In an announcement today (14-May) to the London Stock Exchange, UK contract logistics provider Wincanton revealed details of the impact of Covid-19 on its operations and financial performance.
The announcement contained news that Wincanton entered the UK’s Lockdown period, entered on March 23rd, in a strong position. For the 12 months ended 31st March 2020, the company saw revenue increase by more than 5%, “in line with market expectations.” While the announcement details several schemes Wincanton has put into place to manage the crisis – it’s furloughed of 15% of the workforce, board and executive management teams have taken a temporary 20% pay cut, pension recovery payments, non-business critical Capex and dividends deferred, delayed and suspended – the more interesting insights come from the details in the announcements covering sector performance and the impacts on profitability.
The effects of lockdown restrictions in the UK took hold in April with group revenues down ~15% during the month compared with April 2019. In line with well-reported market trends, Wincanton saw increased demand and volumes from its grocery and consumer goods products clients as UK consumers’ behaviour shifted to panic-buying in late March and early April. Again, as elsewhere, volumes and demand have now returned to more standard levels. However, Wincanton’s note that “the financial impact of these effects was a short-term increase in revenue, although with limited profit uplift due to the commercial models deployed in these customer contracts,” suggests much of this work is carried out on a closed-book basis. Other closed book business for the group includes a two-person home delivery network which closed operations at the end of March under government safety guidelines. This “resulted in a significant negative impact on profitability during the shutdown,” Wincanton’s statement said.
Wincanton’s construction sector business saw revenue drop 70% in April, as the majority of construction sites and builders’ merchants in the UK shuttered operations. Measures including “significant reductions in subcontractor and agency labour costs” will have reduced variable costs, however, as Wincanton “operate this business as a largely closed book network, the reduction in revenue has had a substantial impact on its profitability in April.” For context, construction sector revenues have hovered around 10-15% of total revenue for much of the last decade.
With all non-essential retail closed in the UK, Wincanton saw a shift of non-grocery retail supply chains from in-store to online. This sector provided some additional protection for Wincanton however, with larger retailers including DIY store B&Q, a major client, allowed to remain at least partially open through the lockdown period. Despite lower volumes, profitability was somewhat protected thanks to greater use of open-book contracts. More widely, Wincanton’s statement does not directly include a reference to an overall profitability level, but it does acknowledge that “the profit impact of volume shortfall is also varied according to contract types, particularly between open and closed book contracts, but as a whole, the Group has seen a negative impact to its profitability in the financial year to date.”
“The outlook is uncertain as we wait to see how the country will emerge from lock-down and the impact varies considerably across our diverse sectors,” said James Wroath, CEO of Wincanton. Time will tell how the fall compares with the market, but Wincanton has successfully retrenched and secured itself a varied sector mix over the last decade which may afford it some protection others may not have. While it remains extremely early in the process of understanding the impact of Covid-19 on the logistics sector and the players in it, this is an indication that client and commercial model mix will be a key point of analysis in the coming months.
Source: Transport Intelligence, 14 May 2020
Author: Nick Bailey
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