Full-year results from the Human Screen

It’s a familiar story boy meets girl, then he meets another girl. Soon he has a  hareem he can no longer afford.

Highlights

• Adjusted operating profit down 7%
• Return on tangible assets: 10%
• Adjusted net profit of ''21m compared to net cash flow of ''30 (''2m after net capital expenditure)
• Net debt down 26% at ''115m, ''512m after deducting a defined benefit pension scheme deficit of ''118m and ''342m in undiscounted future lease obligations (excluding those underwritten by its customers).
• No per share dividend

The Human Screen comments:

Wincanton warehouses goods and moves them around the country for retailers and corporations. It also operates a number of related businesses in vehicle repair, document storage and container transport.

After it demerged from UNIQ in 2000, Wincanton went on an acquisition spree that saddled it with debt and financial obligations it could not sustain once the economy turned in 2008. It’s a story the Human Screen is very familiar with.

The headline figures above present a best case for the year’s performance because they do not include ''68m in exceptional costs and ''62m in losses from business now shut down or sold, but even so there’s little sign of a turnaround.

Although financially Wincanton’s wrecked, the company is doing what it can. It has a new chairman, appointed in December 2011, and a new chief executive, appointed in December 2010 who has disposed of its European operations and a loss making foodservice business that supplied food to restaurants and was touted as a transformational growth opportunity as recently as 2010.

The Human Screen thinks Wincanton is risky, even for a potential turnaround. Massive write-offs means negative net tangible equity so valuation is dependent on earning power, which for a troubled company is speculative.

On the face of it a post-tax unlevered earnings yield of 20% makes the company look cheap, but the Human Screen is mindful that when companies are distressed, financial obligations like pension deficits and leases can deal the killing blow, as shareholders of its sibling UNIQ found when it was taken over by its pension fund.

^HS+ (worth watching for improvement in fundamentals/price