United Drug shares up by 2% as operating profits increase by 4%

SHARES IN United Drug rose by 2 per cent yesterday, as the company posted a 4 per cent rise in operating profit and a 1 per cent increase in revenue for the year ended September 30th, 2011.

Revenue at the healthcare company, which announced in August it was seeking 150 redundancies from its 650-strong Irish workforce, stood at €1.75 billion in 2011, up 1 per cent on the previous year. Pre-tax profits increased by 1 per cent, while adjusted operating profit was 4 per cent higher at €76.8 million.

Chief executive Liam Fitzgerald said yesterday that the redundancy programme had now been completed and there were no plans for further job cuts in the immediate future. While there would be investment in automated businesses in Ireland, the effect of this would be to increase efficiency, and would have no impact on jobs, he said.

The restructuring programme announced in August is intended to deliver more than €5 million in savings per year, as well as a once-off €9 million charge. United Drug’s 4 per cent increase in overall ebita earnings was driven by a strong performance by the company’s Sales, Medical Marketing and Packaging Speciality divisions, with the company’s older Healthcare Supply Chain business experiencing a 7 per cent fall in ebita to €44.4 million. The company said this division felt the impact of cuts to healthcare budgets in Ireland.

Revenue at the division, which includes United Drug’s Irish and UK wholesale pharmaceutical business and accounts for 58 per cent of profits and the vast bulk of revenue, was 2 per cent lower though wholesale revenue stayed at 2010 levels, despite a 4.6 per cent fall in the market overall.

Two-thirds of United Drug’s profits are now generated overseas, 41 per cent in the UK and 20 per cent in the US.

Chief executive Liam Fitzgerald said that, while the company remains committed to its Irish logistics business, it in increasingly focusing on high-margin activity. “We are becoming less dependent on businesses that are dependent on regulation, particularly in Ireland, and moving into areas with high growth and high-margin potential. Wholesale is traditionally a low-margin business, with margins of about 1½ per cent, compared to double digit margins in sales and marketing and packaging.”

United Drug is actively considering acquisition opportunities particularly in the US, but also in Ireland, he said, with the capacity to spend €200 million if required.

United Drug: 2011 results

Turnover: €1.75 billion

Operating profit (adjusted): €76.8 million

Pre-tax profit (adjusted): €68.5 million

Adjusted earnings per share: 22.81c

Dividend per share: 8.66c

SUMMARY

United Drug saw the benefit of its increasingly international focus with a strong set of full-year results, which showed an increase in revenue and operating profit for the year ended September 30th, 2011.

The company is strongly cash-generative with net debt of €121.5 million, leaving it primed for further acquisition opportunities, particularly in the US. Its Irish business contributes a third of the company's profits.