Wincanton sells European units for £41.5m

Somerset, UK: Wincanton, the logistics group has sold part of its operations in mainland Europe for £41.5m (US$68m) as part of its effort to reduce its massive debt.

Wincanton has signed agreements to sell its German Road activities and other businesses in Central and Eastern Europe to Raben Group and its logistics operations in the Netherlands to JCL Transport und Logistik GmbH. The sales are subject to conditions including clearance by the relevant competition authorities and the completion of the necessary works council consultations.

Wincanton reported a pre-tax loss of £25.9m in its preliminary results for the year to 31 March 2011. This was a consequence of net exceptional costs incurred, including the impairment of goodwill in the French part of its Western European business following a disappointing performance, and the write down of the re-scoped back office IT project. In 2010/11 group revenue remained constant at £2.18bn while underlying operating profit reduced slightly from £54.6m to £53m.

Wincanton’s operating performance has been relatively resilient, but it has become apparent that there was an overall trend within the contract renewal cycle and in the core UK business that was leading to a declining profit profile.  The sale of the continental businesses follows a review by Eric Born, appointed as the chief executive in December last year, to return the business to profit by reducing cost.

The objective is to turn around or exit underperforming parts of the business so that the company can focus on areas with strong growth potential and capitalise on the significant opportunities presented by a changing market. The company has also temporarily suspended the dividend to assist the overall preservation of cash. Born expects to generate £41.5m from the sale of the three European arms, and use that money to reinvest in the company’s current contracts and core UK business.

Wincanton needs to address the sub-scale and underperforming businesses and reduce the group’s borrowings. Over the past decade, the group has made a series of acquisitions, which has increased debt to a level that now constrains the group’s ability to invest in the higher growth and more profitable parts of the business. In time the improved profitability will drive a more positive cash flow, but in the short term the cash flow will be assisted by business disposals, say analysts.

Wincanton’s five-year plan focuses on the growth potential across all its market sectors and geographies. Key sectors are:

Growth markets
– targeting 10.0% annual profit growth: 11.0% of Group revenue
Defence and Aerospace
Records Management
Public sector

Performing businesses
– profit growth conditional on net contract wins: 55.0% of Group revenue
Retail (includes Home Delivery)
Pullman Fleet Services
German contract logistics
German intermodal

Mature business segments
– maintain market share and profits: 9.0% of Group revenue
Milk / bulk foods
Consumer goods

Sub-scale or underperforming businesses
– turn around or exit: 25.0% of Group revenue
German road network

Wincanton renewed 10 contracts in the final quarter of the year, including W H Smith, Sainsbury’s, Wavin, BP Gas and Nestlé Purina.