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DCC : Healthcare event – Live discussion with Managing Director Conor Costigan

09/28/2021 EST

DCC Healthcare Event

Live Discussion with Managing Director Conor Costigan

Tuesday, 28th September 2021

Video

DCC Health & Beauty Solutions provides outsourced product development, manufacturing, packing and related services principally in the areas of nutrition and beauty products for international health and beauty brand owners in Europe and the US. Eight high quality facilities producing softgels, tablets, capsules, effervescents, gummies, creams, liquids, powders and sprays across a range of packaging formats.

DCC Vital is involved in the sales, marketing and distribution of medical products, selling a broad range of own and third party products across all sectors of the healthcare market in Britain, Ireland, Germany and Switzerland.

Welcome

Eavan Gannon: Good afternoon ladies and gentlemen. Thank you so much for joining myself and Conor here this afternoon. We welcome you on lots of different platforms, LinkedIn and a variety of different Zooms so we really appreciate you coming to listen to us. My name is Eavan Gannon. I am from Powerscourt and I am joined this afternoon by the man of the hour, Conor Costigan.

Conor Costigan: Hi, Eavan. Delighted to be here.

Eavan Gannon: Excellent. Looking forward to this. This is meant to be obviously a chat between myself and Conor but we will welcome all opportunities from the floor. You have got some details probably in front of you there investorrelations@dcc.iewelcoming any questions throughout the course of the hour conversation that we are having here. For those of you who are social media savvy, please feel free #DCCHealthcare and #DCCEvent and we look forward to seeing your tags over the course of the afternoon.

Without further ado, I would like to introduce the man of the hour. Conor, thank you very much for taking the time. You joined DCC in 1997. You have had considerable experience. You have worked in a variety of different areas, starting out in Food & Beverage. I first got to know you at Investor Relations. We have worked alongside each other for many years. You joined the Healthcare division in 2003 before taking the helm in 2006. You have had a few busy years and, if I am not mistaken, 2006 when you took the helm revenues were approximately £100 million. Would you like to take us through the transformation that you have led the way on?

Conor Costigan: Yes, it has been a fantastic growth journey and, as you say, in 2006 we had revenues in euros obviously in those days of about €110 million and profits of about €12 million. I think we had about

DCC Healthcare Event with Conor Costigan

Tuesday, 28th September 2021

700 people in two countries, Britain and Ireland, and in our latest fiscal year we had revenues of €655 million and profits of €82 million. We have got 2,800 colleagues now and operations in Britain and Ireland but also in Continental Europe and in the US. It has been a very exciting journey. I still feel like we are only getting going. We have got exciting growth platforms now in the DACH countries and in the US so lots to go for still in DCC Healthcare.

Eavan Gannon: Fantastic, an impressive journey so far. Thank you for taking us through that. You might give us a little bit of a deeper dive into the two divisions. We all know DCC Healthcare but it is made up of the DCC Vital and the DCC Health & Beauty Solutions. You might give the audience and myself a little bit of a further dive into those.

Conor Costigan: Yes, sure. The larger of the two businesses last year by just slightly was DCC Health & Beauty Solutions. That is a contract manufacturing business, a CMO business serving the health and beauty industry, focused on nutritional products and beauty products. We provide a range of outsourced services from product development, formulation, regulatory services through to obviously manufacturing and packing. Our customer base is leading brand owners in the health and beauty space, big consumer healthcare businesses.

Eavan Gannon: Any we know?

Conor Costigan: We have lots that you would know, a lot of household names, international and local champions as well. In the US, across Europe and Britain. Direct sales organisations are important and specialist retailers. We have eight manufacturing facilities, high quality facilities, five in Britain and three now in the US. I suppose one of the key features of the business is we really build long‐term relationships with our customers. We try to lead out on product development and product innovation and through that create very sticky long‐term relationships.

On the other side of the house DCC Vital is focused on medical products. It is involved in the manufacturing, marketing, sales and distribution of medical products in the British, Irish and now the DACH market. We are also selling through international distributors. We are selling into the acute care, the hospital sector which would have been the origins of the business. However, today we have a very broad reach and very strong presence in primary care, both in Britain and now in Germany. Leadership positions and into other fragmented healthcare settings as well. That is obviously a big growth area for us as well.

Eavan Gannon: Excellent, thank you very much for that. Talking of Healthcare and the last 18 months, maybe you could give us some further information as to how the divisions have coped? Both your staff, products and those relationships and how you have had to deal with everything that was thrown at you over the course of the last 18 months.

Conor Costigan: Yes, obviously for the whole world it has been a challenging 18 months and it has been a very successful period for DCC Healthcare. However, a very challenging period and we are hugely proud and grateful to all of our colleagues around the business for their commitment. I suppose we learnt a new phrase through the pandemic which is when people talked about essential products and services. What we do in DCC Healthcare and indeed in DCC generally is we provide essential products and services. Whether that is the medical products to keep hospitals and GPs running from PPE to ICU devices or on the

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DCC Healthcare Event with Conor Costigan

Tuesday, 28th September 2021

health and beauty side the nutrition products the consumption of which really shot up through Covid as people really proactively sought to keep themselves fit and well. It was not an option for us to ask people to work from home. We had to keep factories going. We had to keep warehouses going.

Eavan Gannon: Additional pressures obviously that you had to take on board.

Conor Costigan: Exactly. I suppose our number one priority, our number one value in DCC is safety and I suppose our number one priority was keeping our people safe. I suppose first and foremost we had to implement new procedures to make sure we kept people safe in the workplace. Then to operate under those new regimes while coping with increased demand, supply chain challenges and everything that has gone with the last 18 months. However, as people will have seen in our results last year when we grew our profits by 35%, we overcame all those challenges. All the 2,800 people around the business overcame those challenges and delivered a fantastic performance.

Eavan Gannon: Excellent. On behalf of all of us thank you because you were the ones who were helping to keep the healthcare systems going. Just a reminder to the audience, please do feel free to drop questions into investorrelations@dcc.ieat any stage. We will take them over the course of the discussion or indeed at the end. Just coming back to you there, you mentioned the reporting structure. As you said, you were locked down in Dublin and your teams were all working. How is that relationship with you and the management teams and all of the different businesses? How does that work, particularly when you are locked away from each other?

Conor Costigan: The way we are set up in DCC Healthcare is the same as the DCC Group office team. We have are very lean corporate and divisional teams across the Group. DCC Healthcare is no different and although we are expanding our small Healthcare team from two to four over the next couple of months really reflecting the scale of the business today and also our ambition for international growth, we are very fortunate that we have very experienced leaders in both the Health & Beauty business and in Vital. Stephen O'Connor leads the Health & Beauty business. He has been with the Group almost as long as me and we have worked side‐by‐side to really build that business over the last 20‐odd years. Then Harry Keenan leads the Vital business. Harry is a hugely experienced medical device and healthcare professional. He led he Baxter business in Britain and Ireland for many years and joined us about six years ago.

One of the features of DCC, as you will know Eavan is we're very stable teams throughout our business. I suppose the transition to operating virtually with those teams was relatively straightforward. We know each other well. We have a rhythm in terms of how we communicate. It was a little more challenging with our more recent colleagues in the US. In fact it is interesting, Amerilab, our most recent acquisition in the US, we completed on 25th March 2020 and then obviously headed into the pandemic. Unfortunately we have not been able to be physically in the business since but we have really built the relationships virtually since then. We had obviously had spent a lot of time in the business through the due diligence process and formed very strong relationships. That stood us in good stead through the virtual period.

Eavan Gannon: I was just going to say, are you looking forward to getting back out there? Are you rushing to jump on a plane?

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DCC Healthcare Event with Conor Costigan

Tuesday, 28th September 2021

Conor Costigan: Yeah, no, absolutely. I will be in the States next month and really looking forward to getting round the businesses. We have been spending money in all our facilities as well, investing to develop capacity and capability so looking forward to getting out and seeing our colleagues.

Eavan Gannon: Travel safely. You mentioned the relationships with your clients and sticky and how it is that you develop products and innovation. Could you take us through that process and how that has opened opportunities as the relationship has evolved over time?

Conor Costigan: Yes, maybe starting with Health & Beauty, our focus really in this area is to build long‐ term partnership relationships with brand owners. As I said earlier, we lead out on product development. We have about 170 scientists around the Health & Beauty group involved in our new product development and our quality teams. That is very important to our customers and our prospective customers. We are constantly scanning the market for trends. We are constantly looking for new ingredients coming through, new uses of ingredients and then we are coming back proactively to our customers, to potential customers with ideas for new products. That part of our operation is very important. Clearly, we are operating at the upper end of the quality spectrum with very well invested facilities. Being part of the DCC Group and having access to the balance sheet is important to keep that investment going in the facilities. Our customers really, really value that. Then obviously you have got to provide very good service levels and flexibility to be able to respond to customers because demand patterns are not always uniform. We work very hard to try and keep that flexibility in our operations, being able to be responsive. The combination of those things really drives these long‐term sticky partnership relationships.

Eavan Gannon: Has that been tested in any way in the last 18 months or is that just a little bit more of the same? Just having to be a little bit more front and centre on a Teams or a Zoom call.

Conor Costigan: Certainly it has been tested. For all manufacturers it has been a challenging period. The demand for nutrition products was particularly strong.

Eavan Gannon: Probably everybody on the call here has boxes of tablets that they all take every morning now that we might never have been looking at before. It is definitely an increasing space.

Conor Costigan: It is. Historically the market over the last ten years or so has grown maybe 7‐8% per annum. It grew in the US last year by 14%.

Eavan Gannon: So it is not just me.

Conor Costigan: Consumer penetration has increased. More people are taking it and that bodes very well for the long‐term prospects for the market. I think going back to your question, we coped with that demand pressure better than others. We had capacity and we were able to turn on capacity. The stability and the commitment of our labour forces and the robustness of our supply chain really helped us to maintain service levels at a very good level through that difficult period.

Eavan Gannon: Excellent, well done. We might take a little bit of time to talk about the platform from here. You have spoken about lots of opportunities, your relationships and talking about the process of what seems to be a good platform for organic growth. You have the relationships so you are able to build things out. Could you take us through how you see that, how you see the opportunities there?

4

DCC Healthcare Event with Conor Costigan

Tuesday, 28th September 2021

Conor Costigan: Yes, the starting point and really the great thing for DCC Healthcare is we are operating in growth markets. Whether it is the nutrition market, the beauty market or the medical products market demand is growing for our products and that is driven by really long‐term macro factors. There is obviously demographic factors with an aging population and higher incidence of illness which are driving people to look for more cost‐effective health solutions. It is driving them to look for more preventative self‐care and through Covid some of those things have really been accelerated or underpinned as well. There are some very nice underlying trends that benefit us right across our nutrition and medical products. We are also seeing increasing regulation and increasing regulatory oversight. That is good news for well‐set up, well‐invested, well‐resourced businesses like ours and again we are benefitting from that. In the nutrition space there are some interesting trends that are beneficial as well. There is increasing scientific support for the use of nutritional supplements and I suppose that has probably been a key factor in some of the large consumer healthcare and consumer product businesses getting involved in the nutrition space. There has been some significant investment by the likes of Nestle and Proctor & Gamble in the space. I think Nestle alone has deployed about $10 billion over the last five years in buying nutritional brands. That is shifting standards in the sector. It is shifting consumer penetration as well. I think all of those trends will also feed into more opportunity for better resourced bigger players like DCC Health & Beauty Solutions.

Eavan Gannon: Fantastic, excellent. Again just reminding you, if anybody wants to drop some questions in as we go along, otherwise we can take them at the end of the session. You mentioned there capex. Are there any examples of monies being put to work within the business and how it has been fruitful?

Conor Costigan: The biggest project we have done from a capital investment point of view over the last couple of years is an almost doubling of our softgel capacity in our British softgel plant that came on stream last year. That has been fantastic in terms of we have had some very interesting technological developments in that business. We have really developed our expertise in vegetarian softgel capsules which is quite a growth trend, the whole vegan piece. We have also produced the world's first we believe organic vegetarian capsule with a number of other technological developments. Having that additional capacity allows us now to really go and exploit those opportunities.

Eavan Gannon: That innovation and technology, is there opportunities to roll it out elsewhere?

Conor Costigan: Yes, we have parallel projects now going in gummies. We are about to commission a new gummy line actually in our softgel plant in Britain which will allow us to enter the gummy market in Europe. Gummies has been one of the fastest‐growing sectors in the US over the last ten years and it really started off as a kids product. Those kids became adults and continued to take gummy vitamins. That has obviously grown the market substantially. All the forecasts would suggest that is going to continue. It is less developed in Europe so we are putting in the investment now and getting going as that market begins to evolve. We already have customers lined up for that. We are producing gummies in a modest way in the US today but we are developing out a much more substantial investment project to increase our gummy capacity and that should come online over the next 12 months. There is a range. It is one of the features of the business in Health & Beauty that we are constantly investing in capacity, capability and then obviously the key thing is really cross‐selling that across our customer base.

5

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Disclaimer

DCC plc published this content on 28 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 October 2021 16:15:06 UTC.


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