Background and Business Environment
In its preliminary announcement on 19 May 2008, DCC stated that it
would undertake a reappraisal of the overall strategic direction of
the Group so that it is best positioned for sustainable, long term growth
and to maximise shareholder value. Accordingly, DCC has carried out
an extensive analysis of the current performance and future potential
of all material aspects of the Group’s business. A review was also undertaken,
with the benefit of external independent advice, to consider whether
any significant changes in the current composition or structure of the
Group are warranted at this time. This work has been carried out against
the backdrop of severe turmoil in financial markets and the worst recession
in decades.
DCC’s Historical and Recent Performance
Since DCC’s shares were listed on the Irish and London Stock Exchanges
in 1994, the Group has delivered strong earnings growth and returns
to shareholders. The Group’s strong cash flows have allowed it to increase
dividends to shareholders, to buy back 11.6% of its shares and to maintain
a strong balance sheet.
Having operated in recent years against a background of strong economic growth in its principal markets, the resilience of DCC’s business model has been tested by the deteriorating economic environment in its most recent financial year. Despite this more difficult background, DCC has generated excellent constant currency growth in operating profits, maintained its return on capital employed and again increased its dividend. The Group’s financial position remains very strong as a result of its excellent cash flow, low gearing and well managed debt maturity profile.
Outcome of the Strategy Review
The strategy review has concluded as follows:-
The Board believes that DCC’s diversified business model, strong balance sheet, financial discipline and acquisition skills have been significant factors in the Group’s robust performance and management of risk over an extended period. Given the scale and composition of the Group today and the current market environment, the Board has concluded that a material change to the structure or composition of the Group at this point would not enhance shareholder value.
The management of diversity is a core competence of the DCC Group and will remain integral to DCC’s strategy. However, DCC will seek, over time, to concentrate its focus on those businesses in which it has already established, or has the opportunity in the medium term to establish, leadership positions (typically no. 1 or 2 in their respective markets) and which are most likely to generate attractive and sustainable returns on capital, through a combination of organic growth and acquisitions.
DCC will focus its acquisition activity on strengthening existing market positions and on carefully extending its geographic footprint where it believes that leadership positions can be built. DCC has extensive experience in identifying value enhancing acquisitions, in structuring transactions to retain management incentive post acquisition and in the integration of bolt-on acquisitions with existing businesses.
A devolved management structure and the experience and quality of its people have been key to DCC’s success. The Group will continue to place significant emphasis on attracting and empowering leadership teams capable of delivering superior performance in each of its businesses.
DCC will maintain a strong balance sheet and a prudent capital structure, both of which have been key strengths of the Group in developing relationships with key customers, suppliers and vendors of businesses. The Board believes that DCC’s strong financial position leaves it well placed to take advantage of the increased level of acquisition opportunities which are likely to arise in the current environment.
The Board will keep the Group’s structure and strategic direction under periodic review in order to ensure that value continues to be maximised for shareholders.