Legal costs curtail DCC pretax profit growth

Costs associated with two court cases blunted pretax profit growth at industrial holding company DCC, but yesterday it reported increased earnings for the year ended March 31st.

The Dublin-listed group reported pretax profits of €99.9 million for the 12 months ended March 31st, 2005, up €300,000 on its previous financial year.

The group said turnover grew 24.3 per cent to €2.7 billion, from €2.2 billion in 2004. Operating profits were up 9 per cent at €131.5 million from €121 million.

Profits before goodwill write-offs, exceptional items and tax were up 8.5 per cent this year at €126 million from €116 million in 2004. Adjusted earnings per share came to 137.25 cent, a 12.6 per cent increase on the 121.9 cent reported last year.

However, this did not translate to the pretax profit line because goodwill write-offs increased by almost €2 million to €10 million and the cost of exceptional items virtually doubled to €16 million from €8.3 million in 2004.

DCC said the exceptional items included costs in relation to its defence of food distributor Fyffes' High Court case against the group, and its chief executive, Jim Flavin, for insider trading.

The case arose from DCC's sale of a stake in Fyffes in February 2000, shortly before the latter's share price fell dramatically.

Another contributor to costs was the fact that DCC has been pursuing the principals of Pihisiang Machinery Company in Taiwan for €19.4 million in damages, costs and interest arising from a case in the English high court.

It also incurred a number of once-off charges in its operations, including restructuring costs in its Irish supply chain manager, Sercom Solutions, and in the British oil distributor it bought during the year, Shell Direct UK.

During the year it spent €131.3 million on acquisitions and development. Of this, completed acquisitions accounted for €89.3 million, with a further €11.1 million deferred. Capital spending came to €42 million.

DCC had strong growth across its five main divisions. Sales in its energy business, which includes oil and gas distribution, grew nearly 50 per cent to €1.24 billion, while operating profit was up 12 per cent at €51.3 million.

Its IT distribution division, which includes both hardware and software in the UK and Ireland, proved the most difficult business during the year.

Sales were up 2.2 per cent at €878.2 million, but operating profits fell 12 per cent to €27.5 million. Mr Flavin told The Irish Times that low prices were responsible for this.

"Volume sales were up 15 per cent," he said. "But the thing that's driving it is product price deflation of 30 per cent. You get 'deflation spikes' like this from time to time and hopefully the rate of decrease will level off."

DCC's healthcare division had a 14.6 per cent increase in turnover to €170.7 million, while operating profits were boosted 18 per cent to €16 million.

Food and beverage sales grew 42 per cent to €242 million while operating profits were up 22 per cent to €13.2 million.