DCC Regulatory News (DCC)

6 November 2013

Interim Report

For the six months ended 30 September 2013

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 2013.

Please note that DCC now presents its financial results in sterling.

Ø Revenue increased to £5.4 billion (+11.1%). Approximately one third of this growth was organic.

Ø Operating profit increased to £69.4 million (+38.0%). Approximately three quarters of this growth was organic.

Ø Good progress on the integration of acquisitions.

Ø Operating cash flow increased to £110.3 million from £63.9 million in the prior year.

Ø The interim dividend has been increased by 10.0% to 26.12 pence per share.

Ø The Group continues to anticipate that, assuming a normal winter, the year to 31 March 2014 will show growth in operating profit of approximately 15% over the prior year.

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

"It is pleasing to report that operating profit and adjusted earnings per share were significantly ahead of the prior year, albeit in the seasonally less significant first half. This outperformance was driven mainly by a particularly strong first quarter.

DCC Energy, the Group's largest division, traded significantly ahead of the prior year, benefitting from colder than normal weather conditions in the first quarter, the successful integration of acquisitions completed in prior periods and increased operational efficiency.

Operating profit in DCC SerCom, the Group's second largest division, was strongly ahead of the prior year, driven by its market leading position in the UK market for mobile computing products, such as notebooks and tablets, and its growing position in the mobile handset market.

DCC Healthcare traded significantly ahead of the prior year, benefitting from first time contributions from Kent Pharma and Leonhard Lang UK, together with strong organic growth in the Health & Beauty sector.

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

The Board has decided to pay an interim dividend of 26.12 pence per share, which represents a 10.0% increase on the prior year.

As DCC enters its seasonally more significant second half, its full year guidance continues to be set against the important assumption that there will be normal winter weather conditions. The Group reiterates the guidance previously provided for the year to 31 March 2014, which is that operating profit will be approximately 15% ahead of the prior year and that adjusted earnings per share will be approximately 13% ahead of the prior 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."

For reference, please contact:

Tommy Breen, Chief Executive

Fergal O'Dwyer, Chief Financial Officer

Stephen Casey, Investor Relations Manager

Tel: +353 1 2799 400

Email: investorrelations@dcc.ie

Website: www.dcc.ie

Interim Management Report

For the six months ended 30 September 2013

Results

Please note that DCC now presents its financial results in sterling.

A summary of the results for the six months ended 30 September 2013 is as follows:

Revenue

Revenue increased by 11.1% to £5.4 billion, with approximately two thirds of this growth coming from acquisitions completed in the prior year and the current year.

DCC Energy's volumes increased by 12.7%, all of which came from acquisitions, with like for like volumes broadly flat. Average selling prices reduced by approximately 5% due to sales mix and a modest decrease in the underlying price of oil, which averaged $106 in the period compared to $109 in the previous year. Excluding DCC Energy, Group revenue increased by 26.5%, most of which was organic growth, primarily driven by DCC SerCom which achieved strong growth in its IT and communications markets with revenues increasing by 29.1%. DCC Healthcare also achieved strong revenue growth.

Operating profit performance

Operating profit in the first half of £69.4 million was 38.0% ahead of the prior year. Approximately three quarters of this growth was organic. Good progress was made on the integration of acquisitions, particularly in DCC Energy and DCC Healthcare.

DCC Energy, the Group's largest division, traded significantly ahead of the prior year, benefitting from colder than normal weather conditions in the first quarter, the successful integration of acquisitions completed in prior periods and increased operational efficiency.

Operating profit in DCC SerCom, the Group's second largest division, was strongly ahead of the prior year driven by its market leading position in the UK market for mobile computing products, such as notebooks and tablets, and its growing position in the mobile handset market.

DCC Healthcare traded significantly ahead of the prior year, benefitting from first time contributions from Kent Pharma, acquired in February 2013, and Leonhard Lang UK, acquired in July 2013, together with strong organic profit growth in the Health & Beauty sector.

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

Finance costs (net)

Net finance costs for the period increased to £10.9 million (2012: £7.3 million) primarily as a result of the incremental interest cost of the additional US Private Placement debt raised in April 2013 and higher average net debt during the period of £361 million compared to £250 million during the six months ended 30 September 2012. The increase in average net debt was primarily due to increased levels of working capital in DCC SerCom, driven by a significant organic increase in sales.

Profit before net exceptionals, amortisation of intangible assets and tax

Profit before net exceptionals, amortisation of intangible assets and tax of £58.5 million increased by 35.9%.

Net exceptional charge and amortisation of intangible assets

The Group incurred a net exceptional charge before tax of £5.9 million as follows:

Most of the Group's debt has been raised in the US Private Placement debt market and swapped, using long term interest, currency and cross currency derivatives, to floating rate sterling and euro. Under IAS 39, after "marking to market" swaps designated as fair value hedges and the related fixed rate debt, the level of ineffectiveness is taken to the Income Statement. Normal volatility in capital markets has given rise to a mark to market ineffectiveness loss of £4.3 million, primarily driven by the additional funds raised in April 2013. This non cash loss will unwind as a gain over the remaining life of the relevant swaps.

Acquisition and related costs include the professional and tax costs (such as stamp duty) relating to the evaluation and completion of acquisition opportunities. During the first half these costs amounted to £2.2 million.

The Group incurred an exceptional charge of £3.7 million in relation to additional restructuring of acquired and existing businesses not provided for at 31 March 2013 as the expenditure had not been committed to at that date. Most of this related to the integration into DCC Energy's existing operations of previously acquired oil businesses.

The net reduction in deferred and contingent consideration payable by the Group, provided in previous years, amounted to £4.3 million in the period.

The charge for the amortisation of acquisition related intangible assets increased to £10.1 million from £7.0 million due to the acquisitions completed in the second half of the prior year.

Taxation

The effective tax rate for the Group in the first half decreased to 16% compared to 18% in the first half last year. The full year tax rate in the previous year was 17%. The decrease in the current year is primarily driven by the reduction in the UK corporation tax rate.

Adjusted earnings per share

Adjusted earnings per share of 58.34 pence increased by 38.6%.

Interim dividend increase of 10.0%

DCC now declares its dividends in sterling. The Board has decided to pay an interim dividend of 26.12 pence per share, which represents a 10.0% increase on the prior year figure of 23.75 pence per share (29.48 cent per share translated at the average euro/sterling exchange rate for the six months ended 30 September 2012 of £0.8055 = €1). This dividend will be paid on 29 November 2013 to shareholders on the register at the close of business on 15 November 2013. DCC will continue to offer shareholders the option of receiving 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 2013 can be summarised as follows:

Operating cash flow of £110.3 million compares to £63.9 million in the corresponding period. Working capital remained tightly controlled with net working capital days at 30 September 2013 reducing to 1.8 days from 3.3 days at 30 September 2012, driven by an improvement in working capital days in DCC Energy and benefitting from the impact of supply chain financing programmes within DCC SerCom, which mitigate the working capital impact of sales to a small number of larger customers with longer working capital cycles.

Acquisition and Capital Expenditure

In the six months ended 30 September 2013, committed acquisition and capital expenditure amounted to £52.5 million, as follows:

Acquisition activity

In May, as previously announced, DCC Energy completed the acquisition of Bronberger & Kessler, a 250 million litre oil distribution business in southern Germany.

In July, as previously announced, DCC Healthcare completed the acquisition of Leonhard Lang UK for an initial consideration of £11 million, exclusive of net cash acquired. The business is focused on the sales, marketing and distribution of medical consumables to hospitals and ambulance services in Britain and will be integrated into DCC Healthcare's medical devices business, bringing new expertise and expanding its product portfolio and customer relationships in Britain.

The cash outflow on acquisitions in the six months to 30 September 2013, inclusive of deferred and contingent acquisition consideration amounts previously provided for, was £22.8 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 opportunities.

Capital expenditure

Net capital expenditure in the first half of £33.6 million (2012: £26.8 million) compares to a depreciation charge of £30.5 million (2012: £25.3 million) with the increase on the previous year being primarily driven by the planned capital expenditure in the more fixed asset intensive LPG businesses acquired in the second half of the previous year.

Financial Strength

DCC's financial position remains very strong. At 30 September 2013, the Group had net debt of £215.6 million and total equity of £881.3 million. DCC has significant cash resources, undrawn committed long term debt facilities and its outstanding debt at 30 September 2013 had an average maturity of 5.5 years. Substantially all of the Group's debt has been raised in the US Private Placement market with an average credit margin of 1.50% over floating Euribor/Libor.

Listing Arrangements

DCC became a constituent of the FTSE All-Share and the FTSE 250 indices on 24 June 2013.

Outlook

As DCC enters its seasonally more significant second half, its full year guidance continues to be set against the important assumption that there will be normal winter weather conditions. The Group reiterates the guidance previously provided for the year to 31 March 2014, which is that operating profit will be approximately 15% ahead of the prior year and that adjusted earnings per share will be approximately 13% ahead of the prior 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

DCC Energy had an excellent first half, with operating profit 77.8% ahead of the prior year. The business benefitted from colder than normal weather conditions in the first quarter, the successful integration of acquisitions completed in prior periods and increased operational efficiency.

DCC Energy sold 5.0 billion litres of product during the period, an increase of 12.7% over the first half of the prior year, driven by acquisitions.

DCC Energy's oil business, which now operates in six countries, generated excellent profit growth. The colder weather in the first quarter drove increased demand for heating products, however overall volumes were impacted somewhat by weakness in demand in certain segments of the industrial and commercial sectors in Britain and Sweden. The integration of the former Total oil distribution business in Britain was successfully completed during the first quarter and the planned synergies are now being fully realised. DCC's fuel card operations in Britain achieved very strong profit growth.

In May, DCC Energy completed the acquisition of Bronberger & Kessler, a 250 million litre oil distribution business in southern Germany.

DCC Energy's LPG business, which also operates across six countries, had an excellent first half. The business achieved strong organic volume growth reflecting the colder weather conditions in the first quarter and continued good growth in the commercial market, particularly with oil to LPG conversions. The business completed the planned integration of the former BP LPG business in Britain with DCC's existing LPG business, generating the anticipated integration synergies.

DCC Energy is the leading oil and LPG sales, marketing and distribution business in Europe, operating across nine countries with leadership positions in seven. The business is well positioned to expand its operations further in existing and new markets. 

DCC SerCom achieved organic operating profit growth of 10.9%, with its market leading position in the UK market for mobile computing products, such as notebooks and tablets, and its growing position in the mobile handset market driving an increase in revenue of 29.1%.

Excellent organic profit growth was achieved in the UK where DCC SerCom is the market leader in the rapidly growing tablet market. This market leadership position has been achieved through partnering with many of the leading technology brands and its ongoing focus on providing an extensive range of market development services. The business also generated very strong growth in mobile handsets and accessories, with further market share gains, and has successfully broadened its supplier portfolio. DCC SerCom also achieved strong growth in sales of IT products into the SMB channel and benefitted from a more favourable software release schedule in the home entertainment product sector.

DCC SerCom continues to benefit from its particular focus on providing a broad range of services to support online and multi-channel retailers. Strong growth was achieved in these customer segments and also in the specialist IT and mobile handset retail channels.

DCC SerCom experienced more difficult trading conditions in France where a weak demand environment persists.

The supply chain management business was, as anticipated, impacted by the conclusion of a major finished goods fulfilment programme.

DCC SerCom's businesses have recently been rebranded under a new name, Exertis, in order to reflect its ambition to develop a broadly based European business, delivering a best-in-class service offering to suppliers and customers, with an integrated suite of supply chain services.

DCC Healthcare achieved operating profit growth of 29.3% benefitting from first time contributions from Kent Pharma, acquired in February 2013, and Leonhard Lang UK, acquired in July 2013, together with strong organic growth in the Health & Beauty sector.

 DCC Vital, which is focused on the sales, marketing and distribution of pharmaceuticals and medical devices, recorded strong profit growth driven by the recent acquisition activity. DCC Vital has made good progress in the integration of Kent Pharma and is on track to achieve the planned synergies. Kent performed satisfactorily notwithstanding increased competitive pressures for certain products. The performance of pharma in Ireland has been impacted by the roll out of the National OPAT (Outpatient Anti-microbial Therapy) service contract which has necessitated investment in people and equipment. In medical devices, DCC Vital achieved excellent growth in the British market with good organic growth augmented by the acquisition of Leonhard Lang UK which performed in line with expectations.

DCC Health & Beauty Solutions, which provides outsourced solutions to nutrition and beauty brand owners, generated strong organic sales and profit growth. In nutrition products, sales growth in continental Europe, especially in Germany was an important contributor. Sales of both beauty and healthcare creams and liquids benefitted from growth with existing customers and new business wins.

Operating profit in DCC Environmental was in line with the prior year. Growth in the non-hazardous waste management business, driven by an improvement in the market in Britain, was offset by lower margins in the hazardous waste sector.

DCC Food & Beverage achieved operating profit growth of 7.0% driven by revenue growth in its healthfood and indulgence categories as well as good overall cost control.

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 is responsible for the Group's risk management systems, which are designed to identify, manage and mitigate potential material risks to the achievement of the Group's strategic and business objectives. Details of the principal strategic, operational, compliance and financial risks facing the Group are set out on pages 58 and 59 of the 2013 Annual Report. These risks continue to be the principal risks and uncertainties facing the Group for the remaining six months of the financial year.

Presentation of results and dial-in facility

There will be a presentation of these results to analysts and investors/fund managers in London at 11.00 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 937 656

UK: 0800 279 4977

International: +44 (0) 20 3427 1909

Passcode: 9251 739

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