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UDG Healthcare sells non-core Aquilant division and reviews Ashfield business

Published: 09:18 08 Aug 2018 BST

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Shares in UDG fell more than 6% in morning trading

UDG Healthcare PLC (LON:UDG) said on Wednesday it has agreed to sell its Aquilant division to a European private equity firm as part of its strategy to exit lower margin businesses.

The group will sell Aquilant, a distributor of specialist medical, pharmaceutical and scientific products, to H2 Equity Partners for an initial €20.5mln in cash and a deferred consideration of up to €2.5mln based on whether the business meets gross profit targets in fiscal years 2018 and 2019.

UDG said it would recognise an impairment charge of US$10mln on the asset value of Aquilant at March 31, along with a US$34mln charge related to foreign exchange losses.

The disposal follows the sale of its United Drug Supply Chain businesses to McKesson in April 2016. It has now exited all its lower margin distribution businesses and will use the proceeds from the deal to fund the development of its higher growth and margins divisions, Ashfield and Sharp.

Ashfield provides communication, advisory, commercial and clinical services to healthcare professionals while Sharp offers contract packaging and clinical trial supply chain services.

Third quarter trading ahead of last year

UDG also published an update for the third quarter ended June 30, which showed trading was ahead of the same period a year ago.

The group said strong contributions from acquisitions and growth in Sharp and the Ashfield communication and advisory unit mitigated a weaker performance in Aquilant and Ashfield’s commercial and clinical arm.

Trading in Aquilant was well behind the same quarter last year after losing contracts with VSI and Link. Aquilant represented about 4% of the group's operating profits in the first half to March 31.  

UDG reviews Ashfield to address weak spots

Overall trading in Ashfield grew despite a decline in operating profit in the commercial and clinical business due to the phasing of contracts and less new business. 

The acquisitions of Create NYC, a communications agency, and SmartAnalyst, a commercialisation consulting and analytics business, boosted Ashfield’s communication and advisory unit.

READ: UDG Healthcare acquires two US-based businesses

Given that Ashfield represents more than two-thirds of the group's profits, UDG is undertaking a review of the business to address its weak spots and has reshuffled its management.  

Rob Wood will head up Ashfield advisory, Doug Burcin will lead Ashfield communications and Julian Tompkins will head up Ashfield commercial and clinical.

UDG maintains full-year guidance

Meanwhile, Sharp delivered double-digit operating profit growth, driven by its US division.

UDG maintained its full-year guidance for constant currency adjusted diluted earnings per share (EPS) growth of 18% to 21% compared to last year’s EPS of US$0.37.

Liberum repeated a 'buy' rating and target price of £8.84 on the stock.

It said the main positive was that Sharp delivered double-digit growth and thinks the only negative is the weakness at Ashfield's clinical and commercial business.

"Lastly, the group has reshuffled the Ashfield management structure which we think strengthens the business and better positions it to take advantage of the broader fragmentation of the Pharma value chain."

Shares fell 6.6% to 765p in morning trading. 

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