DCC plc (DCC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the DCC Annual General Meeting. [Operator Instructions]. I must advise you that this conference call is being recorded today. I would now like to hand over to your speaker, John Maloney, Chairman of DCC to start today's meeting. Please go ahead, sir.

Good morning, ladies and gentlemen. This is John Maloney, your Chairman here, and welcome to DCC's 45th AGM. Similar to last year, this meeting has been held in quite extraordinary circumstances. To prioritize the health and safety of our shareholders, employees and other stakeholders in the light of the ongoing risks posed by COVID-19, today's AGM is being held at DCC House with the minimum necessary quorum in accordance with the company's Articles of Association. The AGM has always been a key means of connecting with our shareholders, and we regret that we don't have the opportunity to do this in person this year due to the ongoing COVID-19 situation. We do hope, however, that many of you have taken the opportunity to join the meeting via the audio webcast or conference call and listen to the proceedings today. I am joined here this morning at DCC House by Donal Murphy, our Chief Executive; Kevin Lucey, Chief Financial Officer; and Darragh Byrne, Company Secretary. The chairs of our Audit and Remuneration Committees, Jane Lodge and David Jukes, respectively, are also on the line. Our other directors are listening into the call. And finally, Conall O'Halloran of KPMG, our auditors, 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 2 persons entitled to vote each being a member, a proxy for the member or duly authorized representative of a corporate member. Mr. Murphy is here in person as a shareholder. Mr. Lucey and Mr. Byrne are here in person as proxies of Euroclear Nominees Limited, and I am representing those shareholders who appointed me as a proxy in advance. I can, therefore, declare this meeting [indiscernible] and open for business. Please note that voting on each of the resolutions in today's notice of AGM will occur by way of a poll, which 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 also act as scrutineers. The results of the poll will be published via 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. On our agenda today, we have 4 main sections. To begin with, I will say a few words about developments at DCC since the last AGM. Secondly, Donal will provide a summary of the interim management statement, which was released to the stock exchange this morning. And thirdly, we will invite questions from those attendees who have joined via the audio webcast. In the fourth and final part of the meeting, we'll move to the formal business and take the resolutions, which have been put down for shareholder approval. With regard to the resolutions, it was indeed with great sadness that I must ask the meeting to consent to the withdrawal of resolution #5(g) in respect of the reelection of Cormac McCarthy. We were all shocked by Cormac's sudden death last week. Cormac joined the Board in May 2016. He had a long career as CEO of Ulster Bank and as Chief Financial Officer in Paddy Power plc. In the recent phase of his career, he was a Board member in a range of public and private companies. Cormac brought great insight, generosity and experience to his role as a director. He put a lot of time outside of board meetings into visiting our subsidiaries as the workforce designated director. So he maintained a strong grasp of the various businesses and familiarity with the people who run them. He was a model of what the corporate governance standards require of an independent nonexecutive Director. We will miss him greatly. 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, subject to the withdrawal of resolution 5(g). Copies of the notice of AGM have been posted to shareholders along with the annual report where requested and are also available on the website. Turning now to a quick overview of the year. Despite the challenging and uncertain environment created by the COVID-19 pandemic DCC delivered a very strong trading performance through the year with adjusted operating profits of GBP 530 million, up 7.3% and adjusted earnings per share of 386.62p, up 6.6%, both on a continuing basis. Return on capital employed, a key metric for the group was 17.1%. The strong conversion of adjusted operating profits to free cash flow continued at 130% with the group's free cash flow amounting to GBP 687.8 million. On dividend, which I know is important to shareholders, the Board is recommending a final dividend of 107.85p per share, which, when added to the interim dividend of 51.95p per share amounts to a total dividend of 159.8p per share, an increase of 10% over the prior year. We have now had 27 years of uninterrupted dividend growth. The total return to shareholders in the last 10 years has been 299%, taking into account growth in our share price and dividends paid. This year, in particular, the commitment of DCC's people and the agility of our businesses ensured our customers received the energy, health care and technology products they needed to keep going during the pandemic. Our organizational purpose of enabling people and businesses to grow and progress. And our core values of safety, integrity, partnership and excellence were much in evidence across DCC in this past year. In particular, the commitment of the group's employees during a difficult and uncertain period was exemplary. I would like to extend the thanks of the Board to all of them. Turning to board renewal. In April 2020, we welcomed Tufan Erginbilgic to the Board as a Non-Executive Director. His experience and expertise in the downstream energy and lubricant sectors contributed strongly to Board discussions this year. Kevin Lucey succeeded Fergal O'Dwyer as Chief Financial Officer and as an Executive Director in July 2020, following Fergal's retirement after 31 years in DCC. Kevin has transitioned very effectively into this role. I would like to repeat my thanks to Fergal for his contribution as a director during his time on the Board. Leslie Van De Walle retired as a Non-Executive Director, Senior Independent Director and Chairman of the Remuneration Committee in July 2020. I would also like to thank Leslie who contributed greatly to our Board over almost 10 years. David Jukes has replaced Leslie as Chairman of the Remuneration Committee. In October 2020, Gerard Whyte retired as Company Secretary have being held that role for 20 years. I would like to record our sincere appreciation to Gerard for his service to the Board and the wider group during that time. Gerard was succeeded by Darragh Byrne as General Counsel and Company Secretary. I'm also very pleased to welcome [ Lily Liu ] to the Board as a Non-Executive Director and member of the Audit Committee with effect from the conclusion of today's AGM. I will be retiring as Chairman of DCC at the conclusion of this AGM. I have had the great privilege of working with a wide range of talented and committed people across DCC during my time on the Board. I would like to thank them all for their support and dedication through that period. We completed a comprehensive succession process during the year, which resulted in the appointment of Mark Breuer as my successor. Mark has been a nonexecutive director since 2018 and has been the Senior Independent Director since 2020. Mark has the expertise and breadth of knowledge to lead the Board in the years ahead. Mark will take over as Chairman with the effect from the conclusion of this AGM. Caroline Dowling will succeed Mark as Senior Independent Director at the same time. Jane Lodge, who indicated her intention to retire from the Board at the conclusion of the AGM and therefore, did not seek reelection has, in the circumstances, agreed to continue as a Non-Executive Director and as Chair of the Audit Committee. 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. I will now hand over to Donal Murphy, our Chief Executive, who will provide an overview of the statement.

Thank you, Chairman, and good morning to you all. I'll give you a brief update on trading and development in the first quarter of the year to the end of June 2021. DCC traded very well in the seasonally less significant first quarter of the year. building on the strong performance recorded in the year ended 31 March 2021. The group continues to benefit from the resilience in DCC's business model the benefit of diversity from our 3 sectors of energy, health care and technology, the essential nature of the products and services that DCC provides to its customers. and the phenomenal capability, agility and commitment of our 14,000 colleagues who work across the 20 countries that DCC operates in. Operating profit growth in the first quarter was well ahead of the prior year, and modestly ahead of expectations, driven by very strong organic profit growth in DCC Healthcare and DCC Technology. DCC LPG delivered good operating profit growth in the first quarter. As anticipated, volumes recovered relative to the challenging first quarter in the prior year due to increased demand from commercial and industrial customers, particularly in Britain. DCC Retail & Oil also recorded good operating profit growth. The gradual reopening of economies grew volume growth in transport and commercial customers in particular. Operating profit in DCC Healthcare grew very strongly in the first quarter of the year. DCC Health & Beauty Solutions generated a very strong organic profit growth in both the U.S. and in Europe. While DCC Vital also delivered very strong organic profit growth as health care systems began to ramp up elective procedures. DCC Vital also benefited from the first time contribution from Wörner, our primary care business in Germany and Switzerland, which performed well since it was acquired in April 2021. Finally, DCC Technology generated a very strong operating profit growth driven by the excellent performance in North America, where the business continues to develop its market position. The businesses in North America recorded strong organic growth in Pro AV and Pro Audio products as the economy reopened and continue to benefit from good demand for consumer products. On the development front, the group continues to be very active. Since our results announcement on the 18th May last, DCC has completed a number of acquisitions, including DCC Healthcare's first primary care bolt-on acquisition in Continental Europe, following the initial market entry through the acquisition of Wörner in April 2021. DCC also completed the previously announced acquisitions of Primagaz by DCC LPG and Jones oil by DCC Retail & Oil and [indiscernible] by DCC Technology. In terms of our outlook for the year, DCC expects that the year ended 31 March 2022, will be an early year of strong operating profit growth and continued development activity. And last, but definitely not least, I'd like to thank our Chairman, John Maloney, for his tremendous leadership and commitment to the growth and development of DCC over the last 11 years. John joined the DCC Board in February 2009 and when the group was principally operating in Britain and Ireland and was generating operating profits of GBP 150 million. Today, the group is operation in 20 countries on 3 continents, and last year generated operating profit of GBP 530 million. John has led the board with distinction since being appointed Chairman in September 2014. John's extensive business experience, his leadership of the Board and its commitment to the long-term success of the group has been immensely valuable and greatly appreciated. I would like to thank John for a significant contribution to the growth and development of DCC during his tenure on the Board, in particular, for his friendship, support and wise counsel to me as Chief Executive. I wish John, [ Jone ] and all the family every success for the future. Thank you.

Thank you very much, Don and indeed, for those kind words. Shareholders have been given an opportunity to raise questions relating to the business of the meeting today by 2 means. First, shareholders could submit questions in writing in advance of the meeting through the company's Secretary provided that such questions were received before 11:00 a.m. on 14th July 2021. Secondly, shareholders who are listening via the audio webcast, that is the webcast, not the separate conference call facility, are able to ask questions on the business of the meeting now by selecting the Ask A Question box available on the webcast. We will now take a short pause to allow any final questions to be submitted via the webcast. In the meantime, I should note that we did not receive any written questions in advance of the meeting before last Wednesday's deadline. And you can please note that the audio webcast Q&A function is now closed. Thank you, ladies and gentlemen. We will now move on to the resolutions to be put to the meeting, which are set out in detail in the notice of 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. After each resolution, I will hand over to Darragh Byrne, our Company Secretary, to give details of the proxy votes received in advance of the meeting. Resolution 1 is to review the company's affairs and to receive and consider the financial statements for the year ended 31st of March 2021, together with the reports of the directors and auditors thereon. Our auditors, KPMG, are on the line. I will now hand over to Darragh Byrne to give details of the proxy votes which are received in relation to this resolution.

The amount of proxy votes in favor of this resolution was 99.5%.

Thank you, Darragh. Resolution 2 is to declare a final dividend of 107.85p per ordinary share for the ended year 31st March 2021.

The amount of proxy votes in favor of this resolution was 99.8%.

Resolution 3 is to consider the remuneration report, excluding the remuneration policy as set out on pages 112 to 135 of the 2021 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 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.

Amount of proxy votes in favor of this resolution was 98.1%.

The Resolution 4 is to consider the remuneration policy as set out on Pages 116 to 122 of the 2021 annual report and accounts. The company's current long-term incentive plan called DCC plc long-term incentive plan 2009, which is the 2009 plan, expires in July 2021. Under resolution 12, the company is, among other things, seeking shareholder approval for the establishment of a new incentive plan to be called the DCC Long-Term Incentive Plan 2021, in short form, the 2021 plan. As set out in the notice, in relation to Resolution 12, minor changes to the company's existing long-term incentivization structure are being proposed under the 2021 plan. Accordingly, the Remuneration Committee is proposing certain consequential changes to the remuneration policy to reflect the proposed terms of the 2021 plan. We are submitting the revised remuneration policy to an advisory nonbinding vote today, in line with the company's practice to do so every 3 years or earlier if there are changes to the policy.

The amount of proxy votes in favor of this resolution was 98.6%.

Thank you, Darragh. Resolutions 5(a) to (f) and 5(h) are separate resolutions to elect or reelect as appropriate each of the company's directors proposed for election or reelection in accordance with the U.K. Corporate Governance Code. As noted earlier, I will 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 operating in offering independent and constructive challenge to management and have committed sufficient time to discharging their responsibilities effectively. Resolution 5(a) proposes the reelection of Mark Breuer.

The amount of proxy votes in favor of this resolution was 96.9%.

Resolution 5(b) proposes the reelection of Caroline Dowling.

The amount of proxy votes in favor of this resolution was 99.1%.

The Resolution 5(c) proposes the reelection of Tufan Erginbilgic.

The amount of proxy votes in favor of this resolution was 98%.

Resolution 5(d) proposes the reelection of David Jukes.

The amount proxy votes in favor of this resolution was 99.6%.

Resolution 5(e) proposes the reelection of Pamela Kirby.

The major proxy votes in favor of this resolution was 94.1%.

Resolution 5(f) proposes the election of Kevin Lucey.

The amount of Proxy votes in favor of this resolution was 99.3%.

Resolution 5(h) proposes the reelection of Donal Murphy.

The amount of proxy votes in favor of this resolution was 99.9%.

And finally, Resolution 5(i) proposes the reelection of Mark Ryan.

The amount of proxy votes in favor of this resolution was 98.9%.

Thank you, Darragh. Resolution 6 is to authorize the directors to determine the remuneration of the auditors. Details of the remuneration paid to the auditors in the year ended March 2021 are set out on Page 111 of the annual report.

The amount of proxy votes in favor of this resolution was 99.9%.

Resolutions 7 to 11 are the usual annual resolutions, which we put to shareholders. In relation to resolutions 7 to 10, none of the corresponding authorities, which were obtained at the 2020 AGM were exercised during the year and the directors would only exercise these new authorities if they consider them to be in the best interest of shareholders generally at that time. As I've mentioned previously, the full text of these resolutions is available in the Notice of AGM, which we have already taken as read. Resolution 7 is to authorize the company to allot relevant securities up to an aggregate nominal amount of EUR 8.2 million representing approximately 1/3 of the company's issued share capital, excluding treasury shares.

The amount of proxy votes in favor of this resolution was 98.3%.

Resolution 8 is to authorize the disapplication of preemption rights in respect of the allotment of equity securities, including treasury shares for cash in specific circumstances relating to rights issues or any other issues up to an aggregate nominal value of EUR 1.2 million, representing approximately 5% of the company's existing issued share capital, excluding treasury shares.

The amount of proxy votes in favor of this resolution was 99.8%.

Resolution 9 is in addition to the authority proposed under Resolution 8. It authorizes the disapplication of preemption rights in respect of the allotment of equity securities, including treasury shares for cash up to a nominal value of EUR 1.2 million, representing approximately 5% of the company's existing issued share capital, excluding treasury shares and will be used only in connection with an acquisition or other capital investment, which is announced contemporaneously with the allotment or has taken place in the preceding 6-month period and is disclosed in the announcement of the allotment. The maximum nominal value of equity securities, which could be allotted if the authorities under the previous resolution, and this resolution were used would be approximately 10% of the company's issued share capital, which aligns with the preemption group's statement of principles.

The amount of proxy votes in favor of this resolution was 99.7%.

Resolution 10 is to authorize the company and any subsidiary to purchase on a securities market from time to time, shares of up to 10% of the aggregate nominal value of the company's issued share capital excluding treasury shares and to hold these shares as treasury shares are canceled then at the Director's discretion. The resolution also sets the minimum price, i.e., the nominal value and the maximum price, i.e., 105% of the market price that may be paid for shares purchased in this manner.

The amount of proxy votes in favor of this resolution was 99.1%.

Resolution 11 is to set the price range at which any treasury shares may be reissued off market. This is an annual resolution we put to shareholders. Treasury shares were only reissued during the year following the exercise of options under the DCC plc's long-term incentive plan in 2009 and in connection with the company's deferred bonus arrangement. The total number of shares reissued during the year was 163,784, representing approximately 0.17% of the issued share capital.

The amount of proxy votes in favor of this resolution was 99.9%.

Resolution 12 is to approve the establishment of the DCC plc Long-Term Incentive Plan 2021, the 2021 plan. The directors are also seeking the power to do all things that they consider necessary to implement the 2021 plan. As noted earlier, the company's current long-term incentive plan, the 2009 plan will expire in July 2021. The total number of options outstanding under the 2009 plan as at 16th June 2021, was 661,614, representing 0.67% of the company's issued share capital. The Remuneration Committee reviewed the current structures of the 2009 plan with external advice to consider whether it continues to align the incentivization of executives with the interest of shareholders and to reflect the company's culture of long-term performance-based incentivization. Following this review, the committee concluded that the present long-term incentivization structure works well and is proposing that the rules of the 2021 plan will generally replicate the rules of the 2009 plan with only 1 notable change to conform the company's executive incentive framework with market practice. This change is that awards will have a 3-year vesting period with a 2-year post vest sales restriction for executive directors rather than the current 5-year vesting period. Otherwise, the 2021 plan replicates the rules of the 2009 plan with a small number of refinements taking into account evolving best practice. A copy of the rules of the 2021 plan, highlighting the proposed changes by reference to the rules of the 2009 plan is available on the company's website and is also available here today at this meeting.

The amount of proxy votes in favor of this resolution was 98.9%.

Thank you, Darragh. As I mentioned at the outset of the meeting, we will now proceed with the poll and the final results of the voting will be published via stock exchange announcement this afternoon and will be also posted on our website. This concludes the formal business of our AGM, and I now declare the meeting closed. I would like to thank each of you for your continued support, and I hope that you stay safe and well. Goodbye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.