Torrid times mean DCC will now keep its powder dry

ANALYSIS:DCC HAS determined after a strategic review not to restructure the diversified business built up over decades by company founder Jim Flavin. His successor in the top seat, Tommy Breen, said any structural change would not enhance shareholder value "at this time".

Analysts may have seen potential in a benign business climate to unlock significant value by breaking up parts of the DCC group, whose interests straddle energy, food, technology and much more besides. But torrid economic conditions and the credit freeze mean the markets are not right for manoeuvres like that.

Still, Mr Breen made a point of saying the position of the DCC board was “not definitive” and would be kept under periodic review. However, for the moment DCC’s prime task is to trade through the storms of recession.

Nevertheless, it remains in the market for acquisitions and may yet seek to take advantage of any distressed sales that come its way.

Although many companies are currently shut out of the deal market, DCC’s €14 million purchase of Shell’s Danish distribution business placed no great strain on the business. DCC has spent as much as €75 million on past acquisitions, but its desire to avoid excessive risk suggests it may not stray higher than the €25 million range in today’s climate.

That said, strengthening cash flow and modest net debt with long maturity means DCC is better positioned than most to take advantage of whatever opportunities emerge from the current turmoil.

On the trading front, DCC is not immune to recession in Britain and in Ireland. The pressure is greater given the weakness of sterling, in which most of DCC’s profit is denominated. Although Mr Breen said “green shoots” remain elusive, he hinted at a stabilisation of sorts in economic conditions. “I’m not saying it’s getting dramatically worse.”

Profits in the all-important energy unit and in the Sercom IT and entertainment business are expected this year to be broadly in line with last year. DCC expects a recovery in constant currency operating profit in the healthcare division. It warned, however, of a further deterioration in profits in its food and beverage unit and a decline is anticipated in constant currency profits in the environmental business.

Mr Flavin retired last year in the wake of the Fyffes insider trading debacle. The business he left behind remains intact, its strong energy and SerCom operation providing protection against weakness elsewhere in the group.