Good morning, and welcome to DCC's interim results presentation for the 6 months ending 30th September. 2019. It's great to see you all here today. We're in a bigger room than we normally are in the stock exchange. And for those on the phone, it has the most incredible AV system.
So I think it's because we're getting bigger in the pro AV market that we have to We have to get more sophisticated to AV. But anyway, welcome. I'm Donald Murphy. I think everyone, certainly in the room, knows me at this stage Chief Executive of BCC. I'm joined by my colleagues from the far side of the room, Tim Griffin, Managing Director of DCC Technology, Conor Kostig and Managing Director of DCC Healthcare who's going to talk and tell us all about all the exciting things in ion laboratories a little bit later.
Eddie O'Brien, Managing Director of Retail And Oil, Henry Cobben, Managing Director of LPG and Ferglodewire, Chief Financial Officer. So thankfully, I don't have to read our disclaimer, but it's there for everyone to peruse at their leisure. So just take you through the highlights of the results, a little bit of a deep dive into each of the 4 divisions, talk to you about our development activity really pleased today to be announcing the acquisition of Iron Laboratories, and then we will open it up to questions. So we're very pleased with the performance in the first half of the year. It's been another period of good growth and development for the group And I suppose that good growth and development is set against the backdrop of a pretty challenging macroeconomic environment and particularly here within the U.
K. Market, our operating profits were up 14.5%, thirteen point seven percent on a constant $162,600,000, very much in line with expectations. Was particularly pleased that all four divisions performed strongly in the first half of the year. Adjusted EPS up 3% to 110.2p, reflecting the strong earnings growth and the equity placing in the prior year. The board has proposed an interim dividend, increase of 10% to 49.5p per share.
And it has been a pretty active period from a development and particularly an integration perspective during the first half. We committed, or we spent 118,000,000 on acquisitions during the period, and particularly pleased to be announcing the next acquisition in the U. S. For DCC and the next acquisition, in our U. S.
Health and beauty journey with Ion laboratories, and I'll come back. And talk about that a little bit more detail later on. The balance sheet remains very strong and liquid. That's very important for us because we do believe that we continue to have the opportunities, the platforms and the capabilities to continue to build ECC into a global leader in our chosen sector. As you know, diversity is very important to DCC.
And we believe that diversity has been very important in the performance in the first half of the year. So not always, do all the divisions fire in all cylinders at the same time and that diversity, both geographic diversity and sector diversity has worked well. In the first half of the year. So just to pick out a couple of numbers from the financial summary, just on the revenue side, on the face of us, revenues back 1.4% to 7,300,000,000 But as you all know, a very substantial part of our business is in the energy sector, very much impacted by the movement in the commodity price, so the price of oil and the price of LPG. Drop down during the 1st 6 months.
So we look at energy on a volume perspective. So very pleased the volume performance within the LPG business, up 7.7% during the first half of the year. Retail and oil volumes were back 3.8 percent, very much driven by exiting out of some high volume, low margin business in the UK market. If we exclude the energy businesses, our revenues were up 11.7% during the first half, driven by acquisitions. Operating cash flow of $149,900,000 during the first half.
And from a working capital perspective, working capital days increased to 2.4 days from 1.3 days in the prior year, reflecting the positive working capital characteristics of acquisitions completed in the prior year and in this year. On a like for like basis, working capital was broadly in line with the prior year. Net debt at the end of the 6 months $245,300,000, excluding lease creditors. So a very strong financial position. And including lease creditors are adjusting for IFRS 16,000,000 dollars, $531,700,000, very much in line with what we said the impact of IFRS 16 would have when we announced our results last May.
So just moving on to look at the businesses in a little bit more detail, very pleased, as I say, that all four divisions performed strongly. During the first half of the year, DCC LPG operating profits growing 19.8% 18.6% on a constant currency basis. Three quarters of that was organic growth, retail and oil, up 6%, 6.2% on a constant currency basis, about a third of that was organic growth. At DCC Technology, very strong growth, up 42.6 8% benefiting from acquisitions and DCC Healthcare up 5.8%, 5.6% on a constant currency basis And again, about three quarters of that growth was organic. So overall, a strong pro form across each of the 4 divisions.
It's a little bit less meaningless, meaningful in the first half of the year, but the split by division 30% in LPG 37% of profitability in retail and oil, 16% in technology and 17% in our health care division. So going on to look at DCC LPG, very strong performance in the first half of the year. And you know, in DCC, the first half of the year is the seasonally less significant half of the year for the group and very much the less significant half of the year for the LPG business. But we're very pleased with the profit growth. Very pleased with the volume growth, up 7.7 percent, 7.1 percent organically, good organic growth in our LPG volumes and good organic growth within our gas and electricity volumes, very strong performance on an operating margin per tonne basis as we benefited from a more benign cost of product environment and also very good cost control across the business.
The business in France performed very much in line with our expectation. We have been leveraging the Boots of Gas Brands to expand the business into other areas you've heard us talk before of our Click and Collect cylinder distribution capability in France. We've continued to roll that out across the market. We've been rolling out a pellets business, the wood pellets business in the renewable space. And we continue to have very strong growth within the gas European business, our B2B, natural gas and electricity business, and we continue to grow our B2C natural gas and electricity business.
Business in Britain and Ireland performed very strongly. Again, good volume growth within the business. We have good momentum from the oil to LPG conversions that we talked about a number of times in the past, so that continues to be delivering good growth. And again, benefiting from good procurement and cost control across the business. Germany performed very well.
Again, growing our customer volumes. We launched a new online sales tool in the German market, and that has been that have been working well in terms of recruiting new customers. And the business in Hong Kong and Macau has performed very well, notwithstanding the ongoing disputes within the within the country base. They're very pleased with the performance within the U. S.
Business, very, very good growth. And we have fully integrated the Pacific Coast Energy business that we completed last April into the business the DTC propane business. And we now have a very strong presence in the Pacific Northwest segment of the market, which is a growing segment of the market within the U. S. So overall, a very good performance within the LPG business.
We've built a business of real scale within LPG, we sell 2,100,000 tons of gas equivalents across the business. We operations in 10 countries on tree continents. We have 730,000 direct customers and over 4,000,000 customers buying our gas cylinders, and we're very well positioned to continue growing BCC LPG into a global leader in the LPG market. Moving on to look at our retail and oil business. Again, very good performance in the seasonally less significant first half of the year.
So clearly, both the energy businesses are very weighted towards the second half of the year. Operating profit up 6%. As I say, about a third of that was organic growth. Volumes were back 3.8% and back 4.9% organically. And that was principally in Britain, and we decided to exit out of elements of high volume, low margin business, particularly in the marine and the commercial sector.
And also generally, the commercial sector has been a little bit more difficult in Britain given the economic backdrop. Notwithstanding the decline in volume, The operating profits in Britain and Ireland grew, and we were very pleased with the continued increase in penetration and premium rate fuels. This is where we sell cleaner burning fuels and not only are they good for the customer and good for the environment, but they're also good from a margin perspective. So attract, attract higher margin on those products. We have been expanding out into adjacent areas such as our lubricants, we have been continuing to invest in our retail network.
And we've been growing our business in truck stops, providing services for HDV vehicles both for parking services, washing services and card based services through our fuel card business. So overall, very pleased with the profit performance in the UK. Business in Scandinavia has performed very well, driven by the Danish business, which had a particularly strong performance within the retail segment of the market. We talked in May about a deal that we had entered into a shell on the aviation side that completed during the period. So we'll be able to leverage the Shell brand to grow that business, both in Denmark and hopefully over time, beyond France, again, performed very well, benefiting from the investments that we made in upgrading our network to the Synergy Fuels concepts the synergy fuel differentiator products, we're selling through that network, also benefiting from upgrades in our car wash capability, And we rolled out a customer loyalty program or club service program, which has been beneficial in terms of getting greater customer attraction to the sites.
BCC technology, again, very strong growth in the 1st 6 months, up 42.6%. Again, DCC technology is weighted toward the second half of the year. That growth was all driven by acquisitions. The business in Britain, operating profit declined, The UK has been over the summer months and into the autumn, just demand for technology products, particularly consumer products, and enterprise products has been more challenging and that has had an impact on the business in Britain. Our business in Continental Europe has performed well.
The business in the Nordics, we've had good sales growth, particularly in AV products and IT products. Announced in May, the acquisition of Omnicom, which is a retail consumer products distribution business in the Netherlands. That business has performed very strongly has been fully integrated into our consumer propositions within DCC Technology and positions as well to continue to grow in the consumer area. And our B2B business in Europe again performed in line with expectations during the, during the 1st 6 months and we fully integrated the Comtech business, which is a ProAV business that we announced last May. Which is operations in Germany, in Switzerland, in Italy and down into Iberia and Austria.
So extending our geographic footprint in the pro AV market. Our investments within North America jam and stampede performed very well in the first half of the year, particularly good growth in the ProAV sector. So all this wonderful equipment that you see in the room here, in government sectors, in the hospitality sector, in particular, and good growth in pro audio and lighting segments that's at the jam targets in North America. So overall, pleased with the performance of DCC Technology in the first six months. And so finally, on DCC Healthcare, we had a good performance in the first half of the year.
Operating profit up 5.8%. And as I said earlier, about 3 quarters of that growth was organic We had a good performance in DCC Vitol, our business supplying medical products and pharma products to health care providers in Britain and Ireland, particularly good growth in the sales of blood plasma products in Ireland and exempt medicinal products in the Irish market British market performed robustly in a market that was impacted by a little bit of destocking, I think, post the original Brexit date, and we'll avoid talking about Brexit, if we can today, and also a little bit of constraints from a public healthcare funding perspective. We exited the generic pharma business that we had on the related beta lactam facility that we had in Ireland. And that really enables us to sharpen our strategic focus on the areas where DCC Vitol has really competitive advantage in the medical device and the agency pharma and exempt medicines business in Britain and Ireland and pleased to have completed a couple of small bolt on acquisitions within the business in the UK. A business into our primary care segment of the market, a business called SP Services that provides products and services into the blue light sector of the market.
And then a medical device business called Vaxac. So continuing to redeploy capital into the DCC Vitol business. So overall, the tile had a good performance in the first half of the year. DCC Health And Beauty, again, continuing our trend of strong sales growth, particularly strong growth in skin care products and good growth across all our nutritional products and our nutritional formats and particularly in liquids and soft gels. We have been investing in that business to increase our capacity and to take on new customers new product lines and that held back profit growth in the period, but that's all investment for future profit growth.
And This market is a high growth market and a market that we are very keen to deploy further capital in. So we're particularly pleased to be announcing today the acquisition of Ion Laboratories, which is a Florida based contract manufacturer of nutritional products, and I'll come back and give a little bit more detail on that. But the U. S. Has become a very important market.
For DCC in all, actually across all, well, 3 of our divisions with operations there today. But we've had a particular focus in trying to find opportunities to expand the health and beauty business in the U. S. Market. So we're really pleased to announce that acquisition today.
So touching on development, And again, it's been an active period from a development perspective and very much an active period from an integration perspective, a lot of the acquisitions that we completed in the prior year being fully integrated into the group during the 1st 6 months, committed spend, cash spend on acquisitions in the first half was $118,000,000. We completed the integration of the Amecom business, let's say broadening Consumer Technology business in Western Europe, we completed the acquisition and integration of the Comtech business, expanding out our B2B ProAV capability within Europe. So both those businesses significantly strengthening the technology business in Continental Europe. DCC LPG, we have fully integrated the Pacific Coast Energy business, and we have now a strong footprint in the Pacific Northwest region of the market. And as I said earlier, that's a high growth region of the LPG market in the U.
S. So So very pleased with that those integrations have gone well post the period end, Allah today. We announced the acquisition of a high end laboratory's enterprise value of $60,000,000. And it is a significant step forward for us in building our footprint within the U. S.
Health and beauty market. It's a very large market. It's a very fragmented market. And Connor and the team have been working hard on that market over the last 3 years to identify upper opportunities. And in typical DCC style, we build relationships with people.
We work hard to convince them that DCC is the right partner for their business going forward. And then we buy the business as an appropriate valuation. So we believe that this is a really interesting business. It has very strong capability across quite a range of formats from tablets capsules, capsules within capsules, powders, liquids. So it has a broad range of capability.
It's investing at the moment. And our latest buzzword at gummy line. So gummies is a very fast growth segment of the nutritional market, particularly in the U. S. And iron has invested in the infrastructure to build a gummy business, which is becoming on stream shortly.
Business operates from facilities of 350,000 square feet then in Florida and it's got a very experienced management team. So it's a really important next step in DCC building a significant presence within the U. S. Health and beauty market. And as well, these are updates of a couple of slides that we showed at our Capital Markets Day.
And I think the just looking at the scale of the market, so the global nutritional market, 136 $1,000,000,000. The biggest segment of that market is clearly the U. S. At $46,000,000,000. And that market is growing at 6% or projected to grow at 6% per annum.
So not only is it a very large market, but it's a relatively high growth market, The contract manufacturing segment of that market is estimated to be about $7,000,000,000 in the U. S. And we have a very tiny share of that. The contract manufacturing market is projected to grow actually slightly faster than the growth in the overall market at 7% as more companies outsource to contract manufacturers. So just to kind of put the acquisitions by They may be modest in the overall scale of the group.
We think they're very important building blocks in terms of DCC building a significant presence within the health and beauty market. And as I say, it's a very large and growing market. And this is a slide I think Conor put up at the Capital Markets Day and if anyone wants to go back and look at the slides, from the Capital Markets Day presentation, we've colored in green current format a couple more formats from when we were down on our side. So now into the sports nutrition powders and into Gummies. So Gummies is going to be the order of the day, I think, for us today.
But we have a very broad array of capabilities now across the breadth of our health and beauty business, tablets, capsules, soft gels, liquids, tropical medicine, clearly on the beauty side and into the more complicated skin hair care products and now sports nutrition powders and gummy. So just to put the acquisitions into a little bit of context. So Just to summarize, we believe it's been a very strong first half performance. And I think set against the backdrop of the pretty challenging macroeconomic environment, I think we'd be pretty pleased with the performance good growth across each of our 4 divisions. Very pleased with the continued development activity.
We're very busy on acquisitions, everyone us all the time, pipelines, everything, where we try and avoid answering the pipeline question, but we're very busy on the development front and hopefully you see the evidence of some of that coming through today. Very strong balance sheets to continue to drive that growth agenda. And we very much believe that we have the platforms, the opportunities, and most importantly, the capability to continue to build DCC into a global leader in our chosen sector. So that is, that's just very important in terms of where we see see the business going forward. Our outlook statement, notwithstanding the continued uncertain macroeconomic outlook impacting the UK economy in particular and DCC Technologies business in particular, the group believes that the year ended at 31 March 2020 will be an early year of good operating profit growth and further development and will be broadly in line with current market consensus expectations.
And we leave you with our favorite slide, which is our 25 year track record, and something that we're very proud of and are very focused on continuing. So we'll open it up to questions. Rory.
Morning. It's Rory from UBS. I didn't know there'd be like a AV component here somewhere It should
be an AV component there, or
it's just top sales? Firstly, on the LPG margin, which is really strong in the smaller of the halves. Up GBP 6 at a ton. And can you help us understand how much was your internal efficiency? How much was cost of product?
What's mix doing and so how we're going to take that forwards? And then secondly, on retail and oil, talked about these business exits because you're seeing in this kind of high volume low margin business. But I always thought it was kind of high volume, low margin is kind of the core of what DTC does. So can you explain what's changing there? Are you seeing more price pressure on your margin?
Is it that volumes are falling beyond what you see as sustainable? And so why are those segments now not viable? And then lastly, just on technology, again, the margin really strong through H1. You're talking about risks in the UK. Do you think that margin will start to kind of be under pressure through H2?
Okay. Furgen, do you want to just talk about the margin there for
a second? Well, you're taking out the last one, I mean, the margin in H1 is a function of more mix in the sense that we've got the U. S. Businesses, which are higher margin. This is a particularly jam business, in North America, will margin come under better pressure in the second half from an operating leverage point of view, up it will.
But overall, we expect sort of a small increase in the margin, for the year. On LPG, that it's still our small numbers here. Yeah. We had a modestly more benign pricing environment, cost of product environment, There's no read through and the rest then is about the operating leverage effect of, you know, a 7% organic increase in our volumes.
Is there any read through of
that into the second half? Not really, to be quite honest, it's really the last small numbers. I'm really pleased.
I can the growth, and Henry can talk about it a little bit, just the growth in volume in the first night. Clearly, the first half last year, the comparisons were a little bit weaker, but we've had good growth in the LPG segment in the market and particularly good growth in the natural gas and gas European, in particular, we've been focused on growing that B2B natural gas business in France. And that has worked really well. Henry, I don't know if you want to add anything.
Yes. In the bar, sort of 7.7% volume growth, 7.1% of that is organic. The inorganic piece was the acquisition in the U. S, but the organic piece 7.1% around half of that comes from B2B natural gas in France where we've been growing relatively strongly there. And that's good growth and good developments.
And another half of where The organic growth will fix percent. The organic growth comes purely from LPG, particularly seeing good growth in UK and Ireland from oil to gas conversion. So we're seeing industrial and commercial consumers of energy off the gas grid switching across 12 BG and that's continuing. And we'll continue going into the future. So we're seeing some good growth there.
As Donald mentioned earlier as well, in Germany, we've seen some growth in our LPG piece there. Were really modest market share and we've launched a fairly innovative website where we're seeing a bit of growth through that. So overall, pretty pleasing across the piece.
I think Rory, there's always pieces of business stuff we prefer not to be doing. And you've got to the current, I suppose the current economic environment as well. And we've been here before, in 2000 and 8, we very much focus on making sure that we're going to get paid for every liter of fuel that we sell. So there's probably a little bit of tightening from a credit perspective to some segments of the market that We've probably chosen are less attractive to us. So Eddie, do you want to
Nothing's changed in the core business. So our operating model is still very much low margin and driving volume through it. On marine, we were in the number of tank positions 3, 4 years ago, and the leases were coming to an end. And we couldn't advise you from a lubricant's point of view. So we refocused back to Aberdeen and Inverness.
I think as Donald said, when the economy starts tightening, you see tender business that tends to get to very low prices and there's a point for credit risk or competency. We just don't compete. So It's nothing in the core business. It's more price sensitive business and specifically on marine. We got over a couple of time positions.
I think the cash, like, again,
if you look at the cash margin, piece Rory, like it's the key thing and the base I regularly have with Eddie, do you look at cash contribution in this business versus net early always volume. So we like to grow a bit of both, plus the cash contribution is the key thing and the performance is really strong in the retail and oil business.
And just to clarify the exits were 3 percent of volumes on an annual basis. Is that right?
Yes, put those double through to the rest of the year. Thank you.
And Tim, was it a tight question, was
there?
UK margin will be down in page 2 as it was in H1 in an overall way margin for the tech division. Probably similar to last year, give or take. It's very difficult to call this early stage as you head into some more seasonally ways of the second half.
Behind you there, it's for the easiest, Alan.
So I have three questions, please. Firstly, for Connor, this may be a hard one to answer, but with the U. S. Eastern CFO market, you have a rough sense of how much that's outsourced currently on what your share is, post IL?
That would
be the first question. Secondly, preferred working capital, the working capital outflow is higher year on year. I presume a lot of us due to the recent technology acquisitions. So if you could just help us think about how that's tracking versus your own expectations internally. For the half and also for the full year.
And then the final one on U. S. LPG, like there's continued pressure at the top end of that market. I'm just wondering about feeding through into, M and A prices in that space.
O'Connor? Yes. I mean, that
is, as Zones said, contract Manufacturing market is about $7,000,000,000. How much of that is addressable by DCC see is difficult to quantify. But if you think of our revenues now at circa 150,000,000, we're we're small, it's a very small market share. At any level, any assumption you want to make on that. So I mean, I think it you know, it's with tons of tons of headroom to grow, you know, it's fragmented.
So tons of headroom to grow from an acquisition point of view. And then organically, it's a high growth market as well. So and lots of innovation, lots of dynamism, so lots of organic opportunities. And so the acquisition of ION gives us a much broader platform now in terms of all the product formats that we have. It also they've been operating from 160,000 square feet earlier this year.
They took on a second facility, which is actually slightly bigger than the existing facility, that's only partially utilized today. So we've a big canvas in which we can develop that business now over the coming years. So there's lots of scope. That's certainly we're not worried about buying off any, roof there. We did
it like encountered as an exercise probably 3 years ago where we looked at the entire market. And we have a very long list, and it is very, very fragmented of companies that are operating in the sector that would clearly be targets for DCC. So as I said earlier, our approach is to work and build the relationships and identify, hopefully, the Jews and the Crown and hope we have a couple of those already, but there's plenty of transatlantic flights anyway, still to be had to continue to build a business. And we're kind of building obviously a management team and structure around the U. S.
Business as well to enable that to that growth. So, no, it's an interesting opportunity for us. And we don't, not to forget about our business here in Europe, which has been the highest organic growth business within the group. So I want to continue to build that business here in Europe as well.
Capital levels. I mean, working capital is in line with our expectations. As Dylan said, throughout the recent tech acquisitions, the working capital days are broadly. Probably the same. You've got a lot of sort of cash flow and working capital on a sort of an annual movement basis.
So if you take September, September, you can work it out from the statement. There's an outflow on the cash line on working capital, like for like increased by 1,000,000 September to September. 20 something of that is actually due to lower usage of supply chain financing, which we call out in a statement. And that's really driven by lower activity levels generally within the UK Technology business. So like for like, when you strip that out, we have a net increase in working capital from a cash flow point of view in the 12 months of about 1,000,000.
Does it change our expectation vis a vis the year overall? Absolutely no change at all in terms of the expectations we would have called out to you previously as to how we see working capital. Go for the year to March 2020.
And I think the, it was a good question. Just distressed players, what that is in the LPG markets in the U. S. And there's certainly some I think at the high end of the market. And look, I think there's, as we said, when we enter that market, there's 4000 players within the LPG market in the U.
S. We have probably heading for 0.7% share of that market now. So we're still a pretty small player. But the business we have, DCC Propane We've built a lot of credibility and, Henry and the team have built a lot of credibility as an acquirer of businesses within the market Coast Energy is a good example of that. We believe there will be plenty of opportunities to deploy capital over there.
We'll see what future brings for the players within the market, but we come back to our platforms and opportunities. That's certainly a platform and opportunity. So we'd like to deploy more capital over there. Kate, just pass the book.
It's Kate from RBC. First one for Henry, just on the LPG market in the U. S. So you talk about the older LPG conversions in the UK you seeing similar dynamics in the U. S?
And are there any differences in the LPG market compared over there compared to Europe And then on the GBP 118,000,000 spend on M And A, do we expect all of these to reach the 15% return on invested to target in 1st 3 years of ownership. And looking at potential deals, would you ever be more flexible on that return target?
Okay, Henry.
Yes, just on all the LPG
in the United States, the U. S. Achilles, it's a very, very large market and it tends to be regional when we're looking at the various dynamics there. The wholesale LPG opportunity in the U. S.
Is predominantly in the Northeast where there's a large amount of oil and other products used for energy off the grid. In other parts of the U. S, it's much less prevalent. So it just depends on which region you're in. We are seeing a little bit of it in the regions we're in, but we're seeing more growth coming from new house bills, particularly in the northwest, where the economy is relatively strong there.
As a fair bit of new housing being being constructed and we're seeing good growth from that. But in terms of oils for LPG, it's more in the Northeast of the U. S.
And in terms of returns, Kate, like, we've very much target acquisitions to deliver that kind of 15% return over time. Depending on the acquisition, some we get there quicker. Some will take a little bit longer. So it likes the Health And Beauty acquisition. That's kind of probably a 15% turn over a 3 year kind of time period.
So I think if you look at us out over 3 years, I think that's where we'd set, we'd see the 15% returns. Jerry?
Hi, Jerry from Goodbody. Don, just, if I compare the health care performance relative to the, tech performance. Given the fact that both companies are both entities are fairly well exposed to the UK and the backdrop to your comments around the UK economy, you could argue actually that health care is more exposed to the UK economy and yet it performed very, very well. Is there something else in the, in the, on the tech side that meant that it underperformed relative to health care?
No, I don't think so. I think, Jerry, like the health care business, clearly, our customer the customers of the tile business is the NHS. So while you'll find that there might be a little bit of destocking or does certainly constraints sometimes on the pricing side, but there's a lot of patients that need products and we supply the products. And if they don't get the products, don't get the health care. So you don't really have a choice in the health care sector, the health and beauty business, again, that's been that's very different.
Like a lot of the products that were selling over half of them that we manufacture in the UK get exported outside of the UK. And it's a high growth. It's clearly been a high growth market. Technology, we've been here, we've been in the technology business for a very long period of time. And the technology business, when the market gets tougher, you do see an impact quicker on the sales line.
And we saw that kind of from over the summer and into the autumn, it got increased more difficult. It's on consumer products. It's on enterprise products, companies concerned about Brexit companies probably aren't upgrading their infrastructure and that's having having a bit of an impact, but I go back. I've been around this for a very long period of time, but when I was running the technology business, which was an awful long time ago, in 2005 post the bombs in London, on 7th July, in the period from 7th July to September, we had a 22.5% decline in our sales during that period of time, an all around customer sentiment and it bounced back very quickly. So I think the market is tough.
And we've seen a bit of an impact, but the great thing think if you look at our technology business now, it's very diverse geographically. So had we been a couple of years ago, predominant part of our business would have been in the UK and it would be much more, much more significant to us. So I think the geographic diversity has been very helpful. The breadth of products that we're providing has been very helpful, but we're not immune to the demand characteristics of the market. James?
Hi, thank you. James from Jefferies. Just had 2 main ones on retail, oil and technology. Similar trends in the way of sort of backward moving, organic volumes as well as, but offset by better moving margins. And I'm just wondering in terms of what is expected to change in the H2.
So I think for you suggested expectations of about flat year over year margins in for technology. I understand the negative operating leverage point, but that should have also been at play in the first half of the year. Obviously, with H2 weighting may be a bit more pronounced, but I'm wondering if the exit rate in terms of the organic volumes was worse into the end of the in into the end of H1. And any reason why you shouldn't see the mix benefit that you saw in H1 benefit margin and offset some of that organic volume pressure in tech. It is something that I'm curious about.
And then retail and oil exited services with about percent of annual volumes, benefited your profit per liter as well. So if you're moving forward to a similar sort of decline in H2 in terms of percentage of volumes year over year decline, shouldn't you also expect a improvement in profit per liter as well as partially offsetting that?
To understand you, if I understand you correctly, you're saying, were the exit volumes in tech were the more impacted by the average volumes, what would intact for the 6 months? Yes, they were. As we said, it was increasing and progressive in terms of where the consumer's mindset went as we went through the 6 months. As we headed into the more seasonally important months of September onwards, yes, we see that. In terms of the overall mix.
We saw that mix impact benefit us in the first half because jam and stempeas, which are higher margin businesses, And we're only there for a number of couple of months last year, but there for the full 6 months this year as we go into H2, those businesses were there last year and they're there this year. So we don't get that enhanced mix effect we will have from an operating leverage point of view due to in the UK Technology business, margins will come off from that point of view. In an overall way for technology, we would therefore see, take it all of that into the round. That margins would be broadly the same. That margin would be broadly the same.
Year on year for the full
farming very well.
And then on retail and oil?
Yes. So I mean, as I said
earlier, the volume will continue. And as Donald said, we're pretty focused on cash contributions. So we'll continue to drive and optimize margins. The second half will depend really on the heat and oil, how the winter goes. So protecting the PPL at this stage will be pretty difficult until we know what the winter looks like, but clearly driving margins and driving the
cash contribution we don't see that changing in the second half. We've been like an over the last file, mix is always a big impact on the retail and oil business. So if we win more kind of dealer Petrol Station business, it's very low margin, but very high return business. If is more weighted towards the commercial domestic heating, you get a different mix on the margin impact. But the focus on premium fuels, the focus on value added service, that's what's been growing the underlying margin within the retail and oil business.
And net margin per liter moves around from time to time, it's about that gross cash contribution, as Eddie said.
Chris Berenberg Fuel Hunts. I have a couple of years, if I may. With the worsening background and technology in the UK, I was just looking for a bit more off in terms of the industry participants. Reaction. So the vendors, the retailers, new competition.
And then secondly, moving on to the ION acquisition, again, a bit more background there on, how long the process be going on? Was it competitive? And you also mentioned also it brings the gummy lines, but any other differences with the elite business in terms of products are nomination. That's fine. All
right. Tim, do you want to take the vendors and, typically, on
any individual vendor or new competitor, I think, share data would be the 1 I would point to really, and we're broadly in line, in terms of holding share in the UK. Obviously, it's been a little under pressure with the nature of our vendor mix and our industry mix retail versus business to business. But think it's broadly in line. When you actually look at the market, enterprise double digit down, and that's a function of the nature of the investment cycle, plus what's going on regards to as a service type models, and we've been investing in that space to be able to offer that to our reseller community. So I think what we're seeing is broadly in line with what you'd expect given the market trends, and the pressures of as Darren said, Brexit and elections and some of the issues that have been, ah, delivered as a consequence of our American guns.
We've a very strong business here in the U. K. So we're very, I think we're very well positioned to deal with these things. So it's just demand goes out, demand goes out relative quickly in the sector, you've just got to you've just got to deal with us. And, we're doing that, but like, as Tim said, market shares are holding up.
So that's the barometer that we're looking at, so we're not losing business to anyone else. It's just that business isn't there at the moment. But as I said earlier, We often we see that from been here before it bounces back pretty quickly. So, hopefully, the, as we go into the new year, there'll be and you enthusiasm in the country here and people will start buying products again. Absolutely.
Ian, it was a name, a business that was actually on going back to the original market landscaping exercise. We did when we first started in the U. S, it was a name that came out of that. So it was on our target list. The process came about very quickly though because the owner actually had a critical illness.
And so we had to move quite fast. A number of other parties involved in, and as well, it was a kind of a non exclusive process. And so, I think the fact that we've built a strong relationship with the management team was an important factor in us and our ability to move quickly or they were the important factors in us getting across the line. In terms of, you know, I suppose they have capability and tablet capsules, which is, which is the same as what Elite has and Elite has a kind of a more specialist focus on materials. And then ion has a broader capability.
So in addition to tablets and capsules, it has powders, it has liquid attritionals. And then it has some kind of niche specialties, I think Donald mentioned, capsule and capsule and liquid capsules. So Capstone and Capstone is a kind of an interesting concept where you've got 2 active ingredients that don't mix. So perhaps a fish or a high drink fish oil and then a powder capsule inside a high drink fish oil up. So you can get different actives in the same delivery that you wouldn't ordinarily be able to.
So it's a niche capability, but it's an interesting one and a good door opener with customers. There's almost no customer overlap between the two businesses. There's one customer shared customer and that was That was a pre existing, where a customer with a quite a tight range of products has with sourcing from both sites for security and supply reasons. And that's something we can probably exploit with the overlap and capability, we can exploit that a little bit more. And then gummies, we it's a category that we've been interested in.
Been looking for looking at the acquisition opportunities in that space in the U. S. There's very few gummy manufacturers And so we're excited about the prospect of getting into that. It's very early to have literally just purchased the case and our commissioning, the line. So there's a bit to go before we're fully up and running on that, but it's going to be exciting for the business.
And there'll be learning there that we can take back to to our UK facilities as well and look to develop that capability here as well over time. Thank
you.
Good morning. It's Sam Bland here from JP Morgan. Two questions for me. First one, actually, again, on technology. Just talk about the operational leverage characteristics of that business, particularly obviously bear in mind going into that seasonal period and reasonably thin margins in the business as well.
And the second one is, just to kind of calibrate expectations around balance sheet capacity. Obviously, you've historically talked about that 1.8 times leverage of seasonal peak. Would you now include the IFRS 16 lease creditor within that or not just to get an idea of how much debt back to sitting there?
I don't know the answer to the second part, fairly straightforwardly, but I'll let Phil answer it.
We wouldn't include the IFRS 16,300,000,000 dollars, $300,000,000 or so of, of, you know, of course, you know, 2000 leases with 700 landlords, in that debt number, okay? We were looking at an acquisition with something with an institutional lease for 25 years, would it regard that as debt from the point of view looking at the acquisition, yes, we would, but we wouldn't include the overall number in our sort of debt capacity. Clearly none of our banks our institutional banking covenants include those leases as debt and our covenants is 3.5 at the end of September, we would have been on a sort of 12 month basis point 4. So clearly a significant amount of capacity. We wouldn't want that number to go in terms of our own internal sort of view on leverage, we wouldn't want our leverage to go beyond 1.8,1.9 times.
But with the EBITDA we have, that gives us significant firepower in terms of how the balance sheet is set.
I think, Sam, if if an accounting standard can ever be a bullet point, I think IFRS 16 is actually a bullet point for DCC because when you look at the the impact of IFRS 16 on our business is very modest, because we have always looked, as Fergal said, investments if they have lots of leases in it. We look at the leases as if they're debt. So we've always factored it in. So it's, that's why it has, it really does have minimal impact on the business. Just wanted to just talk about the operating leverage for Helene?
Yes. So in terms of operating capacity, obviously, we're ramping up into peak right now. And the whole operation is built around being able to manage that sort of capacity. Guess there are 2 aspects of things that we've been doing to be able to ensure that we continue to build leverage. 1 is around investments in being able to get higher density cubic, within the facilities that we've got.
So I picked ours in, both Burnley in the Nordics plus the investments we've made in France to be able to enable that. And then the second thing is really about, the sort of the science of procurement driving, better turns in our stock, reducing stock days and so on to be able to drive that capacity into our existing warehouse capabilities.
But there is like it takes a little bit of time. So that's part of the challenge for everyone to add anything. And, no,
I mean, typically because it's just a throughput of revenue through the sales machine in H2, you will see from our numbers that typically are operating margin percentage in technology is substantially greater in H2 than it is in in H1 to give you an overall higher number for the year versus H1. It could be broadly that, that trend will continue because we do obviously do more revenue in H2, but the increase for H1 versus H2 won't be as great this year because of what's going on in UK technology, but there will be sort of an increase between H1 and H2.
Any other questions in the room? I think just if we check if there's anyone online if there's anyone online, that has a question. Maybe would be a better. See you all soon.