DCC plc

Good morning and welcome to DCC's interim results presentation for the six months ended 30 September 2021. I'm Donal Murphy, Chief Executive of DCC and I'm joined here today by Kevin Lucey, Chief Financial Officer. Just firstly, let me apologise sincerely for the delay in the start to the conference call today. We were having some technical difficulties with our provider. I hope it hasn't put you out too much, but we'll endeavour to to give you lots of positive news today as we go through the update on the first half. Thankfully I don't have to read the disclaimer, it's there for your information. I'll cover off the highlights of the first half of the year, another period of strong growth and development for the Group. Kevin will take you through the business and financial highlights. I'll give you an update on the development activity for the Group. I'll update you on the excellent progress we are making in leading energy transition. bringing innovative energy solutions to our energy customers. After a summary and our outlook statement, we'll open up for questions. DCC delivered a strong performance in the seasonally less significant first half of our financial year, the 30th of September 2021. The strong performance builds on the growth recorded during the first half of the prior year. Operating profit increased by 11.2% to 195.8 million pounds, with more than half our growth organic, continuing our long track record of good organic growth. Each of our four divisions delivered good growth, underlying the resilience of our business model and our ability to adapt quickly to the global volatility in commodity prices, supply chains and inflation. Despite the very challenging environment, DCC delivered a strong trading performance during the period. DCC continues to grow and develop organically, and through acquisition activity. Since our results announcement in May 2021, DCC has committed approximately £80 million to bolt-on acquisitions, with activity across each division. In the energy sector, we have further scaled our renewable energy solutions in the Irish market through the recent acquisition of Natterjee Ireland, an energy solutions business for commercial and industrial customers. In healthcare, we completed our first primary care bolt-on, following fast on the acquisition of Werner in April 2021. With the strength of our market position and active acquisition pipeline, DCC has the capability and the financial strength to continue the growth and development of the group across the energy, healthcare and technology sectors. Sustainability is core to everything we do across the group. DCC has a critical role to play in leading our customers through their complex decarbonisation challenges. We continue to make great progress in energy transition, and during the period we introduced many innovative energy solutions for our commercial and industrial, residential and mobility customers. We released our first standalone sustainability report in July this year. The report outlines the key metrics we will use to track progress against our sustainability objectives. and we are making good progress in reducing our own carbon emissions. I'll give you more details on all of these initiatives a little later in the presentation. DTC's purpose is to enable people and businesses to grow and progress, and during the period we continue to make good progress in enabling all our stakeholders to grow and progress. Just to pick out a few highlights, we continue to drive greater digital engagement with our customers and suppliers, 94% of all sales orders across the Group are now digital. We'll talk later about the innovative solutions we are developing for our energy customers to help them on their complex decarbonisation journey. Building on our 27-year unbroken track record in growing our dividend, we raised our interim dividend by 7.5%. We are absolutely committed to reducing our own carbon footprint and we are progressing many initiatives across the group, including investing in innovative biofuels for our own fleet. DCC's greatest asset is our people. The strong performance of the group throughout the pandemic demonstrates the phenomenal capability, agility and commitment of the 14,200 people who work across the 21 countries that DCC operates in. We continue to invest in our people and strive every day to make DCC a great place to work. I'd like to say a big thank you to all of my colleagues for delivering another strong performance in a very challenging environment. I'll hand you over now to Kevin, who will take you through the business and financial highlights. Kevin.

Thanks, Donal, and good morning, everybody. So we'll begin with a look at some of the financial highlights of the first half. As most of you will know, revenue isn't always the most important metric for DCC, given the unit margin nature of our energy businesses. Revenue was up 26.8% in the first half, with growth in revenues in every division, but the majority of the growth was driven by two factors really, the recovery in volumes in the energy businesses, and also the increased cost of energy products. As Donal has mentioned, operating profit increased by 11.2%, on a constant currency basis this growth was 15.5%, and over half of that was organic. A very strong performance, particularly given that we grew our profits by 8% in the first half of the prior year. Of course, the first half is the less material of the two halves in the context of the financial year of DCC. Adjusted EPS was up 13.8%, so a little higher than the operating profit growth. Reflecting the strong performance, the board has decided to pay an interim dividend of 55.85 pence per share, an increase of 7.5% on the prior year. In terms of working capital, we remain pleased with the working capital performance of the group. Overall, working capital days improved very modestly to negative 0.5 days from zero days in the prior year. In absolute terms, working capital was negative 25 million versus 1 million positive a year ago. In terms of the working capital mix, we saw a very strong performance from the retail and oil business, which benefited from the recovery in volumes. Given the positive working capital nature of the other three businesses, we saw investment in working capital in each of the other three divisions, mostly in healthcare and technology, where we increased inventory given the supply chain disruption to ensure we try to provide the best service we can to our customers. In terms of cash flow, as expected working capital was obviously higher than the year end position six months ago. We mentioned in our last results presentation in May that last year end benefited from some timing benefits in the order of about 80 million. We expected this to unwind in the first half and then in addition we had our usual seasonal investment in working capital and lower utilization of supply chain financing. But year on year, working capital continued to improve, so we're very happy with that. The balance sheet at the end of September remains very strong. We finished the half year with net debt, including lease creditors of 390 million. Net debt excluding leases was 54 million, down on the 137 million in the prior year. In terms of the high-level divisional results, for the first year in quite a while, foreign exchange translation has been a material feature in the reported performance. you will see that translation accounted for approximately 4% of a headwind in the first half overall, as sterling strengthened against most of our relevant currencies, but particularly against the dollar and also the euro. That represented a headwind of about 7.5 million in absolute terms in the first half. We would expect, if exchange rates remain broadly where they are today, and given the weight of profits in the second half, that translation will be a headwind for the group this year of about 20 million. All divisions recorded good growth in the first half, with healthcare again the strongest at 26%, or almost 30% on a constant currency basis. But all the divisions growing well. Technology saw the biggest percentage impact from currency, reflecting that the division has seen most of its growth in North America. In terms of mix of profits, the energy businesses accounted for 60% of profits, healthcare and technology accounting for 40%. So now we'll stick on and look at the divisional trading performance in a little more detail. I know it's written on the slide, but just to mention that all of the profit growth percentages on this slide are constant currency. So operating profit in LPG was up 9.6% and more than half of that was organic. Obviously the demand side of the equation was very good, volumes up 26% and recovering across most markets. Volumes were up year on year in all markets, but some sectors still haven't quite recovered to where they were pre-pandemic. Areas like hospitality and leisure, for example. So in the early part of the summer, In many markets, leisure and hospitality was still subject to restrictions. As expected, the operating profit per tonne has reduced year-on-year to £53 per tonne. This was very much in line with expectations, driven by the recovery in the commercial volumes I mentioned and the acquisition impact of the UPG acquisition in the US. Across the division, we've been dealing with an increased cost of commodity for almost a year now. The underlying cost of LPG was more than double what it was a year ago. and volatility has been very high over the last three to four months in particular. That being said, we've managed through it pretty well. As many of you will know, we forward procure a proportion of our products to ensure we have time to pass any necessary price increases through, and also a good proportion of our commercial and industrial LPG customers are on formula pricing where increases are automatically applied. Our teams have had to be very active on the pricing side, ensuring that the rapid increases in the commodity costs were passed into the market as efficiently as possible. Although smaller, the greatest volatility in the cost of product was apparent in our natural gas and power business areas. In terms of market performances, we again saw good performance in France, where the multi-energy offering continued to perform well, with a good performance on the solar side of the business and continued strong performance in cylinders and bio-cylinders. In Britain, again we saw good performance, where we benefited from the recovery in commercial activity relative to the prior year. Operating profit in retail and oil was up 9.5% and almost all of that was organic. Again, we saw a strong recovery in demand with commercial and transport activity well ahead of the prior year. Volumes were up 16.5% driven by that lower margin commercial activity. In Britain, the volume recovery drove strong growth. The business continues to benefit from its increasing range of customer offerings. We saw good growth across the variety of services we offer HGV fleets. The retail company owned estate also performed well. as did lubricants and heating services. We also saw very strong growth in Denmark, right across the business, in commercial, in agri, and in retail. And in retail in France, we also saw good growth, where we benefited from the recovery in mobility and transport activity. Operating profit in healthcare was up 30%. Two-thirds of that growth was organic. It goes without saying clearly that we're very happy with the performance in healthcare in the first half, particularly when you consider that profits were up 40% in the first half of the prior year, so the comparatives were not easy. DCC Health and Beauty Solutions and DCC Vital performed well and grew their profits. In DCC Health and Beauty, we saw a very strong performance in Europe and the US also performed well, particularly given that we saw excellent growth in the US in the comparative period. The growth in Europe was across both the nutrition space and in beauty products. We continue to invest heavily in the business during the first half. We have been improving the capacity and capability of the business and also have put a new divisional management team in place in the US to drive the growth opportunity that we believe exists in that market. As you will have heard from Conor at the recent DCC Healthcare investor event, the US is a very large market growing significantly and we believe we can scale our operations there both organically and through acquisition in the coming years. DCC Patal delivered excellent growth in the first half with very strong organic growth and also benefiting from the contribution of Werner which we acquired last April. Activities in the healthcare systems have not yet normalised clearly, and we continue to support the systems of the UK and Ireland, and now also Germany and Switzerland, with sales of COVID-related products. As hopefully the pandemic-related products won't be required as much in the future, DCC Vital will be well placed to benefit from the increased demand for more routine procedures ramping up in due course. Operating profit in technology was up 19%, and approximately one third of that growth was organic. Again, as in LPG, The first half in technology is seasonally less significant. The growth was obviously quite strong with the performance in North America in particular being excellent. We've seen varying levels of supply chain disruption right around the business. Clearly some of it stems right back to the start of the supply chain in terms of chip shortages and then the knock-on impact that that has on product availability. But we've also seen increased volatility in freight and other supply chain impacts that have made things difficult for the business. But our teams have coped very well with these challenges. we've seen the most impact really in the UK market, where some of the freight and import-export frictions appear to be most acute, and also labour availability challenges were the most severe. We were also constrained by the planned launch of some of our new automation and warehouse management systems in the UK, which meant our throughput was lower than normal. In Ireland, we again saw good growth, but the standout performance in the first half really was the excellent performance delivered by the North American businesses, where we saw the earliest recovery in B2B demands. with AV and Pro Audio in particular performing well throughout the first half. We've been operating in North America for three years now and the business has really performed well. We also benefited in the first half from two modest bolt-on acquisitions we acquired in the US last year. So North America is clearly a very large market and we're very pleased again with the progress we've made to date and we'd like to think there will be further opportunities to expand there into the future. We also saw a strong performance with good growth across the Nordics and generally across the B2B sector across the continent. And just to say further detail on each of the divisional performances is included as an appendix to this presentation. So in summary, we're very pleased with the trading performance in the first half. The business again showed its resilience in the face of a pretty volatile environment, as it did last year through the worst of the pandemic. Directionally, the business has performed very well over the last two years. Our profits in the first half were over 20% ahead of where they were in the first half of FY20. So now, I'll hand you back to Donald, who will take you through the remainder of the presentation.

Thanks, Gavin. Just moving on to development. While organic growth is our number one growth objective, acquisitions are also a key pillar of DCC's growth strategy. And since the results announcement in May 2021, DCC has committed approximately $80 million to new Botan acquisitions with acquisitions across each of our divisions. Last week, DCC agreed to acquire Natterjee Ireland, an energy solutions business for commercial and industrial customers. The business is a service-led supplier of electricity and gas to large B2B energy customers and also provides a range of value-added services including demand-side management, lighting as a service, solar PV and PPA management. The business has a long track record of sourcing and supplying renewable power and was the first company in Ireland to supply 100% renewable electricity. The business strengthened DCC's presence in the Irish electricity and gas markets as an important step in our strategy to expand our energy solutions offering. DCC continued to expand its presence in the US LPG market, completing a small boat on acquisition in Denver, Colorado. DCT has built a business of real scale in the US LPG market. We now have a presence in 22 states, employ circa 800 people, and serve the energy needs of over 250,000 customers. While we are now the sixth largest player in the US market, we still have a modest market share and lots of opportunity for further growth and development. DCT LPG also completes a number of modest acquisitions in the German and Austrian markets. BCC Retail & Oil acquired a network of 19 high-quality retail sites in Luxembourg. Most of the sites are Gulf branded with an excellent convenience offering under the leading Cactus Shopee brand, which BCC will now operate. The network contains well-located urban sites suitable for investment in EV fast charging infrastructure into the future. BCC Retail & Oil continues to expand its mobility services in Britain, including growing network of high-quality truck stops. In June, DCC Healthcare completed the first primary care Bolton acquisition in Germany, following fast on its initial entry into the market through the acquisition of Werner in April 2021. The primary care market is highly fragmented in the DAC region. Although modest, the acquisition demonstrates that DCC is now well positioned to consolidate the market. DCC Technology expanded its offering in the Nordics with the acquisition of a small business distributing AV and security camera equipment. DCC continues to deploy capital to drive organic growth of the business, and during the period invested in expanding its capability in the health and beauty solutions business, including a gummy line in Britain. DCC is also investing capital to drive energy transition, but more about that shortly. With the strength of our market positions and an active acquisition pipeline, DCC has the capability and the financial strength to continue the growth and development of the Group across the energy, healthcare and technology sectors. Moving on now to look at how DCC is leading energy transition. Aligned with our purpose, DCC has a critical role to play in leading our customers through their complex decarbonisation challenges. We continue to make great progress in energy transition and during the period we introduced many innovative energy solutions for our commercial and industrial, residential and mobility customers. We have grown and evolved our energy business into a very broadly based provider of energy products and services to millions of consumers across 12 countries. BCC is focused on energy transition from the point of view of the customer. As a multi-energy distributor, Our role is to understand our customers' transition journey and support the transition to cleaner energy products and services. We leverage our long-term customer relationships and our understanding of discrete energy markets to target our cleaner energy offerings. The evolution of the energy mix plays to DCC's strength as an agile, experienced, multi-energy business with leadership positions in the markets we operate in. backed by our scale and industry partnerships. We deliver real, practicable decarbonisation solutions and help educate our customers on their transition pathways. Energy transition is complex and will require many excellent organisations working in partnership, something DCC has excelled at over many years. We are extending existing partnerships and creating new ones to make multi-energy products and solutions available to our customers. Our ambition is to bring energy transition closer for our customers, making it less complex, more affordable and delivering positive climate impact. Let's look at the energy transition through the lens of our customers. Commercial and industrial customers represent circa 37% of the gross profit of our energy business. DCC is growing has a growing focus on decarbonisation in the commercial and industrial sector, with many of our customers setting or beginning the journey towards net zero commitments. We are a trusted partner for our commercial and industrial customers. They are looking to us to help reduce the complexity of energy transition and to deliver energy solutions across processes, heating and fees. Our knowledge of this journey is further supported by our own learnings from our own decarbonisation journey. Our current focus is helping commercial and industrial customers decarbonise through biofuse, LPG, renewable electricity, energy management and solar PV. Domestic customers represent circa 41% of the gross profit of our energy businesses. Our domestic customers typically live off the natural gas grid This sector is hard to debate with considerable inertia. BCC will lead the transition of off-grid homes, making decarbonisation simple and affordable. Our current focus is helping domestic customers decarbonise through biofuels, electrification and energy efficiency solutions. Finally, mobility customers represent circa 22% of the gross profit of our energy business. We are providing lower carbon fuels and energies across our retail and HGV networks. We are evolving our networks, investing in urban and motorway EV charging, multi-fuel HGV sites and a broad range of value-added services for our domestic and commercial mobility customers. So let's look at a few examples of the developments over the last six months. Biofuels have a key role to play in energy transition. We launched a new domestic solution to trial a 100% biofuel offering for residential heating customers in Britain this winter. Biofuels are an excellent solution for customers, especially for less well-insulated or older homes. The fuel can be supplied into domestic boilers with minimal modifications and with minimal investment required to our distribution infrastructure. The trial is part of a wider industry initiative to demonstrate the benefits of lower carbon biofuels. Our customers can reduce their carbon emissions by 85%. In France, we have a 100% biopropane offering, which provides our domestic customers with a lower carbon solution, leveraging their existing infrastructure and providing the simplicity of predictable recurring bills for their energy usage. We offer the biopropane through a partnership with Total Energies. The solution delivers equivalent returns to other LPG contracts for DCC. Our customers can reduce their carbon emissions by 60%. In the decarbonization of commercial and industrial customers, solar PV has a key role to play, and DCC is investing in building its capability in the solar PV market. In France, following two recent acquisitions, DCC now installs and maintains solar arrays on the roof around the ground of commercial and agricultural customers. Here's an example of one of our installations at a Super U supermarket in northwest France. Our solar offering is generating strong returns on capital employed in line with our existing LPG business. our customers can reduce the carbon emissions of their electricity usage by 100%. We have launched an energy management service for French commercial and industrial electricity customers to provide a full energy efficiency, green electricity and energy management solution for owners of multi-unit buildings such as office blocks and apartment blocks. We are expanding the solution to include e-mobility services in partnership with a fast-growing startup. Our customers can reduce their carbon emissions by 100%, leveraging our renewable electricity. Here we're providing LNG to our customer, Adapt Biogas, to power the UK's first biogas-to-grid plant. They've chosen to use LNG from DCC, as it is one of the lowest carbon off-grid fuels and the most cost-effective solution for them. And finally, we have recently announced a new partnership with ONG Solutions in France to roll out EV fast charging across our French motorway network. This is an exciting partnership for DCC and builds on the investments we have been making to expand our retail mobility offering in France, adding EV charging, biofuels, high-quality convenience retail, click-and-collect services and car washes. Hopefully these case studies demonstrate the significant progress that DCC is making in leading energy transition. We are also leading by example, driving our own environmental sustainability. Here's a few examples. We are investing in the infrastructure to supply HVO for our own fleet in the UK. Our Eurocap facility in Wales, pictured here, is now one of the most environmentally friendly soft-gel producers in the world. Over 50% of our electricity requirements are generated by our own solar PV and wind turbines. We are absolutely committed to digitising our processes. I mentioned that 94% of our sales orders across the group are now digital, and 74% of all invoices across the entire group are now transmitted digitally. saving printing, saving postage. We are now making excellent progress in reducing our own Scope 1 and Scope 2 emissions and are well on track to meeting our initial target of a 20% reduction by 2025. So in summary, we've had a strong performance in the first half of the year, despite the very challenging environment. All divisions achieved good growth in operating profit. Our acquisition momentum continues. Sustainability and energy transition is at the heart of everything we do and we are making really good progress. We continue to drive both organic and acquisitive growth, leveraging our active acquisition pipeline and our very strong financial position. And finally, our outlook statement. Notwithstanding the adverse impact of currency translation, and the significant increased wholesale cost of energy products, DCC continues to expect that the year ending 31 March 2022 will be another year of strong operating profit growth and continuous development activity, and in line with current market consensus. We leave you with our favourite slide to highlight DCC's strategy continues to deliver. This strategy over our 27 years as a public company has delivered a consistent track record of growth, with operating profit growing 14.2% CAGR, about a third of which is organic, EPS growth 11.9% CAGR, and unbroken growth in dividends increasing 13.9% CAGR, free cash flow conversion of 104%, consistently high returns on capital employed, significantly ahead of our cost of capital. Thank you for listening. We'll now take our questions from the analysts. I believe our questions will come through.