NWF Group (LSE:NWF) — Presentation relating to the Group, its investment case and development strategy

0:03 Good afternoon, ladies and gentlemen. Welcome to the NWF Group Investor Presentation relating to the Investment Case and Development Strategy. Throughout the presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet

0:33 company dashboard. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Richard Whiting, CEO and Chris Belshrom, CFO of NWF. Good afternoon. Thanks very much, and good afternoon, everyone. What Chris and I will be doing this afternoon is taking you through a presentation which gives you an understanding of NWF also some of the key highlights of the group, and then critically, the investment opportunity and our development strategy. But before we go through the presentation, I'd just like to run a short video. So, Paul, if you could play the video, please. Okay. So, hopefully, that gives you a bit

3:30 of an insight into who we are at NWF and and the things that we do. And now really to give you a bit more detail, I'll sort of take you through the overview of the business and the individual divisions. So at NWF, it's a specialist distributor of fuel, food, and feed, and we operate across The UK. And we operate in very large stable stable markets. Our first division is fuels, and here we're the third largest fuel distributor in The UK. We're supplying oil to domestic and commercial customers across the country. 75% of our fuel goes to commercial customers. 25% goes to domestic customers. I live in a rural environment, I have an oil tank in my garden, and that's heating oil I use to heat my home. With the third largest distributor in The UK selling 665,000,000 liters last year. And in terms of how we operate, you saw a tanker on the film. So these aren't big arctic. These are smaller tankers which have multiple types of fuel on board, working at about a 30 mile radius of the 25 depots that we have across The UK.

4:31 This is a business where we've expanded through acquisition, and there are further opportunities for growth through acquisitions that Chris will talk to you about a little bit later. In food, we're the leading Northwest consolidator of Ambien groceries. So Ambien groceries are things like tea, coffee, UHT milk, anything that's in or a jar or a packet. And we're working with customers such as Swizzle Sweets, Thai Food Tea, and Lovatsa Lavaxa Coffee. So if you any buy ever buy any of these products, it's been distributed by us. So we're the warehousing distribution arm, the food manufacturers, and food importers. We've got over a million square foot of warehouse now with a 135,000 pallet spaces. And in this business, we operate under contract with over 200 individual customers.

5:22 In the picture oh, sorry, in the video, you did see our new crew warehouse, which is a significant expansion this year, an investment which gives us another 35,000 pallet spaces and expands our business quite significantly. And positively, as we sit here today, that warehouse is full and fully operational. Thirdly, in terms of feeds, here, we're at ruminant feed supplier. So ruminant animals are typically beef, cattle, dairy cattle, sheep, and we particularly supply dairy feed. We We supply supply one in six dairy cows in Great Britain, and 75% of all our feed is utilized by dairy. And we like a dairy cow because she's milked two or three times a day, and that measures her performance. And what we're doing critically is providing nutritional advice to the dairy farmer to optimize his milk production and his profitability.

6:13 We've got feed mills in Cumbria, in Cheshire, and down in Devon, and we grew this business quite significantly last year and sold six hundred and and twenty twenty five five thousand thousand tons of feed to almost 5,000 farming customers up and down the country. It's a national business. As I said, we're number two in the market. And in this business, we launched the academy in twenty nineteen, twenty twenty, where bringing graduates into our business to train them up to be the future nutritionists in The UK. That gives you a bit of an overview of the business. Just to highlight what's happened in respect of COVID, so both the impact and the response. So clearly, a major issue for all businesses. And straight away, employees was classified as key workers. In simple terms, we're feeding and fueling the nation.

7:03 Turn that off. We're feeding and fueling the nation. All businesses remain fully operational through the crisis and do so today. Clearly, we implemented safe working and home working from March 2020 and, again, retain that position now. Also importantly as a business, we took the early decision in March not to utilize any government support, and no staff have been furloughed from NWF. We've been busy supplying food and feed to the country. In terms of the impact, back in March, we had very significant increased demand from the supermarkets as there was a degree of panic buying at the start of lockdown. Just to point out, that's now happening again. We actually actually had the business week in our history last week as, again, supermarkets are stocking up and consumers are increasing their purchase of long life milk and tea and coffee and pasta, the things that were bought in bulk before. So that that's happening today.

7:57 In fuel, we saw increased demand from domestic customers. So as we all moved to home working, people at home and therefore needed more supplies of heating oil to heat their home. So we saw demand up 37% in the period March to May. Feed remained stable because dairy cows didn't actually know we had a COVID crisis. They carried on eating what they always eat. The net result of that is our results and our full year results after the year ending May 2020 were very strong. We've got financial strength as well. So as well as developing profit, we also converted that into cash. We've got a £65,000,000 facility with the NWF GROUP, which is a long term competitive facility, which goes through to October 2023. And we've got a 65,000,000 facility, but our net debt at the year end was only 12,300,000.

8:48 Nought point seven times EBITDA, so still a comfortable level as the board considers it. And we've got asset backing, which gives us security. Finally, in in terms terms of of the the impact, impact, we've maintained our dividend policy. This is a progressive dividend policy, and our dividend in 2020 was up just under 5% to 6.9p. And that's now 11 of the last twelve years that we've increased the dividend in that manner. But we did have a policy of being twice covered. In 2020, that was 2.9 times covered. Just to show you a picture. So that's our main operating site in Wardle. As I said, we've got fuel depots across the country and mills in other parts of the area. But this is the main site. It's a 55 acre site, and we own the freehold to this. So we're a property underpin as well.

9:34 Most of that site is dedicated to warehousing for our food distribution business. But in the center, you you can can see a mill. It's that tall building in the middle. That's actually the largest dairy feed mill in The UK. That produces about 260,000 tons of compound feed. And a very small on the right hand side, you'll see a little tower. That's one of our 25 fuel depots. So that that's our main operating side. Now to the investment case. So first of all, NWF has delivered shareholder return ahead of the FTSE 100. And, positively, that's if you look at it over the last six months, year, three years, five years, or ten years. Yes. The share price has moved forward, and that's positive. But also, critically, we pay a dividend, which has increased by 5% in 10 out of the last eleven years. So the the yield is consistent over that period about three to 4%.

10:25 And point of fact is our dividend has increased, so our share price has accreted as well. So positive movement there. I've talked about the already talked about the significant debt headroom that we have. We've got a very consistent track record. We've met or exceeded market expectations consistently over the last seven years. That's a very strong track record. We've got strong defensible market positions, number two in feeds and number three in fuels. And critically, these businesses provide risk reduction through diversification. Because we've got the separate businesses in the separate markets, that reduces risk where we can have outperformance from one that can offset underperformance from another. We've got an experienced leadership team in place with deep seated experience of fuels, feed, and food markets. We've also strengthened that with several key appointments in the last two to three years.

11:15 So very much now we're presenting a business which has a clear strategy, but an opportunity opportunity also to accelerate development. Just to give you a little bit of history, I as you can see, this is three stages of development in the last ten years. I joined the group just at the start of this period. And at that point, we had a a little bit of confusion as to what we were. We were a nonfocused diversified business. Best example of that was we had a chain of garden centers, which really were retail businesses, didn't really fit with the distribution businesses that we have now. Also, critically, we had too high too high level of debt. So our net debt to EBITDA, you can see, was over five times. So the critical thing was let's reduce that.

11:54 Let's simplify the business. And we did that by selling the garden center chain to knock cuts ten years ago. The second stage is then being much more focused and clear about what we're doing. So we just established clear business development models for each of our divisions. We focus on service, asset utilization, and cash. And we also also put in improved IT platforms in those businesses. So that gave us a bit more of a platform. The model that we have as a group as well is to have all the resources in the division where it's appropriate and then a very small, cost, intimately evolved center. That's very much the model that I see as being effective in businesses such as NWF. So bring us up to date today. We're now a focused specialist distributor of fuel food and feed with a very clear strategy for growth, got good banking facilities, and a very strong track record over the last ten years. So now we've got this opportunity to accelerate growth.

12:49 So I'll now hand over to Chris who's gonna take us through some of those growth opportunities. Okay. Thanks, Richard. So I'll I'll now take you through the strategy for each of the three divisions starting with fuels, which is probably our main engine for growth. The first thing probably to address is the fuel market itself. We don't have Chris at the moment. It looks like his webcam may be frozen. So let me let me take you through the slide. Of all, we're talking about fuels and the fuels market as to how it operates. If you look at the chart on the left hand side of the bottom, this is looking at the global energy demand market over the next five to seven years sorry, through to 2040, five to seven years. And global energy demand is growing quite significantly.

13:40 The red bar at the bottom is oil. So that is the energy demand forecast for oil, and you can see it's stable through to 2040. I mean, that's true in The UK. If you look at the government's own statistics, it's saying saying the the demand demand for for oil for home heating and other areas that we operate in is stable through to 2040, and, therefore, we have a long term sustainable market. On the right hand side, we're showing the market shares of the major players in the market. And you can see the small red slices in the way have. So we're the three in this market with a 2% market share. That's actually doubled in the last five years, but it's still only 2%. And what I point point to is the big gray area, which is 76%. So those are other businesses.

14:26 Are very there are a 150 small fuel distributors in this market. We've grown by acquiring those, and that's the opportunity to grow. But the key point I'd like to make is, is our our market long term? Yes. We are. And secondly, is there an opportunity to consolidate very clearly with the numbers there that we see there?

15:03 Highlighted the businesses acquired over a 120,000,000 business that's increased the business by 20%, and we've spent £9,100,000.

15:25 Richard, sorry to step in. It sounds like your audio, which is having a little bit of trouble hearing you there. Perhaps your microphone I don't know if your microphone may have moved or may just be a bit further away. It just sounds a bit muffled. Okay. Does that sound any better? Perfect. Thank you. Okay. So we've done this through acquiring businesses, we paid a six times multiple. Critically, we have a very clear post acquisition integration plan. We retain the front end of the business, the brand, and the phone number, the customer facing team, and the depot. What we do is integrate the back office function, so that's finance, IT, and purchasing. And you can see down on the bottom left hand chart chart how we've grown. So we're at 350,000,000 meters back in 2010. And on a run rate basis, we're now 700,000,000 meters, so quite significant growth. There are further opportunities we're actively involved in this space today.

16:21 Now move on to food and the development strategy here. And the picture on the right is of our warehousing crew. I actually took that with my iPhone ago. As I say, their operation is full. It's got 35,000 pallet spaces and has 32,000 being utilized as I speak today. The key in this business is always optimizing the customer mix between the contracts that we have and and continuing to improve efficiency.

16:48 We've also got an e fulfillment business, and we're a power line member. So we're a power line operator for crew. These are small niche businesses that add value and add margin. The key is actually we continue to expand this business as we win contracts with customers. In fact, the crew warehouse is backed by customer contracts. So we can expand further as customers come to us, and we expand our utilization of space. Now in in terms terms of of feeds, as I say, we're the leader in the the feed room in the market. And the map on the right hand side, each pin on that map is actually a customer we've supplied in the last twelve months. So you can see it's very much down the West Side Of The UK, and that's where the rain falls, the grass grows, and the rumen animal lives. So that is very much a market map of where the the dairy herds of The UK are.

17:37 You can see our three mills, which are really well located to service customers customers in in that that market. The picture at the bottom left is actually our long term facility just outside Carlisle that we invested in through to 2018 and increased our capacity by a 100,000 tons. The The opportunity opportunity here is to use these operating bases to continue our expansion. We grew our volumes last year by 8% and have further opportunities going forward. That's also why we've launched the academy to train train our future nutritionists to increase our customer base. The third strategy here is we can sell additional products and services to our existing farming

18:16 customers. Just to give you an idea of our financial performance, so these are the full year results the year ending 05/31/2020. They're very strong results, and they were ahead of market expectations. The revenue line is a high number for us. You can see it was up 2% to 687,000,000. The revenue line for NWF, however, is not a key indicator of performance because actually a large amount of it is pass through revenue. Best example of that is oil where we might be selling oil at 80p per liter. 40p of that is pure duty, which is a pass through. So the revenue number tends to flatter the performance and scale of the group. Much more important is to look at the operating profit in pounds and the headline profit before tax.

19:02 It's It's headline PBT that I tend to always focus on. And you can see here it was 13,200,000, up 36% on prior, which is actually a record for the group. I talked about net debt. You can see it there at 12.3 times, at point seven

19:18 times EBITDA. So that's a comfortable level. As a board, we're happy in the range of one to two times EBITDA. And again, the dividend increasing, as you can see, by just under 5% to 6.9p per share. So just a summary of the strategy. We've got a little bit. So first of all, the benefit of the business is due to risk. We We generate cash as a business. If we get the development opportunities, we would tend to generate 2 to 3,000,000 of net per annum. We've got an experienced capable board, and we operate in large, stable markets. Fuels' strategy is clear. It's to further consolidate a very fragmented market, and that's something we're on with today and continuing to proceed with.

20:04 In food, it's about optimizing the customer mix and expanding on the back of customer contracts. And it feeds us about utilizing this effective operational base we have across the country and also selling additional products and services to our farming customers.

20:21 Just like to also draw attention to our ESG framework. And And this is as part of our sustainability policy, which you can find more details of in our annual report and on our website. And then our policy, we have four key pillars. The first is to create a safety culture across the group for all of our employees, customers, and suppliers. Secondly, we want to invest in our people to develop their capabilities clearly at the moment to keep them safe, but also to optimize their potential. Thirdly, we wanna build strong partnerships with customers, suppliers, and the community. And fourthly, we wanna respect the environment, reducing carbon emissions and waste across the value chain and also producing a healthy environment.

21:05 So finally, just to summarize the NWF proposition. First of all, strong management team with lots of experience in the different markets in which we operate. Clear, clear strategy for growth. We've demonstrated that in the last twelve months, and we look to accelerate that going forward. I mentioned asset backing earlier. We've actually got a £170,000,000 worth of assets at the gross level. That gives Chris and I the ability to sleep at night, but frankly, it also gives us a very cost effective source of funding when we negotiate with the bank. We're paying 1.25% as a base in the majority of our lending. It's very competitive rate. The focus on this capital last year was 16.7%. Richard, sorry. Your microphone is just a little away from your mouth. We're just having a little bit trouble hearing you. I don't know if it's just under your shirt there. Sorry about that.

21:55 Okay. So the we focus on return on capital of 16.7% last year. Let's say we generate cash. We convert the profit that we make into cash, which is positive. And finally, the consequence of this is we grow the dividend, and we have our progressive dividend policy. So that ends the presentation. If you look at the this this slide deck after the meeting, there's there's a a lot lot of of other slides in the appendices. We've got analyst estimates for our performance going forward, shareholder register and a number of things, but now happy to open it up and take questions. That's great. Thank you very much. I think Chris has actually come back in as well, so thank you very much for that. Ladies and gentlemen, do continue to submit your questions, please, through the Q and A tab situated on the right hand corner of the screen. If you type your question and press send.

22:42 I just wanted the company to take a few minutes just to review questions that we've had through. I'd just like to remind you that recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform. Lastly, before I hand back to you, Rich and Chris, I'd like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected to the opportunity to provide feedback in order the company can better understand your views and expectations. Richard, Chris, perhaps before we look at today's questions that we've had through, we had some pre submitted questions from investors. Perhaps I could just address these to you, Richard, if that's okay? The first one we've had, how are you managing the volatility in food distribution at present?

23:24 What benefits do you see to the business in the longer term? Okay. So the business has become more volatile, I think, as a consequence of COVID, but also we've grown our business. And we saw increased demand certainly in August and massive volatility as supermarkets determined what they were gonna do. Were they gonna bring in Christmas stock early?

23:44 Were they gonna bring in additional stock for to prevent a second wave of COVID? Or even were were they they gonna gonna put put stock in the shelves for potential Brexit exit at the end of the year. So a number of things of volatility. What that means is we're working very closely with supermarkets and very closely with our customers. And what found we found through through the the volatility of the first COVID outbreak was the response of all the team in food, all customers. We're very grateful for the performance and focus of our business, and it increased customer loyalty. So if we continue to provide great service, I I think think loyalty will remain and we therefore have potential to grow this business further. That's fantastic. Thank you very much indeed there, Richard.

24:30 Just coming on to the next question that we've got for you here. Where are we? Let me just have those scan through. We have got the next one. I see increased M and A opportunities. And if so, where are you looking first, I guess, just in the current environment, whether that throws up some opportunities for you guys? Yeah. I I think there will be some opportunities, and and clearly, we'll consider all of them that we find. But the the key for us is to focus on fuel acquisitions. They are relatively low risk, relatively small, almost bolt on. So we're spending between 2 and £5,000,000 on each each acquisition. The performance of the acquisitions we've made has been strong, and these are businesses we understand well. So acquisitions are risky, but we believe by making fuel acquisitions over the next year year to to two, two, we can increase the size of the group quite considerably and then also do it in a relatively sensible way without having to bet the farm on anything significant.

25:27 Thank you very much indeed. And I think we've got a couple of questions just in on the live q and a. Just if could have a quick scan of those. And if there's any that you could answer, that would be great. Thank you. Yeah. So so of the questions I can see up there is do we have what plans do we have in place for a second wave of COVID? Well, I think we're we're reasonably well set up. There are clearly risks and challenges. One of the things we determined to do early days is that it sent as many people home as we possibly could. So there are 1,300 employees in the group and over 380 people went to home working back in March. And we retained them in that position. So we didn't have any to work in the summer. We believe the most effective way of continuing our operations remains safe. So we kept people at home, and we've used safe distancing and segregated staff in all our warehouses.

26:20 So we didn't make any changes over the summer, so we continue to operate in the same way, which we believe is sustainable for the long term. There are some compromises by home working, which most of us recognize, but actually our businesses can function and provide service in spite of that environment. So we're we're reasonably reasonably positive. Positive, and demand in all three businesses remains robust. Another question that I can see there is someone said, have we got is there scope expand the food business beyond the current region? And the answer is yes. We're very much a national player. We go to all the distribution centers of all the supermarkets on pretty much a daily basis. We're distributing on a national platform. It happens that our customers the optimal location for our customers is in the Northwest at the moment. But we do continue to talk to customers.

27:09 It would be operationally great to have a second warehouse facility down somewhere like Dunstable and Milton Keynes because then we could trunk vehicles between the two. But But that's only gonna be done if we find customers that we can sign up to contracts in that area. So we're not gonna open a warehouse and see if customers come to us. We'll continue to talk to customers about their needs. And if they have the opportunity of a warehouse down there, that's something where we would would expand. Another question we've got, what areas you're not in that you would like to be? And I think, you know, there's always further diversification, but I think we're as probably as diversified as as we want. I think when we've looked as a as a board and as a management team, we think there are lots of opportunities in the business we currently have to grow.

27:55 There are some some niche areas. So, for example, in feeds, we're looking at more what are called traded products, things like supplements, fertilizers, silage additives, and additional products there. There are opportunities. And even we're moving in some animal health products. And that's very much supplying farmers with additional products that they're operating. In fuels, we're looking at biofuels, fuel additives. We do some tank monitoring. So we're looking to, again, expand the services. And in food, as I said earlier, we've got an e fulfillment business and It's very much I want to stick to the core divisions that we've got. We can broaden them and make them grow through that way. I think that just about is it. Would you look for potential acquisitions in new areas to expand into? As I've said, if there was an expansion in Bow, we'd be backed by customers.

28:46 In terms of geography, just to give you a flavor on fuels, our geography is Great Britain. So the map I showed you didn't have anyone in Scotland because we haven't acquired any of that. But Chris and I have been to Aberdeen in the last twelve months. So So Great Britain is our operating area. So geographically, we could expand there. That's great. Thank you very much for addressing those questions. Of course, can't review any other questions that come in from investors today and publish those answers on the Investor Meet company platform. Richard, perhaps just before I direct investors for feedback, if I could just ask you just to say a few words just to wrap up, please. Yes. Certainly. Thanks, Paul. So I think with NWF, what you've got is a business which is solid, robust and reliable and clearly demonstrated resilience through the the challenging times we've had in the last number of months.

29:33 Whilst we're safe, solid, robust, and pay a dividend, actually, there are significant growth opportunities that we have as well. There's it's this whole balance of solidity and and safe and robustness, but also with optimism and routes to grow. And that's very much the message to get across. But we'll do in a very sensible measured way and grow very much as we have done in the last twelve months. Thank Thank you you very very much. Much. That's fantastic. Thank you very much for updating investors today. Can I ask investors not to close the session? You should be automatically redirected for the opportunity to provide your feedback. If you've accessed the meeting via our website, the feedback page will appear in front of you. Just after a couple of seconds after the webinar ends, if you have access via the link sent to you in an email, you'll be asked to log in again to provide your feedback, and it is most welcome by the company as well. On behalf of NWF GROUP PLC, an investment company, we'd like to thank you for attending today's presentation. That concludes today's event and thank you to the team.