Annual Report and Accounts 2014

 

Chief Executive’s Review

Key Features of Results

Group operating profit increased by 11.5% to £208.4 million while DCC’s free cash flow of £278.1 million reflected its ongoing ability to convert its profits into cash which was a new record for the Group. Return on capital employed increased to 16.3% from 15.6% in the prior year, substantially ahead of the Group’s cost of capital. The proposed 10% increase in the dividend for the year would represent the 20th consecutive year of dividend growth since the Group was listed as a public company in May 1994. Over this 20 year period, total shareholder return has been 2,970% compared to 691% for the FTSE 250. DCC ended the financial year with net debt of only £86.3 million and a net debt:EBITDA ratio of 0.3 times, leaving the Group well placed to continue its growth and development.

The year to 31 March 2014, DCC’s 20th as a public company, is the first year in which DCC has presented its results in sterling, a move designed to provide a clearer understanding of DCC’s financial performance by more closely reflecting the profile of its operations.

It is pleasing to record operating profit growth in the year ended 31 March 2014 of 11.5%, with growth across all five divisions. DCC Energy’s operating profit increased by 4.0%, reflecting the successful integration of acquisitions completed in prior years and efficiency initiatives. This performance demonstrated the resilience of the operating model and was particularly pleasing given the impact on volumes and margins of the very mild weather conditions across Northern Europe, particularly in the months from December 2013 to February 2014, when average temperatures were well above the ten year average. The performance of DCC Technology was also very strong with operating profit growth, of 15.9%, driven almost entirely by organic growth as a result of strong market share gains in its business in Britain. Operating profit in DCC Healthcare was substantially (36.9%) ahead of the prior year, benefitting from the acquisition of Kent Pharma, which was completed in February 2013, and from a strong organic performance in DCC Health & Beauty Solutions.

Free cash flow of £278.1 million was a new record for DCC and was boosted by a 2.8 day reduction in net working capital days, reflecting the relentless focus on working capital efficiency across the Group.

The Group’s return on capital employed, a key metric for DCC, increased from 15.6% to 16.3%, driven primarily by the increase in the Group’s operating profit and strong working capital management across all divisions.

It is proposed to increase the final dividend for the year by 10.0% to 50.73 pence, resulting in a 10% increase in the full year dividend to 76.85 pence. DCC’s first dividend as a public company was the equivalent of 4.8 pence and the proposed current year dividend would represent an unbroken 20 years of dividend growth for DCC as a public company with a compound annual growth rate of 14.9%.

DCC’s total shareholder return in the 20 years since flotation was 2,970% compared to 691% for the FTSE 250.

The Group’s financial position remains strong with net debt of £86.3 million and a net debt:EBITDA ratio at the year end of 0.3 times.

Results Highlights

2014

2013

£

£

% Change

 

 

 

 

 

 

Revenue

11,231.7m

 

10,572.7m

 

+6.2%

Operating profit*

208.4m

 

186.9m

 

+11.5%

Profit before net exceptional items, amortisation of intangible assets and tax

187.0m

 

172.8m

 

+8.2%

Adjusted earnings per share*

191.20

    pence

171.20

    pence

+11.7%

Dividend per share

76.85

    pence

69.86

    pence**

+10.0%

Operating cash flow

348.7m

 

264.6m

 

 

Free cash flow***

278.1m

 

207.1m

 

 

Net debt

86.3m

 

186.0m

 

 

Total equity

946.3m

 

892.3m

 

 

Return on capital employed

16.3%

 

15.6%

 

 

* excluding net exceptionals and amortisation of intangible assets

** the total dividend in the prior year of 85.68 cent has been retranslated at the average euro/sterling exchange rate for the year ended 31 March 2013 of £0.815 = €1

*** after net capital expenditure and before interest and tax payments

Continued Delivery against Strategy+-

DCC’s strategy has remained unchanged and further good progress has been made in the ongoing execution of this strategy.

A key element of DCC Energy’s strategy is the continued growth of the business within the transport fuels market, in particular road transport. During the year, DCC announced that it had agreed to acquire Qstar, a business focussed on unmanned petrol retailing in Sweden. Unmanned petrol retailing is a very important part of the market in many European countries and the business model fits well with DCC Energy’s core fuel distribution skills, allowing the business access to the end user margin in the supply chain. This acquisition represents a further development of DCC Energy’s transport fuels business in Europe and the first material step in building a presence in the unmanned retail petrol station market. The acquisition also represents a strengthening of DCC Energy’s market position in Scandinavia where DCC already has growing oil and LPG businesses and market leadership positions in Sweden and Norway with a number two position in Denmark.

In response to the very mild winter in the year ended 31 March 2012, DCC Energy management worked hard to optimise the efficiency of its operating model and ensure maximum flexibility in the cost base to cope with unseasonably warm weather. During the year, the business generated significant savings by driving further operational efficiencies, particularly in the oil business in Britain. These savings helped to offset the impact of further mild winter weather during the year and are expected to continue to do so into the future.

DCC Technology grew its business during the year with market share gains in Britain in SME and consumer IT products, reflecting its excellent supplier portfolio and proactive market approach. The business has developed its relationships with key suppliers and has begun trading with some significant new suppliers during the year. In addition, DCC Technology has broadened its product offering in Britain with the acquisition of Cohort Technologies, a specialist distributor in security and unified communications. The business also strengthened the DCC Technology management team during the year, especially in Continental Europe. The year also saw a rebranding of the businesses within the division to Exertis, in order to help create a platform for sustained growth into new market sectors and geographies, and build greater recognition from supplier and customer partners as to the scale and capability of the business.

In DCC Healthcare, the acquisition of UPL, a British contract manufacturer of creams and liquids, has helped to cement DCC’s position as one of the two leading British creams and liquids contract manufacturers for brand owners. Strong organic growth in DCC Health & Beauty Solutions has also helped to strengthen its market position in the wider health and beauty contract manufacturing market. Following on from the acquisition of Kent Pharma in the prior year and its integration into DCC Healthcare’s existing infrastructure, DCC Healthcare has strengthened its devices business with the acquisition of Leonhard Lang UK, which was integrated into DCC Healthcare’s existing devices business and brought new expertise and expanded the product portfolio and customer relationships in Britain.

Both DCC Environmental and DCC Food & Beverage strengthened their market positions in key areas and delivered increased operating profit and return on capital employed.

DCC is committed to attracting, empowering and retaining entrepreneurial leadership teams and to deploying a devolved management structure. Some of the key acquisitions during the year saw DCC retain and incentivise key management teams who are capable of delivering a very strong performance for their businesses and contributing to the success of the Group. DCC has also benefitted from its ongoing talent retention programme, strengthening the team in recent years at Group, divisional and subsidiary levels, allowing us to provide opportunities for existing employees and also bring in new talent to DCC.

The success of DCC in the last 20 years reflects the talent and commitment of all the employees across the Group. I would like to thank them for their ongoing dedication and loyalty to DCC.

Embedded in DCC’s strategy is a commitment to maintaining financial strength through a disciplined approach to balance sheet management. It is pleasing that in the year ended 31 March 2014, DCC ended the year with a net debt:EBITDA ratio of 0.3x. This strong financial position, along with the Group’s liquidity position, leaves DCC well poised for continuing development.

Growth in the Group’s operating profit (driven by both organic and acquisitive growth) and strong working capital management has contributed to an increase in the Group return on capital employed from 15.6% to 16.3%, well in excess of DCC’s cost of capital.

Listing Changes+-

As announced last year, DCC sought admission to the FTSE UK Index Series and this change took effect in June 2013. This move was designed to increase awareness of DCC among the international investor community and, in particular, to help increase the number of brokers in London covering DCC. It is pleasing to note that there are now twelve analysts covering DCC, compared to five in March 2013. In addition, DCC reviewed its corporate broking arrangements and appointed Jefferies Hoare Govett and reappointed J.P. Morgan Cazenove to act alongside Davy, its Dublin based broker.

Sustainability+-

Our approach to sustainability continues to develop, led by our Sustainability Committee. We are confident that systematically identifying and measuring the key economic, environmental and social drivers of our businesses and integrating them into existing management processes will support our objective to deliver long term shareholder value. Details of our approach are provided in the Sustainability Report on this page.

Outlook+-

The outlook for the year to 31 March 2015 is based on the important assumption that there will be normal winter weather conditions. At this very early stage, the Group anticipates that its operating profit and adjusted earnings per share will be approximately 10% ahead of the prior year. Having regard to the unseasonably colder start to the prior year, it is anticipated that this growth in the year to 31 March 2015 will be significantly weighted towards the second half.

DCC’s strong equity base, long term debt maturities and significant cash and committed funding resources leave it well placed to continue the development of its business in existing and new geographies.

Tommy Breen

Chief Executive
20 May 2014