Good morning, ladies and gentlemen, and welcome to DCC's interim results presentation for the six months to the 30th of September 2017. I think most people know me, I am Donal Murphy, CEO since July of DCC. We have 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, announcing results. We have Fergal O'Dwyer, who everyone knows really well, Chief Financial Officer. Henry Cubbon, 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. Niall Ennis, Managing Director of our technology business. They are going to answer all the hard questions later on in the session.
Thankfully, I do not have to read the disclaimer, but there it is for everyone's benefit. We will just talk through the highlights of the performance in the first half of the year, which we are really pleased about. We will talk about, in a little bit more detail, each of the four divisions. Then I want to come on and talk a bit about the development, because it has been a really active period of development for DCC in the first six months of this year, then a little summary at the end. We are 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 GBP 121.5 million, up 9.7% on a constant currency basis.
Really pleased that all our divisions performed strongly during the first half of the year, and come back and talk about that in a little bit more detail. Our adjusted EPS on continuing activities up 16%, 11.5% on a constant currency basis to GBP 0.955. An interim dividend up 10% to GBP 0.4089 per share. 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 million. 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. 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%. 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 profits I talked about earlier. Operating cash flow of GBP 84 million. Actually, our working capital on a like-for-like basis was pretty much in line. We had the impact of acquisitions that had positive working capital in the second half of last year. The Gaz Européen, the Dansk Fuels and the Hammer business. Our working capital days increased to negative 1.7 from 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. 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. Our technology division up 24.9%. Clearly, the first half of the year is the seasonally less significant part of our year. 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 profits up 11.5%.
Volume growth 16.2%, largely driven by the acquisition of Gaz Européen, which we completed literally this time last year. Organically or on 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, Butagaz, continues to perform very strongly. 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 conversions. Our smaller business in Scandinavia continued to perform well during the year. We're really pleased that we've now launched our Butagaz B2C. We talked about this when we acquired the Butagaz business, that we wanted to build this out into the natural gas sector of the market.
The Butagaz business has a very strong brand recognition as a gas brand. We've recently launched Butagaz into the B2C segment of the market for both gas and electricity. 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 piped gas segment of the market. The business, our integration plan is going well. We would hope to have that completed before the end of the financial year. 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 profits up 2.9% on a constant currency basis. Our volumes were up 7.7%, driven very much by the acquisition of Dansk 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 continued good growth in the commercial sector of the market. That was offset by the impact of milder temperatures, mainly in April, which impacted on the heating volume. Overall, a good performance in Britain. 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.
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 205 Shell-branded retail sites into our retail hub and spoke structure, and we did that a couple of months ago, and that is bedded down very well. Retail and fuel card business continues to perform in line with our expectations. We have continued strong growth within our fuel card activities, and we have continued to invest into the market in France. In France, we now have 320 Esso-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 estate in France during the first half of the year. Market conditions were a little bit more competitive in France, the business continues to perform very well. Our retail business in Sweden, Qstar, again performed well in the first half of the year. Coming back to the acquisition and integration, this is really a core competency for DCC. Really pleased that we managed to get the Esso business in Norway completed a couple of months ahead of schedule at the end of October. That business has 250 Esso-branded sites throughout Norway. It gives us the strong number three position within the market.
I say we have got our hands now on the business, and over the next number of months, we will 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, we have a very strong position in healthcare within the Irish market.
Our Williams business here in Britain, in the primary care sector, continued to perform very well, we have expanded that product offering into the Irish market. Trading in the pharma business was a little bit more difficult, people will be pretty familiar with some of the challenges in the generic sector of the market here in Britain, 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, these are growing very strongly. Strongly here in Britain, strongly in continental Europe, and indeed in Asia. We are benefiting from those trends. Our beauty business was held back somewhat during the first half by an unfavorable sales mix, we had some short-term destocking by some of our customers.
We're seeing actually an improvement in the order book now and good new business development activity. 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. 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. 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. 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 U.K. 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. More recently, the acquisition of MTR, which 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. Again, is 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 product, 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. Our reseller and electrician supply business performs very well. In the Nordics, where we have a really strong base within Sweden, business is growing strongly in similar areas, the IT products area, the audiovisual products area, entertainment products. We've also started to leverage our position within the Nordic market, and we have operations now in Norway, in Finland, and in Denmark, hubbed 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.
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. 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 GBP 180.2 million, GBP 152 million 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, GBP 7.7 million, which is some small lubricants, a couple of petrol stations, and a little oil distribution business. Then technology, GBP 19.9 million, which is principally the MTR acquisition. That accounts for a significant earn out over a period of time. Our capital expenditure, GBP 67.8 million in the first half of the year.
Our depreciation on a continuing basis, about GBP 43 million. The excess of spend over depreciation, mainly into investments in the retail sector, new motorway concessions, investments in oils, LPG conversions, all good growth CapEx that we get good return on over time. The development activity, as I said earlier, very active development and integration period. 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. That positions us for further growth within each of those regions. I talked about Esso Norway, I talked about Shell, Hong Kong and Macau already, MTR on the technology side.
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 it. Reflecting the acquisitions announced to date, this will be a record spend for DCC, GBP 550 million, and there's still clearly some of the year to go. 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, but 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 a very profitable, and it's a growing LPG market. 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 will buy it from them at the end of March. Enterprise value of $200 million. The EBITDA is expected to be USD 28 million and an EBIT of USD 20 million. We get a cash payback on this business within 10 years. Why is it attractive?
One, as I said, the U.S. market is a very large propane market. To put it into context, 18 million 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. 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 2001. From 2001 to today, we've acquired and integrated over 40 companies to create the largest fuel distribution business here in Britain. 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 company 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. 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 oils, LPG conversion, similar to what we have been seeing here in the markets in Europe. 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 1% market shares. Our business will have 0.6% market share.
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, you've got a very sticky customer base. The business has a well-invested operating infrastructure operating from 100 sites throughout the States that it operates within. Those sites, that infrastructure gives you the opportunity to integrate other businesses and extract synergies on the back of that. Having bought the business, we believe there'll be very synergistic acquisition or further acquisition opportunities going forward. 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. Hicksgas, founded 70 years ago, and actually, the grandson of the founder is the managing director of the business today. Pacer Propane, 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 in Sean Coyle and his team. We look forward to welcoming them into the DCC family. They are very similar, and they think very similarly to the way we do. 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 has excellent cash generation, and as I said, it's a very large, very fragmented, very profitable, and growing market in the U.S. We think this will be a good opportunity for growth for DCC going forward. 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.
We have the capacity and the opportunities for further development of the business. We feel really good about where we are today. You'll have seen this morning that we reiterated our belief that the year ending 31st of March 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. I think there's few enough public companies that could show that track record, so it's something we're very proud of. We'll welcome your questions. Thank you. Someone pick one. Rory.
Morning. It's Rory McKenzie from UBS. Probably the biggest change in a short space of time is they've really gone global in the past year. How should you think about the rate of expansion in your new markets? Particularly in U.S. LPG, it's much more fragmented. Will that be tens of small acquisitions each year? Whereas in Asia, it probably seems a lot more lumpy given the new market entries. Some thoughts about the rate of expansion in your two new areas. Then secondly, well, actually, this used to be one question, but now it's two because you split the divisions. Firstly, on LPG, the EBIT per ton margin, I think, is down at constant currency. Is that mix or is that investment costs going in? Then ditto for retail and oil.
Again, I think at constant currency, the pence per litre margin is down a bit. Thoughts around that, please.
I think Fergal might take the second question, I'll take the first question. Again, Rory, going back, one of the things that we've always been focused on is growing in a measured way. 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. We said at the time it was modest, but that we wanted to use it as a building block. 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. 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.
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, you know. Our first focus is let's get our hands on the business, hopefully before the end of the financial year. 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. 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.
Sorry, just to follow up in terms of your view on the incremental returns, because the first investment costs, I get, are higher as you move into it.
Yeah.
At what point would you expect the returns to start moving towards the energy average?
Yeah, 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. We'd hope to be able to add value to improve the business organically and improve the returns organically. As you say, these markets and the U.S. market is a growth market, that should in itself drive improved returns. Acquisitions are very synergistic in the energy space. 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. We think that we'll have the same opportunities within these markets. Fergal?
On the LPG margins point, Rory, that's essentially mixed. There are small numbers, but essentially mixed. Our Gaz Européen business, the nature of certain natural gas businesses that sell essentially into domestics is that it makes essentially a loss in the first half. 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 most of your volume in H2, and you get big profits in the second half. It's essentially mixed. Our costs on an absolute basis within LPG, if we get cost per ton, on an absolute basis are down marginally on the previous year.
Oil?
Similar. Similar is a mixed issue. Obviously, the milder start to the year in the U.K., which means less domestic margin, and then a slightly more competitive position in France. The organic growth has mainly come from the commercial side of the business across the division, so lower margins than domestic or retail.
Allan?
Hi, guys. Allan Smylie from Davy. Just 3 questions, please, all kind of energy-focused. Could you talk through what Sean Coyle brings to DCC? A bit more detail on his background. 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, of course, very early days. When do you get line of sight in that business going from investment phase to being profitable? Just a final question in the retail forecourt space. I think a number of larger portfolios have transacted in the last few months. What are you learning about pricing in the European market? Have your views on that changed? Thank you. What do you say?
Maybe I'll take just the natural gas one, and Henry might talk a little bit about Sean Coyle's background. It is, as you say, Allan, it's very early days. We have gone back to May 2015 when we announced the Butagaz acquisition. One of the things, and if you want to go back, one of the things on the slide was we saw an opportunity to build a natural gas business over time, leveraging the really strong Butagaz brand and Butagaz's brand awareness as a gas brand within the market. We've launched, and it is launched, not just a gas business, but actually a gas and electricity business. 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. It gives us a lot of confidence, but it's very early days. What we said was we'd invest probably GBP six, seven million in this year, so it'll be a drag, if you like, on our earnings. That'll be a little bit less next year, and then as we get into year three, we should see it turning into profit. This is a real 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 Gaz Européen skills, infrastructure, and systems to build this B2C business. It's a good case study for us. Henry?
Yeah. Just on Sean Coyle. Sean is, as Donal said earlier, is third generation, so his grandfather set up the business, Hicksgas, many years, 60 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. He's led the acquisition kind of agenda there. I was with the team last week at 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. We're really looking forward to working with them to develop the business. They're hungry for growth. They're hungry for additional investment, and that's something we're very much looking forward to supporting.
I think, Allan, 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 the U.K. One of the reasons we think there's a real opportunity actually to build a low-cost unmanned network here in the U.K. is because there's lots of capital a pretty high multiple has gone into the retail sector here. We've been winning deals at returns that are within our expectations. We don't see that changing. We won't win every deal clearly. We're winning the ones that we want to win. Josh?
Hi, it's Joshua Pidduck from Berenberg. First question, can you talk about competition for deals in the U.S. market? What sort of returns on capital you think you can buy the smaller businesses out there? 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?
Yeah. 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. 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. While, on the face of it's a high multiple, actually we can write off goodwill over a short enough period of time in the U.S. market. The after-tax position is, and after-tax returns are certainly closer to 12%. Coming back to the things said 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. It's all about that roll-up play then. 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 mom-and-pop 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. Even though we won't take ownership of the business until the end of March, we're very much out there now in the U.S. market as a buyer of these assets.
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. We think there'll be a prize to do that. Let me go over this side for a change. Rob, do you want to?
It's Rob Plant from JPMorgan. On the LPG side, you had the headwind of the rising product cost, you've got the offsetting procurement cost-saving initiatives. Do you think those two trends continue into the second half?
Fergal, 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. There's smaller impact in H1, but that full impact will come through in H2. The cost and procurement savings, that's a trend. That will stay for the second half. The cost of product increases, we're always lagging. That'll feed on in towards the back end of the year.
George, we go across that line.
Morning, 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. Secondly, you 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. If not, over what timescale do you think you might start to see that? Thanks.
Henry might take the second bit. The first bit's relatively straightforward. There's no earn-out. We're buying 100% of the business upfront. Business was owned by an MLP, NGL Energy Partners, I think they were selling off some assets to reduce their debt because they were getting close to their debt covenant. It actually was a transaction that happened pretty quickly. 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 agreed, all our due diligence done in a pretty tight period of time. But it'll be all within that value. Henry, do you want to talk just 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, you've got commercial operations operating using fuel oil to power whatever they're doing. This could be anything from hotels to asphalt companies to food processing companies, even as far as whiskey distilleries in Scotland. 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, then helping them and assisting them with a 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.
In the U.K., we've also extended that through from switching to LPG to also to very large industrial switching to LNG as well. 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 a residential customer, the boiler that they have in their home is like their beating heart, to try to switch them across from using oil to propane takes a bit longer. We are now beginning to see signs of those switchings taking place, particularly in parts of Continental Europe.
Sorry, just to follow up. On the commercial side, are you seeing any of those customers switching from, or to, rather, a straight LPG solution to an LPG hybrid solution involving solar and/or storage?
That's it.
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/LPG combination. They're using biomass waste sometimes from an agricultural process such as chicken farming. That waste goes into the process, the LPG is used 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 integrated within the LPG activity. We actually sell all those products to our customers. 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 BioLPG, where there's an even greener LPG version. Again, all these things, with the strength of the presence we now have in the LPG market, there are real advantages. There are advantages that we can bring across the different markets that we operate within.
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 that not been seen yet?
I think there's certainly, the guys are seeing, again, similar trends in the oil-to-LPG conversions. There's a big, particularly in parts of the business closer to the Northeast of the country, there's a very big oil business, and there's definitely a switch across to 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. 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.
Keep going. Keep going in the line.
Chris Bamberry, Peel Hunt. Good morning. With regard to Retail West, just wondering, given the relative size compared to the market leader, AmeriGas, are 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, the greater level of competition. Just wondering if you could elaborate a bit on that. Finally, again, on France, following the integration of Antargaz and Finagaz, just wondering if that's having any impact on the market or how that's panning out.
Yeah. Retail West. Henry, do you want to take that?
Yes. Sorry, what was the point on Retail West, just to remind me?
Just it's much smaller.
Yeah, got you.
They're better invested national accounts. I don't know what it might be, but there's something that
Yeah, the national account piece is particularly around the cylinder area, which we're not active in in Retail West. 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, from our evaluation, we don't think there's a disadvantage of scale on supply. In terms of operational 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, the customer density we have gives us competitive advantage. We don't see ourselves in some way disadvantaged against the big guys.
Chris, 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's 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 Antargaz Totalgaz integration, we haven't seen any kind of change in the market dynamics at all in France. That market in France is very different to the U.S. market. It's very consolidated. That combined business is 50% share of the market. We're the number two player. We have 25% share of the market.
We've 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. Eddie, just on the retail.
As you know, France is a pretty competitive market anyway. Through the summer, we saw some more competition just on prices. With the rise in 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.
Thanks. Hi. 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, are these temporary things, or are these structural things we have to think about longer term impacting the business, and something we have to plan for going forward?
Just as to remind people 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. The generic pharma piece, we have a very nice pharma business in the Irish market, which is across hospital, community pharmacy, and following the Medisource acquisition, EMPs. In Britain, 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 U.K. market is probably the toughest market in Europe. 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. I think there's nothing unusual there, really, to be honest.
Just a quick follow-up for Fergal. Just obviously, can you give us just some reiteration and guidance on what CapEx for this year should be in total? Secondly, while you're thinking about that, increasingly complex geographical group. Can you just remind us.
Give your second glass at me so I can hear you.
Well, he probably knows the answer. Okay, 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. FX rates bob around on a day-by-day basis. Depending on what assumptions you use, you may come up with different answers.
Yeah. Okay. Firstly on CapEx, including some disposals, maybe GBP 130 million-GBP 135 million in the current year. Some of that will include some development spend, non-maintenance type, find new stations and so on. On the FX, just over 50% now of our profit base is certainly on a pro forma basis, when you include Retail West, between 50% and 60% of our profits will be non-sterling. About every 1p movement will be circa GBP 3 million impact, and then it impacts the other way on interest as well. GBP 2 million-GBP 3 million.
Only laughing because he has those numbers on the top of his tongue all the time. He's focused on CapEx. Gerry.
Thanks. Gerry Hennigan, Goodbody. Just a very generic question. First of all, Donal, there's a lot of noise around electric vehicles this stage. What's your thoughts on that in terms of retail network? 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 might be a bit more difficult to enter those markets on a smaller basis?
Yeah. Thanks, Gerry. EVs, clearly EVs are going to have a part of the transport fuels market going forward. 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. I'm not a technologist. 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. The infrastructure that Eddie has put in place, and some people have been down to Drogheda, it's the highest quality, lowest cost retail operating environment certainly that we've come across. We've quality brands within the business. We think over time, one, we're going to get really good returns on those businesses.
Secondly, that while there'll 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. We're not concerned about it in terms of having an impact or any material impact on our retail business. I think, 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 market. The same people are supplying the tanks, the valves. They're very active, and Henry's very involved in the World LPG Association.
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've a little bit of asset intensity, and where you've a lot of spread within the business. It's kind of been really part of our focus. We've been looking at the U.S. for some time. We've been working with the oil majors, clearly, and that's where the Shell acquisition in Hong Kong and Macau came out of. It's bang in line with our strategy. We've lots of opportunities still within Europe on the retail and oil side. That's where our focus has been and will continue to be for the time being.
Gerry.
Gerry Moore from Investec. Just 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? 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 how meaningful or how significant they could be in three to five years down the road. Niall, one question for you. If you could perhaps talk a little bit about your relationship with Amazon, and maybe you could explain to us how you work with them in some cases and how you work against them in others. Thanks.
Jordan, I'll take the first question, and Eddie might take the adjacent product areas, and Niall will answer the Amazon question. It's a helpful prompt in some ways because, unlike at all these announcements, I used to sit down there actually and answer all the energy questions, and now I get the opportunity to pass some of them across. 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. 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. We're focused on doing that. We're focused, actually, and we are looking for opportunities.
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. Over time, we see the U.S. as an important growth market for us, not just within the propane business. Eddie?
Yeah. Aviation and lubricants. Taking the aviation first, obviously, with the Dansk Fuels acquisition, we've got a much bigger presence in aviation now. About 300 million 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, or Gatwick. That business has been growing quite strongly. Volumes are up 40% this year based on tenders we won. We see that organic development continuing potentially in the U.K. 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.
In terms of what it looks like in three to five years, that'll really depend on the opportunity. Lubricants, then, we've a very big lubricants business in the U.K. We've bought a small lubricants business in Ireland recently. It's multi-branded. For instance, in the U.K., we handle all Shell's product. 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 plant. 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. Now we're starting to see some opportunities maybe in mainland Europe, big markets like Germany and the Benelux.
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? We're really in the development phase on lubricants outside the U.K. 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 more customers.
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 U.K. in a large way, and have worked with them over many, many years on 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.
You have heard me talk in the past about Vendor Flex, 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 given the strength of the portfolio and proposition that we have in Smart Home, we could help their sales proposition out. We're actually a 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.
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. Some of that business, and that's been a process that's happened over many years. Overall, we see them as a valued and very important customer, and 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. It's a real part of the capability and the service that we provide within the technology business. Andrew?
Andrew Sherrell 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? Thanks.
It's modest, Andrew, to be honest. 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 Qstar business. That's how they built their business. 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. I think we've substantial plans to build out that network over time. It'll take time. It's not going to be an overnight thing.
Yeah. We spent a year getting the process ready. Obviously a lot of planning, we have centralized planning process agreed in the U.K. 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 in the first half. Hopefully, we'll see similar numbers in the second half. As Donal said, it's conversions of dealers in rural, small towns where the shop may not be working. We see that as a potential to invest in pumps and tanks over time. Then we're also seeing a number of NTI opportunities, new to industry. Of the eight sites, one of them actually is a new site where you're seeing industrial parks or retail parks where obviously the big box hypermarkets are no longer investing.
There are opportunities or planning permissions to put some sites in. We think unmanned's the best solution, and that's because a convenience store obviously probably only works at the weekends in those locations, whereas fuel can work all the way through the week. 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.
Had all the questions in the room. Any on the telephone?
If you'd like to ask a question via the telephone, please press *1 on your telephone keypad. That's *1 for a question. It would appear we have no questions over the phone at this point, sir.
Great. Look, thank you all for coming. Thank you all for your continued interest, we'll be around for a coffee if anyone has any further questions. Thank you.