Nwf Regulatory News (NWF)

 7.00am Tuesday 30th July 2019

NWF Group plc: Final results for the year ended 31 May 2019

NWF Group plc ('NWF' or 'the Group'), the specialist distributor of fuel, food and feed across the UK, today announces its audited final results for the year ended 31 May 2019.

* Headline operating profit excludes exceptional items 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 EPS also takes into account the taxation effect thereon.

Operational highlights:

·; Strong results - ahead of original market expectations but behind the record prior year

·; Revenue growth in all three divisions - a result of increased activity and higher commodity prices

·; Very strong profit improvement in Food - improved operational effectiveness with new customers

·; Balance sheet remains strong with net debt at 0.7x EBITDA

·; Delivery of strategy with three Fuels acquisitions increasing our penetration and geographic reach

·; Increased dividend reflecting the Board's confidence in the business

Fuels acquisitions:

·; Delivery of strategy with three Fuels acquisitions increasing our penetration, scale and geographic reach:

o Midland Fuel Oil (December 2018) and Consols Oils (April 2019) previously announced adding 37 million litres per annum combined

o Ribble Fuel Oils announced today - a 75 million litre business trading across four depot locations in the North West of England

·; Together the three acquisitions add c. 20% to the Group's annualised fuel volumes

Divisional highlights:

·; Fuels - headline operating profit of £5.6 million (2018: £6.9 million). Solid results from across the depot network benefiting from a volatile oil price and including two acquisitions within the financial year. Prior year benefited from extreme winter conditions.

·; Food - headline operating profit of £1.8 million (2018: £0.7 million). Very strong performance with improved operational effectiveness managing new customers won in the last 18 months and supporting requirements for customers who stored additional products as a result of Brexit preparations.

·; Feeds - headline operating profit of £2.8 million (2018: £3.0 million). Results stable with increased summer demand offset by weaker winter ruminant feed demand. Overall volumes were stable, with the business managing volatile commodity prices effectively.

Richard Whiting, Chief Executive, NWF Group plc, commented:

"NWF has delivered a result ahead of original market expectations and the business is continuing to develop in line with our strategy. The Fuels division has performed well in spite of a mild winter and has completed three acquisitions adding 20% to its volumes. Food has outperformed management's expectations with new customers and employees working effectively in a business which has been at capacity throughout the year. Feeds has delivered a stable result in spite of variable market conditions. We are proposing an increased dividend and continue to see opportunity for further strategic and operational progress. Trading in the current financial year to date has been in line with our expectations."

A meeting is being held today for analysts at 9.30 a.m. at MHP Communications, 6 Agar Street, London, WC2N 4HN.

To view a short video of the results presentation please follow this link: http://bit.ly/NWFfy19

Information for investors, including analyst consensus forecasts, can be found on the Group's website at www.nwf.co.uk

CHAIRMAN'S STATEMENT

Overview

I am pleased to report another year of good progress with the business delivering a strong set of results. In addition, we completed two Fuels acquisitions during the year as well as Ribble Fuel Oils, completing after the year end, in line with our strategic plan. The net debt position of the Group is in line with our expectations, with cash generation being utilised to finance growth and acquisitions, and remained below 1.0x EBITDA at year end.

The benefit of the NWF diversified and service-led business model was clearly demonstrated in the year. The significant improvement in Food more than offset the marginally lower operating profit in Feeds. Fuels performed well, although not at the levels seen in the previous year where it benefited from extreme weather conditions.

As a consequence of the good progress achieved and the Group's cash generation, the Board is recommending a final dividend of 5.6p per share (record date: 1 November 2019, payment date: 5 December 2019) (2018: 5.3p) giving a total dividend of 6.6p per share (2018: 6.3p), a 4.8% increase on the prior year.

Our business

NWF Group is a specialist distributor delivering fuel, food and feed across the UK. Each of our trading divisions has scale, good market position, are profitable and cash generative. Each division trades under different brands with their own brand architecture as follows:

·; Fuels: NWF Fuels (including a number of local sub-brands)

·; Food: Boughey

·; Feeds: NWF Agriculture, SC Feeds, New Breed and Jim Peet

Key areas of focus for the Board in 2019 were:

Responding proactively to market conditions

The Group has responded well to some volatile market conditions experienced during the year. The warm, dry summer increased demand for animal feed whilst reducing the demand for heating oil. The mild winter also reduced demand for heating oil (particularly compared to the record demand in FY18) and for animal feed as grazing conditions were good. In Food, additional demand was experienced with customers seeking to hold extra stock in advance of the end of March as part of their Brexit planning. We secured additional warehouse space to meet our customers' needs during this period.

Delivering on strategy

The Group completed the acquisition of two Fuels businesses during the year, and one shortly after the year end, in line with our strategic plan. Our geographic reach was broadened through these acquisitions. Midland Fuel Oil Supplies operates to the south and east of Birmingham and Consols Oils operates in Cornwall. Ribble Fuel Oils operates in the North West extending our presence north and into Yorkshire. The UK fuels distribution market remains very fragmented and we see significant opportunity to expand our depot network through consolidation and leverage the benefits of our scale and expertise across a growing network.

Cash generation

Cash generation remains a focus for the Group and net debt has been maintained at less than 1.0x EBITDA in spite of increased commodity costs and completing two acquisitions before the year end.

Rewarding good service

The consistent focus on excellence in customer service across the Group has been critical to our continued development and has enabled gains to be achieved in each of the three divisions in the year.

Commodity volatility

Volatility in oil and feed commodity prices was significant and the businesses managed this volatility effectively. In Fuels, oil (which is purchased on the spot market) oscillated between $50 per barrel and $86 per barrel for Brent Crude with further volatility resulting from exchange rates. In line with market practice, Feeds buys most of its raw materials under forward purchase contracts. Significant changes in feed input commodities were successfully managed through feed prices during the year.

Corporate governance

Your Board recognises the importance of good corporate governance and welcomes the changes to the AIM Rules which require the adoption of a recognised governance code and how the principles of that code are complied with. We have elected to adopt the Quoted Companies Alliance Corporate Governance Code ('the QCA Code') which we believe has been constructed in a simple, practical and effective style and that meaningful compliance with its ten main principles should provide shareholders with confidence in how the Group operates.

Board and stakeholders

My thanks go to my colleagues, our employees and all who have supported NWF throughout the year both inside and outside the Group.

I look forward to updating shareholders on the Group's continuing progress at the time of the Annual General Meeting on 26 September 2019.

Philip Acton

Chairman

30 July 2019

BUSINESS AND FINANCIAL REVIEW

NWF has delivered a strong set of results and continues to complete acquisitions in line with the Group's strategy. The record prior year benefited from the extreme weather conditions, favourable especially to Fuels. The Fuels division has performed well despite a mild winter and has completed three acquisitions with two being completed in the year. Food has outperformed with new customers and employees working effectively in a business which has been full throughout the year. In Feeds, a consistent result has been delivered despite variable market conditions. The strong performance has been converted into cash to fund growth initiatives and acquisitions. We are proposing an increased dividend and continue to see opportunity for further strategic and operational progress.

The Group delivered headline operating profit of £10.2 million (2018: £10.6 million) and headline profit before tax was 4.9% lower at £9.7 million (2018: £10.2 million). Diluted headline earnings per share was 5.4% lower at 15.8p (2018: 16.7p).

Cash management remains strong with net debt of £10.4 million (2018: £6.4 million), representing 0.7x EBITDA, after £2.8 million of net capital expenditure and £4.5 million of net acquisition expenditure (including acquisition-related costs and deferred consideration).

Fuels

Fuels has delivered a good performance, benefiting from its high level of customer service and managing a volatile oil price effectively. Profitability was lower than the record prior year when extreme weather conditions were experienced for some months. Underlying growth was delivered on gas oil with the milder conditions reducing demand for heating oil. Revenue growth reflected the higher oil price and contribution from acquisitions.

Volumes rose 1.7% to 552 million litres (2018: 543 million litres), and revenue increased by 10.6% to £443.0 million (2018: £400.7 million) as a result of higher oil prices and increased volumes. On a like for like basis (excluding acquisitions in the year) volumes were stable. The average Brent Crude oil price in the year was $70 per barrel compared to $63 per barrel in the prior year.

Headline operating profit was £5.6 million (2018: £6.9 million) with the impact of the mild winter being partially offset by volatility in the price of oil.

Good strategic progress has been made with three acquisitions; Midland (Midlands), Consols (South West) and, after the year end, Ribble (North West), expanding the depot network with five additional locations and adding over 20% to the volume of the division representing 110 million litres.

The Fuels division operates on a de-centralised model with depot management teams focussed on optimising performance for the specific conditions of their local market. We continue to believe that this is the most effective way to maximise performance, given the industry structure, but we also believe there are opportunities to leverage benefits from the breadth of our growing network. As such we are investing in enhanced systems and capabilities for the Fuels division which we believe will improve efficiencies and provide a strong platform for continued growth.

With 63,000 customers (2018: 59,000) being supplied across 20 fuel depots in the year (2018: 19), Fuels operates in markets that are large and robust and, as a business, it has consistently proved it can effectively manage the volatility in oil prices. The industry remains highly fragmented, with many small operators, which we continue to believe provides an opportunity for NWF to further increase market share.

Food

This has been a year of significant improvement, with new customers won in 2018 and 2019 delivering improved operating effectiveness. The business has had high storage levels throughout the year as a result of new customers and customers requiring additional stock in preparation for Brexit.

Revenue increased by 18.6% to £47.9 million (2018: £40.4 million). Storage overall was at an average of 100,000 pallets (2018: 90,000 pallets), with external warehousing being utilised throughout the year. Significantly, total outloads increased by 8.5% on the prior year reflecting the increased activity of new customers won in the last 18 months. Headline operating profit was £1.8 million (2018: £0.7 million), reflecting the significant improvements in managing new customers, improving prices and improving operating effectiveness. The e-fulfilment business has continued to grow in the year with seven customers now utilising the service.

Additional stock was stored for our customers prior to the end of March as a Brexit contingency. The additional costs incurred utilising overflow warehousing on their behalf were recovered from customers, with the majority of stock having been shipped by the year end.

Demand for our customers' products continues to be stable and the outlook for most product categories handled by the business is resilient. The business operates in a competitive supply chain and needs to continually demonstrate the value and service that it provides to food manufacturers and importers. The business has a leading position in consolidating ambient grocery products in the North West, with high service levels, industry leading systems and a strong operating performance being the key components of its customer proposition. 

Feeds

There has been some volatility in the feeds market during the year with a significant increase in demand from farmers in the long dry summer period who increased feed rates to offset a lack of forage. In the winter this was reversed with good grazing conditions reducing ruminant feed demand, particularly for sheep feed in comparison to the long cold winter in FY18. Commodity prices increased by over 10% to the end of August and then consistently fell to end the year 14% lower. Customers experienced higher summer prices but then gained relief into the autumn and winter periods.

Investment was made in operations and ensured high service levels were maintained across the country throughout the year.

Revenue increased by 6.2% to £180.4 million (2018: £169.9 million) broadly as a result of increased feed prices. Headline operating profit was £2.8 million (2018: £3.0 million). Total feed volume was stable at 591,000 tonnes (2018: 589,000 tonnes).

A key strategic priority for the business remains to increase the nutritional focus in Feeds by providing high quality advice and value-added products to our farming customers. New products have been successfully launched in the year, backed by training and multi-channel communications with farming customers.

Average milk prices in Great Britain were stable, increasing from 27.1p to 27.9p per litre over the period with a high of 31.6p per litre in November 2018. On the back of this more positive environment, milk production increased by 1.6% to 12.6 billion litres (2018: 12.4 billion litres).

Feeds has a very broad customer base, working with over 4,750 farmers across the country. This base, and the underlying robust demand for milk and dairy products, results in a reasonably stable overall demand for our feed in most market conditions.

Outlook

In Fuels, we have a proven depot operating model and are leveraging our capability by increasing the depot network through acquisitions.

In Food, we are focused on continuing to improve efficiency working with our customers and managing the variable demand patterns that have been a consequence of businesses preparing for Brexit. We remain focused on continuing to provide excellent levels of service and value to our customers and supermarkets across the UK.

In Feeds, current margins and volumes are in line with our expectations for this time of the year. Our mills in the North, Cheshire and the South West are aligned to the needs of our farming customers in these key areas of the country.

With regards to Brexit, the fundamentals of our markets are unchanged and we continue to monitor and plan contingencies with customers and suppliers.

The Group has established a solid platform for further development, has strong cash flows and flexible banking facilities to fund growth and a strong asset base that provides resilience. We will therefore continue to consider acquisition opportunities, building on our successful track record of acquiring and integrating businesses, as well as investment in organic development.

Performance to date in the current financial year has been in line with the Board's expectations. Overall, the Board continues to remain confident about the Group's future prospects.

Group results

* Headline operating profit is statutory operating profit of £9.6 million (2018: £10.6 million) before exceptional items of £0.5 million (2018: £Nil) and amortisation of acquired intangibles of £0.1 million (2018: £Nil). Headline profit before taxation is statutory profit before taxation of £8.7 million (2018: £9.7 million) after adding back the net finance cost in respect of the Group's defined benefit pension scheme of £0.4 million (2018: £0.5 million), the exceptional items and amortisation of acquired intangibles. Headline EPS also takes into account the taxation effect thereon. Headline dividend cover is calculated using diluted headline EPS.

Group revenue increased by 9.9% to £671.3 million (2018: £611.0 million) reflecting higher activity levels and increased oil and commodity prices. Headline operating profit was £10.2 million, a decrease of 3.8% (2018: £10.6 million).

Financing costs (excluding those in respect of the defined benefit pension scheme) increased by £0.1 million to £0.5 million, reflecting the acquisitions made during the year, with interest cover of 20.4x (excluding IAS 19 net pension finance costs) (2018: 26.5x).

Headline profit before taxation decreased by 4.9% to £9.7 million (2018: £10.2 million). Profit before taxation decreased by £1.0 million to £8.7 million (2018: £9.7 million). There were exceptional items in the year of £0.5 million relating to GMP equalisation and acquisition costs (2018: £Nil).

The headline basic earnings per share of 15.8p represented a decrease of 6.0% (2018: 16.8p), whilst diluted headline earnings per share decreased by 5.4% to 15.8p (2018: 16.7p). The proposed full year dividend per share increased by 4.8% to 6.6p which reflects the Board's confidence in the Group, its strong underlying cash generation and its future prospects. The proposed dividend equates to a dividend cover ratio of 2.4x.

The finance costs in respect of the defined benefit pension scheme were slightly lower than prior year at £0.4 million (2018: £0.5 million) reflecting the lower average pension deficit across the year.

The tax charge for the year was £1.9 million (2018: £1.9 million) which represents an effective tax rate, pre-exceptionals, of 20.8%, which is in line with our underlying rate (2018: 20.0%). The Group's future underlying effective rate of tax is expected to fall in line with the decrease in the main rate of corporation tax. The post-tax profit for the year was £6.8 million (2018: £7.8 million).

Balance sheet summary

The Group increased net assets by £2.7 million to £47.1 million (31 May 2018: £44.4 million). This reflects the robust trading performance during the year with a retained profit for the year of £3.7 million (2018: £4.9 million) partially offset by an increase in the accounting valuation of the pension deficit.

Tangible and intangible fixed assets increased by £2.3 million to £70.2 million as at 31 May 2019 (31 May 2018: £67.9 million) largely as a result of the intangible assets arising on acquisitions. The depreciation and amortisation charges for the year to 31 May 2019 were £3.9 million and £0.8 million respectively (2018: £3.7 million and £0.8 million respectively).

Group level ROCE (based on headline operating profit) is 13.4% as at 31 May 2019 (31 May 2018: 15.1%).

Net working capital increased by £3.8 million in the year as a result of commodity prices and a high level of trading in May 2019. The Group's inventories decreased by £0.1 million to £5.6 million (31 May 2018: £5.7 million) with trade and other receivables increasing to £67.2 million (31 May 2018: £64.1 million) and a decrease in trade and other payables to £66.7 million (31 May 2018: £67.5 million).

Net debt increased by £4.0 million to £10.4 million (31 May 2018: £6.4 million), reflecting the acquisitions in the year. At the year end, the Group's net debt to EBITDA ratio was 0.7x (2018: 0.4x).

The deficit of the Group's defined benefit pension scheme increased by £0.2 million to £17.3 million (31 May 2018: £17.1 million). The value of pension scheme assets increased by £1.7 million to £38.0 million (31 May 2018: £36.3 million) predominantly as a result of asset returns and the value of the scheme liabilities increased by £1.9 million to £55.3 million (31 May 2018: £53.4 million) as a result of the decrease in the discount rate used to calculate the present value of the future obligations (31 May 2019: 2.50%; 31 May 2018: 2.75%).

Cash flow and banking facilities

The Group has completed two acquisitions in the year with a total consideration (net of cash acquired) of £3.5 million. The closing net debt of £10.4 million represents a net debt to EBITDA ratio of 0.7x.

Working capital increased as a result of commodity prices and a high level of trading in May 2019. Net cash generated from operating activities was £6.4 million (2018: £12.9 million) representing a cash conversion ratio of 62.7% of headline operating profit (2018: 121.7%).

Net capital expenditure in the year at £2.8 million (2018: £2.9 million) was lower than the annual depreciation charge of £3.9 million (2018: £3.7 million) reflecting the move to contract hire tankers in Fuels.

The Group's banking facilities, totalling £65.0 million, were renewed in June 2018 and are committed through to 31 October 2023 with the exception of the bank overdraft facility of £1.0 million and the £4.0 million bank guarantee facility which are renewed annually. There remains substantial facility headroom available to support the development of the Group. Within the total facility of £65.0 million, the Group has an invoice discounting facility, the availability of which depends on the level of trade receivables available for refinancing and which is subject to a maximum drawdown of £50.0 million. The banking facilities are provided subject to ongoing compliance with conventional banking covenants against which the Group has substantial levels of headroom.

Principal risks and uncertainties

As with all businesses, the Group is affected by a number of risks and uncertainties, some of which are beyond our control. The principal risks and uncertainties which could have a material adverse impact on the Group are:

·; Brexit - The uncertainty around the implications of the UK leaving the European Union and potential associated exchange rate volatility creates commodity price risk. There is also some uncertainty around demand in agriculture given the trading relationship with Europe and the subsidy support received by farmers.

·; Commodity prices and volatility in raw material prices - The Group's Feeds and Fuels divisions operate in sectors which are vulnerable to volatile commodity prices both for fuel and for raw materials.

·; Impact of climate on earnings volatility - The demand for both the Feeds and Fuels divisions are impacted by climatic conditions and the severity of winter conditions in particular, which directly affect the demand for heating products and animal feeds. The inherent uncertainty regarding climatic conditions represents a risk of volatility in the profitability of the Fuels and Feeds divisions.

·; Pension scheme volatility - Increases in the ongoing deficit associated with the Group's defined benefit pension scheme would adversely impact on the strength of the Group's balance sheet and could lead to an increase in cash contributions payable by the Group.

·; Recruitment, retention and development of key people - Recruiting and retaining the right people is crucial for the success of the Group and its development.

·; Infrastructure and IT systems - IT system failures or business interruption events (such as cyber-attacks) could have a material impact on the Group's ability to operate effectively.

·; Non-compliance with legislation and regulations - The Group operates in diverse markets and each sector has its own regulatory and compliance frameworks which require ongoing monitoring to ensure that the Group maintains full compliance with all legislative and regulatory requirements. Any incident of major injury or fatality or which results in significant environmental damage could result in reputational or financial damage to the Group.

·; Strategic growth and change management - A failure to identify, execute or integrate acquisitions, change management programmes or other growth opportunities could impact on the profitability and strategic development of the Group.

Going concern

The Group has an agreement with The Royal Bank of Scotland Group for credit facilities totalling £65.0 million. With the exception of the bank overdraft facility of £1.0 million and the £4.0 million bank guarantee facility, which are renewed annually, these facilities are committed through to 31 October 2023.

Accordingly, the Directors, having made suitable enquiries, and based on financial performance to date and forecasts along with the available banking facilities, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Share price

The market price per share of the Company's shares at 31 May 2019 was 169.0p (31 May 2018: 205.5p) and the range of market prices during the year was between 136.5p and 212.5p.

Richard Whiting Chris Belsham

Chief Executive Finance Director

 CONSOLIDATED INCOME STATEMENT

* Headline operating profit is statutory operating profit of £10.2 million (2018: £10.6 million) before exceptional items of £0.5 million (2018: £Nil) and amortisation of acquired intangibles of £0.1 million (2018: £Nil). Headline profit before taxation is statutory profit before taxation of £8.7 million (2018: £9.7 million) after adding back the net finance cost in respect of the Group's defined benefit pension scheme of £0.4 million (2018: £0.5 million), the exceptional items and amortisation of acquired intangibles. Headline EPS also takes into account the taxation effect thereon.

** Taxation on exceptional items in the current year has reduced the charge by £0.1 million (2018: £Nil).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

NOTES

1. General information

NWF Group plc ('the Company') is a public limited company incorporated and domiciled in the UK under the Companies Act 2006. The principal activities of NWF Group plc and its subsidiaries (together 'the Group') are the sale and distribution of fuel oils, the warehousing and distribution of ambient groceries and manufacture and the sale of animal feeds. Further information on the nature of the Group's operations and principal activities are set out in the Annual Report.

The address of the Company's registered office is NWF Group plc, Wardle, Nantwich, Cheshire CW5 6BP. The Company has its primary listing on AIM, part of the London Stock Exchange.

2. Significant accounting policies

The Group's principal accounting policies, all of which have been applied consistently to all of the years presented, are set out below. IFRS 9 and IFRS 15 are effective from 1 June 2018.

Basis of preparation

The Group financial statements have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union ('IFRS'), International Financial Reporting Standards Interpretation Committee ('IFRS IC') interpretations and those provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The Group financial statements have been prepared on the going concern basis and on the historical cost convention modified for the revaluation of certain financial instruments.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates, which are outlined in note 14 below. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.

Headline profit before taxation and headline earnings

The Directors consider that headline operating profit, headline profit before taxation and headline earnings per share measures, referred to in these condensed Group financial statements, provide useful information for shareholders on underlying trends and performance.

Headline operating profit is statutory operating profit before exceptional items and the amortisation of acquired intangibles. Headline profit before taxation is statutory profit before taxation after adding back the net finance cost in respect of the Group's defined benefit pension scheme, exceptional items and the amortisation of acquired intangibles

The calculations of basic and diluted headline earnings per share are shown in note 8.

Exceptional items are those that in the Directors' judgement are one-off in nature or non-operating and need to be disclosed separately by virtue of their size or incidence. In determining whether an item should be disclosed as an exceptional item, the Directors consider quantitative as well as qualitative factors such as the frequency, predictability of occurrence and significance. This is consistent with the way financial performance is measured by management and reported to the Board.

Forward-looking statements

Certain statements in this results announcement are forward looking. The terms 'expect', 'anticipate', 'should be', 'will be' and similar expressions identify forward-looking statements. Although the Board of Directors believes that the expectations reflected in these forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties and events could differ materially from those expressed or implied by these forward-looking statements.

 Adoption of new and revised standards

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 June 2018.

The Group has adopted the following new standards, amendments and interpretations now applicable. None of these standards and interpretations have had any material effect on the Group's results or net assets.

The following standards, amendments and interpretations are not yet effective and have not been adopted early by the Group:

With the exception of IFRS 16, none of these standards and interpretations are expected to have a material effect on the Group's results or net assets.

IFRS 16 'Leases' is effective for financial years commencing on or after 1 January 2019. For the Group, transition to IFRS 16 will take place on 1 June 2019. The standard requires lessees to recognise assets and liabilities for all leases, unless the lease term is shorter than 12 months, or the asset value is low. For the Group, it will result in the recognition of almost all leases on the balance sheet as a right of use asset, with a corresponding lease liability.

The Group currently leases both properties and vehicles under a series of operating lease contracts which will be impacted by the new standard. These types of leases can no longer be recognised as operating leases and will need to be brought onto the Group's balance sheet from the date of adoption of the new standard. The Group has elected to apply the following practical expedients:

·; In determining whether existing contracts meet the definition of a lease, the Group will not reassess those contracts previously identified as leases and will not apply the standard to those contracts not previously identified as leases.

·; Short-term leases (leases of shorter than 12 months and leases with fewer than 12 months remaining) as at the date of adoption of the new standard will not be within the scope of IFRS 16.

·; Leases for which the asset is of low value, for example photocopiers, will not be within the scope of IFRS 16.

The Group has elected to apply the simplified transition approach with the cumulative effect of initially applying this standard as an adjustment to the opening balance of retained earnings as at 1 June 2019. The Group estimates that the impact of IFRS 16 will be material to items in the balance sheet but not overall net assets, with an estimated increase in assets of £16.5 million and an increase in liabilities of £16.5 million at 1 June 2019. The net effect of IFRS 16 on the income statement is expected to be a £0.1 million reduction in profit before taxation. There will be no net cash flow impact arising from the adoption of the new standard.

3. Group Annual Report and statutory accounts

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 May 2019 or 31 May 2018, but is derived from those accounts.

Statutory accounts for 2018 have been delivered to the Registrar of Companies. The auditors, PricewaterhouseCoopers LLP, have reported on the 2018 accounts; the report (i) was unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The statutory accounts for 2019 will be delivered to the Registrar of Companies following the Annual General Meeting. The auditors, PricewaterhouseCoopers LLP, have reported on these accounts, their report is unqualified, does not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and, does not include a statement under either Section 498(2) or (3) of the Companies Act 2006.

The Annual Report and full financial statements will be posted to shareholders during the week commencing 19 August 2019. Further copies will be available to the public, free of charge, from the Company's Registered Office at NWF Group Plc, Wardle, Cheshire CW5 6BP or viewed on the Company's website: www.nwf.co.uk.

4. Segment information

The chief operating decision-maker has been identified as the Board of Directors ('the Board'). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board has determined that the operating segments, based on these reports, are Fuels, Food and Feeds.

The Board considers the business from a product/services perspective. In the Board's opinion, all of the Group's operations are carried out in the same geographical segment, namely the UK.

The nature of the products/services provided by the operating segments is summarised below:

Fuels - sale and distribution of domestic heating, industrial and road fuels

Food - warehousing and distribution of clients' ambient grocery and other products to supermarket and other retail distribution centres

Feeds - manufacture and sale of animal feeds and other agricultural products

Segment information about the above businesses is presented below.

The Board assesses the performance of the operating segments based on a measure of operating profit. Finance income and costs are not included in the segment result that is assessed by the Board. Other information provided to the Board is measured in a manner consistent with that in the financial statements.

Inter-segment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.

Segment assets exclude deferred income tax assets and cash at bank and in hand. Segment liabilities exclude taxation, borrowings, contingent deferred consideration and retirement benefit obligations. Excluded items are part of the reconciliation to consolidated total assets and liabilities.

5. Profit before taxation - exceptional items

An exceptional cost of £0.5 million (2018: £Nil) is included in administrative expenses. Exceptional items by type are as follows:

GMP Equalisation - On 26 October 2018, the High Court issued a judgement involving the Lloyds Banking Group defined benefit pension schemes. The judgement concluded that the schemes should equalise pension benefits for men and women in relation to guaranteed minimum pension (GMP) benefits. The judgement has implications for many defined benefit schemes, including the NWF Group Benefits Scheme.

We have worked with our actuarial advisors to understand the implications of the High Court judgement for the NWF Group Benefits Scheme and as a result, have recorded a non-cash £0.3 million pre-tax exceptional expense to reflect our best estimate of the effect on our reported pension liabilities.

The Directors have made the judgement that the estimated effect of GMP equalisation on the Group's pension liabilities is a past service cost that should be reflected through the consolidated income statement and that any subsequent change in the estimate of that should be recognised in other comprehensive income. The judgement is based on the fact that the reported pension liabilities for the NWF Group Benefits Scheme did not previously include any amount in respect of GMP equalisation.

Acquisition-related costs - the acquisition-related costs comprise of professional fees and other costs in relation to the two acquisitions made during the year. Of the total cost, £0.2 million impacted cash in the year.

6. Finance costs

7. Income tax expense

During the year ended 31 May 2019, corporation tax has been calculated at 19.0% of estimated assessable profit for the year (2018: 19.0%).

Reductions in the UK corporation tax rate, to 17.0% with effect from 1 April 2020, were substantively enacted into law before the balance sheet date. In the opinion of the Directors, the relevant timing differences are expected to reverse after 1 April 2020 and therefore deferred tax has been provided at a rate of 17.0%.

The tax charge for the year can be reconciled to the profit per the income statement as follows:

The Directors expect that the Group will have a higher than standard tax charge in the future as a result of the level of the Group's disallowable expenses.

8. Earnings per share

The calculation of basic and diluted earnings per share is based on the following data:

The calculation of basic and diluted headline earnings per share is based on the following data:

9. Equity dividends

10. Share capital

During the year ended 31 May 2019, 89,920 (2018: 15,900) shares with an aggregate nominal value of £22,480 (2018: £3,975) were issued under the Group's conditional Performance Share Plan.

The maximum total number of ordinary shares, which may vest in the future in respect of conditional Performance Share Plan awards outstanding at 31 May 2019, amounted to 1,216,945 (31 May 2018: 1,096,487). These shares will only be issued subject to satisfying certain performance criteria.

11. Business combinations

On 1 December 2018, the Group acquired 100% of the share capital of Midland Fuel Oil Supplies Limited, a 12 million litre fuel distributor based in Solihull. On 3 April 2019, the Group acquired 100% of the share capital of Consols Oils Limited, a 25 million litre fuel distributor based in Redruth. The combined net consideration for the two Fuels acquisitions was £3.5 million before acquisition costs.

Details of the total consideration and the provisional fair values of the assets and liabilities acquired are shown below:

Provisional goodwill of £2.5 million arises from the acquisitions and is attributable to the acquired business and the expected economies of scale from combining the operations of the Group and the two acquisitions. None of the goodwill is expected to be deductible for income tax purposes.

As the acquisitions were made in the year, the above amounts are provisional and subject to adjustment.

Net cash outflow arising on the acquisition:

Acquisition-related costs of £0.2 million have been charged to the income statement (included within exceptional costs) in the year ended 31 May 2019.

The following amounts have been recognised within the consolidated income statement in respect of the two acquisitions made in the year: revenue - £6.8 million, profit - £0.1 million.

Had the two acquisitions taken place at the start of the financial year, the consolidated income statement would show a pro forma increase as follows: revenue - £23.1 million, profit - £0.5 million.

12. Analysis of cash and cash equivalents and reconciliation to net debt

13. Retirement benefit scheme

The Group operates a defined benefit pension scheme providing benefits based on final pensionable earnings.

NWF Group Benefits Scheme

The scheme is administered by a fund that is legally separated from the Group. The trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the scheme. The trustees are responsible for the investment policy with regard to the assets of the fund.

The scheme was closed to new members during the year ended 31 May 2002 and closed to future accrual with effect from April 2016.

The latest full triennial actuarial valuation of this scheme was completed in the year ended 31 May 2018, with a deficit of £19.1 million at the valuation date of 31 December 2016. The present value of the defined benefit obligation and the related current service cost were measured using the Projected Unit Credit Method. In these financial statements this liability has been updated in order to derive the IAS 19R valuation as of 31 May 2019. The next full triennial valuation will be completed in the year ending 31 May 2021.

The amounts recognised in the balance sheet in respect of the defined benefit scheme are as follows:

Changes in the value of the defined benefit obligation are as follows:

14. Critical accounting estimates and judgementsThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Defined benefit pension scheme - valuation assumptions

The balance sheet carrying values of defined benefit pension scheme surpluses or deficits are calculated using independently commissioned actuarial valuations. These valuations are based on a number of assumptions, including the most appropriate mortality rates to apply to the profile of scheme members and the financial assumptions regarding discount rates and inflation. All of these are estimates of future events and are therefore uncertain.

Valuation of acquired intangibles

IFRS 3 requires separately identifiable intangible assets to be recognised on acquisitions. The principal estimates used in valuing these intangibles are generally based on the future cash flow forecast to be generated by these assets, and the selection of appropriate discount rates to apply to the cash flows.

15. Directors' responsibilities statement

The Directors are responsible for preparing the Annual Report in accordance with applicable laws and regulations and consider that the Annual Report, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

The Company's Annual Report for the year ended 31 May 2019, which will be posted to shareholders on or before 23 August 2019, contains the following statement regarding responsibility for the Strategic Report, the Directors' Report (including the Corporate Governance Report), the Board Report on Remuneration and the financial statements included within the Annual Report:

"Each of the Directors confirm that to the best of their knowledge:

·; the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and result of the Group;

·; the strategic report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces;

·; there is no relevant audit information of which the Company's auditors are unaware; and

·; each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information."

16. Post balance sheet event

On 10 July 2019, in line with the Group's strategy, the Group acquired 100% of the share capital of David Hermon Hodge Group Limited, a 75 million litre fuel distributor based in the North West, trading as Ribble Fuel Oils. The consideration of £4.5 million was satisfied in cash and the assumption of debt. A fair value exercise is underway and will be disclosed in the next half year report.

17. Financial calendar