DCC plc (DCC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the DCC plc Annual General Meeting Conference Call [Operator Instructions]. I must advise you that the conference is being recorded today. And I would now like to hand the conference over to John Moloney, Chairman of DCC. Please go ahead, sir.

Good morning, ladies and gentlemen. This is John Moloney here, your Chairman, and welcome to DCC's 44th AGM. I don't think I need to remind anybody that this year's meeting is being held in quite extraordinary circumstances. The AGM has always been the key means of connecting with our shareholders, and we regret that we don't have the opportunity to do this in person in the current year due to the COVID-19 restrictions. We do hope, however, that many of you have taken the opportunity to dial in and listen to the proceedings today. I'm joined here this morning at DCC House by Donal Murphy, Chief Executive; Fergal O'Dwyer, Chief Financial Officer; and Gerard Whyte, Company Secretary. The chairs of our Audit and Remuneration Committees, Jane Lodge and Leslie Van De Walle, respectively, are also on the line. Our other directors will be listening into the call. And finally, Conall O'Halloran of KPMG, our auditor, is also on the line. To deal with the necessary formalities, the quorum required to be present for an AGM of DCC is at least 3 members that is being present either in person or by proxy or, in the case of a corporate member, by a duly authorized representative. Mr. Murphy, Mr. O'Dwyer and Mr. Whyte are here in person as shareholders and I, as Chairman, am representing those shareholders who submitted proxies in advance. I can therefore declare this meeting for us and open for business. Under normal circumstances, we should vote on resolutions put to the AGM based on a show of hands of those present in person. However, this year, given the circumstances, we need to adopt a different process. As such, I have called that voting on each of the resolutions in today's notice of AGM are called by way of a poll. This will take place at the end of the meeting. The poll will be conducted by Computershare Investor Services Ireland Limited, the company's registrars, who will act as scrutineers. The results of the poll will be published by a stock exchange announcement this afternoon and made available on our website. In addition, we will continue our normal practice of informing the meeting of the proxy votes received in respect of each resolution. Our agenda today will have 4 main sections. To begin with, I will say a few words about developments in DCC since the last AGM. Secondly, our Chief Executive, Donal, will provide a summary of the interim management statement, which was released to the stock exchange earlier this morning. Thirdly, we will deal with any questions received. And then the fourth and final part of the meeting will move to the formal business and take the resolutions, which have been put down for shareholder approval. The notice convening the meeting has been circulated to all shareholders, and for the purposes of this meeting, I propose to take it and the full terms of the resolutions included therein as read. Copies of the notice of the AGM have been posted to shareholders along with the annual report, where requested, and are also available on the website. So in respect of the year under review, which is the year ended March 2020, it has been ended with a challenge -- into a challenging environment with the uncertainty surrounding Brexit and the onset of COVID-19 into our last quarter of the year ended March 2020. But the year overall was a year of strong growth and development for DCC with adjusted operating profits of GBP 494.3 million, which was up 7.3% on the prior year and adjusted earnings per share of 362.6p, up 1.3%, both on a continuing basis. Return on capital employed, always a key metric for the group was 16.5%. The strong conversion of adjusted operating profits to free cash flow continued and was at 100%, with the group's free cash flow amounting to GBP 492.3 million. On the dividend, which I know is important to shareholders, the Board is recommending a final dividend of 95.79p per share, which, when added to the interim dividend of 49.48p per share amounts to a total dividend of 145.27p per share, an increase of 5% over the prior year. So as a group, we have now had 26 years of uninterrupted dividend growth. And the total return to shareholders in the last 10 years has been 274%, taking into account growth in our share price and dividends paid. Following the emergence of the COVID-19 pandemic, at DCC, our primary concern was twofold. Firstly, safety, health and well-being of our employees across the group; and secondly, continuing to meet the needs of our customers, particularly in regard to essential supplies in areas such as energy, health care and technology. We operate an evolved and empowered business model across 4 divisions, and I believe in this period, the group has demonstrated great reserves of agility and resilience to adapt at pace to a challenging and changing environment. More will be required as we progress through calendar year 2020, but I believe the business is as well positioned as it can be to sustain itself in challenging times. Turning to Board renewal. In April 2020, we welcomed Tufan Erginbilgic to our Board. Tufan has just retired as COO of BP's Downstream businesses. And therefore, his leadership, experience and expertise in downstream global fuels, lubricants and petrochemicals businesses with deep and broad board knowledge and brings real deep insights to key sectors in which DCC operates. Leslie Van De Walle is not seeking reelection at today's AGM and will retire from the Board as a Non-executive Director and Senior Independent Director and Chairman of the Remuneration Committee at the conclusion of this meeting. I would like to thank Leslie sincerely, who has contributed greatly to our Board over almost 10 years and wish him every success in the future. Leslie will be succeeded as senior independent Director by Mark Breuer and as Chairman of the Remuneration Committee by David Jukes. On February 24th of this year, we announced that Fergal O'Dwyer, who has been Chief Financial Officer since 1994, is retiring from the group after 31 years of service at the conclusion of today's meeting, and so is not offering himself for reelection today. Fergal will be succeeded by Kevin Lucey, Chief Financial Officer Designate. And Kevin will be appointed to the Board as Chief Financial Officer and an Executive Director at the conclusion of today's meeting. I want to sincerely acknowledge Fergal's outstanding track record in the financial leadership of this group. His exceptional commitment and dedication over many years has contributed greatly to the successful growth and development of DCC. And finally, I want to thank you, our shareholders, for your continued support. This morning, we released an interim management statement to the London Stock Exchange. And I now hand over to our Chief Executive Officer, Donal Murphy, who will provide a short overview of that statement.

Thank you, Chairman. As the Chairman mentioned, our last financial year, which seems like a lifetime ago now was an early year of strong growth and development for the group despite the very challenging macroeconomic environment, uncertainty surrounding Brexit and the onset of the COVID-19 pandemic in our final quarter. Group operating profit increased 7.3% to GBP 494.3 million. All 4 divisions grew their profitability. We continued our trend of generating very strong free cash flow. And finally, our return on capital employed, which is DCC's key operating metric, remained strong at 16.5%. A key element of DCC's strategy is the maintenance of a strong and liquid balance sheet. At 31st of March 2020, DCC had net debt of only GBP 60 million and had liquidity on its balance sheet of approximately GBP 2 billion. Our extremely strong financial position leaves the group very well placed to navigate this period of unprecedented uncertainty and to continue our long track record of growth and development in the years to come. The strong performance demonstrates the resilience in DCC's business model and the phenomenal capability, agility and commitment of all 13,200 colleagues who work across the 20 countries that DCC operates in. Through the depths of the COVID-19 crisis, all DCC businesses continue to operate effectively, ensuring our customers receive the range of essential products and services that DCC provides. While demand has been impacted by the lockdowns in most of the markets, our businesses continue to trade robustly and is significantly profitable. We have seen significant changes in demand patterns across the markets that we operate in, who have adapted quickly to cope with these. We have been actively managing our cost base and resources with all discretionary and non-capital -- non-critical expenditure curtailed. Capital expenditure has been limited to essential maintenance and HSE-related spend. Although the lockdown -- as the lockdowns eased, we have recommenced selective organic development capital expenditure to ensure we are positioned to capture opportunities for market share gains. Despite the lockdowns, we have remained active on the development front and completed a number of acquisitions, including our latest expansion in the U.S. nutritional market with the acquisition of Amerilab Technology at the end of March. And in May, we expanded our gas and power business in Ireland with the acquisition of Budget Energy. We've been really pleased with the trading performance in the first quarter of the year. Despite the impact of the COVID-19 crisis, the group has been significantly profitable, although behind the prior year. Trading improved throughout the quarter and was ahead of our expectations at the time we announced our full year results in May. Just looking briefly at the performance across our divisions, trading in DCC LPG was behind the prior year due to weakness in commercial and industrial volumes, particularly in Britain and Ireland. Despite a relatively warm start to the year, the increase in time spent at home by consumers meant domestic and retail cylinder demand was strong during the quarter across most of DCC LPG's markets. DCC Retail & Oil performed very well in the quarter, driven by good performances in both the British and Danish businesses. The good performance has reflected strong demand in the agricultural sector and very strong demand in the domestic sector, where customers sought to secure supply during uncertain lockdown periods. Although overall volume for the quarter were well behind the prior year due to the reduced demand for transport fuels, the positive mix impact of the strong domestic and agricultural performance, the gradual recovery in transport fuels as the lockdowns were eased and a very good cost performance delivered operating profits modestly ahead of the prior year. Operating profit in DCC Technology was behind the prior year, although trading improved steadily throughout the quarter, with good underlying demand for consumer technology products in the e-tail and nontraditional retail channels. Demand for B2B products, particularly Pro AV, and enterprise products was impacted more significantly due to the lockdowns. And finally, in DCC Healthcare, we had a strong performance in the quarter with operating profit well ahead of the prior year. DCC Health & Beauty solutions had strong demand for nutritional products and benefited from the first-time contribution of the acquisitions in the U.S. of Ion Labs and Amerilab Technology, both of which are performing well. DCC's Vital experienced very strong growth for COVID-related products, both PPE and the products into the ICU, which offset weakness in demand for products used in elective surgery, testing and other medical procedures. Overall, it was a very pleasing performance in very difficult circumstances. Our outlook statement, and I'll just read our outlook statement. While the sustained uncertain environment created by the pandemic continues to impact all economies, DCC has a diverse and very resilient business model as demonstrated during the quarter, leading market positions and an extremely strong balance sheet. The group is well positioned to continue its growth and development into the future. I'd like to take this opportunity to thank all 13,000 colleagues who operate across the 20 countries that DCC operates in for making it all happen every day. And last, but definitely not least, I'd like to thank my good friend and colleague, Fergal O'Dwyer, for his tremendous leadership and commitment to the growth and development of DCC over his 31-year career and wish himself, Paula and all the family every success for the future. Thank you.

Thank you, Donal. We now go to a question-and-answer session. Shareholder's given the opportunity to raise questions relating to the business of the meeting through the company secretary so that we could address any queries on this call. However, at this point, we have not received any questions or indeed, we did not receive any questions at the deadline of 11:00 a.m. on the 15th of July, which was last Wednesday. So as such, this meeting will not now include a question-and-answer session, and we can move to the resolutions, which are set before the meeting. And these are the resolutions contained in the notice of the AGM. Resolutions 1 to 7 and Resolution 12 are proposed as ordinary resolutions. Resolutions 8 to 11 are proposed as special resolutions. Just to remind you, each individual resolution will be voted on by way of a poll at the end of the meeting, and the poll results will be published by a stock exchange announcement this afternoon and will also be posted on our website. Also, as I noted earlier, after each resolution, I will hand over to Gerard Whyte, our company secretary, to give details of the proxy votes received in advance of the meeting. So first resolution is to review the company's affairs and to receive and consider the financial statements for the year ended 31st of March 2020 together with the reports of the directors and the auditors thereon. Our auditors, KPMG, are on the line today. I will now hand over to Gerard Whyte to give details of the proxy votes, which were received in relation to this resolution.

Resolution 1, proxy votes in favor, 98.69%; and against, 1.31%.

Thank you, Gerard. Resolution 2 is to declare a final dividend of 95.79p per ordinary share for the year ended 31st of March 2020. Can we have the proxies please, Gerard?

In favor, 99.99%; and against, 0.01%.

Thank you. Resolution 3 is to consider the remuneration report. This excludes the remuneration policy, which is set out on Pages 108 to 133 of the 2020 annual report and accounts. It has been the company's practice since 2009 to put the remuneration report to an advisory nonbinding shareholder vote at each AGM. This is in line with U.K. regulations, which require nonbinding votes on remuneration reports and binding votes on remuneration policies. As an Irish incorporated company, we are not subject to these U.K. regulations, but we will recognize that they represent best practice in remuneration reporting. And given our listing on the London Stock Exchange, we continue to substantially apply the regulations to our remuneration report and policy on a voluntary basis. Similar requirements have now been introduced under Irish law. The proxies please, Gerard.

Proxy votes in favor, 99.85%; and against, 0.15%.

Thank you. Resolution 4 is to consider the remuneration policy as set out on Pages 113 to 120 of the 2020 annual report and accounts. During the year, the remuneration committee conducted a thorough review of the current remuneration policy to ensure it remains appropriate to support the business, is aligned with shareholders' interests and takes into account evolving best practice and regulatory developments. We have concluded that while the current policy remains overall fit for purpose, we are proposing a number of minor changes to the policy and are also seeking to clarify the wording in the policy in respect of a number of matters. We are submitting the revised remuneration policy to an advisory nonbinding vote today. The proxies, please, Gerard?

In favor, 99.19%; and against, 0.81%.

Thank you. Resolution 5 A to J are separate resolutions to elect or reelect as appropriate each of the company's directors in accordance with the U.K. corporate governance code. As noted earlier, Fergal O'Dwyer and Leslie Van De Walle will both retire from the Board with effect from the conclusion of the AGM. The Board undertakes a formal annual evaluation of its directors and is satisfied that all directors proposed for election or reelection performed effectively in offering independent and constructive challenge to management and have committed sufficient time to discharging their responsibilities effectively. Resolution 5A proposes the reelection of Mark Breuer.

In favor, 97.36%; against, 2.64%.

Resolution 5B proposes the reelection of Caroline Dowling.

In favor, 99.64%; against 0.36%.

Resolution 5C proposes the election of Tufan Erginbilgic.

In favor, 99.99%; against, 0.01%.

Resolution 5D proposes the reelection of David Jukes.

In favor 99.92%; against, 0.08%.

Resolution 5E proposes the reelection of Pamela Kirby.

In favor, 98.61%; against, 1.39%.

Resolution 5F proposes the reelection of Jane Lodge.

In favor, 99.0%; against, 1.0%.

Resolution 5G proposes the reelection of Cormac McCarthy.