20 June 2008

Annual Report and Accounts 2008

Expanding in growing markets Creative solutions and consistent performance Annual Report and Accounts 2008 Wincanton is a European leader in the design, implementation and management of advanced supply chain solutions. Our services cover the entire supply chain, from raw materials to recycling, adding value by optimising performance at every stage. Successfully building a track record of earnings and dividend growth through a combination of organic growth and acquisition. H igh levels of new business wins and contract start-ups confirms the strength of our relationships and consistent quality of service performance. Building momentum in Mainland Europe through focus on the key markets of Germany, France and Poland. mployees' commitment and E professionalism continue to create value for shareholders by adding value for customers. Overview Group highlights 1 Who we are 4 What we do 8 How we deliver 12 Chairman's statement 14 Business review Strategy 16 2007/08 Summary 19 Performance highlights UK & Ireland 21 Mainland Europe 21 Corporate responsibility 28 Governance and financial statements Governance Board of Directors 32 Directors' report 33 Corporate governance 37 Directors' remuneration report 40 Independent Auditors' report to the members of Wincanton plc 49 Consolidated financial statements Consolidated income statement 50 Consolidated statement of recognised income and expense 51 Consolidated balance sheet 52 Consolidated statement of cash flows 53 Notes to the consolidated financial statements 54 Wincanton plc Company financial statements Company balance sheet 82 Notes to the Wincanton plc Company financial statements 83 Additional information Group five-year record 86 Financial calendar 87 Group revenue 2,164.7m Underlying operating profit 52.4m Shareholder information 87 (2007 1,933.1m) (2007 45.5m) +12.0% +15.2% Underlying earnings per share Full year dividend 14.91 pence 24.3 pence (2007 13.55 pence) (2007 21.0 pence) +15.7% +10.0% 01 Wincanton plc Annual Report 2008 FIRST CHOICE 02 Wincanton plc Annual Report 2008 Our ambition for Wincanton is to be recognised as the first choice for supply chain solutions across Europe. For our customers, we will be the supplier of choice. For our people, we will be the employer of choice. For our investors, we will be the reliable and rewarding stock of choice in our sector. 03 Wincanton plc Annual Report 2008 Who we are about Wincanton Our reputation as a leader in the supply chain industry is underpinned by the desire to deliver value to our key stakeholder groups of customers, employees and shareholders. We do this by understanding the needs of these groups, investing in our brand and implementing a range of innovative initiatives across the Group. Number of locations Supplier of choice Employer of choice 420 Through our track record of operational We recognise that the development of delivery and customer focus, we have our people is a sound investment in the built a reputation as a trusted, responsive long-term health of our business. Our supply chain partner. In order to ensure commitment to attracting, nurturing and that we continue to understand and retaining the best people in our industry respond to our customers' needs, we is demonstrated through a focus on Number of workshops have implemented key account planning individual development needs and talent 44 and contact structures, which promote management processes. a regular and open dialogue. We have a track record of promoting from Continuous investment in people and within and combine this with a range of technology enable us to react quickly to development programmes at all levels. change and constantly rise to new challenges, This starts with a comprehensive training leveraging our scope and scale to deliver the programme for drivers and a Learning and A European leader in the design, right solutions for our customers. Our focus on Development Framework in our warehouses, implementation and management Operational Excellence and Health and Safety which helps potential managers take the first has provided measurable benefits and set steps towards a supervisory role. of advanced supply chain solutions industry benchmark standards. Graduate recruits benefit from an industry- We manage contracts on an In response to the complexity and business- leading scheme which offers the right mixture critical nature of supply chain issues, we have of foundation skills and hands-on experience. international, regional, national established a centralised function to provide The diversity and flexibility of our business and local basis project management, change management enables us to offer Pan-European career and business integration for customers across development opportunities in a range of the Group. This expertise has helped us disciplines. This year, we recruited our Transport solutions include road, deliver over 50 operational start-ups on time highest ever number of graduates. Each rail, barge, sea and air and on budget during 2007/08. of the 34 has been carefully selected for international general management and Our commitment to developing innovative function-specific skills. Over 60 per cent products and services was recently have a second language other than English. recognised in the 2008 British International Freight Awards, where we won the `Specialist As employees progress through the Services' category for our Alconbury inland organisation, our multi-level framework container terminal. of management development helps them Employees to realise their potential and acquire the 30,000 necessary leadership competencies to perform at the highest level. Home deliveries 110m Contract renewals 2007: 85m In March 2008 we introduced the first Group- wide employee survey, `One Voice', which will allow us to pulse-check the organisation and benchmark for future progress. 347,000 34 Graduate intake 2007: 21 04 Wincanton plc Annual Report 2008 Services across the supply chain Raw Materials Intermodal Spare parts logistics Container management International transport 4PL Stock of choice Our track record of consistent profit growth and cashflow generation has enabled us to deliver a growing dividend stream to shareholders. Since our demerger in 2001, dividend growth has Manufacture Co-packing averaged c.8 per cent per annum. Our business model is driven by a combination of organic growth and sensibly-priced and Co-manufacturing successfully integrated acquisitions. In recent years we have expanded our activities along Finished goods storage the supply chain, developed new services, entered new sectors of the economy and Call centre management extended our geographic coverage. Networked transport We have long-standing relationships with many of the world's leading manufacturers and retailers. We consistently grow our business with these companies as a consequence of our customer focus, our operational excellence and the quality and innovation of the supply Retail chain solutions that we deliver. We create value for shareholders by adding value for our customers. Consolidation centres We have good positions in expanding Inbound logistics markets. Our strategy processes continue to identify growth potential in new services, new In-store services sectors of the economy and new geographies. E-fulfilment We are well-placed to build further on our excellent track record and continue to deliver both dividend growth and enhanced capital value for our shareholders. 14.91p Dividend 2007: 13.55p Consumer Home delivery High-tech logistics Reverse logistics Recycling 05 Wincanton plc Annual Report 2008 EUROPEAN LEADER 06 Wincanton plc Annual Report 2008 Our customers rely on us to deliver advanced solutions at every stage of the supply chain. Whether we are importing manufacturing components, supplying finished goods directly to consumers' homes or recycling end-of-life products, we deliver competitive advantage through consistently high service levels and a focus on cost efficiency. 07 Wincanton plc Annual Report 2008 WHAT WE DO solutions for every market Number of vehicles We have established leading positions in Automotive: We are a leader in the German 6,500 some of Europe's most demanding markets automotive market, working with many of through carefully managed growth and the best known manufacturers and OEMs. a desire to exceed our customers' Services include inbound component flow expectations. management, post-production parts and accessories warehousing and distribution, At Wincanton, we handle assignments that plus multi-modal vehicle distribution. Number of locations range from the management of single sites 420 and simple product flows through to complex Energy: We offer tanker services for supply chain solutions. This can include petroleum and gases, as well as dedicated streamlining networks, optimising cross- and multi-user warehousing and distribution border distribution or managing domestic for packed lubricants. In the distribution of storage and transport requirements. We both hazardous and non-hazardous materials, help customers manage change and risk we provide JIT and guaranteed deliveries, by leveraging our capabilities in technology, packaging return and recycling, plus barrel Six of the world's 10 largest resources and people management. reconditioning, innovative vehicle design trade flows are intra-European and pumping services. Our specialist skills are applied to a range of industry sectors: Industrial: Operating in a range of industries, There are 495 million consumers we provide everything from 4PL freight in Europe Food retail: We provide a wide range of management to recycling and waste disposal. services to major food retailers across Europe, We manage multi-modal logistics for major ranging from domestic transport and storage global players in construction, steel, paper, Value of UK internet to shelf-ready packaging management and building products, mining and tool sales in 2007/08 40bn `final mile' logistics. In the UK, we operate manufacturing. consolidation networks to service grocery retail and also the Foodservice industry, Structuring our business for growth 1.3bn tonnes of waste are delivering directly to a range of pub and We are proud of our progress in recent years generated in the EU each year restaurant chains. and recognise the need to consistently review our strategy and structure in order to meet FMCG: We are the market leader in future growth targets. In order to strengthen automated warehousing solutions for some our core business and accelerate our growth, of the biggest European manufacturers. we undertook a reorganisation of the business Our offering across Europe includes total in April 2008. fleet management, automated stock control, Total warehousing space Radio Data Technology systems, call centre We have streamlined the structure of our core 2.8 million m2 management and bonded warehousing. business in the UK and Ireland to increase efficiency and promote the transfer of best General retail: Our range of rapidly practice. In the revised structure, our existing expanding services includes reverse logistics, Manufacturing and Industrial business units product reconfiguration, bar coding, pricing, have been merged to create an enlarged security tagging, store fit-out, inbound Manufacturing business unit and our Retail logistics, container management and home business unit continues to operate prestigious delivery. Our customer base includes garden, contracts with major high street brands. Number of locomotives DIY and general merchandise retailers. 25 08 Wincanton plc Annual Report 2008 New sectors and Emerging Solutions Construction Since the acquisition of RDL in October 2006, we have further developed our offer to the building services market in the UK. Customers have benefited from efficiencies generated by our networked shared-user approach, which is unique in this industry sector. We have also been shortlisted for one of the 2012 Olympics contracts to provide consolidation This renewed focus on strengthening our core centres in the Greater London area. UK operations will ensure that we maximise opportunities and continue to differentiate ourselves from our competitors through Records management service quality. Our business in Mainland Europe will continue to develop and implement strategy on a country-specific basis. Our Wincanton Records Management At the same time, we have recognised the business has secured key contracts with the need to support some of the newer services with additional investment and resource so that National Archive and the Serious Fraud Office they can realise their potential more quickly. during 2007/08 and continues to develop its We have created a new business unit called range of services for the management and Emerging Solutions, which includes the niche activities of Home Delivery; Foodservice; storage of documents, records and media Recycling; Records Management; Container tapes. A new management team in the UK Logistics and International Supply Chain. is focusing on a strategy that we expect will Each will be run as an independent business see the nationwide expansion of our services. area headed up by a Managing Director who will have the remit to shape strategic growth plans for this activity across the Group. Home delivery This move also enables us to offer broader career development opportunities for our emerging talent. Our home delivery services continue to It is our belief that this investment in our expand to meet growing consumer demand. business and our people will act as a catalyst for growth and innovation, and will cement We have secured further business with our leadership position in the future. Homebase and HSL and continue to offer both network and dedicated solutions. A successful advertising campaign has led to contracts with three furniture retailers, which have helped fill our network and build our credentials in this market sector. Recycling Our recycling business in the UK provides state-of-the-art processing of waste electronic and electrical equipment (WEEE) to meet the requirements of the European Directive which came into force in July 2007. Working with retailers, compliance schemes and local authorities, it has successfully filled the plant in Billingham and plans to open a second facility in the Midlands during 2008. 09 Wincanton plc Annual Report 2008 deliverING value 10 Wincanton plc Annual Report 2008 Our core purpose is to help our customers compete with confidence. We achieve this through our commitment to the Wincanton Four Pillars programme, which delivers Operational Excellence, Customer Intimacy, Product Leadership and Value. 11 Wincanton plc Annual Report 2008 how we deliver our four pillar approach Managers involved in Operational Excellence groups We deliver consistently high service levels Customer Intimacy 140 through a relentless attention to detail Our teams partner with customers to and a desire to be the best at what we do, understand their needs, to fulfil their strategic wherever we operate. objectives and to bring them benefits. We recognise the value of customer satisfaction Operational Excellence and retention, and have designed a framework Since the launch of the programme in the UK which promotes discussion of day-to-day and No. of customers surveyed last year, our focus on Operational Excellence longer-term issues. Our Pan-European Key 350 (OE) has become integral to our culture and Account Management programme also helps has helped us to develop relationships us to leverage opportunities and deliver between operations and form closer bonds efficiencies across borders. with our customers. We are now rolling out OE in Mainland Europe through country We hold regular performance reviews and champions, who are armed with the benefit `Blue Sky' sessions to work through future of the experience to date in the UK. supply chain scenarios and challenges. At We are a sponsor member of Board level, we operate a `Customer Voice' the British Quality Foundation We are a sponsor member of the British initiative, which gives key account customers Quality Foundation and have based our OE a personal and informal feedback mechanism programme on the EFQM Model. Operational via a Board Director. Our Group-wide Our lost time accidents reduced Excellence has helped promote a culture of Customer Satisfaction Survey canvasses by 9.5% in 2007/08 challenge and continuous improvement, opinion and helps us to understand how which supports cross-sector collaboration, we can improve our offer. comparison and benchmarking. It also allows Our Operational Excellence our customers to share in the best practice Product Leadership programme covers employee that has been created at many of our Increasingly, customers look to us to anticipate operational sites. their emerging needs as well as meeting their satisfaction, training, culture, current requirements. We have recognised transport, warehousing, Dedicated resource facilitates the running this and have invested to develop new product benchmarking and reporting. of twelve `Cluster Teams', which focus on capabilities by collaborating with suppliers different operational aspects. Our groups from around the globe and working with our include Driver Training, Warehouse Training, customers to pilot new approaches. Safety Culture, Transport Operations Development, Warehouse Operations During the past year, we have developed Development, `One Voice' employee survey, new capabilities in a wide range of areas Balanced Scorecard and `Snapshot'. including: co-packing and postponement, No. of drivers trained `Cost to Serve', international supply chain 7,000 We have introduced electronic self- solutions, IT systems to enable collaboration assessment reporting via the Intranet, which between FMCG manufacturers serving allows sites to track their performance against retailer customers, on-board vehicle nine key areas and generate action plans to technology and increasing the extent address any areas for improvement. Within of our environmental solutions. the next 12-18 months, we expect a large proportion of our sites and contracts to be We plan to accelerate the pace of our Reduction in fuel consumption accredited with the British Quality Foundation new service development and this will be 9% awards for Committed to Excellence (C2E) assisted by the organisational restructure and Recognised for Excellence (R4E). In announcement made in April 2008 in which order to measure progress against other 3PLs a Director of Innovation has been appointed and in-house logistics operations, we have to lead a small dedicated team. also signed up to the Chartered Institute of Logistics and Transport (CILT) Logmark Benchmarking group. 12 Wincanton plc Annual Report 2008 Delivering our brand promise case studies Operational Excellence "As a package, Wincanton's programme for delivering continuous improvement through Operational Excellence creates great alignment with Argos' development aspirations. Working in partnership enables Argos to benefit from a progressive attitude towards operational development." Value Dave Easton, Head of Primary Operations Our commitment is to be the best at the Argos things that make a difference to our customers, adding value through service, technology and people. By delivering the right balance of Operational Excellence day-to-day and Product Leadership providing innovative products and services, we have created a successful platform for "We need suppliers to be reactive, flexible and developing lasting partnerships that will extend our reach beyond transactional arrangements intelligent and to challenge us on performance, to provide ongoing value. quality and cost. Wincanton and Bandai have developed a strong partnership where ideas Wincanton offers long-term price and issues are exchanged so that we can differentiation by timely investment in deliver the best possible solution in terms of relevant technologies and new product development and by investing directly in customer satisfaction and cost efficiency." our customers' goals. Franois Marolleau, Logistics Director Bandai Customer Intimacy "The combination of Wincanton's `Cost to Serve' and i2 software, will help us to further optimise Evaluating the `Cost to Serve' for Heinz and take cost out of our supply chain. Greater Wincanton's investment in the i2 transport clarity and detail on costs within our supply system was piloted with a small number of key chain will enable us to challenge the status quo customers in the UK which included Heinz, and make smarter decisions about our before roll-out to a wider customer base. We used i2 to model a range of routing scenarios, products, customers and pricing strategy." in order to evaluate the best possible efficiency of the fleet. We then built on this Mike Parsons, Vice President of Supply Chain, intelligence to give Heinz greater visibility of UK & Ireland, Heinz. costs within their supply chain by piloting an innovative `Cost to Serve' simulation model, which has enabled us to deliver cost and profitability insights by product, warehouse Value activity, transport and customer location. "Wincanton has carried out logistics reviews Strategic supply chain consultancy across several of our European facilities. They for SABMiller Europe Wincanton's consultancy business Consilium have delivered benefits both in terms of cost has worked with SABMiller on six different savings / avoidance and through innovation." projects during 2007/08 in Russia, Poland, the Czech Republic and the UK. The customer's focus has been on exploring solution design and modelling the supply chain with a view to improving productivity and distribution efficiency across Europe. Alan Sikora, Production and Logistics Director SABMiller Europe 13 Wincanton plc Annual Report 2008 Chairman's statement David Malpas Chairman Wincanton has delivered The Group's success is driven by the quality and enthusiasm of our people, to whom I of 17.4 per cent. This further double-digit percentage increase in pre-tax underlying another year of strong profit express my thanks and those of the Directors. profit builds on growth in the two previous growth. Our operations Wincanton focuses on the skills of its people, financial years of 10.2 per cent and 9.5 per cent. Wincanton, through a combination of in the UK & Ireland made on operational excellence and on the highest continuing momentum in existing businesses further excellent progress standards of customer service. Sustaining performance in these key areas creates, over and a well-targeted and well-executed programme of acquisitions, is delivering high and the management time, a highly-skilled and motivated workforce, an industry-leading reputation for service levels of growth in challenging markets. teams and strategic plans quality and many long-standing partnerships Given these sustained levels of profit growth, are in place to deliver with blue-chip customers. It is these critical factors which underpin Wincanton's current your Board is recommending a higher rate of dividend increase than in previous years. The profit progress in performance and provide an excellent proposed full year dividend this year, of 14.91p Mainland Europe. platform for continuing growth in the future. per share, represents an increase of 10 per cent on last year's 13.55p per share. As a The year to 31 March 2008 was another year consequence of the 15.7 per cent increase of strong profit growth for Wincanton. The pre- being reported in underlying earnings this tax underlying profit of 41.8m being reported year, dividend cover improves from 1.5 times represents an increase on the previous year to 1.6 times, even with the substantial a year in review april may june july august september We launched a childcare We won contracts in the Electrolux awarded us a Christian Wurst joined In Ireland, we won A new intermodal voucher scheme for UK with M&S to support contract to manage their our German business further business with container terminal was employees with children its store remodelling distribution in Poland. In as Managing Director of retailer Dunnes Stores opened in Mannheim up to 15. Our consultancy programme and with the UK, we were appointed Finance and Business for textiles distribution, to add to our existing business, Consilium, Carlsberg for a 10-year by Screwfix to manage the Administration. We held building on the existing capacity at the inland expanded into France. distribution agreement. warehouse servicing its our second Driver of the drapery contract. We port. Sametime We moved to online We supported Transaid home delivery operation. Year competition in the launched our Learning e-meetings capability accident and incident in Ghana with the An e-recruitment service UK and Paul Fulwood, and Development was launched in the UK, reporting to improve secondment of a project featuring a job-board ConocoPhillips was Framework pilot for which is the first in the health & safety systems manager to create a was launched to cut successful for the second warehouse employees suite of collaborative and communications. business plan for a administration and better year in a row. Punch at six sites in the UK. tools designed to improve womens' co-operative. publicise our employment renewed their contract efficiency and cut the opportunities. for foodservice distribution need for business travel. in the UK. 14 Wincanton plc Annual Report 2008 improvement in the rate of dividend growth The continuing strength of the Group's progress for the Group, confirming being recommended. existing businesses and customer Wincanton's position as a European leader relationships was again confirmed by in its sector. As Wincanton continues to grow it is the fact that some 70 per cent of the new reassuring to see our core people, business won in the year in the UK & Ireland, On 9 May 2008 a statement was released performance and customer values remaining and over 65 per cent of the new business to The London Stock Exchange regarding both fundamental to our existing operations won by the Group overall, was awarded by a possible offer by Wincanton for TDG plc. and being rapidly assimilated into all our existing customers. The statement contained the following recent acquisitions. We welcomed three new commitment: "No offer will be made if due businesses to the Group this year, Swales Re-organisation of our management diligence does not confirm Wincanton's Haulage and Hanbury Davies in the UK structures and the re-focusing of our strategic assumptions which indicate that a transaction & Ireland, and HeBo in Germany. Swales priorities have also been features of the year would be substantially value-enhancing for helps us to build further on our leading in Mainland Europe. Our operations in Wincanton shareholders." As at the date of position in logistics services for the Germany are beginning to benefit from our preliminary results announcement, 5 June, construction industry. Hanbury Davies the tactical and strategic initiatives of our due diligence was continuing. A further represents a further expansion of our significantly strengthened management announcement will be made in due course. container management operations, a fast- team. Our activities in France and the Benelux growing area both in the market as a whole countries have been formed into a new I will be retiring from the Board at this year's and for Wincanton. HeBo strengthens our Western Europe business unit, and the senior Annual General Meeting and I am delighted leading position in logistics services to the team in this region has also been reinforced to announce my replacement by David high-tech industry in Germany. Since the with highly-experienced recruits in key Edmonds, who is currently the Senior year end we have also announced the functions. In Central & Eastern Europe, Independent Director and has served on acquisition of PSHL, a UK-based business our regional Managing Director has brought the Board since December 2004. In addition with a strong presence in time-critical spare in new country heads in both Hungary and we welcome Neil England, a non-executive part and procurement services for the the Czech Republic. director of ITE Group plc, The Eastern defence and aerospace industries. These European Trust PLC and Silverstone are new industries for Wincanton which We have much still to do to deliver meaningful Holdings Limited, who joined the Board on we believe offer exciting growth potential. profit progress in Mainland Europe, but good 3 June 2008 as a non-executive Director. We welcome the employees of all these management teams are in place and are businesses to the Group. implementing our profit improvement plans, Wincanton has grown consistently, and well, our increased investment in marketing is since its demerger and listing on the London Expansion into new sectors and new services, clearly delivering higher brand awareness Stock Exchange in May 2001. It is a business both organically and through acquisition, is and the new business pipelines are beginning which has transformed itself from its position changing and renewing the Group's portfolio to offer grounds for encouragement. as one of the smaller players in the UK of activities. We are seeing continuing to become one of the leading European opportunities in our existing activities, but We have set ourselves stretching objectives operators of supply chain services. It is also successfully supplementing these for the new financial year. Good progress is a business with the potential to sustain, and opportunities through development in newer being made, particularly in the UK & Ireland, accelerate, this growth under the leadership industries and services, such as construction, towards the delivery of our challenging new of Graeme McFaull, with the support of David home delivery, records management, business targets. In respect of Mainland Edmonds and their Board colleagues. I know recycling, container management and Europe we believe that further progress will that this potential can and will be delivered foodservice. These activities already be made and are encouraged, for example, and wish Graeme, David and colleagues represent some 20 per cent of the contract by the strong action being taken to improve continuing success in the years ahead. contribution, before central overheads, of the performance of the German road network. our business in the UK & Ireland. A number of these businesses have been transferred We operate in highly competitive markets and to a new business unit, Emerging Solutions, the current economic outlook is uncertain, to ensure that these activities receive the but we continue to have confidence in appropriate level of operational and strategic Wincanton's ability to build further on the focus and deliver their above-average growth achievements of recent years. Our objective potential for the Group. is for 2008/09 to be another period of october november december january february march Egbert Maagd joined the A further acquisition in In France, Poland We acquired Hanbury We won a prestigious Our High-Tech business business as Managing the building products and the UK & Ireland, Davies in the UK to contract with BP LPG in acquired HeBo to build Director, Western Europe. sectors, Swales Haulage, we ran a Christmas card build on our container the UK for the distribution capabilities in western We received PGN was completed in the UK. design competition for transportation and delivery of aerosols Germany. Didier arbitration monies in In Hungary, we appointed our employees' children. capabilities. Our and vehicle maintenance. Darfeuille was compensation for the early Peter Szabados as The first ever Forklift Alconbury inland In Germany, Alexander appointed as non- termination of the contract Managing Director. Truck Driver of the container terminal won Bauz was appointed as executive Director in 2005. Our SHELA We won a contract with Year competition was the `Specialist Services' Managing Director of Road to the newly-formed campaign won an industry Nestl Purina Petcare in launched in the UK to be award in the British Operations and Thomas advisory board in health and safety award the UK to operate the held alongside our Driver International Freight Westphal was appointed Western Europe. We and we launched Specialist Packing Unit of the Year event in July. Awards. as Managing Director of also won an award for videoconferencing in which features advanced Business Development. our Big Truck Club Chippenham, Paris, robotic pickers and schools road safety Warsaw and Mannheim. palletisers. scheme. 15 Wincanton plc Annual Report 2008 business review Graeme McFaull Wincanton is expanding, profitably, in growing markets. Chief Executive We see continuing opportunity in our existing operations and in new services and sectors, both organically and through acquisition. We are pleased to be able to report to Our businesses in Mainland Europe reported these higher levels of investment will deliver shareholders a further period of significant a significant year-on-year percentage increase our targeted levels of margin and profitability profit progress in the financial year to in operating profit, but profit remains in Mainland Europe and broaden and further 31 March 2008. unacceptably low in terms of both quantum diversify the business and profit base of and margin. the Group. Our operations in the UK & Ireland delivered another excellent performance, reporting a Tactical and strategic plans are in place, Strategy 12.4 per cent increase in operating profit on in each of our Mainland European business The European market is our core geographic the prior year, which was itself an 11.1 per units, to improve this performance and to focus, our home market. It is a market of 495 cent increase on the previous financial period. continue to make progress towards our million consumers. It has a substantial These are strong levels of growth and margin improvement targets. The significantly manufacturing and retailing infrastructure continuing momentum which, given that the strengthened management teams in our and significant national, cross-border and UK currently represents approximately 90 per current core markets of France, Germany international flows of raw materials, finished cent of our consolidated operating profit, have and Poland are implementing tactical plans products and services. Many of the world's continued to drive the performance of the to increase operating efficiencies and largest trade flows are intra-European Group overall. improve the profitability of our existing movements in the consumer goods, industrial, activities, and focusing our development high-tech, automotive, chemical and In the UK & Ireland, we are growing well resources on targeted customers in those agricultural industries. It is business-critical with existing customers, winning market share market sectors identified by our strategy trade flows such as these that Wincanton from our competitors and identifying and work as offering the best potential to manages on behalf of customers. Europe successfully entering new sectors and new accelerate our top-line growth. is a geographic market in which the Group is service areas. Our customer portfolio is building a leading presence and which offers already well-diversified, but there are many We are encouraged by the actions being substantial opportunities for future growth. sectors of the economy in which we are either taken, and the progress being made, in not present or under-represented, and there these core markets. In the short-term, our By focusing on both wider European coverage are new service areas which offer growth profit performance bears the expense of and strength in national markets, particularly in potential as our customers' outsourcing our increased investment in marketing and our current core markets of the UK, Germany, requirements continue to expand. business development and the higher France and Poland, we are able to serve the employment costs of the expansion, requirements of our customers in Europe's key We see no shortage of opportunities for reinforcement and renewal of our senior domestic economies and on a cross-border continuing growth in the UK & Ireland. management teams. In the medium-term, or Pan-European basis if required. we believe that the actions being taken, and 16 Wincanton plc Annual Report 2008 The integration into CONTAINER TRANSPORT Wincanton has now been successfully completed, ACQUISITION and we have already secured contracts from existing Group customers such as Procter & Gamble, Homebase and Woolworths. > Annual growth in container transport 6% Containers transported by Wincanton container transport in the UK 3,000 per week Extending our reach along the supply chain In January 2008, we acquired Hanbury Davies, a UK market leader in container transportation, for 25m. With over 780 employees operating from 21 locations and a fleet of 480 vehicles, the addition of this business to our portfolio has enabled us to extend our offering to our existing customer base. The acquisition has strengthened our position within the fast- growing container logistics market, adding to our existing operations in Alconbury and Southampton. It also complements our intermodal operations in Mainland Europe and supports our international supply chain offering, which has developed through the joint venture with Hong Kong-based Kerry Logistics. Our expanded container services business in the UK provides inbound and outbound services to major shipping lines and freight forwarders, who handle cargo for every sector of business and industry. We now transport over 3,000 containers each week between the major ports and locations across the UK. With global sourcing from the Far East by retailers and manufacturers growing at 11 per cent per annum, this acquisition demonstrates our commitment to developing and enhancing our container services business to meet changes in demand. This includes the introduction of a port-to-store delivery service and a specialist equipment service for the transportation of hazardous goods, firearms and ammunition. 17 Wincanton plc Annual Report 2008 Sainsbury's Average cases despatched each week 1.3m Recycled bottles converted to fleeces 20,475 to date Delivering Operational Excellence For Sainsbury's, making their new flagship Regional Distribution Centre (RDC) `best in class' was the main objective when they awarded Wincanton the contract in February 2007, so a seamless start to operations was essential. It was also designed as Europe's `greenest' warehouse with `carbon negative' status, so developing a culture that would support this vision was essential. Wincanton was appointed to operate the site and also project manage the `start-up', which involved creating the operational solution, managing the `ramp-up' of stock and seamlessly integrating the site into the Sainsbury's distribution network. Our team delivered an exceptional start-up, which saw the operation go from despatching zero to one million cases per week within just eight weeks. When Sainsbury's invoked its business continuity plan three weeks after the first `goods in' following an incident at another depot, all inbound supplier deliveries were diverted overnight to Northampton resulting in a despatch of 205,000 more cases than forecast. The 620,000 sq ft RDC in Northampton, UK distributes chilled goods, produce and ambient lines to 50 stores in the East Midlands. Environmental features of the site include the UK's largest rainwater harvesting system and Europe's first `Dragon Power' system, which generates renewable energy from the movement of vehicles every time they enter or exit the site. But it is the engagement of the employees in the environmentally-friendly ethos that ensures the site lives up to Sainsbury's vision for carbon negative leadership. Recycling is encouraged at six stations across the site to eliminate the need for bins and even the fleeces supplied as uniform are made from recycled bottles. > The 620,000 sq ft RDC in Northampton, UK distributes chilled goods, produce and ambient lines to 50 stores in the East Midlands. 18 Wincanton plc Annual Report 2008 business review continued Gerard Connell Group Finance Director The Group's existing activities across Europe Underlying operating profit is stated before give a competitive advantage in an industry exceptionals and amortisation of acquired which remains fragmented, with large intangibles. numbers of small operators and a very limited number of Pan-European or global service Neither the rate of revenue growth nor headline providers. We have more significant scale and accounting margin are amongst the Group's a broader geographic reach than these small key financial performance measures due to operators and a higher degree of customer the `cost plus' or `open book' nature of much focus, operational flexibility and service of Wincanton's underlying business model. specialisation than the larger global groups Our Emerging Solutions business unit will focus in our sector. on new services including home delivery. Our key financial measures are the net rate of growth in underlying operating profit, up 15.2 We have a strong portfolio of customers We serve a well-diversified customer base, per cent in the year, free cashflow generation across Europe, including long-standing deliver a wide range of business-critical and return on capital. relationships with many of the world's major solutions and offer a Pan-European presence retailers and manufacturers, and have a which is already amongst the best in the Strong cashflow generation, based on our proven track record of growth with these sector. We have a clear vision and strategy `asset light' business model and a consequent customers. Maintaining and enhancing supply which we believe will generate further value for high profit-to-cashflow conversion rate, has chain efficiency is business-critical to our shareholders by continuing to add value for been a consistent feature of Wincanton's customers. We have successfully expanded customers. We see growth opportunities both financial performance. We recorded a profit to our geographic presence without losing either in our existing portfolio of customers, sectors free cashflow conversion rate of 92 per cent in the customer service ethos or the people and services and in newly-targeted the year to 31 March 2008 (159 per cent in the culture which represent the core of our customers, sectors and services identified year to 31 March 2007) and a positive cash business offering. through our rigorous business development inflow of 48.3m after net capital expenditure. and strategy processes. The year end return on capital employed was Changes in legislation, strategy, technology slightly lower, at 50.1 per cent, but remains at and the economy lead to both tactical and Our strong profit and cash flow performance industry-leading levels. strategic change in the supply chain needs gives us the financial capacity to take of our customers. We continue to invest in our advantage of new opportunities. We The revenues of the Group increased in the people, our services, our systems technology actively consider opportunities to expand year by 231.6m as a consequence of the and our processes to ensure that we offer the our portfolio of services and sector expertise, acquisitions made plus new business wins, innovation, operational excellence and value both organically and through acquisition. net of business losses. In the year, annualised which deliver the solutions to meet these Acquisitions are also expected to contribute new wins and renewals of 315m were changing customer needs and enable us to to the further strengthening and expansion achieved; 265m in the UK & Ireland and compete successfully in our chosen markets. of our geographic presence across Europe. 50m in Mainland Europe. Although below last year's total of 395m, which was materially Our strategy process identifies both We look to the future with confidence. increased by the major gain, in the UK, of a opportunities with existing customers and 5-year exclusive contract with Somerfield, services and the potential for growth with new 2007/08 Summary and, in Germany, by a renewal of a combined customers in new sectors and new services. Consolidated results transport and warehousing contract for We have created a new business unit, Total revenue for the Group for the financial Zanders, this further year of significant growth Emerging Solutions, to ensure that a number year was 12.0 per cent higher than the previous confirms the continuing strength and resilience of these new sectors and new services receive year, at 2,164.7m. Underlying operating profit of our customer relationships, the quality and the operational and strategic focus that will increased by 15.2 per cent to 52.4m and creativity of our new business proposals and help to deliver their full, above-average accounting margin improved from 2.35 per our ability to continue to gain market share in growth potential. cent to 2.42 per cent. Growth in underlying challenging and competitive markets. operating profit, adjusting for the contribution from acquisitions made in the current year, This year, as is the case in most years, we was 10.7 per cent. have had ground to make up for both contract losses and a degree of fee pressure on certain renewals, but our very strong underlying new business momentum has nonetheless allowed the Group to make very encouraging net progress across a broad range of retailing and manufacturing customers. 19 Wincanton plc Annual Report 2008 Christofle No. of delivery points worldwide 3,000 Parcels despatched during 2007/08 110,000 Providing a personal service This year, Christofle extended our contract by a further year to 2010, after the initial 3-year renewal in 2006. This decision was based on Wincanton's culture of continuous improvement and the consistently high performance of the site in Pierrelaye, France. The exclusive supplier of tableware, jewellery, home accessories and decorative products was looking for a partner that could manage a high throughput of products, but achieve the right level of specialist handling, presentation and packaging for their most delicate items. Wincanton's operation provides storage and despatch of over 7,000 product lines from a single location to 130 countries worldwide. Demands for order preparation vary from sending a single fork to the Saudi Royal Family to supplying complete canteens of cutlery to hotels and ocean liners. In each case, the same level of care and attention to detail is essential in order to uphold the luxury image of the Christofle brand. > In order to ensure consistently high-quality standards and The site includes a bonded minimise product damage, team members receive training area for customs clearance and education on the Christofle range, which includes items and an order preparation in silver, porcelain and crystal. facility that manages pack assembly, weighing, gift RFID controlled order assembly and bar code scanning wrapping and other on despatch provides full supply chain traceability in real- specialist requirements time from when the order is placed through to the final such as engraving. delivery point. 20 Wincanton plc Annual Report 2008 business review continued UK & Ireland There were also interesting opportunities in Performance Highlights other newer service areas. In recycling, we Our operations in the UK & Ireland reported added a new contract with Argos, an existing underlying operating profit of 47.2m, an customer, which we expect to operate in increase of 12.4 per cent on the prior year, a similar fashion to the successful national on revenue up 14.3 per cent to 1,388.7m. fridge collection service we already manage for Comet. Starting in March 2008 we will be 2007/08 was another year of sustained high responsible for the collection of all electrical levels of activity in the UK & Ireland, with products returned to Argos's home delivery attractive growth opportunities successfully centres, delivering an anticipated 100,000 We have secured contract renewals with many targeted and delivered in both our existing units per annum for processing and recycling major petroleum companies in the UK. activities and our newer service and at our Billingham site. Consilium, our sector offerings. consulting business, won advisory mandates Mainland Europe from a wide range of both retailing and Performance Highlights New Business manufacturing companies, many of them not Underlying operating profit in the second In newer activities such as home delivery, currently Wincanton customers, analysing half of the year was 3.1m, an encouraging we saw business growth with major strategic supply chain solutions in domestic increase on both the first half of this year manufacturers and retailers including Hoover markets and on a cross-border or Pan- and the corresponding period last year. Candy and Homebase. Hoover Candy brings European basis. In data records management, On second half revenue of 414.1m, this an average of 1,250 deliveries per week to our current rates of growth are expected to fill our represented an accounting margin of 0.8 national home delivery network. In addition to recently-expanded new facility in London per cent, compared to a margin of 0.6 per our existing operations providing dedicated ahead of plan, and we are actively exploring cent in the first half and 0.6 per cent in the home delivery of Homebase's kitchens we now opportunities to expand this business to give corresponding period last year. This reported also provide warehousing for Homebase's national coverage. increase is after charging higher costs arising bathroom products range at our shared-user from increased marketing spend, which is site in Doncaster. In newer sectors, such as Constantly challenging ourselves to also successfully delivering marked improvements construction, we added significant new activity generate new business opportunities in our in brand awareness, and higher employment with CEMEX, an existing customer, and added longer-standing sectors of activity saw costs as a consequence of the renewing and substantial new business with customers such significant new business in retailing, with strengthening of our senior management as Wavin, a leading European manufacturer of customers such as Dunnes and Superquinn teams. This level of reported profitability and plastic and clay piping products, for whom we in Ireland and Sainsbury's in the UK, in margin clearly remains some way below our now operate their whole UK warehousing and automated warehousing with a substantial targeted operating profit margin of 2 per cent. transport operations. expansion of our business with Screwfix and There are, however, encouraging signs that with P & G, and in the expansion of our material progress in profitability can be Our increased focus in recent years on other services to existing customers with a new delivered in Mainland Europe and that newer sectors of activity, such as foodservice, 5-year co-packing contract with Nestl Purina progress is being made towards this target. also contributed positively to our new using robotic pickers, and highly-automated business and renewals momentum in the packing technology. We were also pleased year, with a 10-year extension of our national to see our commitment to industry-leading network operations for Punch, and the standards of health and safety and operational addition of a new 3-year contract with Tragus, performance lead to contract renewals and delivering 2.6 million cases per year through extensions with major petroleum companies our network to its outlets such as Caf Rouge such as Shell, ConocoPhillips, Total and and Bella Italia. We saw similar gains as a ExxonMobil. result of our successful targeting of drinks manufacturers, adding customers such as Beam Global to our existing customer base, a new contract involving co-packing and product rework in addition to national warehousing and distribution. 21 Wincanton plc Annual Report 2008 Intermodal expansion Intermodal terminals operated 6 Locomotives owned 25 Annual container volume handled 500,000 20' equivalent units Investing for growth We have continued to expand the scope of our Intermodal offering over the past year with the opening of a new container terminal in Mannheim and the incorporation of the activities of specialist forwarders Con-Sped based in Weil-am-Rhein. The opening of the 45,000m2 tri-modal terminal in September has enabled Wincanton to move greater volumes of containers through our existing base at Mannheim and handle a broader range of consignments. A dedicated area has been set up for dangerous goods and the terminal also features service stations for chilled containers. The two new rail sidings allow us to offer a shuttle service to Stuttgart and Ulm three times a week. The incorporation of Con-Sped activities in January 2008 has enhanced our presence at the important Weil-am-Rhein terminal, which offers container handling, storage and rail access. The terminal links through to the major seaports of Amsterdam, Rotterdam and Antwerp and is a gateway for servicing customers in Southern Germany, Switzerland, France and Italy. Wincanton operates six terminals along the Rhine, which offer transport via road, rail and waterways, and also has offices at the ports of Rotterdam and Antwerp. Added-value services such as container stuffing and stripping, Customs and tax services and quality checking complete the intermodal offer. > This enhanced intermodal capability will help meet the growing demand for more environmentally-friendly transport options. 22 Wincanton plc Annual Report 2008 business review continued France accounts for around 16 per cent of our New Business revenue in Mainland Europe and Poland for Annualised revenue from new wins and approximately a further 8 per cent. Our French renewals in Mainland Europe was 50m in business delivered our target operating profit the year to 31 March 2008, a lower level than margin in the year and is capable of sustaining in 2006/07 as a consequence of a lower level performance at this level. Our Polish business of renewals, down from 25m to 5m, and a made good progress towards our margin reduced focus on new business development target in the year but the regional results for in Central & Eastern Europe pending Central & Eastern Europe as a whole were stabilisation of the contract start-up issues adversely affected by the start-up issues on in Hungary previously referred to. In the A new team will co-ordinate our international a Hungarian contract referred to at the half second half of the year, however, increasing transport operations. year. With these issues now resolved we see brand awareness and the targeted efforts of the margin target being achievable for both our strengthened new business development Dutch operations included the collection and Poland and the Central & Eastern European teams have begun to deliver results and we distribution of commercial vehicle parts for region as a whole. have seen an increased flow of new tender MAN and a 5-year contract renewal with opportunities. We would expect this increased Thyssen Group for steel transportation to Germany accounts for approximately 70 per flow to result in higher levels of new business Kazakhstan. cent of our revenue in Mainland Europe. wins as we enter the new financial year. Within Germany we have three principal areas Although more focused this year on stabilising of activity; our domestic road network, our New wins and renewals were recorded in and improving the performance of certain intermodal business and our contract logistics France with customers such as Christofle, existing activities, our Central & Eastern operations. Our intermodal business and EDF, Jardiland, and Velux. We were also European businesses nonetheless contract logistics activities in Germany are awarded a major new contract with a successfully renewed our contract with either already delivering our target margin multinational oil company to operate their new- Numico for a further three years, gained sole or are making good progress towards it. build packaged lubricants warehouse which supplier status for Electrolux in Poland at the Although an important part of our overall will be responsible for national distribution. In expense of one of our competitors, gained a service offering to customers, which links addition we recently signed a letter of intent 3-year transport and warehousing contract for well with both our logistics and intermodal with a large drinks company in respect of the JohnsonDiversey, a new customer, and a 3- activities, in a way which few of our transfer of their existing warehousing operation year contract for domestic warehousing and competitors can match, the road network, for beer products in Northern France. Our distribution in Poland for Rieber Foods, however, is currently loss-making on ability to pitch for, and win, new projects of another new customer. some 200m of revenue. this complexity gives grounds for optimism that our French business can compete, and Our Central & Eastern European businesses Our key challenge, if we are to deliver our win, in this highly competitive marketplace. are also seeing growing opportunity in operating margin target in Mainland Europe, international transport as the region proves therefore lies in Germany, in our domestic Our other principal operations in the Western increasingly popular both as a manufacturing road network. Europe region are the international transport centre and as a distribution hub for countries activities based in Holland. We believe that further to the East and South-East. A new Within our German operations our major focus international transport flows will continue to customer in the year in international transport has been, and will continue to be, improving grow faster than domestic movements and was Wrigley, for whom we now manage export the performance of this domestic road are expanding our hub capacity at our largest flows to the Czech Republic, Slovakia, Serbia, network. Our new German management Dutch site, on the Dutch / German border, to Croatia and Montenegro. team has fundamentally re-assessed the provide the capacity to manage this expected operational performance, service offering and growth. Our international transport activities market performance of the network. They have overall have been strengthened by the identified, and begun to implement, plans to recruitment of a new team, based at our materially improve its profit performance over German head office in Mannheim, to co- the next 18-24 months. The initial results from ordinate our current international flows more this action plan give cause for encouragement efficiently and strengthen our market offering that further progress can and will be made in in this area for the future. New business in this critical area. international transport won in the year by our 23 Wincanton plc Annual Report 2008 WINCOR NIXDORF Cash machines installed for Wincor Nixdorf in 2007/08: 2,500 Adding value in the High-Tech sector The reputation of Wincanton's High-Tech business as a specialist in banking equipment handling led to a new contract in December 2007 with Wincor Nixdorf. In order to support the roll-out of new cash machines in Germany, Benelux, Ireland and the UK, Wincanton was appointed to manage both the distribution and installation process. This involves transportation from the factory in Paderborn, as well as installation on site. Wincanton has created 70 highly-specialised teams to manage the installation process, all of whom have undergone security checks before beginning their training due to the security implications of the programme. In order to ensure that the installation process is rapid and efficient, the teams produce a site report before despatch to assess load-bearing ability, in-floor heating or electric cabling and site access. Increasingly, Wincanton's High-Tech business is taking > on services which have traditionally been carried out by the suppliers themselves. Installation on site by the Technical centres have logistics supplier saves valuable time and cost by now been set up across reducing the number of contractors required to deliver Germany to support the a roll-out programme. range of added-value services provided to suppliers of medical scanners, photocopiers, ATMs and servers. 24 Wincanton plc Annual Report 2008 business review continued In Germany, much of our new business in any Exceptionals financial period tends to be transactional The net exceptional profit for the year of rather than based on longer-term contracts, 0.4m was the result of net exceptional costs particularly in our road network and intermodal of 4.5m, offset by 0.8m of profit on the operations. In the road network, business disposal of a surplus property in the UK and gains and renewals included Europe-wide a 4.1m credit in respect of a preliminary court distribution of hazardous materials and award in our favour in respect of the PGN chemicals for Julius Hoesch and domestic arbitration proceedings that we have referred and European distribution for Lorenz to in previous years. Snackworld. Our intermodal business saw We offer environmentally-friendly barge services the development of a number of interesting We would anticipate an additional credit, and along the Rhine as part of our intermodal offering. opportunities in our container management cash receipt, as a consequence of finalisation operations which organise the movement of of the PGN arbitration process. There is also The Group's activities are across the UK and goods by sea, river and rail. Our network of the potential for further property disposals in Europe where tax rates vary from 12.5 per cent container terminals on the Rhine, in particular, the new financial year. to 38 per cent. With the combination of the is an increasingly attractive strategic asset reduction in the standard UK rate of corporation enabling us to offer environmentally-friendly Wincanton retains operational freehold tax effective for 2008/09 and the availability of barge-based container services to a wide properties on its balance sheet with a net brought-forward unrecognised losses it is range of industries. Within our contract book value of some 70m. These properties expected that the Group's overall rate of tax logistics activities, our recognised leadership have not been subject to revaluation but their will reduce in future years. in certain key value-added sectors and market values and operational importance to services also delivered good opportunities the business are reviewed on a regular basis. Minority interest, earnings and dividend for contract renewal and new business growth. The Group has a small number of activities Wins and renewals in the period included Of the principal exceptional costs in the year, in its Mainland European operations with a a contract to distribute ATMs to Germany, 1.0m arose from the integration of our three minority shareholding, the principal of which is Benelux and Ireland for Wincor Nixdorf, acquisitions, a 3.0m cost was incurred in Rhinecontainer BV in which there is a 25.8 per a European transport operation for respect of the closure of our Wuppertal depot cent minority stake. The profits attributable to FujitsuSiemens delivering server racks as part of the restructuring of our road network minorities in the year were 0.5m (0.1m in to business datacentres and a contract operations in the North Rhine Westphalia region 2006/07). with Ikon Office Solutions delivering and in Germany, and a 4.2m cost was generated installing photocopiers. by further restructuring of our Dutch and Underlying earnings per share of 24.3p were French businesses, principally relating to the 15.7 per cent higher than the 21.0p reported Net financing costs closure of a surplus site in the Orleans region. last year. The net financing costs of the Group, at 10.8m, are higher than last year's 9.9m, Taxation A final dividend of 10.31p is proposed, to substantially as a consequence of the higher The Group's underlying accounting tax rate of give a full year total of 14.91p, a 10 per cent prevailing levels of market interest. The 30.9 per cent is broadly consistent with prior increase on the 13.55p proposed and paid average borrowing rate in the year was 6.7 per years and gives rise to a charge of 11.7m. in respect of 2006/07. As in previous years, cent, an increase on last year's 5.0 per cent. in which the compound annual rate of growth Net financing costs were nonetheless covered The overall tax rate of 31.9 per cent (2007: in the dividend has been 7.1 per cent, the 4.9 times by underlying operating profit. 29.4 per cent) is marginally greater than the dividend increase proposed represents a rate underlying rate due to the combination of of increase significantly in excess of inflation. capital profits, which continue to be offset by capital losses brought-forward, and the mix The dividend cover for this proposed level of tax treatments of the other exceptional of full year dividend is 1.63 times, an costs and profits. improvement on the prior year 1.55 times. Given Wincanton's track record of profit As a result of the reduced level of incremental growth and cashflow generation, and our pension contributions made in the year, as confidence in the Group's ability to continue compared to previous years, the current tax building on this track record, these are cash rate has increased to 25.6 per cent from considered to be appropriate and sustainable 4.6 per cent. levels of dividend cover. 25 Wincanton plc Annual Report 2008 business review continued The year's expenditure was split as to 27.5m All expansion, replacement and acquisition on expansion projects and 15.4m on the spend proposals are appraised using replacement of existing assets, compared to discounted cash flow models and are subject 22.5m and 7.0m respectively in the prior to authorisation at appropriate levels in the year. The higher levels of spend in 2007/08 Group up to and including the main Board. are a consequence of the nature of the assets The projected implementation timescale and required for use in both new and existing returns on projects are subsequently contracts. scrutinised at the same level after the first operational year. In excess of 90 per cent, We have replaced specialist delivery vehicles after Major projects in the year requiring on- by value approved, of the capital backchecks the Punch renewal this year. balance sheet investment included the new in the year either met or exceeded their co-packing activity for Nestl, warehouse projected rate of return. Cashflow and net debt racking and fitting for new operations for The Group recognises cash return on Woolworths, Tragus and Screwfix and the The aforementioned cashflow items led to an investment as a key performance measure replacement of specialist delivery vehicles as increase in the Group's net debt to 104.5m at and continues to focus on sustaining the high a consequence of the renewal of the contract 31 March 2008 (31 March 2007: 65.8m). This levels of free cashflow generation that have for our national foodservice network for Punch. is reported after deducting 26.5m of cash been a consistent feature of Wincanton's Principal expansion and replacement projects held in the Group's captive insurer (last year financial performance. in Mainland Europe included the purchase of 27.4m) to cover the potential claims land for our new international transport hub underwritten by that company. Cash inflow from operations of 77.2m, before being built on the Dutch / German border and exceptionals, capital expenditure, pension warehouse fit-out projects in France. The Group continued to enjoy solid support in deficit payments and tax, was marginally debt markets, with 210m of committed funds below last year's 78.6m, principally as a Additional vehicle and plant operating lease available from a banking syndicate of leading consequence of a small working capital commitments in the year related to 8.2m UK & Mainland European banks and $150m outflow. Free cashflow of 48.3m, after for expansion projects and 16.4m for of 7 and 10-year funding raised from the US exceptionals and net capital expenditure, replacements. These projects were for a private placement market in late 2005 and was lower than last year's 72.2m as a result diverse range of customers and activities, subsequently swapped into floating rate of capital expenditure, unusually, being higher including new vehicles for the gas & sterling and euro liabilities. 162m of this total than depreciation and also offset by lower petroleum, construction and home delivery of 308m of committed facilities was undrawn levels of asset disposals in the year. operations. at 31 March 2008. The Group's banking facilities will require to be renewed by Acquisitions in the year led to cash outflows The Group's operating lease commitments November 2010. of some 32.4m. in respect of land and buildings, which are determined to the first available break date The Group also has 25m of uncommitted Capital expenditure is clearly a significant after the sub-letting of properties surplus to money market facilities now in place which, cashflow item for the Group, and requirements, are substantially offset by together with the approximately 35m of considerable management focus is directed contractual commitments of customers, overdraft facilities currently available, at whether to buy or `operating lease' assets as are a significant proportion of the Group's give further flexibility in the day-to-day for use in supplying services to customers. commitments in respect of vehicles and plant. management of the net `drawn down' position. Capital expenditure this year, at 42.9m, represents 130 per cent of depreciation The scale of the Group and the size of (2006/07: 92 per cent) and was higher than individual operations means that the in previous years. In recent years capital working capital position can vary significantly expenditure has run below the level of the over a monthly cycle. Flexibility of funding, Group's depreciation charge. based on an appropriate mix of committed and uncommitted facilities with a range of maturities, helps to reduce overall borrowing costs. 26 Wincanton plc Annual Report 2008 Pensions Risks This key area for the Group continued to The Group has a well-developed structure receive substantial management attention, and set of processes for identifying and not least in preparation for discussions with mitigating the key business risks it faces. the pension fund trustees in respect of the These are described in detail in the Corporate triennial valuation as at 31 March 2008. We governance report on page 39. Certain of would expect the preliminary results of the these key risks are also discussed elsewhere valuation to be available in the second half in this Business review. of the new financial year, with discussions We have invested in racking and fittings for between the Group and the trustees being The Group's ability to source new contracts, start-ups such as Screwfix. finalised either towards the end of the new at an appropriate financial return for an financial year or early in the first half of the acceptable level of risk, represents the The Group has a mix of sterling- and euro- subsequent financial year. principal area of commercial risk. Both new denominated bank debt and derivatives (to and existing contracts must then perform convert the US$ placement funds) which The last triennial valuation in 2005 was consistently within the demanding match the currencies of the Group's assets. finalised before the introduction of the new performance requirements of our customers. Interest rate exposures have been limited pensions regulatory regime. The key financial This is the Group's principal area of first with a 15m floating-to-fixed swap and and demographic assumptions on which this operational risk. As a service business secondly by the purchase of a 100m 4.3 valuation was based are expected to give delivering high levels of added-value to our per cent cap and a 30m 6.3 per cent cap. rise to more detailed discussion between customers, our principal human resources the trustees and the Group in respect of the risk lies in the sourcing, motivation and The central Treasury function monitors all 2008 valuation. In preparation for these retention of sufficient numbers of quality currency and interest rate exposures and discussions the Group is currently carrying people to meet the demands of both our ensures appropriate hedge arrangements are out work in respect of critical areas such as current business and our future growth. in place. The Group operates sterling and euro scheme-specific mortality rates, investment `pools' such that surplus cash is netted against strategy, and the potential for liability Wincanton's principal strategic risk is the overdrawn balances, to maximise the reduction exercises. requirement to continue to identify sufficient efficiency of short-term liquidity. No new areas of potential growth, both organically speculative trading is carried out and all In volatile markets there have been significant and through acquisition, to enable the Group financial instrument trades are designed to variations within the year in both the to continue to build on its strong track record meet the operational needs of the business. accounting (IAS 19) and actuarial valuations of profit growth and cash flow generation. of the pension fund's assets and liabilities. Return on capital employed The accounting valuation has varied from an Return on capital employed is another of the opening 72.1m deficit to a 2.3m deficit at Group's key performance measures. At the year end and has averaged approximately 31 March 2008 year end return on capital 35m through the year. As at 12 May, the latest employed remained very high, at 50.1 per practicable date before the announcement of cent, albeit at a slightly lower level to the prior the Group's preliminary results, the accounting year's 55.2 per cent. The Group's `asset light' deficit was estimated at some 40m. business model generally enables the Group to deliver significant growth without extensive There has been similar volatility in the actuarial utilisation of balance sheet capacity. valuation of the deficit. The actuarial deficit based on the 2005 assumptions, which, as Goodwill and intangibles noted above, are being actively reviewed by The three acquisitions in the year gave rise to the Group, has been as low as 30m in June an additional 27.6m of goodwill and acquired 2007, as high as 190m in March 2008 and at intangibles. Acquired intangibles are being 12 May, as above, was estimated at 145m. amortised over their useful lives of between 1 and 15 years and the charge of 5.5m is All deficit calculations exclude the effect of shown separately in the income statement. deferred tax, which at current rates would serve to reduce the gross deficits above by 28 per cent. 27 Wincanton plc Annual Report 2008 corporate responsibility In recognition of the key role Corporate Responsibility plays in shaping our reputation and securing employee engagement, we have incorporated `Responsibility' as one of our brand values during 2007/08. Governance The corporate responsibility strategy, which Drivers KRAs Annual Operation Targets includes social, ethical, safety and environmental Governance and Significant considerations, is specified and agreed at Board environmental management level through our Group Human Resources impacts Performance Implemented, measurement Based on KRAs, Director, Nigel Sullivan, who chairs the Safety objectives and monitored and Our ambition reviewed through Health and Environment (SHE) committee. and principles Energy use and performance climate change Group-wide EMS This committee has responsibility for reporting on all aspects of corporate responsibility to the Stakeholder and Waste and management recycling Board and has also overseen the development priorities of our environmental strategy by the Social Progressive product and Environmental sub-committee. leadership Environment As a leading provider of supply chain management; performance measurement; Since the start of the WEEE regulations, solutions, we recognise that we have a and progressive product leadership (see Wincanton has offered employees the pivotal role to play in bringing goods to diagram above). opportunity to dispose of old electrical and market, but also a responsibility to increase electronic equipment at work. The `Bring your the environmental sustainability of our own For each of the Key Results Areas we have WEEE to work' initiative eliminates the need for operations and those of our customers. developed objectives and targets for the first personal trips to civic amenity sites, saving year of our environmental programme. We unnecessary road miles. WEEE containers have During 2007/08 we have set out a strategy will report annually on our progress, future been deployed at 39 of the largest UK sites and that has prioritised our challenges and set out objectives and targets. During our have so far collected 40 tonnes of waste. a clear path for achieving our environmental consultations, it became clear that the issues goals. We see this as an opportunity which of prime importance are the associated In Mainland Europe, we have extended our also makes good business sense and represents challenges of energy use and climate change. leadership in multi-modal transport solutions an exciting step for Wincanton. In this we have We have therefore devoted a major part of our with the expansion of our Mannheim container built on the progress we have made to date in strategy to identifying how we will start to terminal. We operate regular barge routes many areas of our business, such as developing increase carbon efficiency and reduce future between the ports of Antwerp and Rotterdam our products and services to deliver environmental carbon risks. With this in mind, we have and inland locations in Belgium, Germany, benefits through improved efficiencies and developed a 20-year framework identifying Switzerland and France. Our dedicated fleet the effective management and treatment how we intend to move towards the use of of roll-on roll-off river barges service terminals of waste. less carbon-intensive forms of energy and along the Rhine and facilitate the transfer of the improved design and operation of our products to rail and road. By rolling out this strategy, we will seek to transport networks, including the use of more encourage dialogue and debate with our energy-efficient modes of transport. People partners on how we can collectively contribute We continue to make progress towards our to tackling the wider issue of climate change. In February 2008, we launched a data stated ambition, which is to be recognised as collection project at five sites in the UK. `employer of choice' in our industry. A focus Initiatives The objective is to measure a range of factors on individual development provides We have developed a five-year Group associated with warehousing and transport employees with opportunities to build skills environmental strategy which will be published operations, including energy usage, waste and competencies, while our Operational during 2008 and will be made available on our produced and fuel consumption with a view to Excellence programme has focused on website. To ensure that this strategy is aligned rolling this out to all operations in the next year. mechanisms for capturing and using employee with our key environmental drivers, we have feedback to make continuous improvements. undertaken a comprehensive review which The introduction of the WEEE legislation in July enabled us to identify our significant 2007 saw our recycling operation in Billingham, Initiatives environmental impacts, how they are currently UK, go from strength to strength, and we have Wincanton launched its first annual Group-wide being managed, and the environmental issues subsequently announced a 5m investment employee survey in February 2008 which that are of greatest importance to our in a second treatment facility in the Midlands. covered all 30,000 employees across the 13 stakeholders. This will open later this year and will double countries in which we operate. The survey, `One our current recycling capabilities to 200,000 Voice', invites employees to have their say on Based on the findings of the review, we have tonnes per year. The new site will complement an anonymous basis on many aspects of their identified five Key Results Areas for the the existing facility and will also support our UK working environment, including their under strategy, which are energy use and climate network of sortation centres, which separate standing of business goals, communication change; waste and recycling; governance and out reusable product from recycling volumes. processes, health and safety, management and 28 Wincanton plc Annual Report 2008 Nigel Sullivan Group Human Resources Director working for Wincanton in general. The results The second Wincanton `Driver of the Year' are displayed in a secure database through competition was held in July 2007, attracting a simple dashboard format, which enables 1,100 entries, which exceeded the previous year managers to create locally relevant action plans by 400. The rolling three-month scoring periods for the business year. The early results have ensure that drivers remain focused on achieving been encouraging and will provide the the highest performance levels throughout the Company with a robust benchmark for future year with a view to qualifying for the final. The engagement programmes with our people. July 2008 event will incorporate the first ever `Forklift Truck Driver of the Year' competition, After a successful pilot at six sites, we have The award-winning SHELA programme has improved extending this opportunity to demonstrate introduced a Learning & Development employee engagement in our safety culture. excellence to our warehouse operatives. Framework (LDF) in our warehouses in the UK and Ireland. Our goal is to use LDF to identify Our driver training programme in the UK has Following the success of our Driving learning needs, support development been mapped against the newly introduced Development programme in the LGV driver opportunities and provide a foundation for our NVQs and exceeds the standard with over 80 community, we extended the focus on safe site succession plans for both the immediate per cent of its content. During 2007/08, around driving to our company car drivers. The three- and long-term future. Initial feedback has 900 drivers were put through NVQs, with a stage process includes a workshop to been very positive. The framework provides a target going forward of 100 per month to take highlight hazards, risks and safe practices consistent appraisal and review process for all the assessment. Wincanton is the first based on Institute of Advance Motoring and warehouse staff across Wincanton and maps company to introduce an NVQ qualification RoSPA guidelines, followed by a driver performance against guideline competencies. programme that will ensure all of its drivers assessment and development programme. The five development levels and LDF achieve the certification, including any that do During 2007/08 around 800 of our company Roadmap allow employees to track progress not qualify for funded support. car drivers were trained and provided with a in easy steps from when they first start through revised company car drivers' handbook to supervisor/manager level. Safety documenting best practice. Our commitment to health and safety excellence In order to improve levels of absenteeism and continues to deliver good progress across the We also achieved the OHSAS:18001 manage recovery from illness for employees in Group. The establishment of the SHE leadership certification for our warehouse and transport our operations, an absence management pilot team with members from France, Germany, contract with Nestl Purina Petcare. The programme was introduced at 20 of our sites Poland, the UK and Ireland is helping to deliver certificate, which recognises best practice in the UK and Ireland, covering a total of 5,500 a consistent, progressive approach. Since 2001, in health and safety, was awarded for our employees. The nine-month pilot in partnership our lost time accident rate has reduced by 56 collaborative approach with the transport with Active Health Partners required employees per cent and we have developed a reputation contractor and the customer. As well as to phone a 24-hour call centre operated by as a benchmark operation through our creating a policy which defines employees' qualified nurses who provide medical advice involvement in national strategic SHE roles in upholding the safe running of the and agree anticipated return to work dates. committees. We are Board members of contract, the team implemented a standardised During the pilot, the total days of absence Roadsafe and long-term sponsors of the Prince induction process covering the three reduced by 10,000 and the average illness Michael Road Safety Awards. During 2007/08 businesses in the partnership, site safety duration reduced from 7 to 4 days. A total of our established Driver of the Year and SHELA consultations that involved both companies' 22,000 calls were placed with the nurses and (Safety, Health and Environment Learning Aid) employees and monthly briefings on over 90 per cent of people were satisfied with warehouse safety initiatives attracted greater Wincanton's SHELA warehouse safety initiative. the service. The scheme will now be rolled out interest and industry-wide recognition, to further sites during the coming year. highlighting our ability to engage employees Our SHELA campaign was recognised in the in an effective safety culture. Safety & Health Practitioner Magazine Awards Our management development programme in October 2007, winning the `Best Health and was relaunched in January 2007 to include a Initiatives Safety Achievement in Transport and Logistics' `Stepping Stones' level for new managers and We have now integrated the Rivo Safeguard category. SHELA targets the 15,000 revised content of the existing Management IT system across our operations in Mainland warehouse employees in distribution centres Development Programme and Leadership Europe, which has enabled us to standardise to raise awareness, develop a safety culture Development Programmes. Since then, over incident reporting across the Group. At the and reduce accidents year-on-year. 170 managers from 7 countries have taken up same time, we have completed the this training framework, which covers topics implementation of our Minimum Safety We secured RoSPA Gold awards at our Argos such as financial awareness, intercultural Standards and Key Principles in our Polish Kettering and Corby sites, evidencing the awareness, customer skills, creativity, business, following the launch in France and achievement of the highest standards in innovation and change management. Germany during the previous year. the industry. 29 Wincanton plc Annual Report 2008 corporate responsibility continued In November 2007, the Health & Safety This year, we launched a Christmas card Health and safety Executive launched its Warehousing and competition for employees' children and Risk area: A significant failure in health and storage guide to health and safety (HSG76) relatives to design our corporate card for safety performance affecting the public, our at our Screwfix operation in Stafford. We have customers and partners. The competition ran employees, our customers or other third worked closely with them to develop this in France, Poland and the UK & Ireland and parties, could disrupt business operations. through our membership of the Warehousing also involved a donation to children's charities. Health and Safety Forum and have contributed In our Dutch business, 10,000 euros were Wincanton response: Wincanton has a by writing content for two chapters, as well as donated to charities during the year instead strong health and safety culture with monthly providing photography and input on design. of sending hampers to customers. safety reviews completed at a local level, and central reviews of local health and safety Social Identifying our Corporate management carried out by the central SHE Our culture specifies the importance of Responsibility priorities department and monthly Executive review. integrity, accountability and teamwork in our Our internal risk assessment processes identify A Business Continuity Plan for head office was day-to-day work, which is played out in strong the opportunities and challenges associated also launched in February 2008 including the links with the community, both corporately and with corporate responsibility. The four priority establishment of a crisis management team. at many of our sites. During 2007/8 we were corporate responsibility-related risk areas recognised with an award for our work with remain employee relations, business ethics, Risk area: A major road accident involving schools and continue to build our relationship health and safety and environmental impact. a vehicle carrying a hazardous load or with our industry charity Transaid (see case causing significant third-party damage could study opposite). Risk area: The deterioration of relations with adversely affect Wincanton's reputation and employees and employee representatives subsequently result in financial loss. Initiatives resulting in disruption to operations and failure In June 2007 our road safety initiative for to meet customer expectations. Wincanton response: We employ fully qualified schools, The Big Truck Club, was rolled out in managers and drivers who receive a minimum of conjunction with Matalan, B&Q and Argos to Wincanton response: Our people policies two days' training each year and undergo annual 10 schools in Northampton. The programme are designed to ensure that we consistently assessments. We have also reinforced our ADR was developed by Wincanton to teach live up to our core values. Our personnel Emergency Response System. schoolchildren about the dangers presented procedures and European Works Council are by trucks and other traffic. It is positioned in designed to ensure our employees' interests Environmental impact line with the national curriculum and delivered are protected. We actively encourage local Risk area: A failure to demonstrate a robust through assembly sessions, classroom management to develop and sustain relations policy and measured reduction in the activities and with the help of our drivers and at a local level, providing support through environmental impact of our operations could educational marketing specialists. So far, over regular senior level meetings held with the Trade damage the Group's reputation and have 8,000 children have been introduced to the Unions and other employee representatives. a negative impact on our ability to win and Big Truck Club and in February 2008 it was retain business. recognised in the Hollis Sponsorship Awards, Risk area: Insufficient investment in employee winning the Education Sponsor category. training leading to insufficient skills or Wincanton response: We conducted a inadequate succession planning, resulting detailed review of our environmental impacts The Wincanton Community Scheme was in a shortage of properly qualified managers. and identified our key stakeholder priorities delivered in a further 30 primary schools area during the research and formulation of our during the year, providing children in the South Wincanton response: A capability review environmental strategy, which was launched West of England with tag rugby tuition from a is undertaken on an annual basis to help in March 2008. This strategy details key leading Bath Rugby coach. So far, around 10,000 develop our succession planning processes results areas and objectives for delivering children from over 60 schools have benefited across all business areas and to continue the improvements to our environmental from the programme which has been jointly development of a wide range of internally performance year-on-year. funded by Wincanton and Sportsmatch, the delivered training programmes. Government-endorsed initiative that encourages Corporate Responsibility businesses to invest in grass-roots sports. Business ethics achievements in the year Risk area: Unethical behaviour by employees 9.5% reduction in accidents in the UK & Ireland In Holland, Wincanton's 12-year sponsorship of could damage our reputation, customer 800 company car drivers trained the 15km `Wincanton Montferland Run' reached relations or cause financial loss. in advanced techniques new heights in 2007 when Heile Gebrselassie Two industry award wins for safety campaigns took part and broke the course record. Around Wincanton response: We have a robust 32,000 raised for Transaid 3,500 people race each year, many of them Code of Ethics and a `whistle-blowing' policy raising thousands of euros for charity. designed to encourage appropriate behaviour at all levels. 30 Wincanton plc Annual Report 2008 Transaid Continued support for Transaid Wincanton is a long-standing supporter of Transaid, a charity which works primarily in Africa to reduce poverty and improve quality of life through providing better access to basic services such as health, education and economic opportunities. By working with the UK transport and logistics industry Transaid builds local skills and knowledge to make transport safer, cheaper and more effective for those who need it most. During 2007/08 Wincanton provided a range of support, including hands-on technical expertise through secondments, corporate donations and fundraising activities: Secondments Feasibility Study for a Transport Management System for the Provincial Directorate of Health in Tete Province, Mozambique by Warehouse Manager Ed O'Connor. His recommendations will help improve health service delivery at local levels Analysis of Transport Services for the Department for International Development Bangladesh by Operations Manager, Simon Weeks Development of a business plan and sharing of best practice with the Transport Officer of a Women's Transport Co- operative of market traders in Accra, Ghana by Caroline Barber, Business Integration Manager Fundraising In November 2007, Pierre O'Conghaile and John Meehan cycled over 400km across Kenya raising 7,000 12,000 raised by employees through Payroll-Giving and fundraising Donation of 3,000 via the lease of a Schmitz Cargobull Transaid-liveried trailer to our Dutch operation Revenue from recycled toner cartridges donated by the Sainsbury's Northampton site 10,000 annual membership donation "Wincanton's contribution to our work in Africa cannot be understated. While funds help us to do more, the professional and technical inputs ensure we deliver high- quality work". Chris Saunders, Chief Executive, Transaid. 31 Wincanton plc Annual Report 2008 board of directors David Malpas CBE Gerard Connell Jonson Cox Chairman Group Finance Director Non-executive Director David was formerly Chairman of Allianz Gerard trained with Price Waterhouse and Jonson became a non-executive Director of Dresdner Income Growth Investment Trust, then worked in the City, becoming a Managing Wincanton in October 2005. He is currently having retired as Managing Director of Tesco Director of Bankers Trust and a Regional Group Chief Executive of Anglian Water Group in 1997. He became a non-executive Director Director of Hill Samuel. He joined Wincanton Plc and Morrison plc. Previous senior positions of Wincanton in June 2001 and Chairman in in September 2000 to help prepare the include Chief Executive of Valpak Limited, a July 2005; he will resign from the Board at the Company for demerger. Gerard is also the business services company, Chief Operating 2008 AGM. Senior Independent non-executive Director Officer of Railtrack Group plc and Managing and Chairman of the Audit Committee, Director of Kelda Group plc (formerly Yorkshire David Edmonds CBE Pennon Group Plc. Water plc). His early career was with Royal Deputy Chairman Dutch Shell. David is Chairman of the Board of NHS Direct Nigel Sullivan and a Board member of the Legal Services Group Human Resources Director Neil England Commission. He is a non-executive Director Nigel joined Wincanton as Group Human Non-executive Director of Hammerson PLC and William Hill PLC. Resources Director in November 2002 from Neil is currently a non-executive director of ITE He is Chairman of NHS Shared Business Marconi plc. Prior to that Nigel held a number Group plc, The Eastern European Trust PLC Services and a Trustee of the Social Market of human resources positions with Nortel and Silverstone Holdings Limited. Neil was Foundation. Prior to 2003, he held a series of Networks and Rover Group. He was appointed previously a Director of Gallaher Group plc executive posts in government departments to the Board in January 2004. and prior to that Vice President of Mars Inc. and in the NatWest Group. He became a non- He became a non-executive Director of executive Director of Wincanton in December Philip Cox Wincanton in June 2008. 2004 and is the Senior Independent Director. Non-executive Director He was appointed Deputy Chairman in Philip is Chief Executive Officer of International November 2007. Power Plc, having previously been Group Finance Director of Siebe. He became a non- Graeme McFaull executive Director of Wincanton in June 2001. Chief Executive Graeme joined Wincanton in 1994 as Finance Dr Walter Hasselkus Director of the Retail Division following finance Non-executive Director roles with Geest, Cargill and Pepsico. He has Walter is a non-executive Director of DAF held several Managing Directorships within Trucks NV, Chairman of the Supervisory Wincanton since 1999, most recently running Board of Ehlebracht AG, non-executive the UK & Ireland business. He became Chief Director of W.E.T. Holding (Lux) S.A. and Executive in December 2005. Graeme is a Supervisory Board Member of W.E.T. AG. Fellow and Vice-President of the Chartered From 1996 to 1998 he was a member of the Institute of Logistics and Transport. Board of Management of BMW AG and Chairman and CEO of Rover Group. He became a non-executive Director of Wincanton in January 2004. Nomination Committee Remuneration Committee Audit Committee David Edmonds Jonson Cox Jonson Cox David Malpas (Chairman) Philip Cox Philip Cox (Chairman) Graeme McFaull David Edmonds (Chairman) David Edmonds Neil England1 Neil England1 Walter Hasselkus Walter Hasselkus David Malpas David Malpas 1 Appointed 3 June 2008 32 Wincanton plc Annual Report 2008 Directors' report The Directors present their Annual Report and the audited financial Number of statements for the year ended 31 March 2008. Shareholder Type of Holding shares held Per cent Legal and General Group plc Direct 5,210,514 4.33% Principal activities BT Pension Scheme Trustees Limited Indirect 4,544,388 3.74% Wincanton is a contract logistics services business which designs, IFG Corporate Services Limited Indirect 4,852,118 4.02% implements and operates a range of supply chain management as Trustee of the Wincanton plc solutions. Employee Benefit Trust Acquisitions F&C Asset Management plc Indirect 6,045,153 5.03% On 8 November 2007 the Group acquired Swales Haulage Ltd for Aberforth Partners LLP Indirect 6,189,405 5.14% a debt-free consideration of 4.5m. Newton Investment Management Limited Indirect 7,776,329 6.47% Rathbone Brothers Plc Indirect 9,058,170 7.54% On 17 January 2008 the Group acquired Hanbury Davies Ltd for an initial debt-free consideration of 25.0m. Up to a further 2.5m may be payable pending agreement of the financial performance of the These holdings are stated as at the date of notification to the Company. acquired business in the period to 31 March 2008. During the year the Company did not purchase any of its own shares, On 4 March 2008, the Group acquired HeBo GmbH for an initial debt- except to meet its obligations to employees under the Share Incentive free consideration of 2.9m. A further 0.5m may be payable subject Plan. The only shares held throughout the year were held in the to the financial performance of HeBo in the year to 31 March 2009. Employee Benefit Trust (the `Trust'). During the year, the Trust, in its capacity as trustee, purchased a total of 1,996,519 shares at an Results and Dividends average price, excluding costs, of 3.94 per share. These shares were A review of the activities of the Group during the financial year, purchased to enable the Trust to hedge against future exercises of analyses of revenue and profit and an indication of likely future share options/awards. As at 31 March 2008, the Trust, in its capacity developments are presented in the Business review on pages 16 to 27, as trustee, held 4,801,973 (2007: 3,080,661) shares representing and the Corporate responsibility report on pages 28 to 31 which are 3.96% of the issued share capital. incorporated into this Directors' report by reference. The Group profit attributable to shareholders for the financial year amounted to 24.5m. Share capital and reserves An interim dividend of 4.60p per share was paid on 8 January 2008. Details of the authorised and issued share capital and reserves of the Subject to shareholders' approval at the Annual General Meeting Company are shown in note 6 to the Wincanton plc Company financial (AGM) to be held at 11:30am on Thursday, 24 July 2008 at the offices statements on page 85. The share capital of Wincanton plc is made of Buchanan Communications, 45 Moorfields, London, EC2Y 9AE, up of 121,340,268 Ordinary shares of 10 pence as at the date of this a final dividend of 10.31p per share will be paid on 8 August 2008 to report. The shares are listed on the London Stock Exchange. Other those shareholders on the register of members of Wincanton plc at than certain of those shares held in Trust in accordance with Employee 11 July 2008. Under the requirements of Adopted IFRS this dividend Share Schemes, and the provisions contained in the Articles of is not provided until declared and therefore the total profit for the year Association of the Company, all shares rank pari passu with each other. of 25.0m, including 0.5m relating to minority interests, has been transferred to reserves. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and / or Policy and practice on payment of creditors voting rights. The Group does not have a formal code that it follows with regard to payments to suppliers. It agrees payment terms with its suppliers when Directors it enters into binding purchase contracts for the supply of goods and The names and biographies of the Directors who served at any time services. Its suppliers are, in that way, made aware of these terms. The during the financial year are shown on page 32. Details of the Group seeks to abide by these payment terms when it is satisfied that Company's corporate governance policy are set out on pages 37 to 39. the supplier has provided the goods or services in accordance with the Directors' beneficial interests in the Company's share capital as at 31 agreed terms and conditions. March 2008 and the date of this report are set out in the Directors' remuneration report on pages 40 to 48. At the AGM, Wincanton plc will At the year end there were 54 days (2007: 54 days) purchases in the seek the re-election as Directors of G Connell and D Edmonds who are Group's trade creditors. resigning under the rotation provisions of the Articles of the Company. The Directors support their re-election. At the 2008 AGM, David Annual General Meeting Malpas is stepping down as Chairman and will be replaced by David At the AGM, the Directors will propose the following special business: Edmonds, who was appointed Deputy Chairman on 7 November 2007. to seek to renew the authority to disapply shareholders' pre-emption To maintain the required balance and independence on the Board, a rights in certain circumstances; to approve the Company's power to further non-executive Director, Neil England, was appointed on 3 June buy back a proportion of the Company's share capital; to make 2008. The Company will seek his election at the AGM in accordance specific amendments to the Articles of Association of Wincanton plc with the Articles of the Company. The Directors support his election. so that they comply with new sections of the Companies Act 2006; to authorise the Company to supply documents or information to Employees members by making them available on a website; to allow the Directors The Group uses a number of ways to provide employees with to allot shares; and to approve the making of certain payments that information on matters of interest to them. These include a report to may fall to be classified as donations to political parties. employees dealing with Group and segmental results, an intranet, a quarterly in-house newsletter and briefing and consultative meetings. Substantial interests At the date of this report, the Company has been notified of the In December 2005, a European Works Council was set up with the aim following major shareholdings: of bringing together employee representatives from across Europe, so 33 Wincanton plc Annual Report 2008 Directors' report continued that they can be informed and consulted by management on the days to supply the Company with the information required by that Group's plans and performance. Employee representatives are also notice, then that shareholder shall not be entitled to attend or vote at able to meet their colleagues from other countries, exchanging a shareholders meeting. Where the shares represent 0.25% or more of information about the Group and working conditions across Europe. the issued share capital, the Directors may in their absolute discretion retain any dividend which would otherwise be payable in respect of In February 2008, the Group launched its first annual employee survey, those shares and/or that no transfer of those shares shall be registered `One Voice', inviting employees to have their say on many aspects of unless the transfer is approved. their working environment including their understanding of business goals, communication processes, health and safety, management and Variation of Share Capital and Rights working for Wincanton. The early results have been encouraging and Wincanton may by ordinary resolution increase its share capital; will provide a robust benchmark for future engagement programmes. consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares; subdivide all or any of its share The Group has established a variety of option schemes and share capital into shares of a smaller amount than that fixed by the incentive plans to align the interests of employees with those of Memorandum of Association (subject to the provisions of the shareholders and to support Wincanton in the development of its Companies Acts); or cancel any shares which have not been taken business objectives. or agreed to be taken and diminish the amount of its share capital. Wincanton is committed to a policy of equal opportunities in Subject to the provisions of the Companies Act, Wincanton may by employment by which the Group has and continues to: special resolution reduce its share capital, any capital redemption reserve and any share premium account in any way. select, recruit, develop and promote the very best people basing its judgement solely on suitability for the job; Subject to the provisions of the Companies Act, whenever share capital of Wincanton is divided into different classes of shares, the special ensure that all applicants and employees receive fair and equal rights attached to any class may, subject to the provisions of the treatment irrespective of sex, marital status, age, nationality, colour, Companies Act, be varied or abrogated whether or not Wincanton race, ethnicity, national origin, disability or gender reassignment; is being wound up, either with the consent in writing of the holders of three quarters of the nominal value of the issued shares of the class encourage diversity in its workforce, reflecting, where practicable, or with the sanction of an extraordinary resolution passed at a separate the diversity of the working population; general meeting of the holders of the shares of the class. The quorum at any such meeting is two persons holding at least one-third in nominal maintain a working environment free from sexual and racial value of the issued shares of the class. harassment and intimidation; and Buying Back Shares ensure that all employment conditions and job requirements reflect Subject to and in accordance with the provisions of the Companies its commitment to equal opportunities. Act and the Listing Rules, Wincanton may purchase its own shares of any class. Where people become disabled during the course of their employment, every practical effort is made to retain their services, Directors' Power to Allot make adjustments and to provide retraining if necessary. All employees The Directors may, subject to the provisions of any legislation dealing are eligible for appropriate training, career development and promotion with authority, pre-emption rights and other matters, and of any and disabled people are not treated any differently. resolution of the Company in general meeting passed pursuant thereto, deal with shares which have not been issued. Directors may allot Political and charitable contributions shares, grant options over, or otherwise dispose of, shares to such In accordance with its policy, the Group made no political contributions persons, at such times and on such terms as they think proper. during the year. Donations to charities amounted to 65,000 (2007: 14,000). Dividends and other Distributions Wincanton shareholders may declare dividends by passing an Wincanton's Articles of Association ordinary resolution. No such dividend may, however, exceed the The Company's Articles of Association may only be amended by a amount recommended by the Directors. Any dividend unclaimed after Special Resolution at a general meeting of shareholders. At the 2008 a period of 12 years from the date such dividend was declared shall AGM a Special Resolution will be put to shareholders proposing be forfeited and shall revert to Wincanton. amendments to the Company's existing Articles in relation to the provisions of the new Companies Act 2006. Distribution of Assets on Winding Up If Wincanton is wound up, the liquidator may, with the authority of an The Articles of Association of Wincanton currently contain (amongst extraordinary resolution passed by the shareholders, divide among others) the following provisions. the shareholders the whole or any part of the assets of Wincanton and may determine how such division shall be carried out as between Voting Rights shareholders or different classes of shareholders. For this purpose, the Subject to the restrictions set out below, on a show of hands every liquidator may set such value as he considers fair upon any property. shareholder present in person has one vote and on a poll every shareholder present in person or by proxy has one vote per share held. Transfer of Shares Any shareholder may transfer some or all of his shares to another Restrictions on Voting person. The person making the transfer will be treated as continuing If any shareholder, or any person appearing to be interested in the to be the holder until the name of the person to whom the share is shares held by that shareholder, has been properly served with a being transferred is entered onto the register in respect of such shares. notice under Section 212 of the Companies Act 1985 requiring Directors may in their absolute discretion, and without giving any information about interests in shares, and has failed for a period of 14 reason therefore, refuse to register any transfer of such shares which 34 Wincanton plc Annual Report 2008 are not fully paid shares provided that such discretion may not be (c)any proposal concerning an offer of shares or debentures or exercised in such a way as to prevent dealings in the shares of that other securities of or by the Company or any of its subsidiary class from taking place on an open and proper basis. undertakings for subscription or purchase in which offer he is or is to be interested as a holder of securities or as a participant Directors of Wincanton in the underwriting or sub-underwriting thereof; Unless otherwise determined by ordinary resolution, there must be at least two Directors but not more than 20. The Directors shall determine (d)any proposal concerning any other company in which he is the ordinary fees of the Directors and the aggregate amount shall not interested, directly or indirectly and whether as an officer or exceed 500,000 per annum or such higher amount as Wincanton shareholder or otherwise howsoever, provided that he (together shareholders may from time to time determine by ordinary resolution. with persons connected with him within the meaning of Section 346 Any provision of the Statutes, which would have the effect of rendering of the Act) does not have an interest (as that term is used in any person ineligible for appointment or election as a Director or liable Sections 198 to 211 of the Act) in one per cent or more of the issued to vacate office as a Director on account of having reached a specified shares of any class of such company (or of any third company age, has been disapplied. through which his interest is derived) or of the voting rights available to members of the relevant company (any such interest Directors' Interests in Transactions with the Company being deemed for the purposes of this Article to be a material If the legislation allows, and if a Director has disclosed the nature and interest in all circumstances); extent of any interest to the other Directors, that Director may: (e)any proposal relating to an arrangement for the benefit of the (a)be a party to or otherwise interested in, any contract, transaction employees of the Company or any of its subsidiary undertakings or arrangement with the Company or in which the Company is which does not aware him any privilege or benefit not generally otherwise interested; awarded to the employees to whom such arrangement relates; and (b)be a director or other officer of, or employed by, or a party to any (f)any proposal concerning any insurance which the Company is contract, transaction or arrangement with, or otherwise interested empowered to purchase and/or maintain for or for the benefit of in, any body corporate promoted by the Company or in which the any Directors of the Company or for persons who include Directors Company is otherwise interested; of the Company. (c)act (or any firm of which he is a partner, employee or member may Borrowing Powers act) in a professional capacity for the Company (other than as So far as legislation allows, the Directors may exercise all Wincanton's auditor) and be remunerated therefore; and powers to borrow money; to mortgage or charge all or any of Wincanton's undertakings, property, and uncalled capital; to issue (d)not, save as otherwise agreed by him, be accountable to the debentures and other securities; and to give security either outright Company for any benefit which he derives from any contract, or as collateral security for any debt, liability or obligation of Wincanton transaction or arrangement or from any such office or employment or of any third party. or from any interest in any such body corporate or for such remuneration and no such contract, transaction or arrangement Indemnity and Insurance of Officers shall be liable to be avoided on the grounds of any such interest So far as relevant legislation allows, every Director, Secretary and other or benefit. Officer of the Company or its subsidiary undertakings shall be entitled to be indemnified by the Company. Directors' Interests and Voting A Director cannot cast a vote on any contract, arrangement or any Untraced Shareholders other kind of proposal in which he has a material interest other than in The Company is entitled to sell, at the best price reasonably obtainable the circumstances falling within the paragraph below. For this purpose, at the time of the sale, shares of a member provided that during the 12 interests of a person who is connected with a Director under Section years prior to the date of the publication of advertisements in both a 346 of the Companies Act are added to the interests of the Director national newspaper and a newspaper circulated in the area of the last himself. Interests purely as a result of an interest in the Company's known address of the member giving notice of its intention to sell the shares, debentures or other securities are disregarded. In relation to said shares, at least three dividends in respect of the shares have an alternate Director an interest of his appointor shall be treated as become payable and no dividend in respect of those shares has been an interest of the alternate Director. This is in addition to any interest claimed. which the alternate Director has in his own right. A Director may not be included in the quorum of a meeting in relation to any resolution he Research and development is not allowed to vote on. During the year the Group was active in the development of new products and supply chain services to support current and future If the Statutes allow this, a Director can vote, and be counted in the customer requirements. quorum on any resolution about any of the following matters, as long as the only material interests he has in it are included in the following list: Going concern After making appropriate enquiries, the Directors have a reasonable (a)the giving of any security, guarantee or indemnity to him in respect expectation that the Company and the Group overall have adequate of money lent or obligations incurred by him at the request of or for resources to continue operating for the foreseeable future. Accordingly, the benefit of the Company or any of its subsidiary undertakings; these financial statements have been prepared on a going concern basis. (b)the giving of any security, guarantee or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security; 35 Wincanton plc Annual Report 2008 Directors' report continued Statement of Directors' Responsibilities Responsibility statement of the Directors in respect of the Annual The Directors are responsible for preparing the Annual Report and the Report and Group financial statements. Group and parent Company financial statements, in accordance with applicable law and regulations. The Board confirms that to the best of their knowledge: Company law requires the Directors to prepare Group and parent the financial statements, prepared in accordance with the applicable Company financial statements for each financial year. Under that law set of accounting standards, give a true and fair view of the assets, the Directors are required to prepare the Group financial statements liabilities, financial position and profit or loss of the Company and the in accordance with IFRSs, as adopted by the EU, and applicable law undertakings included in the consolidation taken as a whole; and and have elected to prepare the parent Company financial statements in accordance with UK Accounting Standards and applicable law the Directors' report includes a fair review of the development and (UK Generally Accepted Accounting Practice). performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, The Group financial statements are required by law and IFRSs, together with a description of the principal risks and uncertainties as adopted by the EU, to present fairly the financial position and that they face. performance of the Group. The Companies Act 1985 provides, in relation to such financial statements, that references in the relevant The Board approved the above Responsibility statement on 4 June 2008. part of the Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Auditors In accordance with Section 384 of the Companies Act 1985 and The parent Company financial statements are required by law to give with corporate governance best practice, separate resolutions for a true and fair view of the state of affairs of the Company. the re-appointment of KPMG Audit Plc as auditors of the Company and for the approval of their remuneration are to be proposed at In preparing each of the Group and parent Company financial the 2008 AGM. statements, the Directors are required to: The Directors who held office at the date of approval of this Directors' select suitable accounting policies and then apply them consistently; report confirm that, so far as they are each aware, there is no relevant audit information of the which the parent Company's auditors are make judgements and estimates that are reasonable and prudent; unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit for the Group financial statements, state whether they have been information and to establish that the parent Company's auditors are prepared in accordance with IFRSs as adopted by the EU; aware of that information. for the parent Company financial statements, state whether By order of the Board applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent Charles Phillips Company financial statements; Company Secretary Methuen Park prepare the financial statements on the going concern basis unless Chippenham it is inappropriate to presume that the Group and the parent Wiltshire Company will continue in business. SN14 0WT 4 June 2008 The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' report, Directors' Remuneration report and Corporate governance statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 36 Wincanton plc Annual Report 2008 Corporate governance Introduction presented to the Board periodically on matters such as pensions, The Company is committed to high standards of corporate governance insurance and treasury. Health and safety is reviewed at every Board and supports the principles laid down in the revised Combined Code meeting and other specific business-related presentations are given on Corporate Governance (`the Code') as issued by the Financial when appropriate. Reporting Council in June 2006. This statement describes how the principles of the Code are applied and reports on the Company's There is an established procedure for the preparation and review, at compliance with the Code's provisions. least annually, by the Board of medium-term plans and annual budgets for business units. Each business unit reports monthly on its performance Board of Directors against its agreed budget. The Board receives a monthly update on As at 31 March 2008, the Board had eight members, comprising the performance and reviews significant variances on a monthly basis. non-executive Chairman, independent non-executive Deputy All major investment decisions are subject to post-completion reviews. Chairman, Chief Executive, Group Finance Director, Group Human Resources Director and three further independent non-executive In line with agreed procedures, the Chairman has conducted Directors. At the 2008 AGM, the Chairman will resign and the Deputy interviews with each Director and assessed their individual Chairman will take his role. In order to maintain the required balance performance. The Chairman has carried out an evaluation of the and independence on the Board following the resignation of the performance of the Board as a whole and of each Committee and, Chairman, a further non-executive Director was appointed on led by the senior non-executive Director, the non-executive Directors 3 June 2008. All Directors bring strong judgement to the Board's have assessed the performance of the Chairman taking into account deliberations. The Board is of sufficient size and diversity that the the views of the Executive Directors. The Chairman and the senior balance of skills and experience is considered to be appropriate independent non-executive Director have presented the conclusions for the requirements of the business. The non-executive Directors are of those assessments to the Board. The evaluation process is designed all independent of management and free from any business or other to cover Board processes, the structure and capability of the Board, relationship, including those relationships and circumstances referred strategic alignment, Board dynamics and the skills brought to the to in provision A.3.1 of the Code, that could materially interfere with Board by each Director. As part of the process, training needs are the exercise of independent and objective judgement. The Company reviewed and acted upon as appropriate. considers that, on appointment, the Chairman was independent (for the purposes of provision A.3.1 of the Code) and furthermore The Board has approved a procedure for Directors to take, at the the preceding comments regarding freedom from business or other Company's expense, independent professional advice if necessary. relationships also apply to him. However, after appointment, the Code In addition, the Directors have direct access to the advice and services specifies that the Chairman ceases to be classed as independent. of the Company Secretary, who is charged by the Board with ensuring The non-executive Directors have each been appointed for a three- that Board procedures are followed. Both the appointment and removal year term. The senior independent non-executive Director and of the Company Secretary are matters for the Board as a whole. The Deputy Chairman during the year was D A Edmonds who will be Company Secretary and Group Human Resources Director take joint appointed Chairman at the 2008 AGM. responsibility for preparing and implementing an induction programme for Board appointees, including guidance as to their duties, At all times during the year there has been a majority of independent responsibilities and liabilities as a Director of the Company and non-executive Directors on the Board, excluding the Chairman, in business familiarisation. compliance with Code provision A.3.2. Business familiarisation involves Directors visiting sites, in both the The biographical details of the Board members are set out on page 32. UK and elsewhere in Europe, and giving the Directors the opportunity The Directors have all occupied, or occupy, senior positions in UK to meet senior managers around the business. They also have the listed companies (or, in the case of Dr W Hasselkus, German listed opportunity to discuss organisational, operational and administrative companies) and have substantial experience in business. The non- matters. The Company provides directors' and officers' insurance executive Directors do not participate in any of the Group's pension cover, in line with normal market practice, for the benefit of Directors schemes or in any of the Group's bonus, share option or other incentive in respect of claims arising in the performance of their duties. schemes. All Directors must stand for election at the first AGM after they are appointed. The Articles provide that all Directors will stand for The different roles of the Chairman and Chief Executive are re-election at least every three years. acknowledged. A responsibility statement for each of those roles has been agreed with the Chairman and Chief Executive respectively and The Board is collectively responsible for the proper management of the adopted by the Board. The Chairman is primarily responsible for the Company. The Board normally meets 10 times each financial year and workings of the Board and ensuring that its strategic and supervisory has a formal schedule of matters reserved to it for decision-making, role is achieved. The Board is responsible for high-level decision- including the approval of annual and interim results, annual budgets, making and approval of significant expenditure and there is a formal material acquisitions and disposals, material agreements and major listing of matters reserved for Board approval. The Board has capital commitments. Executive Board members are responsible for delegated appropriate responsibilities to the Chief Executive, the communicating the Group's strategy to senior managers and for the Group Finance Director, the Group Human Resources Director and the day-to-day operational activity of the Group. The Company Secretary members of the Executive Board who are responsible for the day-to- maintains a record of attendance at Board meetings and Committee day running of the business, carrying out the agreed strategy and meetings, further details of which are set out on page 38. During the implementing specific Board decisions relating to the operation of year the Chairman also met with the non-executive Directors without the Group. the Executive Directors present. Board Committees Board members are given appropriate documentation in advance of There are a number of standing Committees of the Board to which each Board or Committee meeting. This normally includes a detailed various matters are delegated. The Committees all have formal Terms report on current trading and full papers on matters where the Board of Reference that have been approved by the Board and that are will be required to make a decision or give its approval. Reports are available for inspection at the Company's registered office. The Terms 37 Wincanton plc Annual Report 2008 Corporate governance continued of Reference are not currently available on the Group's website and as agreeing internal and external audit plans; a result, the Company is not in compliance with provisions A.4.1, B.2.1 and C.3.3 of the Code. The Company feels that making Committee receiving reports from external auditors' and from the Head of Terms of Reference available at its registered office is sufficient for Internal Audit and dealing with any significant control issues arising; those shareholders that require to see the Terms of Reference. No such requests were made in the year ended 31 March 2008. Brief details are monitoring and reviewing the external auditors' independence and set out below: objectivity and the effectiveness of the external audit process; The Nomination Committee comprises D A Edmonds and G McFaull, making recommendations for the appointment, re-appointment and under the chairmanship of A D Malpas. The Code provision A.4.1 removal of the external auditors and approving their remuneration requires that a majority of members of the Nomination Committee and terms of engagement; and should be independent non-executive Directors. The Company does not comply with this provision of the Code. However, the Board feels developing and implementing policy on the engagement of the that the small size of the Committee is best placed to act quickly and external auditors to supply non-audit services, taking into account efficiently on its behalf. The Committee meets as necessary and is relevant ethical guidance regarding the provision of such services responsible for considering and recommending to the Board persons by the external audit firm; and to report to the Board, identifying any who are appropriate for appointment as Executive and non-executive matters in respect of which it considers that action or improvement is Directors. There is a formal, rigorous and transparent procedure for needed and making recommendations as to the steps to be taken. the appointment of new Directors to the Board. This process involves the Nomination Committee interviewing suitable candidates who are The Audit Committee also reviews the arrangements by which staff proposed by either existing Board members or by an external search of the Group may, in confidence, raise concerns about possible company. Careful consideration is given to ensure that appointees improprieties in matters of financial reporting or otherwise. It is an have enough time available to devote to the role and that the balance objective of the Committee to ensure that arrangements are in place for of skills, knowledge and experience on the Board is maintained. When the proportionate and independent investigation of any such matters dealing with the appointment of a successor to the Chairman, the and for overseeing the appropriate follow-up action, where required. senior independent non-executive Director will chair the Committee instead of the Chairman. When the Committee has found a suitable It is a specific responsibility of the Audit Committee to ensure that an candidate, the Chairman of the Committee will make a proposal to the appropriate relationship is maintained between the Company and its whole Board and the appointment is the responsibility of the whole external auditors. The Company has a policy of controlling the provision Board following recommendation from the Committee. of non-audit services by the external auditors in order to maintain their independence and ensure that their objectivity and independence are The Remuneration Committee comprises J Cox, P G Cox, safeguarded. This control is exercised by ensuring non-audit projects, N England, Dr W Hasselkus and A D Malpas, under the chairmanship where fees are expected to exceed 150,000, are subject to the prior of D A Edmonds. The Remuneration Committee is responsible, approval of the Chairman of the Audit Committee and the Group within a framework established by the Board overall, for setting the Finance Director. If non-audit project fees are expected to exceed remuneration of senior executives, including the Executive Directors 250,000 the prior approval of the Board is required. The Committee and senior management. It is also responsible for granting executive meets at least three times each year. The Chairman of the Committee options, long-term incentive plan awards, pension rights and any reports the outcome of meetings to the Board and the Board receives compensation packages, and for determining the terms of any the minutes of all Audit Committee meetings. compensation package in the event of early termination of the contract of any Director or senior executive. The Audit Committee met twice in the year and once more just outside the year and discharged its responsibilities as set out above through It meets at least three times a year. The Chairman of the Committee the matters considered at those meetings. reports the outcome of meetings to the Board. Full details of its activities and of Directors' remuneration are set out in the Directors' Attendance at meetings remuneration report on pages 40 to 48. Those pages detail compliance The Company Secretary maintains a register of attendance of Directors with the legal requirements with regard to remuneration matters. at Board and Committee meetings and the record of attendance during the year ended 31 March 2008 is as follows: The Audit Committee comprises J Cox, D A Edmonds, N England, Dr W Hasselkus and A D Malpas, under the chairmanship of P G Cox, Nomination Remuneration Audit Board Committee Committee Committee who is the former Chief Financial Officer and currently the Chief Executive of International Power plc and, as such, has the requisite G D Connell 9 11 21 recent and relevant financial experience. The Code provision C.3.1 G McFaull 10 41 21 requires that all members of the Audit Committee should be N Sullivan 10 41 21 independent non-executive Directors. The Company does not comply J Cox 10 4 2 with this provision of the Code. However, the Board feels that the P G Cox 9 4 2 experience of the Chairman is beneficial in ensuring that the Audit D A Edmonds 10 4 2 Committee carries out its duties in line with its terms of reference. Dr W Hasselkus 10 4 2 The Committee is responsible for, and during the year carried out, A D Malpas 9 4 1 the following: Total number of meetings 10 4 2 1 Attended at the invitation of the Committee. reviewing the annual and half year financial statements before they are presented to the Board; monitoring and reviewing the effectiveness of the Group's systems of internal control; 38 Wincanton plc Annual Report 2008 Shareholder relations All types of risk applicable to the business are regularly reviewed. In The Company is committed to maintaining good communications addition, a formal risk assessment review is carried out on an annual with shareholders. Senior executives, including the Chairman, Chief basis to highlight key risks to the business and to consider action that Executive and Group Finance Director, have dialogue with individual can reasonably and cost-effectively be taken to reduce them. The institutional shareholders in order to develop an understanding of their Board considers this review, which accords with the Code. views which are fed back to the Board. Although the other non- executive Directors, including the senior independent non-executive The Group's Internal Audit Department is involved in the review and Director, are available to major shareholders to listen to their views, no testing of the internal control system and of key risks across the Group, such meetings have taken place during the year and, to that extent, the in accordance with the annual programme agreed with the Audit Company has not complied with provision D.1.1 of the Code. Twice a Committee. From time to time it undertakes ad-hoc assignments year general presentations are given to analysts and investors covering requested by senior managers or the Audit Committee, the findings the annual and half year results. The Business review set out on pages of which are discussed with the Audit Committee. 16 to 27 details the financial performance of the Group as well as setting out the risks it faces and plans for the future. The Company Compliance Secretary generally deals with questions from individual shareholders. The Directors consider that, with the exception of the three issues All shareholders have the opportunity to ask questions at the related to the availability of Committee Terms of Reference, Committee Company's AGM, which all Directors attend. At the AGM, the Chief membership and the issue related to shareholder relations specifically Executive will give a statement on the Company's performance during identified in this report, the Company has been in compliance with the the year, together with a statement on current trading conditions. The provisions of the Code throughout the year ended 31 March 2008 and Chairmen of the Audit, Remuneration and Nomination Committees will to the date of this report. Where the Company has departed from the be available to answer questions at the AGM. The Chairman will advise requirements of the Code, the Board has addressed this and feels that shareholders on proxy voting levels. In addition, the Group's website the reasons are justified. containing published information and press releases can be found at www.wincanton.co.uk. Internal control and risk The respective responsibilities in connection with the financial statements are set out in the Directors' report on pages 33 to 36 and 49 for the Directors and Auditors respectively. The Board, through the Audit Committee, is responsible for the Group's system of internal control and for reviewing its effectiveness. An ongoing process for identifying, evaluating and managing significant risks faced by the Group has been in place throughout the year which accords with the Turnbull guidance on internal control. The Audit Committee has, as part of its review process, considered the Group's system of internal control throughout the year. The system of internal control is designed to manage rather than eliminate risk of failure to meet business objectives, and can only provide reasonable, not absolute, assurance against material misstatement or loss. The key elements of the control system are as follows: the Group has an organisational structure with established lines of accountability as well as clearly-defined levels of authority; the Group has issued manuals, including the Group's Code of Ethics, which provide details of the key policies and procedures to be followed and the overall environment in which the business is expected to operate; and the Group has a system of control self-certification, which provides a documented trail of accountability against the internal control policies and procedures. This process is facilitated by the Internal Audit Department which also provides a degree of assurance as to the operation and validity of the system of internal control. These processes and systems continue to be extended to encompass the sites and operations of the growing Group. 39 Wincanton plc Annual Report 2008 Directors' remuneration report Introduction Date of Appointment as Outstanding This report has been prepared in accordance with the Directors' contract Executive Director term Remuneration Report Regulations 2002. G D Connell 23 March 2001 23 March 2001 Rolling contract G McFaull 23 March 2001 23 March 2001 Rolling contract Consideration of matters relating to Directors' remuneration N Sullivan 7 November 2002 1 January 2004 Rolling contract The remuneration policy is set by the Board and is described below. The Remuneration Committee, within the framework of this policy, Non-executive Director appointments are for an initial period of determines individual remuneration packages. The names of the three years. They are subject to reappointment every three years, Directors who were members of the Remuneration Committee during and annually after nine years. Non-executive Directors do not have the year ended 31 March 2008 are set out on page 32. contracts of service. Either the Company or the non-executive Director by giving 12 months' notice (in the case of P G Cox and A D Malpas) Except when matters concerning their own positions are being or 6 months' notice (in the case of J Cox, D A Edmonds and considered, the Chief Executive and Group Human Resources Director Dr W Hasselkus), may terminate their appointment. are normally invited to attend the meetings of the Remuneration Committee to assist the Committee. The Remuneration Committee Date of Date of would discuss any matter affecting the Chairman without the Chairman appointment latest renewal Expiry being present. J Cox 21 October 2005 N/A 21 October 2008 P G Cox 4 June 2001 5 June 2007 5 June 2010 The Remuneration Committee has access to independent advice D A Edmonds 14 December 2004 14 December 2007 14 December 2010 where it considers it appropriate. During the year, such advice was N England 3 June 2008 N/A 3 June 2011 received from Kepler Associates who were appointed by the Dr W Hasselkus 1 January 2004 1 January 2007 1 January 2010 Committee and who also provided advice to the Company in respect A D Malpas 4 June 2001 5 June 2007 5 June 20101 of other senior managers. 1 David Malpas is resigning as Chairman of the Board at the 2008 AGM. Remuneration policy Executive Directors' emoluments During the year ended 31 March 2008, the Remuneration Committee Audited information undertook a thorough review of the Company's existing executive The value of Executive Directors' salary, annual bonus and benefits incentives to ensure that they met the following list of objectives: (excluding awards of options) is set out in the following table: help reinforce Wincanton's strategy for growth; Performance 2008 2007 Salary Benefits bonus Total Total '000 '000 '000 '000 '000 provide strong alignment with the delivery of value to shareholders; G D Connell 356 17 252 625 578 have clear and stretching targets; G McFaull 445 26 315 786 726 N Sullivan 261 16 189 466 392 are tailored to Wincanton's circumstances; Salary enable Wincanton to recruit, retain and motivate talent; The base salaries of Executive Directors are, and will continue to be, reviewed annually, having regard to personal performance, Group give regard to employee performance; performance and competitive market practice, supported by research through external independent surveys. are cost-effective; and Benefits reflect best practice. Executive Directors are entitled to a company car or a car allowance in lieu of a company car, company sick pay in accordance with In addition, the Remuneration Committee continues to monitor Wincanton's sick pay and absence policy, 25 days paid holiday, practices in other companies to ensure that it remains in touch with the right to participate in Wincanton's private health insurance current best practice in the market, whilst accepting its obligations arrangements and payment of the annual membership subscription to continue to honour pre-existing contractual commitments. to a relevant professional body. It is Group policy not to give Executive Directors expense allowances, but to reimburse them for expenses Employment Contracts incurred in the performance of their duties. Executive Directors may terminate their service contract on six months' notice, whereas the notice period receivable from the All Executive Directors are members of the Wincanton Defined Benefit Company is 12 months. In the event of termination due to misconduct Pension Scheme, which is now closed to new entrants. Executive or resignation there will be no compensation for loss of office. In other Directors are generally eligible for a pension of up to two-thirds of base circumstances Executive Directors may be entitled to receive salary at normal retirement age of 60; normally after 20 years of compensation for loss of office, which will be equivalent to salary and qualifying service (for which purpose previous service with Uniq plc the value of benefits that the executive Director would have received will qualify). The current ages of G D Connell, G McFaull and N Sullivan if still in employment with the Company. It is intended that future are 50, 46 and 41, respectively and their length of qualifying service is appointments to the Board will have a notice period of 12 months or 11 years 5 months, 14 years and 5 years 4 months respectively. less except, in exceptional cases, where a longer period is required Pensions for Executive Directors are provided so far as possible in order to attract appropriate candidates. In such cases, it would be through the Wincanton Scheme and also through the use of unfunded expected that the notice period reduce to 12 months or less following arrangements. The aim of such unfunded arrangements is to provide the expiry of the initial period. None of the Executive Directors received broadly similar benefits to those that would otherwise be payable from compensation for loss of office in either the current or preceding year. the Wincanton Scheme had the Executive Directors not been subject to 40 Wincanton plc Annual Report 2008 the maximum permitted earnings as provided by HMRC before 6 April 2006 and as continued in relation to the Wincanton Scheme by a deed executed on 23 March 2006. Following consultation with members of the Scheme, with effect from 1 April 2006 contributions into the Wincanton Scheme are being made by the Executive Directors in respect of these pension arrangements. Pension benefits are calculated on base salary only. The pension scheme and/or purchased life policies provide for the payment of benefits on death or disability. On death, a two-thirds spouse's pension is due. Children's allowances to a maximum, including spouse's pension, of 100% of the Executive's pension may be payable. Executive Directors' pensions Accrued pension Increase in accrued Accrued pension at 1 April 2007 pension in the year at 31 March 2008 '000 '000 '000 G D Connell 112 16 128 G McFaull 142 18 160 N Sullivan 28 12 40 Transfer value of Transfer value increase in accrued Directors' Transfer value Total change Transfer value at 1 April 2007 benefit excluding inflation contributions of net increase in transfer value at 31 March 2008 '000 '000 '000 '000 '000 '000 G D Connell 1,409 189 3 471 663 2,072 G McFaull 1,552 177 3 520 700 2,252 N Sullivan 252 123 3 82 208 460 The increase in transfer values in the above table reflects the full impact of changes in pensionable salaries of the Executive Directors in the preceding year. Performance bonus After taking an overall view of the Company's performance and subject to an overriding discretion by the Remuneration Committee, annual bonuses may be earned by Executive Directors based on the achievement of pre-agreed targets for profit after tax (excluding amortisation of acquired intangibles, impairment of goodwill and exceptionals) in the year, and the Remuneration Committee's assessment of Company and personal performance. The maximum bonus has been capped at 75% of basic salary following consultation with major shareholders. Bonus maximum opportunities range from 35% to 65% for other senior managers based on Company and on personal performance. Long-term incentives Introduction During the year ended 31 March 2008, the Remuneration Committee, in consultation with shareholders, carried out a review of executive incentives generally and more specifically long-term incentives. At the 2007 AGM, shareholders approved certain revisions to the Share Match Incentive Scheme (SMIS) and the implementation of the Performance Share Plan (PSP) and grants were made under these schemes to Executive Directors and members of the Executive Board in December 2007. Grants under the PSP were made in place of grants under the Executive Share Option Schemes. The performance conditions were made more stretching compared to those previously applied to executive share option grants. Executive Share Options No executive share options were granted to members of the Executive Board, including Executive Directors, during the year ended 31 March 2008, having been replaced by awards under the terms of the PSP, details of which are given on page 43. Executive share options were granted to other Wincanton Senior Managers in December 2007 based on the scale of their role in the Company up to a maximum grant of 100% of salary. Executive share options are intended as an incentive to generate future long-term value rather than a reward for past performance; 248 senior managers received a grant of executive share options in 2007 (2006: 232). Executive share options for UK resident employees are initially granted under the terms of the HMRC Approved scheme, which permits a participant to hold options with a value at the date of grant of up to 30,000. When a participant realises their HMRC limit, or for non-UK resident employees, further options are granted under the Unapproved Scheme. Any gain made on exercise of those options which are granted under the Approved Scheme are free from income tax and National Insurance contributions whereas the gain made on the exercise of unapproved options is not. All executive share options granted under the Wincanton plc Executive Share Option Scheme 2001 have been subject to two vesting conditions being: continued employment and Company performance where, the average annual growth in the Group's underlying EPS figure published in the audited accounts must, in a three-year period, equal or exceed the average annual growth in the Government's Retail Price Index plus 3.0% over the same period. This performance condition is considered appropriate and in line with market practice. It seeks to achieve commonality of goals between optionholders and shareholders. Subject to passing these conditions and the options vesting, participants have seven years in which to exercise their options. 41 Wincanton plc Annual Report 2008 Directors' remuneration report continued Grants made in 2001 and 2002 permitted retesting of the performance condition. However, for grants made on or after the 1 January 2003, retesting was not permitted. The relevant three-year periods for measuring the performance condition for each option grant is as follows: Date of grant Performance period Performance status June and September 2001 Any three consecutive financial years within the period 1 April 2001 to 31 March 2006 Passed1 July and December 2002 Any three consecutive financial years within the period 1 April 2002 to 31 March 2007 Passed1 March 2004 The three consecutive financial years ended 31 March 2006 Passed1 December 2004 The three consecutive financial years ended 31 March 2007 Passed1 July and December 2005 The three consecutive financial years ended 31 March 2008 Passed1 December 2006 The three consecutive financial years ended 31 March 2009 Untested December 2007 The three consecutive financial years ended 31 March 2010 Untested 1 Options are exercisable subject to the continued employment condition. Executive share options are not issued at a discount. The option price is calculated with reference to the middle market closing price of a share on the immediately preceding day, or the average of the middle market closing price of a share on the 3 or 5 immediately preceding business days. Executive Directors' interests in executive share options As at 31 March 2008 Audited information Options Options Options Exercise Earliest date Latest exercise Name/Date of grant Opening Exercised Closing price exercisable date G D Connell June 2001 263,157 263,157 1.90 18/06/2004 18/06/2011 December 2002 50,000 50,000 1.93 12/12/2005 12/12/2012 December 2004 106,367 106,367 2.69 15/12/2007 15/12/2014 December 2005 94,030 94,030 3.35 13/12/2008 13/12/2015 December 2006 99,423 99,423 3.47 13/12/2009 13/12/2016 G McFaull June 2001 211,842 93,921 117,921 1.90 18/06/2004 18/06/2011 December 2002 50,000 50,000 1.93 12/12/2005 12/12/2012 December 2004 96,654 96,654 2.69 15/12/2007 15/12/2014 December 2005 117,910 117,910 3.35 13/12/2008 13/12/2015 December 2006 123,919 123,919 3.47 13/12/2009 13/12/2016 N Sullivan December 2002 125,000 116,819 8,181 1.93 12/12/2005 12/12/2012 December 2004 71,004 71,004 2.69 15/12/2007 15/12/2014 December 2005 59,850 59,850 3.35 13/12/2008 13/12/2015 December 2006 67,723 67,723 3.47 13/12/2009 13/12/2016 During the year, both G McFaull and N Sullivan exercised executive share options, the sole reason being to acquire shares, which were lodged under the terms of the revised SMIS. There have been no changes in the number of executive share options held by Executive Directors between 1 April 2008 and 4 June 2008. Variation in share capital If there is a variation in the equity share capital of Wincanton, including a capitalisation or rights issue, sub-division, consolidation or reduction of share capital, the number and/or nominal amount of Wincanton shares comprised in each option and the option price may be adjusted in any way (including retrospective adjustments) which the Directors or the Trustee consider appropriate (but, insofar as the Approved Executive Scheme is concerned, subject to HMRC's prior approval). Takeover In the case of a company taking control of the Company, options may be exercised within the 6 month period after the company making the offer has obtained control of the Company. Company reconstruction If the court sanctions a scheme for the reconstruction of the Company or its amalgamation with any other companies, options may be exercised within the 6 month period after the date of the court sanction. Demerger If the Directors become aware that the Company is, or is expected, to be affected by any demerger, dividend in specie, super dividend or other transaction, which affect the current or future value of any option, the Directors may allow some or all options to be exercised. Winding-up If notice is given of a general meeting of the Company at which a resolution will be proposed for the voluntary winding-up of the Company, optionholders shall be entitled, at any time prior to the commencement of such winding-up, to exercise their options conditionally upon the commencement of the winding-up. Administration If an administration order is made, optionholders may exercise their options within 6 weeks after the date of the administration order subject to authorisation by the administrator or the court. Voluntary arrangement If a voluntary arrangement is proposed, optionholders may exercise their options within 14 days after the date of sending any notices of meeting in relation to such proposal. 42 Wincanton plc Annual Report 2008 Shares held by the Employee Share Trust are not directly held in relation to the executive share option schemes and therefore there are no restrictions on the transfer of shares and nor are there any voting right restrictions in relation to the Executive Share Option Schemes. On exercise, shares will be held directly by the participant and will have full voting rights and can be transferred without any restriction. Where an employee leaves (other than for the reasons of injury or disability, redundancy, a transfer of employment which is subject to the Transfer of Undertaking (Protection of Employment) Regulations 2006, a change of control or other circumstances giving rise to the participant's employing company ceasing to be an associated company of any participating company or retirement on or after reaching retirement age), they lose their entitlement to their options. If however they leave for one of the above mentioned reasons, subject to the performance condition, a participant has 6 months in which to exercise their options. In the case of death, the personal representatives have 12 months to exercise the options. Performance shares As part of the review, by the Remuneration Committee, of executive incentives, the Wincanton plc Performance Share Plan 2007 (`PSP') was developed and was approved by shareholders at the 2007 AGM. The PSP replaces executive share options, under normal circumstances, for the Executive Board, including Executive Directors. Annual grants of performance shares up to a maximum of 100% of annual salary are permitted; this was limited to 50% in 2007. Dividends accrue over the three-year performance period and are paid on those shares that vest. Performance shares were granted to the 14 members of the Executive Board to the value of 50% of annual salary as at the date of grant. They are intended as an incentive to generate future long-term company value rather than a reward for past performance. Performance shares awarded under the PSP are subject to the following two vesting conditions: continued employment and Company performance. The performance conditions are significantly more stretching than those of executive share options, as follows; 50% of the award will vest subject to the Company's TSR performance over 3 years equalling or exceeding that of the FTSE 250 Index over the same period (the `TSR Award'), and 50% of the matching award will vest subject to underlying EPS performance over 3 years (the `EPS Award') equalling or exceeding the target. 10% of the TSR Award will vest if the TSR performance equals the TSR of the FTSE 250 index, rising on a straight-line basis to 100% vesting of the TSR Award if the TSR performance is equal to or greater than 20% per annum in excess of the TSR of the FTSE 250 Index (where the TSR of the FTSE 250 Index is measured using the change in the FTSE 250 Index multiplied by the Index dividend yield). 10% of the EPS Award will vest if the annual growth in underlying EPS equals 6% per annum, rising on a straight-line basis to 100% vesting of the EPS Award if annual growth in underlying EPS equals or exceeds 15% per annum. The Remuneration Committee believes that underlying EPS growth is a good measure of success for Wincanton, and provides good line-of-sight for executives, and that TSR performance against the FTSE 250 Index provides a good relative benchmark of Wincanton's performance and provides good alignment with shareholders. The Remuneration Committee believes that the sliding scale for each of the performance targets will provide a better relationship between pay and performance, and be more motivational to the participants. Subject to passing the performance conditions and the options vesting, participants have 6 months in which to exercise. The relevant three-year period for measuring the performance condition is as follows: Date of grant Performance period Performance status December 2007 The three consecutive financial years ended 31 March 2010 Untested Performance shares are classed as nil cost unconditional share awards for the purposes of the plan rules. Executive Directors' interests in performance shares As at 31 March 2008 Audited information Options Options Options Earliest date Latest exercise Name/Date of grant Granted Exercised Closing exercisable date G D Connell December 2007 46,875 46,875 14/12/2010 14/06/2011 G McFaull December 2007 58,593 58,593 14/12/2010 14/06/2011 N Sullivan December 2007 35,156 35,156 14/12/2010 14/06/2011 There have been no changes in the number of performance shares held by executive directors between 1 April 2008 and 4 June 2008. Variation in share capital If there is a variation in the equity share capital of Wincanton, including a capitalisation or rights issue, sub-division, consolidation or reduction of share capital, or a demerger, a special dividend or distribution, the Remuneration Committee may adjust the number or class of shares comprised in a conditional award. Takeover In the case of a company taking control of the Company, an award vests but only to the extent that any performance condition has been satisfied. An award will not vest to the extent that an offer to exchange the award is made. Schemes of arrangement When a court sanctions a scheme, an award vests but only to the extent that any performance condition has been satisfied. An award will not vest to the extent that an offer to exchange the award is made. Demerger or other corporate event If the Directors become aware that the Company is, or is expected to be, affected by any demerger, dividend in specie, super dividend or other transaction which affect the current or future value of any option, an award vests but only to the extent that any performance condition has been satisfied. 43 Wincanton plc Annual Report 2008 Directors' remuneration report continued Shares held by the Employee Share Trust are not directly held in relation to the PSP and therefore there are no restrictions on the transfer of shares and nor are there any voting right restrictions in relation to the PSP. On exercise, exercised shares will be held directly by the participant and have full voting rights and can be transferred without any restriction. Where an employee leaves (other than for the reasons of injury or disability, redundancy, a transfer of employment which is subject to the Transfer of Undertaking (Protection of Employment) Regulations 2006, a change of control or other circumstances giving rise to the participant's employing company ceasing to be an associated company of any participating company or retirement on or after reaching retirement age), they lose their entitlement to their options. If however they leave for one of the above mentioned reasons a participant must wait until the natural vesting date of the performance shares whereupon their entitlement will be time pro rated. On exercise, income tax and National Insurance contributions are payable on the gain made by the participant. Matching Shares Original Share Match Incentive Scheme The original Share Match Incentive Scheme 2003 (`SMIS') continues to offer senior managers the opportunity to voluntarily purchase Wincanton shares and lodge them with the Trust, in its capacity as nominee, in return for the opportunity to earn matching shares after a further 3 years. Lodged shares need to be held for at least 3 years to qualify for any matching shares. Awards under the original SMIS were not made to the Executive Board, including Executive Directors, in 2007. Instead, they received an award under the revised SMIS, details of which are given on page 45. Senior managers can voluntarily invest 10%-50% of their bonus into the SMIS with a 1:1 match. For Executive Directors the minimum (mandatory) investment was 25%, and the maximum voluntary investment a further 75%, of their net annual bonus. For Executive Directors, those mandatory lodged shares, subject to performance conditions will be matched after 3 years on a 1:1 basis with voluntarily lodged shares matched on a 2:1 basis. No shares have been lodged in excess of the mandatory amount by Executive Directors under the original SMIS. Matching shares are intended as an incentive to generate future long-term Company value rather than a reward for past performance. Matching shares were awarded to 41 senior managers (excluding Executive Directors) in July 2007 (40 in July 2006). Matching shares granted under the original SMIS are subject to two vesting conditions: continued employment and Company performance where, the average annual growth in the Group's underlying EPS figure published in the audited accounts must, in a three-year period, equal or exceed the average annual growth in the Government's Retail Price Index plus 3.0% over the same period This performance condition is considered appropriate and in line with market practice. It seeks to achieve commonality of goals between optionholders and shareholders. On vesting the options have a 6 month exercise period. There have been 3 awards of matching shares and the relevant three-year periods are, for each of these awards, as follows: Date of grant Performance period Performance status June 2005 The three consecutive financial years ended 31 March 2008 Passed1 July 2006 The three consecutive financial years ended 31 March 2009 Untested July 20072 The three consecutive financial years ended 31 March 2010 Untested 1 Subject to the continued employment condition. 2 The Executive Board, including Executive Directors, were not included in this grant. Matching shares are classed as nil cost options for the purposes of the plan rules. Executive Directors' interests in matching shares granted under original SMIS As at 31 March 2008 Audited information Options Options Earliest date Latest exercise Name/Date of grant Opening Closing exercisable date G D Connell June 2005 6,183 6,183 29/06/2008 29/12/2008 July 2006 10,646 10,646 13/07/2009 13/01/2010 G McFaull June 2005 5,661 5,661 29/06/2008 29/12/2008 July 2006 12,743 12,743 13/07/2009 13/01/2010 N Sullivan June 2005 4,024 4,024 29/06/2008 29/12/2008 July 2006 6,701 6,701 13/07/2009 13/01/2010 The number of shares lodged by the Executive Directors and which are used to determine the matching award are recorded on page 47. There have been no changes in the number of matching shares held by Executive Directors between 1 April 2008 and 4 June 2008. Takeover In the case of a company taking control of the Company, options may be exercised within the 6 month period after the company making the offer has obtained control. An award vests but only to the extent that any performance condition has been satisfied and on a time apportioned basis. Company reconstruction If the court sanctions a scheme for the reconstruction of the Company or its amalgamation with any other companies, options may be exercised within the 6 month period after the date of the court sanction. An award vests but only to the extent that any performance condition has been satisfied and on a time apportioned basis. 44 Wincanton plc Annual Report 2008 Winding-up If notice is given of a general meeting of the Company at which a resolution will be proposed for the voluntary winding-up of the Company, optionholders shall be entitled at any time prior to the commencement of such winding-up to exercise their options conditionally upon the commencement of the winding-up. An award vests but only to the extent that any performance condition has been satisfied and on a time apportioned basis. Except for those shares held by the Trust in its capacity as nominee, shares held by the Trust are not directly held in relation to the SMIS and therefore there are no restrictions on the transfer of shares and nor are there any voting right restrictions in relation to the SMIS. On exercise, exercised shares will be held directly by the participant and have full voting rights and can be transferred without any restriction. Participants are entitled to vote on the shares lodged under the terms of the scheme and held by the Trust in its capacity as nominee. Participants are free to transfer lodged shares out of the Trust at any time but in doing so they lose their entitlement to the proportional amount of matching shares. Where an employee leaves (other than for the reasons of injury or disability, redundancy, a transfer of employment which is subject to the Transfer of Undertaking (Protection of Employment) Regulations 2006, a change of control or other circumstances giving rise to the participant's employing company ceasing to be an associated company of any participating company or retirement on or after reaching retirement age) they lose their entitlement to their matching shares. If however they leave for one of the above mentioned reasons subject to the performance condition, their entitlement will be time pro rated and a participant has 6 months in which to exercise. On exercise, income tax and National Insurance contributions are payable on the gain made by the participant; the Company has elected to pay these charges on behalf of participants. Revised Share Match Incentive Scheme As part of the review by the Remuneration Committee of executive incentives, shareholders at the 2007 AGM approved revised rules of the SMIS. The scheme rules were revised to increase its motivational effectiveness and strengthen the alignment of the Executive Board with shareholders. The principal changes were to the maximum individual limits, including the basis on which lodged shares are purchased and matching shares awarded. The revisions were made in conjunction with the implementation of the PSP. The revised scheme gives members of the Executive Board, including Executive Directors, the opportunity to purchase Wincanton shares with a value of up to 50% of their net annual basic salary (100% of their net annual basic salary in respect of the first award made in December 2007) and lodge those shares with the Trust, in its capacity as nominee, in return for the opportunity to earn matching shares after a further 3 years. The minimum investment for Executive Directors is 25% of their net annual bonus. Lodged shares need to be held for at least 3 years to qualify for any matching shares. Participants have the opportunity to earn matching shares, subject to performance conditions, with a total market value in any one financial year of up to 200% of gross annual salary, or up to 400% of gross annual salary in respect of the first award made in December 2007. All matching shares would be forfeited if a participant resigns or withdraws their investment within 3 years from the start of the performance period. Dividends will be accrued on matching shares over the performance period but paid at vesting and only on those matching shares that vest. Matching shares are intended as an incentive to generate future long-term Company value rather than a reward for past performance and the first awards of such matching shares were made to 14 participants in December 2007. Matching shares granted under the revised SMIS are subject to the following two vesting conditions: continued employment and Company performance. The performance conditions are significantly more stretching than for previous awards, as follows; 50% of the matching award will vest subject to the Company's TSR performance over 3 years equalling or exceeding that of the FTSE250 Index over the same period (the `TSR Award'), and 50% of the matching award will vest subject to underlying EPS performance over 3 years (the `EPS Award') equalling or exceeding the target. 10% of the TSR award will vest if the TSR performance equals the TSR of the FTSE 250 index, rising on a straight-line basis to 100% vesting of the TSR Award if the TSR performance is equal to or greater than 20% per annum in excess of the TSR of the FTSE250 Index (where the TSR of the FTSE250 Index is measured using the change in the FTSE 250 Index multiplied by the Index dividend yield). 10% of the EPS Award will vest if the compound annual growth in underlying EPS equals 6% per annum, rising on a straight-line basis to 100% vesting of the EPS Award if compound annual growth in underlying EPS equals or exceeds 15 per cent per annum. The Remuneration Committee believes that underlying EPS growth is a good measure of success for Wincanton, and provides good line-of-sight for executives, and that TSR performance against the FTSE250 Index provides a good relative benchmark of Wincanton's performance and provides good alignment with shareholders. The Remuneration Committee believes that the sliding scale for each of the performance targets will provide a better relationship between pay and performance, and be more motivational to the participants. Subject to passing the performance conditions and the options vesting, participants have a six-month exercise period. The relevant three-year period for the matching share award is as follows: Date of grant Performance period Performance status December 2007 The three consecutive financial years ended 31 March 2010 Untested Matching shares are classed as nil cost options for the purposes of the plan rules. 45 Wincanton plc Annual Report 2008 Directors' remuneration report continued Executive Directors' maximum interests in matching shares under revised SMIS As at 31 March 2008 Audited information Options Options Options Earliest date Latest exercise Name/Date of grant Opening Granted Closing exercisable date G D Connell December 2007 375,000 375,000 14/12/2010 14/06/2011 G McFaull December 2007 468,750 468,750 14/12/2010 14/06/2011 N Sullivan December 2007 281,250 281,250 14/12/2010 14/06/2011 The number of shares lodged by the Executive Directors and which are used to determine the matching award are recorded on page 47. There have been no changes in the number of matching shares held by Executive Directors between 1 April 2008 and 4 June 2008. If there is a takeover, reconstruction, amalgamation or winding-up of Wincanton, the same rules apply in respect of the revised SMIS as to the original SMIS as noted above, as do the comments in respect of transfers, voting rights, exercise and entitlements on leaving employment. Share Incentive Plan The Company operates a Share Incentive Plan approved by HMRC, which includes partnership, matching and dividend shares. After 3 months continuous service, all UK resident employees are eligible to participate in the Wincanton plc Share Incentive Plan 2003 (`SIP'). The SIP is `evergreen' allowing people to, within certain limits, join the plan, leave the plan and vary their contribution at any time. Employees are invited to buy partnership shares from pre-tax salary with a maximum investment in each tax year of 1,500 or 10% of annual salary, if less. Partnership shares are purchased every month. Employees can withdraw partnership shares from the SIP at any time although there are tax advantages if the shares are retained in the SIP for more than three years. Where employees buy partnership shares, the Company awards matching shares on a basis of one matching share for every four partnership shares acquired. There are tax advantages if matching shares are retained in the SIP for at least three years. Where a participant (other than for the reasons of injury or disability, redundancy, a transfer of employment which is subject to the Transfer of Undertaking (Protection of Employment) Regulations 2006, a change of control or other circumstances giving rise to the participant's employing company ceasing to be an associated company of any participating company or retirement on or after reaching retirement age) chooses to transfer partnership shares out of the SIP within three years of the date of purchase, entitlement to those matching shares which were awarded in respect of those partnership shares will be lost. Cash dividends paid on the partnership shares are automatically reinvested to purchase dividend shares up to a value of 1,500 per year. Employees can withdraw dividend shares from the SIP at any time although there are tax advantages if the shares are retained in the SIP for more than three years. Executive Directors' interests in the SIP As at 31 March 2008 Audited information At 1 April 2007 At 31 March 2008 Partnership shares Matching shares Dividend shares Partnership shares Matching shares Dividend shares G McFaull 976 244 46 1,366 341 101 N Sullivan 976 244 46 1,366 341 101 Between 1 April 2008 and 4 June 2008, 74 partnership shares were purchased by and 19 matching shares awarded to each of the Executive Directors included in the above table. In the event of a company reconstruction, which results in a holding of new shares such as a take-over or reorganisation, the new shares may be treated as equivalent to the old shares held for the purposes of the SIP at the date of the reconstruction. No specific restrictions apply to the transfer of shares held under the SIP however; the timing of a transfer may result, as mentioned above, in a tax charge being incurred and an entitlement to matching shares lost. Participants are entitled to vote on the all shares held under the terms of the SIP. 46 Wincanton plc Annual Report 2008 Executive Directors' shareholdings We believe it is important that the interests of Executive Directors should be closely aligned with those of shareholders. The long-term incentives provide considerable alignment. As at 31 March 2008, the Executive Directors held the following shares: Partnership shares held Lodged shares under the SIP held under the SMIS Unrestricted shares held Total shares held Percentage of net salary 31/03/08 31/03/07 31/03/08 31/03/07 31/03/08 31/03/07 31/03/08 31/03/07 31/03/08 31/03/07 G D Connell 72,141 16,829 6,584 52,255 78,725 69,084 128% 126% G McFaull 1,366 976 87,544 18,404 15,000 88,910 34,380 116% 50% N Sullivan 1,366 976 52,209 10,725 1,000 1,000 54,575 12,701 118% 34% During the year, G McFaull sold 64,781 shares and N Sullivan sold 81,999 shares. These shares were sold solely with the purpose of funding an exercise of executive share options which was itself done to lodge shares under the terms of the revised SMIS. There were no changes in the Directors' personal holdings between 1 April 2008 and 4 June 2008 except for those in relation to the SIP detailed on page 46. None of the Directors held any shares non-beneficially nor had any interest in the shares of any subsidiary undertakings. Dilution Newly issued shares are currently used to satisfy the exercise of executive share options granted on or before December 2004; all other long- term incentives are satisfied by shares delivered by the Trust, that buys the shares on the market using funding from the Company. For those options granted in December 2004 and for leavers of other option grants, the Trust `equity settles' those options granted under the Unapproved executive share option scheme. It is considered that by equity settling an option exercise, the participant does not suffer detrimental effect and the shares purchased by the Trust will be available to meet more of the outstanding options on exercise. Newly issued shares are also issued to satisfy the exercise of sharesave options. The last grant of options under the Wincanton plc Sharesave Scheme 2001 (`SAYE') matured on 1 March 2008 and any options outstanding on 31 August 2008 will lapse. Executive Directors did not participate in the SAYE scheme. In accordance with the ABI guidelines and scheme rules, the Company can issue a maximum of 10% of its issued share capital in a rolling 10-year period to employees under all its share plans. Within this 10%, the Company can only issue 5% to satisfy awards under discretionary or executive plans. The table below sets out the level of dilution against these limits as at 31 March 2008. Total dilution All share plans (maximum 10%) 6% Discretionary share plans (maximum 5%) 4% Total Shareholder Return The following graph charts the total cumulative shareholder return of the Company since the date of first listing of the Company's shares on the London Stock Exchange on 18 May 2001, against the FTSE All Share, FTSE Small Cap and FTSE 250 indices in which the Company's shares are listed. TSR since demerger 250 Wincanton FTSE 250 200 FTSE All Share FTSE Small Cap 150 100 50 May Feb Nov Aug May Feb Nov Aug May Feb 2001 2002 2002 2003 2004 2005 2005 2005 2007 2008 Source: Thomson Financial Datastream 47 Wincanton plc Annual Report 2008 Directors' remuneration report continued Outside appointments Wincanton allows Executive Directors and other appropriate senior employees to accept a maximum of one non-executive appointment outside the Company, subject to permission from the Remuneration Committee and provided there are no conflicts of interest as it is believed that such appointments can enhance Directors' experience and value to the Company. Accordingly, G D Connell is the Senior Independent non-executive Director and Chairman of the Audit Committee of Pennon Group plc, and the retention by him of the fees of 46,650 for the year ended 31 March 2008 (2007: 43,458) has been approved by the Board. Non-executive Directors' reward Non-executive Directors do not participate in any of the Company's incentive or benefit plans. Their fees are reviewed annually, having regard to competitive market practice, supported by research through external independent surveys. The Remuneration Committee and the Chief Executive set the Chairman's fees; the Board as a whole sets those for the other non-executive Directors. Fees were last reviewed in January 2008 leading to a 5,000 increase in the annual fee for non-executive Directors, with all other fees remaining unchanged. Non-executive Directors' fees Audited information Committee 2008 2007 Annual fees chair fees Total fees Total fees '000 '000 '000 '000 J Cox 41 41 40 P G Cox 41 8 49 48 D A Edmonds 41 8 49 48 N England1 Dr W Hasselkus 41 41 40 A D Malpas 115 115 115 1 Appointed on 3 June 2008. Non-executive Directors' shareholdings Opening Purchased Disposed Closing J Cox 2,052 5,500 7,552 P G Cox 5,000 5,000 D A Edmonds 5,000 10,000 15,000 N England1 Dr W Hasselkus 5,000 5,000 A D Malpas 48,750 48,750 1 Appointed on 3 June 2008. The highest and lowest prices of the Company's shares during the year were 435.5p and 314.25p respectively. The price at the year end was 345.375p. This Remuneration report was approved by the Board on 4 June 2008 and was signed on its behalf by: Charles Phillips Secretary Methuen Park Chippenham Wiltshire SN14 0WT 48 Wincanton plc Annual Report 2008 Independent Auditors' report to the members of Wincanton plc We have audited the Group and parent Company financial statements We read the other information contained in the Annual Report and (the `financial statements') of Wincanton plc for the year ended consider whether it is consistent with the audited financial statements. 31 March 2008 which comprise the Consolidated income statement, We consider the implications for our report if we become aware of any the Consolidated statement of recognised income and expense, the apparent misstatements or material inconsistencies with the financial Consolidated and parent Company balance sheets, the Consolidated statements. Our responsibilities do not extend to any other information. statement of cash flows, and the related notes. These financial statements have been prepared under the accounting policies set Basis of audit opinion out therein. We have also audited the information in the Directors' We conducted our audit in accordance with International Standards remuneration report that is described as having been audited. on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to This report is made solely to the Company's members, as a body, in the amounts and disclosures in the financial statements and the part accordance with section 235 of the Companies Act 1985. Our audit of the Directors' remuneration report to be audited. It also includes an work has been undertaken so that we might state to the Company's assessment of the significant estimates and judgments made by the members those matters we are required to state to them in an auditor's Directors in the preparation of the financial statements, and of whether report and for no other purpose. To the fullest extent permitted by law, the accounting policies are appropriate to the Group's and Company's we do not accept or assume responsibility to anyone other than the circumstances, consistently applied and adequately disclosed. Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide Respective responsibilities of Directors and Auditors us with sufficient evidence to give reasonable assurance that the The Directors' responsibilities for preparing the Annual Report and financial statements and the part of the Directors' remuneration report the Group financial statements in accordance with applicable law and to be audited are free from material misstatement, whether caused by International Financial Reporting Standards (IFRSs) as adopted by fraud or other irregularity or error. In forming our opinion we also the EU, and for preparing the parent Company financial statements and evaluated the overall adequacy of the presentation of information in the the Directors' remuneration report in accordance with applicable law financial statements and the part of the Directors' remuneration report and UK Accounting Standards (UK Generally Accepted Accounting to be audited. Practice `UK GAAP') are set out in the Statement of Directors' responsibilities on page 36. Opinion In our opinion: Our responsibility is to audit the financial statements and the part of the Directors' remuneration report to be audited in accordance with the Group financial statements give a true and fair view, in relevant legal and regulatory requirements and International Standards accordance with IFRSs as adopted by the EU, of the state of the on Auditing (UK & Ireland). Group's affairs as at 31 March 2008 and of its profit for the year then ended; We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part the Group financial statements have been properly prepared in of the Directors' remuneration report to be audited have been properly accordance with the Companies Act 1985 and Article 4 of the IAS prepared in accordance with the Companies Act 1985 and, as regards Regulation; the Group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the the parent Company financial statements give a true and fair view, Directors' report is consistent with the financial statements. The in accordance with UK Generally Accepted Accounting Practice, information given in the Directors' report includes that specific of the state of the parent Company's affairs as at 31 March 2008; information presented in the Business review which is cross referenced from the Directors' report. the parent Company financial statements and the part of the Directors' remuneration report to be audited have been properly In addition we report to you if, in our opinion, the Company has not kept prepared in accordance with the Companies Act 1985; and proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by the information given in the Directors' report is consistent with the law regarding Directors' remuneration and other transactions is not financial statements. disclosed. KPMG Audit Plc We review whether the Corporate governance statement reflects the Chartered Accountants Company's compliance with the nine provisions of the 2006 Combined Registered Auditor Code specified for our review by the Listing Rules of the Financial 100 Temple Street Services Authority, and we report if it does not. We are not required Bristol to consider whether the Board's statements on internal control cover BS1 6AG all risks and controls, or form an opinion on the effectiveness of the Group's corporate governance procedures or its risk and control 4 June 2008 procedures. 49 Wincanton plc Annual Report 2008 Consolidated income statement for the year ended 31 March 2008 2008 2007 Note m m Revenue 2 2,164.7 1,933.1 Underlying operating profit 52.4 45.5 Amortisation of acquired intangibles 2 (5.5) (3.2) Exceptional restructuring costs and income 3 (4.5) (6.0) Other exceptional income 3 4.9 6.2 Operating profit 3 47.3 42.5 Financing income 5 3.7 3.7 Financing cost 5 (14.5) (13.6) Net financing costs (10.8) (9.9) Share of results of associates 13 0.2 Profit before tax 36.7 32.6 Income tax expense 6 (11.7) (9.6) Profit for the year 25.0 23.0 Attributable to equity shareholders of Wincanton plc 24.5 22.9 minority interests 0.5 0.1 Profit for the year 25.0 23.0 Earnings per share basic 7 21.0p 19.7p diluted 7 20.6p 19.4p Dividends paid in the year to equity shareholders of Wincanton plc (m) 8 16.2 14.9 50 Wincanton plc Annual Report 2008 Consolidated statement of recognised income and expense for the year ended 31 March 2008 2008 2007 Note m m Actuarial gains on defined benefit pension schemes (net of deferred tax) 43.6 9.4 Net foreign exchange gain on investment in foreign subsidiaries net of hedged items 1.0 Tax taken directly to equity 6 0.2 0.7 Net gain recognised directly in equity 44.8 10.1 Profit for the year 25.0 23.0 Total recognised income and expense for the year 23 69.8 33.1 Attributable to equity shareholders of Wincanton plc 69.3 33.0 minority interests 0.5 0.1 Total recognised income and expense for the year 69.8 33.1 51 Wincanton plc Annual Report 2008 Consolidated balance sheet at 31 March 2008 2008 2007 Note m m Non-current assets Goodwill and intangible assets 9 142.7 113.2 Property, plant and equipment 10 231.0 211.4 Investments, including those equity accounted 11 0.8 0.6 Deferred tax assets 15 2.2 11.8 376.7 337.0 Current assets Inventories 16 9.4 8.2 Trade and other receivables 17 402.0 331.1 Cash and cash equivalents 18 67.4 60.9 478.8 400.2 Current liabilities Income tax payable (8.6) (4.4) Borrowings 19 (10.0) (1.6) Trade and other payables 20 (520.2) (444.1) Employee benefits 26 (8.9) (7.7) Provisions 21 (19.2) (20.1) (566.9) (477.9) Net current liabilities (88.1) (77.7) Total assets less current liabilities 288.6 259.3 Non-current liabilities Borrowings 19 (161.9) (125.1) Other payables 20 (1.4) (5.0) Employee benefits 26 (31.8) (99.6) Provisions 21 (39.6) (42.0) Deferred tax liabilities 15 (16.9) (1.3) (251.6) (273.0) Net assets/(liabilities) 37.0 (13.7) Equity Issued share capital 23 12.1 12.0 Share premium 23 11.9 9.6 Merger reserve 23 3.5 3.5 Translation reserve 23 3.7 2.7 Retained earnings 23 5.4 (41.8) Equity/(equity deficit) attributable to shareholders of Wincanton plc 36.6 (14.0) Minority interest 23 0.4 0.3 Total equity/(equity deficit) 37.0 (13.7) These financial statements were approved by the Board of Directors on 4 June 2008 and were signed on its behalf by: G McFaull G D Connell Chief ExecutiveGroup Finance Director 52 Wincanton plc Annual Report 2008 Consolidated statement of cash flows for the year ended 31 March 2008 2008 2007 m m Operating activities Profit before tax 36.7 32.6 Adjustments for depreciation and amortisation 38.6 35.1 interest expense 10.8 9.9 income from associates (0.2) profit on sale of property, plant and equipment (4.7) (9.3) share-based payments fair value charges 2.7 1.6 Operating profit before changes in working capital and provisions 83.9 69.9 Increase in trade and other receivables (30.8) (10.3) Increase in inventories (0.5) (0.4) Increase in trade and other payables 30.2 15.0 Decrease in provisions (7.0) (3.1) Decrease in employee benefits (7.6) (29.6) Income taxes paid (5.3) (1.4) Cash generated from operations (21.0) (29.8) Cash flows from operating activities 62.9 40.1 Investing activities Proceeds from sale of property, plant and equipment 18.1 32.2 Proceeds from sale of unlisted trade investments 0.1 Interest received 2.0 1.7 Acquisitions net of cash acquired and debt repaid on acquisition (32.4) (29.7) Acquisition of property, plant and equipment (42.9) (29.5) Cash flows from investing activities (55.2) (25.2) Financing activities Proceeds from the issue of share capital 2.3 3.1 Disposal of own shares on exercise of options 0.4 1.2 Own shares acquired (7.9) Increase in borrowings 30.1 13.4 Payment of finance lease liabilities (1.1) (1.6) Dividends paid to minority interest in subsidiary undertakings (0.4) (0.1) Equity dividends paid (16.2) (14.9) Interest paid (11.9) (10.9) Cash flows from financing activities (4.7) (9.8) Net increase in cash and cash equivalents 3.0 5.1 Cash and cash equivalents at beginning of year 60.9 56.1 Effect of exchange rate fluctuations on cash held 3.5 (0.3) Cash and cash equivalents at end of year 67.4 60.9 Represented by cash at bank and in hand 40.9 33.5 restricted cash, being deposits held by the Group's captive insurer 26.5 27.4 67.4 60.9 53 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements 1. Accounting policies The Group will apply IFRS 3 (Revised) and IAS 27 (Amendment) to Statement of compliance business combinations from 1 April 2010, subject to EU endorsement. Wincanton plc is a company incorporated in the UK. The Group's consolidated financial statements consolidate those of the Company IFRIC 14, IAS 19 The Limit on a Defined Benefit Asset, Minimum and its subsidiaries (together referred to as the "Group"), plus Funding Requirements and their Interaction. IFRIC 14 provides proportionately consolidate the Group's interest in jointly controlled guidance on assessing the limit in IAS 19 on the amount of surplus that entities and equity account the Group's interest in associates. can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory minimum funding requirement. The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial The Group does not currently believe the adoption of these standards Reporting Standards (IFRS) and International Financial Reporting or interpretations will have a significant effect, with the exception of Interpretations Committee (IFRIC) interpretations, as adopted by the changes to disclosures, on the consolidated results or financial position International Accounting Standards Board (IASB) and by the European of the Group. Union (EU) and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS (Adopted IFRS). The Company has elected to prepare its parent Company financial statements in accordance with UK Accounting Standards; these are The following standards or interpretations issued by the IASB or the presented on pages 82 to 85 and these present information about the IFRIC have been adopted by the EU but only become effective for Company as a separate entity and not about its group. accounting periods commencing after 31 March 2008: Basis of preparation IFRS 8, Operating Segments, is effective for annual periods beginning The Group and parent Company financial statements are presented in on or after 1 January 2009 and the Group plans to apply it from 1 April pounds sterling, rounded to the nearest hundred thousand. They are 2009. The standard requires the presentation of segmental information prepared on the historical cost basis except where assets or liabilities based on internal reports used by the Group's Board in order to are required to be stated at their fair value. allocate resources and make decisions about operating matters. The Group does not believe the adoption of this standard will have a The preparation of Group financial statements under Adopted IFRS significant effect either on the consolidated results or financial position and parent Company financial statements under UK Accounting of the Group or on disclosures. Standards requires management to make judgements, estimates and assumptions that affect the application of policies and the reported The following standards are not yet effective and have not yet been amounts of assets and liabilities, income and expenses. The estimates adopted by the EU and therefore cannot be early adopted by the Group: and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the IAS 1 (Amendment), Presentation of Financial Statements: A Revised circumstances, the results of which form the basis of making the Presentation is effective for annual periods beginning on or after judgements about carrying values of assets and liabilities that are 1 January 2009. The revised standard will impact on the presentation not readily apparent from other sources. Actual results may differ of the Group financial statements requiring that all items of income from these estimates. and expense (including those currently recognised through equity) are presented in either a single statement (a `statement of comprehensive The estimates and assumptions are reviewed on an ongoing basis. income') or in two statements (a separate `income statement' and Revisions to accounting estimates are recognised in the period in `statement of comprehensive income'). In the limited circumstances which the estimate is revised and/or in future periods if applicable. where an accounting policy is retrospectively applied or an item is Judgements made by management in the application of Adopted IFRS reclassified an additional balance sheet (statement of financial that have significant effect on the Group financial statements and position) for the beginning of the earliest comparative period will be estimates with a significant risk of material adjustment in the next year required. The statement of changes in equity, currently presented as are discussed in the relevant notes to these consolidated financial a note will be presented as a separate financial statement. The Group statements. will apply IAS 1 (Amendment) from 1 April 2009, subject to EU endorsement. The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements with the IFRS 2 (Amendment) Share-based payment: Vesting Conditions and exception of first time application of IFRS 7 Financial Instruments: Cancellations, is effective for annual periods beginning on or after disclosures; the consequential amendment to IAS 1 Presentation 1 January 2009 with retrospective application to share plans in issue and Financial Statements; IFRIC 10 Interim Financial Reporting at that time. The amendment to the standard clarifies the definition of and Impairment and IFRIC 11 IFRS 2 Group and Treasury Shares vesting conditions and the accounting treatment of cancellations. Transactions. Adoption of these standards and interpretations has The main impact of the amendment for the Group will be in the not had a material effect on the reported results or financial position treatment of employees who cease to save under an SAYE arrangement of the Group for either period. or cease to participate in a share matching arrangement, which will be treated as cancellations and the amount of expense that would Basis of consolidation have been recognised over the remainder of the vesting period is The consolidated Group financial statements include the financial recognised immediately as an expense. The Group will apply IFRS 2 statements of the Company and its subsidiary undertakings made up (Amendment) from 1 April 2009, subject to EU endorsement. to the balance sheet date. When the Company acquired the Wincanton group of companies upon demerger from the former parent in May IFRS 3 Business Combinations (Revised) and IAS 27 (Amendment) 2001, the changes in group structure were accounted for using the Consolidated and Separate Financial Statements, are effective for principles of merger accounting available under UK GAAP at the time. annual periods beginning on or after 1 July 2009. The changes Businesses acquired or disposed of since then have been accounted introduced by the standards include the expensing of acquisition for using acquisition accounting principles from or up to the date related costs, a greater emphasis on fair value and the requirement control passed. to remeasure interests at the time when control is achieved or lost. 54 Wincanton plc Annual Report 2008 Subsidiaries are those entities controlled by the Group. Control exists Amortisation is charged to the income statement on a straight-line when the Group has the power, directly or indirectly, to govern the basis over the estimated useful lives of acquired intangible assets from financial and operating policies of an entity so as to obtain benefits the date they are acquired. The estimated useful lives are as follows: from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The Customer relationships 7 to 15 years financial statements of subsidiaries are included in the consolidated Software rights 1 to 5 years financial statements from or up to the date that control passed. Trademarks and logos 1 to 5 years Associates are those entities in which the Group has significant influence, but not control. The consolidated financial statements The cost of computer software purchased or developed in-house include the Group's share of the total recognised gains and losses of which has the capacity to generate economic benefits for a period in associates on an equity accounted basis, from or up to the date that excess of one year is capitalised as an intangible asset. Amortisation is significant influence passes. When the Group's share of losses charged to the income statement on a straight-line basis over the exceeds its interest in an associate, the Group's carrying amount is following estimated useful lives: reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive Computer software costs 3 to 5 years obligations or made payments on behalf of an associate. Property, plant and equipment Jointly controlled entities are those entities over whose activities the Items of property, plant and equipment are stated at cost or deemed Group has joint control, established by contractual agreement. The cost less accumulated depreciation (see below) and impairment losses consolidated financial statements include the Group's proportionate (see below). The cost of tangible assets includes directly attributable share of the assets, liabilities, revenue and expenses which are costs, including appropriate commissioning costs. The cost of financing included with items of a similar nature on a line-by-line basis, from the construction of major properties is included in their capitalised cost. or up to the date that joint control passes. The interest rate applied represents the actual finance costs incurred on the funds borrowed specifically to construct the asset. Intra-group balances, and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in Plant and equipment acquired by way of finance lease is stated at preparing the consolidated financial statements. Unrealised gains deemed cost, being an amount equal to the lower of its fair value and arising from transactions with associates and jointly controlled entities the present value of the minimum lease payments at inception of the are eliminated to the extent of the Group's interest in the entity. lease, less accumulated depreciation (see below) and impairment Unrealised losses are eliminated in the same way as unrealised gains, losses (see below). Lease payments are accounted for as described but only to the extent that there is no evidence of impairment. in the accounting policy on expenses. Finance leases are those under the terms of which the Group assumes substantially all the risks and Intangible assets rewards of ownership. Goodwill All business combinations are accounted for by applying the purchase Subsequent expenditure method. Goodwill represents amounts arising on acquisition of The Group recognises in the carrying amount of an item of property, subsidiaries, associates and jointly controlled entities. plant and equipment the costs incurred in replacing part of such an item if it is probable that the future economic benefits will flow to the In accordance with IFRS 3 `Business Combinations', the fair value Group and when the cost can be measured reliably. All other such adjustments relating to acquisitions in the prior year are, if applicable, costs, including the derecognition of the replaced part of the item, reviewed and revised and these adjustments are reflected at the date are expensed in the income statement as incurred. of acquisition and the prior year balance sheet restated accordingly. Details of such adjustments are given in the Acquisitions note to the Depreciation consolidated financial statements. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each part of an item of property, In respect of acquisitions prior to transition to Adopted IFRS, goodwill is plant and equipment. Freehold land is not depreciated. The estimated included on the basis of its deemed cost, which represents the amount useful lives are as follows: recorded under UK GAAP. Wincanton elected on transition to Adopted IFRS to apply the exemption under IFRS 1 that the classification and Freehold and long leasehold buildings 50 years accounting treatment of business combinations that occurred prior to Short leasehold improvements life of lease 1 April 2004 was not reconsidered in preparing the opening IFRS Plant and equipment, furniture and fittings 5 to 25 years balance sheet at 1 April 2004. Office machinery and computers 3 to 5 years Goodwill is stated at cost less any impairment losses (see below). Motor vehicles 5 to 10 years Goodwill is allocated to cash-generating units and under Adopted IFRS is not amortised but is tested annually for impairment (see below). The range of useful economic lives given reflects the fact that assets In respect of associates, the carrying amount of goodwill is included in held for specific contracts are depreciated over the lives of those the carrying amount of the investment in the associate. contracts. Other intangible assets The residual value of tangible assets, if significant, is reassessed Intangible assets arising under a business combination (acquired annually. intangible assets) are capitalised at fair value as determined at the date of acquisition and are stated at that fair value less accumulated amortisation (see below) and impairment losses (see below). 55 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued Inventories on AA credit rate bonds that have maturity dates approximating the Inventories are stated at the lower of cost and net realisable value. terms of the Group's obligations. The calculation is performed by a Cost is based on the first-in first-out principle and includes expenditure qualified actuary using the projected unit method. incurred in acquiring the inventories and bringing them to their existing location and condition. Net realisable value is the estimated selling When the benefits of a scheme are improved, the portion of the price in the ordinary course of business, less selling expenses. increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the Trade and other receivables average period until the benefits become vested. To the extent that the Trade and other receivables are stated at their fair value on initial benefits vest immediately the expense is recognised immediately in the recognition (discounted if material) and subsequently at amortised income statement. cost, i.e. less any impairment losses (see below). All actuarial gains and losses as at 1 April 2004, the date of transition Cash and cash equivalents to Adopted IFRS, have been recognised in equity under the provisions Cash and cash equivalents comprises cash balances, restricted cash of IAS 19 `Employee Benefits' (Revised). Any actuarial gains and and call deposits. Bank overdrafts that are repayable on demand and losses that arise subsequent to 1 April 2004 in calculating the Group's form an integral part of the Group's cash management process are obligation in respect of a scheme are recognised in full through equity included as a component of cash and cash equivalents for the purpose in the statement of recognised income and expense. of the statement of cash flows. Where the calculation results in a benefit to the Group, the recognised Trade and other payables asset is limited to the present value of any future refunds from the Trade and other payables are stated at fair value at initial recognition scheme or reductions in future contributions to the scheme. and subsequently at amortised cost. Share-based payment transactions Foreign currency From 1 April 2004 the Group has applied the requirements of IFRS 2 Transactions in foreign currencies are translated at the foreign `Share-based Payments' to the grants of options made under the exchange rate ruling at the date of the transaction. Monetary assets Executive, Performance Share Plan, Share Match Incentive and and liabilities denominated in foreign currencies at the balance sheet Sharesave Option schemes. In accordance with the transition date are translated to sterling at the foreign exchange rate ruling at that provisions, IFRS 2 has been applied to all grants after 7 November date. Foreign exchange differences arising on such translation are 2002 that had not vested as at 1 January 2005. recognised in the income statement. The Group issues options under equity-settled share-based incentive The assets and liabilities of foreign operations, including goodwill and schemes to certain employees which are measured at the date of grant fair value adjustments arising on consolidation, are translated to sterling as the fair value of the employee services required in exchange for the at the foreign exchange rates ruling at the balance sheet date. The grant. The fair value determined is expensed on a straight-line basis revenues and expenses of foreign operations are translated to sterling over the vesting period, based on the Group's estimate of shares that at rates approximating the foreign exchange rates ruling at the dates of will eventually vest and adjusted for the effect of non-market based the transactions. Foreign exchange differences arising on translation vesting conditions. are recognised directly in a separate component of equity. Fair value is measured by an external valuer using the Binominal or The Group has taken advantage of the exemption available in IFRS 1 scenario-modelling methods as appropriate. The expected life used in to deem the cumulative translation differences for all investments in the model has been adjusted, based on management's best estimate, foreign operations to be zero at 1 April 2004, the date of transition to for the effects of non-transferability, exercise restrictions, and Adopted IFRS. Exchange differences arising after 1 April 2004 from behavioural considerations. the translation of the net investment in foreign operations, and of related hedges are taken to a translation reserve. They are released A number of shares in the Company are held in trust on behalf of into the income statement upon disposal. employees who hold options under the Group's equity-settled share- based incentive schemes. Such shares are held by an employee Employee benefits benefit trust and are treated as treasury shares and shown in the The Group operates defined contribution and defined benefit pension balance sheet as a deduction from equity. schemes. The assets of these schemes are held separately from those of the Group. The Group's investment strategy is to maximise Other share schemes investment returns with a key area for management attention being Shares awarded on a matching basis to employees participating in meeting the Group's funded defined benefit obligations. In accordance the Company's Share Incentive Plan are purchased at the prevailing with this strategy certain investments are designated at fair value and market rate and charged to the income statement each period as the are accounted for as set out below. employee makes an eligible contribution. The shares purchased are held in a separately administered offshore trust for the benefit of the Defined contribution schemes Plan participants. Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred. Provisions A provision is recognised in the balance sheet when the Group has a Defined benefit schemes present legal or constructive obligation as a result of a past event, and The Group's net obligation in respect of defined benefit pension it is probable that an outflow of economic benefits will be required to schemes is calculated separately for each plan by estimating the settle the obligation. If the effect is material, provisions are determined amount of future benefit that employees have earned in return for their by discounting the expected future cash flows. service in the current and prior periods; that benefit is discounted to determine the present value, and the fair value of any scheme assets is deducted. The discount rate is the yield at the balance sheet date 56 Wincanton plc Annual Report 2008 The Group provides for insurance claims on an appropriate discounted and purchase of these goods are excluded from revenue and cost basis depending on the expected timing of their settlement. Provision is of sales. Trade and other receivables and payables relating to such made for the estimated costs of claims arising from past events based transactions are included in the balance sheet. on the advice of the Group's external insurance advisors. Expenses Impairment Lease payments The carrying amounts of the Group's assets, other than inventories Payments made under operating leases are recognised in the income and deferred tax assets, are reviewed at each balance sheet date statement on a straight-line basis over the term of the lease. Lease to determine whether there is any indication of impairment. An asset incentives received are recognised in the income statement as an is considered for impairment testing if objective evidence indicates integral part of the total lease expense. that one or more events have had a negative effect on the estimated future cash flows of the asset. If any such indication exists, the asset's For finance leases the minimum lease payments are apportioned recoverable amount is estimated. The two exceptions are dealt with between the finance charge and the reduction of the outstanding as per the separate applicable accounting policy. For trade receivables liability. The finance charge is allocated to each period during the specific bad debts are provided against unless the Group is satisfied lease term so as to produce a constant periodic rate of interest on the that no recovery of the amount owing is possible; at that point the remaining balance of the liability. amount considered irrecoverable is written off. Net financing costs An impairment loss is recognised whenever the carrying amount of Net financing costs comprise interest payable and other charges less an asset or cash-generating unit exceeds its recoverable amount. interest income. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units Interest payable on borrowings is calculated using the effective interest are allocated first to reduce the amount of goodwill allocated to the rate method. Other charges include bank charges and commission applicable cash-generating unit and then to reduce the carrying costs, discounts unwound, and losses on hedging instruments that are amount of the other assets in the unit on a pro-rata basis. A cash- recognised in the income statement (see hedging accounting policy generating unit is the smallest identifiable group of assets that below). generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Interest income includes interest receivable on funds invested and gains on hedging instruments, and these are recognised in the income Calculation of recoverable amount statement as they accrue. The recoverable amount of the Group's receivables carried at amortised cost is calculated as the present value of expected future The interest expense component of finance lease payments is cash flows, discounted at the original effective interest rate inherent recognised in the income statement using the constant periodic rate in the asset. Receivables with a short duration are not discounted. of return method. The recoverable amount of other assets is the greater of their fair value Net financing costs include the expected return on defined benefit less costs to sell and value-in-use. In assessing value-in-use, the pension scheme assets less the interest on defined benefit pension estimated future cash flows are discounted to their present value. For scheme obligations. an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which Taxation the asset belongs. Tax on profits or losses for the year comprises current and deferred tax and is recognised in the income statement except to the extent that Reversals of impairment it relates to items recognised directly in equity, in which case it is An impairment loss in respect of goodwill is not reversed. An recognised in equity. impairment loss in respect of a receivable carried at amortised cost is reversed only to the extent that the carrying amount does not exceed Current tax is the expected tax payable on the taxable income for the carrying amount that would have been determined if no impairment the year, using tax rates enacted or substantively enacted at the loss had been recognised and if the reversal can be related objectively balance sheet date, and any adjustment to tax payable in respect to an event occurring after the impairment was recognised. of previous years. In respect of other assets, an impairment loss is reversed if there has Deferred tax is provided using the balance sheet liability method, been a change in the estimates used to determine the recoverable providing for temporary differences between the carrying amounts of amount. assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are Revenue recognition not provided for: the initial recognition of goodwill, the initial recognition Revenue from services rendered is recognised in the income statement of assets or liabilities that affect neither accounting nor taxable profit, on the delivery of those services based on the proportion of the total and differences relating to accumulated profits of overseas subsidiaries delivered at the balance sheet date. Revenue from the sale of goods to the extent that they will probably not be distributed. The amount of is recognised in the income statement when the significant risks and deferred tax provided is based on the expected manner of realisation rewards of ownership have been transferred to the buyer. or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Certain distribution contracts oblige Wincanton to purchase goods from third parties and sell them on to the customer at cost. As A deferred tax asset is recognised only to the extent that it is probable Wincanton is rewarded for the physical distribution service provided that future taxable profits will be available against which the asset can acting only as an agent in these buy/sell transactions, and as the sale be utilised. Deferred tax assets are reduced to the extent that it is no and purchase of the goods have no impact on the operating profit, the longer probable that the related tax benefit will be realised. amounts invoiced to customers and charged by suppliers for the sale 57 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued Segment reporting Hedge of net investment in foreign operations Segment information is presented in respect of the Group's Where a foreign currency liability hedges a net investment in a foreign geographical segments, being the primary segmentation format based operation, foreign exchange differences arising on translation of the on the Group's management and internal reporting structure. As the liability are recognised directly in equity. Any ineffective position is secondary segment is the business of providing contract logistics recognised immediately in the income statement. services which encompasses the entire scope of Wincanton's operations, no further segmental analysis is required. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. The geographical segments are those distinguishable components of the Group that are engaged in providing services within a particular Hedge of monetary assets and liabilities economic environment which is subject to risks and rewards that are Where a derivative financial instrument is used to economically hedge different from those of other segments. the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the Derivative financial instruments and hedge accounting hedging instrument is recognised in the income statement. The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, Interest-bearing borrowings financing and investment activities. In accordance with its treasury Interest-bearing borrowings are recognised initially at fair value, less policy, the Group does not hold or issue derivative financial instruments attributable transaction costs. Subsequent to initial recognition, for trading purposes. However, derivatives that do not qualify for hedge interest-bearing borrowings are stated at amortised cost with any accounting are accounted for as trading instruments. difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective Derivative financial instruments which are accounted for as trading interest basis. Interest bearing borrowings which are designated instruments are recognised initially and subsequently stated at fair hedged items in a fair value hedge arrangement are carried at fair value. The gain or loss on remeasurement to fair value is recognised value (see policy above). immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss Dividends depends on the nature of the item being hedged (see below). Dividends are recognised in the period in which they are declared, approved, or paid. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price. Upon initial recognition attributable transaction costs are recognised in the income statement when incurred. Fair value hedges Where a derivative financial instrument is designated as a hedge of the variability in fair value of a recognised asset or liability or an unrecognised firm commitment, all changes in the fair value of the derivative are recognised immediately in the income statement. The carrying value of the hedged item is adjusted by the change in fair value that is attributable to the risk being hedged (even if it is normally carried at cost or amortised cost) and any gains or losses on remeasurement are also recognised immediately in the income statement (even if those gains would normally be recognised directly in reserves). 58 Wincanton plc Annual Report 2008 2Segment information Segment information is presented in respect of the Group's geographical segments, being the primary segmentation format based on the Group's management and internal reporting structure. As the secondary segment is the business of providing contract logistics services which encompasses the entire scope of Wincanton's operations, no further segmental analysis is required. The Group operates in two principal geographical areas, the UK & Ireland, and Mainland Europe. In presenting information on the basis of geographical segments, segment revenue and assets are based on the geographical location of the business operations. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Geographical segments UK & Ireland Mainland Europe Consolidated 2008 2007 2008 2007 2008 2007 Note m m m m m m Revenue1 1,388.7 1,214.5 776.0 718.6 2,164.7 1,933.1 Underlying operating profit by segment 47.2 42.0 5.2 3.5 52.4 45.5 Amortisation of acquired intangibles (4.0) (1.7) (1.5) (1.5) (5.5) (3.2) Exceptional restructuring costs and income 2.7 (2.0) (7.2) (4.0) (4.5) (6.0) Other exceptional income 0.8 5.8 4.1 0.4 4.9 6.2 Operating profit 46.7 44.1 0.6 (1.6) 47.3 42.5 Total assets 512.8 457.4 342.7 279.8 855.5 737.2 Total liabilities (577.6) (574.1) (240.9) (176.8) (818.5) (750.9) Depreciation charges (23.2) (21.5) (8.5) (8.4) (31.7) (29.9) Amortisation of software intangibles (0.7) (1.1) (0.7) (0.9) (1.4) (2.0) Capital expenditure property, plant and equipment 10 33.1 20.3 7.8 8.3 40.9 28.6 software intangibles 9 1.5 0.1 0.8 0.8 2.3 0.9 1 Revenue derived from sales to external parties only. In addition to the above external revenue, there were intra-segment sales of 1.7m from UK & Ireland to Mainland Europe (2007: 1.6m) and 2.0m from Mainland Europe to UK & Ireland (2007: 1.4m). All such sales are priced on an arm's-length basis. The investments in and profits of associated undertakings are all included in the Mainland Europe segment. 3Operating profit The Group's results are analysed as follows: 2008 2007 Amortisation Amortisation of acquired of acquired intangibles intangibles Underlying1 and exceptionals Total Underlying1 and exceptionals Total m m m m m m Revenue 2,164.7 2,164.7 1,933.1 1,933.1 Cost of sales (2,074.6) (3.3) (2,077.9) (1,850.2) (3.9) (1,854.1) Gross profit 90.1 (3.3) 86.8 82.9 (3.9) 79.0 Administrative expenses (37.7) (1.8) (39.5) (37.4) 0.9 (36.5) Operating profit 52.4 (5.1) 47.3 45.5 (3.0) 42.5 1 Underlying operating profit is stated before amortisation of acquired intangibles and any goodwill impairment and exceptionals. 59 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued 2008 2007 m m Operating profit before net financing costs is stated after charging: Auditors' remuneration Audit fees for statutory audit services parent company and consolidation 0.1 0.1 subsidiary undertakings 0.6 0.6 Non-audit fees fees paid to the Auditors and their associates for tax advisory services 0.2 0.3 fees paid to the Auditors and their associates for assurance services 0.1 0.1 fees paid to the Auditors and their associates for other services 0.2 0.1 Depreciation and other impairment amounts written off property, plant and equipment owned 30.9 29.4 leased 0.8 0.5 Amortisation and other amounts written off software intangibles 1.4 2.0 Operating lease rentals plant and equipment 51.2 43.3 land and buildings 63.4 62.2 Exceptionals 2008 2007 m m Exceptional restructuring costs and income Reorganisation of operating structures post-acquisition (1.0) (4.0) Relocation of UK head office and business rationalisation1 3.7 0.2 Closure and reorganisation of operations in France and Germany (2007: Spain and Germany) (7.2) (2.2) (4.5) (6.0) Other exceptional income Property profits sale of freehold land and buildings 0.8 6.2 Partial settlement of the PGN Logistics Ltd arbitration case 4.1 4.9 6.2 1 Includes the profits on sale of the redundant UK head office sites. Costs and incomes are included as exceptionals where they are non-recurring and where not to do so would distort the reported underlying profit performance of the Group. 4 Personnel expenses, including Directors 2008 2007 Note m m Wages and salaries 644.5 596.6 Share-based payments (including IFRS 2 fair value charges) 3.4 2.3 Social security contributions 79.8 73.6 Contributions to defined contribution pension schemes 26 4.7 6.0 Service costs of defined benefit pension schemes 26 21.4 17.2 753.8 695.7 2008 2007 Average number of persons employed by the Group (including Directors) during the year 28,200 27,270 Directors' emoluments 2008 2007 '000 '000 Salaries 1,062 988 Bonuses 756 644 Other benefits 59 64 Non-executive Directors' fees 295 291 Total emoluments 2,172 1,987 Full details of each individual Director's emoluments, share options and pension entitlements are given in the Directors' remuneration report on pages 40 to 48. 60 Wincanton plc Annual Report 2008 5Net financing costs Recognised in the income statement 2008 2007 Note m m Interest income 2.5 1.7 Expected return on defined benefit pension scheme assets 35.5 32.0 Interest on defined benefit pension scheme obligations (34.3) (30.0) 3.7 3.7 Interest expense (12.2) (11.0) Finance charges payable in respect of finance leases (0.6) (0.5) Unwinding of discount on insurance and other provisions 21 (1.7) (2.1) (14.5) (13.6) Net financing costs (10.8) (9.9) The interest income relates primarily to the deposits held by the Group's captive insurer. The expected return on assets and the interest on obligations in respect of the defined benefit pension scheme have been combined in the current year and the prior year restated accordingly. Recognised in equity 2008 2007 m m Foreign currency translation differences for foreign operations 1.0 1.0 Recognised in: Translation reserve 1.0 1.0 6Income tax expense 2008 2007 m m Recognised in the income statement Current tax expense Current year 8.7 1.5 Adjustments for prior years 0.7 (1.5) 9.4 Deferred tax expense Current year 3.7 8.8 Adjustments for prior years (1.4) 0.8 2.3 9.6 Total income tax expense in the income statement 11.7 9.6 Reconciliation of effective tax rate Profit before tax 36.7 32.6 Income tax using the UK corporation tax rate of 30% (2007: 30%) 11.0 9.8 Effect of tax rates in foreign jurisdictions (0.3) Trading losses not recognised 2.5 1.9 Non-deductible expenditure 1.5 0.7 Capital profits offset by capital losses (1.3) (2.1) Adjustments for prior years current tax 0.7 (1.5) deferred tax (1.4) 0.8 Change in UK tax rate (1.0) Total tax charge for the year 11.7 9.6 Recognised in equity Tax taken directly to equity 0.2 0.7 61 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued 7Earnings per share Earnings per share are calculated on the basis of earnings attributable to the equity shareholders of Wincanton plc of 24.5m (2007: 22.9m) and the weighted average of 116.9m (2007: 116.1m) shares which have been in issue throughout the year. The diluted earnings per share are calculated on the basis of an additional 2.1m (2007: 1.8m) shares deemed to be issued at nil consideration under the Company's share option schemes. The weighted average number of ordinary shares for both basic and diluted earnings per share are calculated as follows: 2008 2007 millions millions Weighted average number of ordinary shares Issued ordinary shares at the beginning of the year 117.2 114.9 Net effect of shares issued and purchased during the year (0.3) 1.2 116.9 116.1 Weighted average number of ordinary shares (diluted) Weighted average number of ordinary shares at the end of the year 116.9 116.1 Effect of share options on issue 2.1 1.8 119.0 117.9 An alternative earnings per share number is set out below, being before amortisation of acquired intangibles and any goodwill impairment and exceptionals plus related tax, since the Directors consider that this provides further information on the underlying performance of the Group: 2008 2007 pence pence Underlying earnings per share basic 24.3 21.0 diluted 23.9 20.7 Underlying earnings are determined as follows: 2008 2007 m m Profit for the year attributable to equity shareholders of Wincanton plc 24.5 22.9 Exceptional restructuring costs and income 4.5 6.0 Other exceptional income (4.9) (6.2) Amortisation of acquired intangibles 5.5 3.2 Tax on the above items (1.2) (1.5) Underlying earnings 28.4 24.4 8 Dividends Under Adopted IFRS dividends are only provided in the financial statements when they become a liability of the Company. The dividends per ordinary share paid in the year are the interim for the current year, paid on 8 January 2008 and the final for the year ended 31 March 2007, paid on 10 August 2007. These are detailed in the following table: 2008 2007 m m Interim dividend of 4.60p (2007: 4.26p) paid in 2008 and 2007 respectively 5.3 5.0 Final dividend of 9.29p for 2007 (2006: 8.60p) paid in 2008 and 2007 respectively 10.9 9.9 Total dividend paid in the year 16.2 14.9 The final dividend proposed for the year ended 31 March 2008 is 10.31p, which if approved will be paid on 8 August 2008 to shareholders on the register on 11 July 2008, total 12.0m. 62 Wincanton plc Annual Report 2008 9 Goodwill and intangible assets Acquired Computer Goodwill intangibles software costs Total m m m m Cost At 1 April 2006 57.9 12.8 30.6 101.3 Effect of movements in foreign exchange (0.6) (0.3) (0.2) (1.1) Additions 18.9 28.2 0.9 48.0 Disposals (1.7) (1.7) At 31 March 2007 76.2 40.7 29.6 146.5 At 1 April 2007 76.2 40.7 29.6 146.5 Effect of movements in foreign exchange 5.7 2.3 1.3 9.3 Additions 2.3 2.3 Acquisition and fair value adjustments 15.9 11.6 0.1 27.6 Disposals (9.4) (9.4) At 31 March 2008 97.8 54.6 23.9 176.3 Amortisation and impairment losses At 1 April 2006 (2.5) (1.1) (26.0) (29.6) Effect of movements in foreign exchange 0.1 0.1 0.2 Charge for year (3.2) (2.0) (5.2) Disposals 1.3 1.3 At 31 March 2007 (2.5) (4.2) (26.6) (33.3) At 1 April 2007 (2.5) (4.2) (26.6) (33.3) Effect of movements in foreign exchange (0.1) (0.8) (1.3) (2.2) Charge for year (5.5) (1.4) (6.9) Disposals 8.8 8.8 At 31 March 2008 (2.6) (10.5) (20.5) (33.6) Carrying value At 1 April 2006 55.4 11.7 4.6 71.7 At 31 March 2007 and 1 April 2007 73.7 36.5 3.0 113.2 At 31 March 2008 95.2 44.1 3.4 142.7 The amortisation charges above of 6.9m (2007: 5.2m) are recognised in the income statement within cost of sales 0.3m (2007: 0.6m) and administrative expenses 1.1m (2007: 1.4m) in respect of the computer software costs and as a separate line in respect of acquired intangibles. The acquired intangibles are primarily customer relationships of net book value 43.8m (2007: 35.2m). Impairment tests for goodwill Goodwill is allocated to the Group's cash-generating units (CGU's) which are identified according to geographical segment as follows: 2008 2007 m m UK & Ireland 55.9 41.0 Mainland Europe 39.3 32.7 95.2 73.7 The UK & Ireland goodwill balance in the above table includes the goodwill arising in respect of the two UK acquisitions made in the year of Hanbury Davies and Swales (see note 22). The goodwill in respect of the former currently remains capable of separate testing for impairment, however in the future it will be fully integrated into the existing Wincanton business and separate identification of future results and cash flows will not be practicable. The Swales acquisition has been fully integrated with the prior year acquisition of RDL and the results and cash flows of the resulting combined construction business have been utilised in testing for impairment. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations are cash flow projections based on the financial budgets and forecasts approved by the Board for the forthcoming financial year and beyond. Cash flows beyond those 12 and further 48-month periods are extrapolated over a further 19 or 16 years respectively using the estimated growth rates and underlying inflation rates stated overleaf, which do not exceed the long-term average growth and inflation rates in the specific geographical areas where the CGU operates. A 20-year cash flow projection period is viewed as appropriate when considering the value-in-use of goodwill. 63 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued Key assumptions used for value-in-use calculations: UK & Ireland Construction Hanbury Davies France Mainland Europe % % % % % Estimated growth rate 2.5 2.5 2.5 2.2 2.0 Underlying inflation rate 2.4 2.4 2.4 1.8 2.1 Discount rate1 11.2 11.2 11.2 11.2 11.2 Pre-tax discount rate applied to the cash flow projections 1 Management determined the growth rate and underlying inflation rate based on expectations for market development and these are consistent with external forecasts and historical trends. The discount rates are pre-tax and reflect the relevant risks. 10 Property, plant and equipment Plant and Property equipment Total m m m Cost At 1 April 2006 151.9 231.6 383.5 Effect of movements in foreign exchange (1.0) (1.4) (2.4) Additions 4.7 23.9 28.6 Acquisition and fair value adjustments 1.5 2.6 4.1 Disposals (20.1) (22.4) (42.5) At 31 March 2007 137.0 234.3 371.3 At 1 April 2007 137.0 234.3 371.3 Effect of movements in foreign exchange 14.0 13.7 27.7 Additions 2.0 38.9 40.9 Acquisition and fair value adjustments 0.9 7.8 8.7 Disposals (6.9) (49.3) (56.2) At 31 March 2008 147.0 245.4 392.4 Depreciation and impairment losses At 1 April 2006 (29.3) (121.7) (151.0) Effect of movements in foreign exchange 0.2 0.8 1.0 Charge for year (4.7) (25.2) (29.9) Disposals 2.1 17.9 20.0 At 31 March 2007 (31.7) (128.2) (159.9) At 1 April 2007 (31.7) (128.2) (159.9) Effect of movements in foreign exchange (3.4) (9.9) (13.3) Charge for year (4.7) (27.0) (31.7) Disposals 2.9 40.6 43.5 At 31 March 2008 (36.9) (124.5) (161.4) Carrying amount At 1 April 2006 122.6 109.9 232.5 At 31 March 2007 and 1 April 2007 105.3 106.1 211.4 At 31 March 2008 110.1 120.9 231.0 Included in the total carrying amount of property, plant and equipment is 15.6m (2007: 5.0m) in respect of assets held under finance leases, and in cost is 2.7m (2007: 4.4m) in respect of capitalised finance costs. The carrying amount of property comprises: 2008 2007 m m Freehold 69.5 66.7 Short leasehold 40.6 38.6 110.1 105.3 64 Wincanton plc Annual Report 2008 11 Investments 2008 2007 m m Group non-current investments Unlisted trade investments 0.3 0.3 Equity accounted associates 0.5 0.3 0.8 0.6 12 Investments in subsidiaries The significant subsidiaries in the Wincanton group of companies, based on the scale of their activities, are as follows: Principal activity % of equity held Country of incorporation Wincanton Holdings Limited Contract logistics services 100 England and Wales Wincanton Group Limited Contract logistics services 100 England and Wales Wincanton International Limited1 Intermediate holding company 100 England and Wales Wincanton UK Limited1 Intermediate holding company 100 England and Wales Wincanton Ireland Limited Contract logistics services 100 Republic of Ireland Risk Underwriting (Guernsey) Limited Captive insurer 100 Guernsey Wincanton GmbH Contract logistics services 100 Germany Rhenania Intermodal Transport GmbH Contract logistics services 100 Germany Wincanton Mondia S.A. Contract logistics services 100 France Wincanton S.A.S Contract logistics services 100 France Wincanton B.V. Contract logistics services 100 The Netherlands Rhinecontainer B.V. Contract logistics services 74.2 The Netherlands Wincanton Magyarorszg Logisztikai Kft Contract logistics services 100 Hungary Wincanton Polska Sp. z.o.o. Contract logistics services 100 Poland Wincanton Czeska republika s.r.o Contract logistics services 100 Czech Republic ROBA A.G. Contract logistics services 100 Switzerland 1 Direct subsidiaries of Wincanton plc 13 Investments in associates Summary financial information for associates (100%) Year ended 31 March 2008 % of ordinary Assets Liabilities Equity Revenue Result Country equity held m m m m m Rhine-Ro-Ro Service BV The Netherlands 33.3 0.7 (0.3) 0.4 0.9 0.2 OMYA Weil GmbH Germany 26.0 0.9 (0.2) 0.7 Neuss Trimodal GmbH Germany 25.0 1.4 (0.6) 0.8 1.3 0.4 Other Germany 0.4 (0.3) 0.1 0.3 3.4 (1.4) 2.0 2.5 0.6 Group share of results of associates 0.2 Year ended 31 March 2007 % of ordinary Assets Liabilities Equity Revenue Result Country equity held m m m m m Rhine-Ro-Ro Service BV The Netherlands 33.3 0.4 (0.1) 0.3 0.7 0.1 OMYA Weil GmbH Germany 26.0 0.7 (0.2) 0.5 Neuss Trimodal GmbH Germany 25.0 0.7 (0.4) 0.3 1.1 Other Germany 0.3 (0.3) 0.3 2.1 (1.0) 1.1 2.1 0.1 Group share of results of associates 65 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued 14 Interests in jointly controlled entities The Group has the following significant interests in jointly controlled entities: Principal activity % of equity held Country of incorporation PGN Logistics Limited Contract logistics services 50 England and Wales Fenthol & Sandtmann GmbH Contract logistics services 50 Germany Weckerle Spedition & Logistik GmbH Contract logistics services 50 Germany Rhenania Wormser Lagerhaus und Speditions AG Contract logistics services 50 Germany Included in the consolidated financial statements are the following amounts representing the Group's share of the assets, liabilities, income and expenses of these jointly controlled entities: 2008 2007 m m Non-current assets 9.3 15.8 Current assets 16.1 11.9 Current liabilities (13.1) (9.4) Non-current liabilities (5.6) (11.0) Net assets 6.7 7.3 Revenue 80.8 71.6 Operating profit 2.6 2.0 Net financing costs (0.2) (0.2) Income tax expense (0.8) (0.7) Profit for the year 1.6 1.1 In addition to the above profit for the year the consolidated financial statements include other exceptional income of 4.1m (2007: nil) being the partial settlement of the PGN Logistics Limited arbitration case (see note 3). 15 Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 2008 2007 2008 2007 2008 2007 m m m m m m Property, plant and equipment (5.6) (7.1) (0.3) (7.1) (5.9) Employee benefits 1.7 1.1 1.1 1.7 Pension provisions 0.1 23.4 1.9 2.0 23.4 Other deferred tax assets 2.1 4.1 0.4 2.5 4.1 Other deferred tax liabilities (11.8) (13.2) (1.0) (13.2) (12.8) 2.2 11.8 (16.9) (1.3) (14.7) 10.5 Unrecognised deferred tax assets and liabilities Deferred tax assets and liabilities have not been recognised in respect of the following items: 2008 2007 m m Losses carried forward 27.8 23.1 Capital losses 1.1 1.7 28.9 24.8 Deferred tax assets have not been recognised in respect of the above losses carried forward due to the uncertainty of utilisation of these losses. 66 Wincanton plc Annual Report 2008 Movement in deferred tax assets and liabilities during the current year Balance Recognised Other Balance 1 April 2007 in income movements 31 March 2008 m m m m Property, plant and equipment (5.9) (0.1) (1.1) (7.1) Employee benefits 1.7 (0.1) (0.5) 1.1 Pension provisions 23.4 (3.0) (18.4) 2.0 Other deferred tax assets 4.1 0.1 (1.7) 2.5 Other deferred tax liabilities (12.8) 0.8 (1.2) (13.2) 10.5 (2.3) (22.9) 14.7 The UK tax changes proposed in the Chancellor's Budget on 21 March 2007 would, based on 31 March 2008 balances, increase the deferred tax liability in the future by approximately 1.6m if the proposed withdrawal of Industrial Buildings Allowances from 1 April 2011 is enacted as announced. 16 Inventories 2008 2007 m m Raw materials and consumables 9.4 8.2 17 Trade and other receivables 2008 2007 m m Trade receivables 302.3 260.3 Less: Provision for doubtful debts (4.8) (5.1) Net trade receivables 297.5 255.2 Other receivables 9.9 8.1 Prepayments and accrued income 94.6 67.8 402.0 331.1 All receivables are due within one year, except for other receivables of 9.9m (2007: 8.1m) in respect of amounts recoverable from customers and others under contracts of more than one year, prepayments and accrued income of 0.1m (2007: 0.1m) and trade receivables of Nil (2007: 8.1m). Movement in the provision for doubtful debts 2008 2007 m m At 1 April 5.1 4.9 Effect of movements in foreign exchange 0.8 (0.1) Impairment losses recognised on receivables 2.5 1.4 Amounts written off as uncollectible (0.4) (0.7) Impairment losses reversed (3.2) (0.4) At 31 March 4.8 5.1 The ageing of trade receivables and the associated provision for impairment as at 31 March 2008 was: Gross Provision Gross Provision 2008 2008 2007 2007 m m m m Current 266.7 (0.4) 226.9 (0.3) 1 month overdue 17.8 14.6 2 months overdue 5.4 3.1 3+ months overdue 12.4 (4.4) 15.7 (4.8) 302.3 (4.8) 260.3 (5.1) The standard period of credit on sales is 30 days in the UK & Ireland, 30-60 days in Mainland Europe. No interest is charged on overdue amounts. The Group only provides for specific bad debts where, in the opinion of management, the amount is no longer recoverable. The amount of the provision is management's estimate of the irrecoverable amount. 67 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued 18 Cash and cash equivalents 2008 2007 m m Cash at bank and in hand 40.9 33.5 Restricted cash deposits held by the Group's captive insurer 26.5 27.4 Cash and cash equivalents 67.4 60.9 19 Borrowings 2008 2007 m m Current Bank loans and overdrafts 8.5 1.0 Finance lease liabilities 1.5 0.6 10.0 1.6 Non-current Bank loans1 149.4 122.0 Finance lease liabilities 12.5 3.1 161.9 125.1 1 Bank loans include the US$ private placement as swapped into euro (see below). The Group's finance lease liabilities are payable as follows: 2008 2007 Minimum lease Minimum lease payments Interest Principal payments Interest Principal m m m m m m Less than 1 year 2.4 (0.9) 1.5 1.2 (0.6) 0.6 Between 1 and 5 years 14.2 (3.9) 10.3 4.2 (2.1) 2.1 Over 5 years 4.9 (2.7) 2.2 4.1 (3.1) 1.0 21.5 (7.5) 14.0 9.5 (5.8) 3.7 The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of netting agreements: 31 March 2008 Carrying Contractual Less than amount cash flows 1 year 1 to 5 years Over 5 years m m m m m Non-derivative financial liabilities Bank loans and overdrafts 59.3 59.3 8.5 50.8 Unsecured bond issues US$ private placement 81.1 81.1 51.4 29.7 Finance leases 14.0 21.5 2.4 14.2 4.9 Trade and other payables1 521.6 521.6 520.2 1.4 Derivative financial liabilities US$/GBP fixed to floating swap asset (81.1) (81.1) (51.4) (29.7) US$/GBP fixed to floating swap liability 14.5 14.5 14.5 GBP/Euro floating swap 84.1 84.1 63.9 20.2 693.5 701.0 531.1 130.3 39.6 31 March 2007 Carrying Contractual Less than amount cash flows 1 year 1 to 5 years Over 5 years m m m m m Non-derivative financial liabilities Bank loans and overdrafts 36.3 36.3 1.0 35.3 Unsecured bond issues US$ private placement 75.9 75.9 75.9 Finance leases 3.7 9.5 1.2 4.2 4.1 Trade and other payables1 449.1 449.1 444.1 5.0 Derivative financial liabilities US$/GBP fixed to floating swap (75.9) (75.9) (75.9) GBP/Euro floating swap 86.7 86.7 86.7 575.8 581.6 446.3 44.5 90.8 1 Excludes derivatives (shown separately). 68 Wincanton plc Annual Report 2008 20 Trade and other payables 2008 2007 m m Current Trade payables 194.2 172.3 Other taxes and social security 46.6 43.5 Other payables 48.4 26.1 Accruals and deferred income 231.0 202.2 520.2 444.1 Non-current Other payables 1.4 5.0 21 Provisions Insurance Other provisions Total Note m m m At 1 April 2007 39.4 22.7 62.1 Effect of movements in foreign exchange 2.0 2.0 Provisions used during the year (8.5) (7.8) (16.3) Unwinding of discount 5 1.2 0.5 1.7 Provisions made during the year 6.2 3.1 9.3 At 31 March 2008 38.3 20.5 58.8 Current 11.8 7.4 19.2 Non-current 26.5 13.1 39.6 38.3 20.5 58.8 The other provisions are held primarily in respect of leasehold property liabilities. They are determined by management as the best estimate of the expected costs of empty and under-utilised properties and are utilised over the relevant lease terms. The Group owns 100% of the share capital of a captive insurer whose functions are to both insure and to reinsure certain of the risks of the Group. The insurance provisions in the above table are held in respect of outstanding insurance claims, the majority of which are expected to be paid within two to six years. The discount unwinding arises on the employers' liability policy which is discounted over a period of seven years at a rate based on the Bank of England base rate. The assets of the captive consist of cash deposits held with various banks, typically on three month fixed interest deposits. 22 Acquisitions Current year acquisitions In November 2007 the Group acquired the entire share capital of Swales Haulage Ltd (Swales) for 4.5m in cash. Swales operates in the UK and provides contract logistics services to the building products and construction sector. In January 2008 the Group acquired the entire share capital of Hanbury Davies Ltd (Hanbury Davies) for 25.0m in cash, of which up to 2.5m is deferred pending `earn out' performance. Hanbury Davies operates in the UK providing container logistics services to customers that include major shipping lines and freight forwarders. In March 2008 the Group acquired HeBo GmbH (HeBo) for 2.9m in cash, of which 0.5m is deferred pending `earn out' performance. HeBo is a specialist provider of logistics services to the high-tech industry in the North Rhine Westfalia region of Germany. In the period since acquisition Swales contributed 0.1m, Hanbury Davies contributed 0.6m and HeBo contributed 25,000 of operating profit. If the acquisitions had occurred on the first date of the year it is estimated that the totals of Group underlying operating profit and revenue would have been approximately 55.5m and 2,222.2m respectively. The acquisitions have given rise to values of goodwill of 2.4m, 12.0m and 1.5m for Swales, Hanbury Davies and HeBo respectively, being the difference between the cash consideration payable and the net assets acquired at fair value. 69 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued The acquired net assets at acquisition are summarised in the combined table below: Acquirees' Fair value Acquisition book value adjustments amounts m m m Intangible assets 0.1 11.6 11.7 Property, plant and equipment 9.0 (0.3) 8.7 Inventories 0.5 0.5 Trade and other receivables 14.8 (0.1) 14.7 Cash and cash equivalents 0.2 0.2 Income tax payable (0.3) (0.2) (0.5) Borrowings (3.7) (3.7) Trade and other payables (11.4) (11.4) Deferred tax liabilities (0.8) (3.5) (4.3) Net identifiable assets and liabilities 8.4 7.5 15.9 Goodwill on acquisition 15.9 Consideration payable including expenses of 0.6m 31.8 Cash acquired and debt repaid on acquisition 3.5 35.3 Less deferred consideration (2.9) Net cash outflow 32.4 The fair value adjustments above are required to align the accounting policies of the acquired businesses with those of the Group. These adjustments can, if necessary, be amended for up to 12 months following acquisition. The total goodwill of 15.9m arising on the acquisitions reflects the strategic importance of broadening Wincanton's business offering in these growing sectors of the UK and German economies, the value of the management and workforce and some of the expected synergies to be gained as the acquired entities are fully integrated into the Group. Prior year acquisitions In October 2006 the Group acquired the entire share capital of RDL Holdings Limited (RDL) and Lane Group plc (Lane) for 29.5m and 0.7m in cash respectively, of which 5.0m of the former was deferred pending `earn out' performance and has been paid in full in the current year. The acquisitions gave rise to values of goodwill of 11.5m and 7.4m for RDL and Lane respectively, being the difference between the cash consideration payable and the net assets acquired at fair value. The acquired net assets at acquisition are summarised in the combined table below: As reported at 31 March 2007 Acquirees' Fair value Acquisition book value adjustments amounts m m m Intangible assets 28.2 28.2 Property, plant and equipment 3.8 0.3 4.1 Deferred tax assets 0.5 0.5 Inventories 0.4 0.4 Trade and other receivables 13.0 13.0 Cash and cash equivalents 2.3 2.3 Income tax payable (0.4) (0.4) Borrowings (6.8) (6.8) Trade and other payables (17.0) (0.5) (17.5) Provisions (0.3) (3.5) (3.8) Deferred tax liabilities (0.1) (8.6) (8.7) Net identifiable assets and liabilities (5.1) 16.4 11.3 Goodwill on acquisition 18.9 Consideration payable including expenses of 1.3m 30.2 Cash acquired and debt repaid on acquisition 4.5 34.7 Less deferred consideration (5.0) Net cash outflow 29.7 70 Wincanton plc Annual Report 2008 23 Capital and reserves Reconciliation of movement in capital and reserves Retained earnings Issued share Share Merger Translation IFRS 2 Own Profit Total equity/ capital premium reserve reserve reserve shares and loss Total Minority(equity deficit) m m m m m m m m m m Balance at 1 April 2006 11.8 6.5 3.5 2.7 1.6 (8.5) (55.6) (38.0) 0.3 (37.7) Total recognised income and expense 33.0 33.0 0.1 33.1 Increase in IFRS 2 reserve 1.6 1.6 1.6 Shares issued 0.2 2.9 3.1 3.1 Own shares disposed of on exercise of options 0.2 1.0 1.2 1.2 Dividends to shareholders (14.9) (14.9) (0.1) (15.0) Balance at 31 March 2007 12.0 9.6 3.5 2.7 3.2 (7.5) (37.5) (14.0) 0.3 (13.7) Balance at 1 April 2007 12.0 9.6 3.5 2.7 3.2 (7.5) (37.5) (14.0) 0.3 (13.7) Total recognised income and expense 1.0 68.3 69.3 0.5 69.8 Increase in IFRS 2 reserve 2.7 2.7 2.7 Shares issued 0.1 2.2 2.3 2.3 Own shares disposed of on exercise of options 0.1 0.7 (0.4) 0.4 0.4 Own shares acquired (7.9) (7.9) (7.9) Dividends paid to shareholders (16.2) (16.2) (0.4) (16.6) Balance at 31 March 2008 12.1 11.9 3.5 3.7 5.9 (14.7) 14.2 36.6 0.4 37.0 During the year the Company issued shares, under both the Executive Share Option Schemes and the Sharesave Scheme, for consideration at the applicable exercise prices shown in note 27. During the year ended 31 March 2002, the Company established a Capital Redemption Reserve of 49,998 on redemption of redeemable preference shares. The aggregate current and deferred tax relating to income and expenses taken directly to or transferred from equity is 18.0m (2007: (2.8)m). Share capital Ordinary shares 2008 2007 million million Allotted, called up and fully paid In issue at 1 April 120.2 118.4 Issued for cash 1.1 1.8 In issue at 31 March 121.3 120.2 The above issued shares differ from those in note 7 as a result of the inclusion in the above total of the shares held by the Group within an Employee Benefit Trust (EBT) (see below), and also the effect of weighting for the purpose of the earnings per share calculations. At 31 March 2008 the authorised share capital comprised 159,999,980 (2007:159,999,980) ordinary shares of 10p each. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets. In respect of the Company's shares that are held by the Group (see below), all rights are suspended until these shares are reissued. Merger reserve The merger reserve arose from the original acquisition of the then Wincanton group of companies by Wincanton plc on the demerger from the previous parent in May 2001, which was accounted for under merger accounting principles. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Company's net investment in foreign subsidiaries. IFRS 2 reserve Since 1 April 2004 the IFRS 2 reserve comprises the charges made to the income statement in respect of share-based payments under the Group's share option schemes. 71 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued Own shares The own shares reserve comprises the cost of the Company's shares held by the Group within an Employee Benefit Trust (EBT) established in Jersey and managed on its behalf by independent trustees. At 31 March 2008 the number of the Company's shares held by the Group had increased to 4,801,973 (2007: 3,080,661) due to the purchase of further shares in the Company less the settlement of options exercised. The EBT has waived the right to receive dividends in respect of these shares. All of the shares in the EBT are held in respect of the Group's various equity compensation schemes (see note 27) and at 31 March 2008 1,834,869 of these were held in respect of vested options. The average cost of the shares held is 306p each and at the year end the market value of the shares held was 16.6m (2007: 11.5m) 24 Capital commitments Capital commitments for the Group at the end of the financial year for which no provision has been made, are as follows: 2008 2007 m m Contracted 15.4 5.0 25 Operating leases Leases as lessee The Group leases warehousing facilities, commercial vehicles and other logistics equipment for use in its operations. Typical lease periods for new warehouse rental contracts are between 5 and 15 years although older rental contracts are for longer periods with intervening break clauses. The average period for vehicles and equipment is 4 years. Wherever possible these commitments are mitigated by the existence of contractual commitments of customers for whom the properties are occupied and/or vehicles and plant are rented. The amounts charged to the income statement in the current and prior year are given in note 3. The total future minimum lease payments under non-cancellable operating leases are detailed in the following tables: 2008 2007 Plant and Plant and equipment equipment m m Leases expiring in: Less than one year 53.2 45.0 Between one and five years 69.8 64.7 More than five years 2.1 5.4 125.1 115.1 2008 2007 Land and Land and buildings buildings m m Leases expiring in: Less than one year 69.6 62.9 Between one and five years 196.5 173.5 More than five years 272.9 282.4 539.0 518.8 Less contractual commitments (95.4) (98.5) Net rental obligation 443.6 420.3 The above net rental obligation includes multi-user warehouses where the occupancy risk of the Group is further spread across a number of customers. 72 Wincanton plc Annual Report 2008 26 Employee benefits The employee benefit liabilities of the Group consist primarily of the post-retirement obligations of the Group's pension arrangements. In addition certain employment contracts of employees in the Group give rise to holiday pay obligations which are deferred at the accounting year end due to the relative timing of the annual holiday year. These two elements are analysed in the table below and the pension arrangements discussed in detail: 2008 2007 m m Holiday pay 7.2 6.2 Pension plans (see below) 33.5 101.1 40.7 107.3 These employee benefits are split as follows: Current 8.9 7.7 Non-current 31.8 99.6 40.7 107.3 Pension schemes Employees of Wincanton participated in both funded and unfunded pension arrangements in the UK, Ireland and in Mainland Europe during the year ended 31 March 2008, details of these are given below. The principal Wincanton Scheme in the UK (the Scheme) is a funded arrangement which has three defined benefit sections, plus a defined contribution section called the Wincanton Retirement Savings Section. The employees of Wincanton Ireland Limited are eligible to participate in a separate funded defined contribution scheme. Assets of these pension arrangements are held in separate Trustee administered funds independent of Wincanton. A small number of senior employees, who were subject to the statutory earnings cap on pensionable earnings prior to 6 April 2006, are entitled to participate in an unfunded unapproved arrangement in addition to accruing benefits from the Scheme. The unfunded unapproved arrangement generally aims to supplement the benefits payable under the Scheme so as to produce (when added to benefits from the Scheme) benefits that would otherwise be payable from the Scheme had they not been subject to the maximum permitted earnings as provided by HMRC before 6 April 2006 and as continued by a deed executed by the Trustees of the Scheme on 23 March 2006. The pension cost in relation to this arrangement plus the defined benefit sections of the Scheme is assessed in accordance with the advice of a qualified actuary using the projected unit method. The latest formal actuarial valuation of the Scheme was carried out as at 31 March 2005 by the Scheme actuary, Hymans Robertson, and as a result, the Group, in consultation with the Trustees and the Scheme actuary, has agreed a series of measures to address both the actuarial past service deficit and the level of future service cost of the Scheme. The measures in respect of the cost of future service accrual were subject to consultation with, and acceptance by, employees in the early part of the year ended 31 March 2007. The Group has made an additional 8m cash contribution during the year (2007: 8m), designed to address the past service deficit of the Scheme. In the year commencing 1 April 2008, the Group contributions are expected to be approximately 29m, including an incremental cash contribution of 8m. The contributions are subject to review following the results of the next formal actuarial valuation, due at 31 March 2008, which is expected to be finalised by 31 March 2009. Contributions are made to a number of smaller pension arrangements for employees elsewhere in Mainland Europe, and Wincanton has assumed liability for certain historic unfunded pension obligations of the German business which closed to future service in the 1980s. The pension charge in respect of this arrangement represents interest on the unfunded obligations. Pension scheme deficit The assets and liabilities of the defined benefit schemes of the Group are calculated in accordance with IAS 19 `Employee Benefits' and are set out in the tables below. The calculations under IAS 19 are based on actuarial assumptions which are the best estimates chosen from a range of possible assumptions about the long-term future which, unless by chance, will not necessarily be borne out in practice. The fair value of the assets, which are not intended to be realised in the short-term, may be subject to significant change before they are realised, and the present value of the liabilities are derived from cash flow projections over long periods and are thus inherently uncertain. 73 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued 2008 2007 m m Present value of unfunded defined benefit obligations (31.2) (29.0) Present value of funded defined benefit obligations (515.3) (598.4) Fair value of Scheme assets 513.0 526.3 Present value of net pension scheme obligations recognised (see above) (33.5) (101.1) The movement in the above net pension scheme obligations in the year was the result of a reduction in liabilities due to an increase in the corporate bond yields. This improvement has been partially offset by the fall in the market value of assets during the year, despite further additional cash contributions being made. Movements in the present value of the defined benefit obligation 2008 2007 Wincanton Unfunded Scheme arrangements Total Total m m m m Opening defined benefit obligation 598.4 29.0 627.4 614.1 Effect of movements in foreign exchange 3.8 3.8 (0.5) Current service cost 20.7 0.7 21.4 17.2 Interest cost 32.9 1.4 34.3 30.0 Actuarial gains (117.3) (2.3) (119.6) (18.6) Employee contributions 0.3 0.3 6.1 Benefits paid (19.7) (1.5) (21.2) (21.1) Transfer in of unfunded arrangements 0.1 0.1 0.2 Closing defined benefit obligation 515.3 31.2 546.5 627.4 In the year ended 31 March 2008 the current service cost includes premiums paid in respect of death in service benefits for UK employees that are not members of the Scheme and also an element of the amounts previously included within employee contributions. Movements in the fair value of Scheme assets 2008 2007 m m Opening fair value of Scheme assets 526.3 467.7 Expected return 35.5 32.0 Actuarial losses (57.9) (5.7) Employer contributions 30.0 47.3 Employee contributions 0.3 6.1 Benefits paid (21.2) (21.1) Closing fair value of Scheme assets 513.0 526.3 Where benefits are paid in respect of unfunded arrangements these costs are met by the employer and are included within employer contributions and benefits paid in the table above. Other pension costs charged in the income statement 2008 2007 m m Current service cost 21.4 17.2 Interest on pension scheme liabilities (34.3) (30.0) Expected return on Scheme assets 35.5 32.0 1.2 2.0 74 Wincanton plc Annual Report 2008 The above expense is recognised in the following lines in the income statement: 2008 2007 m m Cost of sales 17.7 12.0 Administrative costs 3.7 5.2 21.4 17.2 Net financing costs 1.2 2.0 The expected rates of return on the Scheme assets are set at the beginning of the year, as follows: 2008 2007 Expected return Expected return on assets on assets % % Equities 8.00 8.00 Corporate bonds 5.50 5.10 Government bonds 4.50 4.20 Property 6.25 Other 5.25 4.50 Overall expected rate of return 6.68 6.47 The expected rates of return on the Scheme assets are determined by reference to relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the Scheme's investment portfolio, net of investment management expenses. The assets of the Scheme are held in the following proportions as at 31 March 2008; equities 55%, corporate bonds 27%, government bonds 13%, property 3%, and cash 2%. The actual (loss)/return on assets during the year was (22.4)m (2007: 26.3m). Liability for defined benefit obligations The principal actuarial assumptions for the Scheme and for the other unfunded arrangements at the balance sheet date were as follows: 2008 2007 % % Price inflation rate 3.50 3.10 Discount rate 6.95 5.50 Pensionable salaries rate 3.50 3.10 Rate of increase of pensions in payment and deferred pensions for service to 31 March 2006 3.50 3.10 for service from 1 April 2006 2.50 2.50 For the majority of Scheme members, increases in pensionable salaries are now capped at the same level as price inflation. A discount rate of 5.3% (2007: 4.5%) per annum and an average pension increase rate of 2.0% (2007: 1.5%) per annum are the principal actuarial assumptions adopted for the German schemes as at 31 March 2008. The assumptions used for mortality rates for members of these arrangements at the expected retirement age of 65 years are as follows: 2008 2007 years years Male aged 65 today 19.8 19.7 Male aged 45 today 21.0 21.0 Female aged 65 today 22.8 22.7 Female aged 45 today 24.0 23.9 75 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued Sensitivity table The sensitivity of the present value of the Scheme obligations to changes in the key actuarial assumptions are set out in the following table. The illustrations consider the result of only a single assumption changing with the others assumed unchanged, although in reality it is more likely that more than one assumption would change and potentially the results would offset each other. For example, a fall in interest rates will increase the Scheme obligations, but may also trigger an offsetting increase in market value of certain Scheme assets. Change in Impact on assumption liability Price inflation 0.5% 10.0% Discount rate 0.5% 10.0% Mortality rate + 1 year + 2.7% History The net deficit in the schemes for the current and prior periods is as follows: 2008 2007 2006 2005 2004 m m m m m Present value of defined benefit obligations (546.5) (627.4) (614.1) (460.0) (399.9) Fair value of assets in the Scheme 513.0 526.3 467.7 361.6 310.2 Deficit (33.5) (101.1) (146.4) (98.4) (89.7) Analysis of amount recognised in statement of recognised income and expense 2008 2007 2006 2005 2004 m m m m m Actual return less expected return on Scheme assets (57.9) (5.7) 60.5 8.8 35.8 Actuarial gains and losses arising on pension scheme liabilities 119.6 18.6 (125.7) (15.8) 36.4 Actuarial gain/(loss) recognised in statement of total recognised income and expense 61.7 12.9 (65.2) (7.0) 72.2 The cumulative actuarial gains/(losses) reported in the statement of recognised income and expense since the transition to Adopted IFRS on 1 April 2004 are 2.4m (2007: (59.3)m). Defined contribution schemes The total expense relating to the Group's defined contribution schemes in the current year was 4.7m (2007: 6.0m). 27 Equity compensation benefits Wincanton employees participate in Wincanton's Executive Share Option Scheme, Performance Share Plan, Share Match Incentive Schemes and Sharesave Option Scheme. The terms and conditions of the grants to date under these schemes are as follows: Executive Scheme Contractual life Grant date Number of options granted Vesting conditions years June 2001 2,966,959 3 years of service plus average annual growth rate for All 10 September 2001 536,826 underlying EPS of RPI +3% in any 3 consecutive years July 2002 44,318 of the 5 years following the grant (starting with the year December 2002 1,621,000 including the grant) March 2004 250,000 3 years of service plus average annual growth rate for All 10 December 2004 3,136,630 underlying EPS of RPI + 3% in the 3 consecutive years July 2005 45,000 following the grant (starting with the year including the grant) December 2005 3,184,581 December 2006 2,925,065 December 2007 2,457,000 Total 17,167,379 76 Wincanton plc Annual Report 2008 Performance Share Plan Contractual life Grant date Number of options granted Vesting conditions years December 2007 399,734 3 years of service plus (a) 50% will vest subject to the 3 years Company's underlying EPS performance over 3 years (maximum vesting is achieved if annual underlying EPS growth is 15% per annum) and (b) 50% will vest subject to the Company's TSR performance over 3 years relative to the TSR of the FTSE 250 (maximum vesting is achieved if TSR performance is 20% per annum in excess of the TSR of the FTSE 250). Share Match Incentive Schemes Contractual life Grant date Number of options granted Vesting conditions years Original June 2005 55,577 3 years of service plus average annual growth rate for 3 years June 2006 76,702 underlying EPS of RPI +3% in the 3 consecutive years June 2007 21,008 following the grant (starting with the year including the grant) Revised December 2007 2,766,504 3 years of service plus (a) 50% will vest subject to the 3 years Company's underlying EPS performance over 3 years (maximum vesting is achieved if annual compound underlying EPS growth is 15% per annum) and (b) 50% will vest subject to the Company's TSR performance over 3 years relative to the TSR of the FTSE 250 (maximum vesting is achieved if TSR performance is 20% per annum in excess of the TSR of the FTSE 250). Total 2,919,791 The Executive Scheme, Performance Share Plan and Share Match Incentive Schemes are open to Directors and senior managers only. Upon exercise, all options granted under these schemes are equity settled. Sharesave Option Scheme Contractual life Grant date Number of options granted Vesting conditions years Status June 2001 (3 year) 2,282,491 3 years of service 3 Vested June 2001 (5 year) 2,281,135 5 years of service 5 Vested December 2004 1,197,724 3 years of service 3 Vested Total 5,761,350 The Sharesave Option Scheme is open to all UK employees with 12 months' service at the grant date. The Group schemes all provide for a grant price equal to the average quoted market price of the Group shares for a short period immediately prior to the date of grant. The number and weighted average exercise price of all share options extant under the Executive, Performance Share Plan, Share Match Incentive and Sharesave Option schemes are as follows: 2008 2007 Weighted average Weighted average exercise price exercise price Options pence Options pence Outstanding at beginning of period 10,896,685 292 10,792,227 259 Granted during the period 5,644,246 167 3,057,344 332 Lapsed during the period (823,796) 271 (718,614) 196 Exercised during the period (1,708,533) 255 (2,234,272) 257 Outstanding at the end of the period 14,008,602 248 10,896,685 292 Exercisable at the end of the period 2,952,784 245 1,629,748 193 77 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued The weighted average share price at the date of exercise for share options exercised during the period was 370p (2007: 329p). The options outstanding at 31 March 2008 had a range of exercise prices of between nil and 384p and a weighted average remaining contractual life of 7 years. Under Adopted IFRS, the grants of options since 7 November 2002 are accounted for in accordance with IFRS 2 `Share-based payments', which requires the fair value of services received in return for share options granted to be recognised in the income statement over the vesting period. The fair value of these services is measured by reference to the fair value of the share options granted. Executive, Share Match Incentive (Original) and Sharesave Option schemes The awards made under these schemes all have non-market based performance conditions which are taken into account in the fair value calculation using a Binomial pricing model. The contractual life of the options and the expectation of early exercises are incorporated into the model. The other key inputs used in the model for options granted in the current and prior year are as follows: 2008 2007 Weighted average price at grant date 384p 343p Expected volatility 25.0% 26.0% Expected life 5 years 5 years Risk free rate 4.78% 4.92% Expected dividend yield 4.00% 4.00% Expected volatility is based on a 4 year average of the historic share price volatility where possible and where this is not possible (due to the fact that the Company was only demerged in May 2001), historic share price volatility has been calculated over the period since demerger. Performance Share Plan and Share Match Incentive (Revised) Scheme The awards under these schemes are made in two parts based on EPS and TSR performance and a separate fair value is required for each part: (a) The EPS requirement is a non-market based performance condition and as the award is at nil cost the fair value is equivalent to the option value (i.e. the average share price of the Company for the three days prior to the award date). (b) The TSR requirement is a market based performance condition and the fair value is calculated by applying a discount to the option value. The discount is calculated using scenario- modelling and is the expected outcome of meeting the performance criteria. The Group recognised total expenses of 3.4m (2007: 2.3m) in respect of the costs of equity settled and other share-based payment transactions during the year. At the year end liabilities of 0.8m (2007: 0.7m) were included in the balance sheet for these items. 28 Financial instruments Financial risk management and treasury policies The Group, through its activities, is exposed to a range of financial risks. Financial risks are managed through the Group's centralised treasury function which acts within clearly-defined policies approved by the Board. These policies are designed to reduce the financial risks faced by the Group relating to liquidity risk; market risk (being interest rate and currency exchange rate exposure) and credit risk. Transactions of a speculative nature are not permitted and the treasury function does not operate as a profit centre. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group has financed its growth in recent years through retained profit and debt. The Group's policy on funding capacity is to ensure that there is always sufficient long-term funding and short-term facilities in place to meet foreseeable peak borrowing requirements. There were no material changes to the Group's committed facilities during the year. The Group's core facilities are a 210m multi-currency syndicated bank loan which matures in November 2010; and a US$150m private placement which has been swapped into sterling and euros, and matures in 2012 ($95m) and 2015 ($55m). In addition the Group has overdraft and other uncommitted facilities which are used to manage short-term fluctuations in working capital. At 31 March 2008 the Group's syndicated bank loan was 47.8m drawn leaving headroom of 162.2m (2007: 168m) The Group holds interest bearing cash deposits, the majority of which are held in sterling and held within the captive insurer. These deposits have a mix of maturities, none of which are greater than 12 months. The income earned on these deposits is subject to changes in interest rates. See note 19 for further analysis of the contractual maturities of financial liabilities. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. 78 Wincanton plc Annual Report 2008 Interest rate risk The Group maintains a policy of using derivatives to achieve an appropriate balance between fixed, capped, and floating interest profiles, so as to limit the exposure to the cash cost of servicing its debt. The majority of the Group's drawn debt at 31 March 2008 is in floating rates, mainly derived from the US$ private placement. This floating rate exposure has been managed by using interest rate swaps and caps. At the year end, the profile of the Group's net interest rate exposure was: 2008 2007 Total Floating rate Fixed rate Total Floating rate Fixed rate m m m m m m Sterling Bank loans and overdrafts 48.3 48.3 22.6 22.6 Finance leases 13.8 13.8 3.4 3.4 Borrowings 62.1 48.3 13.8 26.0 22.6 3.4 Cash (40.8) (40.8) (30.9) (30.9) Net debt 21.3 7.5 13.8 (4.9) (8.3) 3.4 Interest rate swap (15.0) 15.0 Net debt 21.3 (7.5) 28.8 (4.9) (8.3) 3.4 Of which capped 30.0 30.0 Euro and other currencies Bank loans and overdrafts 109.6 109.6 100.4 100.4 Finance leases 0.2 0.2 0.3 0.3 Borrowings 109.8 109.6 0.2 100.7 100.4 0.3 Cash (26.6) (26.6) (30.0) (30.0) Net debt 83.2 83.0 0.2 70.7 70.4 0.3 Of which capped 79.1 79.1 67.9 67.9 The net fair value of the financial instruments used to manage interest rates is (0.1)m, (2007: nil). Interest rate sensitivity The following table demonstrates the sensitivity to a change in interest rates of 0.5% on the Group's profit before tax, and equity. A variation of 0.5% represents management's view of a reasonably possible change in interest rates. Any impact on equity excludes the possible effect which a change in interest rates may have on the present value of the Group's pension obligations, the effects of which are set out in note 26. Effect on profit Effect before tax on equity m m 2008 Sterling0.5% increase in rates (0.5) (0.5) 0.5% decrease in rates 0.5 0.5 Euro 0.5% increase in rates (0.2) (0.2) 0.5% decrease in rates 0.6 0.6 2007 Sterling0.5% increase in rates (0.2) (0.2) 0.5% decrease in rates 0.2 0.2 Euro 0.5% increase in rates (0.3) (0.3) 0.5% decrease in rates 0.6 0.6 The methods and assumptions used to calculate the possible effect of a change in interest rates are consistent with those used in the prior year. Currency risk and sensitivity As a Pan-European business a proportion of the Group's activities are denominated in currencies other than sterling, principally the euro. However, the transactional exposure of the Group is minimised as the vast majority of transactions are denominated in the relevant functional currency of the operation concerned. In order to protect the sterling value of the balance sheet, the Group generally finances its investment in overseas subsidiaries by borrowing in the applicable currency. Consequently, any change in the value of a currency against sterling with all other variables held constant has no material impact on the net assets of the Group. The only exception is the Group's net investment in Hungary which is financed in sterling; a 5% change in the sterling / Hungarian forint exchange rate would have a 0.5m impact on the Group's net assets. A variation of 5% represents management's view of a reasonably possible change in the sterling/Hungarian forint exchange rate. 79 Wincanton plc Annual Report 2008 Notes to the consolidated financial statements continued Although a proportion of non-sterling funding is obtained by borrowing euro and other currencies directly from the Group's committed facilities, a large element results from swapping the US$150m private placement into sterling, and then from sterling into euros. The underlying US$150m principal and all future cash flows are fully hedged; the fair values of the US$ principal, and the US$ / GBP swap move in line with each other, so there is no resulting adjustment to the Group's income statement. The GBP / euro swap is used as part of the Group's net investment hedge, whereby changes in the value of the Group's net investment in euro are offset by changes in the value of the swap. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers. The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Deposits are only made with pre- approved counterparties. Credit evaluations are performed on all customers requiring credit. The Group does not generally require collateral in respect of financial assets. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet of 455.9m (2007: 400.1m). See note 17 for further analysis of trade receivables and the associated impairment provisions held. Capital risk management The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares. The Group's net debt at the balance sheet date was: 2008 2007 m m Total borrowings 171.9 126.7 Cash and cash equivalents (67.4) (60.9) Net debt 104.5 65.8 Fair values The fair values of the Group's financial assets and liabilities, together with the carrying amounts shown in the balance sheet are given in the following table: 2008 2007 Carrying Carrying amount Fair value amount Fair value m m m m Unlisted trade investments 0.3 0.3 0.3 0.3 Trade receivables 297.5 297.5 255.2 255.2 Other receivables 9.9 9.9 8.1 8.1 Cash and cash equivalents 67.4 67.4 60.9 60.9 Forward exchange contracts Assets 81.1 81.1 75.9 75.9 Liabilities (98.6) (98.6) (86.7) (86.7) Bank loans and overdrafts (59.3) (59.3) (36.3) (36.3) Unsecured bond issues US$ private placement (81.1) (81.1) (75.9) (75.9) Finance lease liabilities (14.0) (14.0) (3.7) (3.7) Trade and other payables (521.6) (521.6) (449.1) (449.1) Unrecognised losses 80 Wincanton plc Annual Report 2008 Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the above table. Derivatives Forward exchange contracts are either marked to market using listed market prices or by discounting the contractual forward price and deducting the current spot rate. For interest rate swaps broker quotes are used. Interest-bearing loans and borrowings and unsecured bond issues Fair value is calculated on discounted expected future principal and interest cash flows at market interest rates. Finance lease liabilities The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogenous lease agreements. 29 Related parties Identity of related parties The Group has a controlling related party relationship with its parent company Wincanton plc. In addition the Group has related party relationships with its subsidiaries and associates, jointly controlled entities (note 14) and with its Executive and non-executive Directors. Transactions with Executive and non-executive Directors The interests of the Executive and non-executive Directors in the share capital of the Company, plus full details of the individual Director's emoluments, share options and pension entitlements are given in the Directors' remuneration report on pages 40 to 48. The total of short-term employee remuneration and benefits receivable by the Directors is set out in note 4. Other related party transactions Associates During the year ended 31 March 2008, associates purchased services from the Group in the amount of 0.4m (2007:0.4m) and sold services to the Group in the amount of 5.6m (2007: 4.9m). At 31 March 2008, the outstanding balance between associates and the Group was 1.2m (2007:0.8m). All transactions with associates are made on commercial terms. Jointly controlled entities During the year ended 31 March 2008, the jointly controlled entities purchased services from the Group in the amount of 10.4m (2007:8.7m) and sold services to the Group in the amount of 8.7m (2007: 8.2m). At 31 March 2008, the outstanding balance between the jointly controlled entities and the Group was 0.5m (2007:0.6m). All transactions with the jointly controlled entities are made on commercial terms. In addition a loan balance existed between the jointly controlled entities and the Group as at 31 March 2008 of Nil (2007:0.5m). All loans are provided on commercial terms. 30 Accounting estimates and judgements Management discusses with the Audit Committee the development, selection and disclosure of the Group's critical accounting policies and estimates and the application of these policies and estimates. The areas where policy selection is most critical for the Group are concerned with the accounting for pensions, determination of provisions, and the testing of goodwill for impairment. Information about the assumptions and risk factors relating to these issues are given in notes 26, 21 and 9 respectively. 81 Wincanton plc Annual Report 2008 Wincanton plc Company financial statements Company balance sheet at 31 March 2008 2007 2008 Restated Note m m Fixed assets Investments 2 111.4 69.3 111.4 69.3 Current assets Debtors 3 97.5 110.9 Cash at bank and in hand 0.3 2.4 97.8 113.3 Creditors: amounts falling due within one year 4 (15.9) (5.0) Net current assets 81.9 108.3 Total assets less current liabilities 193.3 177.6 Creditors: amounts falling due after more than one year 5 (145.3) (121.4) Net assets 48.0 56.2 Capital and reserves Called up share capital 6 12.1 12.0 Share premium account 6 11.9 9.6 Profit and loss account 6 24.0 34.6 Equity shareholders' funds 7 48.0 56.2 The financial statements were approved by the Board of Directors on 4 June 2008 and were signed on its behalf by G McFaull G D Connell Chief ExecutiveGroup Finance Director 82 Wincanton plc Annual Report 2008 Notes to the Wincanton plc Company financial Statements 1 Accounting policies Derivative financial instruments and hedge accounting The following accounting policies have been applied consistently in The Company uses derivative financial instruments to hedge its dealing with items which are considered material in relation to the exposure to foreign exchange and interest rate risks arising from Company's financial statements. operational, financing and investment activities. In accordance with its treasury policy, the Company does not hold or issue derivative financial Basis of preparation instruments for trading purposes. However, derivatives that do not The financial statements have been prepared in accordance with qualify for hedge accounting are accounted for as trading instruments. applicable accounting standards (UK Generally Accepted Accounting Derivative financial instruments which are accounted for as trading Practice). instruments are recognised initially and subsequently stated at fair value. The gain or loss on remeasurement to fair value is recognised Under section 230(4) of the Companies Act 1985 the Company is immediately in the profit and loss account. However, where derivatives exempt from the requirement to present its own profit and loss account. qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see below). Advantage has been taken of FRS 8 `Related party disclosures' not to disclose transactions with subsidiaries on the basis that all transactions Derivative financial instruments which are accounted for as trading were with members of the Group, 90% or more of whose voting rights instruments are recognised initially and subsequently stated at fair were controlled. value. The gain or loss on remeasurement to fair value is recognised immediately in the profit and loss account. However, where derivatives The Company has adopted FRS 29 `Financial Instruments: Disclosures', qualify for hedge accounting, recognition of any resultant gain or loss which became effective from 1 January 2007. However, the Company depends on the nature of the item being hedged (see below). has taken the exemption available to parent companies not to present financial instrument disclosures as the Group financial statements The fair value of interest rate swaps is the estimated amount that the contain disclosures that comply with the standard. Company would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current The Company has adopted UITF 44 `FRS 20 Group and Treasury creditworthiness of the swap counterparties. The fair value of forward Share Transactions', which became effective from 1 March 2007. exchange contracts is their quoted market price at the balance sheet The adoption of UITF 44 has resulted in a prior year adjustment to date, being the present value of the quoted forward price. show the equity-settled share-based payment charge of 2.8m as an increase in the Company's investment in its subsidiaries with a Fair value hedges corresponding increase to reserves. Where a derivative financial instrument is designated as a hedge of the variability in fair value of a recognised asset or liability or an Investments unrecognised firm commitment, all changes in the fair value of the Investments in subsidiaries are stated at cost and reviewed for derivative are recognised immediately in the profit and loss account. impairment if there are indications that the carrying values may not The carrying value of the hedged item is adjusted by the change in fair be recoverable. value that is attributable to the risk being hedged (even if it is normally carried at cost or amortised cost) and any gains or losses on Foreign currencies remeasurement are also recognised immediately in the profit and loss Transactions in foreign currencies are translated at the rate of account (even if those gains would normally be recognised directly in exchange ruling at the date of the transaction. Monetary assets and reserves). liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the foreign exchange rate ruling at that date. Hedge of monetary assets and liabilities Foreign exchange differences arising on such translation are Where a derivative financial instrument is used to economically hedge recognised in the profit and loss account. the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the Investments in overseas subsidiaries are translated to sterling at the hedging instrument is recognised in the profit and loss account. foreign exchange rates ruling at the balance sheet date and foreign exchange differences arising on translation are recognised directly Interest-bearing borrowings in a separate component of equity. They are released into the profit Interest-bearing borrowings are recognised initially at fair value, and loss account upon disposal. less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any Taxation difference between cost and redemption value being recognised The charge for taxation is based on the profit for the year and takes in the profit and loss account over the period of the borrowings on into account deferred taxation. Deferred taxation is recognised without an effective interest basis. Interest bearing borrowings which are discounting, in respect of all timing differences between the treatment designated hedged items in a fair value hedge arrangement are of certain items for taxation and for accounting purposes that have carried at fair value (see policy above). occurred but not reversed by the balance sheet date, except as otherwise required by FRS19 `Deferred Tax'. Shares held by employee benefit trust Shares in the Company held by the Wincanton plc Employee Benefit Tax charges or credits arising on the retranslation of foreign currency Trust are shown as a deduction from shareholders' equity at cost borrowings used to finance or provide a hedge against equity in accordance with UITF Abstract 38 `Accounting for ESOP trusts'. investments in foreign enterprises are taken to the statement of total recognised gains and losses together with the exchange differences on the borrowings themselves. 83 Wincanton plc Annual Report 2008 Notes to the Wincanton plc Company financial Statements continued Share-based payments Where a parent company grants rights to its instruments to employees of a subsidiary, and such share-based compensation is accounted for as equity-settled in the consolidated financial statements of the Group, the subsidiary is required to record an expense for such compensation in accordance with FRS 20 `Share-based payements', with a corresponding increase recognised in equity as a contribution from the parent. Consequently, in the financial statements of the parent (Wincanton plc), the Company has recognised an addition to fixed asset investments of the aggregate amount of these contributions of 2.1m (2007: 1.5m) with a credit to equity for the same amount. This represents a change in accounting policy and therefore the comparative figures have been adjusted to reflect the addition to fixed asset investments of 2.8m, being the equity-settled share-based payments charge for the accounting periods since FRS 20 became effective. 2. Fixed asset investments 2007 2008 Shares Shares in Group in Group undertakings undertakings Restated m m Company Cost At beginning of year 69.3 80.9 Change in accounting policy relating to adoption of UITF 44 (see note 1) 1.3 Additions 40.0 Additions share-based payments (see note 1) 2.1 1.5 Transfer to other Group undertaking (13.9) Effect of movements in foreign exchange (0.5) At end of year 111.4 69.3 During the year the Company increased its investment in Wincanton UK Limited, a 100% owned subsidiary. A list of the subsidiaries of Wincanton plc is given in note 12 to the Group financial statements. 3. Debtors 2008 2007 m m Amounts owed by Group undertakings 85.9 101.4 Group tax relief receivable 11.2 9.0 Prepayments and accrued income 0.4 0.5 97.5 110.9 4. Creditors: amounts falling due within one year 2008 2007 m m Bank loans and overdrafts 13.5 3.2 Accruals and deferred income 2.4 1.8 15.9 5.0 5. Creditors: amounts falling due after more than one year 2008 2007 m m Bank loans and overdrafts 145.3 121.4 145.3 121.4 Included within bank loans and overdrafts above are amounts repayable after 5 years otherwise than by instalments of 34.7m (2007: 86.7m). 84 Wincanton plc Annual Report 2008 6. Capital and reserves Reconciliation of movement in capital and reserves Profit and loss account Share Share Translation Reserve for FRS 20 Retained capital premium reserve own shares reserve earnings Total equity m m m m m m m Balance at 1 April 2006 11.8 6.5 0.2 (8.5) 45.0 55.0 Total recognised gains and losses (0.2) 9.2 9.0 Shares issued due to options exercised by employees 0.2 2.9 3.1 Own shares disposed of on exercise of options 0.2 1.0 1.2 Dividends paid to shareholders (14.9) (14.9) Balance at 31 March 2007 12.0 9.6 (7.5) 39.3 53.4 Balance at 1 April 2007 12.0 9.6 (7.5) 39.3 53.4 Change in accounting policy relating to adoption of UITF 44 2.8 2.8 Balance at 1 April 2007 as restated 12.0 9.6 (7.5) 42.1 56.2 Total recognised gains and losses 10.1 10.1 Shares issued due to options exercised by employees 0.1 2.2 2.3 Own shares disposed of on exercise of options 0.1 0.7 (0.4) 0.4 Purchase of own shares held by Employee Benefit Trust (7.9) (7.9) Dividends paid to shareholders (16.2) (16.2) Equity granted to employees of the Company and subsidiaries 1.0 2.1 3.1 Balance at 31 March 2008 12.1 11.9 (14.7) 1.0 37.7 48.0 During the year the Company issued shares, under both the Executive Share Option Scheme and the Sharesave Option Scheme, for consideration at the applicable exercise prices shown in note 27 to the Group financial statements. During the year ended 31 March 2002, the Company established a Capital Redemption Reserve of 49,998 on redemption of redeemable preference shares. The FRS 20 reserve comprises the charges make to the profit and loss account in respect of share-based payments under the Company's share option schemes. Details of the Company's own shares, held within an Employee Benefit Trust, are given in note 23 to the Group financial statements. Ordinary shares 2008 2007 Allotted, called up and fully paid millions millions In issue at 1 April 120.2 118.4 Issued for cash 1.1 1.8 In issue at 31 March 121.3 120.2 At 31 March 2008 the authorised share capital comprised 159,999,980 (2007:159,999,980) ordinary shares of 10p each. As permitted by Section 230 (4) of the Companies Act 1985, the Company has not presented its own profit and loss account. The Directors' remuneration as disclosed in note 4 to the Group financial statements is borne by Wincanton plc, the Directors are the only employees of the Company. The Company has taken the exemption not to disclose non-audit fees incurred as these are included in note 3 to the Group financial statements. 7. Reconciliation of movement in shareholders' funds 2007 2008 Restated m m Profit for the financial year 10.1 9.2 Dividends declared and paid (16.2) (14.9) Retained loss for the financial year (6.1) (5.7) Adjustment relating to adoption of UITF 44 (see note 1) 1.3 Exchange adjustments arising on foreign currency investments (0.2) Purchase of own shares held by Employee Benefit Trust (7.9) Shares issued due to options exercised by employees 2.3 3.1 Own shares disposed of on exercise of options 0.4 1.2 Equity granted to employees of the Company and subsidiaries 3.1 1.5 Net (decrease)/increase in shareholders' funds (8.2) 1.2 Opening shareholders' funds 56.2 55.0 Closing shareholders' funds 48.0 56.2 85 Wincanton plc Annual Report 2008 Group five-year record As reported under Adopted IFRS 2008 2007 2006 2005 m m m m Revenue 2,164.7 1,933.1 1,809.3 1,651.5 Underlying operating profit1 52.4 45.5 42.0 39.3 Net financing costs (10.8) (9.9) (9.7) (9.9) Underlying profit before tax1 41.8 35.6 32.3 29.5 Profit before tax1 36.7 32.6 31.3 27.6 Underlying profit after tax for the year1 28.4 24.4 22.0 18.6 Underlying earnings per share1 24.3p 21.0p 19.2p 16.3p Dividend per share 14.91p 13.55p 12.54p 11.40p Dividend cover2 1.63x 1.55x 1.53x 1.43x Interest cover2 4.9x 4.6x 4.3x 4.0x Net debt (104.5) (65.8) (60.6) (56.5) Capital employed3 104.5 82.5 119.7* 132.1 Return on capital employed3 50.1% 55.2% 35.1%* 29.8% Free cash flow4 48.3 72.2 55.4 52.6 1 Operating profit, and hence profit before and after tax is reported on an underlying basis, i.e. before amortisation of acquired intangibles and any goodwill impairment and exceptionals and in respect of profit before and after tax, including results of associates. Underlying earnings per share is calculated on the same basis. 2 Dividend cover is based on the underlying earnings per share as defined above and the dividend per share above. Interest cover is calculated using operating profit as defined above. 3 Capital employed is defined as net assets/(liabilities) adjusted for goodwill, acquired intangibles, debt, tax, employee benefits and insurance provisions. Return on capital employed is calculated as underlying operating profit over capital employed. 4 Free cash flow comprises EBITDA plus working capital and net capital expenditure flows. * Restated due to change on acquisition (see note 22, Annual Report and Accounts 2007). As reported under UK GAAP 2005 2004 m m Turnover 1,725.9 1,680.5 Operating profit5 44.5 43.2 Net interest payable and similar charges (9.5) (12.6) Profit before taxation5 35.0 30.6 Profit before taxation (unadjusted) 35.2 22.4 Profit after taxation for the year5 20.0 18.4 Basic earnings per share5 17.5p 16.0p Dividend per share 11.40p 10.56p Dividend cover6 1.8x 1.7x Interest cover6 5.1x 3.8x Net debt (53.0) (75.3) Capital employed7 135.8 149.4 Return on capital employed7 32.8% 28.9% Free cash flow4 61.2 104.9 5 Operating profit, and hence profit before and after taxation, is adjusted to exclude pension credit, goodwill amortisation and exceptional items. Basic earnings per share is calculated on the same basis 6 Interest cover is based on the profit before exceptional items and goodwill amortisation, but including pension credit, in line with the Group's banking facilities. Dividend cover is calculated on the same basis. 7 Capital employed is defined as net assets/(liabilities) adjusted for goodwill, debt, taxation, dividends, pension and insurance provisions. Return on capital employed is calculated as operating profit before pension credit, goodwill amortisation and exceptional items over capital employed. Except for 2005, Wincanton is not required to restate the above table to comply with Adopted IFRS. 86 Wincanton plc Annual Report 2008 Financial calendar Annual General Meeting To be held on 24 July at the offices of Buchanan Communications, 45 Moorfields, London, EC2Y 9AE at 11.30 am Ordinary dividends Interim 4.60p per share Paid 8 January 2008 Final 10.31p per share Payable 8 August 2008 to shareholders on the register at the close of business on 11 July 2008 Half year results Interim announcement November 2008 Full year results Preliminary announcement June 2009 Annual Report Posted to shareholders at the end of June 2009 Shareholder information Annual Report Copies can be obtained from the Company's address overleaf. Registrar The Company's Registrar is Equiniti. If you have any questions about your holding or wish to notify any change in your details, please contact the Registrar at: Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA. Telephone: 0871 384 2366 (calls to this number are charged at 8p per minute from a BT landline, other telephony provider costs may vary). Overseas shareholders should call +44 (0) 121 415 7047. Whenever you contact the Registrar, please quote the full names in which your shares are held. Please advise the Registrar promptly of any change of address. Dividend mandates The Company encourages its shareholders to have future dividends paid directly into their bank or building society account. To set this up for the shares you hold, you should contact the Registrar for a dividend mandate form or complete the instructions attached to your dividend payment. Share dealing service Wincanton shares may be dealt through the Company's brokers. If you would like further information, you may contact the brokers at: Postal Dealing Service, JPMorgan Cazenove Limited, 20 Moorgate, London EC2R 6DA. Telephone: 020 7588 2828. Please note that to comply with legislation aimed at the control of money laundering, users of this service will be required to provide details of their identity. Share price quotation The Company's share price is quoted daily in national and regional newspapers as well as on BBC2 Ceefax, Channel 4 Teletext and via the Wincanton website, where it is regularly updated through the day. Shareholders' enquiries If you have an enquiry about the Company's business or about something affecting you as a shareholder (other than queries regarding shareholdings which are dealt with by Equiniti) you are invited to contact the Company at the address below. Unsolicited mail The Company is obliged to make its Register available to other organisations. Shareholders wishing to limit the amount of unsolicited mail they may receive as a result should write to the Mailing Preference Service at DMA House, 70 Margaret Street, London SW1W 8SS, or online at www.mpsonline.org.uk. Unsolicited investment advice Over the last year many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based `brokers' who target UK shareholders offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. They can be very persistent and extremely persuasive and a 2006 survey by the Financial Services Authority (FSA) has reported that the average amount lost by investors is around 20,000. It is not just the novice investor that has been duped in this way; many of the victims had been successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. If you receive any unsolicited investment advice: Make sure you get the correct name of the person and organisation. Check that they are properly authorised by the FSA before getting involved. You can check at www.fsa.gov.uk/register. The FSA also maintains on its website a list of unauthorised overseas firms who are targeting, or have targeted, UK investors and any approach from such organisations should be reported to the FSA so that this list can be kept up to date any other appropriate action can be considered. If you deal with an unauthorised firm, you would not be eligible to receive payment under the Financial Services Compensation Scheme. The FSA can be contacted by completing an online form at www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml. Inform Equiniti's Compliance Department. 87 Wincanton plc Annual Report 2008 ShareGift If you hold only a few shares and feel that it would be uneconomical or simply not worthwhile to sell them, you could consider donating your shares to charity through ShareGift (registered charity 1052686). Donated shares are aggregated and sold by ShareGift, the proceeds being passed on to a wide range of UK charities. Donating shares to charity gives rise to neither a gain nor loss for UK Capital Gains Tax purposes and UK taxpayers may also be able to claim income relief on such gifts of shares. To find out more visit www.sharegift.org or call 020 7930 3737. Alternatively contact the Company's Registrar who can help arrange the transfer of your shares. Wincanton plc website The Wincanton website at www.wincanton.co.uk provides news and information about the services offered by Wincanton as well as useful information for investors. Secretary and registered office C F Phillips, Wincanton plc Methuen Park Chippenham Wiltshire SN14 0WT Tel +44 (0)1249 71 00 00 Registered Number 4178808 88 Wincanton plc Annual Report 2008 Designed and produced by Addison Corporate Marketing Printed in the UK by St Ives Westerham Press Ltd Printed on Revive 75 and 100 Silk and Revive 100 Uncoated. Revive 75 Silk is 50% de-inked post-consumer waste, 25% unprinted pre-consumer waste and 25% virgin fibre. All pulps used are Elemental Chlorine Free (ECF) and the manufacturing mill is accredited with the ISO 14001 standard for environmental management. Revive 75 Silk is a Carbon Neutral product. Revive 100 Silk is 100% de-inked post-consumer waste. All pulps used are unbleached and the manufacturing mill is accredited with the ISO 14001 standard for environmental management. Revive 100 Uncoated is 100% de-inked post-consumer waste. All pulps used are Elemental Chlorine Free (ECF) and the manufacturing mill is accredited with the ISO 14001 standard for environmental management. www.wincanton.co.uk Wincanton plc Methuen Park Chippenham Wiltshire SN14 0WT United Kingdom Tel +44 (0)1249 71 00 00 Fax +44 (0)1249 71 00 01