NWF : Half Year Report 2021/22

Fuels

National depot network

NWF Fuels is a leading distributor of fuel oil and fuel cards delivering over 695 million litres across the UK to 127,000 customers.

Headline operating profit

£3.6m

(H1 2020: £1.9 million)

Strong performance ahead of expectations and the prior year period, with a short-term benefit from increased demand during the Autumn fuel shortage, with NWF able to maintain full service from all 25 depots.

Food

Leading ambient consolidator

Boughey Distribution is a leading consolidator of ambient grocery products to UK supermarkets with over 1,000,000ft² of warehousing and significant distribution assets.

Headline operating profit

£1.5m

(H1 2020: £0.5 million)

A performance significantly ahead of prior year benefitting from enlarged capacity, improved efficiency in operations and stock in optimal locations.

Feeds

Focus on nutrition

NWF Agriculture has grown to be a leading national supplier of ruminant animal feed to 4,550 customers in the UK, feeding one in six dairy cows in Britain.

Headline operating loss

£(0.4)m

(H1 2020: £0.6 million profit)

As expected, performance was behind the prior year as a result of lower volumes in the period and the impact of significant commodity and cost inflation. As a consequence of the lower level of performance in Feeds, a non-cash goodwill and fixed asset impairment of £8.4 million has been recognised in the half year results.

Net debt to headline EBITDA2

0.4x

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 debt to headline EBITDA is calculated based on net debt excluding IFRS 16 lease liabilities. The headline EBITDA calculation excludes the impact of IFRS 16 depreciation.

Group highlights

• Underlying results significantly ahead of prior year, underpinning the Board's confidence in delivering full year expectations.
• Resilience of the Group demonstrated with year-on-year growth in Fuels and Food which has more than offset weaker Feeds performance in the first half.
• The Group's financial position remains strong, with net debt halved year-on- year and leverage at 0.4x which provides capacity for continued investment in support of strategic initiatives, the pursuit of further development opportunities and a maintained interim dividend.
• The Group has maintained a stable workforce, including a full
  of drivers, and managed the prevailing supply chain environment enabling it to continue to service customer needs uninterrupted.
• The Group has traded well since the period end and carries momentum into the seasonally busier second half, with the in delivering its full year expectations.

Net debt (excluding IFRS 16 lease liabilities)

£7.4m

-55.2%

21 7.4

1. 16.5

1. 14.9

Contents

Overview

• Financial highlights
  2 Chair's statement

Financial statements

1. Condensed consolidated income statement
2. Condensed consolidated statement of comprehensive income

• Condensed consolidated balance sheet
  7 Condensed consolidated statement of changes in equity
  8 Condensed consolidated cash flow statement
  9 Notes to the condensed consolidated half year report

Shareholder information

1. 2022 financial calendar

1. Advisors

1. Divisional contacts

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2

Chair's statement

Strong performance ahead of the Board's expectations

Net capital expenditure in the period was £1.4 million (H1 2020: £1.8 million) with development expenditure likely to be weighted to the second half of the current year.

Net debt at the period end, excluding the impact of IFRS 16, was materially lower at £7.4 million (H1 2020: £16.5 million) with net debt to headline EBITDA lower at 0.4x (H1 2020: 0.9x), reflecting the Group's strong cash generation. The Group's banking facilities of £65.0 million are committed to October 2023 and NWF continues to operate with substantial headroom. Net debt including the impact of IFRS 16 was £36.4 million (H1 2020: £42.2 million).

NWF has delivered a strong performance in the first half with overall results ahead of the Board's expectations and net debt materially lower. Fuels delivered ahead of expectations supported by short-term gains from the Autumn as a consequence of concerns around fuel shortages when NWF was able to maintain supplies to our customers across the country. The Group has a strong and established acquisition and integration track record and is actively appraising several opportunities in the fragmented fuels market. In Food, with volatile demand patterns, the enlarged business performed significantly ahead of prior year, operating at capacity, efficiently and with stock in optimal locations. Feeds' performance was behind prior year as a result of lower volumes in the period and the challenges of passing on inflationary costs and higher commodity prices.

As a consequence of performance in Feeds, an impairment review has been performed at the reporting date,

30 November 2021. With the current level of asset base carried, Feeds is unable to deliver a satisfactory return on capital employed. As such, a goodwill and fixed asset impairment of £8.4 million has been recognised in the half year results.

NWF continues to demonstrate that in spite of uncertainty around Covid-19 it is a robust business which

has shown ongoing resilience and capability in meeting or exceeding market expectations over the last two years without utilising any Government support or furloughing any employees. I would once again like to recognise and thank my colleagues for their efforts in delivering this result.

Results

Revenue for the half year ended

30 November 2021 was 30.1% higher at £402.6 million (H1 2020: £309.4 million) as a result of higher commodity prices in Fuels and Feeds and higher Fuels volumes. Headline operating profit was higher at £4.7 million (H1 2020: £3.0 million), with outperformance in Fuels and Food more than offsetting a decline in Feeds in the period. Headline profit before taxation1 was up 72.0% to £4.3 million (H1 2020: £2.5 million).

Headline basic earnings per share1 was 7.1p (H1 2020: 4.3p) and headline diluted earnings per share was 7.1p (H1 2020: 4.3p).

Net cash generated from operations for the period amounted to £5.1 million (H1 2020: £4.0 million). Cash generation was higher as a result of the underlying profit improvement offset by increased working capital required to support the business growth.

Net assets at 30 November 2021 increased to £53.8 million (30 November 2020: £52.1 million2). The IAS 19R defined benefits pension scheme valuation deficit has reduced from £14.9 million as at 31 May 2021 to £14.5 million at the half year, driven by higher asset values offset by increases in discount and inflation rate assumptions.

Dividend

The Board has approved an interim dividend per share of 1.0p (H1 2020: 1.0p). This will be paid on 3 May 2022 to shareholders on the register as at

18 March 2022. The shares will trade ex-dividend on 17 March 2022. The Group has increased the annual dividend by approximately 5% in each of the last five years reflecting the Group's strong underlying financial performance

and position.

Operations

Fuels

Revenue increased by 39.3% to £286.5 million (H1 2020: £205.7 million) as a result of significantly higher oil prices, increased volumes and favourable product mix in the period. Headline operating profit was £3.6 million

(H1 2020: £1.9 million) benefitting from higher volumes and the short-term retail supply challenges in the Autumn which increased demand and profitability.

Volumes increased by 5.5% to 347 million litres (H1 2020: 329 million litres) with growth in commercial fuels, gas oil

and diesel. The price of Brent Crude increased significantly during the period, which contributed to the revenue growth. In the first half Brent Crude averaged $76.22 per barrel (H1 2020: $42.71 per barrel) and ended the reporting period at $70.57 per barrel.

In the Autumn, the UK experienced widely publicised supply issues, principally at retail forecourts, as a result of shortages of fuel following panic buying. NWF only has a very small business supplying retail garages,

but there were concerns, principally amongst commercial customers, around oil supplies, which increased demand significantly in September and October. All 25 depots were fully operational through this period, had no shortages of supply and were able to service customer demands across the country.

The UK fuels distribution market is highly fragmented, and the Board believes the opportunity for NWF to expand its depot network, broadening the customer base and leveraging scale efficiencies is significant. The Group has a strong and established acquisition and integration track record and is actively exploring several opportunities.

Food

Revenue increased by 13.8% to £31.3 million (H1 2020: £27.5 million). Headline operating profit was £1.5 million (H1 2020: £0.5 million).

Storage volumes were stable at an average 122,000 spaces (H1 2020: 121,000), with total capacity now standing at 135,000. This utilisation at an average of just over 90% is in line with our plans and highlights the business has the customer base to fully utilise our expanded facilities. In terms of throughput, pallets dispatched were in line with prior year.

The significant improvement in profitability was driven through planned efficiency improvements. Critically, stock was in the optimal locations with fast-moving, full pallet work in Crewe and more complex value-added activity at the Wardle site. Significant efficiency gains were made at both sites over the period. Demand patterns remained volatile

and the business worked closely with customers and retailers to fulfil demand in the most effective manner. Driver availability has also been critical and

our own employed driver numbers were maintained throughout the period with fewer agency drivers utilised as planned.

Palletline and e-fulfilment have both performed ahead of plan and more than offset a lower performance from the packing room, which suffered from some labour shortages during the period.

Feeds

Revenue increased by 11.3% to £84.8 million (H1 2020: £76.2 million) as higher commodity and selling prices more than offset lower volumes in the period. Headline operating loss was £0.4 million (H1 2020: £0.6 million profit) as a result of lower volumes and time lags in realising price increases to cover commodity and other inflationary cost increases.

As a consequence of the lower level of performance in Feeds, a non-cash goodwill and fixed asset impairment of £8.4 million has been recognised in the half year results.

Volumes were 7.6% lower at 242,000 tonnes (H1 2020: 262,000 tonnes) as a result of lower levels of retail business in the North and the loss of a merchant through acquisition in the South. DEFRA data suggests the ruminant feed market was 0.8% lower in comparison to the prior year.

The market experienced inflationary pressures during the first half, with a basket of tracked commodities 17% higher than the same period in the prior year; these commodity prices were largely passed through to farmers, albeit with a timing difference that impacted profitability in the first half. Average milk prices increased by over 2p per litre over the period which offset the impact of higher feed prices. Average milk prices at the end of November were 33.5p per litre (November 2020: 30.5p per litre). Milk production was 1.3% lower year-on-year.

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. Investment has continued into

NWF's training academy to develop our future nutritionists.

ESG framework

Development of our ESG strategy, governance and reporting framework has continued during the period. Work is being undertaken at both the Group and divisional level to set targets and

initiatives to deliver our ESG goals. This will be reported on in greater detail at the time of the NWF's Annual Report and Accounts later in 2022.

Board changes

In line with NWF's governance policy, and as previously reported, I will be stepping down from the Board at the time of the 2022 AGM in September, having completed nine years' service with NWF. David Downie, currently Senior Independent Non-Executive Director, will be appointed as Chair at that time and Richard Armitage, currently a Non-Executive Director, will be appointed as Senior Independent Non-Executive Director. A process to recruit an additional Non-Executive Director will commence shortly, with

an appointment to be made ahead of the 2022 AGM.

Outlook and future prospects Following a very strong first half, the Group has continued to trade well since the period end. In Fuels, demand for heating oil increased as we moved into the key winter months and acquisition development activity continues. In Food, demand was greater than anticipated leading into Christmas as retailers increased stock levels and this has

led to lower levels of storage. In Feeds, volumes and margin have increased as we move into the key winter months and there have been further increases in commodity prices since the period end.

Demand in our markets has continued to be resilient in spite of the challenges of Covid-19 and we continue to fully service all of our customers' needs. 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.

We carry encouraging momentum into the seasonally busier second half and consequently the Board remains very confident in its expectations for the year as a whole. I look forward to updating shareholders later this year.

Philip Acton

Chair

1 February 2022

Overview