Final Results

UDG Healthcare plc

Preliminary Announcement of Results

Year ended 30 September 2015

24 November 2015: UDG Healthcare plc ("UDG Healthcare" or "Group"), a leading international healthcare services provider, announces its preliminary results for the year ended 30 September 2015, after another year of substantial financial and strategic progress for the Group.

*Amortisation of acquired intangible assets (€15.7m), transaction costs (€5.0m), and exceptional items (€14.6m).

** EBITDA of continuing and discontinued operations before exceptional items for the year, including annualised EBITDA of companies acquired and less EBITDA of completed disposals.

UDG Healthcare believes that adjusted operating profit, adjusted profit before tax and adjusted diluted earnings per share are more appropriate measures of the underlying Group performance than those measurements set out in the primary financial statements, as this information is in a format communicated to and reviewed by the investment community. Reference to these performance measurements throughout this report are to the adjusted measurements unless otherwise stated.

Commenting on the 2015 performance, UDG Healthcare plc Chief Executive Officer, Liam FitzGerald said:

"2015 has been another year of substantial financial and strategic progress for UDG Healthcare. The Group delivered strong underlying growth and benefited from currency movements, resulting in profit before tax increasing by 24% and EPS up 21% on the prior year. Group operating margins of 5.2% continued to expand and exceeded our strategic target of 5% for the first time.

The pending sale of our United Drug Supply Chain businesses and MASTA to McKesson Corporation will accelerate the Group's strategic transformation to focus on higher growth and higher margin areas. The Group's continuing businesses increased profits by 43%*** and had an adjusted operating margin of 10.7%*** in the year.

Proceeds from the sale will support the ongoing implementation of the Group's international expansion strategy and will increase shareholder value through growing the Group's growth platforms.

We continue to experience growing demand for our specialist services from our healthcare industry clients. The Group has considerable long-term financing facilities available and good internally generated cash flows to support our growth objectives. We remain very positive about our long-term growth prospects."

*** Adjusted for the FY15 proposed disposal and the completed disposals in FY14. See detail of continuing operations on page 8.

· Adjusted operating profit* growth of 17% to €120.3 million (5% on a constant currency basis), with profit before tax up 24% (9% on a constant currency basis).

· Robust profit growth from continuing businesses, with a 43%** increase in operating profits (24% on a constant currency basis).

· Adjusted operating margin* increased from 4.8% to 5.2%.

· Adjusted diluted earnings per share* (EPS) increased by 21% (9% on a constant currency basis).

· Proposed 9% increase in final dividend to 8.1 cent per share, yielding a full year dividend of 11.0 cent per share (+9%).

· Continued strong cash generation with cash flow from operations increasing by €73.7 million to €137.4 million and a reduction in net debt/EBITDA to 1.42 times.

· Return on Capital Employed* (ROCE) for 2015 was 12.6%, up from 11.8% in 2014. Excluding the discontinued businesses, ROCE for 2015 was 13.5%.

· Disposal of United Drug Supply Chain businesses and MASTA approved by shareholders at an EGM on 13 October 2015 and awaiting competition authority approval which is now expected by June 2016.

· Ashfield Commercial & Medical Services*** operating profits increased by 38% (8% underlying growth), driven by a strong performance from the healthcare communications businesses (including the acquisitions of KnowledgePoint360 and Galliard in 2014) and the European commercial business.

· Sharp Packaging Services operating profit increased by 55% (32% underlying growth) on the back of a particularly strong performance in the US.

· Significant capacity expansion is underway for Sharp US, which will become operational in early H2 2016.

· Supply Chain Services*** operating profit was 23% lower, mainly due to disposals undertaken in 2014.

*Includes continuing and discontinued operations, adjusted for amortisation of acquired intangible assets, transaction costs and exceptional items.

** Adjusted for the FY15 proposed disposal and the completed disposals in FY14. See detail of continuing operations on page 8.

***Includes businesses classified as discontinued operations (see note 7 for further information).

Group development

2015 has been another year of substantial progress for the Group with EPS increasing by 21% (9% on a constant currency basis). The full year dividend increased by 9% continuing our long record of consistent dividend growth.

On 13 October 2015, the Group's proposed sale of its United Drug Supply Chain businesses and MASTA (part of the Ashfield Division) to McKesson Corporation was approved by shareholders at an EGM. It remains subject to competition authority clearance, which we now anticipate by June 2016. The disposal will significantly change the composition of the Group's operations. Looking at the profile of the continuing operations in 2015, the Ashfield division represented approximately 60% of Group profits, the Sharp division represented approximately 30% and approximately 10% came from the Supply Chain Services division. The net proceeds from the disposal will facilitate investment in higher growth areas both organically and via acquisition. We remain very positive about our future growth prospects.

We have developed strong market positions across each division and the businesses have delivered a strong growth record as evidenced by the five year operating profit compound annual growth rates (CAGR) between 2010 and 2015; Ashfield 5 year CAGR of 29%; Sharp 5 year CAGR of 25%; and Aquilant 5 year CAGR of 10%. The continuing Group businesses are focussed around providing specialist services to our healthcare industry clients and their revenues are primarily linked to activity in areas of increasing demand, with minimal links to drug pricing.

We have strengthened the senior management team across the Group and are investing in more scalable infrastructure through our "Future Fit" initiatives, which will deliver operating efficiencies as we continue our organic and acquisitive growth strategy.

As previously guided, the Group has recognised an exceptional charge of €14.6 million in 2015. The charge primarily relates to the integration of the 2014 acquired healthcare communications businesses, the closure of Aquilant's UK laboratory distribution business and the re-alignment of Sharp Europe.

The Group also delivered a good underlying cashflow performance for the year. When combined with modest debt levels relative to earnings and significant financing facilities, this continues to leave the Group well positioned to support its future growth objectives both organically and through acquisition.

The continuing Group is focussed on providing specialist services to its healthcare industry clients and is well positioned to capitalise on the increasing demand for these services.

Analyst presentation:

A presentation for investors and analysts will be held at the London Stock Exchange at 9.00 GMT today, Tuesday 24 November 2015. If you wish to attend, please contact Powerscourt on the contact details below. Alternatively, to dial into the conference call or webcast, the details are as follows:

Audio webcast

http://edge.media-server.com/m/p/c2x3kf8v

Conference call

UK number: +44 (0) 20 3427 1908

Ireland number: +353 (0) 1 2476528

USA number: + 1 646 254 3366

Participant code: 9762046

If you wish to ask questions, please do so via the conference call.

A replay of the audio webcast can be accessed via the same webcast link above.

Media:

Business / Financial media:

Lisa Kavanagh / Jack Hickey

Powerscourt

Tel: +44-207-250-1446

About UDG Healthcare plc:

Listed on the London Stock Exchange, UDG Healthcare plc is a leading international provider of services to healthcare manufacturers and pharmacies, with operations in 20 countries including the US, UK, Ireland and Germany.

UDG Healthcare plc operates across three divisions: Ashfield Commercial & Medical Services, Sharp Packaging Services and Supply Chain Services.

Ashfield Commercial & Medical Services is a global leader in the provision of sales, marketing and healthcare communications services to pharmaceutical manufacturers with operations in major developed markets. It focuses on supporting healthcare professionals and patients at all stages of the product life cycle. The division provides sales teams, healthcare communications, telesales, nurse educators, medical information, pharmacovigilance, regulatory and event management services to healthcare companies in 19 countries.

Sharp Packaging Services is a leading international provider of pharmaceutical contract packaging and clinical trials materials services with facilities in the US, UK, the Netherlands and Belgium.

Supply Chain Services includes the United Drug Supply Chain Services and the Aquilant Specialist Healthcare Services businesses. The division provides logistics services to healthcare companies, pharmacies and hospitals in the UK and Ireland. United Drug Supply Chain Services is the largest pharmaceutical wholesaler and pre-wholesaler on the island of Ireland. Aquilant Specialist Healthcare Services is a leading provider of outsourced sales, marketing, distribution and engineering services to the medical and scientific sectors in Ireland and the UK.

On September 18 the Group announced the proposed sale of United Drug Supply Chain Businesses and MASTA (part of the Ashfield Division) to McKesson Corporation. The United Drug Supply Chain Businesses to be disposed of do not include the Aquilant Business. The disposal was approved by shareholders at an EGM on 13 October 2015. It is subject to competition authority clearance.

For more information please go to: www.udghealthcare.com 

Ashfield Commercial & Medical Services*

*Includes MASTA which is now disclosed as discontinued operations (see note 7 for further information).

**Japanese revenues and profits included in 2014 and share of joint venture profit included in 2015.

Ashfield delivered a very strong performance in 2015 with revenue up 21% to €599.4 million and operating profit up 38% to €59.9 million. Both revenues and operating profit increased across all geographies during the year.

The business benefitted from acquisitions and favourable currency movements in the year, which supplemented underlying operating profit growth of 8% in the year. Operating margins of 10% were well above the prior year due to the increased contribution from the higher margin healthcare communications business and an improved margin performance from the European commercial business. Adjusting for pass through revenues of €126.9 million in FY15, net revenue was €472.5 million (21% increase on 2014) and the underlying operating margin was 12.7% in the year.

UK revenues increased 20% and profits increased 59%. This was principally due to the impact of the 2014 acquisitions of Knowledgepoint360 (KP360) and Galliard, a strong underlying growth performance from healthcare communications and favourable currency movements. Operating margins in the UK also expanded (+303bps) primarily due to the increased share of healthcare communications within the business mix. Japan continued to show good progress in the year.

North American revenues were 32% ahead and operating profits 11% ahead, with the business benefiting from favourable currency movements. The US commercial business achieved good profit growth in the year offsetting a weaker performance from the higher margin US medical services business (pharmacovigilance and market access), relative to a very strong 2014.

The European business performed strongly in the year as we continued to focus on improving the operating margins and revenue mix. Revenues increased by 8% and operating margins expanded by 121bps to 6.3% compared to prior year resulting in operating profits increasing by 35%. Excluding pass-through sales, the margin in Ashfield Europe was 7.5%.

We continue to experience strong demand for our multi-channel (CSO, nursing and call-centre) services across all geographies and particularly in the US where the business has developed a good pipeline of opportunities for 2016.

The healthcare communications business continues to perform strongly following the acquisitions of KP360 and Galliard in 2014. They have now been integrated within our existing healthcare communications, meeting and events, and strategic consulting businesses. In 2015 these businesses accounted for more than 50% of the division's operating profits. Ashfield Healthcare Communications is a global market leader and is well placed to sustain strong growth in this fragmented market. As part of the re-organisation of Ashfield Healthcare Communications we sold the non-core Speakers Bureau business, acquired as part of the KP360 acquisition, in the second half of 2015.

Sharp Packaging Services

Sharp Packaging Services recorded a very strong performance in 2015 with revenues increasing by 37% to €244.1 million and profits up 55% to €29.6 million. Sharp's operating profit benefitted from favourable currency movements, which supplemented underlying operating profit growth of 32% in the year. Operating margins increased by 144bps to 12.1% during the year.

US revenues were 40% ahead of the prior year, while profits of €29.9 million were 57% ahead. The US profit margin also increased strongly to 15.6% (+179bps) compared to the prior year, as the US commercial packaging business achieved higher utilisation rates. Market dynamics remain favourable and we continue to benefit as customers move to new packaging formats and the business has a good pipeline of new business.

Sharp Europe reported revenue growth of 27% and a €0.3 million operating loss in the year. The positive revenue momentum highlights the initial success of our re-aligned business development efforts. We have also recently begun to re-align the Sharp Europe cost base to bring it in line with current business activity, whilst maintaining appropriate capacity for expected business growth.

We continue to invest in our European Packaging businesses to provide a consistent global packaging offering to pharmaceutical manufacturers. As a result of this we are seeing increased activity from US based clients which we expect to translate into improved European business over the medium term.

Serialisation of prescription products will be mandatory from November 2017 in the US and in Europe from 2019. We expect this to be a driver of future growth in the packaging industry and will continue to invest in serialisation capabilities across Sharp. During the year we commenced the second phase of the capacity expansion programme at our Allentown facility in Pennsylvania to meet the consistent growth in demand for our services. This $45 million development is proceeding on schedule and we anticipate the first phase of packaging suites will become operational in the second half of 2016.

Supply Chain Services

The Supply Chain Services division delivered a solid overall performance, as disposals and market conditions impacted the overall reported financial performance. Total revenues of €1.49 billion were 2% ahead of prior year, while operating profit of €30.8 million was 23% lower. The disposal of our Specials businesses in February 2014 and the sale of our 50% share in UniDrug in August 2014 accounted for over half of the year-on-year reduction in profits.

Continuing operations include Aquilant and our joint venture with Medicare. Revenues were 3% behind prior year but an improved business mix, including increased Aquilant capital sales, resulted in margins increasing by 205bps to 9.4% and operating profit increasing by 24% to €9.5 million. Whilst the Aquilant business added some new agencies, the majority of the profit growth was from existing clients.

Revenues in our discontinued pharma distribution business (including wholesale, pre-wholesale and TCP Group) were slightly ahead of the prior year as the overall market returned to growth in Ireland. In addition, we continued to increase our market share in the Republic of Ireland wholesale market. Underlying operating profits were lower mainly due to the switch in 2014 by manufacturers of high-tech medicines to a direct to pharmacy model and the removal of the UniDrug joint venture profit contribution following its disposal.

In our discontinued businesses we have invested significantly in creating future efficiencies in pharma distribution through increased automation (completed in first half 2014), transfer of the Ballina evening shift volumes to Dublin (completed in first half 2015) and the introduction of a new ERP (Enterprise Resource Planning) IT system, which is becoming operational on a phased basis. These investments facilitate reduced operating costs and enable the business to increase its cost efficiency. This should allow the business to optimise performance in Ireland as the pricing environment normalises.

* On 18 September 2015 the Group announced the proposed disposal of United Drug Supply Chain Services, United Drug Sangers, TCP Group and MASTA. The Disposal was approved by shareholders at an EGM on 13 October 2015. It is subject to competition authority clearance. The United Drug, United Drug Sangers and TCP Group were part of the Supply Chain Services Division and are now disclosed as discontinued operations (see note 7 for further information).

** The prior year results include turnover of €6.9 million relating to the disposed Specials businesses and operating profit of €6.3 million relating to the disposed Specials businesses and the UniDrug joint venture.

Finance Review

Overview of results

* Adjusted for acquired intangible amortisation (€15.2m), transaction costs (€1.2m) and exceptional items (€13.3m).

** Adjusted for acquired intangible amortisation (€0.5m), transaction costs (€3.8m) and exceptional items (€1.3m).

Revenue

Revenue from continuing and discontinued operations for the year was 10% ahead of 2014 at €2.33 billion (4% on a constant currency basis). On a continuing basis, the Group reported revenues 20% ahead of 2014 with the Ashfield Commercial & Medical Services division reporting revenue 21% ahead of the prior year and the Sharp Packaging Services division reporting revenue 37% ahead of the prior year. Supply Chain Services revenue was 9% down on 2014, primarily due to the disposal of the Specials businesses.

Adjusted operating profit

Adjusted operating profit on continuing and discontinued operations for the year of €120.3 million was 17% higher than in 2014. On a continuing basis, the Group reported adjusted operating profit of €98.6 million which was 31% ahead of 2014. The operating profit of the Group's continuing business, excluding the impact of businesses sold in 2014, increased by 43%.

Adjusted operating profit by division - continuing operations

* The prior year results include operating profit of €6.3 million relating to the disposed Specials businesses and the UniDrug joint venture.

Adjusted operating margin

The adjusted operating margin for the combined continuing and discontinued businesses of 5.2% was higher than the margin of 4.8% in 2014, and exceeded the Group's strategic target of 5% operating margin for the first time. This continues the upward trend in operating margin in recent years as the Group focuses on operating efficiencies and acquiring higher margin businesses. In future years, operating margin will be substantially higher as the discontinued operations include businesses with lower margins. The adjusted operating margin for continuing businesses in 2015 was 10.7%.

Adjusted profit before tax

Net interest costs for the year of €13.1 million were 17% lower than 2014 primarily due to lower interest rates. The adjusted profit before tax for the year of €107.1 million was 24% ahead of 2014. Continuing profit before tax of €85.5 million was 44% ahead of 2014.

Adjusted diluted earnings per share

Adjusted diluted earnings per share of 34.90 cent was 21% ahead of 2014, and 9% ahead on a constant currency basis. On a continuing basis, adjusted diluted earnings per share increased by 42% to 27.46 cent. Further details on the primary exchange rates used are provided in note 18.

Exceptional items

The Group has recognised an exceptional charge of €14.6 million in the year, details of which are included in note 5. The charge primarily relates to the integration of the 2014 acquired healthcare communications businesses, the closure of Aquilant's UK laboratory distribution business and the re-alignment of Sharp Europe.

Cash flow

Net debt decreased by €50.7 million in the year to €195.8 million. The net cash inflow from operating activities was €137.4 million which was significantly higher than the inflow of €63.7 million in 2014. This was due to a strong focus on working capital throughout the Group.

€64.7 million was invested in property, plant and equipment, and computer software. This mainly comprised IT investment to enable our businesses to achieve future growth in an efficient manner and €17.1 million on the capacity expansion in Sharp US. The investment in the Japanese joint venture arrangement resulted in a €6.1 million cash outflow.

Balance sheet

The net debt to annualised EBITDA ratio is 1.42 times (2014: 1.89 times) and net interest is covered 10.5 times (2014: 8.6 times) by annualised EBITDA. Financial covenants in our principal debt facilities are based on net debt to EBITDA being less than 3.5 times and EBITDA interest cover being greater than three times.

Return on capital employed

ROCE for 2015 was 12.6%, up from 11.8% in 2014. Excluding the discontinued businesses, ROCE for 2015 was 13.5%.

The Group targets ROCE of 15% within three years for all investments. The Group has invested significantly in acquisitions and capital expenditure in recent years and we anticipate that organic growth in future years will increase Group ROCE to the targeted 15% level.

Dividends

The directors are proposing a final dividend of 8.10 cent per share, which represents a 9% increase on the 2014 final dividend of 7.43 cent per share. This represents 9% growth in the total dividend for the year to 11.0 cent per share which is consistent with constant currency EPS growth. This continues the Group's record of consistently increasing dividends for over 25 years.

Subject to shareholder approval at the Company's 2016 Annual General Meeting, the proposed final dividend of 8.10 cent per share will be paid on 19 February 2016 to ordinary shareholders on the Company's register at 5.00 p.m. on 4 December 2015. A Dividend Reinvestment Plan ('DRIP'), which enables shareholders who elect to participate to use their cash dividend to acquire additional shares in the Company, is available in respect of the final dividend. The final date for receipt or cancellation of elections under the DRIP will be 27 January 2016.

2015 Annual Report and Annual General Meeting

The 2015 Annual Report and Accounts will be published in December 2015 and the Annual General Meeting of the Company will be held on 2 February 2016.

Investor relations

UDG Healthcare's senior management team spend a significant amount of time meeting with shareholders and the international financial community. We have invested in dedicated investor relations resources and are focused on increasing the awareness of the Company among the investor and analyst community.

We communicate regularly with our shareholders throughout the year, specifically following the release of our interim and preliminary results, and at the time of major developments. Our website www.udghealthcare.com, is the primary method of communication for the majority of our shareholders. We publish our annual report, preliminary results and other public announcements on our website. In addition, details of our conference calls and presentations are available through our website.

The Board of Directors considers it important to understand the views of shareholders and receive regular updates on investor perceptions.

Our investor relations department provides a point of contact for shareholders and full contact details are set out in the investor relations section of our website. Shareholders can also submit an information request through the shareholder services section of our website.

Income Statement

Group Statement of Comprehensive Income

Group Statement of Changes in Equity

Group Balance Sheet

Group Cash Flow Statement

Notes to the Preliminary Announcement 

1. Reporting entity

UDG Healthcare plc (the "Company") is a company domiciled in Ireland. The preliminary consolidated financial information of the Company for the year ended 30 September 2015, are comprised of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in joint ventures and associates.

The financial information presented herein does not amount to statutory financial statements that are required by Section 347 of the Companies Act, 2014 to be annexed to the annual return of the Company. The financial information does not include all the information and disclosures required in the annual financial statements. The statutory financial statements for the year ended 30 September 2014 have been attached to the annual return of the Company and filed with the Registrar of Companies. The audit report on those statutory financial statements was unqualified and did not contain any matters to which attention was drawn by way of emphasis. The statutory financial statements for the year ended 30 September 2015 will be annexed to the next annual return of the Company and filed with the Registrar of Companies.

2. Statement of compliance

This announcement has been prepared on the basis of the results and financial position that the directors expect will be reflected in the audited statutory accounts when these are completed. The financial information presented in this report has been prepared in accordance with the Group's accounting policies under International Financial Reporting Standards (IFRS), as adopted by the EU and as set out more fully in the Group's last Annual Report.

The Group has adopted the following standards and interpretations during the year but these did not have a material effect on the results or the financial position of the Group:

The following standards, amendments to existing standards, and interpretations published by IASB are not yet effective for the year end 30 September 2015 and have not been early adopted in preparing the financial statements:

A number of the standards (*) set out above have not yet been endorsed by the EU. These standards, interpretations and amendments to existing standards will be applied for the purposes of the Group and Company financial statements with effect from their respective effective dates. The Group is currently considering the impact of these accounting standards.

3. Segmental analysis

The Group's operations are divided into the following operating segments:

Ashfield Commercial & Medical Services - The Ashfield Commercial and Medical Services segment provides sales and marketing services ('CSO'), healthcare communications, event management and medical affairs & regulatory services to healthcare companies.

Sharp Packaging Services - The Sharp Packaging Services segment provides outsourced commercial and clinical trial packaging services to healthcare companies.

Supply Chain Services - The Supply Chain Services segment combines all of the Group's healthcare logistics based companies.

During the year ended 30 September 2015 the Group announced the proposed disposal of United Drug Supply Chain Services, United Drug Sangers, TCP Group and MASTA. This has resulted in a change in the composition of the operating segments. Following this change, we have revised our segmental reporting and restated the prior year segmental disclosures as required by IFRS 8. Details of the discontinued operations analysis is included in note 7. The segmental analysis of the business corresponds with the Group's organisational structure and the Group's internal reporting for the purpose of managing the business and assessing performance as reviewed by the Group's Chief Operating Decision Maker (CODM), which the Group has defined as Liam FitzGerald (Chief Executive Officer).

The amount of revenue and operating profit under the Group's operating segments is as follows:

4. Share of joint ventures' profit after tax

5. Exceptional items

Restructuring costs and other primarily include redundancy costs of €7,411,000 in relation to recently acquired and existing Group businesses. The closure of Aquilant Scientific (UK) Limited (a UK based distributor of laboratory equipment) was announced on 28 February 2015. This has resulted in non-cash impairment charges in respect of goodwill (€2,216,000) and other assets (€2,092,000). Onerous lease costs were incurred in relation to the recently acquired and existing portfolio of leased properties that are no longer in use. Discontinued operations incurred redundancy costs of €1,335,000 during the year.

On 1 October 2014, the Group disposed of its shareholding in Ashfield KK as part of the Group entering into a joint venture agreement with CMIC Holdings Co., Ltd. On 30 November 2014, the Group disposed of its shareholding in Pharmaceutical Trade Services, Inc. On 22 May 2015, the Group disposed of its Physicians World Speakers Bureau business, a portfolio of agencies located in the US which was acquired as part of KnowledgePoint360 in 2014.

The following table details the (profit)/loss on each of these disposals:

The following table gives a reconciliation of the exceptional costs to the Group Income Statement:

6. Finance income and expense

7. Net result from discontinued operations and assets and liabilities classified as held for sale

On 18 September 2015 the Group announced the proposed disposal of United Drug Supply Chain Services, United Drug Sangers, TCP Group and MASTA for an aggregate cash consideration of €407.5 million. The disposal was approved by shareholders at an EGM on 13 October 2015. It is subject to competition authority clearance. The Group has disclosed these operations as discontinued operations and assets held for sale in accordance with IFRS 5. The comparative Group Income Statement, Group Statement of Comprehensive Income and Group Balance Sheet have been restated to show the discontinued operations separately from continuing operations.

The following table details the assets and liabilities classified as held for sale in the Group balance sheet: