14 May 2020 07:00
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
LEI: 213800Z5WTW8QKOHWQ82
For immediate release
14 May 2020
Wincanton plc
("Wincanton" or the "Company")
Trading Update and Financing Arrangements
Wincanton today issues an update on trading and management actions during this period of unprecedented disruption and uncertainty. In addition, the Company (together with its subsidiaries, the "Group") announces an extension to its current banking facilities.
Key Points
· April Group revenue down 15% year-on-year, with significant variations in the level of performance across the Group's businesses and segments and a negative impact on year-to-date profitability. Encouraging signs of gradual increase in activity levels in affected segments.
· Key focus on cash management actions including the furlough of 15% of workforce; board and executive management temporary 20% pay reduction; deferral of pension recovery payments; HMRC payment deferrals until Q4; delay of non-business critical capex; and suspension of the final dividend
· Additional liquidity secured through a £40 million RCF extension, available for 12 months from May 2020, bringing the total available facility to £181 million
· Performance for the year ended 31 March 2020 was in line with market expectations with revenue growth of over 5%
Current Trading
Since the announcement of 25 March 2020, the Board has continued to assess the impact of the disruption and uncertainty caused by COVID-19.
Our key priority has continued to be to safeguard the health and wellbeing of our employees and their families, whilst continuing to provide those logistics services our customers need to help the nation to function. Where operations have remained active, we have applied safe systems of working, with appropriate distancing and cleaning measures, and non-operational staff are working remotely wherever possible.
It is too early to fully assess the financial implications of the COVID-19 crisis on the Group's business and there remains considerable uncertainty regarding the levels of demand and business interruption for the remainder of the year. Group revenues in April have been c.15% below the comparable period last year, but with significant variations across our different businesses and segments. The profit impact of volume shortfall is also varied according to contract types, particularly between open and closed book contracts, but as a whole the Group has seen a negative impact to its profitability in the financial year to date.
At the onset of the COVID-19 crisis, we saw an increase in volume and demand from both our grocery and consumer products customers, particularly in March, as they responded to changes in consumer buying habits, including initial 'panic buying' in stores. Both areas have now returned to the volumes we would expect at this time of year. The financial impact of these effects was a short-term increase in revenue, although with limited profit uplift due to the commercial models deployed in these customer contracts.
In non-grocery retail we have seen a shift of supply chains from in-store to on-line channels, although many of our larger customers have been able to keep stores open. The picture varies by customer and is developing as our customers modify their in-store arrangements, but in general volumes in April were lower than prior periods as shopping appears to have been more focused on 'essential' products. However, the open book nature of most of the contracts has ensured that profitability has some protection in this segment. Our defence business has started this financial year more strongly in both revenue and profit versus last year, with COVID-19 having a limited impact and new business won last year flowing through.
In our closed book two-person home delivery network we were required to cease operations at the end of March in line with safety guidelines. This resulted in a significant negative impact on profitability during the shutdown. Following a change to government guidance the service has now restarted, although a return to normal levels will take time.
Similarly, our construction business has seen major parts of the network closed from early April, due to the voluntary shutdown of many construction sites and builders' merchants. Revenues during April were down by around 70% on the comparable period last year. We have acted swiftly to reduce the variable elements of our cost base with significant reductions in subcontractor and agency labour costs. However, as we operate this business as a largely closed book network, the reduction in revenue has had a substantial impact on its profitability in April. Recent announcements in the housebuilding and construction sectors on the recommencement of operations are encouraging but we expect the pickup in business to be gradual.
Container volumes and Pullman Fleet Services ("PFS") revenues continue to be below expectations, with the container business impacted by reduced traffic from Asia and PFS workshop volumes depressed by general lower demand for vehicle maintenance and repairs as a result of less road activity. Our energy business has also experienced some slowdown due to reduced retail forecourt fuel volumes. We have a blend of open and closed book contracts in this area and there has been therefore some profit impact, however we expect this to reduce as volumes return post lockdown.
Management's actions in response to COVID-19
As noted in our announcement of 25 March 2020, cash management remains a key focus. In order to maintain liquidity within the business, a number of measures have already been taken.
Across the business approximately 2,500 staff (c.15% of our workforce) have been subject to furloughing arrangements, although we continue to review staffing levels to ensure we can respond to returning customer demand as quickly as possible.
We have also undertaken a forensic review of costs across all operations including the use of agency labour and subcontracted services and achieved significant reductions. All but business critical capex and projects have been put on hold, we have renegotiated payment profiles on certain asset leases and have also taken advantage of HMRC arrangements to defer VAT.
Actions have been taken across the management population in respect of remuneration and are under continued review. The Board and executive management team have agreed to temporary pay reductions of 20%, effective from 1 April 2020, and no cash payments in respect of the executive management bonus scheme are expected to be made in this financial year.
In addition, to retain near-term flexibility, the Board has determined that the final dividend, which would ordinarily be paid in July, should be suspended. The Board recognises the importance of the dividend to our shareholders and will keep dividend payments under review as the year progresses with a view to return to payments as soon as appropriate.
We have also reached agreement in principle with the Pension Trustees of the defined benefit pension scheme to defer upcoming deficit recovery payments by twelve months which will improve the Group's liquidity by approximately £6 million. The agreement contains provisions for accelerated payment of deferred contributions if dividends are paid within the deferral period.
Extension of the Banking facilities
The Group currently has a committed Revolving Credit Facility ("RCF") of £141 million, with our banking consortium comprising HSBC, Barclays, Santander, ABN AMRO and AIB, which matures in October 2023.
We have explored a range of additional financing options, including government financial support schemes, bank debt and equity, and have secured an extension to the RCF of £40 million to be available for drawdown for a period of 12 months from May 2020 in lieu of the uncommitted Accordion facility. The financial covenant tests remain unchanged as a result of this extension. During this 12 month period, the payment of any dividends will result in a corresponding reduction in size of the £40 million extension. We continue to monitor our trading and downside scenarios and will consider additional financing options in the longer term should they be required.
James Wroath, CEO of Wincanton, commented:
"I am extremely proud of the response of our colleagues working in challenging circumstances and embracing the changes that have been required. Our priority remains the health and wellbeing of them and their families.
The outlook is uncertain as we wait to see how the country will emerge from lock-down and the impact varies considerably across our diverse sectors. I am pleased that we have been able to secure an extension to our banking facilities which will provide greater liquidity in this period of uncertainty.
I am confident we are taking the right measures for the business and stakeholders to put Wincanton in the very best possible position to get through the coming months and to thrive in the longer term."
Wincanton +44 (0) 12 4971 0000
Tim Lawlor, Chief Financial Officer
Buchanan (Financial PR) + 44 (0) 20 7466 5000
Richard Oldworth/Vicky Hayns
The person responsible for releasing this announcement is Lyn Colloff, Company Secretary.
Notes to Editors
About Wincanton
Wincanton is the largest British third-party logistics (3PL) company, providing supply chain solutions to some of the world's most admired companies across a wide range of industries including retail, construction, defence and energy.
As a trusted and respected business partner, we design and implement services and solutions that range from setting up and operating distribution networks, through to bonded warehouses, technology hosting, container transport and storage. We strive for operational excellence in everything we do.
We work hard to understand and respond to our customers' needs, build long-term relationships and use our skills and expertise to deliver a smarter, added value service, every day. Our customers rely on us to make their businesses operate more efficiently and to gain a competitive advantage in their sector.