DCC Regulatory News (DCC)

4 November 2014

Interim Report

For the six months ended 30 September 2014

DCC plc, the international sales, marketing, distribution and business support services group, headquartered in Dublin, today announced its results for the six months ended 30 September 2014.

Ø Revenue increased by 1.9% to £5.5 billion. Volumes in DCC Energy increased by 5.3% but its revenue was broadly flat, primarily due to the impact of lower oil prices. Excluding the impact of acquisitions, DCC Energy's volumes were in line with last year despite the milder weather in the current year.

Ø Revenue, excluding DCC Energy, was up 9.2%.

Ø Operating profit increased by 6.4% to £73.2 million.

Ø Operating profit, excluding DCC Energy, increased by 16.9%, driven by strong growth in DCC Technology and DCC Healthcare.

Ø Recent acquisitions are performing well.

Ø The Group increased its acquisition activity, with £148 million committed on acquisitions year to date.

Ø Agreement reached to dispose of the Irish subsidiaries of DCC Food & Beverage (Kelkin, Robert Roberts, Allied Logistics). The aggregate consideration is approximately €75 million (£60 million).

Ø A seasonal increase in working capital, which should largely reverse in the second half, reduced operating cash flow to £17.9 million. Working capital days remained low at 30 September 2014 (2.3 days versus 1.8 days at 30 September 2013).

Ø The interim dividend has been increased by 10.0% to 28.73 pence per share.

Ø The Group now expects that growth in operating profit and adjusted earnings per share will be in the range of 5% - 10% over the prior year (previously approximately 10% - 12%) reflecting the impact of the particularly mild weather in September and October.

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

"In the seasonally less significant first half, operating profit of £73.2 million was 6.4% ahead of the prior year. DCC Energy's operating profit was modestly behind the prior year as its business was impacted by the very mild weather during the period particularly in the relatively important months of April, May and September. Operating profit, excluding DCC Energy, increased by 16.9% with each of the other four divisions reporting profit growth. 

Adjusted earnings per share increased by 7.2% to 62.53 pence.

The Board has decided to pay an interim dividend of 28.73 pence per share, which represents a 10.0% increase on the prior year.

Assuming normal winter weather conditions in the balance of the financial year, the Group now expects that the year to 31 March 2015 will show growth in operating profit and adjusted earnings per share in the range of 5% - 10% over the prior year (previously approximately 10% - 12%).

Good progress was made in the pursuit of the strategic objectives, in particular through the acquisitions of the Esso Express, Williams Medical and CapTech businesses and the disposal of the Group's Irish food and beverage subsidiaries. DCC remains very well placed to continue the development of its business in existing and new geographies."

For reference, please contact:

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

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

Stephen Casey, Investor Relations Manager Website: www.dcc.ie

Interim Management Report

For the six months ended 30 September 2014

Results

A summary of the results for the six months ended 30 September 2014 is as follows:

Revenue

Revenue increased by 1.9% to £5.5 billion.

Volumes in DCC Energy increased by 5.3% but revenues were broadly flat primarily due to the impact of lower oil prices. Excluding the impact of acquisitions, DCC Energy volumes were in line with last year despite the milder weather in the current year, with good organic growth in non-heating volumes offsetting the weak demand for heating products, which declined by approximately 14%.

Excluding DCC Energy, Group revenue increased by 9.2%. Approximately half of this growth was organic, primarily driven by DCC Technology.

Operating profit performance

Group operating profit in the first half of £73.2 million was 6.4% ahead of the prior year.

DCC Energy's operating profit was 4.7% behind the prior year as its business was impacted by the very mild weather during the period which more than offset the benefit of acquisitions. Organically, operating profit in DCC Energy was approximately 15% behind the prior year which reflected the contrast between the colder than normal first half last year and the much milder conditions in the current year, particularly in the relatively important months of April, May and September.

Excluding DCC Energy, operating profit increased by 16.9%, with growth in each of DCC's other four divisions. Approximately two thirds of this growth was from acquisitions.

In DCC Technology, the Group's second largest division, operating profit was 7.7% ahead of the prior year driven by growth in its reseller base and in the gaming console market, as well as a first time contribution from CapTech, which was acquired in September 2014.

DCC Healthcare traded well ahead of the prior year, benefiting from first time contributions from Williams Medical, acquired in May 2014, and Universal Products Manufacturing, acquired in January 2014.

DCC's two smaller divisions, DCC Environmental and DCC Food & Beverage, traded ahead of the prior year.

Change in accounting policy and restatement

IFRS 11 Joint Arrangements has been adopted as required by IFRS for the six months ended 30 September 2014. Whilst the impact on the comparatives is not material, they have been restated accordingly. Further details are set out in note 4.

Finance costs (net)

Net finance costs for the period increased to £13.4 million (2013: £10.9 million) primarily as a result of the incremental interest cost of the additional US Private Placement debt drawn down in the first half. Average net debt during the period was £339 million, compared to £361 million during the six months ended 30 September 2013.

Profit before net exceptionals, amortisation of intangible assets and tax

Profit before net exceptionals, amortisation of intangible assets and tax of £60.3 million increased by 3.1%.

Net exceptional gain and amortisation of intangible assets

The Group recorded an exceptional gain before tax of £0.2 million which primarily comprised credits in respect of the reorganisation of Group pension arrangements of £2.4 million, an IAS 39 credit of £0.5 million and a further net receipt in respect of ongoing litigation matters of £0.7 million, offset by acquisition costs of £2.2 million and restructuring costs of £1.3 million.

The charge for the amortisation of acquisition related intangible assets increased to £13.0 million from £10.0 million, primarily due to the acquisitions completed in the previous 12 months.

Taxation

The effective tax rate for the Group in the first half decreased to 13% compared to 16% in the first half last year. The full year tax rate in the prior year was 14%. The decrease in the current year is driven by the reduction in the UK corporation tax rate.

Adjusted earnings per share

Adjusted earnings per share increased by 7.2% to 62.53 pence.

Interim dividend increase of 10.0%

The Board has decided to pay an interim dividend of 28.73 pence per share, which represents a 10.0% increase on the prior year figure of 26.12 pence per share. This dividend will be paid on 28 November 2014 to shareholders on the register at the close of business on 14 November 2014. DCC continues to offer shareholders the option to receive their dividends in either sterling or euro.

Cash flow

As with its operating profit, the Group's cash flow is weighted towards its second half. The cash flow generated by the Group and the deployment of cash on acquisitions and dividends to shareholders for the six months ended 30 September 2014 can be summarised as follows:

Operating cash flow of £17.9 million compares to £110.1 million in the comparative period and was impacted by an increase in net working capital which should largely reverse in the second half. The cash outflow in respect of the increase in working capital reflects the impact of the seasonal unwind from a negative 0.6 days at 31 March 2014 to 2.3 days at 30 September 2014. The particularly strong operating cash flow in the comparative period had benefited from the introduction of a supply chain financing programme within DCC Technology.

Working capital remains tightly managed with debtor days reducing to 29.3 days at 30 September 2014 from 31.4 days at 31 March 2014 and 33.1 days at 30 September 2013. Net working capital at 30 September 2014 was £74 million.

Acquisitions, divestitures and capital expenditure

In the six months ended 30 September 2014, committed acquisition and capital expenditure amounted to £184.2 million, as follows:

Acquisition activity

Committed acquisition expenditure in the six months ended 30 September 2014 amounted to £147.9 million.

DCC Energy

As previously announced on 28 August 2014, DCC reached agreement in principle with Esso Société Anonyme Francaise ("Esso SAF") to acquire the assets that comprise the Esso Express unmanned retail petrol station network and the Esso Motorway concessions in France. Completion of the acquisition is subject to, inter alia, the conclusion of the French Works Council consultation process and EC competition clearance. The transaction is expected to complete in the first half of calendar 2015 after the relevant clearances have been received and the implementation of an IT and operational infrastructure.

The total consideration will be €106 million (£84 million) plus stock in tank at the date of acquisition, all payable in cash on completion.

The acquisition will comprise Esso SAF's network of 274 Esso Express unmanned petrol stations ("Esso Express"), 48 Esso branded motorway concessions ("Motorway Sites") and contracts to supply c. 75 Dealer Owned Dealer Operated sites (together "Esso SAF Retail"). As part of the transaction, DCC Energy will enter into a long term branded supply agreement with Esso SAF.

Esso SAF was the pioneer of the unmanned format for retail petrol stations in France when it converted its full service network to the Express format c. 15 years ago. Esso Express (and the related dealer supply business) sells c. 1.7 billion litres of fuel annually. The Motorway Sites comprise 48 full service petrol stations selling c. 230 million litres of fuel annually located on motorways across France. These sites are operated under concession contracts for fixed periods which are subject to a public re-tendering process at the expiry of each concession. The management of the retail operations on the Motorway Sites is outsourced to one of the world's leading operators in the contract catering and support services industry.

The acquired business will have annual volumes of approximately 1.9 billion litres, revenue of approximately €2.2 billion (£1.7 billion) and is expected to generate a return on invested capital of approximately 15%.

On completion of the acquisition, DCC Energy will operate approximately 670 retail service stations across Europe and will supply approximately 2,000 dealer owned service stations. On a pro-forma basis, DCC Energy's product split by volume will be 58% road transport fuels, 16% commercial fuels, 16% heating oil and 10% LPG.

The acquisition of Esso SAF Retail will be DCC Energy's first acquisition in France and the second major acquisition in the European retail petrol station market, following the acquisition of Qstar announced in February 2014. It represents a significant further step in DCC's strategy to build a larger presence in the transport fuels sector and provides DCC with an excellent platform for growth in the French market.

DCC Technology

In September, DCC Technology expanded its European footprint with the acquisition of CapTech Distribution AB, Sweden's largest independent technology distribution business. With revenue of approximately £140 million, CapTech has a particularly strong market position in IT hardware and AV systems. CapTech partners with many of the world's leading technology manufacturers and brand owners, including Acer, Asus, BenQ, Dell, Microsoft, NEC and Samsung, and sells to a very broad range of etail, retail and reseller customers.

DCC Healthcare

As previously announced on 3 June 2014, DCC Healthcare acquired Williams Medical Holdings, the market leader in the supply of medical and pharmaceutical products and related services to general practitioners in Britain. The consideration (which was paid in cash at completion) was based on an enterprise value of £45 million. Williams Medical supplies a wide range of own and third party branded products - medical equipment, consumables and pharmaceuticals - to a very broad customer base of approximately 10,000 GP practices and healthcare providers in the community care and domiciliary care sectors. The business also provides a range of services including field based testing & calibration and repair & maintenance of equipment. The Williams Medical business model, similar to that in DCC Technology, is based on telesales, e-commerce, product catalogues and key account management, supported by high quality IT systems and cost effective logistics. The acquisition of Williams Medical represents an excellent strategic fit and another material step forward for DCC Healthcare, following the acquisitions of Kent Pharma, Leonhard Lang UK and UPL over the last two years.

Total cash spend on acquisitions in the six months ended 30 September 2014

The acquisition of Qstar, a Swedish unmanned retail petrol station company, along with its related fuel distribution and fuel card businesses, previously announced on 17 February 2014, was completed on 12 May 2014 for a total consideration of £39.7 million. The consideration for the Esso SAF Retail transaction will not be paid until the transaction completes, which is likely to be in the first half of calendar 2015. Accordingly, the cash outflow on acquisitions in the six months ended 30 September 2014, inclusive of a net movement in deferred and contingent acquisition consideration of £1.9 million, was £105.5 million.

The Group continues to be very active on the development front and is in a very strong financial position to pursue a range of acquisition and organic development opportunities.

Divestitures

As previously announced on 30 September 2014, the Group has agreed to dispose of Robert Roberts (including Findlater Wine & Spirits) and Kelkin to Valeo Foods, a leading Irish foods group. The disposal is conditional on clearance from the Competition and Consumer Protection Commission in Ireland.

In October 2014, DCC agreed to dispose of Allied Logistics to Musgrave, a major food retailer and distributor in Ireland. The disposal is conditional, inter alia, on clearance from the Competition and Consumer Protection Commission in Ireland. In addition, DCC expects to conclude the disposal of a property, previously used by Allied Logistics, at Park West Industrial Park, Dublin 12.

The aggregate consideration from these disposals is approximately €75 million (£60 million) and any gain over their combined carrying value, including goodwill, is expected to be modest.

Capital expenditure

Net capital expenditure in the first half of £36.3 million (2013: £33.2 million) compares to a depreciation charge of £30.2 million (2013: £30.1 million). 

Financial strength

DCC's financial position remains very strong. At 30 September 2014, the Group had net debt of £272.8 million and total equity of £925.7 million. At the same date, DCC had cash resources, net of overdrafts, of £903 million and a further £150 million of undrawn committed long term debt facilities. The Group's outstanding term debt at 30 September 2014 had an average maturity of 7.3 years. Substantially all of the Group's debt has been raised in the US Private Placement market with an average credit margin of 1.66% over floating Euribor/Libor.

Outlook

Following the particularly mild weather conditions in September and October, the Group now expects that the year to 31 March 2015 will show growth in operating profit and adjusted earnings per share in the range of 5% - 10% over the prior year (previously approximately 10% - 12%). This guidance continues to be set against the important assumption that there will be normal winter weather conditions in the balance of the Group's financial year.

DCC retains a strong equity base, long term debt maturities and significant cash resources, which leave it very well placed to continue the development of its business in existing and new geographies.

Operating review

Operating profit in DCC Energy was 4.7% behind the prior year as the business was impacted by the very mild weather in contrast to the colder than normal weather in the prior year. Organically, operating profit was approximately 15% behind the prior year but this was partially offset by the benefit of the first time contribution from Qstar, which has performed well since acquisition.

The average temperatures in the UK, DCC Energy's largest market, in April, May and September were milder than the 10 year average and significantly milder than the prior year. DCC Energy's other key markets similarly experienced milder weather. This continued the trend of mild weather conditions which the business had also encountered in the second half of the prior year and has significantly impacted on demand for heating products.

DCC Energy sold 5.2 billion litres of product during the period, an increase of 5.3% over the first half of the prior year, driven by acquisitions. Despite the weak demand for heating products, with volumes approximately 14% behind, overall volumes were in line with the prior year on a like for like basis reflecting good organic growth in the non-heating segments of the market.

Good progress was made in DCC's strategy to build a larger presence in transport fuels and particularly in unmanned petrol stations. In May, DCC completed the acquisition of Qstar, the fifth largest retail petrol station network in Sweden. In August, DCC announced that it had reached agreement in principle with Esso Societé Anonyme Francaise to acquire the assets that comprise the Esso Express unmanned retail petrol station network and the Esso motorway concessions in France. These acquisitions will result in DCC Energy's pro-forma transport fuels volume increasing from 50% to 58% of total volumes.

The fuelcard business again achieved strong organic volume growth as it continues to grow its market share in Britain.

The LPG business performed robustly, benefiting from good organic volume growth in commercial volumes, which partially mitigated the adverse impact of the milder weather. The LPG business also benefited from good cost control and the achievement of synergies from the integration of the former BP LPG business in Britain.

On a pro-forma basis, DCC Energy will sell approximately 12.5 billion litres of product per annum across 10 countries and is well positioned to drive further growth in its existing markets and to continue to expand into new geographies.

DCC Technology achieved operating profit growth of 7.7%, reflecting good growth across the business.

In the UK & Ireland, the business maintained its position as the leading distributor of IT, mobile and home electronics products into the retail channel including high street, etail and catalogue retail customers. This position is underpinned by its commitment to delivering a range of value adding retail services and a continuous emphasis on product range development. Current areas of focus in this regard include wearable technology, consumer electronics and small domestic appliances. In addition, in retail, the business benefited from growth in the market for gaming consoles and improved demand for PC products, which offset weaker markets in tablets, DVD and audio.

The business in the UK & Ireland also achieved strong growth in its reseller business as it won new customers and gained market share with existing customers. Growth was achieved in the server, security and PC product categories as the business has strengthened its services and technical capability.

During the period, DCC Technology further integrated its UK businesses under the Exertis brand, as part of its strategy to offer an enhanced sales proposition to its entire customer base. In addition, the business has commenced a programme to upgrade its IT and logistics infrastructure to support future growth in a cost effective manner.

In Continental Europe, the business improved its performance in what remains a difficult market. It also benefited from the acquisition of CapTech Distribution AB, the third largest distributor of IT products in Sweden which has been rebranded under the Exertis name. CapTech has an extensive retail and reseller customer base and has a particularly strong share of the audio visual and components product segments with a growing presence in the computing market. It is intended to expand the product and vendor portfolio of the business and to use the acquisition as the foundation for a more broadly based business covering the wider Nordic region. DCC Technology continues to seek opportunities to expand its presence in other geographic markets.

DCC Healthcare

* Adjusted to exclude Virtus Inc which was disposed of in March 2014

DCC Healthcare achieved operating profit growth of 35.8%, benefiting from acquisitions completed in the current and prior year, as well as strong organic profit growth in DCC Health & Beauty Solutions.

DCC Vital, which is focused on the sales, marketing and distribution of pharmaceuticals and medical devices in Britain and Ireland, recorded strong operating profit growth driven by acquisition activity. In May 2014, it acquired Williams Medical ("Williams"), the leading provider of medical supplies and services to GP surgeries in Britain, with a growing business in supplying healthcare providers in the evolving community and domiciliary care sectors. Williams has performed well since acquisition and has expanded DCC Vital's market reach, giving it the most comprehensive sales channel coverage in the British and Irish healthcare markets.

In Britain, DCC Vital recorded good sales growth in own licence generic pharmaceuticals, particularly in the respiratory area, and also in medical devices following the acquisition last year of Leonhard Lang UK, the market leader in electrodes and diathermy consumables. In Ireland, the trading environment remained challenging, particularly for DCC's pharma compounding activity.

DCC Health & Beauty Solutions, which provides outsourced solutions to nutrition and beauty brand owners in Europe, generated very strong operating profit growth. In nutrition, the business benefited from the integration of its Swedish tablet manufacturing operations into its larger facility in Britain. Sales, business development and regulatory personnel have been retained in Sweden and remain focused on driving continued growth in the Nordic region. In beauty, the business benefited from the acquisition of Universal Products Manufacturing ("UPL") in January 2014. The process of combining UPL with DCC Health & Beauty Solutions' existing creams and liquids activities is on track to deliver the targeted commercial benefits and cost savings.

Operating profit in DCC Environmental increased by 11.7%. DCC Environmental's significant recycling infrastructure in Britain, particularly across the central belt of Scotland and the East Midlands, has positioned the business well to benefit from the improved market conditions, driven by a more favourable economic backdrop and some consolidation within the market. The non-hazardous business benefited from negotiating lower disposal costs for non-recyclable waste, while the Scottish hazardous waste business gained some significant new contracts.

DCC Food & Beverage achieved operating profit growth of 33.3%, primarily driven by a strong performance in its wine business in Britain and Ireland.

This report 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.

Principal Risks and Uncertainties

The Board of DCC is responsible for the Group's risk management and internal control systems, which are designed to identify, manage and mitigate potential material risks to the achievement of the Group's strategic and business objectives. The Board has approved a Risk Management Policy which sets out delegated responsibilities and procedures for the management of risk across the Group.

The principal risks and uncertainties facing the Group in the short to medium term, as set out on pages 18 and 19 of the 2014 Annual Report (together with the principal mitigation measures), continue to be the principal risks and uncertainties facing the Group for the remaining six months of the financial year.

This is not an exhaustive statement of all relevant risks and uncertainties. Matters which are not currently known to the Board or events which the Board considers to be of low likelihood could emerge and give rise to material consequences. The mitigation measures that are maintained in relation to these risks are designed to provide a reasonable and not an absolute level of protection against the impact of the events in question.

Presentation of results and dial-in facility

There will be a presentation of these results to analysts and investors/fund managers in London 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 937 657

UK: 0800 279 4977

International: +44 (0) 20 3427 1900

Passcode: 982 1763

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

Group Income Statement

Group Statement of Comprehensive Income

Group Balance Sheet

Group Statement of Changes in Equity

Group Cash Flow Statement