Annual Report and Accounts 2006 - DCC plc

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12chief executive’s review“ The quality of DCC’s businesses is better today,measured in terms of scale, strategic positioningand management skills and know-how, than atany earlier time.”Overview of 2006The year to 31 March 2006 wasanother year of double-digit profitgrowth, resulting in cumulativeearnings per share growth of 16.6%per annum since DCC shares werelisted on the Irish and London stockexchanges in 1994.On a constant currency basis,revenues grew by 30.0% to €3.4billion, while profit before exceptionalitems, amortisation of intangibleassets and tax increased by 16.5% to€142.0 million and adjusted earningsper share for the year was 157.23cent, growth of 15.5%.Excellent profit growth was achievedin DCC Energy, DCC Healthcare, DCCFood & Beverage and in DCC’s shareof associates’ profit after tax. DCCSerCom also achieved strong profitgrowth in the second half after adifficult first half.Operating profit*DCC’s cash generation in the yearwas strong, with cash generatedfrom Group operations, excludingassociates, of €141.9 million, anincrease of 23.3% over last year.At 31 March 2006, DCC had netdebt of just €32.7 million.Return on capital employed (ROCE)is the key performance measure inall the businesses of the Group.For the year to March 2006, ROCE(excluding intangible assets) was43.0% (2005: 44.9%) and ROCE(including intangible assets) was19.1% (2005: 20.4%).Business reviewDCC’s rate of profit growth wasstronger in the seasonally moreimportant second half of the year,as set out in the table below.Second half First half€’m Change €’m ChangeDCC Energy 45.3 +9.8% 10.7 +1.2%DCC SerCom 17.4 +22.0% 7.6 -37.0%DCC Healthcare 11.5 +33.8% 10.1 +48.1%DCC Food & Beverage 8.1 +8.1% 7.4 +37.9%DCC Environmental 2.7 -0.3% 2.8 +2.6%Group operating profit 85.0 +14.4% 38.6 +2.9%Share of associates’ profit after tax 19.8 +104.8% 5.7 -20.7%Net financing costs (3.9) (3.2)Profit before exceptional items,amortisation of intangibles and tax 100.9 +25.3% 41.1 -3.0%Adjusted EPS* (cent) 111.89 +24.6% 45.34 -4.4%*excluding net exceptional items and amortisation of intangible assetsStrategy forcontinued growthDCC’s strategy has beendemonstrably successful ingenerating excellent shareholderreturns. The principal elementsof the strategy are:• To focus on two broad businessactivities:- sales, marketing and distributionbusiness support services;• To constantly seek tomaximise organic growth;• To constantly seek complementarybolt-on acquisitions;• A rigorous focus on returnon capital employed;• A rigorous focus oncash generation.DCC applies a core competencein the management of sales,marketing and distributionbusinesses across diversemarket sectors, i.e. in energy,IT & entertainment products,healthcare and food & beverage.DCC provides business supportservices, specifically contractservices to the health andbeauty market, environmentalservices and out-sourcedprocurement and supply-chainmanagement services to theIT industry.DCC also has a significantassociate company investment,a 49% shareholding in Manor ParkHomebuilders, a leading Irish house,apartment and commercial buildingand development company.
13DCC’s broad business base reducesindustry specific risk and provides arange of platforms for growth.We are alive to the need to regularlyreview DCC’s strategy for growth ina rapidly changing global businessenvironment. We seek to positionDCC for consistent and resilientgrowth that optimises returns forshareholders over the long term.The achievement of long-termgrowth requires both correctstrategic positioning and superioroperational effectiveness.The quality of DCC’s businesses isbetter today, measured in terms ofscale, strategic positioning andmanagement skills and know-how,than at any earlier time.DCC Energy is a resilient, highlycash-generative business, withstrong market positions in Irelandand Britain. There is a considerableopportunity to substantially increasethe scale of the oil distributionbusiness in Britain.DCC SerCom, a high-growthbusiness for DCC up to 2001, hasbeen challenged by product pricedeflation in the IT industry in recentyears. However, the business inBritain and Ireland has consistentlyachieved strong organic sales volumegrowth, has best-in-class operationalmetrics and achieves a good returnon capital employed. Amelioration inproduct price deflation should reveala growing business and renewedprofit growth.DCC Healthcare is a business withconsiderable growth potential basedon a clear strategy to build aEuropean business on the foundationof product knowledge and expertise.DCC Food & Beverage operates inhigher growth, niche areas within thefood industry and has demonstratedresilient growth in Ireland.DCC Environmental is a rapidlydeveloping, newer business area forDCC, with significant growthopportunities, particularly in Britain.These businesses position DCC forcontinued growth but, as ever, therewill be a relentless focus onexcellence in operations in eachbusiness area to maintaincompetitive advantage.Management changesKevin Murray, executive Director andManaging Director of DCC Healthcare,is resigning with effect from 30 June2006 to pursue involvement in theprivate company arena in preferenceto the continuation of a seniormanagement role in a public company.During his 18 years with DCC, Kevin’scommitment to the Group has beenunstinting and his contribution hasbeen outstanding. Kevin will continueto have some part-time involvementwith the Group on selected projects.A number of senior managementchanges, to take effect from 1 July2006, were recently announced:• Tommy Breen, currently ManagingDirector of DCC Energy and DCCEnvironmental, will becomeDCC’s Chief Operating Officer.This will allow me, as GroupChief Executive, to devoteadditional time to strategic anddevelopmental matters.• Donal Murphy, currentlyManaging Director of DCCSerCom, will become ManagingDirector of DCC Energy and DCCEnvironmental.• Niall Ennis, currently Finance andDevelopment Director of DCCSerCom, will become ManagingDirector of DCC SerCom.• Conor Costigan, currently Financeand Development Director of DCCHealthcare, will become ManagingDirector of DCC Healthcare.The senior management team in DCC,together with the highly experiencedand committed operating managementteams in subsidiaries, give DCC themanagement strength and businessarea focus to drive the Group forward.EmployeesDCC currently employs approximately5,400 people. We seek to foster amanagement culture that givesenlightened leadership to employees.We recognise that employees arekey to DCC’s success and that theycan all be ambassadors for the Group.Corporate and socialresponsibilityStakeholders correctly have higherexpectations in relation to corporateand social responsibility. Set out onpages 33 to 35 is DCC’s corporateand social responsibility statement,which reports on how we relate toour marketplace, our environment,our workplace, our community andon health & safety.OutlookDCC has budgeted for continuedgood operating profit growth fromsubsidiaries in the current year to 31March 2007. As announced on 3 April2006, the share of associates’ profitafter tax may be materially less in thecurrent year, based on DCC’s currentexpectation of a short term reductionin the profit contribution from its49% shareholding in Manor ParkHomebuilders due to planning delays.Manor Park has a large land bankfor housing development and otherdevelopment projects in the pipelinefrom which it should earn substantialprofits in the future.Jim FlavinChief Executive/Deputy Chairman12 May 2006
Page 1 and 2: Annual Reportand Accounts2006
Page 3 and 4: Group at a Glance 2Board of Directo
Page 5: 3Market positionGrowth focusGrowth
Page 8 and 9: 6board of directors
Page 10 and 11: 8senior managementgroup and divisio
Page 12 and 13: 10chairman’s statement“ Over th
Page 16: peopleWe recognise that our employe
Page 19 and 20: 17Performance for the year to 31 Ma
Page 27: 25Performance for the year to 31 Ma
Page 30 and 31: 28financial reviewOverview of resul
Page 32 and 33: 30financial reviewgenerated from op
Page 34: 32financial reviewsubsidiary manage
Page 38: qualityDCC Food & Beveragemarkets q
Page 41 and 42: corporate governance39written terms
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Page 46 and 47: 44report of the remuneration commit
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DCC plcDCC House, Brewery Road,Stil
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Annual Report and Accounts 2006 - DCC plc

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