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UDG Healthcare Plc

UDG Healthcare plc Strong year of continued growth drives 22% full-year constant currency EPS growth

UDG Healthcare plc (LON:UDG), a leading international healthcare services provider, announced its preliminary results for the year ended 30 September 2018, in which the Group continued to deliver strong EPS growth.

Financial Results

 

 

 

  

IFRS based

 

 

 

 

 

Adjustments1

 

 

 

 

 

Adjusted

 

 

 

 Increase

on

  2017

 

 

Constant currency

Increase on

2017

$’m

$’m

$’m

%

%

Continuing operations

Revenue

1,315.2

1,315.2

8

5

Net revenue2

1,129.7

1,129.7

10

6

Operating profit

5.5

142.0

147.5

14

12

Profit before tax

8.4

130.4

138.8

17

15

Diluted earnings per share (EPS) (cent)

1.52

44.42

45.94

24

22

Dividend per share (cent)

16.00

16.00

20

20

 

 

2018

 

2017

Net debt ($’m)

60.8

53.3

Net debt/annualised EBITDA (times)

 

0.34

0.32

 

Non-IFRS information

The Group reports certain financial measurements that are not required under International Financial Reporting Standards (IFRS) which represent the generally accepted accounting principles (GAAP) under which the Group reports. The Group believes that the presentation of these non-IFRS measurements provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides investors with a more meaningful understanding of the underlying financial and operating performance of the Group and its divisions. These measurements are also used internally to evaluate the historical and planned future performance of the Group’s operations and to measure executive management’s performance based remuneration. Reference to these performance measurements throughout this report are to the adjusted measurements unless otherwise stated and these adjusted measurements are explained on pages 30-34.

1 Adjusted operating profit, profit before tax and diluted EPS are stated before the amortisation of acquired intangible assets ($31.0m, pre-tax), transaction costs ($2.4m, pre-tax) and exceptional charges (operating charge $108.6m, pre-tax $97.1m and post-tax $85.8m) relating to the disposal and impairment of Aquilant ($90.7m charge), the Group’s restructure of internal operating structures ($18.0m charge), deferred contingent consideration adjustments ($11.6m gain), net tax effect of these items ($1.5m gain), and an exceptional credit to deferred tax liabilities ($9.7m gain). See note 7.

2 Net revenue represents gross revenue adjusted for revenue associated with pass-through costs, for which the Group does not earn a margin.

Financial highlights (Continuing Group)

· Adjusted diluted earnings per share1 (EPS) increased by 24% (22% on a constant currency basis).

· Net revenue growth of 10% (6% on a constant currency basis) to $1,129.7 million.

· Adjusted operating profit1 growth of 14% (12% on a constant currency basis) to $147.5 million. Underlying operating profit2 grew by 7%, excluding the Future Fit programme and Aquilant.

o Ashfield’s adjusted operating profit1 increased by 16% on a constant currency basis, benefiting from acquisitions

o Sharp’s adjusted operating profit1 increased by 13% on a constant currency basis driven by very strong momentum in the US business as the year progressed.

· Adjusted net operating margin3 increased to 13.1% from 12.6%.

· Adjusted profit before tax1 increased by 17% (15% on a constant currency basis).

· Proposed 21% increase in final dividend to 11.75 $ cent per share, yielding a full year dividend increase of 20% to 16.00 $ cent per share.

· Net debt of $60.8 million at 30 September 2018 (0.34x net debt to annualised EBITDA).

Strategic & operating highlights

· Completed the acquisitions of Create NYC and SmartAnalyst in July 2018 for a combined consideration of up to $82.4 million.

· Completed the disposal of Aquilant in August 2018, concluding the Group’s exit from its supply chain businesses.

· Ashfield’s offering continues to shift towards more strategic, higher value services with Ashfield Communications & Advisory now accounting for 63% of Ashfield’s operating profit, up from approximately 20% five years ago.

· Three Sharp facilities upgraded in the year, providing a strengthened platform for growth.

· Restructuring of internal operating structures completed, with a view to achieving greater flexibility, accountability and performance across the Group. An after tax restructuring charge of $14.4 million has been incurred as a consequence in 2018, with the benefits being reinvested into technology, infrastructure and a STEM aXcellerate growth programme.

Chief Executive’s comment

Commenting on the performance, Chief Executive Officer, Brendan McAtamney said:

“The 2018 results reflect the continued execution of our strategy and another year of continued strong growth for the Group, with adjusted earnings per share growth of 24% (22% on a constant currency basis). Our two global platforms, Ashfield and Sharp, continued to drive earnings as we leveraged our leading market positions and sector expertise.

Ashfield Communications & Advisory, including the benefit of acquisitions, was the main driver of earnings growth supported by Sharp US, which delivered a particularly strong performance during the second half of the year. We are also pleased with the additions of Create NYC and SmartAnalyst into Ashfield as we continue to broaden the range of capabilities we offer our healthcare clients.

Looking ahead to 2019, we expect continued progress, both organically and through further strategic acquisitions. We expect good underlying profit growth in both Ashfield Communications & Advisory and Sharp, particularly in the US. In Ashfield Commercial & Clinical we will continue to diversify and differentiate our service offering, although in the short term we expect there to be some ongoing softness. As we have done in previous years we will also continue to invest in our talent, systems and infrastructure, to ensure we continue to have an effective platform for future sustainable growth.”

1 Before the amortisation of acquired intangible assets, transaction costs and exceptional items.

2 Underlying growth is reported growth adjusted for the impact of currency translation movements and any acquisition or disposal activity.

3 Operating margin as a percentage of net revenue. Net revenue represents gross revenue adjusted for revenue associated with pass-through costs, for which the Group does not earn a margin.

Group development and outlook

Corporate Development

The Group continued to make good progress from a corporate development perspective completing the acquisitions of Create NYC, an innovative communications agency, and SmartAnalyst, a strategic commercialisation consulting and analytics business, in July 2018 for a total combined consideration of up to $82.4 million. Both acquisitions are a strong fit strategically, expand the Group’s capabilities, and complement the underlying growth profile of the business.

The Group also completed the disposal of Aquilant to H2 Equity Partners in August 2018. Aquilant represented approximately 4% of the Group’s operating profit. Following the Group’s disposal of United Drug in 2016, the disposal of Aquilant is the final step in the Group’s exit from its supply chain businesses.

At the year end, the Group’s net debt was $60.8 million (0.34x net debt to EBITDA), leaving it well placed to fund the continued inorganic development of our two global platforms, Ashfield and Sharp.

Ashfield Development

A key element of the Group’s strategy is the continued expansion and development of Ashfield’s service proposition. This strategy has transformed Ashfield from a tactical provider of field-based sales reps to a strategically focused business with a broad suite of end-to-end advisory, communication, commercial and clinical services. Ashfield Communications & Advisory now accounts for 63% of Ashfield’s operating profit, up from approximately 20% five years ago. The acquisitions of Create NYC and SmartAnalyst further strengthen and expand Ashfield’s capabilities towards more strategic, higher value services.

STEM aXcellerate

STEM was acquired in October 2016 and since then has delivered significant growth. STEM continues to see considerable opportunities to grow its core pharmaceutical customer base and in tandem expand its unique model into other adjacent healthcare markets which offer significant growth potential. This expansion programme, known as STEM aXcellerate, will be undertaken on a phased basis. While the Group is confident that STEM aXcellerate offers the potential for attractive financial returns, this expansion will also require considerable people investment which will impact on underlying profit growth rates in 2019.

Sharp Development

2018 marks the tenth anniversary of the acquisition by the Group of Sharp Packaging US. Since 2008, consistent growth has led to a near doubling of capacity, a doubling of the workforce and a significant increase in profitability.

Building on this trajectory, in 2018, three of Sharp’s facilities were refurbished providing it with an excellent platform for future growth. This included Sharp’s investment in its facility in Heerenveen, Netherlands, as well as its clinical facilities which continued to progress on schedule. When completed, these investments will allow Sharp Clinical the capacity to offer end-to-end clinical services both in the US and Europe.

Future Fit

The Future Fit programme was a significant focus in 2018, with Workday fully implemented and the implementation of Oracle well progressed. The previously communicated step-up in costs has moderated underlying profit growth by approximately $3.5 million in 2018, primarily in Ashfield.

The Group continues to invest in technologies and systems to deliver market-leading services and innovative solutions for its clients. These strategic investments include front-end client facing technologies such as Health Cloud and Avature, which help differentiate our Ashfield Commercial & Clinical business in particular. We will also continue to invest in support technologies such as the Concur expense system and IT security, along with the implementation as applicable of Workday and Oracle to our acquisitions. These ongoing investments will future-proof the fabric of the organisation and provide a solid foundation for the integration of newly acquired businesses, and the long-term sustainable growth of the Group.

Restructuring and Reinvestment Programme

The Group remains ambitious to continue the strong growth and development of its business. Following the considerable expansion in recent years both organically and inorganically, and the stated intention to focus on its two global growth platforms, Ashfield and Sharp, the Group has implemented a restructuring of its internal operating structures, with a view to achieving greater flexibility, accountability and performance. Furthermore, it will assist in taking advantage of the growing market opportunities in an evolving and increasingly complex healthcare industry.

An after tax restructuring charge of $14.4 million has been incurred as a consequence in 2018. The Group will reinvest the benefits gained from the restructuring into systems, infrastructure and the STEM aXcellerate programme.

Tax

The Group had an effective tax rate for the year of 17.1% down from 22.2% in 2017. This reflects the benefit from the reduction in US federal corporate tax rates from 1 January 2018 along with the benefit of a number of other gains during the second half of the year. The Group expects an effective tax rate of approximately 18% for 2019, reflecting the full-year impact of US tax reforms.

Outlook

For 2019, we expect the 2018 trends to continue, with good underlying profit growth from Ashfield Communications & Advisory and Sharp, and weaker conditions continuing in Ashfield Commercial & Clinical. The reported growth will also be impacted by planned investments, including the STEM aXcellerate programme.

In line with previous practice, the Group will provide formal 2019 guidance in January 2019 as part of its First Quarter Trading Update.

With overall market conditions remaining favourable,UDG Healthcare is well positioned to deliver sustainable future growth in line with our existing medium term underling operating profit guidance. In addition, the Group retains substantial financial flexibility to supplement that underlying growth with further strategic acquisitions.