13th May 2005 07:00
United Drug PLC13 May 2005 United Drug plcAnnouncement of the interim resultsfor the half year ended 31 March 2005 Highlights 2005 2004 Increase •'000 •'000 %Group turnover 633,977 617,513 3%Trading profit* 23,683 21,399 11%Profit before taxation* 22,340 19,430 15%Fully diluted earnings per share* 8.31c 7.29c 14%Dividend per share 1.50c 1.32c 14%* excluding goodwill amortisation Chairman's statement In the six months ended 31 March 2005, United Drug has produced another set ofvery good results. Group turnover in the period grew by 3% over the first half of 2004 to €634million and pre-tax profits, before amortisation of goodwill advanced by 15% to€22.34 million. Fully diluted earnings per share, also before goodwillamortisation, are ahead by 14% to 8.31 cent per share and the interim dividenddeclared of 1.50 cent per share is also 14% up on 2004. Performance Each of our four divisions - Pharma Wholesale, Contract DistributionOutsourcing, Medical & Scientific and Contract Sales Outsourcing - has performedwell in the period. Pharma Wholesale goes from strength to strength in terms of both sales andprofitability. Our policy of supporting rather than competing with independentretail pharmacists continues to win customer loyalty and new business. Thispolicy will continue with services that allow our customers to focus on growingtheir businesses and to meet the challenge presented by our wholesalecompetitors and corporate owned groups. We expect to continue to attract newcustomers in the growing market place. In the manufacturer-facing businesses, we have now completed the development ofthe Magna Park II distribution facility in the Republic of Ireland market, andthe UniDrug new premises to service the UK market. These investments are afurther realisation of our commitment to provide the highest qualityinfrastructure, technology and people to service our healthcare manufacturerclients. All the manufacturer-facing businesses now have a strong platform forfuture growth and an infrastructure onto which we can bolt additional business. Interim Dividend The Board of Directors has declared an interim dividend of 1.50 cent per share.This is an increase of 14% over the 2004 interim dividend and reflects theCompany's strong performance in the period and a continuation of the policy ofrewarding shareholders with improved dividend payments. The Directors are pleased to advise that all shareholders will be given anopportunity of receiving all or part of the 2005 interim dividendas a scrip dividend in the form of new ordinary shares. It is expected that theshare alternative election/mandate forms, setting out details of the sharealternative offer and the procedures to be followed, will be posted toshareholders on 9 June 2005. The interim dividend will be paid, oralternatively, share certificates issued, on 22 July 2005 to holders of ordinaryshares whose names appear on the Company's register at the close of business on27 May 2005. Outlook Given the strong performance in the first half of this year, I am confident thatUnited Drug will report another very successful year. Martin Rafferty Chairman 13 May 2005 Chief Executive's review In the first half of the 2005 financial year, United Drug has continued itsdelivery of long-term shareholder value through the focussed execution of ourstrategy to provide value added services to our partners at both ends of thehealthcare supply chain. This is evidenced by the record results recorded in theperiod. This period has also seen significant additions to the high qualityinfrastructure supporting our growing businesses, new business wins, newcommercial and quality initiatives and continuing development of our people andour management talent. Group turnover in the period grew by 3% over the first half of 2004 to €634million, and pre-tax profits, before amortisation of goodwill advanced by 15% to€22.34 million. Fully diluted earnings per share, also before goodwillamortisation, is ahead by 14% at 8.31 cent per share and the interim dividenddeclared of 1.50 cent per share is also 14% up on 2004. Pharma Wholesale United Drug continues to be the only wholesaler on the island of Irelandcommitted to providing a full range of support services for independent retailpharmacists and not seeking to compete with them as retailers. In the Republic of Ireland, United Drug Wholesale has again substantiallyincreased turnover and profitability during the period in a competitivemarketplace. United Drug continues to attract a large number of ambitious,entrepreneurial, professional independent pharmacist customers who, with oursupport, are more than capable of competing in their local markets withpharmacies owned by our fellow wholesalers and by the large corporate groups. Our market share has grown in key regions of the country during the period.United Drug Wholesale has further reduced its key expenses-to-sales ratio bygetting better utilisation out of our high-class facilities in Ballina, Dublinand Limerick. Our infrastructure allows us to accommodate significant currentand future growth with minimal increases in our cost base. Our policy of sharingbest practice amongst our facilities and using the combined purchasing power ofall Group operations to achieve better value from service providers has cementedour position as the most efficient operator in our market. In Northern Ireland, Sangers has maintained its clear market leadershipposition. Significant new customer gains at the start of the financial year wereoffset by a 7% reduction in the price of ethical pharmaceuticals effective from1 January 2005, under the UK Pharmaceutical Price Regulation System (PPRS),resulting in limited wholesale turnover growth in the period. However, goodmargin management and cost control has allowed Sangers report an increase inprofits for the six month period. With the full benefit of the new businesswins, plus cost management initiatives, performance in the second six months ofthe financial year is expected to be stronger. Pemberton Health and Beauty in Northern Ireland has performed well, with strongturnover growth and profits up significantly on last year. Sangers Distributionproduced a satisfactory performance in the period. Discussions are ongoing withmanufacturers to further consolidate the agency division as the partner ofchoice in Northern Ireland. Prospects for the second six months remain positive. As announced late last year, Stephen Simms retired at the end of March aftertwenty three years with Sangers and twelve years as a Director of United Drug.Peter Surgenor, who was previously Finance Director with Sangers, has recentlybeen appointed as Managing Director of the Sangers business and Alan Ralph,Managing Director of United Drug Wholesale, has taken over responsibility forUnited Drug's wholesale activities throughout the island of Ireland. Contract Distribution Outsourcing The 2005 financial year has seen the eagerly anticipated opening of the newMagna Park II distribution facility. This state-of-the-art facility will housethe Republic of Ireland Contract Distribution businesses - United DrugDistributors, Pemberton and United Drug Hospital - as well as the Medical &Scientific business unit in the Republic of Ireland and will be fullyoperational by the end of May 2005. The transfer of business to the new locationhas been managed over approximately six months and whilst not without the normalminor teething problems associated with such a significant project, hassuccessfully transferred without any business interruption. The new Magna Park facility has been built to the highest Good DistributionPractice (GDP) and audited regulatory standards and is based on an IT platformthat will allow us to offer an even greater range of quality services to ourpharmaceutical manufacturer partners. Magna Park II is approximately twice thesize of the vacated Belgard Road premises and gives the Contract Distributionbusinesses capacity for significant further growth in the coming years.During this period of transition to Magna Park II, the Contract Distributionbusinesses have performed well in a market that has seen a number of keyproducts come off patent, pharmaceutical manufacturers implement product supplyallocations on some of their products that were subject to parallel trade and aslight slowing down of market growth. Despite this, all businesses have grownduring the period and we have expanded our client base with new business winswith Altana, Chefaro and Dr. Falk. UniDrug (UDG), our joint venture in the United Kingdom, took occupation of theirnew warehouse, Amber Park II, in December 2004. The new warehouse was opened just in time to commence a new and substantialcontract with Smith & Nephew International, for whom we now provide warehousingservices for stock that is fed to their global markets. We are now able todemonstrate to potential clients our commitment to the quality standardsrequired by them of their distribution partners. Additional contract gains havebeen made with Altana, Dr Falk, Grunenthal and substantial growth in activitieswith Ceuta. BMS and Chiron have also renewed their contractual arrangements withUDG. The effects of PPRS price changes (a 7% price reduction from 1 January2005) have had a minimal impact on the financial performance for the first 6months, which despite the substantial overhead costs that accompany the newwarehouse, is ahead of the previous year. The business has come through a periodof transition, as it increased its physical infrastructure, but is now back on agrowth path and very well positioned to win new business. Medical & Scientific The key focus for the Medical and Scientific division (M & S) in the first halfof 2005 has been the integration of the Unitech, Intraveno and Intrapharmabusiness units to create an M & S centre-of-excellence for the Irish businesses,in United Drug's new Magna Park business campus. The integration strategy for Magna Park focussed on maintaining thecustomer-facing trading identity, sales focus and business practices of thethree business units, while developing an enhanced, integrated back-officecentre of excellence to support them. The businesses moved as planned in Januaryof this year. In the new integrated organisation, Unitech retained its sales structures andidentity as the biotechnology, scientific and clinical diagnostics arm of theMedical and Scientific division in Ireland. Intraveno retained its identity asthe medical-surgical arm and Intrapharma as the pharma-focussed business.While the businesses have retained their front-end independence, integration ofthe management and support functions has facilitated the division's growth anddevelopment by creating a greater depth of support in terms of operations,logistics and finance that allow us to offer an even better service to both ourend-user customers and our manufacturer-partners. The integration process has also helped the division to implement "crossbusiness-unit" initiatives such as the establishment of aPoint-of-Care sales team. Point-of-Care, (POC) also referred to as Near Patient Testing, is an excitingdevelopment in medical diagnostics driven by the mounting requirement forquicker access to diagnostic results and the technological and manufacturingadvances which have delivered smaller, portable and less-complex analysismethods. As an emerging technology, POC will pervade the total hospitalenvironment and is also making its way into both retail pharmacy and the GPsurgery. The Medical & Scientific division is uniquely positioned to develop asignificant POC business, requiring as it does a competence in ClinicalDiagnostics (as provided by Unitech), Medical/Surgical (as provided byIntraveno) and Pharmacy/GP (as provided by Intrapharma). A key development in this ambition was our recently agreed partnership withiSTAT, the world's leading developer of POC tests and testing devices. Ourcross-functional approach to supporting this product range has received apositive response from our target customers. Alongside these important developments, the Irish businesses continued todeliver strong growth in terms of sales and profits in the period.The UK-based businesses have also performed well in the period. Now firmlyestablished in their Basingstoke Head Office, the UK team has focussed onleveraging the advantages of the enhanced support structures to drive growth. Aparticularly exciting development for the New Splint business was the launch ofWaldemar LINK's new MEGA-C Revision System, which will further enhance thecompany's profile as the supplier of choice for custom/revision orthopaedicimplants in the UK. The Medical and Scientific division is in a strong position after the first sixmonths of trading and is looking forward to another year of significant growthand development. Contract Sales Outsourcing The first half of the current financial year has seen the excellent record ofAshfield Healthcare continuing where 2004 left off, with the business againrecording an impressive set of results. Ashfield continues to focus on thedelivery of both quality and excellence to clients, by both our field basedteams and head office staff alike, whilst maintaining a very definite focus onthe development of new business. The UK contract sales outsourcing (CSO) market place remains tight with no"block buster" products on the horizon and a requirement for a flexible salesmodel amongst pharmaceutical companies. Ashfield's emphasis on the developmentof new business and seeking to provide the flexibility sought by manufacturershas seen the UK business continuing to expand its client base with new businesswins with Provalis, JJS Pharma, Servier, AstraZeneca and Rosemont, whilstincreasing the size of teams and service offerings within its existing clientbase. To ensure the protection of all stakeholders is maximised and to continue towiden the added value service offering and delivery of quality and excellence toits clients, Ashfield UK has added a part time Medical Director and full timeCompliance Manager to its ever expanding and experienced head office team. The development of our head office and field based employee's remains asimportant as ever to Ashfield. This continues to be achieved through theAshfield Achievers and Academy programmes, which have now been expanded bydeveloping a structured succession plan for individuals along with a Rising StarProgramme with the aim of identifying individuals with potential at the earlystages of employment within the business. New positions of SeniorRepresentatives and Executive Representatives in the sales force and theequivalent Senior Nurses and Executive Nurses within the nurse teams have alsobeen created. Ashfield Ireland remains focussed on business development and continues to moveaway from the recruitment market into the more established Contract SalesOutsourcing business of providing sales representatives and nurse advisors. Thegrowth area appears to be in the nurse advisors arena, where Ashfield remainmarket leaders and syndicated teams with the launch of a second team in October2004, increasing the service offering to clients and allowing Ashfield to offergreater flexibility in meeting their business needs. The client base continuesto grow steadily and new business has already been won with MacNeill, SanofiAventis, Proctor & Gamble and Amgen resulting in a market share in excess of 40%in Ireland. Ashfield USA continues to grow through a mix of current team upsizing, withMolnlycke, doubling in size to 10 individuals covering four states - Texas,Florida, Louisiana and Pennsylvania; and external recruitment through placementswith KOS Pharma, Coloplast and Aesculap (B.Braun group). The delivery on ourexisting teams remains the main focus and we have bolstered the head officeinfrastructure through a mixture of recruiting US employees and secondments fromour UK office. Business is being driven through expansion of our existing teams,contacts through established relationships in the UK business and driving therecruitment revenue line. Conclusion The start of the 2005 financial year has continued with the delivery of strongearnings growth in United Drug and has also been a period of transition,particularly for the Contract Distribution and Medical & Scientific businesses,as we have significantly increased the quality and capacity of theinfrastructure available to these businesses. All businesses now have in placethe physical infrastructure, the IT platform and management talent that shouldsupport their growth and development in the coming years. We are in a positionto offer the highest quality services to our growing retail pharmacist andhealthcare manufacturer client base in the highly regulated healthcareenvironment. With the physical infrastructure in place, we can continue to broaden ourservice offering to our customers by listening to their needs, implementing newbusiness initiatives and bolting on additional businesses with strong growthpotential. The continuing implementation of our strategy over the last sixmonths positions us well for the remainder of this year and for the years ahead. Liam FitzGerald Chief Executive 13 May 2005 Group Profit & Loss Account Unauditedfor the half year ended 31 March 2005 Notes 2005 2004 •'000 •'000Turnover: including share of joint ventures 821,400 787,230 Less: share of joint (187,423) (169,717)ventures Group turnover 633,977 617,513 Operating costs (611,273) (597,124) Goodwill amortisation (2,035) (2,015) Group operating profit 20,669 18,374 Share of joint ventures' 979 1,010operating profit Trading profit, includingshare of joint ventures 21,648 19,384 Group interest payable (net) 2 (1,343) (1,969) Profit on ordinary activities before taxation 20,305 17,415 Tax on profit on ordinary (4,000) (3,629)activities Profit for the periodattributable to ordinary 16,305 13,786shareholders Dividends - declared 3 (3,283) (2,789)Profit retained for the period 13,022 10,997 Profit and loss account at beginning of period 116,044 92,646 Scrip dividend 3,505 2,627 Profit and loss account at end of period 132,571 106,270 Restriction arising on treasury shares (5,667) (5,667) Profit and loss account atend of period as restricted 126,904 100,603 Earnings per ordinary share Before goodwill amortisation - basic 4 8.45c 7.40c - diluted 4 8.31c 7.29c After goodwill amortisation - basic 4 7.51c 6.51c - diluted 4 7.39c 6.42c Group Balance Sheet Unauditedat 31 March 2005 2005 2005 2004 2004 •'000 •'000 •'000 •'000Fixed AssetsGoodwill 60,085 65,625Tangible fixed assets 59,526 59,743Financial AssetsInterest in joint venturesShare of gross assets 74,381 71,346Share of gross liabilities (66,581) 7,800 (64,871) 6,475 127,411 131,843 Current AssetsStocks 120,552 114,791Contract work-in-progress 35,511 10,992Debtors 223,128 206,315Cash at bank and in hand 23,911 15,891 403,102 347,989 Creditors: amounts falling due within one year Bank and other financial obligations (11,515) (55,776)Other creditors (209,069) (210,192) (220,584) (265,968) Net current assets 182,518 82,021 Total assets less current liabilities 309,929 213,864 Creditors: amounts fallingdue after more than one yearBank and other financial obligations (90,048) (26,361)Provisions for liabilities and charges (3,000) (2,582)Net assets 216,881 184,921 Capital and reservesCalled up share capital 11,321 11,021Share premium account 85,009 76,605Profit and loss account 126,904 100,603Other reserves (6,353) (3,308)Shareholders' funds - equity 216,881 184,921 Group Cash Flow Statement Unauditedfor the half year ended 31 March 2005 2005 2004 •'000 •'000Operating cash flow before contract (2,376) 9,679work-in-progressCash flow from contract work-in-progress (4,838) (8,693) Cash flow from operating activities (7,214) 986Returns on investments and servicing of finance (1,888) (2,005)Corporation tax paid (2,222) (1,909)Capital expenditure and financial investment (4,764) 131Acquisitions and disposals 0 (7,521)Equity dividends paid (3,996) (3,555) Cash flow before financing (20,084) (13,873) FinancingIssue of shares 4,744 4,435Net (decrease)/increase in debt (9,386) 13,671 (Decrease)/increase in cash for the period (24,726) 4,233 Reconciliation of net cash flow to movement in net debt(Decrease)/increase in cash for the period (24,726) 4,233Net decrease/(increase) in debt 9,386 (13,671) Changes in net debt resulting from cash flows (15,340) (9,438)Translation adjustments (34) 89 Movement in net debt (15,374) (9,349)Net debt at beginning of period (62,278) (56,896)Net debt at end of period (77,652) (66,245) Notes to the Interim Financial Statementsfor the half year ended 31 March 2005 1 Accounting Policies The Interim Report is prepared in accordance with applicable accounting standards and the accounting policies and presentation applied to the interim results are consistent with those applied in the 2004 Annual Report. The Group continues to prepare for the adoption of International Financial Reporting Standards ("IFRS") as its primary accounting basis, following the adoption of Regulation No. 1606/2002 by the European Parliament in 2002. IFRS will apply for the first time in the Group's Annual Report for the year ending 30 September 2006 and for the Group's Interim Report for the six month period ending 31 March 2006. 2 Interest (net) 2005 2004 •'000 •'000 Group - interest payable (1,799) (2,317) Group - interest receivable 456 348 (1,343) (1,969) 3 Dividends - equity shares 2005 2004 •'000 •'000 Interim dividend of 1.50c per share (2004: 1.32c per share) 3,283 2,789 4 Earnings per ordinary share 2005 2004 Basic earnings per share Profit on ordinary activities after tax €16,305,000 €13,786,000 Weighted average shares outstanding during the period 217,194,192 211,686,668 Basic EPS - cent 7.51 6.51 Goodwill amortisation - cent 0.94 0.89 Basic EPS before goodwill amortisation - cent 8.45 7.40 Fully diluted earnings per share Profit on ordinary activities after €16,305,000 €13,786,000 tax Weighted average shares outstanding during the period 217,194,192 211,686,668 Number of dilutive shares under option 3,497,470 3,201,477 Weighted average shares for calculation of fully diluted EPS 220,691,662 214,888,145 Fully diluted EPS - cent 7.39 6.42 Goodwill amortisation - cent 0.92 0.87 Fully diluted EPS before goodwill amortisation - cent 8.31 7.29 The 7,528,066 (2004: 7,528,066) treasury shares held by the Group do not rank for dividend and have therefore been excluded from the weighted average number of shares in issue used in thecalculation of earnings per share. Ends. Friday, 13th May 2005. For further information: Liam FitzGerald Pauline McAlesterUnited Drug plc Murray ConsultantsTel: 00-353-1-459-8877 Tel: 00-353-1-4980 300 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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