Wincanton first half performance 'going in the right direction'

Wincanton has delivered a “boringly predictable” set of results for the six months to 30 September 2013, with group turnover down 1.6% at £542.3m and operating profit up 2.1% to £24.2m compared with the same period last year.

Wincanton’s Swiss chief executive Eric Born described Wincanton’s performance as “steady and stable”, a welcome change from the turmoil of 2011 when his appointment to replace Graeme McFaull saw a clear out of loss-making European businesses as the group plunged to a £26m loss on turnover of £2.2bn.

Now Wincanton is sticking to its domestic contract logistics knitting, focusing on cost control, cash flow and renewing and winning contracts in its existing markets rather than planning any major acquisitions or disposals.

“The group performed well in what remains a competitive market place,” said Born. “These results demonstrate the continued progress made in Wincanton’s transformation journey. All the key metrics are going in the right direction and we will make further progress in the next six months.”

Wincanton’s contract logistics businesses (see table) accounted for £461.8m of revenue and £19.7m of operating profit, hardly changed on 2012, though within that total construction and retail grocery saw significant growth while tankers dropped away. The specialist services division, which includes container haulage and the Pullman maintenance business, made respectable £4.5m profit on revenue of £80.5m.

Contract logistics revenue by industry sector

H1 2013 £m Change on 2012

Construction 64.7 17.2%

FMCG 83.7 -5.4%

Retail grocery 116.0 9.0%

Retail general merchandise 117.9 2.3%

Tankers and bulk 50.5 -20.0%

Other 29.0 -20.0%

Total 461.8 -0.7%

Operating profit 19.7 0.5%

Margin 4.3% 2.3%

While the tanker division renewed two major long term fuel distribution contracts, it suffered from the loss of a major customer, Rontec, when it switched from a dedicated to a shared user model.

Construction benefited from a pick up in private sector building activity, especially in the second quarter, though Born said that as a relatively small part of the business this had a negligible impact on the overall results.

In its bigger retail and FMCG sectors the company said “there has been no improvement to date [and] the group continues to experience margin pressure on renewals”.

Born added: “A big proportion of our contracts are open book and when we renew the customer wants the same or lower total cost. The inevitable flip side of long term relationships is pressure on margins.”

A significant win was a five-year contract with supermarket Morrisons to set up and operate a dedicated UK convenience store distribution centre in London.

With little prospect of significant improvement in the next six months Wincanton remains “absolutely” focused on cost control to maintain let alone widen operating margins. “We already get better than average margins and just have to do what we do better,” said Born. “We operate on an asset-light model so all our cost is in the P&L and we generate sufficient cash flow to service our key stakeholders – customers, lenders and pensioners.”

Wincanton reduced average net debt by almost 30% to £87.2m in the first six months of 2013, helping to reduce finance costs slightly to £11.3m, largely by improving cash flow and management of working capital. Born said the company was comfortably covering its debt repayments and pension deficit payments.

Born said Wincanton won contracts against tough competition simply “by being better than them”. “We are the best operators in the market and execute our contracts better,” he said. “What other business could have opened a convenience distribution centre from scratch as we did for Morrisons?”

He also believes Wincanton is picking up business because it is now the only remaining major British-owned logistics company left. Born also argues that being focused on UK contract logistics rather than offering an end to end supply chain is no disadvantage in the markets where Wincanton operates.

“There is nothing DHL does in the UK that we can’t do,” he said. “If I was a global player like Ceva, Norbert Dentressangle or Kuehne + Nagel I would say offering an end to end service is important but the reality is that contract logistics is a local market. We have not failed to win any business just because we are a pure contract logistics player.”