All right. Good morning, ladies and gentlemen, welcome to VCC's Interim Results Presentation for the six months to the September 30. I think most people know me, but I'm Donald Murphy, CEO since July DCC. And we've a slightly different lineup at the top of the table here today because this is the first time since we split the Energy division into our LPG and Retail and Oil business producing announcing results. So we have Ferg Lodoir, who everyone knows really well, Chief Financial Officer Henry Coven, Managing Director of our LPG businesses Eddie O'Brien, Managing Director of our Retail and Oil business Conor Costigan, Managing Director of our Healthcare business and Niall Ennis, Managing Director of our Technology business.
And they're going to answer all the hard questions later on in the session. So thankfully, I don't have to read the disclaimer, but there it is for everyone's benefit. We'll just talk through the highlights of the performance in the first half of the year, which we're really pleased about. We'll talk about in a little bit more detail each of the four divisions. And then I want to come on and talk a bit about the development because it's been a really active period of development for DCC in the first six months of this year and then a little summary at the end.
So we're very pleased with the performance in the first six months, both from a trading perspective and a development perspective. Group operating profits on a continuing basis up 14.4% to €121,500,000 up 9.7% on a constant currency basis. Really pleased that all our divisions performed strongly during the first half of the year, and I'll come back and talk about that in a little bit more detail. Our adjusted EPS and continuing activities up 16%, 11.5% on a constant currency basis to 95.5p and interim dividend up 10% to 40.89p per share. And it has been a very active period of development.
A key part of the DCC business model is acquiring businesses and integrating them and creating greater scale within our organization. During the first half of the year, we have been very active. Based on the acquisitions that we have announced, it will be a record year for spend for DCC of GBP $550,000,000. So it has been a very active period for us. Looking at the numbers in a little bit more detail.
Our revenue, as you know, very much influenced by energy products. So if you look at the energy part of our business, we tend to look at it in terms of volumes. Our LPG volumes were up 16.2% in the first half of the year. Our oil volumes were up 7.7%. And excluding the energy related products, our revenue was up 16.4 and about half of that was organic growth.
Our earnings per share and our operating profit, I talked about earlier, operating cash flow of $84,000,000 Actually, our working capital on a like for like basis was pretty much in line, but we had the impact on of acquisitions that had positive working capital in the second half of last year. So the Gas European, the Danske Fuse and the Hammer business, so our working capital days increased to negative 1.7% negative 2.9% in the prior year. Net debt, pretty much similar to last year, leaving DCC with a very strong financial position and well positioned to continue our growth and development. Just moving on to look at the businesses in a little bit more detail. As I said earlier, really pleased that we've had strong growth across all the divisions within the group.
Our LPG business growing 11.5% on a constant currency basis. Retail and Oil up 2.9% on a constant currency basis. Healthcare up 10.9% on a constant currency basis and our Technology division up 24.9. Clearly, the first half of the year is the seasonally less significant part of our year, but notwithstanding, we're very pleased with the overall performance. Moving on to look at the LPG business in a bit more detail.
It's been a really strong period of growth and development for our LPG business. Our operating profit is up 11.5%, Volume growth, 16.2%, largely driven by the acquisition of Gas European, which we completed literally this time last year. Organically around a like for like basis, our volumes in LPG grew 1.3. Very strong performance in our LPG business despite the headwinds of the rising cost of product, very much benefiting from our procurement activities and benefiting from good cost control across the business. Business in France, Budagas, continues to perform very strongly and we've had good organic growth in our business in Britain and Ireland, continuing to benefit from this focus on the commercial sector of the market and particularly oil to LPG conversion.
Our smaller business in Scandinavia continued to perform well during the year. We're really pleased that we've now launched our Budagas B2C, and we talked about this when we acquired the Budagas business that we want to build this out into the natural gas sector of the market. The B2C business has a very strong brand recognition as a gas brand. And we've recently launched B2C into the B2C segment of the market for both gas and electricity. So it's very early days, but we're pretty pleased by the feedback from customers to date.
On the development side, we're making good progress. We announced the acquisition of the Shell business in Hong Kong and Macau last April. That's a business that sells 74,000 tons of propane in Hong Kong and Macau. Good strong positions within that market, particularly in the pipe estate segment of the market. Business, our integration plan is going well, and we would hope to have that completed before the end of the financial year.
And I'll come back and talk about Retail West because that's the new kid on the block that we announced last Tuesday. Moving on to look at the Retail and Oil business. Again, strong performance in the first half of the year. Operating profit is up 2.9% on a constant currency basis. Our volumes were up 7.7%, driven very much by the acquisition of Sands Fuels, which we completed in November.
Organically, our volumes were in line with the prior year. If we look at the business in Britain, we had good growth continued good growth in the commercial sector of the market. Now that was offset by the impact of a milder temperatures mainly in April, which impacted on the heating volume. But overall, a good performance in Britain. And we're making good progress in moving out into the adjacent areas such as lubricants and aviation.
We've also started and we think there's a substantial prize over time in building a low cost unmanned retail network here in Britain. And we have launched in the first half of the year or opened up eight new unmanned retail sites. We think that will be an opportunity for further growth within the market here. The business in Denmark and Austria both performed very strongly. Really pleased that the Danish business now, we have integrated the two zero five Shell branded retail sites into our retail hub and spoke structure, and we did that a couple of months ago, and that's better than very well.
Retail and fuel card business continues to perform in line with our expectations. We've continued strong growth within our fuel card activities. And we have continued to invest into the market in France. In France, we now have three twenty ESO branded stations throughout the country. We have been upgrading those stations to sell the new differentiated synergy fuels from Exxon.
And we have updated the identity across all our states in France during the first half of the year. Market conditions were a little bit more competitive in France, but the business continues to perform very well. Our retail business in Sweden, Q Star, again performed well in the first half of the year. And coming back to the acquisition and integration, and this is really a core competency for DCC. We're really pleased that we managed to get the ESO business in Norway completed a couple of months ahead of schedule at the October.
That business has two fifty Esso branded sites throughout Norway. It gives us the strong number three position within the market. And I'd say we've got our hands now in the business. And over the next number of months, we'll really fully integrate it into DCC's operating model. Moving on to look at the Healthcare business.
Again, strong performance in the first half of the year on a constant currency basis, up 10.9%. Really pleased with that performance, about a third of that was organic growth. DCC Vital, which is our business that supplies medical devices and pharma products to healthcare providers, had very strong growth on the back of the medical device sector. Medisource, which is the exempt medicines business that we acquired in January, has further expanded our product offering within the Irish market. And we have a very strong position in health care within the Irish market.
Our Williams business here in Britain in the primary care sector continued to perform very well. And we have expanded that product offering into the Irish market. Trading in the pharma business was a little bit more difficult and people will be pretty familiar with the some of the challenges in the generic sector of the market here in Britain and that has an impact on our pharma activities. Our Health and Beauty business continues to perform very strongly. The nutritional business, we have a particular niche in manufacturing complex formula products.
And these are growing very strongly here in Britain, strongly in Continental Europe and indeed in Asia. And we're benefiting from those trends. Our Beauty business was held back somewhat during the first half by an unfavorable sales mix. And we had some short term destocking by some of our customers. But we're seeing actually an improvement in the order book now and new good new business development activity.
And the newest part of that business is our Design plus business, which is a sachet filling business for those who want to buy into face masks. That business has been growing very strongly, particularly into The U. S. Market. So really good underlying growth within our health and beauty business.
We are continuing to invest to increase our capacity in our sites to grow our business. And we're really keen to deploy further capital within the health and beauty sector. Moving on to technology. Again, a very strong performance in the first half of the year, principally driven by acquisitions. Operating profit up 24.9% on a constant currency basis.
And again, similar to our energy related businesses, it's very much the seasonally less significant half of the year as you're well familiar with. Our UK and Ireland business has grown very strongly. On the back of the acquisitions of Hammer, which is focused on the server, the storage and related services area, that business has performed very well ahead of expectations since acquisition. And more recently, the acquisition of MTR, is more modest but brings us into the device lifecycle management area, so where we refurbish mobile phones, mobile devices. That business has performed very strongly, since acquisition.
And again, it's expanding the range of services that we provide within our technology business. Really driving good growth in audiovisual products, smart home and there's an awful lot of focus on smart home at the moment. That's been a growing area for us, the enterprise products and indeed into components. Our business in Continental Europe, the business in France focused on the consumer side of the market has been challenging for some time and has remained challenging in the first half of the year. But our reseller and electrician supply business performed very well.
And in The Nordics, where we have a really strong base within Sweden, business is growing strongly in the in similar areas, the IT products area, the audiovisual products area, entertainment products. But we've also started to leverage our position within the Nordic market. And we have operations now in Norway, in Finland and in Denmark, hub out of our physical logistics capability in Sweden. Finally, our Supply Chain Services business, which is a smaller part of the division, continued to expand its global service reach and achieve good organic growth in the first half of the year. So overall, from a trading perspective, all our divisions performed well.
We feel really good about the businesses, and we're well positioned going into the second half of the year. Touching on development. Again, as I said earlier, it's been a really active period for development for us over the last six months. On the acquisition side, committed acquisitions of $180,200,000 $152,000,000 in LPG, which is principally the Retail West business. I'll come back and talk about that in a little bit more detail.
Retail and Oil, 7,700,000.0, which is some small lubricants, a couple of petrol stations and a little oil distribution business. And then technology, 19,900,000.0, which is principally the MTR acquisition and that accounts for a significant earn out over a period of time. Our capital expenditure, 67,800,000.0 in the first half of the year. Our depreciation on a continuing basis is about $43,000,000 So and the excess of spend over depreciation mainly into investments in the retail sector, new motorway concessions, investments in oil to LPG conversions, all growth CapEx that we get good return on over time. The development activity, as I said earlier, very active development and integration period.
And this is very much a core competency within DCC, acquiring businesses, buying other businesses, integrating them together, selling more product to more customers with less total capital employed. During the period, we've really focused on investing our cash flows into attractive acquisition opportunities. We've gone east and we've gone a little bit west in the acquisition activity, particularly within the LPG business. And that positions us for further growth within each of those regions. I talked about Essenorway, I talked about Shell, Hong Kong and Macau already, MTR on the technology side.
And I'm going to talk in a little bit more detail about Retail West because we think that's a very significant development step for us. We've been looking for the right opportunity in The U. S. Market for some time, and we think we've now found this. So reflecting the acquisitions announced to date, this will be a record spend for DCC, $550,000,000 and there's still clearly some of the year to go.
So looking at Retail West in a little bit more detail, I think I was saying to many on Tuesday when we announced the acquisition that I was disappointed that we couldn't choreograph this to announce it on today with the results. The vendor was probably keener to get it into the public domain than we were. This is a really interesting development opportunity for us. The U. S.
Market is a very large, it's a very fragmented, it's very profitable and it's a growing LPG market. And it's a market that we have been keen to find the right opportunity to enter into over the last number of years. The Retail West business is a business that's in the Midwest and the Northwest Of The U. S. It has some very strong regional shares within the market.
It operates in 10 states. It's a strong position in three of those states, in Illinois, in Indiana and in Kansas. The business was part of the NGL Energy Partners Group and we bought it or we will buy it from them at the March. Enterprise value of $200,000,000 The EBITDA is expected to be $28,000,000 and an EBIT of $20,000,000 We'll get an after we'll get a cash payback on this business within ten years. So why is it attractive?
Well, one, as I said, The U. S. Market is a very large propane market. To put it into context, 18,000,000 tons, it's about nine times the size of the French market where we have our biggest position within LPG. It is very fragmented.
There's 4,000 players within The U. S. Market. And again, one of the things if you go back to how DCC has built its oil business here in Britain, we bought a business back in 02/2001. And from 2001 to today, we've acquired and integrated over 40 companies to create the largest fuel distribution business here in Britain.
So the skills we have, the experience we have, the base of business we now have, we believe that over time, we will be able to build a substantial business in The U. S. Market. Interestingly, growth for LPG within The U. S.
Market is growing. ICF, who are the research companies that focus on the LPG sector in The U. S, are projecting growth in the consumer market of 13% to 2025, growth in the commercial market of 18% to 2025. So not only is it large and fragmented, but there's underlying growth within the market in The U. S.
And that's driven by growth in residential properties, growth in oil to LPG conversion similar to what we have been seeing here in the markets in Europe. And clearly, there's a positive economic momentum in The U. S. At the moment, which will be beneficial for growth. The market the largest player is 13% share of the market.
The second largest player has 7% share of the market. Once you get beyond the top 10, you're down to one percent market shares. Our business will have 0.6% market share. So we'll have a small share in a very large market. And hopefully, over time, we'll be able to do similar things to what we've done in other markets.
Similar to our other existing LPG businesses, it's
got
a very broad customer base, 65,000 customers, really long term customer relationships built on quality service over many, many years. The vast majority of the customer tanks are owned by the company. So you've got a very sticky customer base And the business has a well invested operating infrastructure, operating from 100 sites throughout the states that it operates within. So those sites, that infrastructure gives you the opportunity to integrate the and extract synergies on the back of that. So having bought the business, we believe there'll be very synergistic acquisition or further acquisition opportunities going forward.
So why do we think it's a good acquisition? An excellent customer base, 65,000 customers, long term very long term customer relationships, some strong regional brands, Hicks Gas founded seventy years ago. And the actually, the grandson of the founder is the Managing Director of the business today, Pacer Petroleum, Propane Central, all strong regional brands in the regions that they operate with, similar to the characteristics of some of the businesses we have in our own business. It has very strong, well invested infrastructure that we'll be able to leverage over time, particularly for bolt on acquisitions. An entrepreneurial management team and Sean Cody and his team, we look forward to welcoming them into the DCC family.
And they are very similar and they think very similarly to the way we do. So when we were at the management presentation, we were kind of on day one just blown away. There were people that if they were sitting in part of our management team, you'd say you'd be proud for them to be part of the group. Business is excellent cash generation. And as I said, it's a very large, very fragmented, very profitable and growing market in The U.
S. So we think this will be a good opportunity for growth for DCC going forward. So in summary, we think it's been a really good period on the trading side. It's been a really active period from a development perspective. There's good growth across each of our divisions as we go into the more important second half of the year.
It's always standing at this time of the year. You've six months done or a little bit more than six months done now at this stage, but an awful lot of our profitability still to come. And we have the capacity and the opportunities for further development of the business. So we feel really good about where we are today. We and you'll have seen this morning that we reiterated our belief that the year ending 03/31/2018 will be another year of profit growth and development for DCC.
We leave you with our favorite slide, which just shows the track record since we went public. And I think there's few enough public companies that could show that track record. So it's something we're very proud of. And we'll welcome your questions. Thank you.
Someone take one. Rory?
It's Rory McKenzie from UBS. Probably the biggest change in a short space of time is they've already gone global in the past year. How should we think about the rate of expansion in your new markets? Particularly in U. S.
LPG, it's much more fragmented. So will that be tens of small acquisitions each year? Whereas in Asia, it's probably seems a little more lumpy given the new mark entries. So some thoughts about the rate of expansion in your two new areas? And then secondly well, actually, this used to be one question, but now it's two, because you split the divisions.
So firstly, on LPG, the EBIT per ton margin, think, is down at constant currency. Is that mix? Or is that investment costs going in? And then Ditto for Retail and Oil, I think at constant currency, the pent fleet margin is down a bit. So thoughts around that, please.
Yes. And I think Ferg, you might take the second question, and I'll take the first question. And again, Rory, going back, one of the things that we've always been focused on is growing in a measured way. So back it's only 2009 when we made our first move outside Britain and Ireland in the energy sector when we bought Shell's business in Denmark. And we said at the time it was modest, but that we wanted to use it as a building block.
And clearly, we've built a substantial business in Europe on the back of that first acquisition and particularly actually in the Scandinavian region on the back of it. So over time, we think the opportunities will be there to do that. The U. S. And Asia, as you rightly say, are very different.
The U. S. Market on the propane side is just very fragmented. So that plays very much into the skill sets that we have of rolling up mama and papa type operations. And we think that the opportunities will be there to do that.
Asia, our first focus is let's get our hands on the business, hopefully, before the end of the financial year. And then we will, over time, learn about the markets in Southeast Asia and over time make measured steps to build out that business. We think there may be opportunities within Hong Kong and Macau itself to do some further consolidation over time as well, But it is very much over time. But it gives us a presence in those regions, and we have the regional structures in place to make sure we can grow the businesses in both continents.
So my question is a follow-up in terms of the your view on the incremental returns because the first investment costs I get are higher as you move into it. So at what point would you expect the returns to start moving towards the LNG average?
Yes. And there's a couple of things, Rory. One and with, I'd say, pretty much most businesses, if not every business that we acquire, our business model adds value. So we'd hope to be able to add value to improve the business organically and improve the returns organically. And as you say, these markets and The U.
S. Market is a growth market, so that should in itself drive improved returns. But acquisitions are very synergistic in the energy space. And if we look at the returns we have today, the returns that we have today, a lot of that came from acquiring businesses, integrating them together and then selling more product to more customers with less total capital employed. So we think that we'll have the same opportunities within these markets.
Alberto? On the LPG margins point, Roy, that's essentially mixed. It's a lot
of small numbers, but it's essentially mixed. Our gas European business, the nature of certain natural gas businesses that sell in essentially into domestics is that it makes essentially a loss in the first half. So you get some volume, but you make a loss because you've got your procurement and your virtual storage costs all happening in H1. And then you do all most of your volume in H2, you make you get big profits in the second half. So it's essentially mix.
Our costs on an absolute basis within LPG, forget cost per ton, on an absolute basis are down marginally on the previous year. Noel?
Yes. Similar to mix issue, obviously, the milder start to the year in The U. K, which means less domestic margin and then slightly more competitive position in France. And the organic growth has mainly come from the commercial side of the business across the division, so lower margins than domestic or retail. Al?
Alan Smiley, Davy. Just three questions, please, all kind of energy focused. Could you talk through what Sean Coddy brings to DCC, a bit more detail on his background? And presumably, he was capital constrained under his previous ownership, so if that is helpful going forward? Secondly, on the rollout in France of natural gas and electricity win.
It comes very early days. When do you get line of sight in that business going from investment phase to being profitable? And just a final question on the retail forecourt space. I think a number of larger portfolios have transacted in the last few months. Like what are you learning about pricing in the European market?
Have your views on that changed given what you're Yes.
Well, maybe I'll take the just the natural gas one, and Henry might talk a little bit about Sean Cody's background. It is, as you say, Alan, it's very early days. We have going back to May 2015 when we announced the Budagas acquisition, one of the things and I want to go back one the things on the slide was we saw an opportunity to build a natural gas business over time leveraging the really strong BudaGas brand and BudaGas' brand awareness as a gas brand within the market. We've launched, and it is launched, not just the gas business, but actually a gas and electricity business. It is we did a soft launch on it.
We're now media advertising it. It's very early days. I think we're pretty pleased actually with the reaction of customers. The reaction of customers actually, interestingly to buy electricity from us, even not on the back of gas, but singularly to buy electricity. So it gives us a lot of confidence, but it's very, very early days.
What we said was we'd invest probably $6.7000000 in this year. So it will be a drag, if you like, on our earnings. That will be a little bit less next year. And then as we get into year three, we should see it turning into profit. But this is a example of innovation within the group because it's very rare that we actually go and build a business from scratch.
And here we are building a business from scratch, leveraging the brand and leveraging the Gas European skills, infrastructure and systems to build this B2C business. So it's a good case study for us. Henry?
Yes. Just on Sean Cody. Sean is, as General said earlier, is third generation. So his grandfather set up the business, Hicks Gas, many years sixty years or so back. Now since then, Sean has led the additional acquisitions that that business has made, so over in the West Coast, and also into Kansas.
So he's led the acquisition kind of agenda there. And I was with the team last week, a couple of town halls we had over in Illinois. And Sean and the team are very energized and very kind of motivated by the DCC move. And we're really looking forward to working with them to develop the business. They're hungry for growth.
They're hungry for additional investments, and that's something we're very much looking forward to supporting.
I think, Alan, just on the retail deals and we certainly have seen and we've talked about this before, there's been plenty of competition for assets in the retail market. We've seen it particularly here in Britain. One of the reasons we think there's a real opportunity actually to build a low cost unmanned network here in Britain is because there's lots of capital and very pretty high multiples gone into the retail sector here. We've been winning deals. We've been winning deals at returns that are within our expectations.
So we don't see that changing. We won't win every deal clearly, but we're winning the ones that we want to win.
Josh?
It's Josh Puddle from Berenberg. First question, can you talk about competition for deals in The U. S. Market? And what sort of returns on capital you think you can buy the smaller businesses at there?
And then also following on from that, can you just talk about the decision to buy Retail West, at a higher multiple than we're used to seeing and where you think that return can get to on, say, a three year view?
Yes. I'll take the latter one first, Josh, because it's a good question. Firstly, we just think and hopefully highlighted during the presentation that The U. S. Market is a really attractive market.
So getting your first platform, if you like, within the market was going to be very important to us. We've looked at a couple of opportunities in the past. We haven't pushed on with those. We think this is a really attractive business. And while on the face of it, it's a high multiple, actually we can write off goodwill over a short enough period of time in The U.
S. Market. So the after tax position is and after tax returns are certainly closer to 12%. So coming back to the things that to Rory as well, we think organically, we'll be able to grow the business. We think there'll be opportunities to improve the performance of the business and that's something that we've probably seen in every LPG business that we've acquired.
But it's all about that role of play then. And the multiples aren't significant for those smaller players within the market. Clearly, there's competition for those assets in ways the two big national players. There's lots of the smaller mama and papa operations that don't want to sell to the national players. They want an alternate.
DCC and the strength of the DCC balance sheet gives us a real advantage now as a buyer of assets. And even though we won't take ownership of the business until the March, we're very much out there now in The U. S. Market as a buyer of these assets. So and they will be synergistic and they will improve the returns over time.
And the timing will be really driven by how quickly we can get those acquisitions across the line, but we think there will be a prize to do that. Rob, do you want to?
Rob Plant from JPMorgan. On the LPG side, you had the headwind of the rising product cost and then you've got the offsetting procurement cost saving initiatives. Do you think those two trends continue into the second half?
Frederic, do you want to?
We'll probably see the rising cost of products. We had talked before that it would have an impact overall for the year. It has a smaller impact in H1, but that full impact will come through in H2. The cost and procurement savings, that's a trend, and that will stay for the second half. But the cost of product increases were always lagging, so that will feed on in towards the back end of the year.
George, we go across that line.
It's George Gregory from Exane BNP Paribas. Two, please. Firstly, going back to Retail West. Perhaps you could tell us a little bit about the incentives and the earn outs attached to the deal. And secondly, talked a lot in the past about conversions from oil to LPG.
Are you seeing conversions from oil to LPG hybrid or LPG to LPG hybrid perhaps in the commercial space initially? I don't know if that has dissipated yet to the domestic space. And if not, over what time scale do you think you might start to see that? Thanks.
Henry might take the second bit. First bit is relatively straightforward. There's no earn out. It's we're buying 100% of the business up front. It was business was owned by an MLP, NGL Energy Partners.
And I think they were selling off some assets to reduce their debt because they were getting close to their debt covenants. So it was it actually was a transaction that happened pretty quickly. So and I was saying it at our management meeting on Monday, it was really just great to see how we could mobilize a team, get a deal, agree and all our due diligence done in a pretty tight period of time. But it's all it will be all within that value. Henry, do want to talk about the oil to LPG conversions because that's been a really good growth area for us?
The oil to LPG conversions take place where there's no gas grid, and you've got commercial operations operating using fuel oil to power whatever they're doing. So this could be anything from hotels to asphalt companies to food processing companies, even as far as whiskey distilleries in Scotland. And what our sales teams have been doing is going into these businesses and explaining and analyzing their energy mix, looking at their overall maintenance programs and their CO2 output, putting forward a package to the commercial operation and then helping them and assisting them with the switch across from using oil into using propane. Propane has CO2 advantages, but there are also a number of operating cost advantages as well, which we're managing to put through. And in The UK, we've also extended that through from switching to LPG to also to very large industrial switching to LNG as well.
So we've become an LNG distributor now in Britain. The second question you raised was, is that extending to residential customers? That's taking a bit longer because for residential customer, the boiler that they have in their home is like they're beating heart and to try to switch them across from using oil to propane takes a bit longer. But we are now beginning to see signs of those switching switchings taking place, particularly in parts of Continental Europe.
Sorry, just a follow-up. On the commercial side, are you seeing any of those customers switching from to rather a straight LPG solution to an LPG hybrid solution involving solar and or storage?
Yes. There's a little we're seeing a little
bit of that. We're seeing a little bit of, particularly in the agricultural sector, people switching to a biomass stroke LPG combination. So they're using biomass waste sometimes from an agricultural process such as tricking farming. That waste goes into the process, and then the LPGs use as backup fuel, from time to time through the cycle of the agricultural process.
A couple of years
ago, George, we bought a couple of new energy businesses, which have been fully kind of integrated within the LPG activity. So we actually sell all those products to our customers. So it's a small part of the overall business, but it's actually very important in the commercial sales process with the customer to be able to go in and sell them those kind of hybrid solutions. The other thing that we're seeing a little bit of now, and we've got some strategic partnerships as a kind of a bio LPG, where there's greener even greener LPG version. And again, all these things with the strength of the presence we now have in the LPG market, their real advantages and their advantages that we can bring across the different markets that we operate within.
And when we look at The U. S. Business, there's things we're doing in Europe that hopefully we'll be able to bring into The U. S. Business.
Sorry, just one final follow-up. Over in The U. S, do you see any shift towards from the commercial customers into perhaps LPG, solar PV and battery storage? Or has I that not been seen
think there's certainly and the guys are seeing the again, similar kind of trends in the oil to LPG conversions. There's a big and particularly in parts of the business closer to the Northeast of the country, there's a very big oil business. And that's there's definitely a switch across LPG there. I don't know, Henry, if you have anything to
add to that? Northeast Of The U. S, there's a lot of oil being used there for heating purposes. And that area is moving across now into LPG. The business in Retail West is not particularly active in that geography for the time being, but it's certainly something we're going to be looking at.
Chris Bambry, Peel Hunt. With regard to Retail West, just wondering, given the relative size compared to the market with AmeriGas, is there any disadvantages of scale that you're suffering from at the moment or potentially with that business? Secondly, you mentioned France and the oil business, they kind of create a level of competition. Just wondering if you could elaborate a bit on that. And finally, again, in France, following the kind of integration of Avantigas and Fingas, just wondering if that's having any impact on the market or what kind of how that's panning out?
Yes. So Retail West, Henry, do you want to take this?
Yes. On the sorry, what was the point on Retail West, just to remind me? Just
a small it's much smaller
than bucket.
Got you. Yes. They're best invested national accounts. I don't know what it might be, but there's something that Yes.
The national account piece is particularly around the cylinder area, which we're not active in Retail West. So that's not in terms of our segmentation. In terms of we've looked at the competitive position of the business from a supply point of view and from our evaluation, we don't think there's a disadvantage of scale and supply. The operational in terms of operational, a competitive advantage. The fact that we've got a number of clusters of depots operating in each of the states, we feel that that gives us the logistical capability and the number of the customer density we have gives us competitive advantage.
And so we don't see ourselves in some way disadvantaged against the big guys. And also, Chris, the and we saw we've seen this in other markets in the past where you've got lots of mom and pop type operations. It's almost like the anything but United piece that who you're going to sell to. There is people that have been competing for years against some of the big guys, and it's not a natural home for their business. That's something that we'll certainly be focused on as well as we go forward.
I think on France, just on the Antrigas, Totugas integration, we've seen we haven't seen any kind of change in the market dynamics at all in France. That is market in France is very different to The U. S. Market. It's very consolidated.
So that combined business is 50% share of the market. We're the number two player. We have 25% share of the market. We have a leadership position on the cylinder side in France, which is a very strong part of our business, but we haven't seen any changes. And Eddie, just on the retail.
As you know, France is
a pretty competitive market anyway. So through the summer, we saw some more competition just on prices. And with the rising price market, there's been a bit of a lag passing prices through to consumers. It's nothing unusual in France. We've seen that a couple of times in our tenure and before.
So we expect it to be short term, nothing too significant.
Justin Jordan from Jefferies. Just switching divisions for a second for Conor, I guess. You talked in the statement about some challenges in The U. K. Market, particularly in generics.
I'm just curious, is that are these temporary things? Or are these structural things we have to sort of think about longer term impacting the business and something we have to plan for going forward?
Just remind
people that within Vital, the medical product side of our business is by far the largest profit contributor, and that's where we're selling it across all of the channels to market, including market leadership in the GP channel. So the generic pharma piece and so we have a very nice pharma business in the Irish market, which is across hospital, community pharmacy and following the Medisource acquisition, EMPs. So in Britain, we also we have a nice hospital injectables business, which over the years has performed very well. The retail generics business is a tough market. People would have followed the woes of some of the big global players in that market in recent times.
The UK market is probably the toughest market in Europe. So I don't think we're not seeing anything different to what other people are seeing. It's a market characterized by volume growth, but a lot of price deflation. So I think there's nothing unusual there, really, to be honest.
Two quick follow ups for Fergal. Just obviously, can you give us just some reiteration of guidance of what CapEx for this year should be in total? And secondly, while you're thinking about that, increasingly complex geographical group, can you just remind us
Give me a second to ask, let me, so I can't hear you.
Well, you probably knows the answer. Okay. So first question is CapEx for the year. Second question is just can you remind us of FX sensitivity? Principally, I'm thinking euro sterling at, let's say, an EBIT level.
It's FX rates pop around on a day by day basis. So depending on what assumptions you use, you may come up with different answers.
Yes. Okay. Firstly, on CapEx, including some disposals, maybe 130,000,000 to 135,000,000 in the current year. Some of that will include some development spend, non maintenance type and buying new stations and so on. On the FX, just over 50% of our profit base is certainly on a pro form a basis, when you include Retail West, well well not well over, but between 5060% of our profits will be non sterling.
About every 1P movement will be circa 3,000,000 impact. And then it impacts the other way on interest as well, so 2,000,000 to $3,000,000 I'm laughing because he has
those numbers on the top of his tongue all the time. He's focused on CapEx. Gerry?
Gerry Hennigan, good morning. Just a very generic question, first of all, Donal. A lot of noise around electric vehicles at this stage. What's your thoughts on that in terms of the retail network? And secondly, it's been noticeable, obviously, that you've gone into The U.
S. And the Asian market via the LPG route. How much of that is just pretty down to the opportunities there? And how much of it is that the centralized approach to retail would mean it may be a bit more difficult to enter those markets on a smaller basis?
Yes. Thanks, Gerry. The EVs and clearly, EVs are going to have a part of the transport fuels market going forward. So we're very sure that, that's going to be part of the market. I think it's going to take a long period of time, not a technologist, but and the impact that it's going to have will be spread out over a very long period.
We've been very clear in our retail investments that we're buying quality assets. We run a really low cost operating model that's been key to us, infrastructure that Eddie has put in place. And some people have been down to Droheda. It's the lowest cost it's the highest quality, lowest cost retail operating environment in the certainly that we've come across. We've quality brands within the business.
So we think over time, when we're going to get really good returns on those businesses. Secondly, that there will be modest decline maybe in the market. We've been in businesses in the energy sector that have a modest decline over many, many years. And we get really good returns out of those assets. So we're not concerned about it in terms of having an impact or any material impact on our retail business.
I think the business why are we looking at these businesses in the propane or the LPG sector? We've been very clear and our strategy has been very consistent over many years that we wanted to build the retail or the propane business out on a global basis. With the exception of The U. S, that market tends to be pretty consolidated. We have a very similar ecosystem across the markets.
So the same people are supplying the tanks, the valves, these are very active and Henry is very involved in the global LPG association. So we know all the players within the LPG market. The characteristics are very similar to the businesses that we have. We deploy capital in businesses that have sticky customers that stay with you for very long periods of time, where you have a little bit of asset intensity and where you have a lot of spread within the business. So it's kind of been really part of our focus.
We've been looking at The U. S. For some time. The we've been working with the oil majors clearly, and that's where the Shell acquisition in Hong Kong and Macau came out of. But it's bang in line with our strategy.
We have lots of opportunities still within Europe on the retail and oil side. So that's where our focus has been and will continue to be for the time being.
Jared Morrison from Investec. Following on from that last question, could you talk a little bit about your ambition to perhaps expand into The U. S. In some of your other divisions, not just in the two energy businesses? Secondly, then just on the retail and oil business, could you also perhaps just discuss a little bit more your presence in some of those adjacent products that you mentioned, things like aviation fuel lubricants?
Maybe give us an idea of how significant they are today for the division and what and how meaningful or how significant they could be in three to five years down the road? And then finally, Nile, one question for you. Just if you could perhaps talk a little bit about your relationship with Amazon and maybe you can explain to us how you work with them in some cases and how you work against them in others.
Jordan. I'll take the first question and Eddie might take the adjacent product areas. And I'll answer the Amazon question. We are and it's a helpful prompt in some ways because we unlike at all these announcements, I used to sit down there actually and answer all the energy questions. Now I get the opportunity to pass some of them across.
But there's always a lot of focus on the energy part of our business because clearly, it's the largest profit contributor to the group. But we are very clear and I'm certainly very clear that we want to operate a diversified model, that we want to build and deploy capital in each of the sectors that we operate within. And we're focused on doing that. So we're focused actually and we are looking for opportunities. And we're not promising anything, but we are looking for opportunities across each of our sectors in The U.
S. Market. We think getting a presence on the ground is going to be very important to us. We'll put some resource in there on the development side. And over time, we see The U.
S. As an important growth market for us, not just within the propane business. Eddie?
Yes. Aviation and lubricants, the aviation first. Obviously, with the Dans Fuels acquisition, we've got a much bigger presence in aviation, so about 300,000,000 liters in the Danish market, which is basically a presence in Copenhagen and then we're the market leader in all the regional airports. In Britain, we've been building an organic business, so the guys have been entering the more regional airports outside the big hubs like Manchester, Heathrow and Gatwick. And that business has been growing quite strongly.
Volumes are up 40% this year based on tenders we will. So we see that organic development continuing potentially in The UK and then with the relationship buying out the assets from Shell, we'd like to see some potential to take out more regional airports in Europe or Northern Europe, but that's subject to the opportunity. So in terms of what it looks like in three to five years, that will really depend on the opportunity. Lubricants then, we've a very big lubricants business in The UK. We bought a small lubricants business in Ireland recently.
And it's multi branded. And for instance, in The UK, we handle all Shell's product. So we actually transport all the product from Rotterdam into two logistics hubs and then we redistribute it out to their customers, whether it's Sunderland car plants. And then we have our own direct business where we sell into SMEs and retail stations. That has grown pretty well in The U.
K. Over the last three years. And now we're starting to see some opportunities maybe in Mainland Europe, big markets like Germany and The Benelux. And right now, we're looking at is that an organic where we go in and make an investment and grow a business? Or are there some acquisitions we can do?
So we're really in the development phase on lubricants outside The U. K. So hopefully, the businesses will be bigger, and we see that as a natural place to put the cash we've generated off the oil business as Henry takes on my customers.
In relation to Jerry, in relation to Amazon, Amazon are our biggest customer. We're very focused on what we can do to grow our business with them. We work with them on a country by country basis in The Nordics, servicing .de in France and Spain and obviously The UK in large way. And I've worked with them over many, many years in that front. We also have a particular service, which we offer new products coming in, new technologies where we can give them access to the overall Amazon network across Europe.
New products want to come in, they want speed of access to market, we can drop them straight in. We have the systems fully developed to give them access to all of Amazon across Europe. We continue to develop our service proposition with them. So we've you've heard me talk in the past about VendorFlex, whereby they will ship directly from our warehouse at times of peak demand. We're expanding that and the new NDC that we've developed will allow us to expand that.
We're working with them on Smart Home, the Echo product that they have brought out, obviously, powered by artificial intelligence and Alexa, they have asked us to help support the sales of that product out into a wider channel. And we could push given the strength of the portfolio and proposition that we have in Smart Home, we can help their sales proposition out. So we're actually distributor of Amazon products, which I think is proof of the strength of the relationship that we have. They are a disruptor in the market, and they have been a disruptor for many, many years. And some of the smaller dealers, for example, will be happy to buy from Amazon if they're not price sensitive or they're not looking for a particular bid.
So some of that business and that's been a process that's happened over many years. But overall, we see them as a valued and very important customer. We continue to invest in the relationship.
We see Amazon as an opportunity rather than any kind of a threat to our business. We've built a relationship, as Niall said, over many, many years with them. And we're really integrated with Amazon from a system perspective. Product coming out of our warehouse goes out Amazon box direct to end customers. So it's a real part of the capability service that we provide within the technology business.
Andrew?
Andrew Fonnell from Morgan Stanley. Just on the unmanned segment in The U. K, are you able to just quantify the opportunity, the size and also the sort of deal multiples that you're seeing now or you'd expect to be paying in that segment?
Yes. It's modest, Andrew, to be honest. So we'll have 15 sites in the market, but it's more about the opportunity to roll it out. And it's not an acquisition led opportunity. It's very much effectively converting dealer sites across to unmanned networks, very similar to what we've actually and the business that we acquired in 2014 in Sweden, the Q Star business, that's how they built their business.
They relationships that they had with dealers. The dealer doesn't want to stay operating the shop. You convert it into an unmanned site, and you can run it in a very low cost way. So you can become a disruptor within the market. So I think we have substantial plans to build out that network over time.
But it will take time. It's not going to be an overnight thing.
Yes. We spent a year getting the process ready. There's obviously a lot of planning. So we have centralized planning process agreed in The UK now. So we don't have to go to all the local authorities, go to a single authority.
We had seven sites at the start of the year. We put eight on the first half. Hopefully, we'll see similar numbers in the second half. And as Donald said, it's conversions of dealers in rural small times where the shop may not be working. We see that as a potential to invest in pumps tanks over time.
And then we're also seeing a number of MTA opportunities, so new to industry. So update sites, one of them actually is a new site where you're seeing industrial parks or retail parks where obviously the big box hypermarkets and the longer investment. So there are opportunities or planning permissions to put some sites in. And we think on land is the best solution in that because the convenience store obviously probably only works at the weekends in those locations, whereas fuel can work all the way through the week. So it's really to get access to the consumer margin on our existing dealer business and then continue to make sure there's a retail network in the rural areas.
Got all the questions in the room? Any on the telephone?
We have no questions over the phone at this point, sir.
Great. Well, look, thank you all for coming. Thank you all for your continued interest, and we'll be around for a coffee if anyone has any further questions. Thank you.