10 November 2020

DCC Delivers Very Robust First Half Performance with

Strong Growth in Operating Profit  

DCC, the leading international sales, marketing and support services group, is today announcing its results for the six months ended 30 September 2020.

·   DCC performed strongly during the seasonally less significant first half of the year, with Group adjusted operating profit increasing by 8.3% (up 8.6% on a constant currency basis) to £176.1 million. Given the difficult and uncertain trading environment, in particular during the first quarter but throughout the first half of the financial year, the performance of the Group has been very robust with improving momentum through the second quarter

·    Adjusted earnings per share up 7.0% to 117.9 pence

·    Interim dividend increased by 5.0% to 51.95 pence per share

·   Excellent free cash flow generation, up £90.3 million on prior year, driven by a strong working capital performance

·    Notwithstanding the ongoing disruption caused by the pandemic, the Group committed approximately £90 million in capital to new acquisitions in both Europe and North America since May 2020. The Group remains very active from a development perspective  

·   The Group balance sheet remains very strong and liquid, with net debt (excluding lease creditors) of £137 million at 30 September 2020, gross cash of approximately £1.5 billion and undrawn, committed bank facilities of £400 million. This excellent financial position will facilitate the continued growth and development of the Group

·    With Covid-19 related restrictions now increasing again generally, the outlook for all economies in which DCC operates remains very uncertain. However, DCC's diverse and resilient business model, the essential nature of the Group's products and services and its extremely strong balance sheet ensure that the Group is well placed to navigate this ongoing uncertainty and continue its growth and development into the future

¹ Excluding net exceptionals and amortisation of intangible assets. 

² DCC Healthcare's reported prior year figures include its UK generic pharmaceutical activities and related manufacturing facility in Ireland (Kent Pharma and Athlone Laboratories) which were disposed of in September 2019.  Operating profit excluding these activities was 65.9% higher than the prior year.

³ After net working capital and net capital expenditure but before net exceptionals, interest and tax payments.

Commenting on the results, Donal Murphy, Chief Executive, said:

"I am pleased to report that since our last trading update on 17 July 2020 the trading performance of the Group continued to improve and resulted in strong growth in operating profit in the first half of the year. Despite the unprecedented disruption experienced by all economies during the period, every DCC business unit operated effectively, ensuring our customers continued to receive DCC's range of essential products and services. The uncertainty created by the pandemic continues at elevated levels and in this difficult environment DCC's priority remains keeping our employees safe and well while we continue to supply the essential products and services our customers require.

Whilst the first half of the financial year is seasonally less significant, the strong performance demonstrates the resilience and agility of our business model. It also highlights the essential nature of the Group's products and services and the benefit of the diversity of the Group's operations, in terms of sectoral focus, customer and supplier breadth and geographic mix.  

Diversity also provides us with optionality with respect to acquisition activity and development capital expenditure. During the period DCC deployed capital in several acquisitions, each of which have brought new capability and reach to the Group and we remain very active from a development perspective. We also continued to invest in increasing the capacity of our businesses to deliver excellence to our customers, ensuring that we continue to fulfil DCC's purpose of enabling people and businesses to grow and progress. DCC continues to have the platforms, opportunities and capability to build the Group into a global leader in its chosen sectors.  

With Covid-19 related restrictions now increasing again generally, the outlook for all economies in which DCC operates remains very uncertain. However, DCC's diverse and resilient business model, the essential nature of the Group's products and services and its extremely strong balance sheet ensure that the Group is well placed to navigate this ongoing uncertainty and continue its growth and development into the future."

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Divisional Operating Reviews 

DCC LPG traded robustly during the first half of the year, particularly given the difficult operating conditions in the first quarter. Operating profit declined by 7.1% (7.4% behind on a constant currency basis) to £45.6 million.

DCC LPG sold 726.3k tonnes of product in the first half, a 9.0% reduction on the prior year. Given the typical seasonal weighting to commercial and industrial customers during the first half of the financial year, good cylinder and domestic demand was more than offset by lower commercial and industrial demand in Britain and Ireland, especially during the first quarter. Volumes were also generally impacted by the relatively warmer weather conditions during the first half, while operating profit per tonne benefited from good cost control and the positive mix impact of strong cylinder and domestic demand.   

The French business performed in line with expectations, driven by a resilient performance in the cylinder and domestic sectors, despite the adverse impact of the relatively warmer weather conditions. The cylinder business benefited from the maturing of the 'Click & Collect' offering, which proved particularly attractive to customers during the lockdown restrictions, and the business continues to broaden its energy product and service offering to customers. In particular, the business increased its presence in the B2B gas and power market in France during the period, with continued good growth in customer numbers.

In Britain and Ireland, the business experienced good domestic and cylinder demand, with commercial and industrial demand most impacted by restrictions, although demand improved as the first half of the year progressed. Importantly, the pipeline of 'Oil2LPG' conversions remains robust, with commercial and industrial customers remaining very interested in the potential to both lower their energy costs and significantly reduce their carbon emissions. Development expenditure on new conversions continued, particularly in the second quarter, following the easing of restrictions. In Ireland, the gas and power offering benefited from the successful integration of Budget Energy early in the financial year. Budget Energy has performed well since acquisition and continues to win new customers, leveraging its attractive renewable energy offerings.  

Given its strong domestic customer focus, the US business performed well and delivered good organic volume and operating profit growth, albeit in the seasonally less significant first half of the year. In addition to the good trading performance, the business remained active from a development perspective and completed the material bolt-on acquisition of the NES Group in the north-east of the US in September 2020, as well as two small bolt-on acquisitions. The US business now has operations across 14 states in the US, up from 10 states since the initial entry into the US LPG market just over two years ago. The business in Hong Kong & Macau traded robustly and in line with expectations, notwithstanding the material impact of the Covid-19 pandemic in the region.  

The business in the Benelux region traded ahead of the prior year with a strong cylinder performance offsetting reduced autogas and aerosol demand. As previously announced, DCC LPG has agreed to acquire Primagaz in the Netherlands from SHV Energy, subject to competition authority approval. In Germany, while again the domestic sector remained robust, the business was impacted by significantly reduced demand for refrigerant gases, as the lockdown restrictions curtailed the operations of industrial customers, during the first quarter in particular. In Scandinavia, the business performed well, with relatively fewer restrictions in place and most commercial and industrial customers continuing to operate as normal.

DCC Retail & Oil recorded very strong organic operating profit growth of 9.2% (10.1% on a constant currency basis) in the first half of the year. With commercial, industrial and transport volumes significantly impacted by the restrictions, the very strong operating profit performance reflects the mix benefit of increased demand from domestic and agricultural customers and a very good cost performance.

DCC Retail & Oil sold 4.9 billion litres of product in the first half, a 17.8% decline on the prior year. During the first quarter, the business experienced very strong demand in the domestic and agricultural sectors, particularly in Britain, Denmark, Austria and Ireland. Having been significantly adversely impacted in April and May, transport fuel demand improved steadily into the second quarter across each region, reflecting the easing of Covid-19 related restrictions and the increased mobility of our customers, albeit mostly to lower levels than the prior year. The aviation sector, while modest in terms of operating profit contribution, recorded significantly lower volumes throughout the period.

The business in Britain and Ireland delivered very strong organic operating profit growth in the first half of the year. As a result of the restrictions, the business experienced higher than typical domestic demand in the first quarter and also saw strong demand for its premium products, which offer customers a cleaner alternative to standard heating fuels. The business continued to make good progress in developing its retail network having rebranded and fully integrated 22 former Tesco sites in Ireland and also increased in-store, non-fuel sales in Britain. The demand for road transport fuels, including fuelcards recovered through the period, albeit to lower levels than the prior year. The business also benefited from a strong performance from the recent investments made in broadening its product and service offering, with further expansion of its truckstop and roadside services during the period. SNAP, the technology-led business acquired in the prior year, which offers integrated fuel, secure truck parking and ancillary services, performed well and significantly increased its customer numbers. In addition, the lubricants offering in both Britain and Ireland continued to grow and develop.

The Scandinavian business delivered very strong profit growth, driven by a very good performance in the retail sector and also benefiting from strong demand from agricultural customers, particularly in Denmark. The business continues to develop its service offering to customers, with a number of digital initiatives launched during the period, including the successful launch in Denmark of an app-enabled car wash service using licence plate recognition technology and further investment in EV super-chargers in Norway. 

Despite experiencing a significant impact from lockdown restrictions in April and May, the French business recovered steadily through the period. The unmanned network delivered a good performance, reflecting customer preference for a local, low-cost, pay-at-the-pump model and a reduced propensity to use public transport. The business in Austria recorded strong profit growth on higher domestic demand and continued to benefit from its focus on offering premium, cleaner products to customers. The business also further developed its retail network following the recent modest acquisition of six retail sites.

DCC Technology traded resiliently throughout the first half of the year. Despite operating profit being behind the prior year in the first quarter, DCC Technology recovered to deliver modest operating profit growth in the half year overall.

The business recorded revenue growth of 9.7% in the seasonally less significant first half, approximately three quarters of which was organic. Due to the impact of Covid-19, the business experienced a widespread reduction in demand during April and May, with retail and corporate closures impacting all markets. However, as the first half progressed and customers adapted to the new trading environment, the business experienced a material increase in demand for higher-volume, lower-margin consumer and working-from-home products, particularly through the etail channel. Trading conditions in the higher-margin B2B sectors, such as the Pro AV product category, remained challenging. As demand patterns changed, DCC Technology implemented a range of cost reduction measures, including adjusting staff working arrangements in areas of the business that experienced reduced activity levels and discontinuing all non-essential expenditure. Organically, operating profit was broadly in line with the prior year.

The UK business recorded good revenue growth during the first half of the year, with strong demand in consumer products from etailers, grocers and non-traditional retailers who remained open during lockdown, and from B2B customers offering mobility and working-from-home products. This strong demand was offset by a reduction in Pro AV, enterprise and other B2B categories. As a result, operating profit in the UK was below the prior year. Despite the significant challenges of remote working, the business successfully transitioned to its new ERP system during the period. This significant investment will enhance the service offering to all customers and suppliers. It will be particularly important for the reseller channel where it will enable a significantly enhanced on-line offering. The business in Ireland performed strongly, with good organic revenue and operating profit growth, driven by demand for consumer products and also benefiting from recent investments made in expanding its service offering to B2B customers.

The North American business performed well and delivered strong organic revenue and operating profit growth. Sales of 'at-home' products were very strong during the period, with growth across consumer electronics, musical instruments and Pro Audio. The mobile living products introduced in the prior year also contributed positively in the period. As in other markets, the business experienced significantly lower demand in the Pro AV sector, where large events, conferences and other installations were postponed. DCC Technology continued to be active from a development perspective during the period and recently completed the acquisition of The Music People. The acquisition is complementary in both customer and product set to the current Pro Audio offering in North America and further strengthens DCC Technology's developing product portfolio and market presence in the region.

In Continental Europe the business generated good revenue and profit growth. Similar to the rest of the division, the business experienced a challenging trading environment for B2B products, particularly in the DACH region, where office closures and the deferral of many larger installation projects impacted demand. However, this was more than offset by a good performance in consumer products. In France, the business benefited from operational improvements and increased sales of products from key multinational vendors. In Scandinavia, the business performed robustly, with markets in the region generally experiencing a less negative impact from Covid-19. The business also achieved good growth in the Benelux region, where an expanded product range successfully complemented the existing strong service offering to etailers and retailers of consumer products.

DCC Healthcare's reported prior year figures include its UK generic pharmaceutical activities and related manufacturing facility in Ireland (Kent Pharma and Athlone Laboratories) which were disposed of in September 2019. Accordingly, the analysis and commentary below relate to the activities of DCC Healthcare which continue to be part of the Group.

DCC Healthcare performed very strongly in the first half of the financial year, with operating profit increasing by 65.9% to £39.8 million and approximately half of this growth was organic. DCC Health & Beauty Solutions experienced very strong growth in nutritional products and benefited from the first-time contribution of the prior year acquisitions in the US which have performed ahead of expectations. Although DCC Vital was impacted by substantially lower routine hospital procedures and in-person consultations as Covid-19 disrupted all healthcare systems, this was more than offset by increased demand for PPE and other Covid-19 related products.

DCC Health & Beauty Solutions, which provides outsourced solutions to international nutrition and beauty brand owners, generated excellent operating profit growth and benefited from its significantly expanded presence and enhanced capability in the US nutrition market. The prior year acquisitions of Ion Labs (November 2019) and Amerilab Technologies (March 2020) have both traded ahead of expectations. The new specialist capabilities they have brought to DCC Health & Beauty Solutions have enhanced the product and value profile of the nutrition business overall. In addition, the expanded US customer base is already delivering cross-selling opportunities. In the European nutrition sector, the business also performed strongly, particularly in immunity-related products, where increased consumer interest in preventative healthcare as a result of the Covid-19 pandemic accelerated growth. DCC Health & Beauty Solutions also performed very well in the beauty sector, benefiting from strong growth with e-commerce focused brands which offset weakness in demand from retail-oriented brands impacted by the lockdown in the first quarter. The beauty business also benefited from the progress made during the prior year in enhancing its customer mix, as it moved its focus and weighting further towards premium, complex products for leading international brands and exited certain mass-market product lines.

DCC Vital is principally focused on the sales and marketing of medical products to healthcare providers in Britain and Ireland. Activity levels in the markets served by DCC Vital were significantly impacted by the Covid-19 pandemic, which resulted in substantially lower routine hospital procedures and in-person GP consultations, particularly throughout the first quarter of the financial year. Despite these challenges, the business generated both sales and operating profit growth. The business leveraged the breadth of its product range, its robust supply chain and extensive market reach to respond quickly and effectively to Covid-19 demand from the healthcare systems in Britain and Ireland for PPE, ICU-related medical devices and other healthcare products. The business also benefited from the modest bolt on acquisitions completed during the prior year, which performed ahead of expectations.

Group Financial Review

A summary of the Group's results for the six months ended 30 September 2020 is as follows:

Income Statement Review

Reporting currency

The Group's financial statements are presented in sterling. Results and cash flows of operations based in non-sterling jurisdictions have been translated into sterling at average rates for the year. The principal exchange rates used for the translation of results into sterling were as follows:

The net impact of currency translation on the Group income statement versus the prior period was modest, with average sterling exchange rates marginally weakening against euro.

Revenue

Overall, Group revenue decreased by 18.9% (18.8% decrease on a constant currency basis) to £5.931 billion.

DCC LPG sold 726.3k tonnes in the first half of the year, a 9.0% decline versus the prior year. This performance reflected the impact of Covid-19, particularly in the first quarter, where strong cylinder and domestic demand was more than offset by lower commercial and industrial volumes, given the typical seasonal weighting of the first half. Volumes were also impacted by the relatively warmer weather in the period.

DCC Retail & Oil sold 4.9 billion litres of product in the first half, a 17.8% decrease versus the prior year. The reduction reflected the significant impact of Covid-19 restrictions on commercial, industrial and transport volumes, while the business saw strong demand from the domestic and agricultural sectors, particularly in the first quarter. As lockdown restrictions eased, transport volumes gradually recovered in each market.

Revenue excluding DCC LPG and DCC Retail & Oil increased by 10.0% (up 9.8% on a constant currency basis) to £2.3 billion, with very strong revenue growth in both DCC Technology and DCC Healthcare. Organically, revenue excluding DCC LPG and DCC Retail & Oil increased by 5.8%.  

Group adjusted operating profit

Group adjusted operating profit increased by 8.3% to £176.1 million (8.6% ahead on a constant currency basis), in the seasonally less significant first half of the year. Approximately half of the growth was organic, a strong performance in the context of the very uncertain trading environment.

The strong performance in the half year reflected robust trading through the first quarter, when pervasive, severe lockdown conditions prevailed. The essential nature of much of the Group's products and services saw the Group adjust to meet increased demand in certain areas, while also coping with a significant slowdown in demand in other areas.

Within the energy and technology sectors, increased working from home and time spent in the home more generally, led to increased demand, whereas those same restrictions curtailed demand for products for commercial or industrial use. Within the healthcare sector, demand for Covid-19 related products offset reduced demand resulting from the substantial reduction in elective procedures, while demand for nutrition and beauty products was strong throughout the period.

Given the sustained uncertainty through the first quarter in particular, the Group actively managed its resources to ensure it was supporting those areas experiencing demand increases but also to mitigate the financial impact in those parts of the Group where activity levels were lower than expected. The cost management initiatives during the first quarter of the year included cessation of all discretionary or non-essential expenditure. Certain of the Group's operations placed employees on temporary working arrangements and utilised government schemes to support the continued employment of staff in those parts of their businesses that experienced much reduced activity levels. In the context of the Group's cost base, the financial impact of this support was very modest. As demand began to recover towards the end of the Group's first quarter and into the second quarter, trading conditions began to improve and, while activity levels remained disrupted, DCC again adapted, recommencing expenditures in areas that had been curtailed, including development capital expenditure, and delivered strong growth in operating profit in the second quarter of the financial year.

DCC LPG traded robustly during the first half of the year, particularly given the very difficult operating conditions in the first quarter, with operating profit decreasing by 7.1% (7.4% behind on a constant currency basis) to £45.6 million.

Operating profit in DCC Retail & Oil was well ahead of the prior year, increasing 9.2% to £65.2 million. This very strong organic performance, in a period of lower commercial, industrial and transport volumes due to Covid-19 restrictions, was driven by the positive mix benefit of strong demand from domestic and agricultural customers and very good cost control.

DCC Technology traded resiliently and recovered through the first half of the financial year to deliver modest operating profit growth. The improved performance as the first half progressed reflected the benefit of cost reduction measures and increased demand for higher-volume, lower-margin consumer and working-from-home products, particularly through the etail channel, whereas trading conditions in the higher-margin B2B sectors, such as the Pro AV category, remained challenging due to continued restrictions. Organically, operating profit was broadly in line with the prior year.

DCC Healthcare performed very strongly in the first half of the year, generating operating profit growth (on a continuing basis) of 65.9%, approximately half of which was organic. The growth was driven by DCC Health & Beauty Solutions which saw strong demand for nutritional products across all geographic markets and benefited from the first-time contributions of the prior year acquisitions in the US, which have performed ahead of expectations. DCC Vital also performed well and delivered good organic profit growth on a continuing basis.

Finance costs (net) and other

Net finance and other costs increased to £30.2 million (2019: £26.7 million). The increase primarily reflects a reduction in interest earned on deposits given lower base rates, an increase in lease interest driven by recent acquisitions and a lower contribution from the Group's very modest joint venture arrangements. Average net debt, excluding lease creditors, in the period was £223 million, compared to an average net debt of £349 million in the prior year. The decrease in average net debt excluding lease creditors reflected lower levels of working capital across the first six months of the year.

Profit before net exceptional items, amortisation of intangible assets and tax

Profit before net exceptional items, amortisation of intangible assets and tax increased by 7.3% (7.8% ahead on a constant currency basis) to £145.9 million. 

Net exceptional items before tax and non-controlling interests and amortisation of intangible assets

The Group recorded a net exceptional charge before tax and non-controlling interests of £13.3 million in the first six months of the year as follows:

Restructuring and integration costs and other of £12.8 million relates to restructuring of operations as part of the integration of completed acquisitions across a number of businesses and to material restructuring in a business unit. It also includes the reducing dual running costs relating to the UK SAP implementation which went live during the summer in the majority of the UK business and restructuring costs across a number of businesses within DCC Technology where some right-sizing was required given the change in mix in the business as a result of the pandemic.  

Acquisition and related costs include the professional fees and tax costs (such as stamp duty) relating to the evaluation and/or completion of acquisition opportunities and amounted to £1.9 million.

Most of the Group's debt has been raised in the US private placement market, denominated in US dollars, euro and sterling. Long-term interest and cross currency interest rate derivatives have been utilised to achieve an appropriate mix of fixed and floating rate debt across the three currencies. The level of ineffectiveness calculated under IAS 39 on the fair value and cash flow hedge relationships relating to this debt is charged or credited as an exceptional item. In the six months ended 30 September 2020, this amounted to an exceptional non-cash credit of £1.4 million. Following this credit, the cumulative net exceptional charge taken in respect of the Group's outstanding US Private Placement debt and related hedging instruments is £0.8 million. This, or any subsequent similar non-cash charges or gains, will net to zero over the remaining term of this debt and the related hedging instruments.

The charge for the amortisation of acquisition related intangible assets decreased to £30.5 million from £32.6 million in the prior year, with the decrease reflecting some intangible assets becoming fully amortised during the first half of the year and in the second half of the prior year.

Profit before tax

Profit before tax increased to £102.1 million.

Taxation

The effective tax rate for the Group in the first half of the year of 17.0% is based on the anticipated mix of profits for the full year and compares to a full year effective tax rate in the prior year of 17.0%.

Adjusted earnings per share

Adjusted earnings per share increased by 7.0% to 117.9 pence, 7.5% ahead on a constant currency basis.

Dividend

Notwithstanding the uncertainty created by the Covid-19 pandemic, DCC has traded strongly during the first half of the financial year, has a very resilient business model and an extremely strong and liquid balance sheet. As with the prior year final dividend and having regard to all relevant considerations, the Board has decided to pay an interim dividend of 51.95 pence per share, which represents a 5.0% increase on the prior year interim dividend of 49.48 pence per share. This dividend will be paid on 9 December 2020 to shareholders on the register at the close of business on 20 November 2020.

Cash Flow, Development & Financial Position

Cash flow  

As with its operating profit, the Group's operating cash flow is significantly weighted towards the second half of the year. The cash flow of the Group for the six months ended 30 September 2020 can be summarised as follows:

Working capital increased by £28.4 million over the six-month period from 31 March 2020, reflecting a strong underlying working capital performance given the Group's typical seasonal working capital requirements. The strong working capital performance resulted in the absolute value of working capital at 30 September 2020 reducing to £1.0 million versus £110.1 million at 30 September 2019, despite the Group acquiring £21 million of working capital in acquisitions since 30 September 2019. The Group had zero net working capital days at 30 September 2020, a reduction on the prior year (2019: 2.4 days sales), with the Group benefiting from improvements in underlying working capital across each of DCC LPG, DCC Retail & Oil and DCC Technology. DCC Technology selectively uses supply chain financing solutions to sell, on a non-recourse basis, a portion of its receivables relating to certain larger supply chain/sales and marketing activities. The level of supply chain financing at 30 September 2020 was £223.4 million (2019: £189.3 million), with the increase reflecting the growth in sales to large etail and retail customers. Supply chain financing had a positive impact on Group working capital days of 5.2 days (30 September 2019: 4.1 days).

Net capital expenditure for the six months amounted to £87.6 million (2019: £87.7 million), was net of disposal proceeds of £1.0 million, and reflects continued investment in development initiatives across the Group.

While the Group paused development capital expenditure for a period during the first quarter, the easing of restrictions led to the Group recommencing development capital expenditure. DCC has largely invested the level of development capital expenditure that was envisaged for the first half of the financial year prior to the pandemic.

Investments in DCC LPG primarily comprised expenditure in relation to the Avonmouth LPG storage facility in the UK and further development expenditure to support the continued growth of the business, including conversion of oil customers to LPG, particularly in the UK. In the Retail & Oil division, there was continued investment in new retail sites and site upgrades including capital expenditure in relation to the project to optimise the depot network in the UK to bring greater network and capital efficiency over time. The majority of the capital expenditure in DCC Technology related to the SAP implementation in Exertis UK which is now live. In DCC Healthcare, the capital expenditure primarily related to increased manufacturing capability across DCC Health & Beauty Solutions in both Europe and the US, to facilitate the strong growth in customer demand. Net capital expenditure exceeded the depreciation charge (excluding right-of-use leased assets) in the six months by £25.2 million.

Free cash flow in the six months ended 30 September 2020 of £120.7 million compares to £30.4 million in the prior year.

Total cash spend on acquisitions in the six months to 30 September 2020

The total cash spend on acquisitions in the six months ended 30 September 2020 was £98.5 million. This included the completion of the acquisition of a number of businesses in DCC LPG, including Budget Energy which was announced in May 2020, the NES Group and a number of small bolt-on acquisitions in North America. It also included DCC Retail & Oil's completion of a small bolt-on acquisition in Austria. Payment of deferred and contingent acquisition consideration previously provided amounted to £25.8 million.

Committed acquisition and capital expenditure

Committed acquisition and capital expenditure in the period amounted to £174.6 million as follows:

Acquisition activity

Acquisition expenditure committed by the Group since the announcement of 2020 Final Results in May 2020 amounted to £87.0 million and included:

DCC LPG

NES Group

In September 2020, DCC LPG completed the acquisition of NES Group in the US market. NES Group markets, sells and delivers propane and other related products and services to residential and commercial customers in Connecticut, Rhode Island and Massachusetts. Headquartered in Brooklyn, Connecticut, the business employs approximately 70 people, has over 22,000 active customers and sells approximately 40,000 tonnes equivalent of product annually. NES Group is DCC LPG's first acquisition in the north east of the US and will provide a platform for further development in a region characterised by strong underlying demand for propane.

The acquisition of NES Group is DCC LPG's second material bolt-on acquisition in the US market, following the acquisition of Pacific Coast Energy in April 2019. DCC LPG now has operations across 14 states in the US and is well positioned to continue to grow and develop a significant business in the large and fragmented US LPG market.

Primagaz

During September 2020, DCC LPG agreed to acquire Primagaz from SHV Energy, subject to competition authority approval. The business is highly complementary to DCC LPG's existing business in the Benelux region. Primagaz, which focuses on the bulk and cylinder LPG markets, serves approximately 10,000 customers and supplies over 28,000 tonnes of LPG annually. The transaction is expected to complete during the fourth quarter of DCC's financial year ending 31 March 2021.

DCC Technology

DCC Technology recently completed the acquisition in the US of The Music People. The acquisition is complementary in both customer and product set to the current Pro Audio offering in North America and further strengthens DCC Technology's developing product portfolio and market presence in the region.

In addition to the above, the Group also completed a number of smaller bolt-on acquisitions during the period, including a number of small acquisitions by DCC LPG in the US and DCC Retail & Oil also completed a small bolt-on acquisition in the retail market in Austria.

Financial strength

An integral part of the Group's strategy is the maintenance of a strong and liquid balance sheet which, among other benefits, enables it to take advantage of development opportunities as they arise. At 30 September 2020, the Group had net debt (excluding lease creditors) of £137.2 million, being term debt of £1.6 billion, and cash resources, net of overdrafts, of £1.5 billion. Lease creditors at the same date amounted to £303.8 million. The Group also had undrawn committed bank facilities of £400 million.

The Group's outstanding term debt at 30 September 2020, which has been raised in the US private placement market, had an average maturity of 5.7 years, with an implied average credit margin of 1.64% over Euribor/Libor.

Outlook

With Covid-19 related restrictions now increasing again generally, the outlook for all economies in which DCC operates remains very uncertain. However, DCC's diverse and resilient business model, the essential nature of the Group's products and services and its extremely strong balance sheet ensure that the Group is well placed to navigate this continuing uncertainty and continue its growth and development into the future.

Forward-looking statements

This announcement contains some forward-looking statements that represent DCC's expectations for its business, based on current expectations about future events, which by their nature involve risk and uncertainty. DCC believes that its expectations and assumptions with respect to these forward-looking statements are reasonable; however, because they involve risk and uncertainty as to future circumstances, which are in many cases beyond DCC's control, actual results or performance may differ materially from those expressed in or implied by such forward-looking statements.

Principal risks and uncertainties

The Board of DCC is responsible for the Group's risk management and internal control systems, which are designed to identify, manage and mitigate potential material risks to the achievement of the Group's strategic and business objectives. The Board has approved a Risk Management Policy which sets out delegated responsibilities and procedures for the management of risk across the Group.

The principal risks and uncertainties facing the Group in the short to medium term, as set out on pages 22 to 26 of the 2020 Annual Report (together with the principal mitigation measures), continue to be the principal risks and uncertainties facing the Group for the remaining six months of the financial year.

This is not an exhaustive statement of all relevant risks and uncertainties. Matters which are not currently known to the Board or events which the Board considers to be of low likelihood could emerge and give rise to material consequences. The mitigation measures that are maintained in relation to these risks are designed to provide a reasonable and not an absolute level of protection against the impact of the events in question.