Are we good to go? Yes. Okay. Good morning, everybody, and welcome to our presentation of our results for the year ended March 3137. I gather there's a queue down below security, so we may get one or two people coming in.
Apologies for any interruptions. So the agenda, we're going to look at the highlights, review of the business. Virgil is going to take us through a more detailed financial review, and then we'll summarize and delighted to take questions at the end. Well, as you will have seen, I guess, at this stage, the year just ended was a year really of strong growth and development for DCC. And I think whenever you look through the results and whenever you listen to Fergot, that part altogether from the headline number, operating profit growth, just the operational performance of the business in the year just ended was particularly pleasing.
And of course, from a development point of view, which we'll talk about, very strong spend from an acquisition perspective. Significant part of which actually won't contribute, and that's important to note that we won't see the benefit of most of that actually until the year twenty eighteen, nineteen, but it does mean there's very good momentum flowing into that year as well. So group operating profit on continuing basis, up 20.9% to three forty five million pounds 13% on a constant currency basis, with all divisions recording strong growth, which is always good. Adjusted EPS, up 18.1%. The tax charge, Virgil, talk a little bit higher, purely to do with the change in mix of the business is more Continental European profits.
We've increased the final dividend by just over 16%, which results in a 15% increase in the dividend for the year as a whole, the twenty third consecutive year that we have grown our dividend since we went public in May 1994. And the cash flow performance was particularly strong, free cash flow conversion of 114%, and that has enabled the return on capital despite and it is important, again, to note that as you're aware, over the last few years, we've had pretty strong acquisition spend. And so we're very pleased to continue to have that return on capital high at just over 20%. As I said, it's been a very active period from an acquisition perspective. We announced the acquisition of the business in Norway, the retail business in Norway from ExxonMobil, which will complete, we anticipate, sometime towards the end of the calendar year.
And we're very pleased about that 20% market share, number three player in the market. And we look forward to getting our hands on that business in the coming months. And then Shell, Hong Kong and Mackay, we have been talking I talk here probably over the last twelve or eighteen months that well, it wasn't an absolute strategic imperative that if we could manage to find an opportunity in the energy business, and it was always most likely going to be an LPG, to get a base outside of Continental Europe, not because we thought we were running out of opportunities. And in fact, I'd said and still say that in the near term, I continue to see the most significant acquisition spend still in Continental Europe where I believe there's still opportunity. But that we could get a base in another territory, in another region, it would provide opportunity for growth.
There's clearly the markets that we operate in are pretty flat markets in Europe and particularly Western Europe, whereas some of the Asian markets and other markets are growth markets in a lot of the businesses that we operate in. So we're very pleased. We'd also said that if we were going to do something like this, it would be ideal. There was no guarantee it would happen, but it would be ideal that it would be from an oil major for two primary reasons. When you go a long way from home, the last thing you want to do is buy a business and management team walks out the door in six months' time or something.
That wouldn't be good news for Henry. But the when you buy a business from an oil major, that's there's no guarantees, but you normally get a pretty stable management team. And we think that's we've got a very good stable management team in Hong Kong, running that Hong Kong and Macau business. And the other thing that's very important in the energy business is that compliance and it's very important to DCC. So when you buy a business, again, as you might expect, when you buy a business from an oil major, you get good embedded compliance structures.
So we feel very good about that. We're not in any hurry to deploy lots of incremental capital in the region. We anticipate that the for technical reasons in Hong Kong and transfer of licenses, etcetera, that, that won't happen until towards the end of our financial year. And what we will do then is make sure that we get comfortable with the business, make sure we understand the management team and integrate it. And over time, hopefully, though, it's a base that we can grow a larger business in Southeast Asia.
There was clearly further activity across each of the businesses. The Gas European business, which maybe come back to a little bit later, and the HAMR business in technology and Medisource in health care, which both of those have completed and I'm pleased to say are performing very much in line with expectations. And the Gas European business, we're really pleased with that as well, and we think it provides some development opportunity, which we'll talk about. And then I don't think it came as a great surprise to anybody, the disposal of our environmental business. And we've spent the last few years really focusing on the organic performance in that business because it had come through like the whole sector, a difficult period.
And returns fell to 8%, 9%, which are not DCC returns. And even though those were as good as any returns in the industry, they weren't what we wanted. So we really set about focusing on addressing the returns. We put a freeze on development expenditure. It was only maintenance and health and safety capital expenditure for a number of years.
And I'm very pleased to say that we got those returns back up to mid teens. It took a while. It took a couple of years to get momentum into the business. And there was a period of time where even if you'd wanted to sell a business in this sector, it would have been almost impossible. But I think we were lucky we got our timing right and the business performed well.
So we think that helps us sharpen the focus the strategic focus of the group. So I won't dwell too much, and Fergal will come back to some of this. Continuing revenue from continuing activities, dollars 12,300,000,000.0. But as ever in DCC, you've really got to look behind the revenue numbers because the price of oil has such an impact on revenue. It really doesn't tell you an awful lot as a headline number.
Our energy volumes were up 12.5%, as you'll see, to about 14,500,000,000 liters. And there was 1% organic growth in energy. And we're always very pleased in energy when we get organic growth because that is an outperformance of the market. And excluding DCC Energy, the rest of the group grew revenues by 9%, 5% constant currency. You've seen the 21% growth in our operating profit.
Free cash flow, $415,000,000. You'll see Virgil talk a little bit later about the working capital. There was a working capital inflow. Part of that was due to the price of oil in that we now have our energy business in a negative working capital position. So actually, when the price of oil goes up a little bit, it actually helps from a cash perspective.
Net debt, modest £122,000,000 so points somewhere between 0.2x 0.3x EBITDA and the dividend up 15%. Acquisitions and capital expenditure. I mean, obviously, we had our announcement at the April, and we talked about a lot of this stuff. So there's not a lot of new stuff in here. Norway, $235,000,000.
Hong Kong, just over £120,000,000 Gas European, pounds 100,000,000. Within Healthcare, the biggest acquisition spend was Medisource at $27,000,000 in initial spend. And in Technology, Hammer was the biggest spend there, 47,000,000 smaller business, medium, 9,000,000. The CapEx at on continuing operations of £125,000,000 Broadly, CapEx and depreciation in Health Care and Energy were in line. As we had flagged, the DCC technology CapEx reflects a combination of the new national distribution center, which I'll come back to, and the new IT system there.
So that's a one off. We will have in the current year. We'll have some return from the existing warehouse infrastructure we have as we move in. We've already started to move into the NDC. We have some disposals to come back.
So just before moving into the business review, just to say you'll see when we get into a little more detail in Energy that for the first time, really, have begun to split out Energy into the two key businesses that it is the LPG business and the retail and oil business. And actually, the two gentlemen that run those businesses are here sitting at the front of the room, Henry Cobbyn, who runs the LPG business, who many of you will have met before in this room actually, and Eddie O'Brien, who runs the Retail and Oil businesses. They have run those businesses for the last number of years reporting to Dono. Post my retirement on the July 14, the structure that we have will move to a scenario where they will report directly to Dono as Chief Executive. So very little change, in fact.
But they'll be sitting in November, whenever you're all sitting here, they'll be sitting up there and have to answer the questions. That will be changed for them. As you can see, Energy, very strong growth. Constant currency growth, 13.9% health care, 8% technology, 12.5%. And of course, the environmental business, somewhat ironically, in its last year, was the highest me, a CAS constant currency performer, 2022% overall, giving constant currency growth, as you can see, of 12.8% continuing and 13.3 in total.
It's interesting, the geographical split of the business has moved a little bit over the last couple of years, with Continental Europe now being the biggest part. This is the first time that has been the case. Continental Europe, the biggest part of the business at just over 50%, The U. K, just over 40% and Ireland at 5%. So looking at the Energy business.
Again, as I said, very strong performance, really an excellent year across the board, really, whenever you stand back and look at it. And as I say, Fergo will fill you in a little bit more detail in a moment. Organic profit growth, that organic volume growth of 1%, organic profit growth of just over 5%, that's a pretty good performance in that industry. Looking at LPG in particular, it had an excellent year with constant currency operating profit growth of 23.6%. Volume growth, organic volume growth, we've been talking about this for a while, that LPG just is a good market at the moment, 6.1% organic growth there, volume growth.
And that's particularly strong performance with commercial and industrial customers in particular. We did benefit from the full year of Buddha Gas, which really has been an excellent acquisition. And from the acquisition of Gas European, which we announced in January. So we only had the last couple of months from Gas European, but that has performed well. And maybe just to say, one of the things that we've been talking about is and we did talk about, I mean, you remember, taking you right back to this room two years ago, non state Buttegas acquisition, we said there was a chance to leverage that brand into the natural gas business.
We bought Gas European in January, which is very much a business to business company. And but it gives us the platform, the infrastructure now to launch a consumer business, a retail natural gas business into the domestic market on the back of that Buda Gas brand, which just has such strong recognition across France. So we've taken a decision with the Buda Gas, Gas European teams that we're going to invest in that, going to invest overhead marketing overhead in the current year because having done the research or we had been doing the research and even since, we're very positive about the opportunity there. So we'll be investing in that. Very good margin performance in the LPG business, particularly in the light of there was a higher product price environment, and sometimes that can make life a little bit more difficult.
But really, all of the businesses really performed very well in regard. And I talked about the agreed acquisition of Shell. And hopefully, in the medium term, that produces an opportunity to really grow our business, start to grow. We don't like using this G word, the global word, too much, but we do believe that there's an opportunity now to move that LPG business, in particular, in a more significant way. Retail and oil business had a good year.
Operating profit's up 6.9%, 1.2% constant currency. The volume growth of almost 8% was driven by the full year contribution from the SO Retail France business and the acquisition of Danske Fuels that we had done in November. And organic volumes overall were flat. Good performance in the retail business from a volume perspective, slightly tougher in the oil business, primarily in The U. K.
The retail business, the French business performing very well, the Swedish business and that fuel cards business, which has been which just it's a fantastic business and the highest returns in capital in the group, that business, and it continued with another good year. As I said, the oil business, little bit more difficult primarily in The U. K, but there has been good progress in that business. We feel a little bit better about it at the moment in developing adjacencies, particularly in the aviation and lubricants business. There's good development activity going on there.
Talked about Danske fuels and the acquisition of the SO Norway business. And we now have or we will now have on the back of the completion of the SO Norway business, we'll have 1,000 company owned company operated sites approximately 2,000 dealer sites that we supply. So the scale of the business is growing significantly. Healthcare. The Healthcare business, we were very pleased about, 8.7% growth.
And really, most of that was constant currency, 8% constant currency, about 5% organic growth, as I think I said earlier. The Fetal business grew particularly strongly in the supply of products and service into the primary care sector, the GP market, and also recorded good growth in medical devices. We had talked back in November that the only part of our business really that was in any way impacted by exchange rate movements post the Brexit referendum was our pharma business in here in The U. K, where there were nonsterling inputs coming into that business. So it made life a little bit more difficult.
And then we acquired the Medisource business, which is a relatively recent acquisition as well, the January past, but that has been integrated, and the early indications are pretty positive in that business. And the Health and Beauty business, which has just continuously produced very strong organic growth, did so again, broadly spread across the Nutrition and Beauty sectors. And we think that's a business that we can grow further. It's a business at the moment that is a U. K.-based business.
All the facilities are in The U. K, although a significant amount of the product does ultimately get exported effectively, there's probably an opportunity to have a bigger business in Health and Beauty, which we hope to do over time. Technology clearly have come through a difficult year in the prior year to March 2016. So we're pleased with the 17%, 12.5% constant currency growth, reflecting strong growth really strong organic growth in The U. K.
And Ireland business, particularly. And the acquisitions of CUC in France and then also a small business in Germany performed well as has HAMR performed particularly strongly in the couple of months, a few months that we've had it so far. The U. K, probably the particular growth areas were in the AV, the audiovisuals, print and office supplies areas and some of the security and the enterprise business in the back of the HAMR. And we think there are synergies really that we can drive from a HAMR business, which sort of the server storage type business with our own customer base, albeit and that was achieved against the background whereby the in which the mobile and computing market was relatively flat.
I said I'd come back to the new U. K. National distribution center. The move into that, that facility is fully constructed and operational at this stage. We always said we were going to have a phased move.
We've moved some of our warehouses in there. That's all happened very smoothly. We will do the rest of it by the end of the year, end of the financial year. And as I say, as we do that and move from existing sites into the new NDC, we will divest of those that surplus property that we will have. We have particularly strong organic growth in Ireland.
It's a small market, clearly, but the growth, I have to say, was very strong. And in the little business we have in The Middle East that is becoming more significant. Continental Europe business, the CUC business has performed really well. We made further progress in the Nordic countries, albeit the French retail business remained difficult, which it had been in the prior year as well. Our Supply Chain business, which is small but we think is sort of interesting and has got a little bit of momentum behind it, there was good organic growth there due to some new contract wins, which is encouraging.
So I'll just hand over to Fergal and take you through maybe some more of the detail on the financials.
Thanks, Tommy. Tommy's done a really good financial analysis of the numbers, so I've actually got very little to say for the last time. Tommy has already talked about the volume increase in Energy, up 12.51% organically. So then you look at the group ex Energy, sales up, which is more relevant here, sales up 9%, 5% on a constant currency basis. Roughly onethree of that organic.
The balance really acquisition activity within DC Technology. On the gross margin front, taking Energy, first of all, again, looking at constant currency, gross margin is up from 5.5p to about 5.9p. Really, you've got the full year contribution of Budagest coming in here. So it is that mix effect of higher margin, higher cost to serve type business within Budagest, driving up that increase to 5.87p. Excluding Decency Energy, the gross margin has improved from 9.9% to 10.2%.
Nothing really special here. It's really just a mix effect coming through. Operating costs. We're pleased with the overall operating cost performance in the business. Overall, they're up $193,000,000 to $918,000,000 Acquisitions is the biggest element of that increase, 122,000,000.
Like for like, the increase is 4,000,000 and currency, because we've got a lot of costs in euros, up $67,000,000 The like for like cost increase is 0.5%. So we're pleased with the overall operating cost efficiency within the business. Again, within Energy, on the face of it, they're up reasonably significantly from 3.96p to 4.28p on a constant currency basis. It's the higher cost of serve piece coming through on the full year contribution from Buda Gas. Excluding DCC Energy, our operating costs are up modestly as a percentage of revenue from 7.2% to 7.4%.
So we add it all up. Operating profit on a continuing basis, up 20.9%, 12.8% constant currency. As Tommy said, onethree of that is organic. Some of you in your models have had the number pre, including the Environmental business. So including the Environmental business, our operating profit is a minor beat on consensus of around $360,000,000 We're at $364,000,000 reported, up 21%.
Finance costs, on the face of it, look like they're up $3,000,000 Most of that is a technical thing in relation to how we have to account for long tail liabilities within acquired businesses. We have to bring them back to their NPV and then add an interest charge to our numbers every year. So the accounting finance cost is $32,000,000 The cash finance cost within our cash flow is $29,000,000 which is probably more representative of the true interest cost within the business. As Tommy said already, tax rate up to 17.5%, reflecting the overall increasing mix of our Continental profits within the business. And adjusted EPS up 18.1% or 10.3% on a constant currency basis.
Really good free cash flow within the business. Record free cash flow of $415,000,000 cash conversion of 114%. Two things within the cash flow that we need to talk about is the decrease in working capital. On the face of it, excellent $84,000,000 Some of that we got from an increase in price of oil. In previous years, as the price of oil has come off and because we run a negative working capital days model within Energy, as the price of oil came off, we actually bled a bit of cash, notwithstanding the excellent working capital performance in prior years.
We were actually underlying bleeding a bit of cash within the Energy business because of the price of oil. That recovered as the oil price went from around $36 at the start of year to around $55 $56 as we headed towards February, March. So that was about half of that reduction in working capital that was driven by the price of oil. We also bought a couple of energy businesses near or at their seasonal peak, and we got really urgent about reducing their working capital off that seasonal peak. That accounted for roughly about 20,000,000 The rest is there was a modest increase of about $10,000,000 in supply chain financing, and the rest is an underlying decrease in working capital, particularly within D2C Technology.
Working capital days of 3.3% versus 3.9% last year. Some of the businesses we have bought have modestly higher working capital intensity than the balance of the rest of the Energy business. CapEx, well, that exceeded depreciation by about $40,000,000 really reflecting greater development spend within DCC Energy and also the spend on the national distribution center within DCC Technology. Acquisition spend is $262,000,000 but we do have some acquisition spend that we've committed to in relation to Norway and in relation to Hong Kong. But we also have some cash that will come in the first quarter from the sale of the environmental business.
So our net debt at the end of the year is a very modest $121,000,000 or 0.3 times EBITDA. But when we factor in the two commitments we have and the scheduled cash coming in on the disposal, it's probably on a pro form a basis more like 0.6x EBITDA, a very conservative balance sheet with a lot of capacity for development.
So I I won't take you through. We've said it a few times, the summary of the key highlights. You've heard them all before. Fergus talked about the balance sheet. And as we said this morning, the group expects that the year ending March 18 will be another year of profit growth and development for the group.
And as I said earlier, I just feel that there's excuse me, good momentum in the business from the perspective of the current year, but also we're not getting the benefit of the Norwegian or Hong Kong acquisitions really in any significant way at all in the current year, and it gives some visibility into the following year where, again, there should be good momentum. So happy to take questions. We'll maybe take questions within the room first, and then we'll go externally. Rob?
And what kind of payback do you expect, please?
Donald, do you want to Yes. So
we don't want to be too specific because clearly, we'll probably have some of our competitors listening in on the call as well. But we will make a material enough investment. We talked about the Gas European acquisition, which would effectively deliver EUR 15,000,000 of profitability. That business is a very good business in the B2B sector of the market. What it does for us with coupled with the Buttegas brand, it gives us the ability to accelerate the growth of our B2C business.
It gives us the people with the capability, with the skills. It gives us the systems. It gives us the trading capability. So we will make a material enough investment in sales and marketing activity in the current year, which will pull back, I suppose, those profitability a little bit during FY 'eighteen, and then we'll see the benefit going forward in FY 'nineteen.
Josh Puddle from Berenberg. Historically, you've talked about spending around 200,000,000 to £250,000,000 a year on acquisitions. You've generally talked about over a five year time horizon. Is that number still relevant? And then also, can you talk about what you're thinking in terms of divisions?
You talked a lot about energy, but specifically acquisitions in health care and technology. Yes. Well, I think that if the number is still relevant, I presume the question really is, is there a bigger number now? I think that we have to be careful because we're not going to get an even spend in terms of acquisition spend. And I think what we have been saying is that we're very comfortable in and it's a clumsy term, but sort of run of the mill day to day stuff that we think there's £50,000,000 a year there.
And we would have said every so often, something bigger will come along. And what has happened is, I mean, obviously, the Norwegian acquisition was a bit bigger. That has come along. The others are a couple of things came together, the Gas European and the Hong Kong business. So I think we'd say it's very hard to predict.
There's and there's plenty of opportunity, keep on saying that, out there. The timing of when it's got it's going to land, Joyce, is not easy. But I think that it's clear what I can say, it's clear, if you look over the last three or four years, the acquisition spend has ramped up. As I say, it's not a machine it's not a sausage machine that just churns out stuff every three months or four months. So I think we need to be careful.
Could we go through a period where there's not a lot of spend? Yes, we could. But I think just the opportunity is reasonable at the moment. And so your question then on health care and technology, maybe just specifically around the business. Yes.
Well, we've never been specific in terms of individual amounts by division. But we are and there has been spend in both health care and technology in the last year. I think that I sort of said going through there that we think the Health and Beauty business is there's reasonable scale come into that now. And I think we have horizons for that business that are maybe broader than we might have had twelve or twenty four months ago. So we are ambitious to spend money there.
The truth is that it's unlikely to be of a Budget scale. That's not given the scale of the health care business. But there has been if you look back at the track record of the health care business over the last few years, the rate of growth has been pretty significant in terms of the business has more than doubled over the last four years. And our ambition has got a little bit bigger, and our ambition levels are high for that division. The technology business, in furnace, there have been.
If you look back, now some of them have been modest, but there's been quite a bit of bolt on acquisition activity there. And the Hammer acquisition, which is new as well, we're really very pleased about that. We have plenty going on in that business now. We have the benefit of Hammer coming through. We have our NDC move will complete this year.
And I'm not saying for a minute that we're not going to spend money in technology, and we will spend money in technology again. But there's enough good development stuff going on there in the near term that I think there might be less in the very near term. Justin. Sorry, we will get to this side of the room in
a minute. Apologies. Justin Jordan of Jefferies. Just three quick questions, if I could, please. Firstly, just on LPG.
Can you give us a bit more color of the 6.1% organic like for like volume growth? Just within the context of the LPG market, that's clearly taking share. I'm just trying to understand what you're doing and whether there's learnings from that to your initiatives in France. Secondly, just for Fergal, can you just give us some idea of perhaps CapEx for fiscal 'eighteen? Are you done on the NDC now?
Or is there further investment to come in fiscal 'eighteen and as with other proceeds as well to come from the potential asset disposals? And then finally, just for, I guess, for Niall. On recent days, we've had a little bit of an IT scare in The U. K. And elsewhere around the globe.
Are there any opportunities for technology from, obviously, what seems to be an increasingly, shall we say, problematic issue of IT security going forward?
All right. The I suppose and we've been talking about the organic volume growth in LPG actually for quite some time. And the underlying LPG market and a lot of the countries we're in has been in decline for a period of time. And we set out our stall a number of years ago, initially on the back of, I suppose, the green agenda and particularly with public companies that wanted to reduce their carbon footprint to effectively sell them LPG as a cleaner alternative to heavy fuel oil or gas oil within the market. What has happened that has been we built the capability to do that, which has driven good growth.
Then the price of LPG relative to the price of oil has become cheaper. So it not only is cleaner, but it's also been a cheaper alternative. And we can go out and we can install solutions for customers and save the money and reduce their carbon footprint. So that has been a real driver of that growth. So that has continued in the current year.
I suppose coupled with that, we had a strong organic performance within the Budagas business. Clearly, and in the year just gone and yet, you didn't hear us talking about weather, which makes a change for DCC because it worked out broadly as a normal kind of year from a weather perspective. But there was a couple of sides to that. In The UK and Ireland and in Scandinavia, it was milder than normal. It was actually colder than normal in France.
So that was drove a bit of organic volume growth within the LPG business. Clearly, that's a good high margin business.
On the CapEx?
CapEx, well, firstly, the NDC is more or less done from a CapEx point of view. In relation to CapEx next year, really a lot depends on just how successful we are in rolling out retail developments within Energy on the petrol station side. Somewhere between 130,000,000 and $150,000,000 If we get lucky, it's 150,000,000 And if we don't get really lucky, it's $130,000,000 On the disposal side, there are a couple of sheds, one large shed that will get disposed of over time. Whether they get disposed of in the year to March 2018 is debatable, but there's probably upwards of $30,000,000 of cash that will come from the disposals ultimately, whether it's this year or the following year.
On the security, I can assure you I had no foreknowledge of the ransomware attack, but we did even call out in our statement that security was an area that we'd actually been investing in and wanted to develop. And that's we had over 15% growth in our security business last year. It's somewhere where we have a strong service proposition. So there are police forces in The UK where we actually run 20 fourseven managed security portfolio for them to monitor these risks live. And that's the type of area of our business.
We'd like to develop a higher margin, higher growth area of business. So clearly, while it's a very unfortunate attack, the fact that it raises awareness not only of the threat on security, but the requirement to make sure your PCs and your servers are upgraded and patched. And there's still a large element of XP PCs out there, which I think anybody who has them will be spurred into upgrading, I hope, very quickly. So yes, I think that it should drive opportunity for our Securities division.
Alan?
It's Alan from Dave. I have a question now for Donald, Conor and Niall. Just Donald, following up from Rob's question earlier, can you help us scale the size of the consumer natural gas segment in France just to give a sense of the opportunities? Conor, on the just given the backdrop of the of Brexit and health care regulatory uncertainty, does that have any impact on your Continental European growth ambitions midterm, I think, in particular, in the generic space? And referencing Tommy's comments, should we expect growth perhaps to pivot away from Continental Europe towards other geographies?
And for Nile, perhaps if you could give us some color around what's driving the growth in The U. K, certainly picked up, but also why France is maybe a bit weaker than we would have expected.
Okay. And in terms of scale, so the let's just put it in a little bit of context. The gas European business, when we announced the acquisition, was selling 5.1 terawatts, And we've had to get our head around different metrics as we moved into the natural gas business. The market in France is about four forty five million terawatt hours. The consumer end of it is about onethree of that.
So it's a big market. And we'll have typical other markets as they've deregulated, the incumbents of the vast bulk of the market. So we think when you couple the strength of the Buttegas brand and the Buttegas brand, something we talked about a couple of times, I think, since acquisition, it just it's synonymous with gas in France. And that brand, coupled with the capability now that we have from gas European positions as well to grow in the B2C sector. We continue to grow, hopefully, in the B2B sector as well.
So it's a material enough opportunity for us.
The
regulatory environment, I mean, suppose, as Tommy outlined, from a development point of view, probably Health and Beauty's development, I think, both in Continental Europe, where we have a strong existing customer base service from our British manufacturing footprint. We'd like to put manufacturing footprint on the ground in Europe, and that's a key focus for us. And most of what we produce in Health and Beauty is food regulation or cosmetic regulation products. Only about 10% of what we produce is pharmaceutical license products. So and we would if we had footprint in Continental Continental Europe, we'd be producing typically for those markets.
So we don't see any barrier to our growth through a regulatory change there. And I mean, from a farmer point of view, I mean, our focus there is very much on the British market. But even looking longer term, our growth in if we were to develop in Continental Europe, it would be in acquiring in country businesses with which would need to have existing regulatory capability to comply with if it was an EU acquisition, EU regulation. So I don't see any impediment to our growth in health care.
Now a point about growth in The U. K. And France?
Media, Yes. Sure. I mean I think in The U. K, as I mentioned, there was a couple of areas which we'd identified that we really wanted to really push on, particularly the B2B side of things. So professional audiovisual, an area that's fast growing.
We have a very strong market presence. That grew very strongly. Our Print business grew very strongly. Again, we put some additional investment in there. And allied to that, I include the Supplies business, where we've extended outside of traditional supplies into office products as well.
Security, I mentioned. Smart Tech, which is the automated home Internet of Things, and that's something we, again, we've been focused on for the last eighteen months. We have an excellent portfolio, very strong market share, that's a very fast growing area. So all those areas were driving organic growth, and that helped to compensate for what was a sluggish market in the underlying PC market, again, which have been traditionally a large element of our business. When we turn to France, their business has been typically related to the PC market.
It's been PC's accessories and peripherals. We have a headwind of a declining market there. And I would have to say the French market was somewhat worse allied to a couple of specific product issues. So for example, we would have been quite strong in the satnav market. It would need to be Einstein to see what's happening to the satnav market at the moment.
So we have taken steps really to reshape the business. We've reorganized it in terms of the sales teams, in terms of the logistics function and in terms of the senior management team as well. So there's been a lot of change that's taken place this year. I think we need to try and reset the growth agenda for the retail business in France as well. And we are investing to get that back on the growth path in areas such as smart tech and these type of areas where we think there'll be a broader opportunity and PC gaming and things like that.
I think, Rory, you were trying to get in. George, we'll come to you next.
It's Rory from UBS. The energy pence per liter margin was up well this year, offsetting from mix. But given you broke it out, can you discuss the LPG margins specifically, given that was up on a tough comp already? And then also looking ahead, with all the new mix coming in, should we expect to keep expanding the pence per liter margin in LPG? And also what you think for Oil and Retail, please?
I've got
lot of set of questions. So Rory, I think the careful kind of when we get into talking specifically about margins in the individual segment. So we had when we look at the year and we talked about this last year, we came out of the year with supernormal margins in the year two in the prior year. We went through a period then where we had propane prices starting the year at $270 a ton. They peaked at $470 a ton.
They dropped back off to $370 a ton. That was a bit of a headwind in ways from a product perspective. But we have a very strong pricing policies across the business. We backed those off with hedging instruments. So we were able to lock in a little bit of margin maybe that we haven't seen this time last year.
So that was beneficial during the year. We also had going back to the discussion earlier on the diversity and the weather benefit. It was colder in France, which was beneficial to our higher margin heating business. So again, that had a positive impact on the margin. I
don't
want to call margin going forward in the LPG business because clearly, there's a lot of moving parts within us. We will see a little bit more of a drag on margin going into FY 2018, but it will be relatively modest in the overall scheme of things. And then the margin, when you look at the absolute margin in the split of the division going forward, growth is going to come in the natural gas business, which is a lower margin activity. So that will have an impact in the mix of the natural gas margin or of the LPG margin going forward?
It's a lower margin, but no infrastructure. Whereas the traditional LPG business is higher margin, but higher infrastructure.
Returns on capital will be consistent.
Greek Brokhi, which obviously was down year on year, but on a pro form a basis, probably up, I think you said. That's correct. So all the mix that's changing coming in the next two years, what do you expect for that pattern? I mean will you end up with a mix of business, which is quite a level higher than it was two years ago? Or where do you see that balance?
With the mix of businesses that are coming in, particularly if you look at retail, if it's on land and if you look at the gas European, you'd expect to see just on a pure pence per liter, a slight drift off of that from a mix point of view. But it's sort of a it's kind of like only a quarter of the metric because you need to look at what capital is going into those businesses. And as I say, within the natural gas business, there is no infrastructure.
But I think the return on capital, some of those newer businesses, they're at slightly lower return on capital. You'll see a little bit of an impact on return on capital.
It's George Gregory from Exane BNP Paribas. Three, please. Firstly, just in terms of the LPG conversions, you talked about this already a bit, Donald. But maybe if you could try to give us some sense as to how penetrated you think that market is, how much further or more sustained No pressure, Henry.
Secondly, just one for Nile. On the NDC, perhaps if you could I don't know if you can help us understand the likely benefit from the new centers. And finally, I guess maybe one for Tommy or Donald, just on the pricing environment for deals. Any color you could give us would be useful. Yes.
Okay. Donald? The LPG conversion
Yes. I suppose if we go back, George, we kind of as we got into this, we saw it not as opportunistic but very much as driving that green agenda. Now I think with the competitiveness of LPG versus oil, there's actually quite a big market out there. So if we look at the and this is not putting too much pressure on Henry, but if we look at the gas oil market in Britain, there's a it's a big market and there's share of that gas oil market that is definitely a target for LPG conversion. So we're not going to put a specific number on it, but we see good visibility of continued growth certainly of the order probably that we've been delivering to date in LPG and conversions.
NDC? I suppose you'd I'd categorize the benefits three ways. First and foremost, we need additional capacity. We're operating near capacity. So this will allow us to effectively grow by an additional 50% when we're fully in.
Secondly, it will allow us to have a more integrated, more fully developed service proposition. So things like reverse repair, refurbish, direct end user drop shipment will be much more efficient in terms of how we can deliver that and allow us to expand our service proposition. And then for the third element is the efficiencies which we'll generate from bringing all the warehouses together and the investment in automation. So the net spend is about €18,000,000 all told. So would we expect to get 15%, 20% return on that over the when everything is up and humming and everything is in?
That will be our target, too.
In terms of returns for technology for the year just ended, there's probably about $60,000,000 of capital within technology in relation to the SAP and the NDCs that has yet to be fully commissioned, so it's not income producing, if
you know what I mean.
And we can do a double act on that. Don't know he fades in and I fades out. The pricing environment, I think the short answer to the question is if you ask is there any change today than there was in November whenever we were here, I don't I think that we've talked before that in the energy business, George, we probably are in a bit of a sweet spot in terms of I'd say, we're not the only buyers of these assets. And there was a period of time where eighteen months ago, two years ago, where there were a number of retail assets transacted here in The U.
K. At what we thought were very high prices. There hasn't been that's not to say there won't be. There hasn't been so much evidence of that recently. And I think we are a good buyer of those assets, and I don't think the landscape has changed.
I think in health care, mean, not it's changed. In health care, we would have said that particularly in the pharma area, it's a hot area. And if there's one area of the business that and again, it's not a change in November, it was the same in November, that we might struggle for larger assets at the moment. It's probably in that area. But we've been around long enough to know that these things do go in cycles a bit.
And the great thing about DCC is that we have plenty of opportunity to deploy capital at the moment. And at some stage, the farm assets, that background may change. Given the energy business' scale today, you compare your ability to extract a return out of an energy asset today versus three to four years ago, do you think you are better at doing that in terms of relative to competition? Go on. Yes.
No, I suppose if we look at we need to segment it then, George, into the different areas. So three years ago, sitting here, we had a little bit of a dream about building a retail business. And what we did what Eddie and the team did was put the capability in place on the back of the ESO acquisition in France. We can't really underestimate the work that went into that to build that capability, to build the lowest cost and I'd say challenge anyone to come up with a lower cost retail operating model than what we have built for that business. And what that's been able to do is, one, it gave us the infrastructure to be able to buy other businesses and plug them in.
I think we said here in November that we probably wouldn't have acquired the retail component of the Danske business in Denmark if we didn't have that capability because it was smaller and it wouldn't have justified building the infrastructure to support us, it will clearly give us leverage in the business in Norway. So that capability has been hugely beneficial from a synergy perspective. But what it's done, the credibility that we've built in taking over the ESO business in France has positioned us really as a partner of choice when it comes to retail divestment. So as Tommy said, we're not going to have it all our own way. There will be and there is competition for these assets.
But that is a difference. Other businesses that we're acquiring, when we're acquiring LPG businesses that we have nothing to plug them into, there isn't a lot of leverage. There's a little bit of sharing a best practice. There's a bit of leverage maybe of procurement across the organization. But there's not a lot of leverage that we can get by being buying businesses in Hong Kong or buying businesses in other continents.
But I think, again, the credibility of DCC as acquirer of these assets when we sit down with the shelves, particularly on the LPG side, again, makes it an easier sell for them internally.
You want to ask a question? Jerry Hennigan with Goodreads Stockbrokers. Just a quick follow-up, tell me, to that question there in terms
of deal flow. What are
the dynamics in certain markets that would mean that they're less attractive to you? Is it the presence of PE? Or is it just the dynamics in the selective markets? Or what you're trying to find out is where are you not likely to where are not likely to see deal flow in the year ahead? Well, I suppose, yes, the answer, Gerry, is where the PE guys are very active, the truth is we're going to struggle, except in, as I say, as Donald has alluded to, that just sometimes the PE guys are not the right buyers regardless of what they're going to pay for some of these assets.
Now then you say, well, where are the PE guys active? As I said, they were active and there were a couple of transactions in The U. K. In the retail sector eighteen months, two years ago. But I think that as I said earlier, I think I wouldn't single out, if you like, anywhere in Europe and say, well, that's a market we're not going to be focused on.
I think most of the capital deployment, not all of it, but most of the capital deployment in the next eighteen months, two years is likely to be in Europe because that's where we've scaled. That's where we have management capacity to do things. But I do think you will continue to see over without trying to put too much pressure on anybody, I do think you will see simultaneously over the next couple of years opportunities open up. And maybe not just in energy, but hopefully in energy, certainly, other regions where we can and I suppose it's in the traditional DCC way. I can remember nine years ago talking about the acquisition of our energy business in Denmark.
There was a tiny business. And it seemed like, at the time, a little bit of distraction. And then very quickly after that, we bought a business in Austria. And we didn't do an awful lot then very quickly. We just sat, and we kind of got comfortable with the markets and comfortable with the management teams, which is terribly important.
I keep on saying our businesses, we sell the same product as our competitors. We've got to do it a little bit better and a little bit smarter. And it's not about those of us sitting in Dublin that are doing that. It's the teams on the ground. So we've got to make sure we have the right teams.
And over time then, we built what's quite a big business in Scandinavia now in energy, and we have other businesses in Scandinavia, too. So I see Europe and I don't look at it and say, that market is not of interest to that. I think there's generally a broad enough canvas for us there where the larger deployments of capital will be. But I think over the next couple of years, you'll see like Hong Kong, you'll see the laying down of foundations for medium and longer term growth. Okay.
There's no more questions here. Maybe we'll go to the phones.
We'll now take our next question from Gerard Moore from Investec. First
of all, congratulations, Tommy, on your final set of results. Nice strong performance for the team to be proud of. But my question is just on the energy business and in particular retail and oil. Within the statement, you mentioned that oil performance is a bit more difficult in The UK and Ireland. Just wondering if you could give us a bit more background of what's happening there, how you're dealing with this?
And then also, if you could just maybe give us a rough indication of the split between retail and oil within the new Retail and Oil division.
Donald, do you want to talk about the oil business? The
if we look at the challenge in the year and came in The UK and Ireland oil business particularly, and going back to the conversation we had earlier and not wanting to spend too long talking about weather, but the counter to the benefit that we had in France was an impact on the oil business in Britain and Ireland, in particular, where we have significant heating oil businesses. So the mild weather had an impact during the year. And then some of the commercial side of the business was effectively a little bit more challenging. But it was really the big impact was really on the heating side of the business. Now we have made very good progress during the year in expanding that business out into areas such as lubricants.
We've been building an aviation business. So again, we see good opportunity for growth in adjacent areas, so really down to heating.
Okay.
On the split, roughly fifty-fifty, Gerard, between what you regard as bulk oil and retail fuel cards.
Yes. And clearly, though, the growth opportunity coming on the retail side. So when we go forward into FY 2019, so we'll have we'll only have a quarter, as Tommy said earlier, of the Essenorway business in FY 2018. So we'll have the vast bulk of that in FY 2019. And clearly, we're ambitious to deploy further capital into the retail sector of the market.
There
are no further questions from the phone.