NWF Group plc (NYY.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the NWF Group plc Results Investor Presentation. [Operator Instructions]. 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 so it's appropriate to do so. Before we begin, I'd like to move the following poll. I'd now like to hand you over to CEO, Chris Belsham. Good afternoon to you sir.

Thanks, Alessandro, and good afternoon, everyone, and thanks for joining this NWF Group results presentation for the half year to 30th of November 2024. We'll take you through our presentation and then please do submit questions. We enjoy Q&A, and it helps you understand the business a bit more. So the more questions are better from my perspective. I'm Chris Belsham, Chief Executive; and I'm joined today by Katie Shortland, who is our Chief Financial Officer. All 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 know the group less well. So I thought it'd be worth giving a bit of an overview of the group to start with. So NWF Group is a specialist distributor operating across the U.K. 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 our suppliers to do is to trade with each other where they otherwise wouldn't be able to do so. And each of the 3 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. And lastly, we're looking for opportunities for strategic M&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 3 current businesses. So in fuels, we're the third largest bulk liquid fuel distributor in the U.K. We're servicing over 100,000 SME and domestic customers, powering their businesses and heating their homes. In our food business, which trades as a Boughey, we're a leading ambient grocery consolidates. We're a real specialist in that space with about 5% to 10% market share. And we look after about 125 customers, enabling them to access the retail supply chain in the most cost-effective and lowest emission way. And in feeds, we're the second largest ruminant feed distributor in the U.K. 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 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 case of fuels also duty. So actually what you'll hear in a minute is that activity levels in all 3 businesses increased. The reduction in revenue therefore 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 Lymedale warehouse in the last 12 months, we still have a very strong positive cash balance of GBP 11.4 million. And that's important given some of the acquisition activity, we're looking to take place over the coming months. And our dividend for the first half remains unchanged at a penny, but remember, we have grown our final year dividend for the last 13 years in a row and analysts would have us down to do the same again, increasing by about 4%. So, I then talk about each of the individual businesses, starting with our fuels business. And so here, the underlying trading was relatively straightforward. So we have a small increase in volume, but 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 tank fleet. And that was just a rebase the cost base to marry up with a 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 operating model and also our commercial sales model. And if Katie, if you could just go to Slide 30, it's probably a little bit easier to explain this. So this shows our current depot network. And you'll recall in the past, we've operated in very depot led model. So each of these red dots on the map was a separate business, and we'd have a depot manager who is 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 of those territories. And I'm kind of okay with that because that's about maximizing sales. So that's good. But what isn't good is they were also sending tankers into each of those 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're not allowed to go outside. And we're now routing those vehicles on a regional basis so that we use them more efficiently. We put that in place on the 1st of November, and we've already seen that we are traveling less distance to deliver the same route 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. Where on the commercial sales side, it's more akin to outbound telesales. So we split those teams. So we've got the people best suited to each of those areas, set in those areas focusing on what they do best. And again, we put that into place on the 1st of November in the Northwest. Still very early days in terms of the data, but I expect that I will see that we increase our ability to sell more fuel from the same number of people. So if we can get back to -- the other key thing just to call out on the fuels area is our M&A pipeline. So this time last year, that had got quite quiet, and that reflected the fact that we've 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 anything, I'm a little bit disappointed not to be announcing a deal that was part of these results. But therein lies the challenge of buying family businesses. There's always slightly correct issues that need to be addressed through due diligence and in the deal process. But as I say, a very strong M&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 start-up costs for our new Lymedale warehouse. So we were always going to deliver lower results 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 is already asking about that. So firstly, that's 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 is going 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 to the next time we open the new warehouse. So firstly, we have surplus customer stock that was stored with third-party off-site storage. And what we found in bringing that back into our own warehouses that has cost us more money than we expected it to. I think that's really for 2 reasons. One, 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 in hindsight, and we probably have undertaken some moves that we didn't really need to do. So we spent a bit more money there, but that's done, and that's all in that first half. The second thing we've probably learned is, operationally, if a customer tells us they're going to come in, in September, 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 that wouldn't move until January. 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 until January, but that stock is now here. So that shifted out slightly in 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 Feed business in the first half is not related to the new warehouse, and that's we've just had a couple of customers where that 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, huddling it again and delivering it to where it needs to go. And if we don't have throughput because stock is just sat with us, then all we get in is the storage revenue. So we don't make a lot of money out of that. And we have a couple of customers where that 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 now see that, that stock is going back down. Lastly, our focus in this business is once we've got Lymedale to optimal capacity is to keep building that customer pipeline so that we can move on to our next warehouse expansion. So the focus in the near term is building the right commercial team to be able to go 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 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 our 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 want to start building up a network so we get those transport benefits. So at the moment, a number of our vehicles act as tampers, i.e., the driver is sleeping in the cab somewhere in the country because they can't get back to base in time. If we have a network around the country, we'll 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 for us to get the customers to enable us to get that growth. We then move on to our Feed business and here really solid performance in the first half. So we had quite a benign market. So last year, the milk price has reduced a bit, but farmers -- 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. The other key thing to pull out around our feeds business in the period is 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 brewing beer, it's full of sugars and syrups and high energy sources. So it's a really good feedstuff for cows. And many of our existing customers are buying this product, but they're buying it from other people. They're not buying it from the feed companies necessarily, but 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 another industry and also a more consistent product quality. So we made an investment of GBP 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 shows, I suppose, an attitude in the group to pursuing any opportunity that enables us to make a bit of incremental profit and encouraging the spirit a bit more entrepreneurialism across all 3 of our businesses to really go out and make money wherever they can. And if they come up with a good plan, then we will back that with our capital. 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 and 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 GBP 1.7 million versus GBP 0.7 million in the prior half year. 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 the business, you'll know that's one of the key metrics that we look at. So it's really about making an absolute profit pence per liter in terms of what we actually sell. So you can see, last half year, that was 0.2p. This year, it's 0.5p. And again, 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 1.1p and 1.2p in total 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 GBP 2.5 million versus GBP 2.9 million last year. It's important to note here that our start-up costs in Lymedale are included in this half year, but they weren't in the last half year results. You'll recall, we signed the lease for Lymedale in the January of last year. So there was no cost associated with Lymedale 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 GBP 0.8 million of operating profit versus GBP 0.4 million. Again, good activity levels, but a good profit per ton delivered there, which is a key metric for that business. So GBP 3.25 delivered in this half year versus GBP 1.78 in the prior half year. Another point to note on this slide is around our exceptional costs. So you can see here, we have a cost of GBP 1.1 million. That's comprised of 3 factors. We have GBP 0.1 million in there, which relates to our ongoing ERP program. So this is where we're looking at upgrading our ERP systems in our feeds and our food business. We have GBP 0.4 million 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 head count reduction that took place at the beginning of the year, and that's what the GBP 0.4 million relates to. And then we have GBP 0.6 million 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. 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 Lymedale lease has impacted that. Our bank interest costs have remained pretty much in line year-on-year, but that's just the onboarding of 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 full-year point of view. And as Chris has already mentioned, Board support a position of 1p from a dividend point of view for the half year with plenty of cover to support that. From a balance sheet point of view, the main points to pull 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 year. Again, that's related to our Lymedale investments, so predominantly related to the warehouse, but also some of the equipment that we'll hire to get in there like annual handling equipment and forklift trucks, those kind of things. The other point here, which I'll come onto a little bit later, is our net cash. So as Chris said, we have 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, I lost it now, 22.7%. Sorry, it's a very small number on my screen. From a pension point of view, so our deficit has reduced from the end of the year, so it was GBP 4.5 million. It's now GBP 3.7 million. 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 GBP 2 million per annum, which increases in line with our dividend growth. So that continues to do the way it needs to do in terms of reducing that deficit. We've also had a slight increase in our; net 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 future strategy will be around our pension at that point. And from a cash point of view, that contribution doesn't have any constraint for us from a group development point of view. So cash flow, I've already talked about, so we made a net cash inflow in the half year, which is normally the more challenging half because our activity levels are lower, as I said, because of 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 are looking at this in detail is you'll see that the depreciation around our right-of-use assets looks slightly higher than the cash position there, and that's because on our Lymedale warehouse, we actually have a rent-free period for the first 18 months. So our P&L charge will look slightly higher than the cash position on that. The development spend in any period relates to the Lymedale CapEx fit out. From a funding point of view, so you may recall, we have existing facilities of GBP 61 million with an additional accordion of GBP 20 million. Those were originally extended out to May '26, and we had an extension proposal for further 2 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 support 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 more around the strategy.

Thanks, Katie. So our strategy is really quite simple, and I've already mentioned quite a bit of this. So firstly, it's what are the great 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. And there's real scope for us to improve that because some real low-hanging fruit in all 3 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 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 eke out a little bit of improvement in how we use those. And again, in 2 of our 3 businesses in fuels and feeds, this hasn't really been a focus in the past. So again, there's some low-hang fruit that we can take advantage of. We are very focused on organic growth to grow in our market share, growing our customer base. And as I've mentioned before, we will back that up if need to be with capital investments. So warehouse expansion in our food business is a good example of that. [indiscernible] win the customers and then we'll invest in the facilities that we need to support those customers. And then lastly, we are looking at opportunities for strategic M&A. And that's across all 3 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 come on to that in a moment. And those things together will deliver that investment case that I 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. 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 and am I actually saying we're going to deliver. So we will come back in over the next few months with the right targets that we're looking to aim for over our next sort of 1 to 5 years. If we then dip into a bit more detail in each of the 3 businesses. So first is starting with strategic M&A. And today, as I say, this has been mainly focused on our fuels business. So at the moment, we are #3 in the fuel distribution market, #1 in this market is a business called Certas, which belongs to DCC, which is FTSE 100 company, and their market share is probably north of 20%. Number #2 is a business called Watson's and that's owned by U.S. corporate and that's probably double our market share. We're #3 with 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 those 2 different markets, we have a dual approach for M&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 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 that's been at a value that would work. 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 GBP 2 million and GBP 10 million. 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 capital gain. 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 6x 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 -- we have standard legal documentation. So that's all quite efficient, albeit buying family businesses always has its quirks. And then once we bought the business, we also have a standardized integration plan. So we're very clear how we'll integrate that business 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. And then with our improvements, we're making around our sales process and sales model, we can deploy right 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 mark that we're looking to infill buildup density, put our sales model through it and, therefore, drive more growth out of those acquisitions. So as I said earlier, the pipeline is considerably stronger than it was. The whole market was making see for 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 have sale of the business back on the agenda. And one thing we have done very recently is invest in some internal M&A resource just to keep momentum going there rather than people doing it around that day job. 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 removed in the last 12 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 sustainable aviation fuel, which you may have heard as part of the debate around the third 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 road 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. Katie, do you want to talk about warehouse expansion?

Yes, no problem. Okay. So just as a recap on our Lymedale investment. So we signed a 15-year lease in January last year, as I mentioned earlier. That was for a 332,000 square foot warehouse with capacity to start 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 GBP 8.5 million. Storage commenced in March of last year with the first deliveries from the site being in April. By September last year, our stock holding at Lymedale was around 42,000 pallets and consisted of around 13 customers. So the site currently has around about 45 outbond loads a day depending on the seasonality. 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 Lymedale 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 start-up 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.

Okay. Thanks, Katie. The last case that we've got in here is actually around the moist feeds facility in Cumbria, which I think I've probably talked about earlier in fall. And I can see we've got a lot of good questions building up. So rather than repeat myself, I suggest we move on to the end of the presentation and get stuck into those questions. So just as an overall summary, really positive first half, continued focus on growth, as you've heard. So strong first half performance. We've had year-on-year growth in headline operating profit and headline PBT, and that's being driven by fuels and feeds businesses and positive cash generation, which we don't normally see in our first half. Other thing to pull out is our new borders 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 really increase the size of the group. And then just from a current trading perspective, we're currently trading consistent with the Board's expectations. So analyst expectations for the year remain the same. 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's 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. So that concludes the presentation.

As I say, we've got quite a lot of questions. So we will start cracking through those, but if you want to submit any more than please do. So the first question is growth in the Feed division does generally seem to be slower than the other 2 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 U.K. is fairly flat. The amount of milk produced is fairly flat. And therefore, the amount of feed to feed the cows and to produce that milk is fairly flat. So the real way to achieve growth in that sector would be to combine some of the market participants. That's something that people had a various goes at doing in the past. The challenge is quite a lot of the people in that market are family businesses, multi-generation who will only sell for a price that wouldn't make sense. And then the 3 or 4 larger players have never quite got -- we'll go into the dark again -- have got quite around to doing it. So yes, you are right to say the obvious growth potential at the moment in Feeds business is lower. 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 you, Katie.

Yes. Okay. So the second question is, well, Chris, raise your hand. Are NWF capable of passing on all the impact of the April national insurance increases and avoiding any impact to profit margins? So yes, so if you think -- so overall, across our group, we have somewhere between 1,400 and 1,500 people who work for us. At least 900 of those work in our food business, our dairy 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 that will be staggered throughout the year. There isn't a set cycle of that being at 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 head count sits, we can have those conversations. It gets a little bit trickier in the other 2 businesses, but what we will look to do there is. As I mentioned before, we're looking at getting that absolute margin in our fuels business and maintaining where we are in our feeds business. And we'll look to do that to either gross margin management or looking at where we can generate cost efficiencies to support the underlying cost of the business.

Okay. So the next question is definitely one for me. So 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. 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 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 seeing is people who don't actually have a lease for the leased site that they are trying to sell, which they operate from. 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 3 or 4 deals at a time because then if we hit a bump on one, we can continue with another, whereas we probably guilty in the past of running those in series and therefore, we had less activity. But it's 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 3 divisions? Well, I've talked about what we're doing in fuels. So really, that's all about efficiency by moving the vehicles, routing them on a regional level and make sure 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 -- 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 Feed business, I think the scope to do something similar, and that's something I'd certainly have on the agenda for the next 12 months. And then in our Food business, this is slightly different, and there's less obvious low-hanging fruit because by the nature of that industry and who your customers and ultimately the end retailer are, you're forced to be as efficient as possible. 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 where we've got the right balance of people, et cetera, 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 get it back into gear. So opportunity across all 3. Yes. So a question here. Previous food capacity was stated 187 pallets, the interim state at 183,000, any reason for [indiscernible]? 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 a higher-margin business. So net-net there's worth needing the capacity to do that. And I think we've answered that one, haven't we in the presentation.