Wincanton PLC (LSE:WIN, OTC:WNCNF) said its free cash flow will be significantly improved after agreeing with its pension scheme trustees that no further contributions will be required before 2026.
The supply chain group’s pension scheme flipped from a £154 million deficit to a £3.9 million surplus and is approaching self-sufficiency, it said after the conclusion of the triennial valuation.
Previously, it was expected to have to make a payment of £23.6 million for 2024, rising further in years after in line with inflation, but with the improvement of the scheme’s valuation, the group and the trustees have agreed that no further contributions are currently payable.
Furthermore, prior conditions over 50% matching payments for dividends or buybacks have been removed.
Chief financial officer Tom Hinton said: "The agreement will significantly improve the group's free cash flow and we look forward to providing a further update on Wincanton's capital allocation at our interim results in November.”
He said the outcome of the valuation is the result of the investment strategy by the trustees and contributions from the group’s strong cash generation in recent years.
Broker Liberum earlier this year forecast that if pension contributions were significantly reduced the group would have “scope for increased organic investment, especially in warehouse automation and robotics, bolt-on acquisitions to add or bolster key capabilities (such as integration of automation and robotics into warehouse and customer systems), and enhanced payouts to shareholders”.
The uplift to equity free cash flow could be more than 50% in 2024, with the base case implying an increase of more than 70%.