INDUSTRIAL HOLDING company DCC has warned that the combined forces of “exceptionally difficult” economic conditions and sterling’s weakness will drag down its earnings by as much as 10 per cent in the current fiscal year.
DCC is buying Shell’s oil distribution business in Denmark for €14 million in a deal set to close in August. The transaction adds to DCC’s expanding energy unit, where acquisitions last year helped the company at large to deliver a 7.9 per cent rise in operating profit to €180.4 million, excluding once-off items and amortisation of intangible assets.
But while DCC’s entertainment products unit SerCom delivered a resilient performance, operating profit fell heavily in its healthcare, food and beverage and environmental units. With three-quarters of DCC’s profit last year denominated in sterling, the “adverse translation impact” of that currency’s weakness against the euro was €24.2 million.
Adjusted earnings per share came in 2.5 per cent stronger at 169.13 cent and were 17 per cent stronger on a constant currency basis. DCC chief executive Tommy Breen said adjusted earnings per share this year will be about “5 per cent to 10 per cent behind” at an approximate exchange rate of 90p to €1 and “modestly behind to broadly in line” on a constant currency basis.
DCC’s final dividend of 39.73 cent per share brings its total dividend to 62.34 cent, 10 per cent stronger year-on-year. Pretax profits before exceptionals and amortisation was up 6.4 per cent at €159.5 million and 21.3 per cent stronger on a constant currency basis. A net exceptional charge of €15.9 million included €13 million in restructuring costs and a €9.1 million charge due to the closure of a healthcare unit in Germany.
Mr Breen said an exceptionally cold winter in Britain helped DCC’s energy unit to deliver a 35.5 per cent rise in profit to €100.7 million. With two-thirds of the 59.3 per cent constant currency rise in profits attributed to organic expansion, the newly-acquired operations of Chevron’s oil distribution business in Britain made a contribution from mid-August.
The Irish oil business, however, suffered as the economy weakened “and action is being taken to significantly reduce the cost base of this business”.
SerCom’s profit was virtually unchanged at €40.1 million, but 9.2 per cent higher on a constant currency basis. DCC attributed this rise to “excellent” growth in its British retail business, thanks to strong demand for games products. French retail business Banque Magnetique also made its full-year contribution.
DCC’s healthcare unit saw profits drop 26.2 per cent to €17.3 million, with weak demand partly due to Health Service Executive budget constraints.
However, Mr Breen said DCC had recovered a loss in profit margins with sales price increases, using new suppliers and cost price reductions.
Profits fell 21.3 per cent to €12.1 million in the food and beverage unit as Irish consumers spend less, seek greater value offerings and shop in Northern Ireland. Profits fell 27.2 per cent to €10.2 million in the environmental unit, due to the construction slowdown in Ireland and Britain.
DCC: results in brief
Revenue:€6.4bn (+15.7%)
Pretax profit before exceptionals and amortisation of intangible assets:€159.5m (+6.3%)
Adjusted earnings per share:169.13c (+2.5%)
Full-year dividend:62.34c (+10%)
SUMMARY
DCC shares are down 2 per cent in 12 months in a market in which many companies are suffering badly. The rise in profits was driven by DCC’s energy unit. Although this was heavily offset by the impact of the conversion into euro of sterling profits, it still masked a big drop in profits in the food and beverage, environmental and healthcare units. DCC shares gained 1.52 per cent yesterday to close at €14.72 and rose at one point to €15.25.
