Ladies and gentlemen, thank you for standing by and welcome to the DCC Interiors Results Call. At this time, all participants are in listen only mode.
You.
Any point during the presentation. I'd like to remind you that question can only be asked on the conference call and now to the webcast. If you're dialing into the radio to the conference call, rated and webcast link, you can select the phone option under the cogwheel icon located on the bottom right corner of Itazuendo. This will eliminate a slight delay for those listening via telephone. I must advise that this conference call is being recorded today.
I would now like to hand the conference over to your speaker, Donald Murphy, CEO of DCC to start today's conference call. Please go ahead, sir.
Thank you, and good morning and welcome to DCC's interim results presentation. The 6 months ended 30th September 2020. I'm Donald Murphy, Chief Executive of DCC, and I'm joined by Kevin Lucey, Chief Financial Officer. We're all living in unprecedented and very challenging times due to the COVID-nineteen pandemic. And unfortunately, we can't all be together as usual for this presentation in the London Stock Exchange.
So welcome to DCC's second virtual presentation. Thankfully, I don't have to read the disclaimer. So I'll take it as read. I'm going to cover off the introduction and the highlights of the performance for the 1st 6 months. Kevin will give you a little bit more detail on the financial and divisional performance for the 6 months.
I'll then give you an update on our recent development activity which we're very pleased about. And I'll then give you an overview of the session we are planning on the 18th November on how we see DCC enabling energy transition. And then we'll open up to questions. So despite the very challenging and uncertain environment created by the COVID-nineteen pandemic, DCC delivered a very robust trading performance in the first half of the year. We had strong growth in group adjusted operating profit, increasing by 8.3% to 176,000,000 in the seasonally less significant first half.
The strong performance demonstrates the resilience in DCC's business model the essential nature of the products and services that DCC provides to its customers and the phenomenal capability, agility and commitment of all 13,000 colleagues who worked across the group. Adjusted earnings per share were up 7% to 117.9p. We had an excellent free cash flow generation, driven by a strong working capital performance. The interim dividend was increased by And despite the lockdowns and travel restrictions, we committed approximately $90,000,000 on a number of acquisitions in Europe and North America across 3 of our 4 divisions, and we remain very active on the development front. A key element of DCC's strategy is the maintenance of a strong and liquid balance sheet.
At the 30th September 2020, DCC has net debt of 1,000,000 and a cash on the balance sheet of approximately 1,000,000,000 We committed credit facilities of another $400,000,000. Our extremely strong financial position leads the group well placed to navigate this period of unprecedented uncertainty and to continue our long track record of growth and development in the years to come. Just looking briefly at the divisional performance, DCC LPG traded robustly in the first half with operating profit back 7.4 percent on a constant currency basis. We had a very strong performance in our retail and oil division, operating profit up 10.1 percent on a constant currency basis. DCC Technology traded resiliently with operating profit 1% ahead of the prior year on a constant currency basis.
And finally, DCC Healthcare had a really excellent first half with operating profit 65.9 percent ahead of the prior year on a continuing basis adjusting for the sale of the, generic pharma activities. Given the seasonal waiting by division is less meaningful at the interim stage. For FY 2020, LPG was 46% of group operating profit, retail in oil was 29 percent of operating profit, technology 13% and Healthcare 12%. So the mix at the half year is a little bit different. Just looking at a little bit of the highlights for each of the divisions, DCC LPG traded robustly in a very difficult operating conditions, particularly in the first quarter of the year.
The first half is more weighted to the commercial and industrial volumes which were predominantly impacted in the first quarter by the lockdown. The business also was impacted by warmer weather conditions. We were really pleased with the development activity during the period, but a little bit more about that later. In retail and oil, we had a very strong organic profit growth benefiting from good demand in the domestic and agricultural sectors, offsetting lower demand in commercial, industrial, and transport fuel volumes. Our very agile business model enables us to flex our costs quickly to changing volume mix and this delivered a very strong profit performance.
DCC Technology traded resiliantly as it recovered through the first half to deliver modest operating profit growth The business benefited from strong demand for consumer products, which more than offset a difficult environment for B2B products. And we're really well positioned in the online retail sectors market, and we benefited from that during the first half. And finally, DCC Healthcare had a really strong first half with operating profit up 65.9 percent on a continuing basis. We had really strong demand for nutritional products in our health and beauty business across all the geographies and our recent U. S.
Acquisitions have performed really well. And DCC Vitol also traded very strongly during the first half. I'll now hand over to Kevin, who will give you a little bit more detail on our financial performance and on the divisional performance.
Thanks very much, Donald. So for the next few minutes, we'll just take you through the performance in the first half in a little more detail. We'll begin with a look at the group performance. So, Donald has already mentioned that group adjusted operating profit was up 8.3%. Currency was not a material influence in the first half of the year with constant currency growth of 8.6%.
So just a modest headwind from currency translation in the first half. Approximately half of our operating profit growth was organic, driven by the very strong organic profit growth in DCC Healthcare And DCC retail and oil. You'll see that revenues in the period were back almost 19%. This reflects obviously the lower volumes in the energy businesses, but also the impact of the lower oil and commodity prices in the first half versus the prior year. So revenues in the tech and healthcare businesses combined where revenues are more representative were up 10%.
EPS, up 7% as Donald mentioned, and the board have decided to pay an interim dividend of 51.95 pence per share, which is an increase of 5% in the prior year. I guess we are very pleased with the working capital performance and the related free cash flow performance in the first half. As you will all know, probably on this call that DCC typically has a working capital outflow in the first half of its financial year, which we again saw in the current year, so an outflow of $28,000,000 since March. However, the levels of working capital in the business reduced by $100,000,000 from September 2019, and that's $120,000,000 on a like for like basis. So excluding acquired working capital, which is a very good result really given the uncertain environment and actually the challenge of lower energy volumes and product costs versus the prior year in our negative working capital energy businesses.
So that very good working capital performance drove the very strong free cash flow performance with free cash flow up $90,000,000 on the prior year. And finally, just again to reiterate, key point that Domino has already mentioned and our philosophy around financial strength in DCC, the net debt at the 30th September excluding IFRS 16 lease creditors was 137,000,000 dollars, $1,500,000,000 of cash on the balance sheet and undrawn committed bank facilities $400,000,000. So $1,900,000,000 of liquidity available to DCC for its growth in development. Net debt, including these creditors, was about $440,000,000, again, a reduction of $90,000,000 on the prior year. So moving into the divisional performances and beginning with TCC LPG.
So our LPG division delivered a very robust performance in the first half, given the difficult trading environments. So clearly, the first half in LPG is seasonally much less significant and we typically have a much greater weighting to commercial and industrial volumes in the first half than the second half. So in that context, and also if you remember, in particular, in the early part of lockdown, that the weather was extremely mild, We are pleased with the performance in the first half. Volumes were back 9% and profits back less than that at 7%. Operating profit per ton increased modestly reflecting a good cost performance and the increased weighting in the current year to the domestic and cylinder volumes during the first half.
So geographically, I mean, the French business performed resiliency as we expected, given the weighting in that business to the domestic and cylinder volumes, notwithstanding the warmer weather conditions. Pleasingly, we continue to develop our B2B offerings in natural gas and power, increasing customer numbers during the periods, albeit that volumes were lower given the nature of the restrictions in the weather conditions in France. In Britain and Ireland, we do have that greater weighting to commercial and industrial volumes So whilst volumes were back, we remain encouraged by the pipeline of opportunities that we have in oil to LPG conversions where businesses continue to be very interested in lowering their carbon footprint and getting a cost competitive solution. The Budget Energy business we bought just at the start of the financial year in Ireland is integrated well and again, is increasing its customer numbers and performing well. So similar themes coming across, both in Hong Kong and in Germany, lots of interruptions during the periods to our commercial and industrial customers, some manufacturing, hospitality and leisure, similar business areas.
That would have, suffered a little, but with very resilient performances coming through from our domestic or cylinder segments, And then finally, just to finish our U. S. Business, again, performed well in the period with good organic volume and profit growth. So as you'll know, across 3 of our 4 divisions, we are building material positions in North America now, and Domo will cover a little later, some of the progress we are making in building out our LPG business in the U. S.
So on to DCC Retail and Oil, So TCC Retail And Oil recorded an excellent trading performance in the first half. Our business demonstrated great agility and resilience Despite the very material disruption in certain areas, the business recorded 9.2% growth in operating profit, over 10% on a constant currency basis. Despite the volumes being back almost 18%. There's obviously a couple of key reasons for being able to deliver that profit growth. Firstly, the diversity in the business meant that it was well placed to capitalize on the increased demand coming from the domestic and agri sector, and also the business delivered a very strong cost performance.
Finally, a couple of sectors on the commercial side such as aviation are in general lower margin, and so the fact that they saw severe volume declines did not reflect itself as materially at a contribution level. Obviously, we saw quite different trends during the first half, but during the first quarter, transport fuel volumes and commercial and industrial volumes were significantly impacted. And then began to recover through Q2 at certain points during April, volumes in certain of our retail markets were back maybe 70%, but that depended on the severity of the restrictions. So in Scandinavia generally, although it was materially impacted, the restrictions were less than they were in UK and Ireland or in France, where there was a very severe lockdown early in Q1. Aviation was impacted throughout the, the first half really, and volumes excluding aviation were back 14.6% So during the first half, you know, certain parts of the business continue to perform very resiliency.
Certain parts of the transport fuels market into HDVs, for example, and the domestic customers and agricultural customers also still needed, still needed products. Continue to make good progress during the first half in increasing the penetration of premium, cleaner fuels across the business, particularly in the UK and Austria. In the UK, the business benefited from its increasing diversity with a good performance from the services businesses where we provide roadside or truck stop services or also our lubricants business where we continue to make good progress. In Ireland, we completed the rebranding and have now fully integrated the 22 Former Tesco retail sites, further expanding our presence in the Irish market. As mentioned earlier, we had a strong performance in Scandinavia, where we had a good performance with domestic and agri customers the retail business has also performed well.
It was less impacted than other geographies. Again, we made good progress in developing the business adding further digital capability in connecting with our customers, developing our Car Wash offering and also increasing our investments in our EV supercharging infrastructure. Finally, the French business performed very resiliency, notwithstanding the very difficult start to the year, which I mentioned earlier, our unmanned network really performed well and certainly in the COVID environment seems to win a preference from consumers for its lower costs and pay at the pump local model outperforming. So on to DCC Technology, DCC Technology recovered throughout the 1st half to record modest operating profit growth despite all of the disruption is experienced during the first quarter in particular. So as with the energy businesses, you'll know that DCC Technology is seasonally weighted to the second half.
So DCC Technology again, is a good example of the great agility and diversity we have in DCC. So even though part of DCC technology experienced very significant reduced demand, in particular for B2B products, the fact that the business was able to meet the very strong demand for consumer and working from home products meant that the business traded very resiliency through the first half and recovered throughout the periods. We also delivered a good cost performance in DCC Technology again, was an important contributor in the first half. Organically, operating profit was broadly in line with the prior year. The UK and Ireland, revenues were well up driven by the very strong demand from e tailers, grocers and non traditional retailers, for consumer products, albeit that they're lower margin and higher volume products.
In the B2B areas such as enterprise or ProAV, Unsurprisingly, these were much weaker, and the products these products tend to be higher margin, albeit lower volume. So that mix impact drove a decline in operating profit. We did reach a very important milestone during the first half in our UK business, where we went live during the working from home environments with our significantly enhanced ERP solution. So that was a significant achievement for the business in that environment. And now our focus will move on to leveraging the benefits it can bring over time, particularly in helping to drive our engagement with customers through an enhanced web offering for the B2B channel.
In North America, we delivered very good revenue and operating profit growth, Whilst again, we saw weakness in B2B products with ProAV in particular impact us with conferences, conference centers and event centers, hospitality, and such like postponing investments, consumer and working from home demand was very, very strong. These at home product categories such as consumer electronics, music, audiovisual, even pro audio became must have essential at home products during the lockdown period. In Europe, again, good growth overall in the seasonally less significant first half, with the same general themes being relevant in the DAC region, so Germany and related, we were impacted by B2B weakness given our focus on ProAV in that market in particular. In France and Scandinavia, where we have more consumer products and relationships with the large e tailers and retailers, we improved relative to the prior year in those markets. Finally, no means least, DCC Healthcare, which obviously, they performed very strongly in recent years, is again delivered than performance in the first half.
So DTC Healthcare delivered reported operating profit growth of 39.7 percent, And as you'll see on the slide, this is even higher after the prior year is adjusted for the disposal in the prior year of our UK generic pharma operations. DCC Healthcare delivered operating profit growth of 65.9 percent on a continuing basis. Approximately half of that growth was organic. The division generated very good revenue growth of 24.5 percent. This enabled good operating leverage and thus, together with the evolving mix of the business with now over 50% of the revenues being in Health And Beauty Solutions resulted in a higher operating margin profile for the division.
So both parts of DCC Healthcare really delivered strongly during the first half. Firstly, DCC Health And Beauty Solutions that Domo mentioned earlier delivered excellent profit growth benefiting from our prior year acquisitions of ion Labs And AmeriLab Technologies in the U S. So those businesses, together with our existing business in the U S, that in large business really performed well and we're making good progress on cross selling our products and services to that enlarged customer base in the U. S. In Europe, again, we saw very good growth with the same structural drivers helping really where people are spending more money on looking and feeling good.
In addition, the emergence of the pandemic definitely helped to raise awareness around immunity nutrition, which accelerated some of that growth. The beauty sector also delivered during the first half with the business benefiting from a continued evolution of the service offering to more complex products for larger international brand owners. BCC Vidal delivers both revenue and operating profit growth in what was a very disrupted first half of the year. As no doubt, you can imagine, the, health care systems of both the UK and Ireland experienced an unprecedented event during this period, but our business responded excellently to the challenge posed by the pandemic. The very robust supply chain of DCC Vitol and the capability of our teams ensures that the business really delivers for our customers during this period when it really matters.
While there was a dramatic slowdown in routine surgery or medical and GP consultations during the first half and in particular during the first quarter, that slowdown was more than offset by the business responding to meet the needs, the new needs, I guess, of the health services in terms of products relevant to COVID-nineteen PPE other necessary products. The business also benefited modestly from 2 smaller bolt on acquisitions we completed in the prior year. So with that, that takes us through all of the divisions and I'll hand you back to Domino who will run through the rest of the presentation.
Thanks, Kevin. So despite the lockdowns and travel restrictions, it was a very active period for development for DCC. We're really pleased with our development activity in the first half of the year. During the period, DCC committed approximately $90,000,000 to acquisitions Across Europe And North America. We're really pleased with the continued expansion of our LPG division.
In the U. S, we completed the acquisition of NES Group in September. This is DCC's 2nd material Volton acquisition in the U. S. Since acquiring DCC Propane.
NES, market, sells and delivers propane and related products and services to 22,000 customers in Connecticut, Rhode Island and Massachusetts. It is DCC's first acquisition in the Northeast region of the U S, and will provide a platform for further acquisitions in this attractive region for propane. Following the acquisition, DCC now has operations in 14 states in the U S and is very well positioned for growth in the future. During the period, we also completed a number of small bolt ons to the U. S.
Business, increasing our strength in regional areas. In September, we also reached agreement subject to competition authority approval to acquire Primagas from SHV Energy. The business is highly complementary to our existing business in the Benelux region and serves approximately 10,000 customers in the bulk and cylinder sectors of the market. The acquisition of Budget Energy announced in May, which significantly strengthens DCC's position in the renewable electricity market here in Ireland was successfully integrated and is performing very well. DCC Technology very recently, last Friday, completed the acquisition of the music people in the U S, the business is highly complementary to our current pro audio offering in North America and will be fully integrated with the jam business.
And finally, in DCC Retail And Oil, we acquired a small bolt on 6 site retail network in Austria. So good development activity across 3 of the 4 divisions in the first half of the year. And as Kevin said earlier, we had very good performance from the acquisitions of both the MaryLab and ILab, which were acquired right towards the end of the last financial year. So despite the challenges presented by the COVID-nineteen pandemic, DCC remains very active on the development front, and we are very confident that we will continue to deploy capital across all four of our divisions. Now just a couple of words on our session next Wednesday, 18th, on enabling energy transition.
The impact of Energy Transition on DCC has been a key part of our strategy for a number of years. We had planned on holding a capital market session on this topic earlier this year, but we decided to defer it due to the COVID-nineteen pandemic. DCC is very well positioned to enable energy transition and support our customers on their energy transition journey and this is something we are actively doing every day. On our webcast on 18th November, we cover our group purpose, our strategy and our current position within the energy markets. We outlined DCC's opportunity in enabling energy transition.
We'll demonstrate how our business is growing and evolving its product and service offering to support our customers on their energy transition journey. And we will also outline how we are leading by example and reducing our carbon emissions in our own operations. The webcast will begin at 2 pm, GMT, and you can register on www.dcc. Ie. So in summary, we had a really strong performance in the seasonally less significant first half of the year.
Despite the unprecedented difficulty and uncertain trading environment, we all operate within. Our diversity, our agility, again, demonstrates that DCC can deliver through all conditions. We had an excellent cash flow performance and the balance sheet remains extremely strong in Lake West. And despite the lockdowns and travel restrictions, DCC remained very active on the development front. And finally, our outlook statement.
With COVID-nineteen related restrictions now increasing again generally, the outlook for all economies in which DCC operates remains very uncertain. However, DCC's diverse and resilient business model, the essential nature of the group's products and services and its extremely strong balance sheet ensure that the DCC Group is well placed to navigate this ongoing uncertainty and continue its growth and development into the future. So we leave you with our favorite slide to highlight DCC's strategy continues to deliver. This strategy over our 26 years as a public company has delivered a consistent track record of growth with operating profit growing 14.5% CAGR. Earnings per share growing 12.1 percent CAGR, an unbroken growth in dividends, increasing 14% CAGR.
Free cash flow conversion of 101 percent, consistently high returns and capital employed, significantly ahead of our cost of capital. Our strategy delivers, and we're confident that our strategy will continue to deliver. Thank you for listening, and we look forward to your questions.
We'll now begin with a question and answer session. The first question came from the line of Halan Smiley from Davy Please go ahead. Your line is open.
Yes, good morning guys. This is Alan over to Eddie. Congrats on a really strong first half. I have a few energy related questions just to start. So first, with respect to LPG and retail and oil, obviously, we don't want to over interpret a seasonally less relevant half, especially LPG, but if you could give us some color on the volume trajectory, through the half and through October, severe locked in impacts ease, that could help us frame our thinking of a volume perspective in the second half.
That would be helpful. Secondly, I just have a bigger picture question on retail and oil. So, clearly, some of the oil majors are now suggesting a greater downstream investment to and Petro stations will form part of their energy transition strategy. So I'd be interested in your taking us on if it changes your thinking with respect to M and A in the sector. And then just the last one from me on the NES acquisition.
To the extent you can't comment, if you could talk through the acquisition process for that asset specifically how competitive was the process. Thank you.
Yes. Thanks, Alan. And then maybe just taking the volume piece initially. So there was a number of elements from a volume perspective. So clearly, and we kind we called out in May and then we called out again at the AGM time.
We'd seen strong enough demand in the domestic sector. So people kind of locked down working from home. There was a little bit in our retail and oil business, in particular, probably a little bit of, panic buying people wanting to ensure that they had sufficient product sort of benefit in the first quarter, commercial and industrial, and particularly in height at lockdowns, commercial and industrial, was much more significantly impacted and transport fuels, very significantly impacted particularly in markets with very severe lockdown. So the likes of France where it was, you almost have to get a letter from the government to get out to a buyer, but I guess, so there was significant impact in the first quarter. As the locked down these, we saw decent recovery in volumes, particularly on the transport fuel side.
And indeed, through the summer, with people holidaying at home, we saw a good demand actually on the retail side in most of the market that we operate within. So that trajectory, Alan, of very difficult in the first quarter and then recovering throughout we saw within both commercial and industrial and indeed within the transport fuel side of the market. So volumes are broadly where we'd expect them, where we'd expect them to be, at the moment. The retail question, like that's retail, we have we have, we've invested clearly over the last number of years in building out our retail presence. Similar to, to everyone, I think within the energy sector that operates within retail, the retail models are evolving.
We have been, we're looking in some respects that we have a, we have a presence in the Norwegian market. Which is one of the most advanced markets in terms of energy transition. And we're learning every day in terms of our ability grow and develop our business in that environment, over the period, we've rolled out over 108 fast chargers across our retail network, and we see very good opportunities to continue to grow and develop our business within the retail sector. As you I'd rightly point out, there's a lot of interest in acquiring retail assets and we're measured, as you know, in terms of our focus on the returns that we generate on any investment across the group. So we've probably been less active in this area over the last period of time.
Our energy businesses generally are very diverse in terms of the product offerings in terms of the customer mix. They're evolving significantly. We talked about the investments earlier in Natural Gas And Electricity, the Renewable Electricity business here in Ireland. So we have We have a very diverse range of activities within our energy business, and we continue to invest in a broad range of activity. So it's not just focused on one area.
And NES, like, that's been a very important acquisition for us. We have, for some time, looked to the northeast of the U. S. It's a very attractive market from a propane perspective. We had no presence there in the various acquisitions we've done since acquiring VCC Propane.
So we have been talking to the NES group for some time. It was a competitive process. There's a number of there's a number of active competitors for assets within the U. S. Market, but we built a strong, which is typical DCC style over a period of time.
We built a strong relationship with the team there, and we became their preferred partner for the business going forward. So delighted to have them on board. And really the important part of not only are we buying a really attractive business in NES, but it gives us a platform in that region for further acquisitions. And as we know in the, in any of the energy sectors, but particularly in the LPG business, where you have a presence in a region, then further acquisitions are very synergistic. So that was a very important acquisition for us.
And we completed 2 other acquisitions, strengthening our regional performance in a couple of other regions.
Great. Thanks for that, Donald. Very helpful.
Thank you for your question. The next question came from the line of Sam Bland from JP Morgan. Please go ahead. Your line is open.
Hi, yes, good morning. Two questions for me, actually, both on energy again. I guess we saw within retail and oil and LPG. Improving unit margins. Just want to get a sense of, is that mostly mix driven where you've got a shift from commercial industrial to domestic?
Or did you also see kind of higher unit margins within the specific categories, so within domestic or within transport fuels. The comment on that would be helpful. And the second question is, just get a bit of a sense on that stocking cycle within the energy businesses going into the second half? I know you said there was some panic buying early on in Q1. Give you a sense that customer inventories of products going into the winter period are now at kind of a normal level?
Or are they holding a lot of inventory or some thoughts on that would be helpful. Thank you.
Thanks, Sam. The margin pieces was in principally, there's a mix effect, which Kevin called out earlier in the first half. So the stronger on the retail and oil side, the strong demand on the domestic side, and domestic isn't a big part of the first half of the year, but that piece that we talked about in terms of a little bit of panic buying and people people, people making sure they had product, during that period, you know, was beneficial from a margin perspective. Similarly, we had a decent performance in the agricultural sector, which was beneficial from a margin performance perspective. We had areas like aviation, which is a high volume, but very low margin, part of our business and it's a small part of our business.
But again, that would have had a beneficial, if you like, the impact on that in terms of mix. I think one of the call outs and Samuel has seen this in pretty much all the retail operators' numbers, whether it's whether it's the Shell, the Couchesters, the Apple greens calling out that margin on retail, responded well during the height of the lockdown. So with significant reduction in volume, the industry margins were strong. So that was that was clearly beneficial for us. But nothing kind of the major part was obviously on the on the May side and the cost control was really good.
I don't
know if
you want to add something.
Yes, Sam, just to reiterate for Dom as well. Obviously, and margin are parts of it. Cost is also a big part of it. So we obviously got reasonably active from a cost perspective through the first half and and all our teams delivered good initiatives right around the business, not just in the energy businesses, but obviously our 2 biggest divisions being the energy businesses clearly a lot of the cost performance is driven out there. And on a group basis, our overheads are on a like for like basis, probably $35,000,000 lower than they were in the prior year.
So quite a good bit of cost activity, in both the 2 energy businesses helping to deliver kind of better leverage at the bottom line from an operating profit per liter or per ton basis.
Yes, one of the key factors, Sam, and you'll have heard talk about this many times in the past in the retail and oil business is the flexibility in our cost base. So while our volumes were back 17.8%, we really have flexibility to adjust our costs and that that came through in spades in the first half of the year. Look, the stocking of products and that's pretty modest really in the overall scheme of things, but it is a it's something that we were keen to call out because we've talked about it through through the half. And customers have small tanks on. So it doesn't it's not that material in the overall scheme, I think, but as we went into the winter months, certainly their tank levels might be a little bit higher than normal, but nothing that is that material.
Clearly, the big factor going forward now is the weather impact, obviously, for the next number of months. So we'll be less worried about COVID and more worried about what the weather conditions will do for us.
Sure. Okay. Thank you very much.
Thank you for your question. The next question came from the line of Kate Summerville from UBS.
Good morning, everyone. Yes, so firstly, how do you expect the second lockdown to vary with the first of what the impact in the different businesses given it's more of a social lockdown rather than commercial lockdown. And then secondly, as we all go back work and we've got this new way of working. Do you expect, and have you seen stronger demand for your proAV items given we probably didn't have a more integrated way of working. And then finally, you spoke about oil to LPG conversions and that that's still So remain strong.
Do you expect that to accelerate or just to continue as it has already?
Great. Thanks, Kate. I suppose that the second lockdown, we don't prefer not to be back in lockdowns, but I think we've learned an awful lot. I think we've all learned an awful lot in terms of how we all of us operate even our own lives through the first one. And, as you say, it's a little bit more of a social lockdown in ways than a commercial lockdown.
And there was just huge uncertainty during the initial lockdown. So we don't think it'll be as as dramatic and impact, on the businesses. But there is areas like, so if you look at transport fields, there's depending on the market, like if you're here in Ireland, you can't travel more than 5 kilometers from your property. So there is, there's impacts, and they'll vary. We'll see how, how governments implement the lockdowns going forward.
We'll see how the virus responds to the lockdown. So I think our call out on it, and that's really why, one, we're not in a position to give guidance and, and 2, why, maybe we sound cautious in terms of the second half of the year. It's just there's an awful lot of uncertainty out there. We'll have to see how governments react how the virus reacts to the level of lockdowns, whether more severe lockdowns will be put in place. But I think the really good thing from a DCC perspective is that we have proven through that most difficult of lockdowns that we had in the first quarter that our business is very resilient that our business is very agile and that we can react pretty quickly.
To changes in the market. The oil to LPG piece I think that's Kate, that's something that we've been doing this. We've been talking about this for quite some time. Originally, it originally started back with very blue chip organizations, focus on reducing their carbon footprint, we create we put in the capability not just to sell LPGs to those customers, but actually give them turnkey energy solutions to be able to convert their energy infrastructure across the burning LPG. And then, and you've heard us talk about this before, the dislocation between the oil and the LPG it's not only is that very beneficial from a carbon reduction perspective, but it becomes much more cost effective for the customer.
So that has ramped up. We'll talk about that a fair bit next week on our enabling energy transition session. And that is there's a very big opportunity for us in that segment of the market. There is an awful lot of customers burning less carbon efficient products than the products that we provide, and we think we we've a long way to vote in converting customers across from, oil to LPG. Kevin?
Yes.
And just finally, just to finish on the technology piece case, And I guess, you know, the reason we love the technology sector and the reason we love our technology business is that, you know, technology is pervasive and it's increasing in importance for people in their lives both at home or at work. And I guess without getting too specific on what particular product or what particular supplier will win, we're reasonably agnostic when it comes to technology products, but what we put excites us is actually that technology is important and its use is becoming more and more important. So there's no doubt that, you know, a new workplace emerging at the home, you know, that's a good thing for the technology sector. That means most likely sale of more technology products. However, there will be parts of the market that are, are impacted by that.
So you may have slightly less spend in the office. But I guess for us, it's not about exactly where that spend goes. It's more about the fact that our business is very broadly based phase in consumer technology and in B2B technology. And so we believe that our business very well positioned to meet the increased demand for technology no matter whether it's through the kind of the B2B channels or indeed through the more consumer related tech products being an opportunity for DCC. So that's sort of how we think about us.
And I think Kate, if we think about it, putting on the DCC half for a minute and how we'll operate going forward. I've no doubt, we won't go back to a way of operating like we were pre disc crisis. That will be much more of a hybrid model across businesses And one of the key things to enable that to happen is unified communication. So you're going to go to you'll go to a meeting or we'll be coming. We'll be having a call.
With investors or analysts, you won't know whether some of them are going to turn up physically in the office or some of them will be available online, but when you press the button and you go in, you want to have everyone available, be they physically there in the office or be they operating remotely. And the technology to enable all that to happen is there. And that will grow and that whole trend towards unified communication is an area that actually we've been investing in in terms of building that capability through our pro AV businesses. Now while that might have been a little bit more difficult, over the last 6 months, we see that as a real opportunity for growth going forward. And I think our business is just an example of every business is going to do going forward.
So I think we'll all have a slightly different ways of working, when all these vaccines come out and we can get back in to, into life, somewhat as we knew it before the pandemic.
Thank you for your question. The next question came from the line of Annalise Vermejo from Morgan Stanley. Please go ahead. Your line is open.
Hi, good morning. Yeah, Annalise Sameer from Morgan Stanley. I just have a couple of questions left, please. So firstly, on the Healthcare division performing very, very strongly. You mentioned that the acquisitions that you made last year have performed stronger than expected.
And you mentioned, part of that was cross selling opportunity. The end markets or products that really have driven, or have driven that growth ahead of what you were expecting. And also on the strong demand, you flagged for the nutritional products. You mentioned some of this was accelerated by COVID. I'm just wondering if you have a sense of how much of it will be recurring do you think?
And some of these I suppose new consumer habits will stay in place for longer. And then secondly, on the, the acquisition side, as a result of the pandemic, have you started to see more potential opportunities, perhaps more businesses wanting to sell or offload particular assets? And again, coming back to the obviously the ongoing travel restrictions that you mentioned, I know you did some deals in September to what extent would those done remotely, I suppose, and do the travel restrictions that continue to be in place, impede your ability to integrate those acquisitions as effectively as you have done in the past? Thank you.
Great. Thanks, Emily. I think taken the health and beauty side of it first. Like, it's the we've been in this business actually for quite some time. And it has been the highest organic growth business within DCC over a very long period of time.
So and we've positioned ourselves with our partners. So we're we manufacture products on behalf of some of the world's leading brands in, in this area, where they're producing more complicated products. So hard to manufacture products. And that has been So people are getting more discerning on the health supplements that they're taking. They want to take more sophisticated products, and that plays very much into our sweet spot.
So this is this is a market that kind of grows at 6% to 7% per annum. The business is both Diane Labs and Ameri Labs and building on the elite acquisition that we did a couple of years ago in the U. S. Give us a very strong presence across all formats of health supplements within the U. S.
Market, but we're particularly actually strong in the area of nutritional products that are focused on strengthening the immune system. And as you can imagine, people concerned during the pandemic, that has been driving very significant growth well ahead of that kind of 5 or 6 percent growth levels within the nutritional sector in those product areas. And we're clearly we've benefited from that will that continue long term? I think the projections are for that kind of mid to higher kind of single digit growth within sector to market. So it might taper off a little bit from that level, but it's going to be a high growth area.
And we're very well positioned. And as Kevin, said earlier, one of the key focuses that we have in building out that presence is that we have different product formats across our different facilities and the ability to cross sell customers that we have a strong relationship, maybe on ever vessels. To sell them, are there product areas that go into their mix of products that they provide? So that has been that has been a key driver. And again, I think a good demonstration of DCC's strategy in action.
We've been working on that for for some time to build out our business in the U. S. Maybe we got lucky in our timing now that we've hit a real sweet spot in the market, but I think there's a really good long term prognosis for that market. The acquisitions, and that's this is This is, I suppose, key to the way DCC has always operated. So as you know, we build long term relationships with people, where all the time virtually physically knocking on doors to try and establish relationships.
And in this environment, we're virtually knocking on doors to to establish relationships. But lots of things, and a lot of those acquisitions, the ones, the NESs, the budgets, we've been talking to those people for for some period of time, but we've also actually completed acquisitions that we haven't, any relationship with kind of pre COVID, pre lockdown. There's a number of factors that come into with N1. Obviously, building relationships, to your ability to do due diligence. And we have teams of people, and we invested in the development capability in all the markets that we operate within.
So we might not be able to travel outside of Ireland and we have people that can go and visit, do our facility check build the relationships on the ground, do all that in a very socially distant way clearly in a safe way, but we don't see just don't see any inhibitor to, to development growth during the crisis. Now the next part is does it mean in terms of opportunity set? And we've lots of things that we're working on. We are very active on the development front. Is there an acceleration or a deceleration?
That's hard to call. I think we're going through cycles. There's certainly some businesses that need capital that will trigger maybe acquisition activity. And, there's other businesses that strategically have decided to divest out of assets. And there's others that are the usual stuff where people are coming up to retirement.
There's generational changes. Change in life plans, all those kind of things. And if we look at the range of acquisitions that we do or even the range of acquisitions that we did over the last 12 months, we have all of that in a we people coming to retirement, we've peaked the change in circumstances, we've corporates, selling assets that were less strategic to them and so on. So we have a mix of everything, but we feel really good about where we as Kevin called out earlier, we have a very strong balance sheet. So we have the capital to move quickly on things.
And, we're confident we'll be deploying capital across each of our 4 divisions going forward.
Thank you for your question. And the next question came from the line of James Faroe from Barclays. Please go ahead, ma'am. Your line is open.
Good morning. Just a couple left from me. Just one on the cost side of things. Could you just let us know whether you've obviously had a strong performance there, just whether there's been any significant benefit from the use of various furlough schemes just as we think about how much of that sort of cost reduction rolls over into next year? And then the second one was just on the technology business, the restructuring of the UK that's obviously been a multiyear projects.
And I see the exceptionals in the first half still had some jaw running costs in there for the SAP implementation. Just wondering, when we would expect those to disappear whether we'll get some more of that in the second half or whether that program is now complete?
Yes, Jenn, certainly the from a cough perspective, it very much cost performance was work that we did within businesses. There was some element of furlough it was, it's very modest in the overall scheme of our cost base. And that was particularly in the first quarter of the year where Obviously, there was very significant demand destruction. So it's really been actions that we're taking within our business. And Kevin, you might to talk about the cost programs within technology.
Yes. And obviously, Jane, you're aware we've been working on developing the infrastructure in our UK and Ireland business, which just a very significant business now for a number of years that included reorganizing completely our warehousing infrastructure, which has been done for a little while obviously then the SAP upgrades, or SAP implementation should I say, which is now gone live. There's still a little bit of things to do, Jane on that, but they are not anywhere near as material as the work that we've come through. So you should expect those costs taper and obviously then to fall away entirely
into next year.
Thank you. Your question, the next question came from the line of Gary Henningham from Goodbody Stock Breager. Go ahead. Your line is open.
Sorry, yeah, can you hear me?
Yes, I can hear you now, Terry.
Sorry about that. Just a bit of a strange 1st 6 months here, given the backdrop of the pandemic, and obviously clearly some of the parts of the business do a bit better than others, and maybe indirectly benefited from it. But as you look forward here, I'm probably thinking mainly on the health care side of things, is there any part of the business you would expect to sort of an unwind, not in the second half of the year, but as we go into maybe a more normalized environments in 2021?
Yes, Terry, the I think the talk about earlier, some of the benefits on the nutritional side. So it's not an unwind, but like will the quantum of growth rate be a strong going forward. So we've seen, we've seen really stellar, stellar demand for those products. So that's a high growth as I said, it's a kind of 6%, 7% growth market. So it's been growing significantly ahead of that.
So it might be a tapering off in growth, but certainly not it's not a negative drag. I think that the Vitol business, which is the one that was probably more changed if you like during the periods, we had an impact actually on the elective side. So pretty significant during the first quarter when most of the health care resources were going to to fighting COVID. And then as we got into the second quarter, we saw elective procedures starting to return into the hospital and the hospitals getting back to some level of normality. NASH backed 100% because obviously there was there's just between trying to manage patient intake and COVID restrictions at a bit of a reduced level.
But clearly that was more than offset by the demand for PPE and other COVID related products, ICU products. So Again, I don't think we'd see anything. We wouldn't be looking at anything dramatic, Jerry, in terms of impact going forward. Please call it, we'll get out of the challenges of COVID and the health care system has to get back to dealing with all the other health issues that are out there. And that's hugely important because you cannot defer for a long time elective procedures because otherwise you're building up are there health issues within the health care sector.
So there's probably that get back to normal and that health care sector is a robust growth sector. So, again, I think we're well positioned to benefit on the back of that.
Yes, and just finally, Donald, in terms of retail, you mentioned obviously that one of the things that benefited, to some extent, from indirectly was the fact that you have an awful lot of exposure to the aviation sector over the week. Would you expect that to clearly obviously given the 2nd back of the year, it's got that probably got to maintain. So would you suggest that the margins in the retail can be sustained at least into near term here?
Yes, I think, and Jerry, like the aviation for us is tiny in the overall scheme of things, it's actually decent bit of volume, but there's tiny margin in it, and that's going to be tough, I'd say, for a period of time. I think some of the air to margin, talked about margin on the retail side, which has been good. And that's, we'd be hopeful that'll continue. The margin, it's really mix and costs have been the big drivers for the margin performance. And So hopefully, we'll have a bit more normality as we go through the next number of months, but retail and oil business.
I think one of the big call outs of it is that business performs really well, even in very difficult circumstances and our ability, both deflect costs, our ability to manage margin and our ability to keep our customers in the essential products and services that they need. I think it's just demonstrated the quality of that business during the first half of the year.
Thank you for your question. The next question came from the line of James Whitler from Jefferies.
Hey, good morning. So apologies if I
mix this. I think you were talking about the cost savings and tech, but wondering if you can quantify those and the stickiness of that, how to think about those? Because obviously, that offset some of the negative mix impact, from the lower margin outperforming higher margin, wondering how much of that should be thought sticking into next year. And then any sort of comments on the exit rates for the B2B ProAV type products and tech as well?
Yes. Look, I think that the cost piece, as Kevin kind of pointed out, like we've implemented some cost reduction program. That's not coming back. Like, that's That was a, that was a particular kind of restructuring exercise that we've taken within our technology businesses. So that's there.
We'll see the benefit of that going forward. The much more important bit, James, really, for us, on the tech side that we have our SAP system live and bedded in. We're going into the peak period now. So we'd see the benefit of it through the peak period. But it's really leveraging that investment to get the benefits out of that going forward.
And there'll be both cost benefits, working capital benefits, and much more importantly, our ability to serve, serve our customers and serve our vendor partners. So, I think we're in good shape and we're delighted to have that live now. On all our new platforms. So that's a real benefit for us. I think that the technology piece, changes all about we've been in this business for a long time.
The products evolve, we're technology agnostic. We have older the brand partners that we deal with. And there's trends. There's lots of positive trends out there in terms of where technology is going forward, some of the stuff we talked about. In only one segment, the unified communication, the AV side.
But there is this word wherein is going to drive greater demand for technology products. And people will live their lives differently and tech is going to be a really important part of nearly every device is becoming a connected device. And again, opens up broader range of products versus sales. So we feel really positive about the prospects for the tech industry. And outstanding some of the short term challenges on the in the B2B sector.
Great. Thanks guys.
Thank you for the question. The next question came from the line of Dan Hopkins from Credit Suisse. Please go ahead. Your line is open.
One, it was on the shape of M and A in the pipeline. I know you've mentioned about the M and A pipeline a fair bit. I was just wondering is Is it more bolt on focused or is there anything you can say around some more material sizeable transactions within the pipeline? And then the second question is around, maybe some of the early impacts or lack of impacts that you're seeing from the second restrictions. Just in the LPG space, you mentioned sort of lower commercial and industrial volumes, you're principally during sort of Q1 and the early stages of the 1st phase of lockdowns.
Given maybe that lockdowns are more personal related rather than industrial related this term around, are you seeing sort of less impact coming through, I know it's early days anything you could say would be helpful. Thank you.
Thanks, Dan. And look, it is, as you said, it's very early days So, and again, why are we measured on this? We're measured really because there's a long way to go busiest part of our year and it's kind of hard to call. But I think the I think it's less likely that we're going to see industrial customers, commercial customers closing down the way we did or elements of the way we did in the first lockdown. So I think we're, I think you're right like that.
That's going to be less of an impact. And I think we have and most business have learned how to operate in this environment. So that's going to be that's going to make us a little bit less of an impact The transport fuse that I talked about earlier, people can only drive within a certain level of restriction, again, that's going to be that's going to impact a little bit on the transport fuel side. But I'd say it'd be less it'll be less significant than certainly the first period.
And just on the M and A pipeline, Dan, the, you know, I mean, I guess we'd always have lots of different types of opportunities in our M and A pipeline. So, you know, I think we'll have always I think we'll always have both larger and smaller things in the pipeline. Clearly, we have a very broad based business in BCC now and our ability to execute even in, as Don mentioned earlier, in the virtual environments, given the amount of geographies we're in, the amount of opportunities that those geographies present to us, we believe we have certain confident we certainly love the confidence that we will continue to deploy capital we'd never really get into whether those will be bolt on or whether those will be larger type opportunities done. I mean, I think what we would say is that we'd be the confident of deploying capital not afraid of deploying capital in slightly larger things in this environment. And so we're very confident in the business areas that we're in, in our capability to execute against those business areas.
So, you know, we'd be quite confident of continuing to deploy capital, regardless of whether it's in bolt ons or in things that are slightly slightly larger.
Thank you for your question. The next question came to the line of Christopher Bummery from Peel Hunt. Please go ahead. Your line is open.
Now, good morning, Donald and Kevin. DTC has always been an agile business, and I was wondering with the agility and flexibility of the cost base have increased over the COVID period. And when they're ending the costs with, technology, are stating the more kind of structural in nature and will last once things return back to normal?
Yes, no, I think Chris and Again, the agility word is the key word there. Like we have, we we've just a fantastic business model with a evolved structure with management teams that are focused on driving the performance of their own businesses. So our ability to move quickly to do things in this organization, be it on the cost side, be it on the revenue side, is just, is kind of proven over many years. And, I think we saw that in the first half of the year. Some of that volume related clearly because there was a significant impact in volume across many of the sectors that we operate in.
So we have flexed our costs and tried to be as variable as we can in those businesses. So that we can deal with those swings in demand. And then when there is, and there's plenty I think, and more things as you go forward that you learn through this environment that the way we all operate will be different going forward. And that will create opportunities to optimize things further. So, we've, there's nothing kind of There's variable stuff.
There's nothing things that we've implemented are there and they're in the business. They're not going to switch back and the opportunity really is how we optimize our businesses going forward. New ways of working, new ways of doing things, greater technology, use greater innovation. And that'll continue to drive the cost management and the bottom line performance of our businesses.
Can you give us any flavors and things that may change going forward in terms of practice, see if we can read about things?
Look, we talked earlier, Chris, about some of the working environment. I think we'll all in all our roles, we'll all work slightly differently. There's places where we have infrastructure to maybe we won't need infrastructure going forward. There's lots there's there's lots of things for us to focus on, but as I say, I think there's, we're all learning better faster, more efficient, less paper intensive, more information driven ways of doing our jobs. And that's the benefit of society, and it's the benefit of organizations.
And we'll certainly continue to drive those things across our organization.
Thank you.
No better. Thanks, Chris.
Thank you for your question We don't have any further questions. I will now hand the conference back to our speaker for the closing remarks.
Yes, and again, just to say, thank you. I'm sorry, actually sorry for not being with you in person, we'd we'd really do We do enjoy our session at the London Stock Exchange and the opportunity to meet in person. But clearly, that's not practical in this environment. So hopefully, it got as much out of our results presentation today. As you would if we were physically together, we think DCC is we think it's been a really good first half.
We think DCC is in really good shape, and we're very positive about the future, notwithstanding the very challenging world we're all living in at the moment. So thank you. Thank you for your time this morning. And I'm sure we'll be talking to many of you, during the rest of the week. Thank you.
Bye bye.
That concludes the conference for today. Thank you for participating. You may all disconnect.