Results for the six months ended 30 September 2019

 12 November 2019

DCC, the leading international sales, marketing and support services group, is today announcing its results for the six months ended 30 September 2019.

·; Strong first half performance with Group adjusted operating profit increasing by 14.5% (up 13.7% on a constant currency basis) to £162.6 million, in line with expectations. All divisions recording good profit growth in the seasonally less significant first half of the year.

·; Adjusted earnings per share up 3.0% to 110.2 pence, reflecting strong earnings growth being offset by the increased number of shares in issue following the equity placing in the prior year.

·; Interim dividend increased by 10% to 49.5 pence per share.

·; The Group continues to be active from a development perspective and has today separately announced the recent acquisition by DCC Healthcare of Ion Laboratories Inc, a Florida-based contract manufacturer of nutritional products for an enterprise value of approximately $60 million. The acquisition represents a significant step in DCC Healthcare's strategy to build a material presence in the attractive US health supplements and nutritional products market.

·; The Group balance sheet at 30 September 2019 remains very strong and liquid, with net debt (excluding lease creditors) of £245.3 million, which will facilitate further development activity for the Group.

·; Notwithstanding the continuing uncertain macroeconomic outlook impacting the UK economy, and the Technology business in particular, the Group believes that the year ending 31 March 2020 will be another year of good operating profit growth and further development and will be broadly in line with current market consensus expectations.

1 The current financial period includes the impact of the adoption of IFRS 16 Leases; the comparatives have not been restated in accordance with transitional guidelines. 

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 period of good growth and development for DCC. The business has performed strongly, with Group operating profit well ahead of the prior year and all divisions delivering good profit growth, despite the more difficult economic and market backdrop, particularly in the UK.

DCC Healthcare's acquisition of Ion Laboratories Inc in the US is a material step in the division's strategy to build a business of scale in the world's largest health supplements and nutritional products market. The US market is highly innovative, fragmented and growing strongly and, we believe, presents an exciting opportunity for the Group to develop, both organically and through acquisition, a leading market position in this attractive market.

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.

Notwithstanding the continuing uncertain macroeconomic outlook impacting the UK economy, and the Technology business in particular, the Group believes that the year ending 31 March 2020 will be another year of good operating profit growth and further development and will be broadly in line with current market consensus expectations."

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 4319615

UK: +44 (0) 8445718892

International: +44 (0) 2071 928000

Passcode: 6157159

Webcast Link: https://edge.media-server.com/mmc/p/4uhsuse2 

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 2019 is as follows:

Transition to IFRS 16

The Group transitioned to the new leasing standard, IFRS 16, with effect from 1 April 2019. In common with most companies, DCC has elected to adopt the modified retrospective approach, meaning that comparatives are not restated.

In transitioning to IFRS 16, the Group is capitalising approximately 2,000 leases. These 2,000 leases are with approximately 700 lessors, with no one lease or lessor relationship being individually significant. The applicable weighted average lease term is approximately four years. The capitalisation of the right to use assets underlying these leases has resulted in a 'Right-of-Use leased asset' of £286 million at 30 September 2019, with a related lease creditor of £286 million at the same date.

As anticipated, the transition to IFRS 16 resulted in a favourable impact on adjusted operating profit of approximately £2.7 million in the first half of the financial year, reflecting the replacement of operating lease charges with depreciation of a discounted right-of-use leased asset. It also resulted in an increase in net interest of approximately £4.2 million in the period reflecting the unwinding of the lease liability. Consequently, the net after-tax impact on earnings for the first six months of the financial year was a charge of approximately £1.2 million, or 1.3 pence per share.

Reporting currency

The Group's financial statements are presented in sterling. Results and cash flows of operations based in non-sterling jurisdictions have been translated into sterling at average rates for the year. The principal exchange rates used for the translation of results into sterling were as follows:

The net impact of currency translation on the Group income statement versus the prior period was modest, with average sterling exchange rates weakening against the US Dollar and marginally weakening against euro.

Revenue

Overall, Group revenue decreased by 1.4% (1.7% decrease on a constant currency basis) to £7.3 billion.

DCC LPG sold 798,500 tonnes in the first half of the year, an increase of 7.7% on the prior year (7.1% on a like-for-like basis). The strong volume performance was set against weaker comparatives in the prior year, but included good organic volume growth in both the LPG and natural gas product sectors.

DCC Retail & Oil sold 5.93 billion litres of product in the first half, a 3.8% decline versus the prior year (4.9% on a like-for-like basis). The reduction reflected lower volumes in the UK, particularly in the lower margin marine and commercial sectors as the business actively exited high volume, lower margin relationships, but also reflected lower commercial activity generally, given the more difficult UK economic backdrop. Volumes across Continental Europe, Scandinavia and Ireland were in line with expectations.

Revenue excluding DCC LPG and DCC Retail & Oil increased by 11.7% (up 10.8% on a constant currency basis) to £2.1 billion and declined modestly organically, driven by a decline in revenue in the Technology business in the UK.

Group adjusted operating profit

Group adjusted operating profit increased by 14.5% to £162.6 million (13.7% ahead on a constant currency basis), in the seasonally less significant first half of the year. The positive effect of IFRS 16 on Group adjusted operating profit was approximately 1.9% of the constant currency growth in the period. Approximately one-third of the remaining constant currency growth was organic.

DCC LPG recorded strong operating profit growth in the seasonally less significant first half of the year, with operating profit increasing to £49.0 million, 19.8% ahead of the prior year (18.6% on a constant currency basis), approximately three-quarters of which was organic. The performance was driven primarily by good organic volume growth and also the acquisition of Pacific Coast Energy.

In DCC Retail & Oil, operating profit increased by 6.0%, approximately one-third of which was organic. This good performance was driven by good organic profit growth from the businesses in France and Denmark with the remaining businesses performing in line with expectations.

Operating profit in DCC Technology was significantly ahead of the prior year, increasing by 42.6% (38.1% on a constant currency basis) in the seasonally less significant first half of the financial year. This performance was driven by the contribution from acquisitions completed in both the current and prior year and profits declined organically, with the UK business negatively impacted by increasingly difficult market conditions, given the economic environment, particularly in the consumer and enterprise channels. Good profit growth was achieved in North America, Ireland, the Middle East and Continental Europe.

DCC Healthcare recorded a good performance in the first half of the year, generating operating profit growth of 5.8%, over three-quarters of which was organic. DCC Vital performed well and generated good growth in the pharma sector in Ireland. DCC Health & Beauty Solutions generated strong growth in premium skincare products and good growth across its nutritional products, particularly in liquids and soft gel formats.

Finance costs (net)

Net finance and other costs increased to £26.7 million (2018: £22.1 million). The increase primarily reflects the impact of IFRS 16 in the current period of £4.2 million. The average net debt, excluding lease creditors, in the period was £349 million, compared to an average net debt of £914 million in the prior year. The decrease in average net debt excluding lease creditors reflects the benefit of the equity issuance completed in October 2018. The Group's gross private placement debt, which is the primary driver of finance costs, increased modestly versus the prior year.

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

Profit before net exceptional items, amortisation of intangible assets and tax increased by 13.5% (12.5% ahead on a constant currency basis) to £135.9 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 £45.7 million in the first six months of the year as follows:

In September 2019, DCC Healthcare completed the disposal of DCC Vital's UK generic pharma activities and related manufacturing facility in Ireland (Kent Pharma and Athlone Laboratories). The disposal sharpens the strategic focus of DCC Vital, allowing it to concentrate on those areas where it has market-leading positions and sustainable competitive advantage, in particular in the sales, marketing and distribution of medical products in Britain and Ireland. Whilst part of the DCC Group, the cashflows generated by the disposed business more than recovered its acquisition cost, however, the transaction will result in a loss on disposal of £34.3 million, principally representing a non-cash impairment of the goodwill recognised on the initial acquisition of the business.

Restructuring and integration costs and other of £6.1 million principally comprise the ongoing dual running costs relating to the UK SAP implementation which is live in an element of the UK business and to which the remaining components of the business will transition on a phased basis shortly following the end of the financial year. It also includes a restructuring charge relating to the LPG business in Britain, following acquisition activity (including the acquisition of Countrywide and a number of small dealers) in prior periods.

Acquisition and related costs include the professional fees and tax costs (such as stamp duty) relating to the evaluation and/or completion of acquisition opportunities and amounted to £4.9 million.

Most of the Group's debt has been raised in the US private placement market and swapped, where appropriate, 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 is charged or credited as an exceptional item. In the six months ended 30 September 2019, this amounted to an exceptional non-cash charge of £0.4 million. Following this charge, the cumulative net exceptional charge taken in respect of the Group's outstanding US private placement debt and related hedging instruments is £1.6 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 £32.6 million from £27.6 million in the prior year, with the increase reflecting acquisitions completed in the prior year.

Profit before tax

Profit before tax decreased to £57.6 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 increased by 3.0% to 110.2 pence, with the growth in profit before exceptional items and goodwill amortisation of 13.5% being offset by the increased number of shares in issue following the equity placing, which was successfully completed in the prior year.

The Board has decided to pay an interim dividend of 49.48 pence per share, which represents a 10.0% increase on the prior year interim dividend of 44.98 pence per share. This dividend will be paid on 11 December 2019 to shareholders on the register at the close of business on 22 November 2019.

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 2019 can be summarised as follows:

Working capital increased by £98.1 million over the six-month period from 31 March 2019, driven by seasonal working capital requirements, lower supply chain financing utilisation and the increasing scale of the Group's activities. The value of working capital at 30 September 2019 was £110.1 million versus £60.0 million at 30 September 2018, which reflects the completion of acquisitions since the prior year and the increasing scale of the Group. Overall working capital days at 30 September 2019 were 2.4 days sales, which, excluding completed acquisitions, were broadly in line with the prior year (2018: 1.3 days sales). 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 2019 was £189.3 million (2018: £211.1 million) and supply chain financing had a positive impact on Group working capital days of 4.1 days (30 September 2018: 4.4 days).

Net capital expenditure for the six months amounted to £87.7 million (2018: £82.1 million), was net of disposal proceeds of £4.3 million, and reflects continued investment in development initiatives across the Group. In the current year, investments in DCC LPG primarily comprised investment in relation to the Avonmouth LPG storage facility in the UK and further development expenditure to support the continued growth of the business including conversion of oil customers to LPG. In the Retail & Oil division, there was continued investment in new retail sites and site upgrades including capital expenditure in relation to the project to optimise the depot network in the UK to bring greater network and capital efficiency over time. The majority of the capital expenditure in DCC Technology relates to the SAP implementation which is ongoing in Exertis UK. In DCC Healthcare, the capital expenditure primarily relates to the previously announced investment in the expansion of the soft gel facility in South Wales, the construction of which is nearing completion and the commissioning process will commence shortly. Net capital expenditure exceeded the depreciation charge (excluding right-of-use leased assets) in the six months by £29.7 million.

Free cash flow in the six months ended 30 September 2019 of £30.4 million compares to £91.1 million in the prior year.

Total cash spend on acquisitions in the six months to 30 September 2019

The total cash spend on acquisitions in the six months ended 30 September 2019 was £118.3 million. This included the payment of deferred and contingent acquisition consideration previously provided of £24.5 million, completion of the acquisition of Pacific Coast Energy by DCC LPG, the completion of Amacom and Comm-Tec by DCC Technology and the completion of a number of small bolt-on acquisitions in DCC Retail & Oil and DCC Healthcare.

Committed acquisition and capital expenditure

Committed acquisition and capital expenditure in the period amounted to £163.4 million as follows:

Acquisition activity

Acquisition expenditure committed by the Group since the announcement of 2019 Final Results in May 2019 amounted to £75.7 million and included:

DCC Healthcare

As separately announced today, DCC Healthcare has acquired Ion Laboratories, Inc ('Ion'), a Florida-based contract manufacturer of nutritional products for an enterprise value of approximately $60 million. This acquisition represents a significant step in DCC Health & Beauty Solutions' strategy to build a material presence in the attractive US health supplements and nutritional products market. This acquisition follows the acquisition of Elite One Source in February 2018, and will significantly enhance DCC Health & Beauty Solution's service offering to customers in the US market, the world's largest health supplement and nutritional products market.

Ion has a broad product format capability encompassing tablets, capsules, powders and liquids across a variety of product categories including herbal and botanical products, probiotics and liquid nutritionals. In addition, Ion is currently commissioning a new nutritional gummies manufacturing line which will provide DCC Health & Beauty Solutions with capability in this fast growth category. Ion operates from well invested facilities which comply with FDA cGMP (current Good Manufacturing Practices) and Health Canada standards. The business is led by an experienced management team, employs 360 people and the business has annual revenues of approximately $80 million.

In addition, DCC Vital completed a number of complementary bolt-on acquisitions in Britain which have expanded its product portfolio and strengthened its market presence. SP Services is a leading supplier of medical consumables and equipment for first aid, ambulance, paramedic and rescue professionals in the 'blue light' and occupational health sectors. VacSax is a small British manufacturer and supplier of disposable suction devices used in operating theatres and hospitals.

DCC Retail & Oil

DCC Retail & Oil completed a number of small complementary bolt-on acquisitions in Britain during the period. These acquisitions have been successfully integrated into the existing business.

DCC Technology

DCC Technology acquired two small businesses during the period, a managed service business in Ireland and a Pro-AV specialist in the Benelux region. Although small, both acquisitions support DCC Technology's strategy to continuously enhance the service offering it provides to its customers and suppliers.

Disposal

DCC Healthcare

Kent Pharma and Athlone Laboratories

In September 2019, DCC Vital completed the disposal of its UK generic pharma activities and related manufacturing facility in Ireland (Kent Pharma and Athlone Laboratories). The disposal sharpens the strategic focus of DCC Vital, allowing it to concentrate on those areas where it has market-leading positions and sustainable competitive advantage, in particular in the sales, marketing and distribution of medical products in Britain and Ireland. DCC Vital will also continue to develop its pharma activities in Ireland which encompass a market leadership position in the procurement and sales of exempt medicinal products and agency distribution into the hospital and retail pharmacy segments.

Financial strength

An integral part of the Group's strategy is the maintenance of a strong and liquid balance sheet which, amongst other benefits, enables it to take advantage of development opportunities as they arise. At 30 September 2019, the Group had net debt (excluding lease creditors) of £0.25 billion, being term debt of £1.82 billion, and cash resources, net of overdrafts, of £1.57 billion. Lease creditors at the same date amounted to £0.28 billion. The Group's outstanding term debt at 30 September 2019, which has been raised in the US private placement market, had an average maturity of 6.2 years, with an implied average credit margin of 1.69% over Euribor/Libor. In April 2019, DCC successfully drew down a private placement issuance of approximately £350 million, the proceeds of which will be used to repay maturing private placement debt.

Outlook

Notwithstanding the continuing uncertain macroeconomic outlook impacting the UK economy, and the Technology business in particular, the Group believes that the year ending 31 March 2020 will be another year of good operating profit growth and further development and will be broadly in line with current market consensus expectations.

Performance Review - Divisional Analysis

DCC LPG recorded strong operating profit growth in the seasonally less significant first half of the year. Operating profit increased to £49.0 million, 19.8% ahead of the prior year (18.6% ahead on a constant currency basis), approximately three-quarters of which was organic. The performance was driven by good organic volume growth and the acquisition of Pacific Coast Energy in the US, which completed in May 2019.

DCC LPG sold 798,500 tonnes in the first half of the year, an increase of 7.7% on the prior year (7.1% on a like-for-like basis). The strong volume performance was set against weaker comparatives in the prior year and, as anticipated, operating profit per tonne increased versus the prior year. This reflected a more benign cost of product environment during the first six months of the year (versus a prior year which had been impacted by sustained rising cost of product) and strong cost control, which more than offset the mix effect of increased natural gas volumes.

The French business performed in line with expectations during the first half of the year and has continued to make progress in developing its offering in adjacent product areas, broadening its position in the French energy market. The continued rollout of the 'Click & Collect' cylinder offering has been a positive development for the LPG business, offering an additional route to market. The overall performance in France benefited from strong organic growth in the natural gas B2B sector, driven by good business development with new customers, and the business continues to grow its presence in the B2C natural gas and power sector.

In Britain & Ireland, the business performed strongly, achieving organic volume growth and also benefiting from good procurement and cost control. The German business delivered good LPG volume growth and was successful in winning new customers through its newly launched online platform, while the business in Hong Kong & Macau also performed in line with expectations, notwithstanding the impact of the ongoing protests in the region.

The US business performed well during the first half of the year and has fully integrated Pacific Coast Energy, acquired in April 2019, significantly strengthening its footprint in the north west of the US.

DCC LPG has substantial operations in ten countries and is very well placed to continue its development both in existing and new territories, as well as expanding its position in adjacencies, which broadens its service offering to its customers.

DCC Retail & Oil performed in line with expectations in the first half of the financial year and delivered good operating profit growth of 6.0%, approximately one-third of which was organic.

DCC Retail & Oil sold 5.93 billion litres of product in the first half, a 3.8% decline on the prior year (4.9% on a like-for-like basis). The reduction reflected lower volumes in Britain, particularly in the lower margin marine and commercial sectors as the business actively exited some high volume, lower margin, relationships but also reflected lower commercial activity generally, given the more difficult UK economic backdrop. Volumes across Continental Europe, Scandinavia and Ireland were in line with expectations.

In Britain and Ireland, the business performed in line with expectations, delivering organic profit growth. The impact of reduced marine and commercial volumes was partially offset by increased penetration of premium fuels, including premium heating oil, and a good cost performance. The business continues to make good progress in expanding its retail network, as well as developing into adjacent areas, such as lubricants, having now successfully integrated the two modest lubricant blending businesses acquired in the prior year. In addition, the business has continued to develop its HGV truck stop network and enhance its offering of additional services to HGVs at these truck stops, such as secure parking and truck washes. The Fuel Card business delivered good organic profit growth, notwithstanding the more difficult economic environment impacting the commercial sector of the market.

In Scandinavia, the Danish business continued to deliver strong organic profit growth, driven by a good performance in retail fuels. In July 2019, the business entered into a new branded marketing and distribution agreement with Shell Aviation, which involved Shell taking a stake in the existing Danish aviation operations, giving the business access to Shell's global network and settlements platform, further strengthening DCC Retail & Oil's presence in the aviation fuels market. The businesses in both Norway and Sweden performed in line with expectations.

The French business delivered strong organic profit growth, reflecting a continued focus on business development and customer engagement following the successful implementation of customer-centred initiatives in the prior year including a loyalty programme, fuel differentiation through Esso's Synergy Fuels, and an improved car wash offering. The business in Austria performed in line with expectations.

DCC Retail & Oil has substantial operations in eight countries and has developed a low-cost and scalable platform to grow the business in existing and new territories.

DCC Technology achieved very strong operating profit growth in the seasonally less significant first half of the year. Operating profit increased by 42.6% (38.1% on a constant currency basis) with the performance driven by the contribution from acquisitions completed in both the current and prior years. Operating profit declined organically, reflecting weakness in the UK market.

During the first half of the year, the UK business was increasingly impacted by general weakness in the UK technology market, reflecting the more difficult economic environment of recent months. This slowdown particularly impacted demand in the consumer and enterprise channels. Following the pilot transition of a component of the UK business to the new ERP system last year, the remainder of the business will transition to the new ERP system on a phased basis shortly following the end of the financial year. The upgrade is expected to significantly enhance the capability of the business to service both its customers and suppliers. The business in Ireland performed well, generating good operating profit growth on the back of a strong retail market and an expansion of its B2B service offering.

The business in the Nordics generated strong revenue growth, especially in the AV and IT product categories, and continues to drive efficiencies on the back of investments made in the operating infrastructure in the prior year. In Western Europe, the acquisition of Amacom, which services retailers across the Netherlands, has performed well since its acquisition in June 2019 and will provide additional service capability to support the growth of DCC Technology's consumer proposition. The B2B business also performed in line with expectations and continues to invest in its audio-visual proposition, with the business' offering in this area being further supported by the recent acquisition of Comm-Tec in Germany and a small bolt-on acquisition in the Benelux region. The business in the Middle East performed well and continued its track record of achieving organic revenue and operating profit growth.

During the prior year, DCC Technology acquired both Stampede and Jam, providing DCC with platforms for growth and development in North America in the Pro AV, Pro Audio and consumer electronics markets. These acquisitions represented a significant step in DCC Technology's strategy to extend its geographic footprint and product range, strengthening its partnership with existing suppliers while also broadening its base of customers and suppliers. Both businesses have been integrated successfully and traded in line with expectations during the first half of the year delivering organic profit growth. The good performance was driven by strong demand for display and projector products from the hospitality and government sectors in the US in particular, and the business also saw good demand for Pro Audio and professional event lighting products.

Following an active period of development over the last eighteen months, DCC Technology is building an international business of scale and has excellent platforms for further development in its chosen markets.

DCC Healthcare recorded a good performance in the first half of the year, generating operating profit growth of 5.8%, approximately three-quarters of which was organic. During the period, the business also made material progress in sharpening its strategic focus by divesting its UK generic pharma activities and enhancing its market positions through a number of bolt-on acquisitions. Subsequent to the half-year end, in November 2019, DCC Health & Beauty Solutions took a further step in its strategy to build a significant presence in the US market, completing the acquisition of Ion, a Florida-based contract manufacturer of nutritional products.

DCC Vital, which is focused on the sales and marketing of medical products and pharmaceuticals to healthcare providers in Britain and Ireland, performed well in the first half of the year and enhanced its strategic positioning. In the Irish market, the business generated good growth in the pharma sector, particularly in sales of blood plasma products and exempt medicinal products. In Britain, the business performed robustly against a market background which was impacted by some destocking post the original March Brexit deadline, as well as continued public healthcare funding constraints. During the period, DCC Vital expanded its product portfolio and strengthened its market presence by completing a number of small bolt-on acquisitions in the medical devices and primary care sectors in Britain.

In September 2019, DCC Vital completed the disposal of its UK generic pharma activities (and related beta lactam antibiotic manufacturing facility in Ireland). This disposal allows DCC Vital to focus on those areas where it has strong market positions and sustainable competitive advantage, including further developing its presence in the primary care sector in Britain and continuing to scale its medical devices activities.

DCC Health & Beauty Solutions, which provides outsourced solutions to international nutrition and beauty brand owners, generated good sales growth in the first half of the year. The business generated strong growth in premium skincare products and good growth across its nutritional product formats, particularly liquids and soft gels, despite the impact of some destocking from certain customers. Profit growth was held back by some short-term costs required to onboard new customer and product wins in the beauty sector, as well as investments made to enhance operational capability and increase capacity generally. DCC Health & Beauty Solutions made good progress across a range of capacity expansion projects, most notably the expansion of its soft gel encapsulation plant in Wales. The construction of the plant is nearing completion and the commissioning process will begin shortly.

The acquisition of Ion in November 2019 is another significant step in DCC Health & Beauty Solutions ambition to build a leading contract manufacturing business in the US, to complement its existing presence in Europe. The US is the largest market in the world for health supplements and nutritional products and is an innovative, growing and fragmented market. Ion will add new customer relationships and new product format capability in the US. Ion has a broad product format capability encompassing tablets, capsules, powders and liquids. The business is currently commissioning a nutritional gummies manufacturing line which will provide DCC Health & Beauty Solutions with an entry into this fast growth product category. Ion will work closely with Elite One Source in Montana and DCC Health & Beauty Solutions' European business to cross-sell the full breadth of DCC Health & Beauty Solutions' comprehensive service offering.

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 17 to 20 of the 2019 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

 The current financial period includes the impact of the adoption of IFRS 16 Leases; the comparatives have not been restated in accordance with transitional guidelines.

Group Statement of Changes in Equity

Group Cash Flow Statement

The current financial period includes the impact of the adoption of IFRS 16 Leases; the comparatives have not been restated in accordance with transitional guidelines.  

Notes to the Condensed Financial Statements

for the six months ended 30 September 2019

1. Basis of Preparation

The Group condensed interim financial statements which should be read in conjunction with the annual financial statements for the year ended 31 March 2019 have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the related Transparency rules of the Irish Financial Services Regulatory Authority and in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of certain assets, liabilities, revenues and expenses together with disclosure of contingent assets and liabilities. Estimates and underlying assumptions are reviewed on an ongoing basis.

These condensed interim financial statements for the six months ended 30 September 2019 and the comparative figures for the six months ended 30 September 2018 are unaudited and have not been reviewed by the Auditors. The summary financial statements for the year ended 31 March 2019 represent an abbreviated version of the Group's full accounts for that year, on which the Auditors issued an unqualified audit report and which have been filed with the Registrar of Companies.

2. Accounting Policies

The accounting policies and methods of computation adopted in the preparation of the Group condensed interim financial statements are consistent with those applied in the 2019 Annual Report and are described in those financial statements on pages 193 to 201, except for those noted below.

The following new standards have been adopted in the current year:

IFRS 16 Leases

This standard replaces IAS 17 Leases. The changes under IFRS 16 are significant and predominantly affect lessees, the accounting for which is substantially reformed. The lessor accounting requirements contained in IFRS 16's predecessor, IAS 17, remain largely unchanged. The main impact on lessees is that almost all leases are recognised on the balance sheet as the distinction between operating and finance leases is removed for lessees. Under IFRS 16, an asset (the right to use the leased item) and a liability (the lease creditor) to pay rentals are recognised. The only exemptions are short-term leases and low-value leased assets. The standard introduces new estimates and judgemental thresholds that affect the identification, classification and measurement of lease transactions.

The Group adopted IFRS 16 on the transition date of 1 April 2019 using the modified retrospective approach, which means that comparatives do not need to be restated. The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

·; Account for leases ending within 12 months of the date of initial application as short-term leases;

·; Apply a single discount rate to a portfolio of leases with reasonably similar characteristics; and

·; Rely on a previous assessment of whether leases are onerous in accordance with IAS 37 immediately before the date of initial application as an alternative to performing an impairment review.

At transition date, the Group calculated the lease commitments outstanding at that date and applied appropriate discount rates to calculate the present value of the lease commitment which was recognised as a creditor and a right-of-use leased asset on the Group's Balance Sheet. The right-of-use leased asset was adjusted for any prepayments, accruals and onerous lease provisions with no adjustment to opening retained earnings. The discount rates applied were arrived at using a methodology to calculate the incremental borrowing rates across the Group. The Group engaged a specialist valuation expert to assist with this process. The weighted average incremental borrowing rate applied to lease creditors on the Consolidated Balance Sheet was 3.0% at 1 April 2019.

In the Income Statement, the Group previously recognised operating lease rentals in operating expenses. Under IFRS 16, a right-of-use leased asset is capitalised and depreciated over the term of the lease as an operating expense with an associated finance cost applied annually to the lease creditor. The Group avails of the exemption from capitalising lease costs for short-term leases and low-value assets where the relevant criteria are met; such lease costs continue to be expensed in the Income Statement as incurred. Wholly variable lease payments are also expensed as incurred. See note 12, Leases, for further information.

The adoption of IFRS 16 had a material impact on the Group's interim financial statements as follows:

• Right-of-use leased assets: increase of £297 million on transition at 1 April 2019;

·; Lease creditors: increase of £294 million on transition at 1 April 2019;

• Adjusted operating profit: increase of £2.7 million in the period;

• Net finance cost: increase of £4.2 million in the period; and

• Adjusted earnings per share: decrease of 1.3 pence in the period.

A reconciliation of the operating lease commitment previously reported under IAS 17 to the discounted lease creditor as at 1 April 2019 under IFRS 16 is as follows:

Set out below is the new accounting policy of the Group upon adoption of IFRS 16, Leases:

The Group enters into leases for a range of assets, principally relating to property. These property leases have varying terms and renewal rights, including periodic rent reviews linked with indices. The Group also leases motor vehicles, plant, machinery and other equipment. The terms and conditions of these leases do not impose significant financial restrictions on the Group.

A contract contains a lease if it is enforceable and conveys the right to control the use of a specified asset for a period of time in exchange for consideration, which is assessed at inception. A right-of-use asset and lease creditor are recognised at the commencement date for contracts containing a lease, with the exception of leases with a term of 12 months or less, leases where the underlying asset is of low value and leases with associated payments that vary directly in line with usage or sales (such lease costs continue to be expensed in the Income Statement as incurred). The commencement date is the date at which the asset is made available for use by the Group.

The lease creditor is initially measured at the present value of the future minimum lease payments, discounted using the incremental borrowing rate over the remaining lease term. Lease payments include fixed payments, variable payments that are dependent on an index known at the commencement date, payments for an optional renewal period and termination option payments, if the Group is reasonably certain to exercise those options. The lease term is the non-cancellable period of the lease adjusted for any renewal or termination options which are reasonably certain to be exercised. Management applies judgement in determining whether it is reasonably certain that a renewal or termination option will be exercised.

Incremental borrowing rates are calculated using a portfolio approach, based on the risk profile of the entity holding the lease and the term and currency of the lease.

After initial recognition, the lease creditor is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future minimum lease payments or when the Group changes its assessment of whether it is reasonably certain to exercise an option within the contract. A corresponding adjustment is made to the carrying amount of the right-of-use asset.

The right-of-use asset is initially measured at cost, which comprises the lease creditor adjusted for any payments made at or before the commencement date, initial direct costs incurred, lease incentives received and an estimate of the cost to dismantle or restore the underlying asset or the site on which it is located at the end of the lease term. The right-of-use asset is depreciated over the lease term and is tested periodically for impairment if an impairment indicator is considered to exist.

IFRIC 23 Uncertainty over Income Tax Treatments

This IFRIC clarifies the accounting for uncertainties in income taxes and is applied to the determination of taxable profit (or tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12 Income Taxes. The adoption of this IFRIC has had an immaterial impact on the Group's interim financial statements.

The following changes to IFRS became effective for the Group during the period but did not result in material changes to the Group's consolidated financial statements:

·; Annual Improvements to IFRS Standards 2015-2017 Cycle

·; Amendments to IAS 19: Plan amendment, curtailment or settlement

·; Amendments to IAS 28: Long-term interests in associates and joint ventures

·; Amendments to IFRS 9: Prepayment features with negative compensation

The Group has not applied certain new standards, amendments and interpretations to existing standards that have been issued but are not yet effective. They are either not expected to have a material effect on the consolidated financial statements or they are not currently relevant for the Group.

3. Going Concern

Having reassessed the principal risks facing the Group (as detailed on pages 17 to 20 of the 2019 Annual Report), the Directors believe that the Group is well placed to manage these risks successfully.

The Directors have a reasonable expectation that DCC plc, and the Group as a whole, has adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report. For this reason, the Directors continue to adopt the going concern basis of accounting in preparing the condensed interim financial statements.

4. Reporting Currency

The Group's financial statements are presented in sterling, denoted by the symbol '£'. Results and cash flows of operations based in non-sterling countries have been translated into sterling at average rates for the period, and the related balance sheets have been translated at the rates of exchange ruling at the balance sheet date. The principal exchange rates used for translation of results and balance sheets into sterling were as follows: