Uniphar plc (UPR) Earnings Call Transcript & Summary

Thank you for joining us, and welcome to the Uniphar Interim Results 2026 Conference Call. [Operator Instructions] I will now hand the conference over to Allan Smylie, Head of Strategy and Investor Relations. Allan, please go ahead.

Good morning, everyone, and welcome to Uniphar plc's interim results presentation, which covers the period from the 1st of January 2026 to the 30th of June 2026. I'm Allan Smylie, and I look after Investor Relations at Uniphar plc. Presenting our results today is Gerard Rabbette, our CEO; and Tim Dolphin, our CFO. We're also joined on the call today by Brian O'Shaughnessy, our Chief Commercial Officer; and Dermot Ryan, our Chief Operating Officer. Before we begin, I would like to remind everyone that you can access the presentation either on our website, latest results and presentations or via the link sent to you when you registered for the call. The results presentation will last approximately 20 minutes and will be followed by Q&A. Please note, the interim 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'll now hand you over to our CEO, Gerard Rabbette.

Thanks, Al, and good morning. Thanks for joining us. We'll start on Slide 5, where we outlined who Uniphar is. Uniphar is a diversified health care services business who partner with over 200 of the world's leading pharma and medtech manufacturers. We operate in Europe, U.S., APAC and MENA delivering to over 160 countries. We have 3 divisions who all operate in different parts of the health care ecosystem, but essentially, our job is to get products to patients. And that may be as straightforward as supply chain or as complex as taking charge of the whole commercialization process for a product in the market. Our strategic focus is on specialty, and we've delivered an excellent 6-year EPS CAGR of 16% since we IPO-ed back in 2019. Our ambition is to deliver EUR 200 million EBITDA by '28, largely organic, and we're investing heavily now in our infrastructure across people, IT and facilities in order to really scale our business for the longer term. On Slide 6, we outlined the ecosystem that we operate in. We sit in the middle between the manufacturer and the stakeholders, and we have both of them to overcome the problems of approval, access payments, logistics and commercialization in this new, more complicated health care environment. We've built a suite of capabilities and a global platform that allows us to support manufacturers to navigate the obstacles involved in getting their specialty products to markets. On Slide 7, we outlined the group's financial highlights. And as you can see, this strategy is delivering for us. We've had a strong first half, delivering organic gross profit growth of 7%, return on capital employed of 15% and earnings per share grew by 11%. At the same time, free cash flow conversion was negative, reflecting the unwind of prepayments that we had previously flagged, and our leverage landed at 2.4x. In the half year, we generated an EBITDA of EUR 61 million with robust organic gross profit growth of EUR 15 million with each division delivering a strong performance. If you look at Slide 8, you can see our track record since IPO. Since then, we've more than doubled gross profit and EBITDA. We've seen consistent growth in our margins and earnings per share. Our earnings per share has grown from $0.10 back in 2019 to reach $0.25 last year, and we're on track for another strong year in '26. And we achieved these great results without compromising on other things that are important to us, like our impact on the planet and the communities that we serve. On Slide 9, we outlined where we focus across ESG, and we continue to maintain excellent scores from independent rating agencies. On Slide 11, we give more detail on our 3 divisions. Pharma, it's a global opportunity with high growth, and we see growing margins as our product mix develops. Medtech, European opportunity, high growth, high margin. We offer full service distribution and commercialization solution for our partners with a clear focus on specialty. And in supply chain and retail, we see this as a U.K. and Ireland opportunity. It's lower growth, lower margin. However, we see this as a cash generation foundation for our wider business. So let's look at Pharma on Slide 12, where we overview the structural drivers shaping this opportunity. Healthcare-wide macro factors make a company like ours increasingly important to both makers and users of specialty health care products. Look at Biotech. Most innovation in health care is in specialty products. 85% of the global development pipeline is in the hands of small and emerging biotech companies, with biotech now accounting for circa 60% of all drugs launched in the U.S. in recent years. These emerging companies tend to have very limited infrastructure outside the U.S. Secondly, there is an increasing supply chain complexity. The new specialty products are high-growth, high-margin, but rare disease products are not just harder to make, they're more complex to ship. They require cold chain and specialized prep and they need to be administered in a hospital setting, all of which makes it harder for these R&D-focused biotechs to unlock the commercial opportunities that they have created. Even big pharma in this space are making the decision to focus only on larger markets because of this complexity. So what does this mean for clinicians and their patients outside of the larger markets? Well, Google means that there is an awareness worldwide that these treatments exist and that they work, but access is a real challenge beyond the big markets. On Slide 13, we summarize our platforms and our capabilities. And on Slide 14, we outline the pharma division's strong financial performance with gross profit growing by 7% to EUR 69 million on a revenue base of EUR 370 million. Global Sourcing has had another busy year, servicing a strong demand for unlicensed medicines and medicine shortages from hospitals, which has been supplemented by our clinical trial supplies business. We continue to invest heavily in our global ex U.S. launch and commercialization platform, which is affecting margins in the short term, but which will give us a much enhanced end-to-end offering going forward. We have a strong pipeline of high-value opportunities in the ex U.S. commercialization space, and we are excited about the impact that the successful delivery of even a small number of these deals could have on our margins within this division. And we remain confident that pharma will grow double digit for the full year. Now let's look at medtech on Slide 15. We outlined the structural drivers for this business. The European market is large but fragmented. The total European medtech distribution market is worth over EUR 60 billion. It's growing at a CAGR of 3% to 4%. And as we see it, there's a lot of change at the minute where manufacturers are reevaluating their portfolios, looking at new routes to market. And this ongoing change in the industry is beneficial to us as the market moves to a hybrid stroke indirect model. Slide 16 summarizes our platform, our capabilities and the specialisms we are operating with medtech. And if you look at Slide 17, we outlined medtech's strong financial performance with gross profit increasing to EUR 63 million or 9% growth, all of which is organic. EBITDA increased to EUR 24 million, and we saw growth across all specialties as we continue to deliver against strategy to go in line with new and existing clients in new geographies. We continue to see great opportunity to leverage our strong manufacturer relationships to enter into new geographies with existing partners, leveraging our existing platforms and sharing resources with our pharma business as we do with Lelystad in the Netherlands. With 87% of the business recurring in nature, Medtech is now 27% of the group's gross profit, and we are confident that this division will continue to grow high single digits. On Slide 18, we talk about supply chain retail. This division, as we've always said, is an integral part of Ireland's health care infrastructure, and we continue to grow share. We are vertically integrated and the manufacturer to the health care professional with a world-class service offering. The business has a strong competitive moat, huge barriers to entry and we have clear blue water between ourselves and our competitors in terms of infrastructure and future readiness. Working with both retail and hospital pharmacies, we are moving up the value chain to deliver a market-leading service offering. We also have the largest pharmacy network in the country with 512 owned or franchise stores. On Slide 19, we outlined the division's financial performance. It delivered 7% growth in gross profit to EUR 105 million on a revenue base of EUR 1.1 billion. Wholesale grew strongly across both Rx and services, helped by the addition of 30 new pharmacies into the network. Retail saw good growth in the core area of Rx and strong growth in services, but faced a softening in the front shop. EBITDA came in at EUR 23 million, reflecting some additional costs in the period, which Tim will talk about later. As we see it, supply chain retail is entering a critical phase ahead of the go-live of our new DC center in February of next year. This is a strong cash-generative business, which provides infrastructure, resources and skills to other parts of our business. On Slide 21, we give an update on our investments as well as our flagship investment in Ireland, we've invested in our Pharma and medtech platforms in the Netherlands, where we built a world-class distribution hub to help us really scale this business in Europe. At the same time, we've invested in a world-class facility in North Carolina to help us grow our pharma services specialty offering in the U.S., and we are on track to operationalize a similar facility in the U.K. this year. These facilities today will initially operate at around 30% capacity. This is a real drag on our operational leverage in the short term, but it really future-proofs our earnings in the longer term. It gives us the headroom to continue to grow strongly well beyond our '28 target of EUR 200 million EBITDA. On Slide 22 and 23, we give some more detail on our flagship DC facility in Ireland, we call it Greenogue 2. As we see it, this significant investment future-proofs our strong market position in Ireland. It transforms our cost base and allows us to deliver the pharmacy of the future. It's also key to the delivery and growth of our European pharma business. It's a very complicated complex and demanding projects. We have over 40 of our best people on it. We've decided to extend the time line to allow us for additional testing, but mainly to minimize the execution risk of our very busy Q4 period. We'll now go live in February of '27. As we see it, this is a generational investment in our infrastructure and IT, and we will reap the benefits of this significant investment for many years to come. Now I'll hand over to Tim to talk you through our financials.

Thanks, Ger. I would now like to take you through the financial highlights for H1 2026. I am 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 gross profit of EUR 236.5 million, up 7.7% from H1 2025. The group delivered strong organic gross profit growth of 6.9%. EBITDA has increased by 6.2% to EUR 61.1 million. Adjusted EPS is up from EUR 0.098 to EUR 0.109, representing an increase of 11.2%. This has resulted in a return on capital employed of 14.7%, within our medium-term guidance of 12% to 15%. Leverage for the period was 2.4x, and this reflects the unwind of favorable movements in working capital that we communicated with the FY 2025 results. Moving on to the next slide to have a look at divisional performance at a gross profit and EBITDA level. Uniphar Pharma delivered reported gross profit growth of 7%, all of which was organic. This was led by strong contribution from our Pharma Services business. The divisional gross profit margin was stable at 18.5%. We continue to focus on transitioning into more profitable, higher-margin activities. EBITDA increased by 3.9% to EUR 14 million and a margin of 3.8%. This margin reflects the continued investment in our European commercialization platform and other growth initiatives. Uniphar Medtech delivered a strong outturn in H1 '26. The division delivered reported gross profit growth of 9%, all of which was organic. This performance reflects the strong -- the strength of our business, the deep expertise of our team and the diversity across our service offerings. The gross profit margin was stable during the period at 41.2%. EBITDA increased by 11.5% to EUR 24.1 million and EBITDA margin reached to 15.9%. Uniphar Supply Chain and Retail performed ahead of this divisional guidance with gross profit growth of 7.3%, 5.6% of which was organic. This division has strong recurring revenues plus a stable and robust gross profit profile. Its gross profit margin stayed stable over the year at 9.8%. EBITDA increased by 2.4% in the year to EUR 22.9 million and a margin of 2.1%, reflecting the investment in our services proposition, inflation and statutory wage increases, including auto enrollment. As you know, we are migrating from our existing distribution center and IT systems to a new state-of-the-art distribution center and cloud-based IT systems. As Ger indicated, we now expect this to go live in February 2027 and will require incremental CapEx of approximately EUR 20 million. As we indicated previously, there will also be a significant level of one-off expenses relating to this move, which we will treat as exceptional. These will now be phased over '26 and '27 with the majority being next year. Moving on then to have a look at the balance sheet and net debt. At a high level, we finished the period with a net bank debt position of EUR 275.7 million, driven by an opening net debt position of EUR 171.1 million, strong EBITDA of EUR 61.1 million, a working capital outflow of EUR 86.5 million, reflecting the anticipated unwind of working capital benefits from Uniphar Pharma last year. CapEx, including strategic CapEx of EUR 36.6 million and other items of EUR 42.5 million, including tax, finance costs and lease payments. Our strategic CapEx reflects the significant multiyear investments we are making in our new distribution center, Greenogue 2, our new SAP platform and the other projects that Ger mentioned earlier. Our reported free cash flow for the period was negative EUR 47 million, and I'll take you through the details of that on the next slide. Here, we outline our free cash flow generation and free cash flow conversion for the year. Our definition of free cash flow is EBITDA, less investment in working capital, less maintenance CapEx, less lease payments. For the first half of 2026, this translated into a free cash flow conversion of negative 77.1%, reflecting the expected unwind of prior year working capital timing benefits in the pharma division. Looking at free cash flow through a longer-term lens to renew these timing impacts. Our free cash flow conversion in the last 5 years to June '26 has averaged 65%, and we continue to expect free cash flow conversion of 60% to 70% by 2028 at EUR 200 million EBITDA. Moving on now to Slide 13 and capital allocation. Capital allocation has and remains a key focus for the group as we adopt a disciplined and balanced investment approach to creating shareholder value. As we've 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. In addition to a progressive dividend policy, we will also look at share buybacks subject to market conditions. Moving on now to Slide 31. As you know, the last couple of years have been focused on organic investment in our infrastructure, technology and people, but M&A remains a key strategic enabler for the group. We tend to work with people before we engage on any M&A discussions and now have a reputation for being a responsible owner in the market. So we aide a competitive auction process can buy off market and get good value. Our pipeline is mainly focused on pharma. We are looking for acquisitions across areas like market access as well as commercialization platforms and specialist distributors. I'll now hand you back to Gerard to finish off on our medium-term ambitions and investment case.

Thanks, Tim. If you move to Slide 32, we outlined our ambitious target to deliver EUR 200 million EBITDA by '28. We'll achieve this target through robust organic growth across all 3 divisions. We also complemented with some strategic M&A. However, there's no doubt that the revised go-live in our DC facility to February of next year reduces our M&A window, but we still remain confident that EUR 200 million EBITDA is achievable by '28. Finally, on Slide 33, we outlined our investment case. We're going to the next stage of growth armed with a much greater number of capabilities. We've demonstrated a strong track record of delivery. There is compelling market opportunities for ourselves, a very favorable market backdrop and plenty of scope for growth across each of our 3 divisions. Each division has an attractive competitive moat, and we have a concrete plan in place to grow and deliver on our ambitions. So thanks for listening. Now I'll hand back to the operator for Q&A.

[Operator Instructions] Your first question is from the line of Colin Grant with Davy.

I've got one on the Pharma division, and then there's a follow-up on the Pharma division. So I might just give both of them together, if I can. So just firstly, on pharma, you're expecting to see a stronger rate of growth in H2 versus H1 and the prior year comparatives appear to be a bit easier for you in H2. But can you give any color on whether there are specific contracts or business areas that will also contribute to the expected acceleration in the rate of growth in H2? And just as a follow-up on that, the strategic investments that you've made, you've outlined you've made these in new U.K. and European hubs in the Pharma division, and they're expected to become operational this year. Can you maybe give your latest plans on these hubs and the medium- to long-term opportunities that you see coming from them?

Thanks, Colin. Maybe Brian, you might take the first question. And Dermot, the second one, please? .

Colin, it's Brian here. So I suppose just to deal with the pharma piece first. So we do benefit from a more favorable comparator in the second half, but we would not characterize the anticipated acceleration as being solely comp driven. What gives us confidence is the breadth of growth drivers across the pharma platform. So we continue to see strong momentum in the higher value activities we're offering such as expanded access, specialty distribution, bespoke distribution, commercialization as well as strong growth in our global sourcing platform. We're also seeing increasing traction from the investments we've made in building a more integrated global platform, and Dermot will touch on that in the next question. And that helps us win larger and more strategic mandates. So the key point is that the business today is materially different to the business a few years ago. We've deliberately repositioned towards higher-margin, more specialized services and continue to see strong demand for our high-value flexible model in pharma services as well as strong demand in global sourcing.

Colin, Dermot here. We've always looked on these investments similar to our North Carolina facility as group investments. If you take our facilities in the U.K. and Lelystad, we have 2 new medtech clients launching in quarter 4 there. The other key thing for us is it allows us to launch new service lines. So if you take Lelystad, that facility will house our new EU pack and label facility. So that's something that our customers have been talking to us about for quite a while, and it gives us that sort of global offering across the U.S. and EU in that space. And obviously, it also allows us with the additional capacity and with the ultracold storage capability that we have to launch specialty distribution into the EU market as well. So those investments are really about building the platform and building it once. .

Your next question is from Charles Weston with RBC Capital Markets.

First of all, just in terms of the new Ireland facility. Now that you're in testing mode, can you give us a sense of your confidence around the operational and productivity savings that you will be able to drive from this facility? And my second question follows up on the working capital timing. You've been benefiting from prepayments for quite a while, actually, sort of each one of them are somewhat one-off and timing benefits and now it's unwound. Is there any chance that this winds back up again at some point over the next few months?

Tim, you might take those 2 questions, please.

Yes. I'll take the second one first, Charles. Obviously, as you said, there was an unwind of some prepayment in the period. our objective is every time we do a deal is to try and be as positive from a working capital perspective as we can. And we try and make sure that it's favorable to us from a cash optimization perspective. So when you look back, Charles, as I said in the call there, over the last 5 years, our free cash flow conversion has been over 60% at 65%. And as we look to the future at EUR 200 million EBITDA, our free cash flow conversion is going to be between 60% and 70%. We don't predict -- it's very hard to predict each deal whether we're going to get prepayment soon again or not or the economics of it. It's all down to a deal-by-deal perspective, if you understand me. Then just moving on to your first question on the DC facility and the level of confidence. We have a high level of confidence, Charles, the reason why we're delaying into quarter 1 next year is because of the Q4 activity that will be going on in the division. I guess it's a really, really busy period. So from a confidence perspective, we have a high level of confidence. We're doing end-to-end testing, checking absolutely everything. But as we said to you, should we have any issues, we still have our current facility. So we're actually going live in a situation where if anything pops up, we won't have any operational implications from it because we will still have our current facility to utilize.

And perhaps if I can just follow up on that. Now that you're in testing mode, has anything surprised you potentially to the upside or the downside in terms of the potential level of productivity savings that you're likely to be able to make?

No, no, there's nothing, Charles. Obviously, this project has been 4 years in planning, 4 years of implementation. And you can imagine, we've tested -- we've done a lot of -- we've checked everything we can. So the tests we're currently doing are really good, are very positive. So we're absolutely on track. The challenge we have from a go-live, we were just getting too close to Q4. Q4 was a really, really busy period for us with retail. So we deferred it to February. So we're really confident this will go -- it will be a seamless transition, and we crack on and the business case remains really strong, Charles.

Your next question is from Kane Slutzkin with Deutsche.

Just a quick follow-up on the pharma question. Just looking at margins, obviously, it's sort of 3.8%. You're obviously investing a bit you were saying. Just how should we be thinking about the margins there and sort of the trajectory or sort of magnitude of expansion over time? And then just on the balance sheet and M&A, I mean, given where leverage is today, and you did mention the sort of revised go-live does maybe reduce the M&A window. But what is your sort of financial capacity now to do some M&A? And is the pipeline weighted towards sort of smaller capabilities? Or could there be a sort of more step change kind of acquisition in time?

Brian, you might take the first part of that question, please.

Yes. So if you look at our strategy in the Pharma division, it's been intentional, I suppose, for a move to higher margin, more sustainable revenues. So the platform we've built is moving away from just selling siloed services into more -- being a more strategic partner, integrated services, which allows us be a strategic partner and actually move into taking margins on exclusive rights to products. So everything we've been building over the last 3 years has been moving us towards higher margin, more sticky revenues, and you're starting to see that come through, and we'll continue to grow in that trajectory. And then also our global sourcing business continues to see strong growth and strong market position growth, which also then provides stronger margins. And if you look back at our traditional services over 4, 5 years ago. So positive trajectory on our margin growth.

From an M&A perspective, we still have a very strong pipeline, really good track record. I think basically, if we look at it, we're determined to be an asset-light business that post the current investment phase today, we're investing very heavily in our people, in our technology and infrastructure. But post this, we will be asset-light. And our M&A activity will be around pharma and medtech where we want to build out our platforms to really scale those business. So we still remain very confident that we will drive strong organic growth and then supplement it by strategic M&A.