DCC Regulatory News (DCC)

13 November 2018

DCC, the leading international sales, marketing and support services group, today announced its results for the six months ended 30 September 2018.

· Strong first half performance with Group adjusted operating profit on continuing activities increasing by 15.9% (up 16.5% on a constant currency basis) to £141.9 million, with all divisions performing in line with expectations.

· Adjusted earnings per share on continuing activities up 12.1% (13.0% ahead on a constant currency basis) to 107.1 pence.

· Interim dividend increased by 10.0% to 44.98 pence per share.

· The Group continues to be active from a development perspective and committed approximately £270 million to new acquisitions since the preliminary results in May 2018.

· Continued expansion of the Group's presence in North America with DCC Technology entering the market for the first time through the acquisitions of Stampede and Jam. These complementary acquisitions provide DCC Technology with a strong platform for further development in the growing and fragmented North American market.

· On 27 September 2018, DCC raised approximately £600 million from an equity placing which completed on 2 October 2018. The proceeds of the placing will enable the continued implementation of DCC's targeted acquisition strategy, by enhancing the balance sheet and liquidity of the Group, ensuring DCC remains a credible and capable acquirer and can efficiently execute acquisition opportunities as they arise.

· The Group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development.

1 Continuing operations exclude DCC Environmental which was disposed of in May 2017

2 Excluding net exceptionals and amortisation of intangible assets 

Commenting on the results, Donal Murphy, Chief Executive, said:

"I am pleased to report that the first half of the year has been another active and successful period for DCC. The business has performed strongly, with Group operating profit well ahead of the prior year and trading across each division in line with expectations.

DCC continues to be active from a development perspective. The recently completed acquisitions of Stampede and Jam further demonstrate DCC's increased opportunity set for development resulting from the Group's increased geographic presence. The successful completion of the equity placing leaves DCC very well positioned to continue its development and enhances the balance sheet strength and liquidity of the Group, ensuring DCC remains a credible and capable acquirer.

The Group's significant development in recent years has resulted in DCC having the platforms, opportunities and capability to build the Group into a global leader in its chosen sectors.

The Group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development."

Presentation of results and dial-in / webcast facility

There will be a presentation of these results to analysts and fund managers at 9.00 am today in the London Stock Exchange. The slides for this presentation can be downloaded from DCC's website, www.dcc.ie.

There will also be audio conference access to, and a live webcast of, the presentation. The access details for the presentation are:

Ireland: +353 (0)1 246 5638

UK / International: +44 (0)330 336 9127

Passcode: 2678240

Webcast Link: https://edge.media-server.com/m6/p/wxvcbshw  

This report, the webcast of the presentation and further information on DCC is available at www.dcc.ie.

For reference, please contact:

Group Results

A summary of the Group's results for the six months ended 30 September 2018 is as follows:

Revenue - continuing operations

Overall, Group revenue increased by 24.7% (25.1% ahead on a constant currency basis) to £7.4 billion. Prior year revenue has been restated to reflect the adoption of IFRS 15 Revenue from Contracts with Customers, as set out in note 3 to the financial statements.

Volumes in DCC LPG increased by 14.9% to 741,566 tonnes, driven by DCC LPG's prior year acquisitions of Shell Hong Kong & Macau, Retail West and TEGA. On a like-for-like basis, volumes were modestly behind the prior year, reflecting the warmer than average temperatures across Europe.

DCC Retail & Oil volumes increased by 2.4% to 6.2 billion litres, benefiting from acquisitions completed in the prior year. Organic volumes were modestly behind the prior year, primarily reflecting the warmer weather in Europe.

Revenue excluding DCC LPG and DCC Retail & Oil increased by 15.4% (up 15.9% on a constant currency basis) to £1.9 billion.

Group adjusted operating profit - continuing operations

Group adjusted operating profit from continuing operations increased by 15.9% to £141.9 million (16.5% ahead on a constant currency basis), in the seasonally less significant first half of the year. The impact of currency translation versus the prior period was negligible with sterling marginally strengthening against the euro and marginally weakening against other relevant currencies.

Operating profit in DCC LPG was in line with expectations and, as anticipated, behind the prior year in the seasonally less significant first half of the year, principally due to the material increase in the cost of product and the investment in its natural gas and power offering in France. Following a significant period of development in the second half of the prior year, each of DCC LPG's recent acquisitions, Shell Hong Kong & Macau, Retail West and TEGA, traded in line with expectations.

DCC Retail & Oil delivered very strong operating profit growth of 33.5% (34.5% ahead on a constant currency basis), in line with expectations, driven by the contribution from acquisitions completed in the prior year and strong organic profit growth from the businesses in Britain, France and Denmark.

DCC Healthcare traded in line with expectations and achieved strong growth in operating profit of 22.2% (22.5% ahead on a constant currency basis). DCC Vital achieved strong organic profit growth, particularly in GP supplies and medical devices. DCC Health & Beauty Solutions generated excellent organic growth and also benefited from the first-time contribution from Elite One Source, which was acquired in February 2018.

Operating profit in DCC Technology was strongly ahead of the prior year and in line with expectations. The business benefited from the first-time contribution from the acquisitions of Stampede and Kondor and also from good organic growth in the UK and Ireland, DCC Technology's largest business.

Finance costs (net)

Net finance and other costs increased to £22.1 million (2017: £15.6 million). The increase was driven by the drawdown of a £450 million private placement debt issuance in September 2017 and also reflects the higher average net debt during the year of £914 million, compared to £313 million during the prior year. The average net debt increased due to the record level of acquisition spend over the past twelve months of over £900 million.

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

Profit before net exceptional items, amortisation of intangible assets and tax increased by 12.0% (12.8% ahead on a constant currency basis) to £119.8 million.

Net exceptional items before tax and non-controlling interests and amortisation of intangible assets

The Group recorded a net exceptional charge before tax and non-controlling interests of £6.3 million in the first six months of the year as follows:

Acquisition and related costs include the professional fees and tax costs (such as stamp duty) relating to the evaluation and completion of acquisition opportunities and amounted to £5.1 million.

Restructuring and integration costs of £5.1 million principally relate to the ongoing dual running costs relating to the optimisation of DCC Technology's logistics and related infrastructure, as well as integration costs arising from recent acquisition activity. The upgraded warehousing and logistics in France, Scandinavia and the UK are all now operational. The related UK SAP implementation is now live in an element of the UK business, with the remaining components of the business scheduled to go-live during the next financial year.

Most of the Group's debt has been raised in the US private placement market and swapped, using long term interest and cross currency interest rate derivatives, to both fixed and floating rate sterling and euro. The level of ineffectiveness calculated under IAS 39 on the fair value and cash flow hedge relationships relating to fixed rate debt is charged or credited as an exceptional item. In the six months ended 30 September 2018, this amounted to an exceptional non-cash gain of £3.9 million. Following this credit, the cumulative net exceptional charge taken in respect of the Group's outstanding US private placement debt and related hedging instruments is £1.7 million. This, and any subsequent similar non-cash charges or gains, will net to zero over the remaining term of this debt and the related hedging instruments.

The charge for the amortisation of acquisition related intangible assets increased to £27.6 million from £20.5 million in the prior year, with the increase reflecting acquisitions completed in the prior year.

Profit before tax

Profit before tax increased by 17.2% to £85.9 million.

Taxation

The effective tax rate for the Group in the first half of the year of 17.0% is based on the anticipated mix of profits for the full year and compares to a full year effective tax rate in the prior year of 17.0%.

Adjusted earnings per share

Adjusted earnings per share on a continuing basis increased by 12.1% (13.0% ahead on a constant currency basis) to 107.1 pence.

Total adjusted earnings per share increased by 11.1% to 107.1 pence.

The Board has decided to pay an interim dividend of 44.98 pence per share, which represents a 10% increase on the prior year interim dividend of 40.89 pence per share. This dividend will be paid on 12 December 2018 to shareholders on the register at the close of business on 23 November 2018.

As with its operating profit, the Group's operating cash flow is significantly weighted towards the second half of the year. The cash flow of the Group for the six months ended 30 September 2018 can be summarised as follows:

Operating cash flow in the six months ended 30 September 2018 of £173.2 million compares to £84.0 million in the prior year. Working capital increased by £25.7 million over the six-month period from 31 March 2018, reflecting seasonal requirements. The value of working capital at 30 September 2018 was a positive £60 million versus a negative £70 million at 30 September 2017, as each of the recently completed acquisitions of TEGA, Stampede, Kondor and Jam have a positive working capital profile. Overall working capital days at 30 September 2018 increased to positive 1.3 days sales from negative 1.7 days sales in the prior year, reflecting the aforementioned acquisitions. Working capital days were broadly in line with the prior year on a like for like basis. DCC Technology selectively uses supply chain financing solutions to sell, on a non-recourse basis, a portion of its receivables relating to certain larger supply chain/sales and marketing activities. The level of supply chain financing at 30 September 2018 was broadly in line with the prior year at £211.1 million and supply chain financing had a positive impact on Group working capital days of 4.4 days (31 March 2018: 4 days).

Net capital expenditure for the six months amounted to £82.1 million (2017: £69.1 million), as anticipated. The increase in capital expenditure over the prior year is due to the increased scale of the Group and a number of investments being undertaken to support its continued growth and development. In the current year, these investments include ongoing investment in new retail sites and site upgrades in the Retail & Oil division, investment to support the ongoing conversion of oil customers to LPG being achieved in the LPG division, and DCC Health & Beauty Solutions investment in its manufacturing footprint in Britain, including investment in the soft gel facility in South Wales and at the Elite facility in the US. The net capital expenditure exceeded the depreciation charge in the six months by £27.7 million.

Committed acquisitions and capital expenditure

Committed acquisition and capital expenditure in the period amounted to £354.0 million as follows:

Acquisition activity

Committed acquisition expenditure amounted to £271.9 million and included:

DCC Technology

In July 2018, DCC Technology announced the acquisitions of Stampede and Kondor.

Stampede

Stampede Global Holdings Inc. ('Stampede'), is a specialist distributor of professional audio-visual ('Pro AV') products and solutions in North America.

Headquartered in Buffalo, New York, Stampede, one of the leading specialist Pro AV distributors in the US, supplies Pro AV products including large format display, projectors, lamps, drones and accessories to system integrators, value-added resellers, retailers and etailers in the US, Canada and the UK. Stampede also provides Pro AV solutions to the hospitality, government, corporate and education sectors. Stampede partners with, and supplies products from, leading Pro AV brands such as Christie, Epson, LG, NEC, Samsung and Sharp. Stampede recorded revenue of US$280 million in the year ended 31 December 2017 and employs approximately 210 people.

The acquisition of Stampede represented DCC Technology's first acquisition in North America and is consistent with DCC Technology's strategy to extend the geographic footprint and product range of its successful and growing Pro AV business, strengthening its partnership with existing suppliers, while also broadening its base of customers and suppliers.

Kondor

Kondor, based in the South of England, distributes audio and mobile accessory products to etailers, retailers and mobile operators in the UK and Continental Europe. It partners with mobile and accessory brand owners and has an extensive portfolio of own-brand products, complementing its third-party brands. Kondor also provides outsourced category management services, including category/brand management, marketing support, promotional display, brand support and advanced stock solutions, to the retail channel.

Jam

In September 2018, DCC Technology acquired the Jam Group of Companies ('Jam', comprising Jam Industries Ltd. and Jam International Ltd.). Jam is a market-leading North American specialist sales, marketing and services business serving the professional audio, musical instruments and consumer electronics product sectors.

Headquartered in Montreal, Canada, Jam is a world-leader in the professional audio and musical instruments sectors, providing a range of industry-leading, value adding services and solutions to both its vendor and customer partners. This product sector and channel specialisation includes marketing and sales support, in-house technicians providing technical support, after-sales, repair and warranty repair services, in-house graphics and print services and the provision of white-label e-commerce platforms for smaller retailers and resellers. The business recorded revenue of US$323 million in the year ended 30 April 2018 and employs approximately 570 people.

The acquisition of Jam significantly strengthens DCC Technology's position in the North American market following the acquisition of Stampede in July 2018. Importantly, the very strong service capability of Jam is consistent with DCC Technology's increasing focus on positioning itself as a specialist service partner for customers and suppliers, providing extensive brand reach, market access and simplifying the complex supply chain of its chosen sectors.

Total cash spend on acquisitions in the six months ended 30 September 2018

The total cash spend on acquisitions in the six months ended 30 September 2018 was £270.3 million. This included the payment of deferred and contingent acquisition consideration previously provided of £21.0 million, completion of the acquisitions of Jam, Stampede and Kondor by DCC Technology and the completion of small bolt-on acquisitions in DCC LPG and DCC Retail & Oil.

Financial strength

An integral part of the Group's strategy is the maintenance of a strong and liquid balance sheet to enable it to take advantage of development opportunities as they arise. At 30 September 2018, the Group had net debt of £832.4 million, total equity of £1.7 billion, cash resources, net of overdrafts, of £869.1 million and approximately £200.0 million of undrawn committed debt facilities. The Group's outstanding term debt at 30 September 2018 had an average maturity of 5.8 years, which has been raised in the US private placement market with an average credit margin of 1.6% over floating Euribor/Libor. In October 2018, DCC successfully refinanced private placement debt maturing in the next 18 months with a private placement issuance equivalent to £360 million to be drawn down in April 2019.

On 27 September 2018, DCC raised approximately £600 million from an equity placing which completed on 2 October 2018. On a pro-forma basis, net debt at 30 September 2018 adjusted for the proceeds of the equity placing would be approximately £237.4 million.

Outlook

The Group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development.

Performance Review - Divisional Analysis

Operating profit in DCC LPG was in line with expectations and, as anticipated, behind the prior year in the seasonally less significant first half of the year due to the material increase in the cost of product and the investment in its natural gas and power offering in France. DCC LPG made excellent progress in increasing the scale and breadth of its business by successfully integrating the acquisitions completed in the second half of the prior year, each of which performed in line with expectations.

DCC LPG sold 741,600 tonnes of product, an increase of 14.9% over the prior year, principally driven by the prior year acquisitions of Shell Hong Kong & Macau, Retail West and TEGA. On a like-for-like basis, volumes were modestly behind the prior year reflecting the warmer than average temperatures across Europe during the first six months of the financial year.

As anticipated, operating profit per tonne declined versus the prior year due to the significantly higher cost of product in both LPG and natural gas, the investment in natural gas and power in France and the increased seasonality following the acquisition of the US business.

In France, the business performed in line with expectations during the first half of the year benefiting from good procurement and operational cost control. The focus on expanding the service offering and capability of the French business continued, with the rollout out of the 'Click & Collect' cylinder offering and continued organic investment in the development of the consumer natural gas and power business in what is a competitive marketplace. The French business continues to leverage the strength of the 'Butagaz' brand and has achieved good traction in expanding its range of products and services in the French energy market.

In Britain & Ireland, the business delivered good volume growth versus the prior year, despite the warmer than average weather, as it continued its focus on converting industrial and commercial users of oil to LPG. Good progress was made in integrating the Countrywide business acquired in the prior year and this integration will be completed during the second half of the year.

Shell Hong Kong & Macau (acquired in January 2018), Retail West in the US and TEGA in Germany (both acquired on 31 March 2018) have been successfully integrated into DCC LPG's existing operations. Each business performed in line with expectations since acquisition and provide a platform for future growth and development in their respective markets.

DCC Retail & Oil recorded a strong performance in the first half of the financial year, with operating profit growth of 33.5%, in line with expectations. This strong performance reflects both organic profit growth and the contribution from acquisitions completed in the prior year.

DCC Retail & Oil volumes increased by 2.4% to 6.2 billion litres, driven by acquisitions in the prior year. Organic volumes were modestly behind the prior year, reflecting the warm weather in Northern Europe which particularly affected agricultural demand in the summer months.

In Britain and Ireland, the business performed very well during the first half of the year delivering strong organic profit growth. Lower agricultural volume demand was offset by good growth in commercial volumes. The business continues to make good progress in expanding its activities into adjacent areas such as lubricants and aviation. During the period, the business successfully acquired and integrated SNAP, an end-to-end transaction processing and payment system for HGV fleets, and continued to invest in expanding its truck stop and retail networks. SNAP facilitates cashless payments through licence plate recognition for services to HGV fleets at truck stops. The Fuel Card business continued to perform strongly during the first half of the year.

In Scandinavia, the Danish business delivered very strong profit growth. A combination of a successful business improvement plan following the acquisition and integration of Dansk Fuels and a strong performance in driving differentiated fuels in the commercial fuels business more than offset lower agricultural volumes. In Norway, Esso's retail network (acquired in October 2017) has been integrated into DCC Retail & Oil's retail operating infrastructure, enabling management to drive improvements in what remains a difficult market environment. The Swedish business performed in line with expectations, delivering strong organic volume growth.

In France, the business delivered strong organic profit growth, primarily driven by the continued focus on business development and customer engagement through the roll-out of the Esso Synergy fuel brand, the Club Certas loyalty program, expansion of its non-fuel offering in carwash and the rollout of both Amazon and Butagaz 'Click and Collect' offerings. The business also recently completed a small bolt-on acquisition of a network of approximately 80 Esso dealers.

DCC Healthcare traded in line with expectations and generated strong profit growth of 22.2% in the first half of the year. Both DCC Vital and DCC Health & Beauty Solutions generated strong organic profit growth, while DCC Health & Beauty Solutions also benefited from the acquisition of Elite One Source in February 2018.

DCC Vital, which is focused on the sales and marketing of medical devices and pharmaceuticals to healthcare providers in Britain and Ireland, performed strongly, driven in particular by very strong organic profit growth in the supply of medical products and services to GP surgeries. DCC Vital strengthened its position as the market leader in the GP channel, successfully integrating two small complementary bolt-on acquisitions completed in the prior year. In medical devices, DCC Vital generated very good growth in the Irish market driven by growth in the scientific and community care segments and performed satisfactorily in Britain against a challenging market backdrop. DCC Vital's pharma activities performed satisfactorily, with strong profit growth in Britain driven by the strength of its supply chain, which offset a slightly weaker performance in the Irish market.

DCC Health & Beauty Solutions, which provides outsourced solutions to international nutrition and beauty brand owners, generated excellent organic profit growth and benefited from the first-time contribution from Elite One Source. In the nutrition sector, DCC generated good organic growth across a number of key customers, as the business continues to support their international sales growth through innovation, manufacturing flexibility and technical support. In the beauty sector, DCC generated excellent organic growth from a range of existing customers and the successful development of new customer relationships.

With the background of continuing global market growth and a strong order book, DCC Health & Beauty Solutions is progressing a number of investment projects across its manufacturing footprint in Britain and in the US, which will add significant new capacity and capability. The most material project is at DCC Health & Beauty Solutions' soft gel facility in South Wales where the business has grown its European market share in soft gels on the back of its market leading capability in complex formulation and vegetarian soft gel products. The expansion project will almost double the business' existing soft gel capacity, as well as providing new manufacturing capability in growth areas such as organic vegetarian soft gels.

DCC Technology achieved strong operating profit growth of 25.0% in the seasonally less significant first half of the year, in what was a very active development period for the business. This performance was driven by a strong organic performance in the UK & Ireland, as well as the contribution from acquisitions completed in the current year.

The UK & Ireland business benefited from good revenue growth in key product areas and from recent acquisitions, including the bolt-on acquisition of Kondor in the current year, which strengthened DCC Technology's position in the mobile and category management services area. Audio-visual, smart-home and repair/refurbishment services generated strong revenue growth, while the Enterprise business continued to achieve very strong growth in the datacentre market. Following completion of the new UK national distribution centre in Lancashire in the prior year, a component of the UK business has now fully upgraded its SAP enterprise management system and is operating effectively. The remainder of the UK business will transition to the new system on a phased basis during the next financial year.

In Europe, the business in the Nordics has consolidated its warehousing infrastructure and invested in automation which will facilitate the further expansion of the business across the region. In France, operational improvements continue in the French consumer products business to reduce costs, drive efficiencies and win new vendors. The French reseller and electrician business continues to perform well and is continuing to invest in its audio-visual proposition.

The business in the Middle East continues to generate organic revenue and operating profit growth, while the Supply Chain Services business performed in line with expectations.

The acquisitions of Stampede in July 2018 and Jam in September 2018 represented DCC Technology's first acquisitions in the large, growing and fragmented North American market. Both businesses have traded in line with expectations since acquisition. The acquisition of Stampede, a specialist distributor of professional audio-visual products and solutions, has extended the geographic footprint and product range of the division's successful and growing Pro AV business, strengthening its partnership with existing suppliers, while also broadening the base of customers and suppliers. Jam is a market-leading North American specialist sales, marketing and services business, serving the professional audio, musical instruments and consumer electronics product sectors. The acquisition of Jam provides DCC Technology with a strong and complementary consumer products capability, whilst also adding a leading-market presence in the growing musical instrument market. Jam's service-led approach is consistent with DCC Technology's increased focus on services and DCC Technology now has a platform of scale in the North American market from which to expand organically and by acquisition.

Forward-looking statements

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 risk and uncertainty. DCC believes that its expectations and assumptions with respect to these forward-looking statements are reasonable; however, because they involve risk and uncertainty as to future circumstances, which are in many cases beyond DCC's control, actual results or performance may differ materially from those expressed in 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 19 to 22 of the 2018 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.

Group Income Statement

Group Statement of Comprehensive Income

Group Balance Sheet

Group Statement of Changes in Equity

Group Cash Flow Statement

Notes to the Condensed Financial Statements

for the six months ended 30 September 2018