Final Results
United Drug plc
Preliminary Announcement of Results
Year ended 30 September 2008
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Highlights |
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IFRS based €’000 |
Intangible amortisation €’000 |
Adjusted €’000 |
Increase
on 2007 |
|||||
| Revenue | 1,683,712 | - | 1,683,712 | 6% | ||||
| Operating profit | 66,220 | 11,977 | 78,197 | 17% | ||||
| Profit before tax | 58,551 | 11,977 | 70,528 | 13% | ||||
| Diluted earnings per share (cent) | 21.61 | 4.09 | 25.70 | 12% | ||||
| Dividend per share (cent) | 8.00 | - | 8.00 | 10% | ||||
United Drug believes that the adjusted operating profit, adjusted profit before tax and adjusted diluted earnings per share are more appropriate measures of the underlying group performance than those measurements set out in the primary financial statements, as this information is in a format communicated to and reviewed by the investment community.
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Results highlights |
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2008 €’mn |
2007 €’mn |
Increase
% |
Constant
currency % increase |
|||||
| Revenue | 1,683.7 | 1,583.6 | 6 | 10 | ||||
| Operating profit * | 78.2 | 66.6 | 17 | 24 | ||||
| Profit before tax * | 70.5 | 62.3 | 13 | 20 | ||||
| Diluted earnings per share (cent) * | 25.70 | 23.02 | 12 | 18 | ||||
| Dividend per share (cent) | 8.00 | 7.30 | 10 | 10 | ||||
| Net debt | 159.1 | 68.3 | ||||||
| Net debt/EBITDA** (times) | 1.65 | 0.91 | ||||||
* before amortisation of intangible assets.
** annualised EBITDA of companies acquired during the year.
2008 Financial highlights
- Another year of double-digit profit, earnings and dividend growth.
- Operating leverage – continued expansion of the Group into higher margin activities delivered further margin expansion with growth in operating profit and pre-tax profit ahead of revenue growth.
- Operating profit growth of 17% in the year despite the fall in the value of sterling relative to the euro which reduced the translated value of the sterling profits by over €4 million. On a constant currency basis, pre tax profits are 20% ahead of 2007.
- Tight working capital management has helped to deliver another healthy cash flow performance.
- 10% growth in dividend per share reflecting strong operating performance, cash flow and balance sheet.
- Strong balance sheet at year end with modest debt levels and additional financing lines in place.
2008 Strategic & Operating highlights
- Good performance by the Group with growth reported in each of our four operating divisions.
- Solid performance from the growing pharma packaging business in Europe.
- Expansion of the packaging business to the US market through the acquisition of Sharp Corporation.
- Expansion of our presence in the Irish Medical & Scientific market through the acquisition of JVA.
- Broadening of our contract sales and marketing services with acquisitions in the US and UK markets.
- Further market share gains in both the Republic of Ireland and Northern Ireland wholesale businesses.
Chief Executive’s comment
Commenting on the 2008 performance, United Drug Chief Executive Officer, Liam FitzGerald said:
“2008 has been another excellent year for United Drug with good growth across all parts of the business. We are reporting a 17% increase in operating profit despite the fall in the value of sterling reducing the euro value of profits generated in the UK. On a constant currency basis operating profit is 24% ahead of last year. This performance highlights the defensive nature of our business and the operating leverage within the business as we continue to develop higher margin services.
We have made significant progress during the year with market share gains and an extension of our service offering both by activity and geography combined with good revenue and profit growth. We have also produced another strong cash flow performance and are well positioned to exploit further opportunities in the growth markets in which we operate, even in a more difficult economic environment.”
Dividends
The directors are proposing a final dividend of 5.77 cent per share. This gives a total dividend for the year of 8.00 cent per share, an increase of 10% over the 2007 total dividend, and continues our progressive dividend policy.
The directors are pleased to advise that all shareholders will be given the opportunity of receiving all or part of their 2008 final dividend as a scrip dividend in the form of new shares. It is expected that the share alternative election/mandate forms, setting out details of the share alternative offer and the procedures to be followed, will be posted to shareholders in January 2009.
Payments in respect of the final dividend or, alternatively, share certificates will be issued, on 18 February 2009 to holders of ordinary shares whose names appear on the Company’s register at the close of business on 5 December 2008.
Management Re-organisation
To better reflect the growth and changing nature of our businesses and the requirements of our customers, some structural and management changes are being implemented in the 2009 financial year. The Pharma Wholesale, contract distribution element of Supply Chain Services and Medical & Scientific businesses are being combined to form a single Healthcare Supply Chain division. This division will be led by Alan Ralph, the current Managing Director of the Pharma Wholesale division. Annette Flynn will take responsibility for the newly formed Packaging and Speciality Services division. The Contract Sales & Marketing Services division will not change as part of this re-organisation and will continue to be led by Chris Corbin.
Group Development and Outlook
During 2008, United Drug has continued its development as a major international healthcare services company. The range of services available to our manufacturer partners has been significantly extended and our geographical footprint expanded to include the US market. The drive to provide more value-added services for our customers and to continue to improve productivity within our operations is reflected in a further increase in margins across the business continuing the margin progression that has been achieved over each of the last five years. In addition, we have produced another strong cash flow performance in the year.
The Group remains positive about the fundamentals of its core markets and its position within those markets, despite the ongoing challenge presented by Government regulation and budgetary pressures impacting on parts of the business. The Group continues to see opportunities to expand the business, both organically and through acquisition, although we are facing into a much more difficult economic environment with continued uncertainty in global financial markets. The continued weakening of sterling relative to the euro may constrain reported growth rates in the current year. The Group continues to have a strong balance sheet and positive internally generated cash flows to support our growth objectives.
Review of Operations
Supply Chain Services
The Supply Chain Services division provides outsourced logistics and related value-added services to pharmaceutical, biotechnology, nutraceutical and veterinary manufacturers, and continues to broaden the range and geographical reach of services provided to manufacturer clients. The activities of the division can be broken down into three elements: Contract Distribution Outsourcing (CDO), Speciality and Clinical Services and Contract Packaging.
The CDO business is made up of the Irish and UK pre-wholesale and single channel supply consumer products businesses. UDG, the UK pre-wholesale business, operated as a joint venture with Alliance Boots, continues to win new business and market share in the growing UK outsourcing market. In Ireland, our UDD business performed well and has grown sales and profits in a more mature market. Our small consumer products business in Ireland is operating efficiently and trading profitably in a market that is being impacted by lower consumer spending.
The Speciality and Clinical Services business includes MASTA in the UK and Temperature Controlled Pharmaceuticals (TCP) in Ireland. MASTA acquires, markets, sells and distributes flu and travel vaccines to GPs and clinics and administers travel vaccines to the general public through franchised and self-owned clinics. The company continues to increase its penetration in the UK market and now operates through thirty-nine proprietary and partnered clinics. MASTA has produced a solid performance in the year although down on the prior year due to a slower take-up of flu vaccinations in the UK at the beginning of the year. TCP is a start-up business that successfully operates a number of infusion clinics in Ireland and offers a comprehensive special logistics and nurse-led patient administration service for pharmaceutical manufacturers and healthcare authorities. It is planned to roll out these speciality services to the UK market, in conjunction with MASTA.
In Contract Packaging, we provide total packaging solutions for branded pharmaceutical, generic and nutraceutical manufacturers. We have significantly increased our footprint in this market during the year through the acquisition of one of the leading service providers in the USA, Sharp Corporation. This acquisition complements our existing operations in the UK, The Netherlands and Belgium and positions United Drug as one of the leading international providers of outsourced packaging services for healthcare manufacturers. The packaging businesses have performed in line with or ahead of our expectations in the year and provide us with a strong platform to further develop this service for existing and prospective clients.
The Supply Chain Services division has performed strongly during the year across all businesses and provides a solid platform from which to grow both the range of services offered and the depth of client reach.
Medical & Scientific
The Medical & Scientific (M&S) division provides sales, technical support, logistics and back-office services for high quality, technology-driven, medical equipment and devices manufacturers in both the Irish and UK markets.
We have significantly increased our presence in the Irish market through the acquisition of JVA in December 2007. JVA operates in the analytical chemistry sector supplying and servicing complex analytical equipment analysers to pharmaceutical manufacturers and third level research facilities. The potential of synergies with our existing industrial and scientific business will allow us to maximise our position in this high-technology equipment and engineering support sector.
Our other businesses in Ireland are based in the medical and clinical diagnostics areas, selling mainly to public and private hospitals. We also have a community business, supplying nursing homes, which is a market leader in Northern Ireland and is growing well in the Republic of Ireland as investment in this area continues. In our hospital-based businesses, our clinical diagnostics unit had a strong year as we leveraged our market dominance in key clinical areas to win a number of equipment placements. Our focus on Point of Care diagnostic solutions was rewarded with good business gains.
Our medical equipment business in Ireland, represented by Intraveno, was negatively impacted by a slowdown in the implementation of a number of forecast capital projects in areas such as robotics, sterilisation and infusion therapy. We believe that these projects have been delayed rather than postponed, but there is no certainty as to when they will be completed. This is a cycle that we have experienced before and given current healthcare budgetary pressures, we expect this portion of the market to remain challenging in the near term. However, we have retained market share and continue to expand our presence in this sector.
In the UK, our business model is based around operating in niche, clinical specialities in areas such as orthopaedic joint replacement, endoscopy and cardiology.
Our businesses in the UK produced a satisfactory performance, with most business units delivering growth year on year. While the whole business produced satisfactory results, the Endoscopy business was particularly successful as it expanded its presence in the broader NHS arena. We expect our performance to be further strengthened by the release of a proprietary imaging system, which will add significant value to our product offering.
Our specialist surgical team based in the Pyramed and Mantis Surgical businesses also delivered good growth in the year. While all our UK businesses are focused on particular clinical niches, this business unit attempts to utilise new technologies across specialist areas. Spending constraints by some major pharmaceutical manufacturers on capital projects during the year did impact our analytical chemistry business in the UK. This business is however well positioned to maximise opportunities as they arise in this sector in the year ahead.
The M&S division has produced growth in revenues and profits during the year although somewhat below our expectations. Healthcare budgetary pressures do impact on parts of this business from time to time and given the current economic outlook in the markets in which we operate, this is likely to continue into the current financial year. Our businesses in this division have a broad spread of revenue streams and manufacturer and client relationships and many of these should not be impacted by capital spending constraints. We are confident that the quality product portfolio we represent combined with the experience and expertise of our specialist sales force will allow these businesses to continue to prosper.
Contract Sales & Marketing Services
The division previously referred to as the Contract Sales Outsourcing division has significantly broadened its service offering over the last twelve months and, to better reflect the increased service offering to healthcare clients, the division has been renamed the Contract Sales & Marketing Services division.
Through AshfieldIn2Focus, we have strong market leading positions in the provision of contract sales outsourcing services to pharmaceutical manufacturers in the UK and Ireland with a developing business in the US. To seek to leverage our strong relationships with manufacturer clients and the growing trend amongst pharmaceutical manufacturers to outsource more of their non-core functions, we have expanded our activities in this division to include a range of complementary marketing services. The broadening of the service offering and the geographic reach has been enhanced by a number of small bolt-on acquisitions during the year.
During the year we acquired Alliance Healthcare, a US based company, which provides a range of call centre solutions to support pharmaceutical companies sales, marketing and regulatory requirements, including medical affairs information, patient compliance support and clinical trials recruitment. The range of services available to our clients was also extended by the acquisition of two companies providing conference management solutions. In November 2007, we acquired Procon Conferences, a UK pharmaceutical conference services company providing full corporate event management services targeted specifically at the pharmaceutical and healthcare sector. Procon’s services include venue finding, association and secretariat membership, delegate registration through to full event management. This capability was extended in April 2008 with the acquisition of Universal Conference and Incentive Travel, who provide event management services to pharmaceutical companies, both at pre and post approval stages of product development based in the UK and US. Finally, we increased our training capacity with the acquisition of Business Edge Solutions and Training, a company that provides a range of personal, sales and team effectiveness training programmes for pharmaceutical companies in the UK market.
These bolt-on acquisitions complement our market leading and growing contract sales and marketing operations in the UK and Ireland and will allow us provide additional value-added services to clients in existing and new markets. Following the acquisition of Universal, the event management business of Procon has been merged with Universal to provide a more comprehensive service offering for clients and the largest supplier of event management services for the pharmaceutical industry in the UK.
The division has reported a very good outcome for the year, well ahead of the prior year and continues to see a very positive business environment as manufacturer clients seek more flexible means of deploying their sales and marketing efforts.
Pharma Wholesale
The Pharma Wholesale division provides a best-in-class service for independent retail pharmacy customers enabling them to compete effectively in the marketplace. The division comprises market leading, full line wholesaling businesses in the Republic of Ireland and Northern Ireland markets and a niche specials distribution business in the UK market. The division has produced another strong performance in 2008 with sales, profits and market share all increasing combined with strong cash flows.
Our Republic of Ireland pharmaceutical wholesale business, United Drug Wholesale (UDW), has further strengthened its position during the year as the market leading wholesaler supporting independent retail pharmacy in this competitive market. UDW’s aim is to provide a top-quality customer focused wholesale service at a competitive price. To do this the business continues to broaden the range of services it provides to customers and to automate its operations to improve productivity levels. The recent decision by the Irish Health Service Executive (HSE) to reinstate the reimbursement price it pays to community pharmacy for medicines it funds under various HSE schemes should remove some of the uncertainty from the market.
The value of medicines consumed in the Republic of Ireland continues to grow strongly although the rate of growth did slow somewhat in the second half of the financial year due to the uncertainty surrounding reimbursement to retail pharmacy and the slowdown in general consumer spending impacting on non-prescription sales from pharmacy.
In Northern Ireland, our Sangers business has also increased its leadership position as the supplier of choice for retail pharmacists in this growing market. We continue to see a move by pharmaceutical manufacturers to a Direct-to-Pharmacy (DTP) distribution model. Under DTP, the manufacturer appoints a limited number of wholesalers to act as their exclusive distribution agents in the territory. Sangers is involved in all DTP arrangements in the market. Some of these arrangements reduce our reported revenues, as we now charge a fee-for-service rather than buying and re-selling product. Our profitability has not been affected by this market evolution and indeed this change has helped us to continue to increase our market share and further improve our cash flows.
In 2007 we acquired Craig & Hayward, a UK based specials distributor. A ‘specials medicine’ is a special formulation of a product manufactured to meet a specific patient prescription requirement. Craig & Hayward acts as a ‘one stop shop’ for any specials requirements for the retail pharmacy sector in the UK. This business has performed very well during the year, ahead of our expectations, as we continue to leverage Group relationships to broaden the customer base.
The Pharma Wholesale businesses operate in growing markets with growth underpinned by increasing and ageing populations and an increasing demand for the products and services we supply. These markets are the focus of Government cost saving initiatives as they seek to slow the increase in public healthcare expenditure. Our businesses are well positioned to prosper in these markets based on our strong market positions combined with our focus on efficiency and customer relationships.
Finance Review
Revenue
Revenue for the year of €1.68 billion is 6% ahead of 2007 with revenue growth reported in each of the four business divisions. Revenue growth in Pharma Wholesale was reduced by the move in our Northern Ireland business to a DTP arrangement with a number of manufacturers. Under DTP, we charge a fee-for-service rather than buying and re-selling product thereby reducing our revenue. On a constant currency basis revenue is 10% higher than 2007.
Adjusted Operating Profit*
Operating profits are ahead of last year in each of the four business divisions. The move into higher margin activities has helped to deliver a 17% increase in operating profits from a 6% increase in revenues.
Adjusted Profit before Tax*
Net interest costs in the year of €7.7 million are €3.4 million higher than in 2007 as we take account of the finance cost of acquisitions completed during 2007 and 2008. After these interest costs, profit before tax of €70.5 million is 13% higher than 2007.
Adjusted Earnings per Share*
Earnings per share for the year of 25.70 cent, increased 12% on 2007. EPS growth is lower than profit growth in the year as a result of an increased tax charge, with the acquisition of businesses in higher tax rate jurisdictions, and an increase in the number of shares in issue following share issues under the scrip dividend and other share schemes.
Cash Flow
Free cash flow for the year, before acquisition expenditure and dividends, amounted to €45.8 million. The absolute value of the investment in working capital increased during the year but at a lower rate than revenue growth as underlying working levels were further reduced. Free cash flow for the year is after net capital expenditure of €24.1 million, much of this development expenditure, as we expand capacity, particularly in our packaging business. A total of €117.5 million, including debts taken over, was spent on acquiring new businesses or on deferred consideration payments due on acquisitions completed in earlier years. The net cash flow for the year results in an increase in net debt of €90.8 million.
Balance Sheet
Net debt at the end of the period was €159.1 million giving a gearing ratio of 46.2%. Net debt levels equate to 1.8 times EBITDA for the year, or 1.65 times when EBITDA is adjusted to take in a full year contribution from acquisitions completed during the year. Interest charges are covered more than 11 times by EBITDA.
Net assets at the end of the year amount to €344.2 million an increase of €25.3 million on the net assets reported at 31 March 2008.
*before amortisation of intangible assets.
2008 Annual Report and Annual General Meeting
The 2008 Annual Report and Accounts will be published in January 2009 and the Annual General Meeting of the Company will be held on 17 February 2009.
Forward-looking information
Some statements in this announcement are forward looking. They represent expectations for the Group’s business, and involve risks and uncertainties. The Group has based these forward-looking statements on current expectations and projections about future events. The Group believes that expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which in some cases are beyond the Group’s control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.
This announcement and further information is available on our web-site: www.united-drug.ie.
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Group income statement for the year ended 30 September 2008 |
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| Notes |
2008 €’000 |
2007 €’000 |
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| Revenue | 3 | 1,683,712 | 1,583,622 | |||
| Cost of sales | (1,423,978) | (1,352,186) | ||||
| Gross profit | 259,734 | 231,436 | ||||
| Distribution expenses | (178,185) | (161,617) | ||||
| Administration expenses | (6,741) | (6,372) | ||||
| Other operating expenses | (11,977) | (6,554) | ||||
| Share of joint ventures’ profit after tax | 4 | 3,389 | 3,145 | |||
| Operating profit | 66,220 | 60,038 | ||||
| Finance income | 3,121 | 9,477 | ||||
| Finance expense | (10,790) | (13,742) | ||||
| Profit before tax | 58,551 | 55,773 | ||||
| Income tax expense | (8,346) | (8,443) | ||||
| Profit for the financial year attributable to equity holders of the Company | 50,205 | 47,330 | ||||
| Earnings per share | ||||||
| Basic | 5 | 21.81c | 20.96c | |||
| Diluted | 5 | 21.61c | 20.81c | |||
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Group statement of recognised income and expense for the year ended 30 September 2008 |
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| Notes |
2008 €’000 |
2007 €’000 |
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| Items of income/(expense) recognised directly within equity: | ||||||
| Foreign currency translation adjustment | 8 | (25,908) | (7,211) | |||
| Loss on hedge of net investment on foreign operations | 8 | (3,806) | - | |||
| Group cash flow hedges: | ||||||
| Effective portion of cash flow hedges | 8 | 923 | 1,926 | |||
| Movement in deferred tax | 8 | (115) | (241) | |||
| Group defined benefit pension schemes: | ||||||
| Actuarial (loss)/gain | 8 | (5,361) | 6,461 | |||
| Movement in deferred tax | 8 | 402 | (1,265) | |||
| Net expense recognised directly within equity | (33,865) | (330) | ||||
| Profit for the financial year | 50,205 | 47,330 | ||||
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Total recognised income and expense for the year attributable to equity holders of the Company |
16,340 | 47,000 | ||||
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Group balance sheet as at 30 September 2008 |
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| Notes |
2008 €’000 |
2007 €’000 |
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| ASSETS | ||||||
| Non-current | ||||||
| Property, plant and equipment | 109,923 | 68,093 | ||||
| Goodwill | 6 | 187,627 | 148,544 | |||
| Intangible assets | 6 | 54,671 | 39,404 | |||
| Investment in joint ventures | 6 | 19,630 | 20,857 | |||
| Employee benefits | 11,720 | - | ||||
| Total non-current assets | 383,571 | 276,898 | ||||
| Current | ||||||
| Inventories | 165,697 | 161,882 | ||||
| Trade and other receivables | 313,951 | 279,550 | ||||
| Cash and cash equivalents | 7 | 85,032 | 57,547 | |||
| Total current assets | 564,680 | 498,979 | ||||
| Total assets | 948,251 | 775,877 | ||||
| EQUITY | ||||||
| Equity share capital | 8 | 12,002 | 11,801 | |||
| Share premium | 8 | 116,409 | 103,473 | |||
| Other reserves | 8 | (36,191) | (8,170) | |||
| Retained earnings | 8 | 252,010 | 223,965 | |||
| Capital and reserves attributable to equity holders of the Company | 344,230 | 331,069 | ||||
| LIABILITIES | ||||||
| Non-current | ||||||
| Interest-bearing loans and borrowings | 7 | 217,201 | 74,873 | |||
| Provisions | 7,821 | 9,377 | ||||
| Employee benefits | 17,569 | 6,334 | ||||
| Derivative financial instruments | 7 | 11,376 | 7,574 | |||
| Deferred tax liabilities | 10,212 | 9,525 | ||||
| Total non-current liabilities | 264,179 | 107,683 | ||||
| Current | ||||||
| Bank overdrafts | 7 | 1,266 | 8,000 | |||
| Interest-bearing loans and borrowings | 7 | 13,760 | 28,810 | |||
| Trade and other payables | 308,296 | 278,895 | ||||
| Current tax liabilities | 4,441 | 6,915 | ||||
| Provisions | 11,535 | 7,937 | ||||
| Derivative financial instruments | 7 | 544 | 6,568 | |||
| Total current liabilities | 339,842 | 337,125 | ||||
| Total liabilities | 604,021 | 444,808 | ||||
| Total equity and liabilities | 948,251 | 775,877 | ||||
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Group cash flow statement for the year ended 30 September 2008 |
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2008 €’000 |
2007 €’000 |
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| Cash flows from operating activities | ||||
| Profit before tax | 58,551 | 55,773 | ||
| Finance income | (3,121) | (9,477) | ||
| Finance expense | 10,790 | 13,742 | ||
| Operating profit | 66,220 | 60,038 | ||
| Share of joint ventures’ profit after tax | (3,389) | (3,145) | ||
| Depreciation charge | 10,167 | 8,171 | ||
| Profit on disposal of property, plant and equipment | (193) | (331) | ||
| Amortisation of intangible assets | 11,977 | 6,554 | ||
| Share-based payment expense | 1,430 | 1,126 | ||
| Charge in respect of share entitlement scheme | 32 | 70 | ||
| Increase in inventories | (1,825) | (3,449) | ||
| Increase in trade and other receivables | (15,938) | (12,020) | ||
| Increase in trade and other payables | 13,449 | 13,011 | ||
| Interest paid | (9,389) | (6,350) | ||
| Income taxes paid | (13,335) | (8,828) | ||
| Net cash inflow from operating activities | 59,206 | 54,847 | ||
| Cash flows from investing activities | ||||
| I | ||||