Donal Murphy trots down the steps of the curved staircase in the reception area of DCC’s headquarters beside Leopardstown racetrack in south Dublin with a broad smile and positive vibe.
“You’re very welcome,” the DCC chief executive says with a firm handshake. No Covid hesitation here.
It’s a day after the S&P 500 officially moved into bear territory and the large screen inside the front door shows DCC’s share price being down 2.3 per cent. At an operational level, the FTSE 100 conglomerate is performing well but the Dublin-based group isn’t immune to the market jitters around soaring inflation and an aggressive tightening of monetary policy by central banks.
“I’ve been with the business for 24 years but I’ve never experienced such a volatile backdrop as the one we’re living in today,” he says. “But the group is in good shape notwithstanding the way the world is at the moment. The equity markets are frustrating. The value that we’re creating as a company is not being reflected in the share price but it’s a long-term game and we’ve got to make sure we’re doing the right things and we get a bit of fun out it, which is important.”
Murphy is a glass half-full type of executive. “I get a great buzz out of what I do even on the tough days,” he says, still smiling.
While well-known in corporate circles, DCC has a low public profile here. Founded and based in Dublin, the company is listed now in London. It generates annual revenues of about £18 billion and operates in three key sectors – energy, healthcare and technology.
Among this broad mix, it operates 1,150 service stations worldwide, including about 40 Certa forecourts in Ireland that were taken over from Tesco. It also owns the Flogas business here, which supplies energy to homes and businesses around the country. And it is the biggest forecourt retailer in Norway.
In its technology division, Amazon is a big customer - it ships product on behalf of the ecommerce giant. And in healthcare, it supplied PPE at the height of the Covid crisis.
In total, DCC has more than 15,000 employees and operates around the world. Ireland is now a “tiny part” over the overall business, accounting for roughly 8 per cent of its profits and with 1,295 staff.
Energy is big business for DCC, generating revenue of £12 billion and profit of £407.1 million in its latest financial year. Energy costs are in the headlines, with prices surging in the wake of Russia’s invasion of Ukraine and sanctions imposed by the European Union and other western governments on the Kremlin.
“Inflation, war, supply-chain disruptions, labour availability. You put that cocktail together and it makes the backdrop very difficult,” says Murphy. “We grew out profits 15 per cent last year on an underlying basis through all of that challenge. The operational performance of this group through the Covid pandemic and through the past 12 months has been astonishing in many ways.
“The big driver of that is the fact that we supply essential products and services, things that people need for their everyday lives. The energy they need to keep them warm, energies to move about, nutritional products to keep them healthy, PPE to the healthcare sector, and all the technologies for people working at home.”
Lockdown restrictions
Murphy recalls how in March 2020, as lockdown restrictions began to be imposed around the world, DCC war gamed what that might mean for the business in that year.
“We didn’t have one scenario showing that we would grow our profits in that first year and yet we grew them by 7.3 per cent and by 15 per cent in the year just gone. So the challenge of volatility hasn’t been a material impact on our business.”
He accepts that a global recession, which more and more economists expect to happen, is not good for any business but is confident that DCC can weather the storm. “We have a very resilient business that performs really well through the cycles. So, from a business perspective, I’m not concerned that if we go into a tough period for a very long time that that’s going to have a very negative impact on our group.
“In some respects, the nature of the business and the shape of our balance sheet, there’s probably more opportunities for us in terms of accelerating growth while other companies may not have the capital to go and do things and buy things.”
In recent years, DCC has been highly acquisitive and Murphy says it has a war chest of “well over” £1 billion for potential acquisitions.
Back to energy, which is dominating conversations around the world right now. DCC provides fuels in 13 countries across three continents, and has had to pass on the steep rises in prices to consumers recently.
According to Murphy, it’s exposure to Russian gas is a “tiny percentage” of its overall business via natural gas from Gazprom that it sells in the French market. “That’s because it’s in the network in France, we don’t have a choice about it,” he says, adding that the volume is sub 1 per cent. “It wouldn’t even register.”
How long might the price volatility continue?
“The energy market is driven by sentiment and the sentiment is nervous at the moment which results in higher prices. Personally, I can’t see energy prices dropping off too much over the next number of months and maybe it’s into a year or years. But I’ve been so wrong about this before, so we don’t generally take views on commodity prices.”
The traditional business model for its service stations is also under threat as we transition away from petrol and diesel to electric vehicles. Murphy sees many positives in this switch, including increased profitability and the potential to redevelop some stations in urban areas by adding housing and offices.
Fuel fill
“Our investments in EV infrastructure are generating good returns on the capital we are deploying. The average fuel fill takes three minutes. The average time people are dwelling on our sites to charge their EV is 30 minutes.
“We have really good-quality convenience offerings on those sites. So they are going in to buy their food, they’re buying their coffee or cigarettes or whatever. You’ve got car wash facilities, and click and collect for parcels. So well-located service stations have a hugely important part to play in the EV ecosystems going forward and that’s proving itself in Norway.
“In an EV world, your parking spots become your charging points, you can actually charge more vehicles than you can fuel today. We make more margin per fill in an EV world even though it’s a fraction of the cost from a customer perspective.”
The cost of renovating the sites will range from €200,000 up to €4 million, so it will be a huge investment, although Murphy notes that traditional service stations need regular upgrades in any event.
They could also become a property play in certain areas, particularly its 550 stations in urban areas. “We are looking at repurposing some of our sites in the centre of Oslo and in the centre of Paris in locations where we have a petrol station and apartments on either side. You can’t do that with petrol and diesel tanks underneath. But you can in an EV world. You could have a couple of levels of EV service station with some convenience, a couple of levels of EV charging and then apartment blocks or offices. We’ll probably partner with someone to do that. They won’t all be redeveloped but there are plenty of opportunities,” he says, adding that this transition will take decades to happen.
In Norway, where 16 per cent of the fleet is already electric, Murphy says it can make up to 30 per cent more income on a customer charging up “just from the energy part of it”.
As well as selling energy as a fuel, DCC also advises large corporations on ways to reduce their emissions and save money. Murphy talks enthusiastically about ways in which we can change our behaviours to impact positively on climate change.
He’s not driving an EV himself but has made other changes to his lifestyle. “I don’t drive very much. I cycle more than I drive. But the next one might be an EV. All of the electricity is renewable that we use at home. I put in a condensing boiler a while back that reduced consumption by 30 per cent.”
Murphy grew up in Ballsbridge. His father was a glass designer. “If you go around the pubs of Dublin and see the fancy old mirrors, he did a lot of them.” His mother, now 92, had to leave the Civil Service when she married.
Wheels turn
He attended Marian College and later UCD, where he did a commerce degree. But he had his heart set on a different career. “My aspiration at the time was to be a professional cyclist. I was big into cycling and raced for Ireland in the 1980s. I was okay but I wasn’t good enough. I did commerce in college because there were fewer lectures and I could train more if I’m brutally honest about it.”
On leaving UCD, Murphy secured a spot on an AIB graduate programme, spending a year in a Wicklow branch, cycling up and down for training purposes. “I ended up in technology, which I hated in college. But I got lucky, working on their direct banking strategy. I set up the 24-hour banking unit and was responsible for the electronic banking strategy.”
This brought him to the attention of DCC founder Jim Flavin, who persuaded him to join DCC in 1998. He was later managing director of DCC Technology from 2004 to 2006 and managing director of DCC Energy from 2006 to 2017. Murphy was appointed group chief executive in July 2017.
DCC is an old-fashioned conglomerate although it’s not a term Murphy likes. “We don’t use the conglomerate word. We’re a diversified group. It’s very similar activities across different sectors. I spent 12 years in financial services before joining DCC. It’s a far more diverse business – insurance, credit cards, corporate banking or broking, all very different activities.
“At DCC, we buy either commodities or branded products in tech or healthcare and we supply them to B2B customers or to the consumers of the products. What we do is very similar but just happens to be in slightly different sectors. Diversity has led to consistency within our earnings.
“If you look over our 28-year history as a public company, there would be very few companies that would have a 14 per cent year-on-year growth in their earnings and unbroken dividend growth record... that’s because of the diversity in the business. There have been ups and downs over that time but having the diversity has given us consistency in terms of earnings.
“Four years ago, we had no business in North America. Today, we have 31 per cent of our capital deployed there in all three sectors and 3,000 people working for DCC. That gives us the confidence that, by 2030, we can more than double the size of the group.”
Now that would be something to smile about.
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CV
Name: Donal Murphy
Job: Chief executive of DCC
Age: 57
Lives: Kilmacanogue, Co Wicklow
Family: Married with three daughters
Hobbies: Cycling and rugby
Something you might expect: He purchases all his energy needs from DCC group companies.
Something that might surprise: He wanted to be a professional cyclist, winning the All Ireland under-18 sprint championship. And he also worked in his aunt’s butcher shop on Moore Street from the age of 10. “If anything teaches you work ethic it’s being in the butcher shop at six o’clock in the morning.”
