Final Results

Wincanton PLC 12 June 2003 FOR IMMEDIATE RELEASE 12 June 2003 WINCANTON plc Preliminary Announcement of Results for the financial year ended 31 March 2003 TWELVE MONTHS OF CHANGE, A YEAR OF TRANSFORMATION 2003 2002 Change £m £m Turnover Existing operations 812.1 745.6 +8.9% Acquisition (3 months) 185.9 - 998.0 745.6 +33.9% Adjusted Operating Profit Existing operations 31.1 29.7 +4.7% Acquisition (3 months) 2.2 - 33.3 29.7 +12.1% Interest (5.0) (3.9) Adjusted Profit before tax 28.3 25.8 +9.7% Adjustments (Note) (1.6) 5.0 Profit before tax 26.7 30.8 Adjusted Basic earnings per share 16.5p 16.0p +3.1% Basic earnings per share 17.5p 19.2p Final Dividend 6.75p 6.30p +7.1% Full Year Dividend 10.06p 9.45p +6.5% Note: Operating profit, profit before tax and earnings per share have been adjusted to exclude pension credit (+£4.0m), exceptional items (- £5.3m) and goodwill amortisation (-£0.3m). HIGHLIGHTS * Another strong operational and financial performance from the existing Wincanton operations. * Growth again driven by strong new business flow. * Major strategic advance with December 2002 acquisition of Trans European. * Rapid progress in acquisition integration, target savings of £2.0m pa expected to be exceeded. * Wincanton now a strong No. 2 in the UK market and one of the top 3 companies in its sector in Europe. * Encouraging start to the new financial year. Commenting on the results, Paul Bateman, Wincanton's Chief Executive, said: 'In a year of transformation for Wincanton we added a major strategic acquisition to another good performance from our existing operations. We look to the future of the enlarged group with confidence.' For further enquiries please contact: Wincanton plc Paul Bateman, Chief Executive Tel: 020 7466 5000 today, thereafter Gerard Connell, Group Finance Director Tel: 01963 828206 Buchanan Communications Ltd Tel: 020 7466 5000 Charles Ryland, Jeremy Garcia WINCANTON plc PRELIMINARY ANNOUNCEMENT Year ended 31 March 2003 CHAIRMAN'S STATEMENT Challenging for European leadership This was a year in which Wincanton made further progress in profit as well as a major acquisition. A 4.7% increase in operating profit (before pension credit and exceptional items) from existing operations, to £31.1m, represents a creditable performance in difficult markets. The newly acquired Trans European business contributed £2.2m of operating profit (before goodwill amortisation and exceptional items) in its first three months of ownership. The combination of these gives a Group adjusted operating profit of £33.3m. Profit progress was accompanied by another strong cash flow performance. The cash inflow from operations, before interest, tax and dividends, but after capital expenditure, was £61.9m. Your Board is proposing a final dividend of 6.75p which represents a 7.1% increase compared to last year's final dividend and a 6.5% increase on the dividend paid in respect of the full financial year 2001/02. At the time of demerger in May 2001, your Board indicated that the Company's strategy would be to continue to grow Wincanton's UK operations whilst, at the same time, seeking opportunities to develop into Continental Europe. In the two years since demerger, Wincanton has successfully delivered a strong financial performance from its existing UK operations, expanding both its customer base and its range of services. In order to achieve the second key step in the Company's strategy, and following an extensive review of a range of possible acquisition opportunities, your Board received shareholder approval in December to proceed with the acquisition of P&O Trans European for a debt free purchase price of £152.5m. New bank facilities of £270.0m were put in place to fund the acquisition and borrowings then outstanding. Net borrowings at 31 March 2003 were £147.7m. That Wincanton was able to make such a move, placing itself in a position to challenge for European leadership in its markets, owes much to the enormous contribution of Chas Lawrence over many years. Chas stepped down as Chief Executive in October because of his wife's illness. Trans European is a profitable business which operates from over 200 sites in 15 countries across Europe. Its UK activities complement our existing operations. Its Continental European activities include well-established businesses in France, Spain, Germany and Benelux, and a growing presence in the markets of Eastern Europe. Trading partners in other countries, such as Italy and Austria, substantially complete the European coverage. This geographic network offers an attractive platform for further profitable growth. The acquisition represents a major step forward for Wincanton. It has consolidated the Group's position as the second largest Company in the UK logistics market. At the same time, it has established Wincanton as one of the top three companies, by turnover, in the European logistics market overall. Already recognised as a leader in its UK market, Wincanton is now capable of serving the needs of its blue-chip customers across the continent. We were very pleased to announce, in October, the appointment of Paul Bateman as the new Chief Executive. Paul has a lifetime's experience of the supply chain industry and a strong operational and strategic track record. In his statement in the pages that follow, Paul outlines his assessment of the progress made in the financial year, the integration of the Trans European acquisition and the outlook for the enlarged business. For future reporting purposes we will no longer segment our UK activities between Consumer and Industrial. Our operations will be appropriately reported only as 'UK & Ireland' and 'Continental Europe'. Wincanton has increased in scale financially, operationally and geographically, significantly enhancing its ability to support the growth strategies of its blue-chip customers. We have been very encouraged by customer response to the acquisition. The customer bases of Wincanton and Trans European are largely complementary, and Wincanton's presence in the retail and fast-moving consumer goods sectors will fit well with the more industrial customer base of Trans European. Trans European also brings a range of new skills to add to Wincanton's leadership in areas such as retail logistics, tankers and automated warehousing. We believe there to be attractive opportunities for incremental growth from this enhanced portfolio of customers and skills and the presence of the enlarged Group throughout Europe. Outsourcing markets are competitive but growing. Wincanton, as a result of the Trans European acquisition, is now better placed to continue to add value for customers and shareholders in these markets. The Group now employs over 24,000 people. We are pleased to welcome the Trans European employees, many of whom have taken up senior positions across the enlarged business. It was important to us that the two companies were found to have so many values in common. Customer focus, care for our employees and professionalism and integrity in the conduct of our business will continue to be as important to the new Group in the future as they have been to each company in the past. The acquisition process inevitably absorbed significant management resource at both Trans European and Wincanton. It is a credit to both businesses that it was successfully completed without loss of focus on meeting the exacting requirements of our customers in respect of both day-to-day performance and new projects. Thanks are due to all our employees for having delivered another year of good progress, operationally and financially, during this time of major strategic change. We are confident that, in line with the commitment in the shareholders' circular describing the acquisition, annual cost savings of not less than £2.0m p.a. will be delivered within 18 months. We now believe that this initial target will be exceeded. Further profit improvement is expected to come from an acceleration in the rate of new business growth. This will be generated from the broader customer, service and geographic base of the enlarged Group. We expect to achieve the final cost savings, and an enhanced new business flow, within three years of the acquisition. The acquisition of Trans European represents a significant challenge for Wincanton. Your Company has the resources to address this challenge successfully. CHIEF EXECUTIVE'S STATEMENT Twelve months of change, a year of transformation The acquisition of Trans European has changed Wincanton from a strong player in its national market into one of the leading supply chain management companies in Europe. The enlarged Group has a well-diversified customer base, a wide range of skills and a pan-European presence that is amongst the best in the sector. I am delighted to have joined the Company at this challenging and exciting stage in its development. We have much to do to deliver the full potential of the enlarged Group, but I believe that the acquisition has significantly enhanced Wincanton's prospects for sustainable, profitable growth. Progress on integration Good progress has already been made towards our integration objectives. A major task for us, both pre and post acquisition, has been to work to ensure no loss of focus on existing customers and operations. One of Wincanton's key strengths over many years has been its focus on customer service and performance. I am pleased to say that performance delivery has continued to meet our customers' exacting requirements during the critical early months of the integration process. This has been our first success. Our second success has been in the speed with which the UK businesses of Wincanton and Trans European have been integrated. The ability to drive costs out of the enlarged UK business was a key area of opportunity identified during due diligence. We moved quickly to rationalise the senior management and central service functions, implemented a new UK management structure under Graeme McFaull and announced the closure of Trans European's UK head office, subject to consultation. We are confident that our commitment to shareholders to deliver £2.0m p.a. of cost savings within 18 months of acquisition will be successfully delivered and exceeded. Our third success has been in the rapid assessment of the initial actions required to improve the performance of certain Continental European operations. Peter Brown, formerly head of our Industrial business unit, relocated immediately post acquisition to Mannheim, the head office for Trans European's Continental operations. Although performance improvement in Continental Europe will take longer to deliver than in the UK, early signs of the potential for both increased efficiencies and new business opportunities are encouraging. In addition to the good operational progress already made, we have also begun to extend Wincanton's financial disciplines to the acquired businesses. Again, this is a process that will take time to implement in full. We are confident, however, that increased focus on areas such as working capital and capital expenditure will improve the cash flow profile of the Trans European operations. Performance review Starting in the new financial year, we will report turnover and operating profit for the UK & Ireland and for Continental Europe only. This reflects both our new management structure and the increasingly integrated nature of our business in respect of customers, sectors and services. For the purpose of the current year to 31 March 2003 the comments set out below also address the business as a whole rather than in its previous constituent parts. Underlying markets remained competitive throughout the year. Wincanton nonetheless produced another year of good operational and financial progress. The supply chain remains an area of critical importance to our customers, in terms of both cost and service levels to their own customers. The continuing search for performance improvement and increased efficiencies in the supply chain again provided opportunities for Wincanton. New business discussions therefore kept our development teams very active, particularly in respect of initiatives for retail customers. The ability to identify opportunities to expand our range of services has been an important element in Wincanton's growth. The year to 31 March 2003 was no exception. In addition to initiatives such as Wincanton Store Development Services, a successful expansion of our retail service offering into store fittings, we were pleased to be able to announce in November two new joint ventures that significantly enhanced our range of services. These joint ventures, in respect of inbound logistics and reverse logistics, two promising areas of future growth, are beginning to establish their credentials in the market. Initial customer response has been encouraging, with a number of interesting projects already progressing to the development stage. KNW Retail Solutions is a 50:50 venture with Kuhne & Nagel, a company with strong credentials in international freight forwarding and supply chain management. The service offering of KNW Retail Solutions is therefore based on a strong combination of Kuhne & Nagel's acknowledged expertise in the global movement of goods and Wincanton's leadership in UK retail logistics. The joint venture gives customers the ability to manage all product movement from country of origin to UK distribution centre, or point of sale, on a fully integrated basis. R-Log is a 50:50 venture with the US company Genco. It has been established to help retail customers design and implement reverse logistics solutions. Reverse logistics focuses on the efficient movement of products back from point of sale to retailer warehouse. Genco has developed specialist software for managing such movements, enabling them to secure contracts with some of the biggest retailers in the US. The combination of Genco's software and track record with Wincanton's customer base and transport and logistics expertise is already meeting with a positive response. Further opportunities for this service will be created when the EU's Waste Electrical and Electronic Equipment Directive comes into force in the UK in 2005. Under this regulation, retailers of electrical and electronic goods will be legally obliged to dispose of old appliances when consumers buy replacements. R-Log is ideally positioned to service this need. As in previous years, existing customers were again a significant source of new business. A new fully automated warehouse, for Heinz, was opened during the year. We now manage ten such facilities, including one in Germany, making us the market leader in this highly specialist field. We were pleased to expand further our relationships with customers such as B&Q, Nestle Purina PetCare, Argos, Somerfield, Tesco and Total. Systems-driven initiatives also continued to be key to customer development. Examples include new voice-picking technology introduced for Somerfield and an innovative package of transport optimisation modules now in operation for Safeway. Contract renewals included long-standing relationships such as J Sainsbury, MG Rover, Comet, Britvic, Safeway and Midlands Co-op. Wins with new customers such as Heineken and Procter & Gamble further expanded the portfolio of blue-chip companies for which we operate. Pullman Fleet Services, our specialist vehicle maintenance operation, expanded its business with new and existing customers such as Tesco.com, Kerry Foods, BOCM Pauls, Woolworths, Iceland and Littlewoods. The quality of our customer service was reflected in our continuing success in terms of customer awards. The award from Scottish & Newcastle Retail as 'Supplier of the Year 2003', for example, recognised not just high levels of service delivery but successful provision of a range of value-added services including demand planning, electronic ordering, complaints administration and inventory management. A safety award from Conoco, following the successful conclusion of the first year of this 5-year contract without a single lost time accident, was a pleasing acknowledgement of our focus on health and safety. The site managed for Comet at Westbury also won an award for damage reduction, reflecting the real cost savings that can be delivered to customers through good warehouse practice. The Wincanton team who manage Tesco's Middleton warehouse, one of a number of distribution centres operated for this customer, also received performance and teamwork awards in recognition of high levels of service achievement. In financial terms, the year saw further profit and cash flow progress. Wincanton, pre acquisition, added approximately £100m of annualised turnover through new business wins, mostly with existing customers. Adjusted operating profit improvement, at 4.7%, would have been more significant but for adverse volume movements in our chilled consolidation operations as a result of retailer moves to factory gate pricing. New business was again substantially either customer funded or financed through operating leases back-to-back with customer contracts. Cash flow from operations was therefore strong. The January to March quarter tends to be a period of lower volumes for the acquired Trans European business. There was a generally good performance in contract-based operations across Europe, particularly at Mondia in France, in the fast-growing Polish operations and in joint venture activities such as PGN. There was, as expected, continued volume weakness in the shared user transport and warehousing businesses. The intermodal operations in Germany were also adversely affected by the closure of the Rhine to barge traffic for a week in January. We have seen volume improvements since the year end, particularly in the UK, and have begun to take steps to reduce costs and improve efficiencies in a number of areas. Growth prospects Our acquisition adds further critical mass to Wincanton's UK operations, brings substantial geographic coverage of the rest of Europe and expands and enhances Wincanton's expertise and range of services. From a defensive perspective, it also underpins Wincanton's ability to continue to grow in the UK. Multinational customers have driven much of Wincanton's historical growth and are expected, increasingly, to reduce their supplier base to logistics providers capable of operating on a regional, rather than a purely national basis. As well as bringing significant opportunity to work now with these customers across Europe, the acquisition will therefore also help us to both defend and grow our existing UK base. As a result of our recent acquisition we are now able to offer logistics solutions, including transport networks, in both national markets and on a pan-European basis. We believe that the ability to combine operational expertise in local markets with supply chain integration expertise on a regional basis represents a powerful service offering to our blue-chip customers. The enlarged Group has a well diversified customer and sector base which we believe to be capable of greater leverage both within and across national boundaries. Trans European already worked in more than one country on behalf of a growing number of customers, for many customers on a regional basis and for certain customers on a global basis as an overall supply chain integrator. A key element of our strategy for growth is to continue, and accelerate, this process of internationalisation, working for an increasing number of existing blue-chip customers in more national markets and, wherever possible, on a regional basis. The initial response from customers to this significantly enhanced geographic presence has been very encouraging. Going forward, in addition to our core strengths of transport networks, warehouse management, automated warehousing and supply chain integration, Wincanton's growing range of services now includes reverse and inbound logistics, records management, in-store fittings, sub-assembly manufacturing, re-packing, garment preparation, change management and IT consultancy, purchasing and inventory management. The intermodal businesses acquired in Germany bring added strength to our existing supply chain integration services with particular expertise in rail, river and sea freight movements. This is a strong portfolio of services, capable of greater leverage across the substantial customer base of the Group. Our European network is well invested, and gives us a presence in all the key continental markets. Belgium and the Netherlands are major import/export gateways with strong transport links into the rest of Europe. On the other side of the continent, the economies of both Poland and the Czech Republic are enjoying healthy growth, and will be strengthened by the expansion of the EU in the near future. Though currently experiencing challenging economic circumstances, Germany has a strategically important position between the 'old' and 'new' European nations. As a key geographical hub, it is clearly an essential location for any Europe-wide transport logistics and distribution operation. There is also scope for growth in France and Spain where our transport and sophisticated logistics solutions will be able to give forward-thinking customers competitive advantage, both locally and in cross-border commerce. It has always been Wincanton's objective to be perceived as the 'employer of choice' within our industry, the Company for which the top industry professionals aspire to work. It is this ethos that will continue to drive our human resource policies. Our people will be the single most important factor in our future success. The combined geographic, customer and operational experience and expertise of the enlarged Group offers creative and operational talent to our customers across Europe. Developing a common culture and identity across the new Group is not without its challenges but I am encouraged by the shared values that we already see in terms of customer focus, professionalism, and personal commitment. Outlook At an operational level, we have built a reputation by consistently delivering on our promises. The same spirit of determination applies to our strategic expansion into Europe. We now possess the people, the commercial and operational skills, the customer base and the network to take advantage of the continuing opportunities for profitable growth that we see in our markets. We also have a clear programme to enable us to deliver that growth. The next 18-24 months will be a challenging period. The integration process has begun well, but much remains to be done. We do not expect any significant improvement in the European economies next year and cost reduction, including increasing the efficient utilisation of our asset base, will remain a key area of focus and management attention. Reasonable progress is being made towards our new business targets for the year to 31 March 2004, with good recent wins in both the UK and Continental Europe. In the UK we have added, for example, a new national transport operation for Matalan, a transport operation for Stylo, a fridge recycling service for Comet and a shop fittings activity for a leading high-street retailer to add to business already won with B&Q in this new area of activity. We have also recently signed a letter of intent for a reverse logistics operation for a major retailer. We are therefore generating growth opportunities not just from existing customers and activities but by expanding both our customer portfolio and our range of added-value services. We are also seeing new business wins in Continental Europe bringing volume to the network. A new contract for Philips will see us covering their logistics requirements across Central Europe in Poland, Hungary, the Czech Republic and Slovakia. We have won further business in the same region with another multinational electronics company. Another new win, with Dupont Dow Elastomers, is a pan-European operation serving their logistics requirements across the Continent from a new warehouse in Holland. As in any year we will have ground to make up for known contract losses. Cost pressures in competitive markets will also continue to represent a challenge. We nonetheless expect to deliver another year of growth and good progress towards our strategic objectives. FINANCIAL REVIEW Trading result Wincanton, before a 3-month contribution from the acquired businesses, reported a 4.7% increase in adjusted operating profit to £31.1m, on turnover up by 8.9% to £812.1m. The Consumer business unit reported stronger growth than in recent years with a 6.8% increase in turnover and an 8.5% increase in adjusted operating profit. The Industrial business unit also benefited from a number of good new business wins, reflected in an 11.4% increase in turnover, but saw adjusted operating profit held back to a 2.2% increase by a slower performance in chilled consolidation services. The acquired businesses contributed £2.2m of adjusted operating profit on turnover of £185.9m in the period from January to March, a margin of 1.2%. The January to March quarter tends to be a period of lower volumes for these businesses. Turnover was generated as to approximately 21% in the UK & Ireland and 79% in Continental Europe. The level of margin in the acquired businesses, relative to Wincanton margin pre-acquisition, is a function of their currently lower levels of contract-based activity and weaker economic conditions in certain Continental European countries. Turnover in the year, including the 3-month contribution of £185.9m from the acquired business, was £998.0m, a 33.9% increase on last year. Whilst this percentage increase is not directly comparable to last year, it does indicate the significant increase in scale of the business following the recent acquisition. Adjusted return on capital employed, pre-acquisition, increased from 26.4% last year to 43.1% this year. The impact of the acquired business on Group capital employed is further discussed below. In the last five years, Wincanton (excluding the contribution from this year's acquisition) has grown adjusted operating profit by 51%. Adjusted return on capital employed has more than doubled over the same period. Exceptional items The Group results reflect three items of an exceptional nature. Firstly, a £2.9m restructuring charge in respect of the acquired business, principally in relation to the rationalisation of the UK operations. Secondly, the decision has been taken to substantially write down the book value of our investment in a series of supply chain software modules. This has led to a £2.4m charge. We are currently in discussion with the vendor to seek to recover the costs of our investment. The third item is a credit of £2.4m arising from the release of a tax provision created, at the time of demerger, in respect of certain outstanding taxation issues for which provision is no longer considered to be required. This release of tax margin, together with the £1.6m tax effect of the operating exceptionals referred to above, shows a credit of £4.0m against the pre-exceptional tax charge for the year of £10.1m. The £2.9m restructuring charge compares to the estimate of £2.0m contained in the circular to shareholders of 9 December describing the Trans European acquisition. This charge is expected to enable us to deliver cost savings in excess of the £2.0m p.a. within 18 months of acquisition also described in the circular. Further restructuring charges are also likely in the current year. Interest costs As discussed below, the new syndicated facilities put in place to fund the Trans European acquisition carry a higher rate than our previous banking arrangements. The interest charge of £5.0m therefore reflects the effect of the new facilities on both existing Wincanton borrowings and the funding for the acquisition. The charge only includes 3 months' interest in respect of the acquisition, which was completed on 31 December 2002. Interest cover in the year, as calculated in line with our banking covenants, was 7.4 times. Taxation The pre-exceptional taxation charge of £10.1m gives an effective rate for the year of 31.6%. This increase on last year's 28.6% is due to a combination of higher rates of tax in certain Continental European jurisdictions and an inability to offset losses in part of the German operations against profits being generated in other German activities. Cash flow, borrowings and treasury EBITDA of £60.6m combined with a working capital inflow of £9.8m to give a net cash inflow from operating activities of £70.4m. Gross capital expenditure of £17.7m was offset by asset sales, principally property-related, of £9.2m. New business was again financed principally either by customers or through operating leases back-to-back with customer contracts. Net capital expenditure of £8.5m was only 29.7% of the £28.6m charge for depreciation. The cash inflow from operations, after capital expenditure but before interest, tax and dividends, was £61.9m. Increased focus on working capital and capital expenditure is expected to lead to opportunities to improve the cash flow of the acquired businesses. New committed 5-year bank facilities of £270.0m were raised to fund the acquisition, Wincanton's existing borrowings and the future working capital requirements of the enlarged business. In addition to these committed loans the Group also has available a range of overdraft facilities. At 31 March 2003 the Group's net borrowings were £147.7m. The interest rate payable on the Group's borrowings is fixed at 1.5% over base rate for the first 12 months following the acquisition and may then be reduced in accordance with a mechanism linked to the overall level of Group debt. 3-year swaps have been entered into to fix approximately two-thirds of the Group's anticipated interest rate exposure. It is expected that the balance of our borrowings will remain floating. Overall borrowings are drawn approximately half in sterling and half in euros to hedge the asset base of the Group. No other instruments have been entered into to seek to fix the Group's interest or foreign exchange exposure at this stage. The interest rate and foreign exchange position of the Group will be subject to regular review. No speculative trading is entered into and all activities of the treasury function are designed to support the Group's commercial operations. Net assets and capital employed The consideration of £152.5m paid to P&O for the Trans European operations is subject to potential adjustments arising from the preparation of completion accounts as at 31 December 2002. These accounts have yet to be finalised with the vendor. For the purposes of the preparation of consolidated Wincanton Group accounts at 31 March 2003, estimates have therefore been made in respect of an opening balance sheet, including fair value adjustments and the consequent amount of goodwill arising upon acquisition. This is currently estimated at £24.3m. A consequence of the significant asset base of the acquired operations is a substantial increase in the adjusted capital employed of the enlarged Group. At 31 March 2003 the acquisition added £166.4m of adjusted capital employed to the Wincanton year-end capital base of £72.1m. Much of the capital base of the acquisition is accounted for by freehold and long leasehold property following significant capital investment in recent years. Approximately 60% of the enlarged Group's capital employed relates to UK & Ireland operations. France, Spain and Benelux account for some 11%, with 19% in Germany and 10% in Eastern Europe. Return on trading capital employed and cash flow return on investment are two important benchmarks for Wincanton. A key objective for us in respect of the acquisition is to improve the returns of the acquired business and, where appropriate, seek to selectively reduce the capital base of its operations. Earnings and dividends Basic earnings per share of 16.5p, adjusted for exceptional items, pension credit and goodwill, compared to last year's 16.0p, an increase of 3.1%. The Board proposes a final dividend of 6.75p, representing an increase on last year's final dividend of 7.1%. Together with the interim dividend announced at the half year, this gives a total dividend of 10.06p per share, which is a 6.5% increase on last year. The dividend, with earnings calculated on the same basis as interest cover above, is covered 1.8 times. Pensions The results of the triennial actuarial valuation as at 31 March 2002 indicated a funding shortfall of £15.2m. Incremental cash contributions of £2.1m per annum will be made to the pension fund to address this shortfall over the remaining average working lives of our employees. The possible need for further additional cash contributions will be kept under review. The Group will continue to assess the appropriateness of its pension policy and funding approach on the basis of actuarial advice. The Group's defined benefit scheme has been substantially closed to new entrants since January 2003. In recognition of the increased costs of future service accrual both employee and employer contribution rates have been increased from 1 April 2003. The Group profit & loss account again shows a significant, but non-cash, item in respect of the release to profit of £4.0m from our SSAP 24 balance sheet provision. Year-on-year comparisons of operating profit and earnings exclude this item. The expected introduction in due course of FRS 17 to replace SSAP 24 requires certain additional accounting disclosures this year. The UK pension scheme accounting shortfall, on an FRS 17 basis, as at 31 March 2003 was estimated at £94.2m net of deferred tax. Consolidated profit and loss account for the year ended 31 March 2003 Before Exceptional exceptional items items (note 4) Total Note 2003 2003 2003 2002 £m £m £m £m Turnover Existing operations 812.1 - 812.1 745.6 Acquisition 185.9 - 185.9 - 2,3 998.0 - 998.0 745.6 Operating profit before pension credit and goodwill amortisation Existing operations 31.1 (2.4) 28.7 29.3 Acquisition 2.2 (2.9) (0.7) - 2,3 33.3 (5.3) 28.0 29.3 Pension credit 4.0 - 4.0 4.8 Goodwill amortisation (0.3) - (0.3) - Operating profit 37.0 (5.3) 31.7 34.1 Existing operations 35.1 (2.4) 32.7 34.1 Acquisition 1.9 (2.9) (1.0) - Profit on disposal of a surplus property 4 - - - 0.6 Profit on ordinary activities before interest 37.0 (5.3) 31.7 34.7 Net interest payable and similar charges 6 (5.0) - (5.0) (3.9) Profit on ordinary activities before taxation 5 32.0 (5.3) 26.7 30.8 Tax on profit on ordinary activities 7 (10.1) 4.0 (6.1) (8.8) Profit on ordinary activities after taxation 21.9 (1.3) 20.6 22.0 Equity minority interests (0.5) - (0.5) - Profit for the financial year 21.4 (1.3) 20.1 22.0 Dividends 8 (11.6) - (11.6) (10.9) Retained profit for the year 9.8 (1.3) 8.5 11.1 Earnings per share 9 - basic 17.5p 19.2p - diluted 17.4p 19.1p Earnings per share before exceptional items and goodwill amortisation 9 - basic 18.9p 18.9p - diluted 18.7p 18.8p Earnings per share before exceptional items, goodwill amortisation and excluding pension credit 9 - basic 16.5p 16.0p - diluted 16.3p 15.9p The operating profit before pension credit and goodwill amortisation for 2002 of £29.3 million is stated after charging £0.4 million of operating exceptional items against the pre-exceptional operating profit of £29.7 million, as set out in note 3. All operations in both years were continuing. Balance sheets at 31 March 2003 Group Company Note 2003 2002 2003 2002 £m £m £m £m Fixed assets Intangible assets 10 24.7 - - - Tangible assets 286.5 157.5 - - Investments 1.2 - 11.5 11.5 312.4 157.5 11.5 11.5 Current assets Stocks 7.3 3.8 - - Debtors 281.7 104.8 183.7 55.0 Cash at bank and in hand 37.0 18.6 - - 326.0 127.2 183.7 55.0 Creditors: amounts falling due within one year (363.9) (181.6) (16.6) (20.8) Net current (liabilities)/assets (37.9) (54.4) 167.1 34.2 Total assets less current liabilities 274.5 103.1 178.6 45.7 Creditors: amounts falling due after more than one year (162.3) (31.4) (159.8) (30.0) Provisions for liabilities and charges (87.8) (63.0) - - Net assets 24.4 8.7 18.8 15.7 Capital and reserves Called up share capital 11.5 11.5 11.5 11.5 Share premium account 0.3 - 0.3 - Merger reserve 3.5 3.5 - - Profit and loss account 1.7 (6.3) 7.0 4.2 Equity shareholders' funds 17.0 8.7 18.8 15.7 Equity minority interests 7.4 - - - 24.4 8.7 18.8 15.7 Consolidated cash flow statement for the year ended 31 March 2003 Note 2003 2002 £m £m Cash inflow from operating activities 12 70.4 57.8 Returns on investments and servicing of finance 13 (3.9) (3.0) Taxation (10.4) (10.4) Capital expenditure 13 (8.5) (10.8) Acquisition 13 (143.2) - Equity dividends paid (11.1) (10.2) Cash (outflow)/ inflow before use of liquid resources and financing (106.7) 23.4 Management of liquid resources 13 (4.0) (17.6) Financing 13 125.1 (20.5) Increase/(decrease) in cash in year 14.4 (14.7) Reconciliation of net cash flow to movement in net debt for the year ended 31 March 2003 Note 2003 2002 £m £m Increase/(decrease) in cash in year 14.4 (14.7) (Increase)/decrease in debt and lease financing (124.8) 20.5 Increase in liquid resources 4.0 17.6 Change in net debt resulting from cash flows (106.4) 23.4 Loans and finance leases acquired with Trans European (9.8) - New finance leases (0.2) (0.6) Exchange movement (4.3) - Movement in net debt in year (120.7) 22.8 Net debt at beginning of year (27.0) (49.8) Net debt at end of year 14 (147.7) (27.0) Consolidated statement of total recognised gains and losses for the year ended 31 March 2003 2003 2002 £m £m Profit for the financial year 20.1 22.0 Net exchange adjustments arising on foreign currency investments and related borrowings (0.5) - Total recognised gains and losses relating to the financial year 19.6 22.0 Reconciliation of movements in equity shareholders' funds for the year ended 31 March 2003 Group Company 2003 2002 2003 2002 £m £m £m £m Profit for the financial year 20.1 22.0 14.2 15.1 Dividends (11.6) (10.9) (11.6) (10.9) Retained profit for the year 8.5 11.1 2.6 4.2 Other recognised gains and losses (0.5) - 0.2 - Issue of share capital 0.3 - 0.3 11.5 Net addition to equity shareholders' funds 8.3 11.1 3.1 15.7 Opening equity shareholders' funds 8.7 (2.4) 15.7 - Closing equity shareholders' funds 17.0 8.7 18.8 15.7 Notes to the accounts 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 2003 and 31 March 2002. Statutory accounts for the year ended 31 March 2003 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 31 March 2002 have been delivered to the Registrar of Companies. The Auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. Basis of preparation The financial information has been prepared in accordance with applicable accounting standards and under the historical cost accounting rules. Basis of consolidation The consolidated financial information of the Group includes the financial information of the Company and its subsidiary undertakings made up to 31 March 2003. Subsidiary undertakings include all entities over which dominant control is exerted. When the Company acquired the Wincanton group of companies upon demerger from the former parent in May 2001, the changes in group structure were accounted for using the principles of merger accounting. Businesses acquired or disposed of since then have been accounted for using acquisition accounting principles from or up to the date control passed. The Group's share of the results of associates and joint ventures is included in the consolidated profit and loss account and its interest in their net assets is included in investments in the consolidated balance sheet. An associate is an undertaking in which the Group has a long-term interest, usually from 20% to 49% of the equity voting rights, and over which it exercises significant influence. A joint venture is an undertaking in which the Group has a long-term interest and over which it exercises joint control. Goodwill Purchased goodwill (representing the excess of the fair value of the consideration and associated costs over the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions since 1 April 1998 is capitalised and amortised to £nil by equal annual instalments over the estimated useful life of up to 20 years. Purchased goodwill previously written off to reserves on acquisition is, on subsequent disposal of the acquired business, written back through the profit and loss account as part of the profit or loss on disposal. In the Company's balance sheet investments in subsidiary undertakings, joint ventures and associates are stated at cost. Notes to the accounts 2 Segmental information By division: Turnover Operating Profit 2003 2002 2003 2002 £m £m £m £m Consumer Logistics 431.1 403.5 12.8 11.8 Industrial Logistics 381.0 342.1 18.3 17.9 Trans European - acquired in the year 187.9 - 2.2 - - less share of joint ventures and associates (2.0) - - - 998.0 745.6 33.3 29.7 Pension credit 4.0 4.8 Goodwill amortisation (0.3) - Operating profit before exceptional operating costs 37.0 34.5 Exceptional operating costs (5.3) (0.4) Operating profit after pension credit, goodwill amortisation and exceptional operating costs 31.7 34.1 Profit on disposal of a surplus property - 0.6 Profit on ordinary activities before interest 31.7 34.7 Consumer Logistics 12.9 13.4 Industrial Logistics 19.8 21.3 Trans European - acquired in the year (1.0) - Net Assets 2003 2002 £m £m Consumer Logistics 7.1 24.3 Industrial Logistics 65.0 88.2 Trans European - acquired in the year 166.4 - Trading capital employed 238.5 112.5 Non-operating net liabilities (214.1) (103.8) Net assets 24.4 8.7 By geographical area of origin: Turnover Operating Profit 2003 2002 2003 2002 £m £m £m £m UK & Ireland 851.2 745.6 32.0 29.7 Continental Europe 148.8 - 1.3 - - less share of joint ventures and associates (2.0) - - - 998.0 745.6 33.3 29.7 Pension credit 4.0 4.8 Goodwill amortisation (0.3) - Operating profit before exceptional operating costs 37.0 34.5 Exceptional operating costs (5.3) (0.4) Operating profit after pension credit, goodwill 31.7 34.1 amortisation and exceptional operating costs Profit on disposal of a surplus property - 0.6 Profit on ordinary activities before interest 31.7 34.7 UK & Ireland 30.6 34.7 Continental Europe 1.1 - Turnover by destination is not materially different from turnover by origin. Net Assets 2003 2002 £m £m UK & Ireland 139.5 112.5 Continental Europe 99.0 - Trading capital employed 238.5 112.5 Non-operating net liabilities (214.1) (103.8) Net assets 24.4 8.7 The pension credit adjusted in the analyses above is the variation credit to the regular cost arising under SSAP24 'Accounting for Pension Costs'. Operating profit after pension credit, goodwill amortisation and exceptional operating costs includes the Group's share of the operating profit of joint ventures and associates of £nil. Non-operating net liabilities comprise goodwill, net debt, taxation and dividend liabilities and pension and insurance provisions. 3 Operating profit The Group's results are analysed as follows: 2003 2002 Before Operating Total Before Operating Total operating exceptional operating exceptional exceptional items exceptional items items items £m £m £m £m £m £m Turnover 998.0 - 998.0 745.6 - 745.6 Cost of sales (936.4) - (936.4) (689.5) (0.4) (689.9) Gross profit 61.6 - 61.6 56.1 (0.4) 55.7 Administrative expenses (25.1) (5.3) (30.4) (21.9) - (21.9) Other operating income 0.5 - 0.5 0.3 - 0.3 Operating profit 37.0 (5.3) 31.7 34.5 (0.4) 34.1 Pension credit (4.0) - (4.0) (4.8) - (4.8) Goodwill amortisation 0.3 - 0.3 - - - Operating profit before pension 33.3 (5.3) 28.0 29.7 (0.4) 29.3 credit and goodwill amortisation The total figures for 2003 include the following amounts relating to the acquisition : cost of sales £182.2 million, gross profit £3.7 million, administrative expenses £1.7 million, other operating income £0.2 million, goodwill amortisation £0.3 million and exceptional items £2.9 million. 4 Exceptional items The tax effect of the exceptional items is a credit of £1.6 million (2002:£0.1 million). In addition the tax exceptional item includes a £2.4 million release of prior year tax provision no longer required. 2003 2002 £m £m Operating exceptional items Reorganisation of acquired operating structure (2.9) - Write down of an investment in a series of supply chain software modules (2.4) - Closure of Chippenham consolidation depot - (0.4) (5.3) (0.4) Non-operating exceptional items Profit on disposal of a surplus property - 0.6 5 Profit on ordinary activities before taxation 2003 2002 £m £m Profit on ordinary activities before taxation is stated after charging: Auditors' remuneration: - Group fees for statutory audit services (including £0.1m re. the Company) 0.5 0.1 - fees paid to the Auditors and their associates for tax advisory services 0.1 0.1 Depreciation and other amounts written off tangible assets: - owned 26.8 23.2 - leased 1.8 1.6 Amortisation of goodwill 0.3 - Operating lease rentals - plant and machinery 22.0 14.5 - land and buildings 20.7 13.2 In addition, £0.5 million was paid to the Auditors in respect of services in connection with the acquisition of P&O Trans European which have been capitalised as a cost of investment. 6 Net interest payable and similar charges 2003 2002 £m £m Interest receivable 1.0 0.9 Interest payable on bank loans and overdrafts (4.9) (3.9) Finance charges payable in respect of finance leases (0.2) (0.2) Unwinding of discounted insurance and German pension provisions (0.9) (0.7) (5.0) (3.9) The interest receivable relates primarily to the cash deposits held by the Group's captive insurance company. 7 Taxation 2003 2002 Pre exceptional Exceptional items items £m £m £m £m UK corporation tax Current tax on income for year 11.2 (1.6) 9.6 7.7 Adjustments in respect of prior years 0.1 (2.4) (2.3) 1.7 11.3 (4.0) 7.3 9.4 Foreign tax Current tax on income for year 0.5 - 0.5 - Adjustments in respect of prior years - - - - 0.5 - 0.5 - Total current tax 11.8 (4.0) 7.8 9.4 Deferred tax Current year (1.5) - (1.5) 1.3 Adjustments in respect of prior years (0.2) - (0.2) (1.9) (1.7) - (1.7) (0.6) Tax on profit on ordinary activities 10.1 (4.0) 6.1 8.8 The following table reconciles the tax charge at the UK standard rate to the actual tax charge : 2003 2002 £m £m Profit on ordinary activities before taxation 26.7 30.8 Tax charge at UK standard rate (30 %) 8.0 9.2 Permanent differences - overseas profits at higher rates 0.1 - - overseas losses not utilised 0.6 - - disallowable expenditure 0.3 - - non taxable proceeds (0.4) (0.2) Temporary differences - movement on accelerated capital allowances 2.1 0.6 - other (0.6) (1.9) Adjustments in respect of prior years (2.3) 1.7 Current tax charge for the year 7.8 9.4 As a result of the acquisition in the year which encompasses trading activities in a number of European territories with higher corporate tax rates than the UK, the Group's effective tax rate is expected to increase in the future. 8 Dividends 2003 2002 £m £m Equity shares: Interim dividend paid 3.8 3.6 Final dividend proposed 7.8 7.3 11.6 10.9 A final dividend of 6.75p per share is proposed to be paid on 13 August 2003 to shareholders on the register on 18 July 2003. An interim dividend of 3.31p per share was paid on 8 January 2003 to shareholders on the register at 6 December 2002. 9 Earnings per share Earnings per share are calculated on the basis of earnings of £20.1 million (2002: £22.0 million) and the weighted average of 114.8 million shares which have been in issue throughout the year. The diluted earnings per share are calculated on the basis of an additional 0.9 million shares (2002 : 0.7 million shares) deemed to be issued at £nil consideration under the Company's share option schemes. Two further adjusted earnings per share numbers are shown, being earnings before exceptional items and goodwill amortisation and earnings before exceptional items, goodwill amortisation and pension credit, since the Directors consider that they provide further information on the underlying performance of the Group. Adjusted earnings are as follows: 2003 2002 £m £m Profit for the financial year 20.1 22.0 Goodwill amortisation 0.3 - Exceptional items 5.3 (0.2) Tax on exceptional items (note 7) (4.0) (0.1) Earnings before exceptional items, goodwill amortisation and related tax 21.7 21.7 Pension credit (4.0) (4.8) Tax on pension credit 1.2 1.4 Earnings before exceptional items, goodwill amortisation, pension credit and related tax 18.9 18.3 10 Intangible assets Goodwill Cost £m At beginning of year - Additions (note 11) 24.3 Exchange adjustment 0.7 At end of year 25.0 Amortisation At beginning of year - Charge for year 0.3 At end of year 0.3 Net book value At 31 March 2003 24.7 At 31 March 2002 - 11 Acquisition On 31 December 2002 the Group acquired P&O Trans European on a debt free basis for £152.5 million in cash plus £5.9 million of costs and other incidental settlement items. The resulting goodwill of £24.3 million has been capitalised and will be written off over 20 years in line with standard accounting practice. The goodwill value remains subject to change pending the finalisation of, firstly, the ongoing completion discussions with the vendor and, secondly, the fair values of the net assets acquired. The book values of the identifiable assets and liabilities acquired and their provisional fair value to the Group are set out below: Book value Revaluations Accounting policy alignment Fair value £m £m £m £m Tangible fixed assets 155.6 5.3 (14.5) 146.4 Investments 2.6 - (1.4) 1.2 Working capital 33.9 - (23.2) 10.7 Net cash 5.4 - - 5.4 Taxation (1.0) - (2.7) (3.7) Pension and other provisions incl. (23.0) (0.5) 4.4 (19.1) deferred taxation Total assets before equity minority 173.5 4.8 (37.4) 140.9 interest Equity minority interest (6.8) - - (6.8) Net assets 166.7 4.8 (37.4) 134.1 Goodwill (note 10) 24.3 158.4 Satisfied by Payment to vendor 152.5 Costs and incidental settlement items 5.9 158.4 The book values of the non sterling assets and liabilities acquired, which are principally denominated in euro, have been translated using the exchange rates at the date of acquisition (£1 : €1.534). The fair value adjustments above are required to align the accounting policies of the acquired business with those of the Group and to revalue certain properties and pension liabilities. These adjustments remain provisional as, in line with standard accounting practice, they can be amended for up to 12 months following acquisition. 11 Acquisition (continued) Summarised profit and loss account of P&O Trans European for the 12 months ended on 31 December 2002, being the date of acquisition: Before exceptional Exceptional items items Total £m £m £m Turnover 816.5 - 816.5 Operating profit 12.0 (1.2) 10.8 Net interest payable and similar charges (8.2) - (8.2) Profit on ordinary activities before taxation 3.8 (1.2) 2.6 Tax on profit on ordinary activities (4.5) - (4.5) Loss on ordinary activities after taxation (0.7) (1.2) (1.9) Minority interests (2.1) - (2.1) Loss after tax and minority interests (2.8) (1.2) (4.0) In the year ended 31 December 2001 profit after tax and minority interests was £11.0 million. Statement of total recognised gains and losses of P&O Trans European for the 12 months ended on 31 December 2002: Total £m Loss as above (4.0) Gain on foreign currency translation 3.7 Total recognised gains and losses relating to the period (0.3) The information above is presented on the basis of P&O Trans European's accounting policies prior to the acquisition. 12 Reconciliation of operating profit to operating cash flows Group 2003 2002 £m £m Operating profit 31.7 34.1 Depreciation and amortisation 28.9 24.8 (Increase)/decrease in stocks (0.2) 0.2 Increase in debtors (13.6) (9.4) Increase in creditors 21.7 13.0 Increase/(decrease) in provisions 0.1 (4.9) Loss on sale of fixed assets 1.8 - Net cash inflow from operating activities 70.4 57.8 The operating cash flows include an outflow of £0.5 million (2002 : £2.7 million) in respect of exceptional costs. 13 Analysis of cash flows 2003 2003 2002 2002 £m £m £m £m Returns on investments and servicing of finance Interest received 1.0 0.8 Interest paid (4.7) (3.6) Interest element of finance lease rental payments (0.2) (0.2) (3.9) (3.0) Capital expenditure Purchase of tangible assets (17.7) (14.7) Sale of tangible assets 9.2 3.9 (8.5) (10.8) Acquisition Purchase of Trans European (note 11) (158.4) - Cash acquired with Trans European 15.2 - (143.2) - Management of liquid resources Increase in cash deposits held by the captive insurer (4.0) (17.6) (4.0) (17.6) Financing Increase/(decrease) in borrowings 125.9 (18.9) Capital element of finance lease rental payments (1.1) (1.6) Issue of share capital 0.3 - 125.1 (20.5) Cash flows in respect of Trans European which was acquired in the year, amounted to £(2.2) million of the Group's net operating cash flows, £(1.3) million in respect of net returns on investments and servicing of finance, £(1.6) million in respect of taxation and £(3.9) million of capital expenditure. 14 Analysis of net debt At beginning Cash flow Acquisition Other non Exchange At end of of year cash changes movement year £m £m £m £m £m £m Cash at bank and in hand 0.9 14.4 - - - 15.3 Cash deposits held by the 17.7 4.0 - - - 21.7 captive insurer 18.6 18.4 - - - 37.0 Debt due within one year (13.1) (1.2) (9.2) - (0.8) (24.3) Debt due after one year (30.0) (124.7) - - (3.5) (158.2) Finance leases (2.5) 1.1 (0.6) (0.2) - (2.2) Total (27.0) (106.4) (9.8) (0.2) (4.3) (147.7) During the year the Group entered into finance lease arrangements in respect of assets with a capital value at the inception of the leases of £0.2 million (2002: £0.6 million). END This information is provided by RNS The company news service from the London Stock Exchange

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