UDG Healthcare final results impress but disposal delayed

The Dublin-headquartered FTSE 250 company lifted revenue growth 10% to €1.2bn in the year to 30 September, with adjusted profit before tax rising 24% to €107.1m and earnings per share up 21% to 34.9 cents.

Excluding the disappointing and soon-to-be-offloaded United Drug Supply Chain business, profit from continuing operations was up 44% at €85.5m at an adjusted operating margin of 10.7% versus the last year's 5.2%.

UDG, which provides packaging, medical, regulatory, and sales and marketing services to hospitals, saw some growth from its commercial and medical arm and even stronger expansion from the sharp packaging business.

Ashfield Commercial & Medical grew revenues 10% to €306.6m thanks largely to forex gains, with the UK and US both somewhat disappointing but saved by a strong European second half. Operating profits increased by 38% primarily driven by stronger UK margins in the second half.

Sharp went from strength to strength, with the packaging division delivering impressive revenue growth of 38% to €133.7m thanks to a strong North America performance and Europe showing progress after restructuring efforts in recent years.

Chief executive Liam FitzGerald said the pending supply chain sale, which was approved by shareholders in mid October, will accelerate the group's strategic transformation to focus on higher growth and higher margin areas.

However, the sale is now expected to complete in June versus March previously due to a slower approval process from the anti-trust authorities.

"Proceeds from the sale will support the ongoing implementation of the Group's international expansion strategy and will increase shareholder value through growing the Group's growth platforms.

"We continue to experience growing demand for our specialist services from our healthcare industry clients."

With the group's considerable long-term financing facilities and good cash flows, he said the board remained very positive about long-term growth prospects.

Analysts at Berenberg, which said revenues were 3% better than it forecast and EPS 4% better, agreed that the good cash generation in the second half added to M&A firepower, with net debt well below target thanks to good working capital management.

"While there will be some debate as to how sustainable this is, the company has targeted this as an area for improvement in recent years. Overall, this strong cash generation and the impending sale of the Supply Chain business leave UDG with plenty of firepower to execute the M&A we expect over the coming 12-18 months."

Shares in UDG were up 0.2% at 527p by 1045 GMT on Tuesday.