U.S. Markets open in 3 hrs 12 mins

Edited Transcript of WIN.L earnings conference call or presentation 13-Nov-19 9:30am GMT

Half Year 2020 Wincanton PLC Earnings Call

Wiltshire Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Wincanton PLC earnings conference call or presentation Wednesday, November 13, 2019 at 9:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* James Wroath

Wincanton plc - CEO & Director

* Timothy Charles Lawlor

Wincanton plc - CFO & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Gerald Nicholas Khoo

Liberum Capital Limited, Research Division - Transport Analyst

* Steven John Woolf

Numis Securities Limited, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

James Wroath, Wincanton plc - CEO & Director [1]

--------------------------------------------------------------------------------

My name is James Wroath. And as of the beginning of September this year, I'm the new Chief Executive of Wincanton plc. Welcome to our results for the Half Year to the 30th of September 2019. I'll hand over to my colleague Tim shortly, who will take you through the numbers. But obviously, I'm responsible for the last month of these results. I think this is a statement that everybody, I'm told, will be familiar with. So the agenda today, I'm going to do a very short introduction, and then I'm going to hand over, as I say, to Tim, who'll take us through the financial and performance review. And then I'm going to come back and just give some business highlights from that first half year, but I'm also going to take you through some initial observations that I've found since I've been in the business.

Okay. So firstly, though, just a very short introduction, as I say, my name is James Wroath. I began my career some time ago in overnight parcel delivery and since then, I've had a 25-year career in a broad range of different logistics roles.

I've got commercial, operational and leadership experience in the U.K. and in North America, through roles with Scottish & Newcastle, Kuehne & Nagel and the LSG Group.

Later, I'm going to cover more fully my initial observations of the Wincanton business, but it's been a busy and rewarding first couple of months. I'm delighted to have joined, and I feel very positive about our future.

So just a sort of top-level summary from me, the first half of 2019 '20, has continued Wincanton's track record of solid and continued successful performance.

This is evidenced consistently by the positive numbers that you see on this slide. There have been new business wins and renewals that I'll cover in more detail later as well as some encouraging area of underlying growth, particularly in Retail Grocery and Consumer Products. However, the main headlines are underlying operating profit growth up 5.6% on a pre-IFRS 16 basis. Underlying EPS growth of 9.9% to 17.8p, free cash flow generation of GBP 22.4 million in the first half, and an interim dividend increased by 8.3%, reflecting our confidence that we have in the business.

As I said, I'm going to return later in the presentation to cover some more detail on the operational commercial performance of the business. But for now, I'm going to hand over to Tim to cover the numbers in more detail.

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [2]

--------------------------------------------------------------------------------

Good morning, everybody. So before I get into the details of the numbers, I should start by talking about IFRS 16 because that's -- we were in the room -- it's only 1.5 months ago, we had a very full room to go through IFRS 16 in some detail. The presentation is up on the website, if you want a quick refresher. But just to say, obviously, they are now our reported numbers. For the purposes of this presentation, we're going to focus on the pre-IFRS 16 numbers because that enables us to compare to prior year, but you'll see the IFRS 16 numbers as we go through the presentation.

So let's start with revenue. So revenue has grown 1.9% in the first half of this year. You'll recall that last year, there was a downward move in revenue as we exited some of the underperforming contracts, and we changed the scope of some of our contracts.

And as a result, H2 last year was down on H1. H1 this year is actually 5.9% up on H2, which is really encouraging, and that's driven by -- primarily driven by the businesses that we won at the end of last year that we announced back in May. So they would include Aggregate Industries, Co-op, Weetabix et cetera. So a good run on revenue going into the second half of the year. Pleasingly, on profits, we're up GBP 1.5 million, half year on half year. And that's driven by a combination of that contract mix change and also from just the ongoing grind to just bring out operational efficiency improvements across the business.

As a result of that, our margin is up by 20 basis points, so up to 4.8%. So record levels of operating profit margin, long may that continue. I would say that our primary focus remains on absolute operating profit rather than the margin percentage.

Nevertheless, hopefully both will move in tandem and upwards. So then further down the P&L, underlying profit before tax is up over 9%. So -- as well as the benefits from the operating profit improvements. We've also got the benefit of finance costs coming down, which is driven by achieving a nice milestone in the first half year, in that we are now reporting a pension surplus on the balance sheet.

I'll come back to that later in the presentation. The impact of that is that on a P&L basis, we no longer have a finance charge in relation to pensions. And into next year, we'll actually see, assuming that assumptions don't change significantly. We should see that move into some finance income next year.

Then not shown on here is the exceptional profit, which I'll cover later, but again, we've had an exceptional profit related to property activities in the first half year from the sale of 2 properties in Scotland, 2 freeholds in property in Scotland that we opportunistically sold and which were underutilized.

So that helps not only our reported EPS, but also our cash flow.

Speaking of which, strong cash flow, good, healthy cash generation again in the first half of the year, our net debt is now down to below GBP 15 million, which is less than 1/4 (sic) [1/3] of our EBITDA.

So we're in a strong balance sheet position. And all of that gives us confidence that we can increase our dividend by 8% year-on-year.

So moving into more detail on the sectors. Retail & Consumer has had good growth in the first half of the year. And they're the primary beneficiaries of those businesses that were -- those contracts that were won at the end of last year.

So we've seen strong growth in -- particularly in our grocery sector and our Consumer Products sector. And we've still got a good pipeline of opportunities. Some big opportunities still out there that we're trying to drive to close, hopefully, in the second half of the year.

So positive about this sector. Revenue then went up by 5.8% year-on-year, and the principal wins that haven't really impacted revenue yet, in the first half of the year. The principal win was Morrisons where we've won a contract to supply transport operations and planning for 3 sites in the Morrisons network, and James will talk about that in a bit more detail later on.

Also, we take comfort from the high retention rate we've had in the first half of the year, securing all the key long-term renewals that came up in the first half of the year, in particular, Williams Sonoma, Cormar Carpets and Husqvarna. And then in terms of operating profit, maintained a similar level of profit, slight improvement in -- or maintain a similar level of margin, I should say, with profit growth then coming from that additional revenue. And the margin is really a question -- just eking out more operational efficiency, continual improvement in this space.

Industrial & Transport, again, a good profit story. Profit's growing year-on-year. Margin's growing up -- going up. And this is the business that has seen more of the contract exits last year, which is why we're seeing revenues dropping year-on-year. Again, good pipeline, good run of recent business wins. Within the Industrial & Transport business, we've got the fleet maintenance services that came alongside the transport operations that's in Retail & Consumer for Morrisons. And that's encouraging that we were able to demonstrate the range of our services offers an opportunity to our customers to sell across business.

And also, we won a significant 5-year business with, what we can only describe as a fuels distribution business. Here, there's some sensitivity about using the names, given where we are in the 2P Process with that contract, but that's a good win for this business.

And again, a nice run of renewals. So Muller Milk is one of our heritage contracts, supplying milk in the south of England and to Wales. We've got a further 3-year extension there. Phillips 66 and Ibstock are important customers as well, and it's comforting to get those extensions. This business is -- I'm fully aware of some of the market challenges in Industrial & Transport across the U.K. There's been a lot of talk, for example, about some building products, suppliers who could be our customers with profit challenges for this year, that's been well communicated.

At the moment, our business is performing very well, and we expect it to continue, but we are monitoring very closely the construction markets and the containers market, similarly, just to ensure that any economic slowdown is reacted to quickly, and we are pulling the right levers on our cost base, if we see any slowdown in activity there. The other area that I would call out in this business in the interest of balance, I refer in the [SCA] to the Pullman business, our fleet maintenance business, where we have seen some volume drop in our workshops, which has meant that profit has gone backwards in Pullman.

This is a small part of our business. It's a small part of our Transport Services sector. Nevertheless it's one that we're watching closely given that -- given those volume pressures. But overall, we see a 30 basis point improvement in operating margin in this sector and continued profit growth. So then looking at revenue on a sector-by-sector basis, you'll see that broadly, we were up or flat in all of our sectors.

The downturn was in Transport Services, which is where, again, those exits have occurred and the Pullman business is in there as well. But primarily, that Transport Services drop year-on-year is in relation to those contracts that we've exited. Encouraging growth elsewhere. Our big sector remains Retail General Merchandise, which is where we have most of our e-commerce business. So for example, we have the multichannel work with Screwfix and IKEA sitting in that sector. We also have our two-man home delivery business with Marks & Spencer, loaf.com, IKEA and others in that

(technical difficulty)

area. And that remains a very attractive area of the business for us.

The other bullet point there you see at the bottom is about the open book to closed book mix, which is a question we get asked every 6 months. It's been in the sort of the 60-40 ratio for some while, open book to closed book, because of the slight change in the mix of the businesses with those new contracts coming in.

We've actually seen a slight uplift in the open book portion, so it's now 63% open book, 37% closed book.

So underlying operating profit, not a lot to add to what I've already said other than just to demonstrate the continual improvement that we're seeing.

So we're not going to take credit for the bar on the right, but under IFRS 16, we will see profits and margins going up. So we're going to have a 5.1% operating profit margin under IFRS 16. But over the last 3 years and previously before that, we've seen a steady increase in profits through this relentless pursuit of efficiency across the business.

In terms of the exceptional items. So for the second year, we're showing profit on -- profit -- property disposals, but these remain exceptional items to our business. We don't expect this to be ongoing. We don't have a huge portfolio of properties that are up for sale. This year, we had 2 adjoining sites in Bathgate in Scotland that we sold in 2 separate deals. Gross proceeds of GBP 5.5 million, and we were able to [engineer] a good [bit] on that, which resulted in a GBP 2.3 million gain on sale.

Financing costs and taxation. As I mentioned before, really, the key change in financing costs is this bottom line pension financing cost has disappeared as a result of eliminating the pension deficit.

In terms of taxation, we're retaining a similar effective tax rate. We manage our tax very closely. And we were able, as a result of that, to ensure that we didn't have any taxable gain on the exceptional items. So no tax charge on the exceptional item. Well, in terms of cash, where did this extra cash come from? Well, primarily, it's from the underlying EBITDA and the cash -- good cash generation of the business. We always tend to see some working capital outflow in the first half of the year. I'm not sure whether we can call it seasonality, but there's always a slight outflow in the first half of the year, relatively small and controlled with some elements of contract staff in there, but a GBP 3.3 million outflow of working capital in the first half.

I mentioned at year-end, the change in the HMRC tax payment rules, which means that effectively what they've done is they've brought forward their payments by 6 months. So rather than paying 2 tax amounts in the first half of the year, we paid 4, and hence, our tax cash grew -- no impact on the P&L, but our tax cash payments grew as a one-off in the first half of the year.

Then -- so a strong free cash flow before CapEx of GBP 22 million. The capital expenditure of GBP 4.7 million is similar to prior year.

It's primarily been investments in the system. We're developing a new transport management system, which is in -- well progressed in terms of implementation, and we expect to deploy fully around the end of this financial year.

There's also a limited amount of property fit-out costs in preparation for new customers coming into our multi-user facility in Corby. So then to pensions. So I alluded to this earlier on, primary driver of pensions coming down in the first half of the year has been that we've continued to pay our contributions into the scheme. But as you can see from this chart on the bottom left-hand side, we had a pension deficit on the balance sheet of over GBP 100 million until the end of 2016 '17. Since when through the cash [indiscernible] through the performance of the scheme and through some favorable movements in pension assumptions, we've seen a marked decrease in the pension deficit on the balance sheet. But a word of caution, this is the accounting deficit, not the actuarial deficit. So it's not the deficit upon which we have a negotiation with the trustees about the ongoing cash. Nevertheless, it can't be bad news to be seeing this sort of direction of travel.

That's -- the next discussion with the trustees will officially commence in 2020 based on the March 2020 valuation of the scheme.

Until that point, we've got fixed cash contributions of GBP 18 million a year for this year and for next year. So in terms of dividends, another nice trend graph there on the bottom left, which shows that we're complying with the dividend policy that we introduced in 2016, which was that we are going to have progressive dividends. We have an interim to final ratio of 1/3 to 2/3 as the general rule, and we generally grow our dividends in line with -- or broadly in line with EPS.

So our interim dividend cover. The way it is implied just over 3x as it has been for the last 3 years, that implied dividend cover is done by normalizing the 1/3 2/3, and applying that to the EPS to give us a dividend cover of a little over 3x.

And we'll be paying our interim dividend in January. And finally, for me, the net debt story. So again, another nice chart at the bottom left showing the improvement in the balance sheet position, the lower net debt over recent years, generated by the reduction in net debt of GBP 4.5 million after making the payments for dividends and pensions in the first half year.

We've got a strong set of bank facilities in place. The bank facility for the revolving credit facility goes out to October 2023. We also have a receivables purchasing facility and an overdraft facility available to us. So in a position of strong financial foundations on the balance sheet. And with that, I will pass back to James.

--------------------------------------------------------------------------------

James Wroath, Wincanton plc - CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Tim. As I said, now I'm going to take through a few of my initial observations of the business. And as I said earlier, I'm delighted to have joined Wincanton, and you can see it from the -- frankly horrific photo of me behind the wheel of a truck.

The important piece about that is that both of those pictures are taken at the Driver of the Year event, which is a really fantastic event that Wincanton's held for a number of years now, a very good number of years and identifies the best drivers across our network, both forklift truck drivers and normal truck drivers, and we run them through a whole set of competitions and prizes and stuff. It's really, really very, very well received. And the interesting thing nowadays is that, rather than just judging who the best drivers are based on who the managers like and who's easiest to work with now with telematics in all the vehicles, which give us a very live feedback about how drivers are performing, you can actually really tell who the best drivers are from things like miles per gallon or kilometers per liter, as I now [have] to call it [perspective.]

So in general, I've always had a pretty excellent outside-in impression of the Wincanton business even before I joined. But in all honestly, the reality has been even better than I expected. I've managed despite some other activities going on, which you'll all be aware of, to still tour a pretty good number of locations, certainly up into the double figures.

And I've seen our business across a number of diverse sectors, B2B, B2C, everything from delivering bricks to delivering wine. And that diversity certainly builds an in-built resilience into the business with the breadth of activities that we're involved in.

And throughout my visits, I've been really impressed with the depth and the breadth of our people's expertise. And it's pretty easy to see how we're out there, adding value to our customers by being a true extension of their own businesses. The company has also got a strong spirit embedded in both the impressive tenure of our colleagues and also our customer relationships.

And the other area that's really stood out for me is just a -- is the sheer quality of our operations. So with the customer list we had, I expected it to be pretty good. But to be honest, my expectation has definitely been exceeded.

And you might think, well, if a CEO turns up and tours the site, then it's bound to look good. But trust me, you can't make 1 million square-foot warehouse look good overnight just because the CEO is turning up. If the standards are there with hundreds of people out on the shop floor working, you'll -- you can tell whether the standards are there or not. So that's been really great to see.

And our customers' appreciation of what we do for them also shines through, not just in some of the feedback I've had, but also in terms of the renewals that I'll talk about in a minute.

So looking forward, I intend to build on those -- the excellent financial foundations that Tim's talked about. And that he and Adrian have done such a fantastic job with. And I intend to take the business to the next level with trying to unlock the potential that we have for the growth that exists through the activities we do.

I think that potential exists in the range and scope of expertise that we have. It exists in the passion and experience within our teams, and it also exists in the strength of our customer showcases and our market leading technologies.

I'm currently in the process of working with my new leadership team on reviewing our strategy. I think it's really important to say that there isn't going to be a revolution. As far as I'm concerned, the business already has a good track record of success. But I do think there's the opportunity to evolve, to take more opportunities in the market. And those opportunities will come, I'm certain, because of the quality of offering that we're able to attract.

Final [aside,] just to -- sorry to go back to this dreadful photo, again. One thing I should've just mentioned as well, that is actually an electric vehicle. Didn't make any difference to me, smashing all the cones down in the exercise. But it's an electric vehicle that we've started to trial in our home delivery business. So another example of the innovation of Wincanton. And so, sort of, building from what I said about the quality of our offering and what that can attract, in that spirit, it's doubly pleasing to be inheriting 2 major new business wins, which Tim referred to earlier, both of which is absolutely clear, we've won as a result of our value proposition in the market.

So Morrisons have a clear strategy to focus on their customers and their stores. They needed a partner to deliver ongoing improvements in their distribution service to those stores, and Wincanton were the clear choice to do that for them.

And after a quick and seamless implementation over the autumn, we're now their leading supply chain provider, developing a partnership that will underpin profitable growth for both businesses for years to come.

The second one that I'd like to highlight is, again, one that Tim referred to that we're not able to say who they are, but a large fuel provider has bought a collaborative solution from us, using our EnergyLink and shared-user platform and the Wincanton ORTEC transport planning systems.

We're providing LGV trunking and full load operations to them. The operation is currently in-house, which is always a good place to win business from. And it's a great example of our solutions, being able to move our customers from in-source to outsource in order to improve their efficiency. These wins also come on the back of wins at the end of last financial year, which I'm also delighted to inherit, but have started up in 2019 '20, including HMRC, Aggregate Industries, Weetabix and Co-op.

I think another indication of the underlying strength of the business and the underlying strength of any business is the renewal record. Again, as Tim referred to briefly, Williams Sonoma, one of America's leading homeware retailers and as part of their international expansion when they came to the U.K. in 2013, they had chosen Wincanton as their supply chain partner.

As Williams Sonoma have grown and expanded their store base and online offer, our scale and e-fulfillment capabilities have allowed them to grow at a pace and evolve a compelling web offering and the partnership that we have is rewarded with a new contract extension.

Again, as I say, the underlying strength of our colleagues out there delivering for our customers, makes a big difference.

And then secondly, Muller Milk is actually the longest contract that the business have. We've collected milk from farms to dairy since 1925 for various different owners.

Obviously, it wasn't Muller back in those days. And we collect 700 million liters of milk a year in the Southwest from over 450 farms. So again, renewals are a key indicator of the underlying health of the business, and I've been impressed by our record.

There are many more examples of us partnering successfully with our customers. And I'd like to just highlight that only last week, we were awarded a Supply Chain Excellence Award for our work that we do with the retailer Wickes. And working with Wincanton, their e-commerce fulfillment offering has been transformed by creating something -- or creating and implementing something called smart fulfillment. Smart has moved Wickes away from individual stores fulfilling orders to a network-based solution that links all sites, increasing sales and therefore, delivery volumes and reducing costs substantially [inside] 6 months. Again, a more tangible examples of how the business is able to provide specific expertise to drive value into our customers' businesses.

And then the other area I'd like to highlight that I've been impressed with is innovation. So the 3PL industry across the globe is often criticized for its lack of attention to innovation. And customers will often say that 3PL's just wait to be asked to do things and then produce a bill before they've even done it to tell our customers how much it's going to cost for them to have that innovation.

And it's great to see that the Wincanton team has made a clear choice to actually invest ahead of that curve in innovation through the W Squared program, and I'm assuming this has been covered in previous presentations. But all 3 of the illustrated initiatives that are on this slide have come through the W Squared Labs program. And have been selected for the 10-week proof-of-concept test phase, which has then led to them passing that to become deployable products within our business. So this information is us taking it to the next level, having been through the idea generation and tested them, we're now starting to move them into implementation. So just very briefly on the 3 that are here for interest. So Soter, Soter is a wearable wellness device. It gets paired to an app on your smartphone, and it coaches workers to self-correct manual handling movements to avoid ergonomic injuries. And I'm sure you have heard plenty in the past about the genuine and true focus that Wincanton has on safety and reducing injuries.

But obviously, not only that from a moral and ethical perspective, injuries also have a substantial impact on our people and our productivity.

So it's a really interesting area. OneVASTwarehouse is something you may have heard something about. It's a platform to connect customers digitally, to be able to find warehouse space in the U.K. It provides us with an opportunity to find customers for any vacant space we might have, which actually is not a huge amount these days, which is a good thing, but it also establishes Wincanton as the place to go for smaller warehouse needs, regardless of asset ownership, so a much more digital approach to customers' problems.

And then lastly, ProGlove. ProGlove's a hands-free scanning device integrated into a glove providing a safer, faster and more productive way of working for our teams. People can scan and pick almost at the same time, and it's so light that it reduces RSI-type injuries to almost 0.

And I talked earlier about reviewing our strategy. We'll be covering our approach to innovation in that review of strategy. But I can assure you, this will be an area where we continue to fund investment. And we'll fund investment, both in our own initiatives and developing our own things. But importantly, what's really interesting about W Squared and W Squared Labs is the partnership with innovative providers because we have to recognize that as a 3PL, we are -- our DNA is strong operational performance and its strong commercial know-how. But when it comes to innovating at the edges of some of the things that need to be looked into, we need to be open to use partners and providers who want to get into this industry, and that's why this whole W Squared program is really interesting.

Okay. So just to set an expectation in terms of this slide, I'm largely going to read what's here in front of you. And I suspect there'll be some questions in the questions section later. I suspect we might be a little disappointing because we're just going to keep referring to the slide and quoting some of the things on it. Please do ask questions, obviously, but [clearly with the code and the various rules that exist around here, we have to be really careful about what we're saying.] But you all will know that we've been out there looking at a potential offer for Eddie Stobart Logistics. We believe that there is the potential for some industrial logic for putting the 2 businesses together. So therefore, we wanted to take a closer look at it. We announced that back on the 18 of October, that we were doing a thorough assessment, and it really is a thorough assessment. Our ability to deliver any firm offer for the listed entity Eddie Stobart Logistics is primarily contingent upon the provision of outstanding due diligence information, including and very importantly, the finalization of the ongoing accounting review by Eddie Stobart's auditor. That's a key milestone for us. Our remaining due diligence is focused on achieving assurance as to the underlying profitability, balance sheet and cash flow, cost-saving opportunities and the funding of working capital requirements on a short and medium-term basis.

Again, to repeat the point consistent with Eddie Stobart's public announcement to its shareholders on 3 different dates, we still have no visibility on when Eddie Stobart's auditor's review may be complete. And clearly, there can be no certainty any offer will be made, nor as to the terms of any such offer, and a further update will be provided in due course.

As I say, I'm sure there might be some more specific questions, but just be prepared to be a little disappointed by the answers. And then lastly from me, before we move into those questions, just the general outlook. We do have a clear ambition for growth, talked about it in some detail, talked about the strength of the platform, talked about the great work that Tim and Adrian have done in terms of setting this business up for that.

And but we do now need to exploit the opportunities that exist, both in the market and from the quality of our operations and our offering to drive better growth numbers. I am conducting with the leadership team, a review of strategy, and that will focus on growth, but it will also focus on areas where we can generate the cost savings that will allow us to fund that growth. Cash generation provides funding for that investment for growth, which is obviously a good position to be in.

We also, though, regardless of that review of strategy, we still do have a good new business pipeline of opportunities. It is strong. As Tim alluded to earlier, we do have to make sure we monitor the various market conditions. Again, the good thing about us being in such a diverse number of markets is that we're able to look at those opportunities for growth in the markets that we think will be most reliable going forward or most reliable in the short-term even.

The business will remain focused on delivering value for our shareholders and customers throughout H2 and beyond. And I guess, it's important to say there that, although with the previous slide, we are doing quite a considerable amount of due diligence work, our business is not distracted by the potential acquisition of Eddie Stobart. They -- we're coming into peak for a lot of our customers, and our teams are incredibly focused on delivering successful peak from a performance -- service performance perspective, but also from a margin profit delivery perspective from us.

So I would just like to highlight that, that is not a -- it's not a distraction for the operational part of our business. And then I think now I'll hand over to Tim, who's going to chair the Q&A for us.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [1]

--------------------------------------------------------------------------------

I don't really need that. So we have a microphone going around. Steve?

--------------------------------------------------------------------------------

Steven John Woolf, Numis Securities Limited, Research Division - Analyst [2]

--------------------------------------------------------------------------------

Steven Woolf from Numis. Just 2 from my side. When you think about the sort of sectors out there that might be challenged by the sort of the macro, I'm thinking areas like realistically construction. How do you think about flexing the cost base to cope with that -- those concerns and volatility that's possibly out there? And secondly, James, I appreciate exactly what you said under the strategic review. Are there areas out there that you might look at that you think, where there are growth opportunities or something missing from the Wincanton skill set that might prove attractive and sort of early pointers on thoughts there?

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [3]

--------------------------------------------------------------------------------

Okay. Shall I take the first one and let you have a think about the second one, James. And so in terms of reacting to changes in demand, the key thing for us is to ensure that we've got a cost base where we have levers to pull in response to either increases or decreases in demand.

So if you take the 2 principal areas of cost, one being fleet and the other being people. In terms of the fleet piece, first of all, we will operate a fleet with a mix of wholly leased or Wincanton leased assets perhaps owned in some cases, then a layer on top of that of a subcontracted fleet. And then above that, we've got some sort of short-term hire vehicles.

So what we can do as -- depending on the timing and the scale is reduce, obviously, the short-term hire [stock and] we can [drop off] relatively quickly. Then we get into some of the more contracted business, and we can start eating into that. And we've got to ensure we don't have to do is to have to take -- is to end up with fleet, in particular, that is just sitting unutilized.

So we have a pretty good forward view of demand, so that we can pull those levers in advance. It's a similar story on people where we have obviously a high degree of permanent employees.

But again, we use subcontracts and agencies. So you take warehousing, for example, we know that in the peak period, there is going to be a big surge in requirements for agency -- which we fill with agency staff rather than taking those employees on the books for the full year. And we're able to pull a lever around that. And we always know that with peak that it can be quite volatile.

So we have [-- we were] able to make short-term decisions. So the summary of all of that is making sure that we've got layers within our cost base that we can address based on the time periods.

--------------------------------------------------------------------------------

Steven John Woolf, Numis Securities Limited, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Just as a follow-up to that. As you think about transport, in particular, would -- is it fair to assume or could you provide a sort of a rough percentage on what -- across a standard piece before you end up flexing between those 3 buckets of the short-term hire, the leased...

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [5]

--------------------------------------------------------------------------------

I wouldn't know precisely what that amount is. But I think what I would [suggest] is it's something like 60% to 70% would be the permanent staff for the longer term. And then it's a 20-ish of the more subcontracted piece. And then it's the top 10%, 15% on the fleet side that is the short-term hire.

--------------------------------------------------------------------------------

James Wroath, Wincanton plc - CEO & Director [6]

--------------------------------------------------------------------------------

I would say on that one, actually, that it's quite industry-specific because it depends on how specialist the kit is. So if it's just straight curtainside trucks, then you can afford to -- [lever] quite a high amount of flex, because you can always find people with curtainside trucks. If it's a mechanical offload of bricks, the number of those trucks in the country is more restricted. So you have to be careful.

Just on your second question. So firstly, I've got a bit of coaching yesterday. You'll all know from my CV, this is my first public role. And that I have to be very careful between the difference between a review of strategy and a strategic review. So your question asked about our strategic review [indiscernible] I'm not doing a strategic review, I'm doing a review of the strategy. I understand that the code might be slightly different when people talk about a strategic review.

--------------------------------------------------------------------------------

Steven John Woolf, Numis Securities Limited, Research Division - Analyst [7]

--------------------------------------------------------------------------------

In your review of the strategy, could you...

--------------------------------------------------------------------------------

James Wroath, Wincanton plc - CEO & Director [8]

--------------------------------------------------------------------------------

No. I'm going to [indiscernible] review of the strategy. Thank you. I appreciate that. I just wanted to clarify. Okay. Yes. So I mean, I think what I would say is that -- I think you asked about anything missing from the skill set? And do I -- what markets have I thought about? So firstly, I think it's important to say that the strategy will be about pivoting from what we already do, it will not be about leaping into markets that have nothing to do with what we do today. The -- I talked about in the presentation, there's a really good diversity of activity in Wincanton. So pivoting from some of that stuff into other markets, other industries is -- it gives us a broad range of options. We don't have to leap into something that's completely different from what we do today. And probably on the market side of it, I'll give you a bit of a disappointing answer, which is that it's too early for me to say. I'd expect next year, I will be -- when we talk about that review of the strategy, we will be more specific about which markets we're going in. But at the moment, I want to review exactly how attractive those different ones are. But innovation, as I said, is also a really key part of it.

So pivot from what we already do, but pivot through innovation, that's the way to drive higher margins in the review of strategy.

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [9]

--------------------------------------------------------------------------------

Any further questions? [indiscernible].

--------------------------------------------------------------------------------

James Wroath, Wincanton plc - CEO & Director [10]

--------------------------------------------------------------------------------

I put everybody off asking any questions about Eddie Stobart. Does nobody want me to read the slide again? No? Okay.

--------------------------------------------------------------------------------

Unidentified Participant, [11]

--------------------------------------------------------------------------------

It was such a good presentation.

--------------------------------------------------------------------------------

Unidentified Company Representative, [12]

--------------------------------------------------------------------------------

Gerald?

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [13]

--------------------------------------------------------------------------------

And [Tilly's] just coming with the mic.

--------------------------------------------------------------------------------

Gerald Nicholas Khoo, Liberum Capital Limited, Research Division - Transport Analyst [14]

--------------------------------------------------------------------------------

Gerald Khoo from Liberum. I'll try to my luck on Eddie Stobart. To what degree is the interest in Eddie Stobart, opportunistic as in, there's an opportunity to look under the bonnet, and it is obviously potentially available. And how much of it would have made sense, price aside, without their [ongoing] troubles?

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [15]

--------------------------------------------------------------------------------

Do you want to take that?

--------------------------------------------------------------------------------

James Wroath, Wincanton plc - CEO & Director [16]

--------------------------------------------------------------------------------

Yes. I mean, without getting into too much detail. There's -- as I said earlier, there's an industrial logic to us being combined with Eddie Stobart and it's particularly evident in the transport side of things where they have a network, what would be probably described as a pay-as-you-go network, a shared-user network. And we have some of that, but our transport business is much more of a dedicated and is much more in our open book model generally, where we're managing assets on behalf of our customers. So putting those 2 things together at the right price and with the correct due diligence done, is absolutely interesting, and that's why we're looking at it. So yes, it would still be interesting even if the share price [haven't] been [suspended] in September.

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [17]

--------------------------------------------------------------------------------

Okay. Oh, Peter, go on.

--------------------------------------------------------------------------------

Unidentified Analyst, [18]

--------------------------------------------------------------------------------

[indiscernible] Current trading, you've said you keep a sort of close eye on various sectors you're in. But as we sit in the mid-November, entering a key trading period for a number of the end customers, your sense of how they're doing?

--------------------------------------------------------------------------------

Timothy Charles Lawlor, Wincanton plc - CFO & Executive Director [19]

--------------------------------------------------------------------------------

I think there's nothing really to surface here. It seems to be going well. We're in the midst of our normal peak planning, which is all well advanced. So there's nothing I'd really point to, particularly on -- you're referring to the retail side of the business, which is obviously had its peak in November and December.

And I think things are going well. So nothing to report on that side. The construction piece that I referred to earlier on, I think we're more likely -- that's you're more likely to see towards the end of the financial year. That's the pickup there you tend to get, I think, slowing down in December in construction and picking up in mid-January and the uncertainty -- to the extent there is uncertainty in that business, it's probably likely to come through in late January and February, seeing how the pickup goes. So any -- last chance for questions? Well, thanks, everybody, for coming along today. If you have any questions subsequently you know where to go. We're always open to a call or an email, if you have further clarification points. So, thank you.