Uniphar plc (UPR) Earnings Call Transcript & Summary

Good morning, and welcome to today's Uniphar Group FY 2023 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to Allan Smylie. Please go ahead when you are ready.

Good morning, everyone, and welcome to Uniphar plc's full year results presentation, which covers the period from the 1st of January '23 to the 31st of December '23. I'm Allan Smylie, and I look after IR here at Uniphar. Presenting our results today is Ger Rabbette, our CEO; and Tim Dolphin, our CFO. We're also joined on the call today by Dermot Ryan, our Chief Operating Officer; Brian O'Shaughnessy, our Chief Commercial Officer; and Seamus Egan, Head of Corporate Development. Before we begin, I'd like to remind everyone that you can access the presentation either on our website under latest results and presentations or via 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 now like to hand you over to our CEO, Ger Rabbette.

Thanks, Allan. We'll start on Slide 5, which gives an overview of the group. Uniphar is a global provider of specialty services to the healthcare sector. We operate across 3 divisions working with over 200 of the world's leading pharma and Medtech manufacturers. We serve over 150 countries and now have operations across Europe, North America, APAC and MENA. Our group revenue for the year increased by 23% to EUR 2.6 billion. However, what we're really pleased about was the strong growth we delivered in gross profit, which increased by 27% to EUR 390 million. If you look across each division, Supply Chain & Retail again outperformed medium-term guidance with gross profit growth of 34%. Pharma also grew strongly with gross profit growth of 34%. However, in terms of organic growth Medtech was a standout performer with a 10% organic growth in gross profits. If we move to Slide 6, we'll discuss our financial highlights for the year. Overall, we saw strong growth across each of our 3 divisions, which delivered an EBITDA increase of 18% to EUR 116 million. However, because of our investment program, our leverage has increased to 1.6x. This increase, together with the significant rise in the interest rates left earnings per share broadly flat. At the same time, our normalized free cash flow remained strong at 69% with the return on capital employed of 15%, which is at the upper end of our range. So with the exception of the dramatic increase in interest rates, the group has delivered another strong set of financial results. From an M&A perspective, we completed the McCauley acquisition and the asset purchase of Pivot Digital Health last year. McCauley, it heightens our market-leading retail pharmacy capabilities and Pivot is a digital accelerator focused on delivering hybrid health solutions. At the same time, the 3 acquisitions we made back in 2022, namely Orspec, Inspired Health and BModesto, are now fully integrated onto our platform. And therefore, we are focused on building and monitoring a very active M&A pipeline. We set a new growth target last year to reach EBITDA of EUR 200 million over the medium term. And while this is an ambitious target, we are confident that we are well positioned to double our business again in the medium term. On Slide 7, we outlined the continued progress we're making on initiatives across our 5 sustainability pillars. Sustainability remains a key priority for the group. And last year, the Board approved the group sustainability road map. We continue to focus on developing ED&I right across our business, and we are delighted that our female representation now at Board level is 37%. Last year, we put a lot of investments into climate action, embedding climate awareness and reporting in each of our business, that broadened our climate reporting to include a Scope 3 analysis. We've also finalized our decarbonization plan for each division, allowing us to ensure that we meet our internal interim target to reduce our absolute Scope 1 and 2 emissions by 5% per annum, which will in turn, achieve our climate ambition of at least 50% reduction by 2030. In the early '23, before we submitted our science-based targets, we launched a supplier engagement program focusing on responsible sourcing and activities to ensure that we work together to reduce our collective impact on the environment. And finally, we became the key sponsor to a project, new initiative to plant 100 million native trees in Ireland over the next 10 years. So it's been a very busy year, the great progress we have made and continue to make is now reflected in an improvement in our MSCI rating to AAA. Let's move on. I'll be through each of our divisions progress through the year. On Slide 9, we highlight our objectives. Starting with Supply Chain & Retail, this is the foundation of our business. We've maintained and grown our leadership position and increased our margins steadily since IPO. Because of our great market positions and the investments we are now making, we see more scope to grow share and margin and profits in the years ahead. If we look at Medtech, this business is a very attractive margins, and we believe that we can continue to deliver high single-digit gross profit growth in the medium term as we leverage our existing platforms and work with our partners in new geographies. And moving to Pharma. We're expecting double digit growth and we leverage our global commercial platform to #1, bring a comprehensive range of services to manufacturers throughout or across the product life cycle, and to leverage this platform to provide sourcing solutions to both HCPs and manufacturers on a global basis. As we turn to Slide 10, Supply Chain & Retail, we are the leading player with a 53% share in supply chain, and the best in market and the group offering of over 400 pharmacies. We've evolved this business from a pure wholesaler into a virtually integrated platform that touches every point in the value chain for manufacturers to patients. And what excites us going forward is the opportunity we see for ourselves, which is underpinned by our significant investments in infrastructure and technology to increase our share and profits further within this business. Move to Slide 11. You can see that Supply Chain & Retail division has once again outperformed its medium-term guidance with revenues of EUR 1.7 billion and gross profit increasing by 35% to EUR 187 million, and we continue to grow share and outperform the markets. What is really pleasing for us is that since IPO, we've doubled our gross profit margins to 11%. We talk about Medtech on Slide 12 and to recap, this division delivers an integrated agency model managing the entire sales, marketing, and distribution value chain on behalf of our partners. Europe, as you know, is a very fragmented marketplace and poses considerable challenges for specialty manufacturers who wish to enter. And we were very committed to build it out for Pan-European platform to offer our clients a one-stop shop for Europe. As you can see from Slide 13, this division is growing strongly. Revenue is now EUR 250 million, with gross profit increasing by 10% to EUR 100 million. All of this is organic. Our growth strategy is being well received by our partners, and we now represent 72 clients across 2 or more geographies and 17 clients across 3 or more countries. On Slide 14, we talk about our Pharma division, where we're building a global capability to help HCPs and manufacturers to source and supply medicines, which are unlicensed, are in short supply. And secondly, to manage the release of specialty medicines to specific patients on behalf of manufacturers before and after approval. On the right, you can see that we've added significant capabilities in recent years and can now offer a full in-to-in service offering. We continue to invest strongly in this platform as we seek to continue to enhance our service offering. On Slide 15, we illustrate our services, how our services play out across the entire product life cycle and supporting pharma and biotech manufacturers at all of the key pressure points is the life cycle of the product. On Slide 16, you can see that our Pharma division has grown strongly, where revenue is now close to EUR 600 million and a 34% increase in gross profit to EUR 103 million. The organic growth, the gross profit has been impacted by our strategic decision to move away from the high headcount, low-margin CSO business. Our old Pharma Commercial & Clinical business is now down double digits last year in terms of gross profit. But our on-demand business continues to grow double digits in terms of margin and profit. We're now focused on specialty, we would up the value chain, investing in our service capabilities across pre and post global services and as we look forward, we continue to see very significant opportunity for both our on-demand and pharma services business due to the high growth in Specialty Pharma and the challenges covers on patient phase in accessing these treatments, both pre and post commercialization. The significant investments we have made in our service offering has been a drag on the current year profits. However, we expect this division to deliver double-digit organic gross profit growth in 2024, as we leverage these investments to be scale this platform. I'll now hand over to Tim to provide you with more color on the financials.

Thanks, Ger. I would now like to take you through the financial highlights from 2023. I'm pleased to say that the group has delivered a strong performance during the period, with gross profit growth across all 3 divisions. At an overall group level, we generated a gross profit of EUR 390 million, up 27.1% from FY '22. The group delivered strong organic growth of 5.6%. EBITDA has increased by 17.7% to EUR 116 million, demonstrating the underlying strength of the business. Adjusted earnings per share was down to EUR 0.183 from EUR 0.186, driven by higher net debt bank debts and higher interest rates. This has resulted in return on capital implied of 15.2%, at the top end of our medium-term guidance of 12% to 15%. Leverage for the period was at 1.6x. Moving on and have a look at gross profit. Gross profit and gross margin percentage are the key financial metrics we use to track profitability at the divisional level. Uniphar Supply Chain & Retail once again outperformed its divisional guidance with reported growth of 34.5%, an organic growth of 5.9%. This division has strong recurring revenues plus a stable and robust gross profit portfolio. In terms of volume, we once again outperformed the market. This division represented 48% of gross profit for the period. Its gross profit margin increased during the period from 8.9% to 10.9%, reflecting the consolidation of the McCauley Group during the year. Uniphar Medtech delivered a very strong outturn for FY '23. The division delivered reported gross profit growth of 9.8%, all of which was organic. This is at the top end of our high single-digit growth guidance range over the medium term. This performance reflects the strength of our business, the deep expertise of our teams and the diversity across our service offering. This division contributed 26% of the group's gross profit for the period. And as gross profit margin increased during the period from 39% to 40.1%. Uniphar Pharma reported a growth of 34.4%, an organic growth of 1.2%. We invested heavily in our on-demand business to expand this platform, and it's now extremely well positioned across Europe, APAC and MENA to deal with the increasing challenges, patients, and HCPs there in getting access to medicines. Our exclusive access business has also recovered momentum with 14 new program wins last year. Combined, these businesses grew at 11.5% organically in 2023. And as Ger mentioned earlier, our Pharma commercialization business was down double digit last year as we repositioned our broader Pharma services offer to give greater support for our customers pre and post commercialization. Our guidance for this new division is for double-digit organic growth over the medium term, and we also expect to deliver this in 2024. Uniphar Pharma represents 26% of group gross profit. The divisional gross profit margin decreased from 27.4% to 17.4% following the BModesto acquisition, which adds significantly to the divisional profits but as a large margin profile. We will now then have a look at net bank debt on Slide 20. At a high level, we finished the period with a net bank debt position of EUR 149.9 million, driven by an opening net debt position of EUR 91.2 million. Strong EBITDA of EUR 116 million, offset by working capital investment of EUR 14 million, CapEx including the strategic CapEx of EUR 32 million. Acquisition and deferred consideration payments were EUR 64 million. And Other item was EUR 64.7 million, which includes exceptional costs, tax, dividends, finance costs, and lease payments. Our strategic CapEx reflects the significant multiyear investments we are making in our new distribution facility Greenogue 2 and our new SAP platform. Our reported free cash flow for the period was EUR 91 million, and I'll take you through the details of that on the next slide. Free cash flow. Here, we outlined our free cash flow generation and free cash flow conversion for the year. As you know, we define free cash flow as EBITDA less investment in working capital, less maintenance CapEx. And our medium-term guidance for free cash flow conversion is 60% 70%. This translates into reported free cash flow conversion of 78.5%. Adjusting for timing differences of EUR 10.6 million, our normalized free cash flow conversion came in at 69.3%, which is within our target range of 60% to 70%. Then just moving on to Slide 23. Capital allocation has remained a key focus for the group as we adopt a very disciplined and balanced investment approach. As we have always said, we will invest in organic and inorganic opportunities across each of our 3 divisions, which support our strategic objectives and deliver return on capital employed at or above our hurdle rate of 12% to 15%. We maintain a prudent approach to leverage and aim to keep our net bank debt-to-EBITDA below 2.5x over the medium term. I'll now hand it back to Ger to finish on our investment case.

For FY '24, where we outlined our investment case. We're going into the next stage of growth with which greater number of capabilities that we had at IPO. In many ways, we're a very different business. We've demonstrated a strong track record of delivery. There is a compelling market opportunity for our business, pretty fair with market backdrop, a pretty scope for growth across each of our 3 divisions, and we have a concrete plan to deliver on our growth ambitions. On Slide 25, we show our strong track record as a listed company. We have doubled our EBITDA, increased our margins and delivered very substantial growth in earnings per share. This has resulted in our share price increasing 150% since IPO. And look forward to Slide 26, we have fair sales, an ambitious new targets to deliver EUR 200 million EBITDA over the medium term, and we will achieve this through robust organic growth across all 3 divisions which has been made possible by our investment in technology and infrastructure, and we will complement this growth with strategic M&A. Our expected organic-inorganic splits going forward will be 70-30, as we leverage out our platforms. And overall, it's been a great 4.5 years as the listed company, and we're all looking forward to the next stage of our development. Thanks for listening. I will now hand back to the operator for Q&A.

[Operator Instructions] Our first question today comes from Colin Grant from Davy.

I've got 2 questions for you. Maybe just firstly, just start with Supply Chain & Retail. That had a really strong year in 2023. And I'm just wondering if you could discuss some of the drivers that caused the organic gross profits to grow by 5.9%, which is obviously well above the low single-digit target there? That's the first question. And then the second thing, just moving on to the strategic investments that you're making as Greenogue Business Park and also the new ERP system. If you could just give an update on the state of progress of those and also the opportunities that you currently see post completing both of those strategic investments?

So Colin, I'll just take the -- give you an overview before I hand over to Dermot Ryan. Ultimately, you can see since IPO, this division has outperformed year-on-year as we continue to grow share and outperformed the markets and we move up the value chain. And as you see, this is reflective in our margin more or less doubling from 5.5% to 11%. So it's a continuation of probably -- what we have done for that 4 or 5 years. Dermot?

Yes. Look, Colin, delighted with the performance in '23, I think we've beaten the market once again. If you take supply chain, strong volume growth, but also category mix has driven some of the gross profit growth as well. So we've seen a recovery in hospital and hospital SKUs, GLP minus 1 is an interesting area as well. We've seen considerable growth in that area. And I think our retail position has really benefited us in supply chain. In terms of the 470 symbol group members that we have and the deep relationship we have with our customers. So we had a really good year in Supply Chain. If you look at Retail, we're the largest operator of pharmacy, as Ger said. We had fantastic results from the CX survey during the year, which 3 of our 4 retail brands are in the top 10 trusted brands, not just in pharmacy, but across all brands in the country, 150-odd brands. So I think that trust, we've worked really hard on our locum pharmacy reliance. We've reduced that reliance. And I think that's given us that trust and consistency with our patients. And we've had a very good year on vaccines as well. So all in all, really happy with the performance this year.

In relation to the investments then basically, we're going to be busy for the next 2 years. These investments have been 5 years for the planning, 3 years to implement, is very significant for us as the group. But ultimately, it produces our cost to serve by 45%. So it has a very dramatic impact on our profitability post-investment phase, a really huge proof of the business for a decade, more than doubled our capacity because the B2B plus the B2C solution. So it's a really big deal for us and ultimately post the investment phase the business would be in a really good place. Dermot, I would just say to you, how is the goal?

Yes. Look, it's progressing in line with plan. We reached a big milestone at the end of March when we take possession of the building. Our robotics and automation partner then moves in to build a case that will drive the automation. And then in parallel with that, we're working on building out our digital core and our ERP. So by the time we get to sort of early 2025, we hope to be in a position to test the system and then deploy it in 2026. So all in all, very happy with the progress we've made there this year. In terms of the opportunities, I suppose, as Ger said, it's about the aging population and continuing, I suppose, give us the ability to continue the momentum that we have in supply chain and also look at the pharmacy of the future and some of the changes that may come down the line and been able to, I suppose, evolve the offering as part of that.

Our next question comes from Charles Weston from RBC.

Two for me as well, please. First, on Medtech. Over time, I think, perhaps at the IPO, we were expecting more M&A here, but actually, you've been growing quite strongly organically, particularly in the last year. Do you think your ambitions have changed over the last 5 years because of that sort of more shift towards organic growth rather than inorganic growth?

I don't think so, Charles. I think obviously, we adopted the market as we see it. But we bought really good assets in this culture pre-IPO, and we've managed to fine-tune that service offering and travel with our customers into different geographies. But ultimately the opportunity is still there. We want to be one-stop shop for Europe for the specialty Medtech manufacturers. These guys who went into Europe is a real challenge for them. They find it very difficult to find a distributor partner of quality, and we're certainly there. So our challenge really is as we grow and work with our partners in new geographies to make sure we keep our standards high and deliver for them. So we're very disciplined in our therapeutic areas, we're very disciplined to how we grow. But ultimately, we're seeing a very strong momentum consistently in this division. So we've done some acquisitions to build out the platform. And now what we're doing is working with -- leveraging those acquisitions to platforms of scale and to work with our partners in new geographies. So we remain very excited about the growth prospects for this division, Charles.

And just this was an adjacent one, one of your peers has talked about increasing use of distributor relationships by some of the large Medtech companies even in major European markets. Is that something you're seeing as well?

Absolutely. And we -- some really strong partnerships like with Stryker here. Ultimately, when you look at the complexities of trying to roll out and Medtech -- several companies across Europe. Certainly, the service level to it, it's quite complicated. So the manufacturers now will become a lot more pragmatic, so looking at hybrid models. They look at particular geographies, but they'll also look at particular -- on a performing product portfolio, so we can improve. Once you have the platform and you're a trusted service provider, there's significant opportunity to serve. So it's a big challenge for the manufacturing, and we're here to solve that challenge for them.

And then second topic, on the Pharma side. Can you give us a sort of a sense of the conversations you're having with Pharma companies as you've moved away from that focus on omnichannel CSO more towards, I guess, higher value-add services. What's the sort of value comparison between just CSO and all the other stuff that you're looking to provide these customers?

I would like to ask Brian to take this, please.

Yes, thanks, Ger. Yes, it was fundamentally charged with these services that only attract a higher margin than what you would earn in the CSO markets, and we're now offering these services into global markets. So some of the examples of the services we're offering are things like outsourced clinical development, medical affairs, commercial consulting, sales marketing, expanded access, regulatory fares, and market access. So these are high-value services where we can work with clients through the life cycle. So if you look at the market, the complexity of the therapies that are -- make up the largest part of new product launches, means our investment in these areas such as particularly medical affairs and clinical capability is key for us to be relevant to our clients. So the conversations we now have, we have a chance of moving off the value chain to more integrated services and bundling our services into higher-value contracts. And then as Ger mentioned, it is also then moving into the areas such as established brands, we have non-priority countries, non-priority brands and offering our strong commercial services into, I suppose, refocusing those established brands and helping our manufacture clients to grow too.

Okay. And I guess just as a corollary to that, and I will stop. If you think about the business as the old style of disclosures, product access and commercial services, you talked about the Pharma division as a whole growing double digits. Is that likely to still be sub double digits on the commercialization side as you build up that momentum sort of offset by CFO headwinds and more than -- or higher double digits on the product access or could both of those businesses be double digits in '24?

I think the demand is -- you can see from the numbers -- if you ever look at, this division is now a merger of our product access and our commercial clinical business go and this product is flying for us, we're seeing very strong growth across our on-demand and our early access programs. This area is -- we believe is probably our biggest opportunity. It can grow very strongly this year, but hits double digit and that it will go close to it, Charles, but I think going forward, once we start to leverage our investments, we think we can get this business to double digits in the medium term.

Our next question today comes from Paul Cuddon from Numis.

Just building on Charles' question around the Pharma side and digging a bit deeper on to on demand. I wonder if you could give us a sense of how BModesto has performed kind of 2022 to 2023? And also kind of to what extent the drug shortages will be an ongoing kind of tailwind for the business into 2024?

I'll ask Dermot to answer this.

Yes. Well, the BModesto platform is one of the pieces we've looked at is how can we add to their capabilities and how can we expand the range of services across Central Europe. And I think you look at the tailwinds in the sector around shortages, range rationalization from manufacturers. I've been very happy with the BModesto performance. We've added to the capabilities of that team. And the other piece for me on with BModesto is sort of centralizing our global sourcing capabilities. And then that has really benefited the older parts of that on-demand business in the U.K., Ireland and U.S. So very happy with where we are with BModesto, almost 12, 14 months in.

Okay. And in the past on Pharma Services, we've talked about the benefits to the innovators from kind of offering, kind of the product across the whole of Europe to get the patent extension. So I'm just wondering if that's started to kind of feature in any of the new deals you've been doing within that space to provide the pan-European kind of market access or are we still a bit early for that?

Brian?

So we're well positioned on Pharma, so as you can see from the slide deck on Slide 14, the areas that we've invested in around medical affairs, clinical development, consulting and then the areas where we believe are fundamental to offer that large platform such as market access and regulators, we've plugged into a partner network. So we've got over 25 MSAs in place in order to position ourselves to offer that launch platform. And this year, we delivered our first service where we've advised the client on their go-to-market strategy into Europe. And it's about building on that in terms of now trying to offer some of the services to execute on that strategy. And we're also well positioned with some of our expanded access clients where they've got limited infrastructure in Europe to offer some of those high-value services. So we're well positioned as we are now, Paul, in terms of taking advantage of some of those conversations, specifically around the paying expiry, so it's still early stage in terms of where exactly the direction of travel that will go, but what we do believe is our ability and capabilities around expand our access from the key unlocked in terms of when that service -- when that regulation ultimately comes into play.

Our next question today comes from Brian White from Shore Capital.

More questions on the Pharma Services platform, I'm afraid. And I guess it's always a very complex market that you're targeting here in terms of various different components. And as a consequence of that, I guess, do you think that you have in terms of the right team in place there, the right leadership and the clinical mass to be able to offer all that your clients are looking for? Are you seeing that coming through in kind of conversion rates? And then just separately, given it's a fairly new area for you, are there ways of accelerating the awareness of your capabilities to potential clients?

I think, I might just answer the first part of that question. No, I think we have a really strong team. We invested very strongly in this. But as I said, we're at the early stage of building of our European commercialization platform, but we're starting to make really good progress. So I think we have the right team. But when you look at the Uniphar Pharma, we have a strong growth engine across our old products business on demand is going very strongly for us, so as EAP. For the EAP, we started doing the EAP programs 5 or 6 years ago and now we're finally seeing a return on the investment demand. So it will take time, but the opportunity is very significant. But we have a really good team. Brian?

Yes. Look, it is a long sales cycle, Brian. Like you look at things like expanded access, you start talking to the Phase 2, but really the pivotal moment for an expanded access program is after the clinical trial in Phase III is fully recruited. So the sales cycles can be long, and you're at the behalf of market dynamics outside of your control. But we built up strong leadership in the areas of things like expanded access. In terms of the leadership we've invested in areas such as medical leadership in that launch platform and also people experience in launching products in Europe. So well positioned for the conversations that we're having and we're also seeing very strong mix in terms of infiltrating both big pharma and emerging biotechs. In the U.S., we continue to leverage our U.S. leadership that we've invested in through our acquisitions and then also invest organically in key talents that can actually integrate those services and start offering bundles of services. In terms of the market awareness during the year, we've invested in a rebrand project. So we've now retired 6 of our Pharma Services brand and are now operating under the unified brand with a road map over the coming couple of years to consolidate those brands further.

Our next question today comes from Christian Glennie from Stifel.

Just to follow up a bit more on Medtech. Obviously, a very strong top end of range result for that division. Just a bit more around just what was the driver there? And generally about your conviction, I guess, in that consistent high single-digit growth for that business over the medium term. Any particular contracts, things coming in that you're winning and the longevity of those contracts may be improving in your favor, anything around that?

You can see our track record from the IPO. So today, where we started off with 72 clients across 2 or more geographies, 17 across 3 or more countries. And -- we are waiting business. We were all excitement this year within the business. We went to Germany, a number of years ago and after a period of investment, now we're starting to do some really good wins there. We went to Switzerland. So as we roll out our infrastructure, and we've got a lot of winning partners who want to come and work with us in these geographies. We won't give the names. So there are better people from Ireland into U.K. from the U.K. into Europe, and that's a consistent range. The challenge for us is we need to do it in a disciplined way to make sure we keep looking after our customer as well. But the opportunity for us is very significant. You can see that we're very focused, are very disciplined in the therapeutic areas we're in. We believe we work fast in these areas. So as we roll this out, we're very much HCP-driven and we see scope to continue to grow this business double digit in the years ahead.

And then maybe touch on the U.S. facility that's now in place. Just to understand a bit more about the -- are there any particular tangible benefits from that yet? And ultimately, is there any significant sort of growth in the U.S. market factored into your medium-term targets for either Medtech or Pharma?

So I think we reached the U.S. with a very small facility down in Mississippi, the rate that we've invested for us up in North Carolina, where -- it's a beautiful facility and it's really going to create a very strong platform for us to grow. It's just operational. So it's -- it will takes us while to leverage this platform, but the area side are very strong. Dermot?

Yes, it's probably too early to really comment on that. I think the focus has been on the operational capability, as Ger said. We want to build it organically. We've put a really strong and experienced team together who has huge knowledge of the U.S. market. So I think the building blocks are in place for us to build that business. But it's too early at this point in time, I think.

So the U.S. is the biggest health care market, where we see a lot of opportunity for us to grow. And this facility allows us to deliver other potential we see for ourselves within the U.S.

But the U.S. is not sort of you need to make significant gains in the U.S. or build a significant business in there in order to deliver your medium-term targets. I mean, just trying to get a sense of how much...

So for size of the market, our expectations are quite bullish. So I think basically, as we get to the end of our current reporting cycle, I think we will start to double down a bit more in the U.S. And today, our focus is in Europe, mainly, but the U.S. is growing very strongly for us. So it's not a significant part of our medium-term targets.

And then finally, I guess the, you touch on M&A and firepower, I mean, obviously, you've got the additional investments coming through, you got leverage of 1.6x. How are you characterizing the available firepower of the existing balance sheet? And then just a bit more color maybe in terms of there's obviously a pipeline there, an active pipeline. It's been a while since the last deal, particularly around maybe Pharma and Medtech? Just a sense for what to expect around M&A.

Well, if you look back to the last 12 months, we've deployed EUR 100-odd million between late 2022 and '23, two large deals BModesto and McCauley is big force for us is getting on integrated, 2 great acquisitions and now they're delivering very significant for us going forward. So M&A remains a key part of our business plan. I think basically, when you look at our Supply Chain & Retail post the current investments is pretty much invested. Same with Medtech, we have a fantastic geographic footprint now in Medtech, which we want to scale and drive on. And so going forward, we would be deploying capital, but most likely into Pharma. And we've been comfortable deploying EUR 100 million -- between EUR 50 million to EUR 100 million in that space. If we continue to get the very strong returns that we have a fast track our progress that we're making within that area.

Our next question is a follow-up from Charles Weston from RBC.

Two, please. In terms of the medium-term growth expectations, you talked about 70% of that growth to be organic. How much of that would you characterize as revenue-driven versus margin driven, please?

Tim?

Thanks, Ger. I suppose, Charles, it would be hard to split that out. As we said earlier, we have the capital structure in place to make sure that we deliver under EUR 200 million EBITDA in the medium term. 70% of that will be organic. It will be a combination of revenue growth, combination of optimizing the margin. But I haven't the exact details, and that's this at hand at the moment. So happy to come back to you later on with our assumptions on that. It is going to change with all these things. It's also a movement at least.

Okay. I guess you've been investing a lot in the teams. Obviously, you've got the U.S. facility that I guess is only just opened. You're investing a lot in Europe, in Ireland, and the new facilities there as well. So with those sort of costs in place, I guess, the sort of question is, when should we be expecting some sort of operating leverage from that? Is there a point in time where you think you're kind of done with investments and you can let the leverage flow through? Or is it going to be more of just a gradual thing over the next few years?

I think Charles, if you look at Supply Chain & Retail, I mean, we're going to be investing for the next 2 years and then it will be operational in early '26, and then we'll start to bring cash in '27 and we drive on. In the demand business, the business is growing very strongly with very strong facilities in place. But if we keep going the scale we're at, we will make some further investments in the medium term. And in North Carolina, that's not fully invested and hopefully, by the end of the year, that starts to print cash, and we drive off there. It's how we've always done our business. We invest at the start and wait and then grow and then that drives strong organic growth. So I think we're close to the end of this significant investment cycle and that will land our medium-term guidance and then beyond that if we keep growing, we have to invest a bit more and perhaps to see EUR 200 million guidance that we have given to you guys.

Yes. Understood. Just last one for me then, please. You mentioned GLP-1s. You probably don't want to comment too much about individual relationships. But given it's possibly so important, can you talk about any relationship exclusive or otherwise you might have with Novartis and Eli Lilly on their GLP-1 obesity drug space?

Dermot?

Well, Novartis have been a long-standing pre-wholesale customer of ours and the strong relationship there within the Irish market. And we've worked with them again this year on the various launches and we see that continuing, I suppose, in the near future.

It's also -- it's a nice part of our on-demand global platform, is because these products are obviously a huge amount and have shortages in different markets. So that's also opportunity for us, Charles.

And we've worked with some of those manufacturers this year on repackaging and relabeling to support those challenges.

Our next question today comes from Andrew Whitney from Investec.

Just 2 last ones. One on Medtech, the detail around the customers with geographic exposure, you've got 72 in 2 geographies and 17 in 3 geographies. Are you able to share if you -- how many of those you've got in that state? I'm just trying to work out how many of those customers with 2 geographies are likely to progress into 3, and whether that sort of implies that 50% upside in the contract value? Is that broadly how that dynamic plays out?

That's a very hard question to answer. That is certainly the opportunity, and the opportunity is at that scale, Andrew, but I think it's just -- it takes time to prevent, but that's the opportunity. I think if we look at our Medtech business, we think we can rescale it from here. So we still see a lot of growth in Medtech.

No, no, that's good. And then just 1 on cash generation. I know you're -- even if you adjust the free cash flow for '23, you get to the top end of that 60% to 70% range. We're doing a lot of investment in your business. Is there a chance later on in the maturity of the business, that free cash flow generation goes above the 60% range consistently. Is that the right way to think?

Tim?

Andrew, I'm not going to point over our guidance. Our guidance for the medium term from a free cash flow conversion is to be in the range of 60% to 70%. As you know, our free cash flow is something that we have a strong focus on here. We're really -- and since IPO, we generated over EUR 350 million worth of free cash flow. Our definition of free cash flow is EBITDA less investment in working capital and investment in maintenance CapEx. So on that basis, we're going to continue to drive. Will probably be a level within range, hopefully over, but I'm not going to guide you over our medium-term guidance.

Our next question comes from Max Herrmann from Stifel.

Just 1 question on return on capital, which is obviously at the top end of your range. And I'm just thinking about, you've obviously gone in quite a heavy investment phase in SAP and the new warehouse. So does that actually pick up 2026 and beyond as those facilities start to generate a return. So that's the first question. I'll go in sequence. Yes, that's one is the first.

Okay. As we said at the time of our medium-term guidance we issued last September, our investment in Greenogue 2 is going to have a dampening effect on our return on capital side over the period, a upside investment. But having said that, it's important to still find out, we'll still be within our range of 12% to 15% during that period. Once we operationalize and as Dermot said earlier, we'll be able to have series operational efficiency to our cost reductions and also through the opportunities to go on gross management by providing extra services. Once that happens from '26 out, we will be exceeding our range from our guidance on return on capital employed. So like the operational leverage of such a substantial investment will be very strong from that point on. And this is a multi-decade investments. So it gives us a serious platform for the future.

Great. Second question was just, you've obviously -- you're the leader now in Retail pharmacies in Ireland. We've got multiple brands. I just wondered whether there is any ability to get kind of closer alignment of the brands and get some sort of some perhaps synergies coming through from brand awareness in the Retail space -- Retail pharmacy space or whether you think it's just still valuable to keep multiple brands?

I think separate -- Dermot will discuss this on a regular basis. But Andrew, I think in the medium term, it's fair to keep the brands. We've got 4 strong brands, and we continue to grow share. But you can see a point where you will consolidate the brands, when it grows, it's growth. But today, we believe we can still grow our symbol group offering.

Yes. I think we've unlocked a lot of synergies without having to touch the brand and we still have a focus on some synergies for this year as well. But I think even within the brands, there's different types of store formats. McCauley is very much focused on the retail side, whereas Allcare would be very much community pharmacy, a smaller format. So we have no real plans. We've looked at it, we've talked about it and then as Ger said, but I think the brands are all performing very strongly. There's a lot of trust with our patients. And we believe the right thing for the business is to leave them as they are in the near term. But it's not to say we wouldn't look at it down the line if it made sense for the retail side of the business.

And then my final question is just you guys are great at implementing cutting-edge technology. And I just wondered whether AI has any implications whether you can implement that in any way in the business to support it?

It's a great question, and I think it will be very positive for our business. We see a lot of opportunities right across our divisions. I think it maybe in 6 months' time, we'll be able to ask a bit more followed, but it's certainly -- we see this as a very positive outcome for us. Certainly, we look at our own demand, our global sourcing business, we see opportunities everywhere for us within AI like, so we think this will be quite a transformation for us, and it will drive a lot of efficiency within our business, and it will improve our service offering that we can give to our clients. But our plans are yet at an early stage, but we certainly -- in trouble times, it would be -- we will start to take shape as those will start to take shape.

Our last question comes from Edward Leane from Berenberg.

I just have a couple left. Firstly, on M&A, please. Can you give us a bit more of a sense of if you're seeing multiples demanded for acquisitions coming down at all given the current interest rate environment?

I don't -- we don't think so. I think there's a significant mismatch between the public and private sector with regards to valuation multiples. So I think that's quite significant for us. But for us, as you know, when we try to buy off markets, we try to do deals, take a long time, but quite slow, but the multiples are still very high. Certainly, in our growth areas, across metrics, Pharma services, the multiples are significantly higher than our current market share multiple, and that's an issue for us.

Okay. All clear. And secondly, can you give us a bit more of a sense on how much the new expanded access program is going to contribute to growth for Uniphar Pharma in 2024?

Brian?

Yes. So as you mentioned earlier on, like if you look at the Product Access division separately from Pharma Services, which is in the appendix, it grew as a whole double digits and we'd expect that to continue. So we've added some really interesting new programs, say, infiltrating both pharma and some of the most interesting cutting-edge sort of biotechs. So we try to continue to see a strong growth in 2024 for expanded access.

That concludes the Q&A portion of today's call. I will now turn the session back over to Ger Rabbette for any final comments.

So I think we gave a very strong set of numbers this year. We're very confident towards our prospects for '24. We've started the year with a very strong momentum. So I think we look forward to having a very strong year in '24. Thank you for everybody who joined in and thanks for all your support.

That concludes today's Uniphar Group FY 2023 Results Conference Call. You may now disconnect your lines.