Operational highlights:
· Revenue growth from increased activity in Food and Feeds and higher commodity prices
· Delivery of planned profit improvements in Food
· Acquisition in the Fuels market in December 2018 in line with strategy
· Board's full year expectations for trading performance and net debt levels unchanged
Divisional highlights:
· Fuels – headline operating profit of £0.9 million (H1 2017: £1.1 million). A warm summer reduced demand for heating oil with performance in the autumn months as planned.
· Food – headline operating profit of £1.0 million (H1 2017: £0.9 million). Profit in line with our expectations, demonstrating a strong recovery as planned from the second half of FY18, benefiting from new business won in the last 12 months.
· Feeds – headline operating profit of £0.7 million (H1 2017: £0.4 million). Benefits delivered from strong demand over the summer months, when grazing conditions were poor, and the investment made in prior years.
Richard Whiting, Chief Executive, NWF Group plc, commented:
“NWF has delivered profit improvement in line with our expectations in the first half year with each of the divisions performing as planned. The profit recovery in Food and the strong performance of Feeds over the summer are of particular note. It was pleasing to report delivery on our strategy with the acquisition of Midland Fuel Oil Supplies after the period end. Current trading is in line with the Board's expectations for the full financial year.“
CHAIRMAN'S STATEMENT
NWF has continued its development as planned in the first half year. Fuels delivered in line with expectations with a weaker summer market offset by stronger results in the autumn. The acquisition in December 2018 of Midland Fuel Oil Supplies demonstrates our strategic ambitions in that market. Food has increased profits significantly from the end of the prior year with higher activity levels from new customers won in the last 12 months. Feeds benefited from meeting the increased demand from our customers over the summer months to support the nutrition of dairy herds when grazing conditions were poor.
Results
Revenue for the half year ended 30 November 2018 was 11.7% higher at £330.5 million (H1 2017: £295.8 million) as a result of increased activity in Food and Feeds and higher commodity prices in the period. Headline operating profit1 was higher at £2.6 million (H1 2017: £2.4 million), with the increases in Food and Feeds more than offsetting the reduction in Fuels. Headline profit before taxation1 was £2.4 million (H1 2017: £2.2 million).
Headline basic earnings per share1 was 3.8p (H1 2017: 3.6p) and headline diluted earnings per share1 was 3.8p (H1 2017: 3.6p).
Net cash absorbed by operations for the period amounted to £4.9 million (H1 2017: net cash absorbed of £0.6 million). The normal seasonal trading pattern results in a cash outflow in the first half with increased activity in Feeds absorbing cash in working capital in the first half.
Net capital expenditure in the period was £1.4 million (H1 2017: £1.6 million) reflecting normal replacement capex as planned.
Net debt at the period end was lower at £14.8 million (H1 2017: £16.3 million), reflecting profit improvement and effective management of working capital in spite of increased demand in Feeds over the period. Net debt to EBITDA reduced to 1.0x (H1 2017: 1.2x). The Group's banking facilities of £65.0 million are committed to October 2023 and NWF continues to operate with substantial headroom.
Net assets at 30 November 2018 increased to £46.9 million (30 November 2017: £39.6 million) largely due to the decrease in the accounting valuation of the pension scheme deficit. The IAS 19R valuation has decreased from £19.0 million to £15.4 million primarily as a result of an increase in the discount rate from 2.70% to 3.25%.
Dividend
The Board has approved an interim dividend per share of 1.0p (H1 2017: 1.0p). This will be paid on 1 May 2019 to shareholders on the register as at 22 March 2019. The shares will trade ex-dividend on 21 March 2019. The Group has a progressive dividend policy and has increased the annual dividend by c. 5% in nine of the last ten years.
Operations
Fuels
Revenue increased by 12.0% to £222.4 million (H1 2017: £198.5 million) as a result of higher oil prices. Headline operating profit was £0.9 million (H1 2017: £1.1 million).
Volumes reduced by 2.2% to 263 million litres (H1 2017: 269 million litres) with lower heating oil and diesel sales, particularly in the summer months, partially offset by increased gas oil sales. Brent Crude increased during the first half to an average of $75.04 per barrel (H1 2017: $54.11 per barrel) and ended the reporting period at $58.71 per barrel.
In line with our strategy we acquired Midland Fuel Oil Supplies in December 2018, a 12 million litres fuel distributor which consolidates our market position to the South and East of Birmingham.
Food
Revenue increased by 22.1% to £23.8 million (H1 2017: £19.5 million). Headline operating profit was £1.0 million (H1 2017: £0.9 million).
As anticipated, storage volumes increased to 96,000 pallet spaces (H1 2017: 89,000). This increase results from the new business won in the last 12 months to support the long-term future of the Wardle site.
Activity measured in the number of loads was significantly higher than prior year as the new customers have a greater stock turn which increases outload requirements. We have completed a successful trial as an Aldi platform provider and continue to develop this business opportunity.
The Palletline operation continued its planned development and we now have four customers utilising our e-fulfilment operations which continue to expand.
Feeds
Revenue increased by 8.4% to £84.3 million (H1 2017: £77.8 million) as a result of increased volumes and higher commodity prices. Headline operating profit was £0.7 million (H1 2017: £0.4 million) benefiting from increased volumes.
Volumes were 5.3% higher at 279,000 tonnes (H1 2017: 265,000 tonnes) as farmers utilised more feed, particularly over the summer months when grazing conditions were poor and our nutritionists advised higher feed rates to maintain milk output. Fodder stocks are now at broadly normal levels across the country following a positive autumn period.
The market experienced inflationary pressures during the period with increased commodity prices being passed through to farmers. Whilst milk prices increased over the summer months to over 30p per litre, with increased feed usage and prices this broadly offset the revenue gains for farmers. Milk price cuts have subsequently been announced by a number of dairies which increases pressure on farm incomes going forward. Average milk prices at the end of November were 31.8p per litre (November 2017: 31.7p per litre).
Our operational platform, with key mills close to customers in the North, Central and Southern regions, delivered the expected efficiencies and provides an effective base for future development.
Outlook and future prospects
The Group has continued to perform as planned since the period end. In Fuels, the normal seasonal increase in heating and gas oil has been delivered successfully in a market with increased oil price volatility. The acquisition of Midland Fuel Oil Supplies was completed in December 2018. In Food, activity levels continue at their higher rates and customers are considering their options for storing additional stock as a contingency against a hard Brexit. This is against a backdrop of limited warehouse capacity available in the market. In Feeds, following outperformance in the first half, volumes have been a little lower in the ruminant market as farmers look to reduce feed bills.
We continue to focus on growth initiatives, both organic and through targeted acquisitions. We also continue to monitor the various Brexit scenarios and make plans as necessary.
Overall the Group continues to trade in line with the Board's expectations for the full financial year and I look forward to updating shareholders later this year.
Philip Acton
Chairman
29 January 2019