Annual Report and Accounts 2017 Accounts and Report Annual Delivering innovative logistics innovative Delivering solutions Eddie Stobart Logistics plc Eddie Stobart Logistics plc Annual Report and Accounts 2017 Our vision is to be recognised for our pride and professionalism in delivering innovative customer solutions and service excellence Our core values Openness and Trust and respect Integrity Compassion Fun honesty We take the time to We put our employees We’re genuine and We like to enjoy We draw on our huge understand and listen to and customers first and sincere and show ourselves too, we depth and breadth of our colleagues and act in their best consideration by celebrate when we’ve expertise to make sure customers. We lead by interests. When things supporting others when done a good job we can be the best in example by keeping go wrong, as they will they need it most. and we recognise what we do by working things simple, setting from time to time, we’ll We take personal the achievements of collaboratively as clear goals and hold our hands up and responsibility for all our people. one team. achieving them. work to put it right. of our actions. Our Our Our Chief Our Our performance strategy Executive's Board financial statement statements Page 01 Page 08 Page 14 Page 28 Page 45 Contents Strategic Report Governance Financial Statements Our key highlights 01 Board of Directors 28 Independent auditor’s report 39 At a glance 02 Governance statement 30 Consolidated Income Statement 45 Our markets 04 The Board 31 Consolidated Statement of Comprehensive Income 46 Our operating model 06 Audit Committee report 33 Consolidated Statement of Changes in Equity 47 Delivering our strategy 08 Directors’ Remuneration report 34 Consolidated Statement of Financial Position 48 Our acquisitions 11 Directors’ report 36 Consolidated Cash Flow Statement 49 Chairman’s statement 12 Statement of Directors’ responsibilities 38 Notes to the Consolidated Chief Executive’s statement 14 Financial Statements 50 Chief Financial Officer's statement 16 Company Statement of Financial Position 88 Our people 20 Company Statement of Changes in Equity 89 Systems and technology 22 Notes to the Company Financial Statements 90 Corporate social responsibility 24 Glossary 95 Risk management and principal risks 26 Advisors 97 Eddie Stobart Logistics plc Annual Report and Accounts 2017 Strategic report Governance Financial statements 01 2017 key highlights We’ve delivered a Financial strong performance Revenue with revenue £623.9m increasing by 9% +9% and underlying EBIT* Underlying EBIT* increasing by 17% £48.5m We have renewed contracts totalling more than £41 million and secured a further £89 million of +17 % new volume with new and existing customers Profit before tax We have seen significant revenue growth within our MIB (+37%) and E-commerce (+111%) £9.9m sectors providing a healthy balance to our sector portfolio -12% We have broadened and expanded our Net debt capabilities through targeted acquisitions of iForce, Speedy Freight and Logistic People £109.5m which are all performing to expectations -34% We have increased our warehouse capacity by c.17% across a number of new sites adding Adjusted EPS* much needed capacity and delivering value for our shareholders 9.8p We have invested in technology solutions to +24% enhance operational efficiency, support business growth and simplify back-office processes, including state-of-the-art in-cab technology and Statutory EPS warehouse management systems 1.2p We continue to invest in recruiting and in up-skilling our existing employees through -63% a broad range of courses delivered at our Training Academy in Warrington and our new Proposed total second facility in the Midlands dividend per share 5.8p * Non GAAP Alternative Performance Measure (see note 4 on page 61 of the accounts for reconciliation to statutory IFRS measure). Eddie Stobart Logistics plc Annual Report and Accounts 2017 02 At a glance Our network and scale We operate c.2,300 vehicles, c.4,000 trailers and 26 distribution centres, throughout the UK and Europe, providing our services to a range of national and international customers c47,000+ c1,850 Movements per week Containers delivered per week c5,700 4 Employees Rail connected c6.4m distribution sites Sq. feet of warehousing 4 Operating from UK ports 2 Training Academies Typical fleet coverage Eddie Stobart sites Rail connected sites Ports Eddie Stobart Logistics plc Annual Report and Accounts 2017 Strategic report Governance Financial statements 03 Our acquisitions Our network and scale has grown. iForce has three distribution centres and operations at six customer sites. Speedy Freight has 40 branches. Collectively these sites significantly expand the scale of the Eddie Stobart network 9 E-commerce end-to-end service solutions iForce sites 40 Speedy Freight branches iForce sites Speedy Freight branches By *Please see page 11 for further details on our acquisitions Eddie Stobart Logistics plc Annual Report and Accounts 2017 04 Our markets We offer focused, efficient and cost effective end-to-end supply chain solutions to businesses across a range of sectors The overall UK logistics market was valued at Manufacturing, 1 E-commerce approximately £70.3bn in 2015 . Industrial and Bulk (MIB) Historically, the overall market has grown in line with underlying growth in economic activity. Rapid growth in the online retail market has We provide services to MIB customers, been a key contributor to growth in the UK which include the movement of raw During the period 2011 to 2015 the market 5 grew at an aggregate CAGR of 2.4% per logistics market over the last five years . materials and components used in manufacturing processes, aggregates and annum2. The market is large and also highly The UK total E-commerce market (which fragmented with upwards of 50,0003 cement to construction sites, as well as the includes food and travel) has grown from specialist delivery of fuel. participants, with Eddie Stobart accounting £0.8bn in 2000 to £114bn in 2015 and for less than 1% market share4. £133bn in 2016 (16% annual growth)6. This market is highly fragmented and Within this overall growth rate, we are seeing relatively under-invested in terms of its This increase brings logistical challenges supply chain, especially when compared to the E-commerce sector growing at a much for our customers. In particular, for retailers faster rate than other sectors, in response to more advanced sectors such as Retail and the continuing trend of omni-channel Consumer. structural changes in consumer spending retailing requires specialist logistics patterns. In other sectors where growth more knowledge and skills. This presents Eddie Stobart with an closely reflects the market rate, we are seeing opportunity for growth at a rate faster than opportunities from customers who are More and more of our customers require an the underlying sector, through industry increasingly outsourcing their in-house end-to-end solution and this is driving the consolidation and the introduction of a operations. need for additional optimally located multi-user offer. warehousing space, increased use of IT Eddie Stobart remains well positioned for systems and more complex warehouse This is evidenced by the fact that while the growth due to the scale of our network and our operations, including returns management, MIB sector is only expected to grow at 1% pay-as-you go model, complemented by our product repair and online market place sales. per annum7, Eddie Stobart's revenue grew sector expertise and consulting-led approach, by 37% in the year. and our extensive warehouse capacity of This offers significant opportunities for our c.6.4m sq.feet (excluding sites we operate for newly acquired business, iForce, which has customers). the required technology, processes and skills to deliver a seamless retail customer We operate across four key sectors of the experience on behalf of existing and new market, chosen specifically because of the customers. complementary nature of their demand patterns across the sectors, driving effective utilisation and profitability Data Sources in both our warehouse 1. Top 100 in European Transport and Logistics Services 2015/2016, as at 31 December 2015 2. IBISWorld, Freight Road Transport in the UK, 2016; IBISWorld, Warehousing and Storage in and transport the UK, 2016; IBISWorld, Freight Rail Transport in the UK, 2016 operations*. 3. CTP, Industry Sector Guide – Transport & Logistics, March 2017 4. Motor Transport UK, Top 100 – 2016 5. Retailing in the United Kingdom, Euromonitor, February 2017 6. IMRG, Capgemini E-Retail Sales Index 7. Euroconstruct Database December 2016 Key MIB E-commerce Retail Consumer *Please see ‘Operating Model’ on page 6 for further information on how our assets are Eddie Stobart Logistics plc Annual Report and Accounts 2017 used at different times in different sectors. Strategic report Governance Financial statements 05 Retail Consumer Europe Store-based retailing in the UK was The UK’s fast moving consumer goods market Our European operations are headquartered estimated to be worth £361bn 2016 and is (FMCG), is relatively mature with forecast growth in Genk, Belgium and comprise two expected to grow at a rate of 0.4% per at less than 1% per annum to 20209. divisions: car storage and distribution and annum to 20218. general cargo. There are c.400 people This long-established sector includes the working in our European businesses. The key trend in this sector is a decline in movement of manufactured products, recent years of in store sales, due to comprising a broad range of both ambient and We also operate in joint venture arrangements increased competition from discounters, temperature-controlled goods, such as milk, at three sites relating to inspection and as well as the move from bricks and mortar soft drinks and personal care goods. preparation of finished vehicles. Please see sales to online retailing8.