Interim Report 2012

United Drug plc

Interim Report 2012

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

·; Earnings per share 8% up on the same period in 2011.

·; Continued internationalisation of the Group with the businesses outside of Ireland accounting for over 70% of operating profits during the period with 25% of the Group operating profit coming from the US.

·; Improvement in margins across the Group with overall EBIT margin for the period of 4.42% up from 4.14% in the prior year period.

·; A good cash flow performance with operating cash flow of €20.4 million in the period.

·; Another very strong performance in our US packaging business.

·; Excellent performance in our UK pre-wholesale business following recent contract wins.

·; Significant improvement in performance in our medical and scientific business both in the UK and Ireland.

Summary results for the six months to 31 March 2012

On a like-for-like basis group revenue is 2% ahead of the same period in 2011 although, as reported, group revenue for the period of €894 million is in line with revenue for the same period in 2011. The reported revenue figure is reduced as a result of a change in the contractual arrangements with certain customers in the Sales, Marketing & Medical division, resulting in the division conducting an increased proportion of business with customers on an agency rather than a principal basis.

Operating profit, before amortisation, increased by 7% to €39.5 million. Pre-tax profit, before amortisation, of €35.0 million is also 7% ahead of 2011 and fully diluted earnings per share, also before amortisation is 8% ahead of 2011 at 11.80 cent per share. An interim dividend of 2.48 cent per share has been declared, an increase of 3% on the 2011 interim dividend.

Net cash flow from operating activities for the period is €20.4 million. Net debt at 31 March 2012 is €122.3 million and the net debt to EBITDA ratio is 1.29 times.

Chief Executive Officer's comment:

Commenting on the 2012 interim performance, United Drug Chief Executive Officer, Liam FitzGerald said:

"United Drug provides world class logistics, packaging and marketing services and solutions to life science companies. Our vision is to be a truly international healthcare services group headquartered in Ireland. The first half of 2012 has seen us advance our international healthcare services offering and return to good growth in profits and earnings while continuing to invest in our physical and IT infrastructure and management talent. During the period, our businesses outside of Ireland have made significant progress in all of our outsourcing activities and these businesses now account for over 70% of our profits with our US businesses contributing 25% of profits in the period.

Operating profit for the period is 7% ahead of 2011 and the Group has again produced a good cash flow performance."

Dividend

The Board of Directors has declared an interim dividend of 2.48 cent per share, a 3% increase on the 2011 interim dividend.

The interim dividend is payable to shareholders on the Company's register at 5.00 p.m. on 18 May 2012 and will be paid on 13 July 2012. A Dividend Reinvestment Plan, 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 interim dividend.

Outlook

Based on the good trading performance for the year to date, the outlook for the remainder of the year and stability in current exchange rates, the Group expects adjusted diluted earnings per share for the year to 30 September 2012 to be between 4% and 8% ahead of last year.

The Group also expects to deliver another strong cash flow performance in the year. With relatively modest debt levels and strong cash flows the Group is well positioned to support its future growth objectives both organically and through additional acquisitions.

For reference:

Sales, Marketing & Medical

The Sales, Marketing & Medical division provides outsourced sales and related marketing and medical services to the healthcare industry in the UK, the US, Ireland, Continental Europe and Asia. The revenue for the division of €86 million is 15% lower than for the same period in 2011 as a result of a change in the contractual arrangements with certain customers. Our events management business is now conducting an increased proportion of business with customers on an agency rather than a principal basis. As a result of this change certain pass through costs are no longer treated as revenue or cost of sales. On a like-for-like basis divisional revenue is 3% ahead of the same period last year.

We continue to be the clear market leader in the provision of Contract Sales Outsourcing (CSO) services in the UK. Despite on-going pricing pressure we have grown this business during the period with particularly strong demand for our nursing services and also increased interest in outsourced sales services from healthcare and medical device companies. Our Irish CSO business is also a market leader and continues to trade profitably in the difficult Irish healthcare market. Our US CSO business has continued to grow and has expanded its client base and service offering during the period.

Our medical and regulatory services business in the US is having another good year with a strong pipeline of both medical affairs and telesales opportunities. We continue to have success in combining our offering with our US CSO and packaging businesses and have a number of projects running across these business units. We have launched the medical and regulatory services business in the UK in the last twelve months, and have made a very good start with the business expected to make a profit in its first full year of trading. Services being supplied to an expanding client base include outsourced medical information and pharmacovigilance solutions, tele-detailing and digital strategy support. The business is now expanding its European offering and has been successful in securing European scope contracts with a variety of pharmaceutical and device companies.

Our healthcare communications and consultancy business has delivered a strong performance in the first half of the year. Both the UK and US operations have contributed to this growth, through a combination of new business wins and growth from existing clients. In addition investment in our market research segment is already showing a return with an expanded service offering and a business development drive in the US market.

Our events management business has also performed well in the first half of the year and the business has continued to consolidate its position as the largest global event management group specialising in the healthcare sector. Revenue growth has been led by strong performances in the UK and US markets. Global client development has helped to facilitate new business wins across our offices in Germany, France, Italy, Spain and Hong Kong.

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 €730 million is 1% ahead of 2011.

In Pharma Wholesale we have strengthened our 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 to maintain revenue in line with last year in a market that has fallen in value by 4% in the last year as a result of a number of regulatory changes introduced. Our business continues to focus on providing a top class full-line wholesale service to retail and hospital pharmacy customers while at the same time, driving efficiencies and pursuing cost savings to cope with the realities of a declining market. In Northern Ireland, wholesale revenue is 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, we have also strengthened our market leading positions in the provision of third party logistics services for healthcare clients in the Republic of Ireland and the UK. Significant new business wins, in the UK and increasingly in Ireland, are contributing to a strong performance that is expected to continue for the remainder of the year.

We continue to keep tight control over our cost base and to invest in technology and automation to assist us manage our wholesale and pre-wholesale businesses as efficiently as possible and expect a strong cash flow performance from these businesses for the full year.

Over the last twelve months our management team have focused on the re launch of our medical & scientific business as a "Market Services Organisation" for the life sciences sector. This has resulted in the development of a more robust model for future growth and several significant and strategically important new agency wins for the business. 2012 has seen a more formal integration of our UK, Irish and European medical device businesses to ensure a consistent approach to people, brand, standards and the realisation of cross border synergies. Our businesses are now well positioned in a number of key therapeutic areas. Our focus over the next twelve months will be to develop our existing portfolios in these key areas while also looking to exploit our distribution capabilities to create a unique offering for the medical consumable market. Despite operating in a challenging marketplace, this business has shown significant profit growth in the first half of the year, and we anticipate this trend will continue for the remainder of this year and into 2013.

Our pharmaceutical specials business in the UK has been significantly impacted by the NHS introduction in November 2011 of a "drug tariff" which sets the reimbursement price on the most popular products in this market. This market change had been widely anticipated and over the past year we have developed new services to source unlicensed medicines from overseas and to manage the distribution of unlicensed medicines on behalf of pharmaceutical manufacturers. Despite these new revenue streams it is likely that the overall specials business will see a moderate decline in profits over the year.

Packaging & Specialty

The Packaging & Specialty division combines United Drug's packaging businesses in the US and Europe, our specialty homecare business in Ireland and vaccines and travel health business in the UK. Revenue for the division for the period of €78m is 14% higher than the same period in 2011.

Our US packaging business has performed very strongly in the first half of 2012. The volume of business continues to grow as the level of outsourcing of packaging operations from the pharmaceutical industry increases. We have also benefited from a number of product launches in the first half of 2012 which has helped to maximise the use of our assets and drive increased margins. Recent wins with current and new customers should see the business continue to trade strongly throughout the second half of the year.

In Europe, we are continuing our efforts to integrate and streamline our packaging businesses across our sites in the UK, Belgium and two sites in the Netherlands. Trading performance has been challenging, below last year's levels, due to the fragmented nature of the market and delay in conversion of a number of customer wins. We are working to align our US and European businesses to generate cross selling opportunities and operational synergies while strengthening our management and business development capabilities in Europe. This is starting to show progress with a number of recent customer wins across both the US and European businesses.

Our vaccines and travel health business has performed well during the period. Growth has been driven by a number of new business wins and operational synergies realised with other parts of the Group. The travel clinic partnership with Boots, to develop in-store travel health clinics continues to grow and should see a significant number of clinics launched in this financial year. There are a number of other parties interested in partnering with us to develop the Pharmacy Travel Health model in the UK and potentially also in other markets.

Revenue

Revenue for the six months to 31 March 2012 of €894 million is in line with the same period in 2011. Various pass through costs in the Sales, Marketing & Medical division, that were included in revenue in the prior year, are now excluded from revenue and cost of sales as a result of a change in the contractual relationship with our clients and suppliers. On a like-for-like basis revenue is 2% higher than the same period in 2011.

Adjusted Operating Profit*

Operating profit of €39.5 million is 7% ahead of the first half of 2011 with an improvement in margins in most parts of the business.

Adjusted Profit before Tax*

Net interest costs for the period are €4.5 million. After this interest charge, profit before tax of €35.0 million is 7% higher than in 2011.

Adjusted Earnings per Share*

Diluted earnings per share for the period of 11.80 cent, is 8% ahead of 2011. Earnings growth is ahead of profit growth as a result of a lower weighted average number of shares in issue following last year's share buyback programme.

Cash Flow

Net cash inflow from operating activities for the period was €20.4 million. This operating cash flow includes €5.3 million paid in relation to the restructuring undertaken in the prior year. Capital expenditure for the period was €18.1 million. For the six months to 31 March 2012 net debt has increased by €0.8 million.

Balance Sheet

Net debt at the end of the period was €122.3 million giving a gearing ratio of 31%. The net debt to EBITDA ratio is 1.29 times and interest is covered 10.5 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 principal risks and uncertainties facing the Group in the six month period to 30 September 2012 include the following:

Statement of Directors

Each of the directors confirm 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)

4 May 2012

(i) The Board of United Drug plc is disclosed on the Company's website, www.united-drug.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

for the six months ended 31 March 2012

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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 2012 are comprised of the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in joint ventures.

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 2011 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 IAS 34, Interim Financial Reporting, as adopted 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 following are the new standards that are effective for the financial year of the Group ending on 30 September 2012. These standards had no impact on the results or financial position of the Group in the period to 31 March 2012.

• Amendments to IAS 24 - Related Party Disclosures

• Amendments to IFRS 7 - Financial Instrument Disclosures

The Group has also adopted the Improvements to IFRS issued by the International Accounting Standards Board ("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 2011 and as those expected to apply for the financial year to 30 September 2012.

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 10.

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.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 segments:

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

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

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

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.

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, investment in joint ventures and assets classified as held for sale

The Group has revised its estimate of the fair value of trade and other receivables in respect of a prior year acquisition. 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.

On 17 October 2011, the Group disposed of its 50% shareholding in Medco Health Solutions [Ireland] Limited to Medco Health Solutions, Inc. for a consideration of stg£8.2 million. This gave rise to a gain of €300,000 being the difference between the fair value of the previously held asset at the date of sale and the consideration received. The gain has been included within the administration expenses in the Group income statement.

8. Other reserves

9. Net debt

10. Employee benefits

As set out in the consolidated financial statements for the year ended 30 September 2011, 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 loss during the current period primarily relates to a change in the discount rates in respect of all the pension schemes. The decrease 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 2012 have changed from the assumptions used at 30 September 2011.

The principal assumptions and associated changes are as follows:

11. Dividends

The Board has declared an interim dividend of 2.48 cent per share. This dividend has not been provided for in the balance sheet at 31 March 2012, as there was no present obligation to pay the dividend at the end of the reporting date. During the first half of the financial year, the final dividend for 2011 (6.25 cent per share), was paid giving rise to a reduction in shareholders' funds of €14,915,000.

12 Related parties

The Group trades in the normal course of business with its joint venture undertakings. The aggregate value of these transactions is not material in the context of the Group's financial results.

IAS 24 also requires the disclosure of compensation paid to the Group's key management personnel. This comprises its executive and non-executive directors, together with Persons Discharging Managerial Responsibility as defined in section 12(8) of the Irish Market Abuse Directive Regulations.

Key management personnel receive compensation in the form of short-term employee benefits, post-employment benefits and equity compensation benefits. Key management personnel received total compensation of €2,114,000 for the six months ended 31 March 2012 (2011: €2,181,000).

13. Board Approval

This interim report was approved by the Board of Directors of United Drug plc on 4 May 2012.