Earnings Transcript for DCC.L - Q4 Fiscal Year 2022

Donal Murphy: Good morning everybody and welcome to DCC's Results Presentation for the Year Ended 31 March 2022. I'm Donal Murphy, Chief Executive of DCC. And I'm joined here today by Kevin Lucey, our Chief Financial Officer. Thankfully, I don't have to read at the disclaimer. It's there for your benefit. I'm going to cover off the highlights of the year and what a year it has been. Kevin will take you through the business and financial review. I'll give you an update on what has been another strong year of development activity for the group. I'll then give you an overview of our energy event, which is scheduled for later today. And I hope all of you can join us later today for what I think will be a very insightful event into our energy business. After a summary and our outlook, we'll open up the session for questions as usual. I'm delighted to report another year of very strong growth and development for DCC despite the very challenging macro environment. Group adjusted operating profit increased by 11.1% to £589.2 million, 15.1% on a constant currency basis, so clearly constant currency being the underlying performance of the business. Adjusted earnings per share increased by 11.2%, 15.2% on a constant currency basis. With profit growth across all of our four divisions, I was particularly pleased with the excellent organic profit growth during the year of 6.1%. I've been in the group now for over 24 years and I've never experienced a more volatile or challenging macro environment. We've seen dramatic volatility in energy prices, significant challenges in supply chains, rampant inflation, labor availability issues and COVID has not gone away and it's not gone impact on our operations. And despite all these challenges, the group performed very strongly demonstrating the resilience in DCC's business model, the benefits of our diverse sectors of energy, healthcare and technology, and most importantly the essential nature of the products and services that DCC provides to its customers. The board proposed to increase the total dividend for the year by 10%. This will be DCC's 28th consecutive year of dividend growth. We've continued momentum and acquisition activity. During the period, we committed approximately £600 million to acquisitions across North America and Europe. We had acquisitions across all four divisions, but the highlight of the year was DCC's largest acquisition to date, Almo Corporation. Almo is one of the largest specialist Pro AV businesses in the United States and is a leading national distributor of consumer appliances, consumer electronics and lifestyle products, more about Almo a little bit later. We continue to build our capabilities in energy transition with the acquisition of Naturgy expanding our renewable offerings in the Irish market. And again, we'll be talking a lot more about the energy sector later on in the day. DCC's purpose is to enable people and businesses to grow and progress. And during the year, our people, our great asset yet again demonstrated our purpose and action. The strong performance in the year was a result of the phenomenal capability, agility and commitment of our 15,400 colleagues who work across the 21 countries that DCC operates in. I'd like to say a big thank you to all my colleagues for delivering such a wonderful performance in a most challenging macro environment. They lived our core values of safety, integrity, partnership, and excellence every day. They always put the customer first to ensure our customers received the essential products and services that they required. They navigate the challenging supply chain issues to ensure our suppliers were able to get their products to market and innovate it to bring further low carbon solutions to our customers and you'll hear a lot more on this topic in our energy event later today. Despite the challenging environment, we made great strides in delivering for all our stakeholders as outlined here on this slide. DCC is a purpose led organization and we are focused on value creation for all our stakeholders. We achieve this by building impactful connections. As a distributor, we're at the heart of the supply chain, connecting the producers of products with consumers. We're a trusted provider building long-term and deeply embedded partnerships with our customers and our suppliers. We focus on creating sustainable growth and superior value over the long-term. We achieved this through a consistent strategic objective to build a growing, sustainable and cash generative business, which consistently provides returns and capital employed significantly ahead of our cost of capital. We take a long-term sustainable view of value creation, which ensures our commercial strategies prioritize growth and create value adding strategic positions in our chosen markets. You will see later how Almo, our largest acquisition to date, fits with this objective. Our focus on capital allocation ensures our ability to reinvest into growth trends and our capital allocation priorities are aligned with the growth trajectories of our sectors. And finally, sustainability is core to everything we do across the group, and we are making really great progress on our sustainability agenda, including our journey to net zero. You will hear lots more about this later in the day. I'll hand you over now to Kevin, who will take you through the business and financial highlights.

Kevin Lucey: Thanks, Donal. And good morning everyone. My first slide here looks at some very high level financial metrics for the year end of 31 March, 2022. I'll focus more on the items that Donal didn't mention earlier, but it goes without saying, we are very pleased with the continued successful execution of our strategy during the year. And that resulted in a 11.1% reported operating profit growth, 15.1% on a constant currency basis. EPS was up marginally ahead of operating profit at 11.2% and 15.2% on a constant currency basis. I have a slide on free cash flow later, so we'll touch on that then. In terms of returns, really another strong performance with return on capital employed of 16.5%, down modestly on prior year with pretty much all of the reduction explained by the impact of acquisitions during the year. Organically, returns were in line with the prior year. We spent $720 million on acquisitions during the year, which included the commitments we've made this year of the $600 million and the carryover of acquisitions such as Wörner, which were reported in last year's results, but are in this year's cash flow. Net debt excluding IFRS 16, notwithstanding the significant acquisition spend of a $1 billion in the last two years is at approximately 0.5 times net debt to EBITDA. So very strong position to enable the continued growth of the group. Before we get into a bit more detail by division, we just look at the performance in overall terms. I mean, the first thing to say here is that there is obviously very good constant currency growth across all divisions. You'll have noted our separate announcement this morning in terms of our Energy businesses. And DCC Energy delivered £407 million of operating profit. We'll get into more detail on that as Donal mentioned later on in this afternoon. In terms of the shape of the group, you'll see that the two energy divisions accounted for 69% of profits. And pro-forma should I say for Almo that's approximately 64%. The other notable point on this slide really is the geographical split where you'll see that continued growth of the group into North America means that the UK now represents 26% of profits, 42% in Continental Europe and now 24% in the rest of the world, which is principally North America and also our more modest positions in the Middle East and Asia. So looking at each of the divisions in a little more detail, and as always, we have more details on each division in both our results announcement and the appendix to this presentation. And just to say, as well, all growth numbers that we quote here are in constant currency terms. So in LPG we had profit growth of 6.7%. We're very pleased with that performance considering both the volatility and in particular, the significantly increased cost of product our teams had to deal with during the year. The average cost of product in the year was almost double out of the prior year. So our teams have had to be very vigilant in terms of pricing over the course of the year. And by and large, we manage this very well. Clearly, we had a strong bounce back in volumes in commercial customers, which tend to be lower margin and also driven by acquisitions. So, the operating profit per tonne came in at approximately £90 per tonne, very much in line with the expectations we would have had through the year. Our Retail & Oil business again performed very well during the year and delivered 20.1% profit growth. Again here, we had a very strong recovery in volumes and we continued to make progress in building our range of services, which assist in terms of the profit mix. In DCC Healthcare, it was another very strong year on the back of a particularly strong prior year also. We had excellent organic growth in DCC Vital, and we also benefited from the inclusion of Wörner, which has performed well since acquisition. On the health and beauty side the performance was very solid. We had more impact here from COVID in terms of supply chain disruption, and labor availability in particular. But overall the team again, delivered a good result against a difficult backdrop. Donal will talk later about some of the new capability we're adding here also, which sets us up well to deliver growth into this market. In DCC Technology, clearly the acquisition of Almo was the most notable event during the year, but we had very strong growth in North America with the B2B side of the business performing particularly well as businesses reopened and consumer demand remained robust. UK was weaker with proportionally, probably the most supply chain disruption in terms of supply labor availability and freight challenges that we saw across the division. We were also not helped by the warehouse system upgrade earlier in the year, which we reduced volumes for a period and that impacted into the busier time of the year in October and November. But that implementation is now complete. And so we'd be expecting to build from here in terms of the opportunity in the UK. In Europe, the business also delivered very good growth with again, good growth from the B2B side of the business in particular. I know this is quite a simple slide in terms of waterfall, but it just highlights the various components of growth during the year. As you can see FX translation cost us 4% or more than £20 million in profit terms. We then added 9% growth through acquisitions. And then as Donal referenced earlier, an excellent 6.1% organic growth performance. The organic growth was particularly pleasing in the context of the pretty uncertain environment. And it was also significantly above our five-year average of about 3.2% since 2017. But I guess to grow from about 510 million in constant currency terms to almost 590 million in the year, constant currency was pretty material. So I'm sure most of you will know this already, but the excellent growth we had in the year was on the back of strong growth also last year and DCC group profits are now about 20% higher than they were before COVID, as we have grown organically and deployed capital into acquisition opportunities. And finally, for me, in terms of free cash flow conversion, we continue to deploy CapEx in excess of depreciation to support the organic development of the group. And Donal will again cover off on some of the initiatives there later. And in terms of working capital on this call last year, we highlighted that we had benefited from some timing benefits last year-end. As anticipated, we saw this reverse, shortly post year-end last year and so excluding this, the free cash flow conversion moves from 65% to 79%. In terms of the other movements, we had some investment in working capital to support growth and a reduction in the utilization of supply chain financing within the technology division. So taken with the prior year, when you put the two years together, the free cash flow conversion across both years was an excellent 96%. So very, very strong cash flow across both years. So with that, Donal, I’ll hand back to you now, and thanks everyone for listening.

Donal Murphy: Thanks Kevin. While organic growth is our number one growth objective, acquisitions are a key pillar of DCC's growth strategy. And FY2022 is a really strong year for development for the group. Despite the ongoing travel restrictions, DCC remained very active on the development front with £600 million committed to new acquisitions during the period. We'd acquisitions across each of our divisions and across nine different countries. We believe that our capital deployment priorities will deliver substantial growth and are aligned to the growth trends in our chosen sectors. You'll hear more about this later in the day, and it's building on the conversation we had on the back of the Almo acquisition last December. DCC has grown organically by an average of 3.2% as Kevin called out over the last four years and pleasingly 6% in the year just gone. We deployed CapEx to support the innovative business development plans we have across all of our businesses. We allocate capital to M&A where we see the opportunity to bring good businesses into the group and improve them further or improve our group capability by bringing them in. We focus on delivering sustainable returns and capital employed well in excess of our cost of capital. We've deployed about £1 billion on M&A over the last two years and again, delivered that while navigating the pandemic. We have built significant new synergistic platforms in recent years and are very well positioned for continued capital deployment. Our capital deployment priorities are aligned with the growth trajectories of our sectors, which we operate within. Just to pick a few highlights from our organic capital investments during the year, the nutritional side of our health and beauty business is one of the highest organic growth sectors that DCC operates in. And one of the fastest growing product formats in the nutritional sector is gummies. During the year, we added manufacturing capability in nutritional gummies in Britain, which is now in live production. And we have commenced the capital investment project in our facility in Florida to add gummies to our broad capability set in the U.S. market. We will talk in much more detail about the capability we're building in energy transition at our energy event later today. But just to highlight a few areas now, we rolled out our E85 biofuels across 60 sites in our French network. E85 reduces customers’ carbon emissions by 60%. We continue to roll out EV fast chargers across our retail network in Europe. We've launched an innovative energy management solution in our French business to support our customers reduce their carbon emissions. Finally, we've been deploying capital across the group to reduce our own carbon emissions and we're making great progress in our own Scope 1 and Scope 2 reduction plans. During the year, we installed solar on our technology NDC in Britain, installed LED lighting across our manufacturing facilities and successfully trialed HVO in our UK energy fleet. We had continued momentum and acquisition activity. During the period, we committed approximately £600 million to acquisitions across Europe and North America. We had acquisitions across all four divisions in nine different countries, but the highlight of the year was DCC’s largest acquisition to-date, Almo Corporation, which I'll come back and talk about in a minute. In the energy sector, we acquired Naturgy Ireland, and energy solutions business for commercial and industrial customers. The business is a service-led supplier of electricity and gas to large B2B energy customers, and also provides a range of value-added services including demand-side management, Lighting as a Service, solar PV, Biogas, and PPA management. The business strengthens DCC’s presence in the Irish energy market as an important step in our strategy to expand our energy solutions offering. DCC acquired a synergistic convenience led network of retail service stations in Luxembourg. The network has an excellent convenience offering under the leading Cactus Shoppi brand, which DCC operates. The network contains well located urban sites suitable for investment in EV fast charging infrastructure into the future and builds that convenience capability into our retail operations. During the year, DCC Healthcare acquired two bolt-ons in the primary care market in Germany, following fast on an initial entry into the market through the acquisition of Wörner in April 2021. The primary care market is highly fragmented in the dark region. And although modest, the acquisition demonstrates that DCC is now well-positioned to consolidate this market. Now, Almo, the acquisition of Almo is a great example of DCC’s M&A capability in action. Since our initial entry into the U.S. technology market in 2018, we have been building a strong relationship with the Chaiken family, which resulted in a bilateral converse or transaction. Almo is one of the largest specialists Pro AV businesses in the United States and is a leading national distributor of consumer appliances, consumer electronics and lifestyle products, selling to integrators, resellers, dealers, retailers, and e-tailers nationwide. The business is headquartered in Philadelphia and employs approximately 660 people across the United States. In its most recent financial year, the business recorded revenues of approximately $1.3 billion and an underlying EBITDA of approximately $75 million. Almo is a high quality scale business. It’s a major step in the continuing expansion of DCC Technology in North America. Since entering the market in 2018, DCC Technology has expanded significantly through strong organic growth and acquisition activity. Together with DCC Technologies’ existing platform, the acquisition of Almo will create the leading specialist Pro AV business in North America. It also provides the group with real scale across the e-commerce and consumer channels through Almo’s significant presence in the growing lifestyle, consumer appliance and electronics markets. The business is trading in line with our expectations and the integration of the Pro AV activities has progressed very well. So just before our summary, I’d like to introduce our investor event later today, leading with energy. During the event, we’ll outline the growth opportunities for DCC in the Energy sector, as we lead our customers in their energy transition to net zero. We’ll outline a new strategy and structure for our energy business. We will provide detailed insights into the energy transition paths for our customer segments. You will hear from our teams, our customers, and our partners highlighting new and innovative solutions. And we will outline what the financial characteristics of the transition looks like and demonstrate to you how we will grow our profitability through the transition to net zero. We will also cover our group strategy outlining our growth ambition for the group, our capital allocation priorities and a view of what DCC will look like in 2030 and beyond and our new commitments in respect of carbon emissions. The virtual event will take place at 1

Operator: [Operator Instructions] Our first question comes from Kate Somerville with UBS. Kate, the line is yours.

Kate Somerville: Thank you very much for taking my questions. I have three, please, if I may. So the first question is on healthcare. Just to help us understand the outlook for growth from here, you’ve obviously done incredibly strong organic growth over the last two years. Are you able to give an indication of the proportion to which that was driven by PPE? And also going forward, do you expect to slow down in the demand for vitamins and preventative medicine as we moving into the post COVID world? The second question is on online, obviously the integration seems to be going well. What should we be expecting in terms of the benefit to margins this year with 60 basis points seem sensible? And then the third question is LPG growth profit fairly which is on Slide 28. You’ve obviously very well to manage the cost of product. I was wondering you can give us the bridge of mix and acquisitions and then potentially cost of products of how that moved versus last year. Thanks very much.

Donal Murphy: Thanks, Kate. On the healthcare side, like, the organic performance has been pretty stellar really over the last couple of years. So the year just gone really pleased with the performance because it was building on a 30% plus growth in the prior year. Now, PPE, and we have benefited from PPE throughout the pandemic, but clearly we’ve had an impact in terms of the reduction in elective procedures within the healthcare system and this continues. The healthcare systems continue to be under a fair bit of stress, both labor availability issues and indeed ongoing issues from COVID related illnesses. So we expect that the PPE demand to taper off a little bit and then the elective procedures to come back, but wouldn’t be – certainly wouldn’t be flagging any kind of we won’t be growing clearly organically at the stellar levels. We were through the pandemic, but getting back to that kind of more normal kind of growth trajectory. And we talked about in December kind of when we outlined our priorities for capital allocation growth within the healthcare sector of about 4% to 6% across both sides of our business. And we’d certainly see that continuing. Now in terms of demand for nutritional supplements and this was something that going back to the first year really of the pandemic we saw phenomenal boost in demand for nutritional products, well ahead of historic growth rates, which are high. So this is a high organic, and I said earlier, probably the highest organic growth sector of the market that DCC operates in. That growth brought in lots of new customers into the supplements net. So actually we don’t see kind of the market and certainly all the industry experts wouldn’t suggest that the market is going to go backwards that growth will build on that. Not at the levels we’ve seen over the last couple of years, but back more to the kind of longer-term growth rates of 6%, 7% within that sector. So, we see really good organic growth continuing within the healthcare business, both on the Vital side and on the Health & Beauty side. Kevin, do you want to take the Almo?

Kevin Lucey: Yes. No problem, Donal. And Kate thanks for the questions. From an Almo perspective, obviously it is a higher margin business and reflects the margin profile, obviously reflects the specialist nature of the services that are provided. So from an overall DCC technology perspective, it is and will be accretive to operating margins. We’d expect operating margins to certainly improve by about 50 basis points as a result for sure as we look forward. So maybe not quite at the 60 level that you had, but certainly 50, 55 basis points would be reasonable. And on the LPG side Kate, I think one of the things that’s most pleasing for us during the year is really how well our teams in the LPG business have managed the pricing environment. So, there’s obviously in the operating or in the gross margin per ton, there’s two things. Clearly, as you highlight in your question, you’ve got a very significant rebound in volumes. And in terms of the mix that that brings back into the group, we would’ve highlighted that it was going to be bringing commercial and industrial volumes back as opposed to the very strong performance we had in domestic in the prior years. So in terms of the impact of pricing, because we procure a reasonable amount of our product and our teams are very proactive from a pricing perspective, we really didn’t experience a headwind from a margin perspective during the year. And so, the bridge is actually pretty simple, which is that we didn’t have any category by category dilution in margins, and indeed our team have been eking those margins up very slowly over time. So we wouldn’t be calling out that there was a headwind from a margin perspective. And I think if you remember back to this call in November or half year stage, we had kind of guided that operating profit per ton would be around about the GBP90 mark. And obviously we’ve come in pretty much bang on that. And that’s really because the teams have done such a good job at managing the difficult pricing environment through the second half of the year. So it’s just really a fantastic performance.

Donal Murphy: Thanks, Kevin.

Unidentified Analyst: Very clear. Thank you so much.

Kevin Lucey: Thanks, Kate.

Operator: Our next question comes from Gerry Hennigan of Goodbody. Gerry, please go ahead.

Gerry Hennigan: Hi, can you hear me?

Donal Murphy: Yes.

Kevin Lucey: Perfectly, Gerry. How are you?

Gerry Hennigan: Listen, just a quick question on the margins in retail and oil, that’s been steadily rising on an operating profits per litre basis. Can you just comment on the dynamics there? And also in terms of the tech sector with regard to some of the headwinds you’ve experienced in the past in the UK, are you pretty confident there behind you? I know there was a certain amount of investment there in terms of ERP, but is that pretty much at this point in time specifically with regard to the UK?

Donal Murphy: Yes. Thanks, Gerry. And look the performance actually over the last couple of years within the retail and oil business has been has been really strong and it is good management across the organization through kind of what has been incredibly volatile environments now in the year just gone, obviously we had – we continued that momentum. We continued to expand out the business. We very good volume recovery, which benefits that we’re getting to leverage on the back of the volume recovery we have been growing. And you’d hear more from us later on in the day about this, but we’ve been growing our order income sources within our business. We’ve been growing in the lubricant sector. We’ve been building out our truck stop network. So lots of really good energy transition initiatives across the business, which are delivering strong margin performance within the business as well. So it’s a combination, Gerry, I think the cost management has been super as well across the business. So it’s – it really has been a very good a very good year for us building on a very good year in the in the prior year. And look Gerry on the tech side, yes, we believe that it, the challenges are behind us. We have clearly invested over the last number of years in building our infrastructure in the business in the UK. All those investments are behind us. The last element of that was the warehouse management system when which went live during the year. And when you upgrade a warehouse management system in a very complicated business and large business like our business in the UK, that’s always teething issues. That’s live now, it’s working well. So the technical challenges we had are all behind us. The market is the market. The market has been tough and post-Brexit, there’s been lots of challenges in the in the UK market, generally, whether it was labor availability, whether it was availability or freight to get products in and out of our warehouse and so on. So, hopefully as we come out of the pandemic now that some of those issues will ease a little bit. But we feel good about where the tech business is now, and to deliver a 20% growth in our technology business on a constant currency basis when we’ve had those challenges in the UK, I think you’d agree that has been a pretty strong performance. Thanks, Gerry.

Operator: Our next question comes from Anvesh Agrawal of Morgan Stanley. Anvesh please go ahead.

Anvesh Agrawal: All right. Yes, I got three questions as well. First, just on the, continuing on the technology business, I mean of clearly very good last year, but have you seen any sort of change in the consumer demand so far this year given sort of what’s going around and noise around sort of consumer getting impacted in their ability to spend? And how you’re thinking about the business in FY 2023? The second question is around the balance, I mean, you have clearly run a balance sheet that is sort of close to zero times levered. I mean, has there been any change in that thinking as you sort of look to invest into the energy transition and sort of build out the capabilities. And then finally just on the free cash flow for next year is the working capital impact not fully reversed and should we expect the free cash flow growth to be sort of above operating profit growth next year or at least in line?

Donal Murphy: Yes. Thanks very much for the question. On the tech side, we’ve been, I was saying for some time that we expected to see a little bit of an easing off on the consumer side, consumer demand had been a big driver for growth all the way through the pandemic. And we certainly have seen some easing off on the consumer side, but that’s been balanced obviously by growth on the B2B side. And our business is kind of broadly 50/50 between the consumer and the B2B side. So it gives us a good balance. So as economies have been opening up, as people have been gathering again, and we talk about the impact on segments like Pro and AV, where people hadn't been congregating or hadn't been gathering together, we're seeing that bounce back well. And the Almo acquisition was clearly very timely because it brings us into a leadership position within that sector, within the U.S. market. So overall, I think we feel good about the demand, outlook within the technology sector. The shape will be different clearly to what the shape was through the pandemic with more growth on the B2B side. And Kevin, do you want to take the balance sheet and cash flow?

Kevin Lucey: Yeah, I mean, thanks. And wish for the questions on balance sheets. Obviously we've been evolving our approach for some time, and I think the proportionately DCC now is holding less gross cash than it used to in proportion to the size and scale of the group we've announced this morning and you'll hear more about this later. We've obviously increased the size of our revolving credit facility that is to ensure that DCC has the most options as it can available to it in terms of timing, its entries and exits from the capital markets, from a debt perspective. We continue to evolve our thinking on that. And I think DCC will continue to mature in regard to how we finance the group. So I don't think there's been any particular change on venture since we would've taken you through our thinking on that maybe earlier this year, but balance sheet remains very, very strong from a net debt perspective, 0.5x net debt-to-EBITDA. The business remains very cash generative. So we continue to believe we'll have very strong capability to be acquisitive. And I think the balance sheet in terms of gross cash and gross debt that profile may evolve and change over time and as I say, as the group matures. On the free cash flow, yeah, I mean, I think, again, as best we can call it today, we'd see maybe just of a very, very modest investment in working capital into the following year. I'm talking the order of 20 million or 30 million and very so, obviously that would give us very significant free cash flow generation in the year ahead if we can deliver that. So typically we're investing in working capital and in organic capital development in terms of CapEx in excessive depreciation. So we wouldn't expect that model to change materially, but I think we've obviously been investing in working capital over the course of FY 2022 and a lot of that was to build resilience around stock positions and to make sure that we had the capability to deliver for our customers. So as we go forward, the volatility that we see in supply chain will influence the level of working capital, but as best we can call it today, we wouldn't be calling any sort of material inflow or outflow working of capital for next year, pretty much steady state.

Anvesh Agrawal: Thanks, Kevin.

Operator: Our next question comes from a [indiscernible]. Alan, the line is yours.

Unidentified Analyst: Yeah. Good morning guys, just two quick ones for me, please. Within the healthcare division, you flagged that supply chain and labor challenges have kind of held back the growth in health and beauty solutions as we've seen in many businesses. So I'd be interested in your view on how those evolve going into fiscal year 2023? And then just a very high level question on M&A, do you think the current macro backdrop of broader growth concerns and rising rates will have any impact on either the availability and/or evaluation of potential deals across each of the four going to three divisions? Thank you.

Donal Murphy: Thanks, Alan. It's the three up four this afternoon, it’s at the three to four. Just on the supply chain side like that comment was really about the U.S. market and we again – we had pretty stellar growth in the U.S. market in the prior financial years. So the comps were very high but we did see impact on just some of the ingredients and getting availability of some of the ingredients during the period. Labor has been an issue. It continues to be a bit of an issue across many markets, both has been an issue in the in health and beauty business in the U.S., where we're navigating our way through that very well. So it was really to call out that was I suppose a little bit slower maybe in terms of growth rate than we would’ve liked to see during the year, but overall clearly the healthcare and the organic growth and the healthcare business has been very strong. And again, benefit of diversity Alan [ph] where we have our health and beauty business now with strong operations across both Europe and the U.S. On the M&A front, and time is going to tell really, and I certainly don’t see it slowing down availability of options. And we’ve obviously been creating platforms across each of our sectors and across multiple geographies, including really the excellent work that we’ve done in the U.S. market over the last four years and building the scale platform that we have now in North America. So I think there’ll be plenty of opportunities hopefully higher interest rates a bit more challenge in the market actually changes maybe some of the competitive dynamic for us it’s a little bit, but I’ve said that before, and it hasn’t always turned out so, time will tell, but hopefully it’s more of a positive than a negative from our perspective.

Kevin Lucey: I think at the margin Alan, it’s helpful, but I think there’s plenty of – certainly plenty of capital remains out there, plenty of liquidity from a financing market perspective. And obviously at the margins, obviously the – as the – as interest rates tick up, that certainly you’d logically think that would mean return aspirations might be a little bit higher, but I think that as Donal says, that’s time will tell.

Donal Murphy: Thanks, Alan.

Operator: Our next question comes from Oscar Val of JPMorgan. Oscar, please go ahead.

Oscar Val: Yes. Good morning, Donal and Kevin. A lot of the questions have been asked. Well, I have two. The first one on CapEx, you talked about this a bit, but could you just – CapEx is running 30 million above depreciation this year. How should we think about CapEx next year? And are there any incremental investments for kind of energy solutions in health and beauty? That’s the first question. And then the second question is going back to the LPG business. Could you just comment on whether, and in the past it’s been talked, it has sometimes been split out as a net benefit or drag. Was that any – was that something material this year? Thank you.

Donal Murphy: Okay. And the LPG side, it wasn’t Oscar, I think Kevin kind of talked about it a little bit earlier. I think we’ve done it was like the customer product almost doubled during the year. So the work to manage that without having impact on the profitability of the business was super by the teams, so we navigated our way through that pretty well. The CapEx and there will be and not to steal the thunder from this afternoon, but you’ll hear us talking lots about investments in energy solutions later on this afternoon. So might leave that one till a little bit later. The health and beauty, yes, and I talked about the gummy investment that we’re making now in our U.S. business in our facility in Florida. And that’s a material enough investment we have, we’d certainly see our CapEx running ahead of depreciation as we invest in the growth platforms that we have across each of our sectors. Kevin, if you want to take that?

Kevin Lucey: Yes. Oscar just, I mean, in terms of what that means, I think the CapEx and depreciation likely be maybe slightly higher as we look forward. So I think we’d be thinking about a depreciation number of about 150 million, and you’re likely to see CapEx 35 million to 40 million ahead of that in FY 2023, thankfully we’ve got lots of interesting organic opportunities to invest behind within the group. So, we’d be delighted if that does come through, because it’ll mean that we have found opportunities to deploy capital and interesting organic opportunities for us.

Donal Murphy: Thanks, Oscar.

Operator: Our next question comes from Thomas Truckle of Jefferies. Thomas, please go ahead.

Thomas Truckle: Yes. Thank you. Tom Truckle here with Jefferies. I have three if I may. Firstly, just going back to Kate's point on health and beauty, you mentioned the elective procedures and there's still some catch-up there. I'm intrigued based on the trajectory you've seen perhaps over the three to six months that have just been. How much recovery upside you see left in those elective procedures or consultations and what sort of pace do you expect that recovery to come through? And then secondly on healthcare, clearly there seems to be an opportunity around the nutritional products and the strong demand there. Can you just remind us how much of the healthcare division is made up of nutritional products? And then thirdly on M&A; please make share any insight as to whether there are any particular divisions or geographies you may be targeting or whatever your broad-based looking at all opportunities across the whole group? Thank you.

Donal Murphy: Thanks Tom. So the – in the healthcare sector on the Vital side it's really the impact on the elective procedures. And I think what you'll see is, and you'll see that – you'll see that recovering the healthcare system, it needs it to recover because those patients not getting the treatment that they need today because of backlogs. And I think as we see at Vital, you'll see that easing off of probably demand that we've seen on the PPE side and then the recovery in the products that we sell from – from an elective perspective. And that kind of goes back to, I suppose, what I was saying earlier really about the growth rates in the healthcare sector. We'd see them being kind of pretty normal growth rates for our business going forward, but electric procedures getting back to where they should be. And indeed, probably a little bit of a backlog, but that's going to take time to work through the systems because of constraints within the healthcare systems, just generally the nutritional side again we see being strong. Kevin you have anything, go on.

Kevin Lucey: We're just going to say, Thomas it's about 50% of the profits of healthcare, approximately. It changes a little from year-to-year and it'll obviously changes capital is deployed into the healthcare business, but health and beauty would account for approximately half the profit.

Donal Murphy: Yes. And that is the slightly higher growth segment of the business. So we've – slightly lower growth, all good growth. The 4% to 6% within our healthcare business is a little bit lower on the Vital side, a little bit higher on the health and beauty side. So just organic growth we'll see that growing from there. And again M&A, we have created platforms across both North America and Europe across all three sectors. So I think we're very active on the – on the M&A front across each of our sectors. And I think it's trying to drive our M&A ideally if we could do it in line with the growth priorities that we talked about. And again, you'll hear us talking about that a little bit more this afternoon in our energy events. So following the growth priorities that we have healthcare technology, clean and renewable energies and kind of consolidation then within the energy markets where we see the platform to transition our customers to lower carbon energy going forward.

Thomas Truckle: Thanks.

Operator: Our final question comes from Christopher Bamberry of Peel Hunt. Christopher, please go ahead.

Christopher Bamberry: Good morning, Donal and Kevin.

Donal Murphy: Hey Chris.

Christopher Bamberry: Three questions, if I may. I'm good. Thank you. How are you?

Donal Murphy: Great.

Christopher Bamberry: On the also we had slower return capital and technology, the last few years of the challenges in the UK and the substantial investments you made. Can you see a path towards, back towards 15% or more? And if so, perhaps give us an idea in some of the constituents of that? That can be last year, but restructuring of things like UK warehousing and the French LPG infrastructure, apart from the continuation of that at French LPG restructuring, are there any other areas you're looking at restructuring this year, and finally given where we are now with FX rates, what's your estimate of the impact on profit from that this year? Thanks.

Donal Murphy: Thanks, Chris. Yes, the returns absolutely. We see getting our returns back to 15% plus within the technology sector and, are underlying and we talked about it actually, if we go back to our event in December, the performance actually of our businesses, in North America and returns and those business pretty strong, the UK has been a drag from a returns perspective and, with the investments behind us and hopefully a bit of recovery in that market, we'd see the, we see the bounce back in the UK as well. So we're on that road, Chris. And I think, we're not happy with where the result, where the returns are today within technology, but we get them back to the right levels over the coming couple of years. From, there's always integrations that we're doing across the business and the group, we're an acquisitive group, and when we acquire something and we integrate it and we leverage the synergies out of it. So again, the ones we called out are behind us now at this stage. And it's very much down to acquisitions that we do. And the integration associated with that, Almo actually, we have integrated our Pro AV business into the Almo business. That's pretty much complete. Actually, we did that. It's more modest in terms of any kind of knock on impact of that. We'll see the benefits flowing through in the current year and Kevin, do you want to just talk about FX?

Kevin Lucey: Yes. And Chris again, thanks for the questions. On the FX side, I mean obviously FX is a little bit volatile at the moment as best we can call it today. We probably see a very, very modest tailwind into FY 2023, Chris but, it's very early in the year to be calling that, I mean, obviously the dollar is stronger and we have, a reasonable proportion of dollar earnings now. And I think relative to average rates, as we sit here this morning, maybe the Euro is a little weaker and relative to where it was over the course of FY 2022. So, there's a balance as always within the currency mix. And but don't see it being at this point being as material an impact as it was obviously in the prior year when it cost us 4% of our unreported growth. So, it not a major feature as we said here today.

Donal Murphy: Super thanks, Chris. And I think that was our last question. So just to thank everyone for joining us this morning. Really do want to encourage everyone to join us this afternoon at 1 O'clock BST, if you haven't already registered for our Energy event, please do so. You can do so on www.dcc.ie. I think it'll be very insightful and I look forward to you on joining us and look forward to meeting y'all either on the road as we thankfully are doing our first physical road show for the first time in a couple of years now. So we look forward to meeting many of you face to face over the coming days and weeks. And we do have an event as well tomorrow evening for our analysts. So you can have an opportunity to further delve into your questions, tomorrow evening as well. So look, thank you all for joining us today. Thank you for your support of DCC and look forward to seeing you all soon. Many thanks. Bye-bye.