“It’s been a bit of a rollercoaster start,” James Wroath laughs, as he begins describing his first five months as chief executive of Wincanton.
Most notably, of course, he immediately threw himself into the battle for control of Eddie Stobart Logistics, whose shares were suspended on his fourth day in the job.
But he’s quick to deny claims that his interest in ESL might have been more of an intelligence gathering exercise than a serious takeover bid.
“Absolutely not,” he says. “I know that’s what some of the rumour was but no way. We have a good haulage business but it’s nowhere near as big as theirs so putting the two together was a really attractive proposition. I and the board would have really liked to have done a deal but in the end it was too difficult.”
ESL was eventually rescued by private equity firm DBAY Advisors after a fight that also involved former chief executive Andrew Tinkler. At the time, many pointed to the fact that ESL was hemorrhaging cash as a good reason to steer clear. But Wroath takes a different view.
“Our issue wasn’t that they were losing a load of money, it was trying to work out where they were making money and where they weren’t and the transparency is always going to be difficult if the accounts aren’t signed off.
“The other key issue was the liquidity problem. They needed an immediate cash injection but when one public company is buying another the process takes three months to understand. The Tinkler stuff was kind of separate. It was always DBAY. They were launched before us and they have different objectives to us.”
He also admits he half wishes the ESL situation had happened six months down the line when he’d had chance to meet some people and understand more about the business. Although on the upside, it certainly helped raise Wincanton’s profile and gave him some valuable feedback from his shareholders.
In his previous role as head of North America with airline catering giant LSG Sky Chefs, assessing profitability and what you needed to do for customers was “a broad brush strategic challenge”, he explains.
“Whereas the issue in contract logistics is you do so many different things for so many different customers, and you charge in so many different ways. You have to really understand, at a granular level, what your customers want, what you’re providing and how you can be profitable. So when you’re looking at an acquisition, you need to go into it in an awful lot of detail to understand it. We didn’t have the time to get comfortable with that.
“But what was really interesting was that universally people were impressed that we were looking at the opportunity, but also that we were being cautious and sensible about it and not being reckless.”
Prior to LSG, Wroath also held senior roles with Kuehne + Nagel and Scottish & Newcastle, but the job at Wincanton has not only allowed him to settle his family back in the UK but offered him “a real leadership role with a public company reporting to a board rather to a line manager”.
His early impressions are that this is an interesting time to come to Wincanton, with the likes of DHL, XPO, Kuehne + Nagel and ESL making every sector “fiercely competitive”.
He’s understandably cagey on the specifics of his forward strategy but insists his predecessor Adrian Colman did “fantastically well” and that he plans an “evolution rather than a revolution”.
He’s not afraid to touch on Wincanton’s well-documented past problems either. In fact he’s honest enough to admit that five or six years ago the company had “survival problems” created by purchasing companies in Europe and not being able to successfully integrate and manage them. “That led to a retrenchment back to the UK,” he explains, “and created a lot of debt.”
But with those troubles resolved, and in light of his interest in ESL, are any other acquisitions on the agenda?
“ESL was very much opportunistic when the share price was suspended,” he says. “It has always been on our board’s radar but never actively pursued. The straight answer is no but we’ll consider an M&A approach as part of the strategy.
“It was interesting, through the Stobart discussions, that our shareholders and the market were supportive of us considering acquisitions. But nobody wants us to go on an acquisition spree just to get bigger for the sake of it.”
That said, Wroath reveals there are markets where taking Wincanton’s expertise and being able to build on that with partners would be “interesting”.
“In the modern supply chain you don’t have to acquire, you can partner, particularly in IT but also in robotics for example. Strategic partnerships with smaller more agile organisations can really drive customer value.”
Review of strategy
Wroath also rejects claims that when he arrived he ordered a strategy review: “It’s a review of strategy not a strategy review which are two very different things in the public world,” he smiles. “The one area for improvement is growth. Growth in contract logistics is really easy if you don’t worry about making money out of it. Profitable growth is really tough. You have to pick the right skills and services and leverage those two and drive yourself into the markets where there’s more opportunity.”
But asked where those opportunities might be, he’s less forthcoming. You sense he’s keen to tell the sector he’s arrived, but less inclined to reveal his hand in any detail.
“We’re still looking at that,” he says. “We‘re not leaping into stuff we don’t do. In contract logistics, operational credibility is critical. We’ll be cautious about how public we are. I don’t warn the competition that we’re making investments in certain markets. The moves we make will generally be in markets we’re already in or are developing in new and interesting ways.”
Wroath is also content with Wincanton’s half-year results to September 2019 which revealed a 5.3% fall in group pre-tax profits, year-on-year, to £28.5m but a 1.9% rise in group revenue to £592.9m. Underlying profit before tax climbed 9% to £26.3m, while net debt fell almost 40% to £14.8m compared to the same period a year ago.
Revenue was boosted to £378.3m by major new deals with Weetabix, Sainsbury’s and the Co-op. Wroath also points to a more recent five-year contract with Morrisons as being particularly lucrative.
He agrees that Wincanton is known for its strength in retail but reveals he’d rather the company wasn’t biased entirely that way. He’s keenly aware that chasing higher margins comes with associated risks but is currently looking at supply chains that are “less mature”.
“E-commerce would be an example of that,” he explains,” and it’s also a market full of small competitors so I’m not necessarily saying that’s something we’ll go after.
“But if we can get into the industries and markets where the supply chain is less mature we can earn more money ourselves but actually deliver much higher value to customers. It’s those kind of opportunities you’re looking for but it’s a tough market. There are markets in the world where you take your reputation and drop it where you like but the UK isn’t one of them.”
Growth opportunities
Regarding Brexit, Wroath claims Wincanton is “on the opportunities side”.
“We only operate in the UK and most of our customers tend to be very much UK businesses,” he explains. “We’re not in a lot of pan-European supply chains. As well as retail, we have good consumer business, we have good construction business, defence, energy…”
He highlights cabotage as a particular area of interest: “I assume it will not be allowed post Brexit,” he says, “and there are a substantial number of loads in this country being carried by foreign carriers. So that is a future opportunity.
“I’m not sure some of the European carriers aren’t already pulling away from doing some of it because they see what’s going to happen. In the long run, not having foreign carriers moving stuff within our island gives more opportunity for domestic hauliers.”
Wroath also sees an opportunity in alternative fuels, suggesting consolidation centres like those in airports might be a possibility for city centres: “I wonder if it will be less around vehicle sustainability and more about taking trucks off the road? And that sort of thing is a 3PL opportunity as well.”
He believes alternative fuel will end up being “a technological issue”.
“Frankly the options out there in the market are pretty limited,” he says. “Electric technology is nowhere near being able to power the kind of trucks we have today. The range is limited, but customers are pushing us for solutions and therefore we need to push the manufacturers.
“Although electric is dominating the car market there’s some feeling out there that hydrogen may be a better solution in the long run for trucks, simply because you’ve got to get enough power to drive these big vehicles.”
Robotics is another area of interest, he says, explaining that automation has tended to have a bad reputation but that is now changing: “What’s tended to happen is you build a load of fixed automation and then your profile changes and you can’t pick anything anymore because the box is a different size to the way the automation was built. So people are a bit gun shy of automation, but now it’s getting more and more prevalent with robotics as opposed to fixed automation.
"Affordable robotics tend to be blind. The real breakthrough will come when the robotics are affordable and visual. A robot that’s blind is £25,000, a robot that can see is £1m. But as the cost of the visual comes down then robotics and automation will become very important.
"We have to be at the forefront of understanding that technology and how it can implemented usefully. It’s not something 3PLs have generally done. They generally wait for a customer to ask for something. We have to do a little bit more without burning money and say we’ve tried it with a customer and understand it. So when someone comes to us saying they’re interested in using robotics we can show them how it works.”
Ultimately, Wroath insists logistics is “a fun industry”, smiling at suggestions that as chief executive of the UK’s largest listed 3PL he might get the occasional sleepless night: "It’s not an easy industry but it’s intellectually challenging because there are so many pieces to the puzzle,” he says. “This is a solid business and if you’re keeping your customers content and meeting financial expectations that’s a really good place to be. Springboarding from that is the strategic challenge but never moving away from delivering for your customers and shareholders. If I’m not doing either of those two then I might start having some sleepless nights!”
