DCC SERCOM EMPLOYS 1,743 PEOPLE IN 10 COUNTRIES AND RECOGNISES THAT THEY ARE FUNDAMENTAL TO THE ONGOING SUCCESS OF THE BUSINESS.




CASE
STUDY

SERCOM DISTRIBUTION CONTINUES TO EXPAND ITS SERVICE OFFERING
SerCom Distribution recognises that to maintain the leadership position it holds in its principal markets demands constant evolution in the suite of services it offers to both its customers and suppliers. A number of new services were launched recently which will ensure that we continue to be viewed as a best in class participant in the industry. Following the acquisition of Ztorm AB, SerCom Distribution can now offer to customers a suite of tailor-made digital media distribution services which can include the full outsourcing of a web based offering or a solution which is fully integrated into the customer's existing retail web offering. This ensures that the business can offer all retailers (including etailers and catalogues) a full service offering for both physical and digital products. During the year SerCom Distribution also significantly expanded its capability within the mobile communications distribution area and the launch of a number of mobile vendors during last year was facilitated by the addition of a range of new services, including the ability to kit and flash individual mobile devices for customers, the recruitment of a number of specialist mobile technical and sales professionals and bringing the flexibility and ambition shown in our IT and home entertainment distribution activities to the mobile distribution marketplace.



DCC SERCOM IS ALSO FOCUSED ON ENABLING OUR ULTIMATE CUSTOMERS TO BEHAVE IN A MORE SUSTAINABLE MANNER BY REDUCING ENERGY USAGE AND INEFFICIENCY, THROUGH, FOR EXAMPLE, THE USE OF VIDEO CONFERENCING OR HOME WORKING OPPORTUNITIES.

OPERATING REVIEW -

DCC SERCOM


DCC SERCOM COMPRISES SERCOM DISTRIBUTION, WHICH IS A LEADING DISTRIBUTOR OF IT, COMMUNICATIONS AND HOME ENTERTAINMENT PRODUCTS IN BRITAIN, IRELAND AND FRANCE, AND SERCOM SOLUTIONS, WHICH PROVIDES OUTSOURCED PROCUREMENT AND SUPPLY CHAIN MANAGEMENT SERVICES IN IRELAND, POLAND, CHINA, MEXICO AND THE USA. ON 3 APRIL 2012, DCC ANNOUNCED THAT IT HAD REACHED AGREEMENT TO DISPOSE OF ITS ENTERPRISE IT DISTRIBUTION BUSINESS.

Markets and Market Position

SerCom Distribution
SerCom Distribution sells a broad range of IT and communications products into both the SME and retail markets, to a very wide customer base of IT and mobile resellers, dealers, retailers and e-tailers in Britain and Ireland. The products distributed include PCs, printers, smartphones, peripherals, consumables and networking products. The business is a distribution partner of many of the leading brands in the IT and communications market, such as Acer, Asus, Cisco, Dell, Huawei, IBM, Lenovo, Microsoft, Netgear, Nokia, Plantronics, Samsung, Sony, Toshiba and Western Digital.

SerCom Distribution also sells a range of home entertainment and consumer products including games consoles and software, DVDs, consumer electronics, AV accessories and peripherals which are sold into the retail channel, including large e-tailers, grocers, catalogue retailers, specialist retailers and small independent retailers. SerCom Distribution represents many of the leading brands in the computer games, home entertainment and consumer electronics markets such as Altec Lansing, Belkin, Devolo, D-Link, Electronic Arts, iHome, Logitech, Microsoft, Netgear, Nintendo, Paramount, Seagate, Take-Two, TomTom and Warner Brothers.

SerCom Distribution provides its partners with an exceptionally broad customer reach and proactively markets its vendors' products through product and customer focused sales teams.

SerCom Distribution provides a range of value-added services to the retail and reseller channels, to both its customers and suppliers, including end-user fulfillment, digital distribution, third party logistics, web site development and management, category management and merchandising, kitting, product customization, security tagging and cross vendor bundling.

During the year, the business extended its range of customer services in the home entertainment and gaming markets through the acquisition of Ztorm AB, a provider of digital media distribution services to retail customers throughout Europe, which is based in Sweden. In addition, the business in Britain has significantly expanded its market position in the mobile communications market in the past year and has developed its product offering to take advantage of the growing convergence of the IT and mobile communications markets and channels.

In the UK, SerCom Distribution is number 1 in home entertainment products, number 2 in IT products and number 4 in communications products. In Ireland, it is number 1 in home entertainment products and number 2 in IT products. In France, it is number 7 in IT products. SerCom Distribution is now the fifth largest distributor of IT and home entertainment products in Europe.

SerCom Distribution's revenue* for the year ended 31 March 2012 by product type is as follows:

SerCom Distribution's principal markets are the distribution of IT products and home entertainment products in the UK, France and Ireland. The value of the IT distribution market in those three territories is estimated to be €20 billion, and we estimate that this market grew by 3% in the twelve months to 31 December 2011. The home entertainment market in the UK and Ireland is valued at €7 billion of which we estimate €1.5 billion is supplied through the distribution channel and we further estimate that this market declined by 6% in the year to 31 December 2011, including a decline of 11% in the video games market.

On 3 April 2012, DCC announced that it had reached agreement to dispose of its enterprise distribution business, subject to European Commission competition approval. The enterprise distribution segment of the market in Europe has undergone significant consolidation in recent years, with the result that it would have been difficult to achieve a leading position in this market over the medium term. The decision to sell the business is consistent with DCC's strategy and will allow SerCom Distribution to focus on its IT, communications and home entertainment products businesses.


SerCom Solutions
SerCom Solutions, DCC SerCom's supply chain management business, provides a range of specialist procurement and sourcing services from its operations in Ireland, Poland, China, the United States and Mexico, employing state of the art IT systems and procurement processes. The business is a strategic supply chain partner for some of the world's leading technology and telecommunications companies.

SerCom Solutions delivers global supply chain solutions encompassing vendor hubbing, consignment stock programmes, supplier identification and qualification, quality assurance and compliance and supplier and customer fulfillment to effectively reduce its partners' cost of production and reduce obsolescence and wastage. SerCom Solutions has developed partnerships with leading logistics firms to enable the business to deliver its services in a flexible, cost effective manner in its core markets in Europe, North America and the Far East.

SerCom Solutions operates in the market for global outsourced supply chain management services, excluding the provision of logistics services.

Strategy and Development

DCC SerCom's strategy is to deliver consistent long-term profit growth and industry leading returns on capital employed by building strong commercial and market positions in each of its focused business units.

SerCom Distribution's principal medium term objectives are:

  • to establish its consumer facing distribution business as the leading specialist service provider to the European retail sector, with a particular focus on online, catalogue and supermarket channels, by extending its market and service coverage; and
  • to become the leading SME facing IT and communications distribution business in the UK and Ireland, and a growing player in Europe, through the continued expansion of its product and customer base, including expansion into complementary sectors such as audio visual, communications and mobile.

SerCom Solution's primary strategic objectives are to expand its customer base in East Asia, Europe and North America through strategic partnership arrangements and the extension of its procurement and sourcing services and capability.

Customers

SerCom Distribution has a very broad customer base, dealing with in excess of 15,000 customers each year. The largest customer accounted for approximately 10% of revenues in the year ended 31 March 2012 and the ten largest customers accounted for 30% of total revenues in that year.

SerCom Distribution seeks to provide the highest possible standard of customer service combining an unrivalled range of services with a commitment to identify the most cost effective and flexible solutions to our customers' requirements. We also seek to provide our suppliers with access to the broadest possible customer base for their products.

SerCom Solutions deals with approximately ten customers, including IT equipment manufacturers, outsourced equipment manufacturers, consumer electronics companies and telecommunications equipment manufacturers. Customer relationships tend to be long term in nature and several of our customers have been dealing with the company for over ten years.

Suppliers

SerCom Distribution has a diverse supplier base and deals with hundreds of vendors including the leading global suppliers of IT, communications and home entertainment products such as Acer, Altec Lansing, Asus, Belkin, Cisco, Dell, Devolo, D-Link, Electronic Arts, Huawei, IBM, iHome, Lenovo, Logitech, Microsoft, Netgear, Nintendo, Nokia, Paramount, Plantronics, Samsung, Seagate, Sony, Take-Two, TomTom, Toshiba, Warner Brothers and Western Digital. The largest supplier accounted for 11% of total purchases in the year to 31 March 2012 and the top ten suppliers represented 46% of total purchases.

SerCom Distribution adopts a proactive approach to the identification and recruitment of new suppliers and technologies and seeks to position itself as the obvious choice for growing vendors to access the retail and reseller channels in the markets it services. In addition, it seeks to ensure that it has a position of strategic relevance with its principal suppliers.

SerCom Solutions deals with a broad range of suppliers including manufacturers of electronic components, print suppliers, original design equipment manufacturers and IT distributors. A core element of the services provided by SerCom Solutions is the identification of appropriate supply chain partners for its customers and carrying out the quality assurance on those suppliers to ensure that they conform to necessary quality, regulatory and ethical standards.

Our People

DCC SerCom employs 1,743 people in 10 countries and recognises that they are fundamental to the ongoing success of the business. At all levels employees are encouraged to adopt a flexible service orientated approach to meeting the demands of suppliers and customers.

At senior management level, our operating businesses are run by some of the strongest management teams in the industry. DCC SerCom seeks to foster and maintain an entrepreneurial culture, coupled with a commitment to ensuring that the highest ethical standards in business conduct are maintained.

DCC SerCom fully supports the DCC Graduate Programme and operates a variety of employee training programmes within individual businesses to promote the ongoing development of staff.

Key Risks

DCC SerCom faces a number of strategic, operational, compliance and financial risks. The business supplies end users in the business and consumer markets in Western Europe and further economic downturn and disruption in these markets is a key risk for the business.

In addition, the business would be significantly impacted by the loss of a small number of key suppliers and customers.

Sustainability

DCC SerCom is committed to conducting its business in a sustainable manner and this commitment is reflected in how it interacts with customers, suppliers, employees and the communities in which it operates. In common with the rest of the DCC Group, the business has processes to assess and control health and safety risks, reduce carbon emissions and uphold the highest standards of business ethics.

DCC SerCom is also focused on enabling our ultimate customers to behave in a more sustainable manner by reducing energy usage and inefficiency, through, for example, the use of video conferencing or home working opportunities.

Performance for the Year Ended 31 March 2012

DCC SerCom increased operating profit by 17.0% on a constant currency basis, reflecting another excellent performance in SerCom Distribution, which accounted for 94% of operating profit in the division and achieved constant currency operating profit growth of 20.0%. Good organic growth in SerCom Distribution of 10.9% was complemented by the contribution from acquisitions completed in the prior year.

On 3 April 2012, DCC announced that it had reached agreement to dispose of Altimate Group SA, SerCom Distribution's Enterprise business, subject to competition clearance from the European Commission. The decision to dispose of Altimate (which accounted for approximately 10% of DCC SerCom's profits during the year) reflects the strategy to focus SerCom Distribution on the supply of IT, communications and home entertainment products to retail and reseller customers who in turn service consumers and small and medium sized businesses. This is a business where DCC has strong market positions in Britain, France and Ireland and the potential for expansion, both within these markets and further afield.

SerCom Distribution (excluding Altimate) achieved excellent constant currency profit growth in the year of 17.5%. This was driven by good organic growth of 8.4% and by the full year contributions from the acquisitions in the prior year of Comtrade in France and Advent Data in Britain.

The business in Britain, which accounted for 79%* of revenues, achieved very strong growth driven by significant new vendor additions in PC and mobile communications products complemented by excellent growth in consumables. In addition, the business achieved good growth in its networking, components and tablet product categories as it continued to grow its market share in these areas.

The market for home entertainment products in Britain was weak and the games market was particularly affected by the games console market being at a mature stage in its current product cycle, disruption in high street retail and the rise of mobile gaming. Recognising the changing nature of the games market, SerCom Distribution acquired Ztorm AB, a leading provider of digital media distribution services, in December 2011 to complement its existing service offering.

In France, which accounted for 15%* of revenues, excellent operating profit growth was achieved, reflecting very good organic growth and a full year contribution from Comtrade. The French business was successful in broadening its vendor portfolio in accessories and peripherals and also benefited from increased sales of higher margin products and good cost control.

In Ireland, which accounted for 6%* of revenues, SerCom Distribution achieved strong growth in both IT and home entertainment products and has continued to broaden its customer base.

Operating profit in SerCom Solutions, the supply chain management business, declined during the year reflecting a very weak first half, although the second half benefited from a new contract with an OEM customer.

Outlook

The breadth of DCC SerCom's supplier and customer relationships across a wide range of products and markets leaves it well placed to continue to develop its business in the year to 31 March 2013, notwithstanding an anticipated further decline in demand for certain home entertainment products.

DCC SERCOM: KEY FINANCIAL PERFORMANCE INDICATORS


Strategic objective

KPI

Performance
Drive for enhanced operational performance
Revenue growth (constant currency)
Drive for enhanced operational performance
Operating profit growth (constant currency)
Grow operating margin
Operating margin
Deliver superior shareholder returns
Return on capital employed ('ROCE')
Generate cash flows to fund organic and acquisition growth and dividends
Operating cash flow
Deliver superior shareholder returns
10 year operating profit CAGR
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