Improving, transforming and growing
2016 saw the UDG Healthcare Group deliver strong underlying growth as we continue to transform our business.
I am pleased to present my first Chief Executive’s Review and report that 2016 has seen the positive transformation of UDG Healthcare continue. These changes have positioned us for continued growth into the next phase of our development.
Profit before tax was up 10% and EPS was 8% ahead of 2015. The sale of our United Drug Supply Chain businesses and MASTA to the McKesson Corporation has further advanced our transition to higher margin and higher growth activities. We are now focussed on growing our Ashfield, Sharp and Aquilant divisions by leveraging their strong international platforms. We will remain focussed on strong organic growth and will supplement this with complementary asset acquisition. In doing so we believe we will continue to drive sustainable value creation for our shareholders.
The vision of UDG Healthcare is to improve the lives of patients around the world every day by partnering with and providing innovative solutions for our pharmaceutical and healthcare clients. As we express that vision we continue to evolve our strategy, which is to capitalise on an increasing trend among pharmaceutical and healthcare companies to outsource non-core and specialist activities on an international basis. I am pleased to report that in 2016 we made significant progress in delivering this strategy. Our clients are also changing to meet patient needs and increasingly looking for us to help them deliver more patient-centric solutions, frequently in a digital form. We are well placed to meet those needs in both creative and innovative ways given the scale, scope and geographic reach of our businesses.
In 2016 we made progress across a number of fronts:
The overall Group adjusted operating profit grew by 8% and it was very pleasing that the two main growth platforms of Ashfield and Sharp, which account for 90% of overall profit, grew by an aggregated 10%. The overall Group adjusted operating margin also grew significantly to 11.1%.
The disposal of the United Drug Supply Chain and MASTA businesses was completed in April. This means that the Group is well positioned, with an end of year €128.3 million net cash position, to continue our corporate development activities thereby complementing our underlying organic growth.
We delivered two acquisitions in calendar year 2016, Pegasus Public Relations, a UK-based integrated communications agency in April and STEM Marketing Limited, a leading global provider of commercial and medical audits to pharmaceutical companies, operating in 35 countries, in October.
Ashfield has delivered another successful year with operating profits increasing by 7% across the division.
Ashfield Commercial & Clinical
Ashfield has been providing outsourced sales force, nursing and contact centre solutions for over 20 years and in the last year significant progress has been made in evolving our service offer, introducing new innovative commercial models and winning larger contracts, particularly with global clients.
The US business has secured a number of significant new contracts and we now work with 12 out of the top 15 US pharmaceutical companies. Due to the rapid expansion of the business, Ashfield’s US headquarters will move to a new corporate head office in Pennsylvania with larger, enhanced office, meeting and training facilities, which will ensure we are better equipped to meet our clients’ needs.
In Europe we had another year of incremental profit and margin growth with contracts being secured not only on a multi-country basis but also multi-channel, meaning a variety of services being sold in addition to the base sales representative offering. One of our newer solutions introduced was a customer service representative model which was implemented in a number of countries and was seen as a clear differentiator for Ashfield versus its competition.
Our Japanese joint venture, CMIC Ashfield, which launched on 1 October 2014, continues to progress strongly and is now the second largest contract sales organisation in Japan. During 2016, the business launched several new service offerings including a contact centre and a new syndicated sales representative offering and both have been performing very well.
Ashfield Communications had another strong year in 2016 with significant business wins contributing to the positive performance. We have continued to broaden our range of high value service offerings by fully integrating digital solutions, increasingly with an additional patient-centred approach. Across the globe we now have more than 1,300 employees working in the communications group with significant expertise in the largest disease and therapeutic areas.
The Group acquired Pegasus Public Relations Limited in April 2016, for an initial consideration of £10.1 million with an additional £6.7 million payable, based on the achievement of agreed profit targets over the next three years. Pegasus is a UK-based integrated communications agency complementing the existing services provided by Ashfield Communications. We are pleased with the performance of the business so far, excited by the talented new employees joining our Group and also the additional capability this acquisition brings, particularly in the digital and social media space.
Sharp delivered another year of strong performance in 2016 with operating profits up by 16% and operating margin up to 12.9%.
In the US our strong performance was driven by organic growth on the back of our market leading position in the delivery of packaging solutions to our clients. This year saw us increase our packaging capacity by 30% with a $45 million investment in Allentown, Pennsylvania, our second major expansion within this campus since 2014. This new expansion went live in June and has enabled us to arrange our business around four main facilities which allowed the creation of centres of excellence for Biotech, Blistering, Bottling and Clinical.
In Europe the realignment of the cost base continued and, whilst we had hoped for higher volumes flowing through the facilities, we saw some improvement, particularly in the second half of the year. We completed an FDA inspection of our Belgian facility where I am pleased to say that we were re-certified. The Board has also approved a new facility for our clinical business in South Wales, UK. Both will provide strong support for business development going forward. Sharp also continued to invest in serialisation in advance of legislative requirements in 2017. To date we have serialised over three billion units across four of our sites and currently run 35 programmes for our clients.
Aquilant is a leading provider of outsourced sales, marketing, distribution and engineering services to the medical and scientific sectors in the UK, Ireland and the Netherlands. This year was challenging with revenue 8% behind the prior year, however, adjusting for the closure of Aquilant’s UK laboratory business in February 2015 and negative currency movements, underlying revenue was in line with the prior year.
Aquilant renewed a number of important client contracts during the period, added a record 12 new agencies to its portfolio, upgraded its distribution facilities and drove operational efficiencies. Overall it continues to trade in line with expectations.
Looking to the future, UDG Healthcare is well positioned to sustain its impressive growth record.
The outlook for growth in the healthcare market is positive, with global healthcare spending on medicines expected to increase to $1.4 trillion by 20201. Underpinning this growth is an increasing number of molecules being approved, particularly with a speciality care focus, which results in much more healthcare professional engagement with the patient. All of these factors lead to an increasing trend for pharmaceutical and healthcare companies to outsource non-core and specialist services to larger, global partners as they look for increased innovation, flexibility and quality. This is where UDG Healthcare can leverage our market leading positions in the key geographies and offer differentiated solutions.
We share a common set of Values across the UDG Healthcare Group – Quality, Partnership, Ingenuity, Expertise and Energy and they unite us in how we deliver our vision and strategy. They are part of our DNA as an organisation and are a critical driver of our growth.
For us to continue to avail of the opportunities that exist we must have the best people. This year we continued our investment in talent development through initiatives such as our INSPIRE leadership programme which saw close to 300 executives undertake three days of management development.
The Group remains focussed on ensuring that scalable infrastructure is in place to support the future organic and acquisition-led growth of the business. To deliver this we have launched three projects under the ‘Future Fit’ umbrella. The first of these is the implementation of a Group-wide Human Resource Information System, which is anticipated to go live during the second half of 2017. Two additional projects will focus on strengthening the Group’s global finance and IT infrastructure.
Our continuing investment in talent development, improvement in best-in-class processes, combined with a positive working environment, will ensure our people can deliver on their potential and help drive the business forward.
SUPPLY CHAIN SERVICES DISPOSAL
We completed the disposal of the United Drug, United Drug Sangers, TCP and MASTA businesses to the McKesson Corporation, a global player in the supply chain and distribution sector, in April this year. As we have said before, it was important to the Group that the legacy business, that formed the cornerstone of UDG Healthcare since 1948, landed in a good home and we believe that this is the case with the McKesson Corporation. It is also important to acknowledge the significant amount of work required to transact an asset disposal of this scale and I would like to thank all of those individuals involved, from both sides of the transaction, as this type of work was often done in addition to their normal duties. I would also like to take this opportunity to wish our former supply chain colleagues all the very best with their new owners and sincerely thank them for their significant contribution to the Group over the years.
I would like to take this opportunity to say thank you on behalf of all the employees and management to Liam FitzGerald who stepped down from the Chief Executive role in February and retired from the Board in September. In his 16 years at the helm, Liam led UDG Healthcare through a significant period of expansion and has been personally very supportive in terms of CEO transition support during my first year. We wish him every success in the next stage of his career.
Also in September, we announced that the founder and CEO of Ashfield, Chris Corbin, has notified the Board of his intention to retire from the Group in April 2019. In preparation for his retirement, Chris will transition to the role of Chairman of Ashfield once his successor has been appointed and will remain as a member of the Board of Directors of UDG Healthcare until his retirement. I would also like to thank Chris for his substantial contribution to the success of both the Group and Ashfield since joining us in 2000.
Finally, I am honoured to take on the role of Chief Executive, to build on the strong foundations which have been put in place and to lead this great organisation into the next phase of its development and future success. I would like to thank the Chairman, Board, employees and shareholders for giving me this opportunity and for their support in this, my first year.
- Improving the lives of patients through Quality, Partnership, Ingenuity, Expertise and Energy
- Transforming our business to be fit for purpose for the next phase of our development
- Growing our client base and service offering to maximise the return to shareholders
Strategic highlights and progress
- Disposal of the United Drug Supply Chain businesses and MASTA completed on 1 April 2016 resulting in a profit on disposal of €132.1 million.
- Completed the acquisition of Pegasus in April 2016 and post year end the acquisition of STEM. Both acquisitions are an excellent strategic fit for Ashfield, with good growth prospects and a higher margin profile.
- Ashfield’s operating profit increased by 7% (underlying growth of 9%), driven by positive underlying growth in both Ashfield Commercial & Clinical and Ashfield Communications.
- Sharp’s operating profit increased by 16% (underlying growth of 12%) driven by continued growth in the US commercial packaging business.
- Sharp completed the build and fit out of its new packaging facility in Allentown, Pennsylvania increasing US commercial packaging capacity by approximately 30%.
1 Global Medicines Use in 2020 report, IMS Institute for Healthcare Informatics, November 2015.