� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � ������������������������������� DCC - ANNUAL REPORT AND ACCOUNTS 2007 Contents Highlights DCC Group at a Glance Board of Directors Senior Management Chairman’s Statement Chief Executive’s Review Business Reviews Financial Review Corporate Social Responsibility Corporate Governance Report of the Directors 42 Report on Directors’ Remuneration and Interests 44 Statement of Directors’ Responsibilities Report of the Independent Auditors Financial Statements Group Directory Shareholder Information Corporate Information Index 48 49 51 105 109 110 111 1 2 4 6 8 10 12 32 36 38 DCC is a procurement, sales, marketing, distribution and business support services group headquartered in Dublin, with international operations across four continents. DCC has five divisions - DCC Energy, DCC SerCom, DCC Healthcare, DCC Food & Beverage and DCC Environmental. DCC engages in procurement, sales, marketing and distribution of DCC own branded and third party branded products in DCC Energy, DCC SerCom, DCC Healthcare and DCC Food & Beverage. DCC also provides business support services in DCC Environmental, in DCC SerCom (outsourced procurement and supply chain management services), in DCC Healthcare (outsourced solutions to the health and beauty sector) and in DCC Food & Beverage (chilled and frozen logistics). The Group currently employs approximately 6,000 people in 16 countries and is listed on both the Irish and London stock exchanges under Business Support Services. Highlights for the year ended 31 March 2007 Revenue €4,046.1 million +17.7% DCC - ANNUAL REPORT AND ACCOUNTS 2007 1 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Operating profit* €143.0 million +15.7% �� �� �� �� �� �� �� �� �� �� ���������������������������������� �� �� �� �� �� �� �� �� �� ������������������� ����������������� ������������������ �� Adjusted earnings per share excluding Manor Park* 143.51 cent +15.8% Dividend per share 49.28 cent +15.0% ���������������������� ���������������� * excluding net exceptionals and amortisation of intangible assets �������� ������������� ������������������� ����� ����� ���� DCC’s strategy for continuing growth is through: • a continued focus on its two broad business activities - procurement, sales, marketing and distribution - business support services • constant attention to the creation of shareholder value through: - Maximising organic growth - Complementary bolt-on acquisitions - Focusing on return on capital employed - Focusing on cash generation 2 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC group at a glance DCC Energy DCC SerCom DCC Healthcare Description DCC Energy is the leading oil and liquefied petroleum gas (LPG) procurement, sales, marketing and distribution business in Britain and Ireland. The LPG business supplies propane and butane in both bulk and cylinders for heating, cooking, transport and industrial processes. The oil business procures and sells heating oils, transport fuels and fuel oils to domestic, commercial, agricultural and industrial customers. Description DCC SerCom comprises two businesses, SerCom Distribution and SerCom Solutions. SerCom Distribution procures, markets and sells a broad range of IT and consumer electronics products to value added resellers, computer dealers and retailers in western Europe. SerCom Solutions is a leading supplier of outsourced procurement and supply chain management services to leading manufacturers of IT equipment in Ireland, Poland, the United States and China. Description DCC Healthcare is a leading European and international healthcare business with operations encompassing: • Procurement, sales and marketing of healthcare products and provision of related services into the acute care and community care sectors; • Provision of outsourced solutions to health and beauty companies. Strong brands (*DCC owned) Carlton Fuels*, Emo Oil*, Ergas*, Flogas*, Fuel Services*, Scottish Fuels*, Shell Market position • Strong number 2 in LPG distribution in Britain and Ireland • Largest independent oil distributor in Britain • A leading player in oil distribution in Ireland Strong brands (*DCC owned) SerCom Distribution 20th Century Fox, Acer, Canon, Cisco Systems, Disney, Entertainment in Video, Epson, Exspect*, Fujitsu Siemens, HP, IBM, Linx*, Logitech, Microsoft, Netgear, Oracle, Samsung Electronics, Sony, Sun Microsystems, Symantec, TakeTwo, Vmware, Xbox 360 SerCom Solutions Apple, Canon, Microsoft, Nortel, Thomson Telecom Market position SerCom Distribution A leading player in each of its markets - UK, Ireland, France, Iberia and Benelux SerCom Solutions A leading provider of outsourced procurement and supply chain management services. Growth strategy • Organic growth in both Britain and Ireland • Supplemented by acquisitions in both oil and LPG • Particular focus on a consolidation strategy in the highly fragmented British oil market Growth strategy SerCom Distribution Organic growth driven by broadening product and vendor portfolios with focus on retail and consumer markets SerCom Solutions Further development of procurement and sourcing services and geographical expansion Strong brands (*DCC owned) Days Healthcare*, Diagnostica Stago, DiaMed, Fannin*, Fresenius Kabi, Grifols, Metron*, Molnlycke, Oxoid, Physio-Med*, Smiths, Strider*, Theraband Market position • Number 1 in sales and marketing of intravenous pharmaceuticals, medical, surgical and laboratory products in Ireland • A leader in sales and marketing of rehabilitation products in Britain • Number 1 in sales and marketing of physiotherapy products in Britain, Australia and New Zealand • A leading European provider of outsourced solutions to health & beauty companies Growth strategy • Build a substantial international business providing healthcare products and related services in its preferred sectors • Become a leading European outsourced solution provider to the health and beauty industry • Strong organic growth of existing businesses • Further development of product portfolio under own brands • Supplemented by acquisitions, principally in Britain Growth record Growth record � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � and Ireland Growth record � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� � � � � � � � � � � � � � � � � � � � �� �� �� � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � ��������������������� ��������������������� ��������������������� ����������������� ����������������� ����������������� DCC - ANNUAL REPORT AND ACCOUNTS 2007 3 DCC Food & Beverage DCC Environmental % of Group operating profit ����������� ����������� ��������������� ��� ��� ��� �������������������� ��� ������������������ �� Description DCC Food & Beverage markets and sells food and beverages in Ireland and wines in Britain. In Ireland, DCC Food & Beverage is leader in a number of niche market segments, principally in health, indulgence and frozen & chilled logistics. The business offers extensive customer service to multiples, symbol and independent retailers, pharmacies, off licences, hotels, restaurants and cafes. Strong brands (*DCC owned) Alpro, Bollinger, Dr Oetker, French Connection*, Hula Hoops, Jordans, Kelkin*, KP, Kylemore, Lemons*, McCoys, McVities / Mars Cakes, Phileas Fogg, Robinsons, Robert Roberts*, Torres, Vitabiotics Description DCC Environmental provides a broad range of recycling and waste management services to the industrial/commercial sectors and local authorities in both Britain and Ireland. Through its subsidiary Wastecycle and its 50% shareholding in William Tracey, DCC Environmental has built a significant position in the British recycling and waste management industry. Enva is the leading hazardous waste treatment business in Ireland. Strong brands (*DCC owned) Enva*, Wastecycle*, William Tracey Market position • Market leading positions in healthy foods and Market position • The leading recycling and waste management savoury snacks in Ireland business in Scotland • Number 2 in freshly ground coffee in Ireland • A leading recycling and waste management • A leading player in frozen and chilled food company in Nottingham distribution in Ireland • Number 1 hazardous waste treatment business in Ireland Growth strategy • Organic growth through expansion of portfolio of branded healthy and indulgent foods and beverages • Supplemented by acquisitions of healthy foods, beverage and wine businesses in Britain and Ireland Growth strategy • Organic growth opportunities arising from increased enforcement of environmental legislation and increased recycling driven by rising landfill costs • Supplemented by acquisitions in Britain and Ireland � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Growth record � � � � � � � � � �� �� �� � � � � � � � � � � � � � � � � � � �� �� �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Growth record � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ������������������ ������������������ ������������������ �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��������������������� ��������������������� ��������������������� ����������������� ����������������� ����������������� 4 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Board of Directors Alex Spain Chairman Alex Spain, B Comm, FCA (aged 74), 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. Jim Flavin Chief Executive/ Deputy Chairman Jim Flavin, B Comm, DPA, FCA (aged 64), founded DCC in 1976 and is Chief Executive and Deputy Chairman. Prior to founding DCC, he was head of Allied Irish Banks’ venture capital unit. From 1999 to 2001 Mr. Flavin was Deputy Chairman and Senior Independent Director of eircom plc. He is a member of the International Development Board of the Royal College of Surgeons in Ireland. Tony Barry Non-executive Director Tommy Breen Executive Director Róisín Brennan Non-executive Director Tony Barry, Chartered Engineer (aged 72), was Chairman of CRH plc from 1994 to 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 1997 to 2000. Mr. Barry was Chairman of Greencore Group plc from 2001 to 2003 and is a past President of The Irish Business and Employers’ Confederation. Mr. Barry joined the Board in 1995. Tommy Breen, B Sc (Econ), FCA (aged 48), joined DCC in 1985, having worked with KPMG for a number of years. He was appointed Chief Operating Officer in 2006 and is also Managing Director of DCC Environmental, having previously been Managing Director of both DCC Energy and DCC SerCom. Mr. Breen joined the Board in 2000. Róisín Brennan, BCL, FCA, MSI (aged 42), is Chief Executive 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. DCC - ANNUAL REPORT AND ACCOUNTS 2007 5 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 Michael Buckley Non-executive Director Paddy Gallagher Non-executive Director Maurice Keane Non-executive Director Fergal O’Dwyer Executive Director Bernard Somers Non-executive Director Michael Buckley, MA. LPh, MSI (aged 62) was Group Chief Executive of Allied Irish Banks plc 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, is on the Advisory Board of Freeman and Co, a New York based M & A, advisory and consulting business, and is an advisor to a number of Irish and international companies. Mr. Buckley joined the Board in 2005 and is the Senior Independent Director. Paddy Gallagher, BL, DPA (aged 67), 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 66), was Chief Executive of Bank of Ireland from 1998 to 2002 and a member of the Court of Directors from 1983 to 2005. He is a director of Axis Capital Holdings, is Chairman of University College Dublin Foundation and is a member of the National Pension Reserve Fund Commission. Mr. Keane was Chairman of BUPA Ireland from 2002 up to April 2007 and Bristol & West plc from 2002 to 2005, having been a director from 1997. Mr. Keane joined the Board in 2002. Fergal O’Dwyer, FCA (aged 47), 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, B Comm, FCA (aged 58), is a non- executive director of Allied Irish Banks plc, Independent News and Media plc and Irish Continental Group plc. 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. Mr. Somers joined the Board in 2003. 6 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Senior management group and divisional Jim Flavin Deputy Chairman Group Chief Executive Tommy Breen Executive Director Fergal O’Dwyer Executive Director Conor Costigan Niall Ennis Frank Fenn Donal Murphy Ann Keenan Colman O’Keeffe Peter Quinn Michael Scholefield Gerard Whyte Group Secretary Chief Operating Officer & Managing Director DCC Environmental Chief Financial Officer Managing Director DCC Healthcare Managing Director DCC SerCom Managing Director DCC Food & Beverage Managing Director DCC Energy Head of Group Human Resources Deputy Managing Director DCC Energy Head of Group IT Managing Director Corporate Finance Compliance Officer & Head of Enterprise Risk Management DCC - ANNUAL REPORT AND ACCOUNTS 2007 7 Senior management subsidiaries and joint ventures DCC Energy DCC Energy NI Emo Oil Flogas Ireland Flogas UK Fuel Card Group GB Oils DCC SerCom Distrilogie Gem Distribution Micro Peripherals Pilton SerCom Solutions Sharptext DCC Healthcare Ausmedic Australia Days Healthcare DCC Health & Beauty Solutions Fannin Healthcare Group Physio-Med Services DCC Food & Beverage Allied Foods Bottle Green Broderick Bros Kelkin Kylemore Foods Group Robert Roberts * DCC Environmental Enva Ireland Wastecycle William Tracey * * Joint venture Pat O’Neill Gerry Wilson Richard Martin Paddy Kilmartin Ben Jordan Sam Chambers Operations 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 Ashley Williams David Dzimitrowicz Stephen O’Connor Andrew O’Connell John Gregory Managing Director Acting Managing Director Managing Director Managing Director Managing Director John Casey Jon Eagle Richard Kieran Bernard Rooney Brian Hogan Tom Gray Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Declan Ryan Mike Shearstone Michael Tracey Managing Director Executive Chairman Managing Director 8 8 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Chairman’s Statement “ I am confident that DCC, with its broad spread of growth businesses, a highly committed and skillful management team and its financial strength, is well-positioned for sustainable long-term growth.” Overview The past financial year was again one of continuing growth and development. This is reflected in the increasing scale of DCC, with sales of €4 billion, 6,000 employees and operations in 16 countries. Operating profits grew strongly by 15.7% to €143 million. Dividend increase of 15% The Directors are recommending a final dividend of 31.41 cent per share which, when added to the interim dividend of 17.87 cent per share, gives a total dividend of 49.28 cent per share for the year, a 15% increase over the prior year dividend of 42.85 cent per share. The dividend is covered 3.2 times by adjusted earnings per share (3.7 times in 2006). It is proposed to pay the final dividend on 26 July 2007 to shareholders on the register at the close of business on 25 May 2007. Board and management changes In a Stock Exchange announcement on 22 February 2007, shareholders were informed that I intended to retire as Chairman and from the Board on 30 June 2007. It has been a privilege to act as Chairman of this great company since its formation in 1976 and it has at all times been an exceptional professional experience for me. The success of DCC has been built around the skills and vision of Jim Flavin, its founder and Chief Executive throughout this period. I am pleased that Jim will take over the chairmanship of the Board from me on 1 July 2007 and will, for a three year transition period, be an executive chairman with primary responsibility for strategy development. He will be supported by an experienced, skilled and committed Board of Directors. Your company is in good hands. As set out in the Corporate Governance statement on pages 38 to 41 of this report, all relevant corporate governance issues relating to the appointment of a chief executive to the position of executive chairman were carefully considered by the Nomination Committee of the Board and by the Board as a whole. In arriving at their recommendation to the Board, the Nomination Committee consulted with the non-executive Directors who are not on the Committee, with major shareholders and with the Irish Association of Investment Managers. Tommy Breen, DCC’s Chief Operating Officer, will become Group Managing Director on 1 July 2007. In this role, Tommy will take on significant elements of Jim Flavin’s current chief executive responsibilities and will have primary responsibility for day-to-day operational matters. Tommy has been with the company for twenty two years and joined the Board in 2000. He has served at a senior management level as managing director of three of DCC’s five divisions, namely DCC Energy, DCC SerCom and DCC Environmental, and became Chief Operating Officer in July 2006. DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC - ANNUAL REPORT AND ACCOUNTS 2007 9 9 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� ��������������� ������������������ �� As set out in a DCC Stock Exchange Announcement on 7 April 2006, Fyffes plc has lodged an appeal to the Irish Supreme Court seeking to overturn the decision of the Irish High Court in its failed legal action against DCC and others taken under Part V of the Irish Companies Act, 1990 relating to the sale of shares in Fyffes plc by the DCC Group in February 2000. That action was dismissed on the grounds that the defendants were not in possession of price sensitive information in February 2000 as alleged by Fyffes. The Supreme Court hearing is scheduled to commence on 18 June 2007 and is expected to last for approximately five days. As the appeal is sub judice, it would not be appropriate to make any comment on the matter at this time. The future I am confident that DCC, with its broad spread of growth businesses, a highly committed and skillful management team and its financial strength, is well- positioned for sustainable long-term growth. Alex Spain Chairman 11 May 2007 Corporate governance and risk management 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 the Principles of Good Governance and Code of Best Practice as set out in the Combined Code on Corporate Governance. Gerard Whyte, DCC’s Group Secretary, also heads up DCC’s Enterprise Risk Management function which incorporates Group Internal Audit and Group Environmental Health and Safety. The Board is satisfied that this is a high quality unit which carries out its function in an independent, dedicated and responsible fashion. In addition, the Chief Executive, Jim Flavin, acts as Chairman of an executive Risk Committee, which constantly monitors and addresses Group risks, including issues raised by Enterprise Risk Management. Litigation Arising from the successful action by DCC’s subsidiary, Days Healthcare, against Pihsiang Manufacturing Company Limited (a Taiwanese public company), Donald Wu (its chairman and major shareholder) and his wife Jenny Wu (a director) in the London High Court, the defendants are jointly and severally liable to pay the DCC Group Stg£18.9 million (€27.8 million) at 31 March 2007. 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 as exceptional costs. 10 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Chief Executive’s Review “ DCC has budgeted for high single digit operating profit growth for the financial year to 31 March 2008 and is well positioned to augment this growth through continued acquisition activity.” Overview In the year ended 31 March 2007, DCC maintained its excellent record of growth since being listed on the Irish and London stock exchanges in 1994. Revenue grew by 17.7% to €4.046 billion, Group operating profit grew by 15.7% to €143 million and adjusted earnings per share (excluding Manor Park contribution) rose by 15.8% to 143.51 cent. Divisional Operating profit* DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental €m Change on prior year + 8.2% + 35.3% + 6.0% - 2.2% + 91.4% 60.5 33.8 23.0 15.1 10.6 Group operating profit 143.0 + 15.7% * excluding net exceptionals and amortisation of intangible assets Excellent profit growth was achieved in DCC Energy, DCC SerCom and DCC Environmental and in DCC Healthcare in the second half of the year. DCC Food & Beverage achieved good growth in Ireland which was offset by difficult trading conditions for the division’s wine business in Britain. Detailed divisional business reviews are set out on pages 12 to 31. Share of associates’ profit after tax (Manor Park Homebuilders) DCC’s principal associate is Manor Park Homebuilders in which it holds a 49% shareholding. As expected, the contribution from Manor Park Homebuilders declined due to planning delays which have had a short-term impact on its profitability. As a result, DCC’s share of associates’ profit after tax declined by 53.7% to €11.8 million. DCC announced on 14 February 2007 that it had reached agreement with Joe Moran, who owns 51% of the share capital of Manor Park Homebuilders, to seek offers for 100% of the share capital and that Goodbody Corporate Finance and IBI Corporate Finance had been jointly appointed to carry out a formal sale process. This process is ongoing and a further announcement will be made when appropriate. Acquisitions and development Acquisition and capital expenditure in the year amounted to €173.5 million as follows: Acquisitions Capex €’m €’m 32.8 51.1 4.8 0.7 5.8 17.7 7.0 - 10.8 42.8 DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Total €’m 83.9 5.5 23.5 7.0 53.6 Total 112.3 61.2 173.5 DCC Energy acquired Carlton Fuels, a north of England based oil distribution business, in July 2006, making DCC Energy the largest oil distributor in Britain. DCC Energy also acquired a number of smaller oil distributors during the year, including BP’s Scottish Islands business, as part of the planned expansion of its oil distribution business in Britain. DCC Healthcare acquired the remaining 50% of Technopharm Compounding (an Irish Medicines Board licensed compounding facility producing patient- ready dosage packs of oncology and pain management pharmaceuticals and paediatric nutritional products) in August 2006. DCC Healthcare also expanded its international presence in its mobility and rehab business in March 2007 through the acquisition of 60% of Ausmedic, a small company which is the leading supplier of physiotherapy products in Australia and New Zealand. DCC Environmental acquired a 50% shareholding in William Tracey, Scotland’s leading recycling and waste management business, in May 2006 and in November 2006 acquired 90% of Wastecycle, a rapidly growing, Nottingham based recycling and non-hazardous waste management business. Financial strength At 31 March 2007, DCC had net debt of €100.5 million and total equity of €687.7 million. The Group’s net debt levels averaged €233 million during the year compared to €161 million in the previous year. A sale of DCC’s shareholding in Manor Park Homebuilders will further enhance the Group’s considerable capacity to pursue organic and acquisition growth objectives. Board and management changes As referred to in his statement, Alex Spain will retire as Chairman and from the Board on 30 June 2007 and I will succeed him as chairman and will, for a three year transition period, be an executive chairman. I am honoured and pleased to take on this role and look forward to it. As incoming Executive Chairman, I would like to express my heartfelt thanks and that of the entire Board to Alex for his unstinting support in the growth and development of DCC. On a personal level I owe him a great debt of gratitude for his wise counsel since I first approached him in early 1976 for professional advice relating to my plans to launch Development Capital Corporation, later re-christened DCC. Shareholders have been well served by Alex. DCC - ANNUAL REPORT AND ACCOUNTS 2007 11 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� ������������������� ������������������ �� DCC’s balanced business model reduces industry specific risk and provides a range of platforms for growth. This is evidenced by the excellent shareholder returns generated since DCC’s shares were first listed on the Irish and London stock exchanges in 1994 at €3.17. On 31 March 2007, DCC’s shares closed at €26.36, an increase of 730% since listing, compared to an increase of 419% in the ISEQ index and 102% in the FTSE 100 index in the same period. The total shareholder return from date of listing in 1994 to 31 March 2007, inclusive of gross dividends reinvested, was 1028%, a compound annual growth rate of 20.7% Corporate social responsibility DCC recognises its responsibilities to all stakeholders, including shareholders, employees, customers, suppliers and the community at large, and is fully committed to the management of all aspects of DCC’s business to the highest standards in order to fulfill these responsibilities. This is set out in the Corporate Social Responsibility statement on pages 36 to 37. DCC currently employs just over 6,000 people in sixteen countries. We encourage a management culture throughout the Group that properly respects the contribution of each employee. I thank them all for their contribution. Outlook DCC has budgeted for high single digit operating profit growth for the financial year to 31 March 2008 and is well positioned to augment this growth through continued acquisition activity. Jim Flavin Chief Executive/Deputy Chairman 11 May 2007 I am pleased that my good colleague Tommy Breen will become Group Managing Director on 1 July 2007. In this new role Tommy will take on significant elements of the responsibilities that I currently discharge as chief executive. He has a depth of experience in the DCC Group gained over twenty two years and is totally committed to DCC’s continuing success and development. Business strategy DCC’s core business strategy is to add value in the procurement, sales, marketing and distribution of DCC own branded and third party branded products in four markets, namely energy, IT & consumer electronics, healthcare and food & beverage. This activity generated 80% of the Group’s operating profit in the year ended 31 March 2007. There are many common features in this core business activity within each of the four market sectors, including: • principally business-to-business sales • specialist sales teams with extensive product and market knowledge • effective telesales units • deep sales and distribution reach • efficient back-office operations • tight control of working capital • procurement and supply chain management skills Most of the physical distribution of product, other than in DCC Energy, is outsourced to third parties. DCC has developed leading market positions in Britain and Ireland in niche segments of the energy, IT & consumer electronics, healthcare and food & beverage markets for both DCC own branded and third party branded products. Sales of DCC own branded products accounted for 46% of total Group sales in the year ended 31 March 2007, up from 42% in the prior year. DCC also provides a number of business support services, specifically environmental services, outsourced solutions to the health & beauty market, outsourced procurement and supply chain management services and chilled & frozen food logistics, which in total generated 20% of the Group’s operating profit in the year ended 31 March 2007. DCC seeks to focus on recurring revenue businesses which operate in market segments with good growth opportunities that generate high returns on capital employed and are cash generative. DCC’s first priority is to maximise the organic growth of its businesses through a relentless focus on operational excellence. DCC augments organic growth principally through value- enhancing bolt-on acquisitions which can be integrated with existing businesses in order to increase their scale, strengthen their competitive positions and achieve cost efficiencies. DCC has a structured acquisition search process which generates a continual flow of opportunities. DCC’s management team has many years of experience in acquisition negotiation and structuring and has a strong track record of successfully executing acquisitions and integrating them with existing businesses. DCC is pursuing acquisition opportunities in each of its market sectors, with a particular focus on the energy, healthcare and environmental sectors. 12 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Energy Business Review DCC Energy is the leading oil and liquefied petroleum gas (LPG) sales, marketing and distribution business in Britain and Ireland. In the year ended 31 March 2007, DCC sold in excess of 3.2 billion litres of product to 375,000 domestic, commercial, industrial and agricultural customers from its extensive network of 149 depots located throughout Britain and Ireland. DCC Energy has an excellent track record of profit growth. DCC Energy employs approximately 2,080 people. ��������� � � �� � � � � � �� � ��� ������ � � ����������� �� � � � � � � ���������������������� � � � � � DCC - ANNUAL REPORT AND ACCOUNTS 2007 13 ��������� � � � ����������� �� � � � � � � ���������������������� � � � � � � �� � � � � � �� � ��� ������ 14 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Energy Business Review Donal Murphy Managing Director DCC Energy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� ��������������������� ������������������ �� Businesses and markets The LPG business supplies propane and butane in both bulk and cylinders to domestic, commercial, agricultural and industrial customers for heating, cooking, transport and industrial processes. Trading under the Flogas and Ergas brands, DCC Energy is the strong number two player in the LPG market in Britain and Ireland with market shares of 21% and 35% respectively. DCC has been a consolidator of the British LPG market and has created significant shareholder value over the last five years through the acquisition and integration of the businesses of Altagas and the British Gas LPG business. DCC’s LPG business also distributes a range of LPG-fuelled consumer products, including barbeques and patio heaters. � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� DCC Energy’s oil business sells heating oils, transport fuels and fuel oils to �� �� �� �� �� �� �� �� �� domestic, commercial, agricultural and ������������������������ industrial customers in Britain and Ireland. DCC is now the largest oil distributor in Britain, with an approximate market share of 10%, having first entered the market in September 2001 through the acquisition of BP’s oil distribution business in Scotland. In Northern Ireland, DCC Energy is the largest oil distributor with approximately 20% market share, while in the Republic of Ireland DCC Energy has approximately 8% of the market. DCC Energy distributes oil under many strong brands including Carlton Fuels, Emo Oil, Fuel Services, Scottish Fuels and Shell. DCC Energy first entered the fuel card market through the acquisition of the Fuel Card Group in January 2005. The business now sells in excess of 200 million litres of motor fuel annually via a portfolio of fuel cards under the BP, Esso, Shell, Texaco, Diesel Direct and Red brands. Fuel cards have become an essential tool for commercial organisations to manage their transport costs and DCC Energy provides its customers with access to the breadth of the UK retail petrol station and bunker networks through its extensive portfolio of branded fuel cards. DCC Energy purchases its LPG and oil from the major oil companies. This product is shipped either directly from the major oil companies’ refineries into DCC Energy’s own 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 over many years. Performance management DCC has 30 years’ involvement in the energy distribution business and with this comes a depth of experience and industry knowledge that has enabled DCC to drive superior returns from the business. The performance of the business is constantly monitored through a broad range of key indicators principally focused on sales volume growth, margin, operational and cost efficiencies, cash flow and capital utilisation. Over the past 10 years, DCC Energy has achieved a compound annual growth rate of 20.6% in operating profit. DCC - ANNUAL REPORT AND ACCOUNTS 2007 15 Flogas supplies propane & butane in both bulk and cylinders for heating, cooking, transport and industrial processes. Emo sells heating oils, transport fuels and fuel oils to domestic, commercial, agricultural and industrial customers. Performance for the year ended 31 March 2007 Revenue Operating profit Return on capital employed - excluding intangible assets - including intangible assets 2007 2006 Change on prior year €2,247.9m €1,831.6m €56.0m €60.5m +22.7% +8.2% 50.8% 23.1% 53.8% 24.5% Performance for the year ended 31 March 2007 Allowing for the fact that temperatures in Britain and Ireland during the financial year were well above average, DCC Energy’s profit growth of 8.2%, although below budget, was an excellent result. DCC Energy sold 3.2bn litres of product, an increase of 9.5% on the prior year, further strengthening its position as the leading oil and LPG distributor in Britain and Ireland. Following the acquisition of Carlton Fuels in July 2006, DCC Energy is now the largest oil distributor in Britain with an approximate 10% market share, having first entered the market in September 2001. While the milder weather reduced demand for heating products, excellent progress was made in winning new national accounts and transport fuels business. The LPG business also performed well. DCC’s fuel card business had an excellent year. The business was enhanced by the integration of the fuel card business of Carlton Fuels with DCC’s existing fuel card operations. Strategy and development In the LPG market, DCC Energy will continue to leverage its position as the strong number two player in the market to drive organic sector-by-sector volume growth in both Britain and Ireland. In oil distribution, DCC Energy’s strategy is to continue to consolidate the highly fragmented oil market in Britain with a target of achieving 20% market share. In particular, DCC Energy is focused on further developing its oil business in the south of Britain. Having successfully integrated the Carlton Fuels business into its oil infrastructure in Britain, DCC Energy intends to leverage the skills and experience it has acquired to significantly develop its market share in the national account sector of the market. In both the LPG and oil markets, DCC is focused on further broadening its business in the non-heating related segments of the energy market. DCC Energy intends to continue to leverage its extensive portfolio of branded fuel cards to drive high levels of organic growth in the commercial sector of the market. DCC Energy will continue to position itself as the partner of choice for all the providers of branded fuel cards in the market. DCC is also starting to explore oil and LPG opportunities outside the markets of Britain and Ireland. Outlook DCC Energy is budgeting for strong profit growth in the current financial year and is actively pursuing acquisition opportunities to further strengthen its position in the oil distribution market in Britain. 16 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC SerCom Business Review DCC SerCom comprises two businesses: • SerCom Distribution – procurement, sales and marketing of a broad range of IT and consumer electronic products to retailers, value-added resellers and computer dealers in western Europe. SerCom Solutions – provision of outsourced procurement and supply chain management services. • DCC SerCom currently employs approximately 1,450 people. ����������� � � � � � � � �� � ����� � � � � ����������� � � � � � � � � � � � ������� � � � � � � � � � � � � � � � � � ��������� � �� ����������� � � � � � � � �� � ����� � � � � ����������� � � � � � � � � � � � ������� � � � � � DCC - ANNUAL REPORT AND ACCOUNTS 2007 17 � � � � � � � � � � � � ��������� � �� 18 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC SerCom Business Review Niall Ennis Managing Director DCC SerCom � � � � � � � �� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� ��������������������� ������������������ �� Businesses and markets SerCom Distribution SerCom Distribution has five business units operating in eight countries across western Europe – Britain, Ireland, France, Spain, Portugal, Belgium, Luxembourg and Holland. In Britain, Gem Distribution is the leading distributor of business & consumer software, computer games, consoles & peripherals and consumer accessories to the retail channel. Micro Peripherals is a leading distributor of IT hardware products and consumer electronics to the IT reseller and retail channels in the UK. In Ireland, Pilton is the leading distributor of DVDs, computer games and associated accessories to the retail market and Sharptext is the leading distributor of a broad range of IT hardware and software �������������������� ��� products to the reseller channel. ����������������� ��� ���������������������� Distrilogie is a leading distributor of enterprise infrastructure products to the value-added reseller channel in six continental European countries. SerCom Distribution partners with the world’s leading IT and consumer electronics brands such as 20th Century Fox, Acer, Canon, Cisco Systems, Disney, Entertainment in Video, Epson, Fujitsu Siemens, HP, IBM, Logitech, Microsoft, Netgear, Oracle, Samsung Electronics, Sony, Sun Microsystems, Symantec, Take Two, VMware and Xbox 360. The business also distributes a range of complementary consumer electronic products and accessories under its own brands, Linx and Exspect, which include digital photo frames, HDMI cables, glass tables and iPod accessories. SerCom Solutions Headquartered in Ireland, SerCom Solutions also has operations in Poland, the United States and China, delivering a range of specialist supply chain management services including procurement, sourcing, demand management, consigned stock programmes, contract hardware assembly, vendor and end-user fulfilment and desktop publishing. The business is a strategic supply chain partner for many of the world’s leading technology and telecommunications companies including Apple, Canon, Microsoft, Nortel and Thomson Telecom and is working closely with SerCom Distribution on the sourcing and supply of its own brand products. SerCom Solutions employs state of the art IT systems and procurement processes to deliver effective supply chain management solutions to its customers to allow them to constantly lower the cost of components, reduce manufacturing lead times, minimise inventory and obsolescence and to effectively identify and qualify alternative sources of products. Performance management The operational performance metrics of SerCom Distribution are well ahead of industry norms for the IT distribution business. Notwithstanding the low operating margins in the industry, the business generates an excellent return on capital through a high turnover of capital employed. Margins are maximised through highly incentivised sales teams and tight control of operating costs and working capital. DCC - ANNUAL REPORT AND ACCOUNTS 2007 19 SerCom Solutions provides outsourced procurement and supply chain management services for many leading technology and telecom companies. SerCom Distribution has successfully introduced a number of consumer electronics products, such as this digital photo frame, under its own Linx brand. Performance for the year ended 31 March 2007 Revenue Operating profit Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year +12.3% +35.3% 2007 2006 €1,218.0m €1,084.6m €25.0m 2.3% €33.8m 2.8% 23.2% 14.3% 24.4% 14.3% Strategy and development DCC SerCom’s strategy is to deliver consistent long term profit growth and industry leading overall returns on capital employed by building on its excellent market positions and broad supplier portfolio and by maximising the efficiency of its infrastructure. In the current year, the business will continue to pursue the strategic aims of deepening its reach in consumer and retail markets, broadening its product and service offering as innovative technologies and applications emerge, exploiting the ongoing convergence between the IT and audio visual markets, adding procurement hubs in new geographies and continuing to expand the range of products sourced in the Far East at attractive margins. Outlook The current financial year is expected to be more challenging for DCC SerCom with the result that a modest decline in profitability in the year to 31 March 2008 is currently expected. However, the business is continuing to develop well in consumer electronics and retail markets. Particular focus is being given to growing its own product range under its Linx and Exspect brands, capitalising on DCC SerCom’s procurement capabilities. Over the past ten years, DCC SerCom has achieved a compound annual growth rate of 13.3% in operating profit. Performance for the year ended 31 March 2007 DCC SerCom achieved excellent profit growth in both its businesses, SerCom Distribution and SerCom Solutions. SerCom Distribution built on its first half performance to deliver excellent profit growth for the full year. The business benefited from its growing position in the consumer and retail markets in Britain and Ireland, particularly with the Xbox 360 console, and achieved strong organic volume growth in the period. During the year, the business successfully introduced a number of consumer electronic products and accessories under its own Linx and Exspect brands, sourced in co- operation with SerCom Solutions. SerCom Distribution’s enterprise business in continental Europe benefited from improved demand in its markets in France, Iberia and Benelux. The business also gained market share and broadened its software portfolio in the areas of server virtualisation and data management. SerCom Solutions achieved an excellent result. The business benefited from robust demand from its customer base and made good progress in developing its procurement operations in Poland and the United States. During the year, SerCom Solutions further strengthened its sourcing capability and now offers a full end-to-end solution for Far East procurement from its base in China. 20 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Healthcare Business Review DCC Healthcare is a European and international healthcare business with operations encompassing: • Procurement, sales and marketing of healthcare products and provision of related services into the acute care and community care sectors; Provision of outsourced solutions to health and beauty companies. • DCC Healthcare currently employs approximately 1,100 people. ���� �� � � � � � � � � � � ����� ��� � � � � � � ����� � � � � � � � ������������ � � � � � � ������������������ � � � � � � � � � � � � � � � � � ��� DCC - ANNUAL REPORT AND ACCOUNTS 2007 21 � � � � � � � � � ����� ��� � � � � � � ����� ���� �� � � � � � � � � ������������ � � � � � � ������������������ � � � � � � � � � � � � � � � � � ��� 22 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Healthcare ����������� ������� ������� Business Review Businesses and markets DCC Healthcare has three principal business units with operations in eight countries. Conor Costigan Managing Director DCC Healthcare � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� ��������������������� ������������������ �� • DCC Healthcare is the market leader in procurement, sales and marketing of healthcare products into the hospital sector in Ireland – intravenous pharmaceuticals, medical, surgical and laboratory products. DCC also has a growing hospital supplies business in Britain currently focused on intravenous pharmaceuticals and related devices. The business markets and sells a broad range of leading brands - including Grifols, Molnlycke, Oxoid and Synthes – through its extensive field sales force of more than 100 highly trained professionals. DCC is increasingly focused on developing value-added services related to its product offering. A recent successful example of this is the development of DCC’s pharmaceutical compounding facility in Dublin. ���������������������� ������������������ ������������������ ����� ����� • DCC Healthcare is a leading player in the international mobility and rehabilitation market, with operations in Britain, Ireland, Germany, Australia and New Zealand. DCC is the market leader in the physiotherapy product sector in Britain and, following the acquisition of Ausmedic in March 2007, the business is now the leading supplier of physiotherapy products in Australia and New Zealand. Mobility and rehab products are also sold into export markets through distributors. DCC has a broad product portfolio principally marketed under its own Days Healthcare, Physio-Med and Metron brands. Products are developed and designed in-house with manufacturing outsourced, mainly in Asia and eastern Europe. DCC’s procurement and quality control team based in Shenzhen, China works closely with Asian manufacturing partners. The extensive rehabilitation customer base – hospitals, community loan stores, specialist retailers, private practitioners and nursing homes – is serviced through field and telesales teams supported by a range of product catalogues. • DCC Health & Beauty Solutions (formerly known as DCC Nutraceuticals) is a leading provider of “source to shelf” outsourced solutions to the health and beauty industry, principally in the areas of nutraceuticals (vitamin and health supplements), skin care and hair care. DCC provides a wide range of product formats (tablets, soft gel capsules, creams and liquids), packing and other services from its three MHRA licensed facilities in Britain. The quality of these facilities, together with the strength and depth of DCC’s business development and technical resources, means that DCC can offer customers a rapid turnaround from marketing concept through to finished, shelf-ready product. This process typically involves product development, formulation, stability and other testing, regulatory compliance, manufacture and packing. DCC’s key strength is the highly responsive and flexible service it provides to its customer base of leading premium brand owners, mail order companies, specialist health and beauty retailers and private label suppliers in Britain, continental Europe and other markets. DCC - ANNUAL REPORT AND ACCOUNTS 2007 23 Performance for the year ended 31 March 2007 Revenue Operating profit Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year +10.7% +6.0% 2007 2006 €234.3m €23.0m 9.8% €211.7m €21.6m 10.2% 58.4% 15.9% 60.5% 16.7% Performance management DCC Healthcare’s business 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 in operating profit of 13.0%. Performance for the year ended 31 March 2007 DCC Healthcare generated strong profit growth of 11.9% in the second half of the year, driven by continued strong sales growth and improved operating margins, which resulted in good profit growth for the full financial year. DCC Healthcare continued to achieve excellent organic growth in intravenous pharmaceuticals and related devices and services in Ireland and Britain, driven by the success of its compounding service for Irish hospitals, new product introductions and new agencies. The compounding business benefited from the successful launch of its service under the national contract for paediatric nutrition, won during the year. Sales of medical, surgical and laboratory products to hospitals in Ireland also grew strongly. In mobility and rehab, DCC Healthcare generated excellent organic profit growth in physiotherapy supplies in Britain, further strengthening its leadership in this market segment. Sales in other product categories in Britain and Germany were impacted by weak market conditions and supply chain management issues. DCC is continuing to invest in the development of its mobility and rehab business, including the expansion of its international presence through the acquisition in March 2007 of 60% of Ausmedic, a small company which is the leading supplier of physiotherapy products in Australia and New Zealand. DCC Health and Beauty Solutions recorded strong organic growth in nutraceuticals in Britain and export markets due to the high quality solutions DCC provides to its customers. Strategy and development DCC Healthcare’s strategy is to build a substantial healthcare business focused on the procurement, sales and marketing of healthcare products and the provision of related services across acute care and community/primary care sectors and on the provision of outsourced solutions to the functional health and beauty industry. DCC’s primary focus is the generation of strong organic profit growth and superior returns in its existing businesses. DCC Healthcare is continually developing and expanding its product and service offering through effective product development sourcing and procurement. In addition to driving continuing growth through existing channels to market, the business is also focusing on growing in new and developing channels, leveraging its extensive sales teams and catalogues. Kelkin’s Vitamin E cream was created by DCC Health & Beauty Solutions, based at Laleham Healthcare, who manufacture a broad range of moisturising creams, butters, waxes and lotions. Building on its market leading position in physiotherapy products in Britain, DCC recently acquired Ausmedic, the market leader in Australia and New Zealand. DCC has an active acquisition programme focused on opportunities intended to accelerate the growth and development of DCC Healthcare’s existing businesses including expanding their geographic reach. DCC is seeking acquisitions to accelerate its growth in the hospital supply sector in Britain. DCC is actively pursuing acquisition targets which would facilitate the exploitation of new and developing channels to market for healthcare products, for example in the home care sector. In the health and beauty sector, DCC is targeting acquisitions which would expand its international customer base or which would broaden its service offering into related areas. Outlook DCC Healthcare is budgeting to achieve strong profit growth in the current financial year. 24 DCC - ANNUAL REPORT AND ACCOUNTS 2007 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 wine business in Britain. DCC Food & Beverage is a market leader in a number of niche market segments, principally in healthfoods and indulgence foods, as well as in frozen & chilled logistics. DCC Food & Beverage currently employs approximately 950 people. � � � � ��� � � � �� � � � � ����� � � � � � � ��������������� � � ����� � DCC - ANNUAL REPORT AND ACCOUNTS 2007 25 �� � � � � ����� � � � � � � � ������� � � � ��� � � � � � � � ��������������� � � ����� � 26 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Food & Beverage Business Review Frank Fenn Managing Director DCC Food & Beverage � � � � � � � � � � � � � � � � � � � � � � � � �� � � � � � � � � �� �� �� �� �� �� �� �� �� ��������������������� ������������������ �� Businesses and markets DCC Food & Beverage’s businesses have deep distribution reach and offer extensive customer service to the retail and foodservice sectors in both the north and south 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. Robert Roberts is a value-added distributor of indulgent products in the Irish grocery, impulse and food service sectors. The business has a strong range of complementary owned and agency brands, specialising in snacks, hot beverages, wine, confectionery, soft drinks and cakes. Robert Roberts provides a top-class service in ������������������ marketing, category management, selling (key account management, sales representatives and van sales), ���������������������� distribution and merchandising. In the Irish market, Robert Roberts is the number two supplier of freshly ground coffee to both the retail and foodservice sectors, is a leading supplier of savoury snacks (through the KP range), is a leading independent distributor of sugar confectionery products and has a strong position in wine distribution through Woodford Bourne. ������������������ ����� ����� Allied Foods is Ireland’s leading provider of temperature controlled supply chain solutions (procurement, warehousing and distribution), to major retailers, manufacturers and food service customers. In Ireland, Kelkin is the leading and most comprehensive supplier of owned and agency brands of healthy foods & beverages, fine foods and vitamins, minerals & supplements (“VMS”), selling directly to both the grocery and pharmacy sectors. Kelkin is recognised as the leading brand in the health / “better for you” food sector and offers a healthy choice in most food categories. It is a strong brand in the VMS sector. In Britain, Bottle Green is a supplier of branded and exclusive label solutions to multiple off trade sectors of the UK wine market. 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 13.7% in operating profit. DCC - ANNUAL REPORT AND ACCOUNTS 2007 27 McCoys and KP satisfy the growing demand among adults for premium indulgent snacks that can be shared. Over 100 years of craftsmanship – Robert Roberts has been roasting and blending the world’s finest arabica coffee beans in Dublin since 1905. Performance for the year ended 31 March 2007 Revenue Operating profit Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year +0.9% -2.2% 2007 2006 €279.5m €15.1m 5.4% €276.9m €15.5m 5.6% 51.9% 18.3% 55.2% 18.7% Performance for the year ended 31 March 2007 DCC Food & Beverage achieved good growth in Ireland. However, this performance was offset by difficult trading conditions in the British wine market. In Ireland, good growth was achieved in healthfoods, which benefited from ongoing increased investment in the Kelkin brand and new product development. Soft drinks, speciality teas, confectionery and snackfoods also performed well. The frozen and chilled logistics business achieved good growth and has recently taken on significant new business. In Britain, the wine market was flat over the last 12 months. This, coupled with increased margin pressure from major customers, had a negative impact on revenue and margins of Bottle Green, DCC’s British based wine business. 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 Robert Roberts’ speciality teas, Lemon’s confectionery, Bollinger champagne, Torres wines, KP snacks, French Connection (Bottle Green) and Vitabiotics, among others. Marketing investment in the Kelkin brand 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. Outlook DCC Food & Beverage is budgeting for continued growth in its Irish businesses, benefiting from trends towards convenience, healthfoods and indulgence impulse foods, along with the increased business won in frozen and chilled logistics. As yet, there has been no pick- up in the profitability of Bottle Green, but recent evidence of a return to growth in the British wine market as a whole should provide a better background for DCC’s British wine business. 28 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Environmental Business Review DCC Environmental provides a broad range of recycling and waste management services to the industrial/commercial sectors and local authorities in both Britain and Ireland. The business receives and processes waste, of which approximately 50% is recycled, through its 14 licensed facilities. DCC Environmental currently employs approximately 480 people. � � � � � � � � � � �� ������������������ ������� � � ����� � � � � � � � � � � � � �������� � � ����� � � � � � � � � � � � � � ������ ��������� DCC - ANNUAL REPORT AND ACCOUNTS 2007 29 � � � � � � � � � � �� ������������������ � � �������� � � ����� � � � ������� � � ����� � � � � � � � � � � ��������� � � � � � � � � � � ������ 30 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC Environmental Business Review Tommy Breen Managing Director DCC Environmental � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� �� �� �� �� �� �� �� �� ��������������������� ����������������� Businesses and markets Britain Through its 50% shareholding in the William Tracey Group of companies (“William Tracey”) and its 90% subsidiary Wastecycle, DCC Environmental has built a significant position in the British recycling and waste management industry. William Tracey operates from seven freehold sites and is recognised as Scotland’s leading recycling and waste management company, with a reputation for innovation and creativity in the recycling and management of waste. The business operates a number of fully integrated facilities to treat, recover and dispose of a wide range of waste, including the manufacture of recycled products. William Tracey has an extensive fleet of specialist waste management vehicles that collect waste from industrial and commercial customers while the business also processes waste on behalf of local authorities and other third parties. ���������������������� ������������������ ������������������ ����� ����� Wastecycle is a leading recycling and waste management company based in Nottingham, England. Operating from a 10 acre site, the company provides a comprehensive waste collection and recycling service to industrial, commercial and local authority customers. Through some of the most innovative techniques in the industry and using automated and semi-automated equipment, Wastecycle separates waste and recovers a range of recyclable materials such as cardboard, metals, timber, plastics, paper, aggregates, soils, glass and plasterboard. Ireland DCC Environmental’s subsidiary, Enva, is the leading hazardous waste treatment business in Ireland. Enva is a leading-edge environmental business, providing innovative, economical and environmentally sound solutions to customers for the collection, treatment and recycling of a diverse range of wastes. The business operates four Environmental Protection Agency licensed waste facilities in the Republic of Ireland and two Environment Heritage Service licensed waste facilities in Northern Ireland. These facilities offer a wide range of services including soil remediation, oil recycling, chemical treatment, water treatment and metal recovery. 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, recycling targets, gross margins, cost of treatment, operating profit, cash flow and capital utilisation. Over the eight years since the business was established, DCC Environmental has achieved a compound annual growth rate of 82.7% in operating profit. DCC - ANNUAL REPORT AND ACCOUNTS 2007 31 William Tracey has an extensive fleet of specialist waste management vehicles that collect waste from industrial and commercial customers. Wastecycle provides a comprehensive waste collection and recycling service using automated and semi-automated equipment to recover materials such as cardboard, metals, timber, plastics and glass. Performance for the year ended 31 March 2007 Revenue Operating profit Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year +111.3% +91.4% 2007 2006 €66.5m €10.6m 15.9% 38.9% 18.1% €31.5m €5.5m 17.5% 31.8% 17.4% Strategy and development DCC’s strategy is to continue the growth of its business in the recycling and waste management sector, based on its strong market positions, specialist recycling skills and the anticipated long term growth opportunity in the market. This growth strategy will be driven both organically and by acquisition. Outlook DCC Environmental is budgeting for excellent profit growth in the current financial year based on anticipated strong underlying organic growth and a full year’s contribution from the acquisitions completed last year. Performance for the year ended 31 March 2007 DCC Environmental achieved excellent profit growth, benefiting from the acquisition of a 50% shareholding in William Tracey in May 2006 and 90% of Wastecycle in November 2006. These two acquisitions have significantly increased the scale of DCC Environmental and provide a platform for continued development, both organically and by acquisition, in the non-hazardous waste sector in Britain. Both businesses have performed ahead of expectations in the period since acquisition. Profit in DCC’s Irish environmental business was modestly ahead of the prior year. An extensive re-branding programme under the “enva” brand has facilitated more effective marketing of its licenced facilities, expertise and broad range of environmental services in Ireland. Enva also opened a new water treatment and waste transfer station facility in Ringaskiddy, Co. Cork, in January 2007. 32 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Financial Review Fergal O’Dwyer Chief Financial Officer Maximizing shareholder value DCC is focused on maximising the generation of long term shareholder value. DCC has achieved superior shareholder returns since it floated on the Irish and London stock exchanges in May 1994 at a flotation price of €3.17. The total shareholder return from listing in 1994 to 31 March 2007, inclusive of gross dividends reinvested, was 1028%, a compound annual growth rate of 20.7%. Over the same period the ISEQ index appreciated by 419% and the FTSE100 by 102%. Accounting policies The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and their interpretations as issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC), applicable Irish law and the Listing Rules of the Irish and London stock exchanges. Details of the basis of preparation and the significant accounting policies of the Group are included in pages 57 to 65. Overview of results/key performance indicators Revenue grew by 17.7% to €4,046.1 million and operating profit of subsidiaries and joint ventures increased by 15.7% to €143.0 million (as detailed in Table 1). In broad terms, this growth was evenly split evenly between organic growth and growth from acquisitions. The average sterling exchange rate used to translate the Group’s UK income statements into euro was marginally (0.3%) stronger than the previous year and consequently this had a negligible impact on the Group’s revenue and operating profit. The Group’s operating margin was 3.5% (3.6% in 2006); 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 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 4.6% compared to 4.2% in the previous year. A detailed review of the operating performance of each of the Group’s divisions in set out on pages 12 to 31. Share of associates’ profit after tax (Manor Park Homebuilders) As expected the contribution from DCC’s 49% owned associate company, Manor Park Homebuilders, declined due to planning delays which have had a short term impact on its profitability. DCC announced on 14 February 2007 that it had reached agreement with Joe Moran, who owns 51% of the share capital of Manor Park Homebuilders, to seek offers for 100% of the share capital Table 1: Operating Profit* 2007 2006 Change H1 €’m H2 €’m FY €’m H1 €’m H2 €’m FY €’m H1 % H2 % FY % DCC Energy 12.3 48.2 60.5 10.7 45.3 56.0 +14.4% +6.7% +8.2% DCC SerCom 11.0 22.8 33.8 7.6 17.4 25.0 +45.3% +31.0% +35.3% DCC Healthcare 10.0 13.0 23.0 10.1 11.5 21.6 -0.7% +11.9% +6.0% DCC Food & Beverage DCC Environmental 7.3 4.6 7.8 6.0 15.1 10.6 7.4 2.8 8.1 15.5 -1.4% -3.0% -2.2% 2.7 5.5 +64.4% +119.9% +91.4% Total 45.2 97.8 143.0 38.6 85.0 123.6 +17.1% +15.0% +15.7% *excluding net exceptionals and amortisation of intangible assets DCC - ANNUAL REPORT AND ACCOUNTS 2007 33 Dividend The total dividend for the year of 49.28 cent per share represents an increase of 15% over the previous year. The dividend is covered 3.2 times (3.7 times in 2006) by adjusted earnings per share. Over the last 10 years DCC’s dividend has grown at a compound annual growth rate of 17.1%. 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 39.7% excluding intangible assets and 18.3% including intangible assets (43.0% and 19.1% respectively in 2006). Returns in the year ended 31 March 2007 were impacted modestly by an increased investment in working capital. DCC’s return on capital employed has remained consistently high through a combination of good organic growth, attractive acquisition valuations and excellent integration synergies. Financial Review (continued) and that Goodbody Corporate Finance and IBI Corporate Finance had been jointly appointed to carry out a formal sale process. Profit before tax Profit before tax increased by 16.6% to €161.8 million. Finance costs (net) Net finance costs for the year increased to €10.9 million (€7.0 million in 2006), due to the increase in interest rates and an increase in the Group’s net debt levels which averaged €233 million during the year compared to €162 million in the previous year. Exceptional profit (net) As stated in a DCC Stock Exchange Announcement on 9 February 2007, DCC sold a site of approximately 1.5 acres in the Sandyford Industrial Estate, Dublin 18 for €40 million. Arising principally from this sale the Group made an exceptional profit on the disposal of property, plant and equipment of €33.2 million. The Group incurred exceptional restructuring costs of €2.1 million and exceptional legal and related costs of €6.6 million, resulting in the net exceptional profit of €24.5 million. Amortisation of intangible assets The charge for the amortisation of intangible assets increased from €5.0 million to €6.7 million as a result of the amortisation of intangible assets arising on acquisitions completed during the year ended 31 March 2007 and a full years amortisation charge relating to intangible assets acquired in the previous year. Taxation Excluding the tax charge of €7.7 million on the net exceptional profit and a taxation credit of €1.5 million in relation to the amortisation of intangible assets, the effective tax rate for the Group (i.e. the Group’s subsidiaries and joint ventures) was 11.0% compared to 12.1% in the previous year. Adjusted earnings per share excluding Manor Park contribution As DCC’s 49% shareholding in Manor Park Homebuilders is expected to be sold in the current financial year, adjusted earnings per share excluding the contribution from Manor Park Homebuilders has been shown separately to disclose the underlying earnings growth of 15.8% achieved in DCC’s managed and controlled subsidiaries and joint ventures. Adjusted earnings per share including the contribution from Manor Park Homebuilders increased by 1.8% to 160.02 cent. The compound annual growth rate in DCC’s adjusted earnings per share over the last 15, 10 and 5 years has been as follows; 15 years (i.e. since 1992) 10 years (i.e. since 1997) (i.e. since 2002) 5 years CAGR % 15.8% 15.6% 10.2% Table 2: Return on capital employed 2007 2006 ROCE ROCE (excl intangible assets) (incl intangible assets) ROCE (excl intangible assets) ROCE (incl intangible assets) DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Group 50.8% 23.2% 58.4% 51.9% 38.9% 39.7% 23.1% 14.3% 15.9% 18.3% 18.1% 18.3% 53.8% 24.4% 60.5% 55.2% 31.8% 43.0% 24.5% 14.3% 16.7% 18.7% 17.4% 19.1% 34 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Financial Review (continued) Cash flow 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. The cash generated from operations of €127.4 million compared to €142.9 million in the prior year. The reduced cash flow is due to increased investment in working capital of €49.7 million, driven by the strong (17.7%) growth in sales revenue and by working capital days at 31 March 2007 increasing to 14.0 days revenue compared to 9.5 days revenue at 31 March 2006 as detailed in Table 3. There was an increased investment in working capital of approximately €60 million in DCC SerCom due to the unwinding of a particularly favourable working capital position at 31 March 2006, a strong increase in sales revenues and an increased position in stocks. Net working capital levels in DCC’s other divisions reduced in aggregate by approximately €10 million. A summary of DCC’s cash flow is set out in Table 4. Acquisition and development expenditure amounted to €173.5 million. DCC’s ongoing acquisition programme resulted in a number of acquisitions being completed during the year at a total committed cost of €112.3 million, of which €10.8 million was deferred. The cash impact of acquisitions in the year was €105.7 million when payments of deferred acquisition consideration of €4.2 million are taken into account. Capital expenditure was €61.2 million. Net of the exceptional property disposal and other disposals, the cash outflow from capital expenditure was €16.2 million. Table 3: Working capital days Stocks Debtors Creditors 2007 Days 2006 Days 13.7 45.3 (45.0) 14.0 11.6 42.9 (45.0) 9.5 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 Dividend paid Net exceptionals (excluding property disposal) Net cash outflow Translation adjustments and other Net debt at start of year Net debt at end of year Balance sheet and group financing DCC has a very strong balance sheet with total equity of €687.7 million at 31 March 2007. The composition of net debt at 31 March 2007 of €100.5 million is analysed in Table 5. An analysis of DCC’s cash, debt and financial derivative instrument balances at 31 March 2007, including maturity periods and currency and interest rate profiles, is set out in notes 27 to 30 to the financial statements. Table 5: Analysis of net debt Non-current assets: Derivative financial instruments Current assets: Derivative financial instruments Cash and cash equivalents Non-current liabilities: Borrowings Derivative financial instruments Unsecured Notes due 2008 to 2016 Current liabilities: Borrowings Derivative financial instruments Net debt 2007 €’m 127.4 6.1 - 133.5 (16.2) (105.7) (18.8) (19.2) (36.4) (4.9) (201.2) (67.7) (0.1) (32.7) (100.5) 2007 €’m 3.1 0.1 337.0 337.1 (3.1) (45.9) (265.5) (314.5) (126.0) (0.2) (126.2) (100.5) 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) 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) DCC - ANNUAL REPORT AND ACCOUNTS 2007 35 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. 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 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. Financial Review (continued) 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 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 to any significant extent during the financial year ended 31 March 2007. 36 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Corporate Social Responsibility Corporate social responsibility (CSR) is embedded in DCC’s core beliefs and values. DCC recognises its responsibilities to all stakeholders, including shareholders, employees, customers, suppliers and the community at large, and is fully committed to the management of all aspects of its business to the highest standards in order to fulfil these responsibilities. Workplace DCC has just over 6,000 employees spread over 16 countries. These skilled and dedicated people provide the distinctive service that DCC offers to its customers. DCC provides incentives to management and staff through remuneration policies that promote commitment and reward achievement. DCC aims to reward employees fairly by reference to responsibilities, skills, performance and local market conditions. Employee Share Scheme DCC established the DCC Sharesave Scheme in 2000. Under the Scheme, all employees of the Group’s subsidiaries were invited to enter into savings contracts for 3 and 5 year periods following which they could exercise options to buy DCC shares. The options were granted at prices which represented discounts of 20% to the then market price. Over 2,000 employees joined the Scheme in 2001 and 2004. Through this Scheme a significant percentage of employees have and will become shareholders in DCC. Marketplace Products and Services DCC’s commitment to enhancing the lives of its stakeholders is reflected in the design, delivery and management of its products and services. Examples include: In the Energy sector, Flogas distributes LPG, which is a non-toxic, clean burning, sulphur and smoke free fuel. 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 Food & Beverage sector, Robert Roberts markets a range of Fairtrade products including tea, coffee, fruit juices and wine. Kelkin actively provides a range of “better for you” and healthy products under its own brand which are free from all artificial colouring, preservatives and flavourings. Kelkin also markets a comprehensive range of gluten-free products and specialist products for diabetics. In the Environmental sector, DCC specialises in recycling and waste treatment, helping to provide a cleaner, safer environment. Recognition of excellence in financial reporting DCC won the Published Accounts Award for large public companies in Ireland in two of the last four years including, importantly, the award for 2006 which was the year in which Irish companies first adopted IFRS. Diversity and equal opportunities DCC recognises the strengths and benefits of a diverse workforce and is committed to providing equal opportunities to all employees. This commitment extends to recruitment, training, career development and social interaction. Diversity – case study Allied Foods, DCC’s frozen and chilled foods logistics provider, is a good example of a company that promotes a diverse and inclusive workforce. Over the last number of years, Allied Foods have recruited many employees from Eastern Europe for its chilled and frozen logistics business based in Dublin. Support structures were set up to assist in their relocation to Ireland with both work and non-work related issues, including dealings with Government agencies, banks and landlords. The company worked to ensure that the specific culture requirements of the new employees were respected. Although originally employed mainly as general operatives and trained in a variety of warehouse skills, many of these employees have now progressed in the business to a variety of roles, including telesales, administration, chargehand, transport controller and supervisory roles. Communication All of DCC’s subsidiaries strive to ensure that they have excellent employee communication processes which include employee committees, focus groups, newsletters and suggestion schemes. DCC publishes an in-house magazine, DCC Today, which is distributed to all Group companies. The content is informative, keeping readers abreast of Group news such as board and senior management appointments, recent acquisitions and corporate activities that may be of interest. DCC - ANNUAL REPORT AND ACCOUNTS 2007 37 Corporate Social Responsibility (continued) Where DCC subsidiaries are brand holders and responsible for the manufacture of specified electrical and electronic products, DCC has ensured that the components comply with the requirements of the Restriction of Hazardous Substances (RoHS) Directive by excluding specified toxic metals and compounds. In Ireland, Enva is one of two companies with a national contract from the WEEE Ireland producer compliance scheme to collect waste fluorescent tubes. All the glass, metals and mercury from fluorescent tubes is fully recovered at a licenced facility in Germany. Carbon Emissions The Greenhouse Gas Protocol (GHG Protocol), developed by the World Business Council for Sustainable Development and the World Resource Institute, provides standards and guidance for companies preparing an inventory of carbon dioxide (CO2) emissions. During the year DCC piloted the use of the GHG Protocol in eight subsidiaries in the energy and environmental divisions. Results from this pilot programme indicate that over 75% of CO2 emissions are contributed by road diesel used by DCC’s distribution fleet, with the balance coming from electricity consumption and heating. Over the coming year the GHG Protocol will be rolled out to all subsidiaries. This information will allow for the development of a Carbon Management Plan to minimise DCC’s consumption of energy, use renewable sources of energy where practical and offset the remaining carbon emissions. Environment, health & safety DCC is committed to safeguarding the health and safety of its employees and to protecting the environment. Environment, Health and Safety Compliance with Environment, Health and Safety (‘EHS’) regulatory requirements continues to be the minimum standard for all Group businesses. The environmental, energy and healthcare businesses are strictly regulated and subject to ongoing and frequent inspections by regulatory authorities. Moving beyond compliance, Group businesses strive to implement best practice in their operations. Comprehensive environmental, health and safety management systems are in place and are regularly reviewed by senior management and by the Group Environmental, Health and Safety function. Individual responsibility for health and safety is stressed and communicated to employees. Line managers at all levels manage risks with the support and expertise of health and safety professionals. All Group subsidiaries have a dedicated EHS committee which act as a forum for discussing and reviewing EHS issues specific to their business. Legislative Compliance - WEEE and RoHS Directives The Waste Electrical and Electronic Equipment (WEEE) Directive was transposed into Irish legislation in August 2005 and in the UK it will be fully implemented by 1 July 2007. The Directive introduced the concept of producer responsibility for electrical and electronic goods placed on the market and mandates the establishment of systems to collect and recycle WEEE. All DCC subsidiaries impacted by the legislation, principally within the IT and Healthcare divisions, have identified their obligations, joined WEEE compliance schemes and registered with the appropriate authorities. Community DCC is committed to ensuring that the needs and interests of the local communities in which DCC’s subsidiaries operate are taken into consideration and is sensitive to the impact its business operations may have on its neighbours. DCC’s subsidiaries manage their own social responsibility programs, taking the Group’s focus deeper into the community by supporting a large number of health, welfare, sporting, educational and cultural activities. At corporate level, DCC supports many worthy causes, assisting a large number of charities with modest donations rather than a small number of high profile organisations with large donations. DCC also supports a select number of educational establishments whose programmes of study are aligned with its areas of business. Community initiative – case study During the year, SerCom Solutions, a leading provider of outsourced procurement and supply chain management services, embarked on an initiative to provide a first hand work place insight to senior cycle students from Crescent Community College as part of a Skills @ Work programme, an initiative of Business in the Community Ireland (BITCI). BITCI aims to encourage corporate Ireland to increase the quality and extent of its contribution to social and economic regeneration by making corporate social responsibility an essential part of strategic business planning.The Skills @ Work programme invites employees from local businesses to talk to students about the real-life skills required in the workforce, such as interview preparation and CV writing. As part of the initiative, the students were brought on a site visit to the SerCom Solutions plant. During their visit they heard from SerCom Solutions employees about the different jobs on site and saw the many career opportunities that exist in a supply chain, logistics and turnkey assembly organisation. 38 38 DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Corporate Governance The Board of DCC is committed to maintaining the highest standards of corporate governance and this statement describes how DCC has applied the principles set out in Section 1 of the Combined Code on Corporate Governance (June 2006) published by the Financial Reporting Council in the UK. 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/Deputy Chairman, 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 currently consists of three executive and seven non-executive Directors. Brief biographies of the Directors are set out on pages 4 to 5. 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 judgment 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 judgment. 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. The Board recognises the need for Directors, in particular new Directors, to be aware of their legal responsibilities 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 seven 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 on Directors’ Remuneration and Interests on pages 44 to 47. Appointment of Executive Chairman and Group Managing Director On 26 May 2006, in a Stock Exchange announcement, DCC informed the market that the Chairman, Alex Spain, intended to retire as Chairman and from the Board in advance of the annual general meeting in 2007. He will retire on 30 June 2007. In that Stock Exchange announcement, it was noted "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 considering succession planning for the retiring Chairman, Alex Spain, and the role of the Chief Executive/Deputy Chairman, Jim Flavin, the Nomination Committee was significantly influenced by the following considerations: • The DCC business model has generated superior investment returns for shareholders since flotation in 1994. However the diversity of the business model, while reducing risk, makes DCC more complex from a management perspective. Each of its five market sector divisions need to be as competitive and informed as singly focused company competitors. In addition, group added value must be constantly sought and achieved through group synergies, procurement initiatives, management development, best practice, etc. Consequently day- to-day operational leadership and the achievement of operational excellence is more demanding in DCC. • The Chief Executive/Deputy Chairman, Jim Flavin, recommended that it is timely to bring increased focus to DCC's overall strategic direction to ensure that it is best positioned for sustainable long-term growth. The Board is in full agreement with this recommendation. This strategic review should be carried out without too much distraction from day-to-day operational matters. DCC - ANNUAL REPORT AND ACCOUNTS 2007 DCC - ANNUAL REPORT AND ACCOUNTS 2007 39 39 Corporate Governance (continued) • As the founder of DCC, Jim Flavin has played a very hands-on role as Chief Executive/Deputy Chairman. Since its foundation in 1976, he has been the central driving force, leading a highly skilled and committed executive team. He is willing and motivated to play a continuing important and active role in the further growth and development of DCC. Arising from these considerations the Nomination Committee, having consulted with the non-executive Directors who are not on the Committee, recommended to the Board that, on the retirement of Alex Spain as Chairman, • Jim Flavin, Chief Executive/Deputy Chairman, should take over the chairman's role and, for a three- year transition period, should be an executive chairman with primary responsibility for strategy development. • Tommy Breen, Chief Operating Officer, should be promoted to the position of Group Managing Director. In this role, he should take on significant elements of Jim Flavin's current chief executive responsibilities and should have primary responsibility for day-to-day operational matters. The Nomination Committee considered Combined Code provision A.2.1 relating to the division of responsibilities between the chairman and the chief executive. In setting out a detailed statement of the role and responsibilities of the Executive Chairman, the Committee defined the distinctive but complementary role of the Executive Chairman to the role and responsibilities of the Group Managing Director, which the Committee set out in a separate comprehensive statement. The Committee also considered Code provision A.2.2 and decided for the reasons set out earlier that it is appropriate and in shareholders’ interest that the Chief Executive/Deputy Chairman should become Chairman. Major shareholders were consulted by the independent members of the Nomination Committee in respect of the Chief Executive/Deputy Chairman becoming Executive Chairman, following the retirement of the current Chairman, Alex Spain, as required by Code provision A.2.2. The Irish Association of Investment Managers was also consulted. In accordance with provision A.4.1 of the Code, the Chairman of the Board, who is also chairman of the Nomination Committee, did not chair the meetings dealing with the appointment of his successor. The Committee was also in compliance with Code provision A.4.3 in relation to the preparation of a detailed job specification. The Nomination Committee did not consider that the process would have been enhanced by an external search consultancy or open advertising. At a meeting of the full Board it was unanimously decided to accept the recommendation of the Nomination Committee and accordingly on 1 July 2007 Jim Flavin, Chief Executive/Deputy Chairman, will become Executive Chairman and Tommy Breen, Chief Operating Officer, will become Group Managing Director. Following the retirement of Alex Spain, the Board will have six non-executive Directors and three executive Directors. The six non-executive Directors collectively have extensive board experience in leading public companies and have deep knowledge of corporate governance best practice. The Board believes they are all fully independent. The Board is in compliance with Code provision A.1.3. As required by this provision, the non-executive Directors, led by the Senior Independent Director, will meet without the Executive Chairman present at least annually to appraise his performance. 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 three 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 role and responsibilities of the Audit Committee are set out in its 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 judgments 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; 40 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Corporate Governance (continued) • 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 external 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 72. Nomination Committee The Nomination Committee currently 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 five times during the year. Individual attendance at these meetings is set out in the table below. 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 constant 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. Remuneration Committee The Remuneration Committee comprises four non-executive Directors, Maurice Keane (Chairman), Tony Barry, Róisín Brennan and Michael Buckley. The Committee met five times during the year. Individual attendance at these meetings is set out in the table below. 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 the Chairman 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 Committee also monitors the level and structure of remuneration of other senior management. The Chief Executive/Deputy Chairman makes recommendations to the Remuneration Committee on remuneration for the other executive Directors. The Remuneration Committee is authorised to obtain access to professional advice if deemed desirable. Attendance at Board and Committee meetings during the year ended 31 March 2007 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 7 7 7 7 7 7 7 7 2 7 7 B 7 7 7 7 7 7 7 7 2 7 7 Audit Committee B A Nomination Committee B A Remuneration Committee B A - - - - 3 - 3 - - - 3 - - - - 3 - 3 - - - 3 5 5 - - - 5 - 5 - - 5 4 5 - - - 5 - 5 - - 5 - - 5 - 5 5 - 5 - - - - - 5 - 5 5 - 5 - - - * Kevin Murray resigned on 30 June 2006 Column A indicates the number of meetings held during the period the Director was a member of the Board and/or Committee. Column B indicates the number of meetings attended during the period the Director was a member of the Board and/or Committee. DCC - ANNUAL REPORT AND ACCOUNTS 2007 41 Corporate Governance (continued) 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. 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, against and withheld. 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. 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 website 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. 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 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. The 2007 Annual General Meeting will be held at 11 a.m. on 20 July 2007 at The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland. Internal control 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 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. Going concern After making enquiries, the Directors have formed a judgment, 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 2007, with the provisions as set out in Section 1 of the Combined Code on Corporate Governance. 42 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Report of the Directors for the year ended 31 March 2007 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 105 to 108. Directors The names of the Directors and a short biographical note on each Director appear on pages 4 to 5. Kevin Murray resigned from his position as an executive Director on 30 June 2006. Alex Spain will retire from his position as Chairman and non-executive Director on 30 June 2007. In accordance with Article 80 of the Articles of Association, Jim Flavin, Maurice Keane and Bernard Somers retire by rotation at the 2007 Annual General 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 and Paddy Gallagher 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. None of the retiring Directors has a service contract with the Company or with any member of the Group, other than Jim Flavin, Chief Executive/Deputy Chairman, whose service agreement provides for one year’s notice of termination by the Company. Details of the Directors’ interests in the share capital of the Company are set out in the Report on Directors’ Remuneration and Interests on pages 44 to 47. The Directors of DCC plc present their report and the audited financial statements for the year ended 31 March 2007. Group results The profit for the financial year attributable to equity holders of the Company amounted to €140.2 million as set out in the Group Income Statement on page 51. Dividends An interim dividend of 17.87 cent per share, amounting to €14.34 million, was paid on 8 December 2006. The Directors recommend the payment of a final dividend of 31.41 cent per share, amounting to €25.26 million. Subject to shareholders’ approval at the Annual General Meeting on 20 July 2007, this dividend will be paid on 26 July 2007 to shareholders on the register on 25 May 2007. The total dividend for the year ended 31 March 2007 amounts to 49.28 cent per share, a total of €39.60 million. The profit attributable to equity holders of the Company, which has been transferred to reserves, and the dividends paid during the year ended 31 March 2007, are shown in note 41 on page 99. Purchase of shares and treasury shares The number of shares held in Treasury at the beginning of the year was 7,510,178 (8.51% of the issued share capital) with a nominal value of €1.878 million. The maximum number of shares held in Treasury during the year was 8,526,489 (9.66% of the issued share capital) with a nominal value of €2.132 million. In June 2006, the Company purchased 1,038,311 of its own shares (1.18% of the issued share capital) with a nominal value of €0.260 million at a total cost of €18.818 million. A total of 732,233 shares (0.83% of the issued share capital) with a nominal value of €0.183 million were re-issued during the year at prices ranging from €6.22 to €12.63 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 2007 of 7,816,256 shares (8.86% of the issued share capital) with a nominal value of €1.954 million. At the Company’s Annual General Meeting on 10 July 2006, 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 20 July 2007, 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 The Chairman’s Statement on pages 8 to 9, the Chief Executive’s Review on pages 10 to 11, the Business Reviews on pages 12 to 31 and the Financial Review on pages 32 to 35 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 2007, of recent events and of likely future developments. Principal risks and uncertainties Under Regulation 37 of the European Communities (Companies: Group Accounts) Regulations 1992, as amended, DCC is required to give a description of the principal risks and uncertainties facing the Group. As detailed throughout this Annual Report, DCC’s businesses operate in a diversified range of business areas. This diversification reduces the potential impact of industry specific risk on the DCC Group as a whole. 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. The principal financial risks facing the Group are addressed in the Financial Review under ‘Financial Risk Management’ on pages 32 to 35. The Group has a comprehensive system of risk management and internal controls as detailed under ‘Internal Control’ in the Corporate Governance statement on pages 38 to 41. DCC - ANNUAL REPORT AND ACCOUNTS 2007 43 Report of the Directors (continued) Substantial shareholdings The Company has been advised of the following interests in its share capital as at 11 May 2007: FMR Corp. on behalf of certain of its direct and indirect subsidiaries * 10,610,400 shares) 13.19% Schroder Investment Management Limited, Schroder & Co. Limited and Schroder Investment Management North America Limited * 8,426,181 10.48% No. of €0.25 Ordinary Shares % of Issued Share Capital (excluding treasury 7,624,448 4,210,774 2,458,416 9.48% 5.24% 3.06% 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 11 May 2007 Bank of Ireland Asset Management Limited * AIM Trimark Investments* Jim Flavin * Notified as non-beneficial interests 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. 44 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Report on Directors’ Remuneration and Interests Directors’ remuneration Executive Directors’ Remuneration 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 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 2007. The performance targets, which are reviewed annually, primarily relate to growth in Group earnings and also to the overall contribution and personal performance of each executive Director, including Group development. 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. 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 the Chairman 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 Committee also monitors the level and structure of remuneration of other senior management. The Chief Executive/Deputy Chairman makes recommendations to the Remuneration Committee on remuneration 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 remuneration policy, the Committee has given due regard to the provisions of the Combined Code on Corporate Governance. The typical elements of the remuneration package for senior executives 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). DCC - ANNUAL REPORT AND ACCOUNTS 2007 45 Report on Directors’ Remuneration and Interests (continued) 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 Fees1 Bonus Special Bonus5 Benefits2 Pension Contribution3 Total 2007 2006 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 2007 2007 2007 2007 2006 2006 2006 2006 2006 Executive Directors Jim Flavin Tommy Breen Fergal O’Dwyer Kevin Murray4 Total for executive Directors 846 410 329 90 806 346 314 346 508 246 198 - 510 218 198 218 150 - 100 - 39 22 21 5 38 21 21 20 127 122 110 30 121 94 86 94 1,520 800 658 125 1,625 679 719 678 1,675 1,812 952 1,144 250 87 100 389 395 3,103 3,701 Non-executive Directors Alex Spain Tony Barry Róisín Brennan Michael Buckley Paddy Gallagher Maurice Keane Bernard Somers 153 57 65 62 60 65 75 142 55 35 33 61 60 66 Total for non-executive Directors 537 452 Pension payment in respect of retired Director Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 153 57 65 62 60 65 75 142 55 35 33 61 60 66 537 452 10 10 3,650 4,163 Notes 1 Fees are payable only to non-executive Directors and include Chairman’s and Board Committee fees. 2 In the case of the executive Directors, benefits relate principally to the use of a company car. 3 Executive Director pension contributions in the year ended 31 March 2007 were made to a defined contribution arrangement for Jim Flavin and to a defined benefit scheme for the other executive Directors. 4 Kevin Murray resigned as a Director on 30 June 2006. 5 In respect of the year ended 31 March 2006, a special bonus was paid to Mr. Flavin and Mr. O’Dwyer in recognition of the exceptional demands that had been placed on them during that year arising from the successful defence of the action taken by Fyffes plc against DCC plc and others. 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 2007 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 Transfer value equivalent to the increase in accrued pension benefit2 Total accrued pension benefit at year end3 €’000 10 6 5 21 €’000 206 51 49 306 €’000 148 107 129 384 Executive Directors Tommy Breen Fergal O’Dwyer Kevin Murray4 Total Notes 1 Increases are after adjustment for inflation over the year and reflect additional pensionable service and salary. 2 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. 3 Figures represent the total accrued pension payable from normal retirement date, based on pensionable service at 31 March 2007. 4 Kevin Murray ceased accruing benefits on 30 June 2006. 46 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Report on Directors’ Remuneration and Interests (continued) 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. Details of the executive Directors’ and the Company Secretary’s options to subscribe for shares under the DCC plc 1998 Employee Share Option Scheme are set out below: At 31 Granted Exercised Lapsed in year in year in year March 2006 At 31 March 2007 Weighted Average Exercise Price € Normal Exercise Period Executive Directors Jim Flavin Basic Tier Second Tier Tommy Breen Basic Tier Second Tier Fergal O’Dwyer Basic Tier Second Tier Kevin Murray1 Basic Tier Second Tier Company Secretary Gerard Whyte Basic Tier Second Tier 375,000 395,000 25,000 - 190,000 190,000 15,000 - 165,000 165,000 10,000 - - - - - - - - - - - - - 400,000 395,000 8.9435 8.1063 June 2001 -. June 2016 June 2003 -. Nov 2012 205,000 190,000 10.0570 8.6786 June 2001 -. June 2016 June 2003 -. Nov 2012 175,000 165,000 9.7973 8.4366 June 2001 -. June 2016 June 2003 -. Nov 2012 190,000 190,000 - - 165,000 95,000 25,000 95,000 - - 8.4193 7.0457 - - 82,500 80,000 7,500 - - - - - 90,000 80,000 10.7906 8.8716 June 2001 -. June 2016 June 2003 -. Nov 2012 Note 1 Kevin Murray resigned as a Director on 30 June 2006. DCC - ANNUAL REPORT AND ACCOUNTS 2007 47 Report on Directors’ Remuneration and Interests (continued) 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. There are no options outstanding under the June 2001 grant. 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 2007, Group employees held options to subscribe for 563,635 ordinary shares under the DCC Sharesave Scheme. Details of the executive Directors’ and the Company Secretary’s options to subscribe for shares under the DCC Sharesave Scheme are set out below: No. of Sharesave Options No. of Sharesave Options At 31 March 2006 At 31 March 2007 Executive Directors Jim Flavin Tommy Breen Fergal O’Dwyer Company Secretary Gerard Whyte - - - 815 2,383 2,383 2,383 2,006 The market price of DCC shares on 30 March 2007 was €26.36 and the range during the year was €17.68 to €28.00. Additional information in relation to the DCC plc 1998 Employee Share Option Scheme and the DCC Sharesave Scheme appears in note 10 on page 74. 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 2007, together with their interests at 31 March 2006, were: No. of Ordinary Shares At 31 March 2007 No. of Ordinary Shares At 31 March 2006 Directors Alex Spain Jim Flavin Tony Barry Tommy Breen Róisín Brennan Michael Buckley Paddy Gallagher Maurice Keane Fergal O’Dwyer Bernard Somers Company Secretary Gerard Whyte 25,634 2,458,416 17,000 213,895 - 10,000 5,040 5,000 214,889 - 25,634 2,456,033 17,000 211,512 - 10,000 5,040 5,000 212,506 - 126,544 125,353 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 2007 and 11 May 2007. 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 2007. 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 DCC - ANNUAL REPORT AND ACCOUNTS 2007 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, in which case there should be supporting assumptions or qualifications as necessary. 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 that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Acts 1963 to 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the website. Legislation in the Republic of Ireland concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The following statement, which should be read in conjunction with the statement of Directors’ and 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 applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are required by law to 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 period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state that the financial statements comply with applicable IFRS as adopted by the European Union; and DCC - ANNUAL REPORT AND ACCOUNTS 2007 49 Report of the Independent Auditors for the year ended 31 March 2007 To the Members of DCC plc We have audited the Group and Company financial statements (the ‘financial statements’) of DCC plc for the year ended 31 March 2007 which comprise the Group Income Statement, the Group and Company Balance Sheets, the Group and Company Cash Flow Statements, the Group and Company Statement of Recognised Income and Expense and the related notes. We also audited the detailed information on Directors’ remuneration, interests in shares and share options on pages 44 to 47. 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 financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) 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 IFRSs as adopted by the European Union. We report to you our opinion as to whether the Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, as applied in accordance with the provisions of the Companies Acts, 1963 to 2006. We also report to you whether the financial statements have been properly prepared in accordance with Irish statute comprising the Companies Act, 1963 to 2006 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. We review whether the Corporate Governance statement reflects the Company’s compliance with the nine provisions of the Financial Reporting Council’s 2006 Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, 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 Business Reviews, the 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 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 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. 50 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Report of the Independent Auditors for the year ended 31 March 2007 (continued) 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 its called- up share capital and, in our opinion, on that basis there did not exist at 31 March 2007 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 11 May 2007 Opinion In our opinion: • the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 March 2007 and of its profit and cash flows for the year then ended; • the Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Acts, 1963 to 2006, of the state of the Parent Company’s affairs as at 31 March 2007 and cash flows for the year then ended; and • the financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2006 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. DCC - ANNUAL REPORT AND ACCOUNTS 2007 51 Group Income Statement for the year ended 31 March 2007 2007 Pre Exceptionals 2006 Pre Exceptionals exceptionals €’000 Note (note 11) €’000 Total €’000 exceptionals €’000 (note 11) €’000 Total €’000 Revenue Cost of sales Gross profit Operating costs Operating profit before amortisation of intangible assets Amortisation of intangible assets Operating profit Finance costs Finance income Share of associates’ profit after tax Profit before tax Income tax expense 4 5 4 4 12 12 14 15 4,046,118 (3,544,403) 501,715 (358,721) 142,994 (6,660) 136,334 (31,338) 20,488 11,800 137,284 (12,995) - - - 24,516 24,516 - 24,516 - - - 24,516 (7,700) 4,046,118 (3,544,403) 501,715 (334,205) 3,436,292 (2,992,240) 444,052 (320,457) 167,510 (6,660) 160,850 (31,338) 20,488 11,800 161,800 (20,695) 123,595 (4,956) 118,639 (22,947) 15,906 25,474 137,072 (13,479) - - - 2,841 2,841 - 2,841 (1,145) - - 1,696 - 3,436,292 (2,992,240) 444,052 (317,616) 126,436 (4,956) 121,480 (24,092) 15,906 25,474 138,768 (13,479) Profit after tax for the financial year 124,289 16,816 141,105 123,593 1,696 125,289 Profit attributable to: Equity holders of the Company Minority interest Earnings per ordinary share Basic Diluted 18 18 Alex Spain, Jim Flavin, Directors 140,186 919 141,105 174.59c 170.83c 123,764 1,525 125,289 153.92c 150.46c 52 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Group Statement of Recognised Income and Expense for the year ended 31 March 2007 Items of income and expense recognised directly within equity: Currency translation effects Group defined benefit pension obligations: - actuarial gain - movement in deferred tax asset Deferred tax on share based payment (Losses)/gains relating to cash flow hedges (net) Movement in deferred tax liability on cash flow hedges Net income/(expense) recognised directly in equity Profit after tax for the financial year Note 2007 €’000 2006 €’000 32 15 15 15 7,430 (4,779) 1,576 (169) 25 (159) 22 8,725 141,105 1,779 82 25 23 (3) (2,873) 125,289 Total recognised income and expense for the financial year 149,830 122,416 Attributable to: Equity holders of the Company Minority interest Total recognised income and expense for the financial year 148,911 919 149,830 120,891 1,525 122,416 Group Balance Sheet as at 31 March 2007 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 - share options Cash flow hedge reserve Foreign currency translation reserve Other reserves Retained earnings Minority interest Total equity LIABILITIES Non-current liabilities Borrowings Derivative financial instruments Deferred income tax liabilities Retirement benefit obligations Provisions for liabilities and charges 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 DCC - ANNUAL REPORT AND ACCOUNTS 2007 53 Note 19 20 21 31 28 23 24 28 27 36 37 38 38 38 38 39 40 41 29 28 31 32 34 33 35 25 29 28 34 33 2007 €’000 319,621 321,369 90,332 8,305 3,091 742,718 177,450 597,257 51 337,079 1,111,837 1,854,555 22,057 124,687 4,807 (117) (2,914) 1,400 531,994 681,914 5,816 687,730 268,579 45,944 14,748 16,372 6,122 18,523 2,393 372,681 601,404 50,849 125,978 236 4,807 10,870 794,144 1,166,825 1,854,555 2006 €’000 267,494 248,475 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 3,392 20 (10,344) 1,400 439,477 580,689 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 54 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Group Cash Flow Statement for the year ended 31 March 2007 Cash generated from operations Exceptionals Interest paid Income tax paid Net cash flows from operating activities Investing activities Inflows Proceeds from disposal of property, plant and equipment 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 finance lease liabilities 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 42 35 39 17 40 30 27 30 30 2007 €’000 127,421 (4,916) (29,331) (10,058) 83,116 44,394 - 20,211 64,605 (60,651) (100,213) (1,276) (4,176) (166,316) (101,711) 6,098 3,545 56,303 65,946 (18,818) (1,240) (4,801) (36,381) (38) (61,278) 4,668 (13,927) 4,196 319,918 310,187 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) 314,397 319,918 337,079 (26,892) 310,187 345,280 (25,362) 319,918 Company Balance Sheet as at 31 March 2007 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 Current liabilities Trade and other payables Total liabilities Total equity and liabilities Alex Spain, Jim Flavin, Directors DCC - ANNUAL REPORT AND ACCOUNTS 2007 55 Note 21 22 24 27 36 37 38 39 41 25 2007 €’000 1,300 161,065 162,365 296,303 8 296,311 458,676 22,057 124,687 344 46,758 193,846 10,387 10,387 254,443 254,443 264,830 458,676 2006 €’000 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 56 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Company Statement of Recognised Income and Expense for the year ended 31 March 2007 Profit after tax for the financial year Total recognised income and expense for the financial year Attributable to: Equity holders of the Company Company Cash Flow Statement for the year ended 31 March 2007 Cash generated from operations Interest paid Income tax received/(paid) Net cash flows from operating activities Investing activities Inflows Interest received Outflows Deferred acquisition consideration paid Additional investment in subsidiary undertakings Net cash flows from investing activities Financing activities Inflows 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 16 2007 €’000 40,303 40,303 2006 €’000 42,848 42,848 40,303 42,848 Note 42 22 39 17 2007 €’000 44,219 (1,199) 1,319 44,339 4,613 4,613 - - - 4,613 6,098 6,098 (18,818) (36,381) (55,199) (49,101) (149) 157 8 2006 €’000 43,385 (907) (1,199) 41,279 5,075 5,075 (2,963) (15,258) (18,221) (13,146) 3,344 3,344 - (31,568) (31,568) (28,224) (91) 248 157 DCC - ANNUAL REPORT AND ACCOUNTS 2007 57 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 (IFRSs) 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 2006 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 not to present its individual Income Statement and related notes that form part of the approved Company financial statements. 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 applied in the preparation of the financial statements for the year ended 31 March 2007 are set out below. These policies have been applied consistently by the Group’s subsidiaries, joint ventures and associates for all periods presented in these consolidated 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 judgment in the process of applying the Company’s accounting policies. The areas involving a high degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are documented in the relevant accounting policies below. Standards, interpretations and amendments to published standards that are not yet effective The Group has not applied certain new standards, amendments and interpretations to existing standards that have been issued but are not yet effective. These include the following: IFRS 7 Financial Instruments: Disclosures; IFRS 8 Operating Segments; Amendment to IAS 1 Capital Disclosures; IFRIC Interpretation 8 Scope of IFRS 2; IFRIC Interpretation 9 Reassessment of Embedded Derivatives; IFRIC Interpretation 10 Interim Financial Reporting; IFRIC Interpretation 11 Group and Treasury Share Transactions; IFRIC Interpretation 12 Service Concession Arrangements; and IAS 23R Borrowing Costs. Basis of Consolidation Subsidiaries The results of subsidiary undertakings acquired or disposed of during the year are included in the Group Income Statement from the date of their acquisition or up to the date of their disposal. Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. 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 venturers 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. 58 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. Goodwill attributable to investments in associates is treated in accordance with the accounting policy for goodwill. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the Group Income Statement, and its share of post- acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. 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 fair value of the sale of goods and services to external customers net of value added tax, rebates and discounts. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer, which generally arises on delivery, or in accordance with specific terms and conditions agreed with customers. Revenue from the rendering of services is recognised in the period in which the services are rendered. 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 Group Income Statement except when cash flow and net investment 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. Average exchange rates are a reasonable approximation of the cumulative effect of the rates on the transaction dates. 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. DCC - ANNUAL REPORT AND ACCOUNTS 2007 59 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued 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. In accordance with IFRS 1, cumulative currency translation differences arising prior to the transition date to IFRS (1 April 2004) have been set to zero for the purposes of ascertaining the gain or loss on disposal of a foreign operation. 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, profit or loss on disposal of property, plant and equipment and impairment of assets. Judgment 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. 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. 60 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued Business Combinations The purchase method of accounting is employed in accounting for the acquisition of subsidiaries by the Group. The Group 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 was therefore 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. The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the Income Statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary. 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 accordance with IFRS 1, the accounting treatment of business combinations undertaken prior to the transition date (1 April 2004) was not reconsidered and goodwill amortisation ceased with effect from the transition date. 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. 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 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 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 a subsidiary is sold, any goodwill arising on acquisition, net of any impairments, which has not been amortised through the Income Statement is included in determining the profit or loss arising on disposal. 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. DCC - ANNUAL REPORT AND ACCOUNTS 2007 61 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued 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 two to five years, depending on the nature of the intangible asset. The carrying amount of definite-lived intangible assets are reviewed for indicators of impairment at each reporting date and are subject to impairment testing when events or changes in circumstances indicate that the carrying values may not be recoverable. 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 in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight-line basis over the period of the lease. 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. Trade Receivables Trade and other receivables are stated at cost, which approximates to fair value given the short-dated nature of these assets less provision for impairment. 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. Trade Payables Trade and other payables are stated at cost, which approximates to fair value given the short-dated nature of these liabilities. 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. For the purpose of the Group Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above net of bank overdrafts. 62 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued Derivative Financial Instruments 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 recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, 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). The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments used for hedging purposes are disclosed in note 28 and the movements on the hedging reserve in shareholders’ equity are shown in note 38. 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 remaining maturity of the hedged item is less than twelve months. 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. Interest-Bearing Loans and Borrowings All loans and borrowings are initially recorded at fair value, net of transaction costs incurred. Loans and borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement over the period of the borrowings using the effective interest method. DCC - ANNUAL REPORT AND ACCOUNTS 2007 63 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued 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 acquiree 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 it is not probable that an outflow of resources will be required to settle the obligation 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. Environmental Provisions The Group’s waste management and recycling activities are subject to various laws and regulations governing the protection of the environment. Full provision is made for the net present value of the Group’s estimated costs in relation to restoration liabilities at its landfill sites. The net present value of the estimated costs is capitalised as property, plant and equipment and the unwinding of the discount element on the restoration provision is reflected as a finance cost in the Income Statement. Finance Costs Finance costs comprise interest payable on borrowings calculated using the effective interest rate method, gains and losses on hedging instruments that are recognised in the Income Statement and the unwinding of discounts on provisions. The interest expense component of finance lease payments is recognised in the Income Statement using the effective interest rate method. The finance cost on defined benefit pension scheme liabilities is recognised in the Income Statement in accordance with IAS 19. Finance Income Interest income is recognised in the Income Statement as it accrues, using the effective interest method. The expected return on defined benefit pension scheme assets is recognised in the Income Statement in accordance with IAS 19. 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 where, in respect of taxable temporary differences associated with investments in subsidiaries, joint ventures and associates, the timing of the reversal of the temporary difference is subject to control by the Group and it is probable that reversal will not occur in the foreseeable future. (ii) 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 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. (ii) 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. 64 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 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. In accordance with IAS 19 Employee Benefits the Group recognises 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 at the grant date 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. The measurement requirements of IFRS 2 have been implemented in respect of share options entitlements granted after 7 November 2002. In accordance with the standard, the disclosure requirements of IFRS 2 have been applied to all outstanding share-based payments regardless of their grant date. 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. DCC - ANNUAL REPORT AND ACCOUNTS 2007 65 Notes to the Financial Statements (continued) 1. Summary of significant accounting policies - continued 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. Shareholders’ Equity 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 Group 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. 66 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 2. Financial risk management - continued (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. (iii) Liquidity risk The Group consistently pursues a policy of maintaining 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. 3. Critical Accounting Estimates and Judgments The Group’s main accounting policies affecting its results of operations and financial condition are set out on pages 57 to 65. Judgments 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 judgments and assumptions. Key sources of estimation uncertainty and critical accounting judgments are as follows: Goodwill The Group has capitalised goodwill of €307.4 million at 31 March 2007. 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 judgment 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 2007. 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 €91.4 million at 31 March 2007. At 31 March 2007 the Group also has plan assets totalling €75.0 million, giving a net pension liability of €16.4 million. 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. DCC - ANNUAL REPORT AND ACCOUNTS 2007 67 Notes to the Financial Statements (continued) 3. Critical accounting estimates and judgments - continued Taxation The Group is subject to income taxes in a number of jurisdictions. Provisions for tax liabilities require management to make judgments and estimates in relation to tax issues and exposures. Amounts provided are based on management’s interpretation of country specific tax laws and the likelihood of settlement. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. The Group estimates the most probable amount of future taxable profits, using assumptions consistent with those employed in impairment calculations, and taking into account applicable tax legislation in the relevant jurisdiction. These calculations require the use of estimates. Business Combinations The Group uses the purchase method of accounting for acquisitions which requires that the assets and liabilities assumed are recorded at their respective fair values at the date of acquisition. The application of the purchase method requires certain estimates and assumptions particularly concerning the determination of the fair values of the acquired assets and liabilities assumed at the date of acquisition. For intangible assets acquired, the Group bases valuations on expected future cash flows. This method employs a discounted cash flow analysis using the present value of the estimated after-tax cash flows expected to be generated from the purchased intangible asset using risk adjusted discount rates and revenue forecasts as appropriate. The period of expected cash flows is based on the expected useful life of the intangible asset acquired. Provision for Impairment of Trade Receivables The Group trades with a large and varied number of customers on credit terms. Some debts due will not be paid through the default of a small number of customers. The Group uses estimates based on historical experience and current information in determining the level of debts for which a provision for impairment is required. The level of provision required is reviewed on an ongoing basis. Useful Lives for Property, Plant and Equipment and Intangible Assets Long-lived assets comprising primarily of property, plant and equipment and intangible assets represent a significant portion of total assets. The annual depreciation and amortisation charge depends primarily on the estimated lives of each type of asset and, in certain circumstances, estimates of residual values. Management regularly review these useful lives and change them if necessary to reflect current conditions. In determining these useful lives management consider technological change, patterns of consumption, physical condition and expected economic utilisation of the assets. Changes in the useful lives can have a significant impact on the depreciation and amortisation charge for the period. 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 consumer electronic 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. 68 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 4. Segment information - continued The segment results for the year ended 31 March 2007 are as follows: Income Statement items DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 Segment revenue 2,247,858 1,218,047 234,276 279,471 66,466 4,046,118 Operating profit* Amortisation of intangible assets Net exceptionals (note 11) Operating profit Finance costs Finance income Share of associates’ profit after tax Profit before income tax Income tax expense Profit for the year 60,538 (1,480) 59,058 33,842 (2,136) 31,706 22,942 (1,529) 21,413 15,123 (1,008) 14,115 10,549 (507) 10,042 142,994 (6,660) 136,334 24,516 160,850 (31,338) 20,488 11,800 161,800 (20,695) 141,105 * Operating profit before amortisation of intangible assets and net exceptionals DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2006 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 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 (1,043) 54,922 25,015 (1,580) 23,435 21,636 (1,325) 20,311 15,467 (1,008) 14,459 5,512 - 5,512 Net operating exceptionals (note 11) Operating profit Finance costs (including non-operating exceptionals) Finance income 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 net exceptionals 123,595 (4,956) 118,639 2,841 121,480 (24,092) 15,906 25,474 138,768 (13,479) 125,289 DCC - ANNUAL REPORT AND ACCOUNTS 2007 69 Notes to the Financial Statements (continued) 4. Segment information - continued Balance Sheet items DCC Energy €’000 DCC SerCom €’000 As at 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 Segment assets 572,247 411,615 178,901 143,332 109,602 1,415,697 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 90,332 3,142 8,305 337,079 1,854,555 Segment liabilities 320,924 162,180 49,621 74,248 21,732 628,705 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 (current and non-current) Capital grants Total liabilities as reported in the Group Balance Sheet 394,557 46,180 65,597 29,393 2,393 1,166,825 DCC Energy €’000 DCC SerCom €’000 As at 31 March 2006 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 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 (current and non-current) Capital grants Total liabilities as reported in the Group Balance Sheet 359,944 27,150 47,415 22,364 1,991 1,027,241 70 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 4. Segment information - continued Net tangible capital employed The denominator in the Group’s return on tangible capital employed calculations is the average of the Group’s opening and closing net tangible capital employed. The following tables provide an analysis of the net tangible capital employed positions at 31 March 2007 and 31 March 2006. Segment assets Intangible assets Deferred income tax assets Assets employed Segment liabilities Income tax liabilities (current and deferred) Capital grants Liabilities employed DCC Energy €’000 572,247 (104,668) 2,411 469,990 320,924 19,577 - 340,501 DCC SerCom €’000 411,615 (59,171) 635 353,079 162,180 18,014 275 180,469 As at 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 178,901 (76,105) 4,214 107,010 49,621 16,047 1,227 66,895 143,332 (35,331) 912 108,913 74,248 4,889 - 79,137 109,602 (46,094) 133 63,641 1,415,697 (321,369) 8,305 1,102,633 21,732 7,070 891 29,693 628,705 65,597 2,393 696,695 Net tangible capital employed 129,489 172,610 40,115 29,776 33,948 405,938 Segment assets Intangible assets Deferred income tax assets Assets employed Segment liabilities Income tax liabilities (current and deferred) Capital grants Liabilities employed DCC Energy €’000 483,616 (75,827) 1,141 408,930 278,138 21,853 - 299,991 DCC SerCom €’000 372,834 (59,898) - 312,936 185,090 8,485 322 193,897 As at 31 March 2006 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 Environmental €’000 Total €’000 151,076 (63,621) 2,811 90,266 40,746 9,866 1,246 51,858 128,894 (35,987) 644 93,551 59,567 5,486 - 65,053 40,426 (13,142) - 27,284 1,176,846 (248,475) 4,596 932,967 4,836 1,725 423 6,984 568,377 47,415 1,991 617,783 Net tangible capital employed 108,939 119,039 38,408 28,498 20,300 315,184 DCC - ANNUAL REPORT AND ACCOUNTS 2007 71 Notes to the Financial Statements (continued) 4. Segment information - continued Other segment information DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 Capital expenditure 32,827 4,807 5,760 6,943 10,822 61,159 Depreciation 22,519 2,948 5,515 3,348 5,131 39,461 Amortisation of intangible assets 1,480 2,136 1,529 1,008 507 6,660 DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2006 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 Environmental €’000 Total €’000 Capital expenditure 26,884 11,303 10,305 5,028 4,332 57,852 Depreciation 21,321 2,748 4,194 3,491 2,388 34,142 Amortisation of intangible assets 1,043 1,580 1,325 1,008 - 4,956 Geographical analysis The following is a geographical analysis of the segment information presented above. Republic of Ireland UK Rest of the World Total 2007 €’000 2006 €’000 2007 €’000 2006 €’000 2007 €’000 2006 €’000 2007 €’000 2006 €’000 Year ended 31 March 2007 Income Statement items Revenue 1,040,456 995,848 2,734,464 2,259,954 271,198 180,490 4,046,118 3,436,292 Operating profit* Amortisation of intangible assets Segment result Balance Sheet items 57,580 51,683 80,835 68,904 4,579 3,008 142,994 123,595 (2,284) 55,296 (1,703) 49,980 (4,103) 76,732 (3,071) 65,833 (273) 4,306 (182) 2,826 (6,660) 136,334 (4,956) 118,639 Segment assets 447,015 435,089 872,681 670,101 96,001 71,656 1,415,697 1,176,846 Segment liabilities 212,463 215,994 376,068 330,018 40,174 22,365 628,705 568,377 Other segment information Capital expenditure 15,124 18,667 45,505 38,823 Depreciation 12,282 12,060 26,767 21,597 530 412 362 61,159 57,852 485 39,461 34,142 * Operating profit before amortisation of intangible assets and net exceptionals 72 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 5. Operating costs Selling and distribution costs Administrative expenses Other expenses Other income Total operating costs * * before net operating exceptionals (note 11) Other operating expenses and income comprise the following charges/(credits): Other expenses Expensing of employee share options (note 10) Other operating expenses Other income Fair value gains on undesignated derivative financial instruments - forward foreign exchange contracts (net) - commodity contracts (net) Other operating income 2007 €’000 186,599 178,453 1,881 (8,212) 358,721 2006 €’000 168,758 157,349 1,931 (7,581) 320,457 1,415 466 1,881 (244) - (7,968) (8,212) 1,840 91 1,931 (297) (55) (7,229) (7,581) 6. Group operating profit 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 (note 35) 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 2007 €’000 2006 €’000 (276) (112) 6,142 594 3,082 9,818 1,256 636 1,875 3,767 5,758 265 3,079 9,102 1,075 166 1,711 2,952 7. Directors’ emoluments and interests Directors’ emoluments and interests (which are included in operating costs) are presented in the Report on Directors’ Remuneration and Interests on pages 44 to 47. Notes to the Financial Statements (continued) 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 (decrease)/increase in cash and cash equivalents Joint venture becoming a subsidiary Cash acquired on acquisition of joint venture 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 Cash and cash equivalents as above Interest-bearing loans and borrowings (current and non-current) Net cash at 31 March Details of the Group’s principal joint ventures are shown on page 108. DCC - ANNUAL REPORT AND ACCOUNTS 2007 73 2007 €’000 39,116 (25,179) 13,937 (7,133) 6,804 117 6,921 (1,616) 5,305 22,636 14,043 36,679 20,687 7,300 8,692 15,992 36,679 4,139 (3,243) (1,055) (159) 14 3,864 1,524 5,243 5,243 - 5,243 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 74 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 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) 2007 Number 2006 Number 1,951 1,399 1,071 854 378 5,653 2007 €’000 212,271 22,257 1,415 5,603 2,781 244,327 1,779 1,321 929 907 173 5,109 2006 €’000 182,655 18,842 1,840 4,816 3,062 211,215 The prior year amount for wages and salaries has been restated for comparability purposes. 10. Employee share options 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 €1.415 million (2006: €1.840 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 IFRS 2 Share-based Payment, the Group has implemented the measurement requirements of the IFRS in respect of share options that were granted after 7 November 2002. The total share option expense is analysed as follows: Date of Grant Grant price € Duration of Number of average Income Statement vesting period options granted fair value € 2007 €’000 2006 €’000 Weighted Expense in DCC plc 1998 Employee Share Option Scheme 12 November 2002 22 December 2003 18 May 2004 9 November 2004 15 December 2005 23 June 2006 10.38 10.70 12.75 15.65 16.70 18.05 3 and 5 years 3 and 5 years 3 and 5 years 3 and 5 years 3 and 5 years 3 years 609,500 132,000 162,500 219,500 215,000 223,500 2.81 2.76 3.42 4.15 4.52 4.54 40 76 114 208 282 245 965 349 94 150 269 79 - 941 DCC Sharesave Scheme 2001 10 December 2004 Total expense 12.63 3 and 5 years 716,010 4.67 450 1,415 899 1,840 DCC - ANNUAL REPORT AND ACCOUNTS 2007 75 Notes to the Financial Statements (continued) 10. Employee share options - continued Share options DCC plc 1998 Employee Share Option Scheme At 31 March 2007, under the DCC plc 1998 Employee Share Option Scheme, Group employees hold basic tier options to subscribe for 2,176,300 ordinary shares and second tier options to subscribe for 1,996,412 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 2007 2006 Average exercise price in € per share 9.47 18.05 8.06 12.00 10.00 Options 4,589,244 223,500 (479,532) (160,500) 4,172,712 Average exercise price in € per share 9.11 16.70 8.64 11.42 9.47 Options 4,781,284 215,000 (354,040) (53,000) 4,589,244 Total exercisable at 31 March 8.13 2,613,212 8.07 3,032,744 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 2007 Granted during the year ended 31 March 2006 3 year € 4.54 4.52 5 year € Weighted average € - 4.52 4.54 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 2007 3 year 18.05 3.90 2.50 25.0 8.0 2006 3 year 5 year 16.70 4.40 2.50 25.0 8.0 16.70 4.40 2.50 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. 76 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 10. Employee share options - continued Analysis of closing balance - outstanding at end of year Date of grant Date of expiry 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 13 November 2001 10 June 2002 12 November 2002 22 December 2003 18 May 2004 9 November 2004 15 December 2005 23 June 2006 Total outstanding at 31 March 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 13 November 2011 10 June 2012 12 November 2012 22 December 2013 18 May 2014 9 November 2014 15 December 2015 23 June 2016 Analysis of closing balance - exercisable at end of year Date of grant Date of expiry 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 13 November 2001 12 November 2002 22 December 2003 Total exercisable at 31 March 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 13 November 2011 12 November 2012 22 December 2013 Average 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 10.70 12.75 15.65 16.70 18.05 Average 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 10.70 2007 2006 Average 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 - Options 395,160 69,000 60,000 17,052 544,500 12,000 747,500 50,000 212,500 699,500 - 476,500 127,000 149,500 199,500 197,500 215,500 4,172,712 2007 2006 Average 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 - Options 395,160 69,000 60,000 17,052 544,500 12,000 747,500 50,000 212,500 341,000 107,000 57,500 2,613,212 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 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 DCC - ANNUAL REPORT AND ACCOUNTS 2007 77 Notes to the Financial Statements (continued) 10. Employee share options - continued DCC Sharesave Scheme 2001 Under the DCC Sharesave Scheme 2001, Group employees hold options to subscribe for 563,635 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 Exercised Lapsed At 31 March Analysis of closing balance – outstanding at end of year Date of grant 15 June 2001 10 December 2004 10 December 2004 Total outstanding at 31 March Date of expiry 1 September 2007 1 March 2009 1 March 2011 Average exercise price in € per share 11.47 8.83 11.63 12.63 Average exercise price in € per share - 12.63 12.63 2007 2006 Average exercise price in € per share 11.53 9.23 12.35 11.47 Options 884,988 (252,701) (68,652) 563,635 2007 2006 Average exercise price in € per share 8.79 12.63 12.63 Options - 295,656 267,979 563,635 Analysis of closing balance – exercisable at end of year As at 31 March 2007, none (2006: none) of the outstanding options under the DCC Sharesave Scheme 2001 were exercisable. 11. Net exceptionals Profit on disposal of property, plant and equipment Costs of legal actions with Fyffes plc, Pihsiang and others less provision for recovery of legal costs from Fyffes plc Restructuring costs and other Net operating exceptionals Foreign exchange losses on intercompany financing loans to 30 September 2005 Taxation 2007 €’000 33,199 (6,584) (2,099) 24,516 - 24,516 (7,700) 16,816 Options 986,912 (9,667) (92,257) 884,988 Options 268,036 326,352 290,600 884,988 2006 €’000 - 3,353 (512) 2,841 (1,145) 1,696 - 1,696 On 9 February 2007, DCC sold a site of approximately 1.5 acres in the Sandyford Industrial Estate, Dublin 18 for €40.0 million. Arising principally from this sale the Group made an exceptional profit on the disposal of property, plant and equipment of €33.2 million. The Group incurred exceptional restructuring costs of €2.1 million and exceptional legal and related costs of €6.6 million, resulting in the net exceptional profit of €24.5 million. As set out in a DCC Stock Exchange Announcement on 7 April 2006 Fyffes have lodged an appeal to the Irish Supreme Court seeking to overturn the decision of the Irish High Court in its failed legal action against DCC and others taken under Part V of the Irish Companies Act, 1990. That action was dismissed on the grounds that the defendants were not in possession of price sensitive information in February 2000 as alleged by Fyffes. The Supreme Court hearing, which is expected to last for approximately five days, is scheduled to commence on 18 June 2007. 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. During the year ended 31 March 2007, the London High Court also finalised its award of costs to Days Healthcare in the total amount of Stg£4.8 million. Accordingly, as at 31 March 2007, these parties are jointly and severally liable to pay the DCC Group Stg£18.9 million (€27.8 million). 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. 78 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 12. Finance costs and finance income repayable within 5 years, not by instalments repayable within 5 years, by instalments repayable wholly or partly in more than 5 years Finance costs On bank loans, overdrafts and Unsecured Notes due 2008 to 2016 - - - On loan notes - On finance leases Other interest repayable within 5 years, not by instalments 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 income Interest on cash and term deposits Other income receivable Expected return on defined benefit pension scheme assets Net finance cost before exceptional item Net finance cost - exceptional item (note 11) 2007 €’000 2006 €’000 (16,016) (37) (9,082) (282) (640) (416) (26,473) (4,026) (439) - 1,840 (11,360) 24,365 (15,287) 42 (31,338) 14,235 1,797 4,456 20,488 (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 (10,850) (7,041) - (1,145) * The Group applies fair value hedge accounting under IAS 39 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) 2007 €1=Stg£ 2006 €1=Stg£ 0.680 0.680 0.697 0.682 DCC - ANNUAL REPORT AND ACCOUNTS 2007 79 Notes to the Financial Statements (continued) 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 Tax on net exceptionals (note 11) United Kingdom Corporation Tax at 30% Other overseas tax Total current taxation Deferred tax Irish at 12.5% United Kingdom at 30% Other overseas deferred tax Under/(over) provision in respect of prior years Total deferred tax (credit)/charge Total income tax expense (ii) Deferred tax liability/(asset) recognised directly in Equity Defined benefit pension obligations Share based payments Cash flow hedges 2007 €’000 2006 €’000 33,363 92,672 13,493 949 14,442 (2,642) 11,800 30,795 (94) 30,701 (5,227) 25,474 2007 €’000 2006 €’000 8,010 (310) 7,700 4,822 3,241 23,463 242 (3,207) - 197 (2,768) 7,142 (657) - 3,494 1,457 11,436 (59) 2,567 113 (578) 2,043 20,695 13,479 2007 €’000 169 (25) (22) 122 2006 €’000 (82) (25) 3 (104) 80 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 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 net exceptionals Taxation as a percentage of profit before share of associates’ profit after tax, amortisation of intangible assets and net exceptionals 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 different rates and other 2007 €’000 2006 €’000 161,800 (11,800) 6,660 156,660 20,695 1,541 22,236 138,768 (25,474) 4,956 118,250 13,479 595 14,074 14.2% (3.2%) 11.9% 0.2% 11.0% 12.1% 2007 % 12.5 (0.2) 1.9 14.2 2006 % 12.5 (0.5) (0.1) 11.9 (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. The standard rate of corporation tax in the United Kingdom is scheduled to decrease from 30% to 28% with effect from 1 April 2008. 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 €40.303 million (2006: €42.848 million) has been accounted for in the financial statements of the Company. In accordance with Section 148(8) of the Companies Act 1963, 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 27.31 cent per share on 14 July 2006 (paid 23.75 cent per share on 11 July 2005) Interim - paid 17.87 cent per share on 8 December 2006 (2005: paid 15.54 cent per share on 1 December 2005) 2007 €’000 2006 €’000 22,044 19,073 14,337 12,495 36,381 31,568 The Directors are proposing a final dividend in respect of the year ended 31 March 2007 of 31.41 cent per ordinary share (€25.258 million). This proposed dividend is subject to approval by the shareholders at the Annual General Meeting. Notes to the Financial Statements (continued) 18. Earnings per ordinary share Profit attributable to equity holders of the Company Amortisation of intangible assets after tax Net exceptionals (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 Net exceptionals Adjusted basic earnings per ordinary share Weighted average number of ordinary shares in issue (thousands) DCC - ANNUAL REPORT AND ACCOUNTS 2007 81 2007 €’000 2006 €’000 140,186 5,119 (16,816) 128,489 123,764 4,361 (1,696) 126,429 2007 cent 2006 cent 174.59c 6.37c (20.94c) 160.02c 153.92c 5.42c (2.11c) 157.23c 80,294 80,408 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 net exceptionals. Diluted earnings per ordinary share Diluted earnings per ordinary share Amortisation of intangible assets after tax Net exceptionals Adjusted diluted earnings per ordinary share Weighted average number of ordinary shares in issue (thousands) 2007 cent 2006 cent 170.83c 6.24c (20.49c) 156.58c 150.46c 5.30c (2.06c) 153.70c 82,061 82,255 The earnings used for the purpose of the diluted earnings per share calculations were €140.186 million (2006: €123.764 million) and €128.489 million (2006: €126.429 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 2007 was 82.061 million (2006: 82.255 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: 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 2007 ’000 80,294 1,767 - 82,061 2006 ’000 80,408 1,794 53 82,255 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. Share options are the Company’s only category of dilutive potential ordinary shares. 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 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 net exceptionals. 82 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 19. Property, plant and equipment Group Year ended 31 March 2007 Opening net book amount Exchange differences Acquisition of subsidiaries (note 46) Additions Disposals Depreciation charge Reclassifications Closing net book amount At 31 March 2007 Cost Accumulated depreciation Net book amount Year ended 31 March 2006 Opening net book amount Exchange differences Acquisition of subsidiaries (note 46) Additions Disposals Depreciation charge Reclassifications Closing net book amount At 31 March 2006 Cost Accumulated depreciation Net book amount Plant & Fixtures & fittings & Land & machinery office buildings €’000 & cylinders €’000 equipment €’000 Motor vehicles €’000 97,044 1,168 10,555 2,195 (2,617) (2,277) (66) 106,002 107,320 2,016 10,190 24,825 (963) (17,059) (46) 126,283 30,805 601 382 10,896 (118) (8,606) 226 34,186 32,325 602 10,433 23,243 (1,820) (11,519) (114) 53,150 Total €’000 267,494 4,387 31,560 61,159 (5,518) (39,461) - 319,621 121,219 (15,217) 106,002 324,385 (198,102) 126,283 81,077 (46,891) 34,186 107,058 (53,908) 53,150 633,739 (314,118) 319,621 100,166 (610) 290 13,404 (6,608) (2,167) (7,431) 97,044 106,850 (1,073) 358 20,441 (3,049) (15,920) (287) 107,320 18,185 (334) 479 11,905 (624) (6,646) 7,840 30,805 29,590 (319) 1,610 12,102 (1,127) (9,409) (122) 32,325 254,791 (2,336) 2,737 57,852 (11,408) (34,142) - 267,494 110,384 (13,340) 97,044 283,516 (176,196) 107,320 71,500 (40,695) 30,805 75,674 (43,349) 32,325 541,074 (273,580) 267,494 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 2007 €’000 67,382 (62,931) 4,451 2006 €’000 64,004 (60,434) 3,570 2,363 1,178 Notes to the Financial Statements (continued) 20. Intangible assets Group Year ended 31 March 2007 Opening net book amount Exchange differences Arising on acquisition (note 46) Other movements Amortisation charge Closing net book amount At 31 March 2007 Cost Accumulated amortisation Net book amount Year ended 31 March 2006 Opening net book amount Exchange differences Arising on acquisition (note 46) Other movements Amortisation charge Closing net book amount At 31 March 2006 Cost Accumulated amortisation Net book amount DCC - ANNUAL REPORT AND ACCOUNTS 2007 83 Customer Goodwill €’000 relationships €’000 Total €’000 234,693 1,313 72,035 (636) - 307,405 13,782 203 6,639 - (6,660) 13,964 248,475 1,516 78,674 (636) (6,660) 321,369 335,023 (27,618) 307,405 26,841 (12,877) 13,964 361,864 (40,495) 321,369 196,720 (841) 42,157 (3,343) - 234,693 262,311 (27,618) 234,693 11,333 (45) 7,450 - (4,956) 13,782 208,053 (886) 49,607 (3,343) (4,956) 248,475 19,999 (6,217) 13,782 282,310 (33,835) 248,475 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 2007 €’000 99,248 56,478 74,384 33,656 43,639 307,405 2006 €’000 72,075 55,005 61,129 33,342 13,142 234,693 84 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 20. Intangible assets - continued 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. 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 (7.1%). Applying these techniques, no impairment arose in 2007 (2006: 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. Intangible assets Intangible assets, other than goodwill, are recognised at their fair value at acquisition and are amortised over their useful lives. The useful lives of such intangible assets are finite and range from two to five years depending on the nature of the asset. 21. Investments in associates Group At 1 April Share of profit less dividends Exchange adjustments and other At 31 March 2007 €’000 76,789 13,650 (107) 90,332 2006 €’000 51,384 26,098 (693) 76,789 Details of the Group’s principal associates are shown on page 108. Investments in associates at 31 March 2007 includes goodwill of €1.201 million (2006: €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 2007 Ireland USA As at 31 March 2006 Ireland USA Company At 31 March Non-current Current Non-current assets €’000 1,364 773 2,137 1,681 818 2,499 assets €’000 90,265 2,429 92,694 105,044 2,082 107,126 liabilities €’000 (1,196) - (1,196) (1,858) - (1,858) Current liabilities €’000 (2,027) (1,276) (3,303) (29,760) (1,218) (30,978) Net assets €’000 88,406 1,926 90,332 75,107 1,682 76,789 2007 €’000 2006 €’000 1,300 1,300 Notes to the Financial Statements (continued) 22. Investments in subsidiary undertakings Company At 1 April Additions Other movements At 31 March DCC - ANNUAL REPORT AND ACCOUNTS 2007 85 2007 €’000 161,072 - (7) 161,065 2006 €’000 145,814 15,258 - 161,072 Details of the Group’s principal operating subsidiaries are shown on pages 105 to 108. All of these subsidiaries are wholly owned except Broderick Bros. Limited (93.8%), Virtus Inc (51.0%), Ausmedic Australia Pty Limited (60.0%), Metron Medical Australia Pty Limited (60.0%), Auckbritt Int Pty Limited (60.0%), Laleham Healthcare Limited (87.0%) where put and call options exist to acquire the remaining 13.0%, Physio-Med Services Limited (88.0%) where put and call options exist to acquire the remaining 12.0% 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 Trade receivables Provision for impairment of trade receivables Prepayments and other debtors Value added tax recoverable Other debtors Company Amounts owed by subsidiary undertakings Prepayments Value added tax recoverable 2007 €’000 6,793 1,538 169,119 177,450 2006 €’000 5,105 1,730 131,899 138,734 2007 €’000 2006 €’000 564,134 (13,343) 39,223 3,677 3,566 597,257 2007 €’000 295,340 708 255 296,303 487,231 (11,673) 31,748 7,458 7,379 522,143 2006 €’000 261,646 120 1,421 263,187 86 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 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 property, plant and equipment Company Amounts due to subsidiary undertakings Other creditors and accruals 26. Movement in working capital Group Year ended 31 March 2007 At 1 April 2006 Translation adjustment Arising on acquisition (note 46) Interest accruals and other Increase in working capital (note 42) At 31 March 2007 Year ended 31 March 2006 At 1 April 2005 Translation adjustment Arising on acquisition (note 46) Interest accruals and other Increase/(decrease) in working capital (note 42) At 31 March 2006 2007 €’000 482,978 83,472 6,101 20,356 239 7,051 1,207 601,404 2007 €’000 253,602 841 254,443 2006 €’000 453,694 57,707 4,589 22,054 131 5,039 699 543,913 2006 €’000 211,071 1,614 212,685 Trade Trade and other and other Inventories €’000 receivables €’000 payables €’000 Total €’000 138,734 1,916 9,478 - 27,322 177,450 124,049 (905) 8,289 - 7,301 138,734 522,143 7,515 53,559 (957) 14,997 597,257 410,190 (3,835) 24,861 7,269 83,658 522,143 (543,913) (7,385) (48,497) (8,946) 7,337 (601,404) (447,717) 3,582 (20,460) 479 (79,797) (543,913) 116,964 2,046 14,540 (9,903) 49,656 173,303 86,522 (1,158) 12,690 7,748 11,162 116,964 Notes to the Financial Statements (continued) 26. Movement in working capital - continued Company Year ended 31 March 2007 At 1 April 2006 Increase/(decrease) in working capital At 31 March 2007 Year ended 31 March 2006 At 1 April 2005 (Decrease)/increase in working capital At 31 March 2006 27. Cash and cash equivalents Group Cash at bank and in hand Short-term bank deposits DCC - ANNUAL REPORT AND ACCOUNTS 2007 87 Trade Trade and other and other receivables €’000 payables €’000 263,187 33,116 296,303 (223,072) (41,758) (264,830) 277,799 (14,612) 263,187 (234,178) 11,106 (223,072) Total €’000 40,115 (8,642) 31,473 43,621 (3,506) 40,115 2007 €’000 124,134 212,945 337,079 2006 €’000 105,955 239,325 345,280 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 2007 €’000 2006 €’000 337,079 (26,892) 310,187 345,280 (25,362) 319,918 2007 €’000 8 2006 €’000 157 88 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 28. Derivative financial instruments Group Non-current assets Interest rate swaps - fair value hedges Interest rate swaps - not designated as hedges Currency swaps - not designated as hedges Current assets Forward contracts - cash flow hedges Forward contracts - not designated as hedges Total assets Non-current liabilities 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 liabilities Forward contracts - cash flow hedges Forward contracts - not designated as hedges Total liabilities Net liability arising on derivative financial instruments 2007 €’000 - 3,091 - 3,091 13 38 51 3,142 (6,401) (3,165) (17,815) (18,563) (45,944) (149) (87) (236) (46,180) (43,038) 2006 €’000 926 6,805 1,258 8,989 47 97 144 9,133 (9,167) (6,921) (3,786) (7,203) (27,077) (24) (49) (73) (27,150) (18,017) 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 2007 total €210.149 million. At 31 March 2007, 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$100.000 million into floating rate sterling debt of Stg£65.000 million. These swaps are designated as fair value hedges under IAS 39. Forward foreign exchange contracts The notional principal amounts of outstanding forward foreign exchange contracts at 31 March 2007 total €21.266 million (2006: €17.638 million). Gains and losses recognised in the cash flow hedge reserve in equity (note 38) at 31 March 2007 on forward foreign exchange contracts designated as cash flow hedges under IAS 39 will be released to the Income Statement at various dates up to four months after the balance sheet date. Commodity price forward contracts There were no outstanding forward commodity contracts at 31 March 2007 (2006: notional principal amounts of €2.654 million). Notes to the Financial Statements (continued) 29. Borrowings Group Non-current: Bank borrowings Finance leases* Unsecured Notes due 2008 to 2016 Current: Bank borrowings Finance leases* Loan notes Total borrowings *Secured on specific plant and equipment The maturity of non-current borrowings is as follows: Between 1 and 2 years Between 2 and 5 years Over 5 years DCC - ANNUAL REPORT AND ACCOUNTS 2007 89 2007 €’000 2006 €’000 731 2,386 265,462 268,579 118,988 6,863 127 125,978 394,557 2007 €’000 72,721 7,696 188,162 268,579 885 5,442 286,466 292,793 62,151 4,801 199 67,151 359,944 2006 €’000 5,613 80,486 206,694 292,793 Bank borrowings, finance leases and loan notes Interest on bank borrowings, finance leases and loan notes is at floating rates set in advance for periods ranging from overnight to less than three months by reference to inter-bank interest rates (EURIBOR, sterling LIBOR and US$ LIBOR) and consequently fair value approximates carrying amounts. While the Group had various bank borrowing facilities available at 31 March 2007, 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 2007 2006 5.8 years 6.8 years 6.04% 5.76% 4.21% 5.98% 6.04% 5.76% 2.84% 5.30% 90 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 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 2007 is as follows: Group Cash and short term bank deposits Overdrafts Cash and cash equivalents Bank loans and loan notes Finance leases Unsecured Notes due 2008 to 2016 Derivative financial instruments (net) Group net debt (including share of net cash in joint ventures) Group net debt (excluding share of net cash in joint ventures) At 1 April 2006 €’000 345,280 (25,362) 319,918 (37,873) (10,243) (286,466) (18,017) Mark-to- Translation At 31 March Cash Flow €’000 market €’000 adjustment €’000 2007 €’000 (13,052) (875) (13,927) (55,063) 1,256 - - - - - - - 24,365 (24,852) 4,851 (655) 4,196 (18) (262) (3,361) (169) 337,079 (26,892) 310,187 (92,954) (9,249) (265,462) (43,038) (32,681) (67,734) (487) 386 (100,516) (33,150) (72,508) (487) 386 (105,759) The reconciliation of opening to closing net debt for the year ended 31 March 2006 is as follows: Group Cash and short term bank deposits Overdrafts Cash and cash equivalents Bank loans and loan notes Finance leases Unsecured Notes due 2008 to 2016 Derivative financial instruments (net) Group net debt (including share of net (debt)/cash in joint ventures) Group net debt (excluding share of net (debt)/cash in joint ventures) At 1 April 2005 €’000 353,304 (38,907) 314,397 (1,911) (16,285) (305,094) - Transition adjustment €’000 - - - - - 28,055 (29,974) Mark-to- Translation At 31 March Cash Flow €’000 market €’000 adjustment €’000 2006 €’000 (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) (8,893) (1,919) (19,926) 828 (2,771) (32,681) (8,192) (1,919) (21,096) 828 (2,771) (33,150) Notes to the Financial Statements (continued) 30. Analysis of net debt - continued Currency profile The currency profile of net debt at 31 March 2007 is as follows: Cash and cash equivalents Borrowings Derivatives The currency profile of net debt at 31 March 2006 is as follows: Cash and cash equivalents Borrowings Derivatives DCC - ANNUAL REPORT AND ACCOUNTS 2007 91 Euro €’000 Sterling €’000 US Dollar €’000 Total €’000 79,094 (205,696) (23,195) (149,797) 248,388 (186,264) (19,666) 42,458 9,597 (2,597) (177) 6,823 337,079 (394,557) (43,038) (100,516) 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) Interest rate profile Cash and cash equivalents at 31 March 2007 and 31 March 2006 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 46) Income Statement (credit)/charge (note 15) Tax charged/(credited) to equity (note 15) At 31 March 2007 €’000 3,526 574 4,205 8,305 14,475 273 14,748 2007 €’000 6,122 12 - 2,955 (2,768) 122 6,443 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 92 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 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. Full actuarial valuations were carried out between 1 September 2003 and 1 April 2006. 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 2007 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 2007 3.50% - 4.00% 2.25% - 3.00% 4.70% - 4.80% 2.25% 2007 4.00% 3.00% - 4.00% 5.10% 3.00% 2007 7.50% 4.00% 6.50% 3.00% 2007 8.30% 4.80% 7.30% 3.50% 2006 3.50% - 4.00% 2.25% - 3.00% 4.00% - 4.70% 2.25% 2006 3.75% 2.75% - 4.00% 4.70% 2.75% 2006 7.40% 3.50% 6.30% 3.00% 2006 7.90% 4.00% 6.80% 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. 2007 20.9 23.9 2006 19.5 22.5 Notes to the Financial Statements (continued) 32. Retirement benefit obligations - continued The net pension liability recognised in the Balance Sheet is analysed as follows: Equities Bonds Property Cash Total market value at 31 March 2007 Present value of scheme liabilities Net pension liability at 31 March 2007 Equities Bonds Property Cash Total market value at 31 March 2006 Present value of scheme liabilities Net pension liability at 31 March 2006 The amounts recognised in the Group Income Statement in respect of defined benefit pension schemes is as follows: Current service cost Gain on settlement/curtailment Total, included in staff costs (note 9) Interest cost, included in finance costs (note 12) Expected return on plan assets, included in finance income (note 12) Total The actuarial gain recognised in the Statement of 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 DCC - ANNUAL REPORT AND ACCOUNTS 2007 93 ROI €’000 43,420 11,736 2,996 2,434 60,586 (69,825) (9,239) ROI €’000 40,747 10,109 2,540 1,897 55,293 (67,755) (12,462) 2007 UK €’000 9,781 3,380 790 443 14,394 (21,527) (7,133) 2006 UK €’000 8,951 2,404 293 353 12,001 (20,218) (8,217) 2007 €’000 3,414 (633) 2,781 (4,026) 4,456 430 2007 €’000 904 884 (212) 1,576 Total €’000 53,201 15,116 3,786 2,877 74,980 (91,352) (16,372) Total €’000 49,698 12,513 2,833 2,250 67,294 (87,973) (20,679) 2006 €’000 3,308 (246) 3,062 (3,804) 3,479 (325) 2006 €’000 8,697 (383) (6,535) 1,779 94 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 32. Retirement benefit obligations - continued The movement in the fair value of plan assets is as follows: At 1 April Actual return on plan assets Contributions by employers Contributions by members Benefits paid Exchange At 31 March The movement in the present value of defined benefit obligations is as follows: At 1 April Current service cost Interest cost Actuarial (gain)/loss Contributions by members Benefits paid Settlements Exchange At 31 March 2007 €’000 67,294 5,360 5,294 425 (3,704) 311 74,980 2007 €’000 87,973 3,414 4,026 (672) 425 (3,704) (633) 523 91,352 2006 €’000 54,659 12,176 6,190 428 (6,017) (142) 67,294 2006 €’000 80,039 3,308 3,804 6,918 428 (6,017) (246) (261) 87,973 History of scheme assets, liabilities and actuarial gains and losses As the Group transitioned to IFRS with effect from 1 April 2004, a five-year history in respect of assets, liabilities and actuarial gains and losses is not available; the relevant data for the Group for the three years since transition to IFRS are as follows: Fair value of assets Present value of liabilities Net pension liability 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 2007 €’000 74,980 (91,352) (16,372) 904 1.2% 884 (1.0%) 1,576 (1.7%) 2006 €’000 67,294 (87,973) (20,679) 8,697 12.9% (383) 0.4% 1,779 (2.0%) 2005 €’000 54,659 (80,039) (25,380) 1,277 2.3% (1,598) 2.0% (7,742) 9.7% DCC - ANNUAL REPORT AND ACCOUNTS 2007 95 Notes to the Financial Statements (continued) 33. Deferred acquisition consideration Group The Group’s deferred acquisition consideration of €29.393 million (2006: €22.364 million) as stated on the Balance Sheet consists of €13.530 million of € floating rate financial liabilities (2006: €12.193 million) and €15.863 million of Stg£ floating rate financial liabilities (2006: €10.171 million) payable as follows: Within one year Between one and two years Between two and five years Analysed as: Non-current liabilities Current liabilities 34. Provisions for liabilities and charges Group Environmental and remediation Insurance and other Analysed as: Non-current liabilities Current liabilities 2007 €’000 10,870 9,701 8,822 29,393 18,523 10,870 29,393 2007 €’000 6,122 4,807 10,929 6,122 4,807 10,929 2006 €’000 3,556 9,838 8,970 22,364 18,808 3,556 22,364 2006 €’000 - 3,785 3,785 - 3,785 3,785 Environmental and remediation This provision relates to obligations governing site remediation and improvement costs to be incurred in compliance with environmental regulations. The net present value of the estimated costs is capitalised as property, plant and equipment. The unwinding of the discount element on the provision is reflected as a finance cost in the Income Statement. Provision is made for the net present value of post closure costs based on the quantity of waste input into the landfill during the year. Ongoing costs incurred during the operating life of the sites are written off directly to the Income Statement and are not charged to the provision. The majority of the obligations will unwind over a 30-year timeframe. Insurance and other The insurance provision relates to employers liability and public and products liability and reflects an estimation of the excess not recoverable from insurers arising from claims against Group companies. A significant element of the provision is subject to external assessments. 96 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 35. Capital grants Group At 1 April Amortisation in year Received in year Arising on acquisition (note 46) 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 7,816,256 ordinary shares held as Treasury Shares) of €0.25 each, fully paid (2006: 88,229,404 ordinary shares (including 7,510,178 ordinary shares held as Treasury Shares) of €0.25 each, fully paid) Movements during the year Ordinary shares of €0.25 each At 31 March 2006 and 31 March 2007 2007 €’000 2,122 (276) - 758 28 2,632 (239) 2,393 2006 €’000 1,086 (112) 1,174 - (26) 2,122 (131) 1,991 2007 €’000 2006 €’000 38,092 38,092 22,057 22,057 No. of shares ’000 €’000 88,229 22,057 As at 31 March 2007, the total authorised number of ordinary shares is 152,368,568 shares (2006: 152,368,568 shares) with a par value of €0.25 per share (2006: €0.25 per share). During the year the Company reissued 732,233 Treasury Shares for a total consideration of €6.098 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 on Directors’ Remuneration and Interests on pages 44 to 47. Notes to the Financial Statements (continued) 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 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 Currency translation Cash flow hedges - fair value losses in year - tax on fair value losses - transfers to net profit - tax on transfers to net profit Share based payment At 31 March 2007 Company At 31 March 2007 and 31 March 2006 DCC - ANNUAL REPORT AND ACCOUNTS 2007 97 2007 €’000 124,687 - 124,687 2006 €’000 124,506 181 124,687 Cash Foreign currency Share flow hedge translation options €’000 reserve €’000 1,552 - - - - - 1,840 3,392 - - - - - 1,415 4,807 - - 451 (85) (447) 101 - 20 - (4,125) 495 3,966 (473) - (117) reserve €’000 (5,565) (4,779) - - - - - (10,344) 7,430 - - - - - (2,914) Other reserves €’000 1,400 - - - - - - 1,400 - - - - - - 1,400 Total €’000 (2,613) (4,779) 451 (85) (447) 101 1,840 (5,532) 7,430 (4,125) 495 3,966 (473) 1,415 3,176 Other reserves €’000 344 98 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 39. Retained earnings Group At 1 April Net income recognised in Income Statement Net income recognised directly in equity - actuarial gain on Group defined benefit pension schemes - deferred tax on actuarial gain 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 Total recognised income and expense for the financial year Share buyback (inclusive of costs) Re-issue of Treasury Shares (net of expenses) Dividends At 31 March 2007 €’000 2006 €’000 439,477 140,186 1,576 (169) 25 (18,818) 6,098 (36,381) 531,994 2007 €’000 55,556 40,303 (18,818) 6,098 (36,381) 46,758 342,247 123,764 1,779 82 25 - 3,148 (31,568) 439,477 2006 €’000 41,128 42,848 - 3,148 (31,568) 55,556 On 19 June 2006 the Company purchased 1,038,311 of its own shares at a total cost of €18.818 million. The cost to the Group and the Company of €96.686 million to acquire the 7,816,256 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 €17.90 each (average: €11.23) between 28 July 2000 and 19 June 2006. 40. Minority interest Group At 1 April Arising on acquisition of subsidiary (note 46) Share of profit for the financial year (less attributable to associates) Dividends to minorities Exchange and other adjustments At 31 March 2007 €’000 4,714 663 476 (38) 1 5,816 2006 €’000 4,348 24 548 (201) (5) 4,714 Notes to the Financial Statements (continued) 41. Movement in total equity Group At 1 April Issue of share capital Share based payment (note 10) Share buyback (note 39) Dividends (note 17) Movement in minority interest Total recognised income and expense for the financial year At 31 March Company At 1 April Issue of share capital Share buyback (note 39) Dividends (note 17) Total recognised income and expense for the financial year At 31 March 42. 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) - Net exceptionals (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 DCC - ANNUAL REPORT AND ACCOUNTS 2007 99 2007 €’000 2006 €’000 585,403 6,098 1,415 (18,818) (36,381) 1,102 148,911 687,730 490,530 3,344 1,840 - (31,568) 366 120,891 585,403 2007 €’000 2006 €’000 202,644 6,098 (18,818) (36,381) 40,303 193,846 188,020 3,344 - (31,568) 42,848 202,644 2007 €’000 2006 €’000 141,105 125,289 20,695 (11,800) (24,516) 10,850 136,334 1,415 39,461 6,660 (1,362) (276) 268 (5,423) (27,322) (14,997) (7,337) 127,421 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) 79,797 142,922 100 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 42. Cash generated from operations - continued Company Profit for the year Add back non-operating (income)/expense - Tax - Net finance costs Operating profit Changes in working capital: - Trade and other receivables (note 26) - Trade and other payables (note 26) Cash generated from operations 2007 €’000 2006 €’000 40,303 42,848 (1,319) (3,407) 35,577 (33,116) 41,758 44,219 1,199 (4,168) 39,879 14,612 (11,106) 43,385 43. Contingencies Guarantees The Company and certain subsidiaries have given guarantees of €535.692 million (2006: €458.619 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 €13.085 million (2006: €10.514 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 property, plant and equipment and inventories 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; 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. 44. 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 2007 €’000 2006 €’000 2,721 3,876 70,389 73,110 44,866 48,742 DCC - ANNUAL REPORT AND ACCOUNTS 2007 101 Notes to the Financial Statements (continued) 45. 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 2007 €’000 6,430 17,559 44,871 68,860 2006 €’000 945 7,668 63,537 72,150 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 2007 €9.818 million (2006: €9.102 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: 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 2007 2006 Minimum payments €’000 7,214 2,699 9,913 (664) 9,249 Present value of payments €’000 6,863 2,386 9,249 - 9,249 Minimum payments €’000 5,292 5,756 11,048 (805) 10,243 Present value of payments €’000 4,801 5,442 10,243 - 10,243 102 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 46. Business combinations The principal acquisitions completed by the Group during the year, together with percentages acquired were as follows: - William Tracey group (50%): a Scottish based recycling and waste management business acquired on 15 May 2006; - Carlton Fuels Limited (100%): an English based oil distribution business acquired on 7 July 2006; - Realpower Limited (90%): the holding company of Wastecycle Limited, an English based recycling and non-hazardous waste management business, acquired on 13 November 2006; and - BP’s Scottish Islands business (100%): a Scottish based oil distribution business acquired on 1 March 2007. 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) 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) Provisions for liabilities and charges Capital grants (note 35) 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 Net cash acquired Net cash outflow Deferred and contingent acquisition consideration Total consideration 2007 €’000 2006 €’000 31,560 72,035 6,639 110,234 9,478 53,559 63,037 2,737 42,157 7,450 52,344 8,289 24,861 33,150 (663) (663) (24) (24) (2,955) (6,122) (758) (9,835) (1,330) - - (1,330) (48,497) (1,959) (50,456) (20,460) (701) (21,161) 112,317 62,979 103,285 (1,796) 101,489 10,828 112,317 62,669 (13,538) 49,131 13,848 62,979 DCC - ANNUAL REPORT AND ACCOUNTS 2007 103 Notes to the Financial Statements (continued) 46. Business combinations - continued 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 31,560 63,887 (8,627) (50,056) 36,764 75,553 112,317 6,639 (850) (1,871) (400) 3,518 (3,518) - Fair value €’000 38,199 63,037 (10,498) (50,456) 40,282 72,035 112,317 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 2008 Annual Report as stipulated by IFRS 3. 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) Profit before tax Income tax expense Group profit for the financial year 2007 €’000 2006 €’000 411,207 (381,237) 29,970 (19,384) 10,586 114 10,700 (2,903) 7,797 119,348 (98,771) 20,577 (12,456) 8,121 49 8,170 (1,487) 6,683 104 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Notes to the Financial Statements (continued) 47. Related party transactions 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 57 to 65. A listing of the principal subsidiaries, joint ventures and associates is provided in the Group Directory on pages 105 to 108 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 16 May 2006, the Group increased its shareholding to 87.0% in Laleham Healthcare Limited by acquiring 6.5% of the issued share capital from the minority shareholders. The consideration amounted to €0.841 million and was settled in cash. The Company increased its shareholding in Physio-Med Services Limited to 88.0% through the acquisition of 6.0% of the issued share capital from minority shareholders on 15 May 2006 and 6.0% of the issued share capital from minority shareholders on 11 August 2006. The total consideration amounted to €1.099 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 on Directors’ Remuneration and Interests on pages 44 to 47 of this Annual Report. Company Subsidiaries, joint ventures and associates During the year the Company received €38.999 million (2006: €44.499 million) in dividends from its subsidiaries. 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 €3.235 million (2006: €3.705 million) by its subsidiary, DCC Management Services Limited. 48. Approval of Financial Statements The financial statements were approved by the Board of Directors on 11 May 2007. DCC - ANNUAL REPORT AND ACCOUNTS 2007 105 Group Directory Principal Subsidiaries (all 100% owned except for those detailed in note 22 on page 85) Principal activity Contact details DCC Energy Company name & address DCC Energy Limited DCC House, Brewery Road, 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 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 Holding and divisional management company Procurement, sales, marketing and distribution of petroleum products Procurement, sales, marketing and distribution of petroleum products Procurement, sales, marketing and distribution of liquefied petroleum gas Procurement, sales, marketing and distribution of liquefied petroleum gas Sale of motor fuels through fuel cards GB Oils Limited Tryst House, Glenbervie Business Park, Larbert, Stirlingshire FK5 4RB, Scotland Procurement, sales, marketing and distribution of petroleum products DCC SerCom Company name & address SerCom Distribution Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Distrilogie SA Group Energy Park IV, 34 Avenue de l’Europe, 78140 Vélizy, 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 Holding and divisional management company Distribution of enterprise infrastructure products in France, Iberia & Benelux Procurement, sales, marketing and distribution of computer software and peripherals Procurement, sales, marketing and distribution of computer products Pilton Company Limited Unit 2, Loughlinstown Industrial Estate, Ballybrack, Co. Dublin, Ireland Procurement, sales, marketing and distribution of DVDs and computer games & accessories 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: +353 578 674 700 Fax: +353 578 674 775 Email: info@emo.ie www.emo.ie 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 1324 408 000 Fax: +44 1324 408 260 Email: info@emooil.co.uk www.gboils.co.uk 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 Tel: +353 1 2826 444 Fax: +353 1 2826 532 Principal activity Contact details 106 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Group Directory (continued) DCC SerCom (continued) Company name & address 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 Company name & address DCC Healthcare Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Auckbritt International Pty Limited 418 Lake Road, Takapuna, Auckland, New Zealand Ausmedic Australia Pty Limited Unit 4, 37 Leighton Place, Hornsby, NSW 2077, Australia Days Healthcare GmbH Oberbecksener Str. 68, D-32547 Bad Oeynhausen, Germany Days Healthcare UK Limited North Road, Bridgend Industrial Estate, Bridgend CF31 3TP, Wales DCC Health & Beauty Solutions Limited 9-12 Hardwick Road, Astmoor Industrial Estate, Runcorn, Cheshire WA7 1PH, England EuroCaps Limited Crown Business Park, Dukes Town, Tredegar, Gwent NP22 4EF, Wales Fannin Limited Fannin House, South County Business Park, Leopardstown, Dublin 18, Ireland Laleham Healthcare Limited Sycamore Park, Mill Lane, Alton, Hampshire GU34 2PR, England Metron Medical Australia Pty Limited 57 Aster Avenue, Carrum Downs, Victoria 3201, Australia Principal activity Contact details Provision of supply chain services Procurement, 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 Principal activity Contact details Holding and divisional management company Procurement, sales and marketing of mobility and rehabilitation products Procurement, sales and marketing of mobility and rehabilitation products Development, procurement, sales and marketing of mobility and rehabilitation products Development, procurement, sales and marketing of mobility and rehabilitation products Outsourced solutions for the health and beauty industry Contract manufacture of soft gel capsule nutraceuticals Procurement, sales and marketing of pharmaceutical, medical and laboratory products and provision of related services Contract manufacture and packing of nutraceuticals and cosmetics (liquids and creams) Development and manufacture of rehabilitation equipment Tel: +353 1 2799 400 Fax: +353 1 2831 017 Email: healthcare@dcc.ie www.dcc.ie Tel: +64 9 836 9974 Fax: +64 9 836 9914 Email: sales@auckbritt.co.nz www.auckbritt.co.nz Tel: +61 2 9477 3422 Fax: +61 2 9477 3522 Email: sales@ausmedic.com www.ausmedic.com Tel: +49 5731 786 50 Fax: +49 5731 786 520 Email: info@dayshealthcare.de www.dayshealthcare.de Tel: +44 1656 664 700 Fax: +44 1656 664 750 Email: info@dayshealthcare.com www.dayshealthcare.com Tel: +44 1928 573 734 Fax: +44 1420 566 566 Email: enquiries@dcchealthandbeauty.com www.dcchealthandbeauty.com Tel: +44 1495 308 900 Fax: +44 1495 308 990 Email: info@softgels.co.uk www.softgels.co.uk Tel: +353 1 2907 000 Fax: +353 1 2954 777 Email: information@fanninhealthcare.com www.fanninhealthcare.com Tel: +44 1420 566 500 Fax: +44 1420 566 566 Email: reception@laleham-healthcare.com www.laleham-healthcare.com Tel: +61 39 775 0966 Fax: +61 39 775 1990 Email: sales@metron.com.au www.metron.com.au DCC - ANNUAL REPORT AND ACCOUNTS 2007 107 Group Directory (continued) DCC Healthcare (continued) Company name & address Physio-Med Services Limited 7-23 Glossop Brook Business Park, Surrey Street, Glossop, Derbyshire SK13 7AJ, England Thompson & Capper Limited 9-12 Hardwick Road, Astmoor Industrial Estate, Runcorn, Cheshire WA7 1PH, England Virtus Inc. 1896 Lammers Pike, Batesville, Indiana, IN47006, USA. DCC Food & Beverage Company name & address DCC Food & Beverage Limited 79 Broomhill Road, Tallaght, Dublin 24, Ireland Allied Foods Limited Second Avenue, Cookstown Industrial Estate, Dublin 24, Ireland Bottle Green Limited 19 New Street, Horsforth, Leeds LS18 4BH, England Broderick Bros. Limited Cloverhill Industrial Estate, Clondalkin, Dublin 22, Ireland Kelkin Limited Unit 1, Crosslands Industrial Park, Ballymount Cross, Dublin 12, Ireland Robert Roberts Limited 79 Broomhill Road, Tallaght, Dublin 24, Ireland Principal activity Contact details Procurement, sales and marketing of rehabilitation products Contract manufacture and packing of tablet and hard gel capsule nutraceuticals Development and manufacture of pneumatic healthcare appliances Tel: +44 1457 860 444 Fax: +44 1457 860 555 Email: sales@physio-med.com www.physiomedhomecare.co.uk Tel: +44 1928 573 734 Fax: +44 1928 580 694 Email: enquiries@tablets2buy.com www.tablets2buy.com Tel: +1 812 933 1121 Fax: +1 812 933 0749 Email: virtus@eircom.net Principal activity Contact details Holding and divisional management company Chilled and frozen food distribution Procurement, sales, marketing and distribution of wine Manufacture, distribution and service of food equipment Procurement, sales, marketing and distribution of branded healthy food and beverages Procurement, sales, marketing and distribution of food and beverages Tel: +353 1 4047 300 Fax: +353 1 4599 369 Email: foods@dcc.ie www.dcc.ie Tel: +353 1 466 2600 Fax: +353 1 466 2688 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 108 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Group Directory (continued) DCC Environmental Company name & address DCC Environmental Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Enva Ireland Limited Clonminam Industrial Estate, Portlaoise, Co. Laois, Ireland Wastecycle Limited Enviro Building, Private Road No. 4, Colwick Industrial Estate, Nottingham NG4 2JT, England Principal Joint Ventures Company name & address KP (Ireland) Limited 79 Broomhill Road, Tallaght, Dublin 24, Ireland Principal activity Contact details Holding and divisional management company Specialist waste treatment/management services Recycling and waste management company Tel: +353 1 2799 400 Fax: +353 1 2831 017 Email: environmental@dcc.ie www.dcc.ie Tel: +353 578 678 600 Fax: +353 578 678 699 Email: info@enva.ie www.enva.ie Tel: +44 115 9403 111 Fax: +44 115 940 4141 Email: enquiries@wastecycle.co.uk www.wastecycle.co.uk Principal activity Manufacture of snack foods Kylemore Foods Holdings Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Holding company for the Kylemore group of companies whose principal activities are the operation of restaurants, contract catering and par bake bread manufacture William Tracey Limited 49 Burnbrae Road, Linwood, Paisley, Renfrewshire PA3 3BD, Scotland Principal Associates Company name & address Manor Park Homebuilders Limited The Gables, Torquay Road, Foxrock, Dublin 18, Ireland Recycling and waste management company Principal activity Residential homebuilding and property development % held 50% 50% 50% % held 49% DCC - ANNUAL REPORT AND ACCOUNTS 2007 109 Shareholder Information Share Price Data Share price movement during the year - High - Low Share price at 30 March Market capitalisation at 30 March Share price at 11 May Market capitalisation at 11 May Shareholder Analysis at 11 May 2007 2007 € 28.00 17.68 26.36 2,120m 25.32 2,036m 2006 € 19.65 14.92 19.20 1,550m 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 Less than 10,000 Total 64,556,695 5,643,849 6,635,639 3,576,965 80,413,148 80.3 7.0 8.3 4.4 100.0 45 35 193 2,791 3,064 1.5 1.1 6.3 91.1 100.0 * Excludes 7,816,256 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 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 1 247 5698 Fax: + 353 1 216 3151 E-mail: 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. 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 14 May 2007 • Ex-dividend date for the final dividend 23 May 2007 • Record date for the final dividend 25 May 2007 • Annual General Meeting 20 July 2007 • Proposed payment date for final dividend 26 July 2007 • Interim results announced early November 2007 • Payment date for the interim dividend early December 2007 Annual General Meeting The 2007 Annual General Meeting will be held at The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland on Friday 20 July 2007 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 2007 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 3 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 110 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Corporate Information Auditors PricewaterhouseCoopers Chartered Accountants & Registered Auditors One Spencer Dock North Wall Quay Dublin 1 Ireland Registrar Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Ireland Bankers ABN AMRO Bank Allied Irish Banks Bank of Ireland Barclays BNP Paribas Deutsche Bank IIB Bank KBC Bank Royal Bank of Scotland Ulster Bank Solicitors William Fry Fitzwilton House Wilton Place Dublin 2 Ireland Registered and Head Office DCC House Brewery Road 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 Audit Committee Auditors’ Report Board and Management Changes Board Committees Board of Directors Borrowings Business Combinations Business Reviews: DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental 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 Recognised Income and Expense Contingencies Corporate Governance Statement Corporate Information Corporate Social Responsibility Credit Risk Management CREST Critical Accounting Estimates and Judgements Current Tax Page 57 10 109 109 104 5, 39 49 8, 10 5, 39 4, 5 89 102 12 12 16 20 24 28 96 87 99 8 10 38 35 55 56 56 100 38 110 36 35 109 66 79 DCC - ANNUAL REPORT AND ACCOUNTS 2007 111 DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Deferred Acquisition Consideration Deferred Income Tax Depreciation Derivative Financial Instruments Directors’ and Company Secretary’s Interests Directors of the Company Directors’ Remuneration and Interests Report Directors’ Report Page 12 16 20 24 28 95 79, 91 82 88 47 4 44 42 Directors’ and Company Secretary’s Share Options 46, 47 Dividend Cover Dividend Withholding Tax Dividends Earnings Per Share Employment Exceptional Items Finance Costs and Finance Income Finance Leases Financial Calendar Financial Review Financial Risk Management Five Year Summary Foreign Currency Foreign Exchange Risk Management Going Concern Group at a Glance Group Balance Sheet Group Cash Flow Statement Group Directory Group Income Statement 33 109 33, 80, 109 81 74 37 77 78 101 109 32 35 Inside Back Cover 78 35 41 2 53 54 105 51 52 Group Statement of Recognised Income and Expense 100 Environment, Health and Safety 112 DCC - ANNUAL REPORT AND ACCOUNTS 2007 Index Health and Safety Income Tax Intangible Assets Interest Rate Risk and Debt/Liquidity Management Internal Control Inventories Investor Relations Page 37 79 83 35 41 85 109 Joint Ventures 7, 73, 108 Minority Interest Movement in Total Equity Movement in Working Capital Net Debt Nomination Committee Notes to the Financial Statements Operating Costs Operating Leases Other Reserves Payables, Trade and Other Pensions - Directors Performance Evaluation Principal Risks and Uncertainties Property, Plant and Equipment Provisions for Liabilities and Charges Receivables, Trade and Other Registrar Related Party Transactions Remuneration Committee Retained Earnings Retirement Benefit Obligations Return on Capital Employed (ROCE) Segment Information Senior Management Share Buybacks Share Capital Share Listings Share Options Share Premium Share Price Data Shareholder Information Statement of Directors’ Responsibilities Subsidiaries Substantial Shareholdings Taxation Treasury Shares Website 98 99 86 90 5, 40 57 72 101 97 86 44, 45 41 42 82 95 85 109,110 104 5, 40 98 92 33 67 6, 7 42 96 109 74 97 109 109 48 85, 105 43 33 42 109 5 year review Group Income Statement Year ended 31 March DCC - ANNUAL REPORT AND ACCOUNTS 2007 Irish GAAP 2003 €’m 2004 €’m 2005 €’m IFRS 2006 €’m 2007 €’m Revenue 2,125.4 2,089.4 2,644.7 3,436.3 4,046.1 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 98.4 (2.9) (7.3) 88.2 (3.9) 10.5 (1.7) 93.1 (11.0) (1.3) 80.8 103.0 (2.3) (8.3) 92.4 (3.8) 14.4 (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) 123.8 143.0 24.5 (6.7) 160.9 (10.9) 11.8 - 161.8 (20.7) (0.9) 140.2 96.66 111.00 101.98 121.89 109.68 137.22 153.92 157.23 174.59 160.02 28.18 32.40 37.26 42.85 49.28 3.9 25.2 Irish GAAP 2003 €’m 209.4 132.1 40.3 354.0 424.7 1,160.5 3.8 27.1 2004 €’m 218.6 131.4 42.0 323.5 434.2 1,149.7 3.7 19.6 2005 €’m 254.8 208.1 51.4 353.3 541.1 1,408.7 IFRS 3.7 17.6 2006 €’m 267.5 248.5 76.8 354.4 665.4 1,612.6 3.2 13.2 2007 €’m 319.6 321.4 90.3 340.2 783.0 1,854.6 432.9 462.8 492.2 585.4 687.7 333.9 - 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 1,612.6 440.7 16.4 709.7 1,166.8 1,854.6 Net cash/(debt) included above 20.1 62.4 (8.9) (32.7) (100.5) Group Cash Flow Year ended 31 March Cash generated from operations Capital expenditure Acquisitions Other Information Return on tangible capital employed (%) Return on total capital employed (%) Working capital (days) Irish GAAP 2003 €’m 98.5 39.2 88.2 2004 €’m 151.9 32.1 14.5 2005 €’m 116.4 43.6 81.2 Irish GAAP 2003 2004 2005 42.2% 22.0% 39.8% 21.3% 15.4 11.6 44.9% 20.4% 10.2 IFRS 2006 €’m 142.9 57.7 54.7 IFRS 2006 43.0% 19.1% 9.5 2007 €’m 127.4 60.7 105.7 2007 39.7% 18.3% 14.0 Average number of employees 3,685 3,768 4,746 5,109 5,653