DCC plc

Good morning and welcome to DCC's interim results presentation for the six months ended 30th of September 2023. I'm Donal Murphy, Chief Executive of DCC and I'm delighted to be joined by Kevin Lucey, our Chief Financial Officer. Here's our standard disclaimer. Thankfully, I don't have to read it. It's there for your notice. On our agenda for today, I'll cover off the highlights of the first half of the year, which was another period of strong growth and development activity for the group. Kevin will take you through the performance review. I'll give you an update on our strategy and our development activity, and we'll finish with our outlook statement and a summary before we open up the session for questions. So let's get started with the highlights for H1 FY24. It was an excellent start to the year with strong growth in operating profit for the Group and an excellent period of acquisition activity. On our financial performance, we delivered strong growth in the seasonally less significant first half of our financial year to 30 September 2023. We were really pleased with the performance given the ongoing challenges in the macroeconomic environment. Group adjusted operating profit increased by 12% to £247.6 million, driven by an excellent performance in DCC Energy and partially offset, as anticipated, by a decline in both DCC Healthcare and DCC Technology. We were particularly pleased with our organic growth of 4.4% during the period. The Board proposes to increase the interim dividend by 5% to 63.04 pence per share. The strong performance of the group during the period yet again demonstrates the resilience in DCC's business model, the benefit of our diverse sectors of energy, healthcare and technology, and our strong market positions, and most importantly, that we invest in what the world needs every day. From a development perspective, we made really good progress in delivering on our strategy. Since our results in May 2023, DCC has committed approximately £310 million to new acquisitions in DCC Energy, including, as announced separately this morning, the synergistic acquisition of ProGas for £140 million, a nationwide distributor of LPG in Germany, Europe's largest energy market. The acquisition is subject to competition clearance. and the acquisition of five energy management services businesses, further expanding our offering in this high growth sector. These acquisitions demonstrate the progress we are making on the execution of our cleaner energy in your power strategy and more about this later. We enable people and businesses to grow and progress and we are future focused. We are embedding our strategic and sustainability agendas across the group. At our Energy Insights event on the 6th of September, we publicly set our ambition to reduce our Scope 3 emissions by 50% by 2030 and to net zero across Scope 1, 2 and 3 by 2050 or sooner. And we are well on track to achieving these goals. We announced today that for the first time in our history, DCC has been issued with a public credit rating by S&P Global Ratings and Fitch, We have been rated BBB, a solid investment grade rating. Finally, our preparations are well in hand for CSRD.

I'll hand you over to Kevin now, who will take you through the performance review. Kevin.

Thanks, Donal, and good morning, everybody. So I'll run through the first half performance at a group and a divisional level. So as Donal mentioned, the first half in DCC is seasonally less significant from an activity and profitability perspective. typically accounting for about 35% of our profits on an annual basis. Notwithstanding that, it's good to be reporting strong growth in first half operating profits and in line with our expectations overall. So revenue was 9.6 billion in the first half. And as you will know, revenue is not always the most relevant metric for DCC given the operating model in our energy division. I'll talk through the divisional metrics in a few moments, but at a group level, the revenue dealt to the prior year was substantially driven by the lower cost of energy commodities during the first half. You'll remember that the comparative periods saw really elevated prices due to the energy security concerns at the time. So, as Donal mentioned, group adjusted operating profit was 247.6 million, 12% ahead of the prior year. and a modest constant currency headwind, so 12.2% ahead on a constant currency basis. We'll come back and talk about the divisional contributions to that, but with a strong organic performance in energy, operating profit was organically up 4.4%. Adjusted EPS growth was 1.9%, with the delta to operating profit growth being driven by a modestly higher effective tax rate of 20.3%. This reflects our expectation for the full year and is a little higher than prior year as the group grows internationally. And obviously, we've also seen a number of jurisdictions increase corporation tax rates over the last 12 months. And as expected, our increased interest costs accounted for the majority of the Delta. Clearly, the interest rate environment has changed materially versus the first half of the prior year. And we saw that come through very much in H2 last year. And so H1 this year has also seen it. Interest costs were modestly higher than H2 of the prior year. The board has increased the interim dividend by 5%, which again will hopefully be welcomed by shareholders this morning. In terms of balance sheet and cash flow, working capital was in line with expectations in the prior year at 440 million. So we saw our typical seasonal outflow in working capital. On a like-for-like basis, the utilization of supply chain financing in DCC technology was lower than the prior year by about 35 million. So we're pleased with the performance from a working capital perspective generally. And on a rolling 12-month basis, the free cash flow conversion of the group remains very strong at 86%. Net debt excluding leases was approximately a billion. The increase in prior year is really all due to acquisition activity. Most of the prior year acquisition activity from a cash flow perspective was in the second half of the year. We spent 300 million in H2 of the prior year with 150 million in H1 this year. So 450 million in acquisition spend since this point last year. A couple of other quick points in the balance sheet. So I suppose we set out a number of years ago to improve the efficiency of the balance sheet and to also add to our funding options over time. During H1, we repaid 235 million in private placement notes from cash resources. We're holding about 50% less cash relative to our EBITDA than we did three years ago. Just under 60% of our debt is now at fixed rates. This has increased from about 30% four years ago. We've had great support from the private debt market since 1996, and we continue to enjoy their support today. Strong investment-grade credit ratings from S&P and Fitch that Donal mentioned earlier provides us with further optionality in terms of group financing into the future. We would expect the acquisition of ProGas to close before the end of the financial year following the competition process, but we expect that to be late in the financial year, so we're not expecting much, if any, of a profit contribution until FY25s. And we'd expect to finish the year on the basis of the announced acquisition activity to date with about one times net debt EBITDA, so pretty similar to prior year. I won't dwell on this slide for too long as we'll get into the detail of each division in a moment. But as you can see on the right-hand side, DCC Energy accounted for 69% of operating profit in H1, with DCC Technology and DCC Healthcare together accounting for 31%. Looking to the table on the left, you will see that at group level, we had a very modest constant currency headwind of just 0.2%, with reported growth of 12%. And given where currencies are at today, relative to the prior year, we continue to see an FX headwind of just over 1% to group operating profit for the year as a whole. So pretty much the same as we did in May when we were guiding. In terms of reported profits, DCC Technology declined by 15% to 38.7 million, DCC Healthcare declined by 11%, 11.3% to 38.3 million, and DCC Energy was up 28.9% to 170.6 million. So now we look at what drove the performance across each of the divisions on the next couple of slides. Operating profit growth in DCC Energy increased by 28.9% to 170.6 million, an excellent performance. Looking at the right-hand side of the slide, you will see that the energy solutions business represented 61% of profits in the first half, with mobility contributing 39%. And on a relative basis, solutions would contribute more to relative profits as usual in the second half. In terms of headlines, organic profit growth was just over 20%, with M&A contributing almost 8%. The trajectory we've seen in recent years of an increasing proportion of our profits coming from services, renewable and other products continued in H1, up 7% on the prior year to 46%. This metric is quite impacted by seasonality as most of our traditional heating business occurs in H2. But nonetheless, the direction of travel is instructive. We would expect the full year metric, which was 28% last year, to continue to move northwards. Overall volumes were flat year-on-year. Profit growth was strong across the energy solutions business, 33.3% ahead of prior year. The strongest performing regions were continental Europe and the Nordics. We had good organic growth across our SRO product offerings and of course most of our acquisition activity over the last 12 months also falls into that product category. Donor will pick up on that later in the presentation. The natural gas and power market was a drag on performance in the prior year. and we saw good recovery in that area during the first half. Cost inflation continued to be a feature during H1, but the teams around the division did a very good job on ensuring that costs were minimised and recovered where necessary. The mobility business also performed well in H1, with profits up 22.5%, all organic, We saw solid performances across all markets really, with the stronger regions being in the Nordics and the UK. Our French business performed well in a challenging operating environment with some disruption from strikes early in the year and also difficult market conditions more recently. Our digital and fleet service business areas also performed well and delivered good growth. So albeit smaller seasonal numbers in H1, a very strong performance overall from DCC Energy. In DCC Healthcare, We had operating profits of 38.3 million, 11.3% below the prior year. DCC Vital delivered strong growth in H1. At a divisional level, the organic decline in profits was driven, as expected, by the fall in profitability in DCC Health and Beauty Solutions. The strong growth in DCC Vital included the benefit of the first-time contribution of Mediglobe and good growth in medical devices and in Ireland. The integration of Mediglobe has gone well and the business has also performed well. In primary care, performance was mixed with a good performance in the DAC region, but we experienced weaker demand in the UK, where there was some impact from funding constraints in the NHS. As expected, the health and beauty market was difficult. The last 12 months have been characterised by a significant element of destocking, both in our brand owner customers, in retail, and at a consumer level. And as the producers of the product, this has been painful for the contract manufacturing sector generally, The trends globally have been consistent, and we have experienced similar market conditions in the UK and the US. It's fair to say that it was a little more difficult than we were expecting during H1, with lower customer demand. However, we have seen green shoots in more recent weeks. Our order intake has begun to pick up, order books are building, and the market statistics at a consumer level are improving now. We have not seen any material customer attrition during the period, and we are seeing increased interest from and engagement with our customers on new products. Given the difficult market conditions, we were obviously very focused on our cost base. We did consolidate manufacturing of two sites into one location in the US, reflecting that focus. We've also been investing in our infrastructure across the last couple of years, and this continued in H1. So while we were reducing costs where we could, costs were up due to inflation and the relatively higher fixed cost environment in the health and beauty segments. And most materially, the investments we are making in new capabilities, such as in our new state-of-the-art gummy line in Florida. So just to summarize, strong performance in DCC Vital with the decline in health and beauty. In terms of the divisional operating margin, all of the decline was driven by the organic decline in health and beauty and the increased costs we saw there. But the investments we are making reflect our continued confidence in this long-term growth sector, and we believe it remains a very strong growth opportunity for the group. And finally, for this section of the presentation, DCC technology. Operating profit declined by 15%, or 13.4% organic constant currency, to 38.7 million. Revenues were back almost 10% organically, reflecting weaker demand for consumer technology, Again, our pro-tech activities, where we have increased our presence in recent years, performed well, with a particularly strong performance in pro-audio products in North America. The weakest demand we experienced was really for consumer tech products, and that's relevant in our info-tech and life-tech channels in continental Europe and the US. Despite the weaker demand experienced, our large UK business, which is in the info-tech segment, performed well and delivered good growth. We've been very focused on this over the last 12 months, and it's pleasing to see some good operational improvements coming through now. Across DCC technology, given the backdrop, we remain very focused on costs. Costs were flat across the first half, which reflected some good cost reductions and then inflationary impacts. So finally, and to reiterate, strong growth in profits overall in the seasonally less significant first half. There's clearly lots of macroeconomic uncertainty around, but DCC remains very well positioned to continue its growth and development. I'll hand back to Donal now.