INDUSTRIAL HOLDING company DCC has warned that the weakness of sterling, in which 60 per cent of its earnings are denominated, is likely to wipe out a 10 per cent rise in its profitability in the current fiscal period.
As the British currency reached an all-time low against the euro yesterday, DCC chief Tommy Breen said adjusted earnings per share in the year to March were forecast to be "in line" with the 165.06 cent seen in the prior year.
DCC shares, down 32 per cent in the last 12 months, closed 2.57 per cent stronger at €12.78 last evening after the firm increased its interim dividend by 10 per cent to 22.61 cent per share on the back of a 13 per cent rise to 54.84 cent in adjusted earnings per share in the six months to September.
NCB analyst Paraic Quinn reiterating the broker's buy rating on the stock "given the defensive nature of the group's operations, notably in energy, as well as its financial capacity to execute further deals". DCC, which said it was well-placed to take advantage of acquisition opportunities, expects to conclude a "reappraisal" of its strategy before reporting full-year results in May.
Although DCC said the "increasingly challenging economic environment" will continue to have an impact on its performance in the seasonally more important second half of the year, DCC forecast a 10 per cent rise in constant currency earnings for the 12-month period. However, Mr Breen said the impact of the translation of its sterling profits into euro "at current exchange rates" will lead to flat full-year earnings.
Interim revenue rose 40.7 per cent to €3.18 billion and operating profit, excluding one-off items and amortisation of intangible assets, rose 17.4 to €60.6 million. On a constant currency basis, revenue rose 58.5 per cent and operating profit rose 30.3 per cent.
The period in question was marked by the departure of DCC founder Jim Flavin as a result of the Fyffes insider trading affair. There was no substantive comment from DCC yesterday on an ongoing High Court inquiry by Bill Shipsey SC into the acquisition and disposal of its Fyffes shares.
DCC's energy unit posted strongest operational performance in the first half, with operating profit rising 56.5 per cent to €22.8 million. Such growth reflected cold weather in April and integration synergies in Britain from businesses acquired in recent years. DCC said the economic slowdown was having an impact on its Irish oil distribution business.
The weakest first-half performer was the healthcare unit, where earnings fell 5.2 per cent to €9.8 million. This reflected a drop in profits in the acute care unit, offset by higher profits in the health and beauty and the mobility and rehabilitation units.
Earnings in the SerCom distribution and supply unit rose 8.3 per cent to €12.5 million, boosted by the acquisition of Banque Magnetique a year ago and a strong performance in Britain.
While earnings in the food and beverage unit rose 3.6 per cent to €7.2 million, DCC warned of a declined on constant currency profits for the full year.
