DCC PLC
LSE:DCC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
4 848
6 035
|
| Price Target |
|
We'll email you a reminder when the closing price reaches GBX.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
DCC PLC
Earnings Call Analysis
Q2-2025 Analysis
DCC PLC
DCC plc reported a solid performance in the first half of FY '25 despite significant shifts in its business strategy. Operating profit rose by 4.7% to GBP 259.3 million, with a constant currency growth of 6%. Of this growth, only 0.5% was organic, while M&A activity accounted for a substantial 5.5%. This underlines DCC's strategy to enhance scale and operational capacity through acquisitions, having committed GBP 130 million across eight transactions primarily within its DCC Energy division. Importantly, adjusted earnings per share increased by 6%, with dividends raised by 5% to 66.19p per share, reflecting confidence in future performance.
The company's revenue for the first half stood at GBP 9.3 billion, marking a decrease of 3% or 1.8% adjusting for constant currency. The most significant contribution came from DCC Energy, which accounted for 70% of the overall profits, rising by 7% on the previous year, or 8.4% when adjusted for constant currency. Organic growth in DCC Energy was modest at 1%, especially in the context of more than 20% growth the prior year. Meanwhile, DCC Healthcare and Technology each contributed 15% to profits, reflecting tougher market conditions, particularly in the U.K. primary care market driven by funding constraints.
DCC has announced a strategic pivot towards focusing solely on its Energy business, which has consistently driven profit growth over the past decade. The Energy segment's reported profits reached GBP 182.7 million, supported by strategic acquisitions and organic growth in non-fuel and digital services for fleet mobility. Going forward, DCC is set to enhance its cleaner energy initiatives and aims to double profits by 2030 while significantly reducing carbon emissions. Management announced a clear and ambitious guidance of achieving these targets despite recognizing the challenges of energy transition.
Looking ahead, DCC expects to utilize surplus cash from divestments for shareholder returns. The company remains committed to maintaining an investment-grade rating and anticipates an improvement in its net debt to EBITDA ratio to approximately 0.8x by year-end. With a robust cash-generative model in Energy, there is confidence in substantial returns on investments. Recent divestments, including a majority stake in liquid gas operations in Hong Kong and Macau, not only simplify DCC's structure but also redirect capital towards high-return areas. This disciplined capital allocation is fundamental to maximizing shareholder value.
For investors, DCC presents a compelling proposition rooted in its robust growth strategy and solid financial management. Despite a mixed bag in revenues, the positive EBITDA trends, coupled with strategic M&A activities and focus on renewable energy initiatives, paint a favorable picture of DCC's growth trajectory. The predictability and stability expected from a strong operating cash flow bode well amidst evolving market conditions. Furthermore, the ongoing commitment to return capital to shareholders adds an attractive element to the investment narrative as DCC transitions into a streamlined energy-focused operation.
You don't have any saved screeners yet
Hello, everyone, and thank you for joining the DCC plc's strategy update and interim results presentation. My name is Mary, and I will be coordinating your call today. [Operator Instructions]
I will now hand over to your host, Donal Murphy, Chief Executive, to begin. Donal, please go ahead.
Good morning, and welcome to DCC's strategy update and our interim results presentation for the first half of FY '25. Thank you all for joining us this morning on our webcast. I'm delighted to be joined today by our Group CFO, Kevin Lucey. Here's our standard disclaimer. Thankfully, I don't have to read it out. Here's our agenda for today. I will outline the strategic action we are announcing to maximize shareholder value. Kevin will cover off the financial considerations of the strategic action we are taking. Kevin will also give you an overview of the group's performance in the first half of FY '25. We'll finish with our outlook statement and a summary before we open up the session for your questions and answers.
So let's get started with an overview of the strategic action plan we are announcing today. Today, we are announcing a strategic plan to maximize shareholder value by, one, focusing solely on the compelling opportunity in our Energy business and, two, simplifying the group's operations through portfolio action. We are taking decisive action from a position of strength to simplify our group, pursue our largest growth and returns opportunity in energy and unlock substantial shareholder value. This aligns with our philosophy of disciplined capital allocation.
As Chief Executive of DCC plc for the past 7 years, I have been very proud of the growth and development of the group. However, I firmly believe that to maximize shareholder value, we need to change our strategic direction. Our plan to maximize value has 3 actions. One, we believe that our Energy business is our most compelling growth opportunity at strong returns. Reflecting on the scale of the opportunity and the progress we have made with our cleaner energy in your power strategy, the group will now focus solely on energy.
Two, we have begun preparations for the sale of DCC Healthcare, which we expect to complete in 2025. DCC Healthcare is an excellent business with a long-term record of growth. Three, within the next 24 months, as we complete our operational improvement program for the business, we will review the strategic options for DCC Technology.
As ever, we are committed to maintaining a strong balance sheet and our investment-grade rating. Given the significant cash generation of the group, we anticipate that any surplus cash arising from the simplification of the group will be returned to our shareholders in due course. Today's announcement demonstrate the Board's continued focus on active capital allocation and our commitment to delivering value for stakeholders.
In May 2022, we updated our strategy for our Energy division, focusing on our 2030 objectives of doubling profits, while significantly reducing our customers' carbon emissions. The key components of this strategy include converting our customers to renewable and other lower carbon fuels and building a leading and complementary energy management services capability. The world needs cleaner energy for everyone that is secure, affordable and sustainable. And our cleaner energy in your power strategy is delivering this for our customers. Our vision is to double our profits while having carbon emissions by 2030.
We will do this by, firstly, reducing the carbon intensity of the essential liquid fuels we supply to our customers, our molecules business; and secondly, we'll build a complementary, decentralized Energy Management business to enable our customers to self-generate electricity from renewable sources. To deliver on our objectives in our Liquid Fuels business, we will become a leader in biofuels. We will accelerate the growth of liquid gas as a transition fuel while increasing the percentage of renewable liquid gas in our mix. We will minimize our activities in high carbon intensity products, and we will maximize the returns from our mobility business.
To deliver on our objectives in our Energy Management business, we will continue to consolidate the highly fragmented solar installation market, becoming a pan-European leader in solar solutions. And we will continue to buy and build an Energy Management and Services business providing a broad range of recurring revenue services to our customers. Our customers are at the heart of our strategy. By implementing our strategy, we will expand the range of products and services we are providing to our energy solutions customers to support them on their journey to net zero. We will also acquire new customers as we continue to consolidate the liquid gas market and the highly fragmented solar and energy management services sectors. We will accelerate organic customer growth through our combined liquid fuels and new service offerings.
The net result of this strategy is that we will grow our profits by an average of circa 10% per annum and at mid- to high-teen returns on capital employed. We will increase the lifetime value of our customers by 1.4 to 4x, and we will double our profits by 2030. This is why we are so convinced that cleaner energy in your power is a winning strategy, both commercially and for the planet. Energy is our largest division with our highest returns. Since 2022, we have made excellent progress, delivering strong organic growth in biofuels and enhancing our capability in new energies. Our proven M&A approach has accelerated the strategy over the same period, deploying circa GBP 650 million of capital at attractive returns.
DCC Energy is a business of real scale with market-leading positions in 12 countries. The business supports the energy needs of circa 10 million customers annually across commercial, industrial, domestic and transport uses. DCC has a near 50-year heritage in the off-gas grid sector, bringing energy and the capability to consume it to customer sites. The business has a competitive advantage in solving the transition needs of our customers, founded on relationships that typically lasts for more than a decade.
We have made significant progress to reduce the carbon intensity of our customers' energy. In 2024, 35% of DCC's Energy's profits came from our renewable products and services and a further 42% from lower carbon fuels like liquid gas. We have dramatically reduced the carbon intensity of our profits in the last 2 years alone, the most important sustainability metric for an energy business. Our carbon intensity has reduced by 26% since FY '22. We believe that solving the energy transition needs of our customers is the greatest growth opportunity that DCC has ever had.
Our plan is to double profits by 2030 from FY '22, and we're on track to do so. Here's our profit bridge to show how we get there. There are 3 main elements to our strategy, as I mentioned earlier. One, to expand our leadership position in off-grid liquid gas. We have already achieved over 40% of our planned growth in liquid gas out to 2030, driven by strong organic growth and our acquisition activity, the largest being the Progas business in Germany. Two, to become a leader in biofuels. We are already a biofuel leader in the U.K. and Ireland from a standing start 2 years ago and recorded growth of more than GBP 5 million in operating profit, principally from hydro-treated vegetable oil, or HVO over the last year.
And three, to build a pan-European energy management business. We have built leadership positions providing a range of multi-energy solutions across France, the U.K. and Ireland and developing positions in 5 other countries. We reached 20% of our 2030 operating profit goal in the first 2 years. We have provided clear and consistent updates on our progress since launching our strategy in May 2022, and we will continue to do so.
As I outlined earlier, one key part of our value maximization plan is to sell DCC Healthcare. DCC Healthcare has grown strongly over the last decade, with operating profits growing by 12% CAGR at a 10-year average return on capital employed of 16.2%. The business has market-leading positions across both its patient health and consumer health businesses. Each of these businesses operates in attractive end markets with strong growth characteristics and significant consolidation opportunities. The business has a long-term track record of organic growth of circa 5% to 6% per annum. The business has established growth platforms in the fragmented sectors of consumer and patient health. This is a compelling opportunity for a new owner to accelerate further through M&A.
It has strong moats, long-standing customer and supplier relationships, well-invested assets, significant growth capacity and market-leading positions. DCC Healthcare is led by an experienced, entrepreneurial and motivated management team. After careful consideration, the Board of DCC believes that the sale of the division has the clear potential to enhance the focus and success of the business, while unlocking substantial value for DCC shareholders. We have appointed advisers and preparation for the sale have already begun. We expect the sale to complete in 2025.
Our action to maximize value from DCC Technology is another important part of our strategic plan. DCC Technology has also grown strongly over the last decade. The business provides a wide range of products and services across 3 product areas: Pro Tech, Life Tech and Info Tech. DCC Technology is a global leader in Pro Tech, high-value AV and audio equipment and has established a particularly strong footprint in both Pro Tech and Life Tech lifestyle products in North America.
Our well-invested Info Tech Consumer Products business has operated in a challenging market in Europe in recent years, but has improved its profitability through an operational improvement program. DCC Technology is also led by an experienced entrepreneurial and motivated management team. The business has strong platforms in each of its pillars and well-invested infrastructure, all playing into the megatrend of progressive technologies. Given the potential for further improvements in profitability, our initial focus will be on delivering our operational integration program in North America, and then we'll review the strategic options for DCC Technology. This will take place over the next 24 months.
I'll now hand you over to Kevin, who will take you through the financial considerations of our strategic action and the performance review for the first half of FY '25. Kevin?
Thanks, Donal, and good morning to everyone. I'm going to talk about the financial considerations around our strategy updates, and then I'll also take you through the key points from our interim results.
So Donal has already talked about why we believe we have a unique Energy business, and that we are well on track in terms of our 2030 ambition. This unique Energy business has really excellent financial characteristics and a strong track record of growth. In fact, our Energy business has been the main driver of growth for DCC over the last decade. Throughout a period of continuous growth for the group, energy has gone from 57% to 74% of our overall group profits.
You'll see on the right-hand side of this chart that Energy has grown at a 10-year compound annual growth rate of 16.4%. Energy also has the highest returns in our group. Last year, its return on capital employed was 18.7% relative to our entire group at 14.3%. The return on capital employed has been consistently strong throughout the last decade, despite significant capital deployment and in growing into new business areas, be that new geographic areas into Europe and then North America or in terms of expanding our capability into new areas, such as energy management. The resilience and essential nature of what we do in energy is what underpins the excellent cash generation from our Energy business. Across the last decade, the free cash flow conversion has been an excellent 101%.
Donal has talked about our future ambitions earlier. Our confidence for the future is built on our customers and our business capability, and the financial profile of our business means we can continue this growth story well beyond our 2030 target. So we're going to focus our efforts on this growth story, the largest scale business in the group with the largest opportunity set where our returns are highest and where our track record of growth is also highest.
On this next slide, I have a couple of things to highlight. Of course, there is change being announced this morning. But one thing that will not change is our conviction that a strong balance sheet is integral to growing a sustainable business. We are committed to this, and we are committed to our investment-grade credit rating. We also believe our plan will create substantial shareholder value. As we just discussed, our Energy business is very cash-generative. As we simplify the group, we expect to generate substantial cash proceeds. We will return surplus capital to shareholders. We'll also ensure that value leakage is minimized.
Finally, the cash-generative nature of energy means we will continue to deploy capital into our business to help it grow organically and through our programmatic approach to M&A. We will ensure that a disciplined capital allocation, for the benefit of our business and our shareholders, will remain at the heart of DCC. Donal will come back to the strategy update in his summary in a few minutes.
We are now going to talk about interim results for the next few minutes. In terms of the highlights of the first half, operating profit was up 4.7% to GBP 259.3 million. That was 6% growth on a constant currency basis. Of the 6% constant currency growth, organic was 0.5% and M&A activity, net of divestments, contributed the remaining 5.5%. Adjusted earnings per share were up 6% or 7.5% on a constant currency basis, and we've increased the interim dividend by 5% to 66.19p per share.
It's been another busy period for corporate development with acquisition activity and the divestment. Since our last full year results in May, we have committed GBP 130 million to acquisition activity. That's 8 bolt-on transactions, and most of these were in DCC Energy. Recognizing the scale of the opportunity set we see in Europe and North America, we divested a majority stake in our liquid gas operations in Hong Kong and Macau.
The acquisitions we completed during the period, again, add further scale to our broader multi-energy capability, and we continue to launch new organic initiatives, including a Solar-as-a-Service offering and a variety of biofuel initiatives, including launching an innovative hydrotreated vegetable oil, or HVO, for domestic heating in markets such as Ireland, which provides a cleaner energy drop-in alternative without any capital requirements for our customers.
In terms of financial highlights, I've covered a lot of these metrics already, so I won't repeat those. Revenue for the first half was GBP 9.3 billion, a reduction of 3% or 1.8% on a constant currency basis. The remaining income statement items, I've covered already. In terms of balance sheet metrics, you'll see that our working capital is up by GBP 68 million versus last year, and we acquired over GBP 60 million in acquisitions between the 2 points. So the absolute value of working capital, excluding acquisitions, is where it was last year.
There are some changes in mix within it. Working capital reduced in DCC Technology relative to prior year, while it increased in DCC Energy. The like-for-like increase in DCC Energy is due to a lower negative working capital profile as the cost of product was reduced relative to a year ago. In the 6 months since the start of the financial year, given the very good working capital cash inflow in the second half of the prior year, our seasonal outflow of working capital was ahead of the prior year, but in line with expectations. As usual, we expect it to largely reverse in the second half of the year.
In net debt terms, we are broadly where we were at this point last year, up about GBP 60 million pre-IFRS 16 leases at just under GBP 1.1 billion. Assuming no further acquisition activity or divestment activity is completed before the end of this financial year, we would expect our net debt to EBITDA to be approximately 0.8x at year-end.
Here's a quick look at the divisional headline performances. And looking at the right-hand side of the slide in the pie chart, DCC Energy accounted for 70% of profits in the first half, up slightly from 69% in the prior year. DCC Healthcare and DCC Technology each accounted for 15% of profits. DCC Energy recorded profits of GBP 182.7 million, up 7% on prior year or up 8.4% on a constant currency basis. DCC Healthcare had profits of GBP 38.1 million, back 0.4% reported and ahead 0.4% on a constant currency basis. DCC Technology delivered profits of GBP 38.5 million, back 0.4% reported and ahead 1.1% on a constant currency basis.
Overall, FX translation was a headwind of 1.3% relative to prior year, reflecting the fact that sterling has strengthened throughout the period relative to our other major currencies. As we sit here today, we'd expect that with the continued strength of sterling, the headwind will be over 2% to operating profit for the year as a whole.
So a final slide for me. I'm going to briefly mention the material items in each of the divisions for the first half of the year. DCC Energy performed very well in the first half, 8.4% ahead on a constant currency basis. Organic growth was 1%. That's in the context of over 20% organic profit growth in the first half last year. So it's really good to be ahead of such a high prior year bar. The growth in the half was driven by the acquisitions in Energy Solutions and also by a good organic performance in Mobility, where we continue to develop our nonfuel and digital services for fleets.
In Solutions, we had a headwind of weather in the U.S. and also renewable power profitability was lower following a very strong prior year. But we had good organic performances from the U.K. Solutions business and from our Fuels and Liquid Gas businesses in Europe and Scandinavia.
Our services, renewable and other profits, our SRO percentage was largely in line with prior year, 43% of profits in the half this year versus 46% last year. The carbon intensity of our profits fell sharply again, this time by 11.6%, reflecting our strategy to continue to pursue growth in lower carbon and renewable products and services. We reduced our Scope 3 emissions by 5.4% in the first half. Again, conversion to renewable and bioproducts was important here.
DCC Healthcare delivered a robust performance. Operating profits were 0.4% ahead on an organic constant currency basis. In Patient Health, we had good growth in medical devices in Continental Europe, and Ireland also performed in line with expectations. The primary care market remains weak in the U.K. and [HSE] funding constraints continue to impact during the first half. We recorded good performances in our other material markets of Germany and Switzerland.
In HBI, Health & Beauty Innovations, we delivered good growth, driven by the U.K. and Europe. The U.S. market has not yet normalized. The best-performing product sector for us in the half was in Beauty. We've been very active throughout the first half in the HBI business. We appointed a new CEO and we rebranded the business, helping to create a better commercial proposition. We also have now completed the significant CapEx investments in our capacity and capability.
And finally, DCC Technology also delivered a robust performance in the first half in what continues to be a pretty weak market environment. Operating profits were up 1.1% at constant currency. The weak market wasn't a surprise as it is a continuation of trends we've seen over the last 2 years or so. The market conditions were better in Pro Tech, particularly in U.S. In Info Tech, we continued to deliver improved performance in the U.K., although Continental Europe was more difficult, particularly in consumer IT products. In North America, in our key Pro Tech platform, we drove market share gains and delivered a good performance. Life Tech was weaker, reflecting the more consumer-focus of that sector.
We have also commenced our commercial excellence program in North America, and we've made some good progress, albeit, it's still at an early stage. And just to mention that the usual, more detailed slides on the trading for each division and key modeling assumptions and metrics are included in the appendix to this presentation.
So now I'll hand you back over to Donal.
Thank you, Kevin. So just before we open up to Q&A, firstly, our out statement for FY '25, notwithstanding the headwind of currency translation, DCC expects that the year ended March 31, 2025, will be a year of good operating profit growth and significant strategic progress.
So in summary, here is our vision for the future of DCC. Today, we are announcing a strategic plan to maximize shareholder value. We focus solely on our compelling opportunity in the Energy business, and we simplify the group's operations through portfolio actions. We are taking decisive action from positions of strength to focus our group, pursue our largest growth and returns opportunity in energy and unlock substantial shareholder value. I have committed to the Board to lead the transformation and to continue to deliver our strategy. Today, we are commencing the next stage in the evolution of DCC plc. I believe that our new, simplified structure has a powerful future.
Thank you for listening, and we look forward to answering your questions.
[Operator Instructions] We have a question from Ryan Flight from Jefferies.
It's Ryan Flight from Jefferies. Two questions from me, if I may. The first one is on surplus cash. And I think you made a note saying that it's [indiscernible] you return to shareholders. I wondered if you could just help us understand your thinking there? And perhaps to the M&A pipeline and maybe it's just too much cash to deploy on M&A or is there something else there?
And then the second question, I've [indiscernible] this morning and underlying EBIT for the Energy division looks to be about 1.72% only for the volume-based side of business. It's a big increase year-on-year. And I wondered if that's just a kind of continuation of the favorable mix, tailwinds and that kind of thing or any comment there would be really helpful as well?
Thanks, Ryan. I think the was breaking up a little bit on your second question, but maybe we'll come back to it.
Just in relation to the surplus cash, Ryan, and our comment in the statement, I think, firstly, the focus today is really around announcing the strategy. So it will obviously take us some time before we have cash proceeds from the sale. During that period, we'll clearly consult with shareholders in terms of their views, in terms of the best way to return surplus cash to shareholders. But business itself, as we talked about earlier, our Energy business is very highly cash-generative.
We will grow this business and accelerate the growth of our business in a self-funded way. That's very important to us. But no doubt that we're going to generate substantial value through the divestments, and that will leave us with surplus cash to return to shareholders. So it's -- it will be a number of months down the road before we have to make that call. But in the meantime, the focus is on maximizing the value for the assets, and then we'll make the call in terms of what's the best way to return capital to shareholders.
You just might clarify the EBIT question, if you don't mind, Ryan.
Yes, yes, sure. So the second was on underlying EBIT [indiscernible]. So that's purely for the volume-based side of the business, and it looks to be about 1.72% for the first half, which is obviously a big increase year-on-year. And I wondered if that's just an operational tailwind?
It's predominantly a mix issue, Ryan. We have -- obviously, volume in the first half of year was back somewhat, actually mainly in the Mobility side of our business and mainly to do with just some sites we had in Denmark, which went off a lease arrangement. So -- but the underlying margin performance across the Energy business during the first half of the year was very strong. So we were very pleased with the performance. So nothing particular to flag really.
We have a question from Colin Grant from Davy.
Big news today, obviously, on Healthcare and Technology divisions. But my area of focus for this is actually the Energy division. And I think very positive to see you've given the -- reiterated the earnings bridge you gave previously hitting GBP [indiscernible] million EBITDA in 2030.
I was just wondering if there's been any change in your views over the last 12 months where you see more opportunities or less opportunities? Or just how do you see energy markets developing now maybe relative to where you were a year ago and whether or not there's areas where there's greater scope than there was previously? I mean, I noticed you've announced an initiative of PPAs in solar, which could be an accelerant of installation in that area and opportunities for cross-selling. And just whether or not there's new things going on? If you could give us a bit more color on that would be great.
Sure, Colin. Look, the -- we're hugely excited about the opportunities in front of us within energy. That's the reason we're making this strategic change today. And we have given clearly our guidance to 2030 in terms of the doubling of our profits from 2022. So don't necessarily want you to be hoping that further. But we do believe that there is very significant opportunities in front of us. And indeed, we believe we've made very significant progress. If you go back to the bridge that we talked about earlier, you'll see we're ahead really of our plans to 2030 already.
The one thing I think about energy transition. Energy transition, it's a challenging process and it is not going to be a straight line all the way through. So there will be ups and downs as we go forward. But the DCC model, and this, I think, is key, and maybe this isn't the right terminology, but if we think about it as an each-way bet because we have a very strong business in our core area and we're building this complementary business in the new energy area to self-generate electricity, we think the combined businesses just give us so much opportunity for further growth.
Just to take one example is, we've only owned 1.5% in the propane market in the U.S. And that's -- it's a very large market. And to scale that even modestly is going to be a significant opportunity, never mind the opportunities that we have within the Energy Management Services area. So we're making good progress, but we really see the opportunities to accelerate that growth going forward. Kevin?
Yes. Just 1 or 2 little bits to add to Donal's comments, Colin, if I may, I suppose just -- our team are, in the Energy side of things, I mean, are out in the field talking with energy consumers every single day and they're listening to the challenges that they have with their transition and indeed, how they power their business. And I suppose it's things like that engagement with customers is leading us to launch new initiatives all of the time. So the domestic HVO offering, for example, is as a result of customers of ours wanting to make cleaner choices, but not having the capital, frankly, to retrofit their entire home. And so it gives them a 90% carbon reduction vis-a-vis their historic fuel source.
And again, you mentioned it in your comments, Solar-as-a-Service. For example, the launch of that initiative, again, is an organic start-up by our team, where they're listening to customers who maybe can utilize the power purchase arrangement in effect to finance a solar installation at their premise. And that provides DCC with enormous opportunity because it takes -- maybe a onetime installation customer gives us a capability to service that customer for 15 years in terms of maintaining the installation it provides DCC with effectively an asset management capability where we build a recurring revenue profile from being the originator of the transaction clearly and finding the customer, but then helping manage the ongoing financing and PPA type nature of the cash flow.
So we see that as a way of really embedding ourselves with our customers throughout the lifetime of a solar installation, and it's those sort of initiatives that underpin what Donal mentioned earlier in terms of increasing the lifetime value of our customers. So all the time thinking about how we can get deeper and deeper engagement with the customers.
We have a question from Annelies Vermeulen from Morgan Stanley.
I have 3 questions, please. So firstly, on the healthcare, I see you've appointed advisers. Have you engaged with buyers already or had any indications of interest? And then I suppose related to that, how confident are you in a sale in 2025? Is there a minimum valuation or multiple that you're considering when deciding whether to pull the trigger on that sale?
And then secondly, on the Technology business, the strategic review and sort of the value-enhancing improvement program, what are the sort of key milestones over the next 24 months that we should consider? And when will you be updating the market on your progress on those? And perhaps you could talk a little bit about what you're seeking to achieve in order to decide on the next steps for that business, whether that's also a sale or something else?
And then just lastly, a quick one on the mix. So previously, when you talked about 70% Technology, Healthcare and Services and Renewables by 2030, with now the sale of Healthcare and potentially Technology, how should we think about the mix that you're targeting between Services and Renewables and the traditional oil and gas business also to 2030?
Thanks, Annelies. Very comprehensive set of questions. So just starting with Healthcare. So clearly, we've been working on this for the last number of months. We have, as we said, appointed advisers, and we're extremely confident that we will get a very attractive valuation for the business.
I suppose DCC, being a public company, all our assets are potentially for sale. So we have had expressions of interest in the past about our Healthcare business. We know from being in the industry, Annelies, and competing for assets with private equity, we know the kinds of valuations that private equity are paying for these businesses, and that has been a challenge for us in terms of scaling our Healthcare business.
So we're very confident that we will get a very high valuation for our Healthcare business. It's a super business. We have 2 platforms, one in Patient Care and one in Consumer Health, and both are very attractive businesses and both businesses of scale. So very confident that we will get a very high valuation, and we will move that process along pretty quickly. It effectively starts from today when this announcement, I'm sure it started as soon as this announcement actually went live on the airways.
In relation to Technology, our key focus for Technology is to complete that operational integration program that we talked about earlier. There's a substantial price involved in that of the magnitude of probably GBP 20 million to GBP 30 million of improvement that we will get over the next 12 to 18 months. We're very clear that DCC will be singularly focused on energy. So our strategic review is clearly to see what's the best options and way to deal with that business, so that DCC going forward will be solely an Energy business.
In relation to mix of profitability, Annelies, so like DCC Energy is 74% of group profits. It is by far the highest return business we have at 18.7% return on capital employed. The Energy business, if you like, 35% of that last year was Services and Renewables. So no or ultra-low carbon fuels. 42% was our low carbon fuel. So if you take that as the mix for DCC, the growth will -- as I said earlier, the pace of growth will very much depend on the opportunities in each of those areas.
We think the highest growing area clearly is going to be in the Services and Renewables segment. That's a double-digit growth market. And so we'll benefit from the growth there, and we'll deploy capital there. But we do believe that there is significant growth opportunities within the liquid fuel side of our business. And I think I said earlier that we've only have 1.5% of the propane market in the U.S. And that's -- it's a big business we have in the U.S. that we weren't in 5 years ago. So we've made progress. But you know us in DCC, 1.5% is small. We want to have a meaningful share of that market, and that will be a high priority for us as well.
Yes. And I mean, clearly, Annelies, looking at the -- I think, the 2030 context for the group that was set out a number of years ago that you referred to, I mean, clearly, we envisage Healthcare not being part of the mix of 2030. And obviously, we'll have some decisions to make on Technology as well. So clearly, we will have to update for that. But I mean, I think we are convinced that the carbon intensity of our Energy business will continue to decline. So directionally, we don't see a change relative to our focus on increasing our low carbon and service and renewables and other activities. So very much consistent strategic direction relative to what we would have talked to you about a number of years ago. But obviously, the mix of the group is going to change somewhat following this announcement.
We have a question from Rory McKenzie from UBS.
It's Rory here from UBS. Firstly, just on the time lines. Both Technology and Healthcare have been under, of course, some volume pressure, and you talked about taking cost out. So how do we think about the normalized profits each division compared to about GBP 90 million each made last year? And how does that fit into the time lines as you're trying to work out how to maximize the value of each of these businesses?
And then secondly, just a follow-up on the surplus cash. Kevin, you mentioned heading towards 0.8x net debt to EBITDA for this year by year-end. Obviously, on just having stand-alone Energy profit, that ratio would be a lot higher. So any sense you can give us on what leverage range do you think a pure Energy distribution business could stay in?
And then just finally on the H1. I think the absolute SRO profits look quite flat year-over-year, despite the acquisition contribution. So can you just take us through some of the ups and downs within that portfolio? And maybe give us any updates on installation volumes or any kind of metric like that?
Thanks, Rory. Well, look, the -- I think the time line, it's clearly a very good question. And when you look at the Healthcare business, in particular, our Healthcare business, clearly, demand has been a challenge in the Health & Beauty side of our business over the last 18 months as we went through destocking. We're clearly through that. At this point in time, you see in the results that the Health & Beauty business, or HBI, has performed well in the first half of the year. But the growth potential in that business is clearly very, very strong, and there will be -- there's both a bounce back and there is capacity. And through the downturn, we have invested in significant capacity within the business. So that is there.
And you could say, well, actually, if you wait another 12 or 18 months, do you get a significant uplift on the back of that? And that is -- that clearly went through our thought process as we were thinking about timing. Why do we think now is the right timing for that? We think now is the right time for it because we know there is very material interest in these -- both parts of our Healthcare business.
And we know that the people that are interested in the parts of our business will be buying that capacity, will be buying the very high-quality customer relationships that we have, and will be buying into the ability to continue to grow that business, which is a high-growth market in Health & Beauty.
Similarly, on the Patient Care side, we've had some challenge. We talked about it in the primary care business in the U.K., mainly due to NHS funding. And that's -- look, there's been a new budget. Clearly, there's been a big commitment to Healthcare spend within the U.K. market. So that will regularize going forward. But again, these are really high-quality businesses, and the valuations that both private equity and strategic players are paying these businesses are multiple times the valuation of the DCC Group. So we're very confident that we'll get a very good value, and now is the right time to move on that.
In relation to Technology, it is slightly different. And the reason the timing is different is because we think that there is tangible material benefit that we're going to get in the next 12 to 18 months by our operational integration program. I talked about GBP 20 million to GBP 30 million of improvement through that. And we think, in terms of maximizing value for shareholders, which this is all about maximizing the value for shareholders, the right time to look at action for our Technology business is when we have completed that.
Kevin, do you want to talk about the surplus cash?
Yes. Thanks, Rory. I mean, the -- look, obviously, we're announcing the sale process today. So I'm not going to talk about absolute numbers, Rory, in terms of where we think things could land. But I mean, obviously, we expect to realize very significant proceeds from divestment activity. There's no doubt that our Energy business is extremely cash-generative. It can -- it is a very, very resilient business. And you could envisage a world where it could sustain slightly higher leverage actually than the DCC Group today.
I guess our thinking on this, Rory, is we are completely wedded to the principle of strong balance sheet and our investment-grade credit rating. We don't envisage leverage really rising as a result of this activity, but we expect the distribution -- or the proceeds to be very significant.
So I guess from a DCC perspective, Rory, our financial policy will remain similar. We would never like to see our net debt EBITDA go above 2x. We would envisage the world where we continue to operate in and around sort of leverage levels we've been operating at today. We will certainly realize -- relative to the EBITDA that may leave the group through divestment, we're going to realize relatively significant proportion of disposal proceeds relative to that.
So I think you should continue to expect us to run the group at around the leverage levels we're at today. That allows us lots of scope to deploy capital and M&A into our Energy business and continue to maintain a very, very strong balance sheet. So they'd be the key messages.
I think when it comes to the SRO, Rory, that you asked about also, just in terms of numbers, Donal may want to add some color here also. But just you're right, I mean, I guess, SRO performance year-on-year is broadly in line with prior year. And we have some M&A activity coming in, but really we have the normalization, I guess, a little bit of very, very strong profits in the renewable power sector in the prior year, which declined year-on-year and that really is the principal organic decline.
The solar distribution market remained pretty tough as well, and that would have been a small profit decline for us also in the first half. So they'd be the 2 pieces that, I guess, were headwinds for us in our SRO. And then all the other pieces really delivering well and giving good growth to deliver a pretty flat profile overall.
But the 2 -- I guess, the 2 areas to call out from a headwind perspective organically would have been the solar distribution market where the continued fall in panel prices means that margins were compressed. And then on the renewable power, we had just very, very strong growth in the prior year, and we saw some of that normalize. So they had been 2 headwind pieces. But other than that, good performances.
Yes. Look, nothing really to add. Kevin has been very comprehensive. I think like if you look at panel prices, Rory, they're down over 60%. So that's going to be -- that has any distribution activities where you buy and sell stock that has an impact, and we saw that in the first half of the year. But I think actually, we were very pleased with the performance of our SRO business. So those 2 issues, we kind of knew were going to be challenges. The rest of our SRO business has grown actually very strongly during the first half of the year. So really pleased with the underlying performance, and those areas will normalize.
We have a question from David Brockton from Deutsche Numis.
Two questions. Actually just clarifying and a follow-up to the last few questions, if I may. Firstly, on the Healthcare business. Is it your intention to market that as one business or 2 separate businesses? Or are you open to a range of options?
And then the second question, in respect to reduction in SRO profits or the percentage profit of the division through the half -- first half. How should we think about the risk profile for SRO activity going forward as technological progress continues to drive down the cost of products for installation? Is that an ongoing risk? Or do you think that's now done and behind the business?
Thanks, David. So the focus really from a Healthcare perspective is to bring that to market as one business. We have -- we run it that way ourselves. We think it is -- the 2 parts of the business sit well together. So we'll be focused on selling it as a business. But clearly, we have an obligation to maximize shareholder value from this. And there may be some parties that will be interested in one part of the business versus the other part of the business. And if that's the case and that's the way to maximize value, well then clearly, we look on that basis. But our base case is that it will sell as one business.
I think -- and I wouldn't use the word risk, David, around the SRO piece. I think as Kevin outlined and said earlier, like we had 20% organic profit growth in Energy in the first half of last year, some of that was in relation to our renewable electricity activities and some of that was the -- a strong margin profile, which we knew would normalize.
It's been unprecedented, the reduction in panel prices, I don't think you see a technology, that's not normal for a technology to drop by 60% in a relatively short period of time. So there are 2 kind of -- there are 2 aberrations, if you like, within the market.
We don't think, as I said earlier, that the renewable energy areas will grow on a linear basis, but they're going to grow very strongly. So you will see higher growth in some periods and a little bit lower growth, but I'm talking growth all the time. So we think the profile of growth within SRO is going to be very strong as we go forward.
But it won't be even kind of every 6 months, you'll see the same level of growth. But the world has got to adopt newer technologies. People need energy that's affordable, that's secure and that's sustainable. And our primary focus for growth is in the commercial and industrial space. And in the commercial and industrial space, the -- our customers have got to reduce their Scope 1, their Scope 2 and their Scope 3 emissions in the products and services that they are providing. And they need the technologies to enable them to do that, and that's what we're bringing to them. And that's why we think this is such a powerful, new strategy for the group to solely on the Energy business.
Yes. And David, just 2 other points to add. I mean obviously, the -- just to highlight again. In the first half last year, we did talk about the benefit we had from the fall in power prices and particularly in the renewable side. So I see that very much as a sort of a onetime normalization.
Secondly, I mean, as the cost of products hopefully come down, I mean, ultimately, that's a good thing for customers and it's a good thing for demand, right? So we -- while it might be painful in the short term for distribution, it's good for all of our customers, it's good for our installation business, and it's good for demand in the medium term.
So while it does create some uncertainty for customers, and we've seen some of that through the first half, where customers we go and engage with, they see -- they know hardware prices are falling a little bit, and it may actually mean that they postpone their decision on whether or not to push the button on a new installation or a new piece of hardware. Ultimately, again, that lower -- that normalizes and that lower price creates better demand for us in the medium term. So ultimately, I think it's a good thing for customers.
We have a question from Sylvia Barker from JPMorgan.
Three from me, please. One on Technology. This is a similar question to the previous one on Health. But obviously, Info Tech, you have been improving for the last couple of years. In a sense, probably you don't need to wait necessarily for that one, given that's not -- it doesn't -- going to gain to that GBP 20 million, GBP 30 million improvement in profit.
So what -- could you talk about the plans on that side, on the Info Tech side? And maybe just talk about where you think the profit for that business might be over the next 12 months? Then second question, what are book values of Tech and Health at the moment? And how do we think about kind of any capital gains consideration on sale? And then finally, on M&A, could you maybe just provide us with guidance for the M&A contribution from existing acquisitions for the full year?
Sure. Well, look, Sylvia, the -- we've -- I suppose we said -- what we said in the statement really about the Technology division, you're right. We have been making really good progress on the Info Tech through the operational improvement program that we've had. The profitability is growing well, actually within our Info Tech business and particularly our business in the U.K. But like we see and that's why maybe it's not -- we're not trying to be vague in terms of the terminology around it. But there is options as to how we bring that business to market. And we will consider that both in terms of timing and in terms of approach. But like we're giving ourselves that window of 24 months to deal with the Technology division.
Kevin, do you want to talk about the book values?
Yes, no problem. Thank Sylvia. I mean, I guess, from a Healthcare perspective and Tech perspective, you've got book values of about GBP 800 million and GBP 1.1 billion across the 2 divisions. Look, we're a little bit early again, Sylvia, frankly, to be talking about capital gains and whatever, but I suppose we've thought through all of the considerations. Our expectation of realizing substantial value for shareholders is [indiscernible] of any value leakage items or our considerations around capital gains, et cetera. So the exact quantum of taxes and everything like that, completely depends on what the proceeds are and whatever. But we're very confident that the net surplus available to shareholders here will be significant. So thank you.
Kevin, do you want to just talk about the acquisition contribution?
Yes. Sorry, excuse me, Sylvia. Yes, I mean, I think we have about -- in the FY '25, obviously, we have the impact from acquisitions completed in the prior year, where we have still first-time contribution, Sylvia and then we have obviously the acquisitions we've made in the current year. We also have a material divestment of Hong Kong, right? So the [indiscernible] of all of those is going to be in the range of about GBP 35 million to GBP 40 million of M&A contribution for DCC for the full year FY '25.
We have a question from Daniel Cowan from HSBC.
I'm going to ask one question as I feel we're coming up to the head of the hour. Just on the breaking things up, any dissynergies that we should be aware of? I know you run these businesses largely separately. But is there any dissynergies that perhaps we should be mindful?
Yes. Look, thanks, Dan, for the question, and thanks for only one question because we are coming up against a bit of time pressure. So look, no is the short answer to that. One of the benefits of the DCC model and our devoured approach and keeping a relatively light head office, is that we can carve these businesses out very seamlessly, really. And we have -- Kevin talked about it earlier, like we don't believe that there is any really or certainly no material leakage through the sale process. So I think we're in good shape.
Yes. Dan, only one other point maybe to make is that, obviously, it's a little while ago, but we have disposed of divisions of the group before 2014, '15 in terms of the Food & Beverage division and 2017 in the context of environmental. So those sorts of considerations, we have some experience of thinking through. And as Donal said, we're confident that there's nothing material there.
Our final question is from Chris Bamberry from Peel Hunt.
Just one quick question. Given the strategic review of options of Technology, I presume it's safe to assume there will be no further M&A in the Technology business?
Yes. Look -- thanks, Chris, for the question. I think the -- like until we sell a business, it's business as usual. So I think it's fair to say you wouldn't see material capital deployment into either division, but an acquisition. If there's a bolt-on acquisition that makes sense for the business, then clearly, we would continue to do it. So we are running these businesses as usual until they're not part of the group and whatever we can do to enhance the value of those business, we will continue to do that, and that's in the best interest of DCC shareholders.
We currently have no further questions. So I will hand back to the management team for closing remarks.
Super. Well, look, thank you all for joining us this morning. It's a very important day for DCC. And maybe just to reiterate our vision for the future. This strategic plan that we're announcing today, it's all about maximizing shareholder value. We focus solely on our compelling opportunity in energy going forward. And we'll simplify the group's operations through the portfolio actions that we've taken. So this is decisive action we're taking today. We're doing it from positions of strength to focus our group, pursue our largest growth and returns opportunity which is in the Energy sector. And in doing so, we're going to unlock substantial value for our shareholders. So really for us, it's the next stage in the evolution of DCC plc, and we really believe that DCC has a powerful future.
So thank you all for joining us, and we look forward to seeing many of you over the next few days. Thank you.
This concludes today's call. Thank you for joining. You may now disconnect your lines.