NWF Group (LSE:NWF) — Half Year Results

0:01 Good afternoon and welcome to the NWF Group PLC Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time just by using the Q and A tab situated in the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to make the following poll. I'd now like to hand you over to CEO, Chris Belshan. Good afternoon to you, sir. Thanks,

0:33 Alessandro, and, good afternoon, everyone. Thanks for joining this NWF GROUP results presentation for the half year to 11/30/2024. We'll take you through our presentation, and then please do submit questions. We enjoy q and a, and it helps you understand the business a bit more. So the more questions, the better from my perspective. I'm joined to I'm Chris Belshan, the chief executive, and I'm joined today by Katie Shortland, who's our chief financial officer. Right. If we just move on. I thought it'd be worthwhile. Some of you probably know the group reasonably well, but we hopefully have some people who are who know the group less well. So I thought it'd be worth giving a a bit of an overview of the group to start with.

1:20 So NWF GROUP is a specialist distributor operating across The UK, And our job is to act as a vital link in the supply chain, connecting essential suppliers with their customers. So what we enable customers and their suppliers to do is to trade with each other where they otherwise wouldn't be able to do so. And each of the three markets we currently operate in, we've got scale and capability barriers to entry. Now what we're simply trying to do as a group is improve our businesses through optimizing our commercial approach. That's improving our sales model, making sure we're operationally efficient as possible. We're then looking to grow our customer base, grow our market share, and where necessary, we'll support that by capital investment.

2:09 And lastly, we're looking for opportunities for strategic m and a, which can also grow the group. And all of those things together will deliver our investment case, which is sustainable and increasing profitability, a strong return on capital employed, consistent cash generation, a robust balance sheet, and therefore, an increasing dividend. If I then just dip into each of our three current businesses, so in fuels, we're the third largest bulk liquid fuel distributor in The UK. We're servicing over a 100,000 SME, and domestic customers, powering their businesses, and heating their homes. In our food business, which trades as Bowie, we're a leading ambient grocery consolidator.

2:55 We're a real specialist in that space with about five to 10% market share, and we look after about a 125 customers, enabling them to access the retailer's supply chain in the most cost effective and lowest emission way. And in feeds, we're the second largest ruminant feed distributor in The UK with over 4,000 farming customers who were helping to feed their herds and optimize their yield and therefore maximize their income. If we then move on to our performance in the half year. So overall, a strong first half performance, which we we expected as a board, so in line with our expectations. Revenue, for those of you who know the group well, you'll know is not a particularly meaningful metric for us as both our fuels and feeds business have a significant element of commodity pass through and in the case of fuels, also duty.

3:51 So, actually, what you'll hear in a minute is that activity levels in all three businesses increased. The the reduction in revenue there for is really just a reflection of a lower oil price and lower agricultural feed commodities. Far more importantly is what's happened to our profit metrics. So both our headline EBITDA, our headline operating profit, and our headline profit before tax were all higher than the comparative period, as I say, as the board expected. We also generated cash in the first half. So despite the investment we made in our new Linedale warehouse in the last twelve months, we still have a very strong positive cash balance of 11,400,000, and that's important given some of the acquisition activity we're looking to take place over the coming months.

4:41 And our dividend for the first half remains unchanged at a penny, But remember, we have grown our final year dividend for the last thirteen years in a row, and analysts would have us down to do the same again, increasing by about 4%. But then talk about each of the individual businesses starting with our fuels business. So here, the underlying trading was relatively straightforward. So we have a small increase in volume, but, you know, to all intents and purposes, volume was flat. But importantly, we were able to benefit from cost saving measures that we took at the start of the financial period. So at the start of June, we reduced, the number of roles in the business by 45 roles and also reduced our tanker fleet.

5:32 And that was just to rebase the cost base and to marry up with the normalized volume and margins that we were seeing post the Ukraine crisis. So we carried a lower cost base into this period. We then had similar volumes. We saw a little bit of gross margin improvement, and that's dropped through that lower cost base to give us overall higher financial performance. Also importantly in this period, we've continued our initiatives to improve both our operation, operating model and also our commercial sales model. And if, Katie, you could just go to slide 30. It's probably a little bit easier to to explain this.

6:23 So this shows our current depot network. And and you'll recall in the past, we've operated very depot led models. So each of these red dots on the map was a separate business and would have a depo manager who was responsible for managing all aspects of that business. But what we found in our Northwest region, where you can see we have the greatest depot density, is that this was our least efficient part of the country. And the reason for that is each of those depots was trying to maximize their sales, so they were starting to sell in each other's territories. And I'm kind of okay with that because that's about maximizing sales, so, yeah, that's good.

7:09 But what isn't good is they were also sending tankers into each other's geographies. So if I just make up an example, really, a salesperson in Preston could have had a customer down near Wardle, and they would be sending a tanker down to Wardle rather than a tanker from Wardle doing that delivery. So what we've done in the period is, firstly, we've allocated our vehicles to where they're most frequently delivering. So we've rejigged around where tankers sit. We've then given them very, very strict geographical areas that they can they can they're not allowed to go outside, and we're now routing those vehicles on a regional basis, so that we use them more efficiently.

7:56 We put that in place on the November 1, and we've already seen that we are traveling less distance to deliver the same amount of fuel. So early days, but we're starting to see some of those operational improvements come through. Then in terms of the sales model, we have split out our domestic and commercial sales operations because what those require are very different. So our domestic customers want a pleasant experience and someone who's more of a customer services person to deal with those type of calls. We're on the commercial sales side. It's more akin to outbound telesales. So we split those teams. So we've got the the people best suited to each of those areas, sat in those areas, focusing on what they do best. And, again, we put that into place on the November 1 in the Northwest.

8:50 Still very early days in terms of the data, but I expect that I will see that we increase our ability to to sell more fuel from the same number of people. Sorry if we can get back to the other key thing just to pull out on the fuels area is our m and a pipeline. So this time last year, that had got quite quiet, and that reflected the fact that we'd seen a normalization of margins in the fuels market. And therefore, people weren't that keen to, think about selling their business. We saw by the time the summer came along that that was starting to pick up, and we now have a very strong pipeline. And if if anything, I'm a little bit disappointed not to be announcing a deal as part of these results.

9:36 But therein lies the challenge of buying family businesses. There's always slightly quirky issues that need to be addressed through due diligence and in the deal process. But as I say, a very strong m and a pipeline. It's well progressed, and, I'm confident that we will be concluding some deals in the reasonable, future. We then move on to our food business. So, you need to remember here that in the comparative period, we didn't have startup costs for our new Lyondell warehouse. So we were always going to deliver a lower result in this half than in the comparative period. In terms of how the new warehouse is going, and I can just see on the side of the screen, somebody's already asking about that.

10:25 So, firstly, that's, yeah, some some real positives out of that. So firstly, it's an excellent facility. The fit out went really well and came in under budget. The second real positive is the fact that we've been able to get a good team of people working there. So our recruitment process has gone really well. We've got the right number of people of the right capability, and they're operating well as a team. But there are a couple of learnings as well that, we'll take forward for the next time we open a new warehouse. So firstly, we have surplus customer stock that was stored with, third party off-site storage. And what we found in in bringing that back into our own warehouses, that has cost us more money than we expected it to.

11:18 I think that's really for two reasons. One, the the cost is really moving around existing customers within our existing warehouses, and we've done more of that than the business expected to do. And secondly, they've probably been a little bit perfectionist about it in hindsight, and we probably have undertaken some moves that we didn't really need to to do. So we spent a bit more money there, but that's done, and that's all in that first half.

11:45 The second thing we've, probably learned is operationally, if a customer tells us they're going to come in in in September, we we have to plan for that. But from a financial plan perspective, we probably should assume we might be a little bit later than that because of realities of their own business. So we found customers were a bit delayed coming in versus when they said they would, because of factors to do with their own business. In one case, it was they were doing an IT implementation, which delayed everything for a few weeks. The bit that sounds a bit stupid in hindsight was also Christmas plays into that. So, actually, customers who haven't moved by the end of October then wanted to put an air break in because they didn't want to jeopardize their Christmas trading and therefore wouldn't move till January.

12:35 So we've had a couple of examples of customers who were supposed to be with us in September, October time who ended up delaying till January, but that stock is now here. So that shifted out slightly the pipeline, but we still expect to be, where we need to be at the end of this financial year. The other thing that has impacted a bit on the food business in the first half is not related to the new warehouse, and that's we've just had a couple of customers, where their throughput has been slower than we expected it to be. So if you recall in this business, we make money by bringing stock in, handling it, storing it, handling it again, and delivering it to where it needs to go.

13:20 And if we don't have throughput, if cost stock has just sat with us, then all we're getting is the storage revenue. So we don't make a lot of money out of that. And we had a couple of customers where their throughput was very low. The main example was a business that went into administration. I'm pleased to say we didn't lose any money in respect to the administration, but the reason they went into administration was nobody was buying their product. So we ended up with an awful lot of their pallets sat not going anywhere, and that doesn't make us very much money. So under a new owner, I'm pleased to say we can we can now see that that stock is is going back down. Lastly, our focus in in this business is once we've got Lyondell's optimal capacity is to keep building that customer pipeline so that we can move on to our next warehouse expansion.

14:13 So the focus in the near team near term is building the right commercial team to be able to go out and win that business. Because in the past, we've tended to win business through referrals and it coming to us. We now need, if we really want to grow at the the pace that I want us to grow, to be going out and really taking market share. So we're in the process of building that commercial team to do that. If we were to, expand with further new warehouses, then I'd also be looking to do that outside the Northwest because we won't start building up a network so we get those transport benefits. So at the moment, a number of our vehicles act as trampers, I. E. The driver is sleeping in the cab somewhere in the country because they can't get back to base in time.

15:01 If we had a network around the country, we'd be able to get vehicles there and back, and therefore, we could use our fleet more continuously. So opportunity in starting to build up that network as we expand our warehouse footprint. But the priority first is to get the customers to enable us to get that growth.

15:21 We then move on to our feeds business and have really solid performance in the first half. So we had quite benign market. So last year, the milk price had reduced a bit, but farmers was dairy farmers were still making a reasonable income. This year, we've seen a higher milk price and a similar feed cost. Therefore, farmers are making more money, and that's incentivizing them to feed more. So we see that with the market having increased by 4.2% in the period, but I'm really pleased to say that we've increased our volumes in excess of that market. So we've grown at 9.3%. But anyone can grow volume if you give it away. So just as importantly, we've maintained our margins and managed our cost base really effectively. So we're seeing that drop through in terms of higher operating profit.

16:18 The other key thing to pull out around our feeds business in the period is an a tactical investment we've made in a new product, which is called moist feed. So moist feed is generally a byproduct of the brewing industry. So if you think of the grains that are left at the end of of of brewing beer, it's full of sugars and syrups and high energy sources. So it's a really good feedstuff for cows. And and many of our existing customers are buying this product, but they're buying it from other people. They're not buying it from other feed companies necessarily, but they're buying it from a different set of suppliers. And therefore, we could see the opportunity to provide the same product to our existing customers with a more guaranteed, supply because it's not a byproduct of a of another industry and also a more consistent product quality.

17:11 So we made an investment of £750,000 building the, facility at one of our existing, sites in Cumbria, and we launched the product in January. And so far, that's going very well. High degree of interest from our existing customers. We expect to make an IRR on that investment of well over 20%. So overall, it doesn't hugely move the dial, but it it shows, I suppose, an attitude in the group to, pursuing any opportunity that enables us to make a bit of incremental profit and and encouraging the spirit of a bit more entrepreneurialism across all three of our businesses to really go out and make money wherever they can.

17:56 And and if they come up with a good plan, then we will back that with our capital.

18:02 And on that note, I will hand over to Katie to talk through the financial details, a bit more. Thank you, Chris, and good afternoon, everybody. Sorry. We have lights here that keep going on and off when we move. I will talk you through the financial slides, pull out the key points, but if you've got any questions, please, use the function. I'll answer those later on. Okay. So in terms of, our income statement, as Chris has mentioned, revenue isn't necessarily a good driver for us in terms of our activity levels and our performance, where we will focus is around our operating profit. So as you can see for the first half in our fuels business, we've reported an operating profit of 1,700,000 versus naught 0.7 in the prior half year.

18:49 As Chris has mentioned, we've had, good volumes there, but we've actually had managed to maintain a good, profit pence per liter. For those of you that know know the business, you 'll know that's one of the key metrics that we look at. So it's really about making an absolute,

19:04 profit, per per pence per liter in terms of what we actually sell. So as you can see, last half year, that was not point two. This year, it's not point five. And, for those that know, as you will know that for our fuels business and our feeds business, we tend to be have more activity weighted in the second half of the year. So analysts would have that PPL being somewhere between one point one and one point two in total with with more, of that being generated in the second half of the year. From a foods business point of view, you can see that our, operating profit in the period is 2,500,000 versus 2.9 last year. It's important to note here that our, startup costs in LimeDale are included in this half year, but they weren't, in the last half year, results.

19:52 You'll you'll recall we signed the lease for for LimeDale in the in the January, of last year. So there was no cost associated with LimeDale in the first half year performance last year. From a feeds point of view, again, as Chris has said, we had a strong performance in the half. So naught point eight of operating profit versus naught point four. Again, good activity levels, but a good profit, per ton delivered there, which is a key metric for that business. So £3.25, delivered in this half year versus £1.78 in the prior half year. Other point to note on this slide is around our exceptional costs. So you can see in here, we have a cost of 1,100,000. That's comprised of of three factors. We have naught 100,000 in there, which relates to our ongoing ERP program.

20:40 So this is where we're looking at upgrading our ERP systems in our feeds and our food business. We have naught 400,000 in here relating to, restructuring costs in our fuels business. So Chris has talked earlier about some of the operational efficiencies we're driving there, and that's, manifested itself in a, headcount reduction, that took place at the beginning of the year, and that's what the naught point four relates to. And then we have naught 600,000 in here relating to a conflict of interest in our food business, and that cost is associated with the investigation activity undertaken by, senior accountancy firm.

21:22 In terms of the bottom half of the income statement, the only key points to bring out here is around the finance costs. So you'll have seen those have increased year on year for the half. That's all driven by, our lease costs. So predominantly, the the Lymedale, lease has impacted that. Our banking trust costs have remained, pretty much, in line year on year, but that's just the the onboarding of the the Lymedale lease. Our tax position remains with an effective tax rate of around 25%, and that's what we expect it to be from a a full year point of view. And as Chris has already mentioned, board support a position of 1p from a a dividend point of view for the half year with plenty of cover to support that.

22:09 From a balance sheet point of view, the main points to put out here, is around our right of use assets and our lease liabilities. So you will see both of those have increased by about the same amount between the half years. Again, that's related to our Limedale investment, so predominantly related to the warehouse, but also some of the equipment that we'll hire, to go in there, like a a manual handling equipment and forklift truck, those kind of things. The other point here, which I'll come on to a little bit later, is our our net cash. So as Chris said, we have a a strong cash position at the half year, as we look into the second half, and proposition of the acquisition pipeline. From a return on capital point of view, at a group level, we're at 17.8%, compared to the last half year of lost it now. I can't see it there.

22:58 22.7. Sorry. It's a very small number on my screen.

23:04 From a pension point of view, so our deficit has reduced, from the end of the year. So it was 4,500,000. It's now 3.7. That continues to reduce in line with the cash contribution that we make. So for those of you that are aware, you'll recall we make a cash contribution here of just over 2,000,000, pounds per annum, which increases in line with our our dividend growth. So that continues to do, the work it needs to in terms of reducing that deficit. We've also had a slight increase in our on our asset base there as well. Our next triennial valuation around this will, commence at the end of this calendar year, and so we'll look at whatever our our future strategy will be around our our pension at that point. And and from a cash point of view, that that that contribution, doesn't have any constraint for us from a group development point of view.

23:58 So cash flow, I've already talked about. So we made a a net cash inflow in the half year, which is, it is normally the more challenging half because our activity levels are lower, as I said, because of the the the feeds and the, fuels business in particular, but we had a good strong cash position after the, impact of investing in Lymedale, which is a good place for us to be at the half year. What you might note if you're looking at this in detail is you'll see that the the depreciation around our right of use assets looks slightly higher than the cash position there, and that's because on our LimeDale warehouse, we actually have a rent free period for the first eighteen months. So our p and l charge will look slightly higher than the cash position on that. The development spend in the in the period relates to, the Lyondell CapEx fit out.

24:54 From a funding point of view, so you may recall, we have existing facilities of 61,000,000, with an additional accordion of 20,000,000. Those were originally extended out to May 26, and we had an extension, proposal for a further two years, which we've exercised. So those facilities are now in place for us out to May 2028. So that puts us in a really good position, for future investment and development and supports, the the continued growth strategy that Chris and I are developing and shaping further with the board. On that note, I will hand back to Chris to talk a little bit more on the strategy. Thanks, Katie. So a strategy as a group is really quite simple, and I've all already mentioned quite a bit of this. So firstly, it's what are the group drivers? So optimization of our commercial approach is making sure we have the best sales process targeting each of our customer segments in each of our businesses.

25:56 And there's real scope for us to improve that because there's, you know, some real low hanging fruits in all three of our businesses have much more effective sales processes. So that's great because that should enable, organic growth. Secondly, we have some really expensive assets. We've got a lot of trucks, and therefore, we use need to use those as effectively and efficiently as possible. So we're in a constant battle to make sure we're looking for every opportunity to to eke out a little bit of improvement in how we use those. And, again, in two of our three businesses, in fuels and feeds, this hasn't really been a focus in the past. So, again, there's some low hanging fruit there that, we can take advantage of. We are very focused on organic growth, so growing our market share, growing our customer base.

26:47 And as I've mentioned before, we will back that up if needs be with capital investments. So warehouse expansion in our food business is a good example of that. Let's go out with the customers, and then we'll invest in facilities that we need to support those customers. And then lastly, we are looking at opportunities for strategic m and a, and that's across all three businesses. But today, has been mainly focused on our fuels business, and we're just starting to look in the food space, but I'll I'll come on to that in a moment. And those things together will deliver that investment case that I talked through talked through earlier. And one of the things we will be doing, over the next few months is starting to put some targets to that investment case. So it's all very well me saying we're going to increase our profitability.

27:38 As a shareholder or potential shareholder, what you really want to know is how much am I saying I'm going to increase that profitability by what return on capital employed am I actually saying we're going to deliver. So we we will, come back in the over the next few months with the right targets that we're we're looking to aim for over our next sort of one to five years. If we then dip into a bit more detail in in each of the three businesses. So firstly, starting with strategic m and a. And today, as I say, this has been mainly focused on our fuels business.

28:13 So at the moment, we are number three in the fuel distribution market. Number one in this market is a business called Certas, which, belongs to DCC, which is a 4,100 company. And their market share is probably north of 20%. Number two is a business called Watson's, and that's owned by US corporate. That's got probably double our market share.

28:42 We're number three. There's less than 5% of the market. And then below us, there's about 10 to 15 larger regional players, and then there's a very, very long tail of mom and pop businesses. And because there's there's two different markets, we have a dual approach to m and a. So firstly, we are consistently knocking on the door of the 10 to 15 large regional players, because that would enable us where we want to get to get to where we want to get to in one go. And it's always easier to do a large transaction than a small one. But it needs one of those businesses to want to sell. And to date, we haven't quite been in a position where some of these wanted to sell, and and we've you know, if that's been at a value, that would work.

29:28 So the other bit that's a bit more within our control is going at those mom and pop businesses at that long tail. These typically will be deal sizes between about 2 and £10,000,000. And, there are a number of those businesses at any time looking to sell because of when this industry was created tends to mean that the people who own the businesses are now at retirement age. So they're looking to retire and make a capital gain.

29:59 So there's always people we can talk to. Once we've agreed a price, and by the way, we're looking to pay about six times the EBIT we will make from the business, Then we have a standard proven acquisition process. So, we use the same advisers. We've got standard due diligence process, and our or we have standard legal documentation. So that's all quite efficient, albeit buying family businesses always has its, its quirks.

30:30 And then once we've bought the business, we also have a standardized integration plan. So, we're very clear how we'll integrate that business into our into our existing fuels business. And how do we deliver value from those? Well, personally, we can potentially, integrate that into an existing depot if it's nearby, and that realizes cost synergies. If we haven't got a nearby depot ourselves, then what it can do is give us increased depot density. And if we get increased depot density, we can drive out more operational efficiencies because our fleet is making more deliveries for a shorter, distance of travel.

31:12 And then with our improvements we're making around our sales process and sales model, we can deploy that into the business to drive more commercial activity. And then, clearly, if you look at the map there, we have lots of gaps. So each of those delivery locations is servicing about a 30 mile radius. So there's plenty of gaps on the map that we're looking to infill, build up density, put our sales model through it, and therefore drive more growth out of those acquisitions. So as I said earlier, the the pipeline is considerably stronger, than it was. The the whole market was making super profits a couple of years ago, so that tended to mean people were less keen to sell. That's now gone away. We're now in a normalized market, and therefore, people are have sale of the business back on the agenda. And, one thing we have done very recently is invest in some internal m and a resource just to keep keep momentum going there rather than people doing that around their day job.

32:15 I've also briefly mentioned at the bottom of the slide there, opportunities around energy transition. We do keep a very close eye on this, but the reality is it hasn't really moved in the last twelve months. General election clearly, did get in the way. So there's been no more great take up of biofuels, which could be an opportunity for us, but it will be driven by government policy. So the only significant change is that the current government has, committed to a sustainable aviation fuel, which you may have heard as part of the debate around, the third run rate runway at Heathrow. And the reason that's relevant is, sustainable aviation fuel is very similar to HVO, which could be a replacement for both diesel and also for heating oil used to heat homes. But as I say, very early days on that and, not much to report at this point.

33:19 Katie, do you want to talk about warehouse expansion? Yeah. Sure. No problem. Okay. So just as a recap on our Limedell investment. So we signed a fifteen year lease in January last year, as I mentioned earlier. That was for a 332,000 square foot warehouse, with capacity to store an additional 52,000 pallets. So as of today, as I mentioned, all major CapEx investment is now complete, and that came in under our plan, of 8,500,000. Storage commenced in March of last year with the first deliveries from the site being in April. By September last year, our stockholding at Lyondell was around 42,000 pallets and consisted of around 13 customers. So the site currently has around about 45 outbound loads a day depending on the seasonality.

34:09 Chris mentioned earlier around, some of the real successes here. So recruitment was a big one for us. So, recruitment and retention of staff for Lyme del has been really positive with the employment of around 90 warehouse staff, the majority of whom live locally. So there's been a good boost to the local economy, as well as a success story for us as well. Chris alluded earlier to, startup costs. So those costs associated with the various stock moves, have been slightly higher than we forecast in the first half of the year, but our expectation remains that for the financial year '26, we'll have a full year of operational performance. And just as a reminder, the original business case estimated an IRR of 20%, which we continue to support. K. Thanks, Katie.

34:59 The last case study we've got in here is actually around, the moist feeds facility up in Cumbria, which I think I probably talked about earlier in full. And I can see we've got a lot of good questions building up. So rather than repeat myself, I suggest we we move on to the end of the presentation and get stuck into those questions. So so just as an overall summary, really positive first half, continued focus on growth and growth as you've heard. So strong first half performance. We've had year on year growth in in headline operating profit and headline PBT, and that's been driven by fuels and feeds businesses, and positive cash generation, which we don't normally see in our first half.

35:46 Other thing to pull out is our new board is in place. So, Amanda Burton took over as the chair in September 2024, and that's just increased the level of ambition, of the board to pursue growth and and really increase the size of the group. And then just from a current trading perspective, we currently trade in consistent with the, board's expectations. So analyst expectations for the year, remain the same, and that gives us great confidence in the future development opportunities and outlook for the group. And, whilst they don't normally comment on our share price, I have spent the last week since our results being told by institutional investors that our share price is far too low, which I would concur with. So I don't think, that reflects the true value of the group and the opportunities that we have available to us.

36:43 So that concludes the presentation. As I say, we've got quite a lot of questions, So we'll start cracking through those. But if you want to submit any more, then, then please do. So the first question is growth in the feeds division does generally seem to be slower than the other two divisions. Are there any ways you can kick start some faster growth in this division? It's a more challenging market to achieve significant growth in. So overall, we've got about 18% of the dairy market and about 12% of the overall ruminant market, and that market is pretty much flat. So the number of cows in The UK is fairly flat.

37:30 The amount of milk produced is fairly flat, and therefore, the amount of feed to feed the cows to produce that milk is fairly flat. So the the real way to achieve growth in that sector would be to combine some of the market participants. That's something that people have had a various goes at doing in the past. The challenge is, quite a lot of of the people in that market are family businesses, multigeneration who will only sell for a price that wouldn't make sense. And then the three or four larger players, have never quite go will come into the dark again, have got quite around to doing it. So, yes, you are right to say the, the the obvious growth potential at the moment in the feeds business is lower.

38:21 The flip side of that is it also should be a very stable performer as well, which contributes really good cash, to the group, which we can use, for investment in areas where we can get a higher return. I think the second question is definitely one for Katie. Yep. Okay. So the second question is while Chris weighs his hand. Are NWF capable of passing on all the impact of the April national insurance increases and avoiding any impact to profit margins? So, yeah, so if you think so overall across our group, we have somewhere between fourteen hundred and fifteen hundred people that work for us. At least 900 of those work in our food business, our doughy business. And, actually, that's the business where we are able from a commercial point of view to have those conversations with our customers. So we will look to do annual price increases with, our customers.

39:12 That will be staggered throughout the year. There isn't a set cycle of that being the same month for all customers. But as part of that discussion, we will talk about inflationary costs that are impacting our cost base that we expect, to be included in price, discussions. So where the majority of our headcount sits, we can have those conversations. It gets a little bit trickier in the other two businesses, but what we will look to do there is, as I mentioned before, we're looking at getting that absolute margin in in in the in our fuels business and maintaining where where we are, in our feeds business. And we'll look to do that through either gross margin management or looking at where we can generate cost efficiencies, to to support the underlying cost of the business. K.

39:58 So the next question is definitely one for me. So in it's, it says in several of the last updates, fuel acquisition pipeline has been very has been described as very healthy, but very little activity seems to follow. Please comment. Oh, that burns. So the short answer is watch this space. The slightly longer answer is it reflects a bit the pipeline we're trying to buy. So the the challenge of buying mom and pop type businesses are when you come to actually look at what you're buying, there's all kinds of strange issues that you wouldn't expect. So a current one we're we're seeing is people who don't actually have a lease for the leased site that they are trying to sell, which they operate from.

40:53 And you just have to work through all of those. And I think that where that's got us to is it's a numbers game, and we need to be participating in a number of deal discussions, coterminously. And that's why we've invested in some internal resource. So we've got the bandwidth to be running three or four deals at a time because then if we hit a bump on one, we can continue with another. Whereas we're probably guilty in the past of of running those in series, and therefore, we've had less activity. But it's a fair comment. And as I say, short answer is watch this space. The next question is what specific efficiency initiatives are in place to improve margins across all three divisions? Well, I've talked about what we're doing in fuels. So, really, that's all about efficiency.

41:42 By by moving the vehicles, routing them on a regional level, and make sure that the vehicle that's nearest is made to the customer is making that delivery, we will drive greater efficiency out of our fleet, which is the single you know, our biggest cost in most of our business are people and vehicles. So that's what we're doing in our fuels business. In our feeds business, I think they escaped to do something similar, and that's something that I'd I'd certainly have on the agenda for the next twelve months. And then in our food business, this is slightly different in in this less obvious low hanging fruit because by the nature of that industry and who your customers and and ultimately the end retailer are, you're forced to be as efficient as possible.

42:31 That being said, we've clearly gone through a period of change with opening a new warehouse, and therefore, I think it's the right time to have one of our periodic reviews of productivity and whether we've got the right balance of of people, etcetera, for the level of activity. So scope there all the time to drive out little extra bits of efficiency. And then when you're not focused on it, it slips a bit, and you just need to refocus and and get it back into gear. So opportunity across all three. Yeah. Yeah. So question here. Previous food capacity was stated at a 187 pallets. The interim state at a 183,000. Any reason for fall? Yes. We've actually reconfigured one of our existing warehouse so as to make it, more useful for a certain product type, and that has reduced our capacity a bit, but that is higher margin business. So net net, it was worth losing the capacity to do that.

43:33 I think I think we've answered that one, haven't we, in the presentation? Yeah. So that was just talking about how the new warehouse was going and how farm fees were. So I think we covered both of those. And then beyond fuels, are there acquisition opportunity oh, lost the question there. Are there acquisition opportunities in food or feeds, or is the focus primarily on consolidated fuels? So fuels is more advanced. As I said, we have started to look in the food space, but I'm going to be really picky here. So I don't want to buy just some small general haulier. If I could buy something that looks the same as our food business, then that would be really, really interesting. But we are a fairly unique specialist, so I'm not sure the lookalike actually exists.

44:24 Another interesting area of conversation is talking to some of the bigger providers to say, actually, is that business that we would be better doing for them? And that's another dialogue I've started having. So m and a in the short term, more likely in fuels, but it's not exclusive to fuels. And similar linked question was around size of fuel businesses. So I think I've answered that when I was talking about, fuels deals. And then we've got food. Question. Alright. Apologies. I'm new to the story. Who are the customers of the business, which I think is that related to food? Think. Yeah. Okay. So in our food business, we are acting for food, either brands, manufacturers, or importers who are listed in retailers but are too small to have a dedicated supply chain into that retailer.

45:23 So what we're providing is a shared, user facility where a number of customers can be consolidated together to efficiently access that retailer. So as I say, we have about a 125 customers. Our largest customers are people like Squizzles and Arla, and then we have down to yeah. We don't have a particular tail because we've actually got rid of the smallest customers because we couldn't use those, cost effectively, but a a whole range of brands who just aren't big enough to have that dedicated supply chain into the end retailer. So if, someone like Tesco lists you, they may well actually recommend that that that you come and work with us because it's the most efficient way for them to have you going into their supply chain.

46:21 And a linked one to that, how big is your largest customer in food as a percentage of the division sales? We have a self imposed rule that we don't want anybody to be more than 15% of that business. In reality, nobody's more than 10% of that business at this point in time. And, frankly, I prefer the self imposed rule of 10% rather than the 50. What would the typical valuation multiple for acquisition of fuels think? I've I've I've mentioned that. So that's about six times EBIT. Are you using biofuels in your truck fleet, and general trend of using electrical vehicles isn't practical for you at the moment? So good question. So very few people are using biofuels in their truck fleet, and the reason for that is, HVO, which is the best diesel replacement, is about 15 to 20% more expensive.

47:15 So as a fuel business, if we ask people if they're interested, they in that, they say yes until you tell them the price. Our food customers similarly are interested until we tell them it will cost them 15 to 20% more on fuel, and then they're not interested. So very little, biofuel is being sold in The UK at the moment. In terms of electric vehicles, they are still not that practical. So we have some. We it works in our pallet line operation where they're doing relatively short trips and coming back to base quite frequently so it can be recharged. But the range really still isn't that great for our HGVs and our food business going longer distances.

48:07 And for our fuel tankers, there isn't really an option at the moment because you also need to run the pumps for when you're delivering fuel. And likewise, our feeds, trucks are going into distant parts of the countryside. So, again, it's not really practical at the moment. So we're not really seeing that. And I was with one of our competitors this morning, and they were saying the same thing. So I think there's a bit of technology still developing that still needs to happen there. How long was the suboptimal cross selling delivery between depots going on for prior to changing practices in and that's in our fuels business? That is the reality of a depo model. So when depots are, well separated out, then it doesn't really matter.

48:59 Albeit it probably means in stretching for new business, they're traveling too far. So we find with some of our depots that are geographically remote, they probably travel too far a distance to get that extra sale. And is is that long distance delivery, really making money? But we've been running a depot model ever since we've had a fuel business. So that that will have always been the case. The reason we've identified it is a real focus now across the group and in that business as well of where we can improve operational efficiency, and that's what's really highlights the opportunity to make an improvement there. What proportion of the properties you do that you operate from do you own outright and all the current value of these? What is the current value of these sites, and this is reflected on the balance sheet? So, our main operating site is a Wardle in Cheshire, and we own that site.

49:57 It's on our balance sheet for, I think, just under 20,000,000 now, but market value is probably about double that. And then in terms of our fuel depots and our other two feed mills, that's a mix. So we do have a proportion of freehold property there, albeit they're not particularly valuable sites. So our main property asset is the Wharton site. And then in terms of leased site, we do have some leased fuel sites, but they're relatively low cost. But our two newer warehouses at Crewe and Linedale are leased, and that's why we have a significant I f or one of the reasons we have a significant I f I f.

50:44 Never say it. I r IFRS 16, asset liability on the balance sheet. Why isn't the fuel business further north? Because we've never found anyone in the North prepared to sell to us is the simple answer. So we would love to expand further up in England. I've probably got a slightly different view on Scotland because with a different government in place there, which does have some authority over the the industry, we could find we're subject to different rules. And, also, the structure of the fuel distribution industry is a bit different in Scotland.

51:32 So quite a lot of the players up there also operate four core businesses, which is we don't run petrol stations. It's not something we have a skill set in. So it'd be a bit different to move in Scotland, but we'd be very keen to get into Northern England. And we we do bang on the doors of the main regional player up there who, politely tell us to go away again. Is that me? Yes. I think that'll go to you. So this question is, what are the chances of recouping any or all of the investigation costs? So as I said, the cost of data is 600 k, but the investigation is still ongoing, so we don't have full conclusion on that. And it does have some complexity to it, which, we did allude to in our our, initial statement. So this was a a conflict of interest in a supplier commercial arrangement, and the nature of the provision of those services lends itself to some complexity around IR 35, which is around self employed payroll and taxes. So at the moment, until the investigation is concluded, we can't draw any conclusions around that, but we we we do plan to give an update, to to the broader community, when we do our full year results, in in July, August time.

52:50 Okay. So the next two questions, I think, are linked. So one is asking what we've done around in in strengthening our sales capability in the food business. And then second question is why would a new food customer pick us? So I'll actually answer the second one first because I think that then becomes relevant to how we approach this market from commercially. So the reason somebody would pick us is because we are a real specialist. So most of our competitors are either the very big logistics businesses who find what we do quite fiddly. It's not something they really want to be doing as a core activity.

53:40 So whilst they offer it, it's a bit of an afterthought, and therefore, their service reflects that. So a core customer for one of the larger logistics providers is probably north of 20,000 pallets of storage. That's quite that's probably a bit too big for us in reality. Or, yeah, our sweet spot customer is more like five to 10,000 pallets, and that's really too small for the big providers. And then the other competition we face is from sort of small smaller dabbling at it, and they haven't got the capability skill set to do it really well. So that's a sort of long winded way of saying that our service is really, really, really good, and that's why customers should want to work with us.

54:27 Also, we're probably more efficient and effective because we're true consolidators. So, also, when they start to focus on other things like their emissions, etcetera, we'll we'll have really good data for them as well. Then in terms of our commercial approach, in the past, we have one work through referral. And it's either referral from existing customers or it's referral from the retailer that they're looking to supply. And, therefore, we haven't had a strong business development function. So that's that's been fine for the pace of growth that we've had, but we want to grow much faster than that. So we need a really well developed commercial team.

55:16 It's not rocket science. It's not anything that you don't see in lots of industries. It's just about having the right people with the right view of what the target market is, a very clear view on what our proposition is, and therefore, the ability to go and deliver that proposition to target customers. And that's what we're in the process of putting in place at the moment. It takes a little bit time to find the right people who can do that, and that's that's probably why it's taken a little bit longer than it would have liked. In addition, we were winning work anyway, so it wasn't quite the burning platform, but now it's an absolute focus for for the business, or we're just not gonna get the growth that I believe we should be able to achieve given the market position that we have.

56:05 And that was definitely for you, Katie. Well, it could be a combination of the two. I think this is relating to the fuels business. So the question is, how old is your core IT system? It is surprising that it sounds like it does not take account of fuel delivery costs oh, sorry. The full delivery cost in the pricing model the salespeople use, and I'm assuming that's in the business that that we're talking on that. So so the system itself is actually a very good system. It's called Codas, and it is widely used in the sector. It does have good functionality. It's a good ERP system. As with all of these things, it's it's how you use them, but I think it's also that that transition for us as to what our what our model, looks like around our our commercial pricing and and domestic pricing and and therefore making sure that the system can support that. So it's not necessarily that the system doesn't have the functionality. I think it's making sure that we can use it appropriately.

56:57 K. Good. I think that is the end of the question. So thank you very much for that. That was that was, really good. I enjoyed answering this. It always makes it a bit more fun if, we can actually tell people what they want to hear about. Perfect. Chris, Katie, I'm just going to jump in, and thank you very for answering those questions from investors. Of course, the company can review all the questions submitted today, we will publish the responses out on the investor me company platform. But just before redirecting investors, provide you with their feedback, which is particularly important to you both, Chris, could I just ask you for a few closing comments? Yes. Well, firstly, thank you everybody for giving up an hour on, on a great Tuesday to come and listen to us. We enjoyed the interaction. Be nice if we could see you all, but, this was a close second.

57:48 Key points I just want to get over is, you know, we have had a really solid first half in terms of performance, but the focus from my perspective is all about how do we grow this group and how do we take it forward. And as I say, I don't think our prospects are reflected in how we're valued at the moment. That's largely because of macro factors to do with AIM, which aren't really to do with us, but we're absolutely focused on, getting a really good return for our shareholders and and really driving the group forward. So, thank you everyone for listening. Chris, Casey, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations?

58:35 This then take a few moments to complete, but some should be greatly valued by the company. On behalf of management team for NWF GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you