Annual Report and Accounts 2006 - DCC plc

19Performance for the year to 31 March 2006Change on prior year2006 2005 Reported ConstantcurrencyRevenue €1,084.6m €983.5m +10.3% +10.3%Operating profit €25.0m €26.3m -4.9% -4.0%Operating margin 2.3% 2.7%Return on capital employed- excluding intangible assets 24.4% 30.3%- including intangible assets 14.3% 18.4%After a difficult first half, DCCSerCom’s profits grew by 22.0%in the second half.SerCom Distribution was particularlyimpacted in the first half by productprice deflation, a rapid deteriorationin the retail trading environment inBritain and a significant decline indemand in the Continental Europeanenterprise infrastructure market. Thebusiness enjoyed a much improvedsecond half, benefiting from strongsales volume growth, an increasedfocus on consumer digital products,the launch of Xbox 360 and theacquisitions of Pilton Company andAB Computing.The restructuring of SerComSolutions, announced in January 2005,was successfully completed in thefirst half of the year. Since therestructuring, the business hasperformed strongly and contributed€2.8 million operating profit this yearcompared to a loss of €1.1 million inthe prior year. The business achievedexcellent top line growth, withrevenue up 19.9% to €126.3 million.During the year, the businessstrengthened its position with anumber of its customers outsourcingfurther elements of their supply chainsto SerCom Solutions.Strategy and developmentmarket in Ireland. Pilton has excellentlong-standing relationships with someof the world’s leading film studios andhas deep distribution reach into theIrish retail market, which includessupermarkets, retail chains, rentalchains and independent retailers. Thebusiness is expanding its presence inthe British market by leveragingSerCom Distribution’s strong marketposition for computer games andperipherals in that market.With its strong market positions,deep distribution reach, excellentmanagement teams and industryleading operating metrics, SerComDistribution is well positioned togenerate renewed profit growth.The key drivers of growth this yearwill be:• new generation game consoles• Far East sourcing at cheaper prices• expansion in the British DVD market• new technology, products andoperating systems16.720.424.334.032.930.5 30.426.3 25.0Microsoft launched its nextgeneration game console, Xbox360, in December 2005. Gem, aDCC SerCom subsidiary, is thesole distribution partner for theXbox 360 in the UK.SerCom Solutions provides a range ofsupply chain management servicesincluding LCD sub-assembly fornotebook products11%89%DCC SerCom - operating profit splitSerCom DistributionSerCom SolutionsIn July 2005, DCC SerComsignificantly strengthened its positionin the home entertainment sector withthe acquisition of Pilton, the leadingdistributor of DVDs and computergames to the home entertainment9.797 98 99 00 01 02 03 04 05 06DCC SerCom - operating profit (€m)1997 - 2006DCC’s newly acquired subsidiaryPilton is Ireland’s leadingdistributor of DVDs.