DCC plc Annual Report 2008

Plain-text annual report

DCC - ANNUAL REPORT AND ACCOUNTS 2008 1 Annual Report and Accounts 2008 DCC - ANNUAL REPORT AND ACCOUNTS 2008 DCC is a procurement, sales, marketing, distribution and business support services group headquartered in Dublin. With international operations across sixteen countries and four continents, DCC employs approximately 7,000 people. DCC has ﬁve divisions - DCC Energy, DCC SerCom, DCC Healthcare, DCC Food & Beverage and DCC Environmental. Within these divisions there are 14 business units, ten of which are engaged in procurement, sales, marketing and distribution of own- brand and third party branded products and four of which provide business support services: DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental • Oil • LPG • Fuel cards SerCom Distribution IT & entertainment products to • Retailers • Resellers • Enterprise markets SerCom Solutions • Outsourced procurement and supply chain management services • Acute care products • Mobility & Rehab • Healthfoods • Indulgence foods products • Outsourced solutions to the health & beauty sector • Chilled and frozen • Waste management logistics and recycling services 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 1 Highlights for the year ended 31 March 2008 Revenue Operating proﬁt* €5,532.0m €167.2m Reported +36.7% Constant Currency +39.9% Reported +19.3% Constant Currency +21.8% Adjusted earnings per share* Dividend per share 165.06 cent 56.67 cent Reported +15.0% ** Constant Currency +17.4% ** Reported +15.0% All constant currency ﬁgures quoted in this report are based on retranslating current year ﬁgures at prior year translation rates * excluding net exceptionals and amortisation of intangible assets ** continuing activities (excluding the Manor Park Homebuilders contribution in the prior year) Adjusted EPS (cent) ** 10 year CAGR 14.0% Group operating proﬁt geographic split � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Contents Highlights Group at a Glance Board of Directors Senior Management Chairman’s Statement Chief Executive’s Review Business Review Financial Review Corporate Social Responsibility Report of the Directors Corporate Governance Report on Directors’ Remuneration and Interests Statement of Directors’ Responsibilities Report of the Independent Auditors Financial Statements Group Directory Shareholder Information Corporate Information Index 1 2 4 6 8 10 14 34 40 42 44 50 54 55 57 111 115 117 118 2 DCC - ANNUAL REPORT AND ACCOUNTS 2008 DCC Group at a Glance DCC Energy DCC Energy is the leading oil and liqueﬁed petroleum gas (LPG) procurement, sales, marketing and distribution business in Britain and Ireland. The oil business sells heating oils, transport fuels and fuel oils to domestic, commercial, agricultural and industrial customers. The LPG business supplies propane and butane in both bulk and cylinders for heating, cooking, transport and industrial processes. Operating proﬁt (€m) 10 Year CAGR 18.9% 5 Year CAGR 12.5% Strong brands (*DCC owned) • Oil Scottish Fuels*, Emo Oil*, CPL, Shell, Carlton Fuels*. Market position • Oil Largest oil distributor in Britain. A leading player in oil distribution in Ireland. Growth strategy • Organic growth in both Britain and Ireland. • Gas Flogas*, Ergas*. • Fuel card BP, Fastfuel, Esso, Diesel Direct,ReD. • Gas Strong number 2 in LPG distribution in Britain and Ireland. • Fuel card A leading player in the fuel card business in Britain. • Supplemented by acquisitions in both oil and LPG. Particular focus on a consolidation strategy in the highly fragmented British oil market. � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� DCC SerCom DCC SerCom comprises two businesses, SerCom Distribution and SerCom Solutions. • SerCom Distribution markets and sells IT and entertainment products to the Retail, Reseller and Enterprise markets. • SerCom Solutions provides outsourced procurement and supply chain management services in Ireland, Poland, Operating proﬁt (€m) 10 Year CAGR 9.2% 5 Year CAGR 4.1% China and the USA. � � � � Strong brands (*DCC owned) • Retail Market positions • Retail 20th Century Fox, Entertainment in Video, Creative Labs, Disney, EA, Exspect*, Garmin, Linx*, Logitech, Microsoft, Nintendo, Paramount, Symantec, Take Two, Warner. • Reseller Acer, Canon, D-Link, Fujitsu Siemens, HP, IBM, Lenovo, Netgear, Samsung, Sharp, Sony. • Enterprise BP, Fastfuel, Esso, Diesel Direct, ReD. • Supply chain management SerCom Solutions*. A leading distributor of consumer products to a broad range of retailers, e-tailers and catalogue retailers in Britain, Ireland and France. � � � � • Reseller A leading distributor of IT products to a broad range of resellers and computer dealers in Britain and Ireland. � � � � � � � � � � � � • Enterprise � � � � � � � � � � � � � Growth strategy � � � Sercom Distribution � • Organic growth driven by expansion of � � customer and product portfolios with a � particular focus on the Retail and Enterprise markets. Sercom Solutions • Extending the offering of its world class procurement and sourcing services in the Americas and the Far East, together with extending its existing operations in Poland. � � � �� A leading distributor of enterprise products to value added resellers, large account resellers and independent software vendors in France, Iberia, Benelux, Britain and Ireland. �� • Supply chain management A leading provider of outsourced procurement and supply chain management services. �� DCC Healthcare DCC Healthcare is a broadly based healthcare business with operations encompassing: • Procurement, sales and marketing of healthcare products and provision of related services into the acute � � � � sector in Ireland and Britain; �� Operating proﬁt (€m) 10 Year CAGR 13.2% 5 Year CAGR 17.3% • Procurement, sales and marketing of rehabilitation products in Britain, Ireland, Germany, Australia, New Zealand and other export markets ; • Provision of outsourced services to the health and beauty sector in Britain and continental Europe. � � � � � � � � � � � � � � � �� Market position • Acute care Number 1 in sales and marketing of intra- venous pharmaceuticals, medical, surgical and laboratory products in Ireland. A leading provider of value added distribution services to British hospitals and leading brand owners. � � � � � � � � � � � • Health and beauty � � A leading European provider of outsourced solutions to health & beauty companies. � � � � � � � � � � • Mobility & rehab Number 1 in sales and marketing of physiotherapy products in Britain, Australia and New Zealand. A leader in sales and marketing of rehabilitation products in Britain. Growth strategy • Acute care � � � � � � � � � � � Build a substantial international business providing healthcare products and related value-added services to the acute care sector. � � � � � � • Health & beauty Expand in European market for outsourced solutions to the health and beauty industry. • Mobility & rehab � � � Build a substantial international rehabilitation business based on a broad portfolio of own brand products and procurement excellence. • All Strong organic growth of existing businesses, supplemented by acquisitions, principally in Britain. �� Strong brands (*DCC owned) • Acute care` � � � � � � � � � Cardinal, Diagnostica Stago, Diamed, Ebewe, � � Fannin*, Fresenius, Grifols, Molnlycke, Oxoid, � Smiths Medical, Synthes. � � � � � • Health and beauty# � � � Body Shop, Healthspan, Lamberts, Perrigo, Sara Lee, Vitabiotics. � � � � � � � � � � � � • Mobility & rehab Ausmedic*, Biofreeze, Days Healthcare*, Metron*, Physio-Med*, Theraband. # Customers of DCC Health & Beauty Solutions �� DCC - ANNUAL REPORT AND ACCOUNTS 2008 3 DCC Food & Beverage 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. It is a market leader in a number of niche market segments in healthfoods, indulgence foods and frozen & chilled logistics. Strong brands (*DCC owned) • Healthfood � Alpro, Baxters, Biofreeze, Filippo Berio, � Hipp, Kallo, Jordans, Kelkin*, Oblas, Ortis, �� Pomegreat, St Dalfour, Vitabiotics, Whole � � Earth. � � � � � � • Indulgence Andrew Peace, Bollinger, Elizabeth Shaw, French Connection*, Hula Hoops, KP, Lemons*, McCoys, McVities / Mars Cakes, Phileas Fogg, Ritter, Robert Roberts*, Sacla, Topps, Torres. � � � � • Logistics/other Allied Foods*, Brodericks*, Kylemore. � � � � Market position • Healthfood � � � � �� • Indulgence � � � Market leading positions in healthy foods in Ireland. � � Number 2 in savoury snacks in Ireland. Number 2 in freshly ground coffee in Ireland. � � � • Logistics A leading player in frozen and chilled � � � � � � � � � � � � Growth strategy � � • Organic growth through expansion of � � portfolio of branded health and indulgent foods and beverages. • Supplemented by acquisitions in Ireland and Britain that will exploit the growing demand for healthy food and beverage products and strengthen other existing market positions. � � � � � � � � � � � � � � � � � � � � � � � � food distribution in Ireland. � � � Operating proﬁt (€m) 10 Year CAGR 11.9% 5 Year CAGR 10.4% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Operating proﬁt (€m) 9 Year CAGR 79.1% 5 Year CAGR 33.3% DCC Environmental DCC Environmental provides a broad range of waste management and recycling services to the industrial, commercial, construction and public sectors in Britain and Ireland. Through its 50% shareholding in William Tracey and its subsidiary Wastecycle, DCC Environmental has built a signiﬁcant position in the British waste management and recycling industry. DCC Environmental’s subsidiary, Enva, is the leading hazardous waste treatment business in Ireland. � � � � � � � � Strong brands # (*DCC owned) Enva* Wastecycle*, Tracey. Market position • The leading recycling and waste management business in Scotland. • A leading recycling and waste management company in Nottingham. • Number 1 hazardous waste treatment business in 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. � � � � � � � � � � � � � � � � � � � � � � � � �� # Companies within the Environmental Services division �� 4 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Board of Directors Michael Buckley Chairman Michael Buckley MA, LPh, MSI (63) was appointed non-executive Chairman on 27 May 2008. He is also a non- executive director of a number of publicly quoted companies in the UK and in the USA, a senior adviser to a number of privately owned Irish and international companies, an adjunct professor at the Department of Economics in UCC and a board member of Enterprise Ireland. He 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 NCB Group and a senior public servant in Ireland and the EU. Mr. Buckley joined the Board in 2005. Tommy Breen Chief Executive Tommy Breen, B Sc (Econ), FCA, (49) was appointed Chief Executive on 27 May 2008 having been Group Managing Director since July 2007. He was previously Chief Operating Ofﬁcer having held a number of senior management positions in the Group, including those of Managing Director of DCC’s Energy and SerCom divisions. Mr. Breen retains responsibility for DCC Environmental. He joined DCC in 1985, having previously worked with KPMG. Mr. Breen joined the Board in 2000. Tony Barry Non-executive Director Tony Barry, Chartered Engineer, (73) was Chairman of CRH plc from 1994 to 2000, having previously been Chief Executive. He is a former Deputy Governor of the Bank of Ireland and was a member of its Court of Directors. He was Chairman of Greencore Group plc and is a past President of The Irish Business and Employers’ Confederation. Mr. Barry joined the Board in 1995. Róisín Brennan Non-executive Director Róisín Brennan, BCL, FCA, MSI, (43) is Executive Chairman of IBI Corporate Finance having been Chief Executive since 2006. 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. Jim Flavin Executive Chairman (resigned 27 May 2008) Jim Flavin, B Comm, DPA, FCA (65) founded DCC and was Executive Chairman from 1 July 2007 until his resignation from the Board and his executive position on 27 May 2008. He had been Chief Executive since the foundation of the Company in 1976. Prior to founding DCC, Mr. Flavin was head of AIB Bank’s venture capital unit. From 1999 to 2001, he was Deputy Chairman and Senior Independent Director of eircom plc. Mr. Flavin was the ﬁrst Chairman of the Irish Venture Capital Association and was a member of the Steering Committee, established by the European Commission, that founded the European Venture Capital Association. DCC - ANNUAL REPORT AND ACCOUNTS 2008 5 Paddy Gallagher Non-executive Director Paddy Gallagher, BL, DPA, (68) retired as Head of Legal and Pensions Administration at Guinness Ireland Group in 2000. He is Chairman of the Trustees of the An Post Superannuation Schemes and of the Guinness Ireland Group Pension Scheme and is a former Chairman of the Irish Association of Pension Funds. Mr. Gallagher joined the Board in 1976. Maurice Keane Non-executive Director Maurice Keane, B Comm, M Econ Sc, (67) was a member of the Court of Directors of Bank of Ireland from 1983 to 2005, and Chief Executive from 1998 to 2002. He is a director of Axis Capital Holdings Limited and is a member of the National Pension Reserve Fund Commission. Previously, Mr. Keane was Chairman of BUPA Ireland and of Bristol & West plc. Mr. Keane joined the Board in 2002. Fergal O’Dwyer Executive Director Fergal O’Dwyer, FCA, (48) has been Chief Financial Ofﬁcer since 1994. He joined DCC in 1989 having previously worked with KPMG in Johannesburg and Price Waterhouse in Dublin. Mr. O’Dwyer joined the Board in 2000. Bernard Somers Non-executive Director Bernard Somers, B Comm, FCA, (59) 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. He has also been an investor in and a director of several start-up companies. Mr. Somers joined the Board in 2003 and is the Senior Independent Director. Alex Spain Chairman (retired 30 June 2007) Alex Spain, B Comm, FCA (76) was non-executive Chairman from the foundation of DCC in 1976 until his retirement from the Board on 30 June 2007. He is a director of a number of other companies. He was Managing Partner of KPMG in Ireland from 1977 to 1984. Mr. Spain is a former President of the Institute of Chartered Accountants in Ireland and a former Chairman of the Financial Services Industry Association in Ireland. Audit Committee Bernard Somers (Chairman) Róisín Brennan Maurice Keane Nomination Committee Michael Buckley (Chairman) Maurice Keane Bernard Somers Remuneration Committee Maurice Keane (Chairman) Róisín Brennan Michael Buckley Bernard Somers 6 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Senior Management group and divisional Tommy Breen Director Fergal O’Dwyer Director Chief Executive Chief Financial Ofﬁcer Conor Costigan Managing Director DCC Healthcare Niall Ennis Frank Fenn Managing Director DCC SerCom Managing Director DCC Food & Beverage Donal Murphy Managing Director DCC Energy Ann Keenan Head of Group Human Resources Colman O’Keeffe Deputy Managing Director DCC Energy Peter Quinn Head of Group IT Michael Scholeﬁeld Managing Director DCC Corporate Finance Gerard Whyte Group Secretary Compliance Ofﬁcer & Head of Enterprise Risk Management DCC - ANNUAL REPORT AND ACCOUNTS 2008 7 Senior Management subsidiaries and joint ventures DCC Energy Oil LPG Fuel card GB Oils Emo Oil DCC Energy (NI) Flogas UK Flogas Ireland Fuel Card Group Sam Chambers Gerry Wilson Pat O’Neill Paddy Kilmartin Richard Martin Ben Jordan Managing Director Managing Director Operations Director Managing Director Managing Director Chief Operations Ofﬁcer DCC SerCom Retail Reseller Enterprise Supply chain management Gem Distribution Pilton Banque Magnetique Micro Peripherals Sharptext Distrilogie SerCom Solutions Chris Peacock Nick Furlong Claude Dupont Mike Alden Paul White Patrice Arzillier Kevin Henry Managing Director Managing Director Directeur Général Managing Director Managing Director Directeur Général Chief Executive Ofﬁcer DCC Healthcare Acute care Health & beauty solutions Mobility & rehab Fannin Squadron Medical DCC Health & Beauty Solutions Eurocaps Laleham DCC Mobility & Rehab Ausmedic Australia Physio Med Services Andrew O’Connell Peter Wyslych Stephen O’Connor Adrian Williams Tim O’Connor Graham White Ashley Williams John Gregory Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director DCC Food & Beverage Health food Indulgence Logistics Other Kelkin Robert Roberts Bottle Green Allied Foods Broderick Bros Kylemore Foods Group * Bernard Rooney Tom Gray Jon Eagle John Casey Richard Kieran Brian Hogan Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director DCC Environmental William Tracey * Wastecycle Enva Michael Tracey Mike Shearstone Declan Ryan Managing Director Executive Chairman Managing Director * Joint venture 8 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Chairman’s Statement Michael Buckley Chairman “ DCC’s excellent track record of fourteen years’ unbroken proﬁt growth is based on a good mix of organic growth and successful acquisitions. Its strong ﬁnancial position and experienced management team are the foundations on which we can look forward to a continuation of its robust performance.” Board changes On Jim Flavin’s resignation as Executive Chairman and as a Director of DCC on 27 May 2008, the Board appointed me as non-executive Chairman and appointed Tommy Breen, who had been Group Managing Director since July 2007, as Chief Executive. I want to begin this, my ﬁrst statement as Chairman, by paying tribute to Jim Flavin for the robust, balanced and growth-oriented company he created and led over a 32 year period. Since I joined the Board, in September 2005, I have been struck by the quality, focus and cohesiveness of the management team he built. At Board level, the six non-executive directors bring considerable and varied experience and independence of judgment to the table. Two key tasks for me in the coming year will be • To ensure Board oversight of the strategic review process which has been under way for some time and which will be completed by March 2009. Every company needs to undertake such a review periodically to ensure that it is maximising the growth opportunities available to it and that it is correctly structured to ensure that the market reﬂects the inherent value of its business lines. • To ensure as a priority during the current ﬁnancial year that signiﬁcant progress is made in the ongoing task of Board renewal, balancing continuity with the need to bring in fresh and relevant experience. In respect of both these tasks, and in everything else I do as Chairman, it will be my aim to ensure that I hear and listen to the views of DCC’s shareholders, both domestic and international, a task which I have already begun through a programme of meetings with signiﬁcant shareholders. Results overview The year to 31 March 2008 was an excellent year of growth and development for DCC. The results reﬂect strong organic growth and a contribution from successful acquisitions. Highlights of the year include: • 36.7% growth in revenue to €5.532 billion, driven by strong organic growth, the increase in energy prices and acquisitions. • Excellent growth in operating proﬁt of 19.3%, maintaining DCC’s unbroken record of proﬁt growth since ﬂotation in 1994. Compound annual growth in operating proﬁts in the 14 years since ﬂotation is 15.5%. • Adjusted earnings per share from continuing activities (excluding the Manor Park Homebuilders contribution in the prior year) increased by 15.0%. Dividend increase The Directors are recommending a ﬁnal dividend of 36.12 cent per share which, when added to the interim dividend of 20.55 cent per share, gives a total dividend of 56.67 cent per share for the year, a 15% increase over the prior year dividend of 49.28 cent per share. The dividend is covered 2.9 times by adjusted earnings per share (3.2 times in 2007). It is proposed to pay the ﬁnal dividend on 24 July 2008 to shareholders on the register at the close of business on 30 May 2008. Fyffes case Issues arising from the Irish Supreme Court decision on the Fyffes case have been a matter of concern during the year. Shareholders will be aware that, on 27 July 2007, the Supreme Court, overturning a decision by the High Court, found that two trading reports, which Jim Flavin had in his possession as a director of Fyffes at the time of the sale of 31,169,493 shares in Fyffes in 2000, were price sensitive. As a result of the Supreme Court decision, DCC was obliged to pay to Fyffes a sum that was to be determined by the High Court, relating to the proﬁts on the sale. As announced on 14 April 2008, a settlement was subsequently agreed with Fyffes and counterparties in respect of all claims, interest and costs for an amount of €41 million. An exceptional charge of €50 million for this amount and DCC’s own costs has been made in these ﬁnancial statements. Following announcement of the settlement, the Board was for the ﬁrst time in a position comprehensively to set out the factors which it had taken into account in deciding to endorse Jim Flavin’s continuation in his three year transitional role as Executive Chairman. It did so in a statement reviewed by the Company’s solicitors, speciﬁcally in relation to any reference made in it to the Court judgments, which was included in a Stock Exchange announcement on 20 May 2008. (The statement forms the appendix to the Corporate Governance section of this Annual Report and Accounts). The matters which the Board reviewed and the factors which it took into account in coming to its decision were intrinsically complex and required judgment. The process it undertook was rigorous and in DCC - ANNUAL REPORT AND ACCOUNTS 2008 9 Revenue +36.7% Operating proﬁt +19.3% accordance with corporate governance standards. Our judgment as experienced business people was exercised with appropriate advice, and in good faith. We based it solely on our assessment of what was in the overall interest of the Company and its shareholders. However, we have always understood that others might come to a different judgment. There has been very substantial Irish media coverage of the case. Throughout the period since the Irish Supreme Court ruling and the subsequent Board decision, I, as the then Senior Independent Director, had been available to shareholders, both domestic and international, to discuss any issues they had in that context. Feedback from a large majority of shareholders was supportive of the Board position, but discussions with the Irish Association of Investment Managers (IAIM), whose members collectively hold about 15% of the DCC share capital, in the second half of 2007 had resulted in the Association reserving its position. Some weeks after the announcement of the settlement referred to above, the IAIM informed me that its members disagreed with the Board position. On 22 May 2008, the IAIM issued a statement in which it made it clear that it had reached a different judgment to the Board and in which it said “the IAIM does not consider it appropriate for Mr. Flavin to continue as Executive Chairman of DCC”. � � � � � � � � � � Dividend – years ended 31 March � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Dividend CAGR 10 yrs 16.6% �� On 26 May 2008, when the Board met to discuss the IAIM statement, Jim Flavin informed it that he was seriously considering resigning. The following day, the Board learned of the intention of the Irish Director of Corporate Enforcement (ODCE) to apply to the High Court for the appointment of Inspectors, under Section 8 of the Companies Act, 1990, to investigate and report on whether certain provisions of the Companies Acts were breached in the transactions relating to the intra-group transfer of the Fyffes shares by DCC in 1995 and their disposal in 2000. When the Board met that day to discuss this development, Jim Flavin informed it that his decision to resign was ﬁnal, due to the continuing uncertainty arising from the outcome of the Fyffes litigation. A Stock Exchange announcement to that effect was made on the evening of 27 May 2008. The ODCE application will be heard by the High Court on 19 June 2008. Corporate governance and risk management A detailed statement, set out on pages 44 to 49, describes how DCC has applied the Principles of Good Governance and Code of Best Practice as set out in the Combined Code on Corporate Governance. In line with a number of companies internationally, the Directors have decided, starting with this year’s Annual General Meeting, to adopt the practice that all Directors will present themselves for re-election at each Annual General Meeting. The Board is satisﬁed that the Group has effective ongoing processes for identifying, evaluating and managing risks faced by the Group. DCC’s Group Secretary, Gerard Whyte, 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 acts as Chairman of an executive Risk Committee, which constantly monitors and addresses Group risks, including issues raised by Enterprise Risk Management. Management and staff A key strength of the DCC Group is the commitment and loyalty of the 7,000 management and staff throughout the sixteen countries in which we operate. On behalf of the Board, I wish to thank them for their commitment and loyalty to DCC and congratulate them on delivering very good results for the year. Outlook There is a less favourable economic backdrop against which to do business in the current ﬁnancial year. However, we have had a good start . We intend to continue to grow both organically and by acquisition and believe that the climate for making acquisitions will favour companies with strong balance sheets such as DCC. Michael Buckley Chairman 9 June 2008 10 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Chief Executive’s Review Tommy Breen Chief Executive “ In the year ended 31 March 2008, DCC enjoyed excellent growth in revenue, operating proﬁt and adjusted earnings per share. Operating proﬁt growth, on a constant currency basis, was 21.8%, of which approximately 8% was organic.” Results highlights Revenue Operating proﬁt* Exceptional proﬁt (net) Proﬁt before tax Adjusted earnings per share* Dividend per share Change on prior year Constant Reported currency +36.7% +19.3% +39.9% +21.8% +12.3% +14.2% € 5,532.0m 167.2m 39.6m 181.7m 165.06 cent +15.0%** +17.4%** 56.67 cent +15.0% All constant currency ﬁgures quoted in this report are based on retranslating current year ﬁgures at prior year translation rates * excluding net exceptionals and amortisation of intangible assets ** continuing activities (excluding the Manor Park Homebuilders contribution in the prior year) In the year ended 31 March 2008, DCC enjoyed excellent growth in revenue, operating proﬁt and adjusted earnings per share. Operating proﬁt growth, on a constant currency basis, was 21.8%, of which approximately 8% was organic. The growth momentum achieved in the ﬁrst half of the year accelerated in the seasonally more signiﬁcant second half. A summary of the second half and ﬁrst half operating proﬁt by division is set out hereunder: Second half Change on prior year First half Change on prior year €’m Reported currency €’m Reported currency Constant Constant Operating proﬁt* DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental 59.8 27.6 13.1 8.3 6.8 +25.2% +24.8% +2.5% +7.1% +30.1% +27.9% +5.4% +7.5% +16.7% +23.8% 14.5 12.5 10.4 7.0 7.2 +23.9% +18.8% +6.5% -4.3% +22.4% +18.0% +5.9% -4.4% +56.7% +54.9% Group operating proﬁt 115.6 +20.1% +24.1% 51.6 +17.6% +16.7% * excluding net exceptionals and amortisation of intangible assets DCC - ANNUAL REPORT AND ACCOUNTS 2008 11 CAGR 10 yrs 14.9% �� Exceptional proﬁt As DCC announced on 19 December 2007, the dividend received from Manor Park Homebuilders and the subsequent sale of the shareholding gave rise to a proﬁt on cost of €180 million and an exceptional proﬁt on carrying value of €94.7 million. This exceptional proﬁt, less the exceptional charge of €50 million for the settlement and costs of the Fyffes action (announced on 14 April 2008) and other net exceptional charges of €5.1 million, resulted in a net exceptional proﬁt before tax in the year of €39.6 million. Adjusted earnings per share Operating proﬁt (continuing) – years ended 31 March +15.0% Dividend per share �� +15.0% � �� Divisional highlights Detailed business reviews for each of the ﬁve divisions are set out on pages 14 to 33. Some of the highlights of the year include: • DCC Energy sold 4.3 billion litres of product in the year, an increase of 32.3% on the previous year’s 3.2 billion litres. The most signiﬁcant part of this increase was in the British oil distribution business which started the year as clear market leader and, through strong organic growth and a number of acquisitions, ended the year approximately three times the size of its nearest competitor. The largest acquisitions were those of CPL Petroleum, a large nationwide oil distributor, and Southern Counties Fuels, a regional distributor based in the south of England. DCC Energy’s oil distribution business in Britain now has an approximate 10% share of a very fragmented market and has an excellent platform from which to grow. • DCC SerCom has signiﬁcantly strengthened its position in European retail consumer electronics distribution through the acquisition of Banque Magnetique, a Paris based company. Banque Magnetique is a leading distributor of consumer electronics and IT peripherals to the French retail market. This acquisition brings DCC SerCom important new supplier relationships, a new customer base and a platform from which to grow its sales of DCC’s range of own branded products. • DCC Healthcare achieved one of its key strategic objectives by creating a platform for growth in the acute care sector in Britain through the acquisition of Squadron Medical, a Derbyshire based company. Squadron provides specialist value added distribution services to British acute care hospitals and to leading healthcare brand owners. Since the year end, DCC has completed the bolt-on acquisition of a complementary Scottish based business. These businesses, which will be integrated over the coming year, provide DCC Healthcare with increased scale and opportunity to build a signiﬁcant acute care business in Britain. • DCC Food & Beverage achieved excellent organic growth in sales of its own branded Kelkin products during the year. Kelkin is the leading Irish brand of healthy foods and beverages, selling directly to the grocery sector and has beneﬁted from increased investment in the brand in recent years. Particularly encouraging was the momentum achieved during the year in sales of the Kelkin branded VMS range of products to the pharmacy sector, which had been initially rolled out in 2006. • In DCC Environmental, both William Tracey (in which DCC has a 50% joint venture shareholding) and Wastecycle enjoyed excellent organic growth. These companies have specialist recycling skills and are beneﬁting from increased legislation and landﬁll tax in Britain. New regulations, requiring all waste to be treated prior to disposal to landﬁll and a doubling of landﬁll tax between April 2008 and April 2010, provide a positive background for these businesses. 12 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Chief Executive’s Review (continued) “ During the ﬁnancial year, DCC spent €179.6 million on acquisitions, more than in any previous year. These acquisitions provide new platforms for growth across a number of our businesses.” Acquisitions and organic development expenditure Acquisition and organic development expenditure, including additional working capital investment in the year, amounted to €351.6 million as set out below. During the ﬁnancial year, DCC spent €179.6 million on acquisitions, more than in any previous year. These acquisitions provide new platforms for growth across a number of our businesses. During the year, capital expenditure of €87.6 million was spent on facilities and equipment across the Group to support future growth. The net increase in working capital in the Group was €84.4 million. The principal increase was in DCC Energy which primarily resulted from the higher cost of oil. DCC SerCom’s working capital levels were reduced by €20.5 million. Against the background of this signiﬁcant acquisition and development expenditure, DCC’s return on capital employed (including intangible assets) remained strong at 17.5% compared to 17.9% in the prior year. Financial strength At 31 March 2008, DCC had net debt of €123.7 million (€100.5 million: 2007) and total equity of €742.4 million (€687.7 million: 2007). The Group’s net debt levels averaged €242 million during the year compared to €232 million in the prior year. DCC continues to be well placed ﬁnancially to pursue its organic and acquisition growth objectives. DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Total Acquisitions €’m 105.2 50.5 21.8 - 2.1 179.6 Capex €’m 38.2 3.2 15.1 17.1 14.0 87.6 Working Capital €’m 101.6 (20.5) 6.3 (5.2) 2.2 84.4 Total €’m 245.0 33.2 43.2 11.9 18.3 351.6 DCC - ANNUAL REPORT AND ACCOUNTS 2008 13 “ DCC has had an excellent start to the current ﬁnancial year and continues to be well positioned both commercially and ﬁnancially to augment growth through acquisition activity.” Strategy review As previously announced, a reappraisal of DCC’s overall strategic direction is being undertaken so that DCC is best positioned for sustainable long-term growth. This process is ongoing and recommendations will be reviewed by the Board at the end of the ﬁnancial year. the completion of the strategy reappraisal process and will continue to be mindful of the fact that the management of diversity is a core competence of DCC. The central objective is to ensure that DCC continues to pursue a strategy which maximises shareholder value on a consistent basis over the long term. This reappraisal does not imply that DCC’s strategy is in some way ﬂawed. Demonstrably, the strategy that DCC has pursued since it went public in 1994 has delivered consistently good results. However, the diversity of DCC’s business model, while reducing risk, makes DCC more complex from a management perspective and more difﬁcult to explain to investors. The highly proﬁtable realisation of value by DCC of its 49% shareholding in Manor Park Homebuilders last December was part of DCC’s strategy to redeploy capital into core business activities. Shareholders will be familiar with DCC’s market sector based divisions, DCC Energy, DCC SerCom, DCC Healthcare, DCC Food & Beverage and DCC Environmental. Within these ﬁve divisions there are fourteen businesses, each with different characteristics such as return on capital, growth records and opportunities, competitors and management expertise. In the reappraisal of DCC’s strategy, the Board will analyse the relative opportunity to create shareholder value from each of these business units. Shareholders should not anticipate any particular change in strategy at this stage. The Board will come to a logical conclusion based on Corporate social responsibility DCC recognises its responsibilities to all stakeholders and is fully committed to the management of all aspects of its business to the highest standards to fulﬁl these responsibilities. This is set out in the Corporate Social Responsibility statement on pages 40 to 41. DCC currently employs approximately 7,000 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. Jim Flavin On 27 May 2008, Jim Flavin, who founded DCC in 1976, resigned as Executive Chairman. Since its foundation, Jim has led the hugely successful development of DCC with exceptional passion and commitment. I worked closely with Jim for more than twenty two years and was the beneﬁciary of his inspirational leadership and vision throughout that period. All of my colleagues throughout the Group and I would like to wish Jim and his family every success and happiness in the future. It is an honour to have been appointed Chief Executive of a company with the track record of success of DCC and I look forward to continuing to work closely with the exceptional team of people throughout the Group. On 27 May 2008, Michael Buckley was appointed non-executive Chairman and I was appointed Chief Executive. Michael joined the Board of DCC in 2005 and was Senior Independent Director. We are fortunate to have a person of Michael’s skills and experience as Chairman. Outlook DCC is budgeting for strong earnings growth in the range of 12% to 15%, on a constant currency basis, in the current ﬁnancial year. However, the impact of the translation of the signiﬁcant proportion of DCC’s proﬁts that are sterling based into euro at the approximate current exchange rate of Stg£0.80 = €1 would result in reported earnings growth in the range of 2% to 5%. DCC has had an excellent start to the current ﬁnancial year and continues to be well positioned both commercially and ﬁnancially to augment growth through acquisition activity. Tommy Breen Chief Executive 9 June 2008 14 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Energy DCC Energy is the leading oil and liqueﬁed petroleum gas (LPG) sales, marketing and distribution business in Britain and Ireland. DCC sold 4.36 billion litres of product to c. 500,000 domestic, commercial, industrial and agricultural customers from its extensive network of 194 depots throughout Britain and Ireland. DCC Energy currently employs approximately 2,700 people. DCC - ANNUAL REPORT AND ACCOUNTS 2008 15 Revenue €3,420.0m Operating proﬁt €74.3m Revenue Operating proﬁt Return on capital employed - excluding intangible assets - including intangible assets Change on prior year Constant 2007 Reported Currency 2008 €3,420.0m €2,247.9m €59.5m €74.3m +52.1% +25.0% +56.5% +28.6% 45.8% 20.6% 49.9% 22.7% 16 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Energy DCC sells oil under a portfolio of strong brands including Carlton Fuels, CPL, Emo Oil, Scottish Fuels and Shell. Businesses and markets DCC Energy’s oil business supplies heating oils, transport fuels and fuel oils to domestic, commercial, agricultural and industrial customers in Britain and Ireland. DCC is the largest oil distributor in Britain, selling c. 3.2 billion litres of product on a pro forma basis, which gives DCC approximately 10% of the market*. DCC has been a consolidator of the highly fragmented oil distribution market in Britain having ﬁrst entered the market with the acquisition of BP’s business in Scotland in September 2001. In Northern Ireland, DCC Energy is the largest oil distributor with a market share of approximately 20%, while in the Republic of Ireland, DCC Energy has approximately 7% of the market. DCC Energy sells oil under a portfolio of strong brands including Carlton Fuels, CPL, Emo Oil, Scottish Fuels and Shell. DCC has an excellent operational infrastructure in the oil business which it has leveraged to grow strongly in the national account sector of the market. 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 and has an extensive operational infrastructure in both Britain and Ireland. Trading under the Flogas brand, DCC Energy is the number two player in the LPG market in both Britain and Ireland with market shares of approximately 20% and 36% respectively. DCC has been a consolidator of the British LPG market and has created signiﬁcant shareholder value over the last number of years through its acquisition and integration activities. The business also distributes a range of LPG fuelled appliances such as mobile heaters, barbeques and patio heaters. DCC ﬁrst entered the fuel card market through the acquisition of the Fuel Card Group in January 2005. The business now sells in excess of 255 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 ever increasing transport fuel costs and DCC Energy provides its customers with access to the breadth of the UK retail petrol station and bunker networks through its portfolio of branded fuel cards. In addition, DCC provides its customers with detailed information on their fuel utilisation to enable them to minimise their transport costs. DCC Energy purchases its oil and LPG from the major oil companies and has excellent long-standing relationships with the major suppliers in the market, operating a portfolio approach to the management of its supply base. DCC’s ﬁnancial strength enables DCC Energy to be a preferred partner of the major oil companies, which is particularly important in these days of high oil prices. Performance management DCC has over 30 years involvement in the energy distribution market and with this comes a depth of experience and industry knowledge which enables DCC to drive superior returns. The business demands detailed hands-on management and 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 18.9% in operating proﬁt. Performance for the year ended 31 March 2008 DCC Energy achieved excellent growth in the year with operating proﬁt 25% ahead of the prior year. Operating proﬁt growth on a constant currency basis was 28.6%, of which organic growth was approximately 10%. This result was particularly pleasing considering it was another year of above average temperatures, albeit colder than the prior year. The business also had to deal with the dramatic rise in the cost of product during the year. DCC Energy sold 4.3 billion litres of product in the year, an increase of 32.3% on the prior year, further strengthening its position as the leading oil and LPG distributor in Britain and Ireland. * The market is deﬁned as fuels sold to the domestic, commercial, agricultural, industrial and haulage sectors of the transport fuels market (i.e. excluding the retail petrol station market). DCC - ANNUAL REPORT AND ACCOUNTS 2008 17 Flogas supplies LPG in both bulk and cylinders to domestic and commercial customers. “ A consolidator of the highly fragmented oil distribution market in Britain.” In the LPG market, DCC Energy will continue to leverage its position as the strong number two player in the market to drive organic growth on a sector by sector basis in both Britain and Ireland. DCC Energy will continue to target high levels of organic growth in the fuel card market and invest in new telesales teams to cross-sell fuel cards to its extensive oil distribution customer base. DCC Energy will continue to position itself as the partner of choice for all the providers of branded fuel cards in the market. Outlook DCC Energy is budgeting for excellent constant currency operating proﬁt growth in the current ﬁnancial year. DCC sells motor fuel through a portfolio of fuel cards under the BP, Emo, Esso, Shell, Texaco, Diesel Direct and ReD brands. It was an excellent year of growth and development for the oil business in Britain. The business beneﬁted from the acquisitions completed in the prior year and ﬁrst time contributions from acquisitions completed during the year. DCC Energy achieved excellent organic growth from its extensive nationwide infrastructure and from its focus on growing the proportion of its business in the non heating dependent segments of the market. The LPG business increased its sales volumes during the year, but the dramatic rise in the price of propane resulted in a modest, short-term reduction in operating proﬁt. DCC’s fuel card business had another year of excellent growth, with the business beneﬁting from the integration of an acquired fuel card business and strong organic volume growth. � � � � � � � �� Strategy and development In oil distribution, DCC’s strategy is to achieve a 20% share of the British market. Having established strong market shares in both Scotland and the north of England, the primary focus is on developing its � business in the south of England and � � � � � � Wales. DCC Energy is also leveraging � its extensive nationwide operational infrastructure to drive high levels of organic growth, with a particular focus on the non heating dependent segments of the market and on national accounts. The business is also focused on cross-selling add-on products and services, such as lubricants and boiler maintenance services, to its extensive customer base. � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Donal Murphy Managing Director “ DCC Energy sold 4.3 billion litres of product to c. 500,000 customers in Britain and Ireland” Operating proﬁt (€m) 10 Year CAGR 18.9% 5 Year CAGR 12.5% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� 18 DCC - ANNUAL REPORT AND ACCOUNTS 2008 18 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC SerCom DCC SerCom comprises two businesses, SerCom Distribution and SerCom Solutions. SerCom Distribution markets and sells IT and entertainment products to • the Retail market - a leading distributor of consumer electronics, peripherals and home entertainment products to retailers, e-tailers and catalogue retailers in Britain, Ireland and France • the Reseller market - a leading distributor of IT products to the reseller and dealer channel in Britain and Ireland , and • the Enterprise market - a leading European distributor of enterprise servers, storage and software to value-added resellers, large account resellers and independent software vendors. SerCom Solutions provides outsourced procurement and supply chain management services in Ireland, Poland, China and the USA. DCC SerCom currently employs approximately 1,360 people. DCC - ANNUAL REPORT AND ACCOUNTS 2008 19 DCC - ANNUAL REPORT AND ACCOUNTS 2008 19 Revenue €1,423.4m Operating proﬁt €40.1m Revenue Operating proﬁt Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year Constant 2007 Reported Currency 2008 +16.9% +22.9% +18.8% +24.7% €1,423.4m €1,218.0m €32.6m 2.7% €40.1m 2.8% 24.2% 15.3% 22.4% 13.8% 20 DCC - ANNUAL REPORT AND ACCOUNTS 2008 20 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC SerCom The Retail business beneﬁted from a favourable market for games. Businesses and markets SerCom Distribution The Retail business sells to a broad range of retailers, e-tailers and catalogue retailers in Britain, Ireland and France. The products distributed include business software, games consoles, software & peripherals, consumer electronics, DVDs and audio visual accessories. End users are typically consumers. Brands include 20th Century Fox, Entertainment in Video, Creative Labs, Disney, EA, Garmin, Logitech, Microsoft, Nintendo, Paramount, Symantec, Take Two, Warner and DCC’s own brands, Linx and Exspect. The Reseller business sells to a broad range of resellers and computer dealers in Britain and Ireland. The products distributed include PCs, servers, printers, peripherals, storage and network products and the end users are generally small or medium businesses. Vendors include Acer, Canon, D-Link, Fujitsu Siemens, HP, IBM, Lenovo, Netgear, Samsung, Sharp and Sony. The Enterprise business sells to value added resellers, large account resellers and independent software vendors in France, Iberia, Benelux, Britain and Ireland. The products distributed include a range of servers, storage and data management, security, storage and virtualisation software from a broad range of vendors. End users are generally large businesses. Vendors include EMC2, HP, IBM, Isilon, Oracle, SonicWall, Sun, Symantec and VMware. 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, Nortel and Thomson Telecom and is working closely with SerCom Distribution on the sourcing and supply of DCC’s 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 DCC SerCom is focused on delivering sustained proﬁt growth and superior returns on capital employed. The performance of the business is closely monitored through a range of performance indicators, including sales growth, gross margins, rebate target achievement, operational and cost efﬁciencies, operating proﬁt, cash ﬂow and capital utilisation. In addition, a range of working capital metrics are used to continuously monitor and manage the value and proﬁle of working capital. Over the past ten years, DCC SerCom has achieved a compound annual growth rate of 9.2% in operating proﬁt. Performance for the year ended 31 March 2008 DCC SerCom achieved excellent operating proﬁt growth of 22.9% in the year. The operating proﬁt growth on a constant currency basis was 24.7%, of which organic growth was approximately 13%. SerCom Distribution’s Retail focused business, comprising Gem, Pilton and Banque Magnetique, had an excellent year. The business beneﬁted from the acquisition of Banque Magnetique and a favourable market environment for games. The business increased its market share with key customers, broadened its product portfolio and made signiﬁcant progress developing DCC’s own-brand business. SerCom Distribution’s Reseller business, comprising Micro-P and Sharptext, had a disappointing year. Despite increased volumes, difﬁcult market conditions and ongoing severe price deﬂation in PCs and printers resulted in reduced proﬁts for the year. SerCom Distribution’s Enterprise business, Distrilogie, achieved good proﬁt growth. The business grew its market share and expanded its product portfolio. DCC - ANNUAL REPORT AND ACCOUNTS 2008 DCC - ANNUAL REPORT AND ACCOUNTS 2008 21 21 SerCom Distribution is expanding its product portfolio. “ Signiﬁcant progress developing DCC’s own-brand business.” Outlook SerCom Distribution is budgeting for another year of strong constant currency operating proﬁt growth reﬂecting the development initiatives put in place in the last ﬁnancial year. SerCom Solutions’ results will be signiﬁcantly impacted by the loss of a material element of its procurement business in Ireland, arising from a change in strategy by a major customer. Overall, DCC SerCom is budgeting for modest constant currency growth in operating proﬁts in the current ﬁnancial year. The Retail business sells a broad range of products, including DCC’s own brands, Linx and Exspect. SerCom Solutions had an exceptional year, reﬂecting strong growth in demand for its supply chain management services. During the year, the business commenced operations in the United States and made good progress in its procurement initiatives in the Far East in co-operation with SerCom Distribution. Strategy and development DCC SerCom’s strategy is to deliver consistent long-term proﬁt growth and industry leading returns on capital employed. SerCom Distribution will continue to pursue its aims of expanding its customer and product portfolios, with a particular focus on the retail and enterprise markets and on deriving maximum synergies from the recent acquisition of Banque Magnetique. SerCom Solutions will continue to extend its world class procurement and sourcing services in the Americas and the Far East as well as its existing operations in Poland. � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Niall Ennis Managing Director “ SerCom Solutions employs state of the art IT systems and procurement processes.” Operating proﬁt (€m) 10 Year CAGR 9.2% 5 Year CAGR 4.1% � � � � � � � � � � � �� 22 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Healthcare DCC Healthcare is a broadly based healthcare products and services group with operations encompassing: • Procurement, sales and marketing of healthcare products and provision of related services to hospitals in Ireland and Britain; • Provision of outsourced services to the health and beauty sector in Britain and continental Europe. • Procurement, sales and marketing of rehabilitation products in Britain, Ireland, Germany, Australia, New Zealand and other markets. DCC Healthcare currently employs approximately 1,300 people. DCC - ANNUAL REPORT AND ACCOUNTS 2008 23 DCC - ANNUAL REPORT AND ACCOUNTS 2008 23 Revenue €286.8m Operating proﬁt €23.5m Revenue Operating proﬁt Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year Constant 2007 Reported Currency €234.3m €22.5m 9.6% +22.4% +4.2% +24.5% +5.6% 2008 €286.8m €23.5m 8.2% 48.8% 13.9% 57.3% 15.6% 24 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Healthcare DCC now has a strong growth platform, providing distribution services to British hospitals. Businesses and markets DCC Healthcare has three areas of activity: Acute care - Fannin is the market leader in acute care in Ireland. Fannin’s product portfolio encompasses intravenous pharmaceuticals, medical, surgical and laboratory products. The business markets and sells a broad range of leading brands including Cardinal, Grifols, Molnlycke, Oxoid and Synthes through its extensive ﬁeld sales force of over 100 highly trained professionals. DCC is focusing on developing value-added services related to this product offering. In Ireland, Fannin has built a growing business in pharmaceutical compounding services for Irish hospitals. DCC now has a strong growth platform in the provision of value added distribution services to British hospitals and leading healthcare brand owners. This is a developing sector as British hospitals increasingly look for customised just-in-time distribution solutions to deliver cost savings, free up hospital space, improve product availability and ultimately contribute to delivering better service levels to their patients. Fannin also has a developing specialist sales and marketing business in Britain that is currently focused on intravenous pharmaceuticals and surgical devices. DCC Health & Beauty Solutions 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 and hard 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 offers customers a rapid turnaround from marketing concept through to ﬁnished, shelf-ready product. This process typically involves product development, formulation, stability and other testing and regulatory compliance, as well as manufacturing 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 Mobility & Rehab is a developing international mobility and rehabilitation business, with operations in Britain, Ireland, Germany, Australia and New Zealand, as well as a network of international distributors. DCC is the market leader in the physiotherapy product sector in Britain, Australia and New Zealand, distributing a broad product portfolio including physiotherapy equipment and consumables and general rehabilitation equipment principally marketed under its own Days Healthcare, Physio-Med and Metron brands. Products are developed and designed in- house with manufacturing outsourced, mainly to Asian and eastern European partners. DCC’s procurement and quality control team based in Shenzhen, China works closely with these partners. DCC’s extensive customer base – hospitals, community loan stores, specialist retailers, private practitioners, nursing homes, end users and distributors – is serviced through ﬁeld and telesales teams and supported by product catalogues and websites. 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 of 13.2% in operating proﬁt. Performance for the year ended 31 March 2008 DCC Healthcare achieved strong proﬁt growth in both the acute care and mobility and rehabilitation sectors, but overall proﬁt growth was moderated to 4.2% by a weaker performance in DCC Health & Beauty Solutions. The operating proﬁt growth on a constant currency basis was 5.6%, driven by acquisition contribution and a modest organic decline. DCC - ANNUAL REPORT AND ACCOUNTS 2008 25 DCC is the market leader in physiotherapy products in Britain, Australia and New Zealand. “ Market leader in the acute care sector in Ireland.” Strategy and development DCC Healthcare’s strategy is to build a substantial international healthcare products and services business. The primary focus is on 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 offerings and driving growth through its existing channels to market. The business is also focused on growing in new and developing channels, leveraging its extensive sales teams, catalogues and websites. DCC Healthcare has an active acquisition programme and is particularly targeting acquisitions in the acute care and health and beauty sectors. Geographically, DCC Healthcare’s acquisition activity is primarily focused on Britain and continental Europe. Outlook DCC Healthcare is budgeting to achieve excellent constant currency operating proﬁt growth in the current ﬁnancial year. � � � � � � � � � � � � � � � � � � � Conor Costigan Managing Director “ DCC offers its customers a rapid turnaround from marketing concept through to ﬁnished, shelf-ready product.” Operating proﬁt (€m) 10 Year CAGR 13.2% 5 Year CAGR 17.3% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Fannin has built a growing business in pharmaceutical compounding services for Irish hospitals. DCC’s acute care business, Fannin, made good progress during the year generating strong proﬁt growth and signiﬁcantly expanding its position in Britain through the acquisitions of Squadron Medical and a complementary business based in Scotland. In Ireland, Fannin achieved strong growth in intravenous pharmaceuticals through excellent organic growth in its sales and marketing activities and its pharma compounding services. DCC Health and Beauty Solutions achieved good sales growth but proﬁts were impacted by increased costs arising from planned capacity expansion and new product development on behalf of customers. DCC Mobility & Rehab generated excellent organic proﬁt growth in physiotherapy supplies in Britain, further strengthening its leadership in this market. Sales of general rehabilitation products in Britain also showed good growth, while Germany was impacted by weak market conditions. Ausmedic broadened its product range and market coverage in Australia through the launch of the DCC Mobility & Rehab product range. � � � �� 26 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Food & Beverage 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. It is a market leader in a number of niche market segments in healthfoods, indulgence foods and frozen & chilled logistics. DCC Food & Beverage currently employs approximately 1,060 people. DCC - ANNUAL REPORT AND ACCOUNTS 2008 27 Revenue €310.1m Operating proﬁt €15.3m Revenue Operating proﬁt Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year Constant 2007 Reported Currency €279.5m €15.1m 5.4% +11.0% +1.6% +11.7% +1.7% 2008 €310.1m €15.3m 4.9% 51.2% 18.6% 51.7% 18.3% 28 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Food & Beverage Robert Roberts is the No.2 supplier of freshly ground coffee and a leading supplier of confectionery in Ireland. two supplier of savoury snacks (through the KP range), a leading independent distributor of confectionery products and has a strong position in wine distribution through Woodford Bourne. In Britain, Bottle Green is a leading supplier of branded and exclusive label solutions to the multiple off-trade sector of the UK wine market. � � � � � � � � � � � � � � � � � � � � Logistics/other � Allied Foods is Ireland’s leading � � � independent provider of temperature controlled supply chain solutions (procurement, brand management, warehousing and distribution), to major retailers, manufacturers and food service customers. Kylemore Foods Group (50% owned by DCC) is a leading player in retail restaurants and contract catering in Ireland. Performance management DCC Food & Beverage’s operating performance is managed and monitored through a number of key performance indicators. These include sales volumes, market share, 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 11.9% in operating proﬁt. Businesses and markets DCC Food & Beverage has a strong track record in brand building and offers deep distribution reach with extensive customer service to the retail and foodservice sectors throughout Ireland. Customers include multiples, symbol and independent retailers, pharmacies, off-licences, hotels, � restaurants and cafés. In Britain, wines � � � are sold to multiple retailers and wholesale � � � cash and carry. � � � � � � � � � � � � Healthfoods In Ireland, Kelkin is the leading and most comprehensive supplier of owned and agency brands of healthy foods and beverages, ﬁne foods and vitamins, minerals and 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 many food categories. It is also a strong brand in the VMS sector. Indulgence foods Robert Roberts is a value-added distributor of indulgent products in the grocery, impulse and food service sectors. The business has a strong complementary range of 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, direct 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, the number � � � �� Operating proﬁt (€m) 10 Year CAGR 11.9% 5 Year CAGR 10.4% � � � � � � � � � � � � � � � � � � � �� DCC - ANNUAL REPORT AND ACCOUNTS 2008 29 Kelkin supplies a range of gluten free products. Robert Roberts has a complementary range of owned and agency brands. “ DCC’s businesses have a strong track record in brand building.” DCC Food & Beverage aims to deliver acquisitions in Ireland and Britain that will exploit the growing demand for healthy food and beverage products and strengthen existing market positions. Outlook DCC Food & Beverage is budgeting for modest constant currency operating proﬁt growth in the current ﬁnancial year. Frank Fenn Managing Director “ Kelkin is recognised as the leading brand in the health / “better for you” food sector.” Performance for the year ended 31 March 2008 DCC Food & Beverage achieved modest growth of 1.6% in the year. On a constant currency basis the operating proﬁt growth was 1.7% (all organic). In Ireland, good growth was achieved in healthfoods, principally driven by the increased investment in the Kelkin brand, new product development and growth in agency brands. Very good growth was also achieved in indulgence foods across its core categories. The frozen and chilled logistics business was impacted by the start up costs of a signiﬁcant new contract and associated investment in new facilities. Kylemore Foods Group, in which DCC has a 50% joint venture shareholding, signiﬁcantly enhanced shareholder value over the past year. Strategy and development DCC’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 will continue to focus on building its brands, with the growing Kelkin brand well-placed to take advantage of the expanding healthfoods market. 30 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Environmental DCC Environmental provides a broad range of waste management and recycling services to the industrial, commercial, construction and public sectors in Britain and Ireland. Through its 50% shareholding in William Tracey and its subsidiary Wastecycle, DCC Environmental has built a signiﬁcant position in the British waste management and recycling industry. DCC Environmental’s subsidiary, Enva, is the leading hazardous waste treatment business in Ireland. DCC Environmental currently employs approximately 550 people. DCC - ANNUAL REPORT AND ACCOUNTS 2008 31 Revenue €91.7m Operating proﬁt €14.0m Revenue Operating proﬁt Operating margin Return on capital employed - excluding intangible assets - including intangible assets Change on prior year Constant 2007 Reported Currency €66.5m €10.4m 15.7% +37.9% +34.4% +41.0% +37.6% 2008 €91.7m €14.0m 15.3% 40.4% 17.4% 38.5% 17.9% 32 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Business Review DCC Environmental � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Wastecycle provides a comprehensive waste recycling service to industrial, commercial & local authority customers. �� Operating proﬁt (€m) 9 Year CAGR 79.1% 5 Year CAGR 33.3% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Businesses and markets Britain Driven by increasing legislation and taxation, Britain is seeking to aggressively reduce the amount of waste going to landﬁll and to bring waste management in line with best practice in continental Europe. This is effected by increased rates of recycling and the introduction of new innovative waste treatment processes. There have been two signiﬁcant government interventions in the last year. Firstly, new regulations came into effect in October 2007 which require all waste to be treated in advance of disposal to landﬁll. Secondly, with effect from 1 April 2008, landﬁll tax increased from its previous £24 per tonne to £32 per tonne and will rise to £40 per tonne on 1 April 2009 and £48 per tonne by 1 April 2010. Both these initiatives give further impetus to DCC’s strategy to become a leading player in the British waste management and recycling industry. Both William Tracey’s and Wastecycle’s focus is on the industrial, commercial and construction waste segments of the market, while also handling waste on behalf of some local authorities. Combined, these businesses handle in excess of one million tonnes of waste using 146 vehicles. Operating from eight freehold sites, William Tracey is recognised as Scotland’s leading waste management and recycling company with a reputation for innovation and creativity in the recycling and management of a wide range of waste products. The business operates a number of fully integrated facilities to treat, recover and dispose of waste, including the manufacture of recycled products. William Tracey has an extensive ﬂeet of specialist waste management vehicles that collect 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 ten 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, using both automated and semi automated equipment, Wastecycle separates waste and recovers a range of recyclable material such as cardboard, metals, timber, plastics, paper, aggregates, soils, glass and plasterboard. Ireland Enva is the leading hazardous waste treatment business in Ireland. Operating from six licensed sites, the business offers a wide range of services including soil remediation, oil recycling, chemical treatment, water treatment and metal recovery. With the most comprehensive hazardous waste infrastructure in Ireland, Enva is ideally positioned to work with the Irish regulators, in particular the Environmental Protection Agency (EPA) in its goal of national self sufﬁciency in dealing with hazardous waste as most recently articulated in its Proposed National Hazardous Waste Management Plan 2008 – 2012. DCC - ANNUAL REPORT AND ACCOUNTS 2008 33 Enva offers a range of services, including soil remediation, oil recycling, chemical treatment and metal recovery. “ Increased rates of recycling and introduction of innovative waste treatment processes.” Both William Tracey and Wastecycle have beneﬁted from a focus on the continuous increase in the proportion of waste recycled. Enva achieved modest proﬁt growth in the year. Strategy and development DCC’s strategy is to grow its position as a leading broadly based waste management and recycling business in Britain and Ireland. In particular, DCC aims to position the business to take advantage of the trend towards more sustainable waste management with a particular emphasis on recycling. This growth strategy will be driven both organically and by acquisition. Outlook DCC Environmental is well positioned within attractive growth markets and is budgeting for excellent constant currency operating proﬁt growth in the current ﬁnancial year. Tommy Breen Managing Director “ In Britain, DCC Environmental handles in excess of one million tonnes of waste using 146 vehicles.” William Tracey has a reputation for innovation and creativity in the recycling and management of a wide range of waste products. 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, costs of treatment, operating proﬁt, cash ﬂow and capital utilisation. DCC gives the highest priority to its health, safety and environmental record through the allocation of appropriate resources and implementation of best practice. A range of measurement tools, including lost time incident rates, are used to monitor performance. Over the 9 years since the business was established, DCC Environmental has achieved a compound annual growth rate of 79.1% in operating proﬁt. Performance for the year ended 31 March 2008 DCC Environmental achieved excellent proﬁt growth of 34.4%. The operating proﬁt growth on a constant currency basis was 37.6%, of which organic growth was approximately 18%. William Tracey recorded excellent organic growth and has continued to build on its position as Scotland’s leading waste management and recycling business. Wastecycle also achieved excellent organic proﬁt growth across all parts of its business. 34 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Financial Review Fergal O’Dwyer Chief Financial Ofﬁcer Balanced business model DCC’s balanced business model delivered an excellent performance against a backdrop of more challenging economic conditions in the geographic markets in which it operates. On a constant currency basis, operating proﬁt grew by 21.8% (19.3% on a reported basis). 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 63 to 71. Overview of results/key performance indicators Revenue of €5.5 billion grew by 39.9% on a constant currency basis (36.7% on a reported basis) and operating proﬁt of €167.2 million increased by 21.8% on a constant currency basis (19.3% on a reported basis) as set out in Tables 1 and 2. Growth in revenue and operating proﬁt, analysed as between organic growth, growth from acquisitions and the impact of currency, is as follows: Revenue Operating Proﬁt % % 18.9% 21.0% 39.9% 8.3% 13.5% 21.8% (3.2%) (2.5%) 36.7% 19.3% Organic Acquisitions Constant currency Currency impact on translation Reported Although DCC’s operating margin (excluding exceptionals) was 3.0% (3.5% in 2007), 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. 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 by a percentage margin. Excluding DCC Energy, the Group’s operating margin was 4.4% compared to 4.5% in the previous year. A detailed review of the operating performance of each of DCC’s divisions is set out on pages 14 to 33. Table 1: Revenue - constant currency 2008 2007 Change H1 €’m H2 €’m FY €’m H1 €’m H2 €’m FY €’m H1 % H2 % FY % DCC Energy 1,326.7 2,191.0 3,517.7 996.3 1,251.5 2,247.8 +33.2% +75.1% +56.5% DCC SerCom 571.1 876.0 1,447.1 529.2 688.8 1,218.0 +7.9% +27.2% +18.8% DCC Healthcare 131.3 160.4 291.7 112.2 122.1 234.3 +17.1% +31.3% +24.5% DCC Food & Beverage 161.0 151.3 312.3 136.5 143.0 279.5 +18.0% +5.8% +11.7% DCC Environmental 45.4 48.3 93.7 29.1 37.4 66.5 +55.9% +29.4% +41.0% Total 2,235.5 3,427.0 5,662.5 1,803.3 2,242.8 4,046.1 +24.0% +52.8% +39.9% Financial Review (continued) “Proﬁt before tax of €181.7 million increased by 14.2% on a constant currency basis. On a reported basis the increase was 12.3%” DCC - ANNUAL REPORT AND ACCOUNTS 2008 35 Finance costs (net) Net ﬁnance costs for the year increased by €6.9 million to €17.8 million (€10.9 million in 2007), primarily due to an increase in interest rates. There was a slight increase in the Group’s net debt levels which averaged €242 million during the year compared to €233 million in the prior year. Interest was covered 9.4 times by Group operating proﬁt before amortisation of intangible assets (12.9 times in 2007). Exceptional proﬁt (net) As DCC announced on 19 December 2007, the dividend received from Manor Park Homebuilders and the subsequent sale of the shareholding gave rise to a proﬁt on cost of €180 million and an exceptional proﬁt on carrying value of €94.7 million. This exceptional proﬁt, less the exceptional charge of €50 million for the settlement and costs of the Fyffes action, announced on 14 April 2008, and other net exceptional charges of €5.1 million, resulted in a net exceptional proﬁt before tax in the year of €39.6 million. The tax charge relating to the net exceptional proﬁt was €1.8 million. Amortisation of intangible assets The charge for the amortisation of intangible assets increased from €6.7 million to €7.9 million as a result of the amortisation of intangible assets arising on acquisitions completed during the year ended 31 March 2008 and a full year’s amortisation charge relating to intangible assets acquired on acquisitions completed in the previous year. Proﬁt before tax Proﬁt before tax of €181.7 million increased by 14.2% on a constant currency basis. On a reported basis the increase was 12.3%. Taxation Excluding the tax charge of €1.8 million on the net exceptional proﬁt and a taxation credit of €1.7 million in relation to the amortisation of intangible assets, the effective tax rate for the Group was 11.0%, the same as in the prior year. Adjusted earnings per share excluding Manor Park Homebuilders contribution As DCC’s 49% shareholding in Manor Park Homebuilders was disposed of during the year ended 31 March 2008, adjusted earnings per share excluding the contribution from Manor Park Homebuilders has been shown separately to disclose the underlying earnings growth of 15.0% achieved in DCC’s managed and controlled subsidiaries and joint ventures. On a constant currency basis the growth rate was 17.4%. The compound annual growth rate in DCC’s adjusted earnings per share (excluding the contribution from Manor Park Homebuilders) over the last 15, 10 and 5 years is as follows; 15 years (i.e. since 1993) 10 years (i.e. since 1998) 5 years (i.e. since 2003) CAGR % 15.2% 14.0% 10.2% Table 2: Operating proﬁt - constant currency 2008 2007 Change H1 €’m H2 €’m FY €’m H1 €’m H2 €’m FY €’m H1 % H2 % FY % DCC Energy 14.3 62.2 76.5 11.7 47.8 59.5 +22.4% +30.1% +28.6% DCC SerCom 12.4 28.3 40.7 10.5 22.1 32.6 +18.0% +27.9% +24.7% DCC Healthcare 10.3 13.4 23.7 9.8 12.7 22.5 +5.9% +5.4% +5.6% DCC Food & Beverage DCC Environmental 7.0 7.2 8.3 7.2 15.3 14.4 7.3 4.6 7.8 15.1 -4.4% +7.5% +1.7% 5.8 10.4 +54.9% +23.8% +37.6% Total 51.2 119.4 170.6 43.9 96.2 140.1 +16.7% +24.1% +21.8% 36 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Financial Review (continued) Dividend The total dividend for the year of 56.67 cent per share represents an increase of 15% over the previous year. The dividend is covered 2.9 times (3.2 times in 2007) by adjusted earnings per share. Over the last 10 years DCC’s dividend has grown at a compound annual rate of 16.6%. Return on capital employed The creation of shareholder value through the delivery of consistent, long-term returns in excess of cost of capital is one of DCC’s core strengths. Although marginally lower than the previous year, DCC again achieved excellent returns on capital employed (as detailed in Table 3), generating a return of 38.0% excluding intangible assets and 17.5% including intangible assets (38.9% and 17.9% respectively in 2007). DCC’s return on capital employed has remained consistently high through a combination of good organic growth, attractive acquisition valuations and excellent integration synergies. Cash ﬂow A summary of DCC’s cashﬂow is set out in Table 4. DCC focuses on operating cash ﬂow to maximise shareholder value over the long term. Operating cash ﬂow is principally used to fund investment in existing operations, complementary bolt- on acquisitions, dividend payments and selective share buybacks. DCC generated cash ﬂow from operations of €129.0 million which was marginally higher then the €127.4 million generated in the prior year. Operating cash ﬂow in the year was held back due to an increased investment requirement in working capital of €84.4 million, driven by the strong growth (36.7%) in revenue and an increase in working capital days at 31 March 2008 to 16.4 days revenue compared to 14.0 days at 31 March 2007 as detailed in Table 5. DCC Energy had an increased investment in working capital of €101.6 million as a result of the higher price of oil. DCC SerCom’s working capital levels, which had been relatively high at the end of the previous year, reduced by €20.5 million. During the year the Group received dividends of €172.0 million from Manor Park Homebuilders. In addition the disposal of the Group’s 49% interest in that company gave rise to a receipt of €8.9 million. Including the net €84.4 million investment in working capital referred to above, acquisition and organic development expenditure amounted to €351.6 million. DCC’s ongoing acquisition programme resulted in a number of acquisitions being completed during the year at a total committed cost of €179.6 million, of which €13.0 million was deferred. The cash impact of acquisitions in the year was €176.6 million when payments of deferred acquisition consideration of €10.0 million are taken into account. Capital expenditure was €87.6 million. Net of ﬁxed asset disposals the cash outﬂow from capital expenditure was €79.7 million. Balance sheet and group ﬁnancing DCC has a strong balance sheet with total equity of €742.4 million at 31 March 2008 and net debt at the same date of €123.7 million. Net debt as a percentage of total equity was 16.7% compared to 14.6% at 31 March 2007. The composition of net debt at 31 March 2008 and 2007 is analysed in Table 6. An analysis of DCC’s cash, debt and ﬁnancial derivative instrument balances at 31 March 2008, including maturity periods and currency and interest rate proﬁles, is set out in Notes 27 to 30 to the ﬁnancial statements. Table 3: Return on capital employed 2008 2007 ROCE (excl intangible assets) ROCE (incl intangible assets) ROCE (excl intangible assets) ROCE (incl intangible assets) DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Group 45.8% 24.2% 48.8% 51.2% 40.4% 38.0% 20.6% 15.3% 13.9% 18.6% 17.4% 17.5% 49.9.% 22.4% 57.3% 51.7% 38.5% 38.9% 22.7% 13.8% 15.6% 18.3% 17.9% 17.9% Financial Review (continued) “The total dividend for the year of 56.67 cent per share represents an increase of 15% over the previous year.” DCC - ANNUAL REPORT AND ACCOUNTS 2008 37 Table 4: Summary of cash ﬂows Inﬂows Cash generated from operations Dividend received from associate Proceeds on disposal of associate Share issues (net) Outﬂows Capital expenditure (net) Acquisitions Share buyback Interest and tax paid Dividend paid Net exceptionals Net cash outﬂow Translation adjustments and other Net debt at start of year 2008 €’m 129.0 172.0 8.9 4.1 314.0 79.7 176.6 - 36.9 44.5 4.2 341.9 (27.9) 4.7 (100.5) 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) Net debt at end of year (123.7) (100.5) Table 5: Working capital days Stocks Debtors Creditors Share issues (net) Table 6: 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 2019 Current liabilities: Borrowings Derivative ﬁnancial instruments Net debt 2008 Days 12.4 45.7 (41.7) 16.4 2007 Days 13.7 45.3 (45.0) 14.0 2008 €’m 2007 €’m 25.4 3.1 1.5 485.8 487.3 (4.5) (43.6) (353.6) (401.7) (217.5) (17.2) (234.7) (123.7) 0.1 337.0 337.1 (3.1) (45.9) (265.5) (314.5) (126.0) (0.2) (126.2) (100.5) 38 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Financial Review (continued) “Group ﬁnancial risk management is governed by policies and guidelines which are reviewed and approved annually by the Board of Directors.” Financial risk management Group ﬁnancial risk management is governed by policies and guidelines which are 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 47 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. In the second half of the year sterling weakened signiﬁcantly and this impacted on reported proﬁts as approximately 60% of the Group’s operating proﬁt for the year ended 31 March 2008 was denominated in sterling. The sterling:euro exchange rate weakened by 17.0% from 0.6795 at 31 March 2007 to 0.7953 at 31 March 2008. The average rate at which the Group translates its UK operating proﬁt declined by 3.3% from 0.6797 in 2007 to 0.7021 in 2008. That portion of the DCC’s operating proﬁts that are sterling denominated are offset to a limited degree by certain natural economic hedges that exist within the Group, for example, a proportion of the purchases by certain of its Irish businesses are sterling denominated. DCC does not hedge the remaining translation exposure on the translation of the proﬁts of foreign currency subsidiaries on the basis and to the extent that they are not intended to be repatriated. The 3.3% reduction in the average translation rate of sterling, referred to above, adversely impacted the Group’s reported operating proﬁt by €3.4 million (2.5%) in the year ended 31 March 2008. DCC 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 hedge is offset by the strong ongoing cash ﬂow generated from the Group’s sterling operations leaving DCC with a net investment in sterling assets. The 17% reduction in the value of sterling against the euro during the year ended 31 March 2008, referred to above, gave rise to a translation loss of €64.3 million on the translation of DCC’s sterling denominated net asset position at 31 March 2008 as set out in the reconciliation of the Group’s Total Equity in note 41 to the ﬁnancial statements. €16.0 million of this amount related to DCC’s sterling denominated intangible assets. Where sales or purchases are invoiced in other then the local currency and there is not a natural hedge with other activities within the Group, DCC generally hedges between 50% and 90% of those transactions for the subsequent two months. Financial Review (continued) “DCC maintains a strong balance sheet with long- term debt funding and cash balances with deposit maturities up to six months” DCC - ANNUAL REPORT AND ACCOUNTS 2008 39 Commodity price risk management DCC 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, DCC 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 rated ﬁnancial institutions for the purpose of placing deposits and entering into derivative contracts. The Group actively monitors its credit exposure to each counterparty to ensure compliance with limits approved by the Board. Interest rate risk and debt/ liquidity management DCC 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. Summary As the key ﬁnancial performance indicators set out in Table 7 show, the Group performed strongly in 2008 delivering an improvement in revenues and operating proﬁts and excellent returns on capital employed. Despite total development expenditure of €351.1 million on working capital, capital expenditure and acquisitions, DCC ended the year with a conservatively geared balance sheet. This will facilitate the Group in its development plans, both organic and by way of acquisitions. Table 7: Key Financial performance indicators Revenue growth Operating proﬁt growth* Interest cover (times) Net debt as a percentage of total equity Working capital as a percentage of total revenue Working capital - days Return on capital employed - Excluding intangible assets - Including intangible assets *excluding exceptionals and amortisation of intangible assets. 2008 2007 36.7% 19.3% 9.4 17.7% 15.7% 12.9 16.7% 14.6% 5.2% 16.4 4.5% 14.0 38.0% 17.5% 38.9% 17.9% 40 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 With approximately 7,000 employees working in 16 countries within our 5 industry sectors, DCC’s employees’ knowledge, skills, experience and commitment to excellence are of vital importance to the success of the Group. Indeed our decentralised model, which affords a high degree of autonomy to our operating subsidiaries, depends on the strength and capability of our employees. Training and development We appreciate the need to ensure that our employees’ knowledge and skill base is constantly being developed and challenged and we bring focus and commitment to employee training and development initiatives throughout the Group. Training focuses mainly on technical, job speciﬁc, health & safety and leadership/ management training. In addition to these training initiatives, there are ongoing development programmes for team leaders, supervisors and managers, including residential leadership development programmes for those employees who display senior management potential. DCC Group companies also support employees who wish to pursue further study and development. Communication DCC’s subsidiaries strive to ensure that they have excellent employee communication processes which include employee committees, focus groups, newsletters and suggestion schemes. 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. In the Energy division, Flogas distributes LPG, which is a non-toxic, clean burning, sulphur and smoke free fuel. In the Healthcare division, the Mobility & Rehab businesses provide rehabilitation and physiotherapy products that assist users 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 create a cleaner, safer environment. Recognition of excellence in ﬁnancial reporting DCC won the Published Accounts Award for large public companies in Ireland in 2003 and 2006. This award, organised by the Leinster Society of Chartered Accountants, is the premier award of excellence in ﬁnancial reporting in Ireland. To ensure that we are deploying the most effective and current training initiatives, many of our businesses are part of local training networks, such as the Irish Skillnet programmes. These allow companies in the same geographic area to group together to provide a wider variety of higher quality bespoke training courses. We also partner with other companies in consortium programmes, in particular leadership programmes, providing a signiﬁcantly higher quality development experience for employees. Training – case study A key initiative this year for SerCom Solutions in Limerick is their participation in a tailor made FÁS pilot training course as part of the Skills for Work programme. This led to a number of SerCom’s employees receiving an accredited FETAC certiﬁcate in communication and language. 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 or will become shareholders in DCC. Diversity and equal opportunities DCC recognises the strengths and beneﬁts of a diverse workforce and is committed to providing equal opportunities to all employees. DCC - ANNUAL REPORT AND ACCOUNTS 2008 41 Community – case study One initiative supported by DCC’s subsidiary, Flogas UK, is the ‘Break for Kids’ programme. This aims to help economically disadvantaged children to go on adventure holidays with the Youth Hostel Association that their families could not otherwise afford. As the main sponsor Flogas supports this initiative ﬁnancially and many of its employees raise additional funds through taking part in events such as the London Marathon. Legislation The Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Directive became law throughout Europe on 1 June 2007 and its various requirements will be implemented over the coming years, in conjunction with the development of the new Globally Harmonised System of classifying and labelling chemicals. The legislation aims to comprehensively control all chemicals used in the EU market. Each DCC subsidiary has assessed the impact of this regulation on its business and has taken appropriate actions to ensure compliance, including registration of use and communication with suppliers and downstream users. Community DCC subsidiaries are committed to ensuring that the needs and interests of the local communities in which they operate are taken into consideration and are sensitive to the impact their business operations may have on neighbours. They support local initiatives and charities within their communities and encourage their employees in their endeavours to contribute in many different ways to philanthropic initiatives. Environment, health & safety Environment, health & safety (‘EHS’) management systems All our subsidiaries operate EHS management systems appropriate to the nature and scale of their EHS risk proﬁle. Identiﬁcation of hazards, assessment of the risks and the introduction of control measures form the basis of these systems. Furthermore, monitoring, measurement and review of the control measures ensures a continuous improvement cycle is maintained. During the year, Enva achieved certiﬁcation to the internationally recognised OHSAS18001 health and safety management system standard for its four Irish sites – in Dublin, Portlaoise, Cork and Shannon. Within our IT division, Sercom Solutions in Limerick has also been certiﬁed to OHSAS 18001. EHS review of DCC Energy DNV, a leading provider of risk management services, completed a review of the existing EHS structures and processes within DCC’s Energy division. The independent expert appraisal provided the opportunity for ‘fresh eyes’ to examine the EHS management processes and to share best practice from peer companies. As part of the review, senior managers at subsidiary and divisional level were interviewed and internal EHS documentation was examined by the DNV team. Recommendations and suggestions from the DNV report were principally centred on further development of EHS leadership, improving communication, strengthening EHS objectives and the ongoing promotion of a proactive safety culture throughout the organisation. The recommendations formed the basis for the development of formal, high level EHS objectives and targets for DCC Energy subsidiaries. 42 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Report of the Directors for the year ended 31 March 2008 The Directors of DCC plc present their report and the audited ﬁnancial statements for the year ended 31 March 2008. Results The proﬁt for the ﬁnancial year attributable to equity holders of the Company amounted to €164.5 million as set out in the Group Income Statement on page 57. Dividends An interim dividend of 20.55 cent per share, amounting to €16.56 million, was paid on 7 December 2007. The Directors recommend the payment of a ﬁnal dividend of 36.12 cent per share, amounting to €29.19 million. Subject to shareholders’ approval at the Annual General Meeting on 18 July 2008, this dividend will be paid on 24 July 2008 to shareholders on the register on 30 May 2008. The total dividend for the year ended 31 March 2008 amounts to 56.67 cent per share, a total of €45.75 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 2008 are shown in note 39 on page 100. Capital and treasury shares DCC’s authorised share capital is 152,368,568 ordinary shares of €0.25 each. At 31 March 2008, DCC had a total of 80,815,165 ordinary shares of €0.25 each in issue excluding treasury shares and 7,414,239 ordinary shares of €0.25 each held in Treasury. The number of shares held in Treasury at the beginning of the year (and the maximum number held) was 7,816,256 (8.86% of the issued share capital) with a nominal value of €1.954 million. A total of 402,017 shares (0.46% of the issued share capital) with a nominal value of €0.101 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 2008 of 7,414,239 shares (8.40% of the issued share capital) with a nominal value of €1.854 million. At the Company’s Annual General Meeting on 20 July 2007, 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 18 July 2008, 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. At each Annual General Meeting, in addition to the authority to buy back shares referred to above, the Directors seek authority to exercise all the powers of the Company to allot shares up to an aggregate amount of €7,352,400, representing approximately one third of the issued share capital of the Company. The Directors also seek authority to allot shares for cash, other than strictly pro-rata to existing shareholdings. This proposed authority is limited to the allotment of shares in speciﬁc circumstances relating to rights issues and other issues up to approximately 5% of the Company’s issued share capital. Review of activities and events since the year end The Chairman’s Statement on pages 8 to 9, the Chief Executive’s Review on pages 10 to 13, the Business Reviews on pages 14 to 33 and the Financial Review on pages 34 to 39 contain a review of the development and performance of the Group’s business during the year, of the state of affairs of the business at 31 March 2008, of recent events and of likely future developments. Information in respect of events since the year end as required by the Companies (Amendment) Act, 1986 is also included in these sections. Principal risks and uncertainties Under 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. 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. As detailed throughout this Annual Report, DCC’s businesses operate in a diverse range of business areas. This diversiﬁcation reduces the potential impact of industry speciﬁc risk on the DCC Group as a whole. DCC’s largest division, DCC Energy, operates in a market with volatile and rising cost of product. The principal ﬁnancial risks facing the Group are addressed under ‘Financial Risk Management’ in the Financial Review on pages 34 to 39. The Group has a comprehensive system of risk management and internal controls as detailed under ‘Internal Control’ in the Corporate Governance statement on pages 44 to 49. Principal subsidiaries and joint ventures Details of the Company’s principal operating subsidiaries and joint ventures are set out on pages 111 to 114. Directors The names of the Directors and a short biographical note on each Director appear on pages 4 to 5. On 30 June 2007, Alex Spain retired from his position as Chairman and non- executive Director. On 1 July 2007, Jim Flavin, previously Chief Executive/Deputy Chairman, was appointed Executive Chairman. On 27 May 2008, Jim Flavin resigned from his position as Executive Chairman and Director. On the same date, Michael Buckley was appointed Chairman and Tommy Breen, previously Group Managing Director, was appointed Chief Executive. From 2008, the Directors have decided to adopt the practice that all Directors will be subject to re-election at each Annual General Meeting. None of the retiring Directors has a service contract with the Company or with any member of the Group. 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 50 to 53. DCC - ANNUAL REPORT AND ACCOUNTS 2008 43 Report of the Directors (continued) Substantial shareholdings The Company has been advised of the following interests in its share capital as at 4 June 2008: No. of €0.25 Ordinary Shares % of Issued Share Capital (excluding treasury FMR LLC and FIL Limited on behalf of certain of their direct and indirect subsidiaries * 11,983,330 AIM Trimark Investments * Bank of Ireland Asset Management Limited * Irish Life Investment Managers* Schroder Investment Management Limited and Schroder & Co. Limited * shares) 14.74% 8.07% 6.59% 3.53% 3.53% 3.32% 6,559,324 5,358,998 2,871,178 2,867,244 2,700,000 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 in the Corporate Governance statement on pages 44 to 49. Details regarding the appointment and replacement of Directors can also be found in this statement. 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. by the Directors on 16 May 2008. As a consequence of the resignation of Jim Flavin as Executive Chairman on 27 May 2008 and the appointment of Michael Buckley as Chairman and Tommy Breen as Chief Executive on the same date, it was necessary to make amendments to the Annual Report, particularly the Chairman’s Statement and the Chief Executive’s Review. Accordingly, the approval date of the Group’s ﬁnancial statements by the Board of Directors has been amended to 9 June 2008. Auditors The auditors, PricewaterhouseCoopers, will continue in ofﬁce in accordance with the provisions of Section 160(2) of the Companies Act, 1963. Michael Buckley, Tommy Breen Directors 9 June 2008 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. Articles of Association Amendments to the Articles of Association can only be effected by special resolution of shareholders. Statutory accounts In the notes to the Preliminary Results for the year ended 31 March 2008, issued on 19 May 2008, it was stated that the Group’s ﬁnancial statements for the year to 31 March 2008 had been approved 44 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Corporate Governance The Board has recently evaluated the independence of each of its non-executive Directors. In the case of 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 Bernard Somers as the Senior Independent Director. Mr. Somers is available to shareholders who have concerns that cannot be addressed through the Chairman or Chief Executive. 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 45. Remuneration Details of remuneration paid to the Directors are set out in the Report on Directors’ Remuneration and Interests on pages 50 to 53. Non-executive Chairman On his appointment as Chairman on 27 May 2008, Michael Buckley, formerly Senior Independent Director, ceased to be deﬁned as independent under the provisions of the Combined Code on Corporate Governance. The Fyffes case DCC issued a statement, in a Stock Exchange announcement on 20 May 2008, in relation to the corporate governance aspects of the Fyffes case, which is set out as an Appendix to this Corporate Governance statement. Board Committees Audit Committee The Audit Committee comprises three independent non-executive Directors, Bernard Somers (Chairman), Róisín Brennan and Maurice Keane. The Board has determined that Bernard Somers is the Committee’s ﬁnancial expert. Paddy Gallagher resigned from the Committee on 13 May 2008 and was replaced by Maurice Keane. The Committee met twice during the year. Individual attendance at these meetings is set out in the table on page 45. The Chief Executive, 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; 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 the annual strategy statement, the ﬁnancial statements, budgets (including capital expenditure), acquisitions and dividends. The Board has delegated responsibility for the management of the Group to the Chief Executive and executive management. Certain additional matters are delegated to Board Committees. Composition The Board consists of two executive and six 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, in accordance with the Articles of Association, subject to re-election at the next Annual General Meeting. Subsequently, at least one third of the Directors must retire at each Annual General Meeting and all of the Directors are subject to re-election at least every three years. From 2008, the Directors have decided to adopt the practice that all Directors will be subject to re-election at each Annual General Meeting. All of the Directors bring independent judgment to bear on issues of strategy, risk, performance, resources, key appointments and standards. DCC - ANNUAL REPORT AND ACCOUNTS 2008 45 Corporate Governance (continued) • considering and making • reviewing the Group’s arrangements recommendations to the Board in relation to the appointment, reappointment and removal of the external auditors and approving the audit fee and terms of engagement of the external auditors; • approving the remuneration of the external auditors, whether fees for audit or non-audit services, and ensuring that the level of fees is appropriate to enable an adequate audit to be conducted; • assessing annually the independence and objectivity of the external auditors and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements and the relationship with the 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 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 77. Nomination Committee The Nomination Committee comprises Michael Buckley (Chairman) and two independent non-executive Directors, Maurice Keane and Bernard Somers. Jim Flavin resigned from the Committee on 27 May 2008. The Committee met twice 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 Michael Buckley and three independent non-executive Directors, Maurice Keane (Chairman), Róisín Brennan and Bernard Somers. Tony Barry resigned from the Committee on 24 April 2008. Bernard Somers was appointed to the Committee on 4 June 2008. The Committee met three times during the year. Individual attendance at these meetings is set out in the table below. Attendance at Board and Committee meetings during the year ended 31 March 2008 Director Board Michael Buckley Tommy Breen Tony Barry1 Róisín Brennan Jim Flavin2 Paddy Gallagher3 Maurice Keane3 Fergal O’Dwyer Bernard Somers4 Alex Spain5 A 7 7 7 7 7 7 7 7 7 1 B 7 7 6 7 7 7 7 7 7 1 Audit Committee B A Nomination Committee B A Remuneration Committee A B - - - 2 - 2 - - 2 - - - - 2 - 2 - - 2 - 2 - - - 2 - 2 - 2 - 2 - - - 2 - 2 - 2 - 3 - 3 3 - - 3 - - - 3 - 3 3 - - 3 - - - 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. 1 Tony Barry resigned from the Remuneration Committee on 24 April 2008. 2 Jim Flavin resigned on 27 May 2008. 3 Paddy Gallagher resigned from the Audit Committee on 13 May 2008 and was replaced by Maurice Keane. 4 Bernard Somers was appointed to the Remuneration Committee on 4 June 2008. 5 Alex Spain retired on 30 June 2007. 46 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Corporate Governance (continued) 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. These evaluations are designed to determine whether each Director continues to contribute effectively and continues to demonstrate commitment to the role. The principal responsibilities of the Committee are determining the policy for the remuneration of the executive Directors and determining their remuneration packages, including targets for any performance-related pay, pension rights and compensation payments, 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 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. Fyffes Case Oversight Committee On 21 August 2007, the Board established a Committee of non- executive Directors, comprising Michael Buckley (Chairman), Maurice Keane and Bernard Somers, to oversee issues arising from the Supreme Court judgment in the Fyffes case. Performance evaluation The Board undertakes a formal annual evaluation of its own performance, that of each of its principal committees, the Audit, Nomination and Remuneration committees, and that of individual directors, using the ‘Performance Evaluation Guidance’ set out in the Higgs Suggestions for Good Practice. The Chairman, on behalf of the Board, conducts evaluations of performance with each of the non-executive Directors on an annual basis. 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. The non-executive Directors also evaluate the performance of each executive Director. The Audit, Nomination and Remuneration committees carry out annual reviews of their own performance and terms of reference to ensure they are operating at maximum effectiveness and recommend any changes they consider necessary to the Board for approval. 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 presents at the Annual General Meeting on the Group’s business and its performance during the prior year and answers questions from shareholders. Shareholders can meet with the Chairman or the Senior Independent Director on request. Notice of the Annual General Meeting, the Form of Proxy and the Annual Report are sent to shareholders at least 20 working days before the meeting. At the Meeting, after each resolution has been dealt with, details are given of the level of proxy votes cast on each resolution and the numbers for, against and withheld. The 2008 Annual General Meeting will be held at 11 a.m. on 18 July 2008 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 47 Corporate Governance (continued) • 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 54 and the reporting responsibilities of the auditors are set out in their report on pages 55 and 56. Compliance statement DCC has complied, throughout the year ended 31 March 2008, with the provisions set out in Section 1 of the Combined Code on Corporate Governance, except in relation to the appointment of the Executive Chairman in July 2007. However, as required by the Code, the Board consulted with major shareholders, and also with the Irish Association of Investment Managers, and explained in the Corporate Governance statement in the 2007 Annual Report the reasons why it considered it was appropriate and in shareholders’ best interests that Jim Flavin be appointed Executive Chairman on 1 July 2007. With the appointment of Michael Buckley as non-executive Chairman on 27 May 2008, that exception no longer exists. The Board of DCC is committed to maintaining the highest standards of corporate governance. APPENDIX - The Fyffes Case DCC Board Review, Action and Oversight Over the past number of years, the Board of DCC has kept under continuous scrutiny the litigation which was launched in January 2002 by Fyffes plc against DCC, two of its subsidiaries and Jim Flavin under Part V of the Irish Companies Act, 1990 seeking an account of the proﬁt arising on the sale of 31,169,493 shares in Fyffes in February 2000 by a subsidiary of DCC. Fyffes claimed that certain Fyffes trading reports which had been sent to Fyffes directors including Jim Flavin, who was a non-executive director of Fyffes at the time, were price sensitive. In a judgment delivered in December 2005 the High Court concluded that the information in the trading reports was not price sensitive, that the involvement in the share sales of Jim Flavin as Chief Executive of DCC constituted a dealing by him under Part V of the Companies Act, 1990 and that he had not made use of that information which the Court found “simply had no bearing on the Share Sales”. Only one ﬁnding of the High Court was appealed by Fyffes, namely its decision that the trading reports were not price sensitive. On 27 July 2007 the Irish Supreme Court overturned the High Court decision on this single issue. The Board of DCC met later that day and, with the beneﬁt of input from its legal advisers, reviewed the corporate governance implications of the Supreme Court judgment. After a full discussion under the Chairmanship of Michael Buckley, DCC’s senior independent director, of all the issues arising the Board unanimously reafﬁrmed Jim Flavin in his role as Executive Chairman. The factors which it took into account in reaching this decision are set out below. Following the announcement of the Board’s decision, DCC’s larger shareholders were contacted to explain the basis of the Board’s decision and each of them was given the opportunity, if they wished, to discuss it with Michael Buckley. The Board also set up a special Oversight Committee of non-executive directors, consisting of Michael Buckley (Chairman), Maurice Keane and Bernard Somers, to oversee independently all matters arising from the Supreme Court judgment on behalf of the Board. As part of that role the Committee subsequently directed the DCC input into the discussions that ultimately led to the settlement with Fyffes which was announced on 14 April 2008. Legal Background and Key Findings The Board believes it is important that it should set out for shareholders the legislative context of the High Court and Supreme Court litigation and the ﬁndings of the High Court judgment that were not affected by the Supreme Court decision, all of which it has taken into account in its corporate governance deliberations following the Supreme Court decision. Possession v Use of Information - The Issue of Motivation Part V of the Companies Act, 1990 was introduced in Ireland in order to bring into effect the provisions of Council Directive 89/592/EEC. The recitals to that Directive make it clear that the issue with which the Directive was concerned was the act of improperly using or taking advantage of inside information: - “Whereas the factors on which such conﬁdence depends include the assurance afforded to investors that they are placed on an equal footing and that they will be protected against the improper use of inside information”. “Whereas, since the acquisition or disposal of transferable securities necessarily involves a prior decision to acquire or to dispose taken by the person who undertakes one or other of these operations, the carrying-out of this acquisition or disposal does not constitute in itself the use of inside information; Whereas insider dealing involves taking advantage of inside information;” 48 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Corporate Governance (continued) or the use by any of the boards of the corporate defendants, of the conﬁdential information contained in the November and December Trading Reports. On any view of the evidence, that information simply had no bearing on the Share Sales”. Having regard to that ﬁnding, the Board has legal advice that had the Fyffes action been brought relying only on Council Directive 89/592/EEC or upon the law as it now stands in Ireland, which requires “use” of price sensitive information as opposed to mere possession, it would almost certainly have failed. The High Court also found that “the plaintiff has failed to establish a breach of ﬁduciary duty on the part of Mr Flavin”. The Supreme Court in its judgment recited these conclusions of the High Court and stated “It is a tribute to the extraordinary patience and care of the learned trial judge that none of her ﬁndings of primary fact are challenged on this appeal”. Another important factual ﬁnding of the High Court which was not affected by the Supreme Court judgment was as follows: “I did not understand the Plaintiff to assert dishonesty on the part of any of the Defendants. In any event, I ﬁnd that dishonesty was not established on the evidence”. The only issue in the appeal to the Supreme Court was whether the information in the possession of Jim Flavin was, in law, price sensitive at the time of the share sales, notwithstanding that the information had no bearing on the share sales. In the words of the Supreme Court “The only issue on this appeal is the issue which was dispositive of the claim in the High Court, namely whether the information admittedly available to Mr. Flavin at the time of the share sales was in truth price sensitive”. In the course of carrying out his duties as Chief Executive of DCC, Jim Flavin exercised judgment at the time of the share sales in relation to the likely price effect of the Fyffes November and December 1999 trading reports. His judgment was that the trading reports were not price sensitive. At the time, no other non-executive director or executive director of Fyffes thought that the information in the trading reports was price sensitive. The High Court judgment stated “There is no objective evidence that any director or executive of Fyffes had any concern that, by reason of being in possession of the information contained in the November and December Trading Reports, Mr. Flavin was or might have been in possession of price-sensitive information. The evidence strongly suggests that such a possibility was not entertained at all”. The Fyffes action was heard before the Irish High Court between December 2004 and June 2005 in a hearing which lasted for 87 days. Having heard witnesses of fact from both DCC and Fyffes and the opinions of several experts, the High Court concluded in its judgment delivered on 21 December 2005 that the trading reports sent to Jim Flavin were not price sensitive. Fyffes appealed one ﬁnding of the High Court, namely the decision that the trading reports were not price sensitive. In a judgment on 27 July 2007 the Irish Supreme Court overturned the High Court on this single issue. In doing so the Supreme Court did not ascribe any bad faith to DCC or Jim Flavin. The Board respects the judgment of the Supreme Court and acknowledges its ﬁnancial consequences as embodied in the recent ﬁnancial settlement with Fyffes. The Directive therefore identiﬁed that insider dealing required both possession and improper use of price sensitive information. However, Part V of the Irish Companies Act, 1990 provided for a civil liability to arise for a party who deals in shares whilst simply in possession of price sensitive information. Furthermore, it did not stipulate that the party dealing or the company whose shares were dealt in must know or believe that the information was price sensitive. Part V of the Irish Companies Act, 1990 was repealed by the Investment Funds, Companies and Miscellaneous Provisions Act 2005 upon the enactment on 6 July 2005 of Statutory Instrument No. 342 which implemented a new EC Directive on insider dealing (Market Abuse Directive 2003/6/EC). In contrast to the 1990 Act, the new legislation provides that a person “who possesses inside information shall not use that information”. The Irish High Court reached the following ﬁnding, which was not appealed to the Supreme Court, that Jim Flavin had not “used” the information which was later determined by the Irish Supreme Court to be price sensitive:- “In my view, in this case, the evidence is not open to the interpretation that Mr. Flavin used the information contained in the November and December Trading Reports which is alleged to have been conﬁdential and price-sensitive, the negative information in relation to Fyffes’ trading and earnings performance in the ﬁrst quarter of ﬁnancial year 2000, so as to enable the DCC Group to exit from Fyffes in a manner which would avoid any share price impact which would ensue from the disclosure of that information. In my view, on the evidence, it is clear that what motivated Mr. Flavin in his involvement in the Share Sales and what motivated the almost total exit of the DCC Group from Fyffes in February, 2000 was the opportunity to make a substantial proﬁt because of the increase of the share price on the back of worldoffruit. com. The plaintiff has not established any evidential nexus between the proﬁt which the Share Sales generated for the DCC Group and the use by Mr. Flavin, DCC - ANNUAL REPORT AND ACCOUNTS 2008 49 On 24 January 2002 Fyffes lodged a legal action under Part V of the Irish Companies Act, 1990 against DCC, two of its subsidiaries and Jim Flavin alleging that the trading reports for November and December 1999 were price sensitive and therefore that a civil liability arose to account for the proﬁt arising on the sale of 31,169,493 shares in Fyffes in February 2000. In a judgment on 21 December 2005 the Irish High Court concluded that the Fyffes trading reports were not price sensitive, that the involvement in the share sales of Jim Flavin as Chief Executive of DCC constituted a dealing by him under Part V of the Companies Act, 1990 and that he had not made use of the information which the Court found “simply had no bearing on the Share Sales”. Fyffes appealed one ﬁnding of the High Court, namely the decision that the trading reports were not price sensitive. The Irish Supreme Court overturned the High Court decision on this single issue. On 14 April 2008 a settlement was agreed with Fyffes and counterparties in respect of all claims, interest and costs for an amount of €41 million. An exceptional charge of €50 million for this amount and DCC’s own costs has been made in DCC’s ﬁnancial statements for the year ended 31 March 2008. Corporate Governance (continued) In the introductory paragraph of his Supreme Court judgment Mr. Justice Fennelly wrote “To trade on the use of inside information is recognised for what it is. It is a fraud on the market. The insider who exploits his access to the special knowledge he enjoys for the purposes of the company in his capacity as executive or director of a company commits a crime”. The Board of course agrees with this statement of general principle. The ﬁnding of the High Court that the share dealings in February 2000 did not involve the use or exploitation by Jim Flavin of the information in the trading reports was not appealed and was not affected by the Supreme Court decision. The Fyffes case was a civil action and did not involve any allegation or ﬁnding of dishonesty, fraud or crime. However, Mr Justice Fennelly’s introductory statement of general principle has been inaccurately portrayed by some commentators in a manner which does not fairly reﬂect the true import of the High Court and Supreme Court judgments in this particular case. Conclusion The Board is satisﬁed that the established facts surrounding the sales of Fyffes shares in February 2000 fully support its view that the share sales did not involve any intentional wrongdoing on the part of Jim Flavin and in essence were an unwitting breach of civil law under the now repealed Part V of the Irish Companies Act, 1990. Factual Background Jim Flavin was a non-executive director of Fyffes from January 1981 until his resignation on 9 February 2000. In his capacity as a non-executive director he routinely received Fyffes trading reports, including the trading reports for November and December 1999, which were the ﬁrst two months of Fyffes’ ﬁnancial year to 31 October 2000. These reports disclosed poor trading results and were the reports found by the Supreme Court to be price sensitive. The DCC Group had owned a 10% ordinary shareholding in Fyffes, a listed fresh produce company, since 1981 and, following DCC’s own listing in 1994, this shareholding had become anomalous and it had become the DCC Group’s objective to sell it if an opportunity arose. On 3, 8 and 14 February 2000, in response to unsolicited offers from two stockbroking ﬁrms, a DCC subsidiary sold 31,169,493 Fyffes ordinary shares at prices of between €3.20 and €3.90 per share. The offers for the Fyffes shares arose from what the High Court judge described as the “very considerable enthusiasm for dotcom stocks or stocks with a dotcom component in January and February, 2000”. In November 1999 Fyffes had launched a subsidiary called worldoffruit.com. In its Chairman’s Statement dated 31 January 2000 included in its 1999 Annual Report Fyffes stated that worldoffruit.com “looks set to dramatically change the way in which fresh fruit and vegetables are traded across the globe”. Resulting from the exuberance for dotcom stocks Fyffes share price rose from €1.60 on 1 December 1999 to a peak of €4.00 on 18 February 2000, notwithstanding the fact that it was known that Fyffes’ core banana business faced very challenging trading conditions. For example, ABN Amro in a research note dated 14 January 2000 commented: “Fyffes shares have rallied strongly since the full year results on recognition of its internet potential - but in blatant disregard to the recent proﬁt warnings of its competitors Dole, Chiquita and Del Monte Fresh Produce”. Arising from continued difﬁcult trading into February and March 2000 in its banana business, Fyffes issued a proﬁt warning on 20 March 2000 at a time when the dotcom bubble had begun to burst and when the Fyffes share price had already commenced a decline. 50 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 ranged between 75% and 100% of basic salary for the year ended 31 March 2008. 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 Michael Buckley and three independent non-executive Directors, Maurice Keane (Chairman), Róisín Brennan and Bernard Somers. Tony Barry resigned from the Committee on 24 April 2008. Bernard Somers was appointed to the Committee on 4 June 2008. The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.dcc. ie. The principal responsibilities of the Committee are determining the policy for the remuneration of the executive Directors and determining their remuneration packages, including targets for any performance-related pay, pension rights and compensation payments, 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 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 2008 51 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 Beneﬁts2 Pension contribution3 Total Executive Directors Tommy Breen Fergal O’Dwyer Jim Flavin4 Kevin Murray5 Total for executive Directors Non-executive Directors Tony Barry Róisín Brennan Michael Buckley Paddy Gallagher Maurice Keane Bernard Somers Alex Spain6 Total for non-executive Directors 2008 2007 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 2008 2008 2008 2008 2007 2007 2007 2007 514 347 832 - 410 329 846 90 411 240 * - 246 198 508 - 22 21 38 - 22 21 39 5 149 116 119 - 122 110 127 30 1,096 724 989 - 800 658 1,520 125 1,693 1,675 651 952 81 87 384 389 2,809 3,103 61 69 69 64 69 79 41 57 65 62 60 65 75 153 452 537 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 61 69 69 64 69 79 41 57 65 62 60 65 75 153 452 537 10 10 3,271 3,650 Ex gratia pension to dependant of retired Director Total * At the meeting of the Remuneration Committee held on 24 April 2008 for the purpose of determining executive Director bonuses for the year to 31 March 2008, Jim Flavin informed the Committee that, in light of the ﬁnancial cost to DCC of the Supreme Court decision in the Fyffes case, he did not wish to receive any bonus in respect of the year, notwithstanding his belief at the time of the sale of the DCC Group’s 10% shareholding in Fyffes plc in February 2000 that he was acting correctly and in the best interests of DCC and its shareholders. Notes 1 Fees are payable only to non-executive Directors and include 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 2008 were made to a deﬁned beneﬁt scheme for Tommy Breen and Fergal O’Dwyer and to a deﬁned contribution arrangement for Jim Flavin. 4 Jim Flavin resigned as a Director on 27 May 2008. 5 Kevin Murray resigned as a Director on 30 June 2006. 6 Alex Spain retired as a Director on 30 June 2007. 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 2008 and the transfer value of the increase in accrued beneﬁt, under the Company’s deﬁned beneﬁt pension scheme: Executive Directors Tommy Breen Fergal O’Dwyer Total 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 35 10 45 €’000 396 174 570 €’000 191 128 319 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 2008. 52 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 as at 31 March 2008 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 in the table below. On 19 May 2008, Tommy Breen, Fergal O’Dwyer, Jim Flavin and the Company Secretary, Gerard Whyte, exercised options over 40,000 shares, 40,000 shares, 200,000 shares and 14,000 shares respectively, at prices ranging from €8.13 to €8.19 per share. On 20 May 2008, Tommy Breen, Fergal O’Dwyer and the Company Secretary, Gerard Whyte, were granted options over 20,000 shares, 15,000 shares and 10,000 shares respectively, at a price of €15.68 per share. At 31 March 2007 Granted Exercised in year in year Weighted average option price at March 31 March 2008 € At 31 2008 Option price Normal Exercise Period of options Market price exercised at date of exercise in year € € Executive Directors Tommy Breen Basic tier Second tier 205,000 190,000 40,000 - Fergal O’Dwyer Basic tier Second tier 175,000 165,000 22,500 - - - - - 245,000 190,000 12.2273 June 2001 - July 2017 8.6786 June 2003 - Nov 2012 197,500 165,000 11.3413 June 2001 - July 2017 8.4366 June 2003 - Nov 2012 - - - - - - - - Jim Flavin Basic tier Second tier Company Secretary Gerard Whyte Basic tier Second tier 400,000 395,000 70,000 - 41,584 - 428,416 395,000 11.5616 June 2001 - July 2017 8.1063 June 2003 - Nov 2012 6.22 - 17.04 - 90,000 80,000 10,000 - - - 100,000 80,000 12.0466 June 2001 - July 2017 8.8716 June 2003 - Nov 2012 - - - - DCC - ANNUAL REPORT AND ACCOUNTS 2008 53 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 2008, Group employees held options to subscribe for 328,679 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: Executive Directors Tommy Breen Fergal O’Dwyer Jim Flavin Company Secretary Gerard Whyte No. of Ordinary Shares At 31 March 2008 No. of Ordinary Shares At 31 March 2007 - - - 815 - - - 815 The market price of DCC shares on 31 March 2008 was €14.95 and the range during the year was €14.78 to €26.48. Additional information in relation to the DCC plc 1998 Employee Share Option Scheme and the DCC Sharesave Scheme appears in note 10 on page 79. 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 4 June 2008 and 31 March 2008 (together with their interests at 31 March 2007) were: No. of Ordinary Shares At 4 June 20081 No. of Ordinary Shares At 31 March 2008 No. of Ordinary Shares At 31 March 2007 Directors Michael Buckley Tommy Breen Tony Barry Róisín Brennan Jim Flavin2 Paddy Gallagher Maurice Keane Fergal O’Dwyer Bernard Somers Company Secretary Gerard Whyte 10,000 254,395 17,000 - 2,700,000 5,040 5,000 254,889 1,000 10,000 214,395 17,000 - 2,500,000 5,040 5,000 214,889 1,000 10,000 213,895 17,000 - 2,458,416 5,040 5,000 214,889 - 140,544 126,544 126,544 Notes 1 On 19 May 2008, Tommy Breen, Fergal O’Dwyer, Jim Flavin and the Company Secretary, Gerard Whyte acquired additional interests in DCC plc following the exercise of share options over 40,000 shares, 40,000 shares, 200,000 shares and 14,000 shares respectively. 2 Jim Flavin resigned as a Director on 27 May 2008. All of the above interests were beneﬁcially owned. 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 2008. The Company’s Register of Directors Interests (which is open to inspection) contains full details of Directors’ shareholdings and share options. Directors’ service agreements There are no service agreements between any Director of the Company and the Company or any of its subsidiaries. 54 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Statement of Directors’ Responsibilities The following statement, which should be read in conjunction with the statement of Directors’ and Auditors’ responsibilities set out within their report on page 55, 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 • 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 are also required by the Transparency (Directive 2004/109/EC) Regulations 2007 and the Interim Transparency Rules of the Irish Financial Services Regulatory Authority to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Company and Group. 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. Directors’ statement pursuant to the Transparency (Directive 2004/109/EC) Regulations 2007 The Directors conﬁrm that, to the best of each person’s knowledge and belief: • the ﬁnancial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt of the Company and Group; and • the Report of the Directors includes a fair review of the development and performance of the Group’s business and the state of affairs of the business at 31 March 2008, together with a description of the principal risks and uncertainties facing the Group. On behalf of the Board Michael Buckley, Tommy Breen, Directors Report of the Independent Auditors for the year ended 31 March 2008 To the Members of DCC plc We have audited the Group and Parent Company ﬁnancial statements (the ‘ﬁnancial statements’) of DCC plc for the year ended 31 March 2008 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statement of Recognised Income and Expense and the related notes. These ﬁnancial statements have been prepared under the accounting policies set out therein. Respective responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the Annual Report and the 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 Parent 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 Acts, 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. DCC - ANNUAL REPORT AND ACCOUNTS 2008 55 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 Review, Financial Review, the Corporate Social Responsibility Statement, the Corporate Governance Statement, the Report on Directors’ Remuneration and Interests 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. 56 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Report of the Independent Auditors for the year ended 31 March 2008 (continued) 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 2008 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 9 June 2008 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 2008 and of its proﬁt and cash ﬂows for the year then ended; • the Parent Company ﬁnancial statements give a true and fair view, in accordance with 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 2008 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. In our opinion the information given in the Directors’ Report is consistent with the ﬁnancial statements. DCC - ANNUAL REPORT AND ACCOUNTS 2008 57 Group Income Statement for the year ended 31 March 2008 Revenue Cost of sales Gross proﬁt Administration expenses Selling and distribution expenses Other operating income Other operating expenses 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 Note 4 5 5 4 4 12 12 14 15 2008 Pre Exceptionals exceptionals €’000 (note 11) €’000 2007 Pre Exceptionals Total €’000 exceptionals €’000 (note 11) €’000 Total €’000 5,531,962 (4,940,247) 591,715 (205,118) (230,470) 14,564 (3,511) 167,180 (7,928) 159,252 (44,912) 27,120 639 142,099 (14,774) - - - - - 94,763 (55,158) 39,605 - 39,605 - - - 39,605 (1,756) 5,531,962 (4,940,247) 591,715 (205,118) (230,470) 109,327 (58,669) 4,046,118 (3,544,403) 501,715 (181,363) (186,599) 8,212 (1,881) 206,785 (7,928) 198,857 (44,912) 27,120 639 181,704 (16,530) 140,084 (6,660) 133,424 (31,338) 20,488 14,710 137,284 (12,995) - - - - - 33,199 (8,683) 24,516 - 24,516 - - - 24,516 (7,700) 4,046,118 (3,544,403) 501,715 (181,363) (186,599) 41,411 (10,564) 164,600 (6,660) 157,940 (31,338) 20,488 14,710 161,800 (20,695) Proﬁt after tax for the ﬁnancial year 127,325 37,849 165,174 124,289 16,816 141,105 Proﬁt attributable to: Equity holders of the Company Minority interest Earnings per ordinary share Basic Diluted 18 18 Michael Buckley, Tommy Breen, Directors 164,491 683 165,174 204.28c 200.31c 140,186 919 141,105 174.59c 170.83c 58 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Group Statement of Recognised Income and Expense for the year ended 31 March 2008 Items of income and expense recognised directly within equity: Currency translation effects Group deﬁned beneﬁt pension obligations: - actuarial (loss)/gain - movement in deferred tax asset Deferred tax on share based payment Gains/(losses) relating to cash ﬂow hedges (net) Movement in deferred tax liability on cash ﬂow hedges Net (expense)/income recognised directly in equity Proﬁt after tax for the ﬁnancial year Note 2008 €’000 2007 €’000 32 15 15 15 (64,310) 7,430 (9,086) 1,200 25 385 (46) (71,832) 165,174 1,576 (169) 25 (159) 22 8,725 141,105 Total recognised income and expense for the ﬁnancial year 93,342 149,830 Attributable to: Equity holders of the Company Minority interest Total recognised income and expense for the ﬁnancial year 92,659 683 93,342 148,911 919 149,830 Group Balance Sheet as at 31 March 2008 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 Government 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 Michael Buckley, Tommy Breen, Directors DCC - ANNUAL REPORT AND ACCOUNTS 2008 59 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 2008 €’000 337,058 416,883 4,678 10,199 25,347 794,165 219,752 807,433 1,523 485,840 1,514,548 2,308,713 22,057 124,687 6,651 222 (67,224) 1,400 650,871 738,664 3,771 742,435 358,119 43,558 11,706 21,851 5,399 16,155 1,941 458,729 796,902 53,895 217,546 17,206 7,964 14,036 1,107,549 1,566,278 2,308,713 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 60 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Group Cash Flow Statement for the year ended 31 March 2008 Cash generated from operations Exceptionals Interest paid Income tax paid Net cash ﬂows from operating activities Investing activities Inﬂows Dividends received from associates Proceeds from disposal of property, plant and equipment Government grants received Proceeds on disposal of associate 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 17 40 30 27 30 30 2008 €’000 2007 €’000 129,043 (4,168) (38,541) (21,902) 64,432 127,421 (4,916) (29,331) (10,058) 83,116 172,000 7,781 92 8,880 23,560 212,313 (87,526) (166,584) - (9,987) (264,097) (51,784) 4,060 873 202,049 206,982 - (43,490) (6,523) (41,813) (2,725) (94,551) 112,431 125,079 (39,220) 310,187 396,046 - 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) 4,196 319,918 310,187 485,840 (89,794) 396,046 337,079 (26,892) 310,187 Company Balance Sheet as at 31 March 2008 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 Michael Buckley, Tommy Breen, Directors DCC - ANNUAL REPORT AND ACCOUNTS 2008 61 Note 21 22 24 27 36 37 38 39 41 25 2008 €’000 1,244 161,065 162,309 494,630 2,664 497,294 659,603 22,057 124,687 344 230,285 377,373 10,387 10,387 271,843 271,843 282,230 659,603 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 62 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Company Statement of Recognised Income and Expense for the year ended 31 March 2008 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 2008 Cash generated from operations Interest paid Income tax (paid)/received Net cash ﬂows from operating activities Investing activities Inﬂows Proceeds on disposal of associate Interest received Outﬂows Capital contribution to subsidiary undertaking 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 2008 €’000 221,280 221,280 2007 €’000 40,303 40,303 221,280 40,303 Note 42 39 17 2008 €’000 46,156 (1,868) (1,750) 42,538 8,880 4,991 13,871 (16,000) (16,000) (2,129) 4,060 4,060 - (41,813) (41,813) (37,753) 2,656 8 2,664 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 Notes to the Financial Statements DCC - ANNUAL REPORT AND ACCOUNTS 2008 63 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. The Company has also availed of the exemption from ﬁling its individual Income Statement with the Registrar of Companies as permitted by Section 7(1A) of the Companies (Amendment) Act 1986. 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. In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures, which is effective for annual reporting periods beginning on or after 1 January 2007, and the consequential amendment to IAS 1 Presentation of Financial Statements - Capital Disclosures. The impact of the adoption of IFRS 7 and the change to IAS 1 has been to expand the disclosures provided in these ﬁnancial statements regarding the Group’s ﬁnancial instruments and management of capital. The accounting policies applied in the preparation of the ﬁnancial statements for the year ended 31 March 2008 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: • • • • • • Amendment to IFRS 2 Share-based Payments: Vesting Conditions and Cancellations (effective date: DCC ﬁnancial year beginning 1 April 2009). This amendment clariﬁes the accounting treatment of cancellations and vesting conditions. This amendment will have no impact on the Group’s accounts. IFRS 3 Revised Business Combinations (effective date: DCC ﬁnancial year beginning 1 April 2010). This standard establishes principles for how an acquirer recognises, measures and discloses in its ﬁnancial statements the goodwill acquired in the business combination and the identiﬁable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The impact on the Group’s accounts will be dependent on future acquisitions. IFRS 8 Operating Segments (effective date: DCC ﬁnancial year beginning 1 April 2009). IFRS 8 replaces IAS 14 and uses a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. Whilst the application of IFRS 8 will result in amendments to the segment information note, this amendment will not be of a recognition and measurement nature. Amendment to IAS 1 Presentation of Financial Statements (Revised) (effective date: DCC ﬁnancial year beginning 1 April 2009). This amendment sets overall requirements for the presentation of ﬁnancial statements, guidelines for their structure and minimum requirements for their content. IAS 1 will have an impact on the presentation of the ﬁnancial statements of the Group, however, this is not expected to be signiﬁcant. Amendment to IAS 23 Borrowing Costs (effective date: DCC ﬁnancial year beginning 1 April 2009). This amendment requires an entity to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, as part of the cost of that asset. This amendment will not have a material effect on the Group’s ﬁnancial statements. Amendment to IAS 27 Consolidated and Separate Financial Statements (effective date: DCC ﬁnancial year beginning 1 April 2010). The objective of this amendment is to enhance the relevance, reliability and comparability of the information that a parent entity provides in its separate ﬁnancial statements and in its consolidated ﬁnancial statements for a group of entities under its control. The introduction of this amendment will impact on Group reporting but this is not expected to be signiﬁcant. 64 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 1. Summary of signiﬁcant accounting policies - continued • Amendment to IAS 32 Puttable Financial Instruments and Obligations Arising on Liquidation (effective date: DCC ﬁnancial year beginning 1 April 2009). This amendment will have no effect on the Group’s ﬁnancial statements. • • • IFRIC Interpretation 12 Service Concession Arrangements (effective date: DCC ﬁnancial year beginning 1 April 2008). This interpretation gives guidance on the accounting by operators for public-to-private service concession arrangements. This IFRIC will have no effect on the Group’s ﬁnancial statements. IFRIC Interpretation 13 Customer Loyalty Programmes (effective date: DCC ﬁnancial year beginning 1 April 2009). This interpretation gives guidance on accounting for customer loyalty award credits. This IFRIC will not have a material effect on the Group’s ﬁnancial statements. IFRIC Interpretation 14 The Limit on a Deﬁned Beneﬁt Asset, Minimum Funding Requirements and their Interaction (effective date: DCC ﬁnancial year beginning 1 April 2008). This interpretation deals with accounting for refunds in contributions and minimum funding requirements. This IFRIC will only be of relevance to the Group where surpluses emerge on the Group’s deﬁned beneﬁt pension schemes and those surpluses are of a sufﬁcient magnitude to warrant application of the surplus cap. Comparative amounts It had been DCC’s policy to allocate Group central costs against operating proﬁt and against the share of proﬁt after tax of associates. In the current year, DCC has allocated all Group central costs against operating proﬁt. For consistency, the comparative divisional operating proﬁt and total operating proﬁt and share of proﬁt after tax of associates for the year ended 31 March 2007 have been amended to reﬂect the accounting approach adopted in the current year. As a result the comparative operating proﬁt has been reduced by €2.9 million and the Group’s share of proﬁt after tax of associates has been increased by €2.9 million. This adjustment has no impact on the proﬁt before tax or earnings per share previously reported for the year ended 31 March 2007. Basis of consolidation Subsidiaries 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. 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. Where necessary, adjustments are made to the ﬁnancial statements of subsidiaries to bring their accounting policies into line with those used by the Group. 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. 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. The results of associates are included from the effective date on which the Group obtains signiﬁcant inﬂuence and are excluded from the effective date on which the Group ceases to have signiﬁcant inﬂuence. 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. DCC - ANNUAL REPORT AND ACCOUNTS 2008 65 Notes to the Financial Statements (continued) 1. Summary of signiﬁcant accounting policies - continued 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. 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% 66 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 1. Summary of signiﬁcant accounting policies - continued Land is not depreciated. The residual values and useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at each balance sheet date. In accordance with IAS 36 Impairment of Assets, the carrying amounts of items of property, plant and equipment are reviewed at each balance sheet date to determine whether there is any indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement. Following the recognition of an impairment loss, the depreciation charge applicable to the asset or cash-generating unit is adjusted prospectively in order to systematically allocate the revised carrying amount, net of any residual value, over the remaining useful life. Subsequent costs are included in an asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Group and the cost of the replaced item can be measured reliably. All other repair and maintenance costs are charged to the Income Statement during the ﬁnancial period in which they are incurred. Borrowing costs directly attributable to the construction of property, plant and equipment are capitalised as part of the cost of those assets. Business combinations The purchase method of accounting is employed in accounting for the acquisition of subsidiaries by the Group. The Group 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 cash-generating units or groups of cash-generating units that are expected to beneﬁt from the business combination in which the goodwill arose. 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. DCC - ANNUAL REPORT AND ACCOUNTS 2008 67 Notes to the Financial Statements (continued) 1. Summary of signiﬁcant accounting policies - continued Where a subsidiary is sold, any goodwill arising on acquisition, net of any impairments, is included in determining the proﬁt or loss arising on disposal. Where goodwill forms part of a cash-generating unit and part of the operations within that unit are disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the proportion of the cash-generating unit retained. Intangible assets (other than goodwill) Intangible assets acquired separately are capitalised at cost. Intangible assets acquired in the course of a business combination are capitalised at fair value being their deemed cost as at the date of acquisition. Following initial recognition, intangible assets which have a ﬁnite life are carried at cost less any applicable accumulated amortisation and any accumulated impairment losses. Where amortisation is charged on assets with ﬁnite lives this expense is taken to the Income Statement. The amortisation of intangible assets is calculated to write-off the book value of intangible assets over their useful lives on a straight-line basis on the assumption of zero residual value. In general, deﬁnite-lived intangible assets are amortised over periods ranging from 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. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁable cash ﬂows (cash-generating units). Leases Leases are classiﬁed as ﬁnance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classiﬁed as operating leases. Assets held under ﬁnance leases are capitalised as assets of the Group at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding liability to the lessor is included in the Balance Sheet as a short, medium or long term lease obligation as appropriate. Lease payments are apportioned between ﬁnance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the Income Statement. Rentals payable under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight line basis over the term of the relevant 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. Signiﬁcant ﬁnancial difﬁculties of the debtor, probability that the debtor will enter bankruptcy or ﬁnancial reorganisation, and default in payments are considered indicators that the trade receivable is impaired. 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 initially recognised at fair value and subsequently measured at amortised cost, which approximates to fair value given the short-dated nature of these liabilities. 68 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 1. Summary of signiﬁcant accounting policies - continued 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. 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 2008 69 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. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material. 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. 70 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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. Plan assets are measured at bid values. 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 exercise 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. Government 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 government 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. DCC - ANNUAL REPORT AND ACCOUNTS 2008 71 Notes to the Financial Statements (continued) 1. Summary of signiﬁcant accounting policies - continued 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. Proposed dividends that are approved after the balance sheet date are not recognised as a liability at that balance sheet date, but 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. The Group’s ﬁnancial risks are detailed in note 47. 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 63 to 71. In determining and applying accounting policies, judgment is often required in respect of items where the choice of speciﬁc policy, accounting estimate or assumption to be followed could materially affect the reported results or net asset position of the Group should it later be determined that a different choice would be more appropriate. Management considers the accounting estimates and assumptions discussed below to be its critical accounting estimates: Goodwill The Group has capitalised goodwill of €403.3 million at 31 March 2008. 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 Group uses the present value of future cash ﬂows to determine recoverable amount. 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 2008. Sensitivities to changes in assumptions are detailed in note 20. 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 €89.8 million at 31 March 2008. At 31 March 2008 the Group also has plan assets totalling €67.9 million, giving a net pension liability of €21.9 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. Sensitivities to changes in assumptions are detailed in note 32. 72 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 current 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. DCC - ANNUAL REPORT AND ACCOUNTS 2008 73 Notes to the Financial Statements (continued) 4. Segment information - continued The segment results for the year ended 31 March 2008 are as follows: Income Statement items DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2008 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Unallocated €’000 Total €’000 Segment revenue 3,420,026 1,423,357 286,782 310,119 91,678 - - - 5,531,962 167,180 (7,928) Operating proﬁt* Amortisation of intangible assets Net operating exceptionals (note 11) 74,339 40,062 23,440 15,301 14,038 (2,389) (2,216) (1,586) (986) (751) (4,807) (1,260) (665) 3,538 (1,392) 44,191 39,605 67,143 Operating proﬁt Finance costs Finance income Share of associates’ proﬁt after tax Proﬁt before income tax Income tax expense Proﬁt for the year 36,586 21,189 17,853 11,895 44,191 198,857 (44,912) 27,120 639 181,704 (16,530) 165,174 * Operating proﬁt before amortisation of intangible assets and net operating exceptionals DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 Environmental €’000 Unallocated €’000 Total €’000 Segment revenue 2,247,858 1,218,047 234,276 279,471 66,466 - - - 4,046,118 140,084 (6,660) Operating proﬁt* Amortisation of intangible assets Net operating exceptionals (note 11) 59,486 32,603 22,485 15,065 10,445 (1,480) (2,136) (1,529) (1,008) (507) (1,207) (86) 30,339 - - (4,530) 24,516 56,799 Operating proﬁt Finance costs Finance income Share of associates’ proﬁt after tax Proﬁt before income tax Income tax expense Proﬁt for the year 30,381 51,295 14,057 9,938 (4,530) 157,940 (31,338) 20,488 14,710 161,800 (20,695) 141,105 * Operating proﬁt before amortisation of intangible assets and net operating exceptionals 74 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 4. Segment information - continued Balance Sheet items DCC Energy €’000 DCC SerCom €’000 As at 31 March 2008 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 Segment assets 814,025 502,010 213,207 142,596 109,288 1,781,126 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 4,678 26,870 10,199 485,840 2,308,713 Segment liabilities 411,721 260,290 59,302 76,581 24,222 832,116 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) Government grants Total liabilities as reported in the Group Balance Sheet 575,665 60,764 65,601 30,191 1,941 1,566,278 DCC Energy €’000 DCC SerCom €’000 As at 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 Environmental €’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) Government grants Total liabilities as reported in the Group Balance Sheet 394,557 46,180 65,597 29,393 2,393 1,166,825 DCC - ANNUAL REPORT AND ACCOUNTS 2008 75 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 2008 and 31 March 2007. Segment assets Intangible assets Deferred income tax assets Assets employed Segment liabilities Income tax liabilities (current and deferred) Government grants Liabilities employed DCC Energy €’000 814,025 (183,952) 3,368 633,441 411,721 26,473 - 438,194 DCC SerCom €’000 502,010 (68,207) 1,140 434,943 260,290 16,218 228 276,736 As at 31 March 2008 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 213,207 (90,512) 4,076 126,771 59,302 10,579 1,022 70,903 142,596 (32,736) 1,376 111,236 76,581 4,683 - 81,264 109,288 (41,476) 239 68,051 1,781,126 (416,883) 10,199 1,374,442 24,222 7,648 691 32,561 832,116 65,601 1,941 899,658 Net tangible capital employed 195,247 158,207 55,868 29,972 35,490 474,784 Segment assets Intangible assets Deferred income tax assets Assets employed Segment liabilities Income tax liabilities (current and deferred) Government 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 €’000 Environmental €’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 76 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 4. Segment information - continued Other segment information DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2008 DCC DCC Food DCC Healthcare €’000 & Beverage Environmental €’000 €’000 Total €’000 Capital expenditure 38,246 3,182 15,084 17,094 14,010 87,616 Depreciation 25,558 3,457 4,861 4,719 6,850 45,445 Intangible assets acquired 90,124 11,272 18,465 - 1,166 121,027 DCC Energy €’000 DCC SerCom €’000 Year ended 31 March 2007 DCC DCC Food DCC Healthcare €’000 & Beverage €’000 Environmental €’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 Intangible assets acquired 29,516 1,473 14,232 - 33,453 78,674 Geographical analysis The following is a geographical analysis of the segment information presented above. Republic of Ireland UK Rest of the World Total 2008 €’000 2007 €’000 2008 €’000 2007 €’000 2008 €’000 2007 €’000 2008 €’000 2007 €’000 Year ended 31 March 2008 Income Statement items Revenue 1,112,936 1,040,456 3,982,215 2,734,464 436,811 271,198 5,531,962 4,046,118 Operating proﬁt* Amortisation of intangible assets Net operating exceptionals Segment result Balance Sheet items 61,999 56,408 95,521 79,190 9,660 4,486 167,180 140,084 (3,009) (2,284) (4,646) (4,103) (273) (273) (7,928) (6,660) 45,404 104,394 30,569 84,693 (5,331) 85,544 (5,066) 70,021 (468) 8,919 (987) 3,226 39,605 198,857 24,516 157,940 Segment assets 537,000 447,015 1,126,567 872,681 117,559 96,001 1,781,126 1,415,697 Segment liabilities 265,645 212,463 515,793 376,068 50,678 40,174 832,116 628,705 Other segment information Capital expenditure 33,525 15,124 52,915 45,505 1,176 530 87,616 61,159 Depreciation 14,573 12,282 30,152 26,767 720 412 45,445 39,461 Intangible assets acquired 8,935 16,358 110,841 58,314 1,251 4,002 121,027 78,674 * Operating proﬁt before amortisation of intangible assets and net operating exceptionals Notes to the Financial Statements (continued) 5. Other operating income/expenses Other operating income and expenses comprise the following charges/(credits): Other income Fair value gains on non-hedge accounted derivative ﬁnancial instruments - forward foreign exchange contracts Other operating income Other expenses Expensing of employee share options (note 10) Fair value losses on undesignated derivative ﬁnancial instruments - forward foreign exchange contracts Other operating expenses DCC - ANNUAL REPORT AND ACCOUNTS 2008 77 2008 €’000 2007 €’000 - (14,564) (14,564) (244) (7,968) (8,212) 1,844 1,415 495 1,172 3,511 - 466 1,881 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): Provision for impairment of trade receivables Directors’ fees and salaries Amortisation of government 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 2008 €’000 5,638 2,145 (288) 8,388 774 4,907 14,069 1,476 338 1,902 3,716 2007 €’000 4,826 2,212 (276) 6,142 594 3,082 9,818 1,256 636 1,875 3,767 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 50 to 53. 78 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 Exceptional items Amortisation of intangible assets Operating proﬁt Finance income (net) Proﬁt before income tax Income tax expense Group proﬁt for the ﬁnancial year Impact on Group Balance Sheet As at 31 March Group share of: Non-current assets Current assets Total assets Total equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities Impact on Group Cash Flow Statement Year ended 31 March Group share of: Net cash ﬂow from operating activities Net cash ﬂow from investing activities Net cash ﬂow from ﬁnancing activities Net increase/(decrease) in cash and cash equivalents Joint venture becoming a subsidiary Cash acquired on acquisition of joint venture Translation adjustment Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Details of the Group’s principal joint ventures are shown in the Group directory on pages 111 to 114. 2008 €’000 48,026 (31,592) 16,434 (8,874) 3,628 (157) 11,031 183 11,214 (1,960) 9,254 24,800 19,094 43,894 26,401 6,582 10,911 17,493 43,894 11,491 (7,329) - 4,162 - 204 (569) 5,243 9,040 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 79 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 employee beneﬁt expenses 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) 2008 Number 2007 Number 2,392 1,513 1,183 1,044 506 6,638 2008 €’000 246,114 27,385 1,844 6,645 3,246 285,234 1,951 1,399 1,071 854 378 5,653 2007 €’000 212,271 22,257 1,415 5,603 2,781 244,327 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 €1.844 million (2007: €1.415 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 and had not vested by 1 April 2004. The total share option expense is analysed as follows: Date of grant Grant price € Duration of Number of average Income Statement Weighted Expense in vesting period options granted fair value € 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 23 July 2007 20 December 2007 10.38 10.70 12.75 15.65 16.70 18.05 23.35 19.50 3 and 5 years 3 and 5 years 3 and 5 years 3 and 5 years 3 and 5 years 3 years 3 years 3 years 609,500 132,000 162,500 219,500 215,000 223,500 323,000 25,000 2.81 2.76 3.42 4.15 4.52 4.54 6.35 5.22 DCC Sharesave Scheme 2001 10 December 2004 Total expense 12.63 3 and 5 years 716,010 4.67 2008 €’000 81 35 64 179 261 326 456 11 1,413 431 1,844 2007 €’000 40 76 114 208 282 245 - - 965 450 1,415 80 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 10. Employee share options - continued Share options DCC plc 1998 Employee Share Option Scheme At 31 March 2008, under the DCC plc 1998 Employee Share Option Scheme, Group employees hold basic tier options to subscribe for 2,380,216 ordinary shares and second tier options to subscribe for 1,881,912 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 2008 2007 Average exercise price in € per share 10.00 23.07 8.44 11.24 11.12 Options 4,172,712 348,000 (202,584) (56,000) 4,262,128 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 Total exercisable at 31 March 8.65 2,632,628 8.13 2,613,212 The weighted average share price at the dates of exercise for share options exercised during the year under the DCC plc 1998 Employee Share Option Scheme was €19.39 (2007: €21.28). 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 2008 Granted during the year ended 31 March 2007 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 2008 3 year 23.07 4.70 2.50 25.0 8.0 3 year € 6.26 4.54 2007 3 year 18.05 3.90 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. 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 12 November 2002 22 December 2003 18 May 2004 9 November 2004 15 December 2005 23 June 2006 23 July 2007 20 December 2007 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 12 November 2012 22 December 2013 18 May 2014 9 November 2014 15 December 2015 23 June 2016 23 July 2017 20 December 2017 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 18 May 2004 9 November 2004 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 18 May 2014 9 November 2014 DCC - ANNUAL REPORT AND ACCOUNTS 2008 81 Average exercise price in € per share 8.19 8.13 7.43 7.43 6.22 - 7.00 10.65 11.25 10.25 10.38 10.70 12.75 15.65 16.70 18.05 23.35 19.50 Average exercise price in € per share 8.19 8.13 7.43 7.43 6.22 - 7.00 10.65 11.25 10.25 10.38 10.70 12.75 15.65 2008 2007 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 - - Options 391,160 53,000 60,000 11,052 492,916 - 707,500 50,000 166,500 654,500 451,000 122,500 149,500 199,500 189,500 215,500 323,000 25,000 4,262,128 2008 2007 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 - - Options 391,160 53,000 60,000 11,052 492,916 - 707,500 50,000 166,500 321,000 102,500 55,000 79,500 142,500 2,632,628 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 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 82 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 328,679 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 2008 2007 Average exercise price in € per share 12.63 12.63 12.63 12.63 Average exercise price in € per share 11.47 8.83 11.63 12.63 Options 884,988 (252,701) (68,652) 563,635 Options 563,635 (199,433) (35,523) 328,679 The weighted average share price at the dates of exercise for share options exercised during the year under the DCC Sharesave Scheme 2001 was €16.01 (2007: €20.10). Analysis of closing balance – outstanding at end of year Date of grant Date of expiry 10 December 2004 10 December 2004 Total outstanding at 31 March 1 March 2009 1 March 2011 2008 2007 Average exercise price in € per share 12.63 12.63 Average exercise price in € per share 12.63 12.63 Options 86,891 241,788 328,679 Analysis of closing balance - exercisable at end of year As at 31 March 2008, 86,891 (2007: none) of the outstanding options under the DCC Sharesave Scheme 2001 were exercisable. 11. Exceptionals Proﬁt on disposal of Manor Park Homebuilders Costs of legal actions with Fyffes plc Restructuring costs and other Proﬁt on disposal of property, plant and equipment Net operating exceptionals Taxation Net operating exceptionals after tax 2008 €’000 94,763 (50,000) (5,158) - 39,605 (1,756) 37,849 Options 295,656 267,979 563,635 2007 €’000 - (3,019) (5,664) 33,199 24,516 (7,700) 16,816 The Group had a net exceptional proﬁt before tax of €39.605 million in the year ended 31 March 2008. A proﬁt of €85.763 million arose from a dividend received from Manor Park Homebuilders Limited and a further proﬁt of €9.0 million arose on the subsequent disposal of the Group’s 49% interest in that company. A charge of €50.0 million was incurred in respect of the settlement of the Fyffes action and associated costs. The Group incurred other net exceptional restructuring, legal and related costs of €5.158 million. The tax charge relating to the net exceptional proﬁt was €1.756 million. 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 2019 - - - 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 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 83 2008 €’000 2007 €’000 (18,880) (72) (19,727) (3) (532) (547) (39,761) (4,405) (648) 15,056 18,140 (9,043) (24,301) 50 (44,912) 21,886 245 4,989 27,120 (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 Net ﬁnance cost (17,792) (10,850) No material level of ineffectiveness has been recorded in the Income Statement for the years ended 31 March 2008 and 31 March 2007 in relation to cash ﬂow hedges and fair value hedges. * 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) 2008 €1=Stg£ 2007 €1=Stg£ 0.795 0.702 0.680 0.680 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 income (net) Proﬁt before income tax Income tax expense Proﬁt after tax 2008 €’000 2007 €’000 14,609 33,363 1,041 2 1,043 (404) 639 16,403 949 17,352 (2,642) 14,710 84 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 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 28% (2007: 30%) Other overseas deferred tax (Over)/under provision in respect of prior years Total deferred tax credit 2008 €’000 2007 €’000 10,859 (251) 1,756 6,973 2,708 22,045 (2,080) (444) (91) (2,900) (5,515) 8,010 (310) 7,700 4,822 3,241 23,463 242 (3,207) - 197 (2,768) Total income tax expense 16,530 20,695 (ii) Deferred tax (asset)/liability recognised directly in Equity Deﬁned beneﬁt pension obligations Share based payments Cash ﬂow hedges (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, amortisation of intangible assets and net exceptionals Impact of net exceptionals Taxation as a percentage of proﬁt before share of associates’ proﬁt after tax and amortisation of intangible assets 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 (iv) Factors that may affect future tax rates and other disclosures The standard rate of corporation tax in Ireland is 12.5%. 2008 €’000 (1,200) (25) 46 (1,179) 2008 €’000 181,704 (639) 7,928 188,993 16,530 1,659 18,189 2007 €’000 169 (25) (22) 122 2007 €’000 161,800 (14,710) 6,660 153,750 20,695 1,541 22,236 11.0% (1.4%) 11.2% 3.3% 9.6% 14.5% 2008 % 12.5 (0.1) (2.8) 9.6 2007 % 12.5 (0.2) 2.2 14.5 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. DCC - ANNUAL REPORT AND ACCOUNTS 2008 85 Notes to the Financial Statements (continued) 16. Proﬁt attributable to DCC plc Proﬁt after taxation for the year attributable to equity shareholders amounting to €221.280 million (2007: €40.303 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. The Company has also availed of the exemption from ﬁling its individual Income Statement with the Registrar of Companies as permitted by Section 7(1A) of the Companies (Amendment) Act 1986. 17. Dividends Dividends paid and proposed per Ordinary Share are as follows: Final - paid 31.41 cent per share on 26 July 2007 (2007: paid 27.31 cent per share on 14 July 2006) Interim - paid 20.55 cent per share on 7 December 2007 (2007: paid 17.87 cent per share on 8 December 2006) 2008 €’000 2007 €’000 25,258 22,044 16,555 14,337 41,813 36,381 The Directors are proposing a ﬁnal dividend in respect of the year ended 31 March 2008 of 36.12 cent per ordinary share (€29.190 million). This proposed dividend is subject to approval by the shareholders at the Annual General Meeting. 18. Earnings per ordinary share Proﬁt attributable to equity holders of the Company Amortisation of intangible assets after tax Exceptionals after tax (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 Exceptionals after tax Adjusted basic earnings per ordinary share 2008 €’000 164,491 6,269 (37,849) 132,911 2008 cent 204.28c 7.79c (47.01c) 165.06c 2007 €’000 140,186 5,119 (16,816) 128,489 2007 cent 174.59c 6.37c (20.94c) 160.02c Weighted average number of ordinary shares in issue (thousands) 80,522 80,294 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 Exceptionals after tax Adjusted diluted earnings per ordinary share 2008 cent 200.31c 7.63c (46.09c) 161.85c 2007 cent 170.83c 6.24c (20.49c) 156.58c Weighted average number of ordinary shares in issue (thousands) 82,119 82,061 The earnings used for the purpose of the diluted earnings per share calculations were €164.491 million (2007: €140.186 million) and €132.911 million (2007: €128.489 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 2008 was 82.119 million (2007: 82.061 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 Weighted average number of ordinary shares for diluted earnings per share 2008 ‘000 80,522 1,597 82,119 2007 ‘000 80,294 1,767 82,061 86 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 18. Earnings per ordinary share - continued 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. 19. Property, plant and equipment Group Year ended 31 March 2008 Opening net book amount Exchange differences Acquisition of subsidiaries (note 46) Additions Disposals Depreciation charge Reclassiﬁcations Closing net book amount At 31 March 2008 Cost Accumulated depreciation Net book amount 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 Plant & Fixtures & ﬁttings & Land & machinery ofﬁce buildings €’000 & cylinders €’000 equipment €’000 Motor vehicles €’000 106,002 (9,337) 6,599 24,640 (2,861) (2,189) (3) 122,851 126,283 (14,693) 3,072 32,530 (1,887) (21,584) 1,477 125,198 34,186 (3,807) 998 11,148 (142) (8,788) - 33,595 53,150 (5,997) 5,461 19,298 (2,140) (12,884) (1,474) 55,414 Total €’000 319,621 (33,834) 16,130 87,616 (7,030) (45,445) - 337,058 139,419 (16,568) 122,851 324,381 (199,183) 125,198 85,162 (51,567) 33,595 115,601 (60,187) 55,414 664,563 (327,505) 337,058 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) 53,150 267,494 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 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 book amount Depreciation charge for the year 2008 €’000 57,525 (53,999) 3,526 2007 €’000 67,382 (62,931) 4,451 2,252 2,363 Notes to the Financial Statements (continued) 20. Intangible assets Group Year ended 31 March 2008 Opening net book amount Exchange differences Arising on acquisition (note 46) Revisions to prior year acquisitions (note 46) Other movements Amortisation charge Closing net book amount At 31 March 2008 Cost Accumulated amortisation Net book amount 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 87 Customer Goodwill €’000 relationships €’000 Total €’000 307,405 (15,091) 112,545 (1,000) (590) - 403,269 13,964 (904) 8,482 - - (7,928) 13,614 321,369 (15,995) 121,027 (1,000) (590) (7,928) 416,883 430,887 (27,618) 403,269 34,419 (20,805) 13,614 465,306 (48,423) 416,883 234,693 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 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 2008 €’000 177,259 66,873 88,112 32,103 38,922 403,269 2007 €’000 99,248 56,478 74,384 33,656 43,639 307,405 88 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 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 (2008: 2.5%; 2007: 2.5%) 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 (2008: 7.2%; 2007: 7.1%). Applying these techniques, no impairment arose in 2008 (2007: 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. A sensitivity analysis was performed using a discount rate of 10.0% and resulted in an excess in the recoverable amount of all cash generating units over their carrying amount. 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 Disposals Exchange adjustments and other At 31 March Investments in associates at 31 March 2008 includes goodwill of €1.201 million (2007: €1.201 million). The Group’s geographical share of the assets (including goodwill) and liabilities of its associates is as follows: Non-current Current Non-current assets €’000 1,096 760 1,856 1,364 773 2,137 assets €’000 3,974 1,904 5,878 90,265 2,429 92,694 liabilities €’000 (264) - (264) (1,196) - (1,196) As at 31 March 2008 Ireland USA As at 31 March 2007 Ireland USA Company At 1 April Disposal At 31 March 2008 €’000 90,332 419 (85,617) (456) 4,678 Current liabilities €’000 (2,093) (699) (2,792) (2,027) (1,276) (3,303) 2008 €’000 1,300 (56) 1,244 2007 €’000 76,789 13,650 - (107) 90,332 Net assets €’000 2,713 1,965 4,678 88,406 1,926 90,332 2007 €’000 1,300 - 1,300 Notes to the Financial Statements (continued) 22. Investments in subsidiary undertakings Company At 1 April Other movements At 31 March DCC - ANNUAL REPORT AND ACCOUNTS 2008 89 2008 €’000 161,065 - 161,065 2007 €’000 161,072 (7) 161,065 Details of the Group’s principal operating subsidiaries are shown on pages 111 to 114. Non-wholly owned subsidiaries comprise Broderick Bros. Limited (93.8%), Virtus Limited (51.0%), Ausmedic Australia Pty Limited (60.0%), Metron Medical Australia Pty Limited (60.0%), Aukbritt International Pty Limited (60%), Wastecycle Limited (90.0%), Laleham Healthcare Limited (98.5%) where put and call options exist to acquire the remaining 1.5%, Physio-Med Services Limited (88.0%) where put and call options exist to acquire the remaining 12.0% and Distrilogie SA (99.5%) where put and call options exist to acquire the remaining 0.5%. 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 accrued income Value added tax recoverable Other debtors Company Amounts owed by subsidiary undertakings Prepayments and accrued income Value added tax recoverable 2008 €’000 9,224 1,560 208,968 219,752 2007 €’000 6,793 1,538 169,119 177,450 2008 €’000 2007 €’000 747,044 (15,624) 50,099 14,903 11,011 807,433 2008 €’000 494,175 351 104 494,630 564,134 (13,343) 39,223 3,677 3,566 597,257 2007 €’000 295,340 708 255 296,303 90 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 Government 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 2008 At 1 April 2007 Translation adjustment Arising on acquisition (note 46) Interest accruals and other Increase/(decrease) in working capital (note 42) At 31 March 2008 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 Company Year ended 31 March 2008 At 1 April 2007 Increase/(decrease) in working capital (note 42) Other At 31 March 2008 Year ended 31 March 2007 At 1 April 2006 Increase/(decrease) in working capital (note 42) At 31 March 2007 2008 €’000 584,778 175,407 8,376 17,034 129 9,926 1,252 796,902 2008 €’000 270,607 1,236 271,843 2007 €’000 482,978 83,472 6,101 20,356 239 7,051 1,207 601,404 2007 €’000 253,602 841 254,443 Trade Trade and other and other Inventories €’000 receivables €’000 payables €’000 Total €’000 177,450 (17,454) 48,244 100 11,412 219,752 138,734 1,916 9,478 - 27,322 177,450 597,257 (66,175) 139,071 (6,573) 143,853 807,433 522,143 7,515 53,559 (957) 14,997 597,257 (601,404) 60,746 (140,828) (44,531) (70,885) (796,902) (543,913) (7,385) (48,497) (8,946) 7,337 (601,404) Trade Trade and other and other receivables €’000 payables €’000 296,303 198,327 - 494,630 (264,830) (17,520) 120 (282,230) 173,303 (22,883) 46,487 (51,004) 84,380 230,283 116,964 2,046 14,540 (9,903) 49,656 173,303 Total €’000 31,473 180,807 120 212,400 263,187 33,116 296,303 (223,072) (41,758) (264,830) 40,115 (8,642) 31,473 Notes to the Financial Statements (continued) 27. Cash and cash equivalents Group Cash at bank and in hand Short-term bank deposits DCC - ANNUAL REPORT AND ACCOUNTS 2008 91 2008 €’000 180,627 305,213 485,840 2007 €’000 124,134 212,945 337,079 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 28. Derivative ﬁnancial instruments Group Non-current assets Interest rate swaps - fair value hedges Interest rate swaps - not designated as hedges Cross currency interest rate swaps - fair value hedges Current assets Interest rate swaps - not designated as hedges Forward contracts - cash ﬂow hedges Commodity 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 Interest rate swaps - not designated as hedges Cross currency interest rate swaps - fair value hedges Forward contracts - cash ﬂow hedges Forward contracts - not designated as hedges Total liabilities Net liability arising on derivative ﬁnancial instruments 2008 €’000 2007 €’000 485,840 (89,794) 396,046 337,079 (26,892) 310,187 2008 €’000 2,664 2008 €’000 8,655 - 16,692 25,347 985 41 350 147 1,523 26,870 - - (42,116) (1,442) (43,558) (1,008) (15,672) (127) (399) (17,206) (60,764) (33,894) 2007 €’000 8 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) 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. 92 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 28. Derivative ﬁnancial instruments - continued 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 2008 total US$200.0 million and Stg£55.0 million. At 31 March 2008, the ﬁxed interest rates vary from 5.12% to 6.18% and the ﬂoating rates are based on US$ LIBOR and sterling LIBOR. 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 US$200.0 million / €167.113 million and are not designated as hedges under IAS 39. Cross currency interest rate swaps The Group utilises cross currency interest rate swaps to swap ﬁxed rate US$ denominated debt of US$300.0 million into ﬂoating rate sterling debt of Stg£166.652 million. At 31 March 2008 the ﬁxed interest rates vary from 6.08% to 7.83%. 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 2008 total €21.366 million (2007: €21.266 million). Gains and losses recognised in the cash ﬂow hedge reserve in equity (note 38) at 31 March 2008 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 six months after the balance sheet date. Commodity price forward contracts The notional principal amounts of outstanding forward commodity contracts at 31 March 2008 total €0.5 million (31 March 2007: nil). Gains and losses recognised in the cash ﬂow hedge reserve in equity (note 38) at 31 March 2008 on forward commodity contracts designated as cash ﬂow hedges under IAS 39 will be released to the Income Statement at various dates up to six months after the balance sheet date. 29. Borrowings Group Non-current: Bank borrowings Finance leases* Unsecured Notes due 2011 to 2019 Current: Bank borrowings Finance leases* Loan notes Unsecured Notes due 2008 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 2008 €’000 2007 €’000 3,040 1,508 353,571 358,119 156,165 1,426 127 59,828 217,546 575,665 2008 €’000 1,459 7,939 348,721 358,119 731 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 93 Notes to the Financial Statements (continued) 29. Borrowings - continued 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 2008, it had no undrawn committed bank facilities. Unsecured Notes due 2008 to 2019 The Group’s Unsecured Notes due 2008 to 2019 comprise ﬁxed rate debt of US$100.0 million issued in 1996 and maturing in 2008 and 2011 (the ‘2008/11 Notes’), ﬁxed rate debt of US$200.0 million and Stg£30.0 million issued in 2004 and maturing in 2014 and 2016 (the ‘2014/16 Notes’) and ﬁxed rate debt of US$200.0 million and Stg£25.0 million issued in 2007 and maturing in 2017 and 2019 (the ‘2017/19 notes’) The 2008/11 Notes have been swapped (using cross currency interest rate swaps designated as fair value hedges under IAS 39) from ﬁxed US$ to ﬂoating sterling rates, re-pricing quarterly based on sterling LIBOR. The 2014/16 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 2017/19 Notes denominated in US$ have been swapped (using cross currency interest rate swaps designated as fair value hedges under IAS 39) from ﬁxed US$ to ﬂoating sterling rates, repricing quarterly based on sterling LIBOR. The 2017/19 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 quarterly based on sterling LIBOR. The maturity and interest proﬁle of the Unsecured Notes due 2008 to 2019 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 2008 2007 7.2 years 5.8 years 6.09% 5.95% 5.41% 6.36% 6.04% 5.76% 4.21% 5.98% 94 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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 2008 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 2019 Derivative ﬁnancial instruments (net) Group net debt (including share of net cash in joint ventures) At 1 April 2007 €’000 337,079 (26,892) 310,187 (92,954) (9,249) (265,462) (43,038) (100,516) Fair value Translation At 31 March Cash Flow €’000 adjustment €’000 adjustment €’000 2008 €’000 195,269 (70,190) 125,079 21,727 5,650 (180,286) 187 (27,643) - - - - - (9,043) 8,957 (86) (46,508) 7,288 (39,220) 1,689 665 41,392 - 4,526 485,840 (89,794) 396,046 (69,538) (2,934) (413,399) (33,894) (123,719) Group net debt (excluding share of net cash in joint ventures) (105,759) (32,009) (86) 5,095 (132,759) 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 2019 Derivative ﬁnancial instruments (net) Group net debt (including 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) (32,681) Fair value Translation At 31 March Cash Flow €’000 adjustment €’000 adjustment €’000 2007 €’000 (13,052) (875) (13,927) (55,063) 1,256 - - (67,734) - - - - - 24,365 (24,852) (487) 4,851 (655) 4,196 (18) (262) (3,361) (169) 386 337,079 (26,892) 310,187 (92,954) (9,249) (265,462) (43,038) (100,516) Group net debt (excluding share of net cash in joint ventures) (33,150) (72,508) (487) 386 (105,759) Currency proﬁle The currency proﬁle of net debt at 31 March 2008 is as follows: Cash and cash equivalents Borrowings Derivatives The currency proﬁle of net debt at 31 March 2007 is as follows: Cash and cash equivalents Borrowings Derivatives Euro €’000 Sterling €’000 US Dollar €’000 199,113 (239,616) (35,542) (76,045) 278,550 (332,652) 1,908 (52,194) 7,837 (1,059) (260) 6,518 Euro €’000 Sterling €’000 US Dollar €’000 79,094 (205,696) (23,195) (149,797) 248,388 (186,264) (19,666) 42,458 8,873 (1,127) (177) 7,569 Other €’000 340 (2,338) - (1,998) Other €’000 724 (1,470) - (746) Total €’000 485,840 (575,665) (33,894) (123,719) Total €’000 337,079 (394,557) (43,038) (100,516) Interest rate proﬁle Cash and cash equivalents at 31 March 2008 and 31 March 2007 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 2019 have been swapped to ﬂoating rates which reset on a quarterly or semi-annual basis (note 29). DCC - ANNUAL REPORT AND ACCOUNTS 2008 95 Notes to the Financial Statements (continued) 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): Accelerated tax 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 Acquisition of subsidiary (note 46) Income Statement credit (note 15) Tax (credited)/charged to equity (note 15) At 31 March 32. Retirement beneﬁt obligations 2008 €’000 2007 €’000 3,610 785 5,804 10,199 11,453 253 11,706 2008 €’000 6,443 193 1,565 (5,515) (1,179) 1,507 3,526 574 4,205 8,305 14,475 273 14,748 2007 €’000 6,122 12 2,955 (2,768) 122 6,443 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 January 2004 and 1 May 2007. 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 2008 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 2008 3.75% - 4.25% 2.50% - 3.00% 5.60% 2.50% 2008 4.50% 3.50% - 4.50% 5.85% 3.50% 2008 7.40% 3.90% 6.40% 3.00% 2008 8.10% 4.60% 7.10% 3.50% 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% 96 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 32. Retirement beneﬁt obligations - continued The expected rate of return for equities and property has been calculated assuming that equities and property will outperform bonds by 3.5% and 2.5% per annum respectively over the long term. The expected rate of return for bonds has been based on bond indices as at 31 March. 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: Current pensioners Male Female Future pensioners Male Female The Group does not operate any post-employment medical beneﬁt schemes. The net pension liability recognised in the Balance Sheet is analysed as follows: Equities Bonds Property Cash Total market value at 31 March 2008 Present value of scheme liabilities Net pension liability at 31 March 2008 Equities Bonds Property Cash Total market value at 31 March 2007 Present value of scheme liabilities Net pension liability at 31 March 2007 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 employee beneﬁt expenses (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 ROI €’000 37,515 12,393 3,084 1,944 54,936 (70,989) (16,053) ROI €’000 43,420 11,736 2,996 2,434 60,586 (69,825) (9,239) 2008 21.1 24.1 22.1 25.1 2008 UK €’000 7,415 4,323 171 1,062 12,971 (18,769) (5,798) 2007 UK €’000 9,781 3,380 790 443 14,394 (21,527) (7,133) 2008 €’000 3,246 - 3,246 (4,405) 4,989 584 2008 €’000 (13,935) (3,737) 8,586 (9,086) 2007 20.3 23.3 21.0 24.0 Total €’000 44,930 16,716 3,255 3,006 67,907 (89,758) (21,851) Total €’000 53,201 15,116 3,786 2,877 74,980 (91,352) (16,372) 2007 €’000 3,414 (633) 2,781 (4,026) 4,456 430 2007 €’000 904 884 (212) 1,576 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 Expected return on assets Actuarial (loss)/gain 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 Contributions by members Beneﬁts paid Settlements Exchange At 31 March DCC - ANNUAL REPORT AND ACCOUNTS 2008 97 2008 €’000 74,980 4,989 (13,935) 5,269 393 (1,604) (2,185) 67,907 2008 €’000 91,352 3,246 4,405 (4,849) 393 (1,604) - (3,185) 89,758 2007 €’000 67,294 4,456 904 5,294 425 (3,704) 311 74,980 2007 €’000 87,973 3,414 4,026 (672) 425 (3,704) (633) 523 91,352 The level of contributions for the forthcoming ﬁnancial year are expected to be in line with the current year amounts. 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 four 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 2008 €’000 67,907 (89,758) (21,851) (13,935) (20.5%) (3,737) 4.2% (9,086) 10.1% 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% Cumulatively since 1 April 2004, €13.473 million has been recognised as a charge in the Statement of Recognised Income and Expense. Sensitivity analysis for principal assumptions used to measure scheme liabilities There are inherent uncertainties surrounding the ﬁnancial assumptions adopted in calculating the actuarial valuation of the Group’s deﬁned beneﬁt pension schemes. The following table analyses, for the Group’s Irish and UK pension schemes, the estimated impact on plan liabilities resulting from changes to key actuarial assumptions, whilst holding all other assumptions constant. Assumption Discount rate Price inﬂation Mortality Change in assumption Increase/decrease 0.25% Increase/decrease 0.25% Increase/decrease by one year Impact on Irish plan liabilities Increase/decrease by 5.6% Increase/decrease by 1.4% Increase/decrease by 2.4% Impact on UK plan liabilities Increase/decrease by 6.2% Increase/decrease by 5.3% Increase/decrease by 2.6% 98 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 33. Deferred acquisition consideration Group The Group’s deferred acquisition consideration of €30.191 million (2007: €29.393 million) as stated on the Balance Sheet consists of €3.237 million of € ﬂoating rate ﬁnancial liabilities (2007: €13.530 million) and €26.954 million of Stg£ ﬂoating rate ﬁnancial liabilities (2007: €15.863 million) payable as follows: Within one year Between one and two years Between two and ﬁve years Analysed as: Non-current liabilities Current liabilities 2008 €’000 14,036 8,691 7,464 30,191 16,155 14,036 30,191 34. Provisions for liabilities and charges The reconciliation of the movement in provisions for liabilities and charges for the year ended 31 March 2008 is as follows: Group At 1 April 2007 Provided during the year Utilised during the year Arising on acquisition (note 46) Exchange At 31 March 2008 Analysed as: Non-current liabilities Current liabilities Environmental Insurance and and remediation €’000 6,122 285 (93) - (915) 5,399 other €’000 4,807 4,684 (2,015) 553 (65) 7,964 The reconciliation of the movement in provisions for liabilities and charges for the year ended 31 March 2007 is as follows: Group At 1 April 2006 Provided during the year Utilised during the year Arising on acquisition (note 46) Exchange At 31 March 2007 Analysed as: Non-current liabilities Current liabilities Environmental Insurance and and remediation €’000 - - (57) 6,122 57 6,122 other €’000 3,785 2,083 (1,061) - - 4,807 2007 €’000 10,870 9,701 8,822 29,393 18,523 10,870 29,393 Total €’000 10,929 4,969 (2,108) 553 (980) 13,363 2008 €’000 5,399 7,964 13,363 Total €’000 3,785 2,083 (1,118) 6,122 57 10,929 2007 €’000 6,122 4,807 10,929 DCC - ANNUAL REPORT AND ACCOUNTS 2008 99 Notes to the Financial Statements (continued) 34. Provisions for liabilities and charges - continued 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. 35. Government 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 7,414,239 ordinary shares held as Treasury Shares) of €0.25 each, fully paid (2007: 88,229,404 ordinary shares (including 7,816,256 ordinary shares held as Treasury Shares) of €0.25 each, fully paid) Ordinary shares of €0.25 each At 31 March 2008 and 31 March 2007 2008 €’000 2,632 (288) 92 - (366) 2,070 (129) 1,941 2007 €’000 2,122 (276) - 758 28 2,632 (239) 2,393 2008 €’000 2007 €’000 38,092 38,092 22,057 22,057 No. of shares ‘000 €’000 88,229 22,057 As at 31 March 2008, the total authorised number of ordinary shares is 152,368,568 shares (2007: 152,368,568 shares) with a par value of €0.25 per share (2007: €0.25 per share). During the year the Company reissued 402,017 Treasury Shares for a consideration (net of expenses) of €4.060 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 50 to 53. 100 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 37. Share premium account Group and Company At 31 March 2008 and 31 March 2007 38. Other reserves Group At 1 April 2006 Currency translation Cash ﬂow hedges - fair value gains in year - tax on fair value gains - transfers to cost of sales - tax on transfers to income tax expense Share based payment At 31 March 2007 Currency translation Cash ﬂow hedges - fair value losses in year - tax on fair value losses - transfers to sales - transfers to cost of sales - tax on transfers to income tax expense Share based payment At 31 March 2008 Company At 31 March 2008 and 31 March 2007 2008 €’000 2007 €’000 124,687 124,687 Cash Foreign currency Share ﬂow hedge translation options1 €’000 reserve2 €’000 reserve3 €’000 Other reserves4 €’000 3,392 - - - - - 1,415 4,807 - - - - - - 1,844 6,651 20 - (4,125) 495 3,966 (473) - (117) - 1,665 (374) (306) (943) 297 - 222 (10,344) 7,430 - - - - - (2,914) (64,310) - - - - - - (67,224) 1,400 - - - - - - 1,400 - - - - - - - 1,400 Total €’000 (5,532) 7,430 (4,125) 495 3,966 (473) 1,415 3,176 (64,310) 1,665 (374) (306) (943) 297 1,844 (58,951) Other reserves5 €’000 344 1 The share option reserve comprises the amounts expensed in the Income Statement in connection with share based payments. The cash ﬂow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash ﬂow hedging 2 instruments related to hedged transactions that have not yet occurred. The foreign currency translation reserve represents all foreign exchange differences from 1 April 2005 arising from the translation of the net assets of the Group’s non-euro denominated operations, including the translation of the proﬁts and losses of such operations from the average rate for the year to the closing rate at the balance sheet date. 3 4 The Group’s other reserves comprise a capital conversion reserve fund and an unrealised gain on the disposal of an associate. 5 The Company’s other reserve is a capital conversion reserve fund. 39. Retained earnings Group At 1 April Net income recognised in Income Statement Net income recognised directly in equity - actuarial (loss)/gain on Group deﬁned beneﬁt pension schemes - deferred tax on actuarial loss/(gain) Deferred tax on employee share options Share buyback (inclusive of costs) Re-issue of Treasury Shares (net of expenses) Dividends At 31 March 2008 €’000 2007 €’000 531,994 164,491 (9,086) 1,200 25 - 4,060 (41,813) 650,871 439,477 140,186 1,576 (169) 25 (18,818) 6,098 (36,381) 531,994 Notes to the Financial Statements (continued) 39. Retained earnings - continued 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 101 2008 €’000 46,758 221,280 - 4,060 (41,813) 230,285 2007 €’000 55,556 40,303 (18,818) 6,098 (36,381) 46,758 The cost to the Group and the Company of €92.625 million to acquire the 7,414,239 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 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 2008 €’000 5,816 - 683 (2,725) (3) 3,771 2007 €’000 4,714 663 476 (38) 1 5,816 2008 €’000 2007 €’000 687,730 4,060 1,844 - (41,813) (2,045) 92,659 742,435 2008 €’000 193,846 4,060 - (41,813) 221,280 377,373 585,403 6,098 1,415 (18,818) (36,381) 1,102 148,911 687,730 2007 €’000 202,644 6,098 (18,818) (36,381) 40,303 193,846 102 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 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 operating 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 government 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 Company Proﬁt for the ﬁnancial year Add back non-operating (income)/expense - Tax - Net operating exceptionals - 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 2008 €’000 2007 €’000 165,174 141,105 16,530 (639) (39,605) 17,792 159,252 1,844 45,445 7,928 (751) (288) 220 (227) (11,412) (143,853) 70,885 129,043 20,695 (14,710) (24,516) 10,850 133,424 1,415 39,461 6,660 (1,362) (276) 268 (2,513) (27,322) (14,997) (7,337) 127,421 2008 €’000 2007 €’000 221,280 40,303 1,750 7,056 (3,123) 226,963 (198,327) 17,520 46,156 (1,319) - (3,407) 35,577 (33,116) 41,758 44,219 43. Contingencies Guarantees The Company and certain subsidiaries have given guarantees of €707.548 million (2007: €535.692 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 Pursuant to the provisions of Section 17, Companies (Amendment) Act, 1986, the Company has guaranteed the liabilities of the following subsidiaries; Alvabay Limited, Classic Fuel & Oil Limited, DCC Business Expansion Fund Limited, DCC Corporate Partners Limited, DCC Energy Limited, DCC Financial Services Holdings Limited, DCC Funding 2007 Limited, DCC Healthcare Limited, DCC Management Services Limited, DCC Nominees Limited, DCC SerCom Limited, Emo Oil Limited, Fannin Limited, Fannin Compounding Limited, Flogas Ireland Limited, SerCom Property Limited, Shannon Environmental Holdings Limited and Sharptext Limited. As a result, these companies will be exempted from the ﬁling provisions of Section 7, Companies (Amendment) Act, 1986. DCC - ANNUAL REPORT AND ACCOUNTS 2008 103 Notes to the Financial Statements (continued) 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 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 2008 €’000 5,113 58,269 63,382 2007 €’000 2,721 70,389 73,110 2008 €’000 5,759 14,319 29,499 49,577 2007 €’000 6,430 17,559 44,871 68,860 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 2008, €14.069 million (2007: €9.818 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 2008 2007 Minimum payments €’000 1,469 1,755 3,224 (290) 2,934 Present value of payments €’000 1,426 1,508 2,934 - 2,934 Minimum payments €’000 7,214 2,699 9,913 (664) 9,249 Present value of payments €’000 6,863 2,386 9,249 - 9,249 104 DCC - ANNUAL REPORT AND ACCOUNTS 2008 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: - CPL Petroleum Limited (100%): a British based oil distribution business, acquired on 31 August 2007; - Banque Magnetique SAS (100%): a French based distributor of consumer electronic products and IT peripherals, acquired on 12 November 2007; Squadron Medical Limited (100%): an English based procurer and supplier of medical and surgical products to hospitals, acquired on 23 November 2007; and - - Southern Counties Fuels Holdings Limited (100%): an English based oil distribution business acquired on 7 March 2008. 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) Deferred income tax assets (note 31) 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 (note 34) Government grants (note 35) Total non-current liabilities Current liabilities Trade and other payables (note 26) Current income tax liabilities Total current liabilities 2008 €’000 CPL 5,839 70,121 2,009 - 77,969 3,307 44,055 47,362 2008 €’000 Others 10,291 42,424 6,473 479 59,667 2008 €’000 Total 16,130 112,545 8,482 479 137,636 44,937 95,016 139,953 48,244 139,071 187,315 2007 €’000 Total 31,560 72,035 6,639 - 110,234 9,478 53,559 63,037 - - - - - - (663) (663) (631) (553) - (1,184) (1,413) - - (1,413) (2,044) (553) - (2,597) (2,955) (6,122) (758) (9,835) (43,657) (29) (43,686) (97,171) (1,942) (99,113) (140,828) (1,971) (142,799) (48,497) (1,959) (50,456) Total consideration (enterprise value) 80,461 99,094 179,555 112,317 Satisﬁed by: Cash Net (cash)/debt acquired Net cash outﬂow Deferred acquisition consideration Total consideration 80,772 (450) 80,322 139 80,461 76,087 10,175 86,262 12,832 99,094 156,859 9,725 166,584 12,971 179,555 103,285 (1,796) 101,489 10,828 112,317 DCC - ANNUAL REPORT AND ACCOUNTS 2008 105 Notes to the Financial Statements (continued) 46. Business combinations - continued The acquisition of CPL has been deemed to be a substantial transaction and separate disclosure of the fair values of the identiﬁable assets and liabilities has therefore been made. None of the remaining business combinations completed during the year 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: CPL 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) Other acquisitions 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) Total 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 5,839 47,739 (581) (43,309) 9,688 70,773 80,461 2,009 (377) (603) (377) 652 (652) - Book value €’000 Fair value adjustments €’000 10,770 139,953 (473) (99,113) 51,137 47,957 99,094 6,473 - (940) - 5,533 (5,533) - Book value €’000 Fair value adjustments €’000 16,609 187,692 (1,054) (142,422) 60,825 118,730 179,555 8,482 (377) (1,543) (377) 6,185 (6,185) - Fair value €’000 7,848 47,362 (1,184) (43,686) 10,340 70,121 80,461 Fair value €’000 17,243 139,953 (1,413) (99,113) 56,670 42,424 99,094 Fair value €’000 25,091 187,315 (2,597) (142,799) 67,010 112,545 179,555 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 2009 Annual Report as stipulated by IFRS 3. The principal factors contributing to the recognition of goodwill on business combinations entered into by the Group are the expected proﬁtability of the acquired business and the realisation of cost savings and synergies with existing Group entities. 106 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 46. Business combinations - continued The total adjustments processed during the year to the fair value of business combinations completed during the year ended 31 March 2007 where those fair values were not readily determinable as at 31 March 2007 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) Adjustments to Initial fair value provisional fair assigned €’000 38,199 63,037 (10,498) (50,456) 40,282 72,035 112,317 values €’000 100 550 - 350 1,000 (1,000) - Revised fair value €’000 38,299 63,587 (10,498) (50,106) 41,282 71,035 112,317 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 Exceptional items Operating proﬁt Finance costs (net) Proﬁt before tax Income tax expense Group proﬁt for the ﬁnancial year 2008 €’000 2007 €’000 618,957 (576,804) 42,153 (28,826) 13,327 (1,705) 11,622 81 11,703 (3,245) 8,458 411,207 (381,237) 29,970 (19,384) 10,586 - 10,586 114 10,700 (2,903) 7,797 The revenue and proﬁt of business combinations completed during the year, determined in accordance with IFRS as though the acquisition date for all business combinations effected during the year had been the beginning of that year would be as follows: Revenue Group proﬁt for the ﬁnancial year 2008 €’000 2007 €’000 1,324,838 773,084 13,952 11,966 47. Financial risk and capital management Capital risk management The Group’s objectives when managing capital (deﬁned as net debt plus equity) are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders and beneﬁts for other stakeholders, while maintaining a strong balance sheet to support the continued organic and acquisitive growth of its businesses and to maintain investor, creditor and market conﬁdence. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or buy back existing shares, increase or reduce debt or sell assets. The policy for net debt is to ensure a structure of longer term debt funding and cash balances with deposit maturities up to six months. DCC - ANNUAL REPORT AND ACCOUNTS 2008 107 Notes to the Financial Statements (continued) 47. Financial risk and capital management - continued Financial risk management Group ﬁnancial risk management is governed by policies and guidelines which are reviewed and approved annually by the Board of Directors, most recently in February 2008. 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. There are no signiﬁcant concentrations of risk and there has been no signiﬁcant change during the ﬁnancial year, or since the end of the year, to the types of ﬁnancial risks faced by the Group or the Group’s approach to the management of those risks. (i) Credit risk management Credit risk arises from credit exposure to trade debtors, cash and cash equivalents including deposits with banks and ﬁnancial institutions, derivative and ﬁnancial instruments. Trade receivables arise from a wide and varied customer base spread throughout the Group’s operations and as such there is no signiﬁcant concentration of credit risk. The Group’s credit risk management policy in relation to trade receivables involves periodically assessing the ﬁnancial reliability of customers, taking into account their ﬁnancial position, past experience and other factors. The utilisation of credit limits is regularly monitored and a signiﬁcant element of credit risk is covered by credit insurance. Risk of counterparty default arising on cash and cash equivalents and derivative ﬁnancial instruments is controlled within a framework of dealing with high quality institutions and, by policy, limiting the amount of credit exposure to any one bank or institution. 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 the counterparty risk limits of the Board approved treasury policy. Of the total cash and cash equivalents at 31 March 2008 of €485.840 million, a minimum of 96.9% (€470.972 million) was with ﬁnancial institutions in the A-1 (short-term) category of Standard and Poors and in the P-1 (short-term) category of Moodys. As at 31 March 2008 derivative transactions were with counterparties with ratings ranging from A+ to AA (long-term) with Standard and Poors or A1 to Aa1 (long- term) with Moodys. In the normal course of business, the Group operates notional cash pooling systems, where a legal right of set-off applies. Management does not expect any signiﬁcant counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount of each asset. Included in the Group’s trade and other receivables as at 31 March 2008 are balances of €131.477 million (2007: €84.239 million) which are past due at the reporting date but not impaired in the majority of cases. The aged analysis of these balances is as follows: Group Less than 1 month overdue 1 - 3 months overdue 3 - 6 months overdue Over 6 months overdue The movements in the provision for impairment of trade receivables during the year is as follows: Group At 1 April Provision for impairment recognised in the year Amounts recovered during the year Amounts written off during the year Arising on acquisition Exchange differences At 31 March Company There were no past due or impaired trade receivables in the Company at 31 March 2008 (31 March 2007: none). 2008 €’000 76,336 26,532 20,494 8,115 131,477 2008 €’000 13,343 5,638 (805) (4,762) 3,723 (1,513) 15,624 2007 €’000 45,532 21,631 10,697 6,379 84,239 2007 €’000 11,673 4,826 20 (4,480) 1,198 106 13,343 108 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 47. Financial risk and capital management - continued (ii) Liquidity risk management The Group maintains a strong balance sheet with long-term debt funding and cash balances with deposit maturities up to six months. Wherever possible, surplus funds in the Group are transferred to the centralised treasury department through the repayment of borrowings, deposits and dividends. These are then on-lent or contributed as equity to fund Group operations, used to retire external debt or invested externally. The Group does not use off-balance sheet special purpose entities as a source of liquidity or for other ﬁnancing purposes. In addition, the Group maintains signiﬁcant uncommitted credit lines with its relationship banks. The table below analyses the Group’s ﬁnancial liabilities into relevant maturity groupings based on the remaining period to contractual maturity at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash ﬂows. As at 31 March 2008 Group Trade and other payables Borrowings (principal repayments) Future ﬁnance charges Less: future ﬁnance charges As at 31 March 2007 Group Trade and other payables Borrowings (principal repayments) Future ﬁnance charges Less: future ﬁnance charges Less than Between Between 1 year €’000 1 and 2 years €’000 2 and 5 years €’000 796,902 233,161 33,999 1,064,062 (33,999) 1,030,063 - 1,459 22,506 23,965 (22,506) 1,459 - 9,376 66,423 75,799 (66,423) 9,376 Less than Between Between 1 year €’000 1 and 2 years €’000 2 and 5 years €’000 601,404 125,978 24,897 752,279 (24,897) 727,382 - 89,511 15,511 105,022 (15,511) 89,511 - 9,258 37,451 46,709 (37,451) 9,258 Over 5 years €’000 - 364,086 73,022 437,108 (73,022) 364,086 Over 5 years €’000 - 211,269 28,785 240,054 (28,785) 211,269 Total €’000 796,902 608,082 195,950 1,600,934 (195,950) 1,404,984 Total €’000 601,404 436,016 106,644 1,144,064 (106,644) 1,037,420 The Group has sufﬁcient cash resources and liquid assets to enable it to meet its current borrowing obligations and trade and other payables. As at 31 March 2008 Company Less than Between Between 1 year €’000 1 and 2 years €’000 2 and 5 years €’000 Over 5 years €’000 Total €’000 Trade and other payables 271,843 - 10,387 - 282,230 As at 31 March 2007 Company Less than Between Between 1 year €’000 1 and 2 years €’000 2 and 5 years €’000 Over 5 years €’000 Total €’000 Trade and other payables 254,443 - 10,387 - 264,830 The Company has sufﬁcient cash resources and liquid assets to enable it to meet its trade and other payables. DCC - ANNUAL REPORT AND ACCOUNTS 2008 109 Notes to the Financial Statements (continued) 47. Financial risk and capital management - continued (iii) Market risk management Foreign exchange risk management DCC’s reporting currency and that in which its share capital is denominated is the euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations giving rise to exposure to other currencies, primarily sterling and the US dollar. Divisional and subsidiary management, in conjunction with Group Treasury, manage foreign currency exposures within approved policies and guidelines using forward currency contracts. The portion of the Group’s operating proﬁts which are sterling denominated are offset to a limited degree by certain natural economic hedges that exist within the Group in that a proportion of the purchases by certain of its Irish businesses are sterling denominated. The Group does not hedge the remaining translation exposure on the translation of the proﬁts of foreign currency subsidiaries on the basis that they are not intended to be repatriated. The 3.3% reduction in the average translation rate of sterling adversely impacted the Group’s reported operating proﬁt by €3.4 million in the year ended 31 March 2008. 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 hedge is offset by the strong ongoing cash ﬂow generated from the Group’s sterling operations leaving the Group with a net investment in sterling assets. The 17% reduction in the value of sterling against the euro during the year ended 31 March 2008 gave rise to a translation loss of €64.3 million on the translation of the Group’s sterling denominated net asset position at 31 March 2008 as set out in the Statement of Total Recognised Gains and Losses. €16.0 million of this amount related to the Group’s sterling denominated intangible assets. The Group has a moderate level of transactional currency exposure arising from sales or purchases by operating units in currencies other than their functional currencies. Where sales or purchases are invoiced in other then the local currency and there is not a natural hedge with other activities within the Group, DCC generally hedges between 50% and 90% of those transactions for the subsequent two 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. Sensitivity to currency movements: Group A change in the value of other currencies by 10% against the euro would have a €8.3 million (2007: €7.0 million) impact on the Group’s proﬁt before tax, would change the Group’s equity by €42.6 million and change the Group’s net debt by €4.8 million (2007: €41.8 million and €5.0 million (net cash) respectively). These amounts include an immaterial amount of transactional currency exposure. Company The Company does not have signiﬁcant levels of non-functional currency assets and liabilities at 31 March 2008 or at 31 March 2007. Interest rate risk management On a net debt basis, the Group is exposed to changes in interest rates, primarily changes in EURIBOR and sterling LIBOR. Having borrowed at both ﬁxed and ﬂoating rates of interest, DCC has swapped its ﬁxed rate borrowings to ﬂoating interest rates, using interest rate and cross currency interest rate swaps. Overall interest rate risk on gross borrowings is mitigated 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. Sensitivity of interest charges to interest rate movements: Group Based on the composition of net debt at 31 March 2008 a one percentage point (100 basis points) change in average ﬂoating interest rates would have a €1.24 million (2007: €1.01 million) impact on the Group’s proﬁt before tax. Company The effective interest rates earned during the year on cash at bank ranged from 3.6% to 4.7%. Commodity price risk management The Group is exposed to commodity price risk in its LPG and oil distribution businesses. The Group generally hedges a proportion of its anticipated LPG commodity exposure while price changes are being implemented, 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 one year. 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. 110 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Notes to the Financial Statements (continued) 48. 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 63 to 71. A listing of the principal subsidiaries, joint ventures and associates is provided in the Group Directory on pages 111 to 114 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. 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 50 to 53 of this Annual Report. Company Subsidiaries, joint ventures and associates During the year the Company received €230.000 million (2007: €38.999 million) in dividends from its subsidiaries and associates. Details of loan balances to/from subsidiaries are provided in the Company Balance Sheet on page 61, 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 €2.209 million (2007: €3.235 million) by its subsidiary, DCC Management Services Limited. 49. Approval of ﬁnancial statements The ﬁnancial statements were approved by the Board of Directors on 9 June 2008. DCC - ANNUAL REPORT AND ACCOUNTS 2008 111 Group Directory Principal Subsidiaries and Joint Ventures DCC Energy Company name & address DCC Energy Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Oil GB Oils Limited 302 Bridgewater Place, Birchwood Park, Warrington WA3 6XG, England Emo Oil Limited Clonminam Industrial Estate, Portlaoise, Co. Laois, Ireland DCC Energy Limited Airport Road West, Sydenham, Belfast BT3 9ED, Northern Ireland LPG Flogas UK Limited 81 Raynsway, Syston, Leicester LE7 1PF, England Flogas Ireland Limited Dublin Road, Drogheda, Co. Louth, Ireland Fuel Cards Fuel Card Group Limited 8 Kerry Hill, Horsforth, Leeds LS18 4AY, England DCC SerCom Company name & address SerCom Distribution Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Retail Gem Distribution Limited St. George House, Parkway, Harlow Business Park, Harlow, Essex CM19 5QF, England Principal activity Contact details 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 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 Tel: +353 1 2799 400 Fax: +353 1 2831 017 Email: energy@dcc.ie www.dcc.ie Tel: +44 1925 858 500 Fax: +44 1925 858 501 Email: info@gboils.co.uk www.gboils.co.uk Tel: +353 578 674 700 Fax: +353 578 674 775 Email: info@emo.ie www.emo.ie Tel: +44 28 9073 2611 Fax: +44 28 9073 2020 Email: enquiries@emooil.com www.emooil.com 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 Principal activity Contact details Holding and divisional management company Tel: +353 1 2799 400 Fax: +353 1 2831 017 Email: sercom@dcc.ie www.sercomdistribution.com Procurement, sales, marketing and distribution of computer software and peripherals Tel: +44 1279 822 800 Fax: +44 1279 416 228 Email: info@gem.co.uk www.gem.co.uk Tel: +353 1 2826 444 Fax: +353 1 2826 532 Pilton Company Limited Unit 2, Loughlinstown Industrial Estate, Ballybrack, Co. Dublin, Ireland Procurement, sales, marketing and distribution of DVDs and computer games and accessories 112 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Group Directory (continued) DCC SerCom (continued) Company name & address Principal activity Contact details Banque Magnetique SAS Park International d’Activités, Paris Nord II, 8 Avenue de la Pyramide, BP 64060, Tremblay en France 95972, Roissy, France Procurement, sales, marketing and distribution of computer peripherals and accessories Tel: +33 1 49 90 93 93 Fax: + 33 1 49 90 94 94 Email: sales@banquemagnetique.fr www.banquemagnetique.fr Reseller Micro Peripherals Limited Shorten Brook Way, Altham Business Park, distribution of computer products Altham, Accrington, Lancashire BB5 5YJ, England Procurement, sales, marketing and Procurement, sales, marketing and distribution of computer products Distribution of enterprise infrastructure products in France, Iberia & Benelux Tel: +44 1282 776 776 Fax: +44 1282 770 001 Email: enquiries@micro-p.com www.micro-p.com Tel: +353 1 4087 171 Fax: +353 1 4193 111 Email: sharptext@sharptext.com www.sharptext.com Tel: +33 1 34 58 47 00 Fax: + 33 1 34 58 47 27 Email: info@distrilogie.com www.distrilogie.com Provision of supply chain management and procurement services Tel: +353 1 4056 500 Fax: +353 1 4056 555 Email: kevin.vaughan@sercomsolutions.com www.sercomsolutions.com Principal activity Contact details Holding and divisional management company Tel: +353 1 2799 400 Fax: +353 1 2831 017 Email: healthcare@dcc.ie www.dcc.ie Procurement, sales and marketing of pharmaceutical, medical and laboratory products and provision of related value-added services Tel: +353 1 2907 000 Fax: +353 1 2954 777 Email: information@fannin.ie www.fannin.ie Provision of value-added distribution services to hospitals and healthcare providers Tel: +44 1246 470 999 Fax: +44 1246 284 030 Sharptext Limited M50 Business Park, Ballymount Road Upper, Dublin 12, Ireland Enterprise Distrilogie SA Energy Park IV, 34 Avenue de l’Europe 78140 Velizy, France Supply Chain Management SerCom Solutions 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 Acute Care Fannin Limited Fannin House, South County Business Park, Leopardstown, Dublin 18, Ireland Squadron Medical Limited Unit A, Griffen Close, Ireland Industrial Estate, Staveley, Chesterﬁeld S43 3LJ, England The TPS Healthcare Group Limited 27-35 Napier Place, Wardpark North, Cumbernauld, Glasgow G68 0LL, Scotland Provision of value-added distribution services to hospitals and healthcare providers Tel: +44 1236 739 668 Fax: +44 1236 738 376 Email:corporate@tpshealthcare.com www.tpshealthcare.com Health & Beauty Solutions DCC Health & Beauty Solutions 9-12 Hardwick Road, Astmoor Industrial Estate, Runcorn, Cheshire WA7 1PH, England Outsourced solutions for the health and beauty industry Tel: +44 1928 573 734 Fax: +44 1420 566 566 Email: enquiries@dcchealthandbeauty.com www.dcchealthandbeauty.com DCC - ANNUAL REPORT AND ACCOUNTS 2008 113 Group Directory (continued) DCC Healthcare (continued) Company name & address Laleham Healthcare Limited Sycamore Park, Mill Lane, Alton, Hampshire GU34 2PR, England Thompson & Capper 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 Mobility & Rehab Days Healthcare UK Limited North Road, Bridgend Industrial Estate, Bridgend CF31 3TP, Wales Physio-Med Services Limited 7-23 Glossop Brook Business Park, Surrey Street, Glossop, Derbyshire SK13 7AJ, England Days Healthcare GmbH Oberbecksener Str. 68, D-32547 Bad Oeynhausen, Germany Ausmedic Australia Pty Limited Unit 4, 37 Leighton Place, Hornsby, NSW 2077, Australia DCC Food & Beverage Company name & address DCC Food & Beverage Limited 79 Broomhill Road, Tallaght, Dublin 24, Ireland Healthfoods Kelkin Limited Unit 1, Crosslands Industrial Park, Ballymount Cross, Dublin 12, Ireland Indulgence Robert Roberts Limited 79 Broomhill Road, Tallaght, Dublin 24, Ireland Principal activity Contact details Contract manufacture and packing of nutraceuticals and cosmetics (liquids and creams) Tel: +44 1420 566 500 Fax: +44 1420 566 566 Email: reception@laleham-healthcare.com www.laleham-healthcare.com Development, contract manufacture and packing of tablet and hard gel capsule nutraceuticals Tel: +44 1928 573 734 Fax: +44 1928 580 694 Email: enquiries@tablets2buy.com www.tablets2buy.com Development and contract manufacture of soft gel capsule nutraceuticals Development, procurement, sales and marketing of mobility and rehabilitation products Procurement, sales and marketing of rehabilitation products Development, procurement, sales and marketing of mobility and rehabilitation products Procurement, sales and marketing of mobility and rehabilitation products Tel: +44 1495 308 900 Fax: +44 1495 308 990 Email: info@softgels.co.uk www.softgels.co.uk Tel: +44 1656 664 700 Fax: +44 1656 664 750 Email: info@dayshealthcare.com www.dayshealthcare.com Tel: +44 1457 860 444 Fax: +44 1457 860 555 Email: sales@physio-med.com www.physio-med.com Tel: +49 5731 786 50 Fax: +49 5731 786 520 Email: info@dayshealthcare.de www.dayshealthcare.de Tel: +61 2 9477 3422 Fax: +61 2 9477 3522 Email: sales@ausmedic.com www.ausmedic.com Principal activity Contact details Holding and divisional management company Procurement, sales, marketing and distribution of branded healthy foods, beverages and vms products 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 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 114 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Group Directory (continued) DCC Food & Beverage (continued) Company name & address Principal activity Bottle Green Limited 19 New Street, Horsforth, Leeds LS18 4BH, England KP (Ireland) Limited * 79 Broomhill Road, Tallaght, Dublin 24, Ireland Logistics Allied Foods Limited Second Avenue, Cookstown Industrial Estate, Dublin 24, Ireland Other Kylemore Foods Group * McKee Avenue, Finglas, Dublin 11, Ireland 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 William Tracey Limited * 49 Burnbrae Road, Linwood, Paisley, Renfrewshire PA3 3BD, Scotland * 50% owned joint venture Procurement, sales, marketing and distribution of wine Manufacture of snack foods Chilled and frozen food distribution Operation of restaurants and contract catering Contact details Tel: +44 113 2054 500 Fax: +44 113 2054 501 Email: info@bottlegreen.com www.bottlegreen.com Tel: +353 1 4047 300 Fax: +353 1 4599 369 Tel: +353 1 466 2600 Fax: +353 1 466 2688 Email: info@alliedfoods.ie Tel: +353 1 814 0600 Fax: + 353 1 814 0601 Email: info@kylemore.ie www.kylemore.ie Principal activity Contact details Holding and divisional management company Specialist waste treatment/management services Recycling and waste management company 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 Tel: +44 1505 321 000 Fax: + 44 1505 335 555 Email: info@wmtracey.co.uk www.wmtracey.co.uk DCC - ANNUAL REPORT AND ACCOUNTS 2008 115 Shareholder Information Share price data Share price movement during the year - High - Low Share price at 31 March Market capitalisation at 31 March Share price at 4 June Market capitalisation at 4 June Shareholder analysis as at 31 March 2008 2008 € 26.48 14.78 14.95 1,208m 16.10 1,309m 2007 € 28.00 17.68 26.36 2,120m Range of shares held Number of accounts % of accounts Number of Shares1 % of shares Over 250,000 100,001 – 250,000 10,001 – 100,000 Less than 10,000 Total 44 45 181 3,265 3,535 1.2 1.3 5.1 92.4 63,515,750 7,455,979 6,002,016 3,841,420 100.0 80,815,165 78.6 9.2 7.4 4.8 100.0 Geographic division2 Number of Shares1 % of shares Ireland UK North America Europe/Other Retail3 Total 16,066,778 18,951,965 24,896,254 6,681,250 14,218,918 80,815,165 19.9 23.4 30.8 8.3 17.6 100.0 1 Excludes 7,414,239 shares held as Treasury Shares. 2 This represents the best estimate of the number of shares controlled by fund managers resident in the relevant geographic regions. 3 Retail includes private shareholders, management and broker holdings. 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 Through DCC’s website, stakeholders and other interested parties can access information on DCC in an easy-to-follow and user-friendly format. As well as information on the Group’s activities, users can keep up to date on DCC’s ﬁnancial results and share price performance through downloadable reports and interactive share price tools. The site also provides access to archived ﬁnancial data, annual reports, stock exchange announcements and 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 at the above address. This leaﬂet can also be downloaded from the Irish Revenue Commissioners website at www. revenue.ie. Declaration forms for claiming an exemption are available from the Company’s Registrar. 116 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Shareholder Information (continued) 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. Annual General Meeting The 2008 Annual General Meeting will be held at The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland on Friday 18 July 2008 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. Financial calendar • Preliminary results announced 19 May 2008 • Ex-dividend date for the ﬁnal dividend 28 May 2008 • Record date for the ﬁnal dividend 30 May 2008 • Annual General Meeting 18 July 2008 • Proposed payment date for ﬁnal dividend 24 July 2008 • Interim results announced November 2008 • Payment date for the interim dividend December 2008 Electronic proxy voting and CREST voting Shareholders may lodge a Form of Proxy for the 2008 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 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 DCC - ANNUAL REPORT AND ACCOUNTS 2008 117 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 118 DCC - ANNUAL REPORT AND ACCOUNTS 2008 Index Accounting Policies Accounting Records Acquisitions and Organic Development Expenditure Analysis of Net Debt Articles of Association Attendance at Meetings Audit Committee Auditors Balance Sheet and Group Financing Board Changes Board Committees Board of Directors Borrowings Business Combinations Business Reviews Capital and Treasury Shares Capital Expenditure Commitments Cash and Cash Equivalents Cash Flow Cash Generated from Operations Chairman’s Statement Chief Executive’s Review Commitments under Operating and Finance Leases Commodity Price Risk Management Company Balance Sheet Company Cash Flow Statement Company Statement of Recognised Income and Expense Contents Contingencies Corporate Governance Corporate Information Corporate Social Responsibility Credit Risk Management Critical Accounting Estimates and Judgments DCC Energy DCC Environmental DCC Food & Beverage DCC Healthcare DCC SerCom Deferred Acquisition Consideration Deferred Income Tax Derivative Financial Instruments Directors Directors’ and Company Secretary’s Interests Page 34 43 12 94 43 45 44 43 36 8 44 4, 44 92 104 14 42 103 91 36 102 8 10 103 39 61 62 62 1 102 44 117 13, 40 39 71 14 30 26 22 18 98 95 91 42 53 Directors’ Emoluments and Interests Directors’ Remuneration Dividend increase Dividends Divisional Highlights Earnings per Ordinary Share Employee Share Options Employment Environment, Health & Safety Equity Share Capital Exceptional Proﬁt Exceptionals Finance Costs and Finance Income Financial Review Financial Risk and Capital Management Financial Risk management Financial Strength Foreign Currency Foreign Exchange Risk Management Fyffes Case Government Grants Group at a Glance Group Balance Sheet Group Cash Flow Statement Group Directory Group Income Statement Group Operating Proﬁt Group Statement of Recognised Income and Expense Highlights Income Tax Expense Intangible Assets Interest Rate Risk and Debt/Liqudity Management Inventories Investments in Associates Investments in Subsidiary Undertakings Key Performance Indicators Management and Staff Minority Interest Movement in Total Equity Movement in Working Capital Page 77 50 8 36,42, 85 11 85 79 79 41 99 11 82 83 34 106 38, 71 12 83 38 8, 44, 47 99 2 59 60 111 57 77 58 1 84 87 39 89 88 89 34 9 101 101 90 DCC - ANNUAL REPORT AND ACCOUNTS 2008 119 Index Nomination Committee Non-executive Chairman Notes to the Financial Statements Other Operating Income/Expenses Other Reserves Outlook Overview of Results Political Contributions Principal Risks and Uncertainties Principal Subsidiaries and Joint Ventures Proﬁt Attributable to DCC plc Property, Plant and Equipment Proportionate Consolidation of Joint Ventures Provisions for Liabilities and Charges Related Party Transactions Remuneration Committee Remuneration Policy Report of the Directors Report of the Independent Auditors Report on Directors’ Remuneration and Interests Research and Development Results Highlights Results Overview Retained Earnings Retirement Beneﬁt Obligations Return on Capital Employed Review of Activities and Events since Year End Segment Information Senior Management Shareholder Information Share of Associates’ Proﬁt after Tax Share Options Share Premium Account Strategy Review Substantial Shareholdings Trade and Other Payables Trade and Other Receivables Page 45 44 63 77 100 9,13 34 43 42 42 85 86 78 98 110 45, 50 50 42 55 50 43 10 8 100 95 36 42 72 6 115 83 52 100 13 43 90 89 120 DCC - ANNUAL REPORT AND ACCOUNTS 2008 5 Year Review Group Income Statement Year ended 31 March Irish GAAP 2004 €’m IFRS 2005 €’m IFRS 2006 €’m IFRS 2007 €’m IFRS 2008 €’m Revenue 2,089.4 2,644.7 3,436.3 4,046.1 5,532.0 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) 101.6 (2.3) (8.3) 91.0 (3.8) 15.8 (5.9) 97.1 (12.0) (0.8) 84.3 109.3 (16.0) (1.2) 92.1 (5.7) 19.3 (4.8) 100.9 (12.1) (1.0) 87.8 121.0 2.8 (4.9) 118.9 (7.0) 28.1 (1.2) 138.8 (13.5) (1.5) 123.8 140.1 24.5 (6.7) 157.9 (10.8) 14.7 - 161.8 (20.7) (0.9) 140.2 167.2 39.6 (7.9) 198.9 (17.8) 0.6 - 181.7 (16.5) (0.7) 164.5 101.98 121.89 109.68 137.22 153.92 157.23 174.59 160.02 204.28 165.06 Dividend per share (cent) 32.40 37.26 42.85 49.28 56.67 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 3.8 26.7 IFRS 2004 €’m 218.6 131.4 42.0 323.5 434.2 1,149.7 3.7 19.2 IFRS 2005 €’m 254.8 208.1 51.4 353.3 541.1 1,408.7 3.7 17.2 IFRS 2006 €’m 267.5 248.5 76.8 354.4 665.4 1,612.6 3.2 12.9 IFRS 2007 €’m 319.6 321.4 90.3 340.2 783.1 1,854.6 2.9 9.4 IFRS 2008 €’m 337.1 416.9 4.7 512.7 1,037.3 2,308.7 462.8 492.2 585.4 687.7 742.4 261.1 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 16.4 709.8 1,166.9 1,854.6 636.4 21.9 908.0 1,566.3 2,308.7 Net cash/(debt) included above 62.4 (8.9) (32.7) (100.5) (123.7) Group Cash Flow Year ended 31 March Operating cash ﬂow Capital expenditure Acquisitions Other Information Return on tangible capital employed (%) Return on total capital employed (%) Irish GAAP 2004 €’m 151.9 32.1 14.5 Irish GAAP 2004 39.8% 21.3% IFRS 2005 €’m 116.4 43.6 81.2 IFRS 2005 44.9% 20.4% IFRS 2006 €’m 142.9 57.7 54.7 IFRS 2006 43.0% 19.1% IFRS 2007 €’m 127.4 60.7 105.7 IFRS 2007 38.9% 17.9% IFRS 2008 €’m 129.0 87.5 176.6 IFRS 2008 38.0% 17.5% Working capital (days) 11.6 10.2 9.5 14.0 16.4 Average number of employees 3,768 4,746 5,109 5,653 6,638 i e i . n g s e d e c r u o s . w w w DCC plc DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland. Tel: + 353 1 279 9400 Fax: + 353 1 283 1017 Email: info@dcc.ie www.dcc.ie P R I N T E D O N E N V I R O N M E N T A L L Y F R I E N D L Y P A P E R

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