Chairman’s Statement

Chairman’s Statement
Consistent Profit Growth, Exceptional Return on Capital, Financial Strength
I am very pleased to be able to report to shareholders of DCC plc that in the year ended 31 March 2011, profits again grew significantly - for the 17th year in a row. It was a year in which the economies that are currently most important to our business showed little growth, or remained in recession. Nonetheless, adjusted earnings per share increased by 14.1 % on a reported basis, the return achieved on capital employed was an exceptional 19.9 %, €123.6 million of free cash flow was generated and DCC ended the year with net debt of €45.2 million compared with equity of €931.9 million. This puts the Company in a very strong position to continue to progress its strategic agenda and, in particular, to take advantage of acquisition opportunities that will meet our financial return criteria and which will contribute to our drive to achieve or to consolidate leadership positions in our chosen fields of activity.

The financial results are summarised more completely in the Chief Executive’s Review and are set out in detail in the Business Review and in the Financial Review below. The Board warmly congratulates DCC’s Chief Executive, Tommy Breen, his management team and the more than 8,000 employees who work in 13 countries for achieving such strong results, for the consistency and balance that have become hallmarks of DCC’s financial performance and for the exceptional efforts made to continue to serve customers during an extended period of severe weather during two crucial trading months in the financial year under review, particularly for our oil and gas distribution businesses.

DCC’s total shareholder return in the 10 years to 31 March 2011 was 179.5%.

Dividend Increase of 10%

The Board is pleased to be in a position to recommend a final dividend of 48.07 cent per share. When added to the interim dividend of 26.11 cent per share, this means that the total dividend for the year will be 74.18 cent per share, an increase of 10% per share over the prior year. The dividend is covered 2.7 times by adjusted earnings per share. This means that the compound annual growth rate in DCC’s dividend over the last 5 years has been 11.6%. Subject to shareholder approval at the Annual General Meeting on 15 July 2011, the final dividend will be paid on 21 July 2011 to shareholders on the register at the close of business on 20 May 2011.

DCC’s Business Model

DCC’s business model is distinctive, and can be summarised under four main headings.

First, over more than thirty years DCC has built up a set of skills in building agency relationships with product producers, in order to provide them with outsourced sales, marketing, distribution and business support services, as well as the supply chain management expertise that develops from combining those skills. We have proven that this skill-set can be applied to build sustainable businesses in a variety of sectors as long as they have good consolidation potential. Our environmental business stands somewhat apart from this model, but uses many of the same skill-sets.

Second, DCC has built a management model which seeks to combine entrepreneurial leadership teams at subsidiary level with a lean management team at the centre. It focuses on identifying and capitalising on development opportunities, on the successful integration of acquisitions and on ensuring that the businesses being built operate according to good business principles and embed best practice in relation to sustainability, risk management and compliance.

Third, DCC applies the same set of financial disciplines to each business line focussing, in particular, on efficiency in working capital, cash generation and return on capital employed.

Finally, we maintain a very strong balance sheet which gives DCC the capacity to avail of acquisition opportunities that meet our financial and strategic criteria, as they arise.


During the year under review, there was steady progress in implementing DCC’s strategy of seeking over time to concentrate focus on those businesses in which it has already established, or has the opportunity to establish, leadership positions and which are most likely to generate attractive and substantial returns on capital, through a combination of organic growth and acquisitions. Some peripheral businesses in our healthcare division were disposed of for a good price. Our position in the UK oil distribution business was further strengthened by a number of additional acquisitions (the largest of which is subject to OFT clearance at the time of writing). Acquisitions in DCC’s SerCom division respectively broadened our product range and customer base into the French retail market and strengthened our position in the distribution of electronic office supplies into the UK reseller market. In all, over €130 million was committed to acquisitions, while considerable effort was expended on, and much benefit was achieved from, the integration of acquisitions made in the prior year in the UK, Denmark and Austria.


I am glad to be able to say that good progress was made both in relation to defining and implementing the key components of a best practice sustainability agenda and in communicating our performance and plans, both internally and externally, to all stakeholders. An overall structure of policies, processes and performance indicators, focussed on the four material aspects of direct economic value added, climate change, health and safety and business ethics, has been approved at DCC Board level and is now being worked through at subsidiary level through local workshops.

During the year under review:

- Direct economic value added was €557 million.
- CO2 emissions increased by 16%, primarily driven by acquisitions in the Energy Division. Our environmental compliance and the calibre of our responses to incidents has been high. Our subsidiary, the William Tracey Group, has launched a food and organic waste collection service for its customers, in support of the Scottish Government’s Zero Waste plan. A key part of the service will be an anaerobic digestion treatment plant which has been constructed by Scottish and Southern Energy at Tracey’s former landfill site at Barkip, where landfill gas is already being used to generate renewable energy.
- On the health and safety front, the frequency of accidents that resulted in lost time fell from 2.8 per 200,000 hours worked to 2.5. However, due to some accidents that resulted in over 100 days lost, the number of calendar days lost per 200,000 days worked increased from 42 in the prior year to 48 in the year under review. The International Safety Rating System (ISRS) audit tool is being phased in across our energy and environmental subsidiaries.
- In line with the commitment given last year, a set of DCC Business Conduct Guidelines has been circulated to all subsidiary employees. It sets out and gives guidance on the application of our common commitment to ethical behaviour, trust and accountability across what is a highly diversified business.

A detailed Sustainability Report, which meets the requirements of the Global Reporting Initiative C+ standard, is set out in the body of this Annual Report.

Board Membership and Board Evaluation

One new non-executive Director, Leslie Van De Walle, who is UK based, was appointed during the year, following a search conducted by an international firm specialising in board level appointments. Leslie broadens the sectoral experience base of the Board significantly, in areas such as energy and manufacturing, and brings a wealth of knowledge of doing business in the UK and in key European markets relevant to DCC’s strategy. He has taken the Chairmanship of the Remuneration Committee and is also a member of the Nomination and Governance Committee.

Maurice Keane retired as a non-executive Director on 5 April 2011, after 9 years’ service, during which he served on the Audit and Nomination and Governance Committees and chaired the Remuneration Committee at various stages. His strong, independent and constructive approach to a wide range of issues will be missed.

The Nomination and Governance Committee has begun a search process with a view to appointing during the course of the current financial year a new non-executive Director, preferably UK based, who will become a member of the Audit Committee, on appointment.

In accordance with the Combined Code, at year end DCC’s annual, extensive evaluation of Board performance during the year was conducted. Under the supervision of David Byrne, Deputy Chairman and Senior Independent Director, a detailed questionnaire designed to elicit individual Directors’ views on Board performance was circulated to each Director. Completed questionnaires were sent by the Directors to Towers Watson, who coordinated and summarised the responses in conjunction with David Byrne. He presented the results to the Board for discussion. Useful suggestions in relation to key Board agenda items, time allocation at Board meetings and areas for further director education emerged, which I will act upon in the current year. David also conducted interviews with each Director, other than myself, to determine their views on my performance as Chairman. I separately conducted a review with each Director of his/her individual performance during the year under review. I am happy to report that I found that each Director had performed effectively in offering independent and constructive challenge to management, had made an appropriate contribution to strategy development and had committed sufficient time to DCC Board affairs. The other Directors found that I had discharged my responsibilities satisfactorily.

Next year, the entire Board evaluation process will be conducted by an independent consultant, in accordance with the requirements of the new UK Corporate Governance Code.

As has been the case for several years now, all Directors will offer themselves for re-election at the Annual General Meeting.

The Combined Code and Other Corporate Governance Matters

The UK Corporate Governance Code (issued in May 2010) and the Irish Corporate Governance Annex (issued in December 2010 ) come into effect, as far as DCC is concerned, from the current financial year beginning on 1 April 2011. I can report that DCC was in compliance with all of the requirements of the prior Combined Code in force in the financial year under review and is taking the necessary measures to be in compliance with all revised requirements during the year now started.

Board responsibility for risk oversight is given much heavier emphasis in the new Code. Board agendas from now on will allocate significant time to the risk oversight role of the Board in satisfying itself that risk management policies and procedures, and the risk management organisation structure operated by senior management and risk managers are consistent with the Group’s corporate strategy and risk appetite, that these policies are functioning as directed, and that the necessary steps are being taken to foster a culture of risk-aware and risk-adjusted decision-making throughout DCC. The terms of reference of the Audit Committee have been amended to reflect the updated FRC Guidance on Audit Committees and, in particular, to put more emphasis on its role in reviewing the effectiveness of risk management systems and the conclusions of any testing carried out by internal and external auditors. The terms of reference of the Remuneration Committee have also been amended to ensure that the Committee gives appropriate weight to risk management performance in determining variable elements in overall remuneration schemes, and that the overall approach to remuneration does not encourage inappropriate risk-taking. The title of the Nomination Committee has been amended to ‘The Nomination and Governance Committee’ and its terms of reference have been expanded to give it the role of reviewing and making recommendations to the Board on developments in corporate governance law and best practice.

In light of the rapid expansion of the Group in recent years, the Chief Executive has initiated a Group wide review of risk management policies and structures, with a view to ensuring that risk organisation, resourcing, policies, process and practice meet the highest standards, while being appropriate to DCC’s specific diversified structures and business model. The results of the review and recommendations arising will be presented to the Board for approval during the third quarter of 2011.

External Audit

A formal process is being undertaken by the Audit Committee to select the firm which will carry out DCC’s external audit in the coming years. Five firms were asked to tender. The outcome of this process is not yet known.


The economic environment in our most important markets remains uncertain. In assessing the outlook for the year to 31 March 2012, it is wise to assume a return to a more normal weather pattern, compared to the last two winters. We are assuming also a 3% weakening of the average sterling/euro exchange rate compared with last year. Organically, therefore, we are anticipating a modest decline in operating profit and adjusted earnings per share, on a reported basis. But, as I have outlined above, the DCC business model is based on seeking over time a good balance between organic and acquisition led growth. I am confident that our strong balance sheet and pipeline of acquisition opportunities provide us with a platform to continue to deliver value to our shareholders in the year ahead.

Michael Buckley
9 May 2011

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Dividend (cent)

I am glad to be able to say that good progress was made both in relation to defining and implementing the key components of a best practice sustainability agenda and in communicating our performance and plans, both internally and externally, to all stakeholders.