Results for the six months ended 30 September 2018

13 November 2018

DCC Reports Strong First Half of Performance and Development

DCC, the leading international sales, marketing and support services group, today announced its results for the six months ended 30 September 2018.

·     Strong first half performance with Group adjusted operating profit on continuing activities increasing by 15.9% (up 16.5% on a constant currency basis) to £141.9 million, with all divisions performing in line with expectations.

·     Adjusted earnings per share on continuing activities up 12.1% (13.0% ahead on a constant currency basis) to 107.1 pence.

·     Interim dividend increased by 10.0% to 44.98 pence per share.

·     The Group continues to be active from a development perspective and committed approximately £270 million to new acquisitions since the preliminary results in May 2018.

·     Continued expansion of the Group's presence in North America with DCC Technology entering the market for the first time through the acquisitions of Stampede and Jam. These complementary acquisitions provide DCC Technology with a strong platform for further development in the growing and fragmented North American market.

·     On 27 September 2018, DCC raised approximately £600 million from an equity placing which completed on 2 October 2018. The proceeds of the placing will enable the continued implementation of DCC's targeted acquisition strategy, by enhancing the balance sheet and liquidity of the Group, ensuring DCC remains a credible and capable acquirer and can efficiently execute acquisition opportunities as they arise.

·     The Group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development.

1    Continuing operations exclude DCC Environmental which was disposed of in May 2017

2    Excluding net exceptionals and amortisation of intangible assets 

Commenting on the results, Donal Murphy, Chief Executive, said:

"I am pleased to report that the first half of the year has been another active and successful period for DCC. The business has performed strongly, with Group operating profit well ahead of the prior year and trading across each division in line with expectations.

DCC continues to be active from a development perspective. The recently completed acquisitions of Stampede and Jam further demonstrate DCC's increased opportunity set for development resulting from the Group's increased geographic presence. The successful completion of the equity placing leaves DCC very well positioned to continue its development and enhances the balance sheet strength and liquidity of the Group, ensuring DCC remains a credible and capable acquirer.

The Group's significant development in recent years has resulted in DCC having the platforms, opportunities and capability to build the Group into a global leader in its chosen sectors.

The Group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development."

Presentation of results and dial-in / webcast facility

There will be a presentation of these results to analysts and fund managers at 9.00 am today in the London Stock Exchange.  The slides for this presentation can be downloaded from DCC's website, www.dcc.ie.

There will also be audio conference access to, and a live webcast of, the presentation.  The access details for the presentation are:

Ireland:                                +353 (0)1 246 5638

UK / International:             +44 (0)330 336 9127

Passcode:                            2678240

Webcast Link:               https://edge.media-server.com/m6/p/wxvcbshw  

This report, the webcast of the presentation and further information on DCC is available at www.dcc.ie.

For reference, please contact:

 

Group Results

A summary of the Group's results for the six months ended 30 September 2018 is as follows:

Revenue - continuing operations

Overall, Group revenue increased by 24.7% (25.1% ahead on a constant currency basis) to £7.4 billion. Prior year revenue has been restated to reflect the adoption of IFRS 15 Revenue from Contracts with Customers, as set out in note 3 to the financial statements.

Volumes in DCC LPG increased by 14.9% to 741,566 tonnes, driven by DCC LPG's prior year acquisitions of Shell Hong Kong & Macau, Retail West and TEGA. On a like-for-like basis, volumes were modestly behind the prior year, reflecting the warmer than average temperatures across Europe.

DCC Retail & Oil volumes increased by 2.4% to 6.2 billion litres, benefiting from acquisitions completed in the prior year. Organic volumes were modestly behind the prior year, primarily reflecting the warmer weather in Europe.

Revenue excluding DCC LPG and DCC Retail & Oil increased by 15.4% (up 15.9% on a constant currency basis) to £1.9 billion.  

Group adjusted operating profit - continuing operations

Group adjusted operating profit from continuing operations increased by 15.9% to £141.9 million (16.5% ahead on a constant currency basis), in the seasonally less significant first half of the year. The impact of currency translation versus the prior period was negligible with sterling marginally strengthening against the euro and marginally weakening against other relevant currencies. 

Operating profit in DCC LPG was in line with expectations and, as anticipated, behind the prior year in the seasonally less significant first half of the year, principally due to the material increase in the cost of product and the investment in its natural gas and power offering in France. Following a significant period of development in the second half of the prior year, each of DCC LPG's recent acquisitions, Shell Hong Kong & Macau, Retail West and TEGA, traded in line with expectations. 

DCC Retail & Oil delivered very strong operating profit growth of 33.5% (34.5% ahead on a constant currency basis), in line with expectations, driven by the contribution from acquisitions completed in the prior year and strong organic profit growth from the businesses in Britain, France and Denmark.

DCC Healthcare traded in line with expectations and achieved strong growth in operating profit of 22.2% (22.5% ahead on a constant currency basis). DCC Vital achieved strong organic profit growth, particularly in GP supplies and medical devices. DCC Health & Beauty Solutions generated excellent organic growth and also benefited from the first-time contribution from Elite One Source, which was acquired in February 2018.

Operating profit in DCC Technology was strongly ahead of the prior year and in line with expectations. The business benefited from the first-time contribution from the acquisitions of Stampede and Kondor and also from good organic growth in the UK and Ireland, DCC Technology's largest business.

Finance costs (net)

Net finance and other costs increased to £22.1 million (2017: £15.6 million). The increase was driven by the drawdown of a £450 million private placement debt issuance in September 2017 and also reflects the higher average net debt during the year of £914 million, compared to £313 million during the prior year.  The average net debt increased due to the record level of acquisition spend over the past twelve months of over £900 million.

Profit before net exceptional items, amortisation of intangible assets and tax

Profit before net exceptional items, amortisation of intangible assets and tax increased by 12.0% (12.8% ahead on a constant currency basis) to £119.8 million. 

Net exceptional items before tax and non-controlling interests and amortisation of intangible assets

The Group recorded a net exceptional charge before tax and non-controlling interests of £6.3 million in the first six months of the year as follows:

Acquisition and related costs include the professional fees and tax costs (such as stamp duty) relating to the evaluation and completion of acquisition opportunities and amounted to £5.1 million.

Restructuring and integration costs of £5.1 million principally relate to the ongoing dual running costs relating to the optimisation of DCC Technology's logistics and related infrastructure, as well as integration costs arising from recent acquisition activity. The upgraded warehousing and logistics in France, Scandinavia and the UK are all now operational. The related UK SAP implementation is now live in an element of the UK business, with the remaining components of the business scheduled to go-live during the next financial year.

Most of the Group's debt has been raised in the US private placement market and swapped, using long term interest and cross currency interest rate derivatives, to both fixed and floating rate sterling and euro. The level of ineffectiveness calculated under IAS 39 on the fair value and cash flow hedge relationships relating to fixed rate debt is charged or credited as an exceptional item. In the six months ended 30 September 2018, this amounted to an exceptional non-cash gain of £3.9 million. Following this credit, the cumulative net exceptional charge taken in respect of the Group's outstanding US private placement debt and related hedging instruments is £1.7 million. This, and any subsequent similar non-cash charges or gains, will net to zero over the remaining term of this debt and the related hedging instruments.   

The charge for the amortisation of acquisition related intangible assets increased to £27.6 million from £20.5 million in the prior year, with the increase reflecting acquisitions completed in the prior year.

Profit before tax

Profit before tax increased by 17.2% to £85.9 million.

Taxation

The effective tax rate for the Group in the first half of the year of 17.0% is based on the anticipated mix of profits for the full year and compares to a full year effective tax rate in the prior year of 17.0%.

Adjusted earnings per share

Adjusted earnings per share on a continuing basis increased by 12.1% (13.0% ahead on a constant currency basis) to 107.1 pence.

Total adjusted earnings per share increased by 11.1% to 107.1 pence.

Dividend

The Board has decided to pay an interim dividend of 44.98 pence per share, which represents a 10% increase on the prior year interim dividend of 40.89 pence per share. This dividend will be paid on 12 December 2018 to shareholders on the register at the close of business on 23 November 2018.

Cash flow

As with its operating profit, the Group's operating cash flow is significantly weighted towards the second half of the year. The cash flow of the Group for the six months ended 30 September 2018 can be summarised as follows:

Operating cash flow in the six months ended 30 September 2018 of £173.2 million compares to £84.0 million in the prior year. Working capital increased by £25.7 million over the six-month period from 31 March 2018, reflecting seasonal requirements. The value of working capital at 30 September 2018 was a positive £60 million versus a negative £70 million at 30 September 2017, as each of the recently completed acquisitions of TEGA, Stampede, Kondor and Jam have a positive working capital profile. Overall working capital days at 30 September 2018 increased to positive 1.3 days sales from negative 1.7 days sales in the prior year, reflecting the aforementioned acquisitions. Working capital days were broadly in line with the prior year on a like for like basis. DCC Technology selectively uses supply chain financing solutions to sell, on a non-recourse basis, a portion of its receivables relating to certain larger supply chain/sales and marketing activities. The level of supply chain financing at 30 September 2018 was broadly in line with the prior year at £211.1 million and supply chain financing had a positive impact on Group working capital days of 4.4 days (31 March 2018: 4 days).

Net capital expenditure for the six months amounted to £82.1 million (2017: £69.1 million), as anticipated. The increase in capital expenditure over the prior year is due to the increased scale of the Group and a number of investments being undertaken to support its continued growth and development. In the current year, these investments include ongoing investment in new retail sites and site upgrades in the Retail & Oil division, investment to support the ongoing conversion of oil customers to LPG being achieved in the LPG division, and DCC Health & Beauty Solutions investment in its manufacturing footprint in Britain, including investment in the soft gel facility in South Wales and at the Elite facility in the US. The net capital expenditure exceeded the depreciation charge in the six months by £27.7 million.

Committed acquisitions and capital expenditure

Committed acquisition and capital expenditure in the period amounted to £354.0 million as follows:

Acquisition activity

Committed acquisition expenditure amounted to £271.9 million and included:

DCC Technology

In July 2018, DCC Technology announced the acquisitions of Stampede and Kondor.

Stampede

Stampede Global Holdings Inc. ('Stampede'), is a specialist distributor of professional audio-visual ('Pro AV') products and solutions in North America. 

Headquartered in Buffalo, New York, Stampede, one of the leading specialist Pro AV distributors in the US, supplies Pro AV products including large format display, projectors, lamps, drones and accessories to system integrators, value-added resellers, retailers and etailers in the US, Canada and the UK. Stampede also provides Pro AV solutions to the hospitality, government, corporate and education sectors. Stampede partners with, and supplies products from, leading Pro AV brands such as Christie, Epson, LG, NEC, Samsung and Sharp. Stampede recorded revenue of US$280 million in the year ended 31 December 2017 and employs approximately 210 people.

The acquisition of Stampede represented DCC Technology's first acquisition in North America and is consistent with DCC Technology's strategy to extend the geographic footprint and product range of its successful and growing Pro AV business, strengthening its partnership with existing suppliers, while also broadening its base of customers and suppliers.

Kondor

Kondor, based in the South of England, distributes audio and mobile accessory products to etailers, retailers and mobile operators in the UK and Continental Europe. It partners with mobile and accessory brand owners and has an extensive portfolio of own-brand products, complementing its third-party brands. Kondor also provides outsourced category management services, including category/brand management, marketing support, promotional display, brand support and advanced stock solutions, to the retail channel.

Jam

In September 2018, DCC Technology acquired the Jam Group of Companies ('Jam', comprising Jam Industries Ltd. and Jam International Ltd.). Jam is a market-leading North American specialist sales, marketing and services business serving the professional audio, musical instruments and consumer electronics product sectors.

Headquartered in Montreal, Canada, Jam is a world-leader in the professional audio and musical instruments sectors, providing a range of industry-leading, value adding services and solutions to both its vendor and customer partners. This product sector and channel specialisation includes marketing and sales support, in-house technicians providing technical support, after-sales, repair and warranty repair services, in-house graphics and print services and the provision of white-label e-commerce platforms for smaller retailers and resellers. The business recorded revenue of US$323 million in the year ended 30 April 2018 and employs approximately 570 people.

The acquisition of Jam significantly strengthens DCC Technology's position in the North American market following the acquisition of Stampede in July 2018. Importantly, the very strong service capability of Jam is consistent with DCC Technology's increasing focus on positioning itself as a specialist service partner for customers and suppliers, providing extensive brand reach, market access and simplifying the complex supply chain of its chosen sectors.

Total cash spend on acquisitions in the six months ended 30 September 2018

The total cash spend on acquisitions in the six months ended 30 September 2018 was £270.3 million. This included the payment of deferred and contingent acquisition consideration previously provided of £21.0 million, completion of the acquisitions of Jam, Stampede and Kondor by DCC Technology and the completion of small bolt-on acquisitions in DCC LPG and DCC Retail & Oil.

Financial strength

An integral part of the Group's strategy is the maintenance of a strong and liquid balance sheet to enable it to take advantage of development opportunities as they arise. At 30 September 2018, the Group had net debt of £832.4 million, total equity of £1.7 billion, cash resources, net of overdrafts, of £869.1 million and approximately £200.0 million of undrawn committed debt facilities. The Group's outstanding term debt at 30 September 2018 had an average maturity of 5.8 years, which has been raised in the US private placement market with an average credit margin of 1.6% over floating Euribor/Libor. In October 2018, DCC successfully refinanced private placement debt maturing in the next 18 months with a private placement issuance equivalent to £360 million to be drawn down in April 2019.

On 27 September 2018, DCC raised approximately £600 million from an equity placing which completed on 2 October 2018. On a pro-forma basis, net debt at 30 September 2018 adjusted for the proceeds of the equity placing would be approximately £237.4 million.

Outlook

The Group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development.

Performance Review - Divisional Analysis

Operating profit in DCC LPG was in line with expectations and, as anticipated, behind the prior year in the seasonally less significant first half of the year due to the material increase in the cost of product and the investment in its natural gas and power offering in France. DCC LPG made excellent progress in increasing the scale and breadth of its business by successfully integrating the acquisitions completed in the second half of the prior year, each of which performed in line with expectations.

DCC LPG sold 741,600 tonnes of product, an increase of 14.9% over the prior year, principally driven by the prior year acquisitions of Shell Hong Kong & Macau, Retail West and TEGA. On a like-for-like basis, volumes were modestly behind the prior year reflecting the warmer than average temperatures across Europe during the first six months of the financial year.

As anticipated, operating profit per tonne declined versus the prior year due to the significantly higher cost of product in both LPG and natural gas, the investment in natural gas and power in France and the increased seasonality following the acquisition of the US business.

In France, the business performed in line with expectations during the first half of the year benefiting from good procurement and operational cost control. The focus on expanding the service offering and capability of the French business continued, with the rollout out of the 'Click & Collect' cylinder offering and continued organic investment in the development of the consumer natural gas and power business in what is a competitive marketplace. The French business continues to leverage the strength of the 'Butagaz' brand and has achieved good traction in expanding its range of products and services in the French energy market.

In Britain & Ireland, the business delivered good volume growth versus the prior year, despite the warmer than average weather, as it continued its focus on converting industrial and commercial users of oil to LPG.  Good progress was made in integrating the Countrywide business acquired in the prior year and this integration will be completed during the second half of the year.

Shell Hong Kong & Macau (acquired in January 2018), Retail West in the US and TEGA in Germany (both acquired on 31 March 2018) have been successfully integrated into DCC LPG's existing operations. Each business performed in line with expectations since acquisition and provide a platform for future growth and development in their respective markets.

DCC Retail & Oil recorded a strong performance in the first half of the financial year, with operating profit growth of 33.5%, in line with expectations. This strong performance reflects both organic profit growth and the contribution from acquisitions completed in the prior year. 

DCC Retail & Oil volumes increased by 2.4% to 6.2 billion litres, driven by acquisitions in the prior year. Organic volumes were modestly behind the prior year, reflecting the warm weather in Northern Europe which particularly affected agricultural demand in the summer months. 

In Britain and Ireland, the business performed very well during the first half of the year delivering strong organic profit growth. Lower agricultural volume demand was offset by good growth in commercial volumes. The business continues to make good progress in expanding its activities into adjacent areas such as lubricants and aviation. During the period, the business successfully acquired and integrated SNAP, an end-to-end transaction processing and payment system for HGV fleets, and continued to invest in expanding its truck stop and retail networks. SNAP facilitates cashless payments through licence plate recognition for services to HGV fleets at truck stops. The Fuel Card business continued to perform strongly during the first half of the year.

In Scandinavia, the Danish business delivered very strong profit growth. A combination of a successful business improvement plan following the acquisition and integration of Dansk Fuels and a strong performance in driving differentiated fuels in the commercial fuels business more than offset lower agricultural volumes. In Norway, Esso's retail network (acquired in October 2017) has been integrated into DCC Retail & Oil's retail operating infrastructure, enabling management to drive improvements in what remains a difficult market environment. The Swedish business performed in line with expectations, delivering strong organic volume growth.

In France, the business delivered strong organic profit growth, primarily driven by the continued focus on business development and customer engagement through the roll-out of the Esso Synergy fuel brand, the Club Certas loyalty program, expansion of its non-fuel offering in carwash and the rollout of both Amazon and Butagaz 'Click and Collect' offerings. The business also recently completed a small bolt-on acquisition of a network of approximately 80 Esso dealers.

 

DCC Healthcare traded in line with expectations and generated strong profit growth of 22.2% in the first half of the year. Both DCC Vital and DCC Health & Beauty Solutions generated strong organic profit growth, while DCC Health & Beauty Solutions also benefited from the acquisition of Elite One Source in February 2018.

DCC Vital, which is focused on the sales and marketing of medical devices and pharmaceuticals to healthcare providers in Britain and Ireland, performed strongly, driven in particular by very strong organic profit growth in the supply of medical products and services to GP surgeries. DCC Vital strengthened its position as the market leader in the GP channel, successfully integrating two small complementary bolt-on acquisitions completed in the prior year. In medical devices, DCC Vital generated very good growth in the Irish market driven by growth in the scientific and community care segments and performed satisfactorily in Britain against a challenging market backdrop. DCC Vital's pharma activities performed satisfactorily, with strong profit growth in Britain driven by the strength of its supply chain, which offset a slightly weaker performance in the Irish market.

DCC Health & Beauty Solutions, which provides outsourced solutions to international nutrition and beauty brand owners, generated excellent organic profit growth and benefited from the first-time contribution from Elite One Source. In the nutrition sector, DCC generated good organic growth across a number of key customers, as the business continues to support their international sales growth through innovation, manufacturing flexibility and technical support. In the beauty sector, DCC generated excellent organic growth from a range of existing customers and the successful development of new customer relationships. 

With the background of continuing global market growth and a strong order book, DCC Health & Beauty Solutions is progressing a number of investment projects across its manufacturing footprint in Britain and in the US, which will add significant new capacity and capability. The most material project is at DCC Health & Beauty Solutions' soft gel facility in South Wales where the business has grown its European market share in soft gels on the back of its market leading capability in complex formulation and vegetarian soft gel products. The expansion project will almost double the business' existing soft gel capacity, as well as providing new manufacturing capability in growth areas such as organic vegetarian soft gels.

 

DCC Technology achieved strong operating profit growth of 25.0% in the seasonally less significant first half of the year, in what was a very active development period for the business. This performance was driven by a strong organic performance in the UK & Ireland, as well as the contribution from acquisitions completed in the current year.  

The UK & Ireland business benefited from good revenue growth in key product areas and from recent acquisitions, including the bolt-on acquisition of Kondor in the current year, which strengthened DCC Technology's position in the mobile and category management services area. Audio-visual, smart-home and repair/refurbishment services generated strong revenue growth, while the Enterprise business continued to achieve very strong growth in the datacentre market. Following completion of the new UK national distribution centre in Lancashire in the prior year, a component of the UK business has now fully upgraded its SAP enterprise management system and is operating effectively. The remainder of the UK business will transition to the new system on a phased basis during the next financial year.

In Europe, the business in the Nordics has consolidated its warehousing infrastructure and invested in automation which will facilitate the further expansion of the business across the region. In France, operational improvements continue in the French consumer products business to reduce costs, drive efficiencies and win new vendors. The French reseller and electrician business continues to perform well and is continuing to invest in its audio-visual proposition.

The business in the Middle East continues to generate organic revenue and operating profit growth, while the Supply Chain Services business performed in line with expectations. 

The acquisitions of Stampede in July 2018 and Jam in September 2018 represented DCC Technology's first acquisitions in the large, growing and fragmented North American market. Both businesses have traded in line with expectations since acquisition. The acquisition of Stampede, a specialist distributor of professional audio-visual products and solutions, has extended the geographic footprint and product range of the division's successful and growing Pro AV business, strengthening its partnership with existing suppliers, while also broadening the base of customers and suppliers. Jam is a market-leading North American specialist sales, marketing and services business, serving the professional audio, musical instruments and consumer electronics product sectors. The acquisition of Jam provides DCC Technology with a strong and complementary consumer products capability, whilst also adding a leading-market presence in the growing musical instrument market. Jam's service-led approach is consistent with DCC Technology's increased focus on services and DCC Technology now has a platform of scale in the North American market from which to expand organically and by acquisition.

 

Forward-looking statements

This announcement contains some forward-looking statements that represent DCC's expectations for its business, based on current expectations about future events, which by their nature involve risk and uncertainty. DCC believes that its expectations and assumptions with respect to these forward-looking statements are reasonable; however, because they involve risk and uncertainty as to future circumstances, which are in many cases beyond DCC's control, actual results or performance may differ materially from those expressed in or implied by such forward-looking statements.

Principal risks and uncertainties

The Board of DCC is responsible for the Group's risk management and internal control systems, which are designed to identify, manage and mitigate potential material risks to the achievement of the Group's strategic and business objectives. The Board has approved a Risk Management Policy which sets out delegated responsibilities and procedures for the management of risk across the Group.

The principal risks and uncertainties facing the Group in the short to medium term, as set out on pages 19 to 22 of the 2018 Annual Report (together with the principal mitigation measures), continue to be the principal risks and uncertainties facing the Group for the remaining six months of the financial year.

This is not an exhaustive statement of all relevant risks and uncertainties. Matters which are not currently known to the Board or events which the Board considers to be of low likelihood could emerge and give rise to material consequences. The mitigation measures that are maintained in relation to these risks are designed to provide a reasonable and not an absolute level of protection against the impact of the events in question.

Group Income Statement

Group Statement of Comprehensive Income

 

Group Balance Sheet

 

Group Statement of Changes in Equity

 

Group Cash Flow Statement

 

Notes to the Condensed Financial Statements

for the six months ended 30 September 2018

1.             Basis of Preparation

The Group condensed interim financial statements which should be read in conjunction with the annual financial statements for the year ended 31 March 2018 have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the related Transparency rules of the Irish Financial Services Regulatory Authority and in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of certain assets, liabilities, revenues and expenses together with disclosure of contingent assets and liabilities.  Estimates and underlying assumptions are reviewed on an ongoing basis. 

These condensed interim financial statements for the six months ended 30 September 2018 and the comparative figures for the six months ended 30 September 2017 are unaudited and have not been reviewed by the Auditors.  The summary financial statements for the year ended 31 March 2018 represent a restated, abbreviated version of the Group's full accounts for that year, on which the Auditors issued an unqualified audit report and which have been filed with the Registrar of Companies. 

2.             Accounting Policies

The accounting policies and methods of computation adopted in the preparation of the Group condensed interim financial statements are consistent with those applied in the 2018 Annual Report and are described in those financial statements on pages 190 to 198, except for those noted below.

The following new standards have been adopted in the current year:

IFRS 9 Financial Instruments:

This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The Standard includes requirements for recognition and measurement, classification, and de-recognition of financial instruments, a new expected credit loss model for calculating impairment on financial assets and new rules for hedge accounting. The new standard also introduced expanded disclosure requirements and changes in presentation.

Impairment of Financial Assets:

The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as was the case under IAS 39. Trade receivables represent one of the Group's most significant financial assets and are subject to IFRS 9's new expected credit losses model. The Group's impairment methodology has been revised in line with the new requirements of IFRS 9 and the simplified approach to providing for expected credit losses has been applied which uses a lifetime expected loss allowance for all trade receivables. Details of the impact on the Group's financial statements is provided in note 3.

Hedge Accounting:

The Group has made the accounting policy choice allowed under IFRS 9 to continue to apply the hedge accounting requirements of IAS 39 until the amended standard resulting from an IASB project on macro hedge accounting becomes effective. Accordingly, there has been no impact on the accounting for hedging relationships.

IFRS 15 Revenue from Contracts with Customers:

This standard replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. This standard establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. It specifies how and when revenue should be recognised as well as requiring enhanced disclosures. Revenue is recognised when an identified performance obligation has been met and the customer can direct the use of, and obtain substantially all the remaining benefits from, a good or service as a result of obtaining control of that good or service. Details of the impact on the Group's financial statements is provided in note 3.

There were other changes to IFRS which became effective for the Group during the period but did not result in material changes to the Group's consolidated financial statements.

The Group has not applied certain new standards, amendments and interpretations to existing standards that have been issued but are not yet effective, the most significant of which are as follows:

IFRS 16 Leases (effective date: DCC financial year beginning 1 April 2019):

This standard will replace IAS 17 Leases. The changes under IFRS 16 are significant and will predominantly affect lessees, the accounting for which is substantially reformed. The lessor accounting requirements contained in IFRS 16's predecessor, IAS 17, will remain largely unchanged. The main impact on lessees is that almost all leases will be recognised on the balance sheet as the distinction between operating and finance leases is removed for lessees. Under IFRS 16, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exemptions are short-term and low-value leases. The standard introduces new estimates and judgemental thresholds that affect the identification, classification and measurement of lease transactions. More extensive disclosures, both qualitative and quantitative, are also required.

At transition date, the Group will calculate the lease commitments outstanding at that date and apply appropriate discount rates to calculate the present value of the lease commitment which will be recognised as a liability and a right of use asset on the Group's Balance Sheet. In the Income Statement, the Group currently recognises operating lease rentals in operating expenses. Under the new standard, a right of use asset will be capitalised and depreciated over the term of the lease with an associated finance cost applied annually to the lease liability.

As detailed in note 5.4 of the 2018 Annual Report, the Group's future minimum rentals payable under non-cancellable operating leases at 31 March 2018 amounted to £345.0 million and the charge recognised in the Income Statement for the year ended 31 March 2018 amounted to £84.8 million. These amounts provide an indication of the scale of leases held at 31 March 2018 but exclude the impact of discounting, assessment of the expected term of leases (including renewal options) and exemptions for short-term leases and low-value leases.

The Group continues to perform a full review of all agreements to assess whether any additional contracts will now become a lease under IFRS 16's new definition in addition to determining which optional accounting simplifications to apply and assessing the additional disclosures that will be required. The new standard offers options on transition; either full retrospective application or modified retrospective application (which means comparatives do not need to be restated). The Group expects to adopt the modified retrospective approach. In order to assist with meeting the requirements of the new standard, the Group has selected a lease accounting software solution which is in the process of being implemented across the Group.

Based on the work performed to date, the Group expects to recognise a lease liability and corresponding right of use asset of approximately £300 million on transition. The actual impact on transition could differ to this estimate due to a number of factors such as changes in foreign exchange translation rates, changes in discount rates, changes in the composition of the Group's lease portfolio and other underlying assumptions up until the date of transition. The Group will apply IFRS 16 from its effective date.

IFRIC 23 Uncertainty over Income Tax Treatments (effective date: DCC financial year beginning 1 April 2019):

This IFRIC clarifies the accounting for uncertainties in income taxes and is to be applied to the determination of taxable profit (or tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12 Income Taxes. The Group does not expect the adoption of this IFRIC to have a material impact on the consolidated financial statements.

Other changes to IFRS have been issued but are not yet effective for the Group. However, they are either not expected to have a material effect on the consolidated financial statements or they are not currently relevant for the Group.

3.             Restatement

Measurement period adjustments:

The Group Balance Sheet for the year ended 31 March 2018 has been restated due to the finalisation of the valuation of the separately identifiable intangible assets acquired on the Retail West and TEGA business combinations. In the year ended 31 March 2018 we reported that the acquisitions of Retail West and TEGA both completed on 31 March 2018 and, as such, it had not been feasible to perform a preliminary assignment of fair values to identifiable net assets. IFRS 3 Business Combinations allows for the recognition of provisional fair values where the initial accounting for the business combination is incomplete. The Group has now completed this assignment of fair values to identifiable net assets and the most significant amendment has been the recognition of customer and supplier related intangible assets. The net impact of the prior year restatement on the previously reported Group Balance Sheet is summarised as follows:

The Group Income Statement was not impacted by the adjustments detailed above.

Revenue recognition:

As disclosed in the 31 March 2018 Annual Report, the Group performed a detailed analysis of the impact of IFRS 15 Revenue from Contracts with Customers, which became effective during the current period. This analysis included a focus on whether certain revenue streams might be more appropriately recorded on an agency ('net') basis rather than on a principal ('gross') basis. In particular, the Group deemed that under the new standard, a portion of its fuel card activities constituted acting in the role of an agent rather than that of a principal. Consequently, revenue from these activities is now recorded on a 'net' basis i.e. the Group recognises the gross profit contribution on the revenue line with no overall net impact on gross profit.

In accordance with transition options available under IFRS 15, the Group has restated the Group Income Statement comparatives for the year ended 31 March 2018 and the six months ended 30 September 2017 as follows:

Impairment of financial assets:

The Group adopted IFRS 9 Financial Instruments from 1 April 2018. In accordance with the transitional provisions of IFRS 9, comparative figures have not been restated.  The impact of adopting IFRS 9 was not material to the Group's consolidated financial statements and the adjustment on application at 1 April 2018 was £3.5 million.

4.            Going Concern

Having reassessed the principal risks facing the Group (as detailed on pages 19 to 22 of the 2018 Annual Report), the Directors believe that the Group is well placed to manage these risks successfully.

The Directors have a reasonable expectation that DCC plc, and the Group as a whole, has adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report.  For this reason, the Directors continue to adopt the going concern basis of accounting in preparing the condensed interim financial statements.

5.            Reporting Currency

The Group's financial statements are presented in sterling, denoted by the symbol '£'. Results and cash flows of operations based in non-sterling countries have been translated into sterling at average rates for the period, and the related balance sheets have been translated at the rates of exchange ruling at the balance sheet date.  The principal exchange rates used for translation of results and balance sheets into sterling were as follows:

6.             Segmental Reporting

DCC is an international sales, marketing and support services group headquartered in Dublin, Ireland. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as Mr. Donal Murphy, Chief Executive and his executive management team.  The Group is organised into four operating segments: DCC LPG, DCC Retail & Oil, DCC Healthcare and DCC Technology.

DCC LPG is a leading liquefied petroleum gas ('LPG') sales and marketing business with presences in Europe, North America and Asia and a developing business in the retailing of natural gas and electricity in Europe.

DCC Retail & Oil is a leader in the sales, marketing and retailing of transport fuels and commercial fuels, heating oils and related products and services in Europe.

DCC Healthcare is a leading healthcare business, providing products and services to healthcare providers and health and beauty brand owners.

DCC Technology is a leading route-to-market and supply chain partner for global technology brands.

The chief operating decision maker monitors the operating results of segments separately in order to allocate resources between segments and to assess performance. Segment performance is predominantly evaluated based on operating profit before amortisation of intangible assets and net operating exceptional items. Net finance costs and income tax are managed on a centralised basis and therefore these items are not allocated between operating segments for the purpose of presenting information to the chief operating decision maker and accordingly are not included in the detailed segmental analysis.

The consolidated total assets of the Group as at 30 September 2018 amounted to £6.533 billion. This figure was not materially different from the equivalent figure at 31 March 2018 and therefore the related segmental disclosure note has been omitted in accordance with IAS 34 Interim Financial Reporting. Intersegment revenue is not material and thus not subject to separate disclosure.

                                                                                            

(b)           By geography

The Group has a presence in 18 countries worldwide. The following represents a geographical revenue analysis about the country of domicile (Republic of Ireland) and countries with material revenue.

7.             Exceptionals

Restructuring costs of £5.124 million principally relate to the ongoing dual running costs relating to the optimisation of DCC Technology's logistics and related infrastructure, as well as integration costs arising from recent acquisition activity. The upgraded warehousing and logistics in each of France, Scandinavia and the UK are all operational.  The related UK SAP implementation is now live in an element of the UK business, with the remaining components of the business scheduled to go-live over the coming twelve months.

Acquisition and related costs amounted to £5.123 million and include the professional fees and tax costs (such as stamp duty) relating to the evaluation and completion of acquisition opportunities.

Most of the Group's debt has been raised in the US Private Placement market and swapped, using long term interest and cross currency interest rate derivatives, to both fixed and floating rate sterling and euro. The level of ineffectiveness calculated under IAS 39 on the fair value and cash flow hedge relationships relating to fixed rate debt is charged or credited as an exceptional item. In the six months ended 30 September 2018, this amounted to an exceptional non-cash gain of £3.974 million. Following this credit, the cumulative net exceptional charge taken in respect of the Group's outstanding US Private Placement debt and related hedging instruments is £1.7 million. This, or any subsequent similar non-cash charges or gains, will net to zero over the remaining term of this debt and the related hedging instruments.  

8.             Taxation

The taxation expense for the interim period is based on management's best estimate of the weighted average tax rate that is expected to be applicable for the full year. The Group's effective tax rate for the period was 17% (six months ended 30 September 2017: 18% and year ended 31 March 2018: 17%). 

9.             Discontinued Operations

The Group's discontinued operations for the year ended 31 March 2018 and the six months ended 30 September 2017 comprise the results of the Group's former DCC Environmental segment. There were no discontinued operations in the six months ended 30 September 2018.

The following table summarises the results of discontinued operations included in the prior year comparatives of the Group Income Statement:

The following table details the cash flow from discontinued operations included in the prior year comparatives of the Group Cash Flow Statement:

10.          Earnings per Ordinary Share

Basic earnings per share is calculated by dividing the profit attributable to owners of the Parent Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Company and held as treasury shares.  The adjusted figures for basic earnings per ordinary share (a non-GAAP financial measure) are intended to demonstrate the results of the Group after eliminating the impact of amortisation of intangible assets and net exceptionals.

Diluted earnings per ordinary share

Diluted earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Share options and awards are the Company's only category of dilutive potential ordinary shares. Employee share options and awards, which are performance-based, are treated as contingently issuable shares because their issue is contingent upon satisfaction of specified performance conditions in addition to the passage of time. These contingently issuable shares are excluded from the computation of diluted earnings per ordinary share where the conditions governing exercisability would not have been satisfied as at the end of the reporting period if that were the end of the vesting period.

The adjusted figures for diluted earnings per ordinary share (a non-GAAP financial measure) are intended to demonstrate the results of the Group after eliminating the impact of amortisation of intangible assets and net exceptionals.

The earnings used for the purposes of the continuing diluted earnings per ordinary share calculations were £68.002 million (six months ended 30 September 2017: £58.169 million) and £95.594 million (six months ended 30 September 2017: £84.977 million) for the purposes of the continuing adjusted diluted earnings per ordinary share calculations.

The weighted average number of ordinary shares used in calculating the diluted earnings per ordinary share for the six months ended 30 September 2018 was 89.451 million (six months ended 30 September 2017: 89.410 million). A reconciliation of the weighted average number of ordinary shares used for the purposes of calculating the diluted earnings per ordinary share amounts is as follows:

11.          Dividends

On 12 November 2018, the Board approved an interim dividend of 44.98 pence per share (£44.188 million). These condensed interim financial statements do not reflect this dividend payable. 

12.          Other Reserves

13.          Analysis of Net Debt

14.          Post Employment Benefit Obligations

The Group's defined benefit pension schemes' assets were measured at fair value at 30 September 2018. The defined benefit pension schemes' liabilities at 30 September 2018 were updated to reflect material movements in underlying assumptions.

The Group's post employment benefit obligations moved from a net asset of £0.286 million at 31 March 2018 to a net asset of £4.515 million at 30 September 2018. This movement was primarily driven by an actuarial gain on liabilities arising from an increase in the discount rate used to value these liabilities and by contributions in excess of the current service cost.

The following actuarial assumptions have been made in determining the Group's retirement benefit obligation for the six months ended 30 September 2018:

*  Data for the German schemes relates to TEGA, which was acquired in March 2018.
 

15.          Business Combinations

A key strategy of the Group is to create and sustain market leadership positions through acquisitions in markets it currently operates in, together with extending the Group's footprint into new geographic markets. In line with this strategy, the principal acquisitions completed by the Group during the period, together with percentages acquired, were as follows:

·     The acquisition by DCC Technology in July 2018 of 100% of Stampede Global Holdings Inc. ('Stampede'). Stampede is a specialist distributor of professional audio-visual products and solutions to customers based in the US, Canada and the UK;

·     The acquisition by DCC Technology in July 2018 of 100% of Kondor Limited ('Kondor'). Kondor distributes mobile and accessory products and provides outsourced category management solutions to the retail channel in the UK and Continental Europe; and

·     The acquisition by DCC Technology in September 2018 of 91% of the Jam Group of Companies ('Jam'). Jam is a market-leading North American specialist sales, marketing and services business serving the professional audio, musical instruments and consumer electronics product sectors.

The acquisition data presented below reflects the fair value of the identifiable net assets acquired (excluding net cash/debt acquired) in respect of acquisitions completed during the six months ended 30 September 2018.

None of the business combinations completed during the period were considered sufficiently material to warrant separate disclosure of the fair values attributable to those combinations. 

There were no adjustments made to the carrying amounts of assets and liabilities acquired in arriving at their fair values. The initial assignment of fair values to identifiable net assets acquired has been performed on a provisional basis in respect of a number of the business combinations above given the timing of closure of these transactions.  Any amendments to these fair values within the twelve month timeframe from the date of acquisition will be disclosable in the Group's condensed interim financial statements for the six months ending 30 September 2019 as stipulated by IFRS 3.

The principal factors contributing to the recognition of goodwill on business combinations entered into by the Group are the expected profitability of the acquired business and the realisation of cost savings and synergies with existing Group entities.

Acquisition and related costs included in other operating expenses in the Group Income Statement amounted to £5.123 million (six months ended 30 September 2017: £3.512 million).

No contingent liabilities were recognised on the acquisitions completed during the financial period or the prior financial years.

The gross contractual value of trade and other receivables as at the respective dates of acquisition amounted to £141.851 million. The fair value of these receivables is £139.044 million (all of which is expected to be recoverable).

None of the goodwill recognised in respect of acquisitions completed during the period is expected to be deductible for tax purposes.

The fair value of contingent consideration recognised at the date of acquisition is calculated by discounting the expected future payment to present value at the acquisition date. In general, for contingent consideration to become payable, pre-defined profit thresholds must be exceeded.  On an undiscounted basis, the future payments for which the Group may be liable for acquisitions completed during the period range from nil to £145.6 million.

The acquisitions during the period contributed £200.0 million to revenues and £0.6 million to profit after tax. Had all the business combinations effected during the period occurred at the beginning of the period, total Group revenue for the six months ended 30 September 2018 would have been £7,642.8 million and total Group profit after tax would have been £72.9 million.

16.          Seasonality of Operations

The Group's operations are significantly second-half weighted primarily due to a portion of the demand for DCC's LPG and Retail & Oil products being weather dependent and seasonal buying patterns in DCC Technology.

17.          Related Party Transactions

There have been no related party transactions or changes in the nature and scale of the related party transactions described in the 2018 Annual Report that could have had a material impact on the financial position or performance of the Group in the six months ended 30 September 2018.

18.          Events after the Balance Sheet Date

The Group completed an equity placing on 2 October 2018 which raised approximately £600 million. The proceeds of the placing will enable the continued implementation of DCC's targeted acquisition strategy, by enhancing the balance sheet and liquidity of the Group, ensuring DCC can efficiently execute acquisition opportunities and remains a credible and capable acquirer.

In October 2018, the Group successfully refinanced private placement debt maturing in the next 18 months with a private placement issuance equivalent to £360 million to be drawn down in April 2019.

19.          Board Approval

This report was approved by the Board of Directors of DCC plc on 12 November 2018.

20.          Distribution of Interim Report

This report and further information on DCC is available at the Company's website www.dcc.ie.  A printed copy is available to the public at the Company's registered office at DCC House, Leopardstown Road, Foxrock, Dublin 18, Ireland.

 

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

·     the condensed set of interim financial statements for the six months ended 30 September 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and

·     the interim management report includes a fair review of the information required by:

‒ Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

‒ Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board

John Moloney                                                                            Donal Murphy

Chairman                                                                                    Chief Executive

12 November 2018

Supplementary Financial Information 

Alternative Performance Measures

The Group reports certain alternative performance measures ('APMs') that are not required under International Financial Reporting Standards ('IFRS') which represent the generally accepted accounting principles ('GAAP') under which the Group reports. The Group believes that the presentation of these APMs provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides investors with a more meaningful understanding of the underlying financial and operating performance of the Group and its divisions.

These APMs are primarily used for the following purposes:

•  to evaluate the historical and planned underlying results of our operations;

•  to set director and management remuneration; and

•  to discuss and explain the Group's performance with the investment analyst community.

None of the APMs should be considered as an alternative to financial measures derived in accordance with GAAP. The APMs can have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. These performance measures may not be calculated uniformly by all companies and therefore may not be directly comparable with similarly titled measures and disclosures of other companies.

The principal APMs used by the Group, together with reconciliations where the non-GAAP measures are not readily identifiable from the financial statements, are as follows:

Adjusted operating profit ('EBITA')

Definition

This comprises operating profit as reported in the Group Income Statement before net operating exceptional items and amortisation of intangible assets. Net operating exceptional items and amortisation of intangible assets are excluded in order to assess the underlying performance of our operations. In addition, neither metric forms part of Director or management remuneration targets.

Net interest

Definition

The Group defines net interest as the net total of finance costs and finance income before interest related exceptional items as presented in the Group Income Statement.

Constant currency

Definition

The translation of foreign denominated earnings can be impacted by movements in foreign exchange rates versus sterling, the Group's presentation currency. In order to present a better reflection of underlying performance in the period, the Group retranslates foreign denominated current year earnings at prior year exchange rates.

  

Effective tax rate

Definition

The Group's effective tax rate expresses the income tax expense before exceptionals and deferred tax attaching to the amortisation of intangible assets as a percentage of EBITA less net interest.

Net capital expenditure

Definition

Net capital expenditure comprises purchases of property, plant and equipment, proceeds from the disposal of property, plant and equipment and government grants received in relation to property, plant and equipment.

Free cash flow

Definition

Free cash flow is defined by the Group as cash generated from operations before exceptional items as reported in the Group Cash Flow Statement after net capital expenditure.

Free cash flow (after interest and tax payments)

Definition

Free cash flow (after interest and tax payments) is defined by the Group as free cash flow after interest paid, income tax paid, dividends received from equity accounted investments and interest received.

Committed acquisition expenditure

Definition

The Group defines committed acquisition expenditure as the total acquisition cost of subsidiaries as presented in the Group Cash Flow Statement (excluding amounts related to acquisitions which were committed to in previous years) and future acquisition related liabilities for acquisitions committed to during the period.

Net working capital

Definition

Net working capital represents the net total of inventories, trade and other receivables (excluding interest receivable), and trade and other payables (excluding interest payable, amounts due in respect of property, plant and equipment and current government grants).

  
Working capital (days)

Definition

Working capital days measures how long it takes in days for the Group to convert working capital into revenue.