14 November 2023

Interim results for the six months ended 30 September 2023

Strong Growth in Operating Profit, Excellent Acquisition Activity

· Group adjusted operating profit up 12.0% (12.2% on a constant currency basis) in the seasonally less significant first half of the year.

· Within the constant currency growth of 12.2%, organic growth was 4.4% driven by an excellent performance from DCC Energy and partially offset, as anticipated, by a decline in both DCC Healthcare and DCC Technology. M&A contributed 7.8% of the constant currency growth.

· Interim dividend increased by 5.0% to 63.04 pence per share.

· Since our prior year Final Results in May 2023, DCC has committed approximately £310 million to new acquisitions in DCC Energy, including:

-  As announced separately today, the synergistic acquisition of Progas for c.£140 million, a nationwide distributor of LPG in Germany, Europe's largest energy market; and

-  The acquisition of five energy management and services businesses to further expand our offering in this high growth sector.

· DCC continues to expect that the year ending 31 March 2024 will be another year of operating profit growth in line with expectations, and continued development activity.

Donal Murphy, Chief Executive, commented:

"We delivered strong profit growth in the first half of our financial year. Although the macro environment remains volatile, DCC continued to perform thanks to our resilient and diverse business. DCC Energy traded strongly while continuing to execute the Cleaner Energy in Your Power strategy we outlined earlier this year. During the period we committed to seven acquisitions aligned to our strategic priorities to give all our customers the power to choose a cleaner energy future."

Contact information

Presentation of results - audio webcast and conference call details

Group management will host a live audio webcast and conference call of the presentation at 09.00 GMT today. The slides for this presentation can be downloaded from DCC's website,  www.dcc.ie

The access details are as follows:

Ireland:                +353 (0) 1 691 7842

UK:                       +44 (0) 203 936 2999

International:     +44 (0) 203 936 2999

Passcode:               771225 

Webcast link:     https://www.investis-live.com/dcc/6538f26037a2c50c00313f29/bwrtt

This report, presentation slides and a replay of the audio will be made available at www.dcc.ie

About DCC plc

DCC is a leading international sales, marketing and support services group. We provide solutions the world needs across three transformative sectors: energy, healthcare and technology; where we acquire, improve and grow diverse businesses. We bring our growth mindset to our businesses in 22 countries across four continents, empowering our 16,000 employees to create long term value - for our shareholders, customers, society and the planet.  

Headquartered in Dublin, DCC plc is listed on the London Stock Exchange and is a constituent of the FTSE 100. In our financial year ended 31 March 2023, DCC generated revenues of £22.2 billion and adjusted operating profit of £655.7 million. DCC has an excellent record, delivering compound annual growth of 14% in adjusted operating profit and generating an average return on capital employed of approximately 19% over 29 years as a public company.

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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.

A summary of the Group's results for the six months ended 30 September 2023 is as follows:

Group revenue

Overall, Group revenue decreased by 11.3% (11.1% on a constant currency basis) to £9.6 billion, primarily due to lower revenue in DCC Energy where average commodity prices were lower than during the first six months of the prior year.

DCC Energy sold 7.2 billion litres of product in the first half, in line with the prior year. There was modest volume growth across Energy Solutions, driven by the Nordics business which recorded strong growth with aviation, commercial and industrial customers. This was offset by a modest decline in Energy Mobility, where volumes in France were disrupted by strike activity in the first quarter and competitor activity more recently. Revenue in DCC Energy declined by 12.8% to £6.9 billion, reflecting lower commodity prices. DCC Healthcare recorded revenue of £420.5m, an increase of 11.3% (10.9% on a constant currency basis) driven by the acquisition of Medi?Globe during the second half of the prior year. Organically, revenue declined by 0.9% as growth in DCC Vital was offset by reduced demand in DCC Health & Beauty Solutions. Revenue in DCC Technology was £2.3 billion, a decrease of 9.7% (9.1% on a constant currency basis), driven by weaker demand for consumer technology products in our Life Tech and Info Tech segments.  

Group adjusted operating profit

Group adjusted operating profit increased by 12.0% to £247.6 million (12.2% on a constant currency basis), in the seasonally less significant first half of the year. Strong organic growth in DCC Energy was somewhat offset, as anticipated, by the more difficult trading environment across DCC Healthcare and DCC Technology.

The impact on reported Group adjusted operating profit of foreign exchange (FX) translation, M&A and organic growth was as follows:

The net impact of FX translation in the first half of the year was a modest headwind of 0.2%, or £0.5 million, in the reported growth in adjusted operating profit. This reflects average sterling exchange rates strengthening against most of the Group's reporting currencies during the period, offset by a modest weakening against Euro.

Acquisitions completed in the prior year and in the current period contributed 7.8% of the reported operating profit growth. The material contribution during the six-month period came from the prior year acquisitions of Medi-Globe and PVO.

The Group's organic operating profit growth was 4.4%, driven by the strong performance of DCC Energy. As expected, DCC Healthcare and DCC Technology experienced more difficult market conditions and declined organically. The inflationary environment continued to be a significant feature during the period. The organic profit growth was achieved despite a 5.3% (or c.£50 million) increase in the Group's like for like overhead cost base. Further commentary on the trading performance of each of the three divisions is detailed below.

· DCC Energy delivered an excellent performance in the seasonally less significant first half of the financial year. Operating profit increased by 28.9% (28.9% constant currency). Both Energy Solutions (up 33.3%) and Energy Mobility (up 22.5%) delivered very strong growth. Organic growth was 21.1%, with M&A contributing 7.8%.

· We continue to execute the strategy outlined at our Energy 'Insights Day' on 6 September 2023. In the first half, we increased the share of operating profits from services, renewables and other products ('SRO') to 46%, up from 39% in the same period a year ago (SRO revenues are not seasonal so this percentage will be lower for the full year²). DCC Energy's Scope 3 emissions were unchanged versus the prior period as aviation volumes recovered. The carbon intensity of our profits declined by 22% versus prior year.  

· DCC Energy committed £310.5 million to acquisitions in the first half. Five of the seven acquisitions were in energy management services. We have now built strong capability in energy management services in France, the UK, Ireland, Norway and the Netherlands. We also made two LPG acquisitions. The larger of the two, Progas, significantly increases our scale in Germany, Europe's largest energy market.

DCC Energy Solutions grew its operating profit by 33.3% (32.1% constant currency). This reflected very strong organic growth in energy management services (and SRO products), the contribution from acquisitions, good procurement and cost management. Volumes of traditional fuels and lower carbon LPG were very modestly ahead of the prior year. We sold 48 million litres of HVO biofuel, up from 27 million litres in the same period last year.   

There are four operating regions within DCC Energy Solutions: Continental Europe, UK & Ireland, the Nordics and North America. DCC Energy's excellent organic performance was driven primarily by Continental Europe and the Nordics.

In Continental Europe, volumes were in line with the prior year although the experience was mixed across different geographies and customer groups. We grew volumes to commercial and industrial customers, and had notable customer wins, but experienced softer end-markets in the domestic sector. Following a difficult first half in the prior year, our on-grid gas and power business recovered strongly. We also expanded our energy management business organically and through acquisitions.  

In the UK & Ireland, volume and operating profit was in line with the prior year. The economic environment in the UK was less favourable, however our LPG business performed well and continued to grow its market share. The fuels market was more difficult, and we saw increased competition through the summer months. We continued to grow our energy management business, highlighted by the acquisition of Centreco, the market-leading commercial and industrial solar business in the UK and Alternative Energy Ireland (AEI), the second-largest player in Ireland.

In the Nordics, we grew very strongly driven by demand from commercial and industrial customers for LPG. We continued to develop the market for sustainable aviation fuel in Denmark and we delivered strong growth in aviation generally. We also expanded our services and renewables solutions by acquiring Solcellekraft, one of Norway's largest Solar PV businesses. 

In North America our business primarily serves domestic and small commercial heating customers, so it is particularly seasonal. Trading in the region was in line with the prior year. We have made good progress in building out our regional centre in Chicago and are investing in technology and digital capability which will enable the further scaling of the business. During the period we acquired San Isabel Services Propane in Colorado. We believe there will be further opportunities to consolidate within the fragmented US LPG market in the years to come.

DCC Energy Mobility grew its operating profit by 22.5% (24.4% constant currency). All of the growth was organic. Our UK and Nordics businesses performed ahead of expectations, whereas France was modestly behind expectations. Renewable/bio volumes were up 8% compared to the same period in the prior year. We have continued to invest in EV charging across the network. We have added EV capability to 122 sites in total, almost doubling the number of sites from 64 a year ago. We will look to deploy EV charging on 300-400 of our retail sites by 2030.   

Our UK business grew strongly and ahead of expectations, helped by a good performance from our convenience operations. We also grew our fuel card and HGV services operating profit very strongly. We continue to expand our range of digital solutions in this area; it is an important growth area in our strategy we communicated in September 2023.

Operating profit grew modestly in France and Luxembourg in what was a challenging market environment. The market saw widespread disruption due to strike action early in the first half of the year and in more recent weeks the market has been very competitive. Our Nordic businesses performed strongly; each business in the region (Denmark, Sweden and Norway) traded ahead of expectations.  

· Operating profit declined by 11.3% (12.0% constant currency) and by 28.3% organically, due to the challenging market conditions experienced by DCC Health & Beauty Solutions.

· DCC Vital performed well and delivered strong profit growth, driven by the prior year acquisition of Medi-Globe and a good trading performance. Operating profit in DCC Health & Beauty Solutions declined, impacted by weak market conditions principally as a result of the sustained period of market destocking which began in the second quarter of the prior year and which endured longer than expected. In recent months, we have seen an uptick in order intake levels across most of our businesses. In addition, the latest market data indicates improving consumer demand trends.

· The long-term growth opportunity in the nutritional products market remains attractive for DCC Health & Beauty Solutions. We continued to invest during the period to enhance the capability of the business, including completing a new state-of-the-art gummy production facility in Florida, which positions the business to capitalise on higher margin complex formulation products.

Divisional revenue

DCC Healthcare recorded revenue of £420.5 million, an increase of 11.3%. Organically, revenue declined by 0.9% as growth in DCC Vital was offset by reduced demand in DCC Health & Beauty Solutions.

DCC Vital

DCC Vital delivered strong growth in the first half of the financial year driven by the benefit of the acquisition of Medi-Globe which performed strongly during the period along with a strong trading performance in the Irish market.

In Medical Devices, the business delivered good organic growth and benefited from the first-time contribution of Medi-Globe. The integration of Medi-Globe is progressing well, including cross-selling Medi-Globe products into our existing DCC Vital sales platform. In the UK, the business generated good revenue growth despite the challenging market environment which was impacted by NHS budgetary constraints and industrial action by healthcare practitioners.

In Primary Care, we generated growth in the DACH region, but conditions were more difficult in the UK for our market leading business due to NHS funding constraints. We continued to invest during the period in our technology platform to enhance e-commerce and digital capability which will drive further growth and efficiency for the business in the coming years.

DCC Health & Beauty Solutions

Consistent with the second half of the prior year, DCC Health & Beauty Solutions continued to operate in a challenging market context and our operating profit declined materially. The revenue decline and relatively higher fixed cost base resulted in negative operating leverage. The destocking, which began in the second quarter of the prior year, endured much longer than DCC or other market participants and experts expected. During the first half of the year, end-consumers, retailers and customers in both Europe and the US continued to work through their elevated stock positions. The business has not seen any material customer attrition. During the first half, we experienced increased engagement with customers on new product development. As the second quarter progressed, we saw an uptick in orders across most of our businesses which has continued into the early weeks of the second half of the year. In addition, the latest market data indicates improving consumer demand trends.

Given the difficult market context, DCC Health & Beauty Solutions has been particularly focused on operational efficiency. During the first half, we combined two of our US businesses and consolidated their manufacturing activities into one site in Florida, generating scale and efficiency benefits. We also invested to enhance our product offering, recently completing a new state-of-the-art gummy facility in Florida which enhances our capability in this attractive product format.

· Operating profit declined by 15.0% (13.4% organic constant currency) in the first half of the year. As expected, there was lower market demand for consumer technology products. This continued the trend seen in the second half of the prior year, although our business maintained market share during the period. 

· Pro Tech demand was robust, and we saw good growth in Pro Audio products in particular. Divisionally, the areas of weakness were the consumer-focused Info Tech in Europe and Life Tech in the US, where declining consumer spending impacted demand. North America, where we have businesses in Pro Tech and Life Tech, accounted for most of the operating profit of DCC Technology in the first half.

· Given significant cost inflation, we implemented a range of cost reduction measures which maintained overhead costs in line with the prior year. The strong focus on operational improvement in our Info Tech business in the UK continued and delivered improved profitability in the first half.

Divisional revenue

Divisional revenue declined by 9.7%, driven by weaker demand for consumer technology products in our Life Tech and Info Tech segments. Revenue was 9.1% lower organically.  

Pro Tech

In Pro Tech, DCC Technology is the leading specialist distributor of AV products globally, with a particularly strong presence in North America. The Pro Tech segment delivered a good performance in the first half, driven by strong growth in Pro Audio in North America. The strong performance in this higher margin specialist category was beneficial to the division's margin mix. Demand for AV products was robust. After a strong performance in the prior year, we maintained our market share in North America. In Europe, we experienced mixed levels of demand across the region. There was reasonable demand for AV and related products, but weaker demand for enterprise level products.

Info Tech

Our Info Tech business distributes high-volume consumer and business IT products to the retail and reseller channels in Europe, with a particularly strong presence in the UK, Ireland and the Nordics.  Despite the weak market and related revenue decline, our business in the UK continued to recover strongly in the first half of the year. Operational improvements contributed to a better gross margin and cost performance. We are continuing to focus on these improvements, including the consolidation of a secondary warehouse facility into one national location in the north of England. The business in Ireland continued to perform well and in line with expectations in the first half of the year.

Across the rest of our European Info Tech markets, which have a largely consumer focus, our Nordic business performed robustly. We experienced weaker demand in France and the Benelux where operating profit declined.

Life Tech

In Life Tech we distribute consumer appliances and lifestyle technology products to the retail and etail channels in North America. During the first half of the year, performance in Life Tech declined as a result of weaker demand for consumer electronics, music products, appliances and increased discounting in certain overstocked segments. We increased our investment in digital marketing and this resulted in improved product visibility and market share on key etail platforms.

Finance costs (net) and other

Net finance costs and other, which includes the Group's net financing costs, lease interest and the share of profit/loss of associated businesses, increased to £52.2 million (2022: £31.9 million). As in the second half of the prior year, the increase in the period primarily reflects increased net financing costs due to the much higher interest rate environment.

The substantial change in the global interest rate environment from summer 2022 onwards impacted the cost of the floating rate element of the Group's gross debt. The net impact of the rising interest rate environment amounted to approximately £17 million. Presently, approximately 40% of the Group's gross debt is at floating rates.

Average net debt, excluding lease creditors, in the period was £1.2 billion, compared to an average net debt of £883 million in the prior year. The increase in average net debt excluding lease creditors reflects the substantial acquisition activity during the current period and the second half of the prior year.

Net exceptional items and amortisation of intangible assets 

The Group recorded a net exceptional charge after tax of £12.2 million in the first six months of the year as follows:

Restructuring and integration costs and other of £8.4 million relates to the restructuring of operations across a number of businesses and recent acquisitions. Most of the cost relates to optimisation and integration of operations in the Technology division. Acquisition and related costs include the professional fees and tax costs relating to the evaluation and completion of acquisition opportunities and amounted to £3.8 million.

The level of ineffectiveness calculated under IAS 39 on the hedging instruments related to the Group's US private placement debt is charged or credited as an exceptional item. In the six months ended 30 September 2023 this was not material and at the reporting date the cumulative net exceptional credit taken in respect of IAS 39 ineffectiveness was £1.4 million. This, or 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 £53.5 million from £50.4 million in the prior period, with the increase reflecting acquisitions completed in the prior year.

Taxation

The effective tax rate for the Group in the first half of the year of 20.3% is based on the anticipated mix of profits for the full year. It compares to a full year effective tax rate in the prior year of 19.3%. The higher tax rate reflects corporation tax increases in a number of jurisdictions and the increasingly international footprint of the Group. 

Adjusted earnings per share

Adjusted earnings per share increased by 1.9% to 149.3 pence, reflecting the increase in profit before exceptional items and goodwill amortisation.

Dividend

The Board has decided to pay an interim dividend of 63.04 pence per share, which represents a 5.0% increase on the prior year interim dividend of 60.04 pence per share. This dividend will be paid on 15 December 2023 to shareholders on the register at the close of business on 24 November 2023.

Cash flow

As with its operating profit, the Group's operating cash flow is significantly weighted towards the second half of the financial year. The cash flow of the Group for the six months ended 30 September 2023 can be summarised as follows:

Free cash flow generation

Free cash flow in the six months ended 30 September 2023 of £54.5 million compares to £37.6 million in the prior year. On a rolling 12-month basis (i.e., H1 FY24 and H2 FY23 cumulatively), free cash flow conversion remained strong at 86%.

Working capital

As expected, working capital increased by £154.1 million in the first half of the financial year, reflecting the typical seasonal outflow across the Group. The net investment through the period in working capital reflects the scale of the Group's activities and seasonal working capital requirements, particularly in DCC Technology and within DCC Energy Solutions. The absolute value of working capital at 30 September 2023 was in line with the prior year at £440.2 million (£448.8 million at 30 September 2022), a good performance given the lower utilisation of supply chain financing within DCC Technology (see below). Overall working capital days at 30 September 2023 was 7.4 days sales (2022: 6.8 days sales) reflecting recently completed acquisitions.

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 2023 reduced materially compared with the prior year to £122.8 million (2022: £159.3 million). Supply chain financing had a positive impact on Group working capital days of 2.1 days (30 September 2022: 2.4 days).

Net capital expenditure

Net capital expenditure for the six months of £111.4 million (2022: 103.9 million) was net of disposal proceeds (£3.4 million) and government grants received (£2.7 million) and reflects continued investment in development initiatives across the Group.

Capital expenditure in DCC Energy primarily comprised expenditure on tanks, cylinders and installations, with a focus on supporting new and existing LPG customers in Energy Solutions. In Mobility, there was investment to maintain our retail sites and upgrades across the business, including adding further lower emission product capability, EV fast charging and related forecourt services in the Nordics and France in particular. In DCC Healthcare, the spending primarily related to increased manufacturing capability and capacity across DCC Health & Beauty Solutions. The business recently commissioned its gummy line in Florida and is in the process of expanding effervescent capacity at its Minnesota operations. Net capital expenditure for the Group exceeded the depreciation charge of £76.4 million (excluding right-of-use leased assets) in the period by £35.0 million.

Total cash spend on acquisitions in the six months to 30 September 2023

The total cash spend on acquisitions in the six months ended 30 September 2023 was £151.8 million. This included the completion of the acquisition of AEI, Hafod Renewables and O'sitoit in DCC Energy which were announced in the prior year Results Announcement in May 2023. Payment of deferred and contingent acquisition consideration previously provided amounted to £30.5 million.

Committed acquisitions

Committed acquisitions in the period amounted to £310.5 million as follows:

DCC continues to be very active from a development perspective. The Group's recent acquisitions include:  

DCC Energy

DCC Energy has committed approximately £310 million to seven new acquisitions which support its strategy to build a leading energy management business and further expand its offering in the distribution of lower-carbon LPG products. The largest of these transactions was the agreement to acquire Progas, which is set out in further detail below. In addition, the division completed the following acquisitions:   

· In July 2023, DCC Energy acquired Centreco, a market-leading Solar PV and energy consultancy business in the UK, which services commercial and industrial customers nationally, and SLER40, a French Solar PV and heat pump business servicing domestic and commercial customers with design, installation, and maintenance services.

· In August 2023, DCC Energy acquired Isolatiespecialist, a leading provider of energy efficiency and insulation services to domestic and commercial customers in the Netherlands, and San Isabel Services Propane, a US LPG distributor which services both domestic and commercial customers in Colorado.

· DCC Energy acquired Solcellekraft in September 2023, one of Norway's largest Solar PV businesses, servicing commercial and domestic customers.

· In November 2023, DCC Energy acquired DTGen, a leading UK-based provider of power solutions, with a particular focus on emergency power solutions. DTGen offers a comprehensive service from design to supply, installation, and continuous maintenance, catering to a diverse range of sectors, including data centres, utilities, and healthcare.

Progas

In September 2023, DCC Energy agreed to acquire Progas GmbH ("Progas"), a leading distributor of LPG in Germany, for an enterprise value of approximately £140 million, subject to customary regulatory approval. The synergistic acquisition will represent DCC Energy's largest acquisition to date in Germany, Europe's largest energy market, and considerably expands DCC Energy's customer base in the market to over 100,000 customers. The acquisition is expected to generate a mid-teen return on capital employed in the first year of ownership. The transaction is expected to complete by the end of the financial year. A separate stock exchange announcement was issued on the acquisition this morning.

Financial strength

DCC has always maintained a strong balance sheet which enables the implementation of the Group's strategy. A strong balance sheet provides many strategic and commercial benefits, enabling DCC to take advantage of acquisitive or organic development opportunities as they arise. At 30 September 2023, the Group had net debt (including lease creditors) of £1.4 billion, net debt (excluding lease creditors) of £1.0 billion, cash resources (net of overdrafts) of £842 million and undrawn committed facilities of over £765 million.  

Substantially all of the Group's term debt has been raised in the US private placement market and has an average maturity of 5.1 years. In April 2023, DCC repaid £223.3 million of maturing US private placement notes from cash resources.

DCC has taken a pro-active approach to the credit markets since going public. The Group has been active in the US private placement debt market since 1996 and has built up a robust and well-diversified funding portfolio, with a balanced maturity profile. DCC's long term banking partners, investors and suppliers have always appreciated the strong credit quality of the Company. In November 2023 S&P Global Ratings issued a BBB rating and Fitch issued a BBB rating for DCC in the first public credit rating opinions of the Company. These investment grade ratings combined with our strong balance sheet, resilient business model, cashflow and a strong track record in the private debt markets, gives access to an increased array of funding instruments to enable the continued growth and development of the Group.

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 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 80 to 83 of the 2023 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 in place in relation to identified risks are designed to provide a reasonable and proportionate, and not an absolute, level of protection against the impact of the events in question.