All our acquisitions continue to deliver significant growth
How would you describe UDG Healthcare’s performance during the year?
2019 was another year of strong strategic progress for UDG Healthcare. We have a clear purpose and strategy which continues to deliver for all our stakeholders. We operate in a large and growing market and our strategy and financial targets are clear, underscoring our commitment to the right balance of revenue growth and earnings performance.
During the year, we delivered good financial growth with adjusted earnings per share increasing by 7% on a constant currency basis, at the top end of our guidance range. Our two global platforms, Ashfield and Sharp delivered strong growth driven through a combination of underlying growth and the benefit of acquisitions. The Group completed three acquisitions, including Canale Communications, all of which are in line with our strategy to expand into differentiated, higher growth areas, complementary to our existing service offering.
We saw strong performances across multiple parts of our businesses and in particular we achieved good underlying revenue growth reflecting the strong demand for our services. In tandem, we continued to develop the Group’s infrastructures, capabilities and talent which underpin our business.
How has the Group evolved during the year and what were the key drivers behind the good performance?
Ashfield continued its transformation from a U.K.-based sales representative business to a global multichannel advisory, communications and commercialisation business where close to 70% of the business earnings are generated from the higher margin and higher growth areas of Ashfield Communications & Advisory. This part of Ashfield delivered strong revenue growth during the year with particularly strong demand for scientific communications on both sides of the Atlantic. Additionally, I was particularly pleased with the performance of our Advisory business Vynamic, and the progress of the STEM aXcellerate programme. Additionally, Ashfield benefited from the acquisitions completed last year and during 2019.
Ashfield continues to evolve to meet the needs of our pharmaceutical clients who seek partners to advise on, build and operate these outsourced services. The success we are achieving is evident not only in the revenue and profit growth, but also in the long-term strategic collaboration we are achieving with multiple clients.
Within Sharp we generated very strong revenue growth driven by increasing demand for our packaging of serialised biotech and specialty products in particular. In addition, within Sharp Europe we have taken actions to address some of the weakness by consolidating our footprint.
The Group has made a number of investments over recent years, is there anything further to come?
UDG Healthcare is a relatively young company given we only acquired Ashfield in 2000 and Sharp U.S. in 2008. As a result, we have made significant investments across the organisation, particularly since the disposal of the United Drug supply chain business in 2016, to ensure the Group has the proper infrastructure in place to deliver long-term attractive sustainable returns. These investments include our ‘Future Fit’ programme which comprises financial, HR and IT system investments across the Group. We have also further invested in our talent with various leadership developmental programmes, the aforementioned STEM aXcellerate programme and facility expansion in Sharp.
Ashfield Commercial & Clinical experienced a more challenging year. Has the performance been in line with your expectations and what actions have you taken to address it?
Ashfield Commercial & Clinical was a bit lumpier than we have experienced heretofore. We had clearly flagged this likely performance over a year ago based on the dynamics we were seeing in the business and across some markets.
The U.S. business experienced a very solid year with good growth, however this was offset by softer demand for these services in Europe. The primary reason for the U.S. growth is the diversity of the business which includes a wider range of services including clinical educator contact centre and patient support programmes amongst others, in addition to the traditional contract sales force services. Our European business is a more one dimensional business in terms of service offering and undoubtedly there has been some contraction in the traditional contract sales force market. We are currently addressing these European issues by evolving our mix of service, diversifying the offering similar to what we have achieved in the U.S. and aligning our cost base.
Sharp has had a strong year, how would you assess Sharp’s performance?
Overall Sharp had a good year delivering very strong revenue growth and solid profit growth. The demand for Sharp’s U.S. packaging services remains extremely strong right across the board but in particular for the packaging of serialised biotech and specialty products. In parallel to this growth, we have also seen good demand for the more traditional formats such as bottling and blistering.
Sharp has demonstrable capabilities and assets in the growing biotech space and we have seen strong volume growth in this area. This growth in biotech and the implementation of serialisation has added complexity to our product offering and therefore we have in 2019 further invested in both people and capacity to enhance our capabilities overall.
Looking ahead to 2020, growth and leveraging fully our investments in people, technology and facilities will be a key focus. We have accelerated our facilities expansion plan due to this very strong demand which includes new capacity coming on stream 2020.
Sharp Europe continues to be a challenge, what are you seeing that gives you confidence in its future performance?
We have made some progress in Sharp Europe this year, and the performance during the second half of the year was much better than the first half.
We have a number of facilities across Europe: a renovated clinical facility in the U.K.; a single client dedicated plant in the Netherlands; and a biotech facility in Belgium. These three plants are making solid progress towards profitability and we have taken the decision to close the fourth plant, a loss making facility in Oudehaske, the Netherlands. This closure is part of a wider strategic action plan to return Sharp Europe to profitability in 2020.
The Group made a number of acquisitions during the year. How do they complement the Group’s existing portfolio and how do you assess the longer term performance of your acquisition strategy?
Since 2012, the Group has made 22 acquisitions, which in aggregate have performed well ahead of expectations. Obviously, we had some stand-out performances from some acquisitions, and indeed some challenges, but overall we are extremely pleased with the talent and capabilities we have acquired and we are particularly pleased with our 2019 acquisitions which are in line with our long-term strategy.
At our Capital Markets Day in September 2016 we signalled our intention to enter the advisory space. The acquisition of Putnam in 2019 is the fourth asset in the advisory business unit. Boston-based, Putnam is a strategy consultancy focused on product commercialisation, exclusively for the life sciences industry. Over the past 10 years, Putnam has advised clients on the commercialisation of multiple blockbuster products providing clients with unparalleled insight, clarity and strategy. Putnam is highly complementary to the Vynamic business, which is also part of our advisory business. Vynamic partners with clients across all sectors of healthcare on transformational change initiatives – so we see these two assets as highly complementary and we are already seeing evidence of collaborations.
Our second acquisition in 2019, Incisive Health, is a U.K.-based healthcare communications consultancy, specialising in healthcare policy, public affairs and communication services. As a U.K.-based business, Incisive Health works strongly with our other U.K. communications companies such as Pegasus, Galliard and Nyxeon. All four assets speak to payers, prescribers and patients on behalf of our clients, and therefore enable us to build a very compelling suite of services.
Post the year end, in November 2019, we completed the acquisition of Canale Communications, a San Diego based scientific strategic communications agency, providing a range of public relations, investor relations and strategic communications services to life science and biotech companies.
How do market trends shape your business and how do they impact the delivery of your strategic plans?
A detailed review of the market backdrop is part of our annual strategic planning process, where we review, amongst other issues, the key pharmaceutical market trends and outlook. Understanding these trends is important to ensure that we evolve our business, our product portfolio and service offering in ways that meet client needs and preferences.
As you will see from our market analysis here, the macro trends within the healthcare industry remain very positive. The pharmaceutical industry is experiencing good growth and as a provider of innovative outsourced services in healthcare advisory, communications, commercial, clinical and packaging, we are well placed to benefit from this growth. While there will inevitably be variations and anomalies in the market, we remain focused on the controllable drivers of growth across our portfolio.
Do you feel the Group is delivering its strategic plan?
Without a doubt. Our strategy is clear and its implementation has been successful to date. We have built a very compelling and complementary suite of services that are attractive to our healthcare clients. These clients are now purchasing multiple services from us as they see the benefits of our innovative end-to-end service model.
We have built the right services, underpinned by the right talent and infrastructure that are in demand by our clients. We see big opportunities in the market as is evident by the revenue growth. The understanding and capital discipline we have demonstrated, coupled with the capabilities we have developed, will support volume and value growth in a sustainable way.
How important is the U.S. market to you?
Our geographical expansion continues and this was another year of strong growth particularly in the U.S. which now accounts for over 62% of the Group’s revenues. The U.S. is the largest pharmaceutical market and therefore the largest pharmaceutical services market. In the past decade it has been our intention to be a player of scale in this market. Over the past few years we have incrementally moved in this direction, but in the last three to four years we have really accelerated that penetration of the U.S. market and we now have a very scalable suite of services across both Sharp and Ashfield within the U.S. Of equal importance is our European footprint and our emerging Japan presence. Whilst the U.S. market is significant in scale, being able to operate globally for our clients is very important.
Can you elaborate on the 2019 Integrated Annual Report theme: people, purpose, partners, progress?
People, purpose, partners and progress are the four key differentiating factors of our business. Our people are the most critical part of the business, as well as being the drivers of our progress and growth. We are a people-based business and attracting, retaining and developing our people is of strategic importance to us. Over 8,700 people work in UDG Healthcare across 26 countries. The global talent market is very competitive but I am always encouraged by the quality of the people we are able to attract. There will always be an element of staff turnover in a business like ours and while we continue to evolve our leadership capability, I am very pleased with our developing talent pipeline and impressed with the expertise they continually deliver on a daily basis.
In turn, our purpose is to partner with clients to deliver innovative healthcare solutions that improve patients’ lives and my colleagues and I are motivated by the positive impact our activities are having on patients’ lives and communities.
Our clients and partners are key stakeholders and understanding their needs is crucial to be able to deliver innovative solutions. Our financial stakeholders are keen to understand how we continue to progress and deliver long-term sustainable returns.
Would you describe the Group as having a strong ESG focus?
At the core of our sustainability strategy are people, whether they are our employees, our clients or our communities. Building a culture that is underpinned by our values drives our interactions with all these stakeholder groups and as CEO, I am determined to continue to drive our sustainability agenda both internally and externally. In 2019, we conducted a materiality study focusing on our people and culture. The results of the study provided us with valuable insights and confirmed that our activities are aligned with our employees own values and priorities.
We have also been reporting to Carbon Disclosure Project now for a number of years and have demonstrated improvement year-on-year. For 2019 we have seen significant improvements in the quality of our data collection and have improved our reporting process across our global organisation. In 2019, we also received a rating of AA (on a scale of AAA-CCC) in the MSCI ESG Ratings assessment. This is an upgrade from the previous A rating. We were delighted to receive this recognition
What are the longer-term prospects for the Group?
For 2020, the Group expects to deliver continued good underlying operating profit growth across both Ashfield Communications & Advisory and Sharp, while Ashfield Commercial & Clinical is expected to return to stability. This growth will be supplemented from the full year benefit of acquisitions made in 2019.
In the longer term we will continue our strategic intent to deliver sustainable growth organically and inorganically. Our ambition is to deliver strong organic growth and supplement this by acquiring really interesting assets that complement our core offering and also offer adjacencies.
We will also continue to leverage the investments we have made in our infrastructure to ensure we are as efficient as possible and judiciously use our capital employed.
Finally, I would like to thank all our people, new recruits and old hands, for their work in 2019. It has meant that UDG Healthcare delivered a strong set of results. We are positioned well for further growth and delivery of our strategic objectives for the years ahead.