
Interest income 0.1 -
------------------------------------------------------ ---- ----- -----
Interest expense (4.3) (4.1)
Unwinding of discount on provisions (0.8) (0.6)
Interest on the net defined benefit pension liability 9 (1.0) (1.8)
------------------------------------------------------ ---- ----- -----
(6.1) (6.5)
------------------------------------------------------ ---- ----- -----
Net financing costs (6.0) (6.5)
------------------------------------------------------ ---- ----- -----
5. Income tax expense
Recognised in the income statement
2019 2018
GBPm GBPm
---------------------------- ----- -----
Current tax expense
Current year 3.3 4.2
Adjustments for prior years (1.3) (0.8)
---------------------------- ----- -----
2.0 3.4
---------------------------- ----- -----
Deferred tax expense
Current year 3.6 3.0
Adjustments for prior years 0.2 0.3
---------------------------- ----- -----
3.8 3.3
---------------------------- ----- -----
Total income tax expense 5.8 6.7
---------------------------- ----- -----
2019 2018
GBPm GBPm
---------------------------------------------------------------- ----- -----
Reconciliation of effective tax rate
Profit before tax 48.6 37.9
---------------------------------------------------------------- ----- -----
Income tax using the UK corporation tax rate of 19% (2018: 19%) 9.2 7.2
Non-deductible expenditure 0.1 0.3
Exceptional items in income statement (2.0) -
Change in UK corporation tax rate (0.4) (0.3)
Adjustments for prior years
- current tax (1.3) (0.8)
- deferred tax 0.2 0.3
Total tax expense for the year 5.8 6.7
---------------------------------------------------------------- ----- -----
Recognised in other comprehensive income
2019 2018
GBPm GBPm
--------------------------------------------------------------------------- ----- -----
Items which will not subsequently be reclassified to the Income statement:
Remeasurements of defined benefit pension liability 3.5 2.4
--------------------------------------------------------------------------- ----- -----
Recognised directly in equity
2019 2018
GBPm GBPm
------------------------------------------------ ----- -----
Current tax on share based payment transactions (0.1) (0.1)
------------------------------------------------ ----- -----
The main UK Corporation tax rate remained at 19% (2018: 19%) and
will reduce to 17% with effect from 1 April 2020 which should
reduce the Group's future current tax charge accordingly.
The Group maintains a provision against tax risks, which is
included within income tax payable.
The total tax expense above includes tax credits of GBPnil
(2018: GBP0.4m) in respect of amortisation of acquired intangibles
and exceptional tax of GBP2.0m (2018: GBP1.2m).
6. Earnings per share
The earnings per share calculation is based on the profit
attributable to the equity shareholders of Wincanton plc of
GBP42.8m (2018: GBP31.2m) and the weighted average shares in issue
excluding those held within an Employee Benefit Trust, throughout
the year as calculated below of 124.0m (2018: 123.8m). The diluted
earnings per share calculation is based on there being 1.3m (2018:
2.1m) additional shares deemed to be issued at GBPnil consideration
under the Company's share option schemes.
2019 2018
millions millions
------------------------------------------------------------------- --------- ---------
Weighted average number of Ordinary Shares (basic)
Issued Ordinary Shares at the beginning of the year(1) 123.7 123.5
Net effect of shares issued and purchased during the year 0.3 0.3
------------------------------------------------------------------- --------- ---------
124.0 123.8
------------------------------------------------------------------- --------- ---------
Weighted average number of Ordinary Shares (diluted)
Weighted average number of Ordinary Shares for the year (as above) 124.0 123.8
Effect of share options on issue 1.3 2.1
------------------------------------------------------------------- --------- ---------
125.3 125.9
------------------------------------------------------------------- --------- ---------
1 The number of shares excludes 0.8m Ordinary Shares (2018:
0.3m) being the weighted average number of the Company's own shares
held within an Employee Benefit Trust.
An alternative earnings per share measure is set out below,
being earnings before amortisation of acquired intangibles and
exceptional items, including related tax and exceptional tax items
where applicable, since the Directors consider that this provides
further information on the underlying performance of the Group:
2019 2018
pence pence
------------------------------ ------ ------
Underlying earnings per share
- basic 33.5 30.8
- diluted 33.1 30.3
------------------------------ ------ ------
Underlying earnings are determined as follows:
2019 2018
Note GBPm GBPm
------------------------------------------------------------------------- ---- ----- -----
Profit for the year attributable to equity shareholders of Wincanton plc 42.8 31.2
Exceptional items 3 0.7 6.2
Amortisation of acquired intangibles - 2.3
Tax impact of above items and exceptional tax items (2.0) (1.6)
------------------------------------------------------------------------- ---- ----- -----
Underlying earnings 41.5 38.1
------------------------------------------------------------------------- ---- ----- -----
7. Dividends
Dividends paid in the year comprise:
2019 2018
GBPm GBPm
----------------------------------------------------------------------------------------- ----- -----
Final dividend for the year ended 31 March 2018 of 6.63p per share (2017: 6.1p) 8.2 7.6
Interim dividend for the period ended 30 September 2018 of 3.60p per share (2017: 3.27p) 4.5 4.0
----------------------------------------------------------------------------------------- ----- -----
12.7 11.6
----------------------------------------------------------------------------------------- ----- -----
The Directors are proposing a final dividend of 7.29p per share
for the year ended 31 March 2019 (2018: 6.63p) which, if approved
by shareholders, will be paid on 2 August 2019 to shareholders on
the register on 5 July 2019, an estimated total of GBP9.0m. The
proposed final dividend is subject to approval by shareholders at
the Annual General Meeting on 27 June 2019 and in accordance with
Adopted IFRS has not been included as a liability in these
financial statements.
In setting the dividend the Directors have considered a range of
factors, including the Group's strategy (including downside
sensitivities), the Group's net debt position, the current and
projected level of distributable reserves and projected cash flows
including cash payments to the pension scheme.
The Employee Benefit Trust has waived the right to receive
dividends in respect of the shares it holds.
8. Financial instruments
Analysis of changes in net debt
1 April 2018 Cash flow 31 March 2019
GBPm GBPm GBPm
---------------------------- ------------ --------- -------------
Cash and bank balances 17.6 (4.9) 12.7
Bank loans and overdrafts (47.0) 15.0 (32.0)
Other financial liabilities (0.1) 0.1 -
---------------------------- ------------ --------- -------------
Net debt (29.5) 10.2 (19.3)
---------------------------- ------------ --------- -------------
9. Employee benefits
The employee benefit liabilities of the Group comprise the
post-retirement obligations of the Group's pension arrangements,
which are discussed in detail below:
2019 2018
GBPm GBPm
---------------- ----- -----
Pension schemes 7.1 49.5
---------------- ----- -----
These employee benefits are classified as non-current.
Pension schemes
Employees of Wincanton participated in funded pension
arrangements in the UK and Ireland during the year ended 31 March
2019 details of which are given below.
The principal Wincanton Scheme in the UK (the Scheme) is a
funded arrangement which has two defined benefit sections and two
defined contribution sections, called the Wincanton Retirement
Savings Section and the Wincanton Pension Builder Plan. The
employees of Wincanton Ireland Limited are eligible to participate
in a separate defined contribution scheme. Assets of these pension
arrangements are held in separate Trustee administered funds
independent of Wincanton. The weighted average duration of the
funded defined benefit obligation is approximately 19 years.
In previous years, a small number of employees, who were subject
to the statutory earnings cap on pensionable earnings prior to 6
April 2006, were entitled to participate in an unfunded unapproved
arrangement in addition to accruing benefits from the Scheme. There
have been no active members of this arrangement throughout current
or comparative years.
The defined benefit sections of the Scheme were closed to future
accrual on 31 March 2014. This means that no future service benefit
will accrue but pensions built up to the date of closure have been
preserved.
Triennial valuation
The latest formal valuation of the Scheme was carried out as at
31 March 2017 by the Scheme actuary, Hymans Robertson, and was
agreed with the Trustee during the year. The annual deficit funding
contributions have been agreed at GBP18.0m per annum increasing by
RPI over the three years to March 2021, followed by GBP25.0m per
annum increasing by RPI from April 2022 to March 2027. In addition,
the Group made a one-off contribution of GBP15.0m in August 2018.
The agreement is also subject to other provisions agreed with the
Trustee being:
-- Additional contributions become payable if distributions to
shareholders (dividends and share-buy-backs) grow year-on-year in
excess of 10%. The matching will only be in relation to the
distribution amounts above the thresholds, and are calculated at
50% of the excess or 100% of any distribution growth above 15%.
-- Additional contribution payments become payable in the event
of severe adverse Scheme investment performance where the actual
deficit in the Scheme exceeds an agreed threshold above the
expected deficit at the end of the two consecutive six-month
reporting periods.
-- A one-off payment to the Scheme of GBP6.0m in any year if
both the underlying profit after tax is lower than the level of
profit after tax reported in the 2017/18 financial year and the
dividend payout ratio increases to over 40% of profit after
tax.
-- In the event of disposals of businesses within the Group, an
amount will be paid to the Scheme equal to 50% of the combined net
proceeds for the first GBP30.0m of the proceeds in any financial
year.
As with the previous agreement, it has been agreed that certain
administration expenses would be paid directly by the Group and
deducted from the deficit funding contributions. The expenses,
which amount to GBP0.7m (2018: GBP0.7m) are not included in the
contributions below.
The agreement constitutes a minimum funding requirement (MFR)
under IFRIC 14 IAS 19 The limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction. The Group has not
recognised any liabilities in relation to this MFR as any surplus
would be recordable as the Group has the unconditional right to a
refund.
Contributions
The deficit funding contribution in the year, net of the above
expenses was GBP32.3m, which includes the one-off contribution of
GBP15.0m (2018: GBP16.1m including a GBP1.5m top up payment to the
Scheme as a result of an enhanced transfer value exercise).
In the year commencing 1 April 2019, the Group is expected to
make deficit funding contributions of GBP18.4m (GBP17.7m after
deduction of certain administration expenses mentioned above). In
addition, other administration costs of the Scheme will be borne
directly by the Group, these are expected to total GBP0.6m.
Risks
The defined benefit sections of the Scheme expose the Group to
various risks: longevity risk (members living longer than
expected), inflation and interest rate risk (higher or lower than
expected), and market (investment) risk (lower returns than
expected). The Trustee and Group have taken steps to mitigate these
risks through the use of:
-- hedging instruments within the investment portfolio; and
-- diversification of the investment portfolio.
The Group is not exposed to any unusual, entity specific or
scheme specific risks.
Net defined benefit liability
The assets and liabilities of the defined benefit sections of
the Group are calculated in accordance with IAS 19 Employee
Benefits (Revised) and are set out in the tables below.
The calculations under IAS 19 are based on actuarial assumptions
which are the best estimates chosen from a range of possible
assumptions about the long term future which, unless by chance,
will not necessarily be borne out in practice. The fair value of
the assets, which are not intended to be realised in the short
term, may be subject to significant change before they are
realised, and the present value of the liabilities are derived from
cash flow projections over long periods and are thus inherently
uncertain.
2019 2018
GBPm GBPm
------------------------------------------------------ --------- ---------
Present value of unfunded defined benefit obligations (2.5) (2.3)
Present value of funded defined benefit obligations (1,151.2) (1,123.1)
Fair value of Scheme assets 1,146.6 1,075.9
------------------------------------------------------ --------- ---------
Net defined benefit liability (7.1) (49.5)
------------------------------------------------------ --------- ---------
The movement in the above net defined benefit liability in the
year was primarily the result of a reduction in liabilities due to
changes in demographic assumptions, an increase in the market value
of the investments and contributions received from the Group, being
partly offset by an increase in liabilities resulting from a
decrease in the discount rate and an increase in the inflation rate
assumption. The net defined benefit liability, after taking into
account the related deferred tax asset, is GBP5.9m (2018:
GBP41.1m).
Movements in the present value of the net defined benefit
liability
Unfunded Total
Assets Obligations Net liability arrangements net liability
31 March 2019 GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ------- ----------- ------------- ------------- --------------
Opening position 1,075.9 (1,123.1) (47.2) (2.3) (49.5)
Included in Income statement:
Administration costs (1.9) - (1.9) - (1.9)
Past service cost - (8.2) (8.2) - (8.2)
Interest on the net defined benefit liability 28.0 (28.9) (0.9) (0.1) (1.0)
Cash:
Employer contributions 33.2 - 33.2 - 33.2
Benefits paid (36.2) 36.2 - - -
Included in Other comprehensive income:
Changes in financial assumptions - (58.7) (58.7) (0.1) (58.8)
Changes in demographic assumptions - 25.0 25.0 - 25.0
Experience - 6.5 6.5 - 6.5
Return on assets excluding amounts included
in net financing costs 47.6 - 47.6 - 47.6
---------------------------------------------- ------- ----------- ------------- ------------- --------------
Closing defined benefit liability 1,146.6 (1,151.2) (4.6) (2.5) (7.1)
---------------------------------------------- ------- ----------- ------------- ------------- --------------
Unfunded Total
Assets Obligations Net liability arrangements net liability
31 March 2018 GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- ------- ----------- ------------- ------------- --------------
Opening position 1,080.5 (1,156.7) (76.2) (2.2) (78.4)
Included in Income statement:
Administration costs (1.7) - (1.7) - (1.7)
Effects of settlements (25.8) 27.6 1.8 - 1.8
Interest on the net defined benefit liability 27.3 (29.1) (1.8) - (1.8)
Cash:
Employer contributions 16.8 - 16.8 - 16.8
Benefits paid (39.5) 39.5 - - -
Included in Other comprehensive income:
Changes in financial assumptions - (33.4) (33.4) (0.1) (33.5)
Changes in demographic assumptions - 23.8 23.8 - 23.8
Experience - 5.2 5.2 - 5.2
Return on assets excluding amounts included
in net financing costs 18.3 - 18.3 - 18.3
---------------------------------------------- ------- ----------- ------------- ------------- --------------
Closing defined benefit liability 1,075.9 (1,123.1) (47.2) (2.3) (49.5)
---------------------------------------------- ------- ----------- ------------- ------------- --------------
The amounts recognised in the income statement comprise
administration costs, past service costs, the effect of settlements
and interest on the net defined benefit liability. These charges
are included in the following lines in the income statement:
2019 2018
Note GBPm GBPm
---------------------------------------------- ---- ------ -----
Within underlying operating profit:
Administrative expenses (1.9) (1.7)
Within exceptional items:
Past service costs (8.2) -
Effect of settlements - 1.8
Within finance costs:
Interest on the net defined benefit liability 4 (1.0) (1.8)
---------------------------------------------- ---- ------ -----
Recognised in Income statement (11.1) (1.7)
---------------------------------------------- ---- ------ -----
The market value of the Scheme assets held at the end of the
year were as follows:
2019 2018
GBPm GBPm
------------------------------------------------------------------ ------- -------
Equities and synthetic equities 143.3 214.5
Hedge funds - 51.1
Property and other growth assets 7.1 16.3
Corporate bonds 302.9 118.0
Multi asset credits - 82.6
Secured finance 86.6 -
Senior real estate and private debt 118.6 98.9
Index-linked gilts (LDI portfolio collateral) 593.4 576.9
Notional exposure for synthetic equities/LDI hedging arrangements (111.8) (109.7)
Other, including cash 6.5 27.3
------------------------------------------------------------------ ------- -------
1,146.6 1,075.9
------------------------------------------------------------------ ------- -------
All equities, LDI portfolio collateral, corporate bonds and
funds have quoted prices in active markets. The senior real estate
and private debt along with the property assets are illiquid assets
and trade on a less regular basis.
The synthetic equities provide exposure to the UK, North
America, Europe, Asia-Pacific and Japan. The LDI portfolio
currently hedges 100% of the defined benefit scheme's inflation
rate risk and interest rate risk (relative to Scheme assets)
through holding a combination of index-linked gilts, interest rate
and inflation swaps, gilt total return swaps, gilt repos and cash.
The Scheme does not directly hold any financial instruments issued
by the Company.
Actuarial assumptions
The principal actuarial assumptions for the Scheme and for the
UK unfunded arrangement at the balance sheet date were as
follows:
2019 2018
% %
------------------------------------------- --------- ---------
Discount rate 2.40 2.60
Price inflation rate - RPI 3.45 3.35
Price inflation rate - CPI 2.45 2.35
Rate of increase of pensions in deferment 2.45 2.35
Rate of increase of pensions in payment(1) 1.90-3.30 1.85-3.25
------------------------------------------- --------- ---------
1 A range of assumed rates exist due to the application of
annual caps and floors to certain elements of service.
The assumptions used for mortality rates for members of these
arrangements at the expected retirement age of 65 years are as
follows:
2019 2018
Years Years
--------------------- ------ ------
Male aged 65 today 20.6 21.1
Male aged 45 today 22.6 23.0
Female aged 65 today 22.3 22.9
Female aged 45 today 25.2 25.4
--------------------- ------ ------
Sensitivity table
The sensitivity of the present value of the Scheme obligations
to changes in the key actuarial assumptions are set out in the
following table. The illustrations consider the result of only a
single assumption changing with the others assumed unchanged and
includes the impact of the interest rate and inflation rate
hedging. In reality it is more likely that more than one assumption
would change and potentially the results would offset each other,
for example, a fall in interest rates will increase the Scheme
obligations, but may also trigger an offsetting increase in market
value of certain Scheme assets.
Increase/ Increase/
(decrease) (decrease)
Change in in liability in assets
assumption GBPm GBPm
---------------------- ----------- ------------- -----------
Discount rate -0.1% 22.0 24.0
Price inflation - RPI +0.1% 16.0 16.0
Mortality rate + 1 year 46.0 -
---------------------- ----------- ------------- -----------
Defined contribution schemes
The total expense relating to the Group's defined contribution
schemes in the current year was GBP24.6m (2018: GBP19.0m).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGUGUAUPBGRA
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May 16, 2019 02:00 ET (06:00 GMT)
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