Wincanton PLC Pension scheme agreement (1095X)

TIDMWIN

RNS Number : 1095X

Wincanton PLC

08 August 2018

8 August 2018

WINCANTON PLC

('Wincanton' or the 'Group')

Pension scheme agreement

Wincanton, a leading provider of supply chain solutions in the UK & Ireland, today announces that it has reached an agreement with the Trustee of the Wincanton Pension Scheme (the 'Scheme') on the 2017 triennial valuation (the '2017 valuation') and recovery plan.

The key elements of the 2017 valuation and recovery plan are set out below.

Deficit recovery contributions

The deficit recovery plan will run to 31 March 2027. The annual deficit contributions are as follows:

-- GBP17.3m pa (GBP18m pa gross less pension administration expenses incurred by the Company) from April 2018 through to March 2021, increasing annually from April 2019 in line with the Retail Prices Index

-- GBP24.3m pa (GBP25m pa gross less pension administration expenses incurred by the Company) from April 2021 to March 2027, increasing annually from April 2022 in line with the Retail Prices Index

In addition, the company will make a one-off lump-sum contribution of GBP15m which will be paid in August 2018, funded by the sale proceeds of an underutilised freehold property in Corby that completed in June 2018.

The payments above are deductible for Corporation tax purposes.

The agreement does not change expectations for the Group's underlying operating profit for the current year nor its net debt at 31 March 2019.

Actuarial valuation of the deficit

The current proforma actuarial deficit, after allowing for contributions made to date and including the one-off lump sum amount, is estimated at GBP190m. The actuarial deficit at 31 March 2017 was GBP221m. The position calculated in accordance with the IAS19 Accounting Standards showed a significantly smaller deficit of GBP76m as at 31 March 2017 and GBP47m as at 31 March 2018, reflecting the very different methodology prescribed by IAS19.

Other provisions

Wincanton has agreed the following other provisions with the Scheme:

-- Wincanton will provide additional payments to the Scheme on a partial (50%) matching basis if distributions to shareholders (dividends and share-buy-backs) grow year-on-year in excess of 10% and on a full matching basis if distributions grow year-on-year in excess of 15%. The matching will only be in relation to the distribution amounts above the thresholds.

-- Wincanton will adjust contribution payments to the Scheme in the event of severe adverse Scheme investment performance where the actual deficit in the Scheme exceeds an agreed threshold above the expected deficit at the end of two consecutive six-month reporting periods. Initially, the threshold is set so that higher contributions would be paid to the Scheme if the actuarial deficit increases by more than GBP85m above the expected position. This approach is intended to increase the likelihood that the Scheme will be fully funded on the technical provisions basis by 2027 in the event that significant downside performance is experienced by the Scheme.

-- Wincanton will make a one-off payment to the Scheme of GBP6m in any year if both the underlying profit after tax is lower than the level of profit after tax reported in the 2017/18 financial year and the dividend payout ratio increases to over 40% of profit after tax.

-- In the event of disposals of businesses within the Wincanton Group, Wincanton will pay an amount to the Scheme equal to 50% of the combined net proceeds for the first GBP30m of the proceeds in any financial year.

The next triennial valuation is due as at 31 March 2020.

Adrian Colman, Wincanton CEO, said:

"I am pleased that we have reached an agreement with the Trustee over the pension fund valuation and recovery plan that is both fair and affordable. It allows us to move forward with confidence and certainty. Importantly, we retain our ability to invest in the business and to continue our progressive dividend policy."

For further information please contact:

Wincanton Plc Tel: [phone]

Adrian Colman, Chief Executive Officer

Tim Lawlor, Chief Financial Officer

Buchanan Tel: [phone]

Richard Oldworth / Chris Lane / Maddie Seacombe

Further information in relation to the Valuation and the recovery plan

Actuarial deficit and IAS 19 deficit

At the valuation date of 31 March 2017, the two measures of the deficit comprised:

 
 At 31 March 2017     Actuarial deficit   IAS 19 deficit 
                             GBPm 
 Gross liabilities          1,302             1,157 
 Gross assets              (1,081)           (1,081) 
                     ------------------  --------------- 
                             221                76 
                     ------------------  --------------- 
 

The key differences between the assumptions used for the actuarial deficit and those used for the IAS19 calculations are the more prudent discount rate and mortality assumptions used in calculating the liabilities for the actuarial deficit.

Investment strategy

An important element of the agreement between Wincanton and the Trustee of the Scheme is a reduction in the level of investment risk in the Scheme over time. This is expected to continue to increase the stability of the actuarial deficit and contribution requirements. Over time the investment strategy has moved to a lower risk profile with a greater level of protection against movements in expected interest rates and inflation. Currently the scheme has hedged the interest and inflation risk of approximately 80% of the gross liabilities. The level of interest rate and inflation protection will continue to increase as the funding level improves.

The exposure to return-seeking assets will continue to reduce over the next ten years and over the recovery plan period to 31 March 2027 the target return from return seeking assets is as follows;

 
      Time period                          Target return on assets 
      To 31 March 2021                     Gilts plus 1.6% 
                                     ----------------------------- 
      From 1 April 2021 to 31 March        Gilts plus 1.2% 
       2024 
                                     ----------------------------- 
      From 1 April 2024 to 31 March        Gilts plus 0.8% 
       2027 
                                     ----------------------------- 
      From 1 April 2027                    Gilts plus 0.4% 
                                     ----------------------------- 
 

Administration expenses of the Scheme

Certain administration expenses of the Scheme are borne by the Company and will continue to be netted off against the annual contribution commitments so cash payments to the Scheme will be approximately GBP0.7m per annum lower than the gross amounts in the contribution schedule.

Engagement with the Pensions Regulator

The Pensions Regulator has been actively engaged with the Company and the Trustee during the triennial negotiation process and has indicated that he does not anticipate carrying out any further investigations or having any further queries in relation to the agreement.

Corby freehold property disposal

The sale of an underutilised freehold property in Corby was completed in June for gross proceeds of GBP14.5m. An exceptional profit on the sale of approximately GBP6m will be recognised in the 2018/19 financial statements. There will be no impact on underlying operating profit arising from the disposal.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

END

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August 08, 2018 02:00 ET (06:00 GMT)