Final Results

Wincanton PLC 10 June 2004 FOR IMMEDIATE RELEASE 10 June 2004 WINCANTON plc Preliminary Announcement of Results for the financial year ended 31 March 2004 Delivering the benefits 2004 2003 Change £m £m Turnover 1,680.5 998.0 +68.4% Adjusted Operating Profit 43.2 33.3 +29.7% Interest (12.6) (5.0) Adjusted Profit before tax 30.6 28.3 +8.1% Adjustments (Note) (8.2) (1.6) Profit before tax 22.4 26.7 Adjusted Basic earnings per share 16.0p 16.5p -3.0% Basic earnings per share 9.6p 17.5p Final Dividend 7.08p 6.75p Full Year Dividend 10.56p 10.06p +5.0% Note: Operating profit, profit before tax and earnings per share have been adjusted to exclude pension credit (+£4.0m), exceptional items (-£10.0m) and goodwill amortisation (-£2.2m). HIGHLIGHTS • Savings and efficiencies ahead of target • Full-year trading profit in Germany • Restoring business win momentum • Strong cash flow and improving return on capital Commenting on the results, Paul Bateman, Wincanton's Chief Executive, said: 'We are successfully delivering the benefits from our recent acquisition. In addition to generating higher levels of cost savings and efficiencies, significant progress has been made in turning around a number of under-performing operations and a full-year trading profit has been reported in Germany. We are confident, one year into our 3-year programme, that we are successfully building a platform for sustained growth and European leadership.' 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 Charles Carr, Group Communications Director Buchanan Communications Ltd Tel: 020 7466 5000 Charles Ryland, Jeremy Garcia WINCANTON plc PRELIMINARY ANNOUNCEMENT Year ended 31 March 2004 Chairman's statement Wincanton is now one of the leading supply chain management companies in Europe, with a strong business base in the UK and an established presence across the Continent. Our acquisition, which transformed the scale and scope of our operations, has been well received by the customers of the enlarged Group. We are grateful for the support they have shown. Our principal focus, during a period of significant change, has been the maintenance of the highest levels of operational performance for all our customers. We have set ourselves a 3-year programme to integrate this acquisition fully and deliver a stronger platform for sustainable future growth. Good progress has been made in this first year of the programme, both financially and operationally. Much further progress can and will be made. Operating profit of £43.2m, before pension credit, goodwill amortisation and exceptional items, represents a solid performance in a period of major change. There were encouraging results in many areas and our initial cost reduction targets have been exceeded. The year was not without its difficulties, but our programme of restructuring is producing positive results, not least in Germany, which reported a trading profit in the year. This return to profit in Germany represents a very significant improvement in performance over the last 12 months and has been achieved in spite of the difficulties experienced by our intermodal business in the first half. Profit progress has again been accompanied by strong cash flow and a substantial reduction in net debt. Cash inflow from operations, before interest, tax and dividends, of £105.3m, supplemented by £16.8m of asset disposals, saw year-end net debt fall from £147.7m at 31 March 2003 to £75.3m at 31 March 2004. We are also beginning to see an increasing return on capital as we improve utilisation of the substantial asset base of the acquired business and realise cash from the disposal of surplus assets. Your Board is proposing a final dividend of 7.08p, which together with the interim dividend represents a 5% increase compared to last year's total dividend. Our UK operations have integrated, rapidly and successfully, the substantial UK activities of our acquisition and have strengthened our market position as a consequence. The enlarged Group now has a strong network across Europe, combining knowledge and experience of national markets with an ability to manage supply chain needs on a cross-border or pan-European basis. In terms of national markets, Wincanton has particular strengths in the UK, Germany and the fast-growing group of Central European economies of Poland, Hungary, the Czech Republic and Slovakia. It has been encouraging to see new business wins and contract renewals not just in these areas, but also in France, Spain and The Netherlands, where we are seeking to expand our existing business base further into broader supply chain management activities for larger customers. The expansion of the European Union is just one of the factors leading many of our customers to re-evaluate their supply chain strategies for the future. The enlarged Wincanton is well placed to anticipate and respond to these changing needs. Our cross-border and pan-European capabilities are now a match for any of our competitors, including the larger companies in our peer group. Our growing freight management and 4PL activities increasingly allow us to manage our customers' supply chain requirements on a global basis. Delivering the full potential of the enlarged Group continues to offer both significant challenge and further opportunity. Costs have been reduced and asset utilisation is increasing, but there is still much that needs to be done to achieve the full potential for improved efficiency across the Group. Our focus on certain under-performing operations within the acquired business, particularly in Germany, has already led to improved results, but opportunities for further improvement have been identified and must be delivered. We are confident that our enhanced geographic presence, customer base and service offering will deliver greater opportunities for growth, but we must continue to increase the momentum of our business development efforts. Board changes during the year reflect the developments within our business. Ernest Zeida stepped down after many years of valuable service and Nigel Sullivan, our Human Resources Director, was appointed to the Board on 1 January 2004. We were also pleased to welcome the additional industrial and Continental European expertise brought to the Board by our new non-executive Director, Walter Hasselkus. The Board thanks all our employees for the commitment and professionalism shown in a year of transformation. Their response to the challenges of this first full financial year for the enlarged Group has been enormously encouraging. We are determined to deliver the full benefits of our 3-year integration programme and to consolidate Wincanton's position as a European leader in its sector. Our markets remain highly competitive and ground will have to be made up next year for known business losses. We nonetheless expect to deliver both another year of growth in 2004/05 and further progress towards our strategic objectives. Operating and Financial review Market overview Growing markets Wincanton operates in growing markets. The value of the logistics market in Europe was estimated in 2001 at €169bn, before the recent expansion of the European Union. On average, some 30% of the market is believed to be outsourced. Market research projects growth of approximately 7% per annum in the market for outsourced logistics services. Wincanton believes that market growth prospects will have been further enhanced by the recent expansion of the European Union, particularly by the accession of the Central European economies. Growing market share Our markets remain fragmented. Even in the UK, the country that has the highest degree of supplier concentration, the top five companies in the sector are estimated to account for little more than 50% of the outsourcing market. There is potential for successful companies such as Wincanton to continue to gain market share. There are also a number of factors that we expect, over time, to offer more opportunity to the larger pan-European service providers such as Wincanton. These include the growing complexity of the services required by our multi-national customers and a tendency for these customers to seek to reduce the number of logistics providers with which they work. Expanding sector, geographic and service portfolio A balanced, well-diversified customer portfolio is an important asset. Our customer base covers most sectors of the economy, although we have particular strengths in retailing and fast-moving consumer goods. We have worked in close partnership with the majority of our customers over many years. Our recent acquisition added both more blue-chip customers to our portfolio and industry expertise in areas such as the automotive, chemicals and paper and packaging sectors. Although certain contracts may continue to be awarded on a national basis, we see clear signs of our larger customers considering their cross-border product flows and their consequent supply chain requirements on a regional, and sometimes pan-European, basis. It is also important for us to continue to develop our portfolio of services to address the changing nature of customer requirements. In recent years we have successfully expanded our service offering, either organically or through acquisition or joint venture, into areas such as reverse logistics, waste recycling, inbound logistics and data & records management. Legal and regulatory change The legal and regulatory environment constantly offers new challenges for our customers. Forthcoming changes include the introduction of road tolls in Germany, the implementation in the UK of the Working Time Directive in relation to mobile workers and a major increase in recycling obligations under the Waste Electrical and Electronic Equipment Directive. Each of these changes requires our customers to reconsider their supply chain needs. Working in partnership with our customers on such issues often leads to new opportunities for Wincanton. The economic cycle In the past, Wincanton has been able to grow profitably over the economic cycle. Many of our customers are among the most successful in their own sectors, and such companies have continued to grow even in periods of economic slowdown. Given that much of our new business every year comes from existing customers, supporting the growth of our customers has provided growth opportunities for Wincanton. Strategy A European leader The December 2002 acquisition of Trans European achieved many of the strategic objectives outlined at the time of our demerger in May 2001. It transformed Wincanton from a strong player in its national market into one of the leading supply chain management companies in Europe. The acquisition increased our scale financially, operationally and geographically and significantly enhanced our ability to support the growth strategies of our blue-chip customers. Delivering our targets The first year of our 3-year programme to deliver the full benefits of the acquisition has seen good progress on many fronts. • Maximising the benefits of integrating our operations Gross cost savings of £4m per annum are now expected to be achieved in the UK, compared to the target of £2m per annum set out in the circular to shareholders at the time of the acquisition. Whilst some of these cost savings will be re-invested in marketing and business development initiatives, we nonetheless expect that cost savings achieved to date will underpin future profit growth. Having rapidly and successfully integrated the UK head office and support functions of Wincanton and the acquired business, we continue to identify further opportunities for cost savings in respect of both direct and indirect costs in the enlarged business. Closer integration of our UK and Continental European operations is expected, over time, to deliver further benefits. • Addressing under-performing operations A number of under-performing activities were identified during our acquisition due diligence, particularly in Germany. Rapid and efficient action, including headcount reduction, has been taken to improve the performance of these activities. Very significant progress has already been made in Germany and we are pleased to report that our German trading operations overall were profitable in 2003/04. Elsewhere in Continental Europe, disappointing performance in certain transport-related activities in France and Spain remains under review. The acquired businesses in the UK have generally performed as anticipated, although a degree of restructuring has been necessary, as expected, in respect of certain petroleum tanker operations. We remain committed to prompt action to address under-performing activities in our portfolio. We will not run loss-making activities in anticipation of an economic upturn. Returning to profit those of our activities that remain under-performing would contribute significantly to the profit growth of the group. • Improving asset efficiency and enhancing cash flow generation One of the key attractions to us of the acquisition was its substantial asset base, including a significant element of freehold property. Although well-invested, much of this asset base was considered to be under-utilised and capable of generating higher levels of both profit and cash. Since the acquisition, stricter controls have been introduced in respect of capital expenditure, and working capital forecasting has been introduced. £11.4m of surplus property has been sold and a non-core business sold for cash proceeds of £2.3m. We are pleased with progress to date on cash generation. Scope remains, over time, for possible further asset disposals and for working capital to be managed to lower average levels. We do not currently expect the same level of asset disposals next year. • Accelerating new business win momentum We have been encouraged by the progress made to restore new business momentum, including a marked increase in cross-border opportunities. Our business development resources are focused both on national markets and cross-border initiatives, with key pan-European account teams being created for our major customer accounts. Progress on new business in 2003/04 is reported in greater detail below. Next steps Wincanton now has a stronger platform for sustainable growth. We expect both organic growth from our existing operations and further performance improvement from the acquired businesses. We also believe there to be good profit growth potential in newer service areas such as data & records management. Our combination of strength in national markets and our pan-European presence put us in a good position to support the growth plans and changing strategies of our customers. The enlarged European Union is a market of 455m consumers. It has an enormous manufacturing and retailing infrastructure and significant domestic, cross-border and international flows of raw materials and finished products. The Central European countries, newly acceded to the European Union, are important and growing consumer markets in their own right, lower-cost manufacturing bases and a gateway to the export markets of countries further east and south-east. This enlarged European Union is our home market, a market in which we have an established presence and which offers attractive growth opportunities for the future. In addition to this potential for organic growth, we will consider opportunities for acquisition in Europe, where such businesses complement our existing activities and reinforce our leading industry positions. Our current priority remains the successful delivery of the performance improvement targets from our recent acquisition. Value creation Adding value for customers Our business is based on long-term partnerships with blue-chip customers and an in-depth knowledge of their markets and business processes. We add value to our customers' operations through our leading-edge systems expertise, the skills and commitment of all our people and a relentless focus on the highest standards of operational performance. Generating value for shareholders By adding value for our customers across Europe, we create value for shareholders. The return to shareholders since our demerger in May 2001, including both dividend growth and capital appreciation (based on the Wincanton share price as at 31 March 2004), totals 18.6%, compared to a 15.9% decline in the FTSE All Share Index and a 9.2% decline in the Small Cap Index. Proof of our ability to add value for customers lies in our successful track record of new business wins and contract renewals. 2003/04 has been another year of good progress in this respect. Growing our customer base As in previous years, many of our new business wins have been the product of long-standing relationships with large, multi-national customers. Our recent acquisition has significantly expanded our customer base, sector expertise and service offering and we are pleased with the initial progress being made on the further development of these relationships, which offer attractive potential for further growth. Approximately 65% of the annualised £110m of turnover from new contract wins in the period came from existing customers. UK & Ireland: Further progress Much of our new business activity in the UK and Ireland continues to reflect our leading position within the retailing and FMCG sectors. Our acknowledged strengths in the grocery sector, generally recognised as representing the leading-edge in supply chain management, have been successfully transferred to a growing customer base in non-food retailing. Certain of our grocery retail customers have also been expanding very successfully into non-food products. In the first half of the year, we reported good progress, in a number of service areas, with customers such as Next, Hamleys Group, Focus, Tesco, Marks & Spencer and J. Sainsbury. Progress has continued in the second half. A new automated warehouse, financed by the customer, will shortly commence operation for Matalan. We were particularly pleased to see discussions in respect of automated warehouses, an area in which Wincanton leads the market, begin to progress again to contractual commitments. We continue to develop our business with another fast-growing general retail customer, Argos, in respect of both fleet management and future strategy for supplier collections. Our fridge recycling operation for Comet has continued to perform well and we have recently won a contract from one of our competitors to take over the operation of a Comet warehouse in Harlow. Our position as the leading logistics provider for Tesco has also seen us recently being awarded a contract to run a major new import centre in Daventry to accommodate their continuing growth in non-food products. Contract renewals in the retail sector in the period included a 5-year extension of the bonded warehouse operation managed for Waitrose. In addition to our strengths in retailing, we have developed, over many years, a substantial customer base of manufacturers of fast-moving consumer goods, including food. Our understanding of these markets, our successful track record in delivering complex projects and our consistently high levels of operational performance were again key factors in both winning new business and renewing existing business with major customers. Gains in the period included Britvic, Newell Rubbermaid, Dairy Crest, Princes Soft Drinks and Kerry Foods. We were also pleased, during the period, to renew contractual commitments, for periods up to 5 years, with customers such as Heinz, Tetra Laval, Britvic and Procter & Gamble. Our Pullman Fleet Services operation added new business with MFI, Tesco, Big Food Group and Express Dairies, amongst others. Continental Europe : Further progress We are beginning to see signs of new business momentum being restored to our acquired operations across Europe. New business won in the first half included contract gains with Philips, Dow, Best Foods, Systeme U and Optimus. Much of the further new business described below, won in the second half, is also for cross-border, and sometimes pan-European operations, even where the business win is contracted in a specific country. France has added new distribution business with Euro Discount (a Carrefour subsidiary), a 4-year contract for European warehousing and distribution with Viking, a manufacturer of garden products, and a warehousing operation for Alsace Lait. Contracts were also renewed with existing customers such as AMO, Allergan, Match and Norma. In Germany, there were contract renewals with customers such as Fuchs, Reckitt Benckiser, Opel and Ikea. In Spain, we renewed business with Fagor and successfully began operation of a sub-contract manufacturing and warehousing operation in the electronics sector with a new joint venture partner. The Central European countries continue to build their warehousing and freight management operations with a broad range of customers. The major new regional contract with Philips, referred to at the half year, continues to perform well. We expect incremental business next year from customers both transferring production to this 'cluster' of countries and using existing production and distribution facilities as platforms for expansion into markets further to the east and south-east. One such contract commenced recently, with Wincanton organising and managing, through sub-contractors, all vehicle movements into Russia for a manufacturer of personal care products. We have also continued to develop our pan-European and 4PL operations. For Case New Holland, for example, we have recently begun to manage the outbound flow of products from a facility in Turkey, further expanding the scope of our global 4PL operations for this customer. Financial performance Progress since demerger In the three years since demerger, including the effect of our acquisition, Wincanton's reported turnover has increased from £721.8m to £1,680.5m. Operating profit (adjusted for pension credit, goodwill amortisation and exceptional items) has grown from £26.8m to £43.2m and adjusted basic earnings per share has improved by 6.5% p.a., from 13.3p to 16.0p. Over the same three-year period, Wincanton has generated a cash inflow from operations, before interest, tax and dividends but after capital expenditure, of £210.1m. This strong cashflow has enabled Wincanton to reduce borrowings and adopt a progressive dividend policy, with dividends increasing from 9.0p per share in 2001 to 10.56p per share for the financial year to 31 March 2004. Since demerger, we have paid down substantially all of our £70m of demerger debt, financed a major acquisition through bank borrowings and then delivered a further rapid reduction in net debt. Year-end net debt at 31 March 2004 stood at £75.3m compared to net debt at 31 March 2003, shortly after the Trans European acquisition, of £147.7m. 2003/04 performance UK & Ireland Our operations in the UK & Ireland reported adjusted operating profit of £36.1m on turnover of £1,041.3m. As expected, second half performance improved upon the first half as a consequence of new business wins and cost savings from the integration process. Profit growth, however, was again adversely affected by a lower year-on-year result from our chilled consolidation network following retailer moves to factory gate pricing. Steps are being taken to reduce costs in this business area and we expect an improved performance next year. In the year there were also good profit contributions from newer operations such as data & records management, waste management and in-store fittings, as well as an increased contribution from existing activities such as Pullman Fleet Services. Our markets remain highly competitive and we have seen pricing pressure on certain new business tenders and contract renewals this year. Such pressures are not new in our sector and our success in both winning new business and renewing existing business, in spite of such pressures, has again been a key factor in enabling us to report continuing profit progress. New contract wins in the period in the UK and Ireland are expected to contribute approximately £95m of annualised turnover. The average length of these new contract wins is 3-5 years. Contract renewals, for periods of up to 5 years, totalled approximately £45m. Business wins since the year-end, including our first contract win in reverse logistics, confirm that momentum is being sustained. Continental Europe Our Continental European operations also produced a stronger second half performance and reported a full-year adjusted operating profit of £7.1m on turnover of £639.2m. There was no repeat in the second half of the impact of the adverse Rhine water levels on the results from our intermodal business. Germany also benefited from a continuing improvement in the performance of certain loss-making activities as a result of a highly-focused management programme of action. The success already achieved by this programme is reflected in the return to profitability of our German operations overall in the year. Some £396.0m of turnover, 62% of the Continental European total, is generated by our German operations. During the course of the year we invested a further €5m in Rhinecontainer BV, taking our shareholding in the venture to 74.2%. Elsewhere in Continental Europe there were good profit performances in the Central European countries and from our pan-European and 4PL supply chain management activities. Our operations in the Western European markets of France, Spain and the Benelux countries made progress in certain areas, but as noted at the half year, results in these countries overall were adversely affected by lower volumes in certain of our groupage-based transport activities. Annualised turnover from new business wins and contact renewals in the year in Continental Europe totalled approximately €28m and €50m respectively. Contract gains since the year-end give further confidence that good progress is being made to restore new business win momentum. Interest costs The charge of £12.6m reflects a full year's interest on the syndicated facilities put in place to fund our acquisition of Trans European. £3.3m of the £12.6m relates to the amortisation of arrangement fees and the unwinding of discounts on certain balance sheet provisions. Interest cover in the year (calculated including pension credit, in accordance with our banking covenants) was 3.8 times. The interest rate payable on the Group's borrowings has reduced from 1.5% to 1.25% over LIBOR at 31 March 2004. Exceptional items The Group results again show a number of items of an exceptional nature as a consequence of the steps taken to restructure the business following our acquisition. £6.9m of the total £10m of exceptional costs related to office closure, redundancy and business restructuring in the UK and Ireland. Restructuring of certain of our German activities gave rise to £1.4m of costs. Re-livery of vehicles and warehouses across Europe cost £1.7m. We expect further exceptional costs next year, the second year of our 3-year programme to create a stronger platform for growth for the future. Taxation A pre-exceptional tax charge of £10.6m gives an effective rate for the year of 32.7%. Wincanton operates in tax jurisdictions across Europe with corporate tax rates that range from 18% to 40%. We expect the Group's blended tax rate to remain broadly at the current level for several years. Positive factors expected to influence this rate include the potential for utilisation of German trading losses brought forward and an anticipated reduction in the Polish corporation tax rate from 27% to 19%. Minority interests, earnings and dividends A £2.8m charge for minority interests consists of the profit attributable to various joint venture partners who share ownership of certain of our activities. Basic earnings per share, of 16.0p, (adjusted for exceptional items, pension credit and goodwill, as detailed in note 9) show a 3.0% reduction on last year's 16.5p. As expected, our acquisition covered its interest costs, but Wincanton's existing operations reported a year-on-year reduction in profitability, principally as a consequence of the performance of our chilled consolidation activities noted above. The Board proposes a final dividend of 7.08p, which together with the interim dividend announced at the half year, gives a total dividend of 10.56p per share, which is a 5% increase on last year. The dividend, with earnings calculated on the same basis as interest cover above, is covered 1.7 times. Cash flow and net debt Adjusted EBITDA (being adjusted operating profit plus depreciation) of £81.5m, combined with a working capital inflow of £29.8m, less adjustments of £6.0m for pension credit and exceptional items, gives a net cash inflow from operating activities of £105.3m. Much of our new business was again either customer-financed or financed through operating leases back-to-back with customer contracts. Gross capital expenditure of £20.9m was 55% of the £38.3m charge for depreciation. Gross capital expenditure was offset by asset sales, principally property-related, of £16.8m. A further £2.3m of cash was received from the sale of a small, non-core business. Assets sold contributed £0.9m of operating profit in 2003/04. We are pleased with the progress made in cash generation and the significant reduction achieved in year-end net debt, from £147.7m at 31 March 2003 to £75.3m at 31 March 2004. The 31 March 2004 position is net of £31.7m of cash held within our captive insurance company to fund future potential insurance claims (£21.7m as at 31 March 2003). During the year the Group's £270m of committed bank facilities was reduced by £16.4m. In addition to the remaining £253.6m of 5-year committed facilities, the Group has available a range of overdraft and leasing facilities. Borrowings are drawn approximately half in sterling and half in euro. Swaps, with a remaining maturity of 2 years, have been entered into to fix the base rate in respect of £89.3m of these borrowings. The interest rate and foreign exchange positions of the Group are 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. Return on capital employed Prior to the Trans European acquisition, Wincanton's return on capital employed was one of the highest amongst its peer group. In the year to March 2002, the last full year before the Trans European acquisition, Wincanton reported a return on capital employed of 26.4%. The results to March 2003 showed an increase in capital employed to £238.5m, but only 3 months' profit contribution from the acquisition, and therefore a reduction in return on capital employed to 14.0%. In the year to 31 March 2004 the improved profit and cash flow performance of the acquired business, its full year contribution and a continuing reduction in asset intensity across the group has seen return on capital employed improve again to 28.9%. Capital employed at 31 March 2004 was £149.4m, of which 49% related to our UK & Ireland operations, 22% to Germany, 16% to France, Spain, Benelux & Switzerland and 16% to Central Europe. Goodwill Post-acquisition review of the balance sheet of the acquired business has resulted in additional asset write-downs and provisions, increasing the goodwill on acquisition by £13.1m. Discussions continue with the vendor in respect of completion accounts and the results of an independent arbitration process are expected in the first half of the current year. In addition, £3m of goodwill arose on the acquisition of the majority shareholding in Rhinecontainer BV. Pensions The Group continues to monitor closely the appropriateness of its pension policy and funding approach on the basis of actuarial advice. The Group's defined benefit scheme has been effectively closed to new entrants since early 2003 and both employee and employer contribution rates were increased from 1 April 2003. Incremental cash contributions of £2.1m per annum are being made to the fund to address the funding shortfall of £15.2m identified by the last triennial valuation as at 31 March 2002. The Group profit and loss account again shows a significant, but non-cash, item in respect of the release to profit of £4m from our SSAP 24 balance sheet provision. Year-on-year comparisons of operating profit and earnings exclude this item. We will continue to account for pension costs under SSAP 24 until adoption of FRS17 is required in the financial year to 31 March 2006. The UK pension scheme accounting shortfall, calculated on an FRS17 basis, has improved from the £94.2m net of deferred tax reported at 31 March 2003 to £48.1m net of deferred tax as at 31 March 2004. International Financial Reporting Standards (IFRS) In common with all listed companies, Wincanton will be required to prepare its financial statements under IFRS after their adoption as the standard accounting bases in January 2005. The first financial year for which this change is effective is that ended 31 March 2006. An internal finance working group has completed an initial review of the impact and will continue to develop changes to accounting policies and procedures as applicable during the forthcoming year. Consolidated profit and loss account for the year ended 31 March 2004 Before Exceptional exceptional items items (note 4) Total Total* 2004 2004 2004 2003 Note £m £m £m £m Turnover 2,3 1,680.5 - 1,680.5 998.0 Operating profit before pension credit and goodwill amortisation 2,3 43.2 (10.0) 33.2 28.0 Pension credit 4.0 - 4.0 4.0 Goodwill amortisation (2.2) - (2.2) (0.3) Operating profit 45.0 (10.0) 35.0 31.7 Net interest payable and similar charges 6 (12.6) - (12.6) (5.0) Profit on ordinary activities before 5 32.4 (10.0) 22.4 26.7 taxation Tax on profit on ordinary activities 7 (10.6) 2.1 (8.5) (6.1) Profit on ordinary activities after 21.8 (7.9) 13.9 20.6 taxation Equity minority interests (2.8) - (2.8) (0.5) Profit for the financial year 19.0 (7.9) 11.1 20.1 Dividends 8 (12.3) - (12.3) (11.6) Retained (loss)/profit for the year 6.7 (7.9) (1.2) 8.5 Earnings per share 9 9.6p 17.5p - basic - diluted 9.6p 17.4p Earnings per share before exceptional items and goodwill amortisation 9 - basic 18.4p 18.9p - diluted 18.3p 18.7p Earnings per share before exceptional items, goodwill amortisation and excluding pension credit 9 - basic 16.0p 16.5p - diluted 15.8p 16.3p *The operating profit before pension credit and goodwill amortisation for 2003 of £28.0m is stated after charging £5.3m of operating exceptional items against the pre-exceptional operating profit of £33.3m, as set out in note 3. All operations in both years were continuing. Balance sheets at 31 March 2004 Group Company 2004 2003 2004 2003 Note £m £m £m £m Fixed assets Intangible assets 10 38.3 24.7 - - Tangible assets 247.3 286.5 - - Investments 0.6 1.2 11.5 11.5 286.2 312.4 11.5 11.5 Current assets Stocks 5.5 7.3 - - Debtors 258.1 281.7 134.5 183.7 Cash at bank and in hand 55.5 37.0 1.5 - 319.1 326.0 136.0 183.7 Creditors: amounts falling due within one year (372.5) (363.9) (23.8) (16.6) Net current (liabilities)/assets (53.4) (37.9) 112.2 167.1 Total assets less current liabilities 232.8 274.5 123.7 178.6 Creditors: amounts falling due after more than one year (109.8) (162.3) (100.2) (159.8) Provisions for liabilities and charges (97.4) (87.8) - - Net assets 25.6 24.4 23.5 18.8 Capital and reserves Called up share capital 11.6 11.5 11.6 11.5 Share premium account 1.9 0.3 1.9 0.3 Merger reserve 3.5 3.5 - - Profit and loss account (0.8) 1.7 10.0 7.0 Equity shareholders' funds 16.2 17.0 23.5 18.8 Equity minority interests 9.4 7.4 - - 25.6 24.4 23.5 18.8 Consolidated cash flow statement for the year ended 31 March 2004 2004 2003 Note £m £m Cash inflow from operating activities 12 105.3 70.4 Returns on investments and servicing of finance 13 (10.5) (3.9) Taxation (9.1) (10.4) Capital expenditure 13 (4.1) (8.5) Acquisition and disposal of businesses 13 (0.7) (143.2) Equity dividends paid (11.8) (11.1) Cash inflow/(outflow) before use of liquid resources and 69.1 (106.7) financing Management of liquid resources 13 (10.0) (4.0) Financing 13 (50.1) 125.1 Increase in cash in year 9.0 14.4 Reconciliation of net cash flow to movement in net debt for the year ended 31 March 2004 2004 2003 Note £m £m Increase in cash in year 9.0 14.4 Decrease/(increase) in debt and lease financing 51.8 (124.8) Increase in liquid resources 10.0 4.0 Change in net debt resulting from cash 70.8 (106.4) flows Loans and finance leases acquired with Trans European - (9.8) New finance leases (0.2) (0.2) Exchange movement 1.8 (4.3) Movement in net debt in year 72.4 (120.7) Net debt at beginning of year (147.7) (27.0) Net debt at end of year 14 (75.3) (147.7) Consolidated statement of total recognised gains and losses for the year ended 31 March 2004 2004 2003 £m £m Profit for the financial year 11.1 20.1 Net exchange adjustments arising on foreign currency investments and related borrowings (1.3) (0.5) Total recognised gains and losses relating to the financial year 9.8 19.6 Reconciliation of movements in equity shareholders' funds for the year ended 31 March 2004 Group Company 2004 2003 2004 2003 £m £m £m £m Profit for the financial year 11.1 20.1 14.5 14.2 Dividends (12.3) (11.6) (12.3) (11.6) Retained (loss)/profit for the year (1.2) 8.5 2.2 2.6 Other recognised gains and losses (1.3) (0.5) 0.8 0.2 Issue of share capital 1.7 0.3 1.7 0.3 Net movements in equity shareholders' funds (0.8) 8.3 4.7 3.1 Opening equity shareholders' funds 17.0 8.7 18.8 15.7 Closing equity shareholders' funds 16.2 17.0 23.5 18.8 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 2004 and 31 March 2003. Statutory accounts for the year ended 31 March 2004 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the year ended 31 March 2003 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 2004. Subsidiary undertakings include all entities over which dominant control is exercised. 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 at cost 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 on acquisitions prior to 1 April 1998 previously written off to reserves 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. Investments in subsidiary undertakings are stated at cost less any impairment in value. Notes to the accounts (continued) 2 Segmental information By geographical area of origin: Turnover Operating Profit 2004 2003 2004 2003 £m £m £m £m UK & Ireland 1,041.3 851.2 36.1 32.0 Continental Europe 639.2 146.8 7.1 1.3 1,680.5 998.0 43.2 33.3 Pension credit 4.0 4.0 Goodwill amortisation (2.2) (0.3) Operating profit before exceptional operating costs 45.0 37.0 Exceptional operating costs (note 4) (10.0) (5.3) Operating profit 35.0 31.7 UK & Ireland 31.1 30.6 Continental Europe 3.9 1.1 Turnover by destination is not materially different from turnover by origin. Turnover arises from the sole activity of supply chain management. The 2004 results above include a full year's trading of Trans European, which was acquired on 31 December 2002, plus £4.9m of turnover and £0.2m of operating profit of Rhinecontainer BV, which was acquired in July 2003, plus £8.3m and £0.4m of turnover and operating profit respectively of a non-core business disposed of. 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 results of joint ventures and associates of £nil (2003:£nil). Net Assets 2004 2003 £m £m UK & Ireland 73.1 139.5 Continental Europe 76.3 99.0 Trading capital employed 149.4 238.5 Non-operating net liabilities (123.8) (214.1) Net assets 25.6 24.4 Non-operating net liabilities comprise goodwill, net debt, taxation and dividend liabilities and pension and insurance provisions. Notes to the accounts (continued) 3 Operating profit The Group's results are analysed as follows: 2004 2003 Before Before operating Operating operating Operating exceptional exceptional exceptional exceptional items items Total items items Total £m £m £m £m £m £m Turnover 1,680.5 - 1,680.5 998.0 - 998.0 Cost of sales (1,603.0) (5.8) (1,608.8) (936.4) - (936.4) Gross profit 77.5 (5.8) 71.7 61.6 - 61.6 Administrative expenses (32.5) (4.2) (36.7) (25.1) (5.3) (30.4) Other operating income - - - 0.5 - 0.5 Operating profit 45.0 (10.0) 35.0 37.0 (5.3) 31.7 Pension credit (4.0) - (4.0) (4.0) - (4.0) Goodwill amortisation 2.2 - 2.2 0.3 - 0.3 Operating profit before pension credit and goodwill amortisation 43.2 (10.0) 33.2 33.3 (5.3) 28.0 4 Exceptional items 2004 2003 £m £m Operating exceptional items Reorganisation and integration of acquired operating structure (10.0) (2.9) Write down of an investment in a series of supply chain software modules - (2.4) (10.0) (5.3) The tax effect of the operating exceptional items is a credit of £2.1m (2003 : £1.6m). Notes to the accounts (continued) 5 Profit on ordinary activities before taxation 2004 2003 £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 0.6 0.5 Company) - fees paid to the Auditors and their associates for tax advisory 0.3 0.1 services - fees paid to the Auditors and their associates for other services 0.1 - Depreciation and other amounts written off tangible assets: - owned 35.8 26.8 - leased 2.5 1.8 Amortisation of goodwill 2.2 0.3 Operating lease rentals - plant and machinery 36.4 22.0 - land and buildings 41.4 20.7 6 Net interest payable and similar charges 2004 2003 £m £m Interest receivable 1.4 1.0 Interest payable on bank loans and overdrafts (11.2) (4.9) Finance charges payable in respect of finance leases (0.2) (0.2) Unwinding of discounted insurance, German pension and other provisions (2.6) (0.9) (12.6) (5.0) The interest receivable relates primarily to the cash deposits held by the Group's captive insurance company. Notes to the accounts (continued) 7 Taxation Pre-exceptional items Exceptional items 2004 2004 2004 2003 £m £m £m £m UK corporation tax Current tax on income for the year 2.8 (2.1) 0.7 9.6 Adjustments in respect of prior years (1.3) - (1.3) (2.3) 1.5 (2.1) (0.6) 7.3 Foreign tax Current tax on income for the year 1.7 - 1.7 0.5 Adjustments in respect of prior years - - - - 1.7 - 1.7 0.5 Total current tax 3.2 (2.1) 1.1 7.8 Deferred tax Current year 6.6 - 6.6 (1.5) Adjustments in respect of prior years 0.8 - 0.8 (0.2) 7.4 - 7.4 (1.7) Tax on profit on ordinary activities 10.6 (2.1) 8.5 6.1 The following table reconciles the tax charge at the UK standard rate to the actual tax charge : 2004 2003 £m £m Profit on ordinary activities before taxation 22.4 26.7 Tax charge at UK standard rate (30%) 6.7 8.0 Permanent differences - overseas profits at higher rates 0.3 0.1 - overseas profits at lower rates (0.4) - - losses not utilised 2.2 0.6 - disallowable expenditure 0.2 0.3 - non-taxable proceeds - (0.4) Temporary differences - movement on accelerated capital allowances (0.1) 2.1 - other (6.5) (0.6) Adjustments in respect of prior years (1.3) (2.3) Current tax charge for the year 1.1 7.8 As a result of the acquisition in the prior 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 remain above the UK standard rate in the future. Notes to the accounts (continued) 8 Dividends 2004 2003 £m £m Equity shares: Interim dividend paid 4.0 3.8 Final dividend proposed 8.3 7.8 12.3 11.6 A final dividend of 7.08p per share is proposed to be paid on 11 August 2004 to shareholders on the register at 16 July 2004. An interim dividend of 3.48p per share was paid on 14 January 2004 to shareholders on the register at 12 December 2003. 9 Earnings per share Earnings per share are calculated on the basis of earnings of £11.1m (2003: £20.1m) and the weighted average of 115.3m (2003:114.8m) shares which have been in issue throughout the year. The diluted earnings per share are calculated on the basis of an additional 0.8m (2003: 0.9m) 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, goodwill amortisation and related tax, and earnings before exceptional items, goodwill amortisation, pension credit and related tax, since the Directors consider that they provide further information on the underlying performance of the Group. Adjusted earnings are as follows: 2004 2003 £m £m Profit for the financial year 11.1 20.1 Goodwill amortisation 2.2 0.3 Exceptional items 10.0 5.3 Tax on exceptional items (note 7) (2.1) (4.0) Earnings before exceptional items, goodwill amortisation and related tax 21.2 21.7 Pension credit (4.0) (4.0) Tax on pension credit 1.2 1.2 Earnings before exceptional items, goodwill amortisation, pension credit and related tax 18.4 18.9 Notes to the accounts (continued) 10 Intangible assets Goodwill Cost £m At beginning of year 25.0 Exchange adjustment (0.3) Additions (note 11) 16.1 At end of year 40.8 Amortisation At beginning of year 0.3 Charge for year 2.2 At end of year 2.5 Net book value At 31 March 2004 38.3 At 31 March 2003 24.7 Notes to the accounts (continued) 11 Acquisitions In July 2003 the Group acquired a further 31.4% interest in Rhinecontainer BV for €5.0m. Until then the entity was treated as an associate and subsequently as a consolidated subsidiary. The operating results since acquisition are not material in the context of the Group such as to warrant separate disclosure. The acquisition has given rise to a value of goodwill of £3.0m, being the difference between the cash consideration paid and the net assets acquired at fair value. As reported last year, on 31 December 2002 the Group acquired Trans European on a debt-free basis for £152.5m in cash plus £5.9m of costs and other incidental settlement items. The completion discussions with the vendor remain ongoing and therefore the consideration remains subject to change. However the fair values of the net assets acquired have been finalised, being primarily further accounting policy alignments and this has resulted in an increase of goodwill of £13.1m. These movements are summarised below; Rhinecontainer Trans BV European Total £m £m £m Tangible fixed assets 0.5 (3.1) (2.6) Investments (0.3) (0.2) (0.5) Working capital (0.2) (7.8) (8.0) Net cash 0.3 - 0.3 Equity minority interests (0.2) - (0.2) Provisions including deferred taxation 0.2 (2.0) (1.8) 0.3 (13.1) (12.8) Cash paid (3.3) - (3.3) (3.0) (13.1) (16.1) Goodwill (note 10) 3.0 13.1 16.1 The additional fair value adjustments arise from the more detailed review of the carrying value of acquired assets and completeness of recorded liabilities following the transfer of direct management of the acquired business in the first half of this financial year. In addition, the trade and assets, valued at £2.3m, of a non-core business of Trans European were sold in the year for £2.3m. Notes to the accounts (continued) 12 Reconciliation of operating profit to operating cash flows 2004 2003 £m £m Operating profit 35.0 31.7 Depreciation and amortisation 40.5 28.9 Decrease/(increase) in stocks 0.3 (0.2) Decrease/(increase) in debtors 23.5 (13.6) Increase in creditors 6.8 21.7 (Decrease)/increase in provisions (0.8) 0.1 Loss on sale of fixed assets - 1.8 Net cash inflow from operating activities 105.3 70.4 The operating cash flows include an outflow of £7.8m (2003 : £0.5m) in respect of exceptional costs. 13 Analysis of cash flows 2004 2004 2003 2003 £m £m £m £m Returns on investments and servicing of finance Interest received 1.4 1.0 Interest paid (11.0) (4.7) Interest element of finance lease rental payments (0.2) (0.2) Dividends paid to minority interests in subsidiary (0.7) - undertakings (10.5) (3.9) Capital expenditure Purchase of tangible assets (20.9) (17.7) Sale of tangible assets 16.8 9.2 (4.1) (8.5) Acquisition and disposal of businesses (note 11) Purchase of Trans European - (158.4) Purchase of Rhinecontainer BV (3.3) - Cash acquired 0.3 15.2 Disposal of non-core business 2.3 - (0.7) 143.2 Management of liquid resources Increase in cash deposits held by the captive insurer (10.0) (4.0) (10.0) (4.0) Financing (Decrease)/increase in borrowings (50.6) 125.9 Capital element of finance lease rental payments (1.2) (1.1) Issue of share capital 1.7 0.3 (50.1) 125.1 Notes to the accounts (continued) 14 Analysis of net debt At Other beginning Cash flow non-cash Exchange At end of of year changes movement year £m £m £m £m £m Cash at bank and in hand 15.3 9.0 - (0.5) 23.8 Cash deposits held by the captive 21.7 10.0 - - 31.7 insurer 37.0 19.0 - (0.5) 55.5 Debt due within one year (24.3) 1.9 0.2 0.1 (22.1) Debt due after one year (158.2) 48.7 1.7 2.2 (105.6) Finance leases (2.2) 1.2 (2.1) - (3.1) Total (147.7) 70.8 (0.2) 1.8 (75.3) 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 £nil (2003: £0.2m). A further finance lease liability of £0.2m of the acquired business has been recognised in the year and £1.9m of finance lease liabilities have been recategorised. This information is provided by RNS The company news service from the London Stock Exchange

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