DCC Regulatory News (DCC)

10 May 2011

DCC, the sales, marketing, distribution and business support services group, today announced its results for the year ended 31 March 2011.

Commenting on the results, Tommy Breen, Chief Executive said:

"DCC had a very strong year with all five divisions reporting operating profit growth. Group operating profit increased by 15.5% on a constant currency basis to €230 million. The Group's result was achieved against a continuing backdrop of difficult economic and trading conditions in certain of our markets and having delivered particularly strong operating profit growth of 12.8% and 22.4%, on a constant currency basis, in the two preceding years.

Return on total capital employed increased to 19.9% from 18.4%.

Adjusted earnings per share increased by 10.5% on a constant currency basis. Reported adjusted earnings per share increased by 14.1% to 203.15 cent, reflecting the positive impact of the 4% strengthening of the average sterling/euro exchange rate in the year on the translation into euro of the significant proportion (2011: 77%) of DCC's profits that are denominated in sterling.

The Board is recommending a 10.0% increase in the final dividend.

The Group ended the year with a very strong, well funded and liquid balance sheet with net debt of €45 million and total equity of €932 million notwithstanding the cash impact of acquisition and net capital expenditure of €156 million during the year.

The outlook for the year to 31 March 2012 is framed against an uncertain economic environment, particularly in the UK, and the significant assumption that there will be a return to a more normal weather pattern compared to the extremely cold winter last year. In April DCC Energy has been impacted by what has been the mildest April on record, with temperatures significantly warmer than last year and this along with the impact of the number of public holidays in the UK has resulted in Group trading being well behind the prior year. However it is important to note that April represents only approximately 5% of the Group's budgeted profit for the year.

Consequently at this very early stage the Group anticipates that operating profit and adjusted earnings per share, both on a constant currency basis, will be broadly in line with the prior year. On a reported basis, assuming an exchange rate of Stg£0.8800 = €1 (which would represent a 3% weakening of the average rate from last year of Stg£0.8522 = €1), this would result in a modest decline in operating profit and adjusted earnings per share compared to the prior year.

This outlook excludes the potential benefit of acquisitions and the Group remains in a very strong financial position to pursue opportunities in the year ahead."

For reference, please contact:

Tommy Breen, Chief Executive Tel:+353 1 2799 400

Fergal O'Dwyer, Chief Financial Officer Email:investorrelations@dcc.ie

Redmond McEvoy, Investor Relations Manager www.dcc.ie

Results

A summary of the results for the year ended 31 March 2011 is as follows:

Overview of results

Revenue

Group revenue increased by 25.4%, on a constant currency basis, primarily as a result of acquisitions and the impact of higher oil prices. DCC Energy had a 15.5% increase in sales volumes, however, on an organic basis volumes declined by 1%. Excluding DCC Energy, Group revenue was 8.2% ahead of the prior year on a constant currency basis, of which 5.4% was organic.

Operating profit

DCC had a very strong year with all five divisions reporting operating profit growth. Group operating profit increased by 15.5%, on a constant currency basis, to €229.6 million. Approximately two thirds of the growth was organic and the balance came from acquisitions completed in the current and prior year. The Group had a strong first half which was followed by an excellent third quarter, driven by the exceptionally cold weather conditions throughout northern Europe, particularly in the last six weeks of the quarter, which benefited DCC Energy, DCC's largest division. However, trading in the fourth quarter in DCC Energy was adversely impacted by the milder weather conditions, particularly relative to the same period in the prior year.

Approximately 77% of the Group's operating profit in the period was denominated in sterling. The average exchange rate at which sterling profits were translated during the year was Stg£0.8522 = €1, compared to an average translation rate of Stg£0.8873 = €1 for the prior year, an appreciation of 4% which resulted in a positive translation impact on Group operating profit of €6.9 million. Consequently on a reported basis operating profit increased by 19.1%.

DCC Energy had the benefit of another extremely cold winter overall and generated constant currency operating profit growth of 17.2%, driven by the 15.5% increase in volumes.

DCC SerCom, DCC's second largest division, delivered a strong performance with constant currency operating profit 9.9% ahead of the prior year, reflecting another excellent result in SerCom Distribution (where operating profit, on a constant currency basis, was 16.6% ahead of the prior year). DCC Healthcare, DCC Environmental and DCC Food & Beverage each reported increases in operating profit.

The benefits of cost efficiencies achieved in the prior year were maintained, with operating costs 1% higher than the prior year (on a constant currency basis and adjusted for the impact of acquisitions and disposals) notwithstanding the organic increase in revenues in many of the Group's businesses and an increase in DCC Energy's operating costs in November and December 2010 as it made significant efforts to service its customers during this extremely cold period.

Excellent second half performance

Overall, DCC's results in the significantly more important second half of its financial year were excellent. An analysis of the performance in each half, on a constant currency basis, is as follows:

Finance costs (net)

Net finance costs increased to €14.6 million (2010: €10.9 million) primarily due to the additional interest costs associated with the €284 million of private placement debt which the Group raised in March 2010 to fund future acquisitions and development. The Group's net debt averaged €167 million during the year, compared to €155 million during the prior year. Interest was covered 15.8 times by Group operating profit before amortisation of intangible assets (17.7 times in 2010).

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

Profit before net exceptional items, amortisation of intangible assets and tax of €214.8 million increased by 14.3% on a constant currency basis (an increase of 18.0% on a reported basis).

Net exceptional charge and amortisation of intangible assets

The Group incurred a net exceptional charge before tax of €14.3 million as follows:

During the first half DCC Healthcare disposed of its Mobility & Rehabilitation businesses and DCC Food & Beverage disposed of one of its smaller Irish businesses. The net cash impact of these transactions (€28.4 million) resulted in a pre-tax gain on their book carrying values, including goodwill, of €0.8 million. These businesses had accounted for less than 1% of DCC's operating profit for the year ended 31 March 2010. 

IAS 21 requires that any foreign exchange translation differences which have been written off directly to reserves in prior years be recycled through the Income Statement on the disposal of the related asset. The amount of such differences relating to the above disposals, which did not have any impact on the Group's total equity, was €3.1 million.

Restructuring of certain of the Group's pension arrangements during the year gave rise to a net reduction in pension liabilities and an exceptional gain of €5.0 million.

The Group made a provision of €6.1 million against the carrying value of one of its buildings.

IFRS 3 (revised) requires that the professional (legal and financial due diligence) and tax (such as stamp duty) costs relating to the evaluation and completion of an acquisition are expensed in the Income Statement whereas previously they were capitalised as part of the acquisition cost. During the year these costs amounted to €3.6 million.

The balance of the net exceptional charge relates primarily to restructuring costs arising from the integration of recently acquired businesses.

The charge for the amortisation of intangible assets increased to €10.9 million (2010: €6.2 million).

Profit before tax

Profit before tax of €189.6 million increased by 10.9% on a constant currency basis (15.0% on a reported basis).

Taxation

The effective tax rate for the Group increased to 21% compared to 19% in the previous year, primarily due to the increased proportion of profits arising in Britain and continental Europe.

Adjusted earnings per share

Adjusted earnings per share of 203.15 cent increased by 10.5% on a constant currency basis (an increase of 14.1% on a reported basis).

Dividend

The Board is recommending an increase of 10.0% in the final dividend to 48.07 cent per share which, when added to the interim dividend of 26.11 cent per share, gives a total dividend of 74.18 cent per share for the year, a 10.0% increase over the prior year dividend of 67.44 cent per share. The dividend is covered 2.7 times by adjusted earnings per share (2.6 times in 2010). It is proposed to pay the final dividend on 21 July 2011 to shareholders on the register at the close of business on 20 May 2011.

In recent years the Group has achieved a significant reduction in net working capital days which reduced from 16.4 days at 31 March 2008 to 4.6 days at 31 March 2010. These gains were largely retained at 31 March 2011 when net working capital days were 4.9 days. The cash flow generated by the Group for the year ended 31 March 2011 and the impact on net debt can be summarised as follows:

Operating cash flow in 2011 was €269.6 million compared to €297.8 million in 2010 which benefited from a net reduction in working capital in that year. After higher than normal capital expenditure and tax payments, free cash flow was €123.6 million compared to €229.1 million in the prior year.

Return on total capital employed

Reflecting the strong operating profit growth and continued good working capital management, DCC's return on total capital employed improved to 19.9% (2010: 18.4%).

Acquisition and Capital Expenditure

Committed acquisition and net capital expenditure amounted to €207.9 million, as follows:

Committed acquisition expenditure amounted to €130.7 million in the year ended 31 March 2011. The cash outflow on acquisitions during the year was €78.3 million.

In May 2010, as previously announced, DCC Energy acquired Pearts, a medium sized oil distribution business operating from four locations and selling 190 million litres of fuel in the north east of England, for consideration of €15 million on a cash free/debt free basis. In June 2010, also as previously announced, DCC Energy acquired two oil importation and storage terminals in Inverness and Aberdeen in Scotland for consideration of €19 million. These terminals are being used to provide storage and throughput services to major oil companies who continue to sell fuel directly into the market place. This acquisition enhances DCC Energy's position in the Scottish market by creating opportunities for expansion into marine fuels. In February 2011, as previously announced, DCC Energy reached conditional agreement to acquire the entire issued share capital of Pace Fuelcare, a British oil distribution business, for €28 million on a cash free/debt free basis. In its last financial year Pace Fuelcare sold 515 million litres of fuel to independent retail petrol stations and a broad range of commercial, industrial, agricultural and domestic customers. The acquisition is subject, inter alia, to clearance from the UK Office of Fair Trading. The scale of the Group's oil distribution business in Austria was increased when DCC Energy completed the acquisition in April of the trade and certain assets of Top Oil GmbH, a 140 million litre oil distributor based in Northern Austria for a modest consideration.

In August 2010, DCC SerCom announced the acquisition of Comtrade SA, a leading distributor of consumer electronic and audio visual products to the retail sector in France, for an initial cash free/debt free consideration of €11.4 million plus further payments based on the future performance of the business. This acquisition was completed in October 2010. Comtrade, which is based in Paris, distributes a broad range of products including iPod and MP3 docking stations, speakers and portable hard drives from suppliers such as Altec Lansing, Western Digital and iHome to major retailers such as Carrefour, E.Leclerc, Auchan and FNAC and to a wide range of internet, supermarket and specialist electronics retailers. This acquisition is a further step in DCC SerCom's strategy to extend its product, customer and market coverage in Retail distribution. In September 2010, DCC SerCom completed the acquisition of Codework Limited for a modest upfront consideration. Codework is a distributor of enterprise software and further extended the geographic reach of DCC SerCom's Enterprise distribution activities into Britain. In March 2011, also as previously announced, DCC SerCom acquired Advent Data Limited ("Advent"), a leading distributor of electronic office supplies to a broad range of resellers, retailers and e-tailers in the UK. Including net debt acquired the initial outlay by DCC SerCom for Advent was €19 million plus further payments based on the future performance of the business.

Net capital expenditure in the year of €77.2 million is significantly higher than the prior year amount of €35.7 million and compares to a depreciation charge of €52.9 million in the current year. DCC Energy's net capital expenditure of €40.8 million is higher than its depreciation charge (€31.2 million) due to increased investment in its distribution fleet and in supporting its ongoing development of new business. In November 2010, DCC SerCom's UK Retail distribution business purchased a 250,000 square feet warehouse near Wellingborough, north of London. The total cost of the warehouse including fit-out was €17 million. This investment allows Gem Distribution to market its third party logistics services to software and DVD publishers from a modern, customised facility within easy reach of the south east of England.

Financial Strength

DCC's financial position remains very strong, well funded and highly liquid. At 31 March 2011 the Group had net debt of €45.2 million and total equity of €931.9 million. DCC has significant cash resources and relatively long term debt maturities. Substantially all of the Group's debt has been raised in the US private placement market with an average credit margin of 1.23% over floating Euribor/Libor and an average maturity of 6.0 years from 31 March 2011.

Outlook

The outlook for the year to 31 March 2012 is framed against an uncertain economic environment, particularly in the UK, and the significant assumption that there will be a return to a more normal weather pattern compared to the extremely cold winter last year. In April DCC Energy has been impacted by what has been the mildest April on record, with temperatures significantly warmer than last year and this along with the impact of the number of public holidays in the UK has resulted in Group trading being well behind the prior year. However it is important to note that April represents only approximately 5% of the Group's budgeted profit for the year.

Consequently at this very early stage the Group anticipates that operating profit and adjusted earnings per share, both on a constant currency basis, will be broadly in line with the prior year. On a reported basis, assuming an exchange rate of Stg£0.8800 = €1 (which would represent a 3% weakening of the average rate from last year of Stg£0.8522 = €1), this would result in a modest decline in operating profit and adjusted earnings per share compared to the prior year.

This outlook excludes the potential benefit of acquisitions and the Group remains in a very strong financial position to pursue opportunities in the year ahead.

Operating review

DCC Energy's operating profit was 17.2% ahead of the prior year on a constant currency basis. This was another year of excellent growth and the business benefited from the successful integration of a number of acquisitions completed in prior years and another extremely cold winter overall, particularly in the last six weeks of the third quarter ended 31 December 2010. However, trading in the fourth quarter was adversely impacted by the milder weather conditions, particularly relative to the same period in the prior year.

DCC Energy sold 7.1 billion litres of product, an increase of 15.5% on the prior year. While the division achieved good organic volume growth in the nine months ended 31 December 2010, this was negated in the fourth quarter primarily as a result of the mild weather conditions. For the full year, volumes were approximately 1% behind the prior year on an organic basis.

On a constant currency basis, the operating profit per litre for the year was 1.86 cent, broadly in line with the prior year of 1.84 cent.

The Oil distribution business had another excellent performance in Britain, benefiting from the integration, consequent synergies and strong performance of recent acquisitions. DCC further strengthened its position in the British market through the acquisition of Pearts (a 190 million litre business in Northern England, completed in May 2010) and the acquisition of two oil importation and storage terminals in Inverness and Aberdeen in Scotland (completed in June 2010). In February 2011, as previously announced, DCC Energy reached conditional agreement to acquire the entire issued share capital of Pace Fuelcare, a British oil distribution business. In its last financial year Pace Fuelcare sold 515 million litres of fuel to independent retail petrol stations and a broad range of commercial, industrial, agricultural and domestic customers. The acquisition is subject, inter alia, to clearance from the UK Office of Fair Trading. DCC is the clear market leader in oil distribution in Britain and on completion of the acquisition of Pace Fuelcare would have a market share of approximately 15% and is well positioned to further consolidate what remains a very fragmented market.

DCC Energy's oil distribution businesses in continental Europe (Denmark and Austria) performed strongly and made an important contribution to the division's overall result. Having reached conditional agreement in February, the scale of the Group's oil distribution business in Austria was increased when DCC Energy completed the acquisition in April of the trade and certain assets of Top Oil GmbH, a 140 million litre oil distributor based in Northern Austria. Despite the continued weak economic environment in Ireland, there was a modest recovery in the profitability of the Irish oil business reflecting cost reductions achieved in the prior year.

The LPG business performed satisfactorily in the year, achieving market share growth in Britain, particularly in the commercial sector, although volumes in Ireland declined primarily due to the difficult Irish economy. The overall result was adversely impacted by a rising product pricing environment, reducing the operating profit of the business.

The Fuel Card business had another excellent year, driven by the additional contribution from the acquisition of the Brogan fuel card business (completed in December 2009) and good organic volume growth.

The outlook for DCC Energy for the year to 31 March 2012 is set against the significant assumption that there will be a return to a more normal weather pattern compared to the extremely cold winter last year. Consequently it is anticipated, at this very early stage, that operating profit, on a constant currency basis, in DCC Energy for the year to 31 March 2012 will be behind the prior year.

DCC SerCom's operating profit grew by 9.9% on a constant currency basis. This was driven by an excellent performance in SerCom Distribution, which achieved constant currency operating profit growth of 16.6% of which 6.3% was organic, reflecting very strong organic growth in the Reseller business, good organic growth in the Retail business and the benefit of acquisitions completed during the year.

DCC SerCom's Retail distribution business achieved very strong operating profit growth. The business in Britain performed well, growing market share with key suppliers while also investing in its logistics and ancillary services capability through the acquisition of a substantial new facility north of London. In France, the Retail business achieved good organic profit growth and significantly strengthened its market and service proposition through the acquisition of Comtrade SA, a leading distributor of audio visual (AV) accessories and peripherals, which was announced in August 2010.

DCC SerCom's Reseller distribution business had an excellent year, generating significant operating profit growth in both Britain and Ireland. The business gained market share in core product areas, particularly PCs, supported by the introduction of new suppliers. The continuing investment in strengthening its technical and commercial expertise in communications, AV and the converging IT and mobile telephony channels also generated a strong return. In March 2011 DCC SerCom acquired Advent Data Limited, a leading independent distributor of electronic office supplies in the UK. Advent is highly complementary to DCC's Reseller business and significantly strengthens its customer and supplier base in this market.

DCC SerCom's Enterprise distribution business had a challenging year in France. Profits declined modestly, despite good progress in Belgium and the Netherlands and extending its presence in the UK market during the year.

DCC SerCom's Supply Chain Management business, which now accounts for less than 10% of DCC SerCom's operating profit, continued to suffer from a decline in procurement volumes with its major customer, as a result of changes in its manufacturing strategy.

DCC SerCom anticipates very strong growth in operating profit, on a constant currency basis, for the year to 31 March 2012, through a combination of the benefit of acquisitions completed in the prior year and further organic growth, notwithstanding what is likely to be a less favourable environment for consumer demand.

DCC Healthcare achieved growth in operating profit from continuing activities of 10.5% on a constant currency basis, which represented a strong performance against a challenging market background.

The successful disposal of its Mobility & Rehabilitation businesses in June 2010 has enabled DCC Healthcare to bring greater focus to the development of its Hospital Supplies & Services and Health & Beauty Solutions businesses, as well as improving the return on capital employed of the division.

DCC Hospital Supplies & Services recorded good revenue and profit growth. In the Republic of Ireland, government austerity measures have reduced demand and increased price pressure in the public healthcare system, which impacted the gross margin in DCC Hospital Supplies & Services. This was offset by tight cost control, the full year benefit of bolt-on acquisitions completed in the prior year and other revenue growth primarily driven by the expansion of DCC's Pharma compounding service capacity and new product introductions. The British value added distribution services business had a challenging year but contributed modestly to profits as it continued to invest in improving its management and operational capacity. While government austerity measures, particularly in the Republic of Ireland, are likely to hold back profit growth in DCC Hospital Supplies & Services in the short term, they are also expected to create new opportunities in the provision of outsourced services to hospitals.

DCC Health & Beauty Solutions generated excellent revenue and operating profit growth. Revenue growth was particularly strong in skincare and fish oil products across a range of customers, benefiting from continued business development with existing customers as well as new customer wins, including in continental Europe. Despite raw material cost inflation, the business managed its input costs and overheads very well. These measures, together with efficiency gains as a result of investments in infrastructure and skilled people in recent years, delivered a very strong performance.

While pressure on healthcare spending will impact DCC Hospital Supplies & Services, DCC Health & Beauty Solutions is budgeting for strong profit growth. Overall DCC Healthcare expects operating profit from continuing activities, on a constant currency basis, in the year to 31 March 2012 to be modestly ahead of the prior year.

DCC Environmental's operating profit was 19.7% ahead of the prior year on a constant currency basis. The results benefited from the consolidation of 100% of the operating profit of the William Tracey Group for the full year. On a like for like basis, however, operating profit declined modestly.

Market conditions in Britain were difficult, with a further decline in construction derived waste volumes, exacerbated by the extreme weather conditions in December, resulting in a like for like decline in operating profit in Britain. Some of this weakness was offset by the strong growth in recyclate prices and the benefit of a new material recycling facility in Glasgow to process domestic recyclable waste. The joint venture development (with Scottish and Southern Energy Plc) of Scotland's largest anaerobic digestion plant reached a significant milestone with the completion of construction and commencement of the commissioning phase.

The Irish business made progress during the year and recorded growth in operating profit despite the challenging market conditions.

With its strong focus on recycling and resource recovery, DCC Environmental expects to achieve good growth in operating profit, on a constant currency basis, in the year to 31 March 2012 in spite of the challenging trading environment prevailing in Britain and Ireland.

DCC Food & Beverage reported a very strong increase in operating profit in the year of 35.6% on a constant currency basis, despite the impact on consumer spending of the weakness of the Irish economy. This result was driven by good cost control following the actions taken in the prior year, operating efficiencies and the introduction of new products.

The Indulgence and Healthfoods businesses both delivered good operating profit growth. The Indulgence business experienced a decline in sales in Ireland, however, a deliberate policy of reduced promotional activity in certain categories allied with strong control of costs delivered operating profit growth. The business added to its portfolio of company owned brands with the acquisition of the Goodall's and YR brands (completed in December 2010), which contributed modestly in the fourth quarter. The Healthfoods business achieved strong sales growth in its Kelkin brand in both the grocery and pharmacy channels, however, this was offset somewhat by a decline in sales in certain third party grocery brands.

The Frozen and Chilled Logistics business performed well in a difficult market through its focus on operational efficiencies, however a customer has terminated its contract following a change in its supply chain strategy for Ireland, which will impact the performance of the business in the year to 31 March 2012.

DCC Food & Beverage anticipates good operating profit growth, on a constant currency basis, in the year to 31 March 2012.

Annual Report and Annual General Meeting

DCC's 2011 Annual Report will be published in June 2011. The Company's Annual General Meeting will be held at 11:00 am on Friday 15 July 2011 in The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

This announcement contains some forward-looking statements that represent DCC's expectations for its business, based on current expectations about future events, which by their nature involve risks and uncertainties. DCC believes that its expectations and assumptions with respect to these forward-looking statements are reasonable, however because they involve risk and uncertainty, which are in some cases beyond DCC's control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.

Presentation of results and dial-in facility

There will be a presentation of these results to analysts and investors/fund managers in Dublin at 9.00 am today. The slides for this presentation can be downloaded from DCC's website www.dcc.ie. A dial-in facility will be available for this meeting:

Ireland: 1800 946 811 or +353 1 242 1074

International: +44 844 800 3850

Passcode: 244 037

This announcement and further information on DCC is available at www.dcc.ie

Group Income Statement

for the year ended 31 March 2011

Group Statement of Comprehensive Income

for the year ended 31 March 2011

Group Balance Sheet

as at 31 March 2011

Group Statement of Changes in Equity

Group Cash Flow Statement

for the year ended 31 March 2011