Strong food distribution growth at NWF

Distribution group NWF reported growth in full year profits, helped by lower interest charges, but it will be difficult to repeat those profits this year. Underlying profits improved from £6.2m to £7.1m on flat revenues of £379.8m in the year to May 2010. The total dividend was raised from 4.1p a share to 4.3p a share. Fuel distribution made a slightly lower operating profit of £3.8m last year, but that was still flattered by the cold weather in the winter. NWF estimates that it gained an additional £800,000 in profit during the period. The growth in profit came from food distribution where the contribution jumped from £2m to £3.1m. Efficiency is improving and helping to improve returns even though the warehouse is effectively fully utilised. Higher margin/stockturn business is being added. Feeds had a better second half but still reported a decline in profit from £2.8m to £2.1m. Dairy cows are the main market and milk prices are stable. The market is flat but NWF is trying to sell more high margin feed products. Charles Stanley forecasts a profit of £6.3m in 2010-11 and that assumes no repeat of the £800,000 windfall profit from fuel this year. Feeds is likely to be flat and food distribution will be the only area to grow profit. NWF has secured new debt facilities until October 2013. The facilities total £51m, including a £10m revolving credit facility and a £1m overdraft. The rest is an invoice discounting facility. May is a low point for borrowings and net debt, including hire purchase, was £13.9m. Peak borrowings tend to be around December time but that should only be an extra £7m or so of debt. Finance director Jonathan Ford believes that debt can be reduced by around £2m a year through cash generated from operations. That suggests that there is plenty of headroom in the bank facility to make acquisitions. Iceland-based investor Atorka owns 25.2% of NWF and issuing shares to help fund acquisitions will help to dilute that stake. Fuel distribution appears to be the most likely area for acquisitions. A new depot is being built in Mansfield and NWF is keen on further geographic expansion. Chief executive Richard Whiting says that there are more than one hundred firms that are smaller than NWF Fuels. He would like to acquire a business with a mix of fuels, no family members remaining in the business after acquisition and fitting in with the existing network - although it could be anywhere in Britain. NWF is also interested in food distribution activities in the south and add-on feed acquisitions.