Interim Report 2020

UDG Healthcare plc

Interim Report 2020

19 May 2020: UDG Healthcare plc ("UDG Healthcare" or "Group"), a leading international healthcare services provider, announces its results for the six months to 31 March 2020, in which the Group delivered a strong first half performance and an update on the impact of COVID-19.

Key updates

· Strong H1 FY20 performance well ahead of prior year:

o Adjusted diluted earnings per share (EPS) increased by 16% (16% on a constant currency basis)

o Underlying* net revenue growth of 4%. Total net revenue growth of 10% on a constant currency basis

o Underlying* adjusted operating profit growth of 10%. Total adjusted operating profit increased by 24% on a constant currency basis, reflecting continued growth in Ashfield and Sharp

o Ashfield's operating profit increased by 24% on a constant currency basis, driven by good underlying growth in Communications & Advisory, and the benefit of 2019 acquisitions

o Sharp performed very strongly, with operating profit increasing by 24% on a constant currency basis driven by strong underlying growth across the division

o Adjusted net operating margin increased from 12.0% to 13.6%

· Robust balance sheet with net debt to EBITDA of 0.3x** and a continued strong cash flow conversion performance

· In May, Sharp completed the acquisition of a packaging facility in the U.S., adding incremental capacity to the U.S. commercial packaging business

· COVID-19 impact:

o The health and wellbeing of our people and serving our clients remains the Group's priority

o H2 FY20 performance expected to be impacted by COVID-19

o Ongoing mitigation plans being implemented across the Group

o As previously announced in the April 2020 trading update, FY20 interim dividend suspended and FY20 financial guidance withdrawn due to current uncertainty

*underlying growth adjusts for the impact of currency translation movements and any acquisition or disposal activity

**calculated in line with financial covenant requirements

Chief Executive Officer, Brendan McAtamney commented:

"The Group's priority remains on protecting the health and wellbeing of our people and serving our clients during this challenging time. I am immensely proud of the continued hard work and resilience of our people and want to reiterate my continued appreciation for their dedication and commitment.

As announced in our April 2020 trading update, we delivered a strong first half performance, well ahead of the prior year, driven by underlying growth and acquisitions in Ashfield, and strong demand in our Sharp business. While we expect to see an impact from COVID-19 in the second half, we are implementing plans across the Group to mitigate this.

UDG is a strong and diversified business, underpinned by excellent long-term market fundamentals and a robust balance sheet and cash flow position. While uncertainty remains, I am confident the decisive actions taken now will ensure we remain well positioned through the crisis and beyond."

Protecting the wellbeing of our people

Since the start of the COVID-19 outbreak, the Group's priority has been the health and wellbeing of our people and their families. A global response team established in the initial stages of the outbreak, made up of representatives from across the Group, continues to convene on a regular basis to review existing measures to protect colleagues and manage these as required.

Across all of our businesses, we have put in place additional health and safety measures to protect our people. At our Sharp sites, these measures include providing incremental personal protective equipment, additional cleaning and hygiene services, and adapting shift patterns to enable required social distancing. In Ashfield the vast majority of our employees are working remotely.

We have also developed and launched a number of wellbeing initiatives and resources, which are available to all employees across the Group. Launched during wellbeing week, our employee microsite, "Wellspace", contains free webinars, useful resources, activities and classes to support physical and mental wellbeing.

Continuing to deliver for our clients

Despite the impact of COVID-19 on activity and operations, our people have shown incredible commitment and dedication in light of the unprecedented challenges presented by this outbreak. As a result, the Group has continued to deliver for clients to the extent possible during this challenging time, aided by our significant investments in technology in recent years.

We also continue to use our expertise to support our clients in their efforts to find a treatment for COVID-19, including packaging, distribution and medical information services on several clinical trials related to COVID-19. Our teams in Ashfield have adapted rapidly to ensure we can deliver services such as field-based training, clinical educators, patient support programs and live events virtually to our clients.

Supporting the communities we operate in

The Group has a long record of supporting local communities through hands-on projects and charitable fundraising. Over the last few months we have been supporting the communities we operate in through foodbank donations, charitable fundraising, a donation to #fuellingthefrontline, an initiative in Ireland to provide essential and nutritious meals to Frontline Heroes fighting COVID-19, as well as donating personal protective equipment to hospitals and manufacturing face shields for front line workers from surplus materials.

Impact on our operations

Within Ashfield, as a dynamic and technology-enabled business, we continue to serve our clients remotely where possible, although we have seen some project deferrals and cancellations. In-field based activities in Ashfield (particularly in our Meetings and Events business, field-based representatives, clinical educator business and audit services in STEM) are experiencing more significant disruption and reduced activity.

In Sharp, where we package critical and in some cases life-saving medicines for patients, the business has been categorised as essential and therefore continues to operate. Demand within Sharp remains very robust. Temporary disruption to production schedules and capacity resulting from the additional health and safety measures, along with workforce availability, is expected to reduce our efficiency and revenue. Actions to mitigate these impacts are being implemented, resulting in workforce availability sequentially improving, and the social distancing measures being partially offset by incremental automation.

Cost management

The Group is actively adopting tighter cost control measures to mitigate the potential negative impacts from COVID-19. These measures have included: the reduction of appropriate variable costs; tight control of discretionary expenditure; a recruitment freeze; reducing freelancer expenditure; and a temporary reduction in labour, including reduced working hours and furloughing of employees.

The Board and Senior Executive Team have voluntarily agreed to take a 20% reduction in their respective fees and base salary for at least the next three months.

Balance sheet, liquidity and dividend

The Group has a robust financial position with a strong balance sheet and liquidity profile, and a net debt to EBITDA ratio of 0.3x at 31 March 2020 (as defined by our debt agreements) which compares to the Group's banking covenant of 3.5x net debt to EBITDA. The Group also has access to committed undrawn debt facilities of $230m.

Having regard for all stakeholders' interests and the wider societal challenges, the Board took the decision at the time of the April 2020 trading update to suspend an interim dividend for H1 FY20. The Board has committed to keeping this decision under review during the financial year as the effects of the COVID-19 outbreak become clearer.

Group outlook

As communicated at the time of our April 2020 trading update, the Group expects lower activity levels than previously anticipated during the second half of FY20. As a result, the Group withdrew its constant currency EPS guidance for FY20 in light of the ongoing uncertainty and near-term challenges presented by the COVID-19 outbreak.

During FY19 and the first half of FY20, the Group delivered a strong underlying growth performance, supplemented by the benefits of recent acquisition activity. The Group's strong and diversified business, accompanied by excellent market fundamentals and its robust financial position, leaves it well placed to deliver renewed strong growth over the medium term.

Upcoming financial results

The Group will issue its Third Quarter Trading Update on Wednesday, 5th August 2020.

Notes:

1Alternative performance measures ("APMs) are financial measurements that are not required under International Financial Reporting Standards (IFRS) which represent the generally accepted accounting principles (GAAP) under which the Group reports. APMs are presented to provide readers with additional financial information that is regularly reviewed by management. The Group believes that the presentation of these non-IFRS measurements provides useful supplemental information which, when viewed in conjunction with IFRS financial information, provides stakeholders with a more meaningful understanding of the underlying financial and operating performance of the Group and its divisions. APMs should not be considered in isolation or as a substitute for an analysis of results as reported under IFRS. See "Additional Information" on page 36 for definitions and reconciliations to the closest respective equivalent GAAP measure.

Review of Operations

Ashfield

1 Net revenue represents reported revenue adjusted for revenue associated with pass-through costs, for which the Group does not earn a margin. There are no pass-through revenues in Sharp.

2 Underlying growth adjusts for the impact of currency translation movements and any acquisition or disposal activity.

3 Adjusted operating profit is operating profit before amortisation of acquired intangible assets, transaction costs and exceptional items.

Ashfield delivered a strong performance in H1 FY20, driven by good underlying growth and the benefit of acquisitions made in 2019 within Ashfield Communications and Advisory.

Ashfield generated net revenue1 of $410.4 million and adjusted operating profit3 of $58.6 million, 8% and 24% respectively ahead of the same period last year. Adjusting for the impact of currency translation movements and the contribution from acquisitions, underlying2 net revenue growth was flat and underlying operating profit increased by 5%. Ashfield's net operating margin improved from 12.5% to 14.3%.

Ashfield Communications & Advisory, which now represents over 70% of Ashfield's operating profits, performed strongly in the period. Net revenue increased by 30% and operating profit increased by 37%, including the benefit of the FY19 acquisitions of Putnam and Incisive Health. On an underlying basis, net revenue increased by 7% and operating profit increased by 8%.

Ashfield Commercial & Clinical performed in line with previously communicated expectations. Net revenue declined compared to the same period last year, including the disposal of Ashfield's pharmacovigilance business. Operating profit growth in the period was flat, reflecting the benefits of 2019 restructuring completed primarily within the European business.

As demonstrated during H1 FY20, Ashfield continues to perform strongly, delivering on its strategy to diversify and expand its service offering, demonstrate increasing collaboration across the division and execute strategic acquisitions to complement existing business capabilities. Ashfield remains well positioned for continued underlying growth in line with the Group's medium-term outlook, although we anticipate some parts of the business will be impacted in the near term by the outbreak of COVID-19 as detailed above.

Sharp

1 Underlying growth adjusts for the impact of currency translation movements and any acquisition or disposal activity.

2 Adjusted operating profit is operating profit before amortisation of acquired intangible assets, transaction costs and exceptional items.

Sharp delivered a very strong performance during the period, generating revenue of $185.8 million and adjusted operating profit2 of $22.7 million, 12% and 25% respectively ahead of the same period last year. Sharp's operating margin improved from 11.0% to 12.2%.

Sharp's very strong performance was driven by increasing demand for the packaging of serialised specialty and biotech products, which was a trend in FY19 and continued in H1 FY20. Sharp is well positioned to serve this continued increase in demand following additional operating investments made in people and capacity during 2019. Demand for Sharp's traditional packaging services also continues to remain strong.

In May 2020, Sharp completed the acquisition of a packaging facility for approximately $5 million close to its existing campus in Allentown, Pennsylvania, which will provide incremental capacity to the U.S. commercial packaging business. This investment positions Sharp favourably to meet the increasing demand from new and existing clients across all packaging formats.

Sharp continues to experience strong demand, with a robust pipeline of new business. Due to the implementation of additional health and safety measures, along with workforce availability, as a result of the COVID-19 outbreak, the business is experiencing temporary disruption to production schedules and capacity which is expected to reduce efficiency and output in the near term. Actions to mitigate these impacts are being implemented. As a consequence, workforce availability is sequentially improving, while the impact of social distancing measures is being addressed through increased automation.

Beyond the impacts of COVID-19, Sharp's strong pipeline of business, its robust market position and recently added additional capacity, leave it well placed to meet client demand and deliver continued strong growth in line with the Group's medium-term outlook.

Analyst presentation

In line with government guidance on social distancing, the company has decided not to proceed with a physical results presentation. Instead management will host a live audio webcast and conference call at 8.30am BST today, Tuesday, 19 May 2020. If you wish to dial-in the details are below:

Conference call registration link: https://secure.emincote.com/client/udghealthcare/udg003/vip_connect 

Webcast registration link: https://secure.emincote.com/client/udghealthcare/udg003 

It is suggested participants dial-in at least 15 minutes prior to the start time in order to ensure a timely start to the briefing. Please note that questions will only be taken from the conference call.

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

For further information, please contact:

Investors and Analysts:

Keith Byrne

SVP, IR, Strategy & Corporate Communications

UDG Healthcare plc

Tel: + 353-1-468-9000

Business / Financial media:

Lisa Kavanagh / Jack Hickey

Powerscourt

Tel: + 44-207-250-1446

About UDG Healthcare plc

UDG Healthcare plc (LON: UDG) is a leading international partner of choice delivering advisory, communication, commercial, clinical and packaging services to the healthcare industry, employing 9,000 people with operations in 26 countries and delivering services in over 50 countries.

UDG Healthcare plc operates across two divisions: Ashfield and Sharp.

Ashfield - Ashfield is a global leader in commercialisation services for the pharmaceutical and healthcare industry, operating across three broad areas of activity: advisory, communications and commercial & clinical services. It focuses on supporting healthcare professionals and patients at all stages of the product life cycle. The division provides field and contact centre sales teams, healthcare communications, patient support, audit, advisory, medical information and event management services to over 300 healthcare companies.

Sharp - Sharp is a global leader in contract commercial packaging and clinical trial packaging services for the pharmaceutical and biotechnology industries, operating from state-of-the-art facilities in the US and Europe.

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.

Forward-looking information

Some statements in this announcement are or may be forward looking statements. In particular, any statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing, anticipated cost savings and synergies and the execution of the Group's strategy, are forward looking statements. They represent expectations for the Group's business, including statements that relate to the Group's future prospects, developments and strategies, and involve risks and uncertainties both general and specific, because they relate to events and depend upon circumstances that will occur in the future. The Group has based these forward looking statements on assumptions regarding present and future strategies of the Group and the environment in which it will operate in the future. However, because they involve known and unknown risks, uncertainties and other factors including but not limited to general economic, political, financial, health, security and business factors, as well as international, national and local conditions which are beyond the Group's control, actual results, performance, operations or achievements expressed or implied by such forward looking statements may differ materially from those expressed or implied by such forward looking statements and accordingly you should not rely on these forward looking statements in making investment decisions. Any forward looking statements speak only as of the date they are made and, except as required by applicable law or regulation, neither the Group nor any other party intends to update or revise these forward-looking statements after the date these statements are published, whether as a result of new information, future events or otherwise. Nothing in this document should be construed as a profit forecast. UDG Healthcare plc and its directors accept no liability to third parties.

Finance Review

Revenue

Revenue of $693.6 million for the period is 6% ahead of 2019 (6% on a constant currency basis). Ashfield revenue increased by 3% and Sharp revenue increased by 12%. Group underlying net revenue increased by 4%, excluding the impact of foreign exchange, acquisitions and disposals.

Adjusted operating profit

Adjusted operating profit of $81.3 million is 24% ahead of 2019 (24% on a constant currency basis).

Adjusted net operating margin

The adjusted net operating margin for the businesses for the period is 13.6%, ahead of 12.0% in 2019.

Adjusted profit before tax

Net interest costs for the period of $6.3 million are higher than 2019, primarily due to the Group's adoption of IFRS 16 Leases on 1 October 2019. Interest income was also impacted by lower interest income on US cash deposits. This delivered an adjusted profit before tax of $75.0 million.

Taxation

The effective taxation rate has increased from 17.8% in 2019 to 21.0% in 2020, due to an increase in the proportion of profit earned in the U.S.

Adjusted diluted earnings per share

Adjusted diluted earnings per share ('EPS') is 16% ahead (16% on a constant currency basis) of 2019 at 23.64 $ cent.

Exceptional items

The Group incurred an exceptional gain of $9.6 million after tax in the period.

During the period, Ashfield disposed of Ashfield Pharmacovigilance, a U.S. based subsidiary that provides safety and risk management services supporting healthcare organisations. The business was not considered core to Ashfield's operations and the disposal resulted in a gain of $5.3 million. The related tax charge was $0.1 million.

In the measurement of the Group's current tax liabilities, there are transactions and calculations, for which the ultimate tax determination can be both complex and uncertain. During the period, the Group recognised a credit of $4.4 million on the remeasurement of current tax liabilities as a consequence of the resolution of a historic uncertain tax position.

Foreign exchange

The Group operates in 26 countries, with its primary foreign exchange exposure being the translation of local income statements and balance sheets into U.S. dollar for Group reporting purposes. The retranslation of non-U.S. dollar profits to U.S. dollar has not resulted in a change to the reported adjusted diluted EPS growth of 16%.

The average H1 FY20 exchange rates were $1: £0.7797 and $1: €0.9051 (2019: $1: £0.7725 and $1: €0.8783).

1 See "Additional Information" on page 36 for more information and reconciliations to the closest respective equivalent GAAP measures.

Cash flow

The table displayed below includes information for the periods ended 31 March 2020 and 2019.

Net cash inflow from operating activities

The net cash inflow from operating activities is $97.5 million (2019: $63.5 million).

Adjusted EBITDA in the first half of 2020 benefited from the inclusion of $8.9 million due to the adoption of IFRS 16 Leases on 1 October 2019. Income taxes paid increased mainly due to changes in payment dates under UK legislation, along with increased profitability. Working capital decreased by $20.3 million (2019: $2.1 million decrease). The decrease in working capital is principally due to the timing of client prepayments and strong cash collection in the period. Other cash outflows of $6.6 million relates to transaction costs paid of $0.9 million and exceptional items outflow of $5.7 million relating to the 2019 exceptional charge (2019 cash flows of $8.1 million relate to transaction costs paid of $0.7 million and exceptional items outflow of $7.4 million).

Net cash outflow from investing activities

Net cash outflow from investing activities is $43.2 million, compared to $43.7 million in 2019. During the period, $19.3 million was invested in property, plant and equipment, primarily for Sharp's U.S. operations. Acquisition activity in the period resulted in net cash payments of $21.8 million, and deferred and contingent consideration outflows of $8.9 million. The Group received net cash of $9.9 million following the disposal of Ashfield Pharmacovigilance in the period.

Net cash outflow from financing activities

Net cash outflow from financing activities increased by $10.5 million to $38.8 million in the period, principally due to the Group's adoption of IFRS 16 Leases during the period. The impact of adoption includes $7.9 million of capital lease payments within financing activities.

Balance sheet

Net debt at the end of the period is $58.2 million ($151.1 million cash and $209.3 million debt). Including lease liabilities, net debt at the end of the period is $157.1 million. The net debt to annualised EBITDA ratio is 0.3 times debt (2019: 0.3 times) and net interest is covered 27.2 times (2019: 24.1 times) by annualised EBITDA. Financial covenants in our principal debt facilities exclude lease liabilities under IFRS 16 and 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 Group's ROCE is 14.1% up from 12.2% at 31 March 2019. Details of this calculation are on page 38.

Dividends

During the period, the final dividend for 2019 (12.34 $ cent per share) was paid, giving rise to a reduction in shareholders' funds of $30,887,000. Having regard for all stakeholders' interests and the wider societal challenges, the Board have taken the decision to suspend an interim dividend.

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, for example, communicating to healthcare professionals, pharmaceutical packaging and the distribution of pharmaceutical products for use in 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 Financing Committee and the Chairman of that committee reports to the Board on the outcome of each review.

Information on the Group's approach to the COVID-19 pandemic is found in the "COVID-19 update and outlook" section above. The Group is closely monitoring the spread of COVID-19 and its known and potential impacts on our divisions and business units. Given the continued impact of COVID-19 within jurisdictions where the Group operates, 'Pandemic risk' has also been identified as a principal risk and uncertainty.

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 2020

(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

1The Company issued 723,775 ordinary shares in the period as a part settlement of the deferred consideration for the acquisition of STEM Marketing which the Group acquired in the year ended 30 September 2017.

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 2020, 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 2019 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 and basis of preparation

Basis of preparation

These unaudited condensed consolidated interim financial statements ("the interim accounts") for the six months ended 31 March 2020 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 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, income tax expense, employee benefit obligations, share-based payments and valuation of provisions. 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. Changes to key estimates and judgements in the six month period include: updates on the review of goodwill for impairment (Note 10); a change to certain actuarial assumptions (Note 16); and key judgments on the adoption of IFRS 16 Leases (Note 21). The income tax expense for the six month period is calculated by applying the directors' best estimate of the effective tax rate applicable to the profit for the period.

The Group has assessed the principal risks and uncertainties outlined on page 9, including the COVID-19 pandemic and the impact it is having on economic activity. The Group is actively monitoring the impact of COVID-19 and adopting cost control measures to mitigate against the potential future impact of weaker demand in some of our businesses. These measures have included: the reduction of appropriate variable costs; tight control of discretionary expenditure; a recruitment freeze; a pay reduction for Executive Management and the Board; and a temporary reduction in labour including reduced working hours and furloughing employees. There are also a number of COVID-19 government support schemes that are available to the Group in the jurisdictions where operations are located.

The financial impact of COVID-19 is not quantifiable due to the uncertainty over the length of time that the health crisis and related restrictions will continue to exist. The Group has modelled a number of scenarios including where the restrictions imposed as a result of the pandemic and the downturn in economic activity continues for the period to the end of September 2020. Further possible downside risk has been incorporated into forecasts through a widening of sensitivities.

In the scenarios modelled, the Group continues to have significant liquidity headroom on its existing financing facilities. At 31 March, the Group has

· unrestricted cash and cash equivalents of $151.1 million;

· unused committed debt facilities of up to $230 million from a multi-currency revolving senior bank credit facility expiring in May 2025; and

· bank overdraft facilities of $5.5 million renewable on an annual basis.

The Group has a low gearing with a net debt of $58.2m and net debt to annualised EBITDA ratio of 0.3, excluding IFRS 16 lease liabilities. The next debt repayment of approximately $58 million is due in September 2020, and there are no material debt maturities thereafter until September 2023.

Having considered the Group's forecasts, sensitivity analysis and the Group's significant financial headroom, 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.

Accounting policies

The accounting policies applied in the interim accounts are the same as those applied in the 2019 Annual Report, except for the adoption of new standards, interpretations and standard amendments effective for the Group for the period commencing 1 October 2019. The Group has had to change its accounting policies as a result of adopting IFRS 16 Leases. Details on the impact of adoption of new accounting standards and interpretations are outlined in Note 21.

3. Segmental analysis

The Group's operations are divided into the following operating segments each of which operates in a distinct sector of the healthcare services market:

Ashfield - Ashfield is a global leader in commercialisation services for the pharmaceutical and healthcare industry, operating across three broad areas of activity: advisory, communications and commercial & clinical services. It focuses on supporting healthcare professionals and patients at all stages of the product life cycle. The division provides field and contact centre sales teams, healthcare communications, patient support, audit, advisory, medical information and event management services to over 300 healthcare companies.

Sharp - Sharp is a global leader in contract commercial packaging and clinical trial packaging services for the pharmaceutical and biotechnology industries, operating from state-of-the-art facilities in the US and Europe.

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:

Revenue is recognised when a customer obtains control of a good or service and therefore has the ability to direct the use and obtain the benefits from the good or service. Revenue is recognised over time where i) there is a continuous transfer of control to the customer; or ii) there is no alternative use for any asset created and there is an enforceable right to payment for performance completed to date. Other revenue contracts are recognised at a point in time when control of the good or service transfers to the customer.

4. Share of joint ventures' profit/(loss) after tax

5. Exceptional items

Exceptional items are those which, in management's judgement, should be disclosed separately by virtue of their nature or amount. Such items are included within the Income Statement caption to which they relate and are separately disclosed in the notes to the Group Interim Financial Statements. The Group realised an exceptional gain of $9.6 million after tax in the period.

The Group reports the following exceptional items:

In January 2020, Ashfield disposed of Ashfield Pharmacovigilance, a U.S. based subsidiary that provides safety and risk management services supporting healthcare organisations. The business was not considered core to Ashfield's operations. As further outlined in note 6, the disposal resulted in a gain of $5.3 million. The related tax charge was $0.1 million.

In the measurement of the Group's current tax liabilities, there are transactions and calculations, for which the ultimate tax determination can be both complex and uncertain. During the period, the Group recognised a credit of $4.4 million on the remeasurement of current tax liabilities as a consequence of the resolution of a historic uncertain tax position.

In the prior period, the Group recognised $15.0 million of an exceptional charge after tax primarily relating to the settlement of a claim relating to the Group's disposal of United Drug in 2016 and other legal costs relating to protecting an Ashfield trademark.

6. Disposal of subsidiaries

On 10 January 2020 the Group completed the disposal of Ashfield Pharmacovigilance, which was part of the Ashfield operating segment, based in the U.S. The following tables summarise the consideration received, profit on disposal and the net cash flow arising on the disposal:

The cash inflow from disposal of subsidiaries is presented within cash flows from investing activities in the Group Cash Flow Statement. The net gain on disposal is presented as an exceptional item (Note 5) within other operating income.

7. Finance income and expense

8. Earnings per ordinary share