30 operating review - dcc technology · pdf filemanagement, category management ... operating...

DCC Technology is a leading sales, marketing, distribution and supply chain business providing a broad range of consumer and SME focussed products and services in Europe.

Markets and Market PositionDCC Technology (which has changed its name from DCC SerCom) sells a range of consumer and SME focussed technology products to a very wide customer base of technology retailers, etailers and resellers, primarily in Britain, France, Ireland and the Netherlands. The products distributed include a broad range of computing products (including tablets, PC’s and servers), communications products (including smartphones, accessories and unified communications), printers, peripherals, consumables and networking and security products. In addition, the business sells a diverse range of consumer technology products including games consoles and software,

wearable technology, consumer electronics and AV accessories and peripherals. The business is a distribution and supply chain partner of many of the world’s leading technology brands. DCC Technology provides technology brand owners and manufacturers with an exceptionally broad customer reach and proactively markets their products through product and customer focussed sales teams. The business provides a range of value-added services in the SME and consumer channels to both its customers and suppliers, including end-user fulfillment, digital distribution, third party logistics, web site development and management, category management

Exploration, production and refinery

Importation terminal

Inboundlogistics

Inland depots Agriculture

Retail forecourts

Commercial/industrial

FUEL

CA

RD

Marine

Aviation

Domestic

Outboundlogistics

DCC Energy – What We Do

DCC Energy’s activities are highlighted in orange

DCC Vital

DCC Environmental – What We Do

DCC Food & Beverage – What We Do

3rd party brands

Own brands

Category management & product education

Proactive sales & marketing

Supply chain services

New product development

Multiples

Convenience stores

Wholesale

Food service

PharmacyNEW

DCC Healthcare – What We Do

DCC Healthcare’s activities are highlighted in blue

DCC Food & Beverage’s activities are highlighted in red

Raw materialfor manufacturing

Construction and demolition

Commercial and industrial

EnergyMaterial recycling facility

Landfill

350+ Global technology brands & manufacturers

Kitting, localisation & customisation of products

Demand & logistics management, including import/export

Stock hubbing, bundling & returns management

Pro-active sales & marketing

Category, product & technical expertise

Product sourcing, website & category management

End-user fulfillment, white-label services & in-store product positioning

Specialist retailers

Grocers

Etailers

Resellers

DCC Technology’s activities are highlighted in blue

DCC Technology – What We Do

OPEN

DCC VitalDCC Healthcare – What We Do

Sales, marketing & distribution

Portfolio developmentand product licensing

Procurement

Vendor management

Hospitals

Pharma retailers and wholesalers

Pharma homecare

Supply chain management & logistics services

3rd party brand owners

Own brand/ licence products

Health & beauty brand owners

DCC Health & Beauty Solutions

Specialist health & beauty retailers

Direct sales/mail order companies

Product development, contract manufacturing and packing of health & beauty products

DCC Healthcare’s activities are highlighted in blue

Sales, marketing & distribution

Portfolio developmentand product licensing

Procurement

Vendor management

Hospitals

Pharma retailers and wholesalers

Pharma homecare

Supply chain management & logistics services

3rd party brand owners

Own brand/ licensed products

GPs

GPs

How we win

Pro-active sales and marketing approach to a very broad customer base.

Excellent supplier portfolio.

Agile, responsive and service focussed.

Cost effective and tailored solutions for customers and suppliers.

Technical, supply chain and value-added services expertise.

Financial strength.

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Operating Review - DCC Technology

Strategic Report - Performance

£48.1m2013: £41.5m UP 15.9%

Operating profit

£2,264.0m2013: £1,850.3m UP 22.4%

Revenue

21.1%2013: 16.4%

Return on capital employed

BrandsAcer, Aliph, APC, Apple, Asus, Belkin, Cisco, Dell, Devolo, D-Link, Fujitsu, Huawei, IBM, Lenovo, LG, Logitech, Microsoft, Netgear, Nokia, Plantronics, Samsung, Sony, Take-Two, TomTom, Toshiba and Western Digital.

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31DCC Annual Report and Accounts 2014

and merchandising, kitting, product customisation, security tagging and cross supplier bundling. Reflecting the global nature of the technology supply chain, DCC Technology provides global supply chain management services through its dedicated supply chain operations in Western Europe, Poland, China and the USA, and employs state of the art IT systems and procurement processes. These services include supplier hubbing, consignment stock programmes, supplier identification and qualification, quality assurance and compliance and supplier and customer fulfillment and are designed to effectively reduce its partners’ cost of production. It also delivers a range of post-manufacturing supply chain services designed to bring technology products to market in the most efficient manner possible, including localisation, customisation and other services.

In October 2013 all of the operating businesses within DCC Technology were rebranded under the ‘Exertis’ brand. The name has been well received by our employees, customers and suppliers. The case study on page 33 provides further information on the new brand.

During the year, the business in Britain and Ireland further strengthened its position and offering in security, unified communications and managed services with the acquisition of Cohort Technology. The addition of Cohort Technology further enhances the technical sales capability of the business and will assist in further developing its offering of managed services to our reseller partners. As highlighted in recent years, the business in Britain continued to expand its market position in the communications market, and in the past year, has further developed its product and service offerings (particularly with smartphones and tablet computers) to take advantage of the growing convergence of the IT and communications markets and channels.

DCC Technology’s principal addressable markets are the retail and reseller channels for technology products in Britain, France and Ireland. The value of the technology distribution market in these three territories is estimated to be €22.5 billion and we estimate that this market grew by 4% in the year to 31 December 2013. DCC Technology also operates in the market for global outsourced supply chain management services.

In Britain, DCC Technology is the second largest distributor of technology products and is the market leader in Ireland. The business is also a leading distributor of technology products in France where the business historically has been focussed on the retail channel. In the Netherlands the business is focussed on unified communications. DCC Technology is the fourth largest distributor of technology products in Europe.

DCC Technology’s revenue for the year ended 31 March 2014 by product type is as follows:

Computing (incl. tablets, PC’s & servers) 33%Communications & mobile 16%Printers, consumables & IT peripherals 16%Gaming consoles, software & peripherals 11%Consumer electronics 7%Other 17%

Revenue by product type

Consumer retail/etail 68%SME reseller 32%

Principal Distribution Markets:Analysis of revenue by customer type

Britain & Ireland


Continental Europe

DCC Technology provides it’s suppliers with an exceptionally broad customer reach and proactively markets their products through product and customer focussed sales teams.

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Operating Review - DCC Technology (continued)


Case Study DCC TECHNOLOGY REBRANDS ITS OPERATING BUSINESSES AS ‘EXERTIS’

During the year DCC Technology launched a new brand for each of the operating units within the division. The decision to develop a new brand was reached following a period of significant growth for the business, where it has grown to become the fourth largest technology sales, marketing, distribution and supply chain business in Europe. The launch of a common brand name for the operating units within the division was undertaken to gain more recognition from our supplier and customer partners as to the scale and capability of our operations, to assist in transacting with our partners across multiple product areas and geographies and to create

a platform to enable further expansion of the business into new territories. The name ‘Exertis’ was selected as the operating name, with each of the businesses adopting a co-branded structure initially, to ensure the significant goodwill vested in the existing names was transferred to the new name. ‘Exertis’ reflects the ambition and drive of the business to work harder for each of our customer and supplier partners. The new name was formally launched in October 2013 and has been well received by our employees, customers and suppliers and positions the business for its next phase of growth and development.

DCC Annual Report and Accounts 2014

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Strategy and DevelopmentDCC Technology’s vision is to become the leading sales, marketing, distribution and supply chain business for consumer and SME focussed technology products in Europe, delivering an industry-leading service offering, whilst delivering consistent long-term profit growth and industry leading returns on capital employed.

DCC Technology’s principal medium term strategic objectives are:• to broaden the range of sales

channels and products addressed by the business in its existing markets, including emerging technology segments;

• to develop and deliver a range of industry leading services supported by best in class infrastructure; and

• to extend the geographic footprint of the business in Continental Europe through complementary acquisitions.

DCC Technology will continue to invest in product and market capabilities where we see particular opportunities for growth. In addition to the areas highlighted in the medium term strategic objectives of the business, a clear focus is placed on ensuring that the business is innovative in the services it brings to the market and is operating as efficiently as possible.

The business in Britain and Ireland is currently investing significantly in its back-office infrastructure to support the constant demand for further services and to ensure the business generates leverage from its scale as a very significant player in its market.

DCC Technology is constantly reviewing trends and innovations in the technology industry and is focussed on ensuring that growing areas of the industry, such as the trend towards increased technology in sports and leisure, lead to further opportunities.

CustomersThe business has a very broad customer base, selling to approximately 14,000 customers. The largest customer accounted for approximately 10% of revenues in the year ended 31 March 2014 and the ten largest customers accounted for 45% of total revenues in that year.

DCC Technology seeks to provide the highest possible standard of customer service combining an unrivalled range of services with a commitment to identify the most cost effective and flexible solutions to our customers’ requirements. By constantly focussing on building the breadth of our SME and consumer-facing customer base we ensure that our service offering is always developing to adapt to their growing demands, as well as delivering an exceptional route to market for our suppliers.

Our supply chain services customers include IT equipment manufacturers, outsourced equipment manufacturers, consumer electronics companies and telecommunications equipment manufacturers. Customer relationships in this area of our business tend to be long term in nature and several of our customers have been dealing with us for over ten years.

DCC Technology is committed to conducting its business in a sustainable manner and this commitment is reflected in how it interacts with customers, suppliers, employees and the communities in which it operates.

Computing (incl. tablets, PC’s & servers) 33%Communications & mobile 16%Printers, consumables & IT peripherals 16%Gaming consoles, software & peripherals 11%Consumer electronics 7%Other 17%

Revenue by product type


Principal Distribution Markets:Analysis of revenue by customer type

Britain & Ireland


Continental Europe

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SuppliersDCC Technology has a diverse supplier base and partners with hundreds of suppliers including many of the world’s leading technology brands, such as Acer, Aliph, APC, Apple, Asus, Belkin, Cisco, Dell, Devolo, D-Link, Fujitsu, Huawei, IBM, Lenovo, LG, Logitech, Microsoft, Netgear, Nokia, Plantronics, Samsung, Sony, Take-Two, TomTom, Toshiba and Western Digital. The largest supplier accounted for 23% of total purchases in the year ended 31 March 2014 and the top ten suppliers represented 57% of total purchases.

The business adopts a proactive approach to the identification and recruitment of new suppliers and technologies and seeks to position itself as the obvious choice for owners of growing brands to access the retail and reseller channels. In addition, we seek to ensure that we have a position of strategic relevance with our principal sales, marketing and distribution suppliers.

When providing supply chain services to technology manufacturers and brand owners, a core element of the services provided by the business is the identification of appropriate component and supply chain partners for the manufacturer or brand owner and carrying out the quality assurance on those suppliers to ensure that they conform to required quality, regulatory and ethical standards.

With the aim of promoting long-term sustainable relationships with each of our suppliers and delivering a best-in-class service, the operating principles we adopt with our suppliers has been formalised and communicated during the year to our suppliers in our ‘Code of Practice’.

Our PeopleDCC Technology employs 1,850 people in 9 countries and recognises that they are fundamental to the ongoing success of the business. At all levels, employees are encouraged to adopt a service orientated approach to meeting the demands of suppliers and customers.

At senior management level, our operating businesses are run by some of the best regarded entrepreneurial management teams in the industry. DCC Technology seeks to foster and maintain an entrepreneurial culture, coupled with a commitment to ensuring that the highest ethical standards in business conduct are maintained.

DCC Technology is committed to conducting its business in a sustainable manner and this commitment is reflected in how it interacts with customers, suppliers, employees and the communities in which it operates. In common with the rest of the DCC Group, the business has processes to assess and control health and safety risks and aims to provide the best possible working environment for our employees.

DCC Technology has benefited from our participation in the DCC Graduate Programme. In addition, we also operate a wide variety of employee training programmes within individual businesses to promote the ongoing development of staff. Employee training encompasses both personal development and task specific training, in addition to formal training for personnel in areas such as health and safety, risk and compliance.

DCC Technology employs 1,850 people in 9 countries and recognises that they are fundamental to the ongoing success of the business.


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Key RisksDCC Technology faces a number of strategic, operational, compliance and financial risks. The business supplies products in the business and consumer markets in Western Europe and the concentration of activity in this geographic area means that further economic downturns and disruption in these markets remains a key risk for the business.

DCC Technology works with a broad range of suppliers and customers with whom we have built excellent trading relationships. However, the business would be significantly impacted by the loss of a small number of key suppliers or customers.

The breadth of suppliers and customers within the business is also critical in ensuring that DCC Technology is in a position to capture opportunities in respect of new technologies, as the industry is particularly fast-paced. The ever-changing nature of technology, whilst presenting opportunities, also presents risk as the growth or emergence of new technologies may impact on our customers or suppliers over time.

Given that the business has a diverse product and supplier portfolio, managing the potential risk of stock obsolescence is a critical success factor in the day to day operations of the business. The length and significance of our relationships with our suppliers and the existence of formal contractual stock rotation and price protection provisions with the vast majority of our suppliers assists in mitigating this risk.

Performance for the Year Ended 31 March 2014DCC Technology achieved an excellent result, increasing operating profit by 15.9%, reflecting very strong organic growth in both mobile computing and communications products, and increased its return on capital employed to 21.1%. DCC Technology continues to develop its service offering to enhance its position as a leading route to market partner for connected devices and to develop new sales channels in the sports and lifestyle sectors.

The business in Britain, which accounted for 81% of total revenues in the period, generated excellent operating profit growth across its principal product lines. The performance was particularly strong in mobile computing and communications products such as smartphones, laptops and tablets, with increased market share achieved in both the retail and reseller channels.

The business continues to invest in broadening its product and service portfolio, including the provision of accessories, airtime and outsourced fulfilment and category management solutions. Excellent organic growth was achieved in 'data room' products, such as servers, storage and security, and the business benefitted from the additional technical capability introduced through the acquisition, in October 2013, of Cohort Technology, a specialist in security, unified communications and managed services. The launch of the latest generation of gaming consoles in advance of Christmas 2013, as well as major software releases during the year, was also a feature of the performance in Britain.

DCC Technology is committed to conducting its business in a sustainable manner and this commitment is reflected in how it interacts with customers, suppliers, employees and the communities in which it operates.

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In Continental Europe, the business was impacted by a weak demand environment and margins declined due to a changed product mix. The business is focussed on broadening its product portfolio and extending the range of customer channels serviced.

The supply chain services business traded ahead of expectations. These activities have now been integrated with DCC Technology’s sales, marketing and distribution activities to allow the provision of a consolidated end-to-end service offering.

DCC Technology: Key Financial Performance Indicators

Strategic objective KPI PerformanceDrive for enhanced operational performance

Revenue growth 2014

2013

2014 v 2013: +22.4%

£2,264.0m

£1,850.2m

2014

2013

2014 v 2013: +15.9%

£48.1m

£41.5m

2014

2013

2.1%

2.2%

2014

2013

21.1%

16.4%

2014

2013

£82.6m

£99.6m

2014

2013

10.3%

4.8%

2014

2013

12.7%

14.9%

Drive for enhanced operational performance

Operating profit growth

2014

2013

2014 v 2013: +22.4%

£2,264.0m

£1,850.2m

2014

2013

2014 v 2013: +15.9%

£48.1m

£41.5m

2014

2013

2.1%

2.2%

2014

2013

21.1%

16.4%

2014

2013

£82.6m

£99.6m

2014

2013

10.3%

4.8%

2014

2013

12.7%

14.9%

Grow operating margin Operating margin

2014

2013

2014 v 2013: +22.4%

£2,264.0m

£1,850.2m

2014

2013

2014 v 2013: +15.9%

£48.1m

£41.5m

2014

2013

2.1%

2.2%

2014

2013

21.1%

16.4%

2014

2013

£82.6m

£99.6m

2014

2013

10.3%

4.8%

2014

2013

12.7%

14.9%

Deliver superior shareholder returns Return on capital employed

2014

2013

2014 v 2013: +22.4%

£2,264.0m

£1,850.2m

2014

2013

2014 v 2013: +15.9%

£48.1m

£41.5m

2014

2013

2.1%

2.2%

2014

2013

21.1%

16.4%

2014

2013

£82.6m

£99.6m

2014

2013

10.3%

4.8%

2014

2013

12.7%

14.9%

Generate cash flows to fund organic and acquisition growth and dividends

Operating cash flow

2014

2013

2014 v 2013: +22.4%

£2,264.0m

£1,850.2m

2014

2013

2014 v 2013: +15.9%

£48.1m

£41.5m

2014

2013

2.1%

2.2%

2014

2013

21.1%

16.4%

2014

2013

£82.6m

£99.6m

2014

2013

10.3%

4.8%

2014

2013

12.7%

14.9%

Deliver superior shareholder returns

10 year operating profit CAGR

2014

2013

2014 v 2013: +22.4%

£2,264.0m

£1,850.2m

2014

2013

2014 v 2013: +15.9%

£48.1m

£41.5m

2014

2013

2.1%

2.2%

2014

2013

21.1%

16.4%

2014

2013

£82.6m

£99.6m

2014

2013

10.3%

4.8%

2014

2013

12.7%

14.9%

DCC Technology, which has changed its name from DCC SerCom, achieved an excellent result, increasing operating profit by 15.9%, reflecting very strong organic growth in both mobile computing and communications products, and increased its return on capital employed to 21.1%.


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