Are we good to go? Yep. Good morning, everybody, and welcome to our presentation of our results for the year end of 31 March 2017. I gather there is a queue down below security. We may get one or two people coming in. Apologies for any interruptions. The agenda, we are going to look at the highlights, review of the business. Fergal is going to take us through a more detailed financial review. We will summarize and delighted to take questions at the end. 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.
I think whenever you look through the results and whenever you listen to Fergal, that apart altogether from the headline number, the operating profit growth, just the operational performance of the business in the year just ended was particularly pleasing. Of course, from a development point of view, which we will talk about, very strong spend from an acquisition perspective. Significant part of which actually will not contribute. That is important to note that we will not see the benefit of most of that actually until the year FY '18, FY '19. It does mean there is very good momentum flowing into that year as well. Group operating profit on a continuing basis up 20.9% to EUR 345 million, 13% on a Constant Currency basis, with all divisions recording strong growth, which is always good. Adjusted EPS up 18.1%.
The tax charge, Fergal will talk a little bit of, a little bit higher purely to do with the change in mix of the business is more continental European profits. We have increased the final dividend by just over 16%, which results in a 15% increase in the dividend for the year as a whole, the 23rd consecutive year that we have grown our dividend since we went public in May 1994. The cash flow performance was particularly strong. Free cash flow conversion of 114%. That has enabled the return in capital despite, and it is important again to note that, as you are aware, over the last few years, we have had pretty strong acquisition spend. We are very pleased to continue to have that return on capital high at just over 20%. As I said, it has 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. We are very pleased about that 20% market share, number 3 player in the market. We look forward to getting our hands on that business in the coming months. Shell Hong Kong and Macau. We have been talking, I talk here probably over the last 12 or 18 months that while it was not an absolute strategic imperative, that if we could manage to find an opportunity in the energy business, 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.
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. If 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. 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. When you buy a business from an oil major, there's no guarantees, but you normally get a pretty stable management team, and we think that we've got a very good, stable management team in Hong Kong running that Hong Kong and Macau business. The other thing that's very important in the energy business is that compliance, and it's very important to DCC. 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. We feel very good about that. We're not in any hurry to deploy lots of incremental capital in the region.
We anticipate that for technical reasons in Hong Kong and transfer of licenses, et cetera, that that won't happen till towards the end of our financial year. 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. 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 Gaz Européen business, which maybe come back to a little bit later, and the Hammer business and technology and Medisource in healthcare, which both of those have completed, and I'm pleased to say are performing very much in line with expectations.
The Gaz Européen business, we're really pleased about that as well, and we think it provides some development opportunity, which we'll talk about. Then, I don't think it came as a great surprise to anybody, the disposal of our environmental business. 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. Returns fell to 8%-9%, which are not DCC returns. Even though those were as good as any returns in the industry, they weren't what we wanted. 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. 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. There was a period of time where even if you'd wanted to sell a business in this sector, it would've been almost impossible. I think we were lucky we got our timing right, and the business performed well. We think that helps to sharpen the strategic focus of the group. I won't dwell too much, and Fergal will come back to some of this. Revenue from continuing activities, EUR 12.3 billion. 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 14.5 billion liters. There was 1% organic growth in energy.
We're always very pleased in energy when we get organic growth because that is an outperformance of the market. 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 EUR 415 million. You'll see Fergal talk a little bit later about the working capital, that there was a working capital inflow. Part of that was due to the price of oil and that we now have our energy business in a negative working capital position. Actually, when the price of oil goes up a little bit, it actually helps from a cash perspective. Net debt, modest EUR 122 million, somewhere between 0.2 and 0.3 times EBITDA, and the dividend up 15%. Acquisitions and capital expenditure.
Obviously, we had our announcement the beginning of April, and we talked about a lot of this stuff, there's not a lot of new stuff in here. Norway, EUR 235 million. Hong Kong, just over EUR 120 million. Gaz Européen, EUR 100 million. Within healthcare, the biggest acquisition spend was Medisource at EUR 27 million in initial spend. In technology, Hammer was the biggest spend there, EUR 47 million. Smaller business, Medium, EUR 9 million. The CapEx on continuing operations at EUR 125 million. Broadly, CapEx and depreciation in healthcare 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. 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'll have some disposals to come back. 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, we have begun to split out energy into the two key businesses that it is, the LPG business and the retail and oil business. Actually, the two gentlemen that run those businesses are here sitting at the front of the room. Henry Boulger, who runs the LPG business, who many of you will have met before in this room, actually. Ciaran O'Brien, who runs the retail and oil business. They have run those businesses for the last number of years, reporting to Donal.
Post my retirement on the 14th of July, the structure that we have will move to a scenario where they will report directly to Donal as Chief Executive. Very little change, in fact. 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 change for them. As you can see, DCC Energy very strong growth, constant currency growth, 13.9%. Healthcare, 8%, DCC Technology, 12.5%. Of course, the environmental business, somewhat ironically, in its last year, was the highest [inaudible] constant currency performer at 22% 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.
That's 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%. Looking at the DCC 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. As I say, Fergal 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.
That's particularly strong performance with commercial industrial customers in particular. We did benefit, though, from the full year of Butagaz, which really has been an excellent acquisition. From the acquisition of Gaz Européen, which we announced in January 2017, so we only had the last couple of months from Gaz Européen, but that has performed well. Maybe just to say, one of the things that we've been talking about is, we did talk about, if you remember, taking you right back to this room two years ago, we announced the Butagaz acquisition. We said there was a chance to leverage that brand into the natural gas business. We bought Gaz Européen in January, which is very much a B2B company.
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 Butagaz brand, which just has such strong recognition across France. We've taken a decision with the Butagaz Gaz Européen teams that we're 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. Really all of the businesses really performed very well in that regard. I've talked about the agreed acquisition of Shell.
Hopefully, in the medium term, that produces an opportunity to really grow a business, start to grow. We don't like using this G word, the global word, too much. We do believe that there's an opportunity now to move the LPG business, in particular, in a more significant way. Retail and oil business had a good year. Operating profits up 6.9%, 1.2% Constant Currency. The volume growth of almost 8% was driven by the full-year contribution from the Esso Retail France business and the acquisition of Dansk Fuels that we had done in November last year. 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 it's a fantastic business and the highest returns in capital in the group, that business. It continued with another good year. As I said, the oil business, a little bit more difficult, primarily in the U.K. 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 Dansk Fuels and the acquisition of the Esso Norway business. We now have, or we will now have, on the back of the completion of the Esso Norway business, we'll have 1,000 company-owned, company-operated sites and approximately 2,000 dealer sites that we supply. The scale of the business is growing significantly. Healthcare.
The healthcare business, we were very pleased about 8.7% growth. Really most of that was Constant Currency, 8% Constant Currency, about 5% organic growth, as I think I said earlier. The Fittle 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 here in the U.K., where there were non-sterling inputs coming into that business, so it made life a little bit more difficult. Then we acquired the Medisource business, which is a relatively recent acquisition as well, January past. That has been integrated, and the early indications are pretty positive in that business.
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. 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 of 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. 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.
The acquisitions of CUC in France, then also a small business in Germany, performed well, as has Hammer performed particularly strongly in the couple of months, a few months or so that we've had it so far. The U.K., probably the particular growth areas were in the AV, the audiovisual, print, and office supplies areas, some of the security and the enterprise business in the back of the Hammer, and we think there are synergies really that we can drive from the Hammer business, which is sort of the server storage type business with our own customer base. Albeit, that was achieved against the background whereby 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 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, and that's all happened very smoothly. We will do the rest of it by the end of the year, end of the financial year. As I say, as we do that and move from existing sites into the new NDC, we will divest of that surplus property that we will have. We've particularly strong organic growth in Ireland. It's a small market, clearly, but the growth is, I have to say, was very strong. 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 it's got a little bit of momentum behind it. There was good organic growth there due to some new contract wins, which is encouraging. I'll just hand over to Fergal, he'll 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, I've actually got very little to say.
For the last time.
You look at the group X energy, sales up, which is more relevant here, sales up 9%, 5% on a Constant Currency basis. Roughly a third of that is organic. The balance really is acquisition activity within DCC Technology. On the gross margin front, taking energy first of all, again, looking at Constant Currency, gross margin's up from GBP 0.055 to about GBP 0.059. Really, you've got the full-year contribution of Butagaz coming in here, so it is that mixed effect of higher margin, higher cost to serve type business within Butagaz driving up that increase to GBP 0.0587. Excluding DCC Energy, the gross margin has improved from 9.9% to 10.2%. Nothing really special here. It's really just a mixed effect coming through. Operating costs. We're pleased with the overall operating cost performance in the business.
Overall, they're up EUR 193 million to EUR 918 million. Acquisitions is the biggest element of that increase, EUR 122 million. Like for like, the increase is EUR 4 million, and currency because we've got a lot of costs in EUR, up EUR 67 million. The like-for-like cost increase is 0.5%, 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 GBP 0.0396 to GBP 0.0428 on a Constant Currency basis. It's that higher cost to serve piece coming through on the full-year contribution from Butagaz. Excluding DCC Energy, our operating costs are up modestly as a percentage of revenue from 7.2% to 7.4%. We add it all up. Operating profit on a continuing basis up 20.9%, 12.8% Constant Currency. As Tommy said, one third of that is organic.
Some of you in your models have had the number pre including the environmental business. Including the environmental business, our operating profits is a minor beat on consensus of around EUR 360 million. We're at EUR 364 million reported, up 21%. Finance costs on the face of it look like they're up EUR 3 million. 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. The accounting finance cost is EUR 32 million. The cash finance cost within our cash flow is EUR 29 million, 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.
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 EUR 415 million. 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, EUR 84 million. 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 DCC 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 DCC Energy business because of the price of oil.
That recovered as the oil price went from around $36 at the start of the year to around $55, $56 as we headed towards February, March. That was about half of that reduction in working capital that was driven by the price of oil. We also bought a couple of DCC 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 EUR 20 million. The rest is, there was a modest increase of about EUR 10 million in supply chain financing, and the rest is an underlying decrease in working capital, particularly within DCC Technology. Working capital days are 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 DCC Energy business.
CapEx, well, that exceeded depreciation by about EUR 40 million, really reflecting greater development spend within DCC Energy, and also the spend on the national distribution center within DCC Technology. Acquisition spend is EUR 262 million, but we do have some acquisition spend that we've committed to in relation to Norway and in relation to Hong Kong. We also have some cash that will come in the first quarter from the sale of the environmental business. Our net debt at the end of the year is a very modest EUR 121 million, or 0.3 times EBITDA. When we factor in the two commitments we have and the scheduled cash coming in on the disposal, it's probably on a pro forma basis, more like 0.6 times EBITDA. A very conservative balance sheet with a lot of capacity for development.
Fergal.
I won't take you through, we've said it a few times, the summary, the key highlights. You've heard them all before. Fergal's talked about the balance sheet, and as we said this morning, the group expects that the year ending March 2018 will be another year of profit growth and development for the group. 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 that we're not getting the benefit of the Norwegian or Hong Kong acquisitions, really, in any significant way at all in the current year. It gives some visibility into the following year, where again, there should be good momentum. Happy to take questions. Maybe take questions within the room first, and then we go externally. Rob?
Star one if you'd like to ask a question. Star one.
Thanks, Donal. How much broader investment do you require to cost, and what kind of payback do you expect, please?
Donal, do you want to?
Yeah. 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. We will make a material enough investment. We talked about the Gaz Européen acquisition, which would effectively deliver EUR 15 million of profitability. That business is a very good business in the B2B sector of the market. What it does for us, coupled with the Butagaz 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. 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 2018, and then we'll see the benefit going forward in FY 2019.
Hi there. It's Josh Puddle from Berenberg. Historically, you've talked about spending around EUR 200 million-EUR 250 million a year on acquisitions, you've generally talked about over a five-year time horizon. Is that number still relevant? Can you talk about what you're thinking in terms of divisions? You've talked a lot about Energy, specifically acquisitions in Healthcare and Technology.
I think that the number is still relevant. I presume the question really 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. 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 EUR 250 million a year there, and we would have said every so often something bigger will come along. If what has happened is, obviously the Norwegian acquisition was a bit bigger. That has come along. The others are, a couple of things came together, the Gaz Européen and the Hong Kong business. I think we'd say it's very hard to predict, and there's plenty of opportunity, keep on saying that out there.
The timing of when it's going to land, Josh, is not easy. I think that it's clear. All 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. I think we need to be careful. Could we go through a period where there's not a lot of spend? Yes, we could. I think just the opportunity is reasonable at the moment. Your question then on Healthcare and Technology-
Maybe just specifically
Well, we've never been specific in terms of individual amounts by division. We are, and there has been spend in both healthcare and technology in the last year. I think that I sort of said going through there that we think the health and beauty business, there's a reasonable scale coming to that now, and I think we have horizons for that business that are maybe broader than we might have had 12 or 24 months ago. We are ambitious to spend money there. The truth is that it's unlikely to be of a Butagaz scale. That's not given the scale of the healthcare business. If you look back at the track record of the healthcare 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.
Our ambition has got a little bit bigger, and our ambition levels are high for that division. The technology business, in fairness, 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. 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 will complete this year. 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. Sorry, Justin.
Sorry, we will get to this side of the room in a minute. Apologies.
Thanks. Justin Jordan at 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 FY 2018? Are you done on the NDC now, or are there further investment to come in FY 2018? As with other proceeds as well that come from the potential asset disposals. Then finally, just for, I guess, for Niall. On recent days, we've had a little bit of a 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. I suppose, we've been talking about the organic volume growth in LPG actually for quite some time. The underlying LPG market in a lot of the countries we're in has been in decline for a period of time. 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, we built the capability to do that, which has driven good growth. The price of LPG relative to the price of oil has become cheaper.
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 them money and reduce their carbon footprint. That has been a real driver of that growth. That has continued in the current year. I suppose coupled with that, we had a strong organic performance within the Butagaz 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. There was a couple of sides to that. In U.K. and Ireland and in Scandinavia, it was milder than normal. It was actually colder than normal in France.
That drove a bit of organic volume growth within the LPG business, and clearly that's good high-margin business. Fergal on the CapEx?
Firstly, the NDC is more or less done from a CapEx point of view. In relation to CapEx next year, a lot depends on just how successful we are in rolling out retail developments within DCC Energy on the petrol station side. Somewhere between EUR 130 million and EUR 150 million. If we get lucky, it's EUR 150 million, and if we don't get really lucky, it's EUR 130 million. On the disposal side, there are a couple of sheds, one large shed, that we'll get disposed of over time. Whether they get disposed of in the year to March 2018 is debatable, there's probably upwards of EUR 30 million 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, we did even call out in our statement that security had been an area that we'd actually been investing in and wanted to develop, that's we had over 15% growth in our security business last year. It's somewhere where we have a strong service proposition. There are police forces in the U.K. where we actually run a 24/7 managed security portfolio for them to monitor these risks live, that's the type of area of our business we'd like to develop, the higher margin, higher growth area of business. 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
There's still a large element of Windows XP PCs out there, which I think anybody who has them will be spurred into upgrading, I hope very quickly. Yes, I think that it should drive opportunity for our security division.
Alan?
Hi, it's Alan from Davy. I have a question now for Donal, Conor, and Niall. Donal, following on from Rob's question earlier, can you help us scale the size of the consumer and natural gas segment in France? To give us a sense of the opportunities. Conor, given the backdrop of Brexit and healthcare regulatory uncertainty, does that have any impact on your continental European growth ambitions? Mid-term, I think in particular in the generic space. Referencing Tommy's comment, should we expect growth perhaps to pivot away from continental Europe, towards other geographies? For Niall, 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've expected.
Okay, Alan, In terms of scale, just put it in a little bit of context. The Gaz Européen business, when we announced the acquisition, was selling 5.1 terawatt-hours, 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 445 million terawatt-hours. The consumer end of it is about a third of that. It's a big market and we'll have typical of other markets as they've deregulated, the incumbents have the vast bulk of the market. We think when you couple the strength of the Butagaz brand, and the Butagaz brand, something we talked about a couple of times, I think since acquisition.
It just is synonymous with gas in France. That brand coupled with the capability now that we have from Gaz Européen positions as well, to grow in the B2C sector. We continue to grow, hopefully in the B2B sector as well. It's a material enough opportunity for us.
Conor?
In respect to the regulatory environment, I suppose as Tommy outlined from a development point of view, probably health and beauty is development, both in continental Europe where we have a strong existing customer base service from our U.K. manufacturing footprint. We'd like to put manufacturing footprint on the ground in Europe. That's a key focus for us. 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 licensed products. If we had footprint in continental Europe, we'd be producing typically for those markets. We don't see any barrier to our growth through a regulatory change there.
Similarly from a pharma point of view, our focus there is very much on the U.K. market. Even looking longer term, our growth, if we were to develop in continental Europe, it would be acquiring in-country businesses which would need to have existing regulatory capability to comply with, if it was an EU acquisition, EU regulation. I don't see any impediment to our growth in healthcare.
Niall, you've talked about growth in the U.K. and France being difficult.
Yeah, sure. 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. Professional audio visual, 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. Allied to that, I include the supplies business where we've extended outside of traditional supplies into office products as well. Security, I mentioned. Smartech, which is the automated home, internet of things, and that's something, again, we've been focused on for the last 18 months. We have an excellent portfolio, very strong market share, and that's a very fast-growing area.
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 had 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 PCs, accessories, and peripherals. We have a headwind of the declining market there, and I would have to say the French market was somewhat worse, allied to a couple of specific product issues. For example, we would've been quite strong in the sat nav market. You would need to be Einstein to see what's happening to the sat nav market at the moment. 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. I think we need to try and reset the growth agenda for the retail business in France as well. We are investing to get that back on a growth path in areas such as Smartech 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, and George, we'll come to you next.
Yeah, thanks. It's Rory from UBS. The energy pence per liter margin was up well this year, obviously benefiting from mix. Given you broke it out, can you discuss the LPG margins specifically? Given that was up on a tough comp already. Also looking ahead, with all the new mix coming in, should we expect to keep expanding pence per liter margin in LPG? Also what do you think for oil and retail please?
Over to them.
Some easy questions.
What a set of questions. Rory, be careful when we get into talking specifically about margins in the individual segments. When we look at the year, and we talked about this last year, we came out of a year with supernormal margins 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. We have very strong pricing policies across the business. We backed those off with hedging instruments, we were able to lock in a little bit of margin maybe that we hadn't seen this time last year. 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. 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 it. We will see a little bit more of a drag on margin going into FY '18, but it'll be relatively modest in the overall scheme of things. 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. That'll have an impact in the mix of the LPG margin going forward.
This is a lower margin, but no infrastructure. Whereas the traditional LPG business is higher margin, but higher infrastructure.
Returns on capital will be consistent.
I think you asked about the retail, which obviously was down year-on-year, but on a pro forma basis, probably up, I think you said?
That's correct, yeah.
With all the mix that's changing coming into the next two years, what do you expect for that pattern? Will you end up with a mix of business which is point level higher than it was two years ago? Where do you see that balance?
With the mix of businesses that are coming in.
Yes. A little bit clearer
particularly if you look at it in retail, if it's on land, and if you look at the Gaz Européen, you'd expect to see, just on a pure GBP pence per liter, a slight drift off of that from a mix point of view. It's kind of like only a quarter of the metric because you need to look at what capital is going into those businesses. As I say, within the natural gas business, there is no infrastructure.
I think the return on capital, some of those newer businesses there are at a slightly lower return on capital. You'll see a little bit of an impact on return on capital.
George.
Hi, 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, Donal, maybe if you could try to give us some sense as to how penetrated you think that market is, how much further, more sustained that trend might be.
No pressure, Henry.
Just one for Donal on the NDC. I don't know if you can help us understand the likely benefit from the new centers. Finally, I guess maybe one for Tommy or Donal, just on the pricing environment for deals. Any color you could give us would be useful. Thanks.
Yep. Okay. Donal.
The LPG-
LPG conversions.
Yeah.
For high penetration.
I suppose if we go back, George, 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. This is not putting too much pressure on Henry, but if we look at the gas oil market in Britain, it's a big market, and there's a share of that gas oil market that is definitely a target for LPG conversion. 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 on conversions.
NDC.
I suppose 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. 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. Then the third element is the efficiencies which we'll generate from bringing all the warehouses together and the investment in automation. The net spend is about EUR 18 million all told. Would we expect to get 15%-20% return on that when everything is up and humming and everything is in, that'd be our target, so yeah.
In terms of returns for technology for the year just ended?
There's probably about EUR 60 million of capital within technology in relation to the SAP and the NDCs that has yet to be fully commissioned. It's not income producing. You know what I mean?
We can do a double act on that, Donal, as he fades in and I fade 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 think so. 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, as I say, we're not the only buyers of these assets. There was a period of time where, 18 months ago, 2 years ago, where there were a number of retail assets transacted here in the U.K. at what we thought were very high prices. That's not to say there won't be, there hasn't been so much evidence of that recently.
I think we are a good buyer of those assets, and I don't think the landscape has changed. I think in healthcare, it's not changed. In healthcare, we would've said that, particularly in the pharma area, it's a hot area. If there's one area of the business that, again, it's not a change from November, it was the same in November, that we might struggle for larger assets at the moment. It's probably in that area. Look, we've been around long enough to know that these things do go in cycles a bit. The great thing about DCC is that we have plenty of opportunity to deploy capital at the moment. At some stage, the pharma assets, that background may change.
Given the energy business' scale today.
Yeah
If 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 the spread relative to competition?
Donal?
Yeah. I suppose if we look at, we need to segment it then, George, into the different areas. Three years ago, sitting here, we had a little bit of a dream about building a retail business. What we did, and what Eddie and the team did, was put the capability in place on the back of the Esso acquisition in France. We can't really underestimate the work that went into that to build that capability, to build the lowest cost. I'd say, challenge anyone to come up with a lower cost retail operating model than what we have built for that business. 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 Dansk 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 it. It'll clearly give us leverage in the business in Norway. That capability has been hugely beneficial from a synergy perspective. What it's done, the credibility that we've built in taking over the Esso business in France has positioned us really as a partner of choice when it comes to retail divestment. As Tommy said, we're not going to have it all our own way. There will be, and there is competition for these assets. That is a difference. Other businesses that we're acquiring, when we're acquiring LPG businesses that we've nothing to plug them into, there isn't a lot.
There's a little bit of sharing of best practice. There's a bit of leverage, maybe of procurement, across the organization. There's not a lot of leverage that we can get by buying businesses in Hong Kong or buying businesses in other continents. I think, again, the credibility of DCC as acquirer of these assets when we sit down with the Shells, particularly on the LPG side, again, makes it an easier sell for them internally.
All right, Gerry, you were trying to ask a question. Okay.
Hiya. Gerry Heneghan with Goodbody Stockbrokers. Just a quick follow-up, Tommy, 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 are they just the dynamics within the selective markets? Or really what I'm trying to find out is where are we not likely to see deal flow in the year ahead?
Well, I suppose, yeah, the answer, Gerry, where the PE guys are very active, the truth is we're going to struggle except in, as I say, as Donal 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, you say, "Well, where are the PE guys active?" As I said, they were active in, there were a couple of transactions in the U.K. and the retail sector 18 months, two years ago.
I think that, as I said earlier, I think I wouldn't single out, if you like, anywhere in Europe and say, "Well, look, 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 18 months, two years is likely to be in Europe because that's where we've scale. That's where we have management capacity to do things. 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. 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. Then very quickly after that, we bought a business in Austria. 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. It's not about those of us sitting in Dublin that are doing that. It's the teams on the ground. We've got to make sure we have the right teams.
Over time then, we've built what's quite a big business in Scandinavia now in energy, and we've other businesses in Scandinavia, too. I see Europe, and I don't look at it and say, "That market's 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. I think over the next couple of years, you'll see, like Hong Kong, 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.
As a reminder to ask a question from the phone, please press star one. We'll now take our next question from Gerard Moore from Investec. Please go ahead, your line is open.
Hi. Good morning, gentlemen. First of all, congratulations, Tommy, on your final set of results.
Thank you.
Another strong performance the team can be proud of. My question is just on the DCC Energy business and in particular, Retail & Oil. Within the statement you mentioned that the oil performance was a bit more difficult in the U.K. and Ireland. Just wondering if you could give us a bit more background of what's happening there, how you're dealing with it. Then also if you could just maybe give us a rough indication of the split between Retail & Oil within the new Retail & Oil division. Thank you.
Okay. Donal, do you want to talk about the oil business?
Sure. If we look at the challenge in the year, it came in the U.K. and Ireland oil business particularly. Going back to the conversation we had earlier, not wanting to spend too long talking about weather, the counter to the benefit that we had in France was an impact on the oil business in the U.K. and Ireland in particular, where we have significant heating oil businesses. The mild weather had an impact during the year. Then some of the commercial side of the business was effectively a little bit more challenging. 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.
Again, we see good opportunity for growth in adjacent areas, so really down to heating.
Okay.
On the split, roughly 50/50, Gerard, between what you'd regard as bulk oil and retail and fuel cards.
Clearly though, the growth opportunity coming on the retail side. When we go forward into FY 2019, we'll only have a quarter, as Tommy said earlier, of the Esso Norway business in FY 2018. We'll have the vast bulk of that in FY 2019. Clearly we're ambitious to deploy further capital into the retail sector of the market.
Very clear. Thank you.
There are no further questions from the phone.