The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and their interpretations as issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC), applicable Irish law and the Listing Rules of the Irish and London Stock Exchanges. Details of the basis of preparation and the significant accounting policies of the Group are included here
WHILST OVERALL IT WAS A DIFFICULT YEAR FOR THE GROUP WITH OPERATING PROFITS DECREASING BY 18.3% ON A CONSTANT CURRENCY BASIS, OPERATING CASH FLOW INCREASED TO €277.3 MILLION, FREE CASH FLOW INCREASED TO €146.0 MILLION AND WE DEPLOYED AN INCREMENTAL €234.7 MILLION ON ACQUISITIONS AND NET CAPITAL EXPENDITURE.
As the key financial performance indicators set out in Table 1 show, whilst the performance of DCC Energy impacted the overall Group profit and return on capital employed performance in 2012, working capital management, cash flow and the deployment of capital was good and the Group still retains a strong, well funded and highly liquid balance sheet.
|Table 1: Key Financial Performance Indicators|
|Revenue growth - constant currency||24.9%||25.4%|
|Operating profit* (decrease)/increase - constant currency||(18.3%||) 15.5%|
|EBIT: net interest (times)||10.4||15.8|
|EBITDA: net interest (times)||13.5||19.3|
|Net debt as a percentage of total equity||12.6%||4.9%|
|Net debt/EBITDA (times)||0.5||0.2|
|Working capital as a percentage of total revenue||0.9%||1.6%|
|Working capital - days||2.5||4.9|
|Debtors - days||34.6||36.8|
|Operating cash flow (€' m)||277.3||269.6|
|Free cash flow after interest and tax (€ 'm)||146.0||123.6|
|Return on total capital employed||14.2%||19.9%|
|Acquisition capital deployed (€ 'm)||169.1||130.7|
|* excluding exceptionals and amortisation of intangible assets.|
Group revenue increased by 24.9% on a constant currency basis to €10.7 billion primarily as a result of acquisitions, the impact of higher oil prices and strong organic growth in DCC SerCom. DCC Energy increased its sales volumes by 10.8%, however, like for like volumes declined by 5.9%. Average selling prices in DCC Energy increased by 16.9% due to the higher oil prices. Excluding DCC Energy, Group revenue was 13.6% ahead of the prior year on a constant currency basis; approximately half of this growth was organic.
Overview of Results
|Change on prior year|
|DCC Food & Beverage||10.7||11.5||-7.2%||-7.0%|
|Group operating profit||185.0||229.6||-19.4%||-18.3%|
|Share of associates' loss after tax||-||(0.2)|
|Finance costs (net)||(17.9)||(14.6)|
|Profit before exceptional items, amortisation of intangible assets and tax||167.1||214.8||-22.2%||-21.1%|
|Amortisation of intangible assets||(11.3)||(10.9)|
|Exceptional charge (net)||(22.8)||(14.3)|
|Profit before tax||133.0||189.6||-29.8%||-28.6%|
|Adjusted earnings per share (cent)||163.51||203.15||-19.5%||-18.4%|
|* continuing activities excluding Mobility & Rehabilitation|
As signalled during the year, the
results for the Group were adversely
impacted by trading in DCC Energy,
which suffered from the effects of the
very mild weather, higher oil prices
and the continuing difficult economic
background, particularly in the UK, DCC
Energy's largest market. Operating
profit in DCC Energy declined by 38.3%
on a constant currency basis as the
impact of the sustained period of
extremely mild temperatures on both
volumes and margins was exacerbated
by its comparison to the extremely
cold weather conditions of the prior
year. The average temperature in the
UK in the very important quarter to
31 December 2011 was the mildest
on record, in contrast to the same
quarter in the prior year which was
the coldest on record. The other key
quarter to 31 March 2012 was also
significantly milder than the prior year.
DCC Energy's total heating related
volumes declined by approximately
15% on a like for like basis compared
to the prior year. The substantially
weaker demand for heating oil
products gave rise to considerable
excess capacity, even during the
normally busy winter months, which
in a very competitive market resulted
in reduced gross margins across all
product grades. This reduction in gross
margins, combined with the effect of
a predominantly fixed operating cost
base, had a significant impact on DCC
Energy's operating profit for the year.
Operating profit in the Group's other four divisions combined increased by 11.3% on a constant currency basis. DCC SerCom, DCC's second largest division, increased operating profit by 17.0%, also on a constant currency basis. This reflected another excellent performance in SerCom Distribution, where revenue and operating profit, on a constant currency basis, were 16.5% and 20.0% ahead of the prior year respectively.
DCC Healthcare increased its operating profit on continuing activities by 5.3% on a constant currency basis, while DCC Environmental's operating profit advanced by 24.9%, also on a constant currency basis, driven primarily by acquisition activity during the year. Operating profit declined by 7.0% on a constant currency basis in DCC's smallest division, DCC Food & Beverage.
Overall operating profit in the Group declined by 18.3% on a constant currency basis. Approximately 70% of the Group's operating profit in the year was denominated in sterling. The average exchange rate at which sterling profits were translated during the year was Stg£0.8684 = €1, compared to an average translation rate of Stg£0.8522 = €1 for the prior year, a weakening of 2% which resulted in a modest negative translation impact on Group operating profit of €2.5 million. Consequently on a reported basis operating profit decreased by 19.4%.
Although DCC's operating margin (excluding exceptionals) was 1.7% (2.6% in 2011), it is important to note that this measurement of the overall Group margin is of limited relevance due to the influence of changes in oil product costs on the percentage. While changes in oil product costs will change percentage operating margins, this has little relevance in the downstream energy market in which DCC Energy operates, where profitability is driven by absolute contribution per litre (or tonne) of product sold and not by a percentage margin. Excluding DCC Energy, the operating margin (excluding exceptionals) for the Group's other divisions was 3.5% (3.6% in 2011).
Increasingly Difficult Trading Conditions in DCC Energy
Overall, trading conditions, driven by the factors in DCC Energy referred to above, became increasingly difficult during the year. An analysis of the performance on a constant currency basis for the first half, the second half and the full year ended 31 March 2012 is set out in Tables 2 and 3.
|Table 2: Revenue
DCC Food & Beverage
|Table 3: Operating Profit
DCC Food & Beverage
A detailed review of the operating performance of each of DCC's divisions is set out here.
Finance Costs (net)
Net finance costs increased to €17.9 million (2011: €14.6 million) primarily due to higher average net debt of €248 million during the year, compared to €167 million during the prior year. Interest was covered 10.4 times by Group operating profit before amortisation of intangible assets (15.8 times in 2011).
Profit Before Net Exceptional Items, Amortisation of Intangible Assets and Tax
Profit before net exceptional items, amortisation of intangible assets and tax of €167.1 million decreased by 21.1% on a constant currency basis (by 22.2% on a reported basis).
Net Exceptional Charge and Amortisation of Intangible Assets
The Group incurred a net exceptional charge before tax of €22.8 million as follows:
|Taiwanese legal claim||14.0|
|Restructuring of pension arrangements||3.6|
|Reorganisation and other costs||(19.4)|
The cash effect of the net exceptional
charge was €2.8 million.
In January 2004 the London High Court awarded Stg£10.2 million in damages and interim costs of Stg£2.0 million (in both cases together with interest) to DCC's British based mobility and rehabilitation subsidiary for breach of an exclusive supply agreement by a Taiwanese supplier. Further amounts in respect of costs of Stg£2.9 million were subsequently determined by the London High Court to be payable. In order to enforce the London High Court judgements, it has been necessary to pursue the collection of all outstanding amounts through the Taiwanese courts. In March 2012, DCC received the initial Stg£12.2 million referred to above. The recovery of accumulated interest on this amount and the additional costs referred to above continue to be pursued through the Taiwanese courts. DCC has not accrued the amount of the outstanding claim.
Restructuring of certain of the Group's pension arrangements during the year gave rise to an exceptional gain of €3.6 million. The Group incurred an exceptional charge of €19.4 million primarily in relation to restructuring costs and the cost of integrating recently acquired businesses.
There was a non-cash charge of €14.4 million relating to the impairment of subsidiary goodwill and an associate company investment and the write-down of certain property assets. Included in this charge is an impairment charge in relation to the carrying value of a company within the DCC Food & Beverage division, Allied Foods, following the loss of a major distribution contract during the year. In addition, on 3 April 2012 the Group announced that it had agreed to dispose of Altimate Group SA, DCC SerCom's Enterprise distribution business, which is expected to give rise to a loss of approximately €8.0 million, primarily resulting from the non-recovery of a portion of the goodwill arising since the acquisition of Altimate in 2000.
IFRS 3 requires that professional fees and tax costs (such as stamp duty) relating to the evaluation and completion of acquisitions are expensed in the Income Statement and these costs amounted to €6.6 million.
The charge for the amortisation of intangible assets was €11.3 million (2011: €10.9 million)
Profit Before Tax
Profit before tax of €133.0 million decreased by 28.6% on a constant currency basis (by 29.8% on a reported basis).
The effective tax rate for the Group decreased to 18% compared to 21% in the previous year, the reduction being primarily due to a lower proportion of UK taxable profits and a reduction in the UK corporation tax rate.
Adjusted Earnings Per Share
Adjusted earnings per share of 163.51
cent decreased by 18.4% on a constant
currency basis (a decrease of 19.5% on
a reported basis). The decrease was
14.7% in the first half and 19.9% in the
seasonally more important second half.
The compound annual growth rate in DCC's adjusted earnings per share over the last 20, 15, 10 and 5 years is as follows:
|20 years (i.e. since 1992)||12.1%|
|15 years (i.e. since 1997)||10.3%|
|10 years (i.e. since 2002)||5.6%|
|5 years (i.e. since 2007)||2.6%|
The total dividend for the year of 77.89 cent per share represents an increase of 5.0% over the previous year. The dividend is covered 2.1 times (2.7 times in 2011) by adjusted earnings per share. Over the last 18 years (i.e. since DCC's flotation on the Irish and London stock exchanges), DCC's dividend has grown at a compound annual rate of 14.9%.
Return on Capital Employed
The creation of shareholder value through the delivery of consistent, long term returns well in excess of the cost of capital is one of DCC's core strengths. Notwithstanding the excellent working capital management, the Group's return on total capital employed reduced from 19.9% to 14.2% primarily reflecting the decline in operating profit in DCC Energy (as detailed in Table 4).
|Table 4: Return on Total Capital Employed||2012
|DCC Food & Beverage||13.7%||14.9%|
|* continuing activities|
Despite the challenging trading environment, the Group generated excellent operating and free cash flow during the year, as summarised in Table 5.
|Table 5: Summary of Cash Flows||2012
|Decrease/(increase) in working capital||46.6||(10.8)|
|Depreciation and other||45.7||50.8|
|Operating cash flow||277.3||269.6|
|Capital expenditure (net)||(65.6)||(77.2)|
|Interest and tax paid||(65.7)||(68.8)|
|Free cash flow||146.0||123.6|
|Net (outflow)/ inflow||(87.0)||10.3|
|Opening net debt||(45.2)||(53.5)|
|Closing net debt||(128.2)||(45.2)|
Operating cash flow in 2012 was €277.3
million compared to €269.6 million in
2011. Working capital days reduced
from 4.9 days at 31 March 2011 to 2.5
days at 31 March 2012 and this gave
rise to a net reduction in working
capital of €46.6 million, despite a
€2.0 billion increase in revenue, with
debtor days reducing to 34.6 days
from 36.8 days in the prior year.
This excellent operating cash flow performance generated increased free cash flow for the Group which, after interest and tax payments and net capital expenditure, amounted to €146.0 million compared to €123.6 million in the prior year. Net capital expenditure in the year of €65.6 million (2011: €77.2 million) compares to a depreciation charge of €55.4 million (2011: €52.9 million).
With a cash impact of acquisitions in the year of €168.1 million and dividend payments to shareholders of €63.2 million, overall there was a net outflow of €83.0 million in the year leaving net debt at 31 March 2012 at a modest €128.2 million.
Balance Sheet and Group Financing
DCC's financial position remains very
strong, well funded and highly liquid.
At 31 March 2012 the Group had net
debt of €128.2 million (2011: €45.2
million) and total equity of just over
€1.0 billion (2011: €931.9 million). DCC
has significant cash resources and
relatively long term debt maturities.
Substantially all of the Group's debt
has been raised in the US private
placement market with an average
credit margin of 1.23% over floating
Euribor/Libor and an average maturity
of 5.5 years from 31 March 2012.
The Group's strong funding and liquidity position at 31 March 2012 is summarised in Table 6.
|Table 6: Funding and Liquidity Position||2012
|Cash and short term bank deposits||670.8||700.3|
|Cash and cash equivalents||600.1||666.1|
|Bank debt repayable within 1 year||(0.5)||(0.5)|
|US Private Placement debt repayable*:|
|* inclusive of related swap derivatives|
Key financial ratios (at 31 March 2012), including those covenants included in the Group's various lending agreement are as follows:
|Net debt: EBITDA||0.5||0.2||n/a*|
|EBITDA: net interest||13.5||19.3||3.0|
|EBITA: net interest||10.4||15.8||3.0|
|Total equity (€'m)||1,014.0||931.9||300.0|
|*the Group does not have any net debt: EBITDA lending covenants|
The Group retains significant financial
capacity to support its future growth
The composition of net debt at 31 March 2012 and 2011 is analysed in Table 7. Further analysis of DCC's cash, debt and financial instrument balances at 31 March 2012 is set out in notes 28 to 31 in the financial statements.
|Table 7: Analysis of Net Debt||2012
|Derivative financial instruments||134.5||84.4|
|Derivative financial instruments||4.3||3.5|
|Cash and short term deposits||630.0||700.3|
|Derivative financial instruments||(17.5)||(30.1)|
|Unsecured Notes due 2013 to 2022||(848.0)||(761.5)|
|Derivative financial instruments||(1.0)||(0.5)|
|Unsecured Notes due 2011||-||(5.3)|
|Cash and short term deposits attributable to asset held for sale||40.8||-|
|Net debt including asset held for sale||(128.2)||(45.2)|
Financial Risk Management
Group financial risk management is governed by policies and guidelines which are reviewed and approved annually by the Board of Directors. These policies and guidelines primarily cover foreign exchange risk, commodity price risk, credit risk, liquidity risk and interest rate risk. The principal objective of these policies and guidelines is the minimisation of financial risk at reasonable cost. The Group does not trade in financial instruments nor does it enter into any leveraged derivative transactions. DCC's Group Treasury function centrally manages the Group's funding and liquidity requirements. Divisional and subsidiary management, in conjunction with Group Treasury, manage foreign exchange and commodity price exposures within approved policies and guidelines. Further detail in relation to the Group's financial risk management and its derivative financial instrument position is contained in Note 47 to the financial statements.
Foreign Exchange Risk Management
DCC's reporting currency and
that in which its share capital is
denominated is the euro. Exposures
to other currencies, principally
sterling and the US dollar, arise in
the course of ordinary trading.
A significant proportion of the Group's profits and net assets are denominated in sterling. The sterling:euro exchange rate strengthened by 5.6% from 0.8837 at 31 March 2011 to 0.8339 at 31 March 2012. The average rate at which the Group translates its UK operating profits weakened by 1.9% from 0.8522 in 2011 to 0.8684 in 2012.
Approximately 70% of the Group's operating profit for the year ended 31 March 2012 was denominated in sterling and this is offset to a limited degree by certain natural economic hedges that exist within the Group, for example, a proportion of the purchases by certain of its Irish businesses are sterling denominated. DCC does not hedge the remaining translation exposure on the profits of foreign currency subsidiaries on the basis and to the extent that they are not intended to be repatriated. The 1.9% weakening in the average translation rate of sterling, referred to above, negatively impacted the Group's reported operating profit by €2.5 million in the year ended 31 March 2012.
DCC has investments in sterling operations which are highly cash generative and cash generated from these operations is reinvested in sterling denominated development activities rather than being repatriated into euro. The Group seeks to manage the resultant foreign currency translation risk through borrowings denominated in or swapped (utilising currency swaps or cross currency interest rate swaps) into sterling, although this hedge is offset by the strong ongoing cash flow generated from the Group's sterling operations leaving DCC with a net investment in sterling assets. The 5.6% strengthening in the value of sterling against the euro during the year ended 31 March 2012, referred to above, gave rise to a translation gain of €46.7 million on the translation of DCC's sterling denominated net asset position at 31 March 2012 as set out in the Group Statement of Changes in Equity in the financial statements.
Where sales or purchases are invoiced in other than the local currency and there is not a natural hedge with other activities within the Group, DCC generally hedges between 50% and 90% of those transactions for the subsequent two months.
Commodity Price Risk Management
The Group is exposed to commodity cost price risk in its oil distribution and LPG businesses. Market dynamics are such that these commodity cost price movements are immediately reflected in oil commodity sales prices and, within a short period, in LPG commodity sales prices. Fixed price oil supply contracts are occasionally provided to certain customers for periods of less than one year. To manage this exposure, the Group enters into matching forward commodity contracts, not designated as hedges under IAS 39. While LPG price changes are being implemented, the Group hedges a proportion of its anticipated LPG commodity exposure, with such transactions qualifying as 'highly probable' forecast transactions for IAS 39 hedge accounting purposes. In addition, to cover certain customer segments for which it is commercially beneficial to avoid price increases, a proportion of LPG commodity price and related foreign exchange exposure is hedged. All commodity hedging counterparties are approved by the Board.
Credit Risk Management
DCC transacts with a variety of high credit rated financial institutions for the purpose of placing deposits and entering into derivative contracts. The Group actively monitors its credit exposure to each counterparty to ensure compliance with limits approved by the Board.
Interest Rate Risk and Debt/Liquidity Management
DCC maintains a strong balance sheet with long-term debt funding and cash balances with deposit maturities up to three months. In addition, the Group maintains both committed and uncommitted credit lines with its relationship banks. DCC borrows at both fixed and floating rates of interest. It has swapped its fixed rate borrowings to floating interest rates, using interest rate and cross currency interest rate swaps which qualify for fair value hedge accounting under IAS 39. The Group mitigates interest rate risk on its borrowings by matching, to the extent possible, the maturity of its cash balances with the interest rate reset periods on the swaps related to its borrowings.
DCC's senior management team are committed to interacting with the international financial community to ensure a full understanding of DCC's strategic plans and current trading performance. During the year, the executive management team hosted a Capital Markets Day in London, presented at 9 capital market conferences and met over 150 institutional investors at oneon- one and group meetings.
Share Price and Market Capitalisation
The Company's shares traded in the range €16.70 to €23.07 during the year. The share price at 30 March 2012 was €18.56 (31 March 2011: €22.47) giving a market capitalisation of €1.55 billion (2011: €1.87 billion). Based on the Company's share price at 31 March 2012, Total Shareholder Return since the Group's flotation in May 1994 was 855.4%.(back to top)