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Wincanton has published its financial results for the six months to 30 September. Revenue increased by 5.9% year on year to £931.8m operating profit was up by 7% to £21.4m, helped by a lot of new business. The company forecasts further operational and strategic progress over the full year, but the figures reveal a mixed picture. Wincanton's core market, the UK and Ireland, has continued to improve. Turnover remained flat at £575m but operating profit rose by 10%, to £20m. This momentum is likely  to be sustained for the rest of the year, helped by a five-year £900m contract with Somerfield.

Two recent domestic purchases, RDL Holdings and the Lane Group, will strengthen the company's position in the construction and home-delivery markets. However, results from the Continent were not so encouraging. While revenue improved by 17% to £356.7m, operating profit fell by 22% to £1.4m due to a shortage of subcontractors, continuing losses in the Spanish operations and lower-than-expected results from a new contract in Central Europe.

Things are expected to improve in the second half of the year because of opportunities in the French and Central European markets. Nevertheless, the company still faces substantial challenges. The first is a trend that is affecting the whole logistics industry - poor margins. While Wincanton's operating profit has risen, total operating margin is still only 2.3%, and just 0.4% on the Continent. One cause of this is the fragmentation in this  sector. A Datamonitor report, Logistics Benchmarking and Profiler 2006, shows that only one company, DHL-Exel, holds more than 5% of the global contract logistics market. Also, transport costs have come under pressure from rising oil prices - though some firms have been able to pass the additional expense onto their customers.

Wincanton also faces two company-specific issues. The first is its continued reliance on the domestic market for the majority of its revenue. Although this proportion has fallen year on year, it still stands at over 60% and is set to rise with its two new acquisitions. The second factor is the ongoing disruption in its Spanish operation, both in terms of finance and in the amount of management time spent on resolving the situation. Consequently, although Wincanton's latest results show the company is heading in the right direction, there are still challenges that need to be tackled in the near future.