NWF Group plc
NWF Group plc: half year results for the six months ended 30 November 2023
NWF Group plc (‘NWF’ or ‘the Group’), the specialist distributor, today announces its half year results for the six months ended 30 November 2023.
| H1 2023 | H1 2022 | % | |
| Financial highlights | |||
| Revenue | £472.9m | £541.8m | (12.7) |
| Headline operating profit1 | £4.0m | £6.8m | (41.2) |
| Headline profit before taxation1 | £3.4m | £6.2m | (45.2) |
| Diluted headline earnings per share1 | 5.1p | 9.9p | (48.5) |
| Interim dividend per share | 1.0p | 1.0p | – |
| Net cash 2 | £13.3m | £1.2m | >100.0 |
| Statutory results | |||
| Operating profit | £4.6m | £6.7m | (31.3) |
| Profit before taxation | £3.8m | £5.9m | (35.6) |
| Diluted earnings per share | 5.5p | 9.3p | (40.9) |
| Net debt (including IFRS 16 lease liabilities) | £14.3m | £30.0m | 52.3 |
1 Headline operating profit excludes exceptional items (see note 4) and amortisation of acquired intangibles. Headline profit before taxation excludes exceptional items, amortisation of acquired intangibles and the net finance cost in respect of the Group’s defined benefit pension scheme. Diluted headline earnings per share also takes into account the taxation effect thereon.
2 Net cash excluding IFRS 16 lease liabilities.
Group highlights
• Normalising market conditions in Fuels and Feeds resulted in lower margins and therefore lower profitability as expected.
• The Food business delivered a strong performance supporting the recently announced investment in the new Lymedale warehouse.
• Strong financial position, with a £13.3 million cash position at the end of the half year, supporting the £8.5 million investment in the fit out of the Lymedale warehouse as well as a pipeline of potential acquisition opportunities in Fuels.
• The Board’s full year trading expectations remain unchanged ahead of the seasonally more significant second half.
Business highlights
Fuels – headline operating profit of £0.7 million (H1 2022: £2.6 million). Volumes were ahead of the prior year driven by commercial demand, offset by the expected normalising of margins from the abnormally elevated level experienced in the prior year, alongside lower demand for domestic heating oil.
Food – headline operating profit of £2.9 million (H1 2022: £2.1 million). Strong performance with increased storage volumes and distribution activity from the continued high level of customer demand.
Feeds – headline operating profit of £0.4 million (H1 2022: £2.1 million). Volumes lower than prior year, reflecting the reduction in the overall market. A lower milk price and reduced volatility in raw material prices compared to the prior year resulted in the expected normalising of margins.
Chris Belsham, Chief Executive Designate, NWF Group plc, commented:
“We have experienced a more challenging first half than in recent years, but our underlying expectations for the full year remain unchanged. Our performance in Food has been particularly positive and has in part offset the less supportive market conditions in Fuels and Feeds. Our recently announced investment in the new Lymedale warehouse highlights the growing customer demand in the Food business, increasing our capacity by 39%.
We continue to focus on our long-term growth strategy of development by both organic investment and through targeted acquisitions, supported by our strong financial position and confidence in NWF’s potential and future prospects.”
A virtual meeting is being held today for analysts starting at 9.30am. For login details please contact NWF@mhpgroup.com.
Information for investors, including analyst consensus forecasts, can be found on the Group’s website at www.nwf.co.uk.
| Richard Whiting, Chief ExecutiveChris Belsham, Chief Executive DesignateKatie Shortland, Chief Financial OfficerNWF Group plc Tel: 01829 260 260 | Reg Hoare/Catherine Chapman/Christian HarteMHP Communications Tel: 07711191518 | Mike Bell/Ed AllsoppPeel Hunt LLP (Nominated advisor and broker) Tel: 020 7418 8900 |
Chair’s statement
The first half of the year delivered lower overall profitability than the prior year, which was anticipated with normalising market conditions for Fuels and Feeds. In Fuels, although volumes increased, margins reduced due to stable supply conditions combined with lower demand for domestic heating oil, which reflected the mild autumn weather. In Food, there was a strong performance driven by the continued high levels of demand from customers with the business utilising overflow storage facilities as planned. In line with its stated strategy, the Group has expanded the capacity of the Food business with the signing of the lease for the new Lymedale warehouse which will add an additional 52,000 pallet spaces, representing a 39% increase in capacity. Feeds performance was in line with expectations as reduced volatility in raw material prices led to the expected normalising of margins. Feeds market volumes were lower, reflecting the lower milk price and the high level of forage available to farmers.
Results
Revenue for the half year ended 30 November 2023 was 12.7% lower at £472.9 million (H1 2022: £541.8 million), primarily as a result of lower commodity prices in Fuels and Feeds. Headline operating profit[1] was lower at £4.0 million (H1 2022: £6.8 million), with the prior year having benefitted from significant outperformance resulting from volatility in commodity prices in both Fuels and Feeds. Headline profit before taxation[1] was down 45.2% to £3.4 million (H1 2022: £6.2 million).
Basic headline earnings per share[1] was 5.1p (H1 2022: 9.9p) and diluted headline earnings per share[1] was 5.1p (H1 2022: 9.9p).
Net cash generated from operations for the period amounted to £9.0 million (H1 2022: £0.5 million absorbed). Cash generation was higher as a result of the unwind of £4.0 million short-term timing differences relating to supply constraints in the fuels market at November 2022 and £1.3 million legal settlement monies received. Net capital expenditure in the period was £1.6 million (H1 2022: £1.3 million).
Net cash at the period end, excluding the impact of IFRS 16, was materially higher at £13.3 million (H1 2022: £1.2 million net cash), reflecting the Group’s strong cash generation.
The Group’s banking facilities of £61.0 million are committed to May 2026 and NWF continues to operate with substantial headroom. Net debt including the impact of IFRS 16 was £14.3 million (H1 2022: £30.0 million).
Net assets at 30 November 2023 increased to £79.6 million (30 November 2022: £70.2 million). The IAS 19R defined benefits pension scheme valuation deficit has decreased from £9.6 million as at 31 May 2023 to £8.8 million at the half year, as a result of higher asset values offsetting the slight decrease in the discount rate assumption.
The Board has approved an unchanged interim dividend per share of 1.0p (H1 2022: 1.0p), in line with its policy. This will be paid on 1 May 2024 to shareholders on the register as at 22 March 2024. The shares will trade ex-dividend on 21 March 2024. The Group has increased the annual dividend by approximately 5% in each of the last ten years, reflecting the Group’s strong underlying financial performance and position.
Operations
Fuels
Revenue decreased by 14.2% to £344.8 million (H1 2022: £401.8 million) as a result of lower oil prices offsetting an increase in volume. Headline operating profit was £0.7 million (H1 2022: £2.6 million).
Volumes increased by 9.3% to 328 million litres (H1 2022: 300 million litres) with growth in commercial diesel and gas oil volumes, together with the contribution from Sweetfuels and Geoff Boorman Fuels (acquired in December 2022 and July 2023 respectively). Domestic heating oil volumes (excluding acquisitions) were flat, reflecting the warm autumn. In the first half Brent Crude averaged $82.49 per barrel (H1 2022: $99.08 per barrel) and ended the reporting period at $82.83 per barrel.
In the previous year, the oil distribution market suffered from supply issues which created uncertainty for customers and supported elevated margins as NWF benefitted from national supply agreements and a UK-wide depot network to continue to service its domestic and commercial customers. In the current financial year, supply conditions have been stable and, as expected, margins are normalising as a result.
The UK fuels distribution market remains highly fragmented, and the Board believes the opportunity for NWF to expand its depot network, broadening the customer base and leveraging scale efficiencies, remains significant. The Group has a strong and established acquisition and integration track record and is actively exploring several opportunities. The two most recent acquisitions (Sweetfuels and Geoff Boorman Fuels) have been successfully integrated and contributed as expected during the period.
Food
Revenue increased by 9.7% to £39.5 million (H1 2022: £36.0 million), reflecting increased activity. Headline operating profit was £2.9 million (H1 2022: £2.1 million).
Demand from our ambient grocery customers remained high during the period, which was reflected in storage volumes averaging 135,000 spaces (H1 2022: 122,000) and peaking at just over 141,000 pallet spaces. Capacity at the Wardle and Crewe sites totals 135,000 pallet spaces, meaning the business made efficient use of overflow storage facilities as planned. The increase in storage volume led to throughput being 8.8% higher than the prior year thereby driving increased revenue and profitability.
The high level of demand from both existing and new customers supports the signing of the lease for the 332,000 ft2 Lymedale warehouse and the £8.5 million investment in its fit out, which was signed on 9 January 2024. The work on the fit out of Lymedale has already commenced and the site is expected to be fully operational by early autumn of this year. This is in line with our stated strategy for the Food business of targeting warehouse expansion, where it is backed by customer and retailer demand and follows on from the successful investment in the Group’s Crewe warehouse, which opened in 2020.
In its first full financial year of operational activity, the year ending 31 May 2026, Lymedale is expected to deliver additional annualised operating profits of approximately £2.8 million. As a result of IFRS 16 interest in respect of the warehouse lease and associated additional leased vehicles, this will result in incremental annualised headline PBT of approximately £1.2 million in the financial year ending 31 May 2026, increasing to £2.5 million in the financial year ending 31 May 2035 as the IFRS 16 lease liability reduces.
Feeds
Revenue decreased by 14.8% to £88.6 million (H1 2022: £104.0 million) mainly reflecting lower commodity and therefore selling prices in the period. Headline operating profit was £0.4 million (H1 2022: £2.1 million) with the business having benefitted from highly volatile commodity prices and a record high milk price in the prior year.
Volumes were 5.5% lower at 225,000 tonnes (H1 2022: 238,000 tonnes) as a result of good grazing conditions and a high level of forage availability following mild weather in the period, with the Group also choosing to forego some low margin merchant blend volume. DEFRA data suggests the ruminant feed market was 1.4% lower.
In contrast with the prior year, commodity prices were stable over the period with no supply concerns. Average milk price over the period was 22% lower than the comparative period and was 38.2p per litre at the end of November (H1 2022: 51.1p per litre). Milk production was 1% lower for the period year-on-year. Whilst average milk price was lower than the comparative period, this was matched by a 20% decrease in average feed costs thereby maintaining farmers’ margins and supporting continued confidence in the dairy sector.
Our operational platform, with key mills close to customers in the northern, central and southern regions, continues to provide an effective base for future development. Investment has continued into NWF’s Feeds training academy to develop our future nutritionists.
Outlook and future prospects
As the Board expected, profitability in the first half was lower than in recent prior years, as pricing is normalising in Fuels and Feeds. In addition, the mild autumn weather impacted demand for both domestic heating oil and ruminant animal feed. In Fuels, demand for heating oil has increased as we moved into winter, albeit the weather has been comparatively mild to date. In Food, high demand has continued to be efficiently managed and we will continue to require overflow storage facilities until Lymedale capacity starts to become available in early autumn. In Feeds, margins and costs are being effectively managed as market volumes remain subdued and commodity prices stable.
With the winter months to come, which are typically more material to the Group’s performance, the Board’s expectations for the full year are unchanged, with a more significant second half weighting than last year. However, as stated in the announcement of the Lymedale investment, the initial ramp-up costs are expected to impact headline PBT in the current financial year ending 31 May 2024 by approximately £1.7 million. The net impact in the financial year ending 31 May 2025 is expected to be zero, as ramp-up costs are offset by revenue, with a full run rate of profitability achieved during the financial year ending 31 May 2026. Our financial position is strong and we continue to focus on development opportunities, both organic and through targeted acquisitions, which underpin our continued confidence in NWF’s growth potential and future prospects.
I look forward to updating shareholders later this year.
Philip Acton
Chair
31 January 2024