DCC plc

Ladies and gentlemen, thank you for standing by and welcome to the DCC Interim Results Call. At this time, all participants are in list and only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and 1 on your telephone. You can register your interest to ask a question at any point during the presentation. I'd like to remind you that questions can only be asked on the conference call and not through the webcast. If you are dialing to the audio through the conference call rather than the webcast, you can select the phone option under the car wheel, a icon located on the bottom right corner of this window. This will illuminate a slide display for those listening via telephone. I must advise that the conference is recorded today and would now like to hand the conference to your speaker, Donald Murphy, CEO of DCC, to start today's conference call. Please go ahead, sir.

Thank you. Well, good morning and welcome to DCC's results presentation for the year-end of 31 March 2021. I'm Donald Murphy, Chief Executive of DCC, and I'm joined here by Kevin Lucey, Chief Financial Officer. It's great to be with you all this morning. Just our disclaimer, so thankfully I don't have to read it. and we'll move on and look at the agenda for today. I'm going to cover off the highlights of the year and what a year it has been. Kevin will take you through the business and financial review. I'll give you an update on what has been another strong year of development activity for the group. I'll update you on the excellent progress we've been making in leading an energy transition. Kevin will give you an update on our capital framework and our financial strategy. And after a summary and our outlook statement, we'll open up the session for questions and answers. So despite the very challenging and uncertain environment created by the COVID-19 pandemic, DCC delivered a very strong trading performance during the year. DCC's devolved business model empowers our teams to react quickly to changing market dynamics, such as the impact of the COVID-19 pandemic. Our business model was really tested over the last year, but the results speak for themselves. Group adjusted operating profit increased by 7.3% to 530 million pounds. We maintained our consistent track record of organic growth with circa half our constant currency growth organic. Pleasingly, all four divisions achieved operating profit growth over the prior year. Driven by a very strong working capital performance, we continued our trend of generating very strong free cash flow with an excellent 130% conversion of operating profit to cash. Our return on capital employed, DCC's key operating metric, increased to 17.1%. The Board proposed to increase the total dividend for the year by 10%. This will be DCC's 27th consecutive year of dividend growth. Despite travel restrictions, DCC remained very active on the development front, with $375 million committed to new acquisitions, with acquisitions in each of our divisions and across nine different countries. and with 55 million of new acquisitions announced today. The notable larger acquisitions were Werner, which creates a platform for DCC healthcare in continental Europe, and the material expansion of our US LPG business through the acquisitions of UPG and NES, but more about that later. Finally, DCC is absolutely committed to driving excellence in sustainability across the group and to leading our customers through the energy transition. During the year, we set net zero target for 2050 or sooner for the group, with an interim target of a 20% reduction in our emissions by 2025, and we are well on track to achieve this target. We retained our MSCI AAA ESG rating, and we've made really good progress in leading our customers through the energy transition journey, and I'll take you through some of our developments in this area a little bit later in the presentation. The strength of the performance demonstrates the resilience in DCC's business model, the benefit of our diverse sectors of energy, healthcare and technology, and most importantly, the essential nature of the products and services that DCC provides to its customers. The COVID-19 pandemic really highlighted the essential nature of the products and services that DCC provides to its customers every day, whether it is the energy to heat their homes, to harvest their crops, or to produce their products, DCC supplies the essential energy. The fuel to transport goods and services to businesses and especially direct to homes as shops closed and more and more goods were purchased online. The personal protective equipment and other COVID-related medical products to allow our medical practitioners to care for their sick patients and fight the virus. The nutritional products that help strengthen people's immune systems or the technology that forms such a central part of our lives today enabling millions of people to work from home and create a seamless interface between business and consumers. Throughout the year, DCC provided millions of consumers with the essential products and services to support their everyday lives and to keep our economies moving. DCC's purpose is to enable people and businesses to grow and progress, and during the year, our people, our greatest asset, demonstrated our purpose in actions. The strong performance in the year was a result of the phenomenal capability, agility and commitment of our 13,700 colleagues who work across the 20 countries that DCC operates in. I'd like to say a big thank you to all of my colleagues for delivering such a wonderful performance in the most challenging environment we have ever experienced in our lifetimes. They lived our core values of safety, integrity, partnership and excellence every day. They always put the customer first to ensure our customers receive the essential products and services that they required. They worked tirelessly to keep each other safe throughout the pandemic. Despite the challenging environment, we made great strides in delivering for all our stakeholders, as outlined here. I'll now hand you over to Kevin, who will take you through the business and financial highlights.

Kevin. Thanks, Donal, and good morning, everyone. So as Donal has mentioned, we delivered strong growth in financial year 2021, and there are many highlights in the year. We'll talk through a selection of them for the next few minutes and also get into the performance in the year by divisions. To start with, adjusted operating profit was up 7.3% to 530.2 million, with growth in profits across each division of DCC, a very strong result for the year, particularly given that we were behind the prior year at the end of Q1. Adjusted earnings per share was up 6.6% to 386.6 pence per share. The board is proposing a 10% increase in the dividend for the year as a whole, reflecting the strong underlying performance and our progressive approach. It's our 27th year of unbroken dividend growth. The free cash flow performance was excellent, with 687.8 million generated, driven by a really strong working capital performance, and I'll talk about that in more detail shortly. Importantly, our return on capital employed, DCC's key metric, increased to 17.1%, reflecting the strong profit growth and that free cash flow performance. In terms of balance sheets, we end the year with a very strong balance sheet position. Net debt was $150 million, or net cash of $165 million if you exclude the lease creditors of IFRS 16. That net cash position is before a sizable acquisition spend outflow just after the year end. We completed the acquisition of Werner and a number of other acquisitions in April. Donal will talk about those later on. Approximately 130 million of spend on acquisitions post the balance sheet date. So that spend therefore gets us back to a modest net cash position of approximately 40 million pro forma for the acquisition spend. In terms of the operating profit performance, overall we're up 7.3% or 6.6% on a constant currency basis. So a very modest translation benefit in the year. As usual, currencies did move around during the year, so the average sterling euro rate for the year for the income statement was 1.12 and the sterling dollar rate was 1.30. Within that, sterling was weaker earlier in the year and then strengthened appreciably by the end of the year and into FY22. All divisions recorded growth in operating profit, as Donald said. LPG up 1.3%, retail and oil up 3.3%, Healthcare, really strong performance, up 35% on a reported basis, but obviously the prior year had a contribution in there from the generic pharma business, which we disposed of in the prior year. So on a continuing basis, the growth in healthcare was 45.9%, and technology, also very strong growth, up 11%. So the overall shape of the group, on the back of the very strong growth you see in healthcare and technology combined, they increased to 29% of the group's profits, up from 25% in the prior year. The other notable point on the slide here really is that the geographic shape of the group continues to evolve. Again, we'll talk about it later in the presentation, but roughly the UK and Ireland now accounts for approximately 40% of the group, continental Europe for 40%, and the rest of the world for 20%, the majority of which is in North America. So just to dig into the divisional performance in a little more detail, our LPG division traded resiliently throughout the year. The lockdowns did impact many of our commercial and industrial customers, as you'll know. You'll remember that LPG was behind at the half year by 7%, so a good recovery as the year progressed. During the first half in particular, we had a good cylinder and domestic performance, and that manifested in strong performances in France and the US in particular. We have a strong weighting to cylinder and domestic in France and domestic business in the US. For the year as a whole, volumes were back modestly, organically. The restrictions curtailed activity in the industrial and commercial sectors particularly. We obviously saw weakness in the hospitality, leisure and construction industries. Things did improve as the year progressed, either as restrictions eased somewhat or as some of our customers adapted to the new working environment. So very pleased to get growth overall for the year. In retail and oil, we recorded good profit growth, up 3.3%. with a good organic performance underlying that. The really notable thing about the performance, I guess, is that it was set against a lot of volume weakness, particularly in the first half when volumes were back 18% and back 12.3% for the year as a whole. We saw strong demand in the domestic and agri sectors in the first half and weaker commercial and transport fuel volumes. The continued success we've had in the penetration of cleaner, premium products lower emission fuels and the continued growth in services and non-fuel profits was helpful in compensating for the lower activity levels. On the retail side of the business, it recovered throughout the year, following a very weak Q1 when the pervasive lockdowns meant retail volumes fell substantially. The most notable performer geographically was in Scandinavia, where we recorded a very strong performance. Overall, the operating margin increased from 1.2 pence per litre to 1.4 pence per litre, which reflects the substantial slowdown in volumes and the different mix on the back of that, but also the good procurement and cost control performance, particularly in the first half. We're very pleased with the performance in DCC Healthcare, obviously, with excellent profit growth and continuing activities of 45.9%, two-thirds of which was organic. We have benefited in Healthcare from the strength of our established market positions, but also the sharpening of the strategic focus in DCC Vital in recent years, and particularly from the decision to enter the US market in health and beauty and build out from our strong base in Europe. In DCC Health and Beauty Solutions, we again had a strong performance in Europe in both beauty, where our focus on more complex products continues to bear fruit, and also in nutrition, where we've been investing in our capability and capacity in recent years. We had an excellent performance in the US, a market we only entered in 2018, and where we now have a sizeable business. We're getting traction on the broader offering we have for customers in that market. For DCC Patal, this was a very different year for the healthcare systems in Britain and Ireland, obviously. Our business responded very effectively to markedly different demand patterns. Clearly, there was less in-person GP consultations and less elective surgery procedures. But on the other hand, there was increased demand for respiratory, ICU, or PPE products. We delivered good growth in revenue and profits in the year. Again, in technology, we are very happy with our performance. Very strong profit growth of 11%, approximately three quarters of which was organic. At the half year point, although seasonally less significant, we were just about lying ball with the prior year. So again, a very good performance in the second half. Throughout the year, we saw really strong demand for consumer and working from home products. It won't be a surprise that the B2B market was more challenging. Pro AV, for example, there was little to no spend in large events arenas or conference centers or large offices during the year with a lot of projects postponed. Regionally, we had very strong performances in North America and in continental Europe, driven by the consumer-focused areas in those regions. Finally, for this slide of the presentation, we'll just zoom out, or this part of the presentation, we'll just zoom out again to the overall group performance. So on the left-hand side of this slide and on the waterfall, you see we have prior year profits of 494 million. In terms of the growth this year, you can see that currency contributed 0.7%, organic contributed just over 3%, and then acquisitions were the balance. We're pleased with the organic performance for the year, particularly given that we were behind organically after Q1. In terms of how that profit converted into cash flow, you'll see that we had 134 million of depreciation and 155 million of net capex and leasing. The working capital performance clearly was very, very strong. There are a couple of things to call out in terms of the working capital inflow of just under 180 million. Firstly, we have a modest amount of supply chain financing solely within the tech division. Given the sales mix in DCC technology and weighting to large retail customers throughout the year, our utilization of supply chain financing where this is used was mechanically higher, benefiting working capital. Secondly, our year-end position benefited from a very strong cash collection performance We believe a large portion of which was driven by the fall of year end, just prior to the Easter weekend holiday. And a lot of customers paid us a little earlier than might be usual, around 75 million. We'd expect this to reverse over the first half. And finally, and most importantly really, we always are focused on driving underlying improvement in our working capital, if we can. We did focus a lot during the year on a number of stock efficiency measures and technology in healthcare. a number of material supply positions in the energy businesses where we managed to get underlying improvements all told about 80 million of improvements the combination of all of these drove the very strong working capital performance so terrific free cash flow performance some temporary benefits in there that we would expect to reverse but even allowing for that and allowing for the committed acquisition spend that went out just after year end on a pro forma basis for both acquisition spend and timing benefits and working capital you're still looking at our balance sheets with just a very, very modest net debt position.