Half Year 2022 Uniphar PLC Earnings Call Dec 5, 2022 (Thomson StreetEvents) -- Edited Transcript of Uniphar PLC earnings conference call or presentation Tuesday, August 30, 2022 at 8:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ger Rabbette Uniphar plc - CEO * Tim Dolphin Uniphar plc - CFO * Seamus Egan Uniphar plc - Head of Corporate Development & IR * Brian O'Shaughnessy Uniphar plc - Commercial Lead C&C Pharma and Product Access ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining Uniphar interim results 2022 conference call. Throughout the today's recorded presentation all participants will be in a listen-only mode. (Operator Instructions) I would now like to turn the conference over to Seamus Egan. Please go ahead. -------------------------------------------------------------------------------- Seamus Egan, Uniphar plc - Head of Corporate Development & IR [2] -------------------------------------------------------------------------------- Good morning and welcome to Uniphar plc's interim financial results presentation, which covers the period from January 1, 2022, to the June 30, 2022. I'm Seamus Egan, Head of Corporate Development at Uniphar plc. Presenting our results today is Ger Rabbette, our CEO; and Tim Dolphin, our CFO. Before we begin, I would like to remind everybody that you can access the presentation either on our website, www.uniphar.com under Latest Results and Presentations or via the link sent to you when you've registered for the conference call. The results presentation will last approximately 20 minutes and will be followed by Q&A. Please note the full year results presentation may contain certain forward-looking statements, beliefs, or opinions, which are based on current expectations and projections about future events. Actual results may differ materially from those expressed or implied in such forward-looking statements. I would now like to hand you over to our CEO, Ger Rabbette. -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [3] -------------------------------------------------------------------------------- Thanks, Seamus. We'll start on slide 4, which provides an overview of the group. And we operate across three divisions, serving over 200 of the world's leading pharma and med-tech manufacturers. We serve over 160 countries worldwide and have operations across Ireland, the UK, Europe, US, and have now entered the APAC region. We've had a strong H1 with gross profit growth of 9%. Last month, we celebrated our third anniversary as a public company. During these three years, we reported double-digit compound growth across gross profit, EBITDA, and adjusted earnings per share. If you move to slide 5, we discuss our financial highlights. We're delighted to report that the diversity and robustness of our business model has fueled continued strong growth across each of our three divisions with an outperformance in our supply chain and retail division. At a group level, earnings per share increased by 20%, with EBITDA growing to EUR45 million. Return on capital employed was again ahead of our rate at 16.6%. Normalized free cash flow conversion was 70%. And we finished the period with modest leverage of less than one. Post period end, we successfully completed a plan of refinance, which provides us with significant financial flexibility going forward. We've also continued to build on our excellent M&A track record and now see a reentry into the strategically important APAC region with the acquisition of Orspec Pharma. As you can see, our supply chain and retail division has outperformed again this period, following on from a stellar nine year track record, growing share from 24% to 53%. As we look forward, we believe that we continue this strong momentum. And this is why we are investing EUR60 million in a new world-class distribution facility that more than doubles our capacity, reduces pick cost by one-third and delivers return on capital employed of 50% within four years, and continue to grow strongly beyond that. This project will take approximately four years to commission. And it will future-proof our business for 15 plus years, creating a serious competitive moat for this highly cash-generative business. On Slide 6, we outline the continued progress we're making with our sustainability initiatives. It has always been at the very core of who we are. As a business, we are rooted in the communities that we serve and our sustainability policy is centered around our core principles. Our people represent our first pillar. And we are proud to have launched a number of initiatives to promote equity, diversity, and inclusion right across the group, including the Women's Allowance and the Rainbow Alliance. We continue to make strong progress completing our first Scope 3 carbon footprint exercise. And we remain committed to reducing our Scope 1 and Scope 2 emissions by 50% by 2030. From a governance perspective, the group adopted the UK corporate governance code early in '22. Moving on, I'll bring you through a review of each division's financial and strategic progress during the year. On slide 8, we highlight our divisional objectives. In commercial and clinical, we are focused on continuing to build out our pan-European platform. In product access, we're focused on providing patients and physicians with the ambition of becoming a global leader in the delivery of all licensed medicines. And in supply chain and retail, we will continue to grow our market leadership position through continued investments in our infrastructure and our digital business solutions. Turning to slide 9, commercial and clinical, this division, as you know, provide sales, marketing, and distribution solutions to both pharma and med-tech manufacturers. The business is specialty focused on pharma. We're insight-driven. And we leverage our fully integrated omnichannel model for our clients. In med-tech, we deliver an integrated agency model that is the entire sales, marketing, and distribution value chain on behalf of our partners. Europe is a very fragmented marketplace. It poses considerable challenges for specialty manufacturers who want to enter. But we remain committed to building out our pan-European platform to offer our clients a one-stop shop for Europe. This strategy has been very well received by our partners. We now represent 75 clients across two or more geographies; an increase of 50 in a period. Our bespoke service offering in the US continues to build scale. And we continue to evaluate the capital deployment opportunities in this lucrative market. In the US we want to invest in high-value service providers that fast tracks our strategic initiatives. On Slide 10, you will note that this division grew strongly with revenue for the period coming in at EUR162 million, with gross profit increasing by 10% to EUR59 million. This is a very strong performance given the challenging [comp] we hedged for '21. We grew organically by over 20%. On slide 11, product access, we're building the global capability to source and supply medicines, which are unlicensed but already short supply to manage the release of specialty medicines to Pacific patients on behalf of manufacturers. We've worked on more than 70 exclusive patient-access programs to date and we delivered medicines to over 160 countries across the globe. This year we signed our first EAP in the US. This has been a key focus for the group and marks a significant milestone. This success greatly aided by our continued investment in the US. At post period end, we entered the APAC region with the acquisition of Orspec Pharma. Turning to slide 12, revenue for the period was EUR75 million, with a 9% decrease in gross profits. This division has performed very strongly since IPO with a compound organic growth of over 20%. And we continue to see this as a significant growth opportunity because of the growth in specialty pharma and the challenges governments face in affording these high-priced treatments. While this division continued to deliver growth throughout H1, business development interruptions because of COVID, combined with the long sales cycle for EAPs has caused a temporary slowdown in deliverables during the period. When we look forward, we expect this division to continue to deliver organic growth for the full year and to return to double-digit growth in the medium term. On slide 14, we talk about the great market position we have in supply chain and retail. We are the market leader in a two-player market. There is over 2,000 hospital-- retail accounts. This strong market position is supported by a network of over 381 owned and franchised pharmacies. The division has once again outperformed with a medium-term guidance with revenue for H1 at EUR755 million, with gross profit coming in at EUR66 million. Delivery reported gross profit growth of 8% as we continue to grow share and outperform the market. The gross profit margin in this division is now close to 9%, up from 5.5% at the time of IPO. And now I'll hand over to Tim to provide you with some more color on our financial performance. -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [4] -------------------------------------------------------------------------------- Thanks, Ger. I would now like to take you through the financial highlights for H1 '22. I'm pleased to say that the group has delivered a strong performance during the period with gross profit growth across all three divisions. At an overall group level, we generated gross profit of EUR146.1 million, up 8.8% from H1 '21. The group delivered strong organic gross profit growth of 4.9%. Our gross margin percentage has increased from 13.9% to 14.7%, reflecting our continued growth into higher-margin opportunities. EBITDA has increased by 9.2% to EUR44.9 million despite the challenging inflationary environment. And this has resulted in a very strong return on capital employed of 16.6%, outperformed this guidance of 12% to 15%. Adjusted earnings per share increased by 20% versus H1 '21 on a like-for-like basis to EUR0.084, driven by strong operating profit. Gross profit. Gross profit and gross margin percentage are the key financial metrics we use to track profitability at a divisional level. Commercial and clinical delivered an excellent return in H1 '22, following on from a very strong outperformance in H1 '21 where the division grew by more than 20% on an organic basis. Its strong cash conversion ability and long-term relationships provides the financial profile to enable the company to constantly continue to reinvest in this high-margin division. Our organic gross profit growth of 4.2% is within its mid-single-digit growth guidance, reflecting the strength of our business and the deep expertise of our teams and the diversity across our service offerings. This division contributed 40% of the group's gross profit for the period. Its gross profit margin increased during the period from 33.9% to 36.1%. Product access has delivered reported growth of 8.8% and organic growth of 5.7%. While under its divisional guidance for H1 '22, this division has performed exceptionally well since IPO, with organic compound gross profit growth above 20%. Our investments in Durbin, Innerstrength, RRD, and Devonshire, as well as our commercial and clinical investments in the US, are developing a unique, high-value proposition for our clients. And we are confident we will deliver double-digit organic growth in this division into the medium term. Product access represents 15% of group gross profit. Its gross profit margin increased during the period from 23.3% to 29.3%. Supply chain and retail once again outperformed its divisional guidance with reported growth of 8.2% and organic growth of 5.2%. This division also has strong recurring revenues, plus a stable and robust gross profit profile. In terms of volume, we once again outperformed the market. This division represented 45% of the group's gross profit for the period. Its gross profit margin increased during the period from 8.4% to 8.7%. Moving on then to have a look at net debt. At a high level, we finished the period with a net bank debt position of EUR73.8 million, driven by opening net debt of EUR48.3 million, strong EBITDA of EUR44.9 million, offset by working capital investment of EUR19.3 million, CapEx of EUR4.3 million, strategic CapEx of EUR7.1 million, acquisition and deferred consideration payments of EUR16.8 million, and other items of EUR22.9 million, which included exceptional cost, interest, lease payments, tax, finance costs, and dividends. We generated EUR31.5 million of free cash flow on a normalized basis, which equates to a 70.2% free cash flow conversion ratio. Just having a look in the free cash flow, our medium-term guidance for free cash flow conversion is 60% to 70%. We define free cash flow as EBITDA, less investment in working capital, less maintenance CapEx. Normalized free cash flow conversion for the period was just ahead of our guided range at 70.2% after adjusting for the partial reversal of a previously disclosed net timing adjustments of circa EUR10.2 million. Efficient working capital management continues to be a focus of the group. And reported free cash flow was 47.5%. Just moving on then to the next slide to have a look at liquidity. From a liquidity perspective, the group is in an excellent position, finishing the period with -- at less than one times leverage. The group has a strong capital structure in place with a significant cash resource available. At the end of June '22, it has a net bank debt position of EUR73.8 million, made up of EUR68.3 million of cash and cash equivalents and EUR142.1 million of bank debt. Shortly after the period end, the group completed a previously planned refinancing agreement. This five-year agreement effectively doubles our current facilities, brings in additional international banking partners, and provides the group with the firepower required to continue on our growth journey. Our leverage covenant has also been increased. Our capital structure is well positioned to support the execution of our strategy of doubling our 2018 pro forma EBITDA of EUR46 million within five years from the date of IPO. I'll now hand you back to Ger. -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [5] -------------------------------------------------------------------------------- Thanks, Tim. On slide 22, capital allocation has remained a key focus for the group as we adopt a very disciplined and balanced investment approach. As we've always said, we will invest in organic and inorganic opportunities across each of our three divisions which supports our strategic objective of delivering the return on capital employed at or above our hurdle race of 12% to 15%. We have a strong capital structure with leverage below 1. Our new banking facility and larger banking [hubs] gives us the flexibility and support we need to continue to invest across all our platforms. If you move to slide 23, we're delighted to announce our plans regarding a strategic CapEx investment in a new state-of-the-art distribution facility in Dublin. This organic investment supports our continued strong growth in supply chain and retail, where we have grown market share from 24% to 53% over a [nine-year period]. The investment is underpinned by a very strong economy and a positive market demographics, including growing and aging population. The investment enhances our market-leading service offering, differentiating us from our competitors and future proofs our business by more than doubling our capacity. It also significantly increases our levels of automation, reduces pick cost by a third, drives efficiencies, protects us from future inflationary headwinds. Partly, it also supports our sustainability initiatives. The investment of EUR60 million will be phased in over five -- over four years and will deliver a return on capital employed of 50% within four years of go-live and continue to grow strongly thereafter. On slide 24, we discuss M&A. Post period end, we completed the acquisition of Orspec Pharma, making our entry -- marking our entry into the strategically important APAC market. APAC is a significant market for unlicensed medicines. And the highly experienced Orspec team have in a short period of time built a strong track record of sourcing and providing life-saving medicines into the APAC region for their homes in Australia, New Zealand, and Singapore. Additionally, they have supported the rollout of expanded access programs. And they will be a key enabler for Uniphar growing our service offering in the region. Integration of our four acquisitions completed in '21 is progressing in line with plan. Our investments in the US, including BESTMSL continues to build scale; the integration of CoRRect Medical is well advanced. We launched a number of products in Europe's largest med-tech market. E4H has allowed us to offer a more complete omni-channel offering. And the Devonshire team has now been fully integrated and continue to provide a strong service offering to their long-standing [media] customer base. Finally, we continue to assist the Competition Authority with its review of the Navi acquisition. And we expect the acquisition to close later on this year. As we look forward, we are confident that the successful track record of value accretive M&A will continue into the future. Over the past 10 years, we've developed the ability to identify assets with strong cultural and strategic fit that will deliver a return on capital employed above our hurdle rate. We work hard on M&A and continue to manage an active pipeline of acquisitions in order to add further scale and breadth to our existing platforms. If you move to slide 25, our business is on a strong growth trajectory. And we will continue to invest, execute on the significant opportunities we see for ourselves. We're mindful of the challenging macro environment we currently operate in. However, we will continue to mitigate these significant changes by leveraging our scale and our ability to innovate and deliver value for our client -- for our partners. Our medium-term guidance remains unchanged: double-digit organic gross profit growth for product access, mid-single digits for commercial and clinical, and low single digits for supply chain. We remain confident that we will deliver in excess of 60% free cash flow in the medium term, keep return on capital employed between 12% to 15% or above, and adopt a very disciplined approach to capital deployment. On slide 26, we outline our investment case. As we see it, we are a well-diversified, quality healthcare services business positioned to win in growth markets. There's no doubt that we have a compelling market opportunity, driven by the increased demand across the globe for specialty products and growing trades by pharma and med-tech manufacturer to outsource to specialist providers with well-invested and proven infrastructure. In response to this, we've designed and built an integrated model, provided end-to-end solutions across the value chain and throughout the product life cycle. The platform for growth is in place. We believe we have distinct competitive edge to our high-tech distribution facilities, our deep relationship with global manufacturers, our scalable tech, our highly skilled people, our strong M&A track record. We have a strong balance sheet, a great ability to generate cash, and a highly experienced industry team. So in summary, we are confident that we have the strategy, the market opportunity, the platform, the competitive edge and the team in place to deliver on our strong growth plans and deliver the commitments we made at IPO just over three years ago. Thanks for listening. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) No telephone questions so far. (Operator Instructions) There are no more questions. I hand back to Brian for the webcast questions. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [2] -------------------------------------------------------------------------------- Thanks, Nairobi. So we have some questions from some analysts that have been sent in to us through the online portal. So we'll start with Allan Smylie from Davy's. So question one, you referenced inflationary pressures in the release this morning, which are clearly managed well, given continued strong organic growth. Can you talk through the areas of the business most exposed to inflation and perhaps quantify the expected impact from the inflationary pressures this year? -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [3] -------------------------------------------------------------------------------- Allan, inflation is something that we've been experiencing for the last, say, 18 months. And we've been able to manage to meet our targets and our expectations, even taking that into account. If you were to look at the -- on a full year basis, the impact of inflation would be somewhere fitting between EUR4 million, EUR5 million on our cost base. Our challenge then is actually to make sure that we pass that through to our customers in a managed way. So there's -- the result is going to be a lag between price pressures coming through and our ability to pass that through to the customer base. Well, we've been able to cover that by using our scale and the breadth of our offerings to make sure that we can be able to grow our gross profit path to make sure that we can actually still meet our targets. And we're confident that we'll be able to do that for the rest of the year. And as we look forward into next year -- now on a particular area, supply chain and retail is probably the area where you have the biggest cost base impact, particularly energy and fuel costs. And then in med-tech, you probably have a big drive from manufacturers trying to pass through their pricing pressures through to us. And in product access, there wouldn't be any pressure at all. So overall, if we hadn't had inflation, we probably would have exceeded our expected figures for the last 18 months. The impact in the page 1 results today would probably be in the region of EUR2 million to EUR2.5 million. And as I said, on a full year basis, you're looking somewhere between EUR4 million and EUR5 million of an impact on our cost base. And what we're doing, Allan, is managing that in a manner that we can pass it through to our customer base in a managed way so that we don't get any negative impact. And we've been successful in doing that. So part of the increase in our gross profit to date has been that exact thing, we've actually been able to pass some price changes through, but in the main, the majority of the gross profit increase has been -- was using our scale and growing the business. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [4] -------------------------------------------------------------------------------- Thanks, Tim. So next question from Allan, in supply chain and retail, how should we think about the phasing of returns on your EUR60 million investment in the new distribution capability? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [5] -------------------------------------------------------------------------------- So Allan, obviously, this investment is because of the outperformance of the supply chain and retail business over the last number of years, a nine-year track record now of market share growth. So Tim, can you give him some color on the phasing of the returns? -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [6] -------------------------------------------------------------------------------- Yes, Allan, it's obviously a big project that we're undertaking here. It's going to take a three to four years to commission. And then it'll take between three to four to five years to actually meet our hurdle rate. So after four years we will be at 15% return on capital employed. And by year seven, we'll be at 20% return. So it's quite a strong investment return. Part of the return then is going to come from operational efficiencies where we will be able to reduce our pick costs by a third. That's going to give us a substantial increase; and then the balance of the return that we'll get will be from market growth and our increase in our customer base as well. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [7] -------------------------------------------------------------------------------- And final question from Allan, in product access, the market has principally focused on the opportunities in expanded access programs. But the acquisitions of Devonshire and now Orspec also expand your global capability in the unlicensed medicines. How should we think about your growth ambitions in these markets? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [8] -------------------------------------------------------------------------------- Yes, I think a good question also. We've built a very significant on-demand business over the last number of years. We see continued significant opportunity for us to grow this business. So the platform that we have in place today allows us to expand our existing platforms in UK and Ireland into Europe, and now in APAC and the US. So Brian, do you want to add something? -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [9] -------------------------------------------------------------------------------- Just to add to that, Allan, our ambitions are to be global leader across both early access and global access, and the capabilities required for both of these divisions are the same. And then we can also leverage that capability for the trading business of the unlicensed, on-demand business. So the long-term vision is to be able to retain our clients across the lifecycle and from commercial markets and non-commercial markets. And specifically, Devonshire expands our reach into strategic hospitals and accounts into Middle East. And Orspec now expands our capabilities within the important APAC region. So the next questions are from Charles Weston in RBC. So first question, in light of the strong recovery in elective procedures will commercial and clinical med-tech acquisitions be more difficult/expensive to make? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [10] -------------------------------------------------------------------------------- I think what we're seeing, Charles, I think that's all over all the health care assets today are expensive to acquire, and that's been the case now for three or four years. So we have seen [NatLife] pay multiples significantly higher than we would be comfortable at. But what we will be good at is sourcing opportunities off-market through our connections and paying multiples of our (inaudible). And it will deliver our return on capital employed. You can see again this year, Charles, that we've outperformed our guidance of between 12% and 15% of capital employed. And basically, I think we have the have the skillset to keep playing with that forward, despite the macro environment with regards to where people are paying very significant multiple for healthcare assets. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [11] -------------------------------------------------------------------------------- Thanks, Ger. Question number two in from Charles is, within commercial and clinical, what do you anticipate the mix of med-tech versus pharma organic growth rates on a go-forward basis to average the mid-single digit guidance? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [12] -------------------------------------------------------------------------------- I think we look at this as one division. And it is a strong growth engine for us. So we guide mid-single digits across both pharma and med-tech. And that's our expectation. Now we obviously have -- med-tech today is stronger, is bigger of the two divisions. But ultimately, we want to grow each of these platforms mid-single digits. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [13] -------------------------------------------------------------------------------- Thanks, Ger. Next question from Charles, given the EAP wins over the last year or two, what visibility does management have now on recovery to double-digit growth in 2023? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [14] -------------------------------------------------------------------------------- Okay. As I said, our growth, we've delivered 20% compound growth since IPO in this division and we're comfortable getting back there in the medium-term. This development opportunity has been delayed because of COVID, delayed decision-making but ultimately, within the medium term, we're happy we'll get back to double digits. Brian, do you want to add any more color? -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [15] -------------------------------------------------------------------------------- Yes, just to add to the point around Ger made that we have delivered significant compound growth since IPO. And this is the first reporting cycle where we would be below the double digits organic gross profit growth, which we would have flagged early last year around the impact COVID had on the sales cycle and then other macroeconomic factors around biotech funding. But ultimately, we remain confident on our ability to double-digit organic gross profit growth into the medium term. Final question from Charles, what are the terms of the new debt facility? And why is it so large, given that reasonable leverage would apply substantially lower debt? Could you read anything into the timing of the new facility in terms of deals in the pipeline? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [16] -------------------------------------------------------------------------------- So I'll say this: we are a high-growth business and we want to grow our business. We have invested very heavily in our people, in our technology, in our facilities. I would say that we [view it as] a structural place to more than double the business going forward, provided the proper opportunities come along. For me it's just good business to make sure that we have the facilities in place if an opportunity comes along for us to really drive our business. So each of our three divisions, we see significant growth opportunity for ourselves. M&A as you know takes a long time. We put a lot of effort into it. [They're long] conversations. And we just want to make sure that if the opportunities come along, we're in a position to grab hold of them. How we would restate it is we want to keep leverage between 1 and 2. We don't really want to go beyond 2.5 times leverage. But we will on the basis we can get down very quickly. So basically for me, it's just about making sure that we have the facilities in place to deliver on our growth plans for the business and if opportunities come along, that we're in a position to grab hold of those opportunities. Tim? -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [17] -------------------------------------------------------------------------------- Yes, Charles, on the terms part of your question, all the terms are exactly the same as the previous arrangements we had in place. So interest rate, et cetera, all exactly the same. There is only one change, which would have been on the covenant side. So our covenant has increased from 3.2 to 3.5. All other terms are exactly the same except the (inaudible) and the covenant. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [18] -------------------------------------------------------------------------------- I think there's one more question Charles has just put on. Is Orspec more focused on on-demand or EAPs? And so it's both, Charles. So I suppose that as we said at the -- to Allan Smylie's questions, the capabilities across this division cut across both early access and global access, which includes the on-demand or trading side of the business. So Orspec has capabilities across, I suppose, those three buckets of revenue opportunities, which is why it was an important strategic acquisition for us. So the capabilities that they possess, I suppose, they've recruited people from some of our competitors in that region and with the owner being -- and played a key role in driving the growth of AsiaPac for one of our competitors. So it is an acquisition we're very excited about. The set of next questions are in from Adam Barker of Goodbody Stockbrokers. And so question one, in previous results you have mentioned the possibility of replicating the supply chain and retail business in another markets with similar characteristics to Ireland. Is this still a potential option? -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [19] -------------------------------------------------------------------------------- Absolutely, Adam. So we've built a very unique business model. You can because see we've grown our net EBITDA -- sorry, our gross margin from 5% to 9% in short order. So we have a very unique business model in Ireland in our supply chain retail business. And the numbers reflect that. We see our peer group, peer group as (inaudible). So we'd love to replicate this model in our markets. So when we are investing in our IT, and our facilities and our people, we always invest for scale, so we scale this platform into other markets. And today we believe we can if the right opportunity comes along. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [20] -------------------------------------------------------------------------------- And the next question from Adam, the press release mentions that you are focused on maintaining margins through the current inflationary cycle. Are there any inflation forecasts in the market where you think this would not be possible. Or would you forego delayed investments to maintain margin in that scenario? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [21] -------------------------------------------------------------------------------- I think we're very comfortable, as Tim said, [there] is whether we can manage our current forecast to inflation challenges. The issue is there is always a time lag between [sufferers] and [passes on]. And that's the issue. So we're very comfortable at the current stand and our view of the markets that we can mitigate the margins, the significant inflation pressures that we see for each of our three divisions. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [22] -------------------------------------------------------------------------------- The next question from Adam, what are the key factors in winning the first US EAP? Is it just persistence and gradually growing brand equity and your ability to deliver? Or has there been a change in approach? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [23] -------------------------------------------------------------------------------- Brian, you better take that. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [24] -------------------------------------------------------------------------------- Adam, this goes back to our acquisition of RRD International in November 2019 (sic - see Presentation, "RRD International in November 2020"). And we call that as a key strategic acquisition in terms of giving us the clinical credibility to operate EAPs in the USA. So we've been working hard with RRD in terms of creating the value proposition that will be required to deliver an early-access program in the US, which has much higher regulatory hurdles to meet. And this is, I suppose, a strong example of the benefit that we called out of the RRD acquisition. So we're very pleased to have won these two EAPs and hope to deliver more and grow those accounts. Final question from Adam, is the acquisition of Orspec in line with your usual M&A return targets? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [25] -------------------------------------------------------------------------------- Tim? -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [26] -------------------------------------------------------------------------------- Yes, Adam, our target is that after a three-year period, we will get to 15% return on capital employed. And Orspec is in line with that. As Ger and Brian has said previously, Orspec is a strategic acquisition for us. It gives us the platform to expand into the APAC region. And all our criteria for acquisitions will have been made from a strategic, cultural, and a financial perspective. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [27] -------------------------------------------------------------------------------- Thanks, Adam. Next questions are from Max Herrmann in Stifel. So first question, why put in place such a large facility, EUR400 million plus EUR150 million accordion? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [28] -------------------------------------------------------------------------------- As I said previously, we see it's good business; that basically, we are a business that has a position to grow. We've invested in our technology, our people, our infrastructure. We want to be in a position to grab hold of any opportunities that come across each of our three divisions. However, we've always said we want to keep leverage between 1 and 2 and not go above 2.5. So [we're just biding for that] but there is significant opportunity for us right across each of our three divisions and we want them positioned to avail that if the opportunity comes along. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [29] -------------------------------------------------------------------------------- Thanks, Ger. Next question, what is the outlook for product access? When will it return to double-digit growth? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [30] -------------------------------------------------------------------------------- Brian, you might answer that, too. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [31] -------------------------------------------------------------------------------- Yes, I think we called that out with Charles. And so we called out the reasons why we felt that the medium-term guidance would be under pressure as a result of COVID and there's some macroeconomic factors around funding of biotechs. Well, we don't see this as a long-term impact. It was just basically the very long sales cycle for the early access programs, which, again, we would have always called out and which not being able to travel and engage and the delay in decision-making has had an impact on. But we are standing by our medium-term guidance of double-digit organic gross profit growth. Next question from Max, I'd also like to know what contingents were paid out in the period, please. -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [32] -------------------------------------------------------------------------------- As part of our cash payments during the period, we paid just under EUR70 million for acquisitions, which includes some deferred consideration and include some up-front consideration. Of that figure, EUR3.5 million related to deferred consideration, a link to EPS, M3, RRD, and the [article], and some IPPs. So I hope that covers the detail for you. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [33] -------------------------------------------------------------------------------- We'll give a moment for any more questions. So we have a question from [Tom Marty], thank you for the presentation. Is the cash conversion below 60%, 70% range due to the stock build-up, same dynamic in H2? -------------------------------------------------------------------------------- Tim Dolphin, Uniphar plc - CFO [34] -------------------------------------------------------------------------------- Tom, thanks for the question. No, our cash conversion ratio when you normalize it comes in just over 70%, which is just ahead of our target range. If you would remember from previous presentations that we've done for previous periods, we would have adjusted an excessively large cash conversion ratio down for timing difference. And all you're seeing here in this period is the partial reversal of those timing differences. Those were circa EUR10.2 million of timing differences that reversed in this period, which gives us an artificially low (inaudible) free cash flow of 47.5%. When you normalize that by taking those partial reversal into account, it brings it back to 70.2%, which is ahead of our target range. And we are confident that our target range will be achieved going forward. Just to clarify for you, we define free cash flow as EBITDA less investments in working capital, less investment in maintenance CapEx. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [35] -------------------------------------------------------------------------------- Thanks, Tom. So we have another question in from Tom. What about the integration of Navi Group? It was supposed to be in mid-2022 in December 21 at the time of the acquisition. Then it was postponed during Q1. Now it would be at the end of 2022. The acquisition of Navi Group is subject to approval by the Competition Consumer Protection Commission is expected to close later this year. What is going on with the CCPC? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [36] -------------------------------------------------------------------------------- I think it's like all services today, it's under pressure because of people resources. So (inaudible)it is a pretty significant acquisition. But we believe we can still get through quarter four but not with the -- like every private and public sector, people pressures are everywhere, so we see that as a main reason. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [37] -------------------------------------------------------------------------------- Thanks, Ger. Give a moment for any more questions. A question here from [Brian White], does the difficult financing environment for mid-sized pharma companies in the US in particular provide an opportunity for commercial and clinical as these companies struggle to finance commercial efforts? -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [38] -------------------------------------------------------------------------------- Brian, you might take that too. -------------------------------------------------------------------------------- Brian O'Shaughnessy, Uniphar plc - Commercial Lead C&C Pharma and Product Access [39] -------------------------------------------------------------------------------- Great question, Brian. And we do see our value proposition and having the ability to accelerate value inflection for these emerging biotechs by accelerating their ability to commercialize in markets outside of the USA. And a common theme we hear is that if sales for a pharma or biotech is going to be less than EUR200 million across the Middle East and Europe, it does create a struggle in terms of finding a commercial partner. So this is part of the value proposition that we're building across our commercial and clinical and product access businesses to be able to give them one trusted partner that can bring them all the way through from free access into commercializing into their commercial markets. But then also being able to manage their non-commercial markets, maximizing the access to their product and maximizing the returns and the speed that they get to their peak sales. So we do see, I suppose, our value proposition being an enabler to creating additional revenue streams when there is a (inaudible) for them on the funding front. Okay. And there are no more questions online. And so over to Ger for closing remarks. -------------------------------------------------------------------------------- Ger Rabbette, Uniphar plc - CEO [40] -------------------------------------------------------------------------------- Thanks for listening this morning, guys. We've had a great H1. We're confident with our guidance for the full-year business. Our business continues to grow strongly right across our three divisions. So as we look forward, we see loads of opportunity for us. As I've said, we have a very strong investing case. We appreciate your continued support and your investment in Uniphar. I think we will be, early next year, hopefully where we're refocusing the group and giving some more guidance on where the next stage of our journey is. As you know, we're on track to double our earnings per share within -- by the end of the year. And ultimately, we see ourselves as a quality healthcare asset positioned to grow in growth markets with lots of opportunity. So thanks for listening. I will hopefully see you all soon. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.