Half-year Report

UDG Healthcare plc

Interim Report 2016

19 May 2016: UDG Healthcare plc ("UDG Healthcare" or "Group"), a leading international healthcare services provider, announces its results for the six months to 31 March 2016 after another period of financial and strategic progress for the Group.

Non-GAAP information

The Group reports certain financial measures that are not required under International Financial Reporting Standards (IFRS) which represent the generally accepted accounting principles (GAAP) under which the Group reports. The Group believes that the presentation of these non-GAAP measures provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides investors with a more meaningful understanding of the underlying financial and operating performance of the Group and its divisions. These measures are also used internally to evaluate the historical and planned future performance of the Group's operations and to measure executive management's performance based remuneration. Reference to these performance measurements throughout this report are to the adjusted measurements unless otherwise stated.

1 Adjusted operating profit, profit before tax and diluted EPS from continuing operations are stated before the amortisation of acquired intangible assets (€7.3m, pre-tax) and transaction costs (€0.8m, pre-tax).

Adjusted profit after tax from discontinued operations is stated after charging depreciation and amortisation of assets classified as held for sale (€3.5m, net of tax) and adding back transaction costs (€7.5m, net of tax). Profit after tax in the comparative period reflected a depreciation and amortisation charge of €3.6m, net of tax, relating to assets forming part of the discontinued operations. Under IFRS, depreciation and amortisation are not charged on assets classified as held for sale, therefore, no equivalent depreciation and amortisation has been charged on these assets in the current period's results. To provide comparable information on the performance of the discontinued operations, an estimated charge of €3.5m (net of tax) for depreciation and amortisation in the current period has been reflected in the adjustments column above.

2 The discontinued operations include United Drug Supply Chain Services, United Drug Sangers, TCP Group and MASTA. These operations were included in the Group's proposed disposal which was announced on 18 September 2015 and completed on 1 April 2016.

3 EBITDA of continuing and discontinued operations before any exceptional items and transaction costs for the preceding twelve months, including annualised EBITDA of companies acquired and less EBITDA of completed disposals. There were no exceptional items, acquisitions or disposals in H1 2016.

Commenting on the interim performance, UDG Healthcare plc Chief Executive Officer, Brendan McAtamney said:

"The Group's continuing business delivered another period of strong growth during H1 2016. Profit before tax increased by 18% (10% on a constant currency basis) and earnings per share increased by 15% (8% on a constant currency basis) due to a combination of robust underlying growth and the benefit of currency movements.

Sharp's operating profit increased by 38% during the period while Ashfield increased operating profit by 7%. The continuing Group operating margin increased from 9.4% to 10.2%, with each division increasing its operating margin during the period.

We are reiterating our full year market guidance of 6-8% EPS1 growth for the continuing Group on a constant currency basis.

The Group's activities and strategy continue to be supported by the strong growth outlook for the outsourced healthcare services market. Following the completion of the disposal of the United Drug Supply Chain businesses and MASTA in April, the Group is now in a net cash position. Underpinned by our strong balance sheet and diversified client base, UDG Healthcare remains well positioned to continue to execute our international expansion strategy and meet the growing demand for our specialist services from our global healthcare clients."

· Adjusted operating profit1 growth of 15% (9% on a constant currency basis) to €48.4 million, with profit

before tax1 up 18% (10% on a constant currency basis).

· Adjusted diluted earnings per share1 (EPS) from continuing operations increased by 15% (8% on a constant

currency basis).

· Revenue up 6%. Net revenue up 9% compared to prior period on a constant currency basis, excluding pass

through costs and adjusting for disposals.

· Operating margin1 increased from 9.4% to 10.2%. Net operating margin2 increased from 11.1% to 11.6%.

· 5% increase in interim dividend to 3.05 cent per share.

· Reiterating our full year market guidance of 6-8% EPS growth for the continuing Group on a constant

currency basis.

· Disposal of the United Drug Supply Chain businesses and MASTA completed on 1 April 2016.

· Ashfield's operating profit increased by 7% (underlying growth of 7%), with positive underlying growth

evident across the division.

· The Group acquired Pegasus Public Relations Limited in April 2016, for an initial consideration of Stg£10.1

million with an additional Stg£6.7 million payable, based on the achievement of agreed profit targets over the

next three years. Pegasus is a UK-based healthcare communications business, complementing the existing

services provided by Ashfield Healthcare Communications.

· Sharp Packaging's operating profit increased by 38% (underlying growth of 25%) driven by continued strong

momentum in the US business.

· Sharp US' capacity expansion has been completed providing an additional 30% capacity once fully

validated.

· The Group's Supply Chain Services businesses (including discontinued operations) traded in line with

expectations.

Group development and outlook

The Group reiterates its full year guidance for constant currency adjusted diluted EPS1 growth for the continuing Group of 6 - 8% based on both the current momentum and positive outlook for the remainder of 2016. EPS guidance is unchanged because the positive impact from the acquisition of Pegasus is offset by the impact of allocating an extra three months central administration costs to the continuing Group in 2016, due to the earlier than expected completion of the disposal of the United Drug Supply Chain businesses and MASTA.

The Group is now in a net cash position after the receipt of the disposal proceeds in April from the sale of the United Drug Supply Chain businesses and MASTA.

To complement the underlying profit growth being generated by the businesses, the Group remains active from a corporate development perspective. The Group's focus will continue to be on executing strategic M&A opportunities complementary to our market leading, high-growth businesses, Ashfield and Sharp.

The build and fit out of Sharp's new packaging facility in Allentown, Pennsylvania was completed in April 2016, and the first phase of packaging suites will become operational during the second half of 2016. Once fully validated and operational, the investment at this site will increase US commercial packaging capacity by approximately 30%.

The Group remains focused on ensuring that scalable infrastructure is in place to support the future organic and acquisition led growth of the business, through its "Future Fit" initiatives. The first phase of this project will incorporate the implementation of a Groupwide Human Resource Information System, which is anticipated to go live during the second half of 2017 with a total capital investment of €12 million. Further projects will be focused on the Group's finance and IT infrastructure.

The average 2015 financial year exchange rates were €1 = £0.7428 and $1.1482. The average exchange rates during H1 2016 were €1 = £0.7456 and $1.0986 (H1 2015 €1 = £0.7670 and $1.1899).

As previously guided, the Group expects to continue its long history of dividend growth in FY16. The Board has declared an interim dividend of 3.05 cent per share, a 5% increase on the 2015 interim dividend.

Preliminary results:

The Group will issue preliminary results for the year to 30 September 2016 on Thursday, 24 November 2016.

1 before the amortisation of acquired intangible assets and transaction costs.

Analyst presentation:

A presentation for investors and analysts will be held at the London Stock Exchange at 9.00 GMT today, Thursday, 19 May 2016. If you wish to attend, please contact Powerscourt. Alternatively, to dial into the conference call or webcast, the details are as follows:

Audio webcast

http://edge.media-server.com/m/p/3w8qtbpi 

Conference call

UK number: + 44-203-427-1907

Ireland number: + 353-1-246-5601

US number: + 1-212-444-0412

Participant code: 9775904

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.

Review of Operations

Ashfield Commercial & Medical Services1

1 Excludes MASTA in 2016 and 2015 as it was included in the proposed disposal announced on 18 September 2015 and completed on 1 April 2016.

2 Net revenue represents gross revenue adjusted for revenue associated with pass-through costs for which the Group does not earn a margin. There are no pass-through costs in Sharp Packaging Services or Supply Chain Services.

Trading across the Ashfield division was good, with H1 2016 net revenue up 10% to €235.9m and operating profit up 7% to €28.0m.

Adjusting for the benefit of favourable currency movements and the impact of the 2015 disposal of the non-core Speaker Bureau business, Ashfield generated underlying operating profit growth of 7% during the period. Operating margin in the period was 9.6%, whilst net operating margin (allowing for pass-through costs) was 11.9%.

UK operating profit increased by 11% and net operating margin by 152bps during the period. This was primarily due to continued good progress in healthcare communications and an increased contribution from the Japanese joint venture, offsetting a weaker performance from the UK commercial business which operates in a more mature market.

Reported operating profit for North America was 3% behind the prior period. Adjusting for the impact of the disposal of the Speaker Bureau business during 2015, operating profit in North America grew by 15% during the period including the benefit of favourable currency movements.

European operating profit increased by 9% during H1 2016 with a net operating margin of 7.9%.

Sharp Packaging Services

Sharp Packaging Services continued its strong financial performance during H1 2016 with revenue increasing by 20% to €132.4m and operating profit up 38% to €16.2m. The division generated underlying constant currency operating profit growth of 25% and benefited from favourable currency movements during the period. Operating margin increased significantly (+163bps) to 12.2% during the period.

The Sharp US business continued to deliver strong growth. Revenue increased by 28% compared to the prior period, while operating profit increased by 38% to €16.5m due to continued strong market demand dynamics across all packaging formats. Operating margin in the US increased to 15.2% (+111bps) driven by continued high utilisation rates.

The build and fit out of the new biotech packaging facility at our Allentown campus in Pennsylvania has been completed. This will provide an additional 30% capacity for the US commercial packaging business once fully validated. The first phase of packaging suites is becoming operational and this additional capacity will allow the business to meet the growing market demand which is evident across all packaging formats in the US business. The Group anticipates that further capacity investments may be required into the medium term to meet growing client demand.

Sharp Europe continues to trade close to a breakeven position. Despite a realignment of the cost base and improved business development efforts, the European packaging business continues to have capacity in excess of current requirements. Addressing this excess capacity remains a key priority for the business.

Demand for serialisation services continues to increase. We continue to invest in serialisation capabilities in advance of the regulatory requirement for prescription products to be serialised from November 2017 in the US and Europe in 2019. We have now enabled over 40% of our packaging lines with serialisation capability and have worked on over 30 serialisation projects with existing clients. We will continue to enable the remainder of the US prescription packaging lines over the coming twelve months to ensure the business is fully prepared to meet our clients' serialisation requirements.

Supply Chain Services (continuing)1

1 Excludes United Drug Supply Chain Services, United Drug Sangers and TCP Group in 2016 and 2015 as they were included in the proposed disposal announced on 18 September 2015 and completed on 1 April 2016.

Continuing operations include Aquilant and the joint venture with Medicare.

Revenue was 7% behind the prior period, however, adjusting for the closure of Aquilant's UK laboratory distribution business in February 2015, underlying revenue was in line with the prior period. Operating profit was 2% ahead of the prior period and operating margin increased to 8.6%.

Aquilant renewed a number of important client contracts during the period and continues to trade in line with expectations.

Discontinued operations

2 Profit after tax from discontinued operations is stated before amortisation of acquired intangible assets, transaction costs and exceptional items. Profit after tax in the comparative period reflected a depreciation and amortisation charge of €3.6m, net of tax, relating to assets forming part of the discontinued operations. Under IFRS, depreciation and amortisation are not charged on assets classified as held for sale, therefore, no equivalent depreciation and amortisation has been charged on these assets in the current period's results. To provide comparable information on the performance of the discontinued operations, an estimated charge of €3.5m (net of tax) for depreciation and amortisation in the current period has been reflected above. See note 8 for further details.

On 1 April 2016 the Group completed the disposal of United Drug Supply Chain Services, United Drug Sangers, TCP Group and MASTA. These businesses are treated as discontinued operations and have performed in line with expectations for the period.

Forward-looking information

Some statements in this announcement are forward looking. They represent expectations for the Group's business, and involve risks and uncertainties. The Group has based these forward-looking statements on current expectations and projections about future events. The Group believes that expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve known and unknown risks, uncertainties and other factors, which in some cases are beyond the Group's control, actual results or performance may differ materially from those expressed or implied by such forward-looking statements.

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 (LON: UDG) is a leading international provider of services to the healthcare industry, employing over 7,000 employees at operations across 19 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 clients. It focuses on supporting healthcare professionals and patients at all stages of the product life cycle enabling improved compliance and clinical outcomes. The division provides sales teams, healthcare communications, telesales, nurse educators, medical information, pharmacovigilance, regulatory and event management services to over 300 healthcare companies in 18 countries.

Sharp Packaging Services is a global leader in contract packaging and clinical trial packaging services for pharmaceutical clients, operating from state of the art facilities across the US and Europe. Sharp is also a world leader in 'Track and Trace' serialisation services, which will require all prescription drugs to have a unique serial code for authentication and traceability.

Supply Chain Services consists of Aquilant, a leading provider of outsourced sales, marketing, distribution and engineering services to the medical and scientific sectors in the UK, Ireland and the Netherlands and our interest in Medicare, a pharmacy chain in Northern Ireland.

The company is listed on the London Stock Exchange and is a constituent of the FTSE 250.

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

Finance Review

Revenue

Revenue from continuing operations of €472.4 million for the six months to 31 March 2016 was 6% ahead (2% on a constant currency basis) of the same period in 2015. Ashfield Commercial & Medical Services reported revenue 3% ahead of the prior period (up 10% excluding pass through revenue) and Sharp Packaging Services reported revenue 20% ahead of the prior period. The continuing Supply Chain Services divisional revenue was 7% down on 2015 due to the closure of Aquilant's UK laboratory distribution business in February 2015.

Adjusted operating profit

Adjusted operating profit from continuing operations of €48.4 million is 15% ahead (9% on a constant currency basis) of H1 2015.

Adjusted operating margin

The adjusted operating margin for the continuing businesses for the period of 10.2% was higher than the margin of 9.4% in H1 2015. This continues the upward trend in operating margin in recent years as the Group focuses on operating efficiencies and achieving faster growth from businesses with higher operating margins.

Adjusted profit before tax

Net interest costs for the period of €7.1 million are 2% higher than H1 2015. This delivered a profit before tax from continuing operations of €41.2 million which is 18% ahead of 2015 (10% on a constant currency basis). Further details on the principal exchange rates used are provided in note 17.

Taxation

The effective taxation rate1 on continuing operations has increased from 22.1% in H1 2015 to 23.5% in H1 2016. This is because a larger proportion of profit has been generated in countries with higher taxation rates.

Adjusted diluted earnings per share

Earnings per share from continuing operations is 15% ahead (8% on a constant currency basis) of H1 2015 at 12.77 cent. On a combined continuing and discontinued basis, adjusted diluted earnings per share increased by 13% to 17.23 cent.

Cash flow

Net debt increased by €32.2 million in the period to €228.0 million (31 March 2015: €274.9 million). The net cash inflow from operating activities was €26.3 million with €36.6 million being generated by continuing operations and an outflow of €10.3 million from discontinued operations.

€19.0 million was invested in our continuing operations in property, plant and equipment and computer software. This includes IT investment to enable our businesses to grow in an efficient manner and investment in the new facility in Sharp Packaging US. €5.3 million was paid in deferred consideration associated with prior year acquisitions while €19.9 million relating to the final 2015 dividend was paid during the period.

Balance sheet

Net debt at the end of the period was €228.0 million. The net debt to annualised EBITDA ratio is 1.63 times and net interest is covered 12.6 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

The ROCE for continuing operations was 13.6%, up from 13.5% at the end of 2015.

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.

[1] Before the amortisation of acquired intangible assets, transaction costs and 2015 exceptional items.

Dividends

The directors are proposing an interim dividend of 3.05 cent per share representing an increase of 5% on the 2015 interim dividend. The interim dividend is payable to shareholders on the Company's register at 5.00 pm on 27 May 2016 and will be paid on 20 June 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. 

The Transparency (Directive 2004/109/EC) Regulations 2007 require the disclosure of the principal risks and uncertainties which could have a material impact on the Group's performance over the remainder of the financial year.

The Group operates within a highly regulated environment and the expectations of our key stakeholders, which include our clients and regulators, are very high. Our services include communicating to healthcare professionals, appropriate product use, pharmaceutical packaging and the distribution of pharmaceutical products for normal use or clinical trials. We focus on making sure that we deliver these services correctly and in a compliant way. However, failure to do so could result in adverse consequences for patients and our clients, so the risks that we face in delivering our services are potentially significant.

The Group's ability to avoid or mitigate these risks is underpinned by detailed risk registers maintained by each of the Group's divisions and business units. These risk registers identify the risks, as well as the plans for addressing them, and the consolidated Group risk register is reviewed by the executive directors on a regular basis. The consolidated risk register is also reviewed by the Risk, Investment and Finance Committee and the Chairman of that committee reports to the Board on the outcome of each review.

The principal risks and uncertainties identified by the risk management process as facing the Group are detailed below:

Statement of Directors

Each of the directors confirms that to the best of their knowledge and belief:

· the condensed set of interim financial statements comprising the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, and the related notes have been prepared in accordance with IAS 34, Interim Financial Reporting as adopted by the EU;

· the half-yearly financial report includes a fair review of the information required by:

(a) Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last Annual Report that could do so.

The Group's auditor has not reviewed this condensed half-yearly financial report.

On behalf of the Board(i)

18 May 2016

(i) The Board of UDG Healthcare plc is disclosed on the Company's website, www.udghealthcare.com.

Condensed consolidated income statement

Condensed consolidated statement of

comprehensive income

Condensed consolidated statement of changes in

equity

Condensed consolidated balance sheet

Condensed consolidated cash flow statement

Notes to the condensed interim financial statements

1. Reporting entity

UDG Healthcare plc (the "Company") is a company domiciled in Ireland. The unaudited condensed consolidated interim financial information of the Company for the six months ended 31 March 2016, 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 2015 will be annexed to the annual return 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.

2. Statement of compliance

These unaudited condensed consolidated interim financial statements ("the interim accounts") for the six months ended 31 March 2016 have been prepared in accordance with IAS 34, Interim Financial Reporting, as endorsed by the European Union. These interim accounts do not include all of the information required for full annual financial statements and should be read in conjunction with the most recent published consolidated financial statements of the Group. The accounting policies applied in the interim accounts are the same as those applied in the 2015 Annual Report.

The Group has adopted the following standards and interpretations during the period 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 period ended 31 March 2016 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.

The preparation of interim financial statements requires the use of certain critical accounting estimates, judgements and assumptions. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, relate primarily to goodwill impairment testing, revenue recognition, valuation and ownership of inventory, recoverability of trade receivables and valuation of provisions. The nature of the assumptions and estimates made in the preparation of the interim accounts are the same as those identified in our most recent annual report. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. There was no significant change to any of these key estimates or judgements in the six month period, other than a change to certain actuarial assumptions as set out in note 14.

The income tax expense for the six month period is calculated by applying the directors' best estimate of the annual effective tax rate to the profit for the period.

The directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

As permitted by the Transparency (Directive 2004/109/EC) Regulations 2007 this Interim Report is available on www.udghealthcare.com. However, if a physical copy is required, please contact the Company Secretary.

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.

On 18 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 during the year ended 30 September 2015. 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 are 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 Brendan McAtamney (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, included in the six months to 31 March 2015, primarily included redundancy costs of €4,499,000 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 resulted in non-cash impairment charges in respect of goodwill (€2,216,000) and other assets (€2,050,000). 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 €844,000 during the prior period.

During the prior period, 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. The Group also disposed of its shareholding in Pharmaceutical Trade Services, Inc. The disposals resulted in a net profit of €268,000.

Reconciliation to Group Income Statement - six months ended 31 March 2015

6. Finance income and expense