Uniphar plc (UPR) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Unipahar 2020 Preliminary Results Presentation and Webcast. [Operator Instructions] I'll now hand over to Brian O'Shaughnessy, Group Director of Corporate Development. Please go ahead.

Good morning, and welcome to Uniphar plc's full year results presentation, which covers the period January 1, 2020 to December 31, 2020. I am Brian O'Shaughnessy, Group Director of Corporate Development at Unipahar plc. Presenting our results today is Gerard Rabbette, our CEO; Tim Dolphin, our CFO; and Padraic Dempsey, our CCO. Before we begin, I would like to remind everyone you can access the presentation either on our website, www.unipar.com, or be the link sent to you when you 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 also ask you to read and open to the back on Slide 2 of the results presentation. I would now like to hand you over to our CEO, Gerard Rabbette.

Thanks, Brian. We start on Slide 4, which provides an overview of the group. Uniphar operates across 3 divisions, serving over 200 of the world's leading pharma and medtech manufacturer. We serve over 160 countries worldwide through our network, our workforce of over 2,600 colleagues who are active across Ireland, the U.K., Benelux, the Nordics and the U.S. The group performed strongly in 2020, outperforming our expectations. Despite a challenging year, we're pleased to report a gross profit growth across all divisions, with organic gross profits coming in at 6.7% for the group. This was driven by our 2 international divisions, Commercial & Clinical and Product Access. If you move to Slide 5, with the surface outlook. 2020 was a year of strong growth and development, where we demonstrated the robustness of our business model and the ability of our talented team to deliver growth in the most challenging of circumstances. EBITDA for the period came in at 66.7 million, which is ahead of our expectations. Earnings per share increased by 26% on a like-for-like basis. Return on capital employed was 19%, which is ahead of our target. Free cash flow was 111%, again, ahead of expectations and we finished the year with a robust capital structure with leverage of 0.6. One year out from the acquisition of Durbin, integration is complete, with a strategic value which underpins this acquisition coming through strongly. The combined value proposition of Uniphar and Durbin is being really well received by our existing and prospective clients, which is driving very strong growth in our Product Access division. Integration of each EAPs is complete and we can each develop and expand our European footprint. 2020 has been an active year for the group from an M&A perspective, having completed 4 acquisitions and we continue to manage a very active pipeline. Our 2 U.S. acquisitions will help us to extend our relationship further with our current and prospective U.S. clients and we believe it will create positive revenue synergies across both our Commercial & Clinical and Product Access divisions. Innerstrength further enhances our digital offering, accelerates our ability to deliver patient-centric exclusive access programs, and in Retail, the acquisition of Hickey's further improves our leadership position in the Irish market. We also completed a planned restructure of our debt facilities, which have affected the [ dominant ] size, further strengthening our liquidity. We have a very robust structure in place, which is needed to deliver our plan through 2021 and beyond. On Slide 6, we talk about our coordinated response to COVID-19. One of the most important one when the pandemic hit was the wellbeing our people, and we took aggressive measures from the start to protect them. What I would say is that significant investments we have made in our people, in automation and in technology has served us well during the pandemic. Our investments in digital solutions, in particular, has enabled us to respond really well in a very challenging environment, which we believe has enhanced our reputation with our partners. On Slide 7, we outlined the great progress we're making with our sustainability initiatives. And what I would say is that sustainability has always been at the very core of who we are. Our business is rooted in serving the community, and in 2020, we updated our sustainability policy, which is centered around our core principles of integrity, inclusivity, legacy, stewardship and transparency. Our people are our most important asset and as such, represents our first pillar of sustainability and we're delighted to have elected Lorraine Kenny as our first Chief People Officer, to ensure that we continue to recruit, develop and retain top talent across the organization. The group also made great strides across environmental and sustainability with the establishment of our sustainability council and our first climate change submission. Our focus [ all is ] but again, at the fore is the increased independence across our Board and committees, while senior management pay is now linked to sustainability targets. Uniphar is a focal point of all the local charities we serve, supporting over 40 local charity partners. At Uniphar, Relay for Hope was our flagship event this year, where we raised over 230,000 for our total charities by clocking up over 27,000 kilometers across more than 1,000 participants. While we adore and support all the stainability development goals, we have zoned in on 7 which are of particular relevance to us and more information on this is included in our annual report. Moving on, I'll now bring you through each division in a bit more detail. Turn to Slide 9, our Commercial & Clinical. This division provides sales, marketing, and distribution solutions to both pharma and medtech manufacturers. This business is specialty-focused. In pharma, we're insight driven and we leverage our unique multi-channel account manager solution for our clients. In Medtech, we deliver an integrated agency model, managing the entire sales, marketing and distribution value chain on behalf of our partners. We're strong in Ireland, the U.K., Benelux and the Nordics and we remain committed to building out a pan-European platform to offer our clients a one-stop shop for Europe. Today Europe is a very fragmented marketplace and poses very considerable challenges for specialty manufacturers who wish to enter. This division is growing strongly. Revenue for the period was 270 million, with gross profit increasing by 20% to 92 million, organic growth coming in at 10%, which is an outperformance of our medium-term guidance and it demonstrates our deep expertise across our chosen specialties and the diverse nature of our product portfolio. Revenue today is 74% MedTech, 26% pharma, with 48% of the gross profit generated from outside of Ireland. On the Slide 10, product access, we are building a global capability to source and supply medicines, which are unlicensed or in short supply and to manage the lease of specialty medicines to specific patients on behalf of manufacturers. We see this as a huge opportunity because of the growth of specialty and the challenges government face informing these high price treatments. This division serves over 160 countries, and we now have the platform we need to become a global leader in this high-growth market niche. Revenue for the division was 188 million with a 77% increase in gross profit. Revenue is 50% exclusive access, 50% on demand, and we worked on more than 50 exclusive patient programs during the period. We believe that our digital platforms create a compelling value proposition for our partners, and we're forecasting continued strong gross profit growth for this division. On Slide 11, we talk about great market position we have in supply chain. We are the market leader in the 2 pair market, servicing over 2,000 hospital and retail pharmacies. This strong market position is supported by a network of over 346 owned and franchised pharmacies. This division gives us high-tech distribution facilities, scalable digital infrastructure, longstanding manufacturer relationships, highly skilled people, deep insights into a health care ecosystem and a strong ability to generate cash for reinvestment. Revenue for this division was 1.4 billion, with gross profit coming in at 95 million, delivering gross profit growth of 9%. 67% of the gross profit was the supply chain and the remaining 33% in retail. If the IKI group was included on a pro forma basis, the space will be 55, 45. So the increase in retail is helping us to increase our gross profit percentage from 6.5 to 6.9 percent in the period. Increasing our margins is a priority for us in this division, as these margins remain very low relative to the value we deliver as a creditor part of the national health care infrastructure. Now I hand over to Tim provide you with some more color on our financial performance.

Thanks, Joe. I would now like to take you through the financial highlights for FY 2013. I'm pleased to say that despite a challenging operating environment, the group has delivered a strong performance during the period, ahead of our expectations for the gross profit growth of our 3 divisions. At an overall group level, we generated gross profit of 217.3 million, up 20.3% from 2019. Our gross margin percentage has increased from 10.8% to 11.9%, reflecting our continued growth into higher-margin opportunities. Organic growth was complemented by inorganic growth as the group benefits from the contribution of 2019 acquisition. EBITDA has increased by 13.9% to 66.7 million compared to 58.6 million in 2019. This has resulted in a very strong return on capital employed of 18.9%. Adjusted earnings per share was 12.6 cent on the back of strong operating profit of 39.9 million. This represents a 26% or a 2.6 cent increase from 2019 on a like-for-like basis. Just moving on, we'll have a look at the gross profit on the next slide. Gross profit and gross margin percentage are the key financial metrics we use to track profitability at a divisional level. Commercial & Clinical deliver the net return for the period, outperforming our medium-term guidance. Its highly recurring revenue and strong cash conversion ability provides the demand of profile to enable the company to confidently continue to reinvest in this high-margin division. Reported gross profit growth of 20.1% reflects the benefit of our 2019 acquisitions of EPS and Innerstrength. Our organic gross profit growth of 9.6% in this division outperformed the guidance of mid- single-digit growth, reflecting the strength of our business, the deep expertise of our team and the diversity across our service offerings. This division contributed 42% of group's gross profit for year. Product Access, where we guided double-digit organic gross profit growth, also delivered an excellent return for the period, with reported growth of 76.9% and strong organic growth of 28.9%. This performance reflects the enhanced value proposition of an integrated drug in Unipahar offer. Product access is Unipahar's fastest-growing division and now represents 14% of Unipahar's gross profit, up from 10% last year. Supply Chain & Retail delivered a robust performance as well, given the impact that COVID-19 had on retail financings during the period, with reported growth of 9.2% and a slight reduction on an organic basis. The growth in gross margin to 6.9% from 6.5% in 2019 reflects the continued positive margin trajectory, which will be further boosted in 2021 as a result of the Hickey's acquisition. The gross margin for the division would have been 8.5% if you had included Hickey's on a pro forma basis for the full year. This division also has strong recurring revenues. But importantly, a significant portion of its gross profit is generated through fees rather than markup, given its stable and robust platform as we look forward. This division represents 44% of group gross profit for 2020. In terms of margin, these divisions performed in line with expectations during the year. Commercial & Clinical delivered 34.2%, Product Access, 16.2%, and Supply Chain & Retail, 6.9% and we expect the overall group gross margin to continue to increase in 2021. Just move on then to Slide 15 to have a look at net debt. At a high level, we finished the year with a net bank debt position of 34.4 million, with the main driver being strong EBITDA of 66.7 million. Working capital has benefits up 15.2 million, which included approximately 26 million of [ one stop ] items, which I will address on the next slide. Acquisitions up 99.4 million, including up from consideration of 57.4 million relating to our 2020 acquisitions and deferred consideration payments of 35.5 million. CapEx of 15.7 million included strategic CapEx of 7.8 million related to our investment in a regional facility outlined at the time of the 2019 full year results. Other items of 39.8 million included exceptional cost dividend tax and interest. We generated 74 million of free cash flow, which equates to 111% of free cash flow conversion ratio. Normalized free cash flow conversion ratio of 72%, and I'll call out in more detail on the next slide. Just having a look then at our free cash flow. Our medium-term guidance for free cash flow conversion is 67%. Our reported free cash flow conversion was 111% for the period, with our normalized free cash flow conversion before strategic CapEx being 72% for the period. The timing adjustments of circa 26 million, primarily related to specific one-off credit [ samples ] negotiated in relation to Brexit and some other working capital timing differences and also a deferral of certain back payments on the COVID-19. From a liquidity perspective, the group is in an excellent position, finishing the year with a 0.6x leverage. The group has a strong capital structure in place, with significant cash resources available. At the end of 2020, it had a net bank debt position of 34.4 million, net of 63.5 million of cash and cash equivalents and 97.9 million of bank debt. During the year, the group completed the previously planned refinancing of its banking facility. This 5-year agreement, with enough in to extend to 7 years, further enhances the group capital structure and includes the doubling up our committed facilities, excluding orga and the doubling up of our own uncommitted facility. It also includes a working currency aspect to support our international goal and provide for a reduction in the overall group industry. In summary, again, our capital structure is well positions support, the execution of our strategy of doubling our 2018 core pharma EBITDA of 46 million within 5 years of the date of our IPO. I will now hand you over to Pad, our Chief Commercial Officer.

Thanks, Tim. I'll walk you through the strategic initiative fashion relatively quickly. As usual, I will begin with the divisional objective slide. Critical take-home messages here are the continued focus on building out a European platform for our manufacturer partners in commercial and clinical. The impact our global footprint is having on our drive for market leadership and product access and the continued success of our supply chain and retail division, growing market share and building on our position of spread with a single group offering in Ireland. From an M&A perspective, we worked hard to complete 4 deals for 2020. As ever, our focus is aligned on finding organizations that help us accelerate the delivery of our divisional objectives. Diligent Health, with its enhanced call center capabilities, add value to our digital offering in commercial and clinical. With the capability to offer medical information support, inside sales and patient concierge services, a highly experienced diligent health team will play an important role in the ongoing development of our commercial offerings. We are also very excited about the role that they can play in the future delivery of our patient-centric expanded access programs. From a product access perspective, we completed 2 very important strategic acquisitions. Innerstrength was critical in accelerating developments of our fully integrated patient portals. Over to International, with its outsourcing expertise and product development, has given us the clinical and regulatory expertise to run new U.S. expanded access programs for our clients. We also believe that close relationship with key clients, existing throughout the entire development stage of the product, will position us well to gain future opportunity across both the product access and commercial and clinical divisions. In supply chain and retail, we were delighted to complete the Hickey's deal. The team works incredibly hard to get this deal over the line as we knew the combination of Unipahar's high-tech infrastructure, with the strategic location of Hickey's footprint, offered us a unique opportunity to drive our supply chain and retail move into the higher-margin areas we are focused on. The next slide, commercial and clinical highlights the continued emphasis on our European platform. Ger has already spoken about our organic growth of 10% in this division. Our experience, expertise and long-term relationships with both our manufacturer clients and end-user customers is critical to the division. Strong delivery throughout 2020 has once again positioned us well to move into new geographies with existing clients. Our German entry is well underway, and we expect to see first sales in quarter 2 2021. Importantly, we have also identified a number of potential M&A targets in Germany, which if completed, could accelerate our offering further towards the end of 2021. It is important to highlight that we are now working with over 47 clients in 2 or more geographies. Finally, from a digital perspective, I think 2020 has highlighted the importance of multichannel enabled communication in all industry. With that said, our digitally enabled sales team have given us a competitive advantage throughout COVID. Over the coming years, it's critical we continue to enhance our model to drive even stronger commercial platforms for all of our key clients. From a product access perspective, 2020 is all about focusing on organic growth, with double-digit expectations set to ensure we keep striving for a market leadership position. We are delighted as to how well the combined unified offering is being received by our clients. We believe the 29% organic growth delivery, clearly highlighted, and our focus has now switched from integration to driving our brand awareness. We remain excited about the opportunities we see across the product access division, and we'll continue to invest to ensure we deliver our future potential. As highlighted previously, gaining the capability to deliver U.S. EAPs is very important to our offering. All of the International provides us with the infrastructure to implement on the U.S. programs, but also provides us with a unique cross-selling opportunity for both RRD and EOR plants. Patient centricity and our digital infrastructure has placed us in a strong position to continue our drive for market leadership. While combining these 2 elements with our expertise in key therapeutic areas, we continue to see our client base and pipeline grow. Finally, supply chain and retail have had a very busy 2020. Completing on the Hickey's deal was important to the business to further cement our position as the domestic market leader in Ireland -- while showcasing how our high-tech infrastructure can be scaled into the higher-margin retail area. The retail pharmacy market in Ireland remains fragmented. Our Symbol Group, which incorporates 346 members, gives us a position of strength while working with our manufacturer clients. The investments we have made in our people, digital platforms and regulatory infrastructure allows us to meet the growing demand of our aging population, while ensuring we have an efficient route to market for the growing portfolio of products being launched into the pharmacy markets. Barriers to entry are high in this market, and we continue to look at ways our organization can enhance the role pharma can play in our community. I'll now hand you back over to Ger.

We're now on Slide 25. So 2020 has been a challenging year that will live long in our memory, with our outperformance our both the businesses with all 3 divisions delivering gross profit growth has well positioned us for continued growth in the years ahead. So as we look to 2021 and beyond, while we continue to closely monitor and navigate the challenges presented by COVID, our business is on a strong growth trajectory as we continue to execute on our strategic objectives, which are delivering against our plan, complete the funding innovation of a recent acquisition of our platform, grow our client base through our focus on customer service capabilities across our expanded footprint, increase the reach of the move through expansion in new geographies, execute strategic M&A and continue to invest strongly in our technology and in infrastructure. Our medium-term guidance remains not changed. We did is organic both super growth for product access, mid-single digits for commercial and clinicals, low single-digit supply chain. We remain confident that we're delivering in excess of 60 to 70% free cash flow, keep return on capital employed between 12 to 15% or above by keeping normalized leverage below 2. On Slide 26, we outlined our investment kits. As we see it, we are a well-diversified quality health care therapy business positioned to win a growth market. There's no doubt that we have a compelling market opportunity, driven by the increased demand across the globe for specialty products and a going trend by pharma and medtech manufacturers to outsource specialty providers with well invested and proven infrastructure. In response to this, we're designed our best integrated model, providing an end-to-end solution across the value chain and throughout the product life cycle. The platform for growth is in place, and we believe we have a distinct competitive edge through our high-tech distribution facilities, our deep relationship with global manufacturers, our scalable tech, our high-quality people and our strong M&A track records. We have a very strong balance sheet, a great ability to generate cash and a highly experienced industry team. So in summary, we're confident that we have the strategy, the market opportunity, the platform, the competitive edge and a team in place to double EBITDA within 5 years from IPO. Thanks for listening.

[Operator Instructions] And our first question is from the line of Allan Smylie from Davy.

It's Allan over in Davy. So I have 3 questions, please, to start off. Firstly, within commercial and clinical, I'd be interested in more detail on the German role specifically. So what therapeutic areas do you expect to drive initial sales in the second quarter? And then what capability would the potential M&A targets you referred to later on in the year? The second question is in relation to product access, and while it's still obviously very early days, I'll be interested to the extent that the -- to what extent, the addition of Diligent Health and RRD are currently resonating with potential U.S. clients? And do you think it's feasible to win your first U.S. EAP already this year? The final question just relates to return on capital, it continues to increase and track meaningfully above your midterm guidance of 12% to 15%. So how should we reconcile the two?

Thanks, Allan. I'll take the third question and then I hand over to Padraic. So basically, since IPO, we've outperformed all our financial targets, and we hope to continue to do that, but we see no reason to change our guidance, Adam. If you look at product access, the main reason we were very keen to acquire Durbin while they were doing very well, but maybe focus on the smaller programs and the smaller companies with Unipahar is determined to come together, we can now be a very strong competitor for the bigger companies and the bigger picture. So the underlying reason for Durbin is the strategic rationale is certainly there still, and we have seen the combined offering of the 2 companies has been very well received in the market. So we're very positive about that.

Yes. I'll take -- the first one was the German rollout and our core focus there. So I think what's important here is that as usual, we're working with existing clients. We performed very well with those kinds in our existing territories. And then we were asked to look at the German market as an opportunity for growth. It is in the area of interventional cardiology. So very similar to our first step into the Benelux and our first step into the Nordics. It's in that area of expertise for us, and we have a lot of confidence in the agencies that we are choosing to work with in those markets. And one thing that's happening in our business as we expand is we're growing from interventional cardiology into the space of structural heart, et cetera. So when we talk about potential M&A acquisitions in Germany, what we really want, again, is a business that gives us the relationships with the interventional cardiologists in that German market. And again, having highly experienced sales teams. So it's a tried and trusted kind of method for us. The thing that we're most happy about is the fact that our existing clients, who we performed well for -- in our current territories, are looking at us to help them improve their performance in the German market. Back to Ger's point on the product access piece and in terms of the Diligent Health and RRD acquisitions, they were strategically very important to us. In order for us to drive for that global market leadership position and product access, we have to really be able to have a strong U.S. offering. Diligent helped, gave us that patient centricity where we have the enhanced call center capability to ensure we could enroll patients. But what RRD gave us was very unique in the sense that it gave us the capability to do the clinical and regulatory infrastructure that we needed for the U.S. So the combination of those 2 offerings is being well received. Your question is whether we would see a rollout of the U.S. EAP this year. I genuinely believe the business will be in a position where we will be successful. Whether that EAP starts in 2021 or 2022, it's always difficult to predict when the product is made available. But I believe throughout 2021, a number of clients will choose us to partner with them in the U.S. on these particular programs.

And our next question is from Eoghan Reid from Berenberg.

It's Eoghan here. Well done on another set of good results. I guess I have 3 from my end. Firstly, just on commercial and clinical, you've now doubled versus last year as the number of clients you work within 2 more geographies. Could you just remind us on how the economics work versus being in just 1 geography, many clients? Are the margins better, the contracts longer? And then now that you're in 13 countries, how should we think about clients using 3, 4, 5, different geographies? Is that where the real compound and organic growth starts to play through? And then my other 2 questions on product access. Just on Uniphar, I think is how financing now -- the online platform you launched in December. Can you just talk about what that aims to achieve and how it compares versus your peers? And then on the expanded access program is one in 2020, what is the size of those versus the ones you had previously? Is the revenue opportunity on average bigger with those versus historic ones?

I'll just to take the first part of the question and then hand over to Padraic. Obviously, we believe there is huge opportunity for us to expand our European footprint and to become a one-stop shop for Europe for our manufacturer clients and that value to ourselves and to the manufacturers. In relation to EAPs, again, German primarily, we're dealing with very small EAPs, and the smaller companies, but in our scale now, we can now be a very strong competitor for the bigger picture. So both of those, from our perspective, are big opportunities for us. Padraic?

Yes. I think from the C&C perspective and moving from 1 market into 2 markets, et cetera, unfortunately, it doesn't improve our margins or our duration of contracts. We usually, when we move into these markets, our contracts, we look for 3 years. So it does -- from that perspective, there is a consistency. However, if you're representing your clients in 2 or more geographies, as you can imagine, they become more reliant on us as their sales partner. So the concept very much is if we're working with particular manufacturers across 7, 8, 9 different markets, the reality being is we become an integral part of their team. And therefore, the duration of our contracts will be longer, not on a piece of paper, but just for how long we work with our clients. So we're very focused on that. And the compounding organic growth, where the growth really comes from is that as we build our expertise in those markets, we're getting more and more complementary clients. So that's one of the things we spoke about at the start of the IPO, where because of our therapeutic expertise in core areas, what we're finding now is a lot of emerging medtech companies coming to us to use our platform and to work with our teams. So we're in a very nice position now of being able to grow the business by adding new innovative partners into our existing teams. And that was always the strategy from the beginning. So that's the commercial and clinical, if that answers your question in terms of what we're trying to do there. So Uniphar is our patient portal. Our team was very focused on how we could use our digital platforms to roll out EAPs on a global basis, the expanded access program. And we did very well on that. What Uniphar really has done is by integrating the inner strand technology, this really enables the system in 2 areas. One is, it's ease of use for HCPs and the health care practitioners who are enrolling patients. So our ease of use has improved considerably over the last 12 months. But also our ability now to funnel educational messages down to patients to ensure they're taking medications, et cetera correctly or being educated in the best possible way around their disease areas. That's where we now see Uniphar adding value. So it's really helping us with the HCP, but also through Innerstrength's capability of understanding how to deliver messages to patients digitally, we've integrated that. So it's kind of really enhanced our offering and aligns with the team's vision of patient centricity and making sure that in the EAP environment, the patient is really put at the center of the program. In terms of the EAP size, it's a really hard question to answer all at once because when you win an EAP, you never really realize how big the program will be, right? So the nature of it is it's noncommercial. It's to make patients available to patients in that particular period where the product hasn't been reimbursed. So when we won programs in the past, we didn't realize the Avexis or Novartis gene therapy program would be as big as it was. We didn't realize GW would be as big as it was. We're very happy with some of the programs that we've won in 2020 in terms of the number. In terms of the size as to what they scale to, we'll probably have better visibility in the next kind of 6 months on those. But we're pretty confident with some of the wins that where we expect to see those to be quite large patient cohorts as well. So that's probably the easiest way to answer. I know it doesn't tell you very specifically, but that is important in the EAP space that we don't kind of -- you can never really tell how big one of these programs will get.

And our next question is from Max Hermann from Stifel.

Three if I may. And congratulations on a great set of results for the year. Three points. One, just, obviously, every metric looks really good. The only one, sorry to point it out, but I just wanted to understand the supply chain and retail organic growth. Was that the integration or is that COVID factors that impacted that? Just to understand that a bit more. Secondly, on digital Health solutions, you've talked about the cross-selling opportunities or the cross opportunities into C&C in Europe. And I just wanted to know what progress has been made there? And how do you envisage that helping that C&C business? And then finally, just in terms of financial, just to understand what contingent considerations are expected in 2021?

Max, I'll take the first question before I hand on to Padraic and to Tim. So supply chain retail has been -- COVID has definitely caused a lot of challenge, a huge amount of volatility. The market is back, certainly in areas like OTC private scripts and the guys are doing very well to weather that storm, reflecting their cost base from the variability versus fixed costs. So basically, the challenges has all been on COVID, the integration of Hickey's is back on track. Great acquisition, very happy with this. So it hasn't impacted us. So we see ourselves, once COVID passes, getting back on track with regards to our supply chain retail business. Padraic?

So from a Diligent Health perspective, Max, I suppose the real benefit here is that we've all seen the growth now that these kind of expanded call centers are having. So the need to virtually communicate both with HCPs and with patients is increasing through 2020. The Diligent health team comes with a highly experienced management team. So Mary Anne Greenberg has been in the industry for a very, very long time and really understands this space. So the 2 opportunities that we see are, first of all, they've built up a very nice client base in the U.S., but one of the things that they really needed to take their offering on was to be able to offer a European service, particularly across their medical information and patient concierge areas. So that's one kind of growth area where they have clients that are looking for them to continue their service outside of the U.S. into the European market. I suppose the second growth area that we see in terms of from a Diligent Health perspective, again, is that some of our clients, again, we have a fabulous kind of array of clients at this stage. As you know, we're working with a huge number of the pharmaceutical companies, where we do see that growth is again jumping into this U.S. offering, whereby we're providing a very strong service outside of the U.S., and now we can offer a U.S. service. So the cross-selling is really on the client base and the technology is there and then a very strong management team to really help us drive that offering out across Europe also.

On the deferred consideration, our current focus is that we will gain about 25 million out this year. It's just over 25 million. And as you know, all of that would depend under the program. But that's our current forecast. And that's what's included in our balance sheet in relation to payments for 2021.

[Operator Instructions] Our next question is from Charles Weston from RBC. Charles disconnected, so we will take our next question, which is from Tara Raveendran from Shore Capital.

Congratulations on a great set of results. I have 2 questions, if I may. The first is on clinical and commercial. Can you just remind us again of the differences in margins between the pharma and medtech parts of that business? And also, maybe give some color on the relative growth contribution in 2020 and your expectations for 2021? And then the second question in product access. Maybe if you could give us a little bit of color on your business development strategy for winning U.S. EAPs. Does that need to be changed from what you're currently doing in Europe, and can you give us a sense of how these efforts are going to date and when we might be able to expect the first win in the U.S.?

I'll hand it over to Padraic.

Yes. From a -- Tara, thanks for the question. In terms of from a margin perspective, I might let Tim, I don't know what all I say here in terms of...

Well, obviously, on the med tech perspective, Tara, and we will be forecasting higher margins there. Our pharma business will be slightly lower. I wouldn't like to go into the specifics of each individual now on the call, but from a mixture perspective, our performance has been good again in June 2020, and we're forecasting that to come back up to our normal level of about 37% going forward. Of the mixture during 2020, since it's been slightly more.

And we were still comfortable with a net 15% end margin commercial 10% in products. Padraic?

Yes. So I suppose in terms of -- Tara, I think the expectation then for the division in 2021, I would be very confident in the team, we're confident that we will deliver with in line with expectations again for 2021. We had a very strong -- I always talk about, I think the first 6 months of the year, the team worked incredibly hard to retain our clients. And that was really important to the Commercial & Clinical division. Our digital technology enabled that. So at the half year is we could come in where we were in we were flat on the previous year, which actually was a strong performance. We then saw some really strong wins in the second half of the year, particularly in the area of critical care, patient monitoring, ventilation, et cetera, but also in other projects in the area of pharma, where we were asked to build teams for companies like Gilead, et cetera. So we did particularly well. I would expect to see that continue into 2021. And I would have a degree of confidence now as well that our -- where our really high-margin opportunities are, are in those elective procedures, interventional cardiology, neuroradiology, oncology, orthopedics. So we would expect to see, again, towards the end of last year, we began to see these elective procedures come back. So I would be confident that we will continue to see them come back throughout 2021. So that's why we're confident that from a C&C perspective, we will deliver in line with our growth expectations of that kind of mid-single-digit for 2021 from a C&C perspective. That answers that one. And then from the product access business development, yes, look, the U.S. is very different. So what we found when we were working with our clients was that they kind of refer to the rest of the world as outside of the U.S., and then when we were running these programs, again, as we run them throughout Europe and the rest of the world, our clients were asking about what role we could play in helping them from a U.S. perspective. They really like our digital technology. They like our focus on patient centricity. I think all pharma companies who were making products available through expanded access, are interested in how you can make the process better, promote the HCPs and also the patients. We've invested heavily in our business development infrastructure in the U.S. We appointed an individual of -- 3 individuals, 1 on the West Coast, 1 in Boston, 1 in Washington, last year. And then with RRD now having the capability to run these EAPs, almost like a clinical trial and having the clinical research associate expertise within the business means that we can actually run those programs now throughout the U.S. We have an infrastructure to do the delivery. We have a capability to do the patient concierge service. And we have the regulatory and clinical expertise. I think if we are to win this year, and I would be very confident, Ger, Tim, I think we all believe we will win in the U.S. this year. I think it will be in our areas of therapeutic focus. So again, we've really positioned ourselves well in gene therapy, central nervous system, oncology, HIV. So if I was to say, we were to win this year, I genuinely believe that a client will choose to work with us throughout 2021 in those core areas. Now when those programs start, whether it's the end of '21 or the start of 2022, we'll have to manage over the next number of months.

And our next question is from Charles Weston from RBC.

Sorry for the technical glitch earlier. I've got 2 topics to touch on, please. First of all, going back to these multi territory clients. Can you give us a sort of a bit more color around the characteristics of these companies? Are they large medtech manufacturers, small, are they looking at mainly timing Benelux and Nordics, why are they moving their distributor? Are they unhappy with the performance they have already? Or are they launching in those new territories to start with? So just to get more color about that. And then secondly, on the M&A side, on the supply chain, you talked about -- historically about bolting on a few pharmacies each year. But actually looking back, you've acquired some quite big - quite big groups, Bradley's, the Bank of Ireland Pharmacies and Hickey's. Do you think there will be more opportunities to make bigger deals opportunistically? Or do you really think that it's just going to be the sort of bolt-ons from here on in? That's on the supply chain side. And then on the on Germany in C&C. Could you perhaps give us color around the financial profile of the potential targets? Are they mainly bolt-on? Or are there any more transformational deals in there, too?

Charles, I think the first part of that certainly from an M&A perspective, as you know, Charles, we've had a really good track record. We've done 3 transformational deals and other small bolt-ons, and we have a very strong financial discipline in this area. So from the supply chain and retail business, we are gaining -- we're doing better than we thought there. So were the assets, those Hickey's assets that weren't on our radar, it came on stream and it's a great acquisition for us. So it's very hard to answer definitively. But ultimately, I think as we look down the pipe, it will be more bolt-on in supply chain retail than the big acquisitions, Charles, they come along, we have to look at them. We do see, if we look to a medium- to long-term in that area, if we continue to grow our share, which has started off in the in the low 20s is now up over 50, we may encounter capacity challenges going forward. But that's all very positive. It's not a negative story, it's a positive story for us. As we deploy capital, we can comfortably exceed the 50% return on capital employed within our supply chain business. So as those assets coming on, I think we're very comfortable to continue to invest in that area. From a Commercial & Clinical space, you can see that we've done both transformational and bolt-ons. And ultimately, it's down to individual markets. Some markets are friendly towards distributors, some are not. The bigger markets, by and large, they manufacture goods themselves. If there are big companies, smaller guys, the partners everywhere. So it's a mixture, Charles. What we've been very good at is basically tailoring our service offering to each geography and add value for both ourselves and our partners. Padraic?

Yes. I take Charles on the Germany acquisition that we -- with the acquisitions that we're looking at, I would probably picture them very much in the same light as an AngioCare and EPS and M3. So again, a large market, what we really need is a company that can give us access to those specialty doctors that we need to see. So from a Germany perspective, I think, to really accelerate the offering, what we would love to do is find that really nice bolt-on. And obviously, as Ger said, there are other opportunities and bigger opportunities, more transformational. But to begin with, our focus is very much -- it's one of the largest cardiology markets in Europe, obviously. So what we really want to be able to do is to ensure that when we enter these markets with our clients, that we give them immediate success. That's very important to us in terms of retaining and developing those relationships. In terms of multi territory clients, right, Charles, this is a really big one, right. So if you look at it, we work with companies, we work with both large and small. If you think about our large partners, we have multi territory deals with the likes of Philips, with the likes of GE, we actually now have multichannel opportunities with Tally flat and Coloplast, right? So we do work hard to try and work with our existing clients, even the large ones in more territories. But actually where our real opportunity for growth in is definitely in those emerging or smaller both medtech and pharma partners. And the reason why we like that is because actually they really allow you to be part of their commercial offering. And you do the sales, marketing distribution. And as a result of that, if we can put a high-performance team behind their brands, the more we sell, the better it is in terms of from an organic growth and from a profitability perspective for our organization. But we have a lovely blend. In the smaller markets, we work with some of the larger clients and then have a whole array of smaller clients or emerging clients in behind them and then, again, in the really large market, it tends to be more the smaller partners. Or else, we help some of our larger partners with specific portfolios. We obviously don't do the entire outsourcing for a GE or Siemens or Taly Flats, et cetera. But we do take specific niche areas further in those larger markets. So the blend is really interesting for us at the minute and that's 47 across 2 or more geographies. That is something that we take huge pride in that we keep trying to develop. And then from a pharma perspective as well now, we do see opportunities where we're now starting to talk to a number of clients about multi territory opportunities also. But they would be smaller pharma partners in fairness, more it will be biotech, emerging biotech-type clients.

[Operator Instructions] Our next question will be from the line of Amy Walker from Peel Hunt.

I have 3, if I could, please. The first one is on product access. The 30% organic growth there or thereabouts that you achieved, I know that's coming off a low base. But I just wondered, is that level of double-digit organic growth sustainable. I know Ger mentioned Durbin cross-selling, is that the number 1 driver? And how far penetrated are you at this point into that cross selling opportunity? Or alternatively, could it even be higher than 30% once you start moving into the U.S.? I'll let you answer that, then I'll ask my other 2 questions.

It's a difficult question, Amy. It's obviously a new area, and it's very hard to get solid information around the addressable markets. But we've guided a market we can grow double digits. In the medium to long term, we're very confident that we ultimately, we'd love to outperform that. But we are very excited about the RRD activities, the Diligent acquisition in the U.S. because it now gives us significant capabilities in the U.S. There's massive unmet need here as we see from our clients to provide a . It's very -- it's not mature, Amy, so it's difficult for us to grab hold of that. The guys had a great performance, 30% plus. I think this year would be another strong performance. And ultimately, the main reason we did the Durbin acquisition is to give us this global capability. This is very exciting space for us. Padraic?

Yes. Amy, I saw just 2 big points that I would make out of it is I think, first of all, to Ger's point, is that we felt that a company with Unipahar's scale and infrastructure and pedigree and supply chain, by coming into this market, it would give clients confidence to outsource more in this space. And we're definitely seeing that. I think the more kind of high-profile kind of strong infrastructure plays that are in the EAP market will mean that more clients begin to outsource. So we do see that the good growth opportunity. I think the second part of this that we would see is that I think from an EAP perspective, reimbursement is becoming more and more challenging. For these specialty products, there is a need for that interim period of how these products are made available to patients. So I do think the number of molecules that will eventually go through an EAP route, I think we'll see some growth there. In terms of the integration of Durbin, the team has done a phenomenal job of integrating in terms of the back office, the operation or the BD. I think the one point we made in the presentation that we do see further opportunity on is brand awareness. I still think from a client perspective, clients still need to really understand our full offering of what we can do. So that's a big focus of the team this year to really make sure that we continue those growth levels as high as we can.

And then just following on from Charles' question about the pharmacy consolidation side of things. I understand the strategic benefits that Unipahar feels its participation in Irish pharmacy supply chain brings overall. But on the retail pharmacy consolidation specifically, why is that retail pharmacy consolidation, a good use of your capital right now when the other businesses offer so much higher growth potential and better margin profile? And how many of those 1,800 retail pharmacies would be enough, so to speak, to meet your ambitions?

I think, Amy, it's a good question. We love our supply chain business because it's a fully consolidated market in a really good geography. And we can -- when we deploy capital in this space, we can comfortable achieve 15% and more, sometimes over 20%, Amy. So we like that profile of it, but also and as we've always said, supply chain and retail is an integral part of our business, it's the foundations of our business that gives it the scalable digital technology. We put a huge investment into our tech, Amy, and it'll be very difficult to do that because we didn't have the enormous business that we have within supply chain and retail. I think our objective is to transfer our 50-plus market share in wholesale into our Siemens group offering. And by doing that, maybe we had an awful of value for ourselves and for our clients. And that's our fundamental thrust of what we're trying to achieve. And then basically, we -- the opportunities come up. We don't -- but we only buy quality assets, Amy. So the -- our portfolio of retail is pure quality. I don't believe we need to go much more, but ultimately, if we can get the 20-plus return on cap employed, we have to look at it, Amy. And what I would say is that when we look at retail categories versus the high street shops, the shops and then the community pharmacies and some on . And those guys have done really well in COVID because of the need to provide services locally and also leverage our digital platforms. And as you look forward, Amy, we see that as a very strong foundation for our business. So I think we would continue to deploy capital in this space, but not a huge amount, Amy, and we will continue to get very strong return on capital employed in this space. But with the IPO, we said we doubled our business within 5 years of IPO. And I think, hopefully, we'll outperform that. But ultimately, we don't have -- we're doing a -- we don't have a massive need for CapEx to do that. We can comfortably do that, Amy, and not exceed 1.5 to 2x leverage.

Got it. And then my last question is quite a bland one. I'm sorry if I missed it earlier, but just the guidance on what interest rates on gross debt we should be using for modeling purchases post the refinancing, please?

Somewhere between 1.5 and 2 would be a good rate to be used. Obviously, from our own perspective, we've been a little bit more prudent because we want to make sure to leave plenty of headroom. So we would -- we targeted around 2, but it depends on the -- so our new facility covers a range of between 1.5 to 2.

Amy, you can see from our track record, we have a very strong financial discipline within the business. We've outperformed all our financial metrics since IPO. And that discipline is really coming from the tough targets they have within supply chain retail, and that's now need to order other divisions. So we're comfortable drifting up a bit because of our very strong free cash flow, but only if it's a compelling opportunity for us, Amy.

As we have no further questions, I will give the word back to the speakers for any closing remarks.

Brian?

So I think there's no further questions. I think we'll close down the call. Thank you, everybody, for joining our full year 2020 financial results presentation. Good day.

Thank you.

Thank you this now concludes the conference call. You may now disconnect your lines.