Annual Report and Accounts 2006 - DCC plc

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28financial reviewOverview of results/keyperformance indicatorsRevenue grew by 30.0% on aconstant currency basis (29.9%reported) to €3,436.3 million andoperating profit of subsidiaries andjoint ventures increased by 11.6%on a constant currency basis (10.5%reported) to a record €123.6 million(as detailed in Table 1). Most of thegrowth was from shareholder valueenhancing bolt-on acquisitions, asorganic profit growth was held backby the very challenging marketconditions in DCC SerCom whichhave prevailed since late 2004.Excluding DCC SerCom, DCC’s othercore areas of activity performed verywell, generating operating profitgrowth, on a constant currency basis,of 16.4% (15.2% reported) broadlysplit evenly between organic growthand growth from acquisitions.The Group’s operating margin was3.6% (4.2%: 2005); however,it is important to note that thismeasurement of the overall Groupmargin is of limited relevance due tothe influence of changes in oil productcosts on the percentage. Whilechanges in oil product costs willchange percentage operating margins,this has little relevance in thedownstream energy market in whichDCC Energy operates, whereprofitability is driven by absolutecontribution per litre (or tonne) ofproduct sold, and not a percentagemargin. Excluding DCC Energy, theGroup’s operating margin was 4.2%compared to 4.3% in the previous year.A detailed review of the operatingperformance of each of the Group’sdivisions in set out on pages 16 to 25.The profit after tax contributionfrom associates (mainly the 49%shareholding in Manor ParkHomebuilders) increased significantly(51.6%) during the year. This amountwas considerably higher than theGroup’s earlier expectation due toManor Park Homebuilders earning asignificant profit on a transaction thatit completed on 31 March 2006 whichDCC had expected would more likelyarise in the year to 31 March 2007.As announced on 3 April 2006, theGroup’s 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 ManorPark Homebuilders due to planningdelays. Manor Park Homebuildershas a large landbank for housingdevelopment and has otherdevelopment projects in the pipelinefrom which it should earn substantialprofits in the future.The net financing cost was €7.1million, an increase of €1.4 millionon the prior year. Interest cover was17.6 times (19.6 times: 2005).Profit before net exceptional items,amortisation of intangible assets andtax rose by 16.5% on a constantcurrency basis (15.5% reported) to€142.0 million.Exceptional items gave rise to a netcredit of €1.7 million as follows:€’mCosts of legal actions withFyffes plc and others (5.2)Provision for recovery oflegal costs from Fyffes plc 8.5Other (0.5)Operating exceptional items 2.8Foreign exchange losses onintercompany financing loansto 30 September 2005 (1.1)1.7Table 1: Operating profitChange2006 2005 Reported Constant CurrencyH1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY€’m €’m €’m €’m €’m €’m % % % % % %DCC Energy 10.7 45.3 56.0 10.6 41.2 51.8 +1.2% +9.8% +8.0% +6.4% +10.2% +9.4%DCC SerCom 7.6 17.4 25.0 12.0 14.3 26.3 -37.0% +22.0% -4.9% -34.0% +21.1% -4.0%DCC Healthcare 10.1 11.5 21.6 6.8 8.6 15.4 +48.1% +33.8% +40.1% +53.2% +31.8% +41.2%DCC Food& Beverage 7.4 8.1 15.5 5.4 7.4 12.8 +37.9% +8.1% +20.6% +39.9% +7.1% +20.9%DCCEnvironmental 2.8 2.7 5.5 2.8 2.7 5.5 +2.6% -0.3% +1.2% +4.7% -1.4% +1.7%Total 38.6 85.0 123.6 37.5 74.3 111.8 +2.9% +14.4% +10.5% +6.7% +14.1% +11.6%All constant currency figures quoted in this report are based on retranslating current year figures at the prior yeartranslation rate.
financial review 29On 21 December 2005, the Irish HighCourt found in favour of DCC andOthers in the case taken against themby Fyffes plc, under Part V of the IrishCompanies Act 1990, in relation tothe sale of shares by Lotus Green inFebruary 2000. In dismissing Fyffes’claim against all of the defendants,the Court held that the share saleswere entirely lawful and that none ofthe defendants had any liability arisingfrom the sales of the shares in Fyffesin February 2000.On 10 February 2006, the Irish HighCourt decided that Fyffes should paymost of DCC’s costs in relation toFyffes’ failed legal action against theGroup. DCC expects to recoupapproximately €8.5 million fromFyffes following this High Court orderand, accordingly, has accrued thisamount as a credit under exceptionaloperating costs.On 29 November 2005, the HsinchuDistrict Court in Taiwan issued ajudgment ordering that the LondonHigh Court order obtained by DCC’ssubsidiary, Days Healthcare, againstPihsiang Machinery ManufacturingCompany Limited (a Taiwanese publiccompany), Donald Wu (its chairmanand major shareholder) and Jenny Wu(his wife and director) be enforced inTaiwan. Accordingly, as at 31 MarchTable 2: Return on capital employedUnder Irish GAAP (accountingpractices generally accepted in theRepublic of Ireland) certainintercompany loans had beentreated as part of net investment inforeign operations and foreignexchange gains or losses arising onthese loans had been recogniseddirectly in reserves. On transitionfrom Irish GAAP, certain of theseloans between fellow subsidiaries donot qualify under IFRS as part of netinvestment in foreign operations andtherefore gains or losses on theseloans must be recognised in theIncome Statement.The financial impact of the above isa charge to the Income Statement of€1.145 million for the year ended 31March 2006 (charge of €4.809million: 2005) in respect of foreignexchange losses and these amountsare included in exceptional items.The majority of the intercompanybalances which gave rise to theseaccounting charges (previously takento reserves) were restructuredduring the year ended 31 March2005 and the half year ended 30September 2005 so as to eliminateaccounting volatility from 30September 2005 onwards.basis (14.6% reported) to 157.23 cent.DCC has achieved compound annualgrowth in reported adjusted earningsper share of 13.2% over the last fiveyears and 17.3% over the last tenyears.DividendThe total dividend for the year of42.85 cent per share represents anincrease of 15% over the previousyear. The dividend is covered 3.7times (3.7 times: 2005) by adjustedearnings per share.Return on capital employedA core strength of DCC is the creationof shareholder value through thedelivery of consistent, long-termreturns in excess of DCC’s cost ofcapital. In the year under review,DCC again achieved excellent returnson capital employed (as detailed inTable 2), generating a return of43.0% excluding intangible assets and19.1% including intangible assets(44.9% and 20.4% respectively: 2005).DCC’s return on capital employed hasremained consistently high through acombination of good organic growth,attractive acquisition valuations andexcellent integration synergies.2006 2005ROCE ROCE ROCE ROCE(excl intangible assets) (incl intangible assets) (excl intangible assets) (incl intangible assets)DCC Energy 53.8% 24.5% 53.4% 25.3%DCC SerCom 24.4% 14.3% 30.3% 18.4%DCC Healthcare 60.5% 16.7% 50.3% 13.6%DCC Food& Beverage 55.2% 18.7% 57.1% 21.3%DCCEnvironmental 31.8% 17.4% 45.7% 20.7%Group 43.0% 19.1% 44.9% 20.4%2006, these parties are jointly andseverally liable to pay the DCC GroupStg£14.3 million (€20.5 million),including Stg£2.1 million in accruedinterest. DCC has not accrued any ofthis amount due pending the outcomeof an appeal by the defendants to theTaiwanese High Court, but hasexpensed all the litigation costs.TaxationThe effective tax rate for the Group,including associates, increasedmarginally to 12.7% from 12.0%.Adjusted earnings per shareAdjusted earnings per share increasedby 15.5% on a constant currencyCash flowDCC focuses on operating cash flowto maximise shareholder value overthe long term. Operating cash flow isprincipally used to fund investment inexisting operations, complementarybolt-on acquisitions, dividend paymentsand selective share buybacks. DCC’srecord of excellent cash generationcontinued with operating cash flow
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 14 and 15: 12chief executive’s review“ The
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 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
Page 43 and 44: corporate governance41achieve busin
Page 46 and 47: 44report of the remuneration commit
Page 48 and 49: 46 report of the remuneration commi
Page 50 and 51: 48statement of directors’responsi
Page 52 and 53: 50 report of the independent audito
Page 54 and 55: 52financial statementsgroup stateme
Page 56 and 57: 54 financial statementsgroup cash f
Page 58 and 59: 56financial statementscompany state
Page 60 and 61: 58notes to the financial statements
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114group directory>DCC SerComCompan
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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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