Annual Report and Accounts 2014

 

Operating Review - DCC Food & Beverage

DCC Food & Beverage is principally focussed on the sales, marketing and distribution of food and beverage products in Ireland.

Markets and Market Position+-

In Ireland, DCC Food & Beverage markets, sells and distributes a range of own and third party agency brands and provides category management and merchandising services to a broad range of customers including grocery multiples, symbol and independent retailers, pharmacies, off-licences, hotels, restaurants and cafes.

The majority of DCC Food & Beverage’s operations are focussed on the Irish grocery market which has shown some contraction over recent years due to the general economic downturn. As economic conditions remain challenging, consumers continue to search for value both in the grocery and out of home markets.

While private label now accounts for approximately 36% of all sales by value, brands continue to be important to the Irish consumer. DCC Food & Beverage continues to develop its own branded offering and company owned brands now account for approximately 33% of total revenue.

DCC Food & Beverage’s businesses enjoy a number of leading market positions in the categories in which they operate.

In Ireland, the business is the leading and most comprehensive supplier of healthy foods and beverages, fine foods and vitamins, minerals and supplements (‘VMS’), selling owned and agency brands directly to both the grocery and pharmacy sectors. DCC Food & Beverage’s healthfood brand, Kelkin, is recognised as the leading brand in the ambient health/’better for you’ food sector and offers a healthy choice in many food categories. Kelkin has developed its presence in the fast growing gluten free category in Britain and has achieved listings with key multiples. The Kelkin brand is also a strong and developing brand in the VMS sector in Ireland.

Also providing an extensive portfolio of international wine brands. It is also focussed on further developing its spirits portfolio and offers its principals significant on-trade reach in the Irish marketplace.

In Britain, the business is a leading supplier of branded (both company owned and agency) and exclusive retail wine solutions to the multiple off-trade as well as the on-trade sector (principally through regional wholesalers).

DCC Food & Beverage is also a leading temperature controlled supply chain service provider in Ireland. It offers a full range of temperature controlled supply chain solutions to major retailers, manufacturers and food service customers.

KSG, which is 50% owned by DCC, provides catering and hospitality services to a range of clients in the At Work, Healthcare, Education and Travel sectors in Ireland. KSG serves approximately 10 million customer meals annually.

Strategy and Development+-

The strategy of DCC Food & Beverage is to develop into a leading added value sales, marketing and distribution business, building number 1 or number 2 branded positions in focussed segments and delivering an above average return on capital. This will be achieved by building on current positions in the healthfood, indulgence and logistics markets, both organically and through acquisition.

The business will continue to increase its focus on brands. During the year the business acquired the Gateaux brand to add to its existing portfolio which includes Kelkin, Robert Roberts, Goodall’s, YR and Lemon’s. Through organic growth and acquisition the business will also continue to actively develop its extensive range of third party agency brands across its healthfoods and indulgence categories with a particular focus on selling, marketing, education, training and category management.

The wine and spirits business in Ireland will continue to develop its range and grow its market share. During the year the business generated significant incremental sales from the full year effect of new wine agencies added in the prior year.

A continued focus on product stewardship including healthy eating, sustainable sourcing, responsible advertising, packaging and labelling compliance is central to the strategy of the business.

Customers+-

DCC Food & Beverage’s business is primarily based in Ireland, with a modest wine business in Britain. The ten largest customers accounted for 47% of total revenue in the year ended 31 March 2014.

The proforma revenue split by customer type for the year ended 31 March 2014 is as follows:

171884.png

DCC Food & Beverage’s operating companies each have their own focussed sales teams that regularly interact with their customers on developing joint business plans that focus on sales, marketing, category management, advertising, promotions, new product development and product quality.

The proforma revenue split by category type for the year ended 31 March 2014 is as follows:

171910.png

Suppliers+-

DCC Food & Beverage deals with a broad base of almost 2,000 suppliers. The supply base is quite fragmented and the top ten suppliers only account for approximately 27% of total revenues. A key to success in its businesses is remaining close to new trends and developments in the categories in which it operates, and as a result, DCC Food & Beverage remains in constant contact with its supply base to ensure that it brings the best of what is new to its customers.

Our People+-

DCC Food & Beverage currently employs 859 people. It employs management teams with deep category and industry knowledge, combined with strong operational capability. This depth of knowledge is continually enhanced by a focus on product training particularly in wine, hot beverages and healthfoods. The wellbeing of all employees remains a key priority and there has been a 40% reduction in the lost time injury rate across the division during the year.

Key Risks+-

DCC Food & Beverage is made up of a number of consumer focussed businesses where changing market demand for certain products and product substitution remain key risks faced by the division. The potential loss of a number of key suppliers or customers represents a risk for the division but this is mitigated by the division’s increased focus on developing its range of own brand products while continuing to provide a full service route to market for key agencies. Product quality is central to success and remains under constant review with focussed quality assurance undertaken within each business.

Performance for the Year Ended 31 March 2014+-

Operating profit in DCC Food & Beverage increased by 25.9% with growth in each of its major product areas. The Indulgence and Health Foods businesses delivered growth in company owned brands, while also benefitting from the full year effect of some agency wins. The Kelkin healthy foods brand achieved good sales growth, especially in gluten free products, and benefitted from increased listings in multiples in Britain.

145813.png

DCC Food & Beverage: Key Financial Performance Indicators

Strategic objective

KPI

Performance

Drive for enhanced operational performance

Revenue growth

146567.png

Drive for enhanced operational performance

Operating profit growth

146561.png

Grow operating margin

Operating margin

146555.png

Deliver superior shareholder returns

Return on capital employed

146548.png

Generate cash flows to fund organic and acquisition growth and dividends

Operating cash flow

146542.png

Deliver superior shareholder returns

10 year operating profit CAGR

146537.png