UDG eyeing more buys on back of strong year

Irish-based diversified healthcare services group UDG Healthcare will continue its acquisition-led growth strategy, after seeing recent purchases contribute to a bumper set of annual results.

The Dublin-based group, previously known as United Drug, yesterday reported better-than-expected figures for the 12 months to the end of September; with group revenues up by 5% at €2.13bn, underlying operating profit up 9% to €141m and after-tax profits ahead by the same percentage at €110.4m.

Diluted earnings per share were also well ahead of estimates — rising 8% to 45.34c, while the full-year dividend for shareholders is up by 6% on the previous year at 10.12c per share. That was on the back of a proposed 7% increase in the final dividend, to 7.43 per share; and pushes UDG’s history of shareholder payout increases to 25 consecutive years.

Much of UDG’s growth, this year, has been driven by its main two business divisions — the Ashfield contract sales outsourcing unit and the Sharp contract packaging business — which have, effectively, shifted the company’s profit focus away from its distribution roots.

Sharp saw its operating profits grow by 22% in the year, with Ashfield seeing a 32% increase. Those two divisions, combined, now make up 61% of group profits.

But, in truth, growth was seen across the board. The group’s European packaging business went from a loss to a modest profit; its Japanese joint-venture had been expected to break-even, but instead generated a profit of €800,000 in its first year.

Its profits in the US grew by 40% largely helped by the contribution from the KnowledgePoint360 healthcare communications business it bought in the early part of this year.

And, although its Irish supply chain business saw a dip in revenue and a double-digit percentage decline in profits, it grew market share by 2% and has seen a €40m investment in the past year and a half; group chief executive Liam FitzGerald yesterday saying management remains committed to its Irish business.

Management is also committed to its Irish status, despite the vast majority of its revenues being generated abroad and its shares being listed in London.

Mr FitzGerald said the company has “no plans” to change its Irish base at the current time. He said the company will continue on its course of acquisition, as well as organic-led growth.

“The group has considerable long-term financing facilities available and good internally-generated cash flow to support our growth objectives. We remain very positive about our future growth prospects,” he said.

Earlier this year, when UDG sold its UK drug distribution business to Alliance Boots for more than €80m, it said it would use the proceeds to make further acquisitions and to provide for further deleveraging (net debt rose, slightly, in the past year to €246.4m).

Management added that it could comfortably add smaller bolt-on purchases in the €10m-€20m value category without harming its balance sheet.

“Across the group, we are well-positioned to benefit from the growth in outsourcing throughout the healthcare industry as companies react to rapidly-changing business requirements,” said Mr FitzGerald.

Goodbody Stockbrokers said it will likely upgrade its operating profits, for UDG, by around 2% for its current financial year.