DCC Refutes Sunday Times Alle

RNS Number : 9437Z

DCC PLC

24 January 2011

 



DCC Refutes Sunday Times Allegations

Over the past three weeks The Sunday Times has published a series of articles containing very serious allegations that DCC's British oil distribution business, GB Oils, has been "ripping off" its customers, "fleecing OAPs" and "inflating customer bills". The Sunday Times articles contained many inaccuracies and unsupported allegations. DCC completely refutes these misleading allegations and wishes to set the record straight.

DCC has endeavoured to cooperate with The Sunday Times in order to ensure it could report accurately and fairly. Despite this cooperation the newspaper has continued to report in a selective manner and in a way that predominantly fails to present the facts either accurately or fairly (as commented on further below). This is extremely disappointing.

Background

In Britain GB Oils is the leading distributor of transport and heating fuels to c. 450,000 domestic, commercial, industrial and agricultural customers throughout the country and has a market share of approximately 14%. In its last financial year to 31 March 2010 GB Oils sold 4 billion litres of oil products, of which approximately 19% was kerosene, the heating oil product for domestic users. 

GB Oils has acquired a number of businesses in the oil distribution sector in Britain since entering the market in 2001. As there is considerable local goodwill associated with the brands acquired with these businesses, GB Oils has continued to sell product under these familiar national, regional and local brands.

DCC believes that GB Oils is the most efficient oil distributor in the British market and provides the best customer service. During the recent severe weather conditions GB Oils worked tirelessly to meet its customers' expectations and to ensure they did not run out of product. By leveraging its extensive infrastructure GB Oils was able to deliver product to its customers within shorter lead times than many of its competitors. In addition, the business went to extreme lengths to deliver product to customers in remote areas that were not accessible by truck. GB Oils' prices are competitive and remained competitive during this period.

The oil distribution industry in Britain remains very fragmented with in excess of 175 distributors and is highly competitive, a fact evidenced by the low margins in the industry.  DCC's Energy division generated an operating profit margin of c. 2.5% (or less than 2 cent per litre) in its financial year to 31 March 2010 and no significant change is expected in its financial year to 31 March 2011.

Heating Oil Prices

The industry sells commodity products, the prices of which change on a daily basis driven by a range of factors including international oil prices, exchange rates, excise duty and VAT. In particular, domestic heating oil prices are also affected by local factors such as the costs of storage, the risk of scarcity, increased environmental regulation and the competitive environment. The heating oil segment of the market is very seasonal with significant increases in demand at times of colder weather. The industry actively endeavours to convince its customers to spread their purchases of fuel throughout the year, however in practice demand soars when the temperature drops significantly, leading to pressures on the industry to deliver product within short lead times.

The recent very severe weather conditions led to unprecedented demand and shortages of product. These factors, together with the challenges of poor road conditions during the snow, led to increased delivery lead times, fewer orders delivered per truck per day and higher costs. With constraints on supply, higher costs and hugely increased demand, heating oil prices increased across the market. However, with the recent improvement in weather conditions, prices have started to fall back.

Misleading Allegations by The Sunday Times

The Sunday Times articles claim that "DCC enjoys a virtual monopoly in parts of Britain" in the heating oil market. This is not the case. There are in excess of 175 other oil distributors in Britain. A list of distributors can be obtained from the industry body, The Federation of Petroleum Suppliers. In every local area in which GB Oils operates it faces strong competition, in most cases from many competitors, as well as the constant possibility of new entry and expansion from others from outside that area. The barriers to entry in this industry are low; existing competitors are continually expanding their geographic footprint and new competitors frequently enter the market.

The Office of Fair Trading ("OFT") carried out a detailed investigation into the acquisition by DCC of CPL Petroleum Limited which was unconditionally cleared by the OFT in August 2007. More recently in April 2010 in clearing the acquisition by GB Oils Limited of the oil distribution business of Brogan Holdings Limited on the British mainland (as part of this, by agreement with the OFT, DCC disposed of a very small business in the Western Isles of Scotland) the OFT concluded that "there is no realistic prospect of a substantial lessening of competition in the distribution of heating oils and transport fuels in local areas in mainland Scotland and Northern England. In particular, the OFT believes that across each locality where the parties have depot facilities, a sufficient number of competing distributors will remain to provide a constraint on the parties post-merger - including competitors from outside the locality." The full text of the OFT's decision on the completed acquisition by GB Oils Limited of Brogan Holdings Limited can be downloaded at www.oft.gov.uk/shared_oft/mergers_ea02/2010/GB_Oils-Brogans.pdf

DCC absolutely refutes the misleading allegations of "ripping off" its customers, "fleecing OAPs" and "inflating customer bills" made by The Sunday Times. 

GB Oils does not "inflate" customer bills as alleged in The Sunday Times article of 23 January. GB Oils' policy is that the price it quotes to its customers is the price that the customer is invoiced and in the event of any administrative errors credit notes are issued. DCC absolutely refutes any allegation that GB Oils has defrauded its customers.

There are also examples quoted by The Sunday Times in relation to customer experiences which contain material inaccuracies:

-     In the article on 9 January 2011, it was alleged that in December 2010 a particular customer was quoted £643 for a 500 litre delivery; however, GB Oils' records show that the customer was actually quoted 75.99 pence per litre, and having agreed to waive the emergency delivery charge the total cost to the customer would have been the equivalent of £398.95 (including VAT) for 500 litres.

-     In the article on 23 January 2011 there are again material inaccuracies in relation to deliveries to Mr. Roger Williams MP. GB Oils' records show that Mr. Williams ordered 2,300 litres of home heating oil (kerosene) on 4 October 2010. GB Oils delivered 1,733 litres of kerosene on 7 October 2010 at a price of 43 pence per litre. The second delivery of oil referred to by Mr. Williams arose from a completely separate order he placed on 7 December 2010 and actually related to 1,000 litres of gas oil and not kerosene as implied by the article. Apart from the difference in order dates, gas oil and kerosene are different products with different pricing formulae. Mr. Williams was quoted a price of 62 pence per litre for the gas oil and this was delivered on 14 December. In both cases Mr. Williams was invoiced for the price he was quoted.

DCC has also been accused of using its price comparison website BoilerJuice.com to mislead customers.  Contrary to the impression given by the articles in the Sunday Times, BoilerJuice.com currently works with c. 50 suppliers that are not owned by DCC, which are proactively recruited and encouraged to offer their best prices so as to create strong competition within the market place.  The modus operandi of the website has not changed since the acquisition of BoilerJuice by the DCC Group.  It continues to be impartial and the great majority of its participating suppliers (approximately 75%) are independent of GB Oils. Each and every supplier is treated equally throughout the process.  BoilerJuice does not profit from increases in the price of heating oil.

Carmarthenshire County Council

DCC acknowledges that Carmarthenshire County Council is investigating customer complaints made to it relating to GB Oils' business in South Wales arising from January 2010. DCC strongly denies that GB Oils has been engaged in any fraudulent activity or unfair trading concerning pricing or that any criminal offences have been committed.  DCC has sought to cooperate fully with this investigation.

Minister for Energy & Climate Change request to the OFT

DCC has noted the statement made by the Minister for Energy & Climate Change on 21 January in which he says that he has asked the OFT to bring forward its competition and consumer study into off-grid energy. DCC welcomes this initiative by the Minister and looks forward to making a positive contribution to any market analysis conducted by the OFT.

Investor Enquiries: Tommy Breen, Chief Executive Fergal O'Dwyer, Chief Financial Officer Telephone:        [phone] Email: [e-mail] Web: www.dcc.ie

Press Enquiries: Brian Bell, WHPR Telephone:        [phone] Email: [e-mail]

 

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