DCC plc
Annual Report 2006

Plain-text annual report

Annual Report and Accounts 2006 DCC has five core businesses: > > > > > DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental DCC also has a significant associate company investment, a 49% shareholding in Manor Park Homebuilders, a leading Irish house, apartment and commercial building and development company. In the year to March 2006, DCC achieved profit before tax of €138.8 million on revenue of €3.4 billion. Over the last 10 years the Group has achieved compound annual growth in adjusted earnings per share of 17.3%. 2.4% 41.8% Group operating profit* - geographic split UK Ireland Rest of world 55.8% * Excludes share of after tax profit of associates 157.2 137.2 121.9 111.0 98.3 84.7 68.8 57.2 45.4 37.5 97 98 99 00 01 02 03 04 05 06 Adjusted earnings per share (cent) 1997 - 2006 Group at a Glance Board of Directors Senior Management Chairman’s Statement Chief Executive’s Review 2 6 8 10 12 Operating Review Financial Review Corporate & Social Responsibility 16 28 33 Corporate Governance Report of the Directors 38 42 Report of the Remuneration 44 Committee Statement of Directors’ Responsibilities Report of the Independent Auditors Financial Statements Group Directory Shareholder Information Corporate Information Index 48 49 51 113 117 118 119 DCC is a sales, marketing and business support services group headquartered in Dublin, with operations in Ireland, Britain and Continental Europe. The Group employs 5,400 people across 12 countries and is listed on both the Irish and London Stock Exchanges under Business Support Services. 2 DCC group at a glance 5 core businesses1 (managed and controlled subsidiaries and joint ventures) Description Strong brands (*DCC owned) DCC Energy markets and sells liquefied petroleum gas (LPG) and oil products for commercial/industrial, transport and domestic use in Britain and Ireland. Emo Oil*, Ergas*, Flogas*, Fuel Services*, Scottish Fuels*, Shell DCC SerCom comprises two businesses, SerCom Distribution and SerCom Solutions. SerCom Distribution markets and sells a broad range of IT and entertainment products in Ireland, Britain and Continental Europe to computer resellers, high street retailers, computer superstores, online retailers and mail order companies. SerCom Solutions is a provider of outsourced procurement and supply chain management solutions to the IT industry. DCC Healthcare markets and sells healthcare products to the acute care, community care and laboratory sectors in Ireland, Britain, Germany and export markets. DCC’s broad product range includes own and third party branded medical, surgical, laboratory, intravenous pharmaceutical, rehabilitation and independent living products. DCC Healthcare is also a leading provider of contract services to the health and beauty industry, principally the nutraceuticals, hair and skin care sectors, in Britain and Continental Europe. DCC Food & Beverage markets and sells food and beverages in Ireland and wines in Britain. In Ireland, DCC Food & Beverage distributes healthfoods, snackfoods, fresh coffee and tea, soft drinks, wine and other indulgence products to a broad range of food service and retail customers. DCC Food & Beverage is also a leading player in frozen and chilled food distribution in Ireland. SerCom Distribution 20th Century Fox, Canon, Cisco Systems, Disney Home Video, Entertainment in Video, Epson, Fujitsu Siemens, HP, IBM, Logitech, Microsoft, Netgear, Oracle, Samsung Electronics, Sony, Sun Microsystems, Symantec, TakeTwo, Xbox 360, Xerox Days Healthcare*, Diagnostica Stago, DiaMed, Fannin*, Fresenius Kabi, Grifols, Molnlycke, Oxoid, Physio-Med*, Smiths, Strider*, Theraband Alpro, Bollinger, Brown Brothers, Dr Oetker, French Connection*, Jordans, Kelkin*, KP, Kylemore, Lemon’s*, McVities / Mars Cakes, Phileas Fogg, Robinsons, Robt. Roberts*, Torres, Vitabiotics DCC Environmental provides a broad range of waste management services to the industrial/commercial sectors and local authorities in Britain and Ireland. Enva* (Atlas*, Envirotech*, Shannon Environmental Services*), William Tracey The recent acquisition of a 50% shareholding in the William Tracey Group of companies, a Scottish based recycling and waste management business, makes DCC Environmental the leader in recycling and waste management in Scotland. ) 2 t i f o r P g n i t a r e p O p u o r G f o % 5 4 ( ) 2 t i f o r P g n i t a r e p O p u o r G f o % 0 2 ( ) 2 t i f o r P g n i t a r e p O p u o r G f o % 8 1 ( ) 2 t i f o r P g n i t a r e p O p u o r G f o % 2 1 ( ) 2 t i f o r P g n i t a r e p O p u o r G f o % 5 ( y g r e n E C C D m o C r e S C C D e r a c h t l a e H C C D e g a r e v e B & d o o F C C D l a t n e m n o r i v n E C C D 1. DCC also has a significant associate company investment, a 49% shareholding in Manor Park Homebuilders, a leading Irish house, apartment and commercial building and development company. Market position Growth focus Growth record 10 Year CAGR 18.4% • • Strong number 2 in LPG distribution in Britain and Ireland Largest independent oil distributor in Britain • A leading player in oil distribution in Ireland • Organic growth in both Britain and Ireland • • Supplemented by acquisitions in both LPG and oil Particular focus on a consolidation strategy in the highly fragmented British oil market • A leading player in each • Organic growth driven by 10 Year CAGR 10.4% of its markets • Number 1 distributor for many of the world’s leading brands broadening product and vendor portfolios 97 98 99 00 01 02 03 04 05 06 • A leading Irish headquartered specialist provider of outsourced procurement and supply chain management services 97 98 99 00 01 02 03 04 05 06 €m €m 60 50 40 30 20 10 0 35 30 25 20 15 10 5 0 • Number 1 distributor to the acute care sector in Ireland • Organic growth opportunities 10 Year CAGR 18.9% 25 €m • A leading distributor of rehabilitation and independent living products in Britain with a growing business in Continental Europe • A leading supplier of contract services to the nutraceutical and cosmetic industries • • Further development of own brands Supplemented by acquisitions in Britain and Ireland • Number 1 in healthy foods and savoury snacks in Ireland • No 2 in freshly ground coffee in Ireland • A leading player in frozen and chilled food distribution in Ireland • Organic growth through expansion of portfolio of branded indulgent and healthy foods and beverages • Supplemented by acquisitions of healthy foods, beverage and wine businesses in Britain and Ireland 97 98 99 00 01 02 03 04 05 06 10 Year CAGR 15.1% • Number 1 hazardous • Organic growth 7 Year CAGR 81.5% 97 98 99 00 01 02 03 04 05 06 waste treatment business in Ireland • The leading player in recycling and waste management in Scotland opportunities arising from increased enforcement of environmental legislation and increasing landfill costs • Supplemented by acquisitions in Britain and Ireland 99 00 01 02 03 04 05 06 20 15 10 5 0 20 15 10 5 0 €m 6 €m 5 4 3 2 1 0 3 D C C E n e r g y D C C S e r C o m D C C H e a l t h c a r e D C C F o o d & B e v e r a g e D C C E n v i r o n m e n t a l ( 4 5 % o f G r o u p O p e r a t i n g P r o f i t 2 ) ( 2 0 % o f G r o u p O p e r a t i n g P r o f i t 2 ) ( 1 8 % o f G r o u p O p e r a t i n g P r o f i t 2 ) ( 1 2 % o f G r o u p O p e r a t i n g P r o f i t 2 ) ( 5 % o f G r o u p O p e r a t i n g P r o f i t 2 ) 2. Excludes share of after tax profit of associates. [ customer service DCC Energy has a fleet of 825 road tankers that delivers an excellent service throughout Britain and Ireland. 6 board of directors 7 Jim Flavin Chief Executive/Deputy Chairman Jim Flavin, B Comm., DPA, FCA (aged 63), founded DCC in 1976. Prior to founding DCC, he was head of AIB Bank’s venture capital unit. From 1999 to 2001 Mr. Flavin was Deputy Chairman and Senior Independent Director of eircom plc. Audit Committee Bernard Somers (Chairman) Róisín Brennan Paddy Gallagher Nomination Committee Alex Spain (Chairman) Michael Buckley Jim Flavin Maurice Keane Bernard Somers Remuneration Committee Maurice Keane (Chairman) Tony Barry Róisín Brennan Michael Buckley Alex Spain Chairman Alex Spain, B Comm., FCA (aged 73), non-executive Chairman, is a director of a number of other companies. He was Managing Partner of KPMG in Ireland from 1977 to 1984. He is a former President of the Institute of Chartered Accountants in Ireland and a former Chairman of the Financial Services Industry Association in Ireland. Mr. Spain joined the Board and became Chairman in 1976. Tony Barry Non-executive Director Tony Barry, Chartered Engineer (aged 71), was Chairman of CRH plc from 1994 to May 2000, having previously been Chief Executive. He was a member of the Court of Directors of Bank of Ireland from 1993 to 2003 and was Deputy Governor from October 1997 to September 2000. He was Chairman of Greencore Group plc up to February 2003. He is a past President of The Irish Business and Employers’ Confederation. Mr. Barry joined the Board in 1995. Tommy Breen Executive Director Tommy Breen, B Sc (Econ), FCA (aged 47), joined DCC in 1985, having previously worked with KPMG. He is Managing Director of DCC Energy and DCC Environmental, having previously been Managing Director of DCC SerCom. Mr. Breen joined the Board in 2000. Róisín Brennan Non-executive Director Róisín Brennan, BCL, FCA, MSI (aged 41), is an executive director and Chief Executive designate of IBI Corporate Finance, where she has had extensive experience advising public companies in Ireland, principally in relation to strategy and mergers & acquisitions. Ms. Brennan also served as a non-executive director of the Irish Takeover Panel during 2000/2001. Ms. Brennan joined the Board in 2005. Michael Buckley Non-executive Director Michael Buckley, MA. LPh, MSI (aged 61) was Group Chief Executive of AIB from 2001 to 2005 having served as Managing Director of AIB Capital Markets and AIB Poland. Previously, he was Managing Director of the NCB Group and a senior public servant in Ireland and the EU. He is a non-executive director of M&T Bank Corporation in the USA and advises Irish and international companies. Mr. Buckley joined the Board in 2005 and is the Senior Independent Director. Paddy Gallagher Non-executive Director Maurice Keane Non-executive Director Paddy Gallagher, BL, DPA (aged 66), retired as Head of Legal and Pensions Administration at Guinness Ireland Group in 2000. He previously worked with Aer Lingus, the Irish national airline, and is a former Chairman of the Irish Association of Pension Funds. He is Chairman of the Trustees of the An Post Superannuation Schemes and of the Guinness Ireland Group Pension Scheme. Mr. Gallagher joined the Board in 1976. Maurice Keane, B Comm., M Econ Sc (aged 65), was a member of the Court of Directors of Bank of Ireland up to February 2005, having been Chief Executive up to February 2002. He is a director of Axis Capital Holdings Limited and is Chairman of BUPA Ireland and of University College Dublin Foundation Limited. He was also Chairman of Bristol & West plc up to February 2005. Mr. Keane joined the Board in 2002. Kevin Murray Executive Director Fergal O’Dwyer Executive Director Kevin Murray, BE, FCA (aged 47), joined DCC in 1988. Previously he worked with Shell Chemicals in London and Arthur Andersen in Dublin. He is Managing Director of DCC Healthcare having previously been Managing Director of DCC Environmental, DCC Energy and DCC Food & Beverage. Mr. Murray joined the Board in 2000. Fergal O’Dwyer, FCA (aged 46), joined DCC in 1989 having previously worked with KPMG in Johannesburg and Price Waterhouse in Dublin. He was appointed Chief Financial Officer in 1994. Mr. O’Dwyer joined the Board in 2000. Bernard Somers Non-executive Director Bernard Somers, B Comm., FCA (aged 57), is a non-executive director of Independent News and Media plc, Irish Continental Group plc and South Wharf plc and is Chairman of eTel Group, a central European telecommunications company. He is a former director of the Central Bank of Ireland. Mr. Somers is the founder of Somers & Associates, which has built a substantial practice in corporate restructuring. He has also been an investor in and a director of several start-up companies. Mr. Somers joined the Board in 2003. 8 senior management group and divisional Jim Flavin Deputy CChairman Group Chief Executive Tommy Breen Executive DDirector Kevin Murray Executive DDirector Fergal O’Dwyer Executive DDirector Frank Fenn Donal Murphy Ann Keenan Colman O’Keeffe Peter Quinn Michael Scholefield Gerard Whyte Managing Director DCC Energy and DCC Environmental Managing Director DCC Healthcare Chief Financial Officer Managing Director DCC Food & Beverage Managing Director DCC SerCom Head of Group Human Resources Deputy Managing Director DCC Energy Head of Group IT Managing Director Corporate Finance Group Secretary Compliance Officer Head of Enterprise Risk Management senior management subsidiaries and joint ventures 9 > DCC Energy DCC Energy N I Emo Oil Flogas Ireland Flogas UK Fuel Card Group Scottish Fuels > DCC SerCom Distrilogie Gem Distribution Micro Peripherals Pilton SerCom Solutions Sharptext > DCC Healthcare Days Healthcare DCC Nutraceuticals Fannin Healthcare Group Laleham Healthcare Physio-Med Services Virtus Sam Chambers Gerry Wilson Richard Martin Paddy Kilmartin Ben Jordan Tom Howley Managing Director Managing Director Managing Director Managing Director Chief Operations Officer Managing Director Patrice Arzillier Chris Peacock Mike Alden Nick Furlong Kevin Henry Paul White Directeur Général Managing Director Managing Director Managing Director Chief Executive Officer Managing Director Barry O’Neill Stephen O’Connor Andrew O’Connell Vic Hilliard John Gregory John Leonard Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director DCC Food & Beverage Allied Foods Bottle Green Broderick Bros Kelkin Kylemore Foods Group Brian Hogan Managing Director Managing Director Robt. Roberts Ken Peare Managing Director Managing Director Managing Director Managing Director John Casey Jerry Lockspeiser Richard Kieran Bernard Rooney > > * DCC Environmental Atlas Environmental Ireland Managing Director William Tracey Group Michael Tracey Managing Director Declan Ryan * * joint ventures 10 10 chairman’s statement “ Over the past twelve months the robustness of DCC’s balanced business model has again been demonstrated.” Overview DCC achieved growth in adjusted earnings per share in the year to 31 March 2006 of 14.6% to 157.23 cent. Over the past ten years the business has achieved compound annual growth in adjusted earnings per share of 17.3%. Dividend increase of 15% The Directors are recommending a final dividend of 27.31 cent per share which, when added to the interim dividend of 15.54 cent per share, gives a total dividend of 42.85 cent for the year, an increase of 15.0% over the prior year. DCC has grown its dividends at a compound rate of 17.2% over the last ten years and 15.2% over the last five years. The dividend is covered 3.7 times by adjusted earnings per share (3.7 times in 2005). The final dividend will be paid on 14 July 2006 to shareholders on the register at the close of business on 26 May 2006. Acquisitions and development Acquisition and development expenditure in the year amounted to €120.8 million, of which €57.9 million related to capital expenditure. DCC’s ongoing acquisition search process resulted in the completion of a number of acquisitions at a total committed cost of €62.9 million. The cash impact of acquisitions in the year was €54.7 million. DCC Energy acquired a number of smaller British oil distributors during the year, as part of the ongoing planned expansion of its British based oil business. On 13 June 2005, DCC Healthcare expanded its acute and community care business through the acquisition of British based Physio-Med Services, a market-leading supplier of a broad range of physiotherapy and rehabilitation equipment and consumables to physiotherapists, occupational therapists, podiatrists, chiropractors and end users. On 15 June 2005, DCC SerCom acquired Pilton Company, a leading distributor of DVDs, computer games and other products to the home entertainment market in Ireland, with a developing business in Britain. On 6 July 2005, DCC SerCom expanded its Continental European operations into Belgium, Holland and Luxembourg through the acquisition of the trade, goodwill and certain assets of AB Computing. This business is complementary to DCC SerCom’s operations in France, Spain and Portugal. In May 2006, DCC Environmental acquired a 50% shareholding in the William Tracey group of companies, Scotland’s leading recycling and waste management business. The acquisition increases the scale and technical expertise of DCC Environmental and also achieves the dual objective of expanding into the non-hazardous waste business and entering the British market. The Group is actively pursuing further acquisition opportunities in all core areas. 11 11 the Principles of Good Governance and Code of Best Practice as set out in the Combined Code on Corporate Governance. The future DCC’s balanced business model, its experienced management and its financial strength leave the Group well placed to generate ongoing organic and acquisition growth. Alex Spain Chairman 26 May 2006 Board renewal The Nomination Committee keeps Board renewal, structure, size and composition under regular review, including the skills, knowledge and experience required. The Committee has particular regard to the leadership needs of the organisation, both executive and non-executive, and therefore gives full consideration to succession planning for the Chairman and Chief Executive. In this regard, I have informed the Committee that this is the last year I will seek re-election to the Board, as I intend to retire as Chairman and from the Board in advance of the Annual General Meeting in 2007. On the recommendation of the Nomination Committee, the Board co-opted four new non-executive Directors in recent years - Maurice Keane in 2002, Bernard Somers in 2003 and Róisín Brennan and Michael Buckley in September 2005. Róisín is an executive director and Chief Executive designate of IBI Corporate Finance, where she has had extensive experience advising public companies principally in relation to strategy and mergers & acquisitions. Róisín is a member of the Audit Committee and the Remuneration Committee. Michael was formerly Group Chief Executive of Allied Irish Banks plc. Michael is a member of the Nomination Committee and the Remuneration Committee and has been appointed Senior Independent Director. As previously announced, Mr Kevin Murray, executive Director, is resigning from the Board and from his position as Managing Director of DCC Healthcare on 30 June 2006. Kevin has been with DCC for 18 years and has made a great contribution to the Group. Kevin will leave DCC with the friendship and good wishes of the Board and his colleagues across the Group. Fyffes’ failed legal action and subsequent appeal On 21 December 2005, the Irish High Court found in favour of DCC and Others in the case taken against them by Fyffes plc, under Part V of the Irish Companies Act 1990, in relation to the sale of shares by Lotus Green in February 2000. In dismissing Fyffes’ claim against all of the defendants, the Court held that the share sales were entirely lawful and that none of the defendants had any liability arising from the sales of the shares in Fyffes in February 2000. On 10 February 2006, the Irish High Court decided that Fyffes should pay most of DCC’s costs in relation to its failed legal action against the Group. DCC expects to recoup approximately €8.5 million from Fyffes following this High Court order and, accordingly, has accrued this amount as a credit under exceptional operating costs. On 7 April 2006, Fyffes announced its intention to lodge an appeal to the Irish Supreme Court seeking to overturn the decision of the Irish High Court in relation to Fyffes’ failed legal action against DCC plc and Others. This appeal will be challenged vigorously and comprehensively and DCC is confident that there are no good grounds of appeal and that the detailed and considered decision of the High Court will be upheld. Corporate governance The Board of DCC is committed to maintaining the highest standards of corporate governance. The Board is satisfied that the Group has effective ongoing processes for identifying, evaluating and managing risks faced by the Group. A detailed statement, set out on pages 38 to 41, describes how DCC has complied with all of 12 chief executive’s review “ The quality of DCC’s businesses is better today, measured in terms of scale, strategic positioning and management skills and know-how, than at any earlier time.” Overview of 2006 The year to 31 March 2006 was another year of double-digit profit growth, resulting in cumulative earnings per share growth of 16.6% per annum since DCC shares were listed on the Irish and London stock exchanges in 1994. On a constant currency basis, revenues grew by 30.0% to €3.4 billion, while profit before exceptional items, amortisation of intangible assets and tax increased by 16.5% to €142.0 million and adjusted earnings per share for the year was 157.23 cent, growth of 15.5%. Excellent profit growth was achieved in DCC Energy, DCC Healthcare, DCC Food & Beverage and in DCC’s share of associates’ profit after tax. DCC SerCom also achieved strong profit growth in the second half after a difficult first half. DCC’s cash generation in the year was strong, with cash generated from Group operations, excluding associates, of €141.9 million, an increase of 23.3% over last year. At 31 March 2006, DCC had net debt of just €32.7 million. Return on capital employed (ROCE) is the key performance measure in all the businesses of the Group. For the year to March 2006, ROCE (excluding intangible assets) was 43.0% (2005: 44.9%) and ROCE (including intangible assets) was 19.1% (2005: 20.4%). Business review DCC’s rate of profit growth was stronger in the seasonally more important second half of the year, as set out in the table below. Operating profit* DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Group operating profit Share of associates’ profit after tax Net financing costs Profit before exceptional items, amortisation of intangibles and tax Second half €’m Change First half €’m Change 45.3 17.4 11.5 8.1 2.7 85.0 19.8 (3.9) +9.8% 10.7 +22.0% 7.6 +33.8% 10.1 7.4 2.8 +8.1% -0.3% +1.2% -37.0% +48.1% +37.9% +2.6% +14.4% 38.6 +2.9% +104.8% -20.7% 5.7 (3.2) 100.9 +25.3% 41.1 -3.0% Adjusted EPS* (cent) 111.89 +24.6% 45.34 -4.4% *excluding net exceptional items and amortisation of intangible assets Strategy for continued growth DCC’s strategy has been demonstrably successful in generating excellent shareholder returns. The principal elements of the strategy are: • • • To focus on two broad business activities: - sales, marketing and distribution - business support services; To constantly seek to maximise organic growth; To constantly seek complementary bolt-on acquisitions; • A rigorous focus on return on capital employed; • A rigorous focus on cash generation. DCC applies a core competence in the management of sales, marketing and distribution businesses across diverse market sectors, i.e. in energy, IT & entertainment products, healthcare and food & beverage. DCC provides business support services, specifically contract services to the health and beauty market, environmental services and out-sourced procurement and supply-chain management services to the IT industry. DCC also has a significant associate company investment, a 49% shareholding in Manor Park Homebuilders, a leading Irish house, apartment and commercial building and development company. 13 DCC’s broad business base reduces industry specific risk and provides a range of platforms for growth. We are alive to the need to regularly review DCC’s strategy for growth in a rapidly changing global business environment. We seek to position DCC for consistent and resilient growth that optimises returns for shareholders over the long term. The achievement of long-term growth requires both correct strategic positioning and superior operational effectiveness. The quality of DCC’s businesses is better today, measured in terms of scale, strategic positioning and management skills and know-how, than at any earlier time. DCC Energy is a resilient, highly cash-generative business, with strong market positions in Ireland and Britain. There is a considerable opportunity to substantially increase the scale of the oil distribution business in Britain. DCC SerCom, a high-growth business for DCC up to 2001, has been challenged by product price deflation in the IT industry in recent years. However, the business in Britain and Ireland has consistently achieved strong organic sales volume growth, has best-in-class operational metrics and achieves a good return on capital employed. Amelioration in product price deflation should reveal a growing business and renewed profit growth. DCC Healthcare is a business with considerable growth potential based on a clear strategy to build a European business on the foundation of product knowledge and expertise. DCC Food & Beverage operates in higher growth, niche areas within the food industry and has demonstrated resilient growth in Ireland. DCC Environmental is a rapidly developing, newer business area for DCC, with significant growth opportunities, particularly in Britain. These businesses position DCC for continued growth but, as ever, there will be a relentless focus on excellence in operations in each business area to maintain competitive advantage. Management changes Kevin Murray, executive Director and Managing Director of DCC Healthcare, is resigning with effect from 30 June 2006 to pursue involvement in the private company arena in preference to the continuation of a senior management role in a public company. During his 18 years with DCC, Kevin’s commitment to the Group has been unstinting and his contribution has been outstanding. Kevin will continue to have some part-time involvement with the Group on selected projects. A number of senior management changes, to take effect from 1 July 2006, were recently announced: • Tommy Breen, currently Managing Director of DCC Energy and DCC Environmental, will become DCC’s Chief Operating Officer. This will allow me, as Group Chief Executive, to devote additional time to strategic and developmental matters. • Donal Murphy, currently Managing Director of DCC SerCom, will become Managing Director of DCC Energy and DCC Environmental. • Niall Ennis, currently Finance and Development Director of DCC SerCom, will become Managing Director of DCC SerCom. • Conor Costigan, currently Finance and Development Director of DCC Healthcare, will become Managing Director of DCC Healthcare. The senior management team in DCC, together with the highly experienced and committed operating management teams in subsidiaries, give DCC the management strength and business area focus to drive the Group forward. Employees DCC currently employs approximately 5,400 people. We seek to foster a management culture that gives enlightened leadership to employees. We recognise that employees are key to DCC’s success and that they can all be ambassadors for the Group. Corporate and social responsibility Stakeholders correctly have higher expectations in relation to corporate and social responsibility. Set out on pages 33 to 35 is DCC’s corporate and social responsibility statement, which reports on how we relate to our marketplace, our environment, our workplace, our community and on health & safety. Outlook DCC has budgeted for continued good operating profit growth from subsidiaries in the current year to 31 March 2007. As announced on 3 April 2006, the share of associates’ profit after tax may be materially less in the current year, based on DCC’s current expectation of a short term reduction in the profit contribution from its 49% shareholding in Manor Park Homebuilders due to planning delays. Manor Park has a large land bank for housing development and other development projects in the pipeline from which it should earn substantial profits in the future. Jim Flavin Chief Executive/Deputy Chairman 12 May 2006 [ people We recognise that our employees are key to our success. 16 16 operating review DCC Energy business review Tommy Breen Managing Director DCC Energy DCC Energy markets and sells liquefied petroleum gas (LPG) and oil products for commercial/industrial, transport and domestic uses in Britain and Ireland. In the year to 31 March 2006, DCC Energy sold in excess of 2.9 billion litres of LPG and oil products (2005: 2.5 billion litres). DCC Energy currently employs approximately 1,900 people. The LPG business has an approximate 22% share of the British market and an approximate 35% share of the Irish market. The business supplies approximately 130,000 customers, using 450 road tankers and other special purpose vehicles from 65 facilities throughout Britain and Ireland. The oil business has an approximate 7% market share (excluding petrol retailing) in Britain making it the leading independent distributor and has an approximate 11% share of the Irish market. A fleet of 375 road tankers services approximately 215,000 customers from 67 facilities throughout Britain and Ireland. DCC Energy purchases its LPG and oil from the major oil companies. Product is shipped either directly from the major oil companies’ refineries into DCC Energy’s own importation facilities or is collected directly from the oil majors’ terminals and refineries. DCC’s financial strength enables DCC Energy to be a preferred partner of the major oil companies and strong relationships have been built with these suppliers over many years. DCC Energy distributes under many strong brands including Emo Oil*, Ergas*, Flogas*, Fuel Services*, Scottish Fuels* and Shell. *DCC owned brands Performance management DCC has almost 30 years’ involvement in the energy distribution business and with this comes a depth of experience and industry knowledge that have enabled DCC to drive superior returns from this business. The performance of the business is constantly monitored through a broad range of key indicators principally focused on sales volume growth, operational and cost efficiencies, cash flow and capital utilisation. Over the past ten years, DCC Energy has achieved a compound annual growth rate of 18.4% in operating profit. 56.0 51.8 45.8 42.3 33.1 22.5 19.4 18.1 13.2 9.3 97 98 99 00 01 02 03 04 05 06 DCC Energy - operating profit (€m) 1997 - 2006 Performance for the year to 31 March 2006 Change on prior year 2006 2005 Reported Constant currency Revenue €1,831.6m €1,240.6m +47.6% +47.7% Operating profit €56.0m €51.8m +8.0% +9.4% Return on capital employed - excluding intangible assets - including intangible assets 53.8% 24.5% 53.4% 25.3% A number of smaller oil distributors were acquired during the year. 2.9 2.5 2.1 2.0 1.7 1.4 1.1 0.8 0.7 0.6 97 98 99 00 01 02 03 04 05 06 DCC Energy - sales volume billion litres 1997 - 2006 DCC Energy achieved excellent profit growth in the year. The business delivered 2.9 billion litres of fuel products, a volume increase of 19.0% over the prior year. The LPG business performed satisfactorily against a challenging background of significantly increasing product costs. The oil business generated strong growth benefiting from the successful integration of the acquisitions in the prior year of Shell Direct UK and Dyneley Holdings. Both of these acquisitions performed ahead of expectations and have provided the oil business in Britain with a good platform for further growth. DCC Energy is a highly cash generative business, generating high returns on capital. Strategy and development The Group’s strategy for the business is to maximise shareholder value through organic and acquisition growth. Over the past five years approximately €150 million has been spent on acquisitions. Following the acquisitions of BP’s Scottish business in September 2001 and of Shell Direct in November 2004, DCC Energy now has a nationwide oil distribution infrastructure in Britain. This provides an excellent platform from which to grow in the highly fragmented oil distribution industry. 17 Queen Elizabeth lights the Trafalgar Beacon. Flogas supplied the gas and technical expertise for the beacon. 27% 45% 28% DCC Energy - product split Industrial/Commercial Transport Domestic DCC markets and sells significant volumes of transport fuels via a range of branded fuel cards. 18 18 operating review DCC SerCom business review Donal Murphy Managing Director DCC SerCom DCC SerCom comprises two businesses, SerCom Distribution and SerCom Solutions. DCC SerCom currently employs approximately 1,350 people. SerCom Distribution SerCom Distribution is a leading European sales, marketing and distribution business for a wide range of IT and entertainment products to a broad customer base including retailers, e-tailers, computer stores, value added resellers and computer dealers. SerCom Distribution has five business units operating across eight countries: • The leading British distributor of business and consumer software, computer games and peripherals to the retail channel. • A leading British distributor of a broad range of IT hardware products to the IT reseller channel. • • Ireland’s leading distributor of IT hardware and software products to the reseller channel. Ireland’s leading distributor of DVDs, computer games and associated accessories to the retail sector. • A leading distributor of enterprise infrastructure products operating in six Continental European countries. SerCom Distribution partners with the world’s leading IT and entertainment companies and is typically the number one or the number two distributor in the market for the brands that it represents. SerCom Distribution distributes many strong brands including 20th Century Fox, Canon, Cisco Systems, Disney Home Video, Entertainment in Video, Epson, Fujitsu Siemens, HP, IBM, Logitech, Microsoft, Netgear, Oracle, Samsung Electronics, Sony, Sun Microsystems, Symantec, TakeTwo, Xbox 360 and Xerox. SerCom Solutions SerCom Solutions is a leading Irish- headquartered specialist provider of outsourced procurement and supply chain management services. The company has expertise in procurement, sourcing, demand management, consigned stock programmes, contract hardware assembly, customisation, fulfilment, pick & pack and desktop publishing. The business operates as a global outsourcing partner to many of the world’s leading technology and telecommunications companies including Apple, Canon, Microsoft, Nortel and Thomson Telecom. Increasingly, these companies are entrusting key aspects of their supply chain to SerCom Solutions, in order to achieve cost effective and efficient manufacturing/distribution, shorter lead times to market, reduced cost bases and reduced inventory levels. Performance management The operational performance metrics of SerCom Distribution are well ahead of industry norms for the IT distribution business. Through a high turnover of capital employed, leveraging the breadth of products, ensuring that margins are maximised through highly incentivised sales teams and tight control of operating costs and working capital, the business generates an excellent return on capital employed, notwithstanding low operating margins in the industry. Over the past ten years, DCC SerCom has achieved a compound annual growth rate of 10.4% in operating profit. 8% 7% 21% 10% 30% SerCom Distribution - revenue product mix Software PCs & servers Printers & peripherals Storage Networking Other 24% 18% 67% 15% SerCom Distribution - geographic revenue split UK Ireland Continental Europe 19 Microsoft launched its next generation game console, Xbox 360, in December 2005. Gem, a DCC SerCom subsidiary, is the sole distribution partner for the Xbox 360 in the UK. SerCom Solutions provides a range of supply chain management services including LCD sub-assembly for notebook products Performance for the year to 31 March 2006 Change on prior year 2006 2005 Reported Constant currency Revenue €1,084.6m €983.5m +10.3% +10.3% Operating profit €25.0m €26.3m -4.9% -4.0% Operating margin 2.3% 2.7% Return on capital employed - excluding intangible assets - including intangible assets 24.4% 14.3% 30.3% 18.4% market in Ireland. Pilton has excellent long-standing relationships with some of the world’s leading film studios and has deep distribution reach into the Irish retail market, which includes supermarkets, retail chains, rental chains and independent retailers. The business is expanding its presence in the British market by leveraging SerCom Distribution’s strong market position for computer games and peripherals in that market. With its strong market positions, deep distribution reach, excellent management teams and industry leading operating metrics, SerCom Distribution is well positioned to generate renewed profit growth. The key drivers of growth this year will be: After a difficult first half, DCC SerCom’s profits grew by 22.0% in the second half. SerCom Distribution was particularly impacted in the first half by product price deflation, a rapid deterioration in the retail trading environment in Britain and a significant decline in demand in the Continental European enterprise infrastructure market. The business enjoyed a much improved second half, benefiting from strong sales volume growth, an increased focus on consumer digital products, the launch of Xbox 360 and the acquisitions of Pilton Company and AB Computing. The restructuring of SerCom Solutions, announced in January 2005, was successfully completed in the first half of the year. Since the restructuring, the business has performed strongly and contributed €2.8 million operating profit this year compared to a loss of €1.1 million in the prior year. The business achieved excellent top line growth, with revenue up 19.9% to €126.3 million. During the year, the business strengthened its position with a number of its customers outsourcing further elements of their supply chains to SerCom Solutions. Strategy and development In July 2005, DCC SerCom significantly strengthened its position in the home entertainment sector with the acquisition of Pilton, the leading distributor of DVDs and computer games to the home entertainment • • • • new generation game consoles 11% Far East sourcing at cheaper prices expansion in the British DVD market new technology, products and operating systems 89% 34.0 32.9 30.5 30.4 26.3 25.0 DCC SerCom - operating profit split SerCom Distribution SerCom Solutions 24.3 20.4 16.7 9.7 97 98 99 00 01 02 03 04 05 06 DCC SerCom - operating profit (€m) 1997 - 2006 DCC’s newly acquired subsidiary Pilton is Ireland’s leading distributor of DVDs. 20 20 operating review DCC Healthcare business review Approximately 65% of DCC Healthcare’s revenue and 55% of its operating profits are derived from marketing and selling a range of healthcare products to the acute and community care sectors in Ireland, Britain and export markets. The remaining 45% of operating profits arise from contract services to the nutraceutical and cosmetic sectors. DCC Healthcare currently employs approximately 900 people. Sales and marketing of acute and community care products In Ireland, DCC Healthcare is the leading supplier of third party and own brand products to the acute care sector, selling and marketing a broad range of medical, surgical, laboratory and intravenous pharmaceuticals and related devices through its specialist field sales teams. DCC Healthcare also sells and markets a range of rehabilitation and independent living products in Ireland, Britain, Germany and other markets, principally under its own “Days Healthcare” and “Physio-Med” brands. The acquisition of Physio-Med Services in June 2005 has expanded the range of products sold and broadened the channels to market to include catalogue sales. DCC Healthcare distributes many strong brands including Days Healthcare*, Diagnostica Stago, DiaMed, Fannin*, Fresenius Kabi, Grifols, Molnlycke, Oxoid, Physio- Med*, Smiths, Strider* and Theraband. *DCC owned brands During the year, DCC Healthcare enhanced its distribution capacity and efficiency by moving its operations in Bridgend in Wales and Bad Oeynhausen in Germany to new facilities. Together with premises in Glossop and Reading in England and Dublin and Belfast in Ireland, customers are now serviced from six facilities. DCC Healthcare has invested further in its sourcing capability in China, with the establishment earlier in the year of a permanent procurement and quality control office in Shenzhen. The strength of the sourcing capability, the breadth of the product range and the depth of the distribution reach leaves DCC Healthcare’s sales and marketing activities well placed for continued growth. Contract services DCC is a leading supplier of contract services to the nutraceutical and cosmetic industries. The business has three MHRA licensed facilities in Britain and supplies a broad range of customers, principally brand owners in Britain and Northern Europe. As a result of the increasing use of nutraceuticals in cosmetic products, it was decided to broaden the contract services business into that market through the acquisition of Laleham Healthcare in December 2004. Laleham Healthcare has been successfully integrated into the contract services business, which now provides outsourced product development, manufacturing and packaging to both the nutraceutical and cosmetic markets. Performance management The performance of DCC Healthcare’s businesses is constantly monitored through a broad range of performance indicators, principally focused on sales growth, margin management, operational and cost efficiencies, cash flow and return on capital employed. Over the past ten years, DCC Healthcare has achieved a compound annual growth rate of 18.9% in operating profit. Kevin Murray Managing Director DCC Healthcare 35% 65% DCC Healthcare - revenue split Sales & marketing Contract services 45% 55% DCC Healthcare - operating profit split Sales & marketing Contract services Performance for the year to 31 March 2006 Performance of the business for the year to 31 March 2006 Change on prior year 2006 2005 Reported Constant currency Revenue €211.7m €162.3m +30.5% +30.5% Operating profit €21.6m €15.4m +40.1% +41.2% Operating margin 10.2% 9.5% Return on capital employed - excluding intangible assets - including intangible assets 60.5% 16.7% 50.3% 13.6% DCC Healthcare achieved excellent revenue and operating profit growth. Excellent profit growth was achieved in DCC Healthcare’s sales and marketing activities, benefiting from the acquisition of Physio-Med Services in June 2005 and from good organic growth. Particularly good growth was achieved in intravenous pharmaceutical products and related devices and in DCC’s own branded rehabilitation and independent living products, which was facilitated by DCC’s procurement and quality control office in Shenzhen, China. DCC’s contract services to the health and beauty sector achieved excellent profit growth, benefiting from a first full-year contribution from Laleham Healthcare and from continuing strong organic growth. The business deepened its relationships with existing customers by providing continuing high service levels and support in new product development. Additional business development personnel have been recruited to further accelerate the expansion of its customer base. Strategy and development In its sales and marketing activities, DCC Healthcare’s strategy is to be a supplier of a broad range of healthcare products, both own brand and third party, to the healthcare industry in Europe and to provide outsourced services to customers where this adds value to the product offering. The business sells to a broad range of customers in the primary, acute and community care sectors using field, telephone and catalogue sales channels. DCC Healthcare supplies the Irish, British and German markets directly while other markets will initially be supplied through distributors. Continued addition of innovative products will enhance the development of the business’ portfolio. Through effective sourcing, particularly in the Far East, DCC Healthcare plans to improve the quality and competitiveness of its product offering. In contract services, DCC Healthcare’s strategy is to be the preferred provider of services to the functional health and beauty sector in Europe. The services provided include product development, manufacturing and packaging. The business provides a world-class service to existing customers and uses its responsive product development capability and excellent service levels to attract new business. 21.6 18.5 15.8 14.8 15.4 12.8 10.7 9.0 6.8 6.8 97 98 99 00 01 02 03 04 05 06 DCC Healthcare - operating profit (€m) 1997 - 2006 21 Fannin, a DCC Healthcare subsidiary, has a specialist field sales force that markets a wide range of medical, surgical, pharmaceutical and laboratory products. Physio-Med, a DCC Healthcare subsidiary, is Britain’s leading supplier of a broad range of physiotherapy and rehabilitation equipment. Laleham Healthcare, a DCC Healthcare subsidiary, manufactures both health and beauty and pharmaceutical products. 22 operating review Frank Fenn Managing Director DCC Food & Beverage DCC Food & Beverage business review DCC Food & Beverage markets and sells a wide range of company owned and agency branded food and beverage products in Ireland and has a developing wine business in Britain. DCC Food & Beverage currently employs approximately 900 people. The business has a deep distribution reach and offers extensive customer service to the retail and foodservice sectors on the island of Ireland. Customers include multiples, symbol and independent retailers, pharmacies, off licences, cafes and restaurants. In Britain, wines are sold to multiple retailers and wholesale cash and carry. DCC Food & Beverage operates in a number of niche market segments, principally the health / "better for you" food and beverages, indulgence and chilled & frozen logistics. Within these sectors, DCC Food & Beverage has a number of leading brands and leading market positions: • • Leader in healthy foods and healthy beverages in Ireland under the company owned Kelkin brand. Leader in savoury snacks in Ireland through the KP range of products. • Number 2 supplier of freshly ground coffee to both the retail and foodservice sectors in Ireland under the Robt. Roberts* brand. • Market leader in the Irish dilutable beverage sector with Robinsons. • Strong position in the wine market in both Ireland and Britain with a number of major brands including Torres, Brown Brothers and Bollinger champagne in Ireland and French Connection*, Andrew Peace, Riverview*, Inti* and PKNT in Britain. • A leading provider of innovative solutions in the design, development and operation of supply chain services in chilled, frozen and ambient foods in Ireland to a number of major retailers and manufacturers. • A leading supplier of branded vitamins, mineral and supplements to the Irish pharmacy sector under the Kelkin* brand and other brands including Vitabiotics, Lanes and Ortis. • A leading supplier in the provision of equipment and solutions for the preparation, preservation and presentation of quality food in the Irish market. • A leading player in the Quick Service Restaurant sector and par-bake bread manufacture through a 50% stake in the Kylemore Group. *DCC owned brands Performance management DCC Food & Beverage’s operating performance is managed and monitored through key indicators. These include sales volumes, gross margins, operational cost efficiencies, customer service levels, cash flow and return on capital employed. Over the past ten years, DCC Food & Beverage has achieved a compound annual growth rate of 15.1% in operating profit. 23 Performance for the year to 31 March 2006 Change on prior year 2006 2005 Reported Constant currency Revenue €276.9m €232.6m +19.0% +19.0% Operating profit €15.5m €12.8m +20.6% +20.9% Operating margin 5.6% 5.5% Return on capital employed - excluding intangible assets - including intangible assets 55.2% 18.7% 57.1% 21.3% DCC Food & Beverage achieved excellent revenue and operating profit growth in the year, benefiting from the acquisition of Bottle Green and the full buyout of Allied Foods in the first half of the prior year and from good organic growth. The healthfoods business continued to achieve good organic revenue growth. Investment in the Kelkin healthfood brand and new Kelkin product development resulted in a small short-term reduction in its profits. The British based wine business, which enjoyed strong growth in the first half, performed below expectation in the second half. Snackfoods, the Irish wine business, the restaurant operations and the frozen and chilled business all achieved good growth. Strategy and development The Group’s strategy is to develop DCC Food & Beverage into a leading business that satisfies consumer and customer needs in the health and indulgence sectors and delivers an above average return on capital. This will be achieved by building organically and by acquisition. The business continues to increase focus on brands, building on the good progress being made with French Connection (Bottle Green), Robt. Roberts’ speciality teas, Lemon’s confectionery, Bollinger champagne, Torres wines, KP snacks and Vitabiotics, among others. The marketing investment in the Kelkin brand this year has been significant and the business is well placed to take advantage of the growing healthfoods market. DCC Food & Beverage aims to deliver acquisitions in Ireland and Britain that will exploit the growing demand for healthy food and beverage products and will assist the development of the wine business. DCC Food & Beverage provides the complete coffee solution - Robt. Roberts' excellent coffee, premium machinery and a top quality service. 15.5 12.8 10.2 9.4 9.0 8.2 7.6 6.1 5.0 4.2 97 98 99 00 01 02 03 04 05 06 DCC Food & Beverage - operating profit (€m) 1997 - 2006 DCC has a strong position in the wine market in both Ireland and Britain. 24 24 operating review DCC Environmental business review Tommy Breen Managing Director DCC Environmental DCC Environmental provides a broad range of waste management services to the industrial/commercial sectors and local authorities in both Britain and Ireland. DCC Environmental currently employs approximately 310 people. DCC Environmental is the leading hazardous waste treatment business in Ireland. The business operates three Environmental Protection Agency licenced waste facilities in the Republic of Ireland and two Environment & Heritage Service licenced hazardous waste facilities in Northern Ireland. These facilities offer a wide range of services including soil remediation, oil recycling, metal recovery and waste transfer. The business also has a field services team that carries out waste treatment on customers’ sites. This team also offers an emergency response function to deal with environmental incidents on a 24 hour basis. DCC Environmental’s Irish businesses will operate under a new brand, enva, which is being launched at the end of June 2006. In May 2006, DCC announced the acquisition of a 50% shareholding in the William Tracey group of companies, Scotland’s leading recycling and waste management business. Founded in 1948, William Tracey has a reputation for innovation and creativity in recycling. The group operates from six freehold sites in Scotland and carries out a broad range of activities including materials recycling, hazardous waste treatment, landfill and renewable energy generation from landfill gas. The group has an extensive fleet of specialist waste management vehicles that collects waste from industrial and commercial customers for processing. The group also processes waste on behalf of local authorities and other third parties. Performance management DCC Environmental is focused on maximising shareholders’ returns through organic and acquisition growth. The performance of the business is closely monitored through a range of key indicators including sales volumes, incoming material tonnage, gross margins, cost of treatment, operating profit, cash flow and capital utilisation. Over the seven years since the business was established, DCC Environmental has achieved a compound annual growth rate of 81.5% in operating profit. 5.5 5.5 5.0 3.2 1.9 1.2 0.7 0.1 99 00 01 02 03 04 05 06 DCC Environmental - operating profit (€m) 1999 - 2006 Performance for the year to 31 March 2006 Performance for the year to 31 March 2006 Change on prior year Change on prior year 2006 2006 2005 2005 Reported Constant Reported Constant currency currency Revenue Revenue €31.5m €25.8m +22.0% +22.0% €31.5m €25.8m +22.0% +22.0% Operating profit Operating profit €5.5m €5.5m €5.5m €5.5m +1.2% +1.2% +1.7% +1.7% Operating margin Operating margin 17.5% 17.5% 21.1% 21.1% Return on capital employed Return on capital employed - excluding intangible assets - excluding intangible assets - including intangible assets - including intangible assets 31.8% 31.8% 17.4% 17.4% 45.7% 45.7% 20.7% 20.7% DCC Environmental achieved strong revenue growth in the year. Operating profit growth was held back by tighter margins in some areas of the business. Strategy and development DCC’s strategy is to build on the recent investment in the William Tracey group of companies to further develop the business in Britain and to expand the business in Ireland into non-hazardous waste management. Associate Companies DCC’s principal associate is Manor Park Homebuilders, a leading Irish house, apartment and commercial building and development company, in which it holds a 49% shareholding. Profit contribution for the year to 31 March 2006 Change on prior year 2006 2005 Reported Constant currency €25.5m €16.8m +51.6% +51.6% Share of associates’ profit after tax Manor Park has a large land bank for housing development and other development projects in the pipeline from which it should earn substantial profits in the future. 25 25252525 All the Irish environmental businesses are being re-branded enva. Segregated recyclables at the Tracey materials recycling facility. [ caring DCC Healthcare supplies a broad range of rehabilitation and independent living products. 2828 financial review Overview of results/key performance indicators Revenue grew by 30.0% on a constant currency basis (29.9% reported) to €3,436.3 million and operating profit of subsidiaries and joint ventures increased by 11.6% on a constant currency basis (10.5% reported) to a record €123.6 million (as detailed in Table 1). Most of the growth was from shareholder value enhancing bolt-on acquisitions, as organic profit growth was held back by the very challenging market conditions in DCC SerCom which have prevailed since late 2004. Excluding DCC SerCom, DCC’s other core areas of activity performed very well, generating operating profit growth, on a constant currency basis, of 16.4% (15.2% reported) broadly split evenly between organic growth and growth from acquisitions. The Group’s operating margin was 3.6% (4.2%: 2005); however, it is important to note that this measurement of the overall Group margin is of limited relevance due to the influence of changes in oil product costs on the percentage. While changes in oil product costs will change percentage operating margins, this has little relevance in the Table 1: Operating profit downstream energy market in which DCC Energy operates, where profitability is driven by absolute contribution per litre (or tonne) of product sold, and not a percentage margin. Excluding DCC Energy, the Group’s operating margin was 4.2% compared to 4.3% in the previous year. development projects in the pipeline from which it should earn substantial profits in the future. The net financing cost was €7.1 million, an increase of €1.4 million on the prior year. Interest cover was 17.6 times (19.6 times: 2005). A detailed review of the operating performance of each of the Group’s divisions in set out on pages 16 to 25. The profit after tax contribution from associates (mainly the 49% shareholding in Manor Park Homebuilders) increased significantly (51.6%) during the year. This amount was considerably higher than the Group’s earlier expectation due to Manor Park Homebuilders earning a significant profit on a transaction that it completed on 31 March 2006 which DCC had expected would more likely arise in the year to 31 March 2007. As announced on 3 April 2006, the Group’s share of associates’ profit after tax may be materially less in the current year based on DCC’s current expectation of a short term reduction in the profit contribution from Manor Park Homebuilders due to planning delays. Manor Park Homebuilders has a large landbank for housing development and has other Profit before net exceptional items, amortisation of intangible assets and tax rose by 16.5% on a constant currency basis (15.5% reported) to €142.0 million. Exceptional items gave rise to a net credit of €1.7 million as follows: Costs of legal actions with Fyffes plc and others Provision for recovery of legal costs from Fyffes plc Other €’m (5.2) 8.5 (0.5) Operating exceptional items 2.8 Foreign exchange losses on intercompany financing loans to 30 September 2005 (1.1) 1.7 2006 2005 Reported Constant Currency Change H2 H1 FY €’m €’m €’m €’m €’m €’m H1 H2 FY H1 % H2 % FY % H1 % H2 % FY % DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Total 10.7 7.6 10.1 45.3 17.4 11.5 56.0 25.0 21.6 10.6 12.0 6.8 41.2 14.3 8.6 +1.2% +9.8% +8.0% +6.4% +10.2% +9.4% 51.8 26.3 -37.0% +22.0% -4.9% -34.0% +21.1% -4.0% 15.4 +48.1% +33.8% +40.1% +53.2% +31.8% +41.2% 7.4 8.1 15.5 5.4 7.4 12.8 +37.9% +8.1% +20.6% +39.9% +7.1% +20.9% 2.8 38.6 2.7 85.0 5.5 123.6 2.8 37.5 2.7 74.3 5.5 111.8 +2.6% -0.3% +1.2% +4.7% -1.4% +1.7% +2.9% +14.4% +10.5% +6.7% +14.1% +11.6% All constant currency figures quoted in this report are based on retranslating current year figures at the prior year translation rate. financial review 29292929 On 21 December 2005, the Irish High Court found in favour of DCC and Others in the case taken against them by Fyffes plc, under Part V of the Irish Companies Act 1990, in relation to the sale of shares by Lotus Green in February 2000. In dismissing Fyffes’ claim against all of the defendants, the Court held that the share sales were entirely lawful and that none of the defendants had any liability arising from the sales of the shares in Fyffes in February 2000. On 10 February 2006, the Irish High Court decided that Fyffes should pay most of DCC’s costs in relation to Fyffes’ failed legal action against the Group. DCC expects to recoup approximately €8.5 million from Fyffes following this High Court order and, accordingly, has accrued this amount as a credit under exceptional operating costs. On 29 November 2005, the Hsinchu District Court in Taiwan issued a judgment ordering that the London High Court order obtained by DCC’s subsidiary, Days Healthcare, against Pihsiang Machinery Manufacturing Company Limited (a Taiwanese public company), Donald Wu (its chairman and major shareholder) and Jenny Wu (his wife and director) be enforced in Taiwan. Accordingly, as at 31 March Table 2: Return on capital employed Under Irish GAAP (accounting practices generally accepted in the Republic of Ireland) certain intercompany loans had been treated as part of net investment in foreign operations and foreign exchange gains or losses arising on these loans had been recognised directly in reserves. On transition from Irish GAAP, certain of these loans between fellow subsidiaries do not qualify under IFRS as part of net investment in foreign operations and therefore gains or losses on these loans must be recognised in the Income Statement. The financial impact of the above is a charge to the Income Statement of €1.145 million for the year ended 31 March 2006 (charge of €4.809 million: 2005) in respect of foreign exchange losses and these amounts are included in exceptional items. The majority of the intercompany balances which gave rise to these accounting charges (previously taken to reserves) were restructured during the year ended 31 March 2005 and the half year ended 30 September 2005 so as to eliminate accounting volatility from 30 September 2005 onwards. basis (14.6% reported) to 157.23 cent. DCC has achieved compound annual growth in reported adjusted earnings per share of 13.2% over the last five years and 17.3% over the last ten years. Dividend The total dividend for the year of 42.85 cent per share represents an increase of 15% over the previous year. The dividend is covered 3.7 times (3.7 times: 2005) by adjusted earnings per share. Return on capital employed A core strength of DCC is the creation of shareholder value through the delivery of consistent, long-term returns in excess of DCC’s cost of capital. In the year under review, DCC again achieved excellent returns on capital employed (as detailed in Table 2), generating a return of 43.0% excluding intangible assets and 19.1% including intangible assets (44.9% and 20.4% respectively: 2005). DCC’s return on capital employed has remained consistently high through a combination of good organic growth, attractive acquisition valuations and excellent integration synergies. 2006 2005 ROCE (excl intangible assets) ROCE (incl intangible assets) ROCE (excl intangible assets) ROCE (incl intangible assets) DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Group 53.8% 24.4% 60.5% 55.2% 31.8% 43.0% 2006, these parties are jointly and severally liable to pay the DCC Group Stg£14.3 million (€20.5 million), including Stg£2.1 million in accrued interest. DCC has not accrued any of this amount due pending the outcome of an appeal by the defendants to the Taiwanese High Court, but has expensed all the litigation costs. 24.5% 14.3% 16.7% 18.7% 17.4% 19.1% 53.4% 30.3% 50.3% 57.1% 45.7% 44.9% 25.3% 18.4% 13.6% 21.3% 20.7% 20.4% Taxation Cash flow The effective tax rate for the Group, including associates, increased marginally to 12.7% from 12.0%. Adjusted earnings per share Adjusted earnings per share increased by 15.5% on a constant currency DCC focuses on operating cash flow to maximise shareholder value over the long term. Operating cash flow is principally used to fund investment in existing operations, complementary bolt-on acquisitions, dividend payments and selective share buybacks. DCC’s record of excellent cash generation continued with operating cash flow 30 financial review generated from operations of €142.9 million, an increase of 22.8% on the previous year. This cashflow substantially relates to cash generated by DCC’s subsidiaries and joint ventures. While cash generation in DCC’s associates increased substantially in the year, dividends received by DCC from these associates amounted to just €1.0 million. Despite a 29.9% (€791.6 million) increase in revenue, working capital increased by just €11.2 million which equates to 9.5 days’ revenue at 31 March 2006, and compares favourably to 10.2 days’ at 31 March 2005, as detailed in Table 3. A summary of DCC’s cashflow is set out in Table 4. Table 3: Working capital days Stocks Debtors Creditors Table 4: Summary of cash flows Inflows Cash generated from operations Share issues (net) Grants received Outflows Capital expenditure (net) Acquisitions Share buyback Interest and tax paid Dividends paid Net exceptional costs Net cash outflow Translation adjustment and other Opening net (debt)/cash Closing net debt was deferred. The cash impact of acquisitions in the year was €54.7 million when payments of deferred acquisition consideration of €5.6 million are taken into account. Capital expenditure was €57.9 million (inclusive of expenditure of €13.4 million on land and buildings). Net of disposals and capital grants received, net capital expenditure was €45.2 million. Balance sheet and group financing DCC has a very strong balance sheet with total equity of €585.4 million at 31 March 2006. The composition of net debt at 31 March 2006 of €32.7 International Financial Reporting Standards The results for 2006 have been prepared in accordance with the Group’s policies under International Financial Reporting Standards (IFRS). Financial statements for the year ended 31 March 2005, which were prepared in accordance with Irish GAAP, have been restated under IFRS, with the exception of IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement, with effect from the transition date of 1 April 2004. The Group adopted IAS 32 and IAS 39 with effect from 1 April 2005. 2006 Days 11.6 42.9 (45.0) 9.5 2006 €’m 142.9 3.3 1.2 147.4 (46.4) (54.7) - (19.1) (31.8) (15.4) 167.4 (20.0) (3.8) (8.9) (32.7) 2005 Days 13.9 45.7 (49.4) 10.2 2005 €’m 116.4 6.9 - 123.3 (35.8) (81.1) (26.7) (12.1) (27.4) (6.6) 189.7 (66.4) (4.9) 62.4 (8.9) Acquisition and development expenditure amounted to €120.8 million. DCC’s ongoing acquisition programme resulted in a number of acquisitions being completed during the year at a total committed cost of €62.9 million, of which €13.8 million million is analysed in Table 5. An analysis of DCC’s cash, debt and financial derivative instrument balances at 31 March 2006, including maturity periods and currency and interest rate profiles, is shown in Notes 27 to 30 to the financial statements. The adoption of IFRS had a limited impact on the 2006 full year results and net assets of the Group. The change to IFRS represents an accounting change only and does not affect the underlying operations or cashflow generation of the Group. financial review 313131 Table 5: Analysis of net debt Non-current assets: Derivative financial instruments Current assets: Derivative financial instruments Cash and short term bank deposits Non-current liabilities: Interest-bearing loans and borrowings Derivative financial instruments Unsecured Notes due 2008 to 2016 Current liabilities: Interest-bearing loans and borrowings Derivative financial instruments Net debt The principal changes for the Group arising from the introduction of IFRS were as follows: • IFRS 2 Share-based Payment requires expensing the cost of employee and executive rewards under the Group’s share schemes through the Group Income Statement using option valuation models. The share based payments charge in the 2006 Group Income Statement is €1.8 million (€1.0 million: 2005). • Under IFRS 3 Business • Combinations, goodwill is no longer amortised but must be tested annually for impairment. Under IAS 38, Intangible Assets there is a requirement to separately identify and amortise other intangibles acquired. The Group Income Statement for 2006 includes a charge of €5.0 million (€1.3 million: 2005) in respect of the amortisation of intangible assets (mainly comprising customer relationships) associated with acquisitions completed since 1 April 2004. • Under IAS 12 Income Taxes, deferred tax is recognised in respect of all temporary timing differences at the balance sheet date between the tax bases of assets and liabilities and their carrying value for financial reporting purposes. The Group 2006 €’m 9.0 0.1 345.3 345.4 (6.3) (27.1) (286.5) (319.9) (67.1) (0.1) (67.2) (32.7) Balance Sheet at 31 March 2006 includes an additional net deferred tax liability of €0.7 million (€1.4 million: 2005). This results primarily from the creation of deferred tax in respect of defined benefit pension liabilities, intangible assets acquired on business combinations, fair value revaluations of assets and liabilities in the balance sheets of businesses acquired and gains on property disposals which were rolled over. IAS 19 Employee Benefits requires the assets and liabilities of defined benefit pension schemes to be shown on the face of the Group Balance Sheet. Actuarial gains and losses are charged to equity and, as a result, the net deficit of the Group’s defined benefit pension schemes is carried in full on the Group Balance Sheet. The Group Balance Sheet at 31 March 2006 includes a net pension scheme liability of €20.7 million (€25.4 million: 2005) after recording actuarial gains of €1.8 million that arose in the year and were credited in the Group’s Statement of Recognised Income and Expense. • Under IAS 21 The Effects of Changes in Foreign Exchange Rates, certain intercompany loans, which had been treated under 2005 €’m - - 353.3 353.3 (11.6) - (305.1) (316.7) (45.5) - (45.5) (8.9) Irish GAAP as part of net investment in foreign operations, do not qualify for such treatment. Accordingly, foreign exchange gains or losses arising on these loans which had been recognised directly in reserves must, on transition from Irish GAAP to IFRS, be recognised in the Group Income Statement. The financial impact of the above is a charge to the Group Income Statement of €1.145 million for the year ended 31 March 2006 (charge of €4.809 million: 2005) in respect of foreign exchange losses and these amounts are included in exceptional items. Financial risk management Financial risk management within the Group is governed by policies and guidelines reviewed and approved annually by the Board of Directors. These policies and guidelines primarily cover foreign exchange risk, commodity price risk, credit risk, liquidity risk and interest rate risk. The principal objective of these policies and guidelines is the minimisation of financial risk at reasonable cost. The Group does not trade in financial instruments nor does it enter into any leveraged derivative transactions. DCC’s Group Treasury function centrally manages the Group’s funding and liquidity requirements. Divisional and 32 financial review anticipated LPG commodity price exposure for the subsequent month, with such transactions qualifying as ‘highly probable’ forecast transactions for IAS 39 hedge accounting purposes. Certain customers occasionally require fixed price oil supply contracts generally for periods of less than six months. In such circumstances, the Group enters into matching forward commodity contracts, not designated as hedges under IAS 39. All commodity hedging counterparties are approved by the Board. Credit risk management DCC transacts with a variety of high credit quality financial institutions for the purpose of placing deposits and entering into derivative contracts. The Group actively monitors its credit exposure to each counterparty to ensure compliance with limits approved by the Board. Interest rate risk and debt/liquidity management The Group maintains a strong balance sheet with long-term debt funding and cash balances with deposit maturities up to six months. In addition, the Group maintains significant uncommitted credit lines with its relationship banks. DCC borrows at both fixed and floating rates of interest. It has swapped its fixed rate borrowings to floating interest rates, using interest rate and cross currency interest rate swaps which qualify for fair value hedge accounting under IAS 39. The Group mitigates interest rate risk on its borrowings by matching, to the extent possible, the maturity of its cash balances with the interest rate reset periods on the swaps related to its borrowings. subsidiary management, in conjunction with Group Treasury, manage foreign exchange and commodity price exposures within approved policies and guidelines. Further detail in relation to the Group’s financial risk management and its derivative financial instrument position is contained in Note 2 and Note 28 respectively to the financial statements. Foreign exchange risk management DCC’s reporting currency and that in which its share capital is denominated is the euro. Exposures to other currencies, principally sterling and the US dollar, arise in the course of ordinary trading. The Group generally hedges between 50% and 90% of transactions in each major currency for the subsequent 2 months. The Group also hedges approximately 50% of anticipated transactions in certain subsidiaries, generally for periods up to 6 months with such transactions qualifying as ‘highly probable’ forecast transactions for IAS 39 hedge accounting purposes. Although over half of the Group’s operating profits are sterling denominated, certain natural economic hedges exist within the Group, for example, a proportion of the purchases by certain of its Irish businesses are sterling denominated. The Group did not hedge the remaining retranslation exposure during the financial year ended 31 March 2006. The Group has investments in sterling operations which are highly cash generative. The Group seeks to manage the resultant foreign currency translation risk through borrowings denominated in or swapped (utilising currency swaps or cross currency interest rate swaps) into sterling, although this is more than offset by the strong cumulative cash flow generated from the Group’s sterling operations. Commodity price risk management The Group is exposed to commodity price risk in its LPG and oil distribution businesses. The Group generally hedges approximately 50% of its corporate & social responsibility 33333333 Plans DCC has a long established practice of ensuring that social and environmental matters are addressed in its business operations and in interactions with all stakeholders. DCC continues to monitor CSR best practice. Current developments, such as third generation Global Reporting Initiative guidelines for sustainability reporting, have been reviewed and DCC plans to reflect these developments in appropriate corporate policies, objectives and key performance indicators. Marketplace Products and services DCC regards socially and environmentally responsible behaviour as an integral part of good business management. The Group is committed to enhancing the lives of its stakeholders and reflects this in the design, delivery and management of its products and services. In the Healthcare sector, both Days Healthcare and Physio-Med provide rehabilitation and independent living products that assist their customers in leading independent lives. In the Energy sector, Flogas distributes LPG, which is a non-toxic, clean burning, sulphur and smoke free fuel. In the Food & Beverage sector, Kelkin actively promotes "better for you" products, with strictly no additives, preservatives or colourings. DCC Environmental specialises in recycling and waste treatment, helping to provide a cleaner, safer environment for the benefit of all. Sustainable growth DCC’s commitment to the principles of CSR has been recognised in recent years by the Group’s inclusion in a number of CSR indices and ethical funds. In the interests of shareholders and other stakeholders, DCC will strive to achieve further recognition of this commitment by continuing to expand the Group’s CSR measurement and benchmarking processes. Recognition of excellence in financial reporting DCC’s commitment to financial reporting best practice was again recognised during the year when DCC was short-listed as a finalist by the Leinster Society of Chartered Accountants in their annual Published Accounts Awards, the most prestigious award for excellence in financial reporting in Ireland. Environment, health and safety DCC is committed to operating in a safe, ethical and responsible manner, safeguarding the health and safety of its employees as well as protecting the environment. Compliance with environmental, health and safety (‘EHS’) regulatory requirements is considered a minimum standard for all Group businesses. New legislation, for example the 2005 Safety, Health and Welfare at Work Act in Ireland, is implemented to ensure timely compliance. Environmental, health and safety management systems Moving beyond compliance, Group businesses strive to implement best practice in their operations. All the Group’s businesses operate comprehensive environmental, health and safety management systems, primarily based on the internationally recognised ISO14001 and OHSAS18001 management system standards. The complexity of the management systems is determined by the nature and scale of the risks at each business location. Within DCC Environmental, three subsidiaries are formally certified by SGS (an independent accreditation body) to the ISO14001 environmental standard. A case study of the successful implementation by a DCC subsidiary, Atlas Northern Ireland, of the OHSAS18001 health and safety standard in April 2005 is included below. DCC believes that a structured approach to managing EHS risk promotes continuous improvement of EHS performance while recognising that certification is a milestone and not an end in itself. DCC’s businesses continue to invest in their environmental, health and safety management systems with progress regularly reviewed by senior management and by the Group environmental, health and safety function. Health and Safety Case Study of a DCC subsidiary - Atlas Northern Ireland Atlas Northern Ireland (‘Atlas’), a specialist waste management business, has operated an ISO14001 certified environmental management system since 2001. In 2005, Atlas made the decision to reassess existing health and safety policies and procedures with a view to obtaining certification to the OHSAS18001 health and safety management system standard. The implementation of the OHSAS18001 system provides a structured and consistent approach to hazard identification and risk management allowing Atlas to proactively identify risks, enhance employee safety standards and improve operational efficiencies. Following a successful audit by SGS, Atlas received formal OHSAS18001 certification in April 2005, a significant achievement for its health and safety team. Certification by SGS reflects ongoing commitment by Atlas to a policy of compliance and best practice implementation and provides customers and regulatory authorities with assurance and confidence in the professionalism of Atlas’ operations. 34 corporate & social responsibility Business community DCC is a very active member of the broader business community, contributing to various industry and professional organisations. Many DCC employees dedicate their own time to the support and development of these organisations. Workplace Communication and a high performance culture DCC employees are the key element of its success – their talent, innovation and entrepreneurial flair have been the essential ingredients in the Group’s consistent and strong growth. DCC’s decentralised culture empowers local management and staff to use their skills, experience and deep industry knowledge to provide a first class service to customers and to be highly responsive to market needs. DCC strives for excellence and ‘best in class’ performance across all its businesses. Business processes and employment practices are regularly reviewed, benchmarked, improved and updated to reflect current legislation. Strong, open and regular communication practices at all levels throughout the Group reflect a culture of empowerment and inclusiveness. As illustrated by the case study on a DCC subsidiary, Flogas UK, DCC’s businesses strive to ensure they have excellent employee communication processes, including employee committees, focus groups, newsletters and suggestion schemes. Employee safety The safety of the Group’s employees continues to be paramount. In so far as is reasonably practical, risks are eliminated, minimised or mitigated to provide safe working conditions. Workplace hazards are formally risk assessed and appropriate control measures (physical and procedural) are implemented. A culture of personal safety awareness is an important element in the prevention of accidents and the importance of individual responsibility for safety is stressed at every level and communicated to employees. Waste packaging legislation All Group businesses with obligations under waste packaging legislation are members of group compliance schemes, for example Repak in Ireland and Valpak in the UK. DCC’s businesses typically segregate on-site waste packaging, including cardboard, plastics and wood, for collection by authorised recycling contractors. Community Committed corporate neighbour DCC is sensitive to any impact its operations may have on its neighbours and is committed to ensuring that the needs, views and interests of the local communities in which its businesses operate are taken into consideration. This commitment is reflected in well- established practices throughout the Group. Philanthropic approach DCC supports a large number of charitable causes and a number of educational initiatives that target disadvantaged students, as well as a number of specific third level education programmes. DCC’s businesses and their employees support many local initiatives in education, sports, job creation and general social activities in the communities in which they operate. Employee Communication Case Study of a DCC subsidiary - Flogas UK Flogas UK (‘Flogas’), DCC’s largest subsidiary, has grown substantially over the last number of years, mainly through acquisition, and now has 800 employees across 57 depots throughout the UK. Flogas has successfully implemented a structured communication process to maintain the spirit of open participation, communication and high performance that has been central to its success. A key component of this process is the Flogas employee conference, a highly motivational biannual event for all employees that focuses on strategy and provides a platform to acknowledge the achievements of individuals, depots across the country and the company. During alternate years all employees are invited in smaller groups to communication evenings with a similar focus. Flogas publishes an in-house employee magazine "People with Energy" on a quarterly basis, keeping everyone informed of events, staff changes and company news. Flogas has also established a company-wide Employee Relations Council, comprising regional employee representatives who attend quarterly regional meetings and an annual national meeting. Beyond these formal communication structures, Flogas puts great emphasis on one to one communication between employees to ensure that ideas or concerns are promptly addressed. corporate & social responsibility 353535 Employee diversity DCC has always fully embraced the value of diversity, recognising the strengths and benefits of a diverse workforce. DCC’s employment policies respect and value all employees, with selection and progression based only on skills, experience and performance. Employee financial participation DCC values employee dedication and commitment to the business. Through its remuneration, incentive and share option programmes, DCC employees share in the financial success of the business. In 2001, DCC established the DCC Sharesave Scheme, in which all employees in Ireland and the UK were invited to participate. As a result, a significant percentage of employees are now shareholders or option holders in DCC. Learning organisation As an organisation, DCC places great emphasis on continuous learning and development and encourages employees to develop and enhance their skills and knowledge. This is done in a variety of ways throughout the Group, including company secondments, training programmes, on the job training and more formal technical, management and executive development courses. DCC continually reviews and updates performance management practices across its businesses to reflect best practice and to support managers and employees in the development of their business skills and personal effectiveness. products.[ quality DCC Food & Beverage markets quality food 38 corporate governance The Board of DCC continues to be committed to maintaining the highest standards of corporate governance. The following report describes how DCC has applied the principles set out in Section 1 of the Combined Code on Corporate Governance. The Board of Directors Role The Board of DCC is responsible for the leadership, strategic direction and overall management of the Group and has a formal schedule of matters specifically reserved to it for decision, which covers key areas of the Group’s business including approval of financial statements, budgets (including capital expenditure), acquisitions and dividends. The Board has delegated responsibility for the management of the Group, through the Chief Executive, to executive management. There is a clear division of responsibilities between the Chairman and the Chief Executive, which is set out in writing and has been approved by the Board. Certain additional matters are delegated to Board Committees. Composition The Board consists of four executive and seven non-executive Directors. Brief biographies of the Directors are set out on pages 6 and 7. Non-executive Directors are appointed by the Board for an initial term of three years and the expectation is that they will be invited to serve a second three-year term. The Board may also invite non-executive Directors to serve an additional period thereafter. The terms and conditions of appointment of non-executive Directors are set out in their letters of appointment, which are available for inspection at the Company’s registered office during normal office hours and at the Annual General Meeting of the Company. Following appointment, Directors are subject to re-election at the next Annual General Meeting. At least one third of the Directors retire at each Annual General Meeting and all of the Directors are subject to re-election at least every three years. Non-executive Directors who have served on the Board for more than nine years are subject to annual re-election. All of the Directors bring independent judgement to bear on issues of strategy, risk, performance, resources, key appointments and standards. The Board has recently evaluated the independence of each of its non- executive Directors. In the case of Alex Spain, Tony Barry and Paddy Gallagher, the Board gave due consideration to the fact that they have served on the Board for more than nine years from the date of their first election. The Board has concluded that all of the non-executive Directors are independent of management and free of any relationships which could interfere with the exercise of their independent judgement. The Board has appointed Michael Buckley as the Senior Independent Director. Mr. Buckley is available to shareholders who have concerns that cannot be addressed through the Chairman or the Chief Executive/Deputy Chairman. Board procedures There is an established procedure for Directors to take independent professional advice in the furtherance of their duties if they consider this necessary. All Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. as directors and, in addition, the Board ensures that Directors are kept up to date on the latest corporate governance guidance and best practice. There is a full, formal and tailored induction process for new non-executive Directors, which includes detailed presentations on the Group’s operations. Meetings The Board holds regular meetings and there is contact as required between meetings in order to progress the Group’s business. During the year, the Board held nine meetings. Individual attendance at these meetings is set out in the table on page 40. Remuneration Details of remuneration paid to the Directors are set out in the Report of the Remuneration Committee on pages 44 to 47. Board Committees Audit Committee The Audit Committee comprises three non-executive Directors, Bernard Somers (Chairman), Róisín Brennan and Paddy Gallagher. The Board has determined that Bernard Somers is the Committee’s financial expert. The Committee met five times during the year. Individual attendance at these meetings is set out in the table on page 40. The Chief Executive/Deputy Chairman, Chief Financial Officer, Head of Enterprise Risk Management, Group Internal Auditor, other Directors and executives and representatives of the external auditors may be invited to attend all or part of any meeting. The Committee also meets separately with the external auditors and with the Group Internal Auditor without executive management present. The Board recognises the need for Directors, in particular new Directors, to be aware of their legal responsibilities The role and responsibilities of the Audit Committee are set out in its corporate governance 39 written terms of reference, which are available on request and on the Company’s website www.dcc.ie, and include: • monitoring the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance and reviewing significant financial reporting judgements contained in them; • • • • • • reviewing the half-year and annual financial statements before submission to the Board; considering and making recommendations to the Board in relation to the appointment, re-appointment and removal of the external auditors and approving the audit fee and terms of engagement of the external auditors; approving the remuneration of the external auditors, whether fees for audit or non-audit services, and ensuring that the level of fees is appropriate to enable an adequate audit to be conducted; assessing annually the independence and objectivity of the external auditors and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements and the relationship with the auditors as a whole, including the provision of any non-audit services; reviewing the operation and the effectiveness of the Group Internal Audit function; reporting to the Board on its annual assessment of the operation of the Group's system of internal control, making any recommendations to the Board thereon and reviewing the Company’s statements on internal control and risk management prior to endorsement by the Board; and • reviewing the Group’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters and ensuring that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action. These responsibilities are discharged through its meetings and receipt of reports from the Risk Committee and the Enterprise Risk Management function (incorporating Group Internal Audit and Group Environmental, Health and Safety). The Committee has a process in place to ensure that the independence of the audit is not compromised, which includes monitoring the nature and extent of services provided by the external auditors through its annual review of fees paid to the external auditors for audit and non-audit work.The Committee also reviews the safeguards which the external auditors have put in place to ensure their objectivity and independence in accordance with professional and regulatory requirements. Details of the amounts paid to the external auditors during the year for audit and other services are set out in note 6 on page 73. Nomination Committee The Nomination Committee comprises four non-executive Directors, Alex Spain (Chairman), Michael Buckley, Maurice Keane and Bernard Somers, and the Chief Executive/Deputy Chairman, Jim Flavin. The Committee met three times during the year. Individual attendance at these meetings is set out in the table on page 40. The role and responsibilities of the Nomination Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.dcc.ie. The principal responsibilities of the Committee are to keep Board renewal, structure, size and composition under regular review, including the skills, knowledge and experience required. The Committee has particular regard to the leadership needs of the organisation, both executive and non-executive, and therefore gives full consideration to succession planning for the Chairman and Chief Executive. On 5 September 2005, upon the recommendation of the Nomination Committee, the Board appointed Róisín Brennan and Michael Buckley to the positions of non-executive Directors. This followed an extensive and rigorous process undertaken by the Nomination Committee which carefully considered the Board’s requirements, identified suitable candidates, in terms of quality of individual, age profile, qualification and business background, and made a recommendation to the Board. The Nomination Committee did not consider that the process would have been enhanced by an external search consultancy or open advertising. Remuneration Committee The Remuneration Committee comprises four non-executive Directors, Maurice Keane (Chairman), Tony Barry, Róisín Brennan and Michael Buckley and its report is set out on pages 44 to 47. The Committee met four times during the year. Individual attendance at these meetings is set out in the table on page 40. The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.dcc.ie. The principal responsibilities of the Committee are determining the policy for the remuneration of the executive Directors and determining their remuneration packages, determining pension arrangements for the executive Directors and the granting of share options under the DCC plc 1998 Employee Share Option Scheme. The Chief Executive/Deputy Chairman is consulted about remuneration proposals for the other executive Directors. The Remuneration Committee is authorised to obtain access to professional advice if deemed desirable. 40 corporate governance Attendance at Board and Board Committee meetings during the year ended 31 March 2006 Director Board Alex Spain Jim Flavin Tony Barry Tommy Breen Róisín Brennan Michael Buckley Paddy Gallagher Maurice Keane Kevin Murray Fergal O’Dwyer Bernard Somers A 9 9 9 9 5 5 9 9 9 9 9 B 9 9 9 9 5 5 9 9 9 8 9 Audit Committee A B Nomination Committee B A Remuneration Committee A B - - - - 3 - 5 2 - - 5 - - - - 3 - 5 2 - - 5 3 3 2 - - 1 2 3 - - 1 3 3 2 - - 1 2 3 - - 1 2 - 4 - 2 2 - 2 - - 2 2 - 4 - 2 2 - 2 - - 2 Column A indicates the number of scheduled meetings held during the period the Director was a member of the Board and/or Committee. Column B indicates the number of scheduled meetings attended during the period the Director was a member of the Board and/or Committee. Performance evaluation The Board undertakes a formal annual evaluation of its own performance and that of each of its principal committees, the Audit, Nomination and Remuneration committees, using the ‘Performance Evaluation Guidance’ set out in the Higgs Suggestions for Good Practice. The Chairman conducts evaluations of the performance of each non- executive Director on an annual basis and the non-executive Directors evaluate the performance of each executive Director. These evaluations are designed to determine whether each Director continues to contribute effectively and continues to demonstrate commitment to the role. The non-executive Directors, led by the Senior Independent Director, meet annually without the Chairman present to evaluate his performance, having taken into account the views of the executive Directors. particular the Chairman and Chief Executive, taking into account the skills, expertise and experience required and the leadership needs of the organisation. Relations with shareholders Communications with shareholders are given high priority and DCC has a well-established investor relations function. The Board is kept informed of the views of shareholders through the executive Directors’ attendance at investor presentations and results presentations. Furthermore, relevant feedback from such meetings, investor relations reports and brokers notes are provided to the entire Board on a regular basis. The Company’s web site www.dcc.ie provides the full text of annual and interim reports as well as all press releases. It also incorporates audio and slide show investor presentations. Committees are also available to answer questions at the Annual General Meeting. The Chief Executive/Deputy Chairman makes a presentation at the Annual General Meeting and answers questions on the Group’s business and its performance during the prior year. Shareholders can meet with the Chairman or the Senior Independent Director on request. Notice of the Annual General Meeting, the Form of Proxy and the Annual Report are sent to shareholders at least 20 working days before the Meeting. At the Meeting, after each resolution has been dealt with, details are given of the level of proxy votes cast on each resolution and the numbers for and against. The 2006 Annual General Meeting will be held at 11 a.m. on 10 July 2006 at The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland. Internal control Board succession planning The Board, with the assistance of the Nomination Committee, plans for the succession of its Directors, in The Company’s Annual General Meeting affords shareholders the opportunity to question the Chairman and the Board. The chairmen of the Audit, Nomination and Remuneration The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to corporate governance 41 Going concern After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Directors’ responsibility for preparing the financial statements is explained on page 48 and the reporting responsibilities of the auditors are set out in their report on pages 49 and 50. Compliance statement DCC has complied, throughout the year ended 31 March 2006, with the provisions as set out in Section 1 of the Combined Code on Corporate Governance. achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. In accordance with the revised Turnbull guidance for directors on internal control published in October 2005, Internal Control: Revised Guidance for Directors on the Combined Code, the Board confirms that there is an ongoing process for identifying, evaluating and managing any significant risks faced by the Group, that it has been in place for the year under review and up to the date of approval of the financial statements and that this process is regularly reviewed by the Board. The key risk management and internal control procedures, which are supported by detailed controls and processes, include: • • • skilled and experienced Group and divisional management; an organisation structure with clearly defined lines of authority and accountability; a comprehensive system of financial reporting involving budgeting, monthly reporting and variance analysis; • • • • the operation of approved risk management policies (including treasury and IT); a Risk Committee, comprising Group senior management, whose main role is to keep under review and report to the Audit Committee on the principal risks facing the Group, the controls in place to manage those risks and the monitoring procedures; an independent Enterprise Risk Management function, which incorporates Group Internal Audit and Group Environmental, Health and Safety; and a formally constituted Audit Committee which reviews the operation of the Risk Committee and the Enterprise Risk Management function, liaises with the external auditors and reviews the Group’s internal control systems. The Board has reviewed the effectiveness of the Group’s system of internal control. This review took account of the principal business risks facing the Group, the controls in place to manage those risks (including financial, operational and compliance controls and risk management) and the procedures in place to monitor them. 42 report of the directors for the year ended 31 March 2006 The Directors of DCC plc present their report and the audited financial statements for the year ended 31 March 2006. Group results The profit for the financial year attributable to Group shareholders amounted to €123.8 million as set out in the Group Income Statement on page 51. Dividends An interim dividend of 15.54 cent per share, amounting to €12.50 million, was paid on 1 December 2005. The Directors recommend the payment of a final dividend of 27.31 cent per share, amounting to €22.04 million. Subject to shareholders’ approval at the Annual General Meeting on 10 July 2006, this dividend will be paid on 14 July 2006 to shareholders on the register on 26 May 2006. The total dividend for the year ended 31 March 2006 amounts to 42.85 cent per share, a total of €34.54 million. The balance of profit attributable to Group shareholders, which is retained in the business, amounts to €92.2 million. Purchase of shares and treasury shares The number of shares held in Treasury at the beginning of the year (and the maximum amount held) was 7,873,886 (8.92% of the issued share capital) with a nominal value of €1.968 million. A total of 363,708 shares (0.41% of the issued share capital) with a nominal value of €0.091 million were re-issued during the year at prices ranging from €6.22 to €12.20 consequent to the exercise of share options under the DCC plc 1998 Employee Share Option Scheme and the DCC Sharesave Scheme 2001, leaving a balance held in Treasury at 31 March 2006 of 7,510,178 shares (8.51% of the issued share capital) with a nominal value of €1.878 million. At the Company’s Annual General Meeting on 5 July 2005, the Company was granted authority to purchase up to 8,822,940 of its own shares (10% of the issued share capital) with a nominal value of €2.206 million. This authority has not been exercised and will expire on 10 July 2006, the date of the next Annual General Meeting of the Company. A special resolution will be proposed at the Annual General Meeting to renew this authority. Review of activities and events since the year end The Chairman’s Statement on pages 10 to 11, the Chief Executive’s Review on pages 12 to 13, the Operating Review on pages 16 to 25 and the Financial Review on pages 28 to 32 contain a review of the development of the Group’s business during the year, of the state of affairs of the business at 31 March 2006, of recent events and of likely future developments. Information in respect of events since the year end as required by the Companies (Amendment) Act, 1986 is also included in these sections. Principal risks and uncertainties Under Section 13 of the Companies (Amendment) Act, 1986 as amended by Statutory Instrument 116 of 2005 - European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005, DCC is required to give a description of the principal risks and uncertainties facing the Company and the Group. As detailed throughout this Annual Report, DCC’s businesses operate in a broad range of business areas. This broad business base means that the Group is not exposed to significant risks connected with any particular industry. DCC has a broad customer base and the profitability of the Group is not dependent on any single customer. Similarly, DCC has a broad supplier base and the Group is committed to ensuring that suppliers continue to choose DCC as the partner of choice, however, no one supplier would be considered material to the Group. The principal risks and uncertainties faced by the Group’s businesses relate to the macro economic environment in Ireland, Britain and Continental Europe. The level of activity in these markets is sensitive to economic conditions generally, including, inter alia, economic growth, interest rates and inflation. During 2006, the price of a barrel of oil reached record prices on world markets. DCC Energy is the Group’s largest profit contributor and constant and rigorous margin management is maintained. The principal financial risks facing the Group are addressed in the Financial Review under ‘Financial Risk Management’ on pages 31 to 32. The Group has a comprehensive system of risk management and internal controls as detailed under ‘Internal Control’ in the Corporate Governance section of this Report on pages 38 to 41. Subsidiary, joint venture and associated companies Details of the Company’s principal operating subsidiaries, principal joint ventures and principal associates are set out on pages 113 to 116. report of the directors 43 Substantial shareholdings The Company has been advised of the following interests in its share capital as at 12 May 2006: No. of €0.25 ordinary shares % of issued share capital (including treasury shares) % of issued share capital (excluding treasury shares) Bank of Ireland Asset Management Limited * 9,233,951 10.47% 11.44% FMR Corp. on behalf of certain of its direct and indirect subsidiaries* Schroder Investment Management Limited and Schroder Investment Management North America Limited* AIM Trimark Investments* Jim Flavin * Notified as non-beneficial interests Directors The names of the Directors and a short biographical note on each Director appear on pages 6 and 7. Róisín Brennan and Michael Buckley were co-opted to the Board on 5 September 2005. In accordance with Article 83 (b) of the Articles of Association, both will retire from the Board at the Annual General Meeting on 10 July 2006 and being eligible, offer themselves for re-election. In accordance with Article 80 of the Articles of Association, Tommy Breen, Fergal O’Dwyer and Bernard Somers retire by rotation at the Meeting and, being eligible, offer themselves for re-election. In compliance with Provision A.7.2 of the Combined Code on Corporate Governance, Tony Barry, Paddy Gallagher and Alex Spain retire at the Meeting, each having served on the Board for a period in excess of nine years, and, being eligible, offer themselves for re-election. Kevin Murray will resign from his position as an executive Director of DCC plc with effect from 30 June 2006. None of the retiring Directors has a service contract with the Company or with any member of the Group with a notice period in excess of one year or 8,900,000 10.09% 11.03% 7,946,347 3,177,620 2,456,033 9.01% 3.60% 2.78% 9.84% 3.94% 3.04% with provisions for predetermined compensation on termination which exceeds one year’s salary and benefits in kind. Details of the Directors’ interests in the share capital of the Company are set out in the Report of the Remuneration Committee on pages 44 to 47. Corporate governance Statements by the Directors in relation to the Company’s appliance of the principles and compliance with the provisions of the Combined Code on Corporate Governance, the Group’s system of internal control and the adoption of the going concern basis in preparing the financial statements are set out on pages 38 to 41. Research and development Certain Group companies carry out development work aimed at improving the quality, competitiveness and range of their products. This expenditure is not material in relation to the size of the Group and is written off to the profit and loss account as it is incurred. Political contributions There were no political contributions which require to be disclosed under the Electoral Act, 1997. Accounting records The Directors are responsible for ensuring that proper books and accounting records, as outlined in Section 202 of the Companies Act, 1990, are kept by the Company. The Directors believe that they have complied with this requirement by providing adequate resources to maintain proper books and accounting records throughout the Group including the appointment of personnel with appropriate qualifications, experience and expertise. The books and accounting records of the Company are maintained at the Company’s registered office, DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland. Auditors The auditors, PricewaterhouseCoopers, will continue in office in accordance with the provisions of Section 160(2) of the Companies Act, 1963. Alex Spain, Jim Flavin Directors 12 May 2006 44 report of the remuneration committee Remuneration Committee The Remuneration Committee comprises four independent non- executive Directors, Maurice Keane (Chairman), Tony Barry, Róisín Brennan and Michael Buckley. The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.dcc.ie. The principal responsibilities of the Committee are determining the policy for the remuneration of the executive Directors and determining their remuneration packages, determining pension arrangements for the executive Directors and the granting of share options under the DCC plc 1998 Employee Share Option Scheme. The Chief Executive/Deputy Chairman is consulted about remuneration proposals for the other executive Directors. The Remuneration Committee is authorised to obtain access to professional advice if deemed desirable. Remuneration policy The Company’s remuneration policy recognises that employment and remuneration conditions for the Group’s senior executives must properly reward and motivate them to perform in the best interests of the shareholders. In formulating this policy, the Committee has given due regard to the provisions of the Combined Code on Corporate Governance. Directors’ remuneration Executive Directors’ remuneration The typical elements of the remuneration package for executive Directors are basic salary, performance related remuneration consisting of performance related annual bonuses and share options, pension benefits and other taxable benefits (principally the use of a company car). Salaries The salaries of executive Directors are reviewed annually on 1 January having regard to personal performance, Company performance and competitive market practice. No fees are payable to executive Directors. Performance related annual bonuses Performance related annual bonuses are payable to the executive Directors, in respect of the financial year to 31 March. The performance targets, which are reviewed annually, are tailored to the responsibilities of each executive Director and include growth in Group earnings, divisional performance, Group and divisional development and an element related to individual performance and contribution. The maximum bonus potential, as a percentage of basic salary, for each executive Director is reviewed and set annually and amounted to 65% of basic salary for the year ended 31 March 2006. Pension benefits The Company funds pension schemes which, for executive Directors, aim to provide, on the basis of actuarial advice, a pension of two thirds of pensionable salary at normal retirement date. Pensionable salary is calculated as 105% of basic salary and does not include any performance related bonuses or benefits. Non-Executive Directors’ remuneration The remuneration of the non-executive Directors is determined by the Board. The fees paid to non-executive Directors reflect their experience and ability and the time demands of their Board and Board Committee duties. report of the remuneration committee 45 Directors’ remuneration details The table below sets out the details of the remuneration payable in respect of Directors who held office for any part of the financial year. Salary and fees 1 Bonus 2006 2005 €’000 €’000 2006 2005 €’000 €’000 Special bonus 2 2006 €’000 Benefits3 Pension contribution4 Total 2006 2005 €’000 €’000 2006 2005 €’000 €’000 2006 2005 €’000 €’000 Executive Directors Jim Flavin Tommy Breen Kevin Murray Fergal O’Dwyer Total for executive Directors 806 346 346 314 768 329 329 299 510 218 218 198 384 175 175 175 1,812 1,725 1,144 909 Non-executive Directors Alex Spain Tony Barry Róisín Brennan5 Michael Buckley5 Paddy Gallagher Maurice Keane Bernard Somers Total for non-executive Directors 142 55 35 33 61 60 66 130 54 - - 57 54 54 452 349 - - - - - - - - - - - - - - - - Pension payment in respect of retired Director Total 150 - - 100 250 - - - - - - - - 38 21 20 21 100 - - - - - - - - 37 20 19 20 96 - - - - - - - - 121 94 94 86 115 98 90 85 1,625 1,304 622 613 579 679 678 719 395 388 3,701 3,118 - - - - - - - - - - - - - - - - 142 55 35 33 61 60 66 130 54 - - 57 54 54 452 349 10 10 4,163 3,477 Notes 1 2 3 4 Fees are payable only to non-executive Directors and include Chairman’s and Board Committee fees. Special bonus to Mr. Flavin and Mr. O’Dwyer in recognition of the exceptional demands that had been placed on them during the year arising from the successful defence of the action taken by Fyffes plc against DCC plc and Others. In the case of the executive Directors, benefits relate principally to the use of a company car. Executive Director pension contributions in the year ended 31 March 2006 were made to a defined contribution arrangement for Jim Flavin and to a defined benefit scheme for the other executive Directors. 5 Róisín Brennan and Michael Buckley were appointed to the Board on 5 September 2005. Directors’ defined benefit pensions The table below sets out the increase in the accrued pension benefits to which executive Directors have become entitled during the year ended 31 March 2006 and the transfer value of the increase in accrued benefit, under the Company’s defined benefit pension scheme: Increase in accrued pension benefit (excl inflation) during the year1 €’000 Transfer value equivalent to the increase in accrued pension benefit2 €’000 Total accrued pension benefit at year end3 €’000 Executive Directors Tommy Breen Kevin Murray Fergal O’Dwyer Total 8 16 7 31 69 161 55 285 131 123 97 351 Notes 1 2 3 Increases are after adjustment for inflation over the year and reflect additional pensionable service and salary. The transfer value equivalent to the increase in accrued pension benefit has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer values do not represent sums paid to or due to the Directors named, but are the amounts that would transfer to another pension scheme in respect of the increase in accrued pension benefit during the year. Figures represent the total accrued pension payable from normal retirement date, based on pensionable service at 31 March 2006. 46 report of the remuneration committee Share options DCC plc 1998 Employee Share Option Scheme Executive Directors and other senior executives participate in the DCC plc 1998 Employee Share Option Scheme, which was approved by shareholders in 1998. The Scheme encourages identification with shareholders’ interests by enabling management to build, over time, a shareholding in the Company which is material to their net worth. The percentage of share capital which can be issued under the Scheme, the phasing of the grant of options and the limit on the value of options which may be granted to any individual comply with guidelines published by the institutional investment associations. The Scheme provides for the grant of both basic and second tier options, in each case up to a maximum of 5% of the Company’s issued share capital. Basic tier options may not normally be exercised earlier than three years from the date of grant and second tier options not earlier than five years from the date of grant. Basic tier options may normally be exercised only if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 2%, compound, per annum over a period of at least three years following the date of grant. Second tier options may normally be exercised only if the growth in the adjusted earnings per share over a period of at least five years is such as would place the Company in the top quartile of companies on the ISEQ index in terms of comparison of growth in adjusted earnings per share and if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 10%, compound, per annum in that period. Directors are encouraged to hold their options beyond the earliest exercise date. The following are details of share options granted to Directors and the Company Secretary under the DCC plc 1998 Employee Share Option Scheme: At 31 March 2005 Granted in At 31 March Weighted average exercise price 2006 year Normal exercise period Executive Directors Jim Flavin Basic tier Second tier Tommy Breen Basic tier Second tier Kevin Murray Basic tier Second tier Fergal O’Dwyer Basic tier Second tier Company Secretary Gerard Whyte Basic tier Second tier 375,000 395,000 - - 375,000 395,000 8.3364 8.1063 June 2001 – Nov 2014 June 2003 – Nov 2012 180,000 190,000 10,000 - 190,000 190,000 9.4260 8.6786 June 2001 – Dec 2015 June 2003 – Nov 2012 180,000 190,000 10,000 - 190,000 190,000 9.4260 8.6786 June 2001 – Dec 2015 June 2003 – Nov 2012 155,000 165,000 10,000 - 165,000 165,000 9.2972 8.4366 June 2001 – Dec 2015 June 2003 – Nov 2012 75,000 80,000 7,500 - 82,500 80,000 10.1307 8.8716 June 2001 – Dec 2015 June 2003 – Nov 2012 No options were exercised by or allowed to lapse by Directors or the Company Secretary under the DCC plc 1998 Employee Share Option Scheme during the year. report of the remuneration committee 47 DCC Sharesave Scheme The Group established the DCC Sharesave Scheme in 2000. On 15 June 2001, options were granted under the Scheme to those Group employees, including executive Directors, who entered into associated savings contracts. The options were granted at an option price of €8.79 per share, which represented a discount of 20% to the then market price as provided for by the rules of the Scheme. These options are exercisable between June 2004 and September 2007. On 10 December 2004, a second grant of options under this Scheme was made to Group employees, not including executive Directors, at an option price of €12.63 per share, which represented a discount of 20% to the then market price. These options are exercisable between December 2007 and March 2011. At 31 March 2006, Group employees held options to subscribe for 884,988 ordinary shares under the DCC Sharesave Scheme. The following are details of the share options granted to executive Directors and the Company Secretary under the DCC Sharesave Scheme: Executive Directors Jim Flavin Tommy Breen Kevin Murray Fergal O’Dwyer Company Secretary Gerard Whyte No. of ordinary shares at 31 March 2006 No. of ordinary shares at 31 March 2005 2,383 2,383 2,383 2,383 2,006 2,383 2,383 2,383 2,383 2,006 The market price of DCC shares on 31 March 2006 was €19.20 and the range during the year was €14.92 to €19.65. Additional information in relation to the DCC plc 1998 Employee Share Option Scheme and the DCC Sharesave Scheme appears in note 10 on pages 75 to 78. Directors’ and Company Secretary’s interests The interests of the Directors and the Company Secretary (including their respective family interests) in the share capital of DCC plc at 31 March 2006, together with their interests at 31 March 2005, were: Directors Alex Spain Jim Flavin Tony Barry Róisín Brennan Michael Buckley Tommy Breen Paddy Gallagher Maurice Keane Kevin Murray Fergal O’Dwyer Bernard Somers Company Secretary Gerard Whyte No. of ordinary shares at 31 March 2006 No. of ordinary shares at 31 March 2005* 25,634 2,456,033 17,000 - 10,000 211,512 5,040 5,000 187,306 212,506 - 125,353 25,634 2,456,033 17,000 - - 211,512 5,040 5,000 187,306 212,506 - 125,353 *At 5 September 2005 in respect of Róisín Brennan and Michael Buckley, being the date of their appointment. All of the above interests were beneficially owned. There were no changes in the interests of the Directors and the Company Secretary between 31 March 2006 and 12 May 2006. Apart from the interests disclosed above, the Directors and the Company Secretary had no interests in the share capital or loan stock of the Company or any other Group undertaking at 31 March 2006. The Company’s Register of Directors Interests (which is open to inspection) contains full details of Directors’ shareholdings and share options. Directors’ service agreements Other than for the Chief Executive/Deputy Chairman, there are no service agreements between any Director of the Company and the Company or any of its subsidiaries. The Chief Executive/Deputy Chairman’s service agreement provides for one year’s notice of termination by the Company. 48 statement of directors’ responsibilities • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements are prepared in accordance with IFRS and comply with the provisions of the Companies Acts, 1963 to 2005 and Article 4 of the IAS Regulation. The Directors have a general duty to act in the best interests of the Company and must, therefore, take such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The following statement, which should be read in conjunction with the statement of Auditors’ responsibilities set out within their report on pages 49 and 50, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the Auditors in relation to the financial statements. The Directors are responsible for preparing the Annual Report and the financial statements in accordance with International Financial Reporting Standards (IFRS), the Companies Acts, 1963 to 2005 and Article 4 of the IAS Regulation. Irish company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that year. In preparing the financial statements of the Group, the Directors are required to: • select and use suitable accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; • comply with applicable IFRS subject to any material departures disclosed and explained in the financial statements; and 49 report of the independent auditors for the year ended 31 March 2006 To the Members of DCC plc We have audited the Group and Parent Company financial statements (the ‘financial statements’) of DCC plc for the year ended 31 March 2006 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statement of Recognised Income and Expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union, are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 193 of the Companies Act, 1990 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union. We report to you our opinion as to whether the Parent Company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, as applied in accordance with the provisions of the Companies Acts, 1963 to 2005. We also report to you whether the financial statements have been properly prepared in accordance with Irish statute comprising the Companies Act, 1963 to 2005 and Article 4 of the IAS Regulation. We state whether we have obtained all the information and explanations we consider necessary for the purposes of our audit, and whether the financial statements are in agreement with the books of account. We also report to you our opinion as to: • whether the Company has kept proper books of account; • whether the Directors’ Report is consistent with the financial statements; and • whether at the balance sheet date there existed a financial situation which may require the Company to convene an extraordinary general meeting of the Company; such a financial situation may exist if the net assets of the Company, as stated in the Company Balance Sheet, are not more than half of its called-up share capital. We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange regarding Directors’ remuneration and Directors’ transactions is not disclosed and, where practicable, include such information in our report. and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Chairman’s Statement, the Chief Executive’s Review, the Operating and Financial Review, the Corporate Social Responsibility Statement, the Corporate Governance Statement and the Directors’ Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed. We review whether the Corporate Governance statement reflects the Company’s compliance with the nine provisions of the Financial Reporting Council’s 2003 Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material 50 report of the independent auditors its called-up share capital and, in our opinion, on that basis there did not exist at 31 March 2006 a financial situation which under Section 40(1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company. PricewaterhouseCoopers Chartered Accountants and Registered Auditors Dublin 12 May 2006 misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: • • the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the Group’s affairs as at 31 March 2006 and of its profit and cash flows for the year then ended; the Parent Company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, as applied in accordance with the provisions of the Companies Acts, 1963 to 2005, of the state of the Parent Company’s affairs as at 31 March 2006 and cash flows for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2005 and Article 4 of the IAS Regulation. We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the Company. The Company Balance Sheet is in agreement with the books of account. In our opinion the information given in the Directors’ Report is consistent with the financial statements. The net assets of the Company, as stated in the Company Balance Sheet are more than half of the amount of financial statements 51 group income statement for the year ended 31 March 2006 2006 2005 exceptionals €’000 Pre Exceptionals (note 11) €’000 Total exceptionals €’000 €’000 Pre Exceptionals (note 11) €’000 Total €’000 Note 3,436,292 (2,992,240) 444,052 (320,457) - - - 2,841 3,436,292 (2,992,240) 444,052 (317,616) 2,644,728 (2,258,200) 386,528 (274,715) - - - (15,967) 2,644,728 (2,258,200) 386,528 (290,682) 123,595 2,841 126,436 111,813 (15,967) 95,846 (4,956) 118,639 (22,947) 15,906 25,474 137,072 - 2,841 (1,145) - - 1,696 (4,956) 121,480 (24,092) 15,906 25,474 138,768 (13,479) 125,289 123,764 1,525 125,289 153.92c 150.46c (1,261) 110,552 (23,284) 17,590 16,807 121,665 - (15,967) (4,809) - - (20,776) (1,261) 94,585 (28,093) 17,590 16,807 100,889 (12,107) 88,782 87,760 1,022 88,782 109.68c 107.16c Revenue Cost of sales Gross profit Operating costs Operating profit before amortisation of intangible assets Amortisation of intangible assets Operating profit Finance costs Finance revenue Share of associates’ profit after tax Profit before tax Income tax expense 4 5 4 4 12 12 14 15 Profit after tax for the financial year Profit attributable to: Equity holders of the Company Minority interest Earnings per ordinary share Basic Diluted 18 18 Alex Spain, Jim Flavin, Directors 52 financial statements group statement of recognised income and expense for the year ended 31 March 2006 Note 32 15 15 15 Items of income and expense recognised directly within equity: Currency translation effects Group defined benefit pension obligations: - actuarial gain/(loss) - deferred tax asset Deferred tax on share based payment Gains relating to cash flow hedges (net) Deferred tax liability on cash flow hedges Net expense recognised directly in equity Profit after tax for the financial year Total recognised income and expense for the financial year Attributable to: Equity holders of the Company Minority interest Total recognised income and expense for the financial year group statement of changes in equity for the year ended 31 March 2006 At 31 March Impact of adoption of IAS 32 and 39 At 1 April Issue of share capital Share based payment Share buyback Dividends Movement in minority interest Note 10 17 Total recognised income and expense for the financial year attributable to equity holders At 31 March 2006 €’000 (4,779) 1,779 82 25 23 (3) (2,873) 125,289 122,416 120,891 1,525 122,416 2006 €’000 492,219 (1,689) 490,530 3,344 1,840 - (31,568) 366 120,891 585,403 2005 €’000 (5,565) (7,742) 771 25 - - (12,511) 88,782 76,271 75,249 1,022 76,271 2005 €’000 462,816 - 462,816 6,858 1,003 (26,762) (27,212) 267 75,249 492,219 financial statements 53 group balance sheet as at 31 March 2006 Note 2006 €’000 2005 €’000 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in associates Deferred income tax assets Derivative financial instruments Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to equity holders of the Company Equity share capital Share premium account Other reserves Other reserves - share options Cash flow hedge reserve Foreign currency translation reserve Retained earnings Minority interest Total equity LIABILITIES Non-current liabilities Borrowings Derivative financial instruments Deferred income tax liabilities Retirement benefit obligations Deferred acquisition consideration Capital grants Current liabilities Trade and other payables Current income tax liabilities Borrowings Derivative financial instruments Provisions for liabilities and charges Deferred acquisition consideration Total liabilities Total equity and liabilities Alex Spain, Jim Flavin, Directors 19 20 21 31 28 23 24 28 27 36 37 38 38 38 38 39 40 29 28 31 32 33 35 25 29 28 34 33 267,494 248,475 76,789 4,596 8,989 606,343 138,734 522,143 144 345,280 1,006,301 1,612,644 22,057 124,687 1,400 3,392 20 (10,344) 439,477 580,689 4,714 585,403 292,793 27,077 10,718 20,679 18,808 1,991 372,066 543,913 36,697 67,151 73 3,785 3,556 655,175 1,027,241 1,612,644 254,791 208,053 51,384 6,957 - 521,185 124,049 410,190 - 353,304 887,543 1,408,728 22,042 124,506 1,400 1,552 - (5,565) 343,936 487,871 4,348 492,219 316,644 - 9,996 25,380 10,839 958 363,817 447,717 37,189 45,553 - 15,149 7,084 552,692 916,509 1,408,728 54 financial statements group cash flow statement for the year ended 31 March 2006 Cash generated from operations Exceptional items Interest paid Income tax paid Net cash flows from operating activities Investing activities Inflows Proceeds from disposal of fixed assets Capital grants received Interest received Outflows Purchase of property, plant and equipment Acquisition of subsidiaries Purchase of minority interests Deferred acquisition consideration paid Net cash flows from investing activities Financing activities Inflows Proceeds from issue of shares Increase in interest-bearing loans and borrowings Outflows Share buyback Repayment of interest-bearing loans and borrowings Repayment of finance lease liabilities Dividends paid to equity holders of the Company Dividends paid to minority interests Net cash flows from financing activities Change in cash and cash equivalents Translation adjustment Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents consists of: Cash and short term bank deposits Overdrafts Note 41 35 17 40 30 27 30 30 2006 €’000 142,922 (15,377) (20,573) (12,157) 94,815 11,223 1,174 13,650 26,047 (57,652) (48,625) (506) (5,580) (112,363) (86,316) 3,344 36,624 39,968 - (663) (5,973) (31,568) (201) (38,405) 1,563 10,062 (4,541) 314,397 319,918 345,280 (25,362) 319,918 2005 €’000 116,396 (6,560) (15,627) (9,289) 84,920 7,875 - 12,833 20,708 (43,647) (77,288) (905) (2,955) (124,795) (104,087) 6,858 213,244 220,102 (26,762) (88,918) (5,062) (27,212) (176) (148,130) 71,972 52,805 (10,074) 271,666 314,397 353,304 (38,907) 314,397 financial statements 55 company balance sheet as at 31 March 2006 ASSETS Non-current assets Investments in associates Investments in subsidiary undertakings Current assets Trade and other receivables Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to equity holders of the Company Equity share capital Share premium account Other reserves Retained earnings Total equity LIABILITIES Non-current liabilities Amounts due to subsidiary undertakings Deferred acquisition consideration Current liabilities Trade and other payables Deferred acquisition consideration Total liabilities Total equity and liabilities Alex Spain, Jim Flavin, Directors Note 2006 €’000 2005 €’000 21 22 24 27 36 37 38 39 33 25 33 1,300 161,072 162,372 263,187 157 263,344 425,716 22,057 124,687 344 55,556 202,644 10,387 - 10,387 212,685 - 212,685 223,072 425,716 1,300 145,814 147,114 277,799 248 278,047 425,161 22,042 124,506 344 41,128 188,020 10,387 139 10,526 223,791 2,824 226,615 237,141 425,161 56 financial statements company statement of changes in equity for the year ended 31 March 2006 At 1 April Profit after tax for the financial year Issue of share capital Share buyback Dividends At 31 March Note 16 17 2006 €’000 188,020 42,848 3,344 - (31,568) 202,644 2005 €’000 234,156 980 6,858 (26,762) (27,212) 188,020 financial statements 57 company cash flow statement for the year ended 31 March 2006 Profit for the year Add back non-operating (income)/expense - Tax - Net finance costs Operating profit Depreciation Profit on sale of property, plant and equipment Changes in working capital: - Trade and other receivables - Trade and other payables Cash generated from operations Interest paid Income tax (paid)/received Net cash flows from operating activities Investing activities Inflows Proceeds from disposal of fixed assets Interest received Outflows Purchase of property, plant and equipment Deferred acquisition consideration paid Additional investment in subsidiary undertakings Net cash flows from investing activities Financing activities Inflows Dividends received Proceeds from issue of shares Outflows Share buyback Dividends paid to equity holders of the Company Net cash flows from financing activities Change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 26 26 22 17 2006 €’000 (1,651) 1,199 (4,168) (4,620) - - 14,612 (11,106) (1,114) (907) (1,199) (3,220) - 5,075 5,075 - (2,963) (15,258) (18,221) (13,146) 44,499 3,344 47,843 - (31,568) (31,568) 16,275 (91) 248 157 2005 €’000 915 (53) (3,830) (2,968) 94 (15) 14,420 32,683 44,214 (867) 53 43,400 15 4,697 4,712 (242) (938) - (1,180) 3,532 65 6,858 6,923 (26,762) (27,212) (53,974) (47,051) (119) 367 248 58 notes to the financial statements 1. Summary of significant accounting policies Statement of compliance The consolidated financial statements of DCC plc have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and their interpretations approved by the International Accounting Standards Board (‘IASB’) as adopted by the European Union (‘EU’) and those parts of the Companies Acts, 1963 to 2005 applicable to companies reporting under IFRS. Both the Parent Company and the Group financial statements have been prepared in accordance with IFRS as adopted by the EU. In presenting the Parent Company financial statements together with the Group financial statements, the Company has availed of the exemption in Section 148(8) of the Companies Act 1963 and section 7(1A) of the Companies (Amendment) Act 1986 not to present its individual Income Statement and related notes that form part of the approved Company financial statements. The accounting policies applied in the preparation of the financial statements for the year ended 31 March 2006 are set out below. These policies have been applied consistently with the exception of those accounting policies pertaining to IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement which in accordance with the transitional provisions of IFRS 1 First-time Adoption of International Financial Reporting Standards were not applied in the restatement of the 2005 comparatives presented in these financial statements. These consolidated financial statements are the Group’s first financial statements to be prepared in accordance with IFRS. The IFRS adopted by the EU applied by the Company and Group in the preparation of these financial statements are those that were effective at 31 March 2006 together with the early adoption of the Amendment to IAS 19 Actuarial Gains and Losses, Group Plans and Disclosures. Basis of preparation The consolidated financial statements, which are presented in euro, rounded to the nearest thousand, have been prepared under the historical cost convention, as modified by the measurement at fair value of share options and derivative financial instruments. The carrying values of recognised assets and liabilities that are hedged are adjusted to record changes in the fair values attributable to the risks that are being hedged. The accounting policies set out below have been applied consistently by Group entities to all periods presented in these consolidated financial statements and in preparing the opening IFRS Balance Sheet as at 1 April 2004 for the purposes of the transition to IFRS reporting with the exception of IAS 32 and IAS 39 which, as noted above, were not applied in the restatement of the 2005 comparatives. The transition to IFRS is accounted for in accordance with IFRS 1. This standard sets out how to adopt IFRS for the first time and mandates that most standards are to be fully applied retrospectively. There are certain limited exemptions from this requirement. The impact of IFRS on the financial statements for the year ended 31 March 2005 and the significant decisions taken in respect of availing, or otherwise, of the exemptions available on the transition to IFRS are outlined in note 47 to the financial statements. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. In addition, it requires management to exercise judgement in the process of applying the Company’s accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, relate primarily to accounting for defined benefit pension schemes and goodwill impairment and are documented in the relevant accounting policies below. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards which are relevant to the Group have been published that are mandatory for the Group’s accounting periods beginning on or after 1 April 2006 or later periods but which the Group has not early adopted. These include the following: IFRS 7 Financial Instruments: Disclosures; Amendment to IAS 1 Capital Disclosures; Amendment to IAS21 Net Investment in a Foreign Operation; Amendment to IAS 39 Cash Flow Hedge Accounting of Forecast Intragroup Transactions; notes to the financial statements 59 1. Summary of significant accounting policies - continued Amendment to IAS 39 The Fair Value Option; Amendment to IAS 39 Transition and Initial Recognition of Financial Assets and Financial Liabilities; Amendment to IAS 39 and IFRS 4 Financial Guarantee Contracts; IFRIC Interpretation 4 Determining whether an Arrangement contains a Lease; and IFRIC Interpretation 8 Scope of IFRS 2. Adoption of IFRS The Group and Company are required to determine their IFRS accounting policies and apply them retrospectively to establish their opening balance sheets under IFRS at the date of transition. The transitional impact of the recognition and measurement of IFRS as disclosed in the Restatement of Financial Information under IFRS was published by the Group on 30 September 2005. IFRS 1 First-time Adoption of International Financial Reporting Standards allows a number of exemptions on adoption of IFRS for the first time. The date of transition to IFRS for the Group and Company is 1 April 2004. Standards adopted during the financial year The Group has adopted the following standards during the financial year ended 31 March 2006 and comparative figures have been amended as required: IAS 1 Presentation of Financial Statements; IAS 2 Inventories; IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; IAS 10 Events after the Balance Sheet Date; IAS 16 Property, Plant and Equipment; IAS 17 Leases; IAS 21 The Effects of Changes in Foreign Exchange Rates; IAS 24 Related Party Disclosures; IAS 27 Consolidated and Separate Financial Statements; IAS 28 Investments in Associates; IAS 31 Interests in Joint Ventures and IAS 33 Earnings per Share. As permitted under IFRS1, the Group applied hedge accounting in accordance with Irish GAAP for the year ended 31 March 2005 and adopted IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement from 1 April 2005. Early adoption The Group decided to avail of early application of the Amendment to IAS 19 Actuarial Gains and Losses, Group Plans and Disclosures, which enables the recognition of actuarial gains and losses through retained income. Accordingly, the revised disclosure requirements inherent in this Amendment have been reflected in the Group financial statements for the year ended 31 March 2006. Basis of consolidation Subsidiaries The results of subsidiary undertakings acquired or disposed of during the year are included in the consolidated Income Statement from the date of their acquisition or up to the date of their disposal. A subsidiary is one where the Group has the power, directly or indirectly, to govern the financial and operating policies of the entity, so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether the Group controls the entity. Joint ventures In accordance with IAS 31 Interests in Joint Ventures, the Group’s share of results and net assets of joint ventures, which are entities in which the Group holds an interest on a long-term basis and which are jointly controlled by the Group and one or more other ventures under a contractual arrangement, are accounted for on the basis of proportionate consolidation from the date on which the contractual agreements stipulating joint control are finalised and are derecognised when joint control ceases. All of the Group’s joint ventures are jointly controlled entities within the meaning of IAS 31. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. Associates Associates are companies other than subsidiaries in which the Group holds, on a long-term basis, a participating interest in the voting equity share capital and has a significant influence. Associates are included in the Company Balance Sheet at cost less provision for any impairment in value. Income from associates included in the Company Income Statement comprises dividends received and receivable. The appropriate share of results of associates is included in the Group Income Statement by way of the equity method of accounting. Associates are stated in the Group Balance Sheet at cost plus the attributable portion of their retained reserves from the date of acquisition. Goodwill attributable to investments in associates is treated in accordance with the accounting policy for goodwill. 60 notes to the financial statements 1. Summary of significant accounting policies - continued Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from such transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment. Revenue recognition Revenue comprises the invoiced value, including excise duty and excluding value added tax, of goods supplied and services rendered. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group, that it can be reliably measured and that the significant risks and rewards of ownership of the goods have passed to the buyer. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognised when shareholders’ rights to receive payment have been established. Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those other segments. Arising from the Group’s internal organisational structure and its system of internal financial reporting, segmentation by business is regarded as being the predominant source and nature of the risks and returns facing the Group and is thus the primary segment. Geographical segmentation is the secondary segment. Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in euro which is the Company’s functional and the Group’s presentation currency. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates. Transactions and balances Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Currency translation differences on monetary assets and liabilities are taken to the consolidated Income Statement except where hedge accounting is applied. Group companies Results and cash flows of subsidiaries, joint ventures and associates which do not have the euro as their functional currency are translated into euro at average exchange rates for the year, and the related balance sheets are translated at the rates of exchange ruling at the balance sheet date. Adjustments arising on translation of the results of such subsidiaries, joint ventures and associates at average rates, and on the restatement of the opening net assets at closing rates, are dealt with in a separate translation reserve within equity, net of differences on related currency instruments designated as hedges of such investments. On disposal of a foreign operation, such cumulative currency translation differences are recognised in the Income Statement as part of the overall gain or loss on disposal. Cumulative currency translation differences arising prior to the transition date have been set to zero for the purposes of ascertaining the gain or loss on disposal of a foreign operation subsequent to 1 April 2004. Goodwill and fair value adjustments arising on acquisition of a foreign operation are regarded as assets and liabilities of the foreign operation, are expressed in the functional currency of the foreign operation and are recorded at the exchange rate at the date of the transaction and subsequently retranslated at the applicable closing rates. Exceptional items The Group has adopted an Income Statement format which seeks to highlight significant items within the Group results for the year. Such items may include restructuring, profit or loss on disposal or termination of operations, litigation costs and settlements, profit or loss on disposal of investments and impairment of assets. Judgement is used by the Group in assessing the particular items, which by virtue of their scale and nature, should be disclosed in the Income Statement and related notes as exceptional items. notes to the financial statements 61 1. Summary of significant accounting policies - continued Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on a straight-line basis at the rates stated below, which are estimated to reduce each item of property, plant and equipment to its residual value level by the end of its useful life: Freehold and long term leasehold buildings Plant and machinery Cylinders Motor vehicles Fixtures, fittings & office equipment Annual rate 2% 5 - 331/3% 62/3% 10 - 331/3% 10 - 331/3% Land is not depreciated. The residual values and useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at each balance sheet date. In accordance with IAS 36 Impairment of Assets, the carrying amounts of items of property, plant and equipment are reviewed at each balance sheet date to determine whether there is any indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement. Following the recognition of an impairment loss, the depreciation charge applicable to the asset or cash-generating unit is adjusted prospectively in order to systematically allocate the revised carrying amount, net of any residual value, over the remaining useful life. Subsequent costs are included in an asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the replaced item can be measured reliably. All other repair and maintenance costs are charged to the Income Statement during the financial period in which they are incurred. Borrowing costs directly attributable to the construction of property, plant and equipment are capitalised as part of the cost of those assets. Business combinations The purchase method of accounting is employed in accounting for the acquisition of subsidiaries by the Group. The Group has elected to avail of the exemption under IFRS 1 First-time Adoption of International Financial Reporting Standards whereby business combinations prior to the transition date of 1 April 2004 are not restated. IFRS 3 Business Combinations has been applied with effect from the transition date of 1 April 2004 and goodwill amortisation ceased from that date. The cost of a business combination is measured as the aggregate of the fair value at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued in exchange for control together with any directly attributable expenses. Where acquisitions involve further payments which are deferred or contingent on levels of performance achieved in the years following the acquisition, the fair value of the deferred component is determined through discounting the amounts payable to their present value. The discount component is unwound as an interest charge in the Income Statement over the life of the obligation. When the initial accounting for a business combination is determined provisionally, any adjustments to the provisional values allocated to assets and liabilities are made within twelve months of the acquisition date and reflected as a restatement of the acquisition balance sheet. Minority interests The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against interests of the parent. Goodwill Goodwill arising in respect of acquisitions completed prior to 1 April 2004 (being the transition date to IFRS) is included at its carrying amount, which equates to its net book value recorded under previous GAAP. In line with the provisions applicable to a first-time adopter under IFRS the accounting treatment of business combinations undertaken prior to the transition date has not been reconsidered in preparing the opening IFRS Balance Sheet at 1 April 2004 and goodwill amortisation has ceased with effect from the transition date. Goodwill written off to reserves under Irish GAAP prior to 1 April 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Goodwill on acquisitions is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. 62 notes to the financial statements 1. Summary of significant accounting policies - continued Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill relating to acquisitions from 1 April 2004 and goodwill carried in the Balance Sheet at 1 April 2004 is not amortised. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The carrying amount of goodwill in respect of associates, net of any impairment, is included in investments in associates under the equity method in the Group Balance Sheet. Goodwill was tested for impairment as at 1 April 2004, the date of transition to IFRS, and no impairment resulted from this exercise. Goodwill acquired in a business combination is allocated, from the acquisition date, to the respective cash-generating units. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is subject to impairment testing on an annual basis and at any time during the year if an indicator of impairment is considered to exist; the goodwill impairment tests are undertaken at a consistent time in each annual period. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Impairment losses arising in respect of goodwill are not reversed following recognition. Where goodwill forms part of a cash-generating unit and part of the operation within that unit are disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the proportion of the cash-generating unit retained. Intangible assets (other than goodwill) Intangible assets acquired separately are capitalised at cost. Intangible assets acquired in the course of a business combination are capitalised at fair value being their deemed cost as at the date of acquisition. Following initial recognition, intangible assets which have a finite life are carried at cost less any applicable accumulated amortisation and any accumulated impairment losses. Where amortisation is charged on assets with finite lives this expense is taken to the Income Statement. The amortisation of intangible assets is calculated to write-off the book value of intangible assets over their useful lives on a straight-line basis on the assumption of zero residual value. In general, definite-lived intangible assets are amortised over periods ranging from three to five years, depending on the nature of the intangible asset. Leases Property, plant and equipment, acquired under a lease which transfers substantially all of the risks and rewards of ownership to the Group, are capitalised as property, plant and equipment and are depreciated over their useful lives with any impairment being recognised in the Income Statement. Amounts payable under such leases (finance leases), net of finance charges, are shown as short, medium or long term lease obligations, as appropriate. Finance charges on finance leases are charged to the Income Statement over the term of the lease so as to produce a constant periodic rate of interest on the remaining balance of the liability. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. The annual rentals under operating leases are charged to the Income Statement on a straight-line basis over the lease term. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first in first out basis and in the case of raw materials, bought-in goods and expense inventories comprises purchase price plus transport and handling costs less trade discounts and subsidies. Cost, in the case of products manufactured by the Group, consists of direct material and labour costs together with the relevant production overheads based on normal levels of activity. Net realisable value represents the estimated selling price less costs to completion and appropriate selling and distribution costs. Provision is made, where necessary, for slow moving, obsolete and defective inventories. notes to the financial statements 63 1. Summary of significant accounting policies - continued Trade and other receivables and payables Trade and other receivables and payables are stated at cost, which approximates to fair value given the short-dated nature of these assets and liabilities. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The amount of the provision is recognised in the Income Statement. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. Derivative financial instruments - accounting policy for the year ended 31 March 2006 The Group uses derivative financial instruments (principally interest rate, currency and cross currency interest rate swaps and forward foreign exchange and commodity contracts) to hedge its exposure to interest rate and foreign exchange risks and to changes in the prices of certain commodity products arising from operational, financing and investment activities. Derivative financial instruments are recognised on inception at fair value, being the present value of estimated future cash flows. The method of recognition of gains or losses on subsequent re-measurement of fair value depends on the nature of the item being hedged. Hedging For the purposes of hedge accounting, hedges are designated either as fair value hedges (which entail hedging the exposure to movements in the fair value of a recognised asset or liability or a firm commitment that are attributable to hedged risks) or cash flow hedges (which hedge exposure to fluctuations in future cash flows derived from a particular risk associated with a recognised asset or liability or a highly probable forecast transaction). Fair value hedge In the case of fair value hedges which satisfy the conditions for hedge accounting, any gain or loss arising from the re- measurement of the fair value of the hedging instrument is reported in the Income Statement within ‘Finance Costs’. In addition, any gain or loss on the hedged item which is attributable to the hedged risk is adjusted against the carrying amount of the hedged item and reflected in the Income Statement within ‘Finance Costs’. If a hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of the hedged item is amortised to the Income Statement over the period to maturity. Cash flow hedge Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability or a highly probable forecasted transaction, the effective part of any gain or loss on the derivative financial instrument is recognised as a separate component of equity with the ineffective portion being reported in the Income Statement. When a forecast transaction results in the recognition of an asset or a liability, the cumulative gain or loss is removed from equity and included in the initial measurement of the asset or liability. Otherwise, the associated gains or losses that had previously been recognised in equity are transferred to the Income Statement in the same reporting period as the hedged transaction. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income Statement. Derivative financial instruments - accounting policy for the year ended 31 March 2005 Gains and losses on derivative contracts used to hedge foreign exchange and commodity price trading exposures were recognised in the Income Statement when the hedged transactions occurred. Gains and losses on foreign currency swap agreements used to convert US dollar borrowings into euro and sterling borrowings were deferred to be recognised on the maturity of the underlying debt, together with the matching loss or gain on the debt. Amounts payable or receivable in respect of interest rate swap agreements and similar contracts used to manage interest rate exposures were recognised as adjustments to interest expense over the period of the contracts. 64 notes to the financial statements 1. Summary of significant accounting policies - continued Interest-bearing loans and borrowings All loans and borrowings are initially recorded at cost being the fair value of the consideration received net of transaction costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost employing the effective interest yield method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses are recognised in the Income Statement when the liabilities are derecognised or impaired, as well as through the amortisation process. Provisions A provision is recognised in the Balance Sheet when the Group has a present obligation (either legal or constructive) as a result of a past event, and it is probable that a transfer of economic benefits will be required to settle the obligation. A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan and announced its main provisions. Provisions arising on business combinations are only recognised to the extent that they would have qualified for recognition in the financial statements of the acquirer prior to the acquisition. A contingent liability is not recognised but is disclosed where the existence of the obligation will only be confirmed by future events or where the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not recognised but are disclosed where an inflow of economic benefits is probable. Income tax Current tax Current tax represents the expected tax payable or recoverable on the taxable profit for the year using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments stemming from prior years. Deferred tax Deferred tax is provided using the liability method on all temporary differences at the balance sheet date which is defined as the difference between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets and liabilities are not subject to discounting and are measured at the tax rates that are anticipated to apply in the year in which the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences with the exception of the following: (i) where the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or a liability in a transaction that is not a business combination and affects neither the accounting profit nor the taxable profit or loss at the time of the transaction; and (ii) where, in respect of taxable temporary differences associated with investments in subsidiaries and joint ventures, the timing of the reversal of the temporary difference is subject to control and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets are recognised in respect of all deductible temporary differences, carry-forward of unused tax credits and unused tax losses to the extent that it is probable that taxable profits will be available against which to offset these items except: (i) where the deferred tax asset arises from the initial recognition of an asset or a liability in a transaction that is not a business combination and affects neither the accounting profit nor the taxable profit or loss at the time of the transaction; and (ii) where, in respect of deductible temporary differences associated with investment in subsidiaries, joint ventures and associates, a deferred tax asset is recognised only if it is probable that the deductible temporary difference will reverse in the foreseeable future and that sufficient taxable profits will be available against which the temporary difference can be utilised. The carrying amounts of deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that sufficient taxable profit would be available to allow all or part of the deferred tax asset to be utilised. notes to the financial statements 65 1. Summary of significant accounting policies - continued Pension and other post employment obligations The Group operates defined contribution and defined benefit pension schemes. The costs arising in respect of the Group’s defined contribution schemes are charged to the Income Statement in the period in which they are incurred. The Group has no legal or constructive obligation to pay further contributions after payment of fixed contributions. The Group operates a number of defined benefit pension schemes which require contributions to be made to separately administered funds. The liabilities and costs associated with the Group’s defined benefit pension schemes are assessed on the basis of the projected unit credit method by professionally qualified actuaries and are arrived at using actuarial assumptions based on market expectations at the balance sheet date. The Group's net obligation in respect of defined benefit pension schemes is calculated separately for each plan by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan asset is deducted. The discount rate employed in determining the present value of the schemes' liabilities is determined by reference to market yields at the balance sheet date on high quality corporate bonds of a currency and term consistent with the currency and term of the associated post-employment benefit obligations. The net surplus or deficit arising in the Group's defined benefit pension schemes are shown within either non-current assets or liabilities on the face of the Group Balance Sheet. The deferred tax impact of pension scheme surpluses and deficits is disclosed separately within deferred tax liabilities or assets as appropriate. The Group has elected to avail of the Amendment to IAS 19 Employee Benefits to recognise post transition date actuarial gains and losses immediately in the Statement of Recognised Income and Expense. When the benefits of a defined benefit plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the Income Statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the Income Statement. Share-based payment transactions Employees (including Directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render service in exchange for shares or rights over shares. The fair value of share entitlements granted is recognised as an employee expense in the Income Statement with a corresponding increase in equity. The fair value is determined using a binomial model for the DCC plc 1998 Employee Share Option Scheme and the Black Scholes option valuation model for the DCC Sharesave Scheme. Non-market based vesting conditions are not taken into account when estimating the fair value of entitlements as at the grant date. The expense in the Income Statement represents the product of the total number of options anticipated to vest and the fair value of those options. This amount is allocated on a straight-line basis over the vesting period to the Income Statement with a corresponding credit to Other Reserves - Share Options. The cumulative charge to the Income Statement is only reversed where entitlements do not vest because non-market performance conditions have not been met or where an employee in receipt of share entitlements relinquishes service before the end of the vesting period. The proceeds received by the Company on the vesting of share entitlements are credited to Share Capital (nominal value) and Share Premium when the share entitlements are exercised. When the share-based payments give rise to the re-issue of shares from treasury shares, the proceeds of issue are credited to shareholders equity. In line with the transitional arrangements set out in IFRS 2 Share-based Payment the recognition and measurement principles of this standard have been applied only in respect of share entitlements granted after 7 November 2002 and which have not vested by 1 January 2005. The Group does not operate any cash-settled share-based payment schemes or share-based payment transactions with cash alternatives as defined in IFRS 2. Grants Grants are recognised at their fair value when there is a reasonable assurance that the grant will be received and all attaching conditions have been complied with. Capital grants received and receivable by the Group are credited to capital grants and are amortised to the Income Statement on a straight-line basis over the expected useful lives of the assets to which they relate. Revenue grants are recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. 66 notes to the financial statements 1. Summary of significant accounting policies - continued Share capital Treasury shares Where the Company purchases the Company’s equity share capital, the consideration paid is deducted from total shareholders’ equity and classified as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in total shareholders’ equity. Dividends Dividends on Ordinary Shares are recognised as a liability in the Group’s financial statements in the period in which they are approved by the shareholders of the Company. Dividends declared after the balance sheet date are disclosed in the dividends note. 2. Financial risk management Financial risk factors The Group uses derivative financial instruments (principally interest rate, currency and cross currency interest rate swaps and forward foreign exchange and commodity contracts) to hedge certain risk exposures, as detailed below, arising from operational, financing and investment activities. The Group does not trade in financial instruments nor does it enter into any leveraged derivative transactions. Financial risk management within the Group is governed by policies and guidelines reviewed and approved annually by the Board of Directors. These policies and guidelines primarily cover foreign exchange risk, commodity price risk, credit risk, liquidity risk and interest rate risk. Monitoring of compliance with the policies and guidelines is managed by the Enterprise Risk Management function. (i) Market risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to sterling and the US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Divisional and subsidiary management, in conjunction with Group Treasury, manage foreign currency exposures within approved policies and guidelines using forward currency contracts. The Group generally hedges between 50% and 90% of transactions in each major currency for the subsequent 2 months. The Group also hedges approximately 50% of anticipated transactions in certain subsidiaries generally for periods up to 6 months with such transactions qualifying as ‘highly probable’ forecast transactions for IAS 39 hedge accounting purposes. The Group has investments in sterling operations which are highly cash generative. The Group seeks to manage the resultant foreign currency translation risk through borrowings denominated in or swapped (utilising currency swaps or cross currency interest rate swaps) into sterling, although this is more than offset by the strong cumulative cash flow from the Group’s sterling operations. Price risk The Group is exposed to commodity price risk in its LPG and oil distribution businesses. The Group generally hedges approximately 50% of its anticipated LPG commodity price exposure for the subsequent month with such transactions qualifying as ‘highly probable’ forecast transactions for IAS 39 hedge accounting purposes. Certain customers occasionally require fixed price oil supply contracts generally for periods less than six months. In such circumstances, the Group enters into matching forward commodity contracts, not designated as hedges under IAS 39. The Group is not exposed to equity securities price risk. (ii) Credit risk The Group has no significant concentrations of credit risk. The Group primarily sells to business customers and has policies in place to ensure that customers have an appropriate credit history. Sales, principally comprising home heating fuels, to non-business customers are made in cash, by direct debit or via major credit cards. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. notes to the financial statements 67 2. Financial risk management - continued (iii) Liquidity risk The Group maintains a strong balance sheet with long term debt funding and cash balances with deposit maturities up to six months. In addition, the Group maintains significant uncommitted credit lines with its relationship banks. (iv) Cash flow and fair value interest rate risk The Group borrows at both fixed and floating rates of interest. The Group has swapped its fixed rate borrowings to floating interest rates, using interest rate and cross currency interest rate swaps which qualify for fair value hedge accounting under IAS 39. The Group mitigates interest rate risk on its borrowings by matching, to the extent possible, the maturity of its cash balances with the interest rate reset periods on the swaps related to its borrowings. The Group also utilises interest rate swaps to swap certain floating rate sterling assets and liabilities into fixed rate sterling assets and liabilities. The notional principal amounts on these swaps offset. Fair value estimation The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Group uses a variety of techniques and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values. 68 notes to the financial statements 3. Critical accounting estimates and judgements The Group’s main accounting policies affecting its results of operations and financial condition are set out on pages 58 to 66. Judgements and assumptions have been made by management in applying the Group’s accounting policies in certain areas. Actual results may differ from the estimates calculated using these judgements and assumptions. Key sources of estimation uncertainty and critical accounting judgements are as follows: Goodwill The Group has capitalised goodwill of €234.7 million at 31 March 2006. Goodwill is required to be tested for impairment at least annually or more frequently if changes in circumstances or the occurrence of events indicating potential impairment exist. The Company uses the present value of future cash flows to determine implied fair value. In calculating the implied fair value, management judgement is required in forecasting cash flows of reporting units, in estimating terminal growth values and in selecting an appropriate discount rate. No impairment resulted from the annual impairment test in 2006. Post-retirement benefits The Group operates a number of defined benefit retirement plans. The Group’s total obligation in respect of defined benefit plans is calculated by independent, qualified actuaries, updated at least annually and totals €88.0 million. The Group also has plan assets totalling €67.3 million giving a net pension liability of €20.7 million for the Group. The size of the obligation is sensitive to actuarial assumptions. These include demographic assumptions covering mortality and longevity, and economic assumptions covering price inflation, benefit and salary increases together with the discount rate used. The size of the plan assets is also sensitive to asset return levels and the level of contributions from the Group. 4. Segment information Analysis by business segment and by geography The Group is analysed into five main business segments: DCC Energy, DCC SerCom, DCC Healthcare, DCC Food & Beverage and DCC Environmental. > DCC Energy markets and sells liquefied petroleum gas and oil products for commercial/industrial, transport and domestic use in Britain and Ireland. DCC Energy also includes a fuel card services business. > DCC SerCom markets and sells a broad range of IT and entertainment products in Britain, Ireland and Continental Europe to computer resellers, high street retailers, computer superstores, on-line retailers and mail order companies. DCC SerCom also includes a supply chain management business. > DCC Healthcare markets and sells medical, surgical, laboratory, intravenous pharmaceutical, rehabilitation and independent living products to the acute care, community care and laboratory sectors in Britain and Ireland. DCC Healthcare is also a leading provider of contract manufacturing services to the health and beauty industry in Europe. > DCC Food & Beverage markets and sells food and beverages in Ireland and wine in Britain. These include healthy foods, snackfoods, fresh coffee and wine to a broad range of catering, convenience store, food service and multiple grocer customers. DCC Food & Beverage is also a leading provider of frozen food distribution in Ireland. > DCC Environmental provides a broad range of waste management services to the industrial/commercial sectors in Britain and Ireland. Intersegment revenue is not material and thus not subject to separate disclosure. notes to the financial statements 69 4. Segment information - continued The segment results for the year ended 31 March 2006 are as follows: Income statement items Year ended 31 March 2006 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Total €’000 Segment revenue 1,831,608 1,084,606 211,701 276,917 31,460 3,436,292 Operating profit* Amortisation of intangible assets 55,965 25,015 21,636 15,467 5,512 123,595 (1,043) 54,922 (1,580) 23,435 (1,325) 20,311 (1,008) 14,459 - 5,512 Operating exceptional items (note 11) Operating profit Finance costs (including non-operating exceptional items) Share of associates’ profit after tax Profit before income tax Income tax expense Profit for the year *Operating profit before amortisation of intangible assets and exceptional items (4,956) 118,639 2,841 121,480 (8,186) 25,474 138,768 (13,479) 125,289 Year ended 31 March 2005 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Total €’000 Segment revenue 1,240,551 983,483 162,279 232,635 25,780 2,644,728 Operating profit* Amortisation of intangible assets 51,806 26,292 15,441 12,827 (260) 51,546 - 26,292 (355) 15,086 (646) 12,181 5,447 - 5,447 Operating exceptional items (note 11) Operating profit Finance costs (including non-operating exceptional items) Share of associates’ profit after tax Profit before income tax Income tax expense Profit for the year *Operating profit before amortisation of intangible assets and exceptional items 111,813 (1,261) 110,552 (15,967) 94,585 (10,503) 16,807 100,889 (12,107) 88,782 70 notes to the financial statements 4. Segment information - continued Balance sheet items As at 31 March 2006 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Total €’000 Segment assets 483,616 372,834 151,076 128,894 40,426 1,176,846 Reconciliation to total assets as reported in the Group Balance Sheet Investment in associates Derivative financial instruments (current and non-current) Deferred income tax assets Cash and cash equivalents Total assets as reported in the Group balance sheet 76,789 9,133 4,596 345,280 1,612,644 Segment liabilities 278,138 185,090 40,746 59,567 4,836 568,377 Reconciliation to total liabilities as reported in the Group balance sheet Interest-bearing loans and borrowings (current and non-current) Derivative financial instruments (current and non-current) Income tax liabilities (current and deferred) Deferred acquisition consideration Capital grants Total liabilities as reported in the Group balance sheet 359,944 27,150 47,415 22,364 1,991 1,027,241 Net tangible capital employed As at 31 March 2006 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Total €’000 Segment assets Intangible assets Deferred income tax assets Assets employed 483,616 (75,827) 1,141 408,930 372,834 (59,898) - 312,936 151,076 (63,621) 2,811 90,266 128,894 (35,987) 644 93,551 40,426 (13,142) 1,176,846 (248,475) - 27,284 4,596 932,967 Segment liabilities Income tax liabilities (current and deferred) Capital grants Liabilities employed Net tangible capital employed 278,138 185,090 40,746 59,567 4,836 568,377 21,853 - 299,991 8,485 322 193,897 9,866 1,246 51,858 5,486 - 65,053 1,725 423 6,984 47,415 1,991 617,783 108,939 119,039 38,408 28,498 20,300 315,184 notes to the financial statements 71 4. Segment information - continued Balance sheet items As at 31 March 2005 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Total €’000 Segment assets 430,822 267,739 133,736 130,368 34,418 997,083 Reconciliation to total assets as reported in the Group balance sheet Investment in associates Deferred income tax assets Cash and cash equivalents Total assets as reported in the Group Balance Sheet 51,384 6,957 353,304 1,408,728 Segment liabilities 238,862 145,260 39,234 59,902 4,988 488,246 Reconciliation to total liabilities as reported in the Group balance sheet Interest-bearing loans and borrowings (current and non-current) Income tax liabilities (current and deferred) Deferred acquisition consideration Capital grants Total liabilities as reported in the Group balance sheet Net tangible capital employed As at 31 March 2005 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Segment assets Intangible assets Deferred income tax assets Assets employed 430,822 (71,842) 1,234 360,214 267,739 (27,772) 1,067 241,034 133,736 (56,402) 4,066 81,400 130,368 (39,893) 411 90,886 34,418 (12,144) 179 22,453 362,197 47,185 17,923 958 916,509 Total €’000 997,083 (208,053) 6,957 795,987 Segment liabilities Income tax liabilities (current and deferred) Capital grants Liabilities employed Net tangible capital employed 238,862 145,260 39,234 59,902 4,988 488,246 22,420 - 261,282 9,806 368 155,434 8,940 114 48,288 3,418 - 63,320 2,601 476 8,065 47,185 958 536,389 98,932 85,600 33,112 27,566 14,388 259,598 72 notes to the financial statements 4. Segment information - continued Other segment information Year ended 31 March 2006 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Capital expenditure 26,884 11,303 10,305 Depreciation 21,321 2,748 4,194 5,028 3,491 4,332 2,388 Total €’000 57,852 34,142 Amortisation of intangible assets (1,043) (1,580) (1,325) (1,008) - (4,956) Year ended 31 March 2005 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Capital expenditure 17,303 11,036 Depreciation 19,997 4,314 4,427 3,302 3,940 3,234 6,875 2,020 Total €’000 43,581 32,867 Amortisation of intangible assets (260) - (355) (646) - (1,261) Geographical analysis The following is a geographical analysis of the segment information presented above. Year ended 31 March Ireland UK 2006 €’000 2005 €’000 2006 €’000 2005 €’000 Rest of the World 2006 2005 €’000 €’000 Total 2006 €’000 2005 €’000 Income statement items Revenue 995,848 861,149 2,259,954 1,633,374 180,490 150,205 3,436,292 2,644,728 51,683 40,917 68,904 69,719 3,008 1,177 123,595 111,813 (1,703) 49,980 (178) 40,739 (3,071) 65,833 (1,083) 68,636 (182) 2,826 - 1,177 (4,956) 118,639 (1,261) 110,552 Operating profit* Amortisation of intangible assets Segment result Balance sheet items Segment assets Segment liabilities 435,089 215,994 379,156 204,068 670,101 330,018 561,809 267,806 71,656 22,365 56,118 16,372 1,176,846 568,377 997,083 488,246 Other segment information Capital expenditure 18,667 17,723 38,823 25,386 Depreciation 12,060 13,516 21,597 18,779 362 485 472 572 57,852 43,581 34,142 32,867 *Operating profit before amortisation of intangible assets and exceptional items notes to the financial statements 73 5. Operating costs Selling and distribution costs Administrative expenses Other expenses Other income Total operating costs* * before operating exceptional items (note 11) Other operating expenses and income comprise the following charges/(credits): Other expenses Expensing of employee share options Other operating expenses Other income Fair value gains on undesignated derivative financial instruments - forward foreign exchange contracts (net) - commodity contracts (net) Other operating income 6. Group operating profit 2006 €’000 168,758 157,349 1,931 (7,581) 320,457 2005 €’000 144,562 133,468 1,018 (4,333) 274,715 1,840 91 1,931 (297) (55) (7,229) (7,581) 1,003 15 1,018 - - (4,333) (4,333) Group operating profit has been arrived at after charging/(crediting) the following amounts (including the Group’s share of joint ventures accounted for on the basis of proportionate consolidation): Amortisation of capital grants Operating lease rentals - land and buildings - plant and machinery - motor vehicles Audit fees Acquisition related due diligence and litigation support Tax compliance and advisory services 7. Directors’ emoluments and interests 2006 €’000 2005 €’000 (112) (155) 5,758 265 3,079 9,102 1,075 166 1,711 2,952 4,629 160 3,359 8,148 982 809 1,580 3,371 Directors’ emoluments and interests (which are included in operating costs above) are presented in the Report of the Remuneration Committee on pages 44 to 47. 74 notes to the financial statements 8. Proportionate consolidation of joint ventures Impact on group income statement Year ended 31 March Group share of: Revenue Cost of sales Gross profit Operating costs Operating profit Finance costs (net) Profit before income tax Income tax expense Group profit for the financial year Impact on group balance sheet As at 31 March Group share of: Non-current assets Current assets Total assets Total equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities Impact on group cash flow statement Year ended 31 March Group share of: Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Reconciliation of cash and cash equivalents to net cash/(debt) Cash and cash equivalents as above Interest-bearing loans and borrowings (current and non-current) Net cash/(debt) at 31 March Details of the Group’s principal joint ventures are shown on page 116. 2006 €’000 20,283 (11,985) 8,298 (5,495) 2,803 (66) 2,737 (404) 2,333 9,597 2,983 12,580 8,077 1,224 3,279 4,503 12,580 2,484 (1,314) (125) 1,045 479 1,524 1,524 (1,055) 469 2005 €’000 16,801 (9,624) 7,177 (5,387) 1,790 (64) 1,726 (288) 1,438 8,902 9,172 18,074 13,151 1,332 3,591 4,923 18,074 1,274 (1,626) (2,004) (2,356) 2,835 479 479 (1,180) (701) notes to the financial statements 75 9. Employment The average weekly number of persons (including executive Directors and the Group’s share of employees of joint ventures, applying proportionate consolidation) employed by the Group during the year analysed by class of business was: DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental The staff costs for the above were: Wages and salaries Social welfare costs Share based payment expense (note 10) Pension costs - defined contribution plans Pension costs - defined benefit plans (note 32) 10. Employee share options 2006 number 2005 number 1,779 1,321 929 907 173 5,109 2006 €’000 174,860 18,033 1,840 4,816 3,062 202,611 1,733 1,284 742 833 154 4,746 2005 €’000 157,924 16,679 1,003 3,639 3,421 182,666 The Group’s employee share options are equity-settled share-based payments as defined in IFRS 2 Share-based Payment. The IFRS requires that a recognised valuation methodology be employed to determine the fair value of share options granted. The expense reported in the Income Statement of €1.840 million (2005: €1.003 million) has been arrived at through applying the binomial model, which is a lattice option-pricing model, for options issued under the DCC plc 1998 Employee Share Option Scheme and the Black Scholes option valuation model for options issued under the DCC Sharesave Scheme 2001. Impact on income statement In compliance with the transitional provisions set out in IFRS 2 Share-based Payment the Group has elected to implement the measurement requirements of the IFRS in respect of share options that were granted after 7 November 2002 that had not vested as at 1 January 2005, the effective date of the standard. The total expense is analysed as follows: Date of grant Grant price € Duration of vesting period Number of options granted Weighted average fair value € Expense in income statement 2006 €’000 2005 €’000 DCC plc 1998 Employee Share Option Scheme 12 November 2002 22 December 2003 18 May 2004 9 November 2004 15 December 2005 3 and 5 years 3 and 5 years 3 and 5 years 3 and 5 years 3 and 5 years 10.38 10.70 12.75 15.65 16.70 609,500 132,000 162,500 219,500 215,000 DCC Sharesave Scheme 2001 10 December 2004 Total expense 12.63 3 and 5 years 716,010 2.81 2.76 3.42 4.15 4.52 4.67 349 94 150 269 79 941 899 1,840 394 94 125 90 - 703 300 1,003 76 notes to the financial statements 10. Employee share options - continued Share options DCC plc 1998 Employee Share Option Scheme Under the DCC plc 1998 Employee Share Option Scheme, Group employees hold basic tier options to subscribe for 2,281,244 ordinary shares and second tier options to subscribe for 2,308,000 ordinary shares. The number of shares in respect of which basic tier and second tier options may be granted under this Scheme may not exceed 5% of the total number of shares in issue in each case. Basic tier options may normally be exercised only if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 2%, compound, per annum over a period of at least three years following the date of grant. Second tier options may normally be exercised only if the growth in the adjusted earnings per share over a period of at least five years is such as would place the Company in the top quartile of companies on the ISEQ index in terms of comparison of growth in adjusted earnings per share and if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 10%, compound, per annum in that period. A summary of activity under the DCC plc 1998 Employee Share Option Scheme over the year is as follows: At 1 April Granted Exercised Lapsed At 31 March 2006 2005 Average exercise price in € per share 9.11 16.70 8.64 11.42 9.47 Average exercise price in € per share 8.52 14.42 7.65 9.55 9.11 Options 4,781,284 215,000 (354,040) (53,000) 4,589,244 Options 5,104,084 382,000 (666,300) (38,500) 4,781,284 Total exercisable at 31 March 8.07 3,032,744 7.76 2,994,784 The weighted average fair values assigned to options granted under the DCC plc 1998 Employee Share Option Scheme, which were computed in accordance with the binomial valuation methodology, were as follows: Granted during the year ended 31 March 2003 Granted during the year ended 31 March 2004 Granted during the year ended 31 March 2005 Granted during the year ended 31 March 2006 3 year € 2.66 2.67 3.79 4.52 5 year € 2.86 2.84 3.93 4.52 Weighted average € 2.81 2.76 3.84 4.52 The fair values of options granted under the DCC plc 1998 Employee Share Option Scheme were determined using the following assumptions: Weighted average exercise price (in €) Risk-free interest rate (%) Dividend yield (%) Expected volatility (%) Expected life in years 2006 2005 3 year 5 year 3 year 5 year 16.70 4.40 2.50 25.0 8.0 16.70 4.40 2.50 25.0 8.0 14.62 3.84 2.09 25.0 8.0 14.04 3.92 2.14 25.0 8.0 The expected volatility is based on historic volatility over the past 8 years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero coupon government bonds of a term consistent with the assumed option life. notes to the financial statements 77 10. Employee share options - continued Analysis of closing balance – outstanding at end of year Date of grant 26 June 1998 27 July 1998 4 August 1998 6 August 1998 10 November 1998 11 May 1999 9 November 1999 16 May 2000 21 November 2000 15 May 2001 13 November 2001 10 June 2002 12 November 2002 22 December 2003 18 May 2004 9 November 2004 15 December 2005 Total outstanding at 31 March Date of expiry 26 June 2008 27 July 2008 4 August 2008 6 August 2008 10 November 2008 11 May 2009 9 November 2009 16 May 2010 21 November 2010 15 May 2011 13 November 2011 10 June 2012 12 November 2012 22 December 2013 18 May 2014 9 November 2014 15 December 2015 Analysis of closing balance – exercisable at end of year Date of grant 26 June 1998 27 July 1998 4 August 1998 6 August 1998 10 November 1998 11 May 1999 9 November 1999 16 May 2000 21 November 2000 15 May 2001 13 November 2001 12 November 2002 Total exercisable at 31 March Date of expiry 26 June 2008 27 July 2008 4 August 2008 6 August 2008 10 November 2008 11 May 2009 9 November 2009 16 May 2010 21 November 2010 15 May 2011 13 November 2011 12 November 2012 Exercise price in € per share 8.19 8.13 7.43 7.43 6.22 8.75 7.00 10.65 11.25 - 10.25 12.20 10.38 10.70 12.75 15.65 16.70 Exercise price in € per share 8.19 8.13 7.43 7.43 6.22 8.75 7.00 10.65 11.25 - 10.25 10.38 2006 2005 Exercise price in € per share 8.19 8.13 7.43 7.43 6.22 8.75 7.00 10.65 11.25 10.95 10.25 12.20 10.38 10.70 12.75 15.65 - Options 468,000 73,000 60,000 29,510 689,000 12,000 847,500 50,000 258,500 - 815,734 5,000 567,500 132,000 152,000 214,500 215,000 4,589,244 2006 2005 Exercise price in € per share 8.19 8.13 7.43 7.43 6.22 8.75 7.00 10.65 11.25 10.95 10.25 - Options 468,000 73,000 60,000 29,510 689,000 12,000 847,500 50,000 258,500 - 402,234 143,000 3,032,744 Options 537,000 81,000 60,000 57,784 783,500 12,000 867,500 57,500 353,500 15,000 835,500 10,000 597,000 132,000 162,500 219,500 - 4,781,284 Options 537,000 81,000 60,000 57,784 783,500 12,000 867,500 25,000 146,500 7,500 417,000 - 2,994,784 78 notes to the financial statements 10. Employee share options - continued DCC Sharesave Scheme 2001 Under the DCC Sharesave Scheme 2001, Group employees hold options to subscribe for 884,988 ordinary shares. Options are granted at a discount of 20% to the market price as provided for by the rules of the Scheme. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: At 1 April Granted Exercised Lapsed At 31 March Total exercisable at 31 March Analysis of closing balance – outstanding at end of year Date of grant Date of expiry 15 June 2001 15 June 2001 10 December 2004 10 December 2004 Total outstanding at 31 March 1 September 2005 1 September 2007 1 March 2009 1 March 2011 Analysis of closing balance – exercisable at end of year Date of grant Date of expiry Average exercise price in € per share 11.53 - 9.23 12.35 11.47 - Exercise price in € per share - 8.79 12.63 12.63 Exercise price in € per share 15 June 2001 Total exercisable at 31 March 1 September 2005 - 2006 2005 Average exercise price in € per share 8.79 12.63 8.79 9.52 11.53 8.79 Options 986,912 - (9,667) (92,257) 884,988 - 2006 2005 Exercise price in € per share 8.79 8.79 12.63 12.63 Options - 268,036 326,352 290,600 884,988 2006 2005 Exercise price in € per share 8.79 Options - - Options 528,746 716,010 (192,548) (65,296) 986,912 1,592 Options 1,592 281,641 385,817 317,862 986,912 Options 1,592 1,592 The weighted average fair values assigned to options granted under the DCC Sharesave Scheme 2001 which were computed in accordance with the Black Scholes option valuation model were as follows: Granted during year ended 31 March 2005 3 year € 4.43 5 year € 4.95 Weighted average € 4.67 The fair values of options granted under the DCC Sharesave Scheme 2001 were determined using the following assumptions: Exercise price (in €) Risk-free interest rate (%) Dividend yield (%) Expected volatility (%) Expected life in years 2005 3 year 12.63 4.40 2.50 25.0 3.0 5 year 12.63 4.40 2.50 25.0 5.0 The expected volatility is based on historic volatility. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero coupon government bonds of a term consistent with the assumed option life. notes to the financial statements 79 11. Exceptional items Costs of legal action with Fyffes plc and others Provision for recovery of legal costs from Fyffes plc Restructuring costs and other Operating exceptional items Foreign exchange losses on intercompany financing loans to 30 September 2005 2006 €’000 (5,147) 8,500 (512) 2,841 (1,145) 1,696 2005 €’000 (6,154) - (9,813) (15,967) (4,809) (20,776) On 21 December 2005, the Irish High Court found in favour of DCC and Others in the case taken against them by Fyffes plc, under Part V of the Irish Companies Act 1990, in relation to the sale of shares by Lotus Green in February 2000. In dismissing Fyffes’ claim against all of the defendants, the Court held that the share sales were entirely lawful and that none of the defendants had any liability arising from the sales of the shares in Fyffes in February 2000. On 10 February 2006, the Irish High Court decided that Fyffes should pay most of DCC’s costs in relation to Fyffes’ failed legal action against the Group. DCC expects to recoup approximately €8.5 million from Fyffes following this High Court order and, accordingly, has accrued this amount as a credit under exceptional operating costs. On 7 April 2006, Fyffes announced its intention to lodge an appeal to the Irish Supreme Court seeking to overturn the decision of the Irish High Court in relation to Fyffes’ failed legal action against DCC plc and Others. Fyffes’ appeal will be challenged vigorously and comprehensively and DCC is confident that there are no good grounds of appeal and that the detailed and considered decision of the High Court will be upheld. On 29 November 2005, the Hsinchu District Court in Taiwan issued a judgement ordering that the London High Court order obtained by DCC’s subsidiary, Days Healthcare, against Pihsiang Machinery Manufacturing Company Limited (a Taiwanese public company), Donald Wu (its chairman and major shareholder) and Jenny Wu (his wife and director) be enforced in Taiwan. Accordingly, as at 31 March 2006, these parties are jointly and severally liable to pay the DCC Group Stg£14.3 million (€20.5 million), including Stg£2.1 million in accrued interest. DCC has not accrued any of this amount due pending the outcome of an appeal by the Defendants to the Taiwanese High Court, but has expensed all the litigation costs. Certain intercompany loans had been treated under Irish GAAP as part of net investment in foreign operations and foreign exchange gains or losses arising on these loans had been recognised directly in reserves. On transition from Irish GAAP, certain of these loans between fellow subsidiaries do not qualify under IFRS as part of net investment in foreign operations and therefore gains or losses on these loans must be recognised in the Income Statement. The financial impact of the above is a charge to the Income Statement of €1.145 million for the year ended 31 March 2006 (2005: charge of €4.809 million) in respect of foreign exchange losses and the amounts are included in exceptional items. The majority of the intercompany balances which gave rise to these accounting charges (previously taken to reserves) were restructured during the year ended 31 March 2005 and the half year ended 30 September 2005 so as to eliminate accounting volatility from 30 September 2005 onwards. 80 notes to the financial statements 12. Finance costs and finance revenue Finance costs On bank loans, overdrafts and Unsecured Notes due 2008 to 2016 - repayable within 5 years, not by instalments - repayable within 5 years, by instalments - repayable wholly or partly in more than 5 years On loan notes - repayable within 5 years, not by instalments On finance leases Other interest Other finance costs: Interest on defined benefit pension scheme liabilities Unwinding of discount applicable to deferred acquisition consideration Net foreign exchange transaction gains Mark-to-market of swaps and related debt - interest rate swaps designated as fair value hedges* - cross currency interest rate swaps designated as fair value hedges* - adjusted hedged fixed rate debt* - currency swaps not designated as hedges - interest rate swaps not designated as hedges Finance revenue Interest on cash and term deposits Other interest and similar income receivable Expected return on defined benefit pension scheme assets 2006 €’000 2005 €’000 (11,144) (35) (7,618) (16) (845) (242) (19,900) (3,804) (298) 297 (3,644) 3,786 (10,996) 11,569 43 (22,947) 12,381 46 3,479 15,906 (10,585) - (7,113) (30) (1,122) (494) (19,344) (3,940) - - - - - - - (23,284) 14,064 9 3,517 17,590 Net finance cost before exceptional item Net finance cost - exceptional item (note 11) (7,041) (5,694) (1,145) (4,809) * The Group has adopted fair value hedge accounting under IAS 39 (note 29) in relation to fixed rate debt and related interest rate and cross currency interest rate swaps. 13. Foreign currency The exchange rates used in translating sterling Balance Sheets and Income Statement amounts were as follows: Balance Sheet (closing rate) Income Statement (average rate)* 2006 €1=Stg£ 2005 €1=Stg£ 0.697 0.682 0.689 0.672 * The average exchange rate for the year ended 31 March 2005 has been adjusted for the impact of forward foreign exchange contracts used to hedge sterling profits for that year. notes to the financial statements 81 14. Share of associates’ profit after tax The Group’s share of associates’ profit after tax is equity-accounted and is presented as a single line item in the Group Income Statement. The profit after tax generated by the Group’s associates is analysed as follows: Group share of: Revenue Profit before finance costs Finance costs (net) Profit before income tax Income tax expense Profit after tax 15. Income tax expense (i) Income tax expense recognised in the income statement Current taxation Irish Corporation Tax at 12.5% Less manufacturing relief United Kingdom Corporation Tax at 30% Other overseas tax Over provision in respect of prior years Total current taxation Deferred tax Irish at 12.5% United Kingdom at 30% Other overseas deferred tax (Over)/under provision in respect of prior years Total deferred tax Total income tax expense (ii) Deferred tax liability/(asset) recognised directly in equity Defined benefit pension obligations Share based payments Cash flow hedges 2006 €’000 2005 €’000 92,672 86,796 30,795 (94) 30,701 (5,227) 25,474 20,065 (305) 19,760 (2,953) 16,807 2006 €’000 2005 €’000 7,142 (657) 3,494 1,457 - 11,436 (59) 2,567 113 (578) 2,043 2,582 (575) 7,538 619 (1,529) 8,635 253 2,182 - 1,037 3,472 13,479 12,107 2006 €’000 (82) (25) 3 (104) 2005 €’000 (771) (25) - (796) 82 notes to the financial statements 15. Income tax expense - continued (iii) Reconciliation of effective tax rate Profit on ordinary activities before taxation Share of associates’ profit after tax Amortisation of intangible assets Total income tax expense Deferred tax attaching to amortisation of intangible assets Taxation as a percentage of profit before share of associates’ profit after tax and amortisation of intangible assets Impact of non-taxable exceptional items Taxation as a percentage of profit before share of associates’ profit after tax, amortisation of intangible assets and exceptional items 2006 €’000 138,768 (25,474) 4,956 118,250 13,479 595 14,074 2005 €’000 100,889 (16,807) 1,261 85,343 12,107 - 12,107 11.9% 0.2% 14.2% (2.8%) 12.1% 11.4% The following table relates the applicable Republic of Ireland statutory tax rate to the effective tax rate of the Group: Irish corporation tax rate Manufacturing relief Effect of earnings taxed at higher rates Over provision in respect of prior years 2006 % 12.5 (0.5) (0.1) - 11.9 2005 % 12.5 (0.5) 2.6 (0.4) 14.2 (iv) Factors that may affect future tax rates and other disclosures The standard rate of corporation tax in Ireland is 12.5%. Manufacturing relief is scheduled to expire in the year 2010. No provision for tax has been recognised in respect of the unremitted earnings of subsidiaries as there is no commitment to remit earnings. Similarly, no deferred tax assets or liabilities have been recognised in respect of temporary differences associated with investments in subsidiaries. 16. Profit attributable to DCC plc Profit after taxation for the year attributable to equity shareholders amounting to €42.848 million (2005: €0.980 million) has been accounted for in the financial statements of the Company. In accordance with Section 148(8) of the Companies Act 1963 and Section 7(1A) of the Companies (Amendment) Act 1986, the Company is availing of the exemption from presenting its individual Income Statement to the Annual General Meeting and from filing it with the Registrar of Companies. 17. Dividends Dividends paid and proposed per Ordinary Share are as follows: Final - paid 23.75 cent per share on 11 July 2005 (paid 20.65 cent per share on 14 July 2004) Interim - paid 15.54 cent per share on 1 December 2005 (2005: paid 13.51 cent per share on 1 December 2004) 2006 €’000 2005 €’000 19,073 16,401 12,495 10,811 31,568 27,212 The Directors are proposing a final dividend in respect of the year ended 31 March 2006 of 27.31 cent per ordinary share (€22.044 million). This proposed dividend is subject to approval by the shareholders at the Annual General Meeting. notes to the financial statements 83 18. Earnings per ordinary share Profit attributable to equity holders of the Company Amortisation of intangible assets after tax Exceptional items (note 11) Adjusted profit after taxation and minority interests Basic earnings per ordinary share Basic earnings per ordinary share Amortisation of intangible assets after tax Exceptional items Adjusted basic earnings per ordinary share 2006 €’000 123,764 4,361 (1,696) 126,429 2006 cent 153.92c 5.42c (2.11c) 157.23c 2005 €’000 87,760 1,261 20,776 109,797 2005 cent 109.68c 1.58c 25.96c 137.22c Weighted average number of ordinary shares in issue during the year (thousands) 80,408 80,018 Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares. The adjusted figures for basic earnings per ordinary share are intended to demonstrate the results of the Group after eliminating the impact of amortisation of intangible assets and exceptional items. Diluted earnings per ordinary share Diluted earnings per ordinary share Amortisation of intangible assets after tax Exceptional items Adjusted diluted earnings per ordinary share 2006 cent 150.46c 5.30c (2.06c) 153.70c 2005 cent 107.16c 1.54c 25.37c 134.07c Diluted weighted average number of ordinary shares (thousands) 82,255 81,898 The earnings used for the purpose of the diluted earnings per share calculations were €123.764 million (2005: €87.760 million) and €126.429 million (2005: €109.797 million) for the purposes of the adjusted diluted earnings per share calculations. The weighted average number of ordinary shares used in calculating the diluted earnings per share for the year ended 31 March 2006 was 82.255 million (2005: 81.898 million). A reconciliation of the weighted average number of ordinary shares used for the purposes of calculating the diluted earnings per share amounts is as follows: 2006 2005 Weighted average number of ordinary shares in issue Dilutive effect of options and partly paid shares Dilutive effect of shares potentially issuable under deferred contingent consideration arrangements Weighted average number of ordinary shares for diluted earnings per share 80,408 1,794 53 82,255 80,018 1,798 82 81,898 Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares, share options and shares potentially issuable under deferred contingent consideration arrangements. Employee share options, which are performance-based, are treated as contingently issuable shares because their issue is contingent upon satisfaction of specified performance conditions in addition to the passage of time. These contingently issuable shares are excluded from the computation of diluted earnings per ordinary share where the conditions governing exercisability have not been satisfied as at the end of the reporting period. The shares potentially issuable under deferred contingent consideration arrangements are assumed to have been converted into ordinary shares. The adjusted figures for diluted earnings per ordinary share are intended to demonstrate the results of the Group after eliminating the impact of amortisation of intangible assets and exceptional items. 84 notes to the financial statements 19. Property, plant and equipment Group Year ended 31 March 2006 Opening net book amount Exchange differences Acquisition of subsidiaries (note 45) Additions Disposals Depreciation charge Reclassifications Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount Year ended 31 March 2005 Opening net book amount Exchange differences Acquisition of subsidiaries (note 45) Additions Disposals Depreciation charge Closing net book amount At 31 March 2005 Cost Accumulated depreciation Net book amount At 1 April 2004 Cost Accumulated depreciation Net book amount Land & buildings €’000 Plant & machinery & cylinders €’000 Fixtures & fittings & office equipment €’000 100,166 (610) 290 13,404 (6,608) (2,167) (7,431) 97,044 110,384 (13,340) 97,044 72,027 (1,136) 19,241 13,928 (1,980) (1,914) 100,166 116,319 (16,153) 100,166 86,458 (14,431) 72,027 106,850 (1,073) 358 20,441 (3,049) (15,920) (287) 107,320 283,516 (176,196) 107,320 102,331 (2,242) 8,035 16,256 (449) (17,081) 106,850 286,376 (179,526) 106,850 265,918 (163,587) 102,331 18,185 (334) 479 11,905 (624) (6,646) 7,840 30,805 71,500 (40,695) 30,805 17,330 (569) 955 6,549 (1) (6,079) 18,185 57,730 (39,545) 18,185 50,076 (32,746) 17,330 Motor vehicles €’000 29,590 (319) 1,610 12,102 (1,127) (9,409) (122) 32,325 Total €’000 254,791 (2,336) 2,737 57,852 (11,408) (34,142) - 267,494 75,674 (43,349) 32,325 541,074 (273,580) 267,494 26,932 (586) 5,192 6,848 (1,003) (7,793) 29,590 68,038 (38,448) 29,590 61,770 (34,838) 26,932 218,620 (4,533) 33,423 43,581 (3,433) (32,867) 254,791 528,463 (273,672) 254,791 464,222 (245,602) 218,620 Assets held under finance leases The net carrying amount and the depreciation charge during the year in respect of assets held under finance leases and accordingly capitalised in property, plant and equipment are as follows: Cost Accumulated depreciation Net carrying amount Depreciation charge for the year 2006 €’000 64,004 (60,434) 3,570 2005 €’000 65,085 (60,117) 4,968 1,178 2,404 20. Intangible assets Group Year ended 31 March 2006 Opening net book amount Exchange differences Arising on acquisition (note 45) Other movements Amortisation charge Closing net book amount At 31 March 2006 Cost Accumulated amortisation Net book amount Year ended 31 March 2005 Opening net book amount Arising on acquisition (note 45) Other movements Amortisation charge Closing net book amount At 31 March 2005 Cost Accumulated amortisation Net book amount At 1 April 2004 Cost Accumulated amortisation Net book amount notes to the financial statements 85 Goodwill €’000 Customer relationships €’000 Total €’000 208,053 (886) 49,607 (3,343) (4,956) 248,475 282,310 (33,835) 248,475 131,446 79,571 (1,703) (1,261) 208,053 236,932 (28,879) 208,053 11,333 (45) 7,450 - (4,956) 13,782 19,999 (6,217) 13,782 - 12,594 - (1,261) 11,333 12,594 (1,261) 11,333 - - - 159,064 (27,618) 131,446 196,720 (841) 42,157 (3,343) - 234,693 262,311 (27,618) 234,693 131,446 66,977 (1,703) - 196,720 224,338 (27,618) 196,720 159,064 (27,618) 131,446 Goodwill acquired in business combinations is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit from that business combination. A summary of the allocation of the carrying value of goodwill by segment is as follows: DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental 2006 €’000 72,075 55,005 61,129 33,342 13,142 234,693 2005 €’000 67,035 27,708 53,672 36,161 12,144 196,720 Impairment testing of goodwill Goodwill acquired through business combinations is monitored for impairment by review of the underlying performance of each individual acquisition compared to pre-acquisition objectives and budgets. Goodwill is also tested for impairment by review of profit and cash flow forecasts and budgets. Goodwill acquired through business combinations has been allocated to cash-generating units (CGUs) for the purpose of impairment testing. The CGUs represent the lowest level within the Group at which the associated goodwill is monitored for management purposes and are not larger than the primary and secondary segments determined in accordance with IAS 14 Segment Reporting. 86 notes to the financial statements 20. Intangible assets - continued The recoverable amount of each CGU is based on a value in use computation. The cash flow forecasts employed for this computation are extracted from a three year plan and specifically exclude future acquisition activity. Cash flows for a further two years are based on the assumptions underlying the three year plan. A terminal value reflecting inflation is applied to the year five cash flows. A present value of the future cash flows is calculated using a before-tax discount rate representing the Group’s estimated before-tax average cost of capital (6.8%). Applying these techniques, no impairment arose in 2006 (2005: nil). Key assumptions include management’s estimates of future profitability, capital expenditure requirements, working capital investment and tax considerations. Forecasts are generally based on historical performance together with management’s expectation of future trends affecting the industry and other developments and initiatives in the business. Useful lives of intangible assets The useful lives of all intangible assets (excluding goodwill) are finite and range from three to five years depending on the nature of the asset. 21. Investments in associates Group At 1 April Acquired as a subsidiary (note 45) Share of profit less dividends Exchange adjustments and other At 31 March 2006 €’000 51,384 - 26,098 (693) 76,789 2005 €’000 42,001 (7,916) 17,470 (171) 51,384 Details of the Group’s principal associates are shown on page 116. Investments in associates at 31 March 2006 includes goodwill of €1.201 million (2005: €1.201 million). The Group’s geographical share of the assets (including goodwill) and liabilities of its associates is as follows: As at 31 March 2006 Ireland USA As at 31 March 2005 Ireland USA Company At 31 March Non-current assets €’000 Current Non-current liabilities €’000 assets €’000 Current liabilities €’000 1,681 818 2,499 2,625 786 3,411 105,044 2,082 107,126 (1,858) - (1,858) (29,760) (1,218) (30,978) 62,015 2,476 64,491 (13,017) - (13,017) (2,459) (1,042) (3,501) Net assets €’000 75,107 1,682 76,789 49,164 2,220 51,384 2006 €’000 2005 €’000 1,300 1,300 notes to the financial statements 87 22. Investments in subsidiary undertakings Company At 1 April Additions At 31 March 2006 €’000 145,814 15,258 161,072 2005 €’000 145,814 - 145,814 Details of the Group’s principal operating subsidiaries are shown on pages 113 to 116. All of these subsidiaries are wholly owned except Broderick Bros. Limited (93.8%), Virtus Limited (51.0%), Laleham Healthcare Limited (80.5%) where put and call options exist to acquire the remaining 19.5%, Physio-Med Services Limited (76.0%) where put and call options exist to acquire the remaining 24.0% and Distrilogie SA (98.36%) where put and call options exist to acquire the remaining 1.64%. The Group’s principal overseas holding company subsidiaries are DCC Limited, a company operating, incorporated and registered in England and Wales and DCC International Holdings B.V., a company operating, incorporated and registered in The Netherlands. The registered office of DCC Limited is at Days Healthcare UK Limited, North Road, Bridgend Industrial Estate, Bridgend, CF31 3TP, Wales. The registered office of DCC International Holdings B.V. is Teleport Boulevard 140, 1043 EJ Amsterdam, The Netherlands. 23. Inventories Group Raw materials Work in progress Finished goods 24. Trade and other receivables Group Amounts falling due within one year: Trade receivables Provision for impairment of trade receivables Prepayments and other debtors Value added tax recoverable Other debtors Amounts falling due after more than one year: Prepayments and other debtors Company Amounts falling due within one year: Amounts owed by subsidiary undertakings Prepayments Value added tax recoverable 2006 €’000 5,105 1,730 131,899 138,734 2005 €’000 5,935 1,855 116,259 124,049 2006 €’000 2005 €’000 487,231 (11,673) 29,367 7,458 7,379 519,762 2,381 522,143 378,563 (11,151) 24,505 9,953 4,560 406,430 3,760 410,190 2006 €’000 2005 €’000 261,646 120 1,421 263,187 276,698 1,021 80 277,799 88 notes to the financial statements 25. Trade and other payables Group Trade payables Other creditors and accruals PAYE and National Insurance Value added tax Capital grants (note 35) Interest payable Amounts due in respect of fixed assets Company Other creditors and accruals PAYE and National Insurance Amounts due to subsidiary undertakings 26. Movement in working capital Group Year ended 31 March 2006 At 1 April 2005 Translation adjustment Arising on acquisition (note 45) Interest accruals and other Increase/(decrease) in working capital (note 41) At 31 March 2006 Year ended 31 March 2005 At 1 April 2004 Translation adjustment Arising on acquisition (note 45) Interest accruals and other Increase/(decrease) in working capital (note 41) At 31 March 2005 2006 €’000 453,694 57,707 4,589 22,054 131 5,039 699 543,913 2006 €’000 1,614 - 211,071 212,685 Trade and other receivables €’000 Trade and other payables €’000 Inventories €’000 124,049 (905) 8,289 - 7,301 138,734 110,884 (2,176) 6,827 - 8,514 124,049 410,190 (3,835) 24,861 7,269 83,658 522,143 316,632 (6,895) 33,471 2,864 64,118 410,190 (447,717) 3,582 (20,460) 479 (79,797) (543,913) (356,541) 7,347 (46,936) (3,633) (47,954) (447,717) 2005 €’000 369,234 50,467 5,283 16,774 128 5,332 499 447,717 2005 €’000 761 11 223,019 223,791 Total €’000 86,522 (1,158) 12,690 7,748 11,162 116,964 70,975 (1,724) (6,638) (769) 24,678 86,522 notes to the financial statements 89 26. Movement in working capital - continued Company Year ended 31 March 2006 At 1 April 2005 Increase/(decrease) in working capital At 31 March 2006 Year ended 31 March 2005 At 1 April 2004 Other Increase/(decrease) in working capital At 31 March 2005 27. Cash and cash equivalents Group Cash at bank and in hand Short-term bank deposits Trade and other receivables €’000 Trade and other payables €’000 277,799 (14,612) 263,187 (234,178) 11,106 (223,072) 291,088 1,131 (14,420) 277,799 (201,495) - (32,683) (234,178) Total €’000 43,621 (3,506) 40,115 89,593 1,131 (47,103) 43,621 2006 €’000 105,955 239,325 345,280 2005 €’000 119,495 233,809 353,304 Cash at bank earns interest at floating rates based on daily bank deposit rates. The short-term deposits are for periods up to three months and earn interest at the respective short-term deposit rates. Cash and cash equivalents include the following for the purposes of the Group Cash Flow Statement: Cash and short-term bank deposits Bank overdrafts Bank overdrafts are included within current borrowings (note 29) in the Group Balance Sheet. Company Cash at bank and in hand 2006 €’000 2005 €’000 345,280 (25,362) 319,918 353,304 (38,907) 314,397 2006 €’000 2005 €’000 157 248 90 notes to the financial statements 28. Derivative financial instruments Group Interest rate swaps - fair value hedges Interest rate swaps - not designated as hedges Currency swaps - not designated as hedges Cross currency interest rate swaps - fair value hedges Forward foreign exchange contracts - cash flow hedges Forward foreign exchange contracts - not designated as hedges Commodity price forward contracts - cash flow hedges Commodity price forward contracts - not designated as hedges Total Less non–current portion Interest rate swaps - fair value hedges Interest rate swaps - not designated as hedges Currency swaps - not designated as hedges Cross currency interest rate swaps - fair value hedges Current portion As at 31 March 2006 Liabilities €’000 Assets €’000 926 6,805 1,258 - 2 69 45 28 9,133 926 6,805 1,258 - 8,989 144 (9,167) (6,921) (3,786) (7,203) (24) (21) - (28) (27,150) (9,167) (6,921) (3,786) (7,203) (27,077) (73) Net €’000 (8,241) (116) (2,528) (7,203) (22) 48 45 - (18,017) (8,241) (116) (2,528) (7,203) (18,088) 71 The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than twelve months and as a current asset or liability if the maturity of the hedged item is less than twelve months. Interest rate swaps The notional principal amounts of the outstanding interest rate swap contracts designated as fair value hedges under IAS 39 at 31 March 2006 total €210.149 million. At 31 March 2006, the fixed interest rates vary from 5.12% to 5.76% and the floating rates are based on US$ LIBOR and sterling LIBOR. The Group also utilises interest rate swaps, not designated as fair value hedges under IAS 39, to swap floating rate sterling assets and liabilities into fixed rate sterling assets (8.05%) and fixed rate sterling liabilities (8.1%). The notional principal amounts of these swaps (Stg£61.000 million) offset. Currency swaps The Group utilises currency swaps in conjunction with interest rate swaps designated as fair value hedges (as noted above) to swap fixed rate US$ denominated debt into floating rate euro debt. The currency swaps (which swap floating US$ denominated debt based on US$ LIBOR into floating euro denominated debt based on EURIBOR) have notional principal amounts of €167.113 million and are not designated as hedges under IAS 39. Cross currency interest rate swaps The Group utilises cross currency interest rate swaps to swap fixed rate (7.82%) US$ denominated debt of US$100.000 million into floating rate sterling debt of Stg£65.000 million. These swaps are designated as fair value hedges under IAS 39. Forward foreign exchange contracts The notional principal amounts of outstanding forward foreign exchange contracts at 31 March 2006 total €17.638 million. Gains and losses recognised in the cash flow hedge reserve in equity (note 38) at 31 March 2006 on forward foreign exchange contracts designated as cash flow hedges under IAS 39 will be released to the Income Statement at various dates up to four months after the balance sheet date. Commodity price forward contracts The notional principal amounts of outstanding forward commodity contracts at 31 March 2006 total €2.654 million. The gain recognised in the cash flow hedge reserve in equity (note 38) on forward commodity contracts designated as cash flow hedges under IAS 39 will be released to the Income Statement at various dates up to two months after the balance sheet date. Adoption of IAS 32 and IAS 39 The Group adopted IAS 32 and IAS 39 from 1 April 2005. Derivative balances at 31 March 2005 were, in accordance with Irish GAAP, disclosed rather than recognised in the financial statements for the year then ended. The fair value loss on derivatives at 31 March 2005 amounted to €29.974 million with €29.816 million of this balance relating to derivatives associated with the Group’s Unsecured Notes due 2008 to 2016. Under Irish GAAP at 31 March 2006, the Group’s Unsecured Notes due 2008 to 2016 were carried at cost of €305.094 million, not recognising fair value gains (note 29). The movement in the Group’s net debt balance during the financial year, including the adoption of IAS 32 and IAS 39, is included in note 30. notes to the financial statements 91 29. Borrowings Group Non-current: Bank borrowings Finance leases* Unsecured Notes due 2008 to 2016 Current: Bank borrowings Finance leases* Loan notes Total borrowings *Secured on specific plant and equipment The maturity of non-current borrowings is as follows: Between 1 and 2 years Between 2 and 5 years Over 5 years 2006 €’000 2005 €’000 885 5,442 286,466 292,793 62,151 4,801 199 67,151 1,180 10,370 305,094 316,644 38,907 5,915 731 45,553 359,944 362,197 2006 €’000 5,613 80,486 206,694 292,793 2005 €’000 6,074 92,803 217,767 316,644 Bank borrowings, finance leases and loan notes Interest on bank borrowings, finance leases and loan notes is at floating rates set in advance for periods ranging from overnight to less than three months by reference to inter-bank interest rates (EURIBOR, sterling LIBOR and US$ LIBOR) and consequently fair value approximates carrying amounts. While the Group had various bank borrowing facilities available at 31 March 2006, it had no undrawn committed bank facilities. Unsecured Notes due 2008 to 2016 The Group’s Unsecured Notes due 2008 to 2016 comprise fixed rate debt of US$100.000 million issued in 1996 and maturing in 2008 and 2011 (the ‘2008/11 Notes’) and debt of US$200.000 million and Stg£30.000 million issued in 2004 and maturing in 2014 and 2016 (the ‘2004/16 Notes’). The 2008/11 Notes have been swapped (using cross currency interest rate swaps designated as fair value hedges under IAS39) from fixed US$ to floating sterling rates, repricing quarterly based on sterling LIBOR. The 2004/16 Notes denominated in US$ have been swapped from fixed to floating US$ rates (using interest rate swaps designated as fair value hedges under IAS 39) and further swapped (using currency swaps not designated as hedges under IAS 39) from floating US$ to floating euro rates, repricing semi-annually based on EURIBOR. The 2014/16 Notes denominated in sterling have been swapped from fixed to floating sterling rates (using an interest rate swap designated as a fair value hedge under IAS 39), repricing semi-annually based on sterling LIBOR. The maturity and interest profile of the Unsecured Notes due 2008 to 2016 is as follows: Average maturity Average fixed interest rates* - US$ denominated - sterling denominated Average floating rate including swaps - euro denominated - sterling denominated * Issued and repayable at par 2006 2005 6.8 years 7.8 years 6.04% 5.76% 2.84% 5.30% 6.04% 5.76% 2.85% 5.61% 92 notes to the financial statements 29. Borrowings - continued Adoption of IAS 32 and IAS 39 Under Irish GAAP at 31 March 2005, the Unsecured Notes due 2008 to 2016 were carried at cost of €305.094 million, not recognising fair value gains. Similarly, at 31 March 2005, the fair value loss of €29.816 million on the related interest rate, currency and cross currency interest rate swaps was disclosed rather than recognised in the financial statements. The Group adopted IAS 32 and IAS 39 from 1 April 2005. The Group has recognised at 31 March 2006 a net fair value loss of €17.972 million on these swaps. The interest rate and cross currency interest rate swaps have been designated as fair value hedges under IAS 39 and the gains attributable to these hedged risks have been adjusted against the Unsecured Notes due 2008 to 2016 and reflected in the Income Statement. A reconciliation of the movement in the balance on the Unsecured Notes due 2008 to 2016 and in the balance on derivatives is included in note 30. The fair value at 31 March 2006 of the Unsecured Notes due 2008 to 2016 approximates their fair value adjusted amortised cost of €286.466 million (the amount at which they are carried at 31 March 2006 as above). The equivalent approximate fair value at 31 March 2005 was €277.039 million. 30. Analysis of net debt Reconciliation of opening to closing net debt The reconciliation of opening to closing net debt for the year ended 31 March 2006 is as follows: Group At 1 April 2005 €’000 Transition adjustment €’000 Cash flow €’000 Mark-to- market €’000 Translation At 31 adjustment March 2006 €’000 €’000 353,304 Cash and short term bank deposits (38,907) Overdrafts 314,397 Cash and cash equivalents (1,911) Bank loans and loan notes (16,285) Finance leases Unsecured Notes due 2008 to 2016 (305,094) - Derivative financial instruments (net) Group net debt (including share of net (debt)/cash in joint ventures) (8,893) - - - - - 28,055 (29,974) (4,357) 14,419 10,062 (35,961) 5,973 - - - - - - - (10,996) 11,824 (3,667) (874) (4,541) (1) 69 1,569 133 345,280 (25,362) 319,918 (37,873) (10,243) (286,466) (18,017) (1,919) (19,926) 828 (2,771) (32,681) Group net debt (excluding share of net (debt)/cash in joint ventures) (8,192) (1,919) (21,096) 828 (2,771) (33,150) The reconciliation of opening to closing net cash/(debt) for the year ended 31 March 2005 is as follows: Group At 1 April 2004 €’000 Cash flow €’000 Translation At 31 March adjustment 2005 €’000 €’000 Cash and short term bank deposits Overdrafts Cash and cash equivalents Bank loans and loan notes Finance leases Unsecured Notes due 2008 to 2016 Group net cash/(debt) (including share of net debt in joint ventures) 323,466 (51,800) 271,666 (89,672) (22,014) (97,612) 62,368 39,019 13,786 52,805 87,738 5,062 (212,064) (66,459) (9,181) (893) (10,074) 23 667 4,582 (4,802) 353,304 (38,907) 314,397 (1,911) (16,285) (305,094) (8,893) Group net cash/(debt) (excluding share of net debt in joint ventures) 62,717 (66,107) (4,802) (8,192) notes to the financial statements 93 30. Analysis of net debt - continued Currency profile The currency profile of net debt at 31 March 2006 is as follows: Cash and cash equivalents Borrowings Derivatives The currency profile of net debt at 31 March 2005 is as follows: Cash and cash equivalents Borrowings Euro €’000 Sterling €’000 US Dollar €’000 Total €’000 61,530 (196,083) (11,685) (146,238) 276,216 (162,568) (6,388) 107,260 7,534 (1,293) 56 6,297 345,280 (359,944) (18,017) (32,681) Euro €’000 Sterling €’000 US Dollar €’000 Total €’000 90,941 (171,786) (80,845) 256,693 (190,405) 66,288 5,670 (6) 5,664 353,304 (362,197) (8,893) Interest rate profile Cash and cash equivalents at 31 March 2006 and 31 March 2005 have maturity periods up to three months (note 27). Bank borrowings and finance leases are at floating interest rates for periods less than three months while the Group’s Unsecured Notes due 2008 to 2016 have been swapped to floating rates which reset on a quarterly or semi-annual basis (note 29). The Group also utilises interest rate swaps to swap floating rate sterling assets and liabilities into fixed sterling rate assets (8.05%) and fixed rate sterling liabilities (8.1%). The notional principal amounts of these swaps (Stg£61.000 million) offset. 31. Deferred income tax Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows: Group Deferred income tax assets (deductible temporary differences): Deficits on Group defined benefit pension obligations Employee share options Other deductible temporary differences Deferred income tax liabilities (taxable temporary differences): Excess of accelerated capital allowances over depreciation and fair value adjustments arising on acquisition Rolled-over capital gains The gross movement on the deferred income tax account is as follows: At 1 April Exchange differences Deferred tax on adoption of IAS 32 and 39 Acquisition of subsidiary (note 45) Income Statement charge (note 15) Tax charged to equity (note 15) At 31 March 2006 €’000 3,940 382 274 4,596 10,473 245 10,718 2006 €’000 3,039 44 (230) 1,330 2,043 (104) 6,122 2005 €’000 3,046 191 3,720 6,957 9,751 245 9,996 2005 €’000 (4,312) 73 - 4,602 3,472 (796) 3,039 94 notes to the financial statements 32. Retirement benefit obligations Group The Group operates eight defined benefit pension schemes in the Republic of Ireland and three in the UK. The projected unit credit method has been employed in determining the present value of the defined benefit obligation arising, the related current service cost and, where applicable, past service cost. The Group has elected to avail of early implementation of the Amendment to IAS 19 Actuarial Gains and Losses, Group Plans and Disclosures which enables the recognition of actuarial gains and losses and the associated movement in the deferred tax asset in retained income via the Statement of Recognised Income and Expense. Full actuarial valuations were carried out between 31 December 2002 and 1 April 2005. In general, actuarial valuations are not available for public inspection, although the results of valuations are advised to the members of the various pension schemes. Actuarial valuations have been updated to 31 March 2006 for International Accounting Standard 19 by a qualified actuary. The principal actuarial assumptions used were as follows: Republic of Ireland Schemes Rate of increase in salaries Rate of increase in pensions in payment Discount rate Inflation assumption UK schemes Rate of increase in salaries Rate of increase in pensions in payment Discount rate Inflation assumption The expected long term rates of return on the assets of the schemes were as follows: Republic of Ireland schemes Equities Bonds Property Cash UK schemes Equities Bonds Property Cash 2006 2005 3.50% - 4.00% 3.50% - 4.00% 2.25% - 3.00% 2.25% - 5.00% 4.00% - 4.70% 4.00% - 4.80% 2.25% 2.25% 2006 2005 3.75% 3.75% 2.75% - 4.00% 2.75% - 4.00% 5.25% 2.75% 4.70% 2.75% 2006 7.40% 3.50% 6.30% 3.00% 2006 7.90% 4.00% 6.80% 3.50% 2005 7.20% 3.70% 5.20% 2.40% 2005 8.10% 4.60% 6.10% 3.50% Assumptions regarding future mortality experience are set based on advice from published statistics and experience in both geographic regions. The average life expectancy in years of a pensioner retiring at age 65 is as follows: Male Female The Group does not operate any post-employment medical benefit schemes. 2006 19.5 22.5 2005 19.5 22.5 notes to the financial statements 95 32. Retirement benefit obligations - continued The market value of the assets of the schemes were as follows: Equities Bonds Property Cash Total market value at 31 March 2006 Present value of scheme liabilities Net pension liability at 31 March 2006 Equities Bonds Property Cash Total market value at 31 March 2005 Present value of scheme liabilities Net pension liability at 31 March 2005 ROI €’000 40,747 10,109 2,540 1,897 55,293 (67,755) (12,462) ROI €’000 31,811 9,854 1,996 1,900 45,561 (64,581) (19,020) The total expense charged to the Group Income Statement in respect of defined benefit pension schemes is as follows: Current service cost Past service cost Gain on settlement Total, included in staff costs (note 9) Interest cost Expected return on plan assets Total, included in finance costs (note 12) The actuarial gain/(loss) recognised in the Statement of Recognised Income and Expense is as follows: Actual return less expected return on pension scheme assets Experience gains and losses arising on the scheme liabilities Changes in assumptions underlying the present value of the scheme liabilities Total, included in the Statement of Recognised Income and Expense The movement in the fair value of plan assets is as follows: At 1 April Acquired on business combinations Actual return on plan assets Contributions by employers Contributions by members Benefits paid Exchange At 31 March 2006 UK €’000 8,951 2,404 293 353 12,001 (20,218) (8,217) 2005 UK €’000 7,150 1,389 7 552 9,098 (15,458) (6,360) 2006 €’000 3,308 - (246) 3,062 (3,804) 3,479 (325) 2006 €’000 8,697 (383) (6,535) 1,779 2006 €’000 54,659 - 12,176 6,190 428 (6,017) (142) 67,294 Total €’000 49,698 12,513 2,833 2,250 67,294 (87,973) (20,679) Total €’000 38,961 11,243 2,003 2,452 54,659 (80,039) (25,380) 2005 €’000 3,029 392 - 3,421 (3,940) 3,517 (423) 2005 €’000 1,277 (1,598) (7,421) (7,742) 2005 €’000 53,907 4,112 4,794 4,998 399 (13,278) (273) 54,659 96 notes to the financial statements 32. Retirement benefit obligations - continued The movement in the present value of defined benefit obligations is as follows: At 1 April Acquired on business combinations Current service cost Interest cost Actuarial loss Contributions by members Benefits paid Settlements Exchange At 31 March Experience gains and losses: Difference between the expected and actual return on scheme assets As a percentage of scheme assets Experience gains and losses on scheme liabilities As a percentage of the present value of the scheme liabilities Total recognised in Statement of Recognised Income and Expense As a percentage of the present value of the scheme liabilities 33. Deferred acquisition consideration Group 2006 €’000 80,039 - 3,308 3,804 6,918 428 (6,017) (246) (261) 87,973 2006 €’000 8,697 12.9% (383) 0.4% 1,779 (2.0%) 2005 €’000 71,071 5,924 3,421 3,940 9,019 399 (13,278) - (457) 80,039 2005 €’000 1,277 2.3% (1,598) 2.0% (7,742) 9.7% The Group’s deferred acquisition consideration of €22.364 million (2005: €17.923 million) as stated on the Balance Sheet consists of €12.193 million of € floating rate financial liabilities (2005: €7.708 million) and €10.171 million of Stg£ floating rate financial liabilities (2005: €10.215 million) payable as follows: Within one year Between one and two years Between two and five years Analysed as: Non-current liabilities Current liabilities Company Within one year Between one and two years 2006 €’000 3,556 9,838 8,970 22,364 18,808 3,556 22,364 2006 €’000 - - - 2005 €’000 7,084 2,375 8,464 17,923 10,839 7,084 17,923 2005 €’000 2,824 139 2,963 notes to the financial statements 97 34. Provisions for liabilities and charges Group Current liabilities Rationalisation and redundancy Insurance and other 2006 €’000 - 3,785 3,785 2005 €’000 8,616 6,533 15,149 Rationalisation and redundancy These provisions were fully utilised during the year. The provisions related to irrevocable commitments under various rationalisation and redundancy programmes throughout the Group. Insurance and other The insurance provision relates to employers liability and public and products liability and reflects the excess not recoverable from insurers arising from claims against Group companies. A significant element of the provision is subject to external assessments. Other provisions relate to fair value provisions arising from business combinations. 35. Capital grants Group At 1 April Amortisation in year Received in year Exchange and other adjustments At 31 March Disclosed as due within one year (note 25) 36. Equity share capital Group and Company Authorised 152,368,568 ordinary shares of €0.25 each Issued 88,229,404 ordinary shares (including 7,510,178 ordinary shares held as Treasury Shares) of €0.25 each, fully paid (2005: 88,169,404 ordinary shares (including 7,873,886 ordinary shares held as Treasury Shares) of €0.25 each, fully paid) Nil ordinary shares of €0.25 each, €0.0025 paid (2005: 60,000 ordinary shares of €0.25 each, €0.0025 paid) Movements during the year Ordinary shares of €0.25 each At 1 April 2005 Payment up of partly paid shares At 31 March 2006 2006 €’000 1,086 (112) 1,174 (26) 2,122 (131) 1,991 2005 €’000 1,241 (155) - - 1,086 (128) 958 2006 €’000 2005 €’000 38,092 38,092 22,057 22,042 - 22,057 No. of shares ‘000 88,229 - 88,229 - 22,042 €’000 22,042 15 22,057 98 notes to the financial statements 36. Equity share capital - continued As at 31 March 2006, the total authorised number of ordinary shares is 152,368,568 shares (2005: 152,368,568 shares) with a par value of €0.25 per share (2005: €0.25 per share). During the year the Company reissued 363,708 Treasury Shares for a total consideration of €3.148 million. All shares, whether fully or partly paid, carry equal voting rights and rank for dividends to the extent to which the total amount payable on each share is paid up. Details of share options granted under the Company’s share option schemes and the terms attaching thereto are provided in note 10 to the financial statements and in the Report of the Remuneration Committee on pages 44 to 47. 37. Share premium account Group and Company At 1 April Premium on issue of shares At 31 March 38. Other reserves Group At 1 April 2004 Currency translation Share based payment At 31 March 2005 Currency translation Cash flow hedges - fair value gains in year - tax on fair value gains - transfers to net profit - tax on transfers to net profit Share based payment At 31 March 2006 Company At 31 March 2006 and 31 March 2005 2006 €’000 124,506 181 124,687 2005 €’000 124,438 68 124,506 Share options €’000 Cash flow hedge reserve €’000 Foreign currency translation reserve €’000 Other reserves €’000 549 - 1,003 1,552 - - - - - 1,840 3,392 - - - - - 451 (85) (447) 101 - 20 - (5,565) - (5,565) (4,779) - - - - - (10,344) 1,400 - - 1,400 - - - - - - 1,400 Total €’000 1,949 (5,565) 1,003 (2,613) (4,779) 451 (85) (447) 101 1,840 (5,532) Other reserves €’000 344 notes to the financial statements 99 39. Retained earnings Group At 31 March Impact of adoption of IAS 32 and 39 At 1 April Net income recognised in Income Statement Net income recognised directly in equity - actuarial gain/(loss) on Group defined benefit pension schemes - deferred tax asset on actuarial loss Deferred tax on employee share options Share buyback (inclusive of costs) Re-issue of Treasury Shares (net of expenses) Dividends At 31 March Company At 1 April Profit/(loss) retained for the year Share buyback (inclusive of costs) Re-issue of Treasury Shares (net of expenses) At 31 March 2006 €’000 343,936 (1,689) 342,247 123,764 1,779 82 25 - 3,148 (31,568) 439,477 2006 €’000 41,128 11,280 - 3,148 55,556 2005 €’000 310,313 - 310,313 87,760 (7,742) 771 25 (26,762) 6,783 (27,212) 343,936 2005 €’000 87,339 (26,232) (26,762) 6,783 41,128 The cost to the Group and the Company of €83.965 million to acquire the 7,510,178 shares held in Treasury has been deducted from the Group and Company Retained Earnings. These shares were acquired at prices ranging from €9.25 to €12.80 each (average €10.48) between 28 July 2000 and 17 May 2004. 40. Minority interest Group At 1 April Arising on acquisition (note 45) Share of profit for the financial year (less attributable to associates) Dividends to minorities Exchange and other adjustments At 31 March 2006 €’000 4,348 24 548 (201) (5) 4,714 2005 €’000 4,081 (130) 573 (176) - 4,348 100 notes to the financial statements 41. Cash generated from operations Group Profit for the financial year Add back non-operating (income)/expense - Tax (note 15) - Share of profit from associates (note 14) - Exceptional items (note 11) - Net finance costs (note 12) Operating profit - Share-based payments expense (note 10) - Depreciation (note 19) - Amortisation (note 20) - Profit on sale of property, plant and equipment - Amortisation of capital grants (note 35) - Dividends received from associates - Other Changes in working capital (excluding the effects of acquisition and exchange differences on consolidation): - Inventories (note 26) - Trade and other receivables (note 26) - Trade and other payables (note 26) Cash generated from operations 42. Contingencies 2006 €’000 2005 €’000 125,289 88,782 13,479 (25,474) (1,696) 7,041 118,639 1,840 34,142 4,956 (1,295) (112) 1,028 (5,114) (7,301) (83,658) 79,797 142,922 12,107 (16,807) 20,776 5,694 110,552 1,003 32,867 1,261 (2,050) (155) 1,354 (3,758) (8,514) (64,118) 47,954 116,396 Guarantees The Company and certain subsidiaries have given guarantees of €458.619 million (2005: €343.247 million) in respect of borrowings and other obligations arising in the ordinary course of business of the Company and other Group undertakings. It is not anticipated that any material liabilities will arise from these contingent liabilities. Other Included in trade payables is an amount of approximately €10.514 million (2005: €6.128 million) due to creditors who have reserved title to goods supplied. Since the extent to which these creditors are effectively secured at any time depends on a number of conditions, the validity of some of which is not readily determinable, it is not possible to indicate how much of the above amount was effectively secured by reservation of title. However, the amount referred to above is matched in terms of net book value of fixed assets and stocks of raw materials in the possession of the Group which were supplied subject to reservation of title and accordingly the creditors referred to could be regarded as effectively secured to the extent of at least this amount. Pursuant to the provisions of Section 17, Companies (Amendment) Act, 1986, the Company has guaranteed the liabilities of the following subsidiaries; Alvabay Limited, Atlas Oil Refining Company Limited, Classic Fuel & Oil Limited, DCC Business Expansion Fund Limited, DCC Corporate Partners Limited, DCC Energy Limited, DCC Financial Services Holdings Limited, DCC Healthcare Limited, DCC Management Services Limited, DCC Nominees Limited, DCC SerCom Limited, Emo Oil Limited, Flogas Ireland Limited, SerCom Property Limited, Shannon Environmental Holdings Limited, Sharptext Limited and TechnoPharm Limited. As a result, these companies will be exempted from the filing provisions of Section 7, Companies (Amendment) Act, 1986. 43. Capital expenditure commitments Group Capital expenditure that has been contracted for but has not been provided for in the financial statements Capital expenditure that has been authorised by the Directors but has not yet been contracted for 2006 €’000 2005 €’000 3,876 44,866 48,742 10,897 35,212 46,109 notes to the financial statements 101 44. Commitments under operating and finance leases Group Operating leases Future minimum rentals payable under non-cancellable operating leases at 31 March are as follows: Within one year After one year but not more than five years More than five years 2006 €’000 945 7,668 63,537 72,150 2005 €’000 1,011 7,098 64,738 72,847 The Group leases a number of properties under operating leases. The leases typically run for a period of 15 to 25 years. Rents are generally reviewed every five years. During the year ended 31 March 2006 €9.102 million (2005: €8.148 million) was recognised as an expense in the Income Statement in respect of operating leases. Finance leases Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: 2006 2005 Minimum payments €’000 Present value of payments €’000 5,292 5,756 11,048 (805) 10,243 4,801 5,442 10,243 - 10,243 Minimum payments €’000 6,646 11,156 17,802 (1,517) 16,285 Present value of payments €’000 5,915 10,370 16,285 - 16,285 Within one year After one year but not more than five years Less: amounts allocated to future finance costs Present value of minimum lease payments 45. Business combinations The principal acquisitions completed by the Group during the year, together with percentages acquired were as follows: - Physio-Med Services Limited (76%): a supplier of physiotherapy and related products, acquired on 13 June 2005. Put and call options exist to acquire the remaining 24%; - Pilton Company (100%): a distributor of DVD’s, computer games and other products, acquired on 15 June 2005; and - AB Computing (100%): a value added distributor of IT infrastructure solutions headquartered in Belgium, acquired on 6 July 2005. In addition, a number of small oil and LPG distributors were acquired during the year. 102 notes to the financial statements 45. Business combinations - continued Identifiable net assets acquired (excluding net cash acquired) were as follows: Assets Non-current assets Property, plant and equipment (note 19) Intangible assets - goodwill (note 20) Intangible assets - other intangible assets (note 20) Investments in associates (note 21) Total non-current assets Current assets Inventories (note 26) Trade and other receivables (note 26) Total current assets Equity Minority interest (note 40) Total equity Liabilities Non-current liabilities Deferred income tax liabilities (note 31) Retirement benefit obligations Total non-current liabilities Current liabilities Trade and other payables (note 26) Current income tax liabilities Total current liabilities Total consideration (enterprise value) Satisfied by: Cash Cash acquired Net cash outflow Deferred and contingent acquisition consideration Total consideration 2006 €’000 2005 €’000 2,737 42,157 7,450 - 52,344 8,289 24,861 33,150 33,423 66,977 12,594 (7,916) 105,078 6,827 33,471 40,298 (24) (24) 130 130 (1,330) - (1,330) (4,602) (1,812) (6,414) (20,460) (701) (21,161) (46,936) (2,853) (49,789) 62,979 89,303 62,669 (13,538) 49,131 13,848 62,979 94,721 (16,528) 78,193 11,110 89,303 None of the business combinations completed during the period were considered sufficiently material to warrant separate disclosure of the fair values attributable to those combinations. The carrying amounts of the assets and liabilities acquired determined in accordance with IFRS before completion of the combination together with the adjustments made to those carrying values disclosed above were as follows: Non-current assets (excluding goodwill) Current assets Non-current liabilities and minority interest Current liabilities Identifiable net assets acquired Goodwill arising on acquisition Total consideration (enterprise value) Book value €’000 Fair value adjustments €’000 2,737 33,843 (273) (21,161) 15,146 47,833 62,979 7,450 (693) (1,081) - 5,676 (5,676) - Fair value €’000 10,187 33,150 (1,354) (21,161) 20,822 42,157 62,979 The initial assignment of fair values to identifiable net assets acquired has been performed on a provisional basis. Any amendments to these fair values within the twelve month timeframe from the date of acquisition will be disclosable in the 2007 Annual Report as stipulated by IFRS 3. notes to the financial statements 103 45. Business combinations - continued The post-acquisition impact of business combinations completed during the year on Group profit for the financial year was as follows: Revenue Cost of sales Gross profit Operating costs Group operating profit Finance costs (net) Share of associates’ profit after tax Profit before tax Income tax expense Group profit for the financial year 46. Related party transactions 2006 €’000 119,348 (98,771) 20,577 (12,456) 8,121 49 - 8,170 (1,487) 6,683 2005 €’000 312,253 (271,174) 41,079 (33,658) 7,421 (209) (1,529) 5,683 (1,725) 3,958 The principal related party relationships requiring disclosure in the consolidated financial statements of the Group under IAS 24 Related Party Disclosures relate to the existence of subsidiaries, joint ventures and associates and transactions with these entities entered into by the Group and the identification and compensation of key management personnel as addressed in more detail below: Group Subsidiaries, joint ventures and associates The consolidated financial statements include the financial statements of the Company and its subsidiaries, joint ventures and associates as documented in the accounting policies on pages 58 to 66. A listing of the principal subsidiaries, joint ventures and associates is provided in the Group Directory on pages 113 to 116 of this Annual Report. Transactions are entered into in the normal course of business on an arm’s length basis. Sales to and purchases from, together with outstanding payables and receivables to and from subsidiaries and joint ventures are eliminated in the preparation of the consolidated financial statements. On 21 October 2005, the Group increased its shareholding to 100.0% in Fannin Limited by acquiring the remaining 3.4% of the issued share capital from the minority shareholder. The consideration amounted to €3.000 million and was settled in cash. On 2 September 2005, the Group increased its shareholding to 100.0% in DCC Environmental by acquiring the remaining 2.85% of the issued share capital from the minority shareholder. The consideration amounted to €1.094 million and was settled in cash. Compensation of key management personnel For the purposes of the disclosure requirements under IAS 24, the term ‘key management personnel’ (i.e. those persons having authority and responsibility for planning, directing and controlling the activities of the Company) comprises the Board of Directors which manages the business and affairs of the Company. Full disclosure in relation to the compensation entitlements of the Board of Directors is provided in the Report of the Remuneration Committee on pages 44 to 47 of this Annual Report. Company Subsidiaries and associates During the year the Company received €44.499 million (2005:€nil) in dividends from its subsidiaries and €nil (2005: €65,000) in dividends from its associates. Details of loan balances to/from subsidiaries are provided in the Company Balance Sheet on page 55, in note 24 ‘Trade and Other Receivables’ and in note 25 ‘Trade and Other Payables’. During the year the Company was charged a management fee of €3.705 million (2005: €2.174 million) by its subsidiary, DCC Management Services Limited. 104 notes to the financial statements 47. Reconciliations from Irish GAAP to IFRS Up to and including 31 March 2005, the Group prepared its financial statements in accordance with generally accepted accounting practices in Ireland ('Irish GAAP'). Detailed explanations of the adjustments made to the full-year 2005 Group Income Statement and the Balance Sheet as at 31 March 2005 have been provided in the Restatement of Financial Information under IFRS published on 30 September 2005. The following is a summary of the principal changes on transition to IFRS: Overview It is a requirement that the first IFRS financial statements include full comparative information for the year ended 31 March 2005. The date of transition to IFRS for all standards, other than IAS 32 and IAS 39, is 1 April 2004, being the start of the comparative period in the Group's first IFRS financial statements. As permitted under IFRS 1, the Group applied hedge accounting in accordance with Irish GAAP for the year ended 31 March 2005 and adopted IAS 32 and IAS 39 from 1 April 2005. A summary of the effect of IFRS on the Group's and Company's Balance Sheets as at 1 April 2004 and 31 March 2005 as well as on the Group's Income Statement for the year ended 31 March 2005 is set out in the following sections: (1) Optional exemptions availed of on transition to IFRS (2) Impact of transition to IFRS (3) Group Income Statement for the year ended 31 March 2005 - reconciliation from Irish GAAP to IFRS (4) Group Balance Sheet as at 31 March 2005 - reconciliation from Irish GAAP to IFRS (5) Group Balance Sheet as at 1 April 2004 - reconciliation from Irish GAAP to IFRS (6) Company Balance Sheet as at 31 March 2005 - reconciliation from Irish GAAP to IFRS (7) Company Balance Sheet as at 1 April 2004 - reconciliation from Irish GAAP to IFRS (1) Optional exemptions availed of on transition to IFRS IFRS 1 sets out the procedures that the Group must follow when adopting IFRS for the first time as the basis for preparing its consolidated financial statements. This standard permits a number of optional exemptions from the general principle of retrospective restatement and the Group elected, in common with other listed companies, to avail of a number of these exemptions as follows: (i) Business combinations Business combinations undertaken prior to the transition date of 1 April 2004 have not been subject to restatement. Goodwill as at the transition date is carried forward at its carrying amount and, together with goodwill arising on business combinations subsequent to the transition date, is subject to annual impairment testing in accordance with IAS 36 Impairment of Assets. As required by IFRS 1, an impairment review of goodwill was carried out at the transition date. This review indicated that no impairment provision was required. (ii) Property, plant & equipment The Group retained its existing carrying value of occupied properties, plant and equipment at 1 April 2004 as deemed cost, rather than either reverting to historical cost or carrying out a valuation at the date of transition as permitted by IFRS 1. (iii) Employee benefits The Group elected to recognise all cumulative actuarial gains and losses applicable to defined benefit pension schemes in the transition balance sheet and adjusted them against retained income. (iv) Currency translation adjustments IFRS requires that on disposal of a foreign operation, the cumulative amount of currency translation differences previously recognised directly in reserves for that operation be transferred to the Income Statement as part of the profit or loss on disposal. The Group elected to deem the cumulative currency translation differences applicable to foreign operations to be zero as at the transition date. The cumulative currency translation differences arising after the transition date have been re-classified from retained income to a separate component of equity (termed the 'foreign currency translation reserve') with no net impact on capital and reserves attributable to the Group's equity holders. (v) IAS 32 / IAS 39 Given the delay encountered in receiving EU approval, the effective date of the revised versions of IAS 32 and IAS 39 was 1 April 2005 and therefore the Group adopted these standards with effect from that date. The Group availed of the exemption under the transition rules of IFRS 1 not to restate the comparative information under IAS 32 and IAS 39. Comparative information on financial instruments for the year ended 31 March 2005 in the financial statements at 31 March 2006 are presented on the existing Irish GAAP basis. notes to the financial statements 105 47. Reconciliations from Irish GAAP to IFRS - continued Other options availed of on transition In compliance with the transitional arrangements set out in IFRS 2 Share-based Payment, this standard was applied in respect of share options granted after 7 November 2002 and not vested before 1 January 2005. On the introduction of FRS 17 Retirement Benefits in 2001, DCC together with the majority of publicly-listed entities, elected to continue to account for its pension obligations under SSAP 24 Accounting for Pension Costs and to disclose the impact of FRS 17 in the notes to the financial statements. FRS 17 requires immediate recognition of actuarial gains and losses on defined benefit pension schemes in the Statement of Total Recognised Gains and Losses. The Group elected to avail of early application of the amendment to IAS 19 which enables the recognition of actuarial gains and losses through retained income via the Statement of Changes in Shareholders' Equity. (2) Impact of transition to IFRS The adoption of IFRS resulted in the following significant changes to the Group's accounting policies and the financial impact of each as at the date of transition to IFRS is summarised below. (i) IFRS 2 share-based payment IFRS 2 Share-based Payment requires the recognition of an expense in the Income Statement representing the fair value at the date of grant of share-based payments (mainly share options in the case of DCC). This expense is recognised over the vesting period of the options. In accordance with the transitional arrangements contained in the standard, only share options granted after 7 November 2002 and not vested before 1 January 2005 are included in the calculations. The fair value of the share-based payments have been calculated using a binomial model for the DCC plc 1998 Employee Share Option Scheme and Black Scholes for the DCC Sharesave Scheme. The following are the main inputs used in determining the fair value of share options: • The exercise price which is the market price at the grant date except in the case of the DCC Sharesave Scheme 2001 share options which were issued at a 20% discount to the market price at the date of grant; • Future share price volatility is based on historical volatility over a period consistent with the expected term of the option; • The risk free interest rate used is the rate applicable to zero-coupon euro-denominated Government bonds with a remaining term equal to the expected term of the option; • Expected dividend payments. An expense of €1.0 million was recognised in the Group Income Statement in respect of the year ended 31 March 2005. (ii) IFRS 3 business combinations / IAS 38 Intangible assets The Group availed of the exemption under IFRS 1 enabling non-restatement of business combinations prior to the date of transition to IFRS. Under IFRS 3, goodwill is no longer amortised but rather is subject to annual impairment testing. At 1 April 2004, the date of transition, the Group had a net goodwill asset of €129.6 million which is carried forward and, together with goodwill arising on subsequent business combinations, is subject to annual impairment testing. Accordingly, the goodwill amortisation charge of €10.1 million for the year ended 31 March 2005 was not charged under IFRS. Under IAS 38 Intangible Assets, there is a requirement to separately identify intangible assets acquired, other than goodwill. Intangible assets (mainly comprising customer relationships) are capitalised and subsequently amortised over their economic lives. The acquisition balance sheets for business combinations completed in the year ended 31 March 2005 have been restated to recognise intangible assets which resulted in a reduction in the goodwill figure in the acquisition balance sheets. The amortisation charge recognised in respect of intangible assets amounted to €1.3 million for the year ended 31 March 2005. Net intangible assets at 31 March 2005 amounted to €11.3 million. (iii) IAS 19 Employee benefits IAS 19 Employee Benefits requires the assets and liabilities of defined benefit pension schemes to be recognised on the face of the balance sheet. In accordance with the exemption available under IFRS 1, the Group elected to recognise all cumulative actuarial gains and losses attributable to its defined benefit pension schemes as at the transition date. In addition, in line with the amendment to IAS 19, actuarial gains and losses arising after the date of transition are dealt with in the Statement of Changes in Shareholders' Equity. 106 notes to the financial statements 47. Reconciliations from Irish GAAP to IFRS - continued The amounts reflected in the Group's transition Balance Sheet as at 1 April 2004 and the Group's Balance Sheet as at 31 March 2005 are in accordance with the FRS 17 disclosures previously provided in the Annual Reports at 31 March 2004 and 31 March 2005 save for the recording of assets at bid value under IAS 19 as opposed to mid-market value. Application of IAS 19 resulted in a pre-tax reduction in net assets of €27.7 million as at 1 April 2004 and a pre-tax reduction of €34.3 million as at 31 March 2005. The decrease in the pre-tax charge to the Income Statement arising from the adoption of IAS 19 for the year ended 31 March 2005 was €1.2 million. (iv) Current and deferred tax Under Irish GAAP, deferred tax is recognised in respect of all timing differences that have originated but not reversed by the balance sheet date and which could give rise to an obligation to pay more or less taxation in the future. Deferred tax under IAS 12 Income Taxes is recognised in respect of all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying value for financial reporting purposes. IAS 12 also required that deferred tax assets and liabilities must be disclosed separately on the balance sheet. IAS 12 results in an overall increase in the net deferred tax liability of the Group. The adjustments made to deferred tax assets and liabilities as at the transition date of 1 April 2004, and reflected in the transition Balance Sheet, principally related to the following issues: • Under Irish GAAP, deferred tax was not provided on fair value asset adjustments in business combinations if these adjustments did not give rise to timing differences between the tax base and the book value of the assets acquired. The requirement under IAS 12 to provide deferred tax on the differences arising from the assets acquired gave rise to a deferred tax liability of €1.3 million as at the transition date. This liability increased to €1.8 million as at 31 March 2005. • IAS 12 requires that a deferred tax provision be made for all rolled-over capital gains rather than those expected to crystallise. The IFRS transition balance sheet included a deferred tax liability of €0.2 million in respect of rolled-over capital gains, which did not arise under Irish GAAP. • The deferred tax impact of defined benefit pension scheme surpluses and deficits accounted for in accordance with IAS 19 Employee Benefits resulted in the creation of a deferred tax asset of €2.1 million in the transition balance sheet. The deferred tax liability reduced by €1.3 million as a result of a reversal of the SSAP 24 pension prepayment in the Irish GAAP balance sheet. A net deferred tax asset of €1.9 million, as set out above, was provided in the transition Balance Sheet. IAS 12 requires deferred tax to be provided in respect of undistributed profits of overseas subsidiaries unless the parent is able to control the timing of remittances and it is probable that such remittances will not be made in the foreseeable future. As the Group is able to control the timing of remittances from overseas subsidiaries and no such remittances are anticipated in the foreseeable future, no provision has been made for any tax on undistributed profits of overseas subsidiaries. Similarly, no deferred tax assets or liabilities have been recognised in respect of temporary differences associated with investments in subsidiaries. In addition to the provisions of IAS 12 described above, IAS 1 Presentation of Financial Statements requires separate disclosure of deferred tax assets and liabilities on the face of the balance sheet. The Group's restated Balance Sheets therefore contained re-classifications of deferred tax assets previously netted within the Group's overall deferred tax liability; these amounts were €6.7 million and €7.0 million as at the transition date and 31 March 2005 respectively. (v) Dividend payments IAS 10 Events after the Balance Sheet Date, requires that dividends declared after the balance sheet date should not be recognised as a liability at the balance sheet date as the liability does not represent a present obligation as defined by IAS 37. Instead, dividends will be recognised in the period in which they are declared and approved. This had the effect of increasing the opening net assets at 1 April 2004 by €16.8 million. The results for the year ended 31 March 2005, as restated under IFRS, include the 2003/2004 final dividend of €16.8 million and the 2004/2005 interim dividend of €10.8 million. The 2004/2005 final dividend of €19.1 million is reflected in the results for the year ended 31 March 2006. (vi) Exceptional items Under IFRS, all exceptional items of an operating nature, apart from the results of discontinued operations, are disclosed in the appropriate operating line item before operating profit, with separate disclosure for items which are material by virtue of their size or nature. This resulted in a reclassification of exceptional items reported by the Group for the year ended 31 March 2005. notes to the financial statements 107 47. Reconciliations from Irish GAAP to IFRS - continued (vii) Joint ventures Subsequent to the transition to IFRS, the Group undertook a review to ascertain whether certain associates may be more correctly treated as joint ventures. The result of this review was that the Group's 50% shareholdings in Kylemore Foods Holdings Limited and KP (Ireland) Limited are both required under IAS 31 Interests in Joint Ventures to be treated as joint ventures. In accordance with IAS 31, the Group has opted to apply proportionate consolidation in accounting for its interests in joint ventures. Under proportionate consolidation the Income Statements, Balance Sheets and Cash Flow Statements of these entities are included on a line-by-line basis in the consolidated accounts. Comparative amounts have been regrouped and restated where necessary. The reclassification of certain associates as joint ventures has no net effect on total equity, retained earnings or adjusted earnings per share. (viii) Associates Under Irish GAAP, the appropriate share of the results of associates (split between sales, operating profit, interest, tax and minority interest) was included in the consolidated Profit and Loss Account by way of the equity method of accounting. Associates were stated in the consolidated Balance Sheet at cost plus the attributable portion of their retained reserves from the date of acquisition less goodwill amortised. Under IAS 28, a single figure (being profit after tax) for results of associates is disclosed after operating profit. Given the importance of the contributions of associates to the Group, sufficient information will be provided to allow operating profit to be calculated on a basis that is consistent with previous statements. (ix) Foreign currencies Under Irish GAAP currency translation differences on foreign currency net investments have been written off to revenue reserves. Under IAS 21, translation differences are recorded in a separate currency translation reserve. On disposal of a foreign operation, the cumulative translation differences relating to that operation are transferred to the Income Statement as part of the profit or loss on disposal. The Group availed of the IFRS 1 exemption allowing it to deem all cumulative translation differences that arose up to the transition date to be equal to zero. These translation differences will therefore remain written off against revenue reserves and will no longer be separately disclosed in the notes to the accounts. IAS 21 provides specific guidance on how the functional currency (i.e. the currency that an entity should use to record its transactions) of a company should be determined and the functional currencies of a small number of group companies have altered as a result of the application of this guidance. Certain intercompany loans had been treated under Irish GAAP as part of net investment in foreign operations and foreign exchange gains or losses arising on these loans had been recognised directly in reserves. On transition from Irish GAAP, certain of these loans between fellow subsidiaries did not qualify under IFRS as part of net investment in foreign operations and therefore gains or losses on these loans must be recognised in the Income Statement. The financial impact of the above was a charge to the Income Statement of €4.8 million for the year ended 31 March 2005 in respect of foreign exchange losses previously charged to reserves and the amounts are included in exceptional items. The majority of the intercompany balances which gave rise to these accounting charges (previously taken to reserves) were eliminated during the year ended 31 March 2005 and the half year ended 30 September 2005 so as to eliminate accounting volatility from 30 September 2005 onwards. (x) Other There are a number of other items which are not individually material including accruals for holiday pay which have been reflected in the restatement of financial information under IFRS. 108 notes to the financial statements 0 0 0 ’ € d e t a t s e R S R F I r e d n u 8 2 5 , 6 8 3 8 2 7 , 4 4 6 , 2 ) 0 0 2 , 8 5 2 , 2 ( ) 5 1 8 , 3 ( ) 2 5 1 , 2 1 ( ) 5 1 7 , 4 7 2 ( - ) 1 6 2 , 1 ( - ) 7 7 2 ( ) 2 5 1 , 2 1 ( 5 8 5 , 4 9 ) 9 2 4 , 2 1 ( - ) 4 9 6 , 5 ( ) 9 0 8 , 4 ( 7 0 8 , 6 1 2 5 1 , 2 1 - - ) 9 0 8 , 4 ( r e h t O 0 0 0 ’ € 0 0 0 ’ € 1 2 S A I 9 8 8 , 0 0 1 ) 7 7 2 ( ) 9 0 8 , 4 ( ) 7 0 1 , 2 1 ( 3 3 2 8 7 , 8 8 ) 4 4 2 ( ) 9 0 8 , 4 ( 2 2 0 , 1 0 6 7 , 7 8 2 8 7 , 8 8 ) 4 4 2 ( ) 4 4 2 ( ) 9 0 8 , 4 ( ) 9 0 8 , 4 ( ) 0 9 7 , 1 ( ) 5 6 0 , 0 2 ( ) 1 6 2 , 1 ( 9 8 0 , 0 1 i t n o J 0 0 0 ’ € s e r u t n e v ) 4 2 6 , 9 ( 1 0 8 , 6 1 7 7 1 , 7 ) 7 8 3 , 5 ( 0 0 0 ’ € 0 0 0 ’ € 0 0 0 ’ € s e t a i c o s s A s n o i t a n b m o c i s t i f e n e b 3 S R F I s s e n i s u B 9 1 S A I e e y o p m E l 2 S R F I e r a h S d e s a b 0 0 0 ’ € t n e m y a p - - - - 2 2 6 , 1 ) 3 0 0 , 1 ( 0 0 0 ’ € s u o i v e r P P A A G h s i r I 1 5 3 , 9 7 3 7 2 9 , 7 2 6 , 2 ) 6 7 5 , 8 4 2 , 2 ( ) 5 1 8 , 3 ( ) 0 7 6 , 9 6 2 ( - ) 9 8 0 , 0 1 ( - 5 5 8 , 1 2 P A A G h s i r I S R F I - - s m e t i l a n o i t p e c x E s m e t i l a n o i t p e c x E t s o c g n i t a r e p O n o i t a s i t r o m a l l i w d o o G s e a s l f o t s o C t i f o r p s s o r G e u n e v e R t i f o r p g n i t a r e p o i ' s e t a c o s s a f o e r a h S s t e s s a i l e b g n a t n i f o n o i t a s i t r o m A S R F I o t P A A G h s i r I m o r f n o i t a i l i c n o c e r - 5 0 0 2 h c r a M 1 3 d e d n e r a e y e h t r o f t n e m e t a t s e m o c n i p u o r G ) 3 ( d e u n i t n o c - S R F I o t P A A G h s i r I m o r f s n o i t a i l i c n o c e R . 7 4 - - - - - ) 5 6 0 , 0 2 ( 8 2 8 , 8 2 2 6 , 1 ) 3 0 0 , 1 ( 2 3 6 , 7 1 1 t i f o r p g n i t a r e p O 5 0 3 7 0 8 , 6 1 ) 3 2 4 ( - - ) 2 5 1 , 2 1 ( ) 6 7 5 , 5 ( P A A G h s i r I - s m e t i l a n o i t p e c x e t e n g n i t a r e p o n o N x a t r e t f a t i f o r p i ' s e t a c o s s a f o e r a h S * s n a o l i g n c n a n i f y n a p m o c r e t n i n o s e s s o l e g n a h c x e i n g e r o F s t s o c e c n a n i f t e N ) 3 5 9 , 2 ( 8 2 8 , 8 9 9 1 , 1 ) 3 0 0 , 1 ( 4 0 9 , 9 9 n o i t a x a t e r o f e b s e i t i v i t c a y r a n d r o i n o t i f o r P 3 5 9 , 2 ) 4 4 1 ( 6 6 1 ) 5 1 1 , 5 1 ( - - - 8 2 8 , 8 5 5 0 , 1 ) 7 3 8 ( 9 8 7 , 4 8 r a e y l i a c n a n i f 8 2 8 , 8 8 2 8 , 8 5 5 0 , 1 5 5 0 , 1 ) 7 3 8 ( ) 7 3 8 ( 7 6 7 , 3 8 2 2 0 , 1 9 8 7 , 4 8 y n a p m o C e h t f o s r e d o h l y t i u q E t s e r e t n i y t i r o n M i : o t e l b a t u b i r t t A e h t r o f t i f o r P n o i t a x a T c 8 6 . 9 0 1 ) c 0 3 . 0 ( ) c 1 0 . 6 ( c 3 0 . 1 1 c 2 3 . 1 ) c 5 0 . 1 ( c 9 6 . 4 0 1 ) t n e c ( e r a h s r e p i s g n n r a e c i s a B c 2 2 . 7 3 1 ) c 0 3 . 0 ( c 2 3 . 1 ) c 5 0 . 1 ( c 5 2 . 7 3 1 * * ) t n e c ( e r a h s r e p i s g n n r a e d e t s u d A j n o i t a s i t r o m a d n a s m e t i l a n o i t p e c x e e r o f e b * * m e t i l a n o i t p e c x e n a s a d e t a e r t * notes to the financial statements 109 0 0 4 , 1 2 5 5 , 1 2 4 0 , 2 2 6 0 5 , 4 2 1 ) 5 6 5 , 5 ( 6 3 9 , 3 4 3 8 4 3 , 4 9 1 2 , 2 9 4 8 5 9 0 8 3 , 5 2 6 9 9 , 9 9 3 8 , 0 1 4 4 6 , 6 1 3 7 1 8 , 3 6 3 - 3 5 5 , 5 4 7 1 7 , 7 4 4 9 8 1 , 7 3 9 4 1 , 5 1 4 8 0 , 7 ) 5 6 5 , 5 ( 6 2 8 , 1 ) 9 3 7 , 3 ( 0 6 0 , 2 0 6 0 , 2 ) 5 2 9 , 2 1 ( 9 4 1 , 5 1 ) 3 9 8 , 8 ( - 2 9 6 , 2 5 5 9 0 5 , 6 1 9 8 2 7 , 8 0 4 , 1 5 4 5 4 2 2 , 2 4 8 2 , 4 1 9 7 , 4 5 2 0 2 7 , 6 9 1 3 3 3 , 1 1 4 8 3 , 1 5 7 5 9 , 6 5 8 1 , 1 2 5 9 4 0 , 4 2 1 0 9 1 , 0 1 4 4 0 3 , 3 5 3 3 4 5 , 7 8 8 8 2 7 , 8 0 4 , 1 5 4 5 5 4 5 - 5 4 5 - - - d e t a t s e R s n o i t a c i f i s s a c e R l 0 0 0 ’ € S R F I r e d n u r e h t o 0 0 0 ’ € d n a 0 0 0 ’ € d n e d v D i i i t n o J 0 0 0 ’ € s e r u t n e v 4 4 1 , 7 8 5 7 , 1 ) 1 5 1 , 3 1 ( ) 9 4 2 , 4 ( 5 1 3 5 0 9 6 8 2 , 1 6 0 5 , 2 ) 3 4 7 , 1 ( x a t 0 0 0 ’ € d e r r e f e D 3 0 5 , 3 3 4 3 ) 8 4 8 , 2 ( 3 3 3 , 1 1 3 0 5 , 3 8 2 8 , 8 - 3 0 5 , 3 - 8 2 8 , 8 6 4 0 , 3 6 4 0 , 3 ) 0 1 9 , 8 ( ) 0 1 9 , 8 ( ) 4 6 8 , 5 ( 1 9 1 1 9 1 - 1 9 1 2 5 5 , 1 3 S R F I s s e n s u B i 0 0 0 ’ € s n o i t a n b m o c i 0 0 0 ’ € s t i f e n e b 9 1 S A I e e y o p m E l 2 S R F I d e s a b e r a h S s u o i v e r P 0 0 0 ’ € t n e m y a p 0 0 0 ’ € P A A G h s i r I - 2 3 3 , 1 3 0 5 , 3 2 5 1 0 8 1 , 1 3 0 5 , 3 - - ) 0 7 0 , 9 1 ( ) 0 7 0 , 9 1 ( ) 0 7 0 , 9 1 ( 7 6 6 2 4 ) 8 6 5 , 3 ( ) 5 7 0 , 3 ( ) 3 4 7 , 1 ( ) 3 4 7 , 1 ( ) 1 0 7 ( - - 3 0 5 , 3 3 0 5 , 3 - - - - 8 2 8 , 8 ) 9 6 0 , 1 ( 0 8 3 , 5 2 1 1 3 , 4 2 - - ) 4 6 8 , 5 ( 1 1 3 , 4 2 - - - 0 7 0 , 9 1 0 7 0 , 9 1 - - 8 2 8 , 8 8 2 8 , 8 ) 5 7 1 , 0 3 ( 1 9 1 ) 5 7 1 , 0 3 ( ) 1 6 3 , 1 ( - 1 9 1 ) 2 9 1 , 8 ( 8 6 2 , 3 0 4 , 1 7 4 6 , 7 4 2 2 6 7 , 3 9 1 - 0 2 7 , 3 2 9 1 , 4 6 1 2 3 , 9 0 5 4 3 7 , 3 2 1 4 1 8 , 7 1 4 9 9 3 , 2 5 3 7 4 9 , 3 9 8 8 6 2 , 3 0 4 , 1 0 0 4 , 1 2 4 0 , 2 2 6 0 5 , 4 2 1 - - 8 4 7 , 5 4 3 8 4 3 , 4 4 4 0 , 8 9 4 4 6 4 , 5 1 3 - 8 5 9 0 5 3 , 5 9 3 8 , 0 1 1 1 6 , 2 3 3 - 7 2 1 , 5 4 0 1 2 , 4 6 4 2 2 1 , 7 3 4 8 0 , 7 0 7 0 , 9 1 3 1 6 , 2 7 5 4 2 2 , 5 0 9 l l s r e d o h y t i u q e o t e b a t u b i r t t a s e v r e s e r d n a l a t i p a C e v r e s e r l n o i t a s n a r t y c n e r r u c i n g e r o F s n o i t p o e r a h s - s e v r e s e r t n u o c c a m u m e r p i s e v r e s e r l a t i p a c e r a h S e r a h S r e h t O r e h t O i s g n n r a e i d e n a t e R s t s e r e t n i y t i r o n M i y t i u q e l a t o T i s g n w o r r o b d n a s n a o l g n i r a e b - t s e r e t n I s e i t i l i b a i l t n e r r u c - n o N I S E T I L I B A I L i s g n w o r r o b d n a s n a o l g n i r a e b - t s e r e t n I l s e b a y a p r e h t o d n a e d a r T s e i t i l i b a i l t n e r r u C n o i t a r e d s n o c i n o i t i s u q c a i d e r r e f e D s t n a r g l a t i p a C s e i t i l i b a i l x a t e m o c n i t n e r r u C s e i t i l i b a i l x a t e m o c n i d e r r e f e D s e g r a h c d n a s e i t i l i b a i l r o f i s n o s v o r P i n o i t a r e d s n o c i n o i t i s u q c a i d e r r e f e D d n e d v d i i d e s o p o r P s e i t i l i b a i l d n a y t i u q e s e i t i l i b a i l l a t o T l a t o T t b e d t e N s n o i t a g i l b o t i f e n e b t n e m e r i t e R t n e m p u q e i d n a t n a p l , y t r e p o r P s t e s s a t n e r r u c - n o N S T E S S A l l i w d o o g r e h t o - - s t e s s a s t e s s a i l e b g n a t n I l i e b g n a t n I l s e b a v e c e r i s t e s s a t n e r r u C s e i r o t n e v n I r e h t o d n a e d a r T s t e s s a x a t d e r r e f e D l s t n e a v u q e i h s a c d n a h s a C s t e s s a l a t o T I Y T U Q E s t e s s a l i a c n a n F i S R F I o t P A A G h s i r I m o r f n o i t a i l i c n o c e r - 5 0 0 2 h c r a M 1 3 t a s a t e e h s e c n a l a b p u o r G ) 4 ( d e u n i t n o c - S R F I o t P A A G h s i r I m o r f s n o i t a i l i c n o c e R . 7 4 110 notes to the financial statements - 1 2 6 , 8 1 2 6 4 4 , 1 3 1 3 7 6 , 6 1 0 0 , 2 4 1 4 7 , 8 9 3 4 8 8 , 0 1 1 2 3 6 , 6 1 3 6 6 4 , 3 2 3 2 8 9 , 0 5 7 3 2 7 , 9 4 1 , 1 2 2 1 ) 2 2 1 ( - - - - 9 4 5 0 0 4 , 1 5 3 0 , 2 2 8 3 4 , 4 2 1 1 8 0 , 4 3 1 3 , 0 1 3 6 1 8 , 2 6 4 1 6 3 , 2 9 9 7 , 6 2 1 1 , 1 4 6 1 , 7 1 1 5 3 , 7 1 1 ) 2 6 4 , 3 ( ) 2 6 4 , 3 ( 5 1 5 , 1 0 0 0 ’ € S R F I r e d n u r e h t o 0 0 0 ’ € d n a d e t a t s e R s n o i t a c i f i s s a c e R l - - - 0 0 0 ’ € d n e d v D i i i t n o J 0 0 0 ’ € s e r u t n e v 9 6 3 , 6 8 5 7 , 1 ) 7 5 6 , 1 1 ( ) 0 3 5 , 3 ( 7 0 3 2 1 3 , 1 0 5 8 , 2 9 6 4 , 4 9 3 9 6 4 1 , 2 6 4 1 , 2 ) 8 3 5 , 0 1 ( ) 2 9 3 , 8 ( ) 8 3 5 , 0 1 ( - - - 9 4 5 4 2 8 , 6 1 - ) 9 3 2 , 4 2 ( 0 9 4 8 1 , 3 ) 7 1 3 , 1 ( 4 6 1 , 7 1 4 2 8 , 6 1 ) 9 3 2 , 4 2 ( ) 9 4 5 ( 7 8 7 , 4 4 1 5 1 5 , 1 - 4 7 2 , 3 7 4 8 , 5 1 7 4 7 , 3 4 1 1 4 5 , 6 5 3 9 4 1 , 6 3 - 5 0 0 , 1 8 7 6 , 4 8 6 3 , 2 6 0 2 1 , 2 4 5 7 0 9 , 6 8 6 3 2 7 , 9 4 1 , 1 2 4 9 5 0 0 , 1 7 4 9 , 1 2 6 4 , 3 - - - - ) 4 2 8 , 6 1 ( ) 4 2 8 , 6 1 ( ) 4 2 8 , 6 1 ( 2 7 5 1 ) 2 2 4 , 2 ( 9 3 9 9 3 9 ) 9 4 3 ( ) 5 3 3 , 2 ( - - ) 2 9 3 , 8 ( 7 4 8 , 5 1 - - - - - - - 2 5 2 , 2 1 2 6 6 5 , 9 2 1 7 2 5 , 4 0 8 7 , 3 5 5 2 1 , 0 0 4 7 7 5 , 0 1 1 8 5 8 , 5 2 3 6 1 6 , 0 2 3 1 5 0 , 7 5 7 6 7 1 , 7 5 1 , 1 - - 0 0 4 , 1 5 3 0 , 2 2 8 3 4 , 4 2 1 1 8 0 , 4 9 3 7 , 1 2 3 3 9 6 , 3 7 4 - 3 7 0 , 2 9 9 7 , 6 2 1 1 , 1 7 6 1 , 4 1 1 1 5 1 , 4 2 1 2 3 7 , 3 4 1 1 2 0 , 8 5 3 7 7 0 , 6 3 - 8 7 6 , 4 4 2 8 , 6 1 2 3 3 , 9 5 5 3 8 4 , 3 8 6 7 1 7 , 2 6 6 7 1 , 7 5 1 , 1 l s r e d o h y t i u q e o t l e b a t u b i r t t a s e v r e s e r d n a l a t i p a C e v r e s e r l n o i t a s n a r t y c n e r r u c i n g e r o F s n o i t p o e r a h s - s e v r e s e r t n u o c c a m u m e r p i s e v r e s e r l a t i p a c e r a h S e r a h S r e h t O r e h t O i s g n n r a e i d e n a t e R s t s e r e t n i y t i r o n M i y t i u q e l a t o T i s g n w o r r o b d n a s n a o l g n i r a e b - t s e r e t n I s e i t i l i b a i l t n e r r u c - n o N I S E T I L I B A I L l s t n e a v u q e i h s a c d n a h s a C s t e s s a l a t o T I Y T U Q E l s e b a v e c e r i s t e s s a t n e r r u C s e i r o t n e v n I r e h t o d n a e d a r T s t e s s a x a t d e r r e f e D t n e m p u q e i d n a t n a p l , y t r e p o r P s t e s s a t n e r r u c - n o N S T E S S A l l i w d o o g r e h t o - - s t e s s a s t e s s a l i e b g n a t n I l i e b g n a t n I s t e s s a l i a c n a n F i i s g n w o r r o b d n a s n a o l g n i r a e b - t s e r e t n I l s e b a y a p r e h t o d n a e d a r T s e i t i l i b a i l t n e r r u C n o i t a r e d s n o c i n o i t i s u q c a i d e r r e f e D s t n a r g l a t i p a C s e i t i l i b a i l x a t e m o c n i d e r r e f e D s e i t i l i b a i l x a t e m o c n i t n e r r u C s e g r a h c d n a s e i t i l i b a i l r o f i s n o s v o r P i n o i t a r e d s n o c i n o i t i s u q c a i d e r r e f e D d n e d v d i i d e s o p o r P s e i t i l i b a i l d n a y t i u q e s e i t i l i b a i l l a t o T l a t o T h s a c t e N s n o i t a g i l b o t i f e n e b t n e m e r i t e R 0 0 0 ’ € s t i f e n e b 9 1 S A I e e y o p m E l 2 S R F I d e s a b e r a h S s u o i v e r P 0 0 0 ’ € t n e m y a p 0 0 0 ’ € P A A G h s i r I S R F I o t P A A G h s i r I m o r f n o i t a i l i c n o c e R - 4 0 0 2 l i r p A 1 t a s a t e e h S e c n a l a B p u o r G ) 5 ( d e u n i t n o c - S R F I o t P A A G h s i r I m o r f s n o i t a i l i c n o c e R . 7 4 notes to the financial statements 111 47. Reconciliations from Irish GAAP to IFRS - continued (6) Company balance sheet as at 31 March 2005 - reconciliation from Irish GAAP to IFRS Fixed assets Financial assets - associated undertakings - subsidiary undertakings Current assets Debtors Cash and term deposits Creditors: Amounts falling due within one year Trade and other creditors Proposed dividend Effect of transition to to IFRS 2005 €’000 Irish GAAP 2005 €’000 1,300 145,814 147,114 277,799 248 278,047 226,615 19,070 245,685 - - - - - - - (19,070) (19,070) IFRS 2005 €’000 1,300 145,814 147,114 277,799 248 278,047 226,615 - 226,615 Net current assets 32,362 19,070 51,432 Total assets less current liabilities 179,476 19,070 198,546 Financed by: Creditors: Amounts falling due after more than one year Amounts owed to subsidiary undertakings Deferred acquisition consideration Provisions for liabilities and charges Capital and reserves Called up equity share capital Share premium account Other reserves Profit and loss Equity shareholders' funds 10,387 139 10,526 972 11,498 22,042 124,506 344 21,086 167,978 - - - (972) (972) - - - 20,042 20,042 10,387 139 10,526 - 10,526 22,042 124,506 344 41,128 188,020 179,476 19,070 198,546 The only changes to the Company Balance Sheet relate to the exclusion of the closing dividend liability and the write off of a deferred tax liability. 112 notes to the financial statements 47. Reconciliations from Irish GAAP to IFRS - continued (7) Company balance sheet as at 1 April 2004 - reconciliation from Irish GAAP to IFRS Fixed assets Tangible fixed assets Financial assets - associated undertakings - subsidiary undertakings Current assets Debtors Cash and term deposits Creditors: Amounts falling due within one year Trade and other creditors Proposed dividend Effect of transition to to IFRS 1 April 2004 €’000 Irish GAAP 1 April 2004 €’000 IFRS 1 April 2004 €’000 983 1,300 145,814 148,097 291,088 367 291,455 15,669 16,824 32,493 - - - - - - - - (16,824) (16,824) 983 1,300 145,814 148,097 291,088 367 291,455 15,669 - 15,669 Net current assets 258,962 16,824 275,786 Total assets less current liabilities 407,059 16,824 423,883 Financed by: Creditors: Amounts falling due after more than one year Amounts owed to subsidiary undertakings Deferred acquisition consideration Provisions for liabilities and charges Capital and reserves Called up equity share capital Share premium account Other reserves Profit and loss Equity shareholders' funds 187,711 2,016 189,727 827 190,554 22,035 124,438 344 69,688 216,505 - - - (827) (827) - - - 17,651 17,651 187,711 2,016 189,727 - 189,727 22,035 124,438 344 87,339 234,156 407,059 16,824 423,883 The only changes to the Company Balance Sheet relate to the exclusion of the closing dividend liability and the write off of a deferred tax liability. 48. Approval of financial statements The financial statements were approved by the Board of Directors on 12 May 2006. group directory 113 Principal subsidiaries (all 100% owned except for those detailed in note 22 on page 87) > DCC Energy Company name & address Principal activity Contact details DCC Energy Limited DCC House, Stillorgan, Blackrock, Co. Dublin, Ireland DCC Energy Limited Airport Road West, Sydenham, Belfast BT3 9ED, Northern Ireland Emo Oil Limited Clonminam Industrial Estate, Portlaoise, Co. Laois, Ireland Emo Oil Limited Tryst House, Glenbervie Business Park, Larbert, Stirlingshire FK5 4RB, Scotland Flogas UK Limited 81 Raynsway, Syston, Leicester LE7 1PF, England Flogas Ireland Limited Dublin Road, Drogheda, Co. Louth, Ireland Fuel Card Group Limited 8 Kerry Hill, Horsforth, Leeds LS18 4AY, England Scottish Fuels Tryst House, Glenbervie Business Park, Larbert, Stirlingshire FK5 4RB, Scotland Holding and divisional management company Sales, marketing and distribution of petroleum products Sales, marketing and distribution of petroleum products Sales, marketing and distribution of petroleum products Sales, marketing and distribution of liquefied petroleum gas Sales, marketing and distribution of liquefied petroleum gas Sale of motor fuels through fuel cards Sales, marketing and distribution of petroleum products Tel: + 353 1 2799 400 Fax: + 353 1 2831 017 Email: energy@dcc.ie www.dcc.ie Tel: + 44 28 9073 2611 Fax: + 44 28 9073 2020 Email: enquiries@emooil.com www.emooil.com Tel: + 353 5786 747 00 Fax: + 353 5786 747 75 Email: info@emo.ie www.emo.ie Tel: + 44 1324 408 000 Fax: + 44 1324 408 260 Email: info@emooil.co.uk www.emooil.co.uk Tel: + 44 116 2649 000 Fax: + 44 116 2649 001 Email: enquiries@flogas.co.uk www.flogas.co.uk Tel: + 353 41 9831 041 Fax: + 353 41 9834 652 Email: info@flogas.ie www.flogas.ie Tel: + 44 1132 390 490 Fax: + 44 1132 098 764 Email: info@fuelcard-group.com www.fuelcard-group.com Tel: + 44 8453 008 844 Fax: + 44 1324 408 260 Email: info@scottishfuels.co.uk www.scottishfuels.co.uk 114 group directory > DCC SerCom Company name & address Principal activity Contact details SerCom Distribution Limited DCC House, Stillorgan, Blackrock, Co. Dublin, Ireland Distrilogie SA 12 rue des Frères Caudron, 78147 Vélizy Cedex, France Gem Distribution Limited St. George House, Parkway, Harlow Business Park, Harlow, Essex CM19 5QF, England Micro Peripherals Limited Shorten Brook Way, Altham Business Park, Altham, Accrington, Lancashire BB5 5YJ, England Pilton Company Limited Unit 2, Loughlinstown Industrial Estate, Ballybrack, Co. Dublin, Ireland SerCom Solutions Limited M50 Business Park, Ballymount Road Upper, Dublin 12, Ireland Sharptext Limited M50 Business Park, Ballymount Road Upper, Dublin 12, Ireland > DCC Healthcare Holding and divisional management company Distribution of enterprise infrastructure products Sales, marketing and distribution of computer software Sales, marketing and distribution of computer products Tel: + 353 1 2799 400 Fax: + 353 1 2831 017 Email: sercom@dcc.ie www.sercomdistribution.com Tel: + 33 1 34 58 47 00 Fax: + 33 1 34 58 47 27 Email: info@distrilogie.com www.distrilogie.com Tel: + 44 1279 822 800 Fax: + 44 1279 416 228 Email: info@gem.co.uk www.gem.co.uk Tel: + 44 1282 776 776 Fax: + 44 1282 770 001 Email: enquiries@micro-p.com www.micro-p.com Sales, marketing and distribution of DVDs and computer games and accessories Tel: + 353 1 2826 444 Fax: + 353 1 2826 532 Provision of supply chain services Sales, marketing and distribution of computer products Tel + 353 1 4056 500 Fax: + 353 1 4056 555 Email:kevin.vaughan@sercomsolutions.com www.sercomsolutions.com Tel: + 353 1 4087 171 Fax: + 353 1 4193 111 Email: sharptext@sharptext.com www.sharptext.com Company name & address Principal activity Contact details DCC Healthcare Limited DCC House, Stillorgan, Blackrock, Co. Dublin, Ireland Days Healthcare GmbH Oberbecksener Str. 68, D-32547 Bad Oeynhausen, Germany Holding and divisional management company Manufacture, sales, marketing and distribution of mobility & rehabilitation products Tel: + 353 1 2799 400 Fax: + 353 1 2831 017 Email: healthcare@dcc.ie www.dcc.ie Tel: + 49 5731 786 50 Fax: + 49 5731 786 520 Email: info@dayshealthcare.de www.dayshealthcare.de Days Healthcare UK Limited Manufacture, sales, marketing and distribution of North Road, Bridgend Industrial Estate, Bridgend CF31 3TP, Wales mobility & rehabilitation products Tel: + 44 1656 664 700 Fax: + 44 1656 664 750 Email: info@dayshealthcare.com www.dayshealthcare.com EuroCaps Limited Crown Business Park, Dukes Town, Tredegar, Gwent NP22 4EF, Wales Contract manufacture of soft gel capsule nutraceuticals Tel: + 44 1495 308 900 Fax: + 44 1495 308 990 Email: info@softgels.co.uk www.softgels.co.uk group directory 115 > DCC Healthcare - continued Company name & address Principal activity Contact details Fannin Healthcare Limited Blackthorn Road, Sandyford Industrial Estate, Dublin 18, Ireland Sales, marketing and distribution of medical and laboratory equipment and consumables Tel: + 353 1 2944 500 Fax: + 353 1 2954 777 Email: information@fanninhealthcare.com www.fanninhealthcare.com Laleham Healthcare Limited Contract manufacture and packing of Sycamore Park, Mill Lane, Alton, Hampshire GU34 2PR, England nutraceuticals and cosmetics (liquids and creams) Tel: + 44 1420 566 500 Fax: + 44 1420 566 566 Email: reception@laleham-healthcare.com www.laleham-healthcare.com Physio-Med Services Limited Marketing and distribution of rehabilitation 7-23 Glossop Brook Business Park, Surrey Street, Glossop, Derbyshire SK13 7AJ, England equipment and consumables TechnoPharm Limited Pharmapark, Chapelizod, Dublin 20, Ireland Sales, marketing and distribution of pharmaceutical products and medical devices Thompson & Capper Limited Contract manufacture and packing of tablet and 9-12 Hardwick Road, Astmoor Industrial Estate, Runcorn, Cheshire WA7 1PH, England hard gel capsule nutraceuticals Tel: + 44 1457 860 444 Fax: + 44 1457 860 555 Email: sales@physio-med.com www.physiomedhomecare.co.uk Tel: + 353 1 626 5006 Fax: + 353 1 626 5071 Email: information@technopharm.com www.technopharm.com Tel: + 44 1928 573 734 Fax: + 44 1928 580 694 Email: enquiries@tablets2buy.com www.tablets2buy.com Virtus Limited Adamstown, Lucan, Co. Dublin, Ireland Manufacture and distribution of pneumatic healthcare appliances Tel: + 353 1 628 0571 Fax: + 353 1 628 0572 Email: info@virtus.ie > DCC Food & Beverage Company name & address Principal activity Contact details DCC Food & Beverage Limited Holding and divisional management company 79 Broomhill Road, Tallaght, Dublin 24, Ireland Tel: + 353 1 4047 300 Fax: + 353 1 4599 369 Email: foods@dcc.ie www.dcc.ie Allied Foods Limited Kinsale Road, Cork, Ireland Bottle Green Limited 19 New Street, Horsforth, Leeds LS18 4BH, England Chilled and frozen food distribution Sales, marketing and distribution of wine Broderick Bros. Limited Cloverhill Industrial Estate, Clondalkin, Dublin 22, Ireland Manufacture, distribution and service of food equipment Kelkin Limited Unit 1, Crosslands Industrial Park, Ballymount Cross, Dublin 12, Ireland Sales, marketing and distribution of branded healthy food and beverages Robt. Roberts Limited 79 Broomhill Road, Tallaght, Dublin 24, Ireland Sales, marketing and distribution of food and beverages Tel: + 353 21 4947 300 Fax: + 353 21 4961 488 Email: info@alliedfoods.ie Tel: + 44 113 2054 500 Fax: + 44 113 2054 501 Email: info@bottlegreen.com www.bottlegreen.com Tel: + 353 1 4291 500 Fax: + 353 1 4509 570 Email: info@broderickbros.ie Tel: + 353 1 4600 400 Fax: + 353 1 4600 411 Email: info@kelkin.ie www.kelkin.ie Tel: + 353 1 4047 300 Fax: + 353 1 4599 369 Email: info@robt-roberts.ie www.robt-roberts.ie 116 group directory > DCC Environmental Company name & address Principal activity Contact details DCC Environmental Limited DCC House, Stillorgan, Blackrock, Co. Dublin, Ireland Atlas Environmental Ireland Limited Clonminam Industrial Estate, Portlaoise, Co. Laois, Ireland Holding and divisional management company Specialist waste treatment/management services Tel: + 353 1 2799 400 Fax: + 353 1 2831 017 Email: environmental@dcc.ie www.dcc.ie Tel: + 353 5786 786 00 Fax: + 353 5786 786 99 Email: info@atlasireland.ie www.atlasireland.ie > Company name & address Principal activity % held Principal Joint Ventures KP (Ireland) Limited 79 Broomhill Road,Tallaght, Dublin 24, Ireland Kylemore Foods Holdings Limited DCC House, Stillorgan, Blackrock, Co. Dublin, Ireland William Tracey Limited* 49 Burnbrae Road, Linwood, Paisley, Renfrewshire PA3 3BD, Scotland *acquired since the year end Principal associates Manor Park Homebuilders Limited The Gables, Torquay Road, Foxrock, Dublin 18, Ireland Manufacture of snack foods Holding company for the Kylemore group of companies whose principal activities are the operation of restaurants, contract catering and par bake bread manufacture 50% 50% Recycling and waste management company 50% Residential homebuilding and property development 49% 117 shareholder information Share price data Share price movement during the year - High - Low Share price at 31 March Market capitalisation at 31 March Share price at 12 May Market capitalisation at 12 May Shareholder analysis at 12 May 2006 2005 € 18.50 12.10 17.94 1,442m 2006 € 19.65 14.92 19.20 1,550m 19.40 1,566m Range of shares held Number of shares* % of shares Number of accounts % of accounts Over 250,000 100,001 – 250,000 10,001 – 100,000 Up to 10,000 Total 63,939,073 6,802,100 6,527,247 3,450,806 80,719,226 79.2 8.4 8.1 4.3 100.0 45 41 188 2,579 2,853 1.6 1.4 6.6 90.4 100.0 *Excludes 7,510,178 shares held as Treasury Shares. Share listings DCC’s shares are traded on the Irish Stock Exchange and the London Stock Exchange. DCC’s shares are quoted on the official lists of both the Irish Stock Exchange and the UK Listing Authority. ISIN: IE0002424939 ISE Xetra: DCC plc Bloomberg: DCC ID, DCC LN Reuters: DCC.I, DCC.L Website - www.dcc.ie DCC’s website provides comprehensive corporate and financial information to the investment community and other interested parties. It incorporates a variety of useful features which enable users to access, analyse and download current and archived financial data and annual reports, register for news and other announcements and view audio and slideshow investor presentations. Registrar All administrative queries about the holding of DCC shares should be addressed to the Company’s Registrar: Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland. Tel: + 353 1 216 3100 Fax: + 353 1 216 3151 Email: web.queries@computershare.ie Amalgamation of accounts Shareholders who receive duplicate sets of Company mailings owing to multiple accounts in their names may write to the Company’s Registrar to have their accounts amalgamated. Dividends Shareholders are offered the option of having dividends paid in euro or pounds sterling. Shareholders may also elect to receive dividend payments by electronic funds transfer directly into their bank accounts, rather than by cheque. Shareholders should contact the Company’s Registrar for details. Dividend withholding tax (DWT) The Company is obliged to deduct tax at the standard rate of income tax in Ireland (currently 20%) from dividends paid to its shareholders, unless a particular shareholder is entitled to an exemption from DWT and has completed and returned to the Company’s Registrar a declaration form claiming entitlement to the particular exemption. Exemption from DWT may be available to shareholders resident in another EU Member State or in a country with which the Republic of Ireland has a double taxation agreement in place and to non-individual shareholders resident in Ireland (e.g. companies, pension funds and charities). An explanatory leaflet entitled “Dividend Withholding Tax – General Information Leaflet” has been published by the Irish Revenue Commissioners and can be obtained by contacting the Company’s Registrar at the above address. This leaflet can also be downloaded from the Irish Revenue Commissioners website at http://www.revenue.ie/leaflets/dwtinfv3.pdf Declaration forms for claiming an exemption are available from the Company’s Registrar. CREST DCC is a member of the CREST share settlement system. Shareholders may continue to hold paper share certificates or hold their shares in electronic form. Shareholders should consult their stockbroker if they wish to hold shares in electronic form. Financial calendar • Preliminary results announced 15 May 2006 • Ex-dividend date for the final dividend 24 May 2006 • Record date for the final dividend 26 May 2006 • Annual Report posted 7 June 2006 • Annual General Meeting 10 July 2006 • Proposed payment date for final dividend 14 July 2006 • Interim results announced early November 2006 • Payment date for the interim dividend early December 2006 Annual General Meeting The 2006 Annual General Meeting will be held at The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland on Monday 10 July 2006 at 11.00 a.m. The Notice of Meeting together with an explanatory letter from the Chairman and a Form of Proxy accompany this Report. Electronic proxy voting and CREST voting Shareholders may lodge a Form of Proxy for the 2006 Annual General Meeting via the internet. Shareholders who wish to submit their proxy in this manner may do so by accessing the Company’s Registrar’s website at www.computershare.com/ie/voting/dcc and following the instructions which are set out on the Form of Proxy. CREST members who wish to appoint a proxy or proxies via the CREST electronic proxy appointment service should refer to footnote 4 of the Notice of Annual General Meeting for instructions on how to do so. Investor relations For investor enquiries please contact: Conor Murphy, Investor Relations Manager, DCC plc, DCC House, Brewery Road, Stillorgan, Blackrock, Co Dublin, Ireland. Tel: + 353 1 2799 400 Fax: + 353 1 2799 422 Email: investorrelations@dcc.ie 118 corporate information Auditors Bankers Registered and Head Office PricewaterhouseCoopers Chartered Accountants & Registered Auditors George’s Quay Dublin 2 Ireland Registrar Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Ireland ABN AMRO Bank Allied Irish Banks Bank of Ireland BNP Paribas Deutsche Bank IIB Bank KBC Bank Royal Bank of Scotland Ulster Bank Solicitors William Fry Fitzwilton House Wilton Place Dublin 2 Ireland DCC House Stillorgan Blackrock Co. Dublin Ireland Stockbrokers Davy 49 Dawson Street Dublin 2 Ireland JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA England index Accounting Policies Acquisitions and Development Amalgamation of Accounts Annual General Meeting Approval of Financial Statements Associates Audit Committee Auditors' Report Board Renewal Board Committees Borrowings Business Combinations Capital Commitments Capital Grants Cash and Cash Equivalents Cash Generated from Operations Chairman's Statement Chief Executive's Review Combined Code Commodity Price Risk Management Company Balance Sheet Company Cash Flow Statement Company Statement of Changes in Equity Contingencies Corporate Governance Corporate Information Corporate & Social Responsibility Credit Risk Management CREST Critical Accounting Estimates and Judgements Current Tax Deferred Acquisition Consideration Deferred Income Tax Depreciation Derivative Financial Instruments Directors' and Company Secretary's Interests Directors of the Company Directors' Remuneration Directors' Report Directors' Share Options Dividend Cover Dividend Withholding Tax Dividends Earnings Per Share Employment Environment, Health and Safety Events Since the Year End Exceptional Items page 58 10 117 117 112 86 38 49 11 38 91 101 100 97 89 100 10 12 38 32 55 57 56 100 38 118 33 32 117 68 81 96 81, 93 84 90 47 6 44 42 46 29 117 82, 117 83 75 33 42 79 119 Finance Costs and Finance Revenue Finance Leases Financial Calendar Financial Review Financial Risk Management Five Year Review Foreign Currency Foreign Exchange Risk Management page 80 101 117 28 31, 66 Inside Back Cover 80 32 41 Going Concern 2 Group at a Glance 53 Group Balance Sheet 54 Group Cash Flow Statement 113 Group Directory 51 Group Income Statement Group Statement of Changes in Equity 52 Group Statement of Recognised Income and Expense 52 Health and Safety Income Tax Intangible Assets Interest Rate Risk and Debt/Liquidity Management Internal Control International Financial Reporting Standards (IFRS) Inventories Investor Relations Joint Ventures Minority Interest Movement in Working Capital Net Debt Nomination Committee Notes to the Financial Statements Operating Costs Operating Leases Operating Reviews DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Associates Other Reserves Payables, Trade and Other Pensions - Directors Performance Evaluation Principal Risks and Uncertainties Property, Plant and Equipment Provisions for Liabilities and Charges 33 81 85 32 40 30 87 117 74 99 88 92 39 58 73 101 16 16 18 20 22 24 25 98 88 44 40 42 84 97 120 index Receivables, Trade and Other Reconciliations from Irish GAAP to IFRS Registrar Related Party Transactions Remuneration Committee Report Retained Earnings Retirement Benefit Obligations Return on Capital Employed (ROCE) Segment Information Senior Management Share Capital Share Listings Share Options Share Premium Share Price Data Shareholder Information Statement of Directors' Responsibilities Subsidiaries Substantial Shareholdings Treasury Shares Website page 87 104 117 103 44 99 94 29 68 8 97 117 75 98 117 117 48 87 43 42 117 5 year review Group income statement Year ended 31 March Irish GAAP IFRS 2002 €’m 2003 €’m 2004 €’m 2005 €’m 2006 €’m Revenue 1,901.4 2,125.4 2,089.4 2,644.7 3,436.3 Operating profit before operating exceptional items and amortisation of intangible assets Operating exceptional items Amortisation of intangible assets Operating profit Finance costs (net) Share of associates' profit after tax Non-operating exceptional items Profit before tax Income tax expense Minority interests Profit attributable to Group shareholders Earnings per share - basic (cent) - basic adjusted (cent) Dividend per share Dividend cover (times) Interest cover (times) Group balance sheet As at 31 March Non-current and current assets Property, plant and equipment Intangible assets Investments in associates Cash/derivatives Other assets Total assets Equity Non-current and current liabilities Borrowings/derivatives Retirement benefit obligations Other liabilities Total liabilities Total equity and liabilities 98.8 (2.9) (7.3) 88.6 (3.9) 10.1 (1.7) 93.1 (11.0) (1.3) 80.8 103.4 (2.3) (8.3) 92.8 (3.8) 14.0 (5.9) 97.1 (12.0) (0.8) 84.3 111.8 (16.0) (1.2) 94.6 (5.7) 16.8 (4.8) 100.9 (12.1) (1.0) 87.8 123.6 2.8 (4.9) 121.5 (7.0) 25.5 (1.2) 138.8 (13.5) (1.5) 123.8 96.66 111.00 101.98 121.89 109.68 137.22 153.92 157.23 28.18 32.40 37.26 42.85 91.5 - (5.7) 85.8 (3.2) 7.1 (1.1) 88.6 (11.4) (0.9) 76.3 90.26 98.30 24.50 4.0 28.6 3.9 25.3 3.8 27.2 Irish GAAP 2002 €’m 159.2 118.3 39.0 304.7 447.1 1,068.3 2003 €’m 209.4 132.1 40.3 354.0 424.7 1,160.5 2004 €’m 218.6 131.4 42.0 323.5 434.2 1,149.7 3.7 19.6 IFRS 2005 €’m 254.8 208.1 51.4 353.3 541.1 1,408.7 3.7 17.6 2006 €’m 267.5 248.5 76.8 354.4 665.4 1,612.6 395.4 432.9 462.8 492.2 585.4 241.6 - 431.3 672.9 1,068.3 333.9 - 393.7 727.6 1,160.5 261.1 17.2 408.6 686.9 1,149.7 362.2 25.4 528.9 916.5 1,408.7 387.1 20.7 619.4 1,027.2 1,612.6 Net cash/(debt) included above 63.1 20.1 62.4 (8.9) (32.7) Group cash flow Year ended 31 March Operating cash flow Capital expenditure Acquisitions Irish GAAP IFRS 2002 €’m 120.3 37.9 59.6 2003 €’m 98.5 39.2 88.2 2004 €’m 151.9 32.1 14.5 2005 €’m 116.4 43.6 81.2 Other information Irish GAAP IFRS Return on tangible capital employed (%) Return on total capital employed (%) 2002 2003 46.3% 23.1% 42.2% 22.0% 2004 39.8% 21.3% 2005 44.9% 20.4% Working capital (days) 11.5 15.4 11.6 10.2 Average number of employees 3,361 3,685 3,768 4,746 2006 €’m 142.9 57.7 54.7 2006 43.0% 19.1% 9.5 5,109 DCC plc DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland. Tel: + 353 1 279 9400 Fax: + 353 1 283 1017 Email: info@dcc.ie www.dcc.ie e i . g o d d e r . w w w : n g i s e D Printed on Fedrigoni recycled papers with the following accreditations: 

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