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Full Year Results for 2003 John AllanChief Executive John CoghlanDeputy Chief Executive and Group Finance Director Monday 1 March 2004.

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Presentation on theme: "Full Year Results for 2003 John AllanChief Executive John CoghlanDeputy Chief Executive and Group Finance Director Monday 1 March 2004."— Presentation transcript:

1 Full Year Results for 2003 John AllanChief Executive John CoghlanDeputy Chief Executive and Group Finance Director Monday 1 March 2004

2 Agenda Highlights and operating reviewJohn Allan Financial reviewJohn Coghlan Strategic update and outlookJohn Allan Introduction

3 Highlights Strong operating performance despite tough market conditions -Turnover up 10% 1 -Profit before tax up 13% 1 -Earnings per share up 14% 2 -Free cash flow of £193m Annualised new contract gains exceed £700m Strong second half performance Invested over £110m 3 in acquisitions in 2003 Highlights 1: at constant exchange rates 2: at constant exchange rates, pre goodwill amortisation, exceptional items and net return on pension schemes 3: excludes acquired debt of £24.4m

4 Financial summary Highlights Turnover - continuing operations Operating profit 1 - continuing operations Interest Profit before tax 1 Basic earnings per share 1 Pension adjusted earnings per share 1 Dividend per share Free cash flow 2 Interest cover 3 Balance sheet gearing 4 5, (6.0) p 44.1p 24.7p x 23% 2003 £m 2002 £m % change % change Year to 31 December at constant currency Constant currency Actual 1: pre goodwill amortisation, exceptional items and net return on pension schemes 2: calculated at actual exchange rates 3: based on interest on net debt 4: excluding FRS17 net pension assets and liabilities 4, (12.1) p 37.6p 22.8p x 24%

5 Good progress gaining new business and reducing contract losses Highlights Record contract gains in 2003 Lower percentage of contract losses Good mix between contract logistics and freight management £m Net annualised gains450 (250) Contract Logistics Freight Mgt % turnover9% % 11% £m Annualised gains Annualised losses (275) 8% % 7%

6 Contract wins continue to come from a broad spectrum of leading companies including… Americas 150+ new contract logistics gains Particularly good performances in automotive, chemical, consumer, industrial, retail Europe 100+ new contract logistics gains Particularly good performances in retail and consumer Asia Pacific 45+ new contract logistics gains Breakthroughs in automotive and solid growth in consumer, healthcare, retail and technology Operating review

7 Good second half performance Strong second half contract logistics performance across all regions especially: -Americas (turnover up 24% to £425m, profitability up 39% to £22m) -improved performance in Continental Europe Freight Management profitability in Continental Europe up 29% to £8m and Asia Pacific up 19% to £18m Environmental made good progress in second half with profitability up 10% to £7.5m with margins up to 14.1% At constant currency pre goodwill amortisation, exceptional items and net return on pension schemes Operating review Turnover Operating profit Margins 2, % H £m H £m % change % organic change 2, %

8 Profit Before Tax Causal change Year on Year Operating review Freight Management 2002 PBT at constant rates Contract Logistics Cory Environmental 2003 PBT Interest £m Freight Management EBIT £51m (£63m) Margin 2.3% (2.9%)

9 Strong growth in second half with turnover advancing 11% and profit increasing 24% Strong performers included Hungary, Italy and The Netherlands Good growth in fashion retail and technology UK and Irelands margins improved on relatively flat turnover Freight Management Performance Analysis by Geography Asia Pacific Turnover: £645m +10% Profit: £34m +11% EMEA (including UK and Eire) Turnover: £787m + 6% Profit: £14m -12% Americas Turnover: £804m - 3% Profit: £3m - 84% Strong margin growth despite capacity restrictions on selected routes and the impact of SARS Seafreight benefited from some switching of technology consumables from airfreight Particularly good performances in China, India, Korea and Taiwan First automotive gains with GM and Ford International operations made progress in profitability especially in Canada and Mexico Domestic performance held back by pricing pressure from competitive market and increases in deferred freight Road and rail broking volumes weak Sea freight operations performed well Operating review All figures at constant currencies

10 Airfreight International airweight year on year growth v market ExelMarket 1 Global airweight 1% 3% Americas (4)% 2% Europe (3)% 4% Asia Pacific 6% 3% Operating review 1: Based on analysis of published Airport data Margin per kilo improved overall Avoided chasing volume increases with aggressive pricing Asia Pacific continued to gain market share

11 Airfreight US Domestic Operations US domestic markets remain challenging: Overcapacity in network businesses and increased levels of deferred freight Eagle: continues to experience a shift in demand from overnight and second-day shipments toward deferred ground shipments. Menlo: North American revenue per day fell by 6.8 percent on a 3.4 percent increase in weight per day and a 9.9 percent decline in yield that was due primarily to a product mix change to more second-day and deferred freight. Actions by Exel to improve performance are underway: New CEO Freight Management Americas appointed Further integration of domestic and international operations to match cost base to margin potential and to make costs more variable -network reconfiguration programme to optimise branch locations -programme to price up or out low yield customers Process has begun and will be largely complete by H Operating review

12 12% #2 in Asia Pacific (#1 excluding Japan) #2 in Europe #6 in the Americas Exels major airfreight routes Weight flown on major routes Operating review Exel is now the world #2 in airfreight forwarding 12% 2% 21% 12% 17% 13% 6% 5%

13 Seafreight Growth market representing 15% of Exels Freight Management business in 2003 (13% in 2002) Turnover up 22% to £314m (£258m in 2002) Exel now manages >500,000TEU pa Exel is winning market share: full container load (FCL) volumes up 18% year on year Major increase in transpacific trade fuelled by volume growth out of China New business wins include Lexmark, Compucom, Interceramic, Dal-Tile, Toto USA Market source: Drewry Shipping Consultants Ltd Exel FCL % 2003 vs 2002 Growth Operating review

14 Profit Before Tax Causal change Year on Year Operating review Freight Management 2002 PBT at constant rates Contract Logistics Cory Environmental 2003 PBT Interest £m Contract Logistics EBIT £89m (£67m) Margin 3.3% (2.9%)

15 Contract Logistics: EMEA Strong performance across most sectors and geographies including: Significant retail wins (House of Fraser, Marks and Spencer) and growth of non-food retail (50% pa over last 3 years) Healthcare performing well aided by new business gains, including Bayer, Edwards Lifesciences and Tyco Profit helped by improved performances in automotive (Spain and Sweden) and consumer activities (Belgium and Spain) Improved profitability in technology offsetting volume reductions France and Belgium underperformed - progress in 2004 expected Operating review 2003 £m £m % change % organic change Turnover1,7891, Operating profit Margins 2.3% 2.1% 1: Constant currency

16 Contract Logistics: The Americas Solid performance from all sectors across the region aided by: -Successful start up operations for Automotive (inc Goodyear), Consumer (inc Coors, Johnson & Johnson and P&G) and Retail (inc The Home Depot and Williams Sonoma) -Improved performances at Chemical and Technology operations Power now fully integrated and contributing to growth New business wins include Continental, ExxonMobil, Goodyear Tire, Hewlett Packard, Sears and The Home Depot Operating review 2003 £m £m % change % organic change Turnover Operating profit Margins 5.4% 4.8% 1: Constant currency

17 Contract Logistics: Asia Pacific Steady growth overall, including strong performances in Australia, New Zealand and Japan Extended geographic reach with first operations in Indonesia New business wins across all core sectors and geographies including Agilent, Ericsson, Infineon, Mattel, Novartis and Texas Instruments Named as a General Motors Supplier of the Year in recognition of supply chain work done in Australia Operating review 2003 £m £m % change % organic change Turnover Operating profit Margins3.0% 3.2% 1: Constant currency

18 Profit Before Tax Causal change Year on Year Operating review Freight Management 2002 PBT at constant rates Contract Logistics Cory Environmental 2003 PBT Interest £m Environmental EBIT £14m (£14m) Margin 12.8% (13.6%)

19 Environmental Strong second half performance -margins recovering to 14.1% in the last six months Waste management operations achieved a solid result for the year: -Increases in river-borne volumes and recycling activities partially offset loss of revenue from disposal of liquid and road borne activity at Mucking Landfill operations helped by firming prices, contract expansion (Gloucestershire County Council) and new operations in Merseyside Public Inquiry underway into establishing a waste to energy facility in Bexley, London. Report expected to be published later in 2004 Operating review 2003 £m 2002 £m % actual change % organic change Turnover Operating profit14.2 -(0.7) Margins12.8%13.6%

20 Profit Before Tax Causal change Year on Year Operating review Freight Management 2002 PBT at constant rates Contract Logistics Cory Environmental 2003 PBT Interest £m Total Group EBIT £154m (£144m) up 7% 1 Margin 3.0% (3.1%) 1 based on constant currency

21 Financial review John Coghlan Deputy Chief Executive and Group Finance Director

22 Profit and loss Before goodwill and exceptional items Financial review Interest cover 3 18x12x Dividend per share24.7p22.8p 2002 £m £m Operating profit - Continuing Discontinued-(0.2) (6.0)(12.8)Net interest Profit before tax % Change Earnings per share p30.6p Year to 31 December at actual exchange rates 1: pre goodwill amortisation, exceptional items and net return on pension schemes 2: as per basic earnings per share adjusted for non-cash pension service costs, after tax 3: based on interest on net debt Pension adjusted eps p38.6p

23 Analysis of net interest and interest cover 2002 £m 2003 £m (8.4) (12.8) Financial review Year to 31 December at actual exchange rates Interest on net debt Sirva preference dividends 2.3 Net interest(6.0)(12.8) Interest cover 1 18x12x Other investment income0.1 1: based on interest on net debt

24 Earnings per share 2003 pence pence Financial review Year to 31 December at actual exchange rates Underlying basic earnings per share Impact of non cash pension costs Pension adjusted earnings per share

25 Profit and loss 2002 £m 2003 £m Goodwill(29.3)(25.6) Exceptional items Profit before tax Financial review Year to 31 December at actual exchange rates Net return on pension schemes (FRS 17 finance income) Underlying profit before tax

26 Exceptional items 2002 £m 2003 £m (13.8) Financial review Year to 31 December at actual exchange rates Loss on termination and disposals (10.5) Total exceptional items Loss on disposal of fixed assets Sirva:Profit on disposal at IPO and asset write back Prior year arrears on preference dividends

27 Cash flow analysis Year to 31 December 2003 Financial review £m Op profit and depreciation £254m Working Capital £3.4m

28 Working capital management: 2001 – 2003 progress 12 month moving average Further progress in 2004 will be more modest but underlying positive performance should be sustained £m 2001 £186m 2002 £136m 2003 £98m Financial review

29 Op profit and depreciation Cash flow analysis Year to 31 December 2003 Financial review £m £254m Working Capital £3.4m Pensions £42.1m

30 Principal UK pension schemes Nil cash contributions to FRS 17 service cost £42m Agreed £10m p.a. cash contribution to 31/12/06 for principal UK schemes 2004 FRS 17 pension service cost estimated at £48m 2004 net return on pension schemes estimated at £36m (2003 : £29.8m) Financial review

31 Cash flow analysis Year to 31 December 2003 Financial review £254.0m Working Capital £3.4m Pensions £42.1m Sirva £26.0m Op profit and depreciation £m

32 Sirva c. $50m cash realised thus far Further benefit to come - but caution on price and timing Financial review PBTCash Realised - Capital - Interest / dividends Unrealised - estimated value at ($22/share) 14 $m

33 Cash flow analysis Year to 31 December 2003 Financial review £254.0m Working Capital £3.4m Pensions £42.1m Sirva £26.0m Net Capex £76.4m Op profit and depreciation £m

34 Capital expenditure Net capital expenditure 136%106% Gross capital expenditure as a percentage of depreciation (30.1) (33.3)Disposal proceeds Gross capital expenditure 2002 £m 2003 £mYear to December % 74% Net capital expenditure as a percentage of depreciation Financial review Cory Environmental 12% Freight management 16% Contract logistics 72% Contract backed 65% Total spendAll contract logistics projects Non-contract backed 35%

35 Cash flow analysis Year to 31 December 2003 Financial review £254.0m Working Capital £3.4m Pensions £42.1m Sirva £26.0m Net Capex £76.4m Tax, Int. and other £49.3m Dividend £68.4m M&A £110.5m Free cash flow £193.0m Net cash inflow £14.1m Op profit and depreciation £m

36 2003: significant movement in both US Dollar and Euro average rates 2004: guidance PBT impact of a one cent change in: US$ & US$ related£0.6m £0.2m Foreign exchange Financial review 2003 Impact rate £m $ 1.64 (7.1) TOTAL(4.2) In December 2003, we indicated a £4-5m YOY impact up to $1.70

37 Balance sheet Net debt 17.3Minority interests (135.2)Provisions (inc. deferred tax) 702.0Shareholders funds 572.2Fixed assets 483.9Goodwill Working capital 21.7% Gearing (111.4) £m 23.0% (129.2)Other net liabilities(158.9) Financial review 53.7Net pensions assets % Gearing -excluding net pension assets and liabilities 24.5% As at 31 December £m : restated

38 Financial review Return on invested capital % % Inclusion of non-contract backed operating leases does not change the trend nor significantly reduce the overall return on assets

39 Strategic update and outlook John Allan Chief Executive

40 Strategic update global coverage integrated capability customer focus skilled people consistent processes local strength breadth of solutions supply chain expertise operational excellence Mission To be the preferred supply chain partner to our customers To create new value in the supply chain for our customers, employees and shareholders through consistently superior delivery of innovative business solutions Exels revised strategy

41 Contract Logistics and Freight Management Contract Logistics and Freight Management Contract Logistics and Freight Management Europe Middle East and Africa AmericasAsia Pacific Global Freight Management Global Sector Development teams Consumer, Retail, Technology, Automotive and Healthcare Global functions Finance, IT, Human Resources, Marketing, Legal Services, Property and Risk Strategic update Exels organisation structure

42 Strategic focus Balanced growth across key sectors and regions Priorities Regions Major Asian economies including China Central and Eastern Europe Sectors Non-food retail, particularly in the US Services Seafreight including consolidation services Strategic update

43 Growth Sustain strong organic revenue growth Identify and execute strategically sound, sensibly priced acquisitions Customer Relationships Leverage and deepen relationships with key customers globally Underperformers Continue to fix underperforming business units inc. US freight mgt Technology Use technological developments to provide competitive advantage, reduce costs and create value for our customers Talent Attract, retain and develop management talent throughout Exel 2004 management priorities Strategic update

44 Developing Exels growth strategy Strategic update Organic growth opportunities from existing capabilities Acquired growth opportunities Enhancing capabilities through internal investments Increasing value created by… innovation in new services operational excellence delivery of leading IT skills Accelerating growth through… increased customer penetration developing new customers cross selling solution sets Expanding through new… geographies capabilities customers and sectors

45 Developing Exels growth strategy Strategic update Acquired growth opportunities Enhancing capabilities through internal investments Organic growth opportunities from existing capabilities Accelerating growth through… increased customer penetration developing new customers cross selling solution sets Increasing value created by… innovation in new services operational excellence delivery of leading IT skills Expanding through new… geographies capabilities customers and sectors

46 Strategic update Exel and Unilever have had a long-term relationship: 1980s first contracts in the UK and US 1999 re-engineered Brazilian supply chain for Unilever home products 2002 European managed transport service established 2003 has been a year of major development with Unilever April 2003 June 2003 Jan 2004 June developments included: New operations in China, India and Indonesia Opened major automated facility in the UK New contract for UK facility (opening in 2005) Additional operations in Brazil Dec 2003

47 Organic growth opportunities from existing capabilities Enhancing capabilities through internal investments Developing Exels growth strategy Strategic update Increasing value created by… innovation in new services operational excellence delivery of leading IT skills Accelerating growth through… increased customer penetration developing new customers cross selling solution sets Acquired growth opportunities Expanding through new… geographies capabilities customers and sectors

48 Acquisitions strategy Over the last 18 months Exel has completed 6 major acquisitions totalling nearly £200m Focus has been on developing sector capabilities and strengthening geographic presence CompanySectorMain operations in Power LogisticsConsumer and RetailUS and UK Eagle FreightFreight ManagementSouthern Africa Transbeynak HealthcareTurkey Unidock's HealthcareBrazil CappellettiConsumerItaly Pharma LogisticsHealthcareBelgium, Italy Fujitsu Logistics 1 TechnologyJapan Strategic update 1 Agreed in principle and not included in the above figures

49 Overview of Pharma Logistics An Italian and Belgium pharmaceutical logistics company Services include ambient and chilled storage, distribution, transport, clinical trials Italy -Leader in the Italian market -Eight operational locations in Italy handling ethical pharmaceuticals -47 clients Belgium -Handles 35% of all pharmaceutical and para-pharmaceutical products distributed in Belgium -Key location in Huizingen -50 clients Strategic update

50 Belgium Key location in Huizingen Comprises 16,500 m 2 warehouse space Including 550m 2 chilled storage Additional 7,000m 2 warehouse space in Turnhout Typically 300,000 orders per annum Italy Eight operational locations Four in Settala industrial park campus One in Cerro al Lambro One at Peschiera Borromeo Two in Rome – Pomezia and Via Collatina Comprises 60,000m 2 of warehouse space includes 2,000m 2 of chilled storage Typically 800,000 orders per annum

51 Japan presents a significant opportunity Second largest economy in the world Japan holds the commanding heights of global manufacturing -Worlds top 24 machine tool manufacturers -16 Japanese, 4 European, 4 American -17 of the worlds top 18 industrial robot manufacturers are Japanese Logistics supply chain management now a high priority for Japanese companies Distribution market estimated at US $400 bn p.a. (all industries) 3PL as a percentage of total distribution market still very low by comparison with Europe and USA (3%) Economy coming out of recession Strategic update

52 Exels strategy for Japan Freight management – organic growth Contract logistics – acquisition is preferred route to accelerate growth from existing modest base Japanese M&A market -opportunities very limited -long gestation period -often < 100% available (minority stakes) -no standalone 3PL opportunities (all in-house logistics functions) mission: establish the Fujitsu logistics operation as a leading supply chain platform for the technology sector in Japan

53 Strategic update Essentially a 4PL using contracted suppliers for services required by Fujitsu 624 employees/1,050 contractors Approximately 190,000m² of storage throughout Japan (56 sites) -Factory Dedicated (23), Multi-User DCs (14), Sales Sites (19) 50% of revenue is derived from domestic road transport 630 vehicles of which 10 are owned Approx 100% of revenue derived from Fujitsu companies Overview of Fujitsu

54 Rinku Rinku Center (RIL) -24-hour CCTV -Air-conditioned Ichikawa Ichikawa Logistics Center (ILC) - Air-conditioned - Refrigerated - Multi-user Funabashi Funabashi Logistics Center (FLC) -Up to 3600m² of ventilated and racked space Funabashi Business Logistics Center (BLC) -24-hour CCTV -Equipped a high security, steel cage for high value cargo Narita Narita Logistics Center (NLC) -lair-conditioned -24-hour CCTV -Equipped with high security, steel cage for high value cargo -TAPA certified Strategic update Exels contract logistics facilities in Japan

55 Strategic update Fujitsus infrastructure Distribution centre Sales base Factory base Hokkaido Tohoku Hokuriku Osaka Chugoku Shikoku Kyusyu Hokkaido/Tohoku - Sapporo Butsuryu Centre - Sendai Butsuryu Centre - Fukushima Butsuryu Centre (Desktop PC) - Kita-Kantsuo Butsuryu Centre (Oyama) - Nasu Butsuryu Centre - Niigata Butsuryu Centre - Tsubame Butsuryu Centre Metropolitan - Tokyo Butsuryu Centre - Narita Butsuryu Centre - Kawasaki Butsuryu Centre - FS Jigyoubu Kawasaki Butsyuryu Centre - Matsudo Butsuryu Centre Metropolitan Kyushu - Fukuoka Butsuryu Centre - SCM Centre Miyazaki Chugoku/Shikoku - Shimane Butsuryu Centre (Laptop) - Hiroshima Warehouse - Takamatsu Terminal - Akashi Factory (CRT) Osaka - Takatsuki Butsuryu Centre Chubu/Hokuriku - Nagano - Hokuriku Butsuryu Centre (Ishikawa-ken) - Nagoya Butsuryu Centre - Hamamatsu Butsuryu Centre Chubu

56 Developing Exels growth strategy Strategic update Organic growth opportunities from existing capabilities Acquired growth opportunities Accelerating growth through… increased customer penetration developing new customers cross selling solution sets Expanding through new… geographies capabilities customers and sectors Enhancing capabilities through internal investments Increasing value created by… innovation in new services operational excellence delivery of leading IT skills

57 Radio Frequency Identification (RFID) Strategic update RFID, the tagging of products, trucks, containers etc., will potentially have a significant impact on supply chain management Major users mandating the use of RFID technology include: -Wal*Mart, Tesco, Metro, Target and the US Department of Defence

58 Totes are controlled during manufacturing by RFID tags Tags are built into the individual items On dispatch the items are scanned onto a vehicle fitted its own RFID tag At RDC vehicle is automatically sent to right dock Automatic control of sortation and picking at RDC Tags read on dispatch to update status The delivery vehicle pays road and bridge tolls automatically Store stock is automatically updated on receipt On-shelf readers monitor stock and drive replenishment from back-room and RDCs Customer cart gets read at cashier for payment Tags can also act as security device Refrigerator monitors stock and reorders items Courier uses RFID wrist band/key fob for vehicle locks Waste is sorted and administrated Strategic update RFID has the potential to be used throughout the supply chain

59 Radio Frequency IDentification (RFID) Strategic update RFID, the tagging of products, trucks, containers etc., will potentially have a significant impact on supply chain management Major users mandating the use of RFID technology include: -Wal*Mart, Tesco, Metro, Target and the US Department of Defence Exels has committed resources to develop a leading position: -Established a cross-functional global team to evaluate RFID implications and global opportunities -Customers will need considerable support to manage implementations -Launched a number of trials with customers: -Selfridges (implications for UK logistics) -House of Fraser (global supply chain management challenges)

60 Outlook Growth opportunities remain strong The translation of US dollar earnings will almost inevitably have a negative impact on reported results However, providing emerging trends in world economic conditions remain positive, we believe Exel is well positioned to make good underlying turnover and profit progress in 2004 Conclusions

61

62 Spread and Balance of Activities Turnover and operating profit by geography * includes Africa & Middle East TurnoverOperating profit United Kingdom & Ireland 32% Asia Pacific 15% Americas 33% Continental Europe* 20% Additional information Based on 2003 full year information United Kingdom & Ireland 27% Asia Pacific 27% Americas 33% Continental Europe* 13%

63 Spread and Balance of Activities Total logistics by geography and sector * includes Africa & Middle East Geographic BalanceSector Focus Other 4% Consumer 26% Retail 19% Healthcare 5% Technology 22% Chemical 5% Automotive 12% United Kingdom & Ireland 32% Asia Pacific 15% Americas 33% Continental Europe* 20% Industrial 7% Additional information Based on 2003 full year information

64 Spread and Balance of Activities Freight management by geography and sector * includes Africa & Middle East Geographic BalanceSector Focus Other 7% Consumer 21% Retail 9% Healthcare 5% Technology 35% Chemical 3% Automotive 8% United Kingdom & Ireland 10% Asia Pacific 29% Americas 36% Continental Europe* 25% Industrial 12% Additional information Based on 2003 full year information

65 Spread and Balance of Activities Contract logistics by geography and sector Geographic BalanceSector Focus Other 1% Consumer 30% Retail 28% Healthcare 5% Technology 11% Chemical 7% Automotive 16% United Kingdom & Ireland 51% Asia Pacific 4% Americas 30% Continental Europe* 15% Industrial 4% Additional information * includes Africa & Middle East Based on 2003 full year information

66 Segmental analysis as reported Pension accounting

67 Segmental analysis with FRS17 service costs shown separately Pension accounting


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