DCC plc Annual Report 2009

Plain-text annual report

DCC ANNUAL REPORT AND ACCOUNTS 2009 1 Annual Report and Accounts 2009 DCC ANNUAL REPORT AND ACCOUNTS 2009 DCC is a broadly based Group, operating across ﬁve focused divisions: - DCC Energy - DCC SerCom (IT & entertainment products) - DCC Healthcare - DCC Food & Beverage - DCC Environmental 85% of DCC’s proﬁts are derived from procurement, sales, marketing and distribution businesses, with 15% from business support service activities. DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Procurement, sales, marketing and distribution businesses • Oil • LPG • Fuel cards Business support services SerCom Distribution IT & entertainment products to • Retailers • Resellers • Enterprise markets SerCom Solutions • Outsourced procurement and supply chain management services • Hospital supplies • Mobility & Rehab products • Healthfoods • Indulgence foods • Outsourced solutions to the health & beauty sector • Chilled and frozen logistics • Waste management and recycling services DCC currently employs approximately 7,200 people and is listed under Support Services on the Irish and London stock exchanges. DCC’s strategy is to generate sustainable, superior returns on capital through • growing as a diversiﬁed Group in its two broad business activities: - procurement, sales, marketing and distribution - business support services; • seeking, over time, to concentrate its focus on those businesses in which it has already established, or has the opportunity in the medium term to establish, leadership positions (typically No. 1 or No. 2 in their respective markets); • focusing its acquisition activity on strengthening existing market positions and on carefully extending its geographic footprint where it believes that leadership positions can be built; • attracting and empowering leaderships teams; • maintaining a strong balance sheet and a prudent capital structure. strength through diversity Highlights for the year ended 31 March 2009 Revenue €6,400.1m Operating proﬁt* €180.4m Adjusted earnings per share* 169.13 cent Dividend per share 62.34 cent Operating Cash Flow €304.9m DCC ANNUAL REPORT AND ACCOUNTS 2009 1 Reported Constant Currency† +15.7% +31.0% Reported Constant Currency† +7.9% +22.4% Reported Constant Currency† +2.5% +17.0% Reported +10.0% (2008: €129.0 million) † Constant currency ﬁgures quoted are based on retranslating 2008/09 ﬁgures at prior year rates * excluding net exceptionals and amortisation of intangible assets Operating proﬁt (€m) 10 year CAGR 12.9% Operating proﬁt geographic split Operating proﬁt sector split �� Contents Highlights Group at a Glance Board of Directors Chairman’s Statement Chief Executive’s Review Strategy Review Business Review Financial Review Sustainability Report Report of the Directors Principal Risks & Uncertainties �� 1 2 4 6 8 12 14 34 40 44 46 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 Senior Management Index Five Year Review 48 52 56 57 58 112 115 117 118 119 120 strength through performance Strong brands (*DCC owned) Market position 2 DCC ANNUAL REPORT AND ACCOUNTS 2009 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. DCC SerCom 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, China and the USA. DCC Healthcare DCC Healthcare is a broadly based healthcare products and services group. % of Group operating proﬁt Volume split �� % of Group operating proﬁt �� Revenue split �� % of Group operating proﬁt �� Revenue split �� DCC Food & Beverage DCC Food & Beverage markets and sells a wide range of owned and agency branded food and beverage products in Ireland and has a wine business in Britain. % of Group operating proﬁt Revenue split �� DCC Environmental % of Group operating proﬁt �� Revenue split �� DCC Environmental provides a broad range of waste management and recycling services to the industrial, commercial, construction and public sectors in Britain and Ireland. DCC ANNUAL REPORT AND ACCOUNTS 2009 3 Strong brands (*DCC owned) Market position • Oil Carlton Fuels*, CPL*, Emo Oil*, Scottish Fuels*, Shell, Texaco. • Gas Flogas*. • Fuel card BP, Esso, Diesel Direct, Fastfuels, ReD, Shell. • Oil No. 1 oil distributor in Britain. No. 1 oil distributor in Northern Ireland and a leading oil distributor in the Republic of Ireland. • Gas No. 2 LPG distributor in Britain and Ireland. • Fuel card No. 1 in the “agency” fuel card business in Britain. • Retail Disney, EA, Entertainment in Video, Exspect*, Garmin, Linx*, Logitech, • Retail The No.1 specialist distributor of consumer IT & entertainment products to a Microsoft, Nintendo, Paramount, Symantec, Take Two, Warner. broad range of retailers in Britain, Ireland and France. • Reseller Acer, Canon, D-Link, Fujitsu Siemens, IBM, Lenovo, Netgear, Samsung, • Reseller A leading distributor of IT products to a broad range of resellers in Britain and Sharp, Sony, Toshiba, Western Digital. • Enterprise EMC2, Fortinet, HP, IBM, Network Appliance, Oracle, Red Hat, SonicWall, Sun, Symantec and VMware. • Supply Chain Management SerCom Solutions*. Ireland. • Enterprise The No.1 specialist distributor of enterprise products to resellers and independent software vendors in France, Iberia, Belux and Ireland, with a developing presence in Britain. • Supply Chain Management A leading provider of outsourced procurement and supply chain management services. • Hospital Supplies and Services Cardinal, Diagnostica Stago, Diamed, Ebewe, Fannin*, Fresenius, Grifols, • Hospital Supplies and Services The No.1 hospital supply business in Ireland. Molnlycke, Oxoid, Smiths Medical, Synthes. • Health & Beauty Solutions Body Shop#, Healthspan#, Merck (Seven Seas, Natures Best, Lamberts)#, Nutrahealth plc#, Sara Lee#, Vitabiotics#. • Mobility & Rehab Ausmedic*, Biofreeze, Chattanooga, Days Healthcare*, Metron*, Physio-Med*, Thera-Band. A leading provider of value-added distribution services to the hospital sector in Britain. • Health & Beauty Solutions A leading European provider of outsourced solutions to health & beauty companies. • Mobility & Rehab The No.1 provider of physiotherapy products in Britain, Australia and New Zealand. A leading provider of rehabilitation products in Britain. # Customers of DCC Health & Beauty Solutions. • Healthfood Alpro, Baxters, Biofreeze, Filippo Berio, Hipp, Kallo, Kelkin*, Nairns, Olbas, Ortis, Pomegreat, St Dalfour, Vitabiotics, Whole Earth. • Indulgence Andrew Peace, Antinori, Baron Philippe de Rothschild, Bollinger, Chapoutier, Cono Sur, Elizabeth Shaw, French Connection*, Freixenet, Hula Hoops, KP, Lemons*, Louis Jadot, McCoys, McVities / Mars Cakes, Masi, Mateus, Moreau, Phileas Fogg, Ritter, Robert Roberts*, Sacla, Sutter Home, Topps, Torres, Wakeﬁeld. • Logistics Allied Foods*. • Other Brodericks*, Kylemore. Enva* Wastecycle*, Tracey. • Healthfood The No.1 ambient healthfood business in Ireland. • Indulgence A leading independent wine distributor in Ireland. No.2 brand in freshly ground coffee in Ireland. No.3 supplier in savoury snacks in Ireland. • Logistics No.1 in frozen food logistics in Ireland with a developing chilled food business. • No.1 recycling and waste management business in Scotland. • A leading Nottingham based recycling and waste management business. • No.1 hazardous waste treatment business in Ireland. 4 DCC ANNUAL REPORT AND ACCOUNTS 2009 Board of Directors Michael Buckley Non–executive Chairman Michael Buckley, MA, LPh, MSI, (64) was appointed non-executive Chairman on 27 May 2008. He is a non-executive director of M and T Bank Corporation, listed in the USA, and of Bramdean Alternatives Limited, listed in the UK. Mr. Buckley is a non-executive director of Enterprise Ireland and of Bradford and Bingley, the nationalised UK mortgage bank, and is senior adviser to a number of privately owned Irish and international companies. He is an adjunct professor at the Department of Economics in UCC and chairs the Board of the Irish Chamber Orchestra. Mr. Buckley 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. Róisín Brennan Non-executive Director Róisín Brennan, BCL, FCA, MSI, (44) is Executive Chairman of IBI Corporate Finance, where she has had extensive experience advising public companies in Ireland, principally in relation to strategy and mergers & acquisitions. Ms. Brennan also served as a non-executive director of The Irish Takeover Panel during 2000/2001. Ms. Brennan joined the Board in 2005. David Byrne Non-executive Deputy Chairman and Senior Independent Director David Byrne, SC, (62) joined the Board and was appointed non-executive Deputy Chairman and Senior Independent Director on 1 January 2009. He is a non-executive director of Kingspan plc and serves on a number of commercial international advisory boards. Mr. Byrne is also Chancellor of Dublin City University, chairs the National Treasury Management Agency Advisory Committee and is Chairman of the National Concert Hall. Following 27 years of practice as a barrister, he was Attorney General of Ireland from 1997 to 1999. Mr. Byrne served as the ﬁrst EU Commissioner for Health and Consumer Protection from 1999 to 2004. Following this, he served as Special Envoy of the Director- General of the World Health Organisation. John Moloney Non Executive Director Donal Murphy Executive Director Donal Murphy, B Comm, BFS, MBA, (43) joined DCC in 1998 having previously worked with Allied Irish Banks plc. He was appointed Managing Director of DCC Energy in 2006 having been Managing Director of DCC SerCom for a number of years. Prior to this Mr. Murphy was Head of Group IT. Mr. Murphy joined the Board in December 2008. John Moloney, B.Agr.Sc., MBA, (54) is Group Managing Director of Glanbia plc where he has been a board member since 1997. He joined Glanbia in 1987 and held a number of senior management positions including Chief Executive of the Food Ingredients and Agricultural Trading divisions. Previously, Mr. Moloney worked with the Department of Agriculture, Food and Forestry as well as in the meat industry in Ireland. He is a director of the Irish Dairy Board Co-operative Limited and a council member of the Irish Business and Employers Confederation. Mr. Moloney joined the Board in February 2009. DCC ANNUAL REPORT AND ACCOUNTS 2009 5 Maurice Keane Non-executive Director Kevin Melia 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. In January 2009 he was appointed a director of Anglo Irish Bank Corporation Limited after it was nationalised. He is a director of Axis Capital Holdings Limited, listed in the USA, 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. Kevin Melia, FCMA, JDIPMA, (61) is a former Non-executive Chairman of Iona Technologies and Authorize.Net and was the Co-founder, Chairman and CEO of Manufacturers Services Ltd. Previous positions held include Chief Financial Ofﬁcer and Executive Vice President of Operations of Sun Micro Systems and President of its computer hardware division. Mr. Melia also held a number of senior management positions at Digital Equipment Corporation. He is Co Managing Director of Boulder Brook Partners, a private investment company and is non-executive director of Analogic Corporation, Greatbatch Inc, RadiSys Corp and C&S Wholesale Grocers and Distributors. Mr. Melia joined the Board in December 2008. Tommy Breen Chief Executive Tommy Breen, B Sc (Econ), FCA, (50) 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 and he retains responsibility for DCC Environmental. Mr. Breen joined DCC in 1985, having previously worked with KPMG. Mr. Breen joined the Board in 2000. Fergal O’Dwyer Executive Director Bernard Somers Non-executive Director Fergal O’Dwyer, FCA, (49) 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, B Comm, FCA, (60) is the founder of Somers & Associates, which has built a substantial practice in corporate restructuring. He is a non-executive director of Irish Continental Group plc and has been an investor in and a director of several start- up companies. Mr. Somers joined the Board in 2003. Audit Committee Bernard Somers (Chairman) Kevin Melia John Moloney Nomination Committee Michael Buckley (Chairman) David Byrne Maurice Keane Remuneration Committee Maurice Keane (Chairman) Róisín Brennan Michael Buckley David Byrne 6 DCC ANNUAL REPORT AND ACCOUNTS 2009 Chairman’s Statement “ In the year ended March 2009, DCC extended its track record of unbroken operating proﬁt growth to 15 years, completed a thorough strategic review and undertook a substantial Board renewal programme.” On behalf of the Board, I am happy to report a strong set of results for the year ended 31 March 2009. DCC has extended to 15 years its track record of unbroken operating proﬁt growth. Its balance sheet, funding and liquidity are in very good shape. A thorough strategic review has been brought to a conclusion by year end, as promised. A substantial Board renewal programme has also been successfully undertaken during the year. Results Highlights The year ended 31 March 2009 has seen DCC deliver strong revenue, operating proﬁt and earnings per share growth. There was a good balance between organic growth and acquisition elements and an excellent return on capital employed was achieved against the backdrop of extremely disruptive economic and trading conditions, including a dramatic decline in the value of sterling against the euro. Highlights of the ﬁnancial results include: • 31% growth in revenue, in constant currency terms • 22.4% growth in operating proﬁt in constant currency terms and 7.9% growth in reported terms • 17% growth in earnings per share on a constant currency basis and 2.5% growth on a reported basis • Net debt of €90.7 million at year end, compared with equity of €726.2 million • Free cash ﬂow after interest and tax of €218.5 million Financial performance is analysed in much more detail in the Chief Executive’s Review, the Business Review and Financial Review sections of this Annual Report. Dividend Increase The Board is recommending a ﬁnal dividend of 39.73 cent per share which, when added to the interim dividend of 22.61 cent per share, gives a total dividend of 62.34 cent for the year. This represents a 10% increase over the prior year. The dividend is covered 2.7 times by adjusted earnings per share (2.9 times in 2008). It is proposed to pay the ﬁnal dividend on 23 July 2009 to shareholders on the register at the close of business on 29 May 2009. Board On Jim Flavin’s resignation as Executive Chairman and Chief Executive on 27 May 2008, I was appointed Non-Executive Chairman. Board renewal was a major agenda item during the year. Three new non-executive directors and one new executive director were co-opted to the Board. Two non-executive directors retired. The Board now consists of seven non- executive directors and three executive directors. On becoming Chairman, I ceased, under the Combined Code, to be deﬁned as independent. The Board has determined that each of the other non- executive directors meets the criteria for independence. The Board is fortunate in the personal qualities, wide ranging capabilities and highly relevant experience that our new non-executive directors, David Byrne (who has been appointed Deputy Chairman and Senior Independent Director), Kevin Melia and John Moloney bring to the table. I warmly welcome them to DCC. Donal Murphy, who joined the Board as an executive Director, has management responsibility for DCC’s Energy division and has extensive previous experience in other parts of the Group. DCC Energy is by far the largest division in the Group and has in recent years established a clear leadership position in Britain and Ireland. DCC ANNUAL REPORT AND ACCOUNTS 2009 7 Dividend - years ended 31 March �� CAGR 10yrs 15.6% �� CAGR 5yrs 14.0% �� to the periods between early February �� 1995 and end September 1995, and early �� November 1999 to end April 2000). The High Court Order does not relate to the ongoing business of the Group. �� As the Inspector’s work is still under way, it would be inappropriate for me to comment any further on this matter, other than to say that DCC’s focus is to facilitate a timely conclusion of the inspection, given the very speciﬁc issues and timeframe involved in the inspection. The Inspector, in presenting an interim report to the High Court on 28 January 2009, said that “I wish to record and acknowledge that to date the companies, their directors, ofﬁcers and advisers have been providing me with the utmost cooperation and have responded promptly to my requests for assistance.” The Group continues to cooperate fully with the Inspector. Outlook All current indications are that, in the year to 31 March 2010, a troubled economic and business environment will continue to create headwinds. At best, operating conditions may begin to show signs of improvement towards the end of the period. But we are well prepared, and will continue to focus on, operating efﬁciencies and cash generation. Those same conditions will bring to us opportunities for acquisition and development at good value levels. We are better positioned than most to capitalise on them when they arise. Micheal Buckley Chairman 18 May 2009 Dividend 62.34 cent +10% Tony Barry and Paddy Gallagher retired from the Board during the year. They each made a major contribution to the development of the Group and to robust Board discussion over the years. In last year’s annual report, I paid tribute to the outstanding contribution Jim Flavin made as founder and leader of DCC over a 32 year period and I would once again like to reafﬁrm those sentiments. At year-end I conducted a formal evaluation of the performance of all Directors and can conﬁrm that each Director performed effectively during the period and continues to show strong commitment. In line with the practice I initiated last year, all directors will offer themselves for re- election at the Annual General Meeting. Management and Staff Tommy Breen was appointed Chief Executive on 27 May 2008. I said in last year’s Annual Report, which was written shortly after that event, that I had been struck by the quality, focus and cohesiveness of the management team. Those qualities continue to be strikingly evident today. The results achieved in the year just ended demonstrate just how smoothly the succession process has worked. DCC operates a highly devolved management system within a framework of very speciﬁc performance measures. This ensures that both the small Group- level team and operating management in individual businesses remain focussed on operational improvements and cost efﬁciencies, while staying very close to opportunities that might arise for valuable acquisitions. There are approximately 7,200 people employed by the Group in 15 countries. I want to thank each of them warmly for their contribution to the continued success of DCC. Strategic Review The extensive strategic review of the business, which was undertaken over the past year, occupied a very considerable amount of Board and management time. The conclusions reached by the Board are set out on page 12. Corporate Sustainability DCC established a new Corporate Sustainability Working Group in 2008 comprising senior group, divisional and subsidiary executives. The group decided to focus in the period immediately ahead on the following four aspects of Corporate Sustainability as they have a high business value to DCC as well as a high economic, environmental or social value: Direct Economic Value Added, Climate Change, Occupational Health & Safety and Business Ethics. Speciﬁc objectives and KPIs will be implemented in respect of these aspects. Further detail is provided in the Sustainability Report on pages 40 to 43. Appointment of Inspector/Fyffes Case In last year’s Annual Report I gave a detailed account of developments arising from the Fyffes case, including the intention expressed by the Director of Corporate Enforcement 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 ultimate disposal in 2000. On 29 July 2008 the High Court appointed Mr Bill Shipsey SC as an Inspector to examine speciﬁc issues relating to the legal and beneﬁcial interests of DCC and two of its subsidiaries S&L Investments Limited and Lotus Green Limited, in the shares of Fyffes plc between February 1995 and April 2000 (with particular reference 8 DCC ANNUAL REPORT AND ACCOUNTS 2009 Chief Executive’s Review “ DCC achieved excellent constant currency growth of 22.4% in operating proﬁt to €180.4 million in a year characterised by a rapidly deteriorating economic and business climate. The Group’s strong ﬁnancial position has been reinforced through a year of record cash generation.” Results highlights Revenue Operating proﬁt* Proﬁt before exceptional items, amortisation of intangible assets and tax Adjusted earnings per share* Dividend per share Free cash ﬂow** Net debt at 31 March 2009 Return on capital employed € 6,400.1m 180.4m 159.5m 169.13 cent 62.34 cent 218.5m (2008: €12.4m) 90.7m (2008: €123.7m) 17.8% (2008: 17.5%) † all constant currency ﬁgures quoted in this report are based on retranslating 2008/09 ﬁgures at prior year translation rates * excluding net exceptionals and amortisation of intangible assets ** after interest and tax payments Change on prior year Constant currency† Reported +15.7% +7.9% +6.3% +2.5% +10.0% +31.0% +22.4% +21.3% +17.0% DCC achieved another year of excellent underlying growth despite the rapidly deteriorating economic and business climate. Group operating proﬁt of €180.4 million represented growth, on a constant currency basis, of 22.4% over the prior year of which approximately half was organic. On a reported basis, operating proﬁt was up 7.9%, reﬂecting the fact that approximately 76% of the Group’s operating proﬁt in the year was denominated in sterling and that there was a 15% adverse movement in the average sterling translation rate . Adjusted earnings per share of 169.13 cent was 17.0% ahead of the prior year on a constant currency basis and 2.5% ahead on a reported basis. Dividend per share is up 10% to 62.34 cent with dividend cover at 2.7 times (2.9 times in 2008). As the year progressed there was a heightened focus throughout the Group on cash generation and, in particular, on the quality of the Group’s working capital proﬁle. It is pleasing to note that free cash ﬂow in the year was a record €218.5 million and that a reduction in debtors days to 41.3 compared to 45.7 in the prior year, resulted in an overall reduction in working capital days to 11.9 from 16.4 last year. The Group’s strong ﬁnancial position has been reinforced with debt declining by €33.0 million in the year to €90.7 million at 31 March 2009 which left gearing at 12.5% and a net debt/EBITDA ratio of 0.4%. Return on capital employed (including intangibles) was 17.8% compared to 17.5% in the prior year. DCC ANNUAL REPORT AND ACCOUNTS 2009 9 Adjusted earnings per share - years ended 31 March �� CAGR 10yrs 11.8% CAGR 5yrs 9.8% Adjusted earnings per share 169.13 cent +2.5% Free cash ﬂow €218.5m (2008: €12.4m) Divisional Highlights Detailed business reviews for each of the ﬁve divisions are set out on pages 14 to 33. Some of the key features of the year include: DCC Energy had an exceptional year in terms of proﬁt growth, cash generation and development across each of its business areas. The business sold 5.3 billion litres of product throughout Britain and Ireland and, aided by the successful integration of a number of acquisitions, a more favourable product cost environment than in recent years and a very cold winter, grew its operating proﬁt by 59.3% on a constant currency basis. Substantial progress was achieved in the pursuit of a number of strategic objectives, including the acquisition, in August 2008, of Chevron’s UK oil distributor business, the impact of which was to increase DCC Energy’s annual oil volumes in the UK by approximately 30% on a full year basis. DCC Energy now has an approximate 12% share of the UK oil distribution market and continues to target the achievement of a 20% market share in the medium term. We are also pleased to have announced that we have reached conditional agreement with Shell Denmark to acquire the trade, assets and goodwill of Shell’s oil distribution business in Denmark, which distributes heating oils and transport fuels to domestic and small commercial and industrial companies throughout Denmark. This is an initial modest step for DCC Energy in expanding its oil distribution business beyond Britain and Ireland. DCC SerCom achieved strong proﬁt growth in the year of 9.2%, on a constant currency basis, despite challenging conditions in some of its markets. This result continues the business’s long track record of outperforming almost all of its industry peers. The growth was achieved in large part due to the success of DCC SerCom’s strategic focus on expanding its product range (including its own brand) and market coverage in the Retail market and through further progress in the development of a pan-European presence in the Enterprise market. Continued expansion of the product portfolio across the businesses is targeted for the current ﬁnancial year. DCC Healthcare experienced difﬁcult market conditions across its businesses and was particularly impacted by budgetary constraints in the Irish Health Service Executive and by signiﬁcant raw material price increases in its Health & Beauty and Mobility & Rehab businesses. The German mobility and rehabilitation market has proved particularly difﬁcult over a number of years and led to DCC taking the decision to close its subsidiary there. International customers who have been dealing with our German business will now be serviced from our British subsidiary. Other initiatives have been taken to address the trading issues experienced in DCC Healthcare, including cost reductions and the implementation of price increases in the Health & Beauty and Mobility & Rehab businesses. 10 DCC ANNUAL REPORT AND ACCOUNTS 2009 Chief Executive’s Review (continued) DCC Food & Beverage experienced a particularly challenging market environment in the second half of the ﬁnancial year. The economic downturn in Ireland has led to changes in both consumer buying patterns and in the procurement strategy by one of the business’s major retail customers. Action to adapt the cost base in the business to new activity levels is ongoing. During the year DCC Food & Beverage acquired Findlater Grants, a leading Irish wine and spirits distribution business. The integration of this business has gone well and we are conﬁdent of achieving the twin objectives of creating a powerful new force in wine and spirits distribution in Ireland and of realising signiﬁcant commercial and operating synergies. DCC Environmental’s proﬁts were impacted by the deteriorating economic environment and the dramatic decline in recyclate prices. Cost reductions have been implemented in those parts of the division where volumes have reduced and our businesses are focussed on maintaining their respective market leading positions. While activity levels are lower, the momentum towards more sustainable waste management solutions leaves DCC Environmental, with its particular focus on recycling, well placed for future development. Exceptional Charge DCC incurred a net exceptional charge before tax in the year of €15.9 million, principally relating to: • redundancy costs incurred both in relation to the integration of recently acquired businesses and the implementation of a number of cost reduction programmes across the Group; Acquisition and capital expenditure DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Total • the costs associated with the closure of DCC Healthcare’s German subsidiary; • a non cash goodwill impairment charge in relation to certain Food & Beverage and Healthcare subsidiaries; and • the proﬁt on the sale of a US associate company. Acquisition and Capital Expenditure Acquisition and capital expenditure in the year amounted to €154.5 million as set out below. Acquisition expenditure in the year amounted to €98.4 million. Acquisition activity levels slowed throughout the year which is a reﬂection of a shift in the short term focus of many potential vendors in reacting to the impact of the economic downturn on their businesses as well as a period of adjustment required for valuation expectations. DCC’s strong ﬁnancial position leaves the Group well placed to take advantage of an increased ﬂow of opportunities which is likely to arise in the current environment. During the year DCC spent €56.1 million on capital expenditure down from €87.6 million in the prior year. A further reduction in capital expenditure is anticipated in the current year. Financial Strength At 31 March 2009 DCC had net debt of €90.7 million (2008: €123.7 million) and total equity of €726.2 million (2008: €742.4 million). The Group’s net debt levels averaged €236 million compared to €242 million in the prior year. Interest cover in the year amounted to 8.5 times. Acquisitions €’m 65.3 10.9 7.0 12.0 3.2 98.4 Capex €’m 31.5 3.9 6.7 4.1 9.9 56.1 Total €’m 96.8 14.8 13.7 16.1 13.1 154.5 DCC ANNUAL REPORT AND ACCOUNTS 2009 11 “ DCC’s diversiﬁed business model, strong ﬁnancial position and excellent cash generation leave the Group in a strong position to beneﬁt from acquisition and development opportunities that are likely to arise in the current environment.” Strategy Review The Board and management have carried out a detailed review of DCC’s overall strategic direction over the last year. An extensive analysis was carried out of the current performance and future potential of all material aspects of the Group’s business. A review was also undertaken, with the beneﬁt of external independent advice, to consider whether any signiﬁcant changes in the current composition or structure of the Group are warranted at this time. The outcome of the Strategy Review is set out on page 12. Outlook The outlook for the current ﬁnancial year is set against the background of an exceptionally difﬁcult economic environment which it is anticipated will continue throughout the year. In particular, while the ﬁrst half of the Group’s ﬁnancial year is seasonally much less signiﬁcant (33.6% of operating proﬁt last year), results for this period will be challenged by the continuing impact of the marked economic slowdown which particularly affected some of the Group’s businesses in the second half of last year. In addition, DCC Energy, DCC’s largest division, achieved exceptional proﬁt growth in the ﬁrst half last year (82.3% in constant currency terms) beneﬁting from particularly cold weather conditions in April (seasonally DCC Energy’s most important trading month in the ﬁrst half), which were not repeated in April 2009. For the full year to 31 March 2010, it is currently anticipated that Group operating proﬁt, on a constant currency basis, will be modestly behind to broadly in line with last year. However, the impact of the translation into euro of the signiﬁcant proportion of DCC’s proﬁt which is earned in sterling (2009: 76%) at the approximate current exchange rate of Stg£0.90 = €1 (compared to an average translation rate last year of Stg£0.8262 = €1) would result in reported operating proﬁt being approximately 5% to 10% behind last year. The Group will beneﬁt from a signiﬁcant reduction in its net ﬁnance costs as a result of lower prevailing interest rates although this will be largely offset by a higher tax charge due to lower available interest deductions in the UK against the Group’s taxable proﬁts. Consequently, at this early stage DCC anticipates adjusted earnings per share, on a constant currency basis, will be modestly behind to broadly in line with the year ended 31 March 2009, resulting in reported adjusted earnings per share being approximately 5% to 10% behind. DCC’s diversiﬁed business model, strong ﬁnancial position and excellent cash generation leave the Group in a strong position to beneﬁt from acquisition and development opportunities that are likely to arise in the current environment. Tommy Breen Chief Executive 18 May 2009 12 DCC ANNUAL REPORT AND ACCOUNTS 2009 Strategy Review Background and Business Environment In its preliminary announcement on 19 May 2008, DCC stated that it would undertake a reappraisal of the overall strategic direction of the Group so that it is best positioned for sustainable, long term growth and to maximise shareholder value. Accordingly, DCC has carried out an extensive analysis of the current performance and future potential of all material aspects of the Group’s business. A review was also undertaken, with the beneﬁt of external independent advice, to consider whether any signiﬁcant changes in the current composition or structure of the Group are warranted at this time. This work has been carried out against the backdrop of severe turmoil in ﬁnancial markets and the worst recession in decades. DCC’s Historical and Recent Performance Since DCC’s shares were listed on the Irish and London Stock Exchanges in 1994, the Group has delivered strong earnings growth and returns to shareholders. The Group’s strong cash ﬂows have allowed it to increase dividends to shareholders, to buy back 11.6% of its shares and to maintain a strong balance sheet. Having operated in recent years against a background of strong economic growth in its principal markets, the resilience of DCC’s business model has been tested by the deteriorating economic environment in its most recent ﬁnancial year. Despite this more difﬁcult background, DCC has generated excellent constant currency growth in operating proﬁts, maintained its return on capital employed and again increased its dividend. The Group’s ﬁnancial position remains very strong as a result of its excellent cash ﬂow, low gearing and well managed debt maturity proﬁle. DCC ANNUAL REPORT AND ACCOUNTS 2009 13 Outcome of the Strategy Review The strategy review has concluded as follows:- The Board believes that DCC’s diversiﬁed business model, strong balance sheet, ﬁnancial discipline and acquisition skills have been signiﬁcant factors in the Group’s robust performance and management of risk over an extended period. Given the scale and composition of the Group today and the current market environment, the Board has concluded that a material change to the structure or composition of the Group at this point would not enhance shareholder value. The management of diversity is a core competence of the DCC Group and will remain integral to DCC’s strategy. However, DCC will seek, over time, to concentrate its focus on those businesses in which it has already established, or has the opportunity in the medium term to establish, leadership positions (typically no. 1 or 2 in their respective markets) and which are most likely to generate attractive and sustainable returns on capital, through a combination of organic growth and acquisitions. DCC will focus its acquisition activity on strengthening existing market positions and on carefully extending its geographic footprint where it believes that leadership positions can be built. DCC has extensive experience in identifying value enhancing acquisitions, in structuring transactions to retain management incentive post acquisition and in the integration of bolt-on acquisitions with existing businesses. A devolved management structure and the experience and quality of its people have been key to DCC’s success. The Group will continue to place signiﬁcant emphasis on attracting and empowering leadership teams capable of delivering superior performance in each of its businesses. DCC will maintain a strong balance sheet and a prudent capital structure, both of which have been key strengths of the Group in developing relationships with key customers, suppliers and vendors of businesses. The Board believes that DCC’s strong ﬁnancial position leaves it well placed to take advantage of the increased level of acquisition opportunities which are likely to arise in the current environment. The Board will keep the Group’s structure and strategic direction under periodic review in order to ensure that value continues to be maximised for shareholders. 14 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 5.3 billion litres of product to c.600,000 domestic, commercial, industrial and agricultural customers from its extensive network of 230 depots throughout Britain and Ireland. DCC Energy currently employs 2,960 people. Revenue €4,130.8m Operating proﬁt €100.7m �� Revenue Operating proﬁt �� 2009 2008 €4,130.8m €3,420.0m €74.3m �� €100.7m �� Change on prior year Constant Currency Reported +20.8% +35.5% +39.9% +59.3% �� DCC ANNUAL REPORT AND ACCOUNTS 2009 15 billion litres of product sold during the year �� 16 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Energy Business and Markets Oil DCC Energy’s oil distribution business supplies heating oils, transport fuels and fuel oils to domestic, commercial, agricultural and industrial customers in Britain and Ireland. DCC is the largest distributor in Britain, selling c. 4 billion litres of product per annum, which gives DCC approximately 12% of the market*. DCC has been a consolidator of the highly fragmented oil distribution market in Britain, having ﬁrst entered the market in 2001 with the acquisition of BP’s oil distribution business in Scotland. DCC signiﬁcantly increased the scale of its oil distribution business through the acquisition of Chevron’s UK oil distributor business in September 2008. The Chevron business has now been fully integrated into DCC’s existing oil distribution business in Britain. DCC Energy sells oil under a portfolio of strong brands including Carlton Fuels, CPL Petroleum, Shell and Texaco. 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 6% of the market. DCC Energy announced on 19 May 2009 that it has reached conditional agreement with Shell Denmark to acquire the trade, assets and goodwill of Shell’s oil distribution business in Denmark, which distributes heating oils and transport fuels to domestic and small commercial and industrial customers throughout Denmark. LPG DCC Energy is the second largest LPG sales, marketing and distribution business in Britain and Ireland. The LPG business supplies propane and butane in bulk and in cylinders to domestic, commercial, agricultural and industrial customers for heating, cooking, transport and industrial �� Donal Murphy - Managing Director Volume Split �� having established leading market positions in Britain and Ireland, DCC Energy is seeking to extend its business into continental Europe DCC ANNUAL REPORT AND ACCOUNTS 2009 17 �� Performance Management - key performance indicators Volumes Organic volume growth Operating proﬁt per litre Operating cash ﬂow Working capital ROCE incl. tangible assets ROCE excl. tangible assets 10 year CAGR �� 2009 5.3bn litres -2.8% 1.90 cent €200.7m 1.5 days 24.9% 63.7% 18.7% �� 2008 4.3bn litres 6.2% 1.75 cent �� -€1.5m 8.0 days 20.6% �� 45.8% 18.9% �� processes. Trading under the Flogas brand, DCC has approximately 20% of the market in Britain and 37% of the market in Ireland. Unlike the oil market, which remains highly fragmented, the LPG market in both Britain and Ireland is relatively consolidated. The LPG business also distributes a range of LPG fuel appliances such as mobile heaters, barbecues and patio heaters. DCC Energy sold 5.3 billion litres of product, an increase of 24.9% on the prior year, further strengthening its position as the leading oil and LPG distribution business in Britain and Ireland. Organic volumes declined by 2.8% due to both the weaker economic environment and management taking a more prudent approach towards the extension of credit. Fuel Cards DCC Energy is one of the leading sales and marketing businesses for branded fuel cards in Britain. The business now sells in excess of 500 million litres of motor fuel annually via its portfolio of fuel cards under the BP, Esso, Shell, Texaco, Diesel Direct and ReD brands. Fuel cards have become an essential tool for commercial organisations to manage their transport fuel costs. 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 and with detailed information on their fuel utilisation to enable them to minimise their spend on transport fuels. The oil business in Britain beneﬁted from continued operating cost efﬁciencies derived from the growth of its extensive infrastructure. The Chevron UK oil distributor business, acquired during the year, performed well ahead of expectations. The Irish oil business was impacted by the particularly weak economic environment and action is being taken to signiﬁcantly reduce the cost base of this business. The LPG distribution business in Britain and Ireland generated good sales volume growth as it beneﬁted from the colder weather conditions and the more favourable product cost environment. DCC Energy purchases its oil and LPG from the major oil companies with which it has established excellent long standing relationships. DCC Energy’s supply strategy is to maintain a portfolio approach to sourcing of its oil and LPG products. DCC’s signiﬁcant ﬁnancial strength enables DCC Energy to obtain more favourable credit terms to manage its working capital. Performance for the Year Ended 31 March 2009 DCC Energy achieved exceptionally strong constant currency operating proﬁt growth of 59.3% in the year, of which approximately two thirds was organic. Each of the division’s businesses generated excellent operating proﬁt growth. The overall result beneﬁted from the successful integration of a number of acquisitions, a more favourable product cost environment than in recent years and a particularly cold winter. The temperatures during the key weather dependent months of April and from October through March were below the 30 year average and signiﬁcantly colder than the prior year. The Fuel Card business had an excellent year driven by strong organic growth and the ﬁrst time contribution from the Cooke Fuel Cards business, which performed in line with expectations. Strategy and Development DCC Energy’s strategy is to continue to grow and develop its business both organically and through acquisition in each of the sectors in which it operates. In oil distribution, DCC’s strategy is to achieve a 20% share of the British market. DCC Energy will continue to leverage 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. DCC Energy is also focused on cross-selling add-on products and services such as lubricants and boiler maintenance services to its extensive customer base. In the LPG market, DCC Energy will continue to leverage its strong market positions to drive organic growth on a sector by sector basis in both Britain and Ireland. �� Sales Volumes (litres billions) �� Revenue split by product �� In fuel cards, DCC will continue to target high levels of organic growth through its extensive portfolio of branded fuel cards by investing in new telesales teams and cross selling 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 both the retail and bunker card networks. �� Having established strong market positions in both Britain and Ireland, DCC Energy is seeking to extend its business into continental Europe. The acquisition of Shell’s oil distribution business in Denmark, while modest, is an important step in this strategic development. �� Outlook After an exceptionally strong performance in the year to 31 March 2009, DCC Energy currently expects operating proﬁt, on a constant currency basis, to be broadly in line with the prior year, as it is anticipated that the weather pattern and the product cost environment will not be as favourable. * The market is deﬁned as fuels sold to the domestic, commercial, agriculture, industrial and haulage sectors of the transport fuels market (i.e. excluding the retail petrol station market). 18 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC SerCom SerCom Distribution markets and sells IT and entertainment products to the Retail market, the Reseller market and the Enterprise market. SerCom Solutions provides outsourced procurement and supply chain management services in Ireland, Poland, China and the USA. DCC SerCom currently employs 1,340 people. Revenue €1,551.3m Operating proﬁt €40.1m �� Change on prior year Constant Currency Reported +9.0% +0.2% +18.7% +9.2% 2009 2008 €1,551.3m €1,423.4m �� €40.1m �� €40.1m �� 2.6% 2.8% Revenue Operating proﬁt �� Operating margin �� DCC ANNUAL REPORT AND ACCOUNTS 2009 19 m i l l i o n e u r o o p e r a t i n g c a s h ﬂ o w a c h i e v e d i n t h e y e a r 20 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC SerCom Business and Markets Retail DCC SerCom’s Retail business distributes a broad range of consumer products, including games consoles and software, consumer electronics and home entertainment products, to retailers, e-tailers and catalogue resellers in Britain, Ireland and France. DCC SerCom represents many of the leading brands in the computer games, entertainment and consumer electronics markets such as Electronic Arts, Entertainment in Video, Garmin, Logitech, Microsoft, Nintendo, Paramount, Seagate, Symantec, Take Two and Warner Brothers. The business is the leading specialist distributor of home entertainment products in Ireland, the leading specialist distributor of games hardware, software and accessories, consumer electronics and software in Britain and the leading specialist distributor of IT peripherals and consumer electronics in France. The Retail business provides a range of value added services to its customers and suppliers including end- user fulﬁllment, third party logistics, category management and merchandising, security tagging and cross vendor bundling. Reseller DCC SerCom’s Reseller business distributes a broad range of IT products focused on the SME and home markets to a very wide customer base of IT resellers, dealers and retailers in Britain and Ireland. The products distributed include PCs, peripherals, printers, and network products. The Reseller business is a distribution partner of many of the leading brands in the IT market such as Acer, Canon Cisco, IBM, Lenovo, Microsoft, Netgear, Samsung, Sony and Toshiba. The business provides its partners with an exceptionally broad customer reach and proactively markets IT products to the channel through product focused sales teams with strong technical expertise. DCC SerCom’s Reseller business has strong market positions in its core markets in Britain and Ireland and is typically the No. 1 distributor for the brands it represents. Niall Ennis - Managing Director extending product and market coverage in the Retail market, including the further development of own brand products �� DCC ANNUAL REPORT AND ACCOUNTS 2009 21 �� Performance Management - key performance indicators Revenue growth (constant currency) Organic revenue growth (constant currency) Operating cash ﬂow Working capital ROCE including intangible assets ROCE excluding intangible assets 10 year CAGR �� 2009 +18.7% +8.7% €46.0m 32.9 days 15.5% 26.2% 7.0% 2008 +18.8% +9.6% €64.5m 34.9 days 15.3% 24.2% 9.2% Enterprise DCC SerCom’s Enterprise business distributes a range of data management, security and virtualisation software, servers and storage products which are typically utilised in medium-sized and large organisations. The business’s customers are value added resellers, large account resellers and independent software vendors in France, Iberia, Benelux and Britain. The Enterprise business has developed a supplier portfolio of the leading hardware and software vendors in the industry including Adobe, Appliance EMC, Fortinet, HP, IBM, Network, Oracle, Red Hat, SonicWall, Sun, Symantec and VMware. This allows its highly trained sales teams to offer integrated IT solutions and related services to its customers. The business is the leading specialist distributor of enterprise and mid-market products in its core markets of France, Spain, Portugal, Belgium and Luxembourg and has a developing presence in Britain and the Netherlands. Supply Chain Management DCC SerCom’s supply chain management business, SerCom Solutions, provides a range of specialist procurement and sourcing services from its operations in Ireland, Poland, China and the United States, employing state of the art IT systems and procurement processes. The business is a strategic supply chain partner for some of the world’s leading technology and telecommunications companies. The business delivers global supply chain solutions encompassing vendor hubbing, consignment stock programmes, supplier identiﬁcation and qualiﬁcation, quality assurance and compliance and supplier and customer fulﬁllment to effectively reduce its partners’ cost of production and reduce obsolescence and wastage. SerCom Solutions has developed partnerships with leading logistics ﬁrms to enable the business to deliver its services in a ﬂexible, cost effective manner in its core markets in Europe, North America and the Far East. Revenue split 2009 �� Revenue split 2008 �� SerCom Distribution’s principal medium term objectives are: • to extend its product and market coverage in the Retail market, providing an integrated multi-country service, including the further development of own brand products; �� • to extend its pan-European presence in the Enterprise market with an increased focus on software and security products; • to expand the Reseller business in Britain and Ireland in complementary product markets, such as mobile telephony and communications. SerCom Solution’s primary strategic objectives are to expand its customer base in East Asia, Europe and North America through strategic partnership arrangements and the extension of its procurement and sourcing services and capability. Outlook For the year to 31 March 2010, DCC SerCom anticipates that operating proﬁt will be broadly in line with the prior year on a constant currency basis. While it is expected that SerCom Distribution will achieve good constant currency operating proﬁt growth, operating proﬁt in the Supply Chain Management business is likely to decline. Performance for the year ended 31 March 2009 DCC SerCom achieved strong constant currency operating proﬁt growth of 9.2%, despite challenging trading conditions in some of its markets. This strong growth was driven primarily by excellent growth from the Retail business in Britain, a full year contribution from Banque Magnetique (the French Retail business) and the successful integration of a number of small bolt-on acquisitions in the Enterprise business. The Retail business had a strong year, achieving good operating proﬁt growth. The business performed particularly well in Britain, increasing its share of the games market and beneﬁting from the continuing strong demand for games consoles, software and associated products. The business also saw very good growth in its own brand product range, which continues to develop well. The French business performed in line with expectations, despite weakening consumer demand. In Ireland, the business suffered from a signiﬁcant decline in consumer demand, which resulted in a reduction in proﬁts. The Reseller business had a good year driven by strong sales growth in Britain, achieved through market share gains, particularly in PCs. Operating proﬁt declined in the Irish business, with market conditions deteriorating throughout the year; signiﬁcant restructuring has been implemented in this business to appropriately align its cost base with current revenue levels. The Enterprise business achieved excellent operating proﬁt growth. The business grew its market share and strengthened its product portfolio particularly in software. The business also beneﬁted from the successful integration of a number of modest bolt-on acquisitions completed in the current year. Although operating proﬁt declined in DCC SerCom’s Supply Chain Management business, trading was ahead of expectations, due to the slower than anticipated change in the procurement strategy of a major customer. Strategy and Development DCC SerCom’s strategy is to deliver consistent long-term proﬁt growth and industry leading returns on capital employed by building strong commercial and market positions in each of its focused business units. 22 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Healthcare DCC Healthcare is a broadly based healthcare products and services business focused on: • Sales and marketing of healthcare products and provision of services to the hospital sector in Ireland and Britain; • Provision of outsourced product development, manufacturing and packing services to the health and beauty industry in Europe; • Sales and marketing of mobility and rehabilitation products in Britain, Ireland, Australia, New Zealand and other markets. DCC Healthcare currently employs 1,350 people. Revenue €331.2m Operating proﬁt €17.3m �� Revenue Operating proﬁt �� Operating margin �� Change on prior year Constant Currency Reported +15.5% -26.2% +27.9% -20.5% 2009 2008 €331.2m €17.3m �� 5.2% �� €286.8m €23.5m �� 8.2% �� DCC ANNUAL REPORT AND ACCOUNTS 2009 23 record sales of million euro were achieved during the year 24 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Healthcare Business and Markets Hospital Supplies & Services In Ireland, DCC’s subsidiary, Fannin, is the market leader in sales and marketing of healthcare products to the hospital sector – intravenous (IV) pharmaceuticals, medical, surgical and laboratory products – and also provides a range of complementary value added services. Fannin markets and sells a broad range of leading brands – including Cardinal, Grifols, Molnlycke, Oxoid and Synthes – through its extensive ﬁeld sales force of highly trained professionals. Products are typically single use/consumable in nature. Fannin is increasingly focused on developing its range of value-added services; for example, it has built a growing business in the provision of IV pharmaceutical compounding services to Irish hospitals. The compounding activities involve the aseptic ﬁlling of oncology, pain management, antibiotic and paediatric nutrition products into patient ready dosage forms, i.e. syringes or IV bags, within a licensed facility. In Britain, following the acquisition of Squadron Medical and TPS Healthcare in the last eighteen months, DCC is building a 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 acute care hospitals increasingly look for customised just- in-time distribution solutions to deliver cost savings, free up space currently occupied by stores and ultimately to contribute to the delivery of better service levels to their patients. Health & Beauty Solutions 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. Customers include leading premium brand owners, mail order companies, specialist health and beauty retailers and private label suppliers in Britain, continental Europe and other markets. DCC provides a wide range of product formats (tablets, soft gel and hard shell 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, enables DCC to assist its customers in rapidly bringing new products from marketing concept through to ﬁnished, shelf-ready product. DCC’s key strength is the highly responsive and ﬂexible service it provides to its customers. This service typically involves product Conor Costigan - Managing Director increasingly focusing on the provision of value-added services to hospitals �� DCC ANNUAL REPORT AND ACCOUNTS 2009 �� 25 �� Performance Management - key performance indicators Revenue growth (constant currency) Revenue per employee (constant currency) Operating cash ﬂow Working capital ROCE incl. tangible assets ROCE excl. tangible assets 10 year CAGR �� 2009 +27.9% €272k €23.3m 39.8 days 9.4% 31.9% 6.8% 2008 +24.5% €247k €22.4m 47.4 days 13.9% 48.8% 13.2% development, formulation, stability and other testing and regulatory compliance, as well as manufacturing and packing. Mobility & Rehab DCC Mobility & Rehab is involved in the design, development, procurement, sales and marketing of mobility and rehabilitation products with operations in Britain, Ireland, 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. DCC has a broad product portfolio principally marketed under its own Days Healthcare, Physio-Med and Metron brands, along with leading third party international physiotherapy brands including Thera-Band, Biofreeze and Chattanooga. Own brand products are designed and developed in- house, with manufacturing mainly outsourced to partners in Asia, who are managed by DCC’s procurement and quality control team based in Shenzhen, China. DCC Mobility & Rehab’s extensive customer base of hospitals, community loan stores, specialist retailers, private practitioners and nursing homes is serviced through ﬁeld and telesales teams and supported by a range of product catalogues and websites. Performance for the Year Ended 31 March 2009 DCC Healthcare’s constant currency operating proﬁts declined by 20.5% due to the impact of difﬁcult trading conditions across its businesses. DCC’s Hospital Supplies & Services business had a challenging year. The Irish Health Service Executive’s budgetary constraints have signiﬁcantly reduced demand in the marketplace. This has led to a more competitive operating environment for the business with sales in the non-acute sector particularly impacted. Signiﬁcant headcount reductions were implemented over the course of the year to address this. DCC achieved continued good growth in the provision of intravenous pharma compounding services to Irish hospitals. DCC’s value added distribution services business in Britain grew its sales strongly and invested in its operational infrastructure, leaving it well placed in this developing sector of the British market. DCC Health & Beauty Solutions’ proﬁts declined due to a reduction in contribution from the beauty sector. While strong growth in sales into the sector was achieved, margins were impacted by a lag in the recovery of signiﬁcant input cost increases (raw materials and currency). Sales price increases were achieved in the last quarter of the ﬁnancial year. In the nutraceuticals sector, good sales and proﬁt growth was achieved and operational capability was further enhanced by the expansion of DCC’s tabletting facility and by the development of new products, which have resulted in a number of material new business wins for the current year. DCC Mobility & Rehab suffered from a deterioration in the trading environment in each of its geographic markets. This was most pronounced in the German market and led to DCC Healthcare taking the decision to close its German subsidiary. Margins in all areas were signiﬁcantly impacted by unfavourable currency movements and price increases from Far Eastern suppliers. Sales price increases, sourcing of product from alternate suppliers and cost price reductions have now been achieved in order to recover margins. Strategy and Development DCC Healthcare’s strategy is to build a substantial, broadly based, healthcare business focused on the sales and marketing of healthcare products and the provision of value added services to the healthcare industry, including the health & beauty sector. DCC Healthcare is increasingly focusing on developing its activities in the value-added services area. In the markets in which DCC Healthcare operates, healthcare provision is primarily funded by governments. As ﬁscal budgets tighten and the burden of ageing populations increases, public healthcare systems are increasingly looking to the private sector for cost effective value added solutions. In addition, individual hospitals and hospital trusts are reviewing their activities and increasingly outsourcing those activities deemed to be non-core. DCC Healthcare is working to meet this demand by providing a range of value added services to hospitals, including IV pharmaceutical compounding services and distribution services. Revenue by Activity �� Revenue by Geography �� Similar outsourcing trends are visible in the health and beauty sector, where brand owners are increasingly outsourcing more of their non-sales and marketing activities (including product development) and streamlining their supply chains. With its high quality licensed facilities and its technical, regulatory and ﬁnancial strengths, DCC Health & Beauty �� Solutions is well positioned to capitalise on �� these trends. DCC Healthcare’s primary focus is the generation of strong organic proﬁt growth and superior returns in its existing businesses by continually developing and expanding its product and service offering through more effective development, sourcing and procurement. In addition to driving continuing growth through existing channels to market, the business is also focused on growing in new and developing channels, leveraging the expertise of its sales teams and the reach of its comprehensive product catalogues. Outlook The trading environment for DCC Healthcare remains challenging given that the majority of its revenues are derived from public healthcare spending in Ireland and Britain. However the unprecedented changes in input costs which impacted results in the year under review are not expected to recur. As a result, DCC Healthcare anticipates a strong recovery in constant currency operating proﬁt in the year to 31 March 2010. 26 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Food & Beverage DCC Food & Beverage markets and sells a wide range of company owned and third party 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 1,060 people. Revenue €305.0m Operating proﬁt €12.1m �� Revenue Operating proﬁt �� Operating margin �� Change on prior year Constant Currency Reported -1.7% -21.3% +2.1% -20.4% 2009 2008 €305.0m €12.1m �� 3.9% €310.1m €15.3m �� 4.9% �� DCC ANNUAL REPORT AND ACCOUNTS 2009 27 million bottles of wine sold during the year 28 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Food & Beverage Business and Markets DCC Food & Beverage’s businesses have a strong track record in brand building and offer deep distribution reach with extensive customer service to the retail and foodservice sectors throughout Ireland. Services provided include marketing, category management, selling (key account management, direct sales representation and van sales), distribution and merchandising. Principal customers include multiples, symbol and independent retailers, pharmacies, off licences, hotels, restaurants and cafes. In Britain, wines are sold to multiple retailers and wholesale cash and carry customers. 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 & supplements (“VMS”), selling directly to both the grocery and pharmacy sectors. The Kelkin brand is recognised as the leading brand in the ambient 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 indulgence products in the grocery, impulse and food service sectors. The business has a strong, complementary range of owned and agency brands, specialising in wine, snacks, hot beverages, confectionery, cakes and soft drinks. In the Irish market, Robert Roberts is the number two supplier of freshly ground coffee to both the retail and foodservice sectors, the number three supplier of savoury snacks (through the KP range) and a leading independent distributor of sugar confectionery products. Through its wine distribution business, Findlater Wine & Spirit Group, Robert Roberts is a leading distributor of wine in Ireland providing an satisfying customer and consumer needs in the health and indulgence sectors Frank Fenn - Managing Director �� DCC ANNUAL REPORT AND ACCOUNTS 2009 �� 29 �� Performance Management - key performance indicators Operating cash ﬂow Revenue per employee (constant currency) Working capital ROCE incl. tangible assets ROCE excl. tangible assets 10 year CAGR �� 2009 €13.7m €300k 12.5 days 14.1% 35.8% 7.1% 2008 €25.5m €299k -0.7 days 18.6% 51.2% 11.9% �� Revenue by Customer Group �� Revenue split �� extensive portfolio of international wine brands. This business was developed following the integration of its well established wine business, Woodford Bourne, with Findlater Grants, which was acquired during the second half of the year. Findlater Wine & Spirit Group offers its principals the largest on trade reach in the Irish marketplace. In Britain, Bottle Green is a leading supplier of branded (owned and agency) and exclusive retail solutions to the multiple off trade sector of the UK wine market. shopping in Northern Ireland. The decision by a major retailer to source third party agency brands directly from Britain has also had a negative impact. DCC Food & Beverage’s Indulgence and Healthfood businesses in Ireland were impacted by these changes and consequently operating proﬁt declined in both businesses. The Findlater Wine & Spirit Group performed in line with expectations. The frozen and chilled logistics business performed satisfactorily and continues to achieve operational efﬁciencies. Logistics/Other Allied Foods is the number one frozen food distributor in Ireland, with a developing chilled food distribution business. It offers a full range of temperature controlled supply chain solutions (procurement, brand management and selling, warehousing and distribution) to major retailers, manufacturers and food service customers. Strategy and Development The Group’s strategy is to develop DCC Food & Beverage into a leading business that satisﬁes consumer and customer needs in the health and indulgence sectors and delivers an above average return on capital. This will be achieved by building organically and through acquisition. Kylemore Foods Group (50% owned by DCC) is a leading operator of retail restaurants and contract catering services in Ireland. Performance for the Year Ended 31 March 2009 As anticipated, DCC Food & Beverage experienced a deterioration in trading in the second half of the year and as a result operating proﬁt declined in the year by 20.4% on a constant currency basis. The economic downturn in Ireland has led to changes in buying patterns in the food and beverage sector with consumers spending less and seeking greater value offerings, including increased cross border The business will continue to increase its focus on brands, building on the progress that has been made to date with Kelkin (healthy foods and beverages), Robert Roberts (coffee & speciality teas), Lemon’s confectionery, and its extensive range of third party agency brands across its healthfoods and indulgence categories. The UK wine business remains focused on developing its own range of brands including French Connection and Andrew Peace. Outlook The trading environment for DCC Food & Beverage is likely to remain difﬁcult and it is anticipated that operating proﬁt will decline in the current year. 30 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Environmental DCC Environmental is a leading UK and Irish provider of recycling and waste management services to the industrial, commercial, construction and public sectors, operating in both the non-hazardous and hazardous segments of the market. • DCC owns 50% of the William Tracey Group, Scotland’s leading recycling and waste management business. • DCC’s subsidiary, Wastecycle, is a leading recycling and waste management business in the East Midlands region of the UK. • DCC’s subsidiary, Enva, is the leading hazardous waste management business in Ireland. DCC Environmental currently employs 490 people. Revenue €81.8m Operating proﬁt €10.2m �� Revenue Operating proﬁt �� Operating margin �� Change on prior year Constant Currency Reported -10.8% -27.2% -0.1% -17.6% 2009 2008 €81.8m €10.2m �� 12.5% �� €91.7m �� €14.0m �� 15.3% �� DCC ANNUAL REPORT AND ACCOUNTS 2009 31 c. of waste diverted from landﬁll in Britain 32 DCC ANNUAL REPORT AND ACCOUNTS 2009 Business Review DCC Environmental Business and markets Britain Britain is making signiﬁcant strides in reducing the volume of waste sent to landﬁll in an effort to match best practice in continental Europe. The British Government is actively encouraging the development of a sustainable waste infrastructure in a number of ways. The development of new technologies for the treatment and ultimate disposal of waste is being promoted through traditional grant funding. In addition, initiatives are in place to ensure that energy produced from waste receives a premium price. Simultaneously, landﬁll, the traditional end disposal outlet, is being rendered less competitive through increased taxation. As of 1 April 2009 landﬁll tax now amounts to £40 per tonne (up from £24 per tonne two years ago) and it has been indicated that it will continue to increase by £8 per tonne per annum until 2013, when it will amount to £72 per tonne. Currently approximately 35% of waste is recycled but the Government’s target is to increase this to at least 50% with suggestions that this target may be pushed as high as 75%. This gives signiﬁcant impetus to DCC’s strategy to further develop as 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 arising on behalf of local authorities, including domestic recyclables. Together, these businesses handle approximately one million tonnes of waste of which c.70% is currently diverted from landﬁll. Operating from nine sites, William Tracey is recognised as Scotland’s leading waste management company with a reputation for innovation and creativity in the recycling and management of a wide range of both non hazardous and hazardous waste products. The business operates a number Tommy Breen - Acting Managing Director taking advantage of the trend towards more sustainable waste management with a particular emphasis on recovery and recycling �� DCC ANNUAL REPORT AND ACCOUNTS 2009 33 Performance Management - key performance indicators Tonnages* Recycling % Operating cash ﬂow Working capital ROCE incl. tangible assets ROCE excl. tangible assets 2009 720k 64% €21.2m 23.9 days 12.9% 29.5% 63.7% 2008 810k 58% €18.1m 38.3 days 17.4% 40.4% 79.1%** ** 9 year Revenue split �� Outlook While each of its businesses has reacted to the current market conditions through operating cost reductions and there is some evidence of the market stabilising in Britain, DCC Environmental anticipates a decline in constant currency operating proﬁt for the year principally reﬂecting the full year impact of the slowdown in activity levels experienced in the second half of last year. of fully integrated facilities to treat, recover and dispose of waste and recycles a wide range of materials. William Tracey has an extensive ﬂeet of specialist vehicles which collect waste from industrial and commercial customers and it also processes waste on behalf of local authorities and other third parties. Wastecycle is a leading recycling and waste management company, based in Nottingham in England. Operating from a ﬁfteen 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 recyclable materials such as cardboard, metals, timber, plastics, paper, aggregates, soils, glass and plasterboard. In the past year, Wastecycle has increased the proportion of waste diverted from landﬁll by processing certain waste streams to create a fuel which can be used as a direct substitute for fossil fuels. The importance given to health and safety in DCC Environmental is reﬂected in Wastecycle recently being awarded a second Royal Society for the Prevention of Accidents (RoSPA) medal for health and safety. DCC Environmental is dedicated to helping its customers reduce the impact of their businesses on the environment. This is being achieved through investment in new technologies to broaden the scope of its re-processing services as well as developing sustainable markets for secondary materials. Ireland Hazardous waste in Ireland is generated by a wide range of industries such as the pharmaceutical/chemicals sector, power generation and utilities. Ireland has historically exported approximately 50% of its hazardous waste but is now seeking to become more self sufﬁcient in dealing with this waste. Given its extensive infrastructure of hazardous waste facilities, DCC Environmental is ideally positioned to beneﬁt from this trend. Enva is a leading-edge company providing innovative, efﬁcient and cost-effective solutions for the treatment and disposal of a diverse range of hazardous wastes. 10 year CAGR * only 50% of Traceys Operating from six licensed sites, Enva has the most comprehensive waste infrastructure in Ireland, providing a range of services including oil recycling, chemical treatment, water treatment, metal recovery and soil remediation. Performance for the Year Ended 31 March 2009 DCC Environmental was impacted by the deteriorating economic environment and, in particular, the slowdown in the construction sector in both Britain and Ireland. This was further compounded by a dramatic decline in recyclate prices in the second half of the ﬁnancial year. Constant currency operating proﬁt declined by 17.6%. William Tracey was impacted by a decline in waste volumes in the Scottish market as a result of the general economic slowdown and by lower recyclate prices. While Wastecycle was also impacted by the difﬁcult trading environment, it achieved increased recycling rates thereby diverting a greater proportion of waste from landﬁll and maintained operating proﬁt in line with the prior year. In Ireland, Enva was impacted by the deterioration in the economy in the second half, leading to a reduction in demand from customers and considerable margin pressure. Strategy and Development DCC Environmental’s strategy continues to be to grow its position as a leading broadly based waste management and recycling business in Britain and Ireland by positioning the business to take advantage of the trend towards more sustainable waste management with a particular emphasis on recovery and recycling. This growth strategy will be driven both organically and by acquisition. Despite the current difﬁcult market environment, DCC Environmental has maintained its strong market positions. While activity levels have reduced, longer- term Government policy remains unaltered; in fact, recent measures introduced in both Britain and Ireland reinforce the commitment to reducing landﬁll activities and to driving improved rates of recovery and recycling. Against this background, DCC believes its strategy continues to offer the prospect of excellent returns to its shareholders. 34 DCC ANNUAL REPORT AND ACCOUNTS 2009 Financial Review Excellent Growth in Proﬁts and Cash Flow – Strong Well Funded and Liquid Balance Sheet DCC achieved an excellent proﬁt and cash ﬂow result, in what were very challenging economic conditions, beneﬁting from its diversiﬁed business model. The DCC balance sheet is strong, well funded, liquid and lowly geared leaving the Group well placed to take advantage of acquisition and development opportunities that will arise. Excellent Growth in Proﬁts On a constant currency basis operating proﬁt grew by 22.4% (7.9% on a reported basis). Fergal O’Dwyer - Chief Financial Ofﬁcer ... and Cash Flow Operating cash ﬂow of €304.9 million was 136.3% higher than the €129.0 million in the prior year and free cash ﬂow of €218.5 million was €206.1 million higher than the €12.4 million generated in the prior year. Strong Balance Sheet At 31 March 2009 the Group had net debt of €90.7 million and total equity of €726.2 million which equates to gearing of 12.5%. ...which is well Funded and Liquid The Group’s strong funding and liquidity position at 31 March 2009 can be summarised as follows: Cash and short term bank deposits Overdrafts Cash and cash equivalents Bank debt repayable within 1 year US Private Placement debt repayable: Other debt Debt Net debt Y/e 31/3/2012 Y/e 31/3/2014 Y/e 31/3/2015 Y/e 31/3/2016 Y/e 31/3/2017 Y/e 31/3/2018 Y/e 31/3/2020 €’m 426.8 (51.3) (49.6) (5.6) (58.9) (163.5) (13.4) (36.7) (50.1) (84.4) (412.6) (4.0) €’m 375.5 (466.2) (90.7) DCC ANNUAL REPORT AND ACCOUNTS 2009 35 “ Net ﬁnance costs for the year increased by €3.3 million to €21.1 million (€17.8 million in 2008) primarily due to the increase in interest rates, which reduced signiﬁcantly during the second half.” 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 64 to 72. Overview of Results Revenue of €6.4 billion grew by 31.0% on a constant currency basis. (15.7% on a reported basis) and operating proﬁt of €180.4 million increased by 22.4% on a constant currency basis (7.9% on a reported basis) as set out in Tables 1 and 2. The growth in revenue and operating proﬁt, analysed as between organic growth, growth from acquisitions and the impact of currency, is as follows:- Organic Acquisitions Constant currency Currency impact on translation Reported Revenue Operating 7.1% 23.9% 31.0% Proﬁt 10.7% 11.7% 22.4% ( 15.3%) 15.7% (14.5%) 7.9% The average Stg£/€ exchange rate for the year ended 31 March 2009 was Stg£0.8262 = €1 compared to Stg£0.7021 = €1 in the previous year. This 15% weakening of the sterling exchange rate adversely impacted operating proﬁts in the year ended 31 March 2009 by €24.2 million. Although DCC’s operating margin (excluding exceptionals) was 2.8% (3.0% in 2008), it is important to note that this measurement of the overall Group margin is of limited relevance due to the inﬂuence of changes in oil product costs on the percentage. While changes in oil product costs will change percentage operating margins, this has little relevance in the downstream energy market in which DCC Energy operates, where proﬁtability is driven by absolute contribution per litre (or tonne) of product sold and not by a percentage margin. A detailed review of the operating performance of each of DCC’s divisions is set out on pages 14 to 33. Finance Costs (net) Net ﬁnance costs for the year increased by €3.3 million to €21.1 million (€17.8 million in 2008) primarily due to the increase in interest rates, which reduced signiﬁcantly during the second half. The Group’s average net debt was €236 million during the year, a modest decline from the average of €242 million in the prior year. Interest was covered 8.5 times by Group operating proﬁt before amortisation of intangible assets (9.4 times in 2008). Proﬁt before Net Exceptionals, Amortisation of Intangible Assets and Tax Proﬁt before net exceptionals, amortisation of intangible assets and tax of €159.5 million increased by 21.3% on a constant currency basis. On a reported basis the increase was 6.3%. Exceptional Charge (net) The Group incurred a net exceptional charge before tax of €15.9 million as follows: €’m (13.0) Restructuring costs Closure of DCC Healthcare’s German subsidiary (9.1) (2.4) Goodwill impairments Proﬁt on sale of US associate company 6.2 2.4 Other (15.9) Net exceptional charge The restructuring costs were incurred in relation to the integration of recently acquired businesses and the implementation of cost reduction programmes across the Group. The non- cash goodwill impairment charge related to certain DCC Food & Beverage and DCC Healthcare subsidiaries. Amortisation of Intangible Assets The charge for the amortisation of intangible assets decreased from €7.9 million to €5.7 million as a result of the weakening of the Stg£/€ exchange rate and certain intangible assets having been fully amortised. 36 DCC ANNUAL REPORT AND ACCOUNTS 2009 Financial Review (continued) Taxation The effective tax rate for the Group was 13.0% compared to 11.0% in the prior year. The compound annual growth rate in DCC’s adjusted earnings per share over the last 15, 10 and 5 years is as follows; Adjusted earnings per share Reported adjusted earnings per share of 169.13 cent increased by 2.5%. On a constant currency basis the increase was 17.0%. 15 years 10 years 5 years (i.e. since 1994) (i.e. since 1999) (i.e. since 2004) CAGR % 13.6% 11.8% 9.8% Dividend The total dividend for the year of 62.34 cent per share represents an increase of 10% over the previous year. The dividend is covered 2.7 times (2.9 times in 2008) by adjusted earnings per share. Over the last 10 years DCC’s dividend has grown at a compound annual rate of 15.6%. Table 1: Revenue - constant currency 2009 2008 Change H1 €’m H2 €’m FY €’m H1 €’m H2 €’m FY €’m H1 % H2 % FY % DCC Energy 2,412.1 2,370.8 4,782.9 1,343.4 2,076.6 3,420.0 +79.5% +14.2% +39.9% DCC SerCom 750.1 939.6 1,689.7 575.6 847.8 1,423.4 +30.3% +10.8% +18.7% DCC Healthcare 190.4 176.3 366.7 132.3 154.5 286.8 +43.9% +14.1% +27.9% DCC Food & Beverage 175.0 141.8 316.8 161.5 148.6 310.1 +8.3% -4.6% +2.1% DCC Environmental 52.7 38.9 91.6 45.9 45.8 91.7 +14.9% -15.1% -0.1% Total Weighting % 3,580.3 49.4% 3,667.4 50.6% 7,247.7 100.0% 2,258.7 3,273.3 59.2% 40.8% 5,532.0 +58.7% +12.0% +31.0% 100.0% Table 2: Operating proﬁt - constant currency 2009 2008 Change H1 €’m H2 €’m FY €’m H1 €’m H2 €’m FY €’m H1 % H2 % FY % DCC Energy 26.5 92.0 118.5 14.5 59.8 74.3 +82.3% +53.8% +59.3% DCC SerCom 14.6 29.1 43.7 12.5 27.6 40.1 +17.1% +5.6% +9.2% DCC Healthcare DCC Food & Beverage DCC Environmental 10.6 7.4 8.2 8.0 4.8 3.4 18.6 10.4 13.1 23.5 +2.1% -38.4% -20.5% 12.2 11.6 7.0 7.2 8.3 15.3 +5.6% -42.1% -20.4% 6.8 14.0 +12.8% -50.1% -17.6% Total Weighting % 67.3 32.9% 137.3 67.1% 204.6 100.0% 51.6 30.9% 115.6 69.1% 167.2 +30.3% +18.9% +22.4% 100.0% DCC ANNUAL REPORT AND ACCOUNTS 2009 37 “ DCC again achieved excellent returns on capital employed, generating a return of 17.8% including intangible assets and 41.6% excluding intangible assets (17.5% and 38.0% respectively in 2008).” Return on Capital Employed The creation of shareholder value through the delivery of consistent, long-term returns well in excess of cost of capital is one of DCC’s core strengths. DCC again achieved excellent returns on capital employed (as detailed in Table 3), generating a return of 17.8% including intangible assets and 41.6% excluding intangible assets (17.5% and 38.0% respectively in 2008). DCC’s return on capital employed has remained consistently high through a combination of good organic growth, well executed acquisitions and excellent integration synergies. Cash Flow A summary of DCC’s cashﬂow is set out in Table 4. Operating cash ﬂow is principally used to fund investment in existing operations, complementary bolt-on acquisitions, dividend payments and selective share buybacks. Operating cash ﬂow was exceptionally strong at €304.9 million, compared to €129.0 million in 2008, beneﬁting from the signiﬁcant reduction in working capital of €80 million which was due to the decline in the price of oil and, as the year progressed, a heightened focus on cash generation throughout the Group. As set out in Table 5, working capital days reduced to 11.9 from 16.4 driven by a reduction in debtor days of 4.4 days to 41.3 from 45.7. Free cash ﬂow was €218.5 million compared to €12.4 million in 2008. DCC’s ongoing acquisition programme resulted in a number of acquisitions being completed during the year at a total committed cost of €98.4 million, of which €8.7 million was deferred. The cash impact of acquisitions in the year was €101.7 million when payments of deferred acquisition consideration of €12.0 million are taken into account. Capital expenditure was €56.1 million, signiﬁcantly below the €87.6 million spent in the previous year and compares to a depreciation charge of €45.5 million. Net of ﬁxed asset disposals and grants received the cash outﬂow from capital expenditure was €50.4 million. The disposal of a small US associate company gave rise to a receipt of €8.5 million. The exceptional cash outﬂow of €60.9 million primarily relates to the settlement of the Fyffes case in April 2008 and restructuring costs. Table 3: Return on capital employed 2009 2008 ROCE (incl intangible assets) ROCE (excl intangible assets) ROCE (incl intangible assets) ROCE (excl intangible assets) DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage DCC Environmental Group 24.9% 15.5% 9.4% 14.1% 12.9% 17.8% 63.7% 26.2% 31.9% 35.8% 29.5% 41.6% 20.6% 15.3% 13.9% 18.6% 17.4% 17.5% 45.8% 24.2% 48.8% 51.2% 40.4% 38.0% 38 DCC ANNUAL REPORT AND ACCOUNTS 2009 Financial Review (continued) Table 4: Summary of cash ﬂows Operating Proﬁt Decrease/(increase) in working capital: DCC Energy DCC Sercom DCC Healthcare DCC Food & Beverage DCC Environmental 2009 €’m 72.3 4.1 1.3 (1.9) 4.2 Depreciation Other Cash generated from operations Capital expenditure (net) Interest and tax paid Free cash ﬂow Dividend received from an associate Proceeds on disposal of associates Share issues (net) Acquisitions Dividend paid Exceptionals Net cash inﬂow/(outﬂow) Translation adjustments and other Net debt at start of year Net debt at end of year Table 5: Working capital days Stocks Debtors Creditors 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 2011 to 2019 Current liabilities: Borrowings Derivative ﬁnancial instruments Unsecured Notes due 2008 2009 €’m 180.4 80.0 45.5 (1.0) 304.9 (50.4) (36.0) 218.5 - 8.5 10.2 (101.7) (48.7) (60.9) 25.9 7.1 (123.7) (90.7) 2008 €’m (101.6) 20.5 (6.3) 5.2 (2.2) 2009 Days 12.8 41.3 (42.2) 11.9 2009 €’m 128.3 0.3 426.8 427.1 (1.8) (17.4) (523.6) (542.8) (101.6) (1.7) - (103.3) 2008 €’m 167.2 (84.4) 45.4 0.8 129.0 (79.7) (36.9) 12.4 172.0 8.9 4.1 (176.6) (44.5) (4.2) (27.9) 4.7 (100.5) (123.7) 2008 Days 12.4 45.7 (41.7) 16.4 2008 €’m 25.4 1.5 485.8 487.3 (4.5) (43.6) (353.6) (401.7) (157.7) (17.2) (59.8) (234.7) Net debt (90.7) (123.7) Balance Sheet and Group Financing DCC has a very strong balance sheet with total equity of €726.2 million at 31 March 2009 and net debt at the same date of €90.7 million. Net debt as a percentage of total equity was 12.5% compared to 16.7% at 31 March 2008. The composition of net debt at 31 March 2009 and 2008 is analysed in Table 6. Further analysis of DCC’s cash, debt and ﬁnancial derivative instrument balances at 31 March 2009 is set out in Notes 27 to 30 to the ﬁnancial statements. At a time of increased focus on funding and liquidity, DCC has signiﬁcant cash resources and relatively long term debt maturities. Approximately 90% of the Group’s debt has been raised in the US Private Placement market where longer term maturities are available. 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. A signiﬁcant proportion of the Group’s proﬁts and net assets are denominated in sterling. The sterling:euro exchange rate weakened by 14.5% from 0.7953 at 31 March 2008 to 0.9299 at 31 March 2009. The average rate at which the Group translates its UK operating proﬁts declined by 15.0% from 0.7021 in 2008 to 0.8262 in 2009. DCC ANNUAL REPORT AND ACCOUNTS 2009 39 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 both committed and 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 2009 delivering an improvement in revenues and operating proﬁts and excellent cash ﬂow and returns on capital employed. After total acquisition and capital expenditure, dividends and other exceptional expenditure of €261.6 million, DCC ended the year with reduced net debt levels and a conservatively geared balance sheet. This will facilitate the Group in its development plans, both organic and by way of acquisitions. Approximately 76% of the Group’s operating proﬁt for the year ended 31 March 2009 was denominated in sterling and this is 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 15% reduction in the average translation rate of sterling, referred to above, adversely impacted the Group’s reported operating proﬁt by €24.2 million in the year ended 31 March 2009. DCC has investments in sterling operations which are highly cash generative and cash generated from these operations are reinvested in sterling denominated development activities rather than being repatriated into euro. 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 14.5% reduction in the value of sterling against the euro during the year ended 31 March 2009, referred to above, gave rise to a translation loss of €85.8 million on the translation of DCC’s sterling denominated net asset position at 31 March 2009 as set out in the reconciliation of the Group’s Total Equity in note 41 to the ﬁnancial statements. €34.6 million of this amount related to DCC’s sterling denominated intangible assets. Where sales or purchases are invoiced in other than 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. Commodity Price Risk Management The Group is exposed to commodity cost price risk in its oil distribution and LPG businesses. Market dynamics are such that these commodity cost price movements are immediately reﬂected in oil commodity sales prices and, within a short period, in LPG commodity sales prices. Fixed price oil supply contracts are occasionally provided to certain customers for periods of less than one year. To manage this exposure, the Group enters into matching forward commodity contracts, not designated as hedges under IAS 39. While LPG price changes are being implemented, the Group hedges a proportion of its anticipated LPG commodity exposure, with such transactions qualifying as ‘highly probable’ forecast transactions for IAS 39 hedge accounting purposes. In addition, to cover certain customer segments for whom it is commercially beneﬁcial to avoid price increases, a proportion of LPG commodity price and related foreign exchange exposure is hedged. 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. Table 7: Key ﬁnancial performance indicators Revenue growth – constant currency Operating proﬁt growth* – constant currency Interest cover (times) Net debt as a percentage of total equity Working capital as a percentage of total revenue Working capital – days Debtors – days Operating cash ﬂow (€’m) Free cash ﬂow after interest and tax (€’m) Return on capital employed - Including intangible assets - Excluding intangible assets *excluding exceptionals and amortisation of intangible assets. 2009 31.0% 22.4% 8.5 12.5% 3.0% 11.9 41.3 304.9 218.5 17.8% 41.6% 2008 39.9% 21.8% 9.4 16.7% 5.2% 16.4 45.7 129.0 12.4 17.5% 38.0% “ The key ﬁrst step undertaken by the Working Group was the identiﬁcation of sustainability aspects that are material, i.e. have a high business value to DCC and have a high economic, environmental or social value” 40 DCC ANNUAL REPORT AND ACCOUNTS 2009 Sustainability Report Structures and Processes In 2008, DCC established a Corporate Sustainability Working Group comprising senior Group, divisional and subsidiary executives, which reports directly to the Chief Executive. The key ﬁrst step undertaken by the Working Group was the identiﬁcation of sustainability aspects that are material, i.e. have a high business value to DCC and have a high economic, environmental or social value. Following from this, four sustainability aspects were prioritised, namely direct economic value added, climate change, health and safety and business ethics. The Working Group intends to focus on additional sustainability aspects as the process is developed. Speciﬁc objectives have been established in respect of the four aspects selected and progress on those objectives will be monitored by the Working Group using appropriate KPIs. The Working Group will continue to reﬁne and develop our management approach to sustainability at all levels throughout DCC. Stakeholders At a corporate level we have identiﬁed two key stakeholder groups – investors and employees. Other stakeholder groups, such as customers, suppliers, regulators and local communities, are speciﬁc to individual businesses and so are engaged with at subsidiary level. Consultations will be undertaken with members of both of the key stakeholder groups identiﬁed. DCC deﬁnes Corporate Sustainability as a business strategy to create long term shareholder value by generating economic, environmental and social value. In order to sustain our business, it is critical that our activities have a positive impact on the wider community; business success and sustainable development are mutually supportive ambitions. Our complex interactions with the economy, the environment and society are already governed by a combination of legislative compliance, best practice, reporting requirements, customer demand, risk management and company culture. However, we have now formally committed to implementing a more systematic internal management process to identify and focus on those aspects of sustainability which are material to DCC, using the structure provided by the GRI1 Sustainability Reporting Guidelines. This Sustainability Report sets out our evolving management approach and reports on a number of sustainability aspects of material importance to the DCC Group. We intend to develop our internal processes and reporting and, through clearly deﬁned key performance indicators (KPIs), we will demonstrate how DCC is implementing sustainable business practices, thereby delivering value to our shareholders and to society as a whole. As we live in a time of global economic and climate crises it is even more critical to ensure that our activities visibly contribute to the goal of sustainable development. Strategy DCC will implement its sustainability strategy by: • raising internal awareness and understanding of what corporate sustainability means to our businesses, • integrating sustainability processes into existing business structures, • actively engaging with our stakeholders, and • regularly communicating our progress. DCC ANNUAL REPORT AND ACCOUNTS 2009 41 “ DCC is focused on value creation within the supply chain which is then passed on to various stakeholders including investors, employees, suppliers, governments and lenders” 2. Climate Change Our energy businesses sell LPG and oil to customers who rely on these products for heating, cooking and transportation, in most cases where there are no viable alternative energy sources. While we believe that a mix of energy sources will continue to be necessary in the future, we are conscious of the need to reduce carbon emissions and consequently we promote, both internally and externally, the efﬁcient use of energy products. In August 2008 a Group wide Carbon Management Plan (CMP) was initiated. Its purpose is to increase understanding and awareness of climate change impacts and to develop a range of operational and strategic measures in response to the emergence of a low carbon economy. The CMP has two operational objectives. The ﬁrst is to measure carbon emissions, in accordance with the methodology provided by the Greenhouse Gas Protocol2. In the year ended 31 March 2009 our transport ﬂeet contributed over 70% (approximately 60,000 tonnes CO2) of our carbon emissions. Electricity consumption accounted for 21% of total emissions with heating and on-site fuel use making up the remaining 9%. The second operational objective is to carry out a detailed analysis of the data in order to develop a range of energy saving initiatives focusing on the major sources of emissions in the ﬁrst instance. This is already being done to a signiﬁcant extent, driven by ﬁnancial savings. For example, Allied Foods and Flogas UK have invested in new technologies to monitor vehicle use and establish efﬁcient routing systems and Wastecycle has trained its drivers in fuel efﬁcient driving techniques to reduce fuel consumption, so reducing costs and carbon emissions simultaneously. During the year we will improve our measurement systems and identify appropriate KPIs and targets to increase energy efﬁciency and reduce carbon emissions. Material Aspects 1. Direct Economic Value Added DCC is focused on value creation within the supply chain which is then passed on to various stakeholders including investors, employees, suppliers, governments and lenders. In economic terms these are the most signiﬁcant contributions we make to society. In the year ended 31 March 2009, DCC generated revenue of €6,400m in return for the goods and services it provided. Once the cost of inputs from suppliers totaling €5,913m is taken into account the remaining value added of €487m was distributed to various stakeholders. During the year a total of €306m was expended on payroll costs in respect of DCC’s approximately 7,200 employees across 16 countries. Governments received corporate taxes of €19m and €21m in value was distributed to banks and other lenders. As a return for the capital they provide to the business, shareholders, including many employees, will receive €51m in the form of dividends. The remaining €90m will be retained in the business to fund further growth. �� 1. The Global Reporting Initiative is a not for proﬁt organisation which has developed the most commonly used sustainability reporting framework. 2.The Greenhouse Gas Protocol is a corporate reporting standard developed by the World Resources Institute and the World Business Council for Sustainable Development. “ The health and safety of our employees, contractors and members of the public with whom we interact is paramount and is a responsibility we take very seriously.” 42 DCC ANNUAL REPORT AND ACCOUNTS 2009 Sustainability Report (continued) Every subsidiary compiles an annual health and safety report for divisional management, the detail of which reﬂects the hazard proﬁle of that subsidiary. All reports include a review of health and safety policies and procedures, an assessment of performance against prior year objectives and the establishment of new objectives. Reﬂecting the higher hazard proﬁle of the LPG, oil and environmental businesses, management meet in respective fora at least three times annually to review legislation, share best practice and develop common technical, health and safety standards. Two committees of the Energy and Environmental boards, chaired by the respective divisional Managing Director, meet bi-annually to review health and safety performance. All subsidiaries have in place formal health and safety management systems which are appropriate to the nature and scale of the hazards within those businesses. In the LPG businesses, safety management systems have been developed in line with guidance from the UK Health and Safety Executive and are contained within the COMAH4 Safety Reports. In most other businesses, health and safety management systems are based on the OHSAS180015 standard with a number of sites achieving formal certiﬁcation. An objective has been set to have all health and safety management systems within the DCC Environmental businesses certiﬁed to the OHSAS18001 standard by end March 2011. DCC’s energy and environmental businesses already report a wide range of health and safety KPIs, for example, lost time injury rates. We will extend this requirement to other divisions and report on Group wide performance next year. The CMP also has a strategic objective, which requires each subsidiary to formally identify and assess the regulatory, physical and commercial risks and opportunities for their businesses arising from the transition towards a low carbon economy. For example, by recycling waste streams into new products, our environmental businesses make a signiﬁcant contribution to the conservation of natural resources and the reduction of carbon emissions. From a regulatory perspective, DCC’s UK based subsidiaries will be included in the UK’s Carbon Reduction Commitment scheme commencing in April 2010. The implementation of the CMP has already prepared us for the measurement requirements of this scheme and additional actions are being taken to ensure that we not only fully comply with its requirements but also beneﬁt from the process by reducing our emissions and costs. 3. Health & Safety The health and safety of our employees, contractors and members of the public with whom we interact is paramount and is a responsibility we take very seriously. The proﬁle of health and safety hazards varies considerably across the Group with businesses in the Energy and Environmental divisions at the higher end due to the nature of the material they handle and the degree of interaction between equipment and individuals. Health and safety is clearly established as a line management function and is a ﬁxed agenda item at management meetings. Senior executives are expected to demonstrate personal leadership, continually improving health and safety culture by their individual actions. In May and June 2008 thirty senior managers and directors from across DCC Energy participated in a bespoke health and safety leadership workshop delivered by DNV3. As a direct result of this initiative, subsidiary directors in the energy division now complete a minimum of two site visits per annum to inspect, observe and listen to local HSE concerns or suggestions. DCC ANNUAL REPORT AND ACCOUNTS 2009 43 “ Our intention is to publish annual, concise and relevant Sustainability Reports which address the economic, environmental and social aspects which are material to our business and important to our stakeholders” Reporting Our intention is to publish annual, concise and relevant Sustainability Reports which address the economic, environmental and social aspects which are material to our business and important to our stakeholders. We will report openly on our management approach to sustainability, our progress against past objectives and the determination of new objectives. The report will have the same reporting cycle as the Annual Report and will be integrated where appropriate to avoid repetition of information. We accept the need to adopt a consistent and credible reporting structure. The Working Group has reviewed the G3 Sustainability Report Guidelines, developed by the Global Reporting Initiative, and it is our intention to achieve a GRI application level of at least C for the Sustainability Report for the year ended 31 March 2010. We recognise that this report is only a ﬁrst step and we would welcome any feedback and suggestions for improvement. 4. Business Ethics DCC is diversiﬁed both by sector and by geography. Freedom to manage and make decisions locally has been critical to our success. This has been possible because the business has always had at its core a culture built on openness, honesty, trust, respect and accountability. When acquisitions are made, a key part of the integration process is the extension of this culture into the newly acquired business. Wherever we operate, we strive to be fully compliant with the laws and regulations that apply to our business. In addition, each subsidiary has articulated its own internal standards of business conduct, as well as policies and processes to ensure compliance with them. In light of DCC’s substantial expansion in recent years, the Working Group has now decided to embark on a comprehensive Group wide review of best practices in the conduct of business. We will approach this in a practical way by examining, for instance, best practices within the Group in areas such as the business conduct modules in employee induction processes and the ethical selling modules in sales training programmes. We will also look afresh at the way we measure performance in respect of each area of business conduct. We will also carry out external benchmarking. Out of this work, we will articulate a set of guidelines for all subsidiaries and at corporate level, in a way that is relevant and practical for our business environment and the ever more complex world in which we live and work. This will then become a key governing document for all our businesses. 3. Det Norske Veritas is a leading provider of safety risk management solutions. 4. Control of Major Accident Hazards. 5. Occupational Health and Safety Assessment Series. 44 DCC ANNUAL REPORT AND ACCOUNTS 2009 Report of the Directors The Directors of DCC plc present their report and the audited ﬁnancial statements for the year ended 31 March 2009. Results for the Year The results of the Group for the year are set out in the Group Income Statement on page 58. The proﬁt for the year attributable to equity holders of the Company amounted to €116.3 million. Dividends An interim dividend of 22.61 cent per share, amounting to €18.56 million, was paid on 5 December 2008. The Directors recommend the payment of a ﬁnal dividend of 39.73 cent per share, amounting to €32.63 million. Subject to shareholders’ approval at the Annual General Meeting on 17 July 2009, this dividend will be paid on 23 July 2009 to shareholders on the register on 29 May 2009. The total dividend for the year ended 31 March 2009 amounts to 62.34 cent per share, a total of €51.19 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 2009 are shown in note 39 on page 102. Share Capital and Treasury Shares DCC’s authorised share capital is 152,368,568 ordinary shares of €0.25 each, of which 82,139,005 shares (excluding treasury shares) were in issue and 6,090,399 shares were held in Treasury at 31 March 2009. The number of shares held in Treasury at the beginning of the year (and the maximum number held during the year) was 7,414,239 (8.40% of the issued share capital) with a nominal value of €1.854 million. A total of 1,323,840 shares (1.50% of the issued share capital) with a nominal value of €0.331 million were re-issued during the year at prices ranging from €6.22 to €15.65 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 2009 of 6,090,399 shares (6.90% of the issued share capital) with a nominal value of €1.523 million. 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 17 July 2009, 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 issued share capital of the Company. Review of Activities and Events since the Year End The Chairman’s Statement on pages 6 to 7, the Chief Executive’s Review on pages 8 to 11, 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 2009, 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 Irish Company law (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. These are addressed in the Principal Risks & Uncertainties report on pages 46 to 47. Directors The names of the Directors and a short biographical note on each Director appear on pages 4 to 5. At the Annual General Meeting held on 18 July 2008, the Company was granted authority to purchase up to 8,822,940 of Jim Flavin resigned from his position as Executive Chairman and Director on 27 May 2008. On the same date, Michael Buckley was appointed Chairman and Tommy Breen, previously Group Managing Director, was appointed Chief Executive. Paddy Gallagher and Tony Barry retired from the Board with effect from 1 December 2008 and 28 February 2009 respectively. Kevin Melia and Donal Murphy were appointed to the Board with effect from 1 December 2008, David Byrne was appointed to the Board with effect from 1 January 2009 and John Moloney was appointed to the Board with effect from 2 February 2009. The Board has adopted the practice that all Directors will submit to re-election at each Annual General Meeting. With the exception of Tommy Breen, who has a service agreement with a minimum notice period of twelve months, none of the other 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 52 to 55. Corporate Governance The Corporate Governance statement on pages 48 to 51 sets out 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. Speciﬁc details concerning the appointment and the re-election of Directors are contained in the Corporate Governance statement. Report of the Directors (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 45 Substantial shareholdings The Company has been advised of the following interests in its share capital as at 18 May 2009: FMR LLC on behalf of certain of its direct and indirect subsidiaries * 12,200,800 14.85% No. of €0.25 Ordinary Shares % of Issued Share Capital (excluding treasury shares) 7,699,992 5,334,803 2,700,000 2,630,815 9.37% 6.49% 3.29% 3.20% Prudential plc group of companies* Invesco Limited * Jim Flavin Irish Life Investment Managers * * Notiﬁed as non-beneﬁcial interests Principal subsidiaries and joint ventures Details of the Company’s principal operating subsidiaries and joint ventures are set out on pages 112 to 114. Research and development Certain Group companies are involved in ongoing development work aimed at improving the quality, competitiveness, technology and range of their products. Political contributions There were no political contributions which require to be disclosed under the Electoral Act, 1997. Accounting records The Directors are responsible for ensuring that proper books and accounting records, as outlined in Section 202 of the Companies Act, 1990, are kept by the Company. The Directors believe that they have complied with this requirement by providing adequate resources to maintain proper books and accounting records throughout the Group including the appointment of personnel with appropriate qualiﬁcations, experience and expertise. The books and accounting records of the Company are maintained at the Company’s registered ofﬁce, DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland. Articles of Association The Company’s Articles of Association may be amended by a special resolution passed by the shareholders at an annual or extraordinary general meeting of the Company. Takeover regulations The Company has certain banking facilities which may require repayment in the event that a change in control occurs with respect to the Company. In addition, the Company’s share option scheme contains change of control provisions which can allow for the acceleration of the exercisability of share options in the event that a change of control occurs with respect to the Company. Auditors The auditors, PricewaterhouseCoopers, will continue in ofﬁce in accordance with the provisions of Section 160(2) of the Companies Act, 1963. A resolution authorising the Directors to ﬁx their remuneration will be proposed at the Annual General Meeting. Michael Buckley, Tommy Breen Directors 18 May 2009 46 DCC ANNUAL REPORT AND ACCOUNTS 2009 Principal Risks & Uncertainties The Board of DCC is responsible for the Group’s risk management systems, which are designed to identify, manage and mitigate potential material risks to the achievement of the Group’s strategic and business objectives. Details of the Group’s risk management systems and internal controls are set out under ‘Internal Control’ in the Corporate Governance statement on pages 48 to 51. Further detail on the principal risks facing the Group is set out below. Strategic Risks Impact Mitigation Global economic downturn Demand for goods and services in the Group’s businesses will be impacted by the current economic downturn. Competitor activity Acquisitions The Group’s businesses face strong competition in their relevant markets. Failure to compete successfully will lead to a decline in market share and proﬁtability. Poor acquisition selection could lead to a loss of value. In addition a failure to properly integrate acquisitions could lead to operational and ﬁnancial difﬁculties. The Group has operations across a number of different markets. Whilst the current economic downturn will affect all businesses the impact will vary according to the markets in which they operate. The Group will focus on operating efﬁciencies and business development. Competitor activity is formally discussed at regular divisional board meetings. Subsidiary management are constantly focused on providing an efﬁcient value added service to meet the demands of both customers and suppliers. The Group conducts a stringent internal evaluation process prior to completing an acquisition. Only acquisitions which add value and are a strategic ﬁt are considered. Group and subsidiary management have signiﬁcant expertise in and experience of integrating acquisitions. DCC ANNUAL REPORT AND ACCOUNTS 2009 47 Operational Risks Impact Mitigation Key supplier The loss of a key supplier could have a serious operational and ﬁnancial impact on the Group’s business. The Group trades with a broad supplier base. Excellent commercial relationships exist with suppliers and there is a constant focus on providing a value added service. Environmental, Health & Safety incident A serious environmental, health & safety incident, particularly in the Energy or Environmental divisions, could endanger the lives of employees and seriously disrupt operations. Loss of major site The loss or serious destruction of any one of the Group’s key sites would present signiﬁcant ﬁnancial and operational difﬁculties for the Group. Management resources Strong and effective management has been fundamental to the Group’s success. The continued attraction, retention and motivation of high quality management throughout the Group is critical if this success is to continue. Product quality The Group has certain subsidiaries which operate manufacturing or processing facilities. Poor product quality could have signiﬁcant consequences for customer or public safety and lead to ﬁnancial, operational and reputational difﬁculties for the Group. All Group 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. All Group subsidiaries have implemented business continuity plans to manage disruptions. An insurance cover programme is in place for all signiﬁcant insurable risks and major catastrophes to mitigate the ﬁnancial consequences. The Group maintains a constant focus on succession planning, remuneration programmes, including long and short term incentive initiatives and management development. This focus is maintained through a structured review process in which Group Human Resources supports divisional management and the Chief Executive. All manufacturing and processing facilities operate quality management systems appropriate and speciﬁc to the nature of the products they manufacture or process. Compliance Risks Impact Mitigation Regulation Financial Risks DCC has operations in 15 countries. Failure to comply with statutory obligations could result in regulatory action, legal liability and damage to the Group’s reputation. All statutory requirements are managed by local management. Formal conﬁrmation of compliance with statutory and other obligations is received by the Compliance Ofﬁcer of DCC plc twice a year. The principal ﬁnancial risks facing the Group are addressed in detail under ‘Financial Risk Management’ in the Financial Review on pages 34 to 39. 48 DCC ANNUAL REPORT AND ACCOUNTS 2009 Corporate Governance This statement describes how DCC has applied the principles set out in Section 1 of the Combined Code on Corporate Governance (‘Combined Code’) published by the Financial Reporting Council in the UK. The Board of Directors Roles The Board of DCC is responsible for the leadership, strategic direction and overall management of the Group. It 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. Chairman The Chairman’s primary responsibility is to lead the Board, to ensure that it has a common purpose, is effective as a group and at individual director level and that it upholds and promotes high standards of integrity, probity and corporate governance. The Chairman is the link between the Board and the Company. He is speciﬁcally responsible for establishing and maintaining an effective working relationship with the Chief Executive, for ensuring effective and appropriate communications with shareholders and for ensuring that members of the Board develop and maintain an understanding of the views of shareholders. Deputy Chairman and Senior Independent Director The Deputy Chairman (who is also the Senior Independent Director) chairs meetings of the Board if the Chairman is unavailable or is conﬂicted in relation to any agenda item. The Senior Independent Director is available to shareholders who have concerns that cannot be addressed through the Chairman or Chief Executive and leads the annual Board review of the performance of the Chairman. Membership The Board consists of three executive and seven non-executive Directors. Brief biographies of the Directors are set out on pages 4 to 5. The Board, with the assistance of the Nomination Committee, keeps Board composition under review to ensure that it includes the necessary mix of relevant skills and experience required to perform its role. Jim Flavin resigned from his position as Executive Chairman and Director on 27 May 2008. On the same date, Michael Buckley was appointed Chairman and Tommy Breen, previously Group Managing Director, was appointed Chief Executive. On 4 June 2008, Bernard Somers replaced Michael Buckley as Senior Independent Director. Kevin Melia and Donal Murphy were appointed to the Board with effect from 1 December 2008. Paddy Gallagher and Tony Barry retired from the Board with effect from 1 December 2008 and 28 February 2009 respectively. David Byrne was appointed to the Board with effect from 1 January 2009 as Deputy Chairman and Senior Independent Director. Bernard Somers resigned as Senior Independent Director on the same date. John Moloney was appointed to the Board with effect from 2 February 2009. Appointment Non-executive Directors are appointed by the Board and following appointment are, in accordance with the Articles of Association, subject to re-election at the next Annual General Meeting. The Board has adopted the practice that all Directors will submit to re-election at each Annual General Meeting. The expectation is that non-executive Directors would serve for a term of six years and may also be invited 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. Independence The Board has carried out its annual evaluation of the independence of each of its non-executive Directors, taking account of the relevant provisions of the Combined Code, namely, whether the Directors are independent in character and judgment and free from relationships or circumstances which are likely to affect, or could appear to affect, the Directors’ judgment. Each of the current non-executive Directors fulﬁlled the independence requirements of the Code. Michael Buckley has been Chairman of the Company since May 2008. On his appointment as Chairman, Mr Buckley met the independence criteria as set out in the Combined Code. Thereafter, as noted in the Code, the test of independence is not appropriate in relation to the Chairman. While Mr Buckley holds a number of other directorships outside of the DCC Group, the Board considers that these do not interfere with the discharge of his duties to DCC. 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. At the beginning of the ﬁnancial year, the Chairman sets a schedule of Board meetings to be held in the following twelve months, which includes the key agenda items for each meeting, having consulted with the other Directors and the Company Secretary. The current schedule envisages seven Board meetings each year but additional meetings are arranged as necessary. During the year ended 31 March 2009, the Board held thirteen meetings. Individual attendance at these meetings is set out in the table on page 50. The non-executive Directors meet periodically without executives being present. Corporate Governance (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 49 Remuneration Details of remuneration paid to the Directors are set out in the Report on Directors’ Remuneration and Interests on pages 52 to 55. Share Ownership and Dealing Details of the Directors’ interests in DCC shares are set out in the Report on Directors’ Remuneration and Interests on pages 52 to 55. The Board has adopted The Model Code, as set out in the Listing Rules of the Irish Stock Exchange and the UK Listing Authority, as the code of dealings applicable to dealings in DCC shares by Directors and relevant Group employees. Under the policy, Directors and relevant Group employees are required to obtain clearance from the Chairman or Chief Executive before dealing in DCC shares and are prohibited from dealing in the shares during prohibited periods as deﬁned by the Listing Rules. Board Committees Audit Committee The Audit Committee comprises three independent non-executive Directors, Bernard Somers (Chairman), Kevin Melia and John Moloney. The Board has determined that Bernard Somers is the Committee’s ﬁnancial expert. Maurice Keane resigned from the Committee on 1 December 2008 and was replaced by Kevin Melia. Roisin Brennan resigned from the Committee on 30 March 2009 and was replaced by John Moloney. The Committee met four times during the year ended 31 March 2009. Individual attendance at these meetings is set out in the table on page 50. 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 at least once a year with the external auditors and with the Group Internal Auditor without executive management being present. The role and responsibilities of the Audit Committee are set out in its written terms of reference, which are available on the Company’s website www.dcc.ie, and include: • monitoring the integrity of the ﬁnancial statements of the Company and any formal announcements relating to the Company’s ﬁnancial performance and reviewing signiﬁcant ﬁnancial reporting judgments contained in them; • reviewing the half-year and annual ﬁnancial statements before submission to the Board; • considering and making recommendations to the Board in relation to the appointment, reappointment and removal of the external auditors; • approving the 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 • reviewing the Group’s arrangements for its employees to raise concerns, in conﬁdence, about possible wrongdoing in ﬁnancial reporting or other matters and ensuring that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action. These responsibilities of the Committee are discharged in the following ways: • The Committee reviews the interim and annual reports as well as any formal announcements relating to the ﬁnancial statements before submission to the Board. The review focuses particularly on any changes in accounting policy and practices, major judgmental areas and compliance with stock exchange, legal and regulatory requirements; • The Committee regularly reviews reports from the Risk Committee and the Enterprise Risk Management function (incorporating Group Internal Audit and Group Environmental, Health and Safety); • The Committee conducts an annual assessment of the operation of the Group’s system of internal control based on a detailed review carried out by Group Internal Audit. The results of this assessment are reviewed by the Committee and are reported to the Board; • The Committee makes recommendations to the Board in relation to the appointment of the external auditor. Each year, the Committee meets with the external auditor and reviews their procedures and the safeguards which have been put in place to ensure their objectivity and independence in accordance with regulatory and professional requirements; • The Committee reviews the external audit plan and the ﬁndings from the external audit of the ﬁnancial statements; • 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. 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 78; and • The Committee has approved a policy on the engagement of the external auditors to provide non-audit services. The policy provides that the external auditor is permitted to provide non-audit services that are not, or are not perceived to be, in conﬂict with auditor independence, providing they have the skill, competence and integrity to carry out the work and are considered to be the most appropriate to undertake such work in the best interests of the DCC Group. Nomination Committee The Nomination Committee comprises Michael Buckley (Chairman) and two independent non-executive Directors, David Byrne and Maurice Keane. Jim Flavin resigned from the Committee on 27 May 2008. Bernard Somers resigned from the Committee on 30 March 2009 and was replaced by David Byrne. The Committee met four times during the year ended 31 March 2009. Individual attendance at these meetings is set out in the table on page 50. The role and responsibilities of the Nomination Committee are set out in its written terms of reference, which are available 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. 50 DCC ANNUAL REPORT AND ACCOUNTS 2009 Corporate Governance (continued) During the year, upon the recommendations of the Nomination Committee, the Board appointed David Byrne, Kevin Melia and John Moloney to the positions of non- executive Directors and Donal Murphy to the position of executive Director. This followed a thorough process undertaken by the Nomination Committee which carefully considered the Board’s requirements, identiﬁed suitable candidates, in terms of quality of individual, age proﬁle, qualiﬁcation and business background, and made recommendations to the Board. The Nomination Committee did not use an external search consultancy or open advertising in the appointment of the new non-executive Directors. Rather, the Committee utilised industry and professional contacts to identify suitable candidates and, as such, did not require the additional assistance that an external search consultancy or open advertising might offer. Remuneration Committee The Remuneration Committee comprises three independent non-executive Directors, Maurice Keane (Chairman), Róisín Brennan and David Byrne, and the Chairman of the Board, Michael Buckley. Bernard Somers resigned from the Committee on 1 January 2009 and was replaced by David Byrne. The Committee met nine times during the year ended 31 March 2009. Individual attendance at these meetings is set out in the table below. The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on the Company’s website www. dcc.ie. The principal responsibilities of the Committee are determining the policy for the remuneration of the Chairman, the Chief Executive, the other executive Directors and certain senior Group management and determining their remuneration packages, including salary, bonuses, pension rights and compensation payments, and the granting of awards under the Company’s long term incentive schemes. The Remuneration Committee consults with the Chief Executive on remuneration for the other executive Directors and for senior Group management. The Remuneration Committee is authorised to obtain access to professional advice if deemed desirable. The Committee has engaged Mercer to make recommendations in relation to and assist in the implementation of a proposed new long term incentive plan which will be put before the 2009 Annual General Meeting. Oversight Committee In August 2007, the Board established an ad hoc Committee of non-executive Directors to oversee issues arising from the Supreme Court judgment in the Fyffes case and the subsequent Inspectorship process. Meetings are held as required. The Committee comprises Michael Buckley, David Byrne and Maurice Keane. Bernard Somers resigned from the Committee on 1 January 2009 and was replaced by David Byrne. Attendance at Board and Committee meetings during the year ended 31 March 2009: Director Board Audit Committee Nomination Committee Remuneration Committee Michael Buckley Tommy Breen Tony Barry1 Róisín Brennan David Byrne2 Jim Flavin3 Paddy Gallagher4 Maurice Keane Kevin Melia5 John Moloney6 Donal Murphy7 Fergal O’Dwyer Bernard Somers A 13 13 12 13 2 4 10 13 3 2 3 13 13 B 13 13 12 13 2 4 10 13 3 2 3 13 13 A - - - 4 - - 2 1 1 - - - 4 B - - - 4 - - 2 1 1 - - - 4 A 4 - - - - 1 - 4 - - - - 4 B 4 - - - - 1 - 4 - - - - 4 A 9 - 2 9 2 - - 9 - - - - 4 B 9 - 2 9 2 - - 9 - - - - 2 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 retired on 28 February 2009. 2 David Byrne was appointed to the Board and to the Remuneration Committee on 1 January 2009 and to the Nomination Committee on 30 March 2009. Jim Flavin resigned on 27 May 2008. 3 4 Paddy Gallagher retired on 1 December 2008. 5 Kevin Melia was appointed to the Board and to the Audit Committee on 1 December 2008. 6 7 Donal Murphy was appointed to the Board on 1 December 2008. John Moloney was appointed to the Board on 2 February 2009 and to the Audit Committee on 30 March 2009. Corporate Governance (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 51 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. As part of the Board evaluation of its own performance, a questionnaire is circulated to all Directors. The questionnaire is designed to obtain Directors’ comments regarding the performance of the Board including any recommendations for improvement. 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. These evaluations are designed to determine whether each Director continues to contribute effectively and to demonstrate commitment to the role. 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. The Board considers the results of the evaluation process and any issues identiﬁed. Relations with Shareholders DCC recognises the importance of communications with shareholders. Presentations are made to both existing and prospective institutional shareholders principally after the release of the interim and annual results. DCC issues an Interim Management Statement twice yearly in February and July. Major acquisitions are also notiﬁed to the market and the Company’s website www.dcc.ie provides the full text of all press releases. The website also contains annual and interim reports and incorporates audio and slide show investor presentations. 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. In addition, the Board determines, on a case by case basis, speciﬁc issues where it would be appropriate for the Chairman and/or Senior Independent Director to communicate directly with shareholders or to indicate that they are available to communicate if shareholders so wish. If any of the non-executive Directors wishes to attend meetings with major shareholders, arrangements are made accordingly. If major shareholders request meetings with new non- executive Directors, this is also facilitated. 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 2009 Annual General Meeting will be held at 11 a.m. on 17 July 2009 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 FRC (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 senior Group management, whose main role is to keep under review and report to the Audit Committee on the principal risks facing the Group, the controls in place to manage those risks and the monitoring procedures; • an independent Enterprise Risk Management function, which incorporates Group Internal Audit and Group Environmental, Health and Safety; and • a formally constituted Audit Committee which reviews the operation of the Risk Committee and the Enterprise Risk Management function, liaises with the external auditors and reviews the Group’s internal control systems. The Board has reviewed the effectiveness of the Group’s system of internal control. This review took account of the principal business risks facing the Group, the controls in place to manage those risks (including ﬁnancial, operational and compliance controls and risk management) and the procedures in place to monitor them. Going Concern After making enquiries, the Directors have formed a judgment, at the time of approving the ﬁnancial statements, that there is a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the ﬁnancial statements. The Directors’ responsibility for preparing the ﬁnancial statements is explained on page 56 and the reporting responsibilities of the auditors are set out in their report on page 57. Compliance Statement DCC has complied, throughout the year ended 31 March 2009, with the provisions set out in Section 1 of the Combined Code on Corporate Governance. 52 DCC ANNUAL REPORT AND ACCOUNTS 2009 Report on Directors’ Remuneration and Interests The basic non-executive Director fee amounts to €60,000 per annum. Additional fees are paid to members and the Chairmen of Board committees. The Chairman of the Board receives a total fee of €225,000 and the Deputy Chairman/ Senior Independent Director receives a total fee of €103,000, in both cases inclusive of the basic fee and committee fees. There have been no increases in the fees of non-executive Directors for the year commencing on 1 April 2009. Non-executives Directors do not participate in the Company’s long term incentive schemes and do not receive any pension beneﬁts from the Company. An ofﬁce is provided for the use of the Chairman. Remuneration Committee The Remuneration Committee comprises three independent non-executive Directors, Maurice Keane (Chairman), Róisín Brennan and David Byrne, and the Chairman of the Board, Michael Buckley. The role and responsibilities of the Remuneration Committee are set out in its written terms of reference, which are available on request and on the Company’s website www.dcc.ie. The principal responsibilities of the Committee are: • determining the policy for the remuneration of the Chairman, the Chief Executive, the other executive Directors and certain senior Group management, • determining their remuneration packages, including salary, bonuses, pension rights and compensation payments, and • the granting of awards under the Company’s long term incentive schemes. The Remuneration Committee consults with the Chief Executive on remuneration for the other executive Directors and for senior Group management. The Remuneration Committee is authorised to obtain access to professional advice if deemed desirable. It has engaged Mercer to make recommendations in relation to and assist in the implementation of a proposed new long term incentive plan, as detailed on page 55. Remuneration Policy The Company’s policy in relation to remuneration is to ensure that employment and remuneration conditions for the Group’s senior executives properly reward and motivate them to perform in the best interests of the shareholders in the long term, within the framework set out in the Combined Code on Corporate Governance. The typical elements of the remuneration package for senior executives are basic salary, performance related annual bonuses, pension beneﬁts and other taxable beneﬁts (principally the use of a company car) and participation in the Company’s long term incentive schemes. 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. There have been no increases in the salaries of executive Directors for the year commencing on 1 January 2009. 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 60% and 100% of basic salary for the year ended 31 March 2009. The performance targets, which are set annually, are based on growth in Group earnings and in divisional operating proﬁt, measured on a constant currency basis, against a pre-determined range, and the overall contribution and personal performance of each executive Director, including Group development. The approximate weighting of the performance targets is 60% to 80% for proﬁt and 20% to 40% for personal contribution. Pension beneﬁts The Company funds pension schemes for executive Directors which aim to provide, on the basis of actuarial advice, a pension of two thirds of pensionable salary at normal retirement date. Pensionable salary is calculated as 105% of basic salary and does not include any performance related bonuses or beneﬁts. Non-Executive Directors’ Remuneration The remuneration of the non-executive Directors is determined by the Board. The fees paid to non-executive Directors reﬂect their experience and ability and the time demands of their Board and Board Committee duties. Report on Directors’ Remuneration and Interests (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 53 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 2009 €’000 2008 €’000 2009 €’000 2008 €’000 2009 €’000 2008 €’000 Pension Contribution3 2009 €’000 2008 €’000 Total 2009 €’000 2008 €’000 Executive Directors Tommy Breen Donal Murphy4 Fergal O’Dwyer Jim Flavin5 677 100 365 133 514 - 347 832 642 180 246 - 411 - 240 - Total for executive Directors 1,275 1,693 1,068 651 Non-executive Directors Michael Buckley6 Tony Barry7 Róisín Brennan David Byrne8 Paddy Gallagher9 Maurice Keane Kevin Melia4 John Moloney10 Bernard Somers Alex Spain11 201 56 73 25 41 77 23 10 93 - 69 61 69 - 64 69 - - 79 41 Total for non-executive Directors 599 452 Ex gratia pension to dependant of retired Director Total - - - - - - - - - - - - - - - - - - - - - - 25 7 22 5 59 - - - - - - - - - - - 22 - 21 38 81 - - - - - - - - - - - 189 34 123 20 149 - 116 119 1,533 321 756 158 1,096 - 724 989 366 384 2,768 2,809 - - - - - - - - - - - - - - - - - - - - - - 201 56 73 25 41 77 23 10 93 - 69 61 69 - 64 69 - - 79 41 599 452 10 10 3,377 3,271 Notes 1 Fees are payable only to non-executive Directors and include Board Committee fees. 2 3 In the case of the executive Directors, beneﬁts relate principally to the use of a company car. Executive Director pension contributions in the year ended 31 March 2009 were made to a deﬁned beneﬁt scheme for Tommy Breen, Donal Murphy and Fergal O’Dwyer and to a deﬁned contribution arrangement for Jim Flavin. Jim Flavin resigned as a Director on 27 May 2008. 4 Kevin Melia and Donal Murphy were appointed as Directors on 1 December 2008. 5 6 Michael Buckley was appointed Chairman on 27 May 2008. 7 Tony Barry retired as a Director on 28 February 2009. 8 David Byrne was appointed as a Director on 1 January 2009. 9 Paddy Gallagher retired as a Director on 1 December 2008. 10 John Moloney was appointed as a Director on 2 February 2009. 11 Alex Spain retired as a Director on 30 June 2007. Executive 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 2009 and the transfer value of the increase in accrued beneﬁt, under the Company’s deﬁned beneﬁt pension scheme: Executive Directors Tommy Breen Donal Murphy4 Fergal O’Dwyer Total Increase in accrued pension beneﬁt (excl inﬂation) during the year1 €’000 Transfer value equivalent to the increase in accrued pension beneﬁt2 €’000 Total accrued pension beneﬁt at year end3 €’000 64 2 16 82 761 17 168 946 255 70 145 470 Notes 1 2 Increases are after adjustment for inﬂation over the year and reﬂect additional pensionable service and salary. The transfer value equivalent to the increase in accrued pension beneﬁt has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer values do not represent sums paid to or due to the Directors named, but are the amounts that would transfer to another pension scheme in respect of the increase in accrued pension beneﬁt during the year. 3 Figures represent the total accrued pension payable from normal retirement date, based on pensionable service at 31 March 2009. 4 The increase in accured pension beneﬁt and the transfer value in the case of Donal Murphy relate to the period from his appointment as a Director on 1 December 2008. 54 DCC ANNUAL REPORT AND ACCOUNTS 2009 Report on Directors’ Remuneration and Interests (continued) Share Options DCC plc 1998 Employee Share Option Scheme Executive Directors and other senior executives participated in the DCC plc 1998 Employee Share Option Scheme. As the ten year period during which share options could be granted under this Scheme expired in June 2008, no further grant of such options will be made. The percentage of share capital which could be issued under the Scheme, the phasing of the grant of options and the limit on the value of options which could be granted to any individual complied with guidelines published by the institutional investment associations. The Scheme provided 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. Over the life of the Scheme, the total number of basic and second tier options granted, net of options lapsed, amounted to 7.1% of issued share capital, of which 3.4% is currently outstanding. 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 2009 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. Number of options Options exercised in year At 31 March Granted Exercised in year in year 2008 Lapsed in year Weighted average option price at 31 2009 March 2009 € At 31 March Weighted average Weighted market average price at date of exercise price exercise € € Normal Exercise Period Executive Directors Tommy Breen Basic Tier Second Tier Donal Murphy1 Basic Tier Second Tier Fergal O’Dwyer Basic Tier Second Tier Jim Flavin2 Basic Tier Second Tier Company Secretary Gerard Whyte Basic Tier Second Tier 245,000 190,000 20,000 - 45,000 45,000 - 220,000 - 145,000 13.59 9.17 June 2001 – May 2018 June 2003 – Nov 2012 7.09 7.10 13.52 13.52 85,000 45,000 - - - - - - 85,000 45,000 13.77 9.70 Aug 2001 – May 2018 Aug 2003 – Nov 2012 - - - - 197,500 165,000 15,000 - 45,000 45,000 - 167,500 - 120,000 12.87 8.94 June 2001 – May 2018 June 2003 – Nov 2012 7.09 7.10 13.52 13.52 428,416 395,000 - 333,416 95,000 - 275,000 120,000 - - - - - - 8.60 7.15 15.53 15.44 100,000 80,000 10,000 - 14,000 14,000 - - 96,000 66,000 13.13 9.22 June 2001 – May 2018 June 2003 – Nov 2012 7.21 7.21 13.74 13.74 1 2 Donal Murphy was appointed as a Director on 1 December 2008. The opening balances above relate to the position at the date of his appointment. Jim Flavin resigned as a Director on 27 May 2008. The market price of DCC shares on 31 March 2009 was €11.40 and the range during the year was €10.05 to €17.00. Report on Directors’ Remuneration and Interests (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 55 DCC Sharesave Scheme The Group established a Revenue approved save as you earn scheme, 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 2009, Group employees held options to subscribe for 223,398 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 Donal Murphy Fergal O’Dwyer Company Secretary Gerard Whyte * or date of appointment if later. No. of options At 31 March 2009 No. of options At 31 March 2008* - 653 - 815 - 653 - 815 Additional information in relation to the DCC plc 1998 Employee Share Option Scheme and the DCC Sharesave Scheme appears in note 10 on page 80. Review of Long Term Incentive Arrangements Following the termination of the DCC plc 1998 Employee Share Option Scheme in 2008, the Remuneration Committee undertook a review of long term incentive arrangements for executive Directors and senior management, in which it was advised by independent consultants Mercer. Arising from the review, it was concluded that the Company should introduce a new long term incentive plan. Accordingly, following consultation with the Irish Association of Investment Managers and other signiﬁcant shareholders, the DCC plc Long Term Incentive Plan 2009 (‘the Plan’) will be put to shareholders for approval at the forthcoming Annual General Meeting. Executive Directors will be eligible to participate in the Plan if approved. Further details of the proposed Plan are set out in the Notice of Annual General Meeting and explanatory letter from the Chairman. Directors’ and Company Secretary’s Interests The interests of the Directors and the Company Secretary (including their respective family interests) in the share capital of DCC plc at 31 March 2009 (together with their interests at 31 March 2008 or date of appointment, if later) were: Directors Michael Buckley Tommy Breen Róisín Brennan David Byrne Maurice Keane Kevin Melia John Moloney Donal Murphy Fergal O’Dwyer Bernard Somers Company Secretary Gerard Whyte * or date of appointment if later. All of the above interests were beneﬁcially owned. No. of Ordinary Shares At 31 March 2009 No. of Ordinary Shares At 31 March 2008* 10,000 279,395 - - 5,000 - - 70,460 254,889 1,000 137,200 10,000 214,395 - - 5,000 - - 70,460 214,889 1,000 126,544 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 2009. The Company’s Register of Directors Interests (which is open to inspection) contains full details of Directors’ shareholdings and share options. Directors’ Service Agreements With the exception of Tommy Breen, Chief Executive, who has a service agreement with a minimum notice period of twelve months, none of the other Directors has a service contract with the Company or with any member of the Group. 56 DCC ANNUAL REPORT AND ACCOUNTS 2009 Statement of Directors’ Responsibilities The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the ﬁnancial position of the Company and 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 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 corporate and ﬁnancial information included on the Company’s website. Legislation in the Republic of Ireland governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. Directors’ Statement Pursuant to the Transparency Regulations Each of the Directors, whose names and functions are listed on pages 4 to 5, conﬁrms 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 the Group; and • the Report of the Directors includes a fair review of the development and performance of the Group’s business and the position of the Company and Group, together with a description of the principal risks and uncertainties facing the Group. The Directors are responsible for preparing the Annual Report and the ﬁnancial statements in accordance with applicable laws and regulations. Irish 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. 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 IFRSs 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 and the Parent Company will continue in business. The Directors conﬁrm that they have complied with the above requirements in preparing the ﬁnancial statements. The Directors are also required by applicable law and the Listing Rules issued by the Irish Stock Exchange, to prepare a Report of the Directors and reports relating to Directors’ remuneration and corporate governance. In accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 (‘the Transparency Regulations’), the Directors are required to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Group. On behalf of the Board Michael Buckley Non-executive Chairman Tommy Breen Chief Executive Report of the Independent Auditors For the year ended 31 March 2009 DCC ANNUAL REPORT AND ACCOUNTS 2009 57 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 2009 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 Parent Company Balance Sheet is in agreement with the books of account. We also report to you our opinion as to: • whether the Company has kept proper books of account; • whether the Directors’ Report is consistent with the ﬁnancial statements; and • whether at the balance sheet date there existed a ﬁnancial situation which may require the Company to convene an extraordinary general meeting of the Company; such a ﬁnancial situation may exist if the net assets of the Company, as stated in the Company Balance Sheet, are not more than half of its called-up share capital. We also report to you if, in our opinion, any information speciﬁed by law or the Listing Rules of the Irish Stock Exchange regarding Directors’ remuneration and Directors’ transactions is not disclosed and, where practicable, include such information in our report. We review whether the Corporate Governance statement reﬂects the Company’s compliance with the nine provisions of the Financial Reporting Council’s 2006 Combined Code speciﬁed for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited ﬁnancial statements. The other information comprises only the Chairman’s Statement, the Chief Executive’s Review, the Operating and Financial Review, the Sustainability Report, 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. 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 2009 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 2009 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. 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 2009 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 18 May 2009 58 DCC ANNUAL REPORT AND ACCOUNTS 2009 Group Income Statement For the year ended 31 March 2009 Pre exceptionals €’000 Note 2009 Exceptionals (note 11) €’000 Total €’000 Pre exceptionals €’000 2008 Exceptionals (note 11) €’000 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 4 5 5 4 4 12 12 14 15 6,400,126 (5,735,419) 664,707 (244,227) (252,307) 14,320 (2,097) 180,396 (5,719) 174,677 (41,262) 20,152 168 153,735 (19,436) - - - - - 6,176 (26,015) (19,839) - (19,839) - 3,919 - (15,920) (1,500) 6,400,126 (5,735,419) 664,707 (244,227) (252,307) 20,496 (28,112) 5,531,962 (4,940,247) 591,715 (205,118) (230,470) 14,564 (3,511) 160,557 (5,719) 154,838 (41,262) 24,071 168 137,815 (20,936) 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) Total €’000 5,531,962 (4,940,247) 591,715 (205,118) (230,470) 109,327 (58,669) 206,785 (7,928) 198,857 (44,912) 27,120 639 181,704 (16,530) Proﬁt after tax for the ﬁnancial year 134,299 (17,420) 116,879 127,325 37,849 165,174 Proﬁt attributable to: Equity holders of the Company Minority interest Earnings per ordinary share Basic Diluted 18 18 Michael Buckley, Tommy Breen, Directors 116,314 565 116,879 142.36c 141.36c 164,491 683 165,174 204.28c 200.31c Group Statement of Recognised Income and Expense For the year ended 31 March 2009 DCC ANNUAL REPORT AND ACCOUNTS 2009 59 Items of income and expense recognised directly within equity: Currency translation effects Group deﬁned beneﬁt pension obligations: - actuarial loss - movement in deferred tax asset Deferred tax on share based payment (Losses)/gains relating to cash ﬂow hedges Movement in deferred tax liability on cash ﬂow hedges Net expense recognised directly in equity Proﬁt after tax for the ﬁnancial year Total recognised income and expense for the ﬁnancial year Attributable to: Equity holders of the Company Minority interest Total recognised income and expense for the ﬁnancial year Note 2009 €’000 2008 €’000 32 15 15 15 (85,812) (64,310) (9,517) 911 - (1,600) 204 (95,814) 116,879 21,065 (9,086) 1,200 25 385 (46) (71,832) 165,174 93,342 20,500 565 21,065 92,659 683 93,342 60 DCC ANNUAL REPORT AND ACCOUNTS 2009 Group Balance Sheet As at 31 March 2009 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 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 2009 €’000 319,301 443,188 2,208 9,435 128,313 902,445 2008 €’000 337,058 416,883 4,678 10,199 25,347 794,165 208,759 672,782 322 426,789 1,308,652 2,211,097 219,752 807,433 1,523 485,840 1,514,548 2,308,713 22,057 124,687 7,807 (1,174) (153,036) 1,400 720,909 722,650 3,581 726,231 22,057 124,687 6,651 222 (67,224) 1,400 650,871 738,664 3,771 742,435 525,405 17,372 15,827 29,498 5,309 15,057 1,995 610,463 696,294 54,948 101,657 1,660 13,754 6,090 874,403 1,484,866 2,211,097 358,119 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 Group Cash Flow Statement For the year ended 31 March 2009 DCC ANNUAL REPORT AND ACCOUNTS 2009 61 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 Deferred acquisition consideration paid Net cash ﬂows from investing activities Financing activities Inﬂows Re-issue of treasury shares Increase in ﬁnance lease liabilities Increase in interest-bearing loans and borrowings Outﬂows 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 2009 €’000 304,874 (60,940) (38,274) (14,147) 191,513 - 5,484 1,130 8,481 16,417 31,512 (56,970) (89,725) (11,987) (158,682) (127,170) 10,267 - 84,348 94,615 (92,938) (1,129) (47,937) (766) (142,770) (48,155) 16,188 (36,717) 396,046 375,517 2008 €’000 129,043 (4,168) (38,541) (21,902) 64,432 172,000 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) 310,187 396,046 426,789 (51,272) 375,517 485,840 (89,794) 396,046 62 DCC ANNUAL REPORT AND ACCOUNTS 2009 Company Balance Sheet As at 31 March 2009 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 Note 21 22 24 27 36 37 38 39 41 25 2009 €’000 1,244 161,065 162,309 452,817 815 453,632 615,941 22,057 124,687 344 194,317 341,405 10,387 10,387 264,149 264,149 274,536 615,941 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 Company Statement of Recognised Income and Expense For the year ended 31 March 2009 DCC ANNUAL REPORT AND ACCOUNTS 2009 63 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 2009 Cash generated from operations Interest paid Income tax received/(paid) 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 Re-issue of treasury shares Outﬂows 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 Note 42 17 2009 €’000 1,702 1,702 2008 €’000 221,280 221,280 1,702 221,280 2009 €’000 31,207 (1,069) 1 30,139 - 5,682 5,682 - - 5,682 10,267 10,267 (47,937) (47,937) (37,670) (1,849) 2,664 815 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 64 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements 1. Summary of Signiﬁcant Accounting Policies Statement of Compliance The consolidated ﬁnancial statements of DCC plc have been prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations approved by the International Accounting Standards Board (IASB) as adopted by the European Union (EU) and those parts of the Companies Acts, 1963 to 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. The accounting policies applied in the preparation of the ﬁnancial statements for the year ended 31 March 2009 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 note 3. 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: • Improvements to IFRSs (effective date: DCC ﬁnancial year beginning 1 April 2009). The improvements include changes in presentation, recognition and measurement plus terminology and editorial changes. These improvements are not expected to have a signiﬁcant impact on the Group’s accounts. • IFRS 1 Revised First-time Adoption of International Financial Reporting Standards (effective date: DCC ﬁnancial year beginning 1 April 2010). This revised standard clariﬁes the requirements for ﬁrst-time adoption of new and amended IFRSs. This standard will not have a signiﬁcant impact on the Group’s accounts. • 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 any 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. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 65 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. • Amendment to IAS 39 Eligible Hedged Items (effective date: DCC ﬁnancial year beginning 1 April 2010). This amendment clariﬁes how the principles that determine whether a hedged risk (or portions of cash ﬂows) is eligible for designation should be applied. This amendment will not have a signiﬁcant impact 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 have no effect on the Group’s ﬁnancial statements. • IFRIC Interpretation 15 Agreements for the Construction of Real Estate (effective date: DCC ﬁnancial year beginning 1 April 2009). This interpretation gives guidance on determining the recognition of revenue among real estate developers. This IFRIC will have no effect on the Group’s ﬁnancial statements. • IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation (effective date: DCC ﬁnancial year beginning 1 April 2009). This interpretation provides guidance on accounting for the hedge of a net investment in a foreign operation in an entity’s consolidated ﬁnancial statements. This IFRIC will have no effect on the Group’s ﬁnancial statements. • IFRIC Interpretation 17 Distributions of Non-cash Assets to Owners (effective date: DCC ﬁnancial year beginning 1 April 2010). This interpretation gives guidance on measuring the distribution of assets, other than cash, when paying a dividend to the owners of the entity. This IFRIC will have no effect on the Group’s ﬁnancial statements. • IFRIC Interpretation 18 Transfers of Assets from Customers (effective date: DCC ﬁnancial year beginning 1 April 2010). This interpretation gives guidance for utility companies on receipt from customers of property, plant and equipment that must be used to connect those customers to a utilities network. This IFRIC will have no effect on the Group’s ﬁnancial statements. Basis of Consolidation Subsidiaries Subsidiaries are entities that are controlled by the Group. Control exists where the Group has the power, directly or indirectly, to govern the ﬁnancial and operating policies of the entity so as to obtain beneﬁts from its activities. 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. 66 DCC ANNUAL REPORT AND ACCOUNTS 2009 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, IAS 39 ineffective mark to market movements 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 presented in the Income Statement and disclosed in the related notes as exceptional items. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on a straight-line basis at the rates stated below, which are estimated to reduce each item of property, plant and equipment to its residual value level by the end of its useful life: Freehold and long term leasehold buildings Plant and machinery Cylinders Motor vehicles Fixtures, ﬁttings & ofﬁce equipment Annual Rate 2% 5 - 331/3% 62/3% 10 - 331/3% 10 - 331/3% Land is not depreciated. The residual values and useful lives of property, plant and equipment are reviewed, and adjusted if appropriate, at each balance sheet date. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 67 1. Summary of Signiﬁcant Accounting Policies (continued) 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. 68 DCC ANNUAL REPORT AND ACCOUNTS 2009 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, ﬁnite-lived intangible assets are amortised over periods ranging from two to six years, depending on the nature of the intangible asset. The carrying amount of ﬁnite-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 recognised initially at fair value and subsequently measured at amortised cost using the effective interest method 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. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 69 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’ or ‘Finance Income’. 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’ or ‘Finance Income’. 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. 70 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 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 (ii) 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. Deferred tax assets are recognised in respect of all deductible temporary differences, carry-forward of unused tax credits and unused tax losses to the extent that it is probable that taxable proﬁts will be available against which to offset these items except: (i) where the deferred tax asset arises from the initial recognition of an asset or a liability in a transaction that is not a business combination and affects neither the accounting proﬁt nor the taxable proﬁt or loss at the time of the transaction; and (ii) where, in respect of deductible temporary differences associated with investment in subsidiaries, joint ventures and associates, a deferred tax asset is recognised only if it is probable that the deductible temporary difference will reverse in the foreseeable future and that sufﬁcient taxable proﬁts will be available against which the temporary difference can be utilised. The carrying amounts of deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁt would be available to allow all or part of the deferred tax asset to be utilised. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 71 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. 72 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 approximate to 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 64 to 72. 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 and judgments: Goodwill The Group has capitalised goodwill of €429.3 million at 31 March 2009. 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 fair value, management judgment is required in forecasting cash ﬂows of reporting units, in determining terminal growth values and in selecting an appropriate discount rate. 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 €81.8 million at 31 March 2009. At 31 March 2009 the Group also has plan assets totalling €52.3 million, giving a net pension liability of €29.5 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. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 73 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 and recycling services to the industrial, commercial, construction and public sectors in Britain and Ireland. Intersegment revenue is not material and thus not subject to separate disclosure. 74 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 4. Segment Information (continued) The segment results for the year ended 31 March 2009 are as follows: Income Statement items Year ended 31 March 2009 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage Environmental €’000 €’000 DCC Segment revenue 4,130,842 1,551,316 331,223 304,973 81,772 Operating proﬁt* Amortisation of intangible assets Net operating exceptionals (note 11) 100,694 40,138 17,300 12,040 10,224 (2,830) (882) (704) (496) (5,803) (2,768) (6,077) (3,974) (807) (467) Unallocated €’000 Total €’000 - - - 6,400,126 180,396 (5,719) (750) (19,839) 92,061 36,488 10,519 7,570 8,950 (750) Operating proﬁt Finance costs Finance income Share of associates’ proﬁt after tax Proﬁt before income tax Income tax expense Proﬁt for the year 154,838 (41,262) 24,071 168 137,815 (20,936) 116,879 * Operating proﬁt before amortisation of intangible assets and net operating exceptionals Year ended 31 March 2008 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage Environmental €’000 €’000 DCC Segment revenue 3,420,026 1,423,357 286,782 310,119 91,678 Operating proﬁt* Amortisation of intangible assets Net operating exceptionals (note 11) Operating proﬁt Finance costs Finance income Share of associates’ proﬁt after tax Proﬁt before income tax Income tax expense Proﬁt for the year 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 36,586 21,189 17,853 11,895 44,191 198,857 (44,912) 27,120 639 181,704 (16,530) 165,174 Unallocated €’000 Total €’000 - - - 5,531,962 167,180 (7,928) * Operating proﬁt before amortisation of intangible assets and net operating exceptionals Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 75 4. Segment Information (continued) Balance Sheet items As at 31 March 2009 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC DCC Food & Beverage Environmental €’000 €’000 Total €’000 Segment assets 732,332 466,079 204,628 144,877 96,114 1,644,030 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 2,208 128,635 9,435 426,789 2,211,097 Segment liabilities 370,951 227,801 56,305 72,779 17,019 744,855 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 627,062 19,032 70,775 21,147 1,995 1,484,866 As at 31 March 2008 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’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 76 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 2009 and 31 March 2008. As at 31 March 2009 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food DCC & Beverage Environmental €’000 €’000 Total €’000 Segment assets Intangible assets Deferred income tax assets Assets employed Segment liabilities Income tax liabilities (current and deferred) Government grants Liabilities employed 732,332 (211,436) 2,144 523,040 370,951 31,407 - 402,358 466,079 (73,178) 1,492 394,393 227,801 18,097 183 246,081 204,628 (89,018) 3,684 119,294 56,305 9,052 1,385 66,742 144,877 (31,128) 1,930 115,679 72,779 5,573 - 78,352 96,114 (38,428) 185 57,871 1,644,030 (443,188) 9,435 1,210,277 17,019 6,646 427 24,092 744,855 70,775 1,995 817,625 Net tangible capital employed 120,682 148,312 52,552 37,327 33,779 392,652 As at 31 March 2008 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’000 Total €’000 Segment assets Intangible assets Deferred income tax assets Assets employed Segment liabilities Income tax liabilities (current and deferred) Government grants Liabilities employed 814,025 (183,952) 3,368 633,441 411,721 26,473 - 438,194 502,010 (68,207) 1,140 434,943 260,290 16,218 228 276,736 213,207 (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 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 77 4. Segment Information (continued) Other segment information Year ended 31 March 2009 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC DCC Food & Beverage Environmental €’000 €’000 Total €’000 Capital expenditure 31,447 3,952 6,737 4,108 9,876 56,120 Depreciation 25,391 3,745 5,071 4,601 6,601 45,409 Intangible assets acquired 54,181 10,586 8,689 2,266 2,085 77,807 Impairment of goodwill - - 3,346 2,115 - 5,461 Year ended 31 March 2008 DCC Energy €’000 DCC SerCom €’000 DCC Healthcare €’000 DCC Food & Beverage €’000 DCC Environmental €’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 Impairment of goodwill - - - - - 1,166 121,027 - - Geographical analysis The following is a geographical analysis of the segment information presented above. Republic of Ireland 2008 2009 €’000 €’000 UK 2009 €’000 2008 €’000 Rest of the World 2009 €’000 2008 €’000 Total 2009 €’000 2008 €’000 Year ended 31 March Income Statement items Revenue 1,004,169 1,112,936 4,819,165 3,982,215 576,792 436,811 6,400,126 5,531,962 Operating proﬁt* 44,277 Amortisation of intangible assets (1,741) Net operating exceptionals (4,867) Segment result 37,669 61,999 (3,009) 45,404 104,394 121,580 (3,887) (11,145) 106,548 95,521 (4,646) (5,331) 85,544 14,539 (91) (3,827) 10,621 9,660 (273) (468) 8,919 180,396 (5,719) (19,839) 154,838 167,180 (7,928) 39,605 198,857 Balance Sheet items Segment assets 424,271 537,000 1,050,120 1,126,567 169,639 117,559 1,644,030 1,781,126 Segment liabilities 190,961 265,645 456,414 515,793 97,480 50,678 744,855 832,116 Other segment information Capital expenditure 14,955 33,525 39,476 52,915 1,689 1,176 56,120 87,616 Depreciation 14,986 14,573 29,470 30,152 953 720 45,409 45,445 Intangible assets acquired 7,953 8,935 62,485 110,841 7,369 1,251 77,807 121,027 Impairment of goodwill 115 - 2,318 - 3,028 - 5,461 - * Operating proﬁt before amortisation of intangible assets and net operating exceptionals 78 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 2009 €’000 2008 €’000 (1,245) (13,075) (14,320) - (14,564) (14,564) 1,156 1,844 - 941 2,097 495 1,172 3,511 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 (note 47) Directors’ fees and salaries Amortisation of government grants (note 35) Operating lease rentals - land and buildings - plant and machinery - motor vehicles During the year the Group obtained the following services from the Group’s auditors (PricewaterhouseCoopers): Audit fees Acquisition related due diligence and litigation support Tax compliance and advisory services 2009 €’000 18,996 1,874 (830) 11,457 513 8,228 20,198 1,351 303 2,186 3,840 2008 €’000 5,638 2,145 (288) 8,388 774 4,907 14,069 1,476 338 1,902 3,716 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 52 to 55. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 79 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 (decrease)/increase in cash and cash equivalents (Overdraft)/cash acquired on acquisition Translation adjustment Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Reconciliation of cash and cash equivalents to net cash Cash and cash equivalents as above Interest-bearing loans and borrowings (current and non-current) Net cash at 31 March 2009 €’000 43,510 (30,125) 13,385 (9,206) (336) (428) 3,415 199 3,614 (1,237) 2,377 23,745 9,574 33,319 20,423 5,440 7,456 12,896 33,319 (2,206) (4,511) 69 (6,648) (15) (339) 9,040 2,038 2,038 (61) 1,977 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 9,040 - 9,040 The Group’s share of the capital commitments of its joint ventures at 31 March 2009 is €2.858 million (2008: €3.798 million). Details of the Group’s principal joint ventures are shown in the Group directory on pages 112 to 114. 80 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 (excluding termination payments - note 11) 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) 2009 Number 2008 Number 2,833 1,403 1,347 1,055 544 7,182 2009 €’000 264,585 29,905 1,156 7,570 3,090 306,306 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 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 €1.156 million (2008: €1.844 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 vesting period options granted Weighted average fair value € Expense in Income Statement 2009 €’000 2008 €’000 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 20 May 2008 10.38 10.70 12.75 15.65 16.70 18.05 23.35 19.50 15.68 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 3 years 609,500 132,000 162,500 219,500 215,000 223,500 323,000 25,000 315,500 2.81 2.76 3.42 4.15 4.52 4.54 6.35 5.22 4.32 DCC Sharesave Scheme 2001 10 December 2004 Total expense 12.63 3 and 5 years 716,010 4.67 (213) 29 33 19 181 222 419 43 379 1,112 44 1,156 81 35 64 179 261 326 456 11 - 1,413 431 1,844 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 81 10. Employee Share Options (continued) Share options DCC plc 1998 Employee Share Option Scheme At 31 March 2009, under the DCC plc 1998 Employee Share Option Scheme, Group employees hold basic tier options to subscribe for 1,902,000 ordinary shares and second tier options to subscribe for 1,131,000 ordinary shares. The number of shares in respect of which basic tier and second tier options may be granted under this Scheme may not exceed 5% of the total number of shares in issue in each case. Basic tier options may normally be exercised only if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 2%, compound, per annum over a period of at least three years following the date of grant. Second tier options may normally be exercised only if the growth in the adjusted earnings per share over a period of at least ﬁve years is such as would place the Company in the top quartile of companies on the ISEQ index in terms of comparison of growth in adjusted earnings per share and if there has been growth in the adjusted earnings per share of the Company equivalent to the increase in the Consumer Price Index plus 10%, compound, per annum in that period. A summary of activity under the DCC plc 1998 Employee Share Option Scheme over the year is as follows: At 1 April Granted Exercised Lapsed At 31 March 2009 2008 Average exercise price in € per share 11.12 15.68 7.54 14.83 12.75 Options 4,262,128 315,500 (1,267,128) (277,500) 3,033,000 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 Total exercisable at 31 March 10.45 1,520,000 8.65 2,632,628 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 €14.73 (2008: €19.39). The share options outstanding at the year end have a weighted average remaining contractual life of 4.4 years (2008: 3.8 years). 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 2009 Granted during the year ended 31 March 2008 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 2009 3 year 15.68 4.60 2.50 25.0 8.0 3 year € 4.32 6.26 2008 3 year 23.07 4.70 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. 82 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 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 20 May 2008 Total outstanding at 31 March 26 June 2008 27 July 2008 4 August 2008 6 August 2008 10 November 2008 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 20 May 2018 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 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 Total exercisable at 31 March 26 June 2008 27 July 2008 4 August 2008 6 August 2008 10 November 2008 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 Exercise price in € per share - - - - - 7.00 10.65 11.25 10.25 10.38 10.70 12.75 15.65 16.70 18.05 23.35 19.50 15.68 Exercise price in € per share - - - - - 7.00 10.65 11.25 10.25 10.38 10.70 12.75 15.65 16.70 2009 2008 Options - - - - - 557,500 50,000 166,500 494,500 374,000 119,500 142,500 166,500 183,000 190,500 248,000 25,000 315,500 3,033,000 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 - 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 2009 2008 Options - - - - - 557,500 50,000 166,500 241,000 95,500 52,000 76,000 113,500 168,000 1,520,000 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 - 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 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 83 10. Employee Share Options (continued) DCC Sharesave Scheme 2001 Under the DCC Sharesave Scheme 2001, Group employees hold options to subscribe for 223,398 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 2009 2008 Average exercise price in € per share 12.63 12.63 12.63 12.63 Average exercise price in € per share 12.63 12.63 12.63 12.63 Options 328,679 (57,452) (47,829) 223,398 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 €15.62 (2008: €16.01). The share options outstanding at the year end have a weighted average remaining contractual life of 1.9 years (2008: 2.4 years). 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 2009 2008 Exercise price in € per share 12.63 12.63 Exercise price in € per share 12.63 12.63 Options 86,891 241,788 328,679 Options - 223,398 223,398 Analysis of closing balance - exercisable at end of year As at 31 March 2009, none (2008: 86,891) of the outstanding options under the DCC Sharesave Scheme 2001 were exercisable. 11. Exceptionals Restructuring costs and other Closure of Days Healthcare Germany Impairment of goodwill Legal fees Proﬁt on disposal of associate Proﬁt on disposal of Manor Park Homebuilders Costs of legal actions with Fyffes plc Operating exceptional items Mark to market gains (included in interest) Net exceptional items before taxation Exceptional taxation charge Net exceptional items after taxation 2009 €’000 (13,045) (9,046) (2,433) (1,491) 6,176 - - (19,839) 3,919 (15,920) (1,500) (17,420) 2008 €’000 (5,158) - - - - 94,763 (50,000) 39,605 - 39,605 (1,756) 37,849 Exceptional restructuring costs, mainly comprising redundancy costs, were incurred in relation to recently acquired and existing Group businesses. DCC Healthcare closed its subsidiary in Germany at a cost of €9.046 million, which includes redundancies and other exit costs, asset write offs and an impairment of acquisition goodwill of €3.028 million. 84 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 11. Exceptionals (continued) There was a non-cash goodwill impairment charge. An impairment review is performed annually for each cash-generating unit to which a carrying amount of goodwill has been allocated. The Group has written down the carrying value of goodwill amounts in relation to certain Healthcare and Food & Beverage subsidiaries and accordingly a charge of €2.433 million has been taken in the year ended 31 March 2009. The disposal of a small US associate company gave rise to an exceptional proﬁt of €6.176 million and a cash inﬂow of €8.481 million. Most of the Group’s debt has been raised in the US Private Placement debt market and swapped, using long term interest, currency and cross currency derivatives to ﬂoating rate sterling and euro. Under IAS 39, after ‘marking to market’ swaps designated as fair value hedges and the related ﬁxed rate debt, the level of ineffectiveness is taken to the Income Statement. The recent volatility in capital markets has given rise to a mark to market ineffectiveness gain of €3.919 million. This signiﬁcant gain will unwind as a loss over the remaining life of the relevant swaps and the Group regards this gain and similar movements in the future as exceptional in nature. An exceptional deferred tax charge of €1.500 million arises in relation to a recent change in UK tax legislation providing for the withdrawal of industrial building allowances. 12. Finance Costs and Finance Income Finance costs On bank loans, overdrafts and Unsecured Notes - repayable within 5 years, not by instalments - repayable within 5 years, by instalments - repayable wholly or partly in more than 5 years On loan notes - repayable within 5 years, not by instalments On ﬁnance leases Other interest Other ﬁnance costs: Interest on deﬁned beneﬁt pension scheme liabilities (note 32) Unwinding of discount applicable to deferred acquisition consideration Mark-to-market of swaps and related debt* Finance income Interest on cash and term deposits Other income receivable Expected return on deﬁned beneﬁt pension scheme assets (note 32) Mark-to-market of swaps and related debt* (note 11) Net ﬁnance cost * 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 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) 2009 €’000 2008 €’000 (13,116) (165) (21,373) (74) (157) (946) (35,831) (5,006) (425) - (41,262) 15,724 156 4,272 3,919 24,071 (18,880) (72) (19,727) (3) (532) (547) (39,761) (4,405) (648) (98) (44,912) 21,886 245 4,989 - 27,120 (17,191) (17,792) 15,649 104,431 (140,928) 24,744 23 3,919 15,056 18,140 (9,043) (24,301) 50 (98) 2009 €1=Stg£ 2008 €1=Stg£ 0.930 0.826 0.795 0.702 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 85 14. Share of Associates’ Proﬁt after Tax The Group’s share of associates’ proﬁt after tax is equity-accounted and is presented as a single line item in the Group Income Statement. The proﬁt after tax generated by the Group’s associates is analysed as follows: Group share of: Revenue Proﬁt before ﬁnance costs Finance (costs)/income (net) Proﬁt before income tax Income tax expense Proﬁt after tax 15. Income Tax Expense (i) Income tax expense recognised in the Income Statement Current taxation Irish Corporation Tax at 12.5% Less manufacturing relief Exceptional taxation charge (note 11) United Kingdom Corporation Tax at 28% (2008: 30%) Other overseas tax Total current taxation Deferred tax Irish at 12.5% United Kingdom at 28% Exceptional taxation charge (note 11) Other overseas deferred tax Under/(over) provision in respect of prior years Total deferred tax charge/(credit) 2009 €’000 2008 €’000 9,725 14,609 340 (52) 288 (120) 168 1,041 2 1,043 (404) 639 2009 €’000 2008 €’000 5,589 (308) - 2,353 5,869 13,503 (555) 4,990 1,500 (158) 1,656 7,433 10,859 (251) 1,756 6,973 2,708 22,045 (2,080) (444) - (91) (2,900) (5,515) Total income tax expense 20,936 16,530 (ii) Deferred tax 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 2009 €’000 (911) - (204) (1,115) 2009 €’000 137,815 (168) 5,719 143,366 20,936 1,271 22,207 13.0% 2.5% 2008 €’000 (1,200) (25) 46 (1,179) 2008 €’000 181,704 (639) 7,928 188,993 16,530 1,659 18,189 11.0% (1.4%) 15.5% 9.6% 86 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 15. Income Tax Expense (continued) 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 2009 % 12.5 (0.1) 3.1 15.5 2008 % 12.5 (0.1) (2.8) 9.6 (iv) Factors that may affect future tax rates and other disclosures The standard rate of corporation tax in Ireland is 12.5% and in the UK the standard rate of corporation tax is 28%. No provision for tax has been recognised in respect of the unremitted earnings of subsidiaries as there is no commitment to remit earnings. Similarly, no deferred tax assets or liabilities have been recognised in respect of temporary differences associated with investments in subsidiaries. 16. Proﬁt Attributable to DCC plc Proﬁt after taxation for the year attributable to equity shareholders amounting to €1.702 million (2008: €221.280 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 36.12 cent per share on 24 July 2008 (2008: paid 31.41 cent per share on 26 July 2007) Interim - paid 22.61 cent per share on 5 December 2008 (2008: paid 20.55 cent per share on 7 December 2007) 2009 €’000 2008 €’000 29,373 25,258 18,564 16,555 47,937 41,813 The Directors are proposing a ﬁnal dividend in respect of the year ended 31 March 2009 of 39.73 cent per ordinary share (€32.634 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 Weighted average number of ordinary shares in issue (thousands) 2009 €’000 2008 €’000 116,314 4,448 17,420 138,182 164,491 6,269 (37,849) 132,911 2009 cent 2008 cent 142.36c 5.45c 21.32c 169.13c 204.28c 7.79c (47.01c) 165.06c 81,704 80,522 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. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 87 18. Earnings per Ordinary Share (continued) 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 Weighted average number of ordinary shares in issue (thousands) 2009 cent 2008 cent 141.36c 5.40c 21.17c 167.93c 200.31c 7.63c (46.09c) 161.85c 82,284 82,119 The earnings used for the purpose of the diluted earnings per share calculations were €116.314 million (2008: €164.491 million) and €138.182 million (2008: €132.911 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 2009 was 82.284 million (2008: 82.119 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 2009 ‘000 81,704 580 82,284 2008 ‘000 80,522 1,597 82,119 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. 88 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 19. Property, Plant and Equipment Group Year ended 31 March 2009 Opening net book amount Exchange differences Acquisition of subsidiaries (note 46) Additions Disposals Depreciation charge Reclassiﬁcations Closing net book amount At 31 March 2009 Cost Accumulated depreciation Net book amount 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 Land & buildings €’000 Plant & machinery & cylinders €’000 Fixtures & ﬁttings & ofﬁce equipment €’000 Motor vehicles €’000 Total €’000 122,851 (9,625) 4,864 4,241 (1,088) (2,891) - 118,352 125,198 (13,901) 3,954 26,716 (1,904) (20,073) (66) 119,924 33,595 (3,104) 370 7,992 (254) (9,303) 68 29,364 55,414 (6,414) 153 17,171 (1,519) (13,142) (2) 51,661 337,058 (33,044) 9,341 56,120 (4,765) (45,409) - 319,301 135,610 (17,258) 118,352 315,171 (195,247) 119,924 85,457 (56,093) 29,364 106,776 (55,115) 51,661 643,014 (323,713) 319,301 106,002 (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) 55,414 319,621 (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 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 2009 €’000 49,225 (47,296) 1,929 2008 €’000 57,525 (53,999) 3,526 1,461 2,252 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 89 20. Intangible Assets Group Year ended 31 March 2009 Opening net book amount Exchange differences Arising on acquisition (note 46) Revisions to prior year acquisitions (note 46) Impairment charge Other movements Amortisation charge Closing net book amount At 31 March 2009 Cost Accumulated amortisation Net book amount Year ended 31 March 2008 Opening net book amount Exchange differences Arising on acquisition (note 46) Revisions to prior year acquisitions Other movements Amortisation charge Closing net book amount At 31 March 2008 Cost Accumulated amortisation Net book amount Goodwill €’000 403,269 (33,206) 69,896 (754) (5,461) (4,445) - 429,299 Customer relationships €’000 13,614 (1,409) 7,911 - - (508) (5,719) 13,889 Total €’000 416,883 (34,615) 77,807 (754) (5,461) (4,953) (5,719) 443,188 456,917 (27,618) 429,299 40,413 (26,524) 13,889 497,330 (54,142) 443,188 307,405 (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 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 2009 €’000 201,470 72,285 87,583 30,999 36,962 429,299 2008 €’000 177,259 66,873 88,112 32,103 38,922 403,269 In accordance with IAS 36 Impairment of Assets, the cash generating units to which signiﬁcant amounts of goodwill have been allocated are as follows: GB Oils Group Fannin Healthcare Group 2009 €’000 2008 €’000 126,817 64,154 121,734 59,321 90 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 (2009: 2.5%; 2008: 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 (2009: 8.0%; 2008: 7.2%). Applying these techniques, an impairment charge of €5.461 million arose in 2009 (2008: nil). The impairment charge arose in the Group’s Healthcare division primarily on the closure of the Days Healthcare Germany operation, and in Food & Beverage, due to competitive pressures in the UK wine market. 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 CGUs over their carrying amount after the impairment charge noted above. 21. Investments in Associates Group At 1 April Share of proﬁt less dividends Disposals Exchange adjustments and other At 31 March 2009 €’000 4,678 168 (2,194) (444) 2,208 2008 €’000 90,332 419 (85,617) (456) 4,678 Investments in associates at 31 March 2009 includes goodwill of €0.534 million (2008: €1.201 million). The Group’s geographical share of the assets (including goodwill) and liabilities of its associates is as follows: Non-current assets €’000 Current assets €’000 Non-current liabilities €’000 Current liabilities €’000 As at 31 March 2009 Ireland USA As at 31 March 2008 Ireland USA 1,002 - 1,002 1,096 760 1,856 3,399 - 3,399 3,974 1,904 5,878 (504) - (504) (264) - (264) Net assets €’000 2,208 - 2,208 (1,689) - (1,689) (2,093) (699) (2,792) 2,713 1,965 4,678 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 91 21. Investments in Associates (continued) Company At 1 April Disposal At 31 March 22. Investments in Subsidiary Undertakings Company At 31 March 2009 €’000 1,244 - 1,244 2008 €’000 1,300 (56) 1,244 2009 €’000 2008 €’000 161,065 161,065 Details of the Group’s principal operating subsidiaries are shown on pages 112 to 114. Non-wholly owned subsidiaries include 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%), Physio-Med Services Limited (94.0%) where put and call options exist to acquire the remaining 6.0% and SerCom Holdings Limited (98.5%) where put and call options exist to acquire the remaining 1.5%. 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 (note 47) Prepayments and accrued income Value added tax recoverable Other debtors Company Amounts owed by subsidiary undertakings Prepayments and accrued income Value added tax recoverable 2009 €’000 8,287 2,104 198,368 208,759 2008 €’000 9,224 1,560 208,968 219,752 2009 €’000 2008 €’000 643,470 (30,753) 39,547 5,447 15,071 672,782 2009 €’000 452,582 111 124 452,817 747,044 (15,624) 50,099 14,903 11,011 807,433 2008 €’000 494,175 351 104 494,630 92 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 2009 At 1 April 2008 Translation adjustment Arising on acquisition (note 46) Exceptional items, interest accruals and other (Decrease)/increase in working capital (note 42) At 31 March 2009 Year ended 31 March 2008 At 1 April 2007 Translation adjustment Arising on acquisition (note 46) Exceptional items, interest accruals and other Increase/(decrease) in working capital (note 42) At 31 March 2008 Company Year ended 31 March 2009 At 1 April 2008 (Decrease)/increase in working capital (note 42) At 31 March 2009 Year ended 31 March 2008 At 1 April 2007 Increase/(decrease) in working capital (note 42) Other At 31 March 2008 2009 €’000 548,098 116,159 8,749 15,271 141 7,484 392 696,294 2009 €’000 262,887 1,262 264,149 Trade and other receivables €’000 Trade and other payables €’000 Inventories €’000 219,752 (22,841) 16,125 126 (4,403) 208,759 177,450 (17,454) 48,244 100 11,412 219,752 807,433 (82,889) 113,140 (519) (164,383) 672,782 597,257 (66,175) 139,071 (6,573) 143,853 807,433 (796,902) 79,327 (118,362) 50,858 88,785 (696,294) (601,404) 60,746 (140,828) (44,531) (70,885) (796,902) Trade and other receivables €’000 Trade and other payables €’000 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 Total €’000 230,283 (26,403) 10,903 50,465 (80,001) 185,247 173,303 (22,883) 46,487 (51,004) 84,380 230,283 Total €’000 494,630 (41,813) 452,817 (282,230) 7,694 (274,536) 212,400 (34,119) 178,281 296,303 198,327 - 494,630 (264,830) (17,520) 120 (282,230) 31,473 180,807 120 212,400 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 93 27. Cash and Cash Equivalents Group Cash at bank and in hand Short-term bank deposits 2009 €’000 152,182 274,607 426,789 2008 €’000 180,627 305,213 485,840 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 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 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 Commodity contracts - cash ﬂow hedges Forward contracts - not designated as hedges Total liabilities Net asset/(liability) arising on derivative ﬁnancial instruments 2009 €’000 2008 €’000 426,789 (51,272) 375,517 485,840 (89,794) 396,046 2009 €’000 2008 €’000 815 2,664 2009 €’000 2008 €’000 24,304 104,009 128,313 - 215 - 107 322 128,635 (17,372) - (17,372) - - (1,100) (451) (109) (1,660) (19,032) 109,603 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) The full fair value of a hedging derivative is classiﬁed as a non-current asset or liability if the remaining maturity of the hedged item is more than twelve months and as a current asset or liability if the maturity of the hedged item is less than twelve months. Interest rate swaps The notional principal amounts of the outstanding interest rate swap contracts designated as fair value hedges under IAS 39 at 31 March 2009 total US$200.0 million and Stg£55.0 million. At 31 March 2009, the ﬁxed interest rates vary from 5.12% to 6.18% and the ﬂoating rates are based on US$ LIBOR and sterling LIBOR. 94 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 28. Derivative Financial Instruments (continued) 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$320.0 million into ﬂoating rate sterling debt of Stg£170.341 million. At 31 March 2009 the ﬁxed interest rates vary from 5.67% to 6.19%. These swaps are designated as fair value hedges under IAS 39. Forward foreign exchange contracts The notional principal amounts of outstanding forward foreign exchange contracts at 31 March 2009 total €34.322 million (2008: €21.366 million). Gains and losses recognised in the cash ﬂow hedge reserve in equity (note 38) at 31 March 2009 on forward foreign exchange contracts designated as cash ﬂow hedges under IAS 39 will be released to the Income Statement at various dates up to twelve months after the balance sheet date. Commodity price forward contracts The notional principal amounts of outstanding forward commodity contracts at 31 March 2009 total €1.5 million (31 March 2008: €0.5 million). Gains and losses recognised in the cash ﬂow hedge reserve in equity (note 38) at 31 March 2009 on forward commodity contracts designated as cash ﬂow hedges under IAS 39 will be released to the Income Statement at various dates up to six months after the balance sheet date. 29. Borrowings Group Non-current: Bank borrowings Finance leases* Unsecured Notes due 2011 to 2019 Current: Bank borrowings Finance leases* Loan notes Unsecured Notes due 2008 Total borrowings *Secured on speciﬁc plant and equipment The maturity of non-current borrowings is as follows: Between 1 and 2 years Between 2 and 5 years Over 5 years 2009 €’000 2008 €’000 1,029 799 523,577 525,405 100,854 800 3 - 101,657 627,062 2009 €’000 1,361 84,334 439,710 525,405 3,040 1,508 353,571 358,119 156,165 1,426 127 59,828 217,546 575,665 2008 €’000 1,459 7,939 348,721 358,119 Bank borrowings, ﬁnance leases and loan notes Interest on bank borrowings, ﬁnance leases and loan notes is at ﬂoating rates set in advance for periods ranging from overnight to less than three months by reference to inter-bank interest rates (EURIBOR, sterling LIBOR and US$ LIBOR) and consequently fair value approximates carrying amounts. The Group had various bank borrowing facilities available at 31 March 2009, including an undrawn committed bank facility. Unsecured Notes due 2011 to 2019 The Group’s Unsecured Notes due 2011 to 2019 is comprised of ﬁxed rate debt of US$7.5 million issued in 1996 and maturing in 2011 (the ‘2011 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’), 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’) and ﬁxed rate debt of US$120.0 million issued in 2008 and maturing in 2013 and 2015 (the ‘2013/15 Notes’). The 2013/15 Notes denominated in US$ 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. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 95 29. Borrowings (continued) 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 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 2009 2008 6.9 years 7.2 years 5.70% 5.95% 5.96% 3.91% 6.09% 5.95% 5.41% 6.36% 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 2009 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 2011 to 2019 Derivative ﬁnancial instruments (net) Group net debt (including share of net cash in joint ventures) At 1 April 2008 €’000 485,840 (89,794) 396,046 (69,538) (2,934) (413,399) (33,894) (123,719) Cash ﬂow €’000 Fair value adjustment €’000 Translation adjustment €’000 At 31 March 2009 €’000 (17,330) 33,518 16,188 19,376 1,129 (9,632) (1,154) 25,907 - - - - - (140,928) 144,847 3,919 (41,721) 5,004 (36,717) (452) 206 40,382 (196) 3,223 426,789 (51,272) 375,517 (50,614) (1,599) (523,577) 109,603 (90,670) Group net debt (excluding share of net cash in joint ventures) (132,759) 32,639 3,919 3,554 (92,647) 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) Cash ﬂow €’000 195,269 (70,190) 125,079 21,727 5,650 (180,286) 187 (27,643) Fair value adjustment €’000 Translation adjustment €’000 At 31 March 2008 €’000 - - - - - (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) 96 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 30. Analysis of Net Debt (continued) Currency proﬁle The currency proﬁle of net debt at 31 March 2009 is as follows: Cash and cash equivalents Borrowings Derivatives The currency proﬁle of net debt at 31 March 2008 is as follows: Cash and cash equivalents Borrowings Derivatives Euro €’000 Sterling €’000 US Dollar €’000 143,924 (240,082) (709) (96,867) 265,707 (377,848) 110,235 (1,906) 16,658 (7,049) 77 9,686 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 Other €’000 500 (2,083) - (1,583) Other €’000 340 (2,338) - (1,998) Total €’000 426,789 (627,062) 109,603 (90,670) Total €’000 485,840 (575,665) (33,894) (123,719) Interest rate proﬁle Cash and cash equivalents at 31 March 2009 and 31 March 2008 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 2011 to 2019 have been swapped to ﬂoating rates which reset on a quarterly or semi-annual basis (note 29). 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 charge/(credit) (note 15) Tax credited to equity (note 15) At 31 March 2009 €’000 2008 €’000 4,109 515 4,811 9,435 15,607 220 15,827 2009 €’000 1,507 (303) (1,130) 7,433 (1,115) 6,392 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 32. Retirement Beneﬁt Obligations Group The Group operates eight deﬁned beneﬁt pension schemes in the Republic of Ireland and three in the UK. The projected unit credit method has been employed in determining the present value of the deﬁned beneﬁt obligation arising, the related current service cost and, where applicable, past service cost. Full actuarial valuations were carried out between 31 December 2005 and 31 March 2009. 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 2009 for International Accounting Standard 19 by a qualiﬁed actuary. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 97 32. Retirement Beneﬁt Obligations (continued) 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 2009 3.75% - 4.00% 2.00% - 3.00% 5.95% 2.00% 2009 4.40% 3.40% 6.90% 3.40% 2009 8.00% 4.00% 7.00% 3.00% 2009 7.50% 4.00% 6.50% 0.50% 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% The expected rate of return for equities and property has been calculated assuming that equities and property will outperform bonds by 4.0% and 3.0% per annum respectively over the long term in the Republic of Ireland schemes and 3.5% and 2.5% per annum respectively over the long term in the UK schemes. 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 2009 Present value of scheme liabilities Net pension liability at 31 March 2009 2009 21.5 24.5 22.5 25.5 ROI €’000 25,086 12,317 2,167 2,485 42,055 (68,843) (26,788) 2008 21.1 24.1 22.1 25.1 Total €’000 30,234 16,601 2,194 3,236 52,265 (81,763) (29,498) 2009 UK €’000 5,148 4,284 27 751 10,210 (12,920) (2,710) 98 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 32. Retirement Beneﬁt Obligations (continued) Equities Bonds Property Cash Total market value at 31 March 2008 Present value of scheme liabilities Net pension liability at 31 March 2008 The amounts recognised in the Group Income Statement in respect of deﬁned beneﬁt pension schemes is as follows: Current service cost 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 Group Statement of Recognised Income and Expense is as follows: Actual return less expected return on pension scheme assets Experience gains and losses arising on the scheme liabilities Changes in assumptions underlying the present value of the scheme liabilities Total, included in the Group Statement of Recognised Income and Expense The movement in the fair value of plan assets is as follows: At 1 April Expected return on assets Actuarial loss Contributions by employers Contributions by members Beneﬁts paid Exchange At 31 March The actual return on plan assets was a loss of €17.632 million (2008: loss of €8.946 million). 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 Exchange At 31 March ROI €’000 37,515 12,393 3,084 1,944 54,936 (70,989) (16,053) 2008 UK €’000 7,415 4,323 171 1,062 12,971 (18,769) (5,798) 2009 €’000 3,090 3,090 (5,006) 4,272 (734) 2009 €’000 (21,904) (589) 12,976 (9,517) 2009 €’000 67,907 4,272 (21,904) 5,137 384 (1,766) (1,765) 52,265 2009 €’000 89,758 3,090 5,006 (12,387) 384 (1,766) (2,322) 81,763 Total €’000 44,930 16,716 3,255 3,006 67,907 (89,758) (21,851) 2008 €’000 3,246 3,246 (4,405) 4,989 584 2008 €’000 (13,935) (3,737) 8,586 (9,086) 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 The level of contributions for the forthcoming ﬁnancial year are expected to be in line with the current year amounts. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 99 32. Retirement Beneﬁt Obligations (continued) History of scheme assets, liabilities and actuarial gains and losses The ﬁve-year history in respect of assets, liabilities and actuarial gains and losses for the Group 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 2009 €’000 2008 €’000 2007 €’000 2006 €’000 52,265 (81,763) (29,498) 67,907 (89,758) (21,851) 74,980 (91,352) (16,372) 67,294 (87,973) (20,679) (21,904) (41.9%) (13,935) (20.5%) 904 1.2% 884 (1.0%) 8,697 12.9% (383) 0.4% 2005 €’000 54,659 (80,039) (25,380) 1,277 2.3% (1,598) 2.0% Experience gains and losses on scheme liabilities As a percentage of the present value of the scheme liabilities (589) 0.7% (3,737) 4.2% Total recognised in the Group Statement of Recognised Income and Expense As a percentage of the present value of the scheme liabilities (9,517) 11.6% (9,086) 10.1% 1,576 (1.7%) 1,779 (2.0%) (7,742) 9.7% Cumulatively since 1 April 2004, €22.990 million has been recognised as a charge in the Group 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 Impact on Irish plan liabilities Impact on UK plan liabilities Increase/decrease 0.25% Increase/decrease 0.25% Increase/decrease by one year Increase/decrease by 5.6% Increase/decrease by 3.6% Increase/decrease by 2.3% Increase/decrease by 6.0% Increase/decrease by 5.5% Increase/decrease by 2.0% 33. Deferred Acquisition Consideration Group The Group’s deferred acquisition consideration of €21.147 million (2008: €30.191 million) as stated on the Balance Sheet consists of €8.223 million of € ﬂoating rate ﬁnancial liabilities (2008: €3.237 million) and €12.924 million of Stg£ ﬂoating rate ﬁnancial liabilities (2008: €26.954 million) payable as follows: Within one year Between one and two years Between two and ﬁve years Analysed as: Non-current liabilities Current liabilities 2009 €’000 6,090 3,165 11,892 21,147 15,057 6,090 21,147 2008 €’000 14,036 8,691 7,464 30,191 16,155 14,036 30,191 100 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 34. Provisions for Liabilities and Charges The reconciliation of the movement in provisions for liabilities and charges for the year ended 31 March 2009 is as follows: Group At 1 April 2008 Provided during the year Utilised during the year Exchange and other At 31 March 2009 Analysed as: Non-current liabilities Current liabilities Environmental and remediation €’000 Rationalisation, restructuring and redundancy €’000 Insurance and other €’000 5,399 (194) - (974) 4,231 4,028 203 4,231 3,463 354 (426) 777 4,168 707 3,461 4,168 Total €’000 13,363 19,321 (13,499) (122) 19,063 4,501 19,161 (13,073) 75 10,664 574 10,090 10,664 5,309 13,754 19,063 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 and remediation €’000 Insurance and other €’000 6,122 285 (93) - (915) 5,399 5,399 - 5,399 4,807 4,684 (2,015) 553 (65) 7,964 - 7,964 7,964 Total €’000 10,929 4,969 (2,108) 553 (980) 13,363 5,399 7,964 13,363 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 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. The claims triangles applied in valuation indicate that these provisions have an average life of four years (2008: four years). Rationalisation and redundancy This provision relates to various rationalisation and restructuring programs across the Group. The majority of this provision falls due within one year. 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) 2009 €’000 2,070 (830) 1,130 6 (240) 2,136 (141) 1,995 2008 €’000 2,632 (288) 92 - (366) 2,070 (129) 1,941 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 101 36. Equity Share Capital Group and Company Authorised 152,368,568 ordinary shares of €0.25 each Issued 88,229,404 ordinary shares (including 6,090,399 ordinary shares held as Treasury Shares) of €0.25 each, fully paid (2008: 88,229,404 ordinary shares (including 7,414,239 ordinary shares held as Treasury Shares) of €0.25 each, fully paid) Ordinary shares of €0.25 each At 31 March 2009 and 31 March 2008 2009 €’000 2008 €’000 38,092 38,092 22,057 22,057 No. of shares ‘000 88,229 €‘000 22,057 As at 31 March 2009, the total authorised number of ordinary shares is 152,368,568 shares (2008: 152,368,568 shares) with a par value of €0.25 per share (2008: €0.25 per share). During the year the Company reissued 1,323,840 Treasury Shares for a consideration (net of expenses) of €10.267 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 52 to 55. 37. Share Premium Account Group and Company At 31 March 2009 and 31 March 2008 38. Other Reserves Group At 1 April 2007 Currency translation Cash ﬂow hedges - fair value gains in year - tax on fair value gains - transfers to sales - transfers to cost of sales - tax on transfers to income tax expense Share based payment At 31 March 2008 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 2009 Company At 31 March 2009 and 31 March 2008 2009 €’000 2008 €’000 124,687 124,687 Share options1 €’000 Cash ﬂow hedge reserve2 €’000 4,807 - - - - - - 1,844 6,651 - - - - - - 1,156 7,807 (117) - 1,665 (374) (306) (943) 297 - 222 - (7,023) 1,217 707 4,716 (1,013) - (1,174) Foreign currency translation reserve3 €’000 (2,914) (64,310) - - - - - - (67,224) (85,812) - - - - - - (153,036) Other reserves4 €’000 1,400 - - - - - - - 1,400 - - - - - - - 1,400 Total €’000 3,176 (64,310) 1,665 (374) (306) (943) 297 1,844 (58,951) (85,812) (7,023) 1,217 707 4,716 (1,013) 1,156 (145,003) Other reserves5 €’000 344 1 The share option reserve comprises the amounts expensed in the Income Statement in connection with share based payments. 2 The cash ﬂow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash ﬂow hedging instruments related to hedged transactions that have not yet occurred. The foreign currency translation reserve represents all foreign exchange differences from 1 April 2004 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 reserves is a capital conversion reserve fund. 102 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 39. Retained Earnings Group At 1 April Net income recognised in Income Statement Net income recognised directly in equity - actuarial loss on Group deﬁned beneﬁt pension schemes - deferred tax on actuarial loss Deferred tax on employee share options Re-issue of treasury shares (net of expenses) Dividends At 31 March Company At 1 April Total recognised income and expense for the ﬁnancial year Re-issue of treasury shares (net of expenses) Dividends At 31 March 2009 €’000 2008 €’000 650,871 116,314 531,994 164,491 (9,517) 911 - 10,267 (47,937) 720,909 (9,086) 1,200 25 4,060 (41,813) 650,871 2009 €’000 2008 €’000 230,285 1,702 10,267 (47,937) 194,317 46,758 221,280 4,060 (41,813) 230,285 The cost to the Group and the Company of €82.358 million to acquire the 6,090,399 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 Re-issue of treasury shares Share based payment (note 10) Dividends (note 17) Movement in minority interest Total recognised income and expense for the ﬁnancial year At 31 March Company At 1 April Re-issue of treasury shares Dividends (note 17) Total recognised income and expense for the ﬁnancial year At 31 March 2009 €’000 3,771 12 565 (766) (1) 3,581 2008 €’000 5,816 - 683 (2,725) (3) 3,771 2009 €’000 2008 €’000 742,435 10,267 1,156 (47,937) (190) 20,500 726,231 687,730 4,060 1,844 (41,813) (2,045) 92,659 742,435 2009 €’000 2008 €’000 377,373 10,267 (47,937) 1,702 341,405 193,846 4,060 (41,813) 221,280 377,373 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 103 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 2009 €’000 2008 €’000 116,879 165,174 20,936 (168) 19,839 17,191 174,677 1,156 45,409 5,719 (719) (830) - (539) 16,530 (639) (39,605) 17,792 159,252 1,844 45,445 7,928 (751) (288) 220 (227) 4,403 164,383 (88,785) 304,874 (11,412) (143,853) 70,885 129,043 2009 €’000 2008 €’000 1,702 221,280 (1) - (4,613) (2,912) 41,813 (7,694) 31,207 1,750 7,056 (3,123) 226,963 (198,327) 17,520 46,156 43. Contingencies Guarantees The Company and certain subsidiaries have given guarantees of €724.802 million (2008: €707.548 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 2007 Limited, DCC Corporate Partners Limited, DCC Energy Limited, DCC Finance 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 (Holdings) 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. 104 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 2009 €’000 3,048 37,833 40,881 2008 €’000 5,113 58,269 63,382 2009 €’000 12,219 36,727 84,354 133,300 2008 €’000 5,759 14,319 29,499 49,577 The Group leases a number of properties under operating leases. The leases typically run for a period of 10 to 25 years. Rents are generally reviewed every ﬁve years. During the year ended 31 March 2009, €20.198 million (2008: €14.069 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 2009 2008 Minimum Payments €’000 Present value of payments €’000 807 832 1,639 (40) 1,599 800 799 1,599 - 1,599 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 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 105 46. Business Combinations The principal acquisitions completed by the Group during the year, together with percentages acquired were as follows: - the acquisition of the trade, assets and goodwill of Chevron’s UK oil distributor business (‘Chevron’) announced on 15 August 2008; - Findlater Grants (100%): an Irish based wine and spirits distributor, announced on 15 September 2008; - Cooke Fuel Cards business (100%): a UK based fuel card sales and marketing business, announced on 5 January 2009; and - Mambo Technology (100%): a Spanish based enterprise distribution business, announced on 3 February 2009. The carrying amounts of the assets and liabilities acquired (excluding net cash acquired), determined in accordance with IFRS before completion of the business combinations, together with the fair value adjustments made to those carrying values 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 2009 €’000 Chevron 2009 €’000 Others 2009 €’000 Total 2008 €’000 Total 5,776 23,383 2,120 - 31,279 6,105 84,994 91,099 3,565 46,513 5,791 3,415 59,284 10,020 28,146 38,166 9,341 69,896 7,911 3,415 90,563 16,130 112,545 8,482 479 137,636 16,125 113,140 129,265 48,244 139,071 187,315 - - (12) (12) (12) (12) - - (593) - - (593) (1,692) - (6) (1,698) (2,285) - (6) (2,291) (2,044) (553) - (2,597) (85,183) - (85,183) (33,179) (734) (33,913) (118,362) (734) (119,096) (140,828) (1,971) (142,799) Total consideration (enterprise value) 36,602 61,827 98,429 179,555 Satisﬁed by: Cash Net (cash)/debt acquired Net cash outﬂow Deferred acquisition consideration Total consideration 36,602 - 36,602 - 36,602 63,432 (10,309) 53,123 8,704 61,827 100,034 (10,309) 89,725 8,704 98,429 156,859 9,725 166,584 12,971 179,555 106 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 46. Business Combinations (continued) The acquisition of Chevron 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: Chevron 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 5,776 93,250 - (85,183) 13,843 22,759 36,602 2,120 (2,151) (593) - (624) 624 - Book value €’000 Fair value adjustments €’000 6,980 38,586 (88) (33,913) 11,565 50,262 61,827 5,791 (420) (1,622) - 3,749 (3,749) - Book value €’000 Fair value adjustments €’000 Fair value €’000 7,896 91,099 (593) (85,183) 13,219 23,383 36,602 Fair value €’000 12,771 38,166 (1,710) (33,913) 15,314 46,513 61,827 Fair value €’000 12,756 131,836 (88) (119,096) 25,408 73,021 98,429 7,911 (2,571) (2,215) - 3,125 (3,125) - 20,667 129,265 (2,303) (119,096) 28,533 69,896 98,429 The initial assignment of fair values to identiﬁable net assets acquired has been performed on a provisional basis in respect of a number of the business combinations above given the timing of closure of these deals. Any amendments to these fair values within the twelve month timeframe from the date of acquisition will be disclosable in the 2010 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. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 107 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 2008 where those fair values were not readily determinable as at 31 March 2008 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) Initial fair value assigned €’000 Adjustments to provisional fair values €’000 25,091 187,315 (2,597) (142,799) 67,010 112,545 179,555 - 377 - 377 754 (754) - Revised fair value €’000 25,091 187,692 (2,597) (142,422) 67,764 111,791 179,555 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 Operating exceptional items Operating proﬁt Finance costs (net) Proﬁt before tax Income tax expense Group proﬁt for the ﬁnancial year 2009 €’000 2008 €’000 624,717 (588,184) 36,533 (26,574) 9,959 (766) 9,193 (86) 9,107 (2,199) 6,908 618,957 (576,804) 42,153 (28,826) 13,327 (1,705) 11,622 81 11,703 (3,245) 8,458 The revenue and proﬁt of the Group for the ﬁnancial period 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 2009 €’000 2008 €’000 7,016,264 6,237,843 117,019 170,668 47. Financial Risk and Capital Management Capital risk management The Group’s objectives when managing its capital structure 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. 108 DCC ANNUAL REPORT AND ACCOUNTS 2009 Notes to the Financial Statements (continued) 47. Financial Risk and Capital Management (continued) The capital structure of the Group, which comprises capital and reserves attributable to the Company’s equity holders, net debt and deferred acquisition consideration, may be summarised as follows: Group Capital and reserves attributable to the Company’s equity holders Net debt (note 30) Deferred acquisition consideration (note 33) At 31 March 2009 €’000 722,650 90,670 21,147 834,467 2008 €’000 738,664 123,719 30,191 892,574 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 2009. These policies and guidelines primarily cover credit risk, liquidity risk, foreign exchange risk, interest rate risk and commodity price 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 2009 of €426.789 million, a minimum of 97.3% (€415.256 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 2009 derivative transactions were with counterparties with ratings ranging from A- to A+ (long-term) with Standard and Poors or Baa2 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 2009 are balances of €98.421 million (2008: €131.477 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 2009 €’000 62,428 25,639 8,207 2,147 98,421 2009 €’000 15,624 18,996 930 (6,238) 3,357 (1,916) 30,753 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 Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 109 47. Financial Risk and Capital Management (continued) Company There were no past due or impaired trade receivables in the Company at 31 March 2009 (31 March 2008: none). (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 lent to Group companies 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 committed and uncommitted credit lines with its relationship banks. Compliance with the Group’s biannual debt covenants is monitored continuously based on the management accounts. Sensitivity analyses using various scenarios are applied to forecasts to assess their impact on covenants and net debt. During the year to 31 March 2009 all covenants have been complied with and based on current forecasts it is expected that all covenants will continue to be complied with for the foreseeable future. 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. Group As at 31 March 2009 Trade and other payables Borrowings (principal repayments) Derivative ﬁnancial instruments Deferred acquisition consideration Future ﬁnance charges Less: future ﬁnance charges Group As at 31 March 2008 Trade and other payables Borrowings (principal repayments) Derivative ﬁnancial instruments Deferred acquisition consideration Future ﬁnance charges Less: future ﬁnance charges Less than Between Between 1 year 1 and 2 years 2 and 5 years €’000 €’000 €’000 696,294 101,657 1,660 6,151 13,023 818,785 (13,023) 805,762 - 1,361 - 3,261 10,673 15,295 (10,673) 4,622 - 66,108 - 12,746 29,744 108,598 (29,744) 78,854 Less than 1 year €’000 Between 1 and 2 years €’000 Between 2 and 5 years €’000 796,902 233,161 1,534 14,407 33,999 1,080,003 (33,999) 1,046,004 - 1,459 - 9,392 22,506 33,357 (22,506) 10,851 - 9,376 - 8,941 66,423 84,740 (66,423) 18,317 Over 5 years €’000 - 349,425 - - 14,649 364,074 (14,649) 349,425 Over 5 years €’000 - 364,086 - - 73,022 437,108 (73,022) 364,086 Total €’000 696,294 518,551 1,660 22,158 68,089 1,306,752 (68,089) 1,238,663 Total €’000 796,902 608,082 1,534 32,740 195,950 1,635,208 (195,950) 1,439,258 The Group has sufﬁcient cash resources and liquid assets to enable it to meet its current borrowing obligations and trade and other payables. Company As at 31 March 2009 Less than Between Between 1 year 1 and 2 years 2 and 5 years €’000 €’000 €’000 Over 5 years €’000 Total €’000 Trade and other payables 264,149 - 10,387 - 274,536 Company As at 31 March 2008 Less than 1 year €’000 Between 1 and 2 years €’000 Between 2 and 5 years €’000 Over 5 years €’000 Total €’000 Trade and other payables 271,843 - 10,387 - 282,230 The Company has sufﬁcient cash resources and liquid assets to enable it to meet its trade and other payables. 110 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 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 by the Group’s sterling operations leaving the Group with a net investment in sterling assets. The 14.5% reduction in the value of sterling against the euro during the year ended 31 March 2009 gave rise to a translation loss of €85.8 million on the translation of the Group’s sterling denominated net asset position at 31 March 2009 as set out in the Statement of Recognised Income and Expense. Included in this ﬁgure is €34.6 million relating 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 a proportion of anticipated transactions in certain subsidiaries for periods ranging up to twelve 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 €11.2 million (2008: €8.3 million) impact on the Group’s proﬁt before tax, would change the Group’s equity by €45.5 million and change the Group’s net debt by €0.6 million (2008: €42.6 million and €4.8 million respectively). These amounts include an insigniﬁcant amount of transactional currency exposure. Company The Company does not have signiﬁcant levels of non-functional currency assets and liabilities at 31 March 2009 or at 31 March 2008. 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 2009, a one percentage point (100 basis points) change in average ﬂoating interest rates would have a €1.5 million (2008: €1.2 million) impact on the Group’s proﬁt before tax. Company The effective interest rates earned during the year on cash at bank ranged from 0.1% to 3.7%. Commodity price risk management The Group is exposed to commodity cost price risk in its oil distribution and LPG businesses. Market dynamics are such that these commodity cost price movements are immediately reﬂected in oil commodity sales prices and, within a short period, in LPG commodity sales prices. Fixed price oil supply contracts are occasionally provided to certain customers for periods of less than one year. To manage this exposure, the Group enters into matching forward commodity contracts, not designated as hedges under IAS 39. While LPG price changes are being implemented, the Group hedges a proportion of its anticipated LPG commodity exposure, with such transactions qualifying as ‘highly probable’ forecast transactions for IAS 39 hedge accounting purposes. In addition, to cover certain customer segments for whom it is commercially beneﬁcial to avoid price increases, a proportion of LPG commodity price and related foreign exchange exposure is hedged. All commodity hedging counterparties are approved by the Board. Notes to the Financial Statements (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 111 47. Financial Risk and Capital Management (continued) Sensitivity to commodity price movements: Group An increase or decrease of 10% in the commodity cost price of oil would have a nil impact on the Group’s proﬁt before tax and on the Group’s equity (2008: nil). The impact on the Group’s proﬁt before tax and on the Group’s equity of an increase or decrease of 10% in the commodity cost price of LPG would be dependant on seasonal variations, competitive pressures and the underlying absolute cost of the commodity at the time and, as such, is difﬁcult to quantify but would not be material. Company The Company has no exposure to commodity price risk. 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 64 to 72. A listing of the principal subsidiaries, joint ventures and associates is provided in the Group Directory on pages 112 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 52 to 55 of this Annual Report. Company Subsidiaries, joint ventures and associates During the year the Company did not receive dividends from its subsidiaries or associates (2008: received €230.000 million). Details of loan balances to/from subsidiaries are provided in the Company Balance Sheet on page 62, 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 €2.352 million (2008: €2.209 million) by its subsidiary, DCC Management Services Limited. 49. Approval of Financial Statements The ﬁnancial statements were approved by the Board of Directors on 18 May 2009. 112 DCC ANNUAL REPORT AND ACCOUNTS 2009 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 Services Limited Alexandra House, Lawnswood Business Park, Redvers Close, Leeds LS16 6QY, England DCC SerCom Principal activity 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 Contact details 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@gb-oils.co.uk www.gb-oils.co.uk Tel: +353 578 674 700 Fax: +353 578 674 775 Email: info@emo.ie www.emo.ie Tel: +44 28 9073 2611 Email: info@ﬂogasni.com 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 Sale of motor fuels through fuel cards Tel: +44 113 384 6264 Fax: +44 871 598 0010 Email: info@fuelcardservices.com www.fuelcardservices.com Company name & address Principal activity Contact details 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 Holding and divisional management company Procurement, sales, marketing and distribution of computer software and peripherals Pilton Company Limited Unit 2, Loughlinstown Industrial Estate, DVDs and computer games and accessories Ballybrack, Co. Dublin, Ireland Procurement, sales, marketing and distribution of Tel: +353 1 2799 400 Fax: +353 1 2831 017 Email: sercom@dcc.ie www.sercomdistribution.com 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 Banque Magnetique SAS Paris Nord 2, Parc des Reﬂets, 99 Avenue de la Pyramide, 95700 Roissy en France Reseller Micro Peripherals Limited Shorten Brook Way, Altham Business Park, Altham, Accrington, Lancashire BB5 5YJ, England Sharptext Limited M50 Business Park, Ballymount Road Upper, Dublin 12, Ireland Procurement, sales, marketing and distribution of computer peripherals and accessories Tel: +33 1 49 90 93 93 Fax: + 33 1 49 90 93 07 Email: c.dupont@banquemagnetique.fr www.banquemagnetique.fr Procurement, sales, marketing and distribution of computer products Procurement, sales, marketing and distribution of computer products 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 Group Directory (continued) DCC ANNUAL REPORT AND ACCOUNTS 2009 113 DCC SerCom (continued) Company name & address 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 Principal activity Contact details Distribution of enterprise infrastructure products in Tel: +33 1 34 58 47 00 France, Iberia & Benelux 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 Company name & address Principal activity Contact details DCC Healthcare Limited DCC House, Brewery Road, Stillorgan, Blackrock, Co. Dublin, Ireland Hospital Supplies & Services 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 Health & Beauty Solutions DCC Health & Beauty Solutions 9-12 Hardwick Road, Astmoor Industrial Estate, Runcorn, Cheshire WA7 1PH, England 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 Ausmedic Australia Pty Limited Unit 4, 37 Leighton Place, Hornsby, NSW 2077, Australia 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 Provision of value-added distribution services to hospitals and healthcare providers Outsourced solutions for the health and beauty industry Contract manufacture and packing of nutraceuticals and cosmetics (liquids and creams) Development, contract manufacture and packing of tablet and hard gel capsule nutraceuticals Development and contract manufacture of soft gel capsule nutraceuticals Development, procurement, sales and marketing of mobility and rehabilitation products Procurement, sales and marketing of rehabilition products Procurement, sales and marketing of mobility and rehabilitation products Tel: +44 1236 739 668 Fax: +44 1236 738 376 Email:corporate@tpshealthcare.com www.tpshealthcare.com Tel: +44 1928 573 734 Fax: +44 1420 566 566 Email: enquiries@dcchealthandbeauty.com www.dcchealthandbeauty.com Tel: +44 1420 566 500 Fax: +44 1420 566 566 Email: reception@laleham-healthcare.com www.laleham-healthcare.com Tel: +44 1928 573 734 Fax: +44 1928 580 694 Email: enquiries@tablets2buy.com www.tablets2buy.com 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: +61 2 94773422 Fax: +61 2 94773522 Email: sales@ausmedic.com www.ausmedic.com 114 DCC ANNUAL REPORT AND ACCOUNTS 2009 Group Directory (continued) DCC Food & Beverage Company name & address Principal activity 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 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 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 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: +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 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 Shareholder Information DCC ANNUAL REPORT AND ACCOUNTS 2009 115 Share Price Data Share price movement during the year - High - Low Share price at 31 March Market capitalisation at 31 March Share price at 18 May Market capitalisation at 18 May Shareholder Analysis as at 31 March 2009 2008 € 26.48 14.78 14.95 1,208m 2009 € 17.00 10.05 11.40 936m 14.50 1,191m 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 Geographic division2 Ireland UK North America Europe/Other Retail3 Total 48 45 180 3,052 3,325 1.4 1.4 5.4 91.8 65,652,538 6,948,735 6,157,901 3,379,831 100.0 82,139,005 79.9 8.5 7.5 4.1 100.0 Number of shares1 % of shares 11,085,527 22,495,121 23,886,652 7,597,579 17,074,126 82,139,005 13.5 27.4 29.1 9.2 20.8 100.0 1 Excludes 6,090,399 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. 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. ISIN: IE0002424939 ISE Xetra: DCC plc Bloomberg: DCC ID, DCC LN Website Through DCC’s website, www.dcc.ie, 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. Tel: + 353 1 247 5698 Fax: + 353 1 216 3151 www.investorcentre.com/ie/contactus 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 2009 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 2009 Annual General Meeting will be held at The Four Seasons Hotel, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland on Friday 17 July 2009 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 2009 • Ex-dividend date for the ﬁnal dividend 27 May 2009 • Record date for the ﬁnal dividend 29 May 2009 • Interim Management Statement 17 July 2009 • Annual General Meeting 17 July 2009 • Proposed payment date for ﬁnal dividend 23 July 2009 • Interim results to be announced November 2009 • Proposed payment date for the interim dividend December 2009 Electronic communications Following the introduction of the Transparency Regulations 2007, and in order to adopt a more environmentally- friendly and cost-effective approach, the Company provides the Annual Report to shareholders electronically via DCC’s website, www.dcc.ie, and only sends a printed copy to those shareholders who speciﬁcally request a copy. Shareholders who choose to receive the Annual Report electronically will also receive other information electronically (such as interim reports, notices of annual general meeting and shareholder circulars) but will continue to receive certain communications by post (such as share certiﬁcates, dividend cheques, dividend payment vouchers and tax vouchers). Shareholders who wish to alter the method by which they receive communications should contact the Company’s Registrar. Electronic proxy voting and CREST voting Shareholders may lodge a Form of Proxy for the 2009 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 the notes in the Notice of Annual General Meeting or on the Form of Proxy. 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 2831 017 email: investorrelations@dcc.ie Corporate Information DCC ANNUAL REPORT AND ACCOUNTS 2009 117 Auditors PricewaterhouseCoopers Chartered Accountants & Registered Auditors One Spencer Dock North Wall Quay Dublin 1 Ireland Bankers Allied Irish Banks Bank of Ireland Barclays BNP Paribas Danske Bank A/S trading as National Irish Bank Deutsche Bank ING Bank N.V. KBC Bank Royal Bank of Scotland Ulster Bank Registered and Head Ofﬁce DCC House Brewery Road Stillorgan Blackrock Co. Dublin Ireland Registrar Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Ireland Solicitors William Fry Fitzwilton House Wilton Place Dublin 2 Ireland Stockbrokers Davy 49 Dawson Street Dublin 2 Ireland JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA England 118 DCC ANNUAL REPORT AND ACCOUNTS 2009 Senior Management Group and Divisional DCC Energy DCC SerCom DCC Healthcare DCC Food & Beverage Chief Executive Chief Financial Ofﬁcer Managing Director Deputy Managing Director Managing Director Finance & Development Director Managing Director Finance & Development Director Managing Director Finance & Development Director DCC Environmental Finance & Development Director Group Secretary & Head of Enterprise Risk Management Managing Director, DCC Corporate Finance Head of Group EHS Head of Group Tax Head of Group HR Head of Group Accounting Group Internal Auditor Head of Group IT Head of Group Treasury Subsidiary and Joint Venture Oil LPG Retail Reseller Enterprise SCM Hospital Supplies & Services Health & Beauty Solutions Mobility & Rehab Healthfoods Indulgence Logistics Other * Joint ventures DCC Energy GB Oils Emo Oil DCC Energy NI - Oil Flogas Ireland Flogas UK Fuel Card Group DCC SerCom Gem Distribution Pilton Banque Magnetique Micro Peripherals Sharptext Distrilogie SerCom Solutions DCC Healthcare (and Fannin) Squadron Medical TPS Healthcare (and Thompson & Capper) Eurocaps Laleham DCC Mobility & Rehab Ausmedic Australia PhysioMed Services Days Healthcare UK DCC Food & Beverage Kelkin Robert Roberts Bottle Green Allied Foods Broderick Bros Kylemore Foods Group * DCC Environmental William Tracey * Wastecycle Enva Ireland Managing Director Managing Director Managing Director Managing Director Managing Director Chief Operations Ofﬁcer Managing Director Managing Director Directeur Général Managing Director Managing Director Directeur Général Chief Executive Ofﬁcer Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director General Manager Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Executive Chairman Managing Director Managing Director Tommy Breen Fergal O’Dwyer Donal Murphy Colman O’Keeffe Niall Ennis Conor Murphy Conor Costigan Ian O’Donovan Frank Fenn Redmond McEvoy Thomas Davy Ger Whyte Michael Scholeﬁeld John Barcroft Yvonne Divilly Ann Keenan Gavin O’Hara Val O’Sullivan Peter Quinn Daphne Tease Sam Chambers Gerry Wilson Pat O’Neill Richard Martin Henry Cubbon Ben Jordan Chris Peacock Jim Morgan Claude Dupont Gerry O’Keeffe John Dunne Patrice Arzillier Kevin Henry Andrew O’Connell Peter Wyslych Catherine McCallum Stephen O’Connor Adrian Williams Tim O’Connor Graham White Ashley Williams Jamie Burles Steve Holton Frank Fenn Tom Gray Jon Eagle John Casey Richard Kieran Brian Hogan Michael Tracey Mike Shearstone Paul Needham Declan Ryan Index Accounting Policies Accounting Records Acquisitions and Capital Expenditure Adjusted Earnings per Share Amortisation of Intangible Assets Analysis of Net Debt Appointment of Directors Appointment of Inspector/Fyffes Case Approval of Financial Statements Articles of Association Attendance at Meetings Audit Committee Auditors 35 45 10 36 36 95 48 7 111 45 50 5, 49 45 Balance Sheet and Group Financing Basis of Consolidation Basis of Preparation Board Board Committees Board Meetings Board Membership Board of Directors Board Procedures Borrowings Business Combinations Business Ethics Business Reviews 38 65 64 6 49 48 48 4,48 48 94 67, 73, 105 43 14 104 69, 93 37 103 48 6 8 41 Capital Expenditure Commitments Cash and Cash Equivalents Cash Flow Cash Generated from Operations Chairman Chairman’s Statement Chief Executive’s Review Climate Change Commitments Under Operating and Finance Leases Commodity Price Risk Management Company Balance Sheet Company Cash Flow Statement Company Statement of Recognised Income 63 and Expense 47 Compliance Risks 51 Compliance Statement 1 Contents 103 Contingencies 44, 48 Corporate Governance 117 Corporate Information 7 Corporate Sustainability Credit Risk Management 39 Critical Accounting Estimates and Judgments 72 104 39 62 63 14 30 26 22 18 99 96 DCC Energy DCC Environmental DCC Food & Beverage DCC Healthcare DCC SerCom Deferred Acquisition Consideration Deferred Income Tax Deputy Chairman and Senior Independent Director Derivative Financial Instruments Direct Economic Value Added Directors Directors’ and Company Secretary’s Interests Directors’ Emoluments and Interests Directors’ Remuneration Directors’ Service Agreements Directors’ Statement pursuant to the Transparency Regulations Dividend Dividend Increase Dividends Divisional Highlights 48 69, 93 41 44 54 78 52, 53 55 56 36 6 44, 86 9 DCC ANNUAL REPORT AND ACCOUNTS 2009 119 Occupational Health & Safety Operational Risks Other Operating Income/Expenses Other Reserves Outcome of the Strategy Review Outlook Oversight Committee Overview of Results Pension and Other Post Employment Obligations Performance Evaluation Political Contributions Post-Retirement Beneﬁts Principal Risks and Uncertainties Principal Subsidiaries and Joint Ventures Proﬁt Attributable To DCC plc Proﬁt before Net Exceptionals, Amortisation of Intangible Assets and Tax Property, Plant and Equipment Proportionate Consolidation of Joint Ventures Provision for Impairment of Trade Receivables Provisions Provisions for Liabilities and Charges 42 47 78 101 13 7, 11 50 35 71 51 45 72 44, 46 45,112 86 35 66, 88 79 73 70 100 111 51 5, 50, 52 52 44 57 Related Party Transactions Relations with Shareholders Remuneration Committee Remuneration Policy Report of The Directors Report of The Independent Auditors Report on Directors’ Remuneration and Interests Research and Development Results Highlights Retained Earnings Retirement Beneﬁt Obligations Return on Capital Empoyed Revenue Recognition Review of Activities and Events Since Year End Review of Long Term Incentive Arrangements Roles of Board of Directors 52 45 6, 8 102 96 37 66 44 54 48 Segment Information Segment Reporting Senior Management Share Capital and Treasury Shares Share of Associates’ Proﬁt after Tax Share Options Share Premium Account Share-Based Payment Transactions Shareholder Information Shareholders’ Equity Statement of Compliance Statement of Directors’ Responsibilities Strategic Risks Strategy Review Substantial Shareholdings Summary of Signiﬁcant Accounting Policies Sustainablity Report 73 66 118 44 70, 85 54 101 71 115 72 64 56 46 7, 11, 12 45 64 40 Takeover Regulations Taxation Trade and Other Payables Trade and Other Receivables Trade Payables Trade Receivables Useful Lives for Property, Plant and Equipment and Intangible Assets 45 36, 73 92 91 68 68 73 Earnings per Ordinary Share Employee Share Options Employment Environmental Provisions Equity Share Capital Exceptional Charge Exceptional Charge (Net) Exceptional Items Exceptionals Fair Value Estimation Finance Costs Finance Costs (Net) Finance Costs and Finance Income Finance Income Financial Review Financial Risk and Capital Management Financial Risk Factors Financial Risk Management Financial Risks Financial Strength Five Year Review Foreign Currency Foreign Currency Translation Foreign Exchange Risk Management Going Concern Goodwill 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 Hedging Highlights Income Tax Income Tax Expense Independence of Non-Executive Directors Intangible Assets Intangible Assets (other than Goodwill) Interest-Bearing Loans and Borrowings Interest Rate Risk and Debt/ Liqudity Management Internal Control Inventories Investments In Associates Investments In Subsidiary Undertakings Key Performance Indicators DCC Energy DCC Environmental DCC Food & Beverage DCC Healthcare DCC Sercom Leases Management and Staff Minority Interest Minority Interests Movement in Total Equity Movement in Working Capital Nomination Committee Nomination Committee Non-Executive Directors’ Remuneration Notes to the Financial Statements 86 80 80 70 101 10 35 66 83 72 70 35 84 70 34 107 72 38 47 10 120 84 66 38 51 67,72 71, 100 2 60 61 112 58 78 59 69 1 70 85 48 89 68 69 39 51 68 90 91 17 33 29 25 21 68 7 102 67 102 92 5 49 52 64 120 DCC ANNUAL REPORT AND ACCOUNTS 2009 5 Year Review Group Income Statement Year ended 31 March 2005 €’m 2006 €’m 2007 €’m 2008 €’m 2009 €’m Revenue 2,644.7 3,436.3 4,046.1 5,532.0 6,400.1 Operating proﬁt before operating exceptional items and amortisation of intangible assets Operating exceptional items Amortisation of intangible assets Operating proﬁt Finance costs (net) Share of associates’ proﬁt after tax Non-operating exceptional items Proﬁt before tax Income tax expense Minority interests Proﬁt attributable to Group shareholders Earnings per share - basic (cent) - basic adjusted (cent) 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) 164.5 180.4 (19.9) (5.7) 154.8 (17.2) 0.2 - 137.8 (20.9) (0.6) 116.3 109.68 137.22 153.92 157.23 174.59 160.02 204.28 165.06 142.36 169.13 Dividend per share (cent) 37.26 42.85 49.28 56.67 62.34 Dividend cover (times) Interest cover (times) * excludes exceptional credit of €3.9 million 3.7 3.7 3.2 19.2 17.2 12.9 2.9 9.4 2.7 8.5* 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 Net debt included above Group Cash Flow Year ended 31 March Operating cash ﬂow Capital expenditure Acquisitions Other Information 2005 €’m 2006 €’m 2007 €’m 2008 €’m 2009 €’m 254.8 208.1 51.4 353.3 541.1 1,408.7 267.5 248.5 76.8 354.4 665.4 1,612.6 319.6 321.4 90.3 340.2 783.1 1,854.6 337.1 416.9 4.7 512.7 1,037.3 2,308.7 319.3 443.2 2.2 555.4 891.0 2,211.1 492.2 585.4 687.7 742.4 726.2 362.2 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 2,308.7 646.1 29.5 809.3 1,484.9 2,211.1 (8.9) (32.7) (100.5) (123.7) (90.7) 2005 €’m 116.4 43.6 81.2 2006 €’m 142.9 57.7 54.7 2007 €’m 127.4 60.7 105.7 2008 €’m 129.0 87.5 176.6 2009 €’m 304.9 57.0 101.7 2005 2006 2007 2008 2009 Return on total capital employed (%) Return on tangible capital employed (%) 20.4% 44.9% 19.1% 43.0% 17.9% 38.9% 17.5% 38.0% 17.8% 41.6% Working capital (days) 10.2 9.5 14.0 16.4 11.9 Average number of employees 4,746 5,109 5,653 6,638 7,182

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