Interim Report 2011

Interim Report 2011

United Drug believes that the 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.

Operating highlights

·; Further internationalisation of the Group with the businesses outside of Ireland accounting for over 65% of operating profits during the period.

·; Contract Sales & Marketing Services (now being renamed Sales, Marketing & Medical) division traded strongly throughout the period. Recent acquisitions have been integrated and are performing well.

·; Market share gains in the Irish wholesale and pre-wholesale businesses largely offset the impact of further significant regulatory changes. Continued challenging capital spending environment in the medical and scientific business but performance beginning to improve.

·; Very strong performance in our US packaging business. The UK homecare joint venture with Medco is integrating the recent acquisition as it builds patient numbers.

·; Another strong cash flow performance with operating cash flow of almost €30 million in the period.

Summary results for the six months to 31 March 2011

Group revenue for the period is €894 million, an increase of 5% on revenue for the same period in 2010. Operating profit, before amortisation, increased by 6% to €37 million. Pre-tax profit, before amortisation, of €32.7 million is 4% ahead of 2010 and fully diluted earnings per share, also before amortisation is 2% ahead of 2010 at 10.90 cent per share. An interim dividend of 2.41 cent per share has been declared, an increase of 3% on the 2010 interim dividend.

Net cash flow from operating activities for the period is €29.6 million. Net debt at 31 March 2011 is €115.5 million and the net debt to annualised EBITDA ratio is 1.30 times.

Chief Executive Officer's comment:

Commenting on the 2011 interim performance, United Drug Chief Executive Officer, Liam FitzGerald said:

"United Drug has made considerable progress during the period to further internationalise the business as we develop our range of outsourced healthcare services. Our US businesses accounted for over 20% of operating profit in the first six months of 2011 and in total our businesses outside of Ireland contributed over 65% of profits. This has been particularly important in the period as these increased contributions have more than offset the impact that the continued challenging regulatory climate has on revenues in some of our Irish businesses.

Operating profit for the period is 6% ahead of 2010 and the Group has produced another strong cash flow performance. Our strong cash flow and low levels of leverage supported by the long term re-financing completed last year leave us well positioned to further develop our international healthcare services offering."

Dividend

The Board of Directors has declared an interim dividend of 2.41 cent per share, a 3% increase on the 2010 interim dividend. The interim dividend will be paid on 15 July 2011 to shareholders on the Company's register at 5.00 p.m. on 20 May 2011.

The Company has ceased operating the scrip dividend scheme and is planning to replace it with a Dividend Reinvestment Plan (DRIP) beginning with the 2011 interim dividend. The DRIP will allow shareholders to use their cash dividend to acquire additional shares in the Company from the market. Further details will be circulated to shareholders during June 2011.

Share buy back

The Board of Directors today announces that it is planning to operate a limited share buy-back programme of up to 5 million shares (€11.6 million based on the share price at close of business on 5 May 2011). This approximates to the number of shares issued over the last year under the Company's various share schemes most of which have now been discontinued. The buy-back programme will commence on 24 May and run until the requisite number of shares have been acquired or the start of the next close period for the Company.

Management remains focused on delivering the Group's strategy and has the financial flexibility to continue to pursue potential acquisitions that meet its investment criteria and to drive organic growth while maintaining a progressive dividend policy. In light of this and the return on capital opportunity implied by the current share price, the Board believes a buy-back of up to 5 million shares is an appropriate use of its cash.

The buy-back programme will be conducted in accordance with the terms of the general authority to make market purchases of its own shares granted to the Company by shareholders on 17 February 2011 and with the Listing Rules of the Irish Stock Exchange, the Listing Rules of the UK Listing Authority, the Market Abuse Directive and any other applicable legislation and regulatory requirements. The buy-back programme will be managed by Davy. The purchased shares will be cancelled.

Outlook

Despite recent additional regulatory changes in Ireland the Group still expects operating profit for the year to 30 September 2011 to be ahead of last year on a constant currency basis.

The Group has strong cash flows and low levels of debt relative to those cash flows and can use this financial strength to support its future growth objectives both organically and through additional bolt-on acquisitions.

For reference:

Healthcare Supply Chain

The Healthcare Supply Chain division combines all of the Group's healthcare logistics based businesses. Revenue for the division for the period of €725 million is 1% ahead of 2010.

In Pharma Wholesale, United Drug has strengthened its position as market leader in providing services to retail pharmacy in the Republic of Ireland and Northern Ireland. In the Republic of Ireland market share gains have allowed us maintain revenue in line with last year in a market that has fallen in value by over 5% (*) in the last year as a result of a number of regulatory changes introduced during the last 18 months. Our business continues to focus on providing a top class full-line wholesale service to retail pharmacy while realigning its cost base to the new market reality. In Northern Ireland, wholesale revenue is slightly ahead of last year despite lower consumer spending on over-the-counter products and the continuing move to Direct-to-Pharmacy (DTP) schemes.

In pre-wholesale, the Group also strengthened its market leading position in the provision of outsourced logistics services for pharmaceutical manufacturers in the Republic of Ireland and in the UK. New business wins, particularly in the UK, will begin contributing through the second half of the year with the full benefit being seen in 2012 and beyond.

The difficult trading environment in Ireland has put pressure on all operators in both the wholesale and pre-wholesale businesses. In response to these market pressures, we have again increased our market share and maintained tight control over our cost base to ensure that we are the largest and most cost efficient supplier in the market. We continue to invest in technology and automation to assist us manage the business as efficiently as possible and have further reduced the level of working capital tied up in the business and expect a strong cash flow performance from the business for the full year.

The Medical & Scientific business sells, distributes and supports consumable and capital equipment, on behalf of international healthcare manufacturers, to healthcare providers, industry and research institutions. The Health Service Executive (HSE) in Ireland and the National Health Service (NHS) in the UK are the major customers for this business. This market continues to face volume and pricing pressure from restraints on national healthcare budgets in the UK and Ireland.

Over the last 12 months we have changed the management team in this business and focused on retaining and growing current agencies, adding new product offerings and generating cost and process efficiencies. In addition, our sales force, which we see as a key strategic asset, has been strengthened in a number of areas. These changes are starting to deliver results with profits for the first half of the financial year ahead of the second half of the prior year and we expect this trend to continue.

In the UK, the Group prepares and distributes specials medicines. A "special" is a unique formulation of a commonly prescribed product prepared in response to a specific patient prescription requirement. The proposed introduction of a drug tariff on specials medicines in the UK has slowed the development of this market during the period and our business has traded in line with last year.

* Source: IMS

Sales, Marketing & Medical (SMM)

The division previously known as the Contract Sales & Marketing Services division is being renamed to better reflect the broader range of services now being provided. The division, with its main operations in the UK, the US and Ireland, provides global sales, marketing and medical services to healthcare manufacturers. Revenue for the division for the period of €100 million is 28% higher than the same period in 2010, including two businesses acquired in the last 12 months.

The core Contract Sales Outsourcing (CSO) business continues to see good demand from pharmaceutical companies for flexibility in their sales model. The volume of business in the UK, our main CSO market, remains healthy with particularly strong growth in the period in syndicated sales (where sales representatives sell more than one product in any GP visit) and nursing services. Our US CSO business is still small in the context of the US market but continues to enhance its reputation as it builds operational capability and brings new services to the market in conjunction with our other US businesses. Some recent new contract wins should see the US business trade strongly through the second half of the year.

Our US medical affairs business operates a call centre, based in Pennsylvania. The centre is staffed by qualified medical professionals and handles a large number of regulatory, patient support and compliance programmes for manufacturers through both in-bound and out-bound calls. This business is having an outstanding year and the pipeline for 2012 already looks strong. During the first half of the current year we have begun to offer this service to clients in the UK and are currently resourcing a call centre around our existing CSO business. The response to this offering has been encouraging and we already have a number of clients who have confirmed business with us.

In the second half of the last financial year we acquired InforMed, a business providing healthcare communications and consultancy services to global pharmaceutical and biotechnology companies. InforMed has performed ahead of expectations during the period with particular success in the US market and through its market research and business analysis services. The business has integrated well into the SMM division and there are a number of additional cross-selling opportunities across the client base of the different businesses within the division.

In December 2010, the Group acquired World Events Group Limited ('World Events') to globalise our events management offering within the division. This business has been merged with our existing events management business and we can now manage events for pharmaceutical manufacturers throughout North America, Europe and Asia. We have already seen the benefits of the increased reach of this business as we have recently won our first global events management contract with a top 5 pharmaceutical company.

Packaging & Speciality

In the Packaging & Speciality division revenue in the period of €68 million is 15% higher than in 2010. United Drug provides outsourced packaging solutions for healthcare manufacturers through facilities in the US, the UK, the Netherlands and Belgium. As one of the leading international providers of outsourced packaging services for the pharmaceutical industry we offer manufacturers the opportunity to divest of, or not invest in, high fixed cost infrastructure. This allows the pharmaceutical company to move a non-core activity from a fixed to a variable cost base and with our scale we can offer a highly efficient, professional and flexible packaging service.

Our US packaging business, performed very strongly in the first half of the year, benefiting from increased volumes from existing clients and contracts with new clients. The business has invested in new growth areas during the period including clinical trials packaging and biotechnology. These new growth areas add to the opportunities already apparent on existing product lines and the new business pipeline continues to be very strong. The business is now operating at a level where additional contracts won increase the efficiency of the operation and add to the return on capital in the business.

The new management team put in place for the European packaging business is focussed on broadening the revenue base for the business and increasing the operational efficiency of the existing facilities. While results for the period are below those of the prior year, as some existing contracts came to their natural end date, the new business pipeline is stronger than it has been for some time . Conversion of some of these opportunities along with the recent extension of some existing contracts will place this business on a much more solid platform for its long term growth.

The Speciality services businesses are focused on solving complex supply chain problems for the manufacturer or the healthcare provider for products that require cold-chain logistics, specialist patient training and administration in the home via a nurse. During the period, in conjunction with our joint venture partner, Medco Health Solutions, Inc., we added to our homecare business in the UK with the acquisition of Careology. This acquisition increases patient numbers while adding to our business development capabilities. This acquisition brings up-front costs while it is being integrated into our existing infrastructure but adds considerably to our offering with the NHS.

Our market leading Irish homecare business performed well during the period. We are investing additional resources to increase the operational capability of this business as the HSE allocate more of their budget to community and homecare services.

Revenue

Revenue for the six months to 31 March 2011 of €894 million is 5% higher than in the same period in 2010. This revenue number is boosted by a weakening of the euro relative to sterling and the US dollar when compared to the same period in the prior year.

Adjusted Operating Profit*

Operating profit of €37.0 million is 6% ahead of the first half of 2010. On a constant currency basis, operating profit is 3% higher than in 2010. As set out in note 7, the Group has completed the acquisition of the remaining 50% interest in Temperature Controlled Pharmaceuticals Limited ('TCP'). This gave rise to a gain of €2.5 million, being the difference between the fair value of the previously held interest in TCP and its carrying value. During the period, the Group also had costs of a restructuring nature of €2.6 million. These costs were incurred across all the divisions and are included within distribution expenses in the Group income statement.

Adjusted Profit before Tax*

Net interest costs for the period of €4.3 million are €0.8 million higher than in 2010 as a result of the additional costs associated with last year's refinancing and recent acquisitions. After this interest charge, profit before tax of €32.7 million is 4% higher than in 2010. On a constant currency basis profit before tax is 1% higher than in 2010.

Adjusted Earnings per Share*

Diluted earnings per share for the period of 10.90 cent, is 2% ahead of 2010. Profit growth during the period is partly offset by a higher effective tax rate and an increase in the number of shares in issue following share issues under the scrip dividend and other share schemes. On a constant currency basis, the diluted earnings per share is in line with 2010.

Cash Flow

Net cash inflow from operating activities for the period was €29.6 million. This cash flow is greater than operating profit and sees a further reduction in underlying working capital levels. The Group spent €22 million during the period on the acquisition of subsidiaries, deferred consideration payments on prior year acquisitions and investment in joint ventures. Capital expenditure for the period was €6.2 million. For the six months to 31 March 2011 net debt has increased by €6.2 million including the acquisition related expenditure.

Balance Sheet

Net debt at the end of the period was €115.5 million giving a gearing ratio of 30.5%. The net debt to annualised EBITDA ratio is 1.30 times and interest is covered 10.3 times by EBITDA. The financial covenants in our debt facilities are based on net debt to EBITDA not to exceed 3.5 times and EBITDA interest cover to be greater than 3 times.

*before amortisation of intangible assets

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.

The Transparency (Directive 2004/109/EC) Regulations 2007 require 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.

Risk management is an integral part of the Group's business process. A detailed risk register is maintained by each division within the Group and plans to address the identified risks are updated and reviewed by the executive directors on a regular basis. The consolidated risk register is also reviewed and approved by the Board.

The key risks facing the Group in the six month period to 30 September 2011 include the following:

·; Changes in Government regulations, funding and price agreements, particularly in the healthcare and pharmaceutical sectors, may adversely affect the Group.

·; The Group is subject to stringent medical, quality, environmental and health and safety regulations and standards and any significant change in these could result in increased compliance costs which could adversely affect profitability. Additionally failure to comply with all regulations and standards could lead to prosecutions and damage to the Group's reputation.

·; Mergers and acquisition activity amongst healthcare manufacturers could lead to existing contracts being cancelled or not renewed.

·; Current global economic conditions have negatively impacted and may continue to impact the Group's business.

·; As an international Group with substantial operations and interests outside the euro zone, the Group is subject to the risk of adverse movements in foreign currency exchange rates.

·; The Group provides credit to customers as part of normal trading and there is a risk that customers may not be able to pay outstanding balances.

·; The Group faces strong competition in its various markets and if it fails to compete successfully, market share and profitability may decline.

·; Distribution of third party products by the Group is currently by agreement. There is no certainty that these agreements will be renewed when they expire, which could lead to a decline in sales and profitability.

·; The Group requires access to capital to operate on a daily basis and for longer-term development projects. Lack of availability of sufficient capital resources may adversely affect the Group.

·; Should the Group not be able to fulfil the demand for its products due to circumstances such as the loss of a packaging or storage facility or disruptions to its supply chains, sales volumes and profitability could be affected.

·; Group IT infrastructure could be subject to external interference, which could result in downtime, which in turn could lead to a decline in sales and profitability.

·; The success of the Group is built upon an effective management team committed to achieving a strong performance in each division. Should the Group not attract or retain suitably qualified employees this could have an impact on business performance.

Statement of Directors

Each of the directors, whose names and functions are listed in the 2010 Annual Report confirm that, to the best of each person's 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)

R. Kells L. FitzGerald

Director Director

9 May 2011

(i) The Board of Directors is as disclosed in the Annual Report for the financial year ended 30 September 2010.

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

for the six months ended 31 March 2011

1. Reporting entity

United Drug plc (the "Company") is a company domiciled in Ireland. The unaudited condensed consolidated interim financial statements of the Company for the six months ended 31 March 2011 are comprised of the Company and its subsidiaries and joint ventures (together referred to as the "Group").

The financial information presented herein does not amount to statutory financial statements that are required by Section 7 of the Companies (Amendment) Act, 1986 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 2010 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") have been prepared in accordance with International Financial Reporting Standard, IAS34, Interim Financial Reporting, as adopted by the EU. 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 following are the new standards that are effective for the financial year of the Group ending on 30 September 2011. These standards had no impact on the results or financial position of the Group in the period to 31 March 2011.

• Amendments to IFRS 2 - Share Based Payment - Group Cash-Settled Share Based Payment

Transactions

• Amendment to IAS 32 - Financial Instruments: Presentation - Classification of Rights Issues

• IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments

The Group has also adopted the Improvements to IFRS issued by the IASB. This standard amends a number of other standards, basis of conclusions and guidance. The improvements included changes in presentation, recognition and measurement plus terminology and editorial changes. These amendments do not have a significant impact on the Group condensed consolidated interim financial statements.

All other accounting policies applied in these interim financial statements are the same as those applied in the consolidated financial statements for the year ended 30 September 2010 and as those expected to apply for the financial year to 30 September 2011.

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 accounting for defined benefit pension schemes, financial instruments, share-based payments, property, plant and equipment, intangible assets, provisions, goodwill impairment and deferred tax. 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 11.

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.united-drug.ie. However, if a physical copy is required, please contact the Company Secretary.

3. Segmental analysis

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

- Healthcare Supply Chain

The Healthcare Supply Chain segment combines all of the Group's healthcare logistics based businesses.

- Packaging & Speciality

The Packaging & Speciality segment provides outsourced packaging solutions to pharmaceutical manufacturers.

- Sales, Marketing & Medical

The Sales, Marketing & Medical segment provides contract sales outsourcing and related marketing and medical services to healthcare manufacturers.

The segmental analysis of the business corresponds with the Group's organisational structure, the nature of reporting lines to the Chief Operating Decision Maker (as defined in IFRS 8 Operating Segments), which the Group has defined as the Board of Directors, and the Group's internal reporting for the purpose of managing the business and assessing performance.

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. Finance income and expense

6. Earnings per ordinary share

* excluding amortisation of intangible assets

Treasury shares have been excluded from the weighted average number of shares in issue used in the calculation of earnings per share.

7. Movement in goodwill, intangible assets and investment in joint ventures

During the period, the Group completed the acquisition of the remaining 50% interest in Temperature Controlled Pharmaceuticals Limited ('TCP') that it did not previously own. As a result, TCP is now accounted for as a subsidiary undertaking and not as a joint venture undertaking. This gave rise to a gain of €2,530,000 being the difference between the fair value of the previously held interest in TCP and its carrying value which has been included within distribution expenses in the Group income statement.

The investment in joint ventures during the period includes €3,068,000 with respect to the acquisition of Careology Limited on the 2 December 2010 by our Medco UK homecare joint venture.

During the period, acquisition consideration of €984,000 was refunded in relation to a warranty claim on a prior year acquisition.

8. Other reserves

9. Net debt

10. Acquisition of subsidiary undertakings

During the six months ended 31 March 2011, the Group completed two acquisitions:

- On 1 December 2010, the Group acquired the entire issued share capital of World Events Group Limited ('World

Events'), a leading events management company providing event management, logistics and marketing services to international pharmaceutical companies.

- On 6 December 2010, the Group acquired the remaining shareholding interest in Temperature Controlled

Pharmaceuticals Limited ('TCP), a leading supplier in Ireland of healthcare services at home.

The Group has also revised its estimate of the acquisition date fair value of current and deferred income tax in respect of prior year acquisitions. This has resulted in a corresponding increase in goodwill relative to amounts previously recorded. On the basis that this adjustment was not deemed to be material, it was accounted for in the current period.

The carrying amount of the assets and liabilities which were acquired, determined in accordance with IFRS, before completion of the combination, together with the adjustments made to those carrying values to arrive at the fair values were as follows:

10. Acquisition of subsidiary undertakings (continued)

Neither of the business combinations completed during the period were considered sufficiently material to warrant separate disclosure of the fair values attributable to those combinations.

The initial assignment of fair values to identifiable net assets acquired has been performed on a provisional basis in respect of the business combinations disclosed above given the timing of completion of these transactions. Any amendments to these acquisition date fair values within the twelve month timeframe from the date of acquisition will be disclosed in the relevant Annual Report as stipulated by IFRS 3 (Revised 2008), Business Combinations.

Goodwill is attributable to the future economic benefits arising from assets which are not capable of being individually identified and separately recognised. The significant factors giving rise to the goodwill include the value of the workforce and management teams within the businesses acquired and the enhancement of the competitive position of the Group in the marketplace and the strategic premium paid by United Drug plc to create the combined Group.

The intangible assets arising on the acquisitions are primarily related to the trade names, customer relationships and technology.

The acquisition related costs for these acquisitions included in the Group income statement amounted to €147,000, which has been included in administration expenses in the Group income statement.

The Group's results for the period ended 31 March 2011 includes the following amounts in respect of the businesses acquired during the period:

*Other operating expenses consists of amortisation of intangible assets

Had these acquisitions been effected on 1 October 2010, the combined Group would have recorded total revenues of €899,400,000 and profit after interest and tax for the financial period of €20,587,000.

11. Employee benefits

As set out in the consolidated financial statements for the year ended 30 September 2010, the Group operates a number of defined benefit pension schemes which are funded by the payments of contributions to separately administered trust funds. The employee benefit asset relates to the United States pension scheme and the employee benefit liability relates to the Republic of Ireland and Northern Ireland pension schemes. The actuarial gain during the current period primarily relates to a change in the discount rates in respect of all the pension schemes. The increase in the discount rate is reflective of changes in bond yields during the period. A number of the other assumptions used to derive the actuarial valuations at 31 March 2011 have changed from the assumptions used at 30 September 2010.

The principal assumptions and associated changes are as follows:

The mortality rate assumptions for the ROI schemes have been updated. The mortality tables being used at 31 March 2011 give the following life expectancies: