DCC sees first-half profit climb following acquisitions spree

DCC is holding out that its acquisitions spree on technology distribution businesses this year will deliver during the key Black Friday to Christmas period after the fuel supply-to-health services group unveiled a 15.9 per cent increase in first-half profits.

The Dublin-based company spent £254 million (€292 million) on deals in DCC Technology, its smallest division by earnings, in the six months through September. They included the purchases of Stampede Global, a US distributor of professional audio-visual products, UK-based audio and mobile accessories firm Kondor and Canadian distributor of audio and musical equipment Jam.

"Our focus as we get into the second half, which is the busier time of the year for us, is the run-up to Christmas on the tech side, the run-up to Black Friday," chief executive Donal Murphy said to The Irish Times after the group reported its interim results.

DCC, which has been most focused in recent years on energy distribution deals, saw its operating profit rise to £141.9 million in the first six months of its financial year from £122.5 million for the corresponding period in 2017.

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DCC reiterated that it expected its current financial year to be “another year of profit growth and development”.

“The business has performed strongly, with group operating profit well ahead of the prior year and trading across each division in line with expectation,” said Mr Murphy.

Retail and oil division

Operating profit in the group’s retail and oil division increased by 33.5 per cent to £56.3 million, driven by the contribution from acquisitions last year, while earnings advanced 22.2 per cent to £26.9 million in DCC Healthcare, and 25 per cent to £17.8 million in DCC Technology.

However, operating profit at the largest group unit, DCC LPG (liquefied petroleum gas), dipped 7.2 per cent to £40.9 million in the seasonally less significant first half of the year.

This was "principally due to the material increase in the cost of product and the investment in its natural gas and power offering in France, " DCC said. "Following a significant period of development in the second half of the prior year, each of DCC LPG's recent acquisitions, Shell Hong Kong & Macau, Retail West and TEGA, traded in line with expectations."

Mr Murphy said that the French investment and lag in the recovery of surge in global gas prices this year conspired to knock between £10 million and £11 million off the LPG unit’s profits during the first half.

“We note that the first half is seasonally the least important half for DCC, typically accounting for 30 per cent of full-year profits,” said DCC analyst Allan Smylie.

While mergers and acquisitions activity has driven about 10 per cent of annual group operating earnings expansion for more than two decades, Davy estimates that it will drive 20 per cent of growth this year.

DCC has spent £900 million on deals in the past 12 months and Mr Murphy signalled that the group currently had the financial flexibility to spend the same amount again, having raised about £600 million through a share sale in late September.