DCC : Enabling energy transition - Transcript

ENABLING ENERGY TRANSITION LIVE EVENT TRANSCRIPT

WEDNESDAY, 18TH NOVEMBER 2020

Donal Murphy, Chief Executive Officer

Introduction

Hello and welcome to our discussion today on DCC's role in enabling energy transition. We are looking forward to talking to you over the next 90 minutes or so.

DCC is very well positioned to enable energy transition and support our customers on their energy transition journey. As we will discuss today, this is something we are actively doing every day.

It has been a little over two years since our last Capital Markets Day and we wanted to dedicate some time beyond results announcements to talk with you about the resilience of the group strategy, and the range of opportunities ahead of us across all of our sectors.

As I mentioned on our results call last week, we had hoped to have this conversation with you all, alongside our Year End results in May. However, we deferred it due to the dynamic Covid situation at the time.

And while I would prefer to be with you all in person at the London Stock Exchange or at one of our excellent sites for this discussion, we are absolutely committed to operating safely so have decided on a virtual session. We have all become very au fait at leveraging technology for these kinds of events and I expect it to be a great, interactive session, nonetheless.

I am delighted to be joined here in a studio in Dublin by Kevin Lucey, Chief Financial Officer, and Eddie O'Brien, Managing Director of our Retail and Oil Division. Due to travel guidelines in place at the moment, we are also joined, live from the UK, by Henry Cubbon, Managing Director of our LPG Division.

To set the discussion in some context, we will begin by talking about DCC's group strategy and our purpose and then, move the discussion onto our particular focus today on enabling energy transition. I will discuss how our strategy and purpose positions us and drives us to enable energy transition.

Then Henry, Eddie and Kevin will share with you what we are doing in the space today - in our markets, and as a group - and our view on the opportunities still to come. We will then take live questions direct from our analyst community for the remainder of the session.

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Before we get started, I want to take a moment to direct your attention to our standard disclaimer which is on screen now. The material and recording for this event will also be available on our website after we conclude today.

Hopefully it shouldn't happen, but if you have any technical questions as we go through the event, please email our team at [e-mail]. So, let's get started.

Group purpose and strategy

Since our flotation we have pursued a consistent strategic objective of building a growing, sustainable and cash generative business which consistently provides returns on capital employed significantly ahead of its cost of capital.

We achieve this, first and foremost, by building agile and customer-focused, sales, marketing, distribution and contract manufacturing businesses - the "go-to-market infrastructure" for the sectors we choose to play in. We combine a depth of sector knowledge and experience to grow these businesses into businesses of scale in the resilient and enduring sectors of energy, technology and healthcare.

These sectors have long term growth demand characteristics and strong fundamentals. They are dynamic sectors where change is a constant and we have resilient and agile businesses as a result.

We focus on cash generative, recurring revenue businesses with growth potential and strong returns and geographies with reliable economies and high Health & Safety and compliance standards.

All of our businesses operate under a consistent strategic framework that drives real excellence and value through our group. The framework includes - creating market leading positions, driving operational excellence, creating a culture of innovation, extending our capability into new geographies, developing our people and maintaining a strong financial position throughout.

Enabling people and businesses to grow and progress

We spent some time earlier this year, just before the pandemic struck, to consider our purpose as an organisation. Our purpose, enabling people and businesses to grow and progress, is core to who we are as an organisation and what we have stood for since our founding.

Our purpose directly builds upon our core values which help shape the culture of our group and how we execute our strategy - Safety, Integrity, Partnership and Excellence.

Purpose is how we see ourselves as part of something bigger, no matter what our role is. It speaks to our genuine role as an enabler of the sectors we operate in, of the customers we serve, and of the key partners that we work with. It reflects our focus on adding value in everything we do to make a positive impact within the environments we operate.

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As the pandemic took hold earlier this year, we saw daily demonstrations of our role as part of something bigger. On our Year End results call in May, we shared some examples of how our businesses had played an essential role in enabling their sectors, their customers and their communities to adapt and change during the pandemic.

There is no better example of how our purpose is ingrained in the fabric of our businesses. There is a trend in many businesses on purpose today. We are entering a time where the role of corporates in society must be viewed more holistically.

I think the current challenges we see in the world at the moment only compound this view. Our business partners and B2B customers expect to collaborate with sustainable, long-term oriented companies. B2C customers are increasingly savvy and informed - researching the companies and brands that they support. And our employees want to build careers that serve a higher purpose. But the purpose is only real if we act against it.

Our role in enabling energy transition, which we will speak about today, is directly influenced by our purpose. We all know that climate change is one of the greatest challenges facing society today. It is a complex challenge, requiring every person, in every part of the world to make different choices. The choice to adapt our consumption of energy is one of the most important steps we can take on this journey. Understanding those choices and getting access to real solutions is difficult and complex, for people and businesses around the world. DCC is well positioned to enable them to make real progress through their energy transition journey.

Our strategy. Our purpose. Our values. All of this has real impact.

It has created real value and enabled us to build leading - sales, marketing, distribution and contract manufacturing businesses in our core sectors. Each of our Divisions have grown from relatively humble beginnings in the UK & Ireland to multi-national businesses of real scale with leading market positions.

And, our sectoral diversity, which I have spoken about previously, allows us to invest and grow behind positive trends as they emerge. The fundamentals of these sectors have not changed, and we are very optimistic about the opportunities presented by the trends in the sectors today.

In healthcare people are living longer and healthier lives. They are increasingly conscious of looking and feeling good. Healthcare systems are also evolving to meet the needs of a society with longer lives.

In technology devices and services are playing an increasingly important and pervasive role in all our lives, as the tools that enable access to increasing amounts of data and digital applications.

In energy fundamentally there is a growing, global, energy demand, that is essential to power progress, and growth across societies. The energy transition is about continuing to meet this energy demand, or more, while helping customers to use energy in an efficient and smarter way. As we will go on to talk about, the nature of the energy or fuel, may change as a result, but the

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fundamental need for energy remains. All these trends have ebbed and flowed, but DCC has consistently delivered disciplined growth over that time.

As the world shifts DCC's agility, experience and core infrastructure enables evolution with change - be that in technology from on premise to cloud, or healthcare from tablets to soft gels to gummies, or in energy from fossil to lower carbon and renewable. DCC responds well to market shifts and will continue to do so. While the specifics of the products and services that we provide will continue to evolve and change (as it has in the past), the demand for energy, technology and healthcare products and services will continue to grow into the future. Throughout these trends, we are clear on our strategy and our financial and capital discipline to support it.

I will now hand over to Kevin Lucey to talk more about this.

Kevin Lucey - Chief Financial Officer

Financial and capital discipline

Thanks Donal.

Crucial to DCC's consistent delivery remains financial discipline, our capital deployment framework and a clear focus on long term and sustainable returns on capital employed, our key metric. All growth opportunities we consider are approached in this context. This context is also a critical backdrop to our conversations about the future.

Our approach has delivered strong financial performance, cash generation and robust capital deployment. Over 26 years, DCC has delivered very strong growth in profits, in a very resilient and consistent fashion, approximately one third organically, two thirds through acquisition.

We focus on realising this growth in cash flow, which becomes the enabler for our continued growth and development into the future. We were delighted, just last week, to report the continued resilience of this approach, despite extraordinary circumstances, when we shared with you our first half results. We reported that Group operating profit increased by 8.3% - approximately half of which was organic. DCC delivered another good Free Cash Flow performance, with Free Cash Flow generation up £90m on prior year. We reinvested approximately £90 million of our cash flows into new acquisitions, each of which in turn increase the scale and capability of the Group.

Importantly, the Group exited our first half with an extremely strong balance sheet, with just over £100m of net debt and with over £1.5bn of cash on the balance sheet. This first half performance and our long track record demonstrates the real resilience of DCC, and our really strong financial position will continue to drive our growth going forward.

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