Operating Review - DCC Food & Beverage

Transcription

1 52 Strategic Report - Performance Operating Review - DCC Food & Beverage DCC Healthcare s activities are highlighted in blue DCC Food & Beverage is principally focussed on the sales, marketing and distribution of food and beverage products in Ireland. Markets and Market Position In Ireland, DCC Food & Beverage markets, sells and distributes a range of own and third party agency brands and provides category management and merchandising services to a broad range of customers including grocery multiples, symbol and independent retailers, pharmacies, off-licences, hotels, restaurants and cafes. 3rd party brand owners The majority of DCC Food & Beverage s operations are focussed on the Irish grocery market which has shown some contraction over recent years due to the general economic downturn. As economic conditions remain challenging, consumers continue to search for value both in the grocery and out of home markets. Own brand/ licensed products While private label now accounts for approximately 36% of all sales by value, brands continue to be important to the Irish consumer. DCC Food & Beverage continues to develop its own branded offering and company owned brands now account for approximately 33% of total revenue. DCC Food & Beverage s businesses enjoy a number of leading market positions in the categories in which they operate. Sales, marketing & distribution In Ireland, the business is the leading and most comprehensive Portfolio development supplier of healthy foods and beverages, product licensing fine foods and vitamins, minerals and supplements ( VMS ), selling owned and agency brands Procurement directly to both the grocery and pharmacy sectors. DCC Food & Beverage s healthfood brand, Kelkin, is recognised as the leading brand in the ambient Vendor health/ better managementfor you food sector and offers a healthy choice in many food categories. Kelkin has developed its Supply presence chain in the fast growing gluten free management category in Britain and has achieved & listings logistics with services key multiples. The Kelkin brand is also a strong and developing brand in the VMS sector in Ireland. How we win Comprehensive range of leading own brand and agency products. Focussed on attractive and growing product segments. Highly effective and efficient Hospitals distribution network and supply chain. Wide range of customers including retail, food service and pharmacy. Category management Pharma focus. retailers and wholesalers Sales and marketing expertise. Continued focus on operational efficiency. Pharma homecare GPs DCC Food & Beverage What We Do Proactive sales & marketing Multiples 3 rd party brands Category management & product education Convenience stores Wholesale Own brands Supply chain services Food service NEW New product development Pharmacy DCC Food & Beverage s activities are highlighted in red

2 53 DCC Annual Report and Accounts 2014 Supplementary Information Financial Statements & Notes Governance Strategic Report Revenue 186.9m : 173.6m UP 7.7% Operating profit 7.7m : 6.1m UP 25.9% Return on capital employed 11.8% : 9.5% Brands Healthfood - Alpro, Biofreeze, Celtic Chocolates, Filippo Berio, Fry Light, Hipp, Jakemans, Kallo, Kalms, Kelkin*, Nairns, Nanny Care, Ocean Spray, Olbas, Ortis, Pomegreat, Popz, St Dalfour, Vitabiotics, Whole Earth. Indulgence - Andrew Peace, Antinori, Beringer, Bollinger, Chapoutier, Cono Sur, Elizabeth Shaw, French Connection*, Freixenet, Glenfiddich, Goodalls*, Hula Hoops, KP, Lemons*, Lindemans, Louis Jadot, McCoys, Masi, Mateus, Meanies, Moreau, Oatfield, Penfolds, Rancheros, Robert Roberts*, Sacla, Sea Dog*, Skips, Stolichnaya, Sutter Home, Topps, Torres, Tullamore Dew, Wakefield, Wilton Candy*, Wolfblass, YR*. Logistics - Allied Foods*, Mr. Food*. * DCC owned brands

3 54 Strategic Report - Performance Operating Review - DCC Food & Beverage (continued) DCC Food & Beverage is also a leading temperature controlled supply chain service provider in Ireland. It offers a full range of temperature controlled supply chain solutions to major retailers, manufacturers and food service customers. Also in Ireland, the business is a leading value added distributor of indulgence products in the grocery, impulse and food service sectors with a strong, complementary range of company owned and agency brands, specialising in wine, hot beverages (coffee and tea), home cooking (herbs, spices and colourings), snacks and confectionery. DCC Food & Beverage is now the leading distributor of wine in Ireland to both the on and off-trade, providing an extensive portfolio of international wine brands. It is also focussed on further developing its spirits portfolio and offers its principals significant on-trade reach in the Irish marketplace. In Britain, the business is a leading supplier of branded (both company owned and agency) and exclusive retail wine solutions to the multiple off-trade as well as the on-trade sector (principally through regional wholesalers). DCC Food & Beverage is also a leading temperature controlled supply chain service provider in Ireland. It offers a full range of temperature controlled supply chain solutions to major retailers, manufacturers and food service customers. KSG, which is 50% owned by DCC, provides catering and hospitality services to a range of clients in the At Work, Healthcare, Education and Travel sectors in Ireland. KSG serves approximately 10 million customer meals annually. Strategy and Development The strategy of DCC Food & Beverage is to develop into a leading added value sales, marketing and distribution business, building number 1 or number 2 branded positions in focussed segments and delivering an above average return on capital. This will be achieved by building on current positions in the healthfood, indulgence and logistics markets, both organically and through acquisition. The business will continue to increase its focus on brands. During the year the business acquired the Gateaux brand to add to its existing portfolio which includes Kelkin, Robert Roberts, Goodall s, YR and Lemon s. Through organic growth and acquisition the business will also continue to actively develop its extensive range of third party agency brands across its healthfoods and indulgence categories with a particular focus on selling, marketing, education, training and category management. The wine and spirits business in Ireland will continue to develop its range and grow its market share. During the year the business generated significant incremental sales from the full year effect of new wine agencies added in the prior year. A continued focus on product stewardship including healthy eating, sustainable sourcing, responsible advertising, packaging and labelling compliance is central to the strategy of the business.

4 55 DCC Annual Report and Accounts 2014 Case Study KELKIN FREE FROM Supplementary Information Financial Statements & Notes Governance Strategic Report Kelkin has seen a dramatic increase in sales in the Free From category over the last two years in Ireland and Britain. This strong growth is as a result of Kelkin s leadership in providing a comprehensive range of gluten free products augmented by a constant flow of innovative new products. Kelkin also works closely with trade partners in Ireland advising on category growth strategies for Free From. This has led to an improved position, increased space allocation and choice within multiple retail customers and more recently in convenience retailers as well. Another important element of this strong growth is that more and more people are choosing to cut allergens like gluten, wheat and dairy from their diets and it is no longer just coeliacs who are buying gluten free foods. It has become a lifestyle choice for many as they feel better and have more energy when they remove these foods from their diets. In the UK in 2012, 49% of gluten free shoppers were new to the category and of these, 97% were not coeliac sufferers, according to research. Kelkin, as category partners in Free From, is working closely with retailers to share its wider vision on health and wellbeing. The company prides itself on its wide range of great tasting, Free From products and is constantly working to improve quality and choice for its consumers. Kelkin has a long standing relationship with coeliacs, who assist with product improvements and new product testing. Research carried out in conjunction with Bord Bia in February 2014 found that the most important factor to those buying Free From foods was taste, followed by price. Some of Kelkin s most successful Free From products (which benefit from the highest brand awareness in the category) include unique sourdough breads, made from a traditional recipe. The brands wide range of treats like Jaffa Cakes and Teacakes means that there are more delicious choices available for everyone and its growing range of cereals is in keeping with Kelkin s mission to "make the healthy choice the easy choice". Kelkin s website ( provides consumers with advice on Free From living and coeliac disease.

5 56 Strategic Report - Performance Operating Review - DCC Food & Beverage (continued) DCC Food & Beverage currently employs 859 people. It employs management teams with deep category and industry knowledge, combined with strong operational capability. Customers DCC Food & Beverage s business is primarily based in Ireland, with a modest wine business in Britain. The ten largest customers accounted for 47% of total revenue in the year ended 31 March The proforma revenue split by customer type for the year ended 31 March 2014 is as follows: Pro forma revenue split by customer type Grocery multiples 35% Symbol retailers 25% Wholesale 14% Food service 13% Independent retailers 13% DCC Food & Beverage s operating companies each have their own focussed sales teams that regularly interact with their customers on developing joint business plans that focus on sales, marketing, category management, advertising, promotions, new product development and product quality. The proforma revenue split by category type for the year ended 31 March 2014 is as follows: Suppliers DCC Food & Beverage deals with a broad base of almost 2,000 suppliers. The supply base is quite fragmented and the top ten suppliers only account for approximately 27% of total revenues. A key to success in its businesses is remaining close to new trends and developments in the categories in which it operates, and as a result, DCC Food & Beverage remains in constant contact with its supply base to ensure that it brings the best of what is new to its customers. Our People DCC Food & Beverage currently employs 859 people. It employs management teams with deep category and industry knowledge, combined with strong operational capability. This depth of knowledge is continually enhanced by a focus on product training particularly in wine, hot beverages and healthfoods. The wellbeing of all employees remains a key priority and there has been a 40% reduction in the lost time injury rate across the division during the year. Key Risks DCC Food & Beverage is made up of a number of consumer focussed businesses where changing market demand for certain products and product substitution remain key risks faced by the division. The potential loss of a number of key suppliers or customers represents a risk for the division but this is mitigated by the division s increased focus on developing its range of own brand products while continuing to provide a full service route to market for key agencies. Product quality is central to success and remains under constant review with focussed quality assurance undertaken within each business. Pro forma revenue split by category Wine 49% Health foods 16% Confectionery & grocery 12% Snack foods 9% Hot beverages/equipment 7% Other 7%

6 57 DCC Annual Report and Accounts 2014 DCC Food & Beverage: Key Financial Performance Indicators Strategic objective KPI Performance Drive for enhanced operational performance Revenue growth 2014 Drive for enhanced operational performance Operating profit growth 2014 Grow operating margin Operating margin 2014 Deliver superior shareholder returns Return on capital employed 2014 Generate cash flows to fund organic and acquisition growth and dividends Performance for the Year Ended 31 March 2014 Operating profit in DCC Food & Beverage increased by 25.9% with growth in each of its major product areas. The Indulgence and Health Foods businesses delivered growth in company owned brands, while also benefitting from the full year effect of some agency wins. The Kelkin healthy foods brand achieved good sales growth, especially in gluten free products, and benefitted from increased listings in multiples in Britain v : +7.7% 2014 v : +25.9% Operating cash flow 2014 Deliver superior shareholder returns 10 year operating profit CAGR 2014 Operating profit in DCC Food & Beverage increased by 25.9% with growth in each of its major product areas. The Indulgence and Health Foods businesses delivered growth in company owned brands, while also benefitting from the full year effect of some agency wins. 4.5m -2.2% 186.9m 173.6m 7.7m 6.1m 4.1% 3.5% 11.8% 9.5% 11.1m 2.1% Supplementary Information Financial Statements & Notes Governance Strategic Report