DCC plc

Good morning everybody and welcome to DCC's results presentation for the year ended 31 March 2022. I'm Donal Murphy, Chief Executive of DCC and I'm joined here today by Kevin Lucey, our Chief Financial Officer. Thankfully I don't have to read the disclaimer, it's there for your benefit. 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 then give you an overview of our energy event, which is scheduled for later today. And I hope all of you can join us later today for what I think will be a very insightful event into our energy business. After a summary and our outlook, we'll open up the session for questions as usual. I'm delighted to report an early year of very strong growth and development for DCC, despite the very challenging macro environment. Group adjusted operating profit increased by 11.1% to £589.2 million, 15.1% on a constant currency basis, so clearly constant currency being the underlying performance of the business. Adjusted earnings per share increased by 11.2%, 15.2% on a constant currency basis. We had profit growth across all of our four divisions. I was particularly pleased with the excellent organic profit growth during the year of 6.1%. I've been in the group now for over 24 years and I've never experienced a more volatile or challenging macro environment. We've seen dramatic volatility in energy prices, significant challenges in supply chains, rampant inflation, labour availability issues, and COVID has not gone away and it's not gone impact on our operations. And despite all these challenges, the group performed very strongly, demonstrating the resilience in DCC's business model, the benefits 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 board proposed to increase the total dividend for the year by 10%. This will be DCC's 28th consecutive year of dividend growth. We've continued momentum and acquisition activity. During the period, we committed approximately 600 million pounds to acquisitions across North America and Europe. We had acquisitions across all four divisions, but the highlight of the year was DCC's largest acquisition to date, Almo Corporation. Almo is one of the largest specialist pro AV businesses in the United States and is a leading national distributor of consumer appliances, consumer electronics, and lifestyle products. More about Almo a little bit later. We continue to build our capabilities in energy transition with the acquisition of Natterjee, expanding our renewable offerings in the Irish market. And again, we'll be talking lots more about the energy sector later on in the day. BCC's purpose is to enable people and businesses to grow and progress. And during the year, our people, our greatest asset, yet again demonstrated our purpose and action. The strong performance in the year was a result of the phenomenal capability, agility and commitment of our 15,400 colleagues who work across the 21 countries that DCC operates in, I'd like to say a big thank you to all my colleagues for delivering such a wonderful performance in a most challenging macro environment. They lived our core values of safety, integrity, partnership, and excellence every day. They always put the customer first to ensure our customers received the essential products and services that they required. They navigated the challenging supply chain issues to ensure our suppliers were able to get their products to market and innovated to bring further low carbon solutions to our customers. And you'll hear lots more on this topic in our energy event later today. Despite the challenging environment, we made great strides in delivering for all our stakeholders as outlined here on this slide. DCC is a purpose led organization and we are focused on value creation for all our stakeholders. We achieved this by building impactful connections. As a distributor, we're at the heart of the supply chain, connecting the producers of products with consumers. We're a trusted provider, building long-term and deeply embedded partnerships with our customers and our suppliers. We focus on creating sustainable growth and superior value over the long term. We achieve this through a consistent strategic objective to build a growing, sustainable and cash generative business, which consistently provides returns and capital employed significantly ahead of our cost of capital. We take a long-term sustainable view of value creation, which ensures our commercial strategies prioritize growth and create value-adding strategic positions in our chosen markets. You will see later how Almo, our largest acquisition to date, fits with this objective. Our focus on capital allocation ensures our ability to reinvest into growth trends, and our capital allocation priorities are aligned with the growth trajectories of our sectors. And finally, sustainability is core to everything we do across the group. And we are making really great progress on our sustainability agenda, including our journey to net zero. You'll hear lots more about this later in the day. I'll hand you over now to Kevin, who'll take you through the business and financial highlights.

Thanks, Donal, and good morning, everyone. My first slide here looks at some very high-level financial metrics for the year end of 31 March 2022. I'll focus more on the items that Donal didn't mention earlier, but it goes without saying we're very pleased with the continued successful execution of our strategy during the year. And that resulted in 11.1% reported operating profit growth, 15.1% on a constant currency basis. EPS was up marginally ahead of operating profits at 11.2% and 15.2% on a constant currency basis. I have a slide on free cash flow later, so we'll touch on that then. In terms of returns, really another strong performance with return on capital employed of 16.5%, down modestly on prior year with pretty much all of the reduction explained by the impact of acquisitions during the year. Organically, returns were in line with the prior year. We spent 720 million on acquisitions during the year, which included the commitments we've made this year of the 600 million and the carryover of acquisitions such as Werner, which were reported in last year's results, but are in this year's cash flow. Net debt excluding IFRS 16, notwithstanding the significant acquisition spend of a billion in the last two years, is at approximately 0.5 times net debt EBITDA, so a very strong position to enable the continued growth of the group. Before we get into a bit more detail by division, we just look at the performance in overall terms. I mean, the first thing to say here is that there's obviously very good constant currency growth across all divisions. You'll have noted our separate announcement this morning in terms of our energy businesses and DCC Energy delivered £407 million of operating profit. We'll get into more detail on that, as Donal mentioned, later on in this afternoon. In terms of the shape of the group, you'll see that the two energy divisions accounted for 69% of profits, and pro forma, should I say, for Alamo, that's approximately 64%. The other notable point on this slide really is the geographical split, where you'll see that continued growth of the group into North America means that the UK now represents 26% of profits, 42% in continental Europe, and now 24% in the rest of the world, which is principally North America and also our more modest positions in the Middle East and Asia. So looking at each of the divisions in a little more detail, and as always, we have more details on each division in both our results announcements and the appendix to this presentation. And just to say as well, all growth numbers that we quote here are in constant currency terms. So in LPG, we had profit growth of 6.7%. We're very pleased with that performance considering both the volatility, and in particular, the significantly increased cost of product our teams had to deal with during the year. The average cost of product in the year was almost double out of the prior year. So our teams have had to be very vigilant in terms of pricing over the course of the year. And by and large, we manage this very well. Clearly, we had a strong bounce back in volumes and commercial customers, which tend to be lower margin and also driven by acquisitions. So the operating profit per tonne came in at approximately £90 per tonne, very much in line with the expectations we would have had through the year. Our retail and oil business again performed very well during the year and delivered 20.1% profit growth. Again, here we had a very strong recovery in volumes and we continue to make progress in building our range of services, which assist in terms of the profit mix. In DCC Healthcare, it was another very strong year on the back of a particularly strong prior year also. We had excellent organic growth in DCC Vital and we also benefited from the inclusion of Werner, which has performed well since acquisition. On the health and beauty side, the performance was very solid. We had more impact here from COVID in terms of supply chain disruption and labour availability in particular. But overall, the team again delivered a good result against a difficult backdrop. Donald will talk later about some of the new capability we're adding here also, which sets us up well to deliver growth into this market. In DCC technology, clearly the acquisition of Alamo was the most notable event during the year, but we had very strong growth in North America with the B2B side of the business performing particularly well as businesses reopened and consumer demand remained robust. UK was weaker with proportionately probably the most supply chain disruption in terms of supply, labor availability and freight challenges that we saw across the division. We were also not helped by the warehouse system upgrade earlier in the year, which we reduced volumes for a period, and that impacted into the busier time of the year in October and November. But that implementation is now complete, and so we'd be expecting to build from here in terms of the opportunity in the UK. In Europe, the business also delivered very good growth, with, again, good growth from the B2B side of the business in particular. I know this is quite a simple slide in terms of waterfall, but it just highlights the various components of growth during the year. As you can see, FX translation cost us 4%, or more than £20 million in profit terms. We then added 9% growth through acquisitions, and then, as Dona referenced earlier, an excellent 6.1% organic growth performance. The organic growth was particularly pleasing in the context of the pretty uncertain environment, and it was also significantly above our five-year average of about 3.2% since 2017. But I guess to grow from about 510 million in constant currency terms to almost 590 million in the year, constant currency was pretty material. So I'm sure most of you will know this already, but the excellent growth we had in the year was on the back of strong growth also last year. And DCC group profits are now about 20% higher than they were before COVID as we have grown organically and deployed capital into acquisition opportunities. And finally, for me, in terms of free cashflow conversion, we continue to deploy CapEx and excessive depreciation to support the organic development of the group. And Donal will again cover off on some of the initiatives there later. And in terms of working capital, on this call last year, we highlighted that we had benefited from some timing benefits last year end, As anticipated, we saw this reverse shortly post year end last year. And so excluding this, the free cash flow conversion moves from 65% to 79%. In terms of the other movements, we had some investment in working capital to support growth and a reduction in the utilization of supply chain financing within the technology division. So taken with the prior year, when you put the two years together, the free cash flow conversion across both years was an excellent 96%. So very, very strong cash flow across both years. So with that, Donal, I'll hand back to you now. And thanks, everyone, for listening.

Thanks, Kevin. While organic growth is our number one growth objective, acquisitions are a key pillar of DCC's growth strategy. And FY22 was an early strong year for development for the group. Despite the ongoing travel restrictions, DCC remained very active on the development front, with £600 million committed to new acquisitions during the period, with acquisitions across each of our divisions and across nine different countries. We believe that our capital deployment priorities will deliver substantial growth and are aligned to the growth trends in our chosen sectors. You'll hear more about this later in the day, and it's building on the conversation we had on the back of the ALMO acquisition last December. DCC has grown organically by an average of 3.2% as Kevin called out over the last four years and pleasingly 6% in the year just gone. We deployed CapEx to support the innovative business development plans we have across all of our businesses. We allocate capital to M&A where we see the opportunity to bring good businesses into the group and improve them further or improve our group capability by bringing them in. We focus on delivering sustainable returns and capital employed well in excess of our cost of capital. We've deployed about a billion pounds on M&A over the last two years, and again, deliver that while navigating the pandemic. We have built significant new synergistic platforms in recent years and are very well positioned for continued capital deployment. Our capital deployment priorities are aligned with the growth trajectories of our sectors, which we operate within. Just to pick a few highlights from our organic capital investments during the year. The nutritional side of our health and beauty business is one of the highest organic growth sectors that DCC operates in. And one of the fastest growing product formats in the nutritional sector is gummies. During the year, we added manufacturing capability in nutritional gummies in Britain, which is now in live production. And we have commenced the capital investment project in our facility in Florida to add gummies to our broad capability set in the US market. We will talk in much more detail about the capability we're building in energy transition at our energy event later today. But just to highlight a few areas now, we rolled out our E85 biofuels across 60 sites in our French network. E85 reduces customers' carbon emissions by 60%. We continue to roll out EV fast chargers across our retail network in Europe. We've launched an innovative energy management solution in our French business to support our customers reduce their carbon emissions. Finally, we've been deploying capital across the group to reduce our own carbon emissions, and we're making great progress in our own scope one and scope two reduction plans. During the year, we installed solar on our technology NDC in Britain, installed LED lighting across our manufacturing facilities and successfully trialled HVO in our UK energy fleet. We had continued momentum and acquisition activity. During the period, we committed approximately 600 million pounds to acquisitions across Europe and North America. We had acquisitions across all four divisions in nine different countries, but the highlight of the year was DCC's largest acquisition to date, Almo Corporation, which I'll come back and talk about in a minute. In the energy sector, we acquired 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, biogas and PPA management. The business strengthens DCC's presence in the Irish energy market as an important step in our strategy to expand our energy solutions offering. DCC acquired a synergistic convenience-led network of retail service stations in Luxembourg. The network has an excellent convenience offering under the leading Cactus Shopee brand, which DCC operates. The network contains well-located urban sites suitable for investment in EV fast charging infrastructure into the future and builds that convenience capability into our retail operations. During the year, DCC Healthcare acquired two bolt-ons in the primary care market in Germany, following fast on our initial entry into the market through the acquisition of Werner in April 2021. The primary care market is highly fragmented in the DAC region, and although modest, the acquisition demonstrates that DCC is now well positioned to consolidate this market. Now, ALMO. The acquisition of ALMO is a great example of DCC's M&A capability in action. Since our initial entry into the US technology market in 2018, we have been building a strong relationship with the Chaikin family, which resulted in a bilateral transaction. Alamo is one of the largest specialist pro AV businesses in the United States and is a leading national distributor of consumer appliances, consumer electronics and lifestyle products selling to integrators, resellers, dealers, retailers and retailers nationwide. The business is headquartered in Philadelphia and employs approximately 660 people across the United States. In its most recent financial year, the business recorded revenues of approximately $1.3 billion and an underlying EBITDA of approximately $75 million. Almo is a high-quality scale business. It's a major step in the continuing expansion of DCC technology in North America. Since entering the market in 2018, DCC technology has expanded significantly through strong organic growth and acquisition activity. Together with DCC Technologies' existing platform, the acquisition of Almo will create the leading specialist pro AV business in North America. It also provides the group with real scale across the e-commerce and consumer channels through Almo's significant presence in the growing lifestyle, consumer appliance and electronics markets. The business is trading in line with our expectations and the integration of the pro AV activities has progressed very well. So just before our summary, I'd like to introduce our investor event later today, Leading with Energy. During the event, we'll outline the growth opportunities for DCC in the energy sector as we lead our customers in their energy transition to net zero. We'll outline a new strategy and structure for our energy business. We will provide detailed insights into the energy transition paths for our customer segments. You will hear from our teams, our customers, and our partners, highlighting new and innovative solutions. And we will outline what the financial characteristics of the transition looks like and demonstrate to you how we will grow our profitability through the transition to net zero. We will also cover our group strategy, outlining our growth ambition for the group, our capital allocation priorities, and a view of what DCC will look like in 2030 and beyond, and our new commitments in respect of carbon emissions. The virtual event will take place at 1pm BST, and if you haven't already registered, you can do so on www.dcc.ie. I hope you can all join us later today for what I believe will be a very insightful event. So in summary, we've had a really excellent performance despite the very challenging macro environment. We've delivered very strong profit growth with growth across all four divisions. The strength of the performance demonstrates the resilience and agility in DCC's business model. Our acquisition momentum continues. We've clear capital allocation priorities and delivering against these during the year with acquisitions across all four divisions. Sustainability and energy transition is at the heart of everything we do, and we're making really good progress. And finally, our outlook statement. DCC expects that the year ended 31 March 2023 will be another year of profit growth and development, notwithstanding the challenging macro environment of presence. We'll leave you now with our favorite slide to highlight DCC's strategy continuing to deliver. This strategy, over our 28 years as a public company, has delivered a consistent track record of growth with operating profit growing 14.1% CAGR, EPS growth 11.8% CAGR, an unbroken growth in dividends increasing 13.7% CAGR, free cash flow conversion of 100%, Consistently high returns in capital, significantly ahead of costs of capital. Thank you for listening and we look forward to taking your questions now.