Annual Report and Accounts 2006 - DCC plc

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