Investing for growth

Strong organic growth continues and capital reinvestment begins in a challenging macroeconomic environment.

The year to 30 September 2016 has been a year of excellent progress, with good organic growth continuing while all the major announcements made late last year were finalised and the reinvestment of the capital released was begun.

Revenue growth was 3% in our continuing businesses, while adjusted profit before tax grew 10% and adjusted earnings per share grew 8%. They also generated €85.2 million of operating cash flow, and the return on capital employed (ROCE) in the continuing businesses was 13.7% compared to 13.5% last year.

Total earnings per share including discontinued businesses increased only slightly compared to last year arising from the sale of our supply chain businesses and pending the reinvestment of the proceeds. Nonetheless, we are proposing a 5% increase in the dividend to 11.55 cents per share as we have excellent liquidity, and are confident we will increase earnings materially as we reinvest our capital.

From last year’s announcements, the sale of our Irish pharmaceutical wholesale and distribution businesses to McKesson was completed in April, releasing €365.5 million in cash after all expenses and taxes and generating an exceptional profit of €132.1 million. In addition, the CEO handover occurred in February, which was a little earlier than originally announced – a pragmatic decision made on the grounds that an effective handover had at that stage been excellently achieved by Liam FitzGerald and Brendan McAtamney, and the organisation was ready. I will again pay tribute to Liam who seamlessly passed the baton to Brendan and continued to support and assist Brendan up the end of September, when he stepped down from the Board, as previously announced.

One of the consequences of the sale of the Supply Chain business in Northern Ireland was that our minority investment in Medicare, a large pharmacy chain, no longer made strategic sense. Thus, we have begun a process of disposing of this holding and in doing so, the results are now treated as discontinued and we decided to write down the value of our investment.

We are now a more focused Group with capital to deploy, and the management and Board have put considerable work into further refining our strategic plans and evaluating several significant strategic opportunities. As part of this process we engaged outside experts to gain more insight into the key drivers of the markets in which we operate and those we plan to enter, to ensure our next steps are the best we can take to drive growth and build competitive advantage. Our first acquisitions following the disposal of the Supply Chain businesses were Pegasus (in April) and STEM Marketing (in October) which fit excellently with this objective. We are pleased that we continue to see a strong flow of opportunities, large and not so large, some of which are challenging us to define our risk appetite more clearly.

Of course further challenges exist which are outside our control. The UK’s decision to leave the European Union (Brexit) has disrupted financial markets, and particularly the currency markets. With approximately 41% of our continuing profits currently generated in the UK market, the value of these earnings as expressed in Euro or US Dollars has been eroded by the fall in Sterling, an effect which will become more apparent in our results in 2017 if rates remain as they are. Of course as we invest in new businesses we expect the percentage of profits earned in the UK to fall, but the broader impacts of Brexit are still unknown. We do not expect material impacts on our trading per se but cannot predict how Brexit will impact economic growth in the UK itself, in Europe and globally.

Following the sale of the Irish businesses, the percentage of our profits earned in Euro reduced significantly and it thus no longer made sense to continue reporting our results in that currency. With over 50% (and growing) of our profits generated in the US, with the US being the largest outsourced pharmaceutical services market, and with a strong flow of acquisition opportunities arising there, we decided that the US Dollar would be the best reporting currency for the future. Unfortunately, currency volatility may make comparisons less clear in 2017, but for the long term we believe this to be the right decision.


During the year we had a review of the Board conducted by external experts, the second such exercise we’ve undertaken in the last three years, and were pleased with the overall positive assessment. We have some work to do to ensure that the remit of the Nominations & Governance Committee and the Risk, Investment & Financing Committee are fully understood by and communicated to the Board.

The Board continues to run smoothly and effectively, with good, informed debate taking place around our major decisions. In June, recognising the increasing importance of the US market, we added a new non-executive director who is based in the US and works in the pharmaceutical industry. Nancy Miller-Rich is a seasoned executive, who has already brought interesting and valuable perspectives to our discussions.

As recently announced, Chris Corbin, the founder of Ashfield and head of what has become the largest division in the Group, has indicated his intention to retire in 2019, giving the Group plenty of time to ensure a smooth succession. He will remain a director at least until he steps down in 2019.

Philip Toomey, Chair of the Audit Committee and Senior Independent Director, will have been a director for nine years in February 2017. The Board has determined that he remains independent and has asked him to remain on the Board for a further year. Nonetheless, to avoid any negative recommendations from proxy voting advisors, we have decided to recruit a further nonexecutive director, and to appoint a new Chair to the Audit Committee. We are using an independent recruitment consultant to search for international and plc experienced, Irish-based, financially qualified candidates, and expect to announce a further appointment in the near future.

We are placing our Remuneration Policy, only slightly amended, before you at the upcoming AGM. The appointment of a new CEO prompted us to do considerable work to evaluate our pay levels. As a result, we have made some amendments which we believe are appropriate, taking into account there had only been a 1% increase in CEO pay over the last eight years during which profits grew 56% and our market capitalisation increased by 133%, while the Group’s complexity and geographic spread developed significantly. The details of the changes we have made are set out in the Directors’ Remuneration Report, and these are supported unanimously by the Board.

A lot of attention nowadays is being focussed on the importance of culture in organisations. We believe that a positive, open and honest culture is a trademark of our Company and vital to our future success. While primary responsibility for the creation and nurturing of this culture lies with the management team, the Board is cognisant of its role in supporting this and in seeking evidence that the right culture is being fostered. By its nature this tends to be informal, but we intend to do more in this regard in the coming year.


Excluding currency translation impacts arising from recent currency volatility, we expect to achieve further good organic growth in the continuing businesses in 2017 even while making significant investments in building our management, IT and physical infrastructure. The latter are designed to ensure the Group has the systems and structures necessary to support its growth as it expands and makes further acquisitions in the months and years ahead. With a good flow of acquisition opportunities, we plan to further enhance earnings as we redeploy our available capital.

Peter Gray