15.0% of the Company’s workforce has been furloughed
Wincanton has issued an update on trading and management actions during this period of unprecedented disruption and uncertainty. In addition, the Company has announced an extension to its current banking facilities. Wincanton’s revenue in April 2020 was down 15.0% 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. The Company has, however, seen encouraging signs of a gradual increase in activity levels in the affected segments.
The Company’s key focus on cash management actions included the furlough of 15.0% of the Company’s workforce. The board and executive management took a temporary 20.0% pay reduction. There was also a deferral of pension recovery payments together with HMRC payment deferrals until Q4. The Company has delayed non-business critical capex and suspended its final dividend. Additional liquidity has been secured through a £40.0 million RCF extension, available for 12 months from May 2020, bringing the total available facility to £181.0 million
Performance for the year ended 31 March 2020 was in line with market expectations with revenue growth of over 5.0%. Since the announcement of 25 March 2020, the Board has continued to assess the impact of the disruption and uncertainty caused by COVID-19. It has warned that 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.15.0% below the comparable period last year, but with significant variations across 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, Wincanton saw an increase in volume and demand from both 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 expected 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 Wincanton has seen a shift of supply chains from in-store to on-line channels, although many larger customers have been able to keep stores open. The picture varies by customer and is developing as 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. The Company’s 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 its closed book two-person home delivery network Wincanton 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, 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 70.0% on the comparable period last year. Wincanton acted swiftly to reduce the variable elements of its cost base with significant reductions in subcontractor and agency labour costs. However, as the Company operates 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 Wincanton 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. The energy business has also experienced some slowdown due to reduced retail forecourt fuel volumes. Wincanton has a blend of open and closed book contracts in this area and there has been therefore some profit impact, however it expects this to reduce as volumes return post lockdown.
Across the business approximately 2,500 staff (c.15.0% of our workforce) have been subject to furloughing arrangements, although the Company continues to review staffing levels to ensure it can respond to returning customer demand as quickly as possible.
The Company has 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, it has 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 20.0%, 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 shareholders and will keep dividend payments under review as the year progresses with a view to return to payments as soon as appropriate.
It has 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 £6.0 million. The agreement contains provisions for accelerated payment of deferred contributions if dividends are paid within the deferral period.
The Group currently has a committed Revolving Credit Facility (RCF) of £141.0 million, with a banking consortium comprising HSBC, Barclays, Santander, ABN AMRO and AIB, which matures in October 2023.
It has 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 £40.0 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 £40.0 million extension. Wincanton continue to monitor trading and downside scenarios and will consider additional financing options in the longer term should they be required.