Results for the year ended 31 March 2014

21 May 2014

DCC, the international sales, marketing, distribution and business support services group, today announced its results for the year ended 31 March 2014.

Ø Revenue increased by 6.2% to £11.2 billion, driven by acquisitions, particularly in DCC Energy, and excellent organic growth in DCC Technology (formerly DCC SerCom).

Ø Operating profit increased by 11.5% to £208 million with profit growth achieved across each of DCC's five divisions.

Ø Adjusted earnings per share up 11.7% to 191.20 pence.

Ø Proposed 10% increase in the final dividend to give a total full year dividend of 76.85 pence, an increase of 10% over the prior year, representing the 20th consecutive year of dividend growth as a listed company.

Ø Record cash generation:

o Operating cash flow of £349 million (£265 million in the prior year)

o Free cash flow of £278 million (£207 million in the prior year)

o 2.8 day improvement in working capital days to a record low level, primarily driven by a reduction in debtor days.

Ø Increase in return on capital employed to 16.3%, driven by profit growth and excellent working capital management.

Ø Committed acquisition expenditure of £84 million, including the recently completed acquisition of Qstar, a leading network of unmanned petrol stations in Sweden.

Ø Committed US Private Placement market funding, arranged in March 2014, of $750 million (£451 million). This committed funding, together with available cash resources and committed bank term facilities, ensures that the Group retains significant financial capacity to support future growth.

Ø DCC anticipates continuing growth and development in the year to 31 March 2015.

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

"It is pleasing that, in our 20th year as a listed company, the Group has achieved another strong result, with operating profit growth across each of DCC's five divisions. Overall Group operating profit was 11.5% ahead of the prior year, driven primarily by strong growth in DCC Technology and DCC Healthcare.

Record free cash flow of £278 million in the year reflects the Group's ongoing ability to convert its profits into cash. Return on capital employed increased to 16.3% from 15.6% in the prior year, substantially ahead of DCC's cost of capital.

Operating profit in DCC Energy, the Group's largest division, was 4.0% ahead of the prior year. This growth reflected the successful integration of acquisitions completed in prior years and cost efficiency initiatives, offset to some extent by the impact on volumes and margins of the very mild weather conditions across Northern Europe, particularly in the months from December 2013 to February 2014 when average temperatures were well above the 10 year average.

Operating profit in DCC Technology, the Group's second largest division, was strongly (15.9%) ahead of the prior year primarily based on very strong organic growth in mobile computing and communications products in Britain.

Operating profit in DCC Healthcare was substantially (36.9%) ahead of the prior year, benefitting from the acquisition of Kent Pharma, which was completed in February 2013, and from a very strong organic performance in DCC Health & Beauty Solutions.

DCC Environmental and DCC Food & Beverage, DCC's two smaller divisions, traded ahead of the prior year as early signs of economic recovery became evident in Britain and Ireland.

Over the last 20 years, DCC's operating profit has increased at a compound annual rate of 13.4%.

The Group's adjusted earnings per share grew by 11.7% to 191.20 pence. Over the last 20 years, DCC's adjusted earnings per share have increased at a compound annual rate of 12.3%.

The proposed 10% increase in the dividend for the year would represent the 20th consecutive year of dividend growth for DCC as a listed company. The compound annual growth rate over 20 years has been 14.9%.

The outlook for the year to 31 March 2015 is based on the important assumption that there will be normal winter weather conditions. At this very early stage, the Group anticipates that its operating profit and adjusted earnings per share will be approximately 10% ahead of the prior year. Having regard to the unseasonably colder start to the prior year, it is anticipated that this growth in the year to 31 March 2015 will be significantly weighted towards the second half.

DCC's strong equity base, long term debt maturities and significant cash and committed funding resources leave it well placed to continue the development of its business in existing and new geographies."

For reference, please contact:

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

Fergal O'Dwyer, Chief Financial Officer Email:[email protected]

Stephen Casey, Investor Relations Manager www.dcc.ie

Results

A summary of the Group's results for the year ended 31 March 2014 is as follows:

Overview of results

Revenue

Revenue increased by 6.2% to £11.2 billion driven by acquisitions, particularly in DCC Energy, and excellent organic growth in DCC Technology. DCC Energy increased its sales volumes by 6.1% driven by acquisitions, with organic volumes decreasing by 3.0% primarily due to the impact of a very mild winter. Excluding DCC Energy, Group revenue was 21.4% ahead of the prior year. Most of this revenue growth was organic and was driven by the growth in DCC Technology, particularly in Britain.

Operating profit

Group operating profit increased by 11.5%. Approximately half of this growth was organic, primarily reflecting excellent growth in DCC Technology in Britain and in DCC Healthcare's health and beauty activities. The compound annual growth rate in DCC's operating profit over the last 20 years has been 13.4%.

Operating profit in DCC Energy, the Group's largest division, was 4.0% ahead of the prior year. This growth reflected the successful integration of acquisitions made in prior years and cost efficiency initiatives, offset to some extent by the impact on volumes and margins of the very mild weather conditions across Northern Europe, particularly in the months from December 2013 to February 2014 when average temperatures were well above the 10 year average.

Operating profit in DCC Technology, the Group's second largest division, was strongly (15.9%) ahead of the prior year primarily based on very strong organic growth in mobile computing and communications products in Britain.

Operating profit in DCC Healthcare was substantially (36.9%) ahead of the prior year, benefitting from the acquisition of Kent Pharma, which was completed in February 2013, and from a very strong organic performance in DCC Health & Beauty Solutions.

DCC Environmental and DCC Food & Beverage, DCC's two smaller divisions, traded modestly ahead of the prior year as early signs of recovery became evident in Britain and Ireland.

An analysis of the divisional performance in each half of the year is set out below:

Finance costs (net)

Net finance costs increased to £21.4 million (2013: £14.1 million) primarily as a result of the incremental interest cost of the US Private Placement debt drawn down in April 2013 and higher average net debt during the year of £366 million compared to £279 million in the prior year. The increase in average net debt arose primarily from seasonal increases in working capital in DCC Technology, as a result of the significant organic increase in its revenue. Interest was covered 12.4 times by Group operating profit before depreciation and amortisation of intangible assets (17.1 times in 2013).

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

Profit before net exceptional items, amortisation of intangible assets and tax increased by 8.2% to £187.0 million.

Net exceptional charge and amortisation of intangible assets

The Group incurred a net exceptional charge before tax and non-controlling interests of £15.4 million as follows:

The Group incurred an exceptional charge of £19.7 million in relation to restructuring of acquired and existing businesses. Most of this related to the costs of integration of previously acquired oil and LPG businesses, the relocation of DCC Healthcare's Swedish health and beauty manufacturing activities to Britain, which was planned for at the time of the acquisition of those assets, and the closure of DCC Technology's Irish DVD business.

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 year, acquisition and related costs amounted to £5.6 million.

Most of the Group's debt has been raised in the US Private Placement market and swapped, using long term interest, currency and cross currency 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, together with gains or losses arising from marking to market swaps not designated as hedges, offset by foreign exchange translation gains or losses on the related fixed rate debt, is charged or credited as an exceptional item. In the year ended 31 March 2014 this amounted to an exceptional charge of £2.1 million.

In January 2004, the High Court in London awarded £12.2 million in damages and associated interim costs, together with interest, to DCC's former British based mobility and rehabilitation subsidiary for breach of an exclusive supply agreement by a Taiwanese supplier. A further amount in respect of costs of £2.9 million was subsequently determined by the High Court to be payable. In order to enforce the High Court judgments, it has been necessary to pursue the collection of all outstanding amounts through the Taiwanese courts. In March 2012, DCC received the initial £12.2 million referred to above which was accounted for in DCC's financial year ended 31 March 2012. In December 2013 and January 2014 a further aggregate amount of £7.0 million was recovered in respect of the accumulated interest on the £12.2 million from which there was a deduction of £5.3 million for Taiwanese withholding tax which is being challenged by DCC. The recovery of the £2.9 million, plus interest, continues to be pursued through the Taiwanese courts. DCC has not accrued the amount of this outstanding claim.

In March 2014, DCC Healthcare disposed of a small US based subsidiary which contract manufactures a range of mattress covers for hospital beds and stretchers and in February 2014 DCC Food & Beverage disposed of part of its chilled and frozen food distribution activities. The businesses disposed of accounted for less than 1% of DCC's operating profit for the year ended 31 March 2014. The net cash inflow from these transactions was £11.1 million and resulted in a gain on disposal (before a non-controlling interest charge) on their book carrying values of £5.3 million.

There was a non-cash credit of £16.2 million for deferred and contingent acquisition consideration overprovided in previous years. This non-cash credit was offset by a non-cash charge of £14.5 million for the impairment of subsidiary goodwill and a property asset.

There was a tax charge of £5.3 million, as referred to above, for Taiwanese withholding tax, which is being challenged by DCC and a non-controlling interest charge of £2.1 million relating to the net exceptional items. The cash impact in the year of net exceptional charges relating to the year ended 31 March 2014 and the prior year was £21.1 million.

Amortisation

The charge for the amortisation of acquisition related intangible assets increased to £20.4 million from £14.4 million, principally reflecting acquisitions completed in the prior year.

Profit before tax

Profit before tax increased by 13.7% to £151.2 million.

Taxation

The effective tax rate for the Group was 14% compared to 17% in the prior year.

Adjusted earnings per share

Adjusted earnings per share increased by 11.7% to 191.20 pence. The compound annual growth rate in DCC's adjusted earnings per share over the last 20 years has been 12.3%.

The Board is recommending a final dividend of 50.73 pence per share, which when added to the interim dividend of 26.12 pence per share, gives a total dividend for the year of 76.85 pence per share. This represents a 10% increase over the total prior year dividend of 69.86 pence per share (85.68 cent per share translated at the average euro/sterling exchange rate for the year ended 31 March 2013 of £0.815 = €1). The dividend is covered 2.5 times by adjusted earnings per share (2.5 times in 2013). It is proposed to pay the final dividend on 24 July 2014 to shareholders on the register at the close of business on 30 May 2014.

Over the last 20 years, DCC has an unbroken record of dividend growth at a compound annual rate of 14.9%.

The Group generated excellent operating and free cash flow during the year as set out below:

Operating cash flow in 2014 was £348.7 million compared to £264.6 million in 2013. Working capital was reduced by £86.9 million with overall working capital days improving by 2.8 days. Working capital improvements were achieved across all of the Group's divisions with overall Group debtor days reducing from 36.9 days to 31.4 days. The primary driver of this improvement was a reduction in debtor days in DCC Energy and DCC Technology. DCC Technology selectively uses supply chain financing solutions to sell, on a non-recourse basis, a portion of the receivables relating to certain larger supply chain/sales and marketing activities, thereby mitigating the impact of the higher inventory levels that are required to effect this business. This accounted for 3.3 days of the reduction in Group debtor days and, having regard to the related higher inventory levels, the net impact on Group net working capital days was a reduction of 1.0 day (£30 million).

After capital expenditure of £70.6 million (2013: £57.5 million), free cash flow amounted to £278.1 million compared to £207.1 million in the prior year. The Group has a high cash conversion rate which is summarised over 1, 5, 10 and 20 years as follows:

After interest and tax payments of £53.0 million (2013: £45.6 million), the Group generated cash of £225.1 million compared to £161.5 million in the prior year. 

Return on capital employed

The creation of shareholder value through the delivery of consistent, long term returns well in excess of its cost of capital is one of DCC's core strategic aims. Return on capital employed increased from 15.6% to 16.3% driven primarily by the increase in the Group's operating profit and strong working capital management. The return on capital employed by division was as follows:

The reduction in return on capital employed in DCC Energy arose as a result of the impact on operating profit of the mild winter.

Acquisition and Capital Expenditure

Acquisition and capital expenditure committed in the year ended 31 March 2014 amounted to £154.7 million as follows:

Acquisitions

Committed acquisition expenditure in the year ended 31 March 2014 amounted to £84.1 million. The cash outflow on acquisitions in the year of £50.1 million includes the cash outlay on acquisitions completed during the year and the payment of deferred and contingent acquisition consideration amounts which had previously been provided for.

DCC Energy

In January 2014, DCC Energy agreed to acquire Qstar Försäljning AB, a Swedish unmanned retail petrol station company and its related fuel distribution and fuel card businesses ("Qstar") for a combined consideration based on an enterprise value of £40 million. Completion of the acquisition was conditional on the approval of the competition authorities. This approval was received at the end of April 2014 and the acquisition was subsequently completed on 9 May.

Qstar's retail fuel distribution business operates 307 Qstar branded unmanned retail petrol stations throughout Sweden and supplies 72 independent dealer owned retail petrol stations operating under the "Pump" and "Bilisten" brands. Qstar is the fifth largest retail petrol station operator in Sweden, selling approximately 300 million litres of product per annum. The smaller Qstar fuel distribution business sells diesel and heating oil (c. 70 million litres in 2013) while its fuel card services business provides branded fuel card software as well as processing fuel card transactions for Qstar's retail business and third parties. Qstar has 71 employees.

DCC Energy also acquired 13 retail petrol stations in Scotland from Shell and three small independent oil distribution businesses in Britain and Austria for an aggregate consideration of £8 million.

It is part of DCC Energy's strategy to build a larger presence in the transport fuels market in Britain and Continental Europe with a particular emphasis on growth in the retail forecourt sector. Over recent years, DCC Energy has become the largest supplier to independent dealer owned retail petrol stations in Britain and it also operates a leading fuel card marketing business in that market. The acquisition of Qstar represents a further development of DCC Energy's transport fuels business in Europe and the first material step in building a presence in the unmanned retail petrol station market.

DCC Energy now has a network of 315 unmanned retail petrol stations in Sweden and Ireland and 37 manned retail petrol stations in Britain. DCC Energy also supplies in excess of 2,000 independent dealer owned retail petrol stations in Britain, Ireland, Sweden, Austria and Denmark.

DCC Technology

In October 2013, DCC Technology acquired Cohort Technology, a British distributor of security and networking products based in Basingstoke, for an enterprise value of £5 million. This acquisition has expanded DCC Technology's unified communications and security offering.

DCC Healthcare

In January 2014, DCC Healthcare strengthened its Health & Beauty Solutions business through the acquisition of Universal Products (Lytham) Manufacturing Limited ("UPL"), a British contract manufacturer of creams and liquids, based on an enterprise valuation of £13 million. UPL develops, manufactures and packs a wide range of skincare, haircare and pharmaceutical products for its customer base of British and international beauty and healthcare brand owners. The business employs 248 staff at its MHRA licensed facility in Kirkham, Lancashire. Combining UPL with its existing business enables DCC Health & Beauty Solutions to offer customers enhanced manufacturing and packing capability across its high quality, licensed facilities, in addition to product development, formulation, regulatory and technical services. DCC is now one of the two leading British creams and liquids contract manufacturers for brand owners.

Capital expenditure

Net capital expenditure in the year of £70.6 million (2013: £57.5 million) compares to a depreciation charge of £56.1 million (2013: £54.2 million). The increase in capital expenditure over the prior year was driven primarily by ongoing investment in upgrading truck and depot infrastructure in DCC Energy, particularly in the oil business in Britain.

Financial strength

DCC's financial position remains very strong, well funded and highly liquid. At 31 March 2014 the Group had net debt of £86 million and total equity of £946 million. In late March 2014, the Group arranged committed US Private Placement market funding of $750 million (£451 million) with maturity terms of seven, ten, twelve and fifteen years (average maturity of ten years), which will be drawn down in May and September 2014. This committed funding, together with available cash resources and committed bank term facilities, ensures that the Group retains significant financial capacity to support its future growth. Pending deployment of these funds on acquisitions and future debt repayments, the funds raised add to DCC's cash resources and increase the average maturity on the Group's debt to nearly eight years with an average credit spread over euribor/libor of 1.66%. The Group will incur an annual interest holding cost on this incremental debt until it is deployed on scheduled debt repayments and acquisition and development opportunities.

Key financial ratios as at 31 March 2014, and the principal financial covenants included in the Group's various lending agreements, are as follows:

Outlook

The outlook for the year to 31 March 2015 is based on the important assumption that there will be normal winter weather conditions. At this very early stage, the Group anticipates that its operating profit and adjusted earnings per share will be approximately 10% ahead of the prior year. Having regard to the unseasonably colder start to the prior year, it is anticipated that this growth in the year to 31 March 2015 will be significantly weighted towards the second half.

Operating review

DCC Energy delivered a robust performance with operating profit 4.0% ahead of the prior year as the business benefitted from acquisitions, integration synergies and operational efficiencies which were partly offset by the effect on profitability of the very mild winter weather conditions which impacted all geographies in which DCC Energy operates.

DCC Energy sold 10.2 billion litres of product during the year, an increase of 6.1% over the prior year. Organically, volumes were 3.0% lower, primarily due to a decrease in heating related volumes of approximately 11% as the average temperatures in Northern Europe during the second half of the year, particularly December through to February, were significantly milder than both the prior year and the 10 year average.

The oil business made good progress, notwithstanding the impact of the mild winter weather conditions. The business in Britain benefitted from the implementation of its logistics efficiency programme and from the successful integration of the former Total distribution business. In addition, it benefitted from its focus on transport fuels, with particularly strong organic growth in fuel cards. Adjusting for the weather impact, the oil businesses in Continental Europe performed satisfactorily and delivered strong returns, with the exception of the business in Sweden which was impacted by significant competition. Good progress was made in DCC's strategy to build a larger presence in the transport fuels market, particularly in unmanned retail petrol stations, through the agreement to acquire Qstar, the fifth largest retail petrol station operator in Sweden.

The LPG business performed strongly, benefitting from the acquisitions of BP's businesses in Britain, the Netherlands and Belgium and SFR's businesses in Sweden and Norway, all of which were completed in the prior year. In particular, the business in Britain benefitted from the achievement of the targeted cost synergies following the successful integration of the former BP LPG business. The LPG operations as a whole achieved good organic growth in the industrial and commercial sector of the market which more than offset the impact on volumes of the mild winter weather.

DCC Energy now operates across nine countries in Europe and remains well positioned to grow in those markets and to continue to expand into new geographies.

DCC Technology, which has changed its name from DCC SerCom, achieved an excellent result, increasing operating profit by 15.9%, reflecting very strong organic growth in both mobile computing and communications products, and increased its return on capital employed to 21.1%. DCC Technology continues to develop its service offering to enhance its position as a leading route to market partner for connected devices and to develop new sales channels in the sports and lifestyle sectors.

In October 2013 all of the businesses within DCC Technology were rebranded under the 'Exertis' brand. The rebranding was undertaken as part of a broader project which, in addition to building greater recognition from supplier and customer partners as to the scale and capability of the business, is intended to create a platform for sustained growth into new market sectors and geographies. As part of this broader project, further integration of the operations and service offering will be undertaken, including an upgrade of the logistics and IT infrastructure.

The business in Britain, which accounted for 81% of total revenues in the period, generated excellent operating profit growth across its principal product lines. The performance was particularly strong in mobile computing and communications products such as smartphones, laptops and tablets, with increased market share achieved in both the retail and reseller channels. The business continues to invest in broadening its product and service portfolio, including the provision of accessories, airtime and outsourced fulfilment and category management solutions. Excellent organic growth was achieved in "data room" products, such as servers, storage and security, and the business benefitted from the additional technical capability introduced through the acquisition, in October 2013, of Cohort Technology, a specialist in security, unified communications and managed services. The launch of the latest generation of gaming consoles in advance of Christmas 2013, as well as major software releases during the year, was also a feature of the performance in Britain.

In Continental Europe, the business was impacted by a weak demand environment and margins declined due to a changed product mix. The business is focussed on broadening its product portfolio and extending the range of customer channels serviced.

The supply chain services business traded ahead of expectations. These activities have now been integrated with DCC Technology's sales, marketing and distribution activities to allow the provision of a consolidated end-to-end service offering.

DCC Healthcare achieved excellent operating profit growth across its two businesses, DCC Vital and DCC Health & Beauty Solutions. The division benefitted from acquisitions completed in the year under review and in the prior year and from very strong organic growth in DCC Health & Beauty Solutions.

DCC Vital, which is focussed on the sales, marketing and distribution of pharmaceuticals and medical devices, recorded strong profit growth driven by recent acquisition activity. DCC Vital completed the integration of Kent Pharma, combining the product portfolios and the commercial and regulatory teams, and realised the planned synergies. Kent Pharma achieved strong growth in the respiratory area while experiencing increased competitive pressures for certain antibiotic products. The pharma performance in Ireland was impacted by slower than projected growth in volumes in DCC Vital's compounding activity as the National OPAT (Outpatient Parenteral Antimicrobial Therapy) service contract was rolled out. 

DCC Vital achieved excellent growth in medical devices in Britain, with good organic growth augmented by the strong performance of Leonhard Lang UK, which was acquired in July 2013. Leonhard Lang UK is the market leading supplier of electrodes and diathermy consumables, under its own Skintact brand, to hospitals and emergency services in Britain. DCC Vital's British value added logistics business performed satisfactorily with new customer wins on the back of continued market interest in its range of customised stock management and just-in-time logistics solutions for hospitals and manufacturers.

DCC Health & Beauty Solutions, a leading provider of outsourced services to brand owners in the European health and beauty sector, achieved very strong organic profit growth and benefitted from a first time contribution from UPL, acquired in January 2014. Excellent organic growth was achieved across both the nutrition (vitamins and health supplements) and beauty categories. The business benefitted from successful new product development for existing customers and from a number of new business wins, particularly in healthcare creams and liquids. The process of combining UPL with DCC Health & Beauty Solutions' existing creams and liquids activities is under way and is enabling the business to offer customers enhanced product development, manufacturing and packing capability across its high quality, licensed facilities. DCC is now one of the two leading British creams and liquids contract manufacturers for brand owners. In the Nutrition area, the planned process to integrate the Swedish tablet manufacturing operations into DCC's larger tablet manufacturing facility in Britain has also commenced. The sales, development, customer service and regulatory teams in Sweden will remain in situ to service DCC Health & Beauty Solutions' Scandinavian customer base.

DCC Environmental's operating profit increased by 7.8%, driven by improved market conditions in the non-hazardous waste market and a continued focus on operational efficiency.

In Britain, the non-hazardous waste business benefitted from improved economic conditions with a pickup in construction sector activity. In the hazardous sector, price competition continues to be intense, with the improved economic backdrop yet to translate into an increase in demand. 

Operating profit in DCC Food & Beverage increased by 25.9% with growth in each of its major product areas. The Indulgence and Health Foods businesses delivered growth in company owned brands, while also benefitting from the full year effect of some agency wins. The Kelkin healthy foods brand achieved good sales growth, especially in gluten free products, and benefitted from increased listings in multiples in Britain.

DCC's 2014 Annual Report will be published in June 2014. The Company's Annual General Meeting will be held at 11.00 am on Friday 18 July 2014 in The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland.

This announcement contains some forward-looking statements that represent DCC's expectations for its business, based on current expectations about future events, which by their nature involve 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.

Presentation of results and dial-in facility

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

A dial-in facility will be available for this meeting:

Ireland: +353 (0) 1 2465603

UK / International: +44 (0) 20 3427 1903

Passcode: 5098837

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

Group Income Statement

for the year ended 31 March 2014

Group Statement of Comprehensive Income

for the year ended 31 March 2014

Group Balance Sheet

as at 31 March 2014

Group Statement of Changes in Equity

Group Cash Flow Statement

for the year ended 31 March 2014