DCC plc (DCC) Earnings Call Transcript & Summary

Good morning, and welcome. I'm Donal Murphy, Chief Executive of DCC, and I'm joined on the call this morning by a number of my colleagues. Here with me in DCC house is Kevin Lucey, our CFO; from the U.K., Tim Griffin, Managing Director of our Technology division; and from a very early morning in Philadelphia, Clive Fitzharris, Managing Director of our International Technology businesses. Thank you for joining us this morning on this very exciting day for DCC, as we announce the significant expansion of DCC Technology in North America through the acquisition of Almo Corporation. This is DCC's largest acquisition to date. We also want to take the opportunity this morning to update you on our group strategy and our capital allocation framework, which we believe will create significant shareholder value over the short, medium and long term. Thankfully, I don't have to read the disclaimer. I'll give you an update on the group strategy and our value creation model. I'll take you through our growth to date in North America to demonstrate our strategy and action. Tim will update you on the DCC technology strategy and our growth in North America. Clive will take you through the highlights of the Almo acquisition, and why we see it as a really exciting opportunity and a very important step in the further development of our business in North America. Kevin will then give you an update on our capital allocation framework and our priorities for capital deployment and our growth agenda. And I'll wrap up and open up for Q&A. DCC is a purpose-led organization, and we are focused on the value we create for all our stakeholders. Our purpose, enabling people and businesses to grow and progress, really came to life throughout the pandemic as DCC delivered the essential products and services that people and businesses required, while also delivering a strong financial performance. We achieved this by building impactful connections. As a distributor, we are at the heart of the supply chain, connecting the producers of products with consumers. We are a trusted provider, building long-term and deeply embedded partnerships with our customers and our suppliers. We focus on creating sustainable growth and superior value over the long term. We achieved this through a consistent strategic objective to build a growing, sustainable and cash-generative business, which consistently provides returns on capital employed significantly ahead of our cost of capital. Throughout our presentation today, you will see the key elements of this strategy in action. We take a long-term sustainable view of value creation, which ensures our commercial strategies prioritize growth and create value-adding strategic positions in our chosen markets. You will see later how Almo fit this objective. Our focus on capital allocation ensures our ability to reinvest into growth trends. And Kevin will show you later our capital allocation priorities are aligned with the growth trajectories of our sectors. And finally, sustainability is core to everything we do across the group, and we are making really great progress on our sustainability agenda, including our journey to net zero. More on this for me in a few moments. We have a proven business model that has consistently delivered high growth and high returns over our 27 years as a public company. We achieved this by drop in the organic performance of our businesses, investing and reinvesting capital and leveraging the benefit and resilience of our diverse sectors. We have a proven process for the financial and commercial management of our businesses, driving organic growth and consistent cash conversion. Our group center empowers our businesses while providing expertise and shared value in specialized areas. We add value through economies of scale, synergies and deep industry experience. We build long-term and deeply embedded relationships with our customers and suppliers. We invest capital in our businesses and deploy capital on large and small-scale acquisitions, where the returns on capital employed are consistently ahead of our cost of capital. We reinvest cash flows to enable our businesses to grow and scale, creating real value for shareholders. And we will further demonstrate today that we are in an advantaged acquirer for businesses in our sectors due to our long-term outlook, a differentiation from private equity and scale benefits of a strategic acquirer. Our diversification by sector and geography gives us optionality to pursue the assets with the highest returns, while also providing great resilience. And our devolved model ensures proximity to customers, local responsibility and focus, which creates real agility and drive a high-performance culture. Our diversified model provides significant expansion opportunity and creates real resilience. We have clear winning strategies for each of our sectors. In energy, our strategy is to lead the energy transition, bringing decarbonization closer for our customers through domestic and commercial energy solutions and multi-fuel mobility networks. We are making really good progress and regularly update the market on the innovative products and solutions we are providing to our customers to reduce their carbon footprint. We will host an investor event in calendar Q2 next on our Energy Strategy. Our Healthcare Strategy is to build a substantial international healthcare group focused on the provision of high-quality contract manufacturing and related services to health and beauty brand owners and on the supply of medical products to healthcare providers. [ Conor Costigan ] gave a good update on our healthcare strategy at our healthcare investor event last September, a recording of which is available on our website. And finally, our Technology Strategy is growing a leading international specialist distribution group and technology and lifestyle products, and Tim will outline more on this shortly. Regardless of the sector, all our businesses have consistent characteristics. They are: customer-focused, sales, marketing, distribution or light manufacturing businesses, asset-light with relatively low capital intensity, generate recurring revenues with high cash conversion in devolved markets with similar risk profile and importantly, with consolidation opportunities. This chart summarizes the points I've discussed already and emphasize while we believe that DCC's diversified business model really delivered and will continue to do so over the long term, it provides resilience through the cycles, exposure to multiple growth trends, optionality in capital allocation, facilitates geographic expansion, creates many career opportunities for our people, our greatest asset, and it provides the ability to leverage operational and divisional best practice, adding real value to our businesses. This is enabled by the group level by a clear strategic direction and capital allocation framework, a culture of driving performance and growth, backed by financial strength and discipline. As I mentioned a few moments ago, sustainability, aligned with our purpose is core to everything we do across the group, and we are committed to driving excellence in sustainability. During the year, we launched our first stand-alone sustainability report. In November 2020, at our Energy Event, we set out our approach to driving excellence in sustainability and related reporting. In this context, we are delighted to have recently retained our AAA rating from MSCI and improved our CDP rating to B, up 2 classes, which is a significant achievement for our team. We are also making great progress on our journey to net zero. Now let me use our expansion into North America as a case study to demonstrate DCC's strategy in action. Less than 4 years ago, DCC decided to expand into North America. And today, after the acquisition of Almo, we now have circa 30% of our group capital employed in North America, businesses in all our sectors and approximately 3,000 colleagues growing and developing our business in North America. But most importantly, we are only starting as we have small shares in large, fragmented sectors. With the growth platforms we've created, we now are an advantaged acquirer in North America. Having identified the nutritional contract manufacturing market as a very attractive fragmented market, where we could leverage the knowledge and experience of our European businesses sets us building relationships with businesses in the sector. Our first acquisition in North America was in February 2018 when we acquired Elite OneSource, a nutritional contract-manufacturer based in Montana. We further expanded our business in this sector through the acquisitions of Ion Labs in November 2019 and Amerilab in March 2020. Organic growth in our nutritional business in North America is strong and we've created a platform for further capital deployment in this attractive high-growth sector. In April 2018, we acquired Retail West, our entry into the energy sector in North America. Retail West, now DCC Propane, had operations in 10 states, mainly in the Midwest. Since the acquisition, we've grown strongly, deploying circa $500 million in total to create a business operating across 22 states, supplying propane and related products and services to approximately 300,000 customers. And similarly, in technology, we've created a substantial platform for growth, which Tim will take you through shortly. What pleases me most about our progress in North America is the organic growth we've achieved by leveraging the DCC business model we disclosed earlier. As I mentioned earlier, geographic diversity has created great resilience in our business and created platforms for further growth. Over the past decade, we've revolved the group from being principally a business operating in the U.K. and Ireland, to a group operating in 21 countries on trade continents. Today, the U.K. and Ireland accounts for circa 32% of our capital employed. Continental Europe has 34%. North America is the home for 31% with the balance in Asia. We have also sharpened our strategic focus over the past decade, exiting sectors and businesses that did not fit our strategic framework of where we did not see sustainable growth in the medium to longer term. We exited our food and beverage division in 2015. We exited our environmental service division in 2017. And we also divested a number of businesses in our core sectors of energy, healthcare and technology. where the growth rate or the return profile did not meet our objectives. We will always focus on optimizing our portfolio in line with long-term trends and our long-term strategic objectives. Our expansion in North America has created substantial value. We have deployed circa $1 billion pre-Almo in North America. And as you can see on the chart, significantly improved the return on capital employed from the entry-level returns. We've achieved this by applying the DCC business model we discussed earlier, driving organic growth and operational efficiencies through capital discipline and CapEx investments and by extracting cost synergies. We've already created a business of substantial scale in North America in each of our sectors. I won't call out the steps, you can read them for yourself. But the more important point is that we have created platforms for further growth as all our sectors are large, fragmented markets, where we still have relatively small market shares. In energy, there is considerable roll-up potential, given the highly fragmented nature of the propane market. We will also invest in our energy transition strategy bringing low-carbon and renewable multi-energy products and services to our customers. In Health & Beauty, we are investing CapEx to further develop our capability, capacity and form factors while seeking further consolidation opportunities. And now I'll hand you over to Tim, who will update you on our technology strategy and our growth in North America. Tim?

Thank you, Donal. Like elsewhere in the DCC Group, in DCC Technology, we are focused on the value we create for all our stakeholders. We talk all the time in DCC about partnerships. In DCC Technology, we bring this to life by building really impactful connections between our vendors and our customers. For our 2,500-plus vendor suppliers, we provide reach and market access. We support them through our sales, marketing and distribution channel, enabling them to maximize demand for their products. We are the route to market for our vendors across 19 countries. For our more than 50,000 customers, we provide vast breadth of solution and product choice, offering supply chain simplicity and the ability to leverage our technical and logistics capabilities. We've embedded long-term relationships with our vendors and our customers. They trust us because they know the value we add as their vital partner in the growing distribution channel. The fantastic thing about this industry is that it is always changing and growing. Distribution is providing more and more of the services that vendors and customers require to be agile in a dynamic market, the trends towards e-commerce, working from home, smart home, I could go on, of course, are all being enabled by DCC Technology and the services we provide. We are constantly innovating to add value to our customers and vendors. Although, the technology industry is always evolving, our position between our vendors and customers remains familiar. Our specialist focus really delivers that extra expertise and technical capabilities, which bringing real value to our vendors and helps us make the market for their product. Our knowledge, expertise and technical support are increasingly invaluable for our customers where products are changing constantly. We make the complex simple. For example, the Pro AV architecture for a major event center or the installation of Pro AV equipment or premium appliances in a large new construction project. We work hand-in-hand with the integrator to design the best solution for the end user. We also support new technology coming to market with our own brand or white label products, which are complementary to our vendors offerings. And helps build out their offering in terms of accessories or other essential peripherals and which helps their overall go-to-market strategy. And we also provide these own brand or white label solutions for customers who need full range across all price points. The evolution of sales channels is resulting in an omnichannel world. In this environment as well as providing solutions to retailers and e-tailers, we're also enabling technology brands to sell directly to their end users. We do this by providing bespoke, digital solutions and web offerings. This enables them to reach more of the market than they could on their own, simply by leveraging our infrastructure. Our whole value proposition is predicated on great teams. And every day, our people makes life simpler for vendors, resellers and retailers. Finally, our approach to sustainability. We are continuing to develop our capability in delivering a second life for technology, developing the residual market for technology and enabling subscription models to evolve. In parallel, we have reduced the carbon footprint of our own operations by installing our own renewable energy solutions on our sites. We are incredibly proud of our heritage of building businesses, both through operational and sales excellence, delivering growth either organically or by acquisition. The context to this latest acquisition is our expansion into North America and our continued investment in professional audio-visual distribution. This slide tracks our journey over the last 3 years or so starting with our beachhead Pro AV acquisition of Stampede quickly followed by the addition of Jam, which gave us not only a Pro Audio extension, but also consumer platforms in electronics and musical instruments. Since acquiring both these larger businesses we have, in typical DCC fashion, completed a number of value-adding bolt-ons. The music people extended our capability in Pro Audio. And then more recently, we were able to leverage our position in Pro AV to expand into the broadcast adjacency with JB&A being added to the family. Our business has performed very well in the last couple of years. Throughout the COVID pandemic, the business has demonstrated real resilience and continue to grow in North America. With strong performance and increased scale over time has given us a strong position in Pro AV and Pro Audio and a developing position across the consumer channel more generally. It's great that we have found another complementary acquisition in Almo, which will further strengthen our business in North America. Post this acquisition, we will have a multibillion revenue entity in North America with over 1,400 colleagues operating from 19 locations. North America will also have well over half of the invested capital of the Technology division. We are excited by the prospects of the business, and I look forward to more growth and development in North America in the future. I'm delighted to hand over to Clive, who leads our International business in DCC Technology to explain more about this transaction and Almo.

Thank you, Tim, and hello to you all. I will give you more color on the transaction and what makes Almo such an exciting high-quality business for us in North America. We have been building our relationship with the Chaiken family for 3 years since we entered North America in 2018. Building this relationship and mutual trust has allowed us the opportunity to do an off-market transaction. The majority of transactions which DCC do are bilateral in off market. This reflects the effort we put into building relationships with other players in our sector and demonstrates an important differentiator within our M&A capability. Almo is a large-scale value-added distributor with nationwide coverage across the U.S. It operates across 3 major sectors with distinct vendors, customers and sales forces supported by common infrastructure and back office. In the Pro AV sector, Almo is very similar in scale, products, margins and market approach to our existing Pro AV business but with complementary geographic strength in terms of sales activity. In appliances, Almo is the largest distributor of mainstream appliances to small- and medium-sized specialist retailers throughout the U.S. They have long-standing vendor relationships, some stretching to over 40 years, and it is the only nationwide player. Almo also are the leading distributor of premium appliances for luxury residential installations, which are used in both indoor and outdoor settings. In the premium appliance space, Almo typically has long-standing exclusive vendor relationships and services specialist retailer and construction channels for these high-end products. Finally, Almo has a dedicated capability focused on e-commerce fulfillment for a range of third-party and own branded products in home comfort, principally air treatment appliances and a range of lifestyle products. These products are typically large and hard-to-handle items which fits with Almo's warehouse capability with rapid shipping nationwide. The customer base includes leading U.S. retailers and e-tailers. Almo fits with our ambitions geographically. It fits with our existing specialist focus in Pro AV and own brand products. It fits with our strategy in continuing to acquire platform assets for further growth and development. This time, with the North American platform and consumer appliances and lifestyle products. Warren Chaiken will continue to lead an experienced and proven management team, which individually have decades of experience and relationships with vendors and customers. It is an excellent management team with a long track record of driving organic and acquisitive growth. Their sales capability, the large product format warehouse footprint and the access to retailer, e-tailer, construction and install our channels across various business units gives resilience and numerous avenues for growth. In addition, each of Almo's markets have attractive growth outlooks. Combining Almo's Pro AV offering with our existing Pro AV business creates the clear #1 Pro AV specialist distribution business in North America with significant market share. A doubling of our Pro AV presence gives us leading sales expertise and coverage nationwide and a more complete warehouse footprint and vendor set. By combining the best of both businesses, we will enhance our market reach and breadth for the benefit of vendors. It broadens our technical capability, product range and availability for our customer base of installers. We see revenue and cost synergies when the businesses are integrated. The Pro AV market is rebounding well and is expected to fully recover during the next year. Industry forecasts are for mid-single-digit market growth per annum in the medium term. Pro AV is a key element of the acquisition. However, we are also acquiring a market-leading platform in consumer and lifestyle products. As Tim mentioned, Jam has performed very well since acquisition. It has specialist consumer positions in electronics and musical instruments alongside its leading pro-audio business. Similar to Jam, Almo has specialist positions in consumer and lifestyle products alongside its significant Pro AV business. As mentioned already, Almo is the largest independent distributor of appliances in North America. Our most addressable market here is expected to continue to grow at similar rates to Pro AV at mid-single digits per annum. Almo's really interesting e-commerce capability has high growth. It also provides an opportunity to further scale existing and new product categories with similar characteristics and margin profiles. The strong growth and operating margins within each business unit are in line with our businesses in DCC Technology, which have deep specialism, scale and exclusive and own brand aspects. Almo's management are focused on its core strengths with simplicity in operations and shared back-end functions. They translate their business unit margins into strong overall profitability for the company. Almo is also a strong fit with DCC's culture of sustainability. They already have an ambition to be carbon-neutral by 2024. Indeed, approximately 1/3 of their warehouses are powered by rooftop solar installations. Almo is a terrific business in its own right. Plus we have a value creation plan through revenue and cost synergies, and we will be seeking to leverage the platform with further acquisitions, a highly successful business and management team, and with a DCC approach and capital, we are confident that we will deliver strong growth. Now over to Kevin.

Thanks, Clive, and good morning, everyone. Over the next few minutes, I'll take you through some of the financial metrics of the transaction as well as giving a brief overview of our capital allocation priorities in DCC. So firstly, to Almo. As Clive mentioned, Almo is a scale business and last year it generated underlying revenue an EBITDA of $1.3 billion and $75 million, respectively. At current exchange rates, that is EBITDA of approximately GBP 57 million. The operating margin profile of the business reflects the value-added service the business provides, and the specialist focus around Pro AV and consumer appliances and electronics. The acquisition will be materially margin-enhancing for DCC Technology. The initial enterprise value was $610 million, and the vast majority of the consideration was settled in cash at completion. The acquisition will be significantly earnings-enhancing, and we expect it would add approximately 10% to adjusted EPS in its first full year. As always in DCC, we are focused on returns. Clearly, this is a scale transaction and will deliver returns well above DCC's cost of capital from completion, and we expect it will deliver a return on capital employed of 15% within 3 years. Of course, the returns are attractive, but we also believe that the enlarged business will be a real platform for us to deploy further capital at good returns in due course. Now switch gears a little and talk a bit more about our capital allocation priorities in DCC. So to get going, this is our overall framework for capital deployment in DCC. DCC is growing organically by an average 4% over the last 5 years. and our teams have innovative business development plans that we support in development CapEx. We allocate capital M&A where we see the opportunity to bring good businesses into the group and improve them further or improve our group capability by bringing them in. We focus on delivering sustainable returns and capital well in excess of our cost of capital. We've deployed well over GBP 900 million in M&A over the last 18 months. Finally, we are focused on growing our returns to shareholders, and we have a progressive approach to dividends. Donal talked earlier about our agile business model and our growth focus; this manifests itself in our approach to capital deployments. Our priorities for capital deployment are driven by our views on the long-term sustainable growth that can be delivered from any deployments. We have clear priorities for capital allocation across the 2 pillars of organic development CapEx and M&A. As you can see on the right-hand side here, in particular, we are focused on accelerating the growth of our healthcare and technology divisions and then building our capability in new or renewable energies. We believe there is a substantial growth opportunity in our healthcare business. The market growth rates are strong across both the health and beauty market and in the sectors, which are addressed by DCC Vital. The overall environment is one of increasing consumer interest in healthcare and nutrition, and a backdrop of policy and regulation, which also plays to the skill sets we have in DCC and our position as a well-invested player. We have built scale into the healthcare division over the last 2 to 3 years in particular. The organic growth we have delivered has been very strong. We see long-term market growth rates available to us to be in the range of 4% to 6%. In Technology, again, we are focused on building out the specialist capability we have in what is a growth industry. The industry is one of constant change, but one where the supply chain services and route to market, we offer tends to be ever present and growing. We believe the market growth rates available to us here will be in the range of 3% to 5%. Our energy business produces incredible cash flow that enables the development ambitions of the entire group. We are focused on redeploying those cash flows into areas which will support our capability to lead our customers in energy transition. This is a really exciting area. There will be huge investments by all economies in energy transition over the next 30 years. And the emerging energy areas we will play in will have high market growth rate of at least 5%. Finally, we continue to deploy capital in consolidating in our markets and building our customer base where we believe there is a clear transition pathway for them and a profitable cash-generative transition for DCC. This prioritization of capital has been reflected in our acquisition activity over the last 2.5 years. Indeed, over that time, we have deployed $1.1 billion on acquisitions. And between 75% and 80% of that deployment has been in scaling our healthcare and technology divisions and bringing in new energy transition capability into the group. This deployment is clearly evident in the mix of profits being generated now by DCC. Just 3 years ago, DCC Healthcare and DCC Technology were combined 26% of our total profits. Today, on a pro forma basis, they were approximately 40%. And the group in total is 1.6x the size it was 3 years ago. So the mix shift is quite substantial. We have talked at length about building out our tech and healthcare businesses in North America. Some of the acquisitions are listed here on the left-hand side of the slide. We have deployed capital into renewable power and solar too to give some examples of the high-growth energy transition capability we are building. On the right-hand side, just some examples just had the same capital allocation priorities manifest themselves in organic capital expenditure. We are significantly expanding our capacity and form factor capability in our Health & Beauty business. We will deploy substantial CapEx in the next year in adding a new facility to our business in Minnesota and building a gummy line in Florida. We're investing in EV charging and renewable or lower carbon fuels in the energy sector, and we are investing across our business in decarbonizing our own energy use. To finish up on the capital allocation side of things. In just the last 18 months, we have deployed well over GBP 900 million on acquisitions. Our balance sheet remains strong, and we believe we have the opportunities and capability to continue to be acquisitive and to invest in organic development CapEx for growth. Our capacity to be acquisitive is enabled by both our balance sheet, but also by the very resilient and cash-generative nature of our business. Our business model and the cash generative nature of our business means DCC can deploy at least GBP 6 billion in M&A over the next 10 years relative to our capital employed of GBP 3.7 billion today. This capital will be deployed to where we see the greatest growth opportunities for DTC. Today, we have outlined those priorities to you. The great thing about bringing growth businesses into the group and combining them with our existing quality businesses and group culture is that they, in turn, create more growth opportunities for us. It is this mix of organic and acquisitive growth that we believe can continue our track record of double-digit earnings growth over the longer term. And finally, for me, before I hand you back to Donal, in terms of communicating with the market. We have already held a couple of sessions, which were relevant to our themes today around the growth and capital allocation of DCC. Conor Costigan, who leads our healthcare business held an informative teach-in on the growth opportunity in DCC Healthcare at the end of September, and that webcast is available on the website. At the half-year stage, we took some time to talk through some of the great initiatives we are taking to lead our customers through energy transition. Again, that is available currently on the website. This week today is another step, but we realize we have more work to do to articulate the growth opportunities available to the group. With that in mind, we plan on hosting a couple more sessions early next year. Firstly, Tim and team will provide the market with an update on DCC Technology and the growth opportunities available to us there. After that, we will hold a longer event focused specifically on our strategy for the energy sector, and how we expect to grow by leading our customers on their own net zero journey. So with that, back to you, Donal.

Thanks, Kevin. So in summary, DCC's consistent strategy has and we believe will continue to deliver superior growth and create significant value for all our stakeholders. We have built a business of real scale in North America in a relatively short period, but the most important factor is that we are only just starting. The acquisition of Almo is an exciting and significant step in scaling our capability in DCC Technology. Our capital allocation framework is aligned to our strategy and aligned to growth. Our priorities for growth are clear, and we are excited about the growth potential across all our 3 sectors. Finally, we believe that our strategy will continue our track record of double-digit earnings growth for our shareholders. Many thanks, and we'll now open up the line for questions.

[Operator Instructions] Our first question today comes from Allan Smylie of Davy.

Donal, Kevin, Tim and Clive, congratulations on the transaction this morning. I have a few questions, please. Firstly, on Almo, it would be helpful if we could get some color around the growth rates of the business, are there historically? Or how we should think about market growth going forward? And also, if you could give us a sense of the profit mix within the business, just given you're entering some new and potentially quite exciting segments? And then a bigger picture question for Donal, really around capital allocation. Donal, in the past, you've reactively allocate capital to attractive opportunities as they arise. And it sounds like in the presentation today, and I'm alluding to Slide 25, you're now taking a somewhat more proactive approach to allocating capital to future growth opportunities. So if you could comment on that? And then as a follow-on, are there other parts of the energy portfolio that you think will be somewhat deemphasized from capital allocation perspective if the pathway to energy transition is less clear cut?

Thanks, Allan, and I'll -- Kevin, to talk a little bit about the Almo kind of growth rates historically and going forward. But like it's -- it has been actually a high-growth business and the market that we're in and one of the really exciting things about the opportunity is not only does it give us #1 position in the specialist Pro AV market, which is a high-growth market generally across the world with a high-growth market in the U.S., but it also brings us into new areas that are also high growth. So going forward, we see that business growing kind of 3% to 5% organically, but building on a long track record of growth. So Kevin?

Yes. Allan, the -- in terms of growth rates, looking out, I guess, with the industry bodies that we would look at, there's a trade player in Pro AV or the industry forecaster would be AVIXA, they would be calling out kind of 4.5% growth in the Pro AV side over the next 5 years, which broadly we would agree with. And on the appliances side, I think, again, outdoor appliances, growing very quickly. Major or premium appliances going quickly. So you have solid growth rates on appliances about 2.5%, and then in certain areas, growing upwards of 5% or higher. So blended basis, addressable for Almo in total. It very much feels somewhere between 3% and 5% organic growth opportunity for us and has been organically.

[Technical Difficulty] We now have the speakers back on the line.

So apologies about that. Sorry, Allan. I think Kevin was pretty much true. The first question, if there's any additional point that he hasn't covered, just let us know. But just looking at the capital allocation priorities, Allan. And DCC has been and is committed to diversity within our business model. That's nothing new. You've followed us for some time that the different sectors have grown at different rates, both the organic growth, but also our ability to deploy capital across the different sectors. We very much want to be deploying capital in line with the growth trajectories of the different sectors that we operate within. And as Kevin outlined earlier, clearly, we are in a high-growth healthcare sector, and we'd love to have a much bigger healthcare business as part of the group. The Technology sector, again, is a high-growth sector, and we've been growing very well over the last number of years and Almo is a material step increasing the scale of our technology business globally, and we believe will help accelerate the growth of our technology business by bringing us into new areas and new platforms for growth. And on the energy side, there's going to be phenomenal capital deployed to drive energy transition. And as we've talked about many times in the past, and we'll talk about in our energy session next year, we are just very well positioned to support customers on that energy transition journey and on their journey to net zero. And that's going to create lots of opportunity for us and opportunities not just to grow the business organically, but to deploy capital in some of the areas that we've been deploying capital in, whether it's our renewable electricity, whether it's our solar, whether it's investment in EV fast charging, you'll see us continue to do that. And our core assets within our energy business is the 9 million customers that we provide energy products and services to today across the 12 countries that we operate within, and we want to continue to consolidate those customers. Is there areas that we won't deploy capital in? Well, absolutely to the areas that we want to deploy capital in, in the energy sector, just like in the past and in the other sectors that we've been in our businesses, don't have the growth trajectory, don't have the cash generation, don't have the ability to transition customers to low carbon and ultimately, 0 carbon solutions. Well, then they won't fit within our portfolio. So we will actively manage that. And I think when we look at the areas of focus, the areas of focus are really in those lower carbon areas as we go forward.

And just to add Allan, I'm sorry, not to step back too much to Almo, but just if you did have a question just on splits. And obviously, Pro AV is the largest part of Almo. It represents just over 40% of revenues on an underlying basis. Appliances would be just under 40% of revenues. And then the fast-growing e-commerce or fulfillment side, Allan, would be roughly 20% of revenues. So that will give you an indication of the split in Almo.

Our next question today comes from Kate Somerville of UBS.

So my first question is on Slide 26, you gave a really good idea of the energy outlook and the sort of more the positive areas. I was wondering, if you could give us an overall sort of midterm outlook in energy? And then my second question is, so within your energy division, can you remind us what percentage is coming from nonfossil fuels and what the returns are in the nonfossil fuel versus the fossil fuels? And then finally, I think the margin for Almo is around 6%. I was wondering where you expect this to get to? And where the cost savings are coming from?

Sure. Thanks, Kate. And look, on the energy side, and we kind of called out and Kevin called out on the slide, the -- and we said put in 5%-plus in new energy growth, that's going to be plus, plus, plus because clearly, the opportunities in the low-carbon area is going to be very significant, I think the estimates of about $100 trillion to be spent to get to net zero by 2050 and there will be lots of areas in the segments of the market that we work in within the energy side where particularly focused on the off gas grid and the market where we have a particular strength will create plenty of opportunity for us. So we see that element as high growth. And we're very confident in our ability to grow our existing business even though traditional volume will decline over time with the ability to manage our cash contribution from our existing energy businesses as we are transitioning customers to lower carbon fuels. So that's kind of low 2%-plus kind of growth is where we see the existing business and our ability to transition customers to lower, lower carbon fuel. In terms of our volume today, we've grown very significantly in the low-carbon areas and just shy of 10% of our volume. And volumes are different to traditionally kind of liters of fuel or tons of gas because we're investing in renewable electricity. We're investing in solar. But about 10% of our business now it is in clean energy areas, and that percentage will grow further as we go forward.

And just to emphasize on that case, I mean, we've obviously built -- they're small but growing positions in renewable power and solar. The returns we're getting from those acquisitions we've made and the businesses we're building organically are no different to those of the rest of the DCC Group. We're generating mid-teen returns from those investments, albeit that we're still early in their growth journey. So we'd be encouraged by the progress we've made so far on returns in those areas.

So -- and maybe, Clive, you'd like to talk a little bit about the -- just the margin profile within the Almo business? And impact on technology?

Okay. Thank you, Donal. And I suppose -- the first thing I'd say is we just see real opportunity in relation to top line growth at similar margins. As you pointed out, the 6%-or-so margin in the business is impressive, but it's in line with similar businesses that we have elsewhere in technology that have deep specialisms, exclusivity and own brand elements, as Kevin spoke about, the market share -- or side of the market growth at mid-single digits, we think we can gain market share ahead of that growth and deliver revenue growth. In relation to cost synergies, there is cost synergies on the Pro AV side, but we want to maintain the really strong market presence of our combined businesses. So that's -- it's relatively modest, maybe about 1% of return on capital employed on cost synergies and we'll also be looking at growth into Canada where Almo doesn't have a presence in appliances and home comfort products, and we had a strong presence in our Jam business.

The next question today comes from Rajesh Kumar of HSBC.

The first one is after this deal, how much more capacity do you have on the balance sheet? And just looking at available cash and cash generation that's available for redeployment. How are you thinking about '22 capital allocation? Are you sort of end of the line of your pipeline for deals? Or are they all in the pipeline, which you're thinking about? Second question is on the business mix in Almo. So you've given quite a lot of color of what they do, how they do. Could you just run us through the type of growth rates you're getting in those different market segments? And why?

Sure. Great. Thanks, Rajesh, and I'll take the pipeline piece, and I'll give Kevin the balance sheet piece to answer. The -- just on the pipeline, look, and again, we talked about this at the full year. We said we have a pretty active pipeline from an M&A perspective and 1 deal does not make a pipeline. So we have, as always, lots of things in play across the group against our -- across our 3 core sectors. So we feel good about the opportunities to deploy capital going forward. M&A is one of those things, Rajesh, does is a little bit like the buses, they come in at different times, sometimes together and sometimes a little bit spread apart. So it's always about timing, but we're pretty pleased with the pipeline we have across the sectors.

I mean the -- I guess we're pleased that firstly we deployed well over 550 million in the year so far in terms of acquisition commitments, and notwithstanding that level of spend and notwithstanding the fact that we will have spent 900 million or more over the last 18 months. The balance sheet remains very strong. So we finished FY '22 with pro forma net debt-to-EBITDA of around about 0.4x. So on a look-forward basis, the balance sheet will have plenty of capacity, as you know, we sort of set a leverage kind of -- or an upper end of leverage at about 2x. So very substantial room for further capital deployment from 0.4x, where we think we'll finish this current financial. So plenty of capacity in balance sheet.

And again, recession in terms of the mix and there is different growth rates in the different segments of the Almo business. And Clive, you might like to just take Rajesh through that?

Yes. So as Kevin said earlier, like overall, it's sort of 3% to 5% growth across appliances and Pro AV and in the appliances, there will be higher growth in channels such as e-commerce and e-commerce has -- if we even take out the cover is probably mid-teens growth, and then you're going to certain product categories. So air treatment outdoor would be higher growth versus major appliances. And as I mentioned earlier, the Almo business has had a long track record of exceeding that market growth, gaining share going into new territories, adding new brands, adding new lines for existing brands. So I think the 3% to 5% is a good guide overall, but for good hope to surpass that.

The next question comes from George Gregory of Exane BNP Paribas.

Just on -- a useful color on the Pro AV it just keen to understand how you see the appliances and part of Almo. Is that a business that you will continue to look to grow? Or do you see it being kind of deprioritized within the mix of activities? And how do you view this? I guess, more importantly, the structural outlook for distribution of consumer appliances, please?

Yes. Look, thanks, George, and I think it's very exciting. Actually, area, if you think about the -- if you think about the home and the whole range of products that people consume or use within their homes, and we've been providing tech products into the home, and that's been a big growth area for us, but home appliances is a major spend area for customers. It's very much similar to the tech products. There is the replacement cycles. There's people refurbishing their properties. So it's a big new market area for us. And you think about the smart home of the future and our ability to provide the total range now of products for our customers from consumer appliances, consumer electronics products, air conditioning, which is a part of the Almo business. And ultimately, as we go forward within our energy businesses, our heat pump solutions, our solar solutions, the whole range of smart tech products that go into the home. So building out our business in the appliance area is a really good growth opportunity for us as an organization. And maybe Tim, you'd like to add something to the growth objectives of technology within this area.

Yes. Thanks, gentlemen. George, thanks for your question. I think you've covered much of it in terms of the context of smart home, the proliferation of consumer electronics and definitely see this as a major growth area. It's also an opportunity for us to service our channels to a greater extent and really cover more of their wallet. It's an area that we've already been in or will be in a less material way in some of our more successful acquisitions like [indiscernible], for example, where we've been involved in large box distribution, and we see it as a major opportunity to service both the market, the customers and our vendors who absolutely are similar vendors across multiple parts of our vendor landscape, whether or not it's IT all the way into appliances and even air conditioning, it's the same customers. So absolutely, to your question, George. It's a growth opportunity and something that we will be looking to double down on.

The next question comes from Christopher Bamberry of Peel Hunt.

Just 3 or 4 questions. With regard to Almo, how well invested is their IT and warehouse infrastructure? Secondly, you've talked about there [indiscernible] an e-commerce capability, how does that compared to yours, what extra does it bring? And you mentioned 6 billion of capital that you could deploy over the next 10 years. Can you give us some of the assumptions behind that, please?

Thanks, Chris. And the answer to the first bit is well invested from an IT and a warehouse infrastructure perspective. And not just as well invested, but we have a huge focus on sustainability across our group set. There's not a lot we need to add to the Almo business, their focus on sustainability is very significant and there'll be net zero across their operations, I think for 2024 and have been investing in solar and so on. So like a wonderful footprint of warehouse infrastructure across the businesses and the technology that's enabled the business to deliver within 2 days, all the products across the entire market. Maybe, Clive, you'd like to just talk a little bit about the fulfillment business and what it brings to us?

Yes. The -- I touched on it a little bit earlier in terms of some of the products that it sells, the fulfillment business supported by that large box handling capability is really an attractive space in terms of air conditioning and air treatment products, and another sort of outdoor living products and we look to expand the product ranges that we're currently selling and also adding another products, particularly in format to suit the warehouse and -- are more dependable in terms of the capability and the services that we can provide into e-tailers. Like the e-commerce business, the overall market is probably growing in mid-teens percentages, and we'll continue to see that growth going forward, and we think we can do a life of that part of the Almo business.

One of the focuses, Chris, that we've had and has been the direct-to-consumer element of our business. You've heard us talking about that within our technology business over the last number of years. And this acquisition further strengthens our capability within that area, whether it's supporting vendors, bringing their plans directly to their direct end consumers or whether it's supporting the online retailers or mainstream retailers who want to develop their online presence. And that's been a real driver for growth for us all the way through the pandemic. Kevin, on the assumptions?

Hi, Chris, and I guess you'll be familiar with our capital deployment over the last number of years. And we've regularly talked about an ambition to deploy 300 million to 400 million per annum on capital and I suppose if you look at the last 9 months -- or sorry, last 18 months, excuse me, we deployed well over 900 million on capital in that time. And I suppose as we look out over the next 10 years, I guess, a 6 billion cost number really is continued confidence in the cash generation, the growth outlook for the group. And I guess, is scaling up over time of what we believe the appropriate level of M&A spend for the group will be. So if you take it that the growth and the scale opportunities that we have delivered, for example, in North America, every time that we have expanded, we have found that it brings more opportunities towards the group. So we believe we will have the financial capacity to spend that sort of money. But more importantly, we believe we'll have the opportunities and the capability in DCC to execute against it. So it's really just to say that we believe continued confidence in the financial performance of the group, the cash generation of the group, our strong balance sheet today, and then the opportunity set and the capability to spend the money.

Our final question today comes from Thomas Chacko of Jefferies.

I just have 2 quick ones, if I may. Just going back to Kate's point on cost synergy. Is there a way in which we should consider the phasing of both cost and commercial synergies? Or would it be fair to evenly phase those across the next 3 years-or-so? And then coming to tax rate, is there a particular tax rate we should have in mind for the Almo business? Or keep relatively in line with the current group?

Thanks, Thomas. Kevin?

Thanks, Tom, and you -- no problem with either of those 2. I mean I guess, is the answer to the first question is that I think we would be kind of considering a pretty steady phased profile across the 3 years in terms of getting from that broadly initial 12.5% return to the 15% return within 3 years, so sales base is there. And on tax, yes, I mean, you'll know the U.S. corporation tax rates are higher than a lot of the rates we see in Europe. And so we'd broadly be assuming a corporation tax rate of about 26% on profits coming into the group from that part of the world. So tax rates are always subject to change, particularly at the moment with government is looking to pay for all the support, they put behind the COVID pandemic. But as we see it at the moment, 26%-or-so out of North America, okay?

Super. Thanks, and thank you all for all the questions. Sorry, we don't have more time to deal with more questions. Just maybe just to leave you with a couple of comments. Firstly, the acquisition of Almo is a really exciting development for DCC. It increases our operating profits, our earnings per share about 10%, so materially accretive on a full year basis. It significantly scales the technology business and expands our capability out into lifestyle products as we've talked about earlier. Despite the challenges presented by the pandemic, DCC has now spent 900 million on M&A in the last 18 months. So not being able to get out and about, it hasn't stopped us at deploying capital, which hovers well for our ability to deploy capital going forward. A key aspect of, not just this deal, but the last number of years for DCC is the growth of our business in North America. And now North America accounts for just north of 30% of our capital employed, not bad in less than 4 years. All the sectors are large, fragmented markets where we still have relatively small share, so 7% in technology, 3% in healthcare and 2% in the energy sector that we operate within. So lots of room for further growth. Our return on capital employed in North America, the entry level is about 12% up to 15% now. I think we're making really good progress, applying the DCC business model that we talked about earlier. Our capital deployment priorities are clear, as Kevin outlined earlier, and they're very much aligned to the growth trajectories of the sectors that we operate within. And diversity is hugely important to DCC. Healthcare and Technology on a pro forma basis now accounts for 40% of our group operating profit and we continue to grow clearly in the renewable and lower carbon areas of the energy sector. As we've just talked about, we have capacity to deploy another GBP 6 billion in this group, building on the GBP 3.7 billion of capital that we've deployed today. So the shape of the group will very much be driven by the capital that we deploy going forward. And DCC is making really good progress on the sustainability agenda just renewing or getting our AAA rating from MSCI recently again, reinstated moving up 2 notches in CDP. That's all really good progress. So we're scoring well from an ESG perspective. So overall, the group is in really good shape. Today is a big day for us. It's a great day to welcome the Almo business and the Chaiken family into the DCC family. And I just like to thank you all for your time. Thank you, and have a good day. Take care.