United Drug takes price cut pain

UNITED Drug expects to acquire firms in Britain and the US over the coming year but expects to take a hit of up to €3 million this year following the Government imposed cut in medicine prices.

The Dublin-headquartered international drug wholesale and healthcare services group saw pre-tax profits for the first half of the year jump 5% to €31.5m.

Revenue for the six months to March 31, 2009, was €853m, in line with revenue in the same period in 2009.

United Drug chief executive Liam FitzGerald believes the company’s full-year financial performance will be broadly in line with last year, with profits expected to edge up slightly.

The group is looking to grow the business further, either organically or through acquisitions in Britain and the US over the coming 12 months. It does not expect to acquire any firms in Ireland. United Drug’s share price fell 2.69% to €2.53 yesterday.

However, it will take a €2m to €3m hit on profit in its financial year, which runs to end September.

The new drug pricing regime in the Republic, which came into effect in February, saw a 40% price cut on over 300 drugs for which there is a generic already on the market.

United Drug said the half year results were achieved despite the strengthening in the value of euro relative to sterling and the US dollar when compared with the same period in the prior year.

It said the strength in the euro has reduced the translated value of sterling and dollar denominated profits by €750,000.

United Drug chief executive Liam FitzGerald said: “The performance of the group in the first half of 2010 has been encouraging. Government budgetary pressures are resulting in constrained capital spending in hospitals and reductions in medicine pricing and reimbursement, but they are also helping to drive an increased demand for efficient, cost effective outsourcing services.”

Fully diluted earnings per share, also before amortisation and the exceptional item, is slightly ahead of 2009 at 10.68 cent per share.

An interim dividend of 2.34 cent has been declared, an increase of 5% on the 2009 interim dividend.

Mr FitzGerald also said that no more job cuts are planned at the firm.

As part of a cost-cutting programme, aimed at saving about €8m in a year, the company has already cut 200 jobs across the group.

Goodbody analyst Ian Hunter said the figures were a “solid set” of numbers.

“United Drug’s results have thrown up little unexpected, in contrast to the difficulties reported this time last year. Given that at the profit line the numbers are in line with our expectations, although we may tweak revenue and margin numbers, profit and earnings projections will remain largely unchanged.