TIDMUDG
RNS Number : 7908O
UDG Healthcare Public Limited Co.
22 May 2018
UDG Healthcare plc
Interim Report 2018
UDG Healthcare plc ("UDG Healthcare" or "Group"), a leading
international healthcare services provider, announces its results
for the six months to 31 March 2018, after a period of strong EPS
growth.
Financial Results - six months to 31 March 2018
Constant
currency
Increase Increase
IFRS Adjustments(1) Adjusted(1) on 2017 on 2017
based
$'m $'m $'m % %
Continuing operations
Revenue 675.3 - 675.3 17 11
Net revenue(2) 568.7 - 568.7 17 11
Operating profit 2.4 65.0 67.4 15 11
Profit before tax 1.7 61.5 63.2 19 16
Diluted earnings
per share ("EPS")
(cent) 0.44 19.75 20.19 24 21
Dividend per share
(cent) 4.25 - 4.25 19 19
----------------------- -------- ----------------- -------------- ----------- -----------
31 30 31 March
March September 2017
2018 2017
Net (debt)/cash ($'m) (46.6) (53.3) 91.1
Net (debt)/cash/annualised
EBITDA (times) (0.28) (0.32) 0.61
---------------------------- ------- ----------- ---------------------------
Non-IFRS information
The Group reports certain 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. The Group believes that the
presentation of these non-IFRS measurements provides useful
supplemental information which, when viewed in conjunction with our
IFRS financial information, provides investors with a more
meaningful understanding of the underlying financial and operating
performance of the Group and its divisions. These measurements are
also used internally to evaluate the historical and planned future
performance of the Group's operations and to measure executive
management's performance based remuneration. Reference to these
performance measurements throughout this report are to the adjusted
measurements unless otherwise stated and these adjusted
measurements are explained on pages 33-36.
(1) Adjusted operating profit, profit before tax and diluted EPS
are stated before the amortisation of acquired intangible assets
($15.2m, pre-tax), transaction costs ($1.0m, pre-tax) and
exceptional charges primarily relating to Aquilant (operating
charge $48.7m, pre-tax $45.2m and post-tax $36.6m).
(2) Net revenue represents gross revenue adjusted for revenue
associated with pass-through costs, for which the Group does not
earn a margin.
Results highlights
-- Adjusted diluted earnings per share(1) (EPS) increased by 24%
(21% on a constant currency basis).
-- Guidance reiterated for FY18 constant currency adjusted
EPS(1) growth of between 18% and 21% over last year's EPS of 37.1 $
cent.
-- Net revenue growth of 17% (11% on a constant currency basis) to $568.7 million.
-- Adjusted operating profit(1) growth of 15% (11% on a constant
currency basis) to $67.4 million. Adjusted net operating margin(2)
declined marginally from 12.0% to 11.8%.
-- Adjusted profit before tax(1) up 19% (16% on a constant currency basis).
-- Ashfield's operating profit(1) increased by 25% (18% on a
constant currency basis) driven by the benefit of acquisitions
completed in FY17. Ashfield would have generated 6% underlying
operating profit growth during the period if the impact of Future
Fit was excluded.
-- Sharp's operating profit was 2% behind the prior period. A
good second quarter trading performance did not fully offset a weak
first quarter.
-- Net debt of $46.6 million at 31 March 2018 (0.28 times net
debt to EBITDA), providing significant capacity to execute
strategic acquisitions.
-- 19% increase in interim dividend to 4.25 $ cent per share.
Chief Executive's comment
Commenting on the performance, Chief Executive Officer, Brendan
McAtamney said:
"The first half of 2018 was another period of strong growth for
the Group, primarily driven by acquisitions and favourable tax
changes, with adjusted diluted EPS increasing by 24% (21% on a
constant currency basis).
We are pleased to reiterate our guidance for FY18 constant
currency adjusted diluted EPS growth of between 18% and 21% over
last year's EPS.
We remain confident that our strong market positions and the
growing trend in the healthcare industry to outsource specialist
activities on an international basis, leaves UDG well positioned
for growth in FY18 and beyond."
(1) Before the amortisation of acquired intangible assets,
transaction costs and exceptional items.
(2) Operating margin as a percentage of net revenue. Net revenue
represents gross revenue adjusted for revenue associated with
pass-through costs, for which the Group does not earn a margin.
Group development and outlook
Management changes
Nigel Clerkin succeeded Alan Ralph as Chief Financial Officer of
the Group on 1 May 2018 and was appointed as an Executive Director
of the Group on 15 May 2018. As previously announced, Alan will
remain with the Group to support this transition until his
retirement in November 2018.
In April 2018, Rob Wood was appointed Global President of
Ashfield Advisory Services & Business Development. In this
role, STEM and Vynamic will report directly to Rob and he will also
have overall responsibility for the business development function
across the Ashfield division. Rob was the majority shareholder in
STEM and joined the Group in October 2016 as part of that
acquisition.
In February 2018, Ashfield announced the appointment of Doug
Burcin as President of Ashfield Healthcare Communications taking
over from Viv Adshead who retired in late 2017. Doug has over 30
years industry experience, most recently as Chief Growth Officer
for Klick Health.
Future Fit
Progress on the Group's investment in scalable infrastructure
across HR, finance and IT (Future Fit) remains on track. The Group
launched Workday (HR system) in April 2017 and the implementation
of Ashfield's new Oracle Fusion finance system will be completed by
the end of the calendar year.
The rollout of the Group's Future Fit initiatives commenced
during the second half of FY17 and resulted in $2.5 million
additional operating costs in that period, primarily in Ashfield.
During the first half of FY18, a further $2.6 million increase in
operating costs was incurred (annualised impact to date of over $5
million). While as expected these costs moderated underlying growth
during the first half of 2018, these investments will ensure the
Group has the right infrastructure to deliver long term sustainable
growth and enable the seamless integration of acquired businesses.
The remaining increase in Future Fit related costs in the second
half of FY18 is expected to be approximately $1.0 million.
US tax changes
There is no change to the Group's assessment of the impact of
the US tax reform legislation, as set out in the Group's First
Quarter Trading Update on 30 January 2018. The headline US federal
corporate tax rate has been reduced from 35% to 21%, effective from
1 January 2018 and as a result:
-- The Group had a one-off gain from a reduction in the Group's
deferred tax liabilities (see below);
-- The effective Group tax rate for FY18 is expected to be 4%
points lower than previously anticipated.
Exceptional items
The Group incurred an exceptional charge during the first half
of FY18 of $36.6 million after tax (full details in note 5 to the
financial statements):
-- A net charge after tax of $49.7 million in relation to the
impairment of goodwill on Aquilant, in part offset by one-off
payments received relating to the exit of two contracts in the
period;
-- A gain of $9.7 million reflecting a one-off benefit from a
reduction in the Group's deferred tax liabilities following the
enactment of the US Tax Cuts and Jobs Act; and
-- Deferred contingent consideration gain of $3.5 million in
respect of Cambridge BioMarketing was released in the current
period following a review of performance against expected earn out
targets.
The total cash inflow net of costs in the period was $13.5
million as per the cash flow statement and the expected total net
cash inflow is $14.5 million.
Outlook
The Group reiterates its full year guidance for constant
currency adjusted diluted earnings per share (EPS) growth for the
year to 30 September 2018 to be between 18% and 21% ahead of last
year's EPS of 37.1 $ cent. This strong expected EPS growth reflects
the contribution from acquisitions, along with lower interest and
taxation expenses.
The average exchange rates during FY17 were $1: GBP0.7891 and
$1: EUR0.9047 and during H1 2018 were $1: GBP0.7357 and $1:
EUR0.8310 (H1 2017 rates were $1: GBP0.8066 and $1: EUR0.9330).
Based on the current prevailing exchange rates, the Group is likely
to have a modest foreign exchange benefit on the translation of
non-US profits in FY18.
The Group expects to continue its 30+ year history of dividend
growth in FY18. The Board has declared an interim dividend of 4.25
$ cent per share, a 19% increase on the 2017 interim dividend.
As at 31 March 2018, the Group's net debt was $46.6 million
(0.28x net debt to EBITDA), leaving it with significant capacity to
execute further strategic acquisitions.
Preliminary Results
The Group will issue preliminary results for the year to 30
September 2018 on Tuesday, 27 November 2018.
Review of Operations
for the six months to 31 March 2018
Ashfield
Six months to 31 March 2018 2017 Actual Underlying
$'m $'m Growth Growth(2)
---------------------------- ------ ------ ------- -----------
Gross revenue
Communications (including
Advisory) 153.4 94.0 63% 8%
Commercial & Clinical 325.5 285.9 14% 4%
Total gross revenue 478.9 379.9 26% 5%
Net revenue(1)
Communications (including
Advisory) 136.7 80.9 69% 11%
Commercial & Clinical 235.6 208.1 13% 1%
Total net revenue 372.3 289.0 29% 4%
Operating profit
Communications (including
Advisory) 28.3 19.1 48% 5%
Commercial & Clinical 17.3 17.3 - (7%)
Total operating profit 45.6 36.4 25% (1%)
Operating margin
Operating margin (on gross
revenue) 9.5% 9.6%
Net operating margin (on
net revenue) 12.3% 12.6%
---------------------------- ------ ------ ------- -----------
(1) Net revenue represents gross revenue adjusted for revenue
associated with pass-through costs, for which the Group does not
earn a margin. There are no pass-through revenues in Sharp or
Aquilant.
(2) Underlying growth adjusts for the impact of currency
translation movements and any acquisition or disposal activity.
Ashfield delivered a strong financial performance in H1 2018,
driven by the benefit of acquisitions completed in FY17. Net
revenue was up 29% to $372.3 million and operating profit was up
25% to $45.6 million.
Adjusting for the positive impact of currency translation
movements and the contribution from acquisitions, Ashfield
generated 4% underlying net revenue growth. As expected, Ashfield
incurred additional Future Fit related operating costs of $2.6
million during the first half of the year which resulted in a
decline of 1% in underlying profits. Without these additional
costs, Ashfield would have generated 6% underlying operating profit
growth during the period.
Net operating margin (allowing for pass-through costs) declined
from 12.6% to 12.3%. The positive margin impact of acquisitions was
offset by the impact of the additional Future Fit operating
costs.
Ashfield Communications (including Advisory), which in H1 2018
accounted for 62% of Ashfield's operating profits, performed
strongly during the period. Net revenue increased by 69% and
operating profit increased by 48%, including the benefit of
acquisitions. Underlying net revenue growth was 11%, with
underlying operating profit growth of 5% (after charging Future Fit
costs) driven by a good performance from STEM.
Ashfield Commercial & Clinical generated net revenue growth
of 13% and underlying net revenue growth of 1% during the period.
Compared to the prior period, operating profit was in line and 7%
behind on an underlying basis. This was due to the impact of
additional Future Fit operating costs and a strong comparative
prior period due to a temporary increase in activity levels from
one client in the US.
In addition to delivering underlying growth, Ashfield remains
focused on executing strategic acquisitions that complement the
existing business. This strategy has enhanced and broadened
Ashfield's capabilities to deliver a full range of end-to-end
advisory, communication, commercial and clinical services to its
clients.
Sharp
Six months to 31 March 2018 2017 Actual Underlying
$'m $'m Growth Growth(1)
------------------------ ------ ------ ------- -----------
Revenue
US 118.6 124.1 (4%) (6%)
Europe 23.9 28.6 (16%) (26%)
Total revenue 142.5 152.7 (7%) (10%)
Operating profit
US 18.4 19.0 (3%) (4%)
Europe 0.5 0.2 191% 261%
Total operating profit 18.9 19.2 (2%) (2%)
Operating margin % 13.3% 12.6%
------------------------ ------ ------ ------- -----------
(1) Underlying growth adjusts for the impact of currency
translation movements and any acquisition or disposal activity.
Sharp generated revenue of $142.5 million and operating profit
of $18.9 million, 7% and 2% behind the same period last year
respectively. Operating margins increased to 13.3% during the
period.
Sharp US's operating profit was 3% behind the same period last
year. This was driven by higher project churn in the commercial
business during the second half of FY17 which impacted the first
half of FY18. While the performance of Sharp US improved during the
second quarter of FY18, it was not sufficient to negate the impact
of the first quarter of the year.
Sharp Europe's operating profit continued to improve during the
first half of FY18. However, European clinical revenues were behind
the same period last year due to less low margin comparator
sourcing revenues than the prior period. The total European
business expects a continued improvement in revenues and profits
over the coming years, given the committed business development
pipeline.
Sharp's investments across its new facilities in the US and the
UK are progressing well and are expected to be completed by
December 2018. These investments will position the Sharp Clinical
business for future growth, offering clients an integrated clinical
development, packaging and distribution service.
Sharp's investment in its state-of-the-art facilities and
serialisation services favourably positions the business to meet
the ongoing demand from both new and existing clients.
Sharp is expected to deliver double digit underlying operating
profit growth in H2 2018, which is likely to result in mid-single
digit underlying operating profit growth for FY18. While this is
below normal underlying growth rates, the improved pipeline of
business in both the US and Europe leaves Sharp well positioned to
generate strong underlying operating profit growth in FY19.
Aquilant
Six months to 31 March 2018 2017 Actual Underlying
$'m $'m Growth Growth(1)
------------------------- ----- ----- ------- -----------
Revenue 53.9 46.3 17% 5%
Operating profit 2.9 3.2 (11%) (19%)
Operating margin % 5.3% 7.0%
------------------------- ----- ----- ------- -----------
(1) Underlying growth adjusts for the impact of currency
translation movements.
Revenue was 17% ahead of the prior period. Adjusting for
currency translation movements, underlying revenue was 5%
ahead.
Underlying operating profit was 19% behind the same period last
year due to the exit of higher margin contracts with VSI and Link
(for a net consideration of $14.5 million as per exceptional items,
note 5 to the financial statements). The exit from these contracts
will continue to have a negative impact on trading performance
during the second half of FY18.
Analyst presentation
A presentation for investors and analysts will be held at the
London Stock Exchange at 8.30 BST today, Tuesday, 22 May 2018. If
you wish to attend, please contact Powerscourt. Alternatively, to
dial into the conference call or webcast, the details are as
follows:
Audio webcast
https://edge.media-server.com/m6/p/hporn254
Conference call
UK number: +44-330-336-9105
Ireland number: + 353-1-246-5638
US number: +1-929-477-0448
Participant code: 6327399
If you wish to ask questions, please do so via the conference
call.
A replay of the audio webcast can be accessed via the same
webcast link above.
For further information,
please contact:
Investors and Analysts: Keith Byrne
Nigel Clerkin Head of IR, Strategy & Corporate
CFO Communications
UDG Healthcare plc UDG Healthcare plc
Tel: + 353-1-468-9000 Tel: + 353-1-468-9000
Business / Financial media:
Lisa Kavanagh / Isabelle
Saber / Sam Austrums
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 24 countries and delivering services in
over 50 countries.
UDG Healthcare plc operates across three divisions: Ashfield,
Sharp and Aquilant.
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.
Aquilant - Aquilant is a leading distributor of specialist
medical and scientific products, providing outsourced sales,
marketing, distribution and engineering services to the medical and
scientific sectors in the UK and Ireland.
The company is listed on the London Stock Exchange and is a
constituent of the FTSE 250.
For more information, please go to: www.udghealthcare.com.
Forward-looking information
Some statements in this announcement are or may be
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. 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 and business
factors, which in some cases 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. 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.
Finance Review
for the six months to 31 March 2018
Revenue
Revenue of $675.3 million for the period was 17% ahead of 2017
(11% on a constant currency basis). Ashfield increased revenue by
26% and Aquilant increased revenue by 17%. Revenue in Sharp
decreased by 7% due to less low margin comparator sourcing revenues
than the prior period.
Adjusted operating profit
Adjusted operating profit of $67.4 million is 15% ahead (11% on
a constant currency basis) of H1 2017.
Adjusted net operating margin
The adjusted net operating margin for the businesses for the
period of 11.8% marginally declined from 12.0% in H1 2017. The
positive margin effect of acquisitions was offset by the impact of
additional Future Fit operating costs.
Adjusted profit before tax
Net interest costs for the period of $4.2 million are 29% lower
than H1 2017, which is as a result of the repayment of guaranteed
senior unsecured notes in September 2017. This delivered a profit
before tax of $63.2 million which is 19% ahead of H1 2017 (16% on a
constant currency basis).
Taxation
The effective taxation rate has decreased from 23.8% in H1 2017
to 20.1% in H1 2018 following the enactment of the US Tax Cuts and
Jobs Act.
Adjusted diluted earnings per share
Adjusted earnings per share (EPS) is 24% ahead (21% on a
constant currency basis) of H1 2017 at 20.19 $ cent. Underlying EPS
increased by 8%, excluding the benefits of acquisitions completed
in 2017 and favourable currency movements.
Exceptional items
The Group incurred an exceptional charge of $36.6 million after
tax in the period.
Goodwill impairment of $57.6 million was recognised in relation
to the Aquilant Group, partially offset by an exceptional gain of
$8.9 million relating to the exit of two Aquilant clients in the
period. A tax charge of $1.0 million was incurred in relation to
these items.
Following the enactment of the US Tax Cuts and Jobs Act, the
Group recognised an exceptional tax gain of $9.7 million in the
income statement arising on the one-off remeasurement of certain US
tax liabilities.
Deferred contingent consideration of $3.5 million after tax in
respect of Cambridge BioMarketing was released in the current
period following a review of earn out targets.
Foreign exchange
The Group operates in 24 countries, with its primary foreign
exchange exposure being the translation of local income statements
and balance sheets into US dollar for Group reporting purposes. The
retranslation of overseas profits to US dollar has increased
constant currency EPS growth of 21% to a reported EPS growth rate
of 24%, which is primarily due to the strength of sterling in the
first six months of 2018 versus the same period in 2017.
The average H1 2018 exchange rates were $1: GBP0.7357 and $1:
EUR0.8310 (2017: $1: GBP0.8066 and $1: EUR0.9330).
Discontinued operations
The Group has classified its joint venture arrangement with
Magir Limited as a discontinued operation and an asset held for
sale. The Group did not recognise an operating profit contribution
from the asset in the period.
Cash flow
Net debt increased by $137.7 million to $46.6 million (31 March
2017: net cash $91.1 million). This was primarily as a result of
2017 acquisition activity. Net debt has decreased by $6.7 million
since 30 September 2017 primarily as a result of exceptional cash
consideration received by Aquilant following the exit of two
clients. The net cash inflow from operating activities was $65.4
million.
$24.7 million was invested in property, plant and equipment and
computer software. This includes IT investment to enable the Group
to grow in an efficient manner and investment in packaging
facilities in all locations. The Group paid $3.2 million in
deferred contingent consideration associated with acquisitions.
Dividend payments of $24.1 million relating to the final 2017
dividend were made during the period.
Balance sheet
Net debt at the end of the period was $46.6 million ($208.8
million cash and $255.4 million debt). The net (debt)/cash to
annualised EBITDA ratio is 0.28 times debt (2017: 0.61 times cash)
and net interest is covered 20.2 times (2017: 13.4 times) by
annualised EBITDA. Financial covenants in our principal debt
facilities are based on net debt to EBITDA being less than 3.5
times and EBITDA interest cover being greater than three times.
Return on capital employed
The ROCE for continuing operations was 12.9%, down from 13.8% at
31 March 2017 and up from 12.8% at 30 September 2017. Details on
how this was calculated are on page 35. ROCE has been impacted by
prior year acquisitions, most of which were acquired in the final
quarter of 2017.
Dividends
The directors are proposing an interim dividend of 4.25 $ cent
per share representing an increase of 19% on the 2017 interim
dividend. The interim dividend is payable to shareholders on the
Company's register at 5.00 pm on 1 June 2018 and will be paid on 26
June 2018.
Investor relations
UDG Healthcare's executive management team spend a significant
amount of time meeting with shareholders and the international
financial community. The Group has invested in dedicated investor
relations resources and is focused on increasing the awareness of
the Company among the investor and analyst community.
The Group communicates regularly with its shareholders
throughout the year, specifically following the release of its
interim and preliminary results, and at the time of major
developments including M&A transactions. The Group's website
www.udghealthcare.com, is the primary method of communication for
the majority of its shareholders. The Group publishes its annual
report, preliminary results and other public announcements on its
website. In addition, details of its conference calls and
presentations are available through our website.
The Board of Directors considers it important to understand the
views of shareholders and receive regular updates on investor
perceptions.
The Group's investor relations department provides a point of
contact for shareholders and full contact details are set out in
the investor relations section of our website. Shareholders can
also submit an information request through the shareholder services
section of our website.
Principal risks and uncertainties
The Transparency (Directive 2004/109/EC) Regulations 2007
require the disclosure of the principal risks and uncertainties
which could have a material impact on the Group's performance over
the remainder of the financial year.
The Group operates within a highly regulated environment and the
expectations of our key stakeholders, which include our clients and
regulators, are very high. Our services include communicating to
healthcare professionals, 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 Finance Committee and the
Chairman of that committee reports to the Board on the outcome of
each review.
The principal risks and uncertainties identified by the risk
management process as facing the Group are detailed below:
Operational
------------------- ------------------------------------ ----------------------------------
Risk Impact Mitigation
------------------- ------------------------------------ ----------------------------------
Value generation Acquisitive growth All potential acquisitions
from acquisitions remains a core element are assessed and evaluated
of the Group's strategy. to ensure the Group's
A failure to execute defined strategic and
and properly integrate financial criteria are
acquisitions may impact met. A discrete integration
the Group's projected process and post integration
revenue growth and review is developed
its ability to capitalise for each acquisition.
on the synergies they This process is supported
bring and/or to maintain by experienced management
and develop the associated with a view to achieving
talent pool. identified benefits,
cultivating talent and
minimising general and
specific integration
risks.
------------------- ------------------------------------ ----------------------------------
Lack of As the Group's activities In individual business
client consolidate and further units where there is
diversification acquisitions are completed, a high dependence on
the Group's client a small number of key
base may become more clients, the threats
concentrated, making and opportunities are
the Group more susceptible reviewed by divisional
to competitive, client management at each business
merger or procurement review. The impact that
led threats. any potential acquisition
may have on client concentration
is considered as part
of the acquisition assessment
process.
------------------- ------------------------------------ ----------------------------------
Regulatory The Group has many Maintenance of legal,
legal and regulatory regulatory and quality
obligations, including standards is a core
in respect of:(a) value of the Group.
protection of patient The Sharp Division and
information (such Ashfield Pharmacovigilance
as HIPAA and GDPR); are subjected to routine
and (b) patient and FDA, EMEA and national
employee health and agency inspections and
safety. In addition, so are required to be
many of the Group's 'audit ready' at all
activities are subject times. A significant
to stringent licensing change in this period
regulations, for example, is the forthcoming requirement
FDA, EMEA and national to comply with the EU
agency manufacturing General Data Protection
and packaging licences. Regulation (GDPR) by
A failure to meet 25 May 2018. In anticipation
any of these could of the introduction
result in regulatory of GDPR, the Group has
restrictions, financial developed a GDPR compliance
penalties, the inability roadmap and is well
to operate, or products on track to achieve
and services being its key objectives under
defective, harming the roadmap. For example,
patients and potentially a Group Data Protection
giving rise to very Officer (DPO) has been
significant liability. appointed and Group-wide
data protection policies
have been implemented.
The DPO has completed
audit and gap analyses,
trained line managers
across the EU, established
online training programs
and implemented a communications
plan across the Group
to reinforce the importance
of data protection throughout
the Group.
------------------- ------------------------------------ ----------------------------------
Patient Throughout the Group Packaging and supply
risk medicines and medical activity is carried
devices can be packaged, out under licence by
supplied or administered local health regulators
directly to patients. and a contract with
The risk of inappropriate the marketing authorisation
packaging, supply holder (MAH). Serialisation
or administration is being introduced
could lead to a negative as a global solution
patient experience. to falsified medicines
and to improve MAH product
traceability. Administration
of medicines to patients
is covered by a detailed
client contract with
the MAH and a divisional
clinical governance
framework. All of these
processes are subject
to risk assessment,
training, management
review and internal
quality audits.
------------------- ------------------------------------ ----------------------------------
Talent The success of the Talent requirements
management Group is built upon of the Group are monitored
effective management to ensure businesses
teams that consistently meet prevailing and
deliver superior performance. future requirements
If the Group cannot in terms of skills,
attract, retain or competencies and performance.
develop suitably qualified, There is a strong focus
experienced and motivated on key talent management
employees, this could practices including
have an impact on leadership and management
business performance. development, succession
planning and performance
management. There has
been a significant investment
in a Group Human Resource
information system which
provides an important
platform to support
our talent management
practices.
------------------- ------------------------------------ ----------------------------------
IT Systems' The ability of the The Group's technology
risk Group to provide its and information systems
services effectively and infrastructure are
and competitively the subject of an ongoing
is dependent on technology programme to ensure
and information systems that they are capable
that are appropriately of meeting the Group's
integrated and that strategic intent and
meet current and anticipated future requirements.
future business, regulatory Collectively this initiative
and security requirements. is referred to as Future
Fit IT.
------------------- ------------------------------------ ----------------------------------
Cyber security The global threat As part of Future Fit
sophistication is IT, the Group is implementing
increasing due to multi-layered information
support from criminal security defences to
organisations and identify vulnerabilities
nation states targeting and protect against
valuable information. attacks. Procedures
These are advanced are being developed
persistent threats and resources are being
targeted at both business-critical hired to detect and
data and using ransomware respond effectively
for financial gain. to any cyber security
events that may occur.
------------------- ------------------------------------ ----------------------------------
Business The Group is exposed The Group has developed
continuity to risks that, should a business continuity
they arise, may give template based on risk
rise to the interruption and is currently re-working
of critical business the operational business
processes that could continuity plans in
adversely impact the line with this. Mitigation
Group or its clients. strategies and continuity
plans are part of a
structured risk review
process.
------------------- ------------------------------------ ----------------------------------
Contract The underlying terms The Group has adopted
risk of the Group's commercial processes for identifying
relationships drive and mitigating against
the profitability undue risks in all prospective
of the Group. The commercial relationships,
nature of the Group's supported by personnel
business means that with expertise and/or
the Group could be experience in key commercial
exposed to undue cost risk areas.
or liability if it
agrees inappropriate
terms.
------------------- ------------------------------------ ----------------------------------
Brexit The trading uncertainty While there has been
associated with Brexit no indication that the
may result in some UK market for our services
UDG Healthcare clients is contracting as a
reducing the size result of the Brexit
of their UK operations decision, we will continue
or have a negative to monitor the Brexit
impact on our ability negotiations to ensure
to conduct business that specific legislation
profitably in the or agreements do not
UK. have a negative impact
on our ability to conduct
business profitably
in the UK. The overall
Group exposure to the
UK as a proportion of
our total profitability
is expected to decline
as we acquire businesses
with greater exposure
to markets other than
the UK.
------------------- ------------------------------------ ----------------------------------
Economic The global macroeconomic The Group continues
and political and geopolitical environment to review its portfolio
risk may have a detrimental of investments through
impact on our client the annual strategic
base and their propensity review process and through
to purchase services constant challenge at
from third party suppliers. a Senior Executive and
As a result, we may Board level. Acquisitions
be overly exposed are sought which improve
to a weakening segment the balance of our investments
of the market. and give greater exposure
to innovative and growing
market segments.
------------------- ------------------------------------ ----------------------------------
Financial
------------------- ------------------------------------ ----------------------------------
Controls The Group's resources The financial controls
and finances must of the Group, as well
be managed in accordance as their effectiveness,
with rigorous standards are monitored by the
and stringent controls. Board in the context
A failure to meet of the standards to
those standards or which the Group is subject
implement appropriate and the expectations
controls may result of its stakeholders.
in the Group's resources This monitoring is supported
being improperly utilised by a dedicated internal
or its financial statements audit function. The
being inaccurate or Group's financial function,
misleading. systems and controls
are also subject to
periodic review to ensure
that they remain robust
and fit for purpose.
------------------- ------------------------------------ ----------------------------------
Liquidity The Group is exposed The management of the
to liquidity, interest financial risks facing
rate, currency and the Group is governed
credit risks. by policies reviewed
and approved by the
Board. These policies
primarily cover liquidity
risk, interest rate
risk, currency risk
and credit risk. The
primary objective of
the Group's policies
is to minimise financial
risk at a reasonable
cost. The Group does
not trade in financial
instruments.
------------------- ------------------------------------ ----------------------------------
Foreign UDG Healthcare plc's The majority of the
exchange reporting currency Group's activities are
is the US Dollar. conducted in the local
Given the nature of currency of the country
the Group's businesses, of operation. As a consequence,
exposure arises in the primary foreign
the normal course exchange risk arises
of business to other from the fluctuating
currencies, principally value of the Group's
sterling and the euro. net investment in different
currencies. The Group
changed its reporting
currency to US Dollars
in FY17 as the US is
now the largest source
of profit for the Group.
Our strategic intent
is to proportionally
grow the US as a source
of earnings at a faster
rate than other markets
which will lower the
foreign exchange risk
for the Group.
------------------- ------------------------------------ ----------------------------------
Statement of Directors
in respect of the half-yearly financial report
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)
P. Gray B. McAtamney
Director Director
21 May 2018
(i) The Board of UDG Healthcare plc is disclosed on the Company's website, www.udghealthcare.com.
Condensed consolidated income statement
for the six months ended 31 March 2018
Six months ended
31 March 2018
--------------------------------------------------------------
Pre- Exceptional Six months
items ended
(Unaudited)
exceptional (note 31 March
5) 2017
(Unaudited)
items $'000 Total $'000
(Unaudited) 31 March
2018
(Unaudited)
Notes $'000 $'000
Continuing operations
Revenue 3 675,307 - 675,307 578,860
Cost of Sales (484,866) - (484,866) (412,843)
-------------------------- ------- -------------- -------------- ------------------------------ ---------------
Gross profit 190,441 - 190,441 166,017
Selling and distribution
expenses (111,303) - (111,303) (96,137)
Administration expenses (9,305) - (9,305) (10,245)
Other operating expenses (17,853) (57,648) (75,501) (11,543)
Other operating income - 8,945 8,945 -
Transaction costs (974) - (974) (1,752)
Share of joint ventures'
profit after tax 4 137 - 137 439
Operating profit 51,143 (48,703) 2,440 46,779
Finance income 6 10,053 3,469 13,522 11,916
Finance expense 6 (14,215) - (14,215) (17,779)
-------------------------- ------- -------------- -------------- ------------------------------ ---------------
Profit before tax 46,981 (45,234) 1,747 40,916
Income tax expense (9,263) 8,683 (580) (9,857)
Profit for the financial
period 37,718 (36,551) 1,167 31,059
-------------------------- ------- -------------- -------------- ------------------------------ ---------------
Profit attributable
to:
Owners of the parent 37,642 (36,551) 1,091 31,059
Non-controlling interest 76 - 76 -
37,718 (36,551) 1,167 31,059
Earnings per ordinary
share:
Basic earnings per share
- cent 8 0.44 12.54
Diluted earnings per
share
- cent 8 0.44 12.51
Condensed consolidated statement of
comprehensive income
for the six months ended 31 March 2018
Six months
ended
31 March 2018
Notes (Unaudited)
$'000
Profit for the financial
period 1,167
Six months
ended
31 March 2017
(Unaudited)
$'000
31,059
Other comprehensive income/(expense):
Items that will not be
reclassified to profit
or loss:
Remeasurement (loss)/gain
on Group defined benefit
schemes 15 (1,845) 9,774
Deferred tax on Group defined
benefit schemes
- Pre-exceptional item (50) (572)
- Exceptional item 5 408 -
--------- -------------
358 (572)
--------------------------------------- ------- --------- -------- ------------- -----------
(1,487) 9,202
--------------------------------------- ------- --------- -------- ------------- -----------
Items that may be reclassified
subsequently to profit
or loss:
Foreign currency translation
adjustment 11 19,364 (15,192)
Group cash flow hedges:
- Effective portion of
cash flow hedges - movement
into reserve (11,959) 9,539
- Effective portion of
cash flow hedges - movement
out of reserve 8,095 (10,132)
--------- --------------------
Effective portion of cash
flow hedges 11 (3,864) (593)
- Movement in deferred
tax - movement into reserve 1,495 (1,192)
- Movement in deferred
tax - movement out of reserve (1,012) 1,266
--------- --------------------
Net movement in deferred
tax 11 483 74
--------------------------------------- ------- --------- -------- ------------- -----------
15,983 (15,711)
--------------------------------------- ------- --------- -------- ------------- -----------
Other comprehensive income/(expense)
for the period, net of
tax 14,496 (6,509)
--------------------------------------- ------- --------- -------- ------------- -----------
Total comprehensive income
for the period 15,663 24,550
--------------------------------------- ------- --------- -------- ------------- -----------
Total comprehensive income
attributable to:
Owners of the parent 15,587 24,550
Non-controlling interest 76 -
--------------------------------------- ------- --------- -------- ------------- -----------
15,663 24,550
--------------------------------------- ------- --------- -------- ------------- -----------
Condensed consolidated statement of changes in
equity
for the six months ended 31 March 2018
Equity Other Attributable Non-
share Share Retained reserves to owners controlling Total
capital premium earnings (note of the interest equity
11) parent
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 October 2017 14,620 196,496 836,087 (166,656) 880,547 109 880,656
Profit for the
financial period - - 1,091 - 1,091 76 1,167
Other comprehensive
income/(expense):
Effective portion
of cash flow hedges - - - (3,864) (3,864) - (3,864)
Deferred tax on
cash flow hedges - - - 483 483 - 483
Translation adjustment - - - 19,364 19,364 - 19,364
Remeasurement
loss on defined
benefit schemes - - (1,845) - (1,845) - (1,845)
Deferred tax on
defined benefit
schemes - - 358 - 358 - 358
Total comprehensive
income/(expense)
for the period - - (396) 15,983 15,587 76 15,663
Transactions with
shareholders:
New shares issued 16 763 - - 779 - 779
Share-based payment
expense - - - 2,563 2,563 - 2,563
Dividends paid
to equity holders - - (24,137) - (24,137) - (24,137)
Release from share-based
payment reserve - - 581 (581) - - -
At 31 March 2018
- unaudited 14,636 197,259 812,135 (148,691) 875,339 185 875,524
-------------------------- --------- -------- ---------- ---------- --------------- ------------ ----------
for the six months ended 31 March 2017
Equity Other
share Share Retained reserves Total
capital premium earnings (note 11) equity
$'000 $'000 $'000 $'000 $'000
At 1 October 2016 14,535 187,355 784,432 (179,446) 806,876
Profit for the financial period - - 31,059 - 31,059
Other comprehensive income/(expense):
Effective portion of cash flow hedges - - - (593) (593)
Deferred tax on cash flow hedges - - - 74 74
Translation adjustment - - - (15,192) (15,192)
Remeasurement gain on defined benefit schemes - - 9,774 - 9,774
Deferred tax on defined benefit schemes - - (572) - (572)
Total comprehensive income/(expense) for the period - - 40,261 (15,711) 24,550
Transactions with shareholders:
New shares issued 41 2,739 - - 2,780
Issued in business combination 39 6,012 - - 6,051
Share-based payment expense - - - 1,699 1,699
Dividends paid to equity holders - - (22,388) - (22,388)
Release from share-based payment reserve - - 548 (548) -
At 31 March 2017 - unaudited 14,615 196,106 802,853 (194,006) 819,568
----------------------------------------------------- --------- -------- --------- ---------- ---------
Condensed consolidated balance sheet
as at 31 March 2018
As at 31 March As at 31 March
2018 2017 As at 30 September 2017
(Unaudited) (Unaudited) (Audited)
Notes $'000 $'000 $'000
ASSETS
Non-current
Property, plant and equipment 9 172,430 141,142 168,403
Goodwill 10 501,028 428,855 542,554
Intangible assets 10 226,451 161,426 227,617
Investment in joint ventures and associates 10 9,474 8,729 8,838
Derivative financial instruments 12 - 19,602 1,302
Deferred income tax assets 5,519 3,279 4,025
Employee benefits 15 11,596 13,613 12,379
Total non-current assets 926,498 776,646 965,118
--------------------------------------------- ------ --------------- ----------------- --------------------------
Current
Inventories 51,354 53,188 55,060
Trade and other receivables 324,978 252,121 307,388
Cash and cash equivalents 12 208,836 365,465 187,469
Current income tax assets 705 1,658 2,464
Derivative financial instruments 12 2,104 11,631 2,450
Total current assets 587,977 684,063 554,831
--------------------------------------------- ------ --------------- ----------------- --------------------------
Total assets 1,514,475 1,460,709 1,519,949
--------------------------------------------- ------ --------------- ----------------- --------------------------
EQUITY
Equity share capital 14,636 14,615 14,620
Share premium 197,259 196,106 196,496
Other reserves 11 (148,691) (194,006) (166,656)
Retained earnings 812,135 802,853 836,087
--------------------------------------------- ------ --------------- ----------------- --------------------------
Equity attributable to owners of the parent 875,339 819,568 880,547
Non-controlling interest 185 - 109
Total equity 875,524 819,568 880,656
--------------------------------------------- ------ --------------- ----------------- --------------------------
LIABILITIES
Non-current
Interest-bearing loans and borrowings 12 245,467 240,635 244,077
Provisions 13 35,372 37,111 58,470
Employee benefits 15 5,728 3,855 3,162
Deferred income tax liabilities 45,787 39,751 54,279
Derivative financial instruments 12 11,761 - 352
Total non-current liabilities 344,115 321,352 360,340
--------------------------------------------- ------ --------------- ----------------- --------------------------
Current
Interest-bearing loans and borrowings 12 309 64,977 58
Trade and other payables 242,851 222,809 248,145
Current income tax liabilities 19,067 14,152 16,845
Provisions 13 32,609 17,851 13,905
Total current liabilities 294,836 319,789 278,953
--------------------------------------------- ------ --------------- ----------------- --------------------------
Total liabilities 638,951 641,141 639,293
--------------------------------------------- ------ --------------- ----------------- --------------------------
Total equity and liabilities 1,514,475 1,460,709 1,519,949
--------------------------------------------- ------ --------------- ----------------- --------------------------
Condensed consolidated cash flow statement
for the six months ended 31 March 2018
Six months Six months
ended
ended 31 March
2017
31 March (Unaudited)
2018
(Unaudited)
$'000 $'000
Cash flows from operating activities
Profit before tax 1,747 40,916
Finance income (10,053) (11,916)
Finance expense 14,215 17,779
Exceptional items 45,234 -
----------------------------------------------- --------------------- --------------
Operating profit 51,143 46,779
Share of joint ventures' profit after
tax (137) (439)
Depreciation charge 12,028 9,928
(Profit)/loss on disposal of property,
plant and equipment (274) 35
Amortisation of intangible assets 17,853 11,543
Share-based payment expense 2,563 1,699
(Increase)/decrease in inventories (150) 670
Increase in trade and other receivables (7,869) (8,578)
(Decrease)/increase in trade payables,
provisions and other payables (11,463) 8,106
Exceptional items received/(paid) 13,493 (156)
Interest paid (4,506) (4,937)
Income taxes paid (7,314) (5,519)
----------------------------------------------- --------------------- --------------
Net cash inflow from operating activities 65,367 59,131
----------------------------------------------- --------------------- --------------
Cash flows from investing activities
Interest received 554 331
Purchase of property, plant and equipment (14,692) (16,020)
Proceeds from disposal of property,
plant and equipment 889 18
Investment in intangible assets -
computer software (9,985) (11,522)
Acquisition of subsidiaries (net
of cash and cash equivalents acquired) - (59,889)
Deferred contingent acquisition consideration
paid (3,210) (223)
----------------------------------------------- --------------------- --------------
Net cash outflow from investing activities (26,444) (87,305)
----------------------------------------------- --------------------- --------------
Cash flows from financing activities
Proceeds from issue of shares (including
share premium thereon) 779 2,780
Repayments of interest-bearing loans
and borrowings (276) -
Proceeds from interest-bearing loans
and borrowings 604 -
Decrease in finance leases (66) (57)
Dividends paid to equity holders
of the Company (24,137) (22,388)
----------------------------------------------- --------------------- --------------
Net cash outflow from financing activities (23,096) (19,665)
----------------------------------------------- --------------------- --------------
Net increase/(decrease) in cash and
cash equivalents 15,827 (47,839)
Translation adjustment 5,540 (15,425)
Cash and cash equivalents at beginning
of period 187,469 428,729
----------------------------------------------- --------------------- --------------
Cash and cash equivalents at end
of period 208,836 365,465
----------------------------------------------- --------------------- --------------
Cash and cash equivalents is comprised
of:
Cash at bank and earn deposits 208,836 365,465
----------------------------------------------- --------------------- --------------
Notes to the condensed interim financial statements
for the six months ended 31 March 2018
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 2018,
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 2017 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
These unaudited condensed consolidated interim financial
statements ("the interim accounts") for the six months ended 31
March 2018 have been prepared in accordance with IAS 34, Interim
Financial Reporting, as endorsed by the European Union. These
interim accounts do not include all of the information required for
full annual financial statements and should be read in conjunction
with the most recent published consolidated financial statements of
the Group. The accounting policies applied in the interim accounts
are the same as those applied in the 2017 Annual Report.
The Group has adopted the following standards and
interpretations during the period but these did not have a material
effect on the results or the financial position of the Group:
* Amendments to IAS 7: Disclosure Initiative
* Amendment to IAS 12: Recognition of deferred tax
assets for unrealised losses
* Annual Improvements to IFRSs 2014-2016 Cycle
The preparation of interim financial statements requires the use
of certain critical accounting estimates, judgements and
assumptions. The areas involving a high degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the financial statements, relate primarily to
goodwill impairment testing, revenue recognition, valuation and
ownership of inventory, recoverability of trade receivables and
valuation of provisions. The nature of the assumptions and
estimates made in the preparation of the interim accounts are the
same as those identified in our most recent annual report. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. There
was no significant change to any of these key estimates or
judgements in the six month period, other than a change to certain
actuarial assumptions as set out in note 15.
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 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.
A number of new standards and amendments to standards and
interpretations are effective for annual reporting periods
beginning after 1 October 2017, and have not been applied in
preparing these financial statements. These standards and
amendments have not been early adopted and they do not have an
effect on the financial information contained in these interim
accounts. They will be more fully discussed in our annual report
for 2018. Those standards which are most relevant for the Group
are:
(i) IFRS 9 Financial Instruments (EU Endorsed)
IFRS 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and financial
liabilities, introduces new rules for hedge accounting and a new
impairment model for financial assets. The standard will replace
IAS 39 Financial Instruments: Recognition and Measurement. The
standard became mandatory on 1 January 2018 and becomes effective
for the Group for the financial year commencing on 1 October 2018.
The Group is currently assessing the effects of applying IFRS 9 and
while our assessment of the effects of applying the new standard is
ongoing, we do not expect a material impact on the financial
statements.
(ii) IFRS 15 Revenue from Contracts with Customers (EU
Endorsed)
IFRS 15 Revenue from Contracts with Customers is a new standard
for the recognition of revenue. It will replace IAS 18 Revenue, IAS
11 Construction Contracts and related interpretations. The new
standard is based on the principle that revenue is recognised when
control of a good or service transfers to a customer. It contains
the principles for the recognition, timing and measurement of
revenue. The standard will also require enhanced disclosures in
financial statements and interim reports. The Group is currently in
the process of assessing the impact of the standard. During the six
months period to March 2018, an IFRS 15 project team was set up,
training was delivered across the Group, external advisors to
assist with the implementation were appointed and a detailed review
of existing revenue contracts commenced. IFRS 15 is effective from
1 January 2018 and the Group is working towards the implementation
of the standard on its effective date for the Group in the
financial year commencing on 1 October 2018.
(iii) IFRS 16 Leases (EU Endorsed)
IFRS 16 Leases addresses the definition of a lease, recognition
and measurement of leases, and disclosure requirements for leases.
The standard replaces IAS 17 Leases and related interpretations. A
key change arising from IFRS 16 is that most operating leases will
be recognised on the balance sheet for lessees. The Group's
non-cancellable operating lease commitments at 30 September 2017
are detailed in Note 26 to the consolidated financial statements of
the Group's 2017 annual report. It is expected that the adoption of
the standard will result in increased assets and debt being
recognised on the Group Balance Sheet. However, the Group has not
yet determined to what extent these commitments will result in the
recognition of an asset and liability for future payments and how
this will affect the Group's profit and classification of cash
flows. The standard is effective for the Group in the financial
year commencing on 1 October 2019. The Group is currently
considering the practical expedients available in IFRS 16 and is
assessing the impact of the standard.
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.
Aquilant - Aquilant is a leading distributor of specialist
medical and scientific products, providing outsourced sales,
marketing, distribution and engineering services to the medical and
scientific sectors in the UK and Ireland.
At 31 March 2018, the Group has classified the joint venture
investment in Magir Limited as a discontinued operation and an
asset held for sale. Details of the discontinued operation is
included in note 7.
The segmental analysis of the business corresponds with the
Group's organisational structure and the Group's internal reporting
for the purpose of managing the business and assessing performance
as reviewed by the Group's Chief Operating Decision Maker (CODM),
which the Group has defined as Brendan McAtamney (Chief Executive
Officer). The amount of revenue and operating profit under the
Group's operating segments is as follows:
Continuing operations
Six months Six months
ended ended
31 March 31 March
2018 2017
$'000 $'000
Revenue
Ashfield 478,925 379,933
Sharp 142,465 152,669
Aquilant 53,917 46,258
675,307 578,860
-------------------------------------------------------------------------------------- ----------- -------------
Operating profit before acquired intangible amortisation, transaction costs and
exceptional
items
Ashfield 45,609 36,368
Sharp 18,879 19,184
Aquilant 2,867 3,222
67,355 58,774
Amortisation of acquired intangibles (15,238) (10,243)
Transaction costs (974) (1,752)
Exceptional items (48,703) -
-------------------------------------------------------------------------------------- ----------- -------------
Operating profit 2,440 46,779
Finance income 13,522 11,916
Finance expense (14,215) (17,779)
-------------------------------------------------------------------------------------- ----------- -------------
Profit before tax 1,747 40,916
-------------------------------------------------------------------------------------- ----------- -------------
Income tax expense (580) (9,857)
-------------------------------------------------------------------------------------- ----------- -------------
Profit after tax for the period 1,167 31,059
-------------------------------------------------------------------------------------- ----------- -------------
Geographical analysis of revenue Six months Six months
ended ended
31 March 31 March
2018 2017
$'000 $'000
------------------------------------ ------------- -------------
Republic of Ireland 23,040 18,430
United Kingdom 163,077 161,248
North America 385,109 294,378
Rest of the World 104,081 104,804
------------------------------------ ------------- -------------
675,307 578,860
------------------------------------ ------------- -------------
4. Share of joint ventures' profit after tax
Six months Six months
ended ended
31 March 31 March
2018 2017
$'000 $'000
Revenue 31,534 28,895
Expenses, including tax (31,260) (28,017)
----------------------------------- ------------- -------------
Profit after tax 274 878
----------------------------------- ------------- -------------
Group's equity interest 49.99% 49.99%
----------------------------------- ------------- -------------
Group's share of profit after tax 137 439
----------------------------------- ------------- -------------
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 reports the following exceptional items:
Six months Six months
Deferred ended ended
contingent Deferred 31 March 31 March
Aquilant consideration tax 2018 2017
$'000 $'000 $'000 $'000 $'000
Other operating income (a) (8,945) - - (8,945) -
Impairment of goodwill (b) 57,648 - - 57,648 -
Deferred contingent consideration (c) - (3,469) (3,469) -
----------------------------------- ----- --------- -------------- ----------- ------------- -------------
Net exceptional items pre-tax 48,703 (3,469) - 45,234
Deferred tax credit (d) - - (9,715) (9,715) -
Exceptional items tax charge 1,032 - - 1,032 -
------------------------------------------ --------- -------------- ----------- ------------- -------------
Net exceptional items after tax 49,735 (3,469) (9,715) 36,551 -
------------------------------------------ --------- -------------- ----------- ------------- -------------
(a) Contract termination costs
On 22 December 2017, the Aquilant Group exited the VSI contract
for a consideration of $10,135,000 in respect of the contract
termination to include certain assets of the trade including stock.
On 29 March 2018, the Aquilant Group exited the Link contract and
received consideration of $4,930,000 in respect of the contract
termination to include certain assets of the trade. Exiting these
contracts included the transfer of stock and other assets of
$5,658,000 and resulted in restructuring costs of $462,000,
primarily relating to redundancy costs. The total cash inflow net
of costs in the period was $13,493,000 as per the cash flow
statement and the expected total net cash inflow is
$14,500,000.
(b) Impairment of goodwill
Impairment of goodwill arose during the current period as the
Group wrote down the carrying value of goodwill in relation to the
Aquilant Group. Following the loss of contracts in the period and
anticipating a slower build in earnings and resultant cashflows
from the lower base, the Aquilant Group was reviewed for
impairment. A goodwill impairment charge of $57,648,000 was
recognised.
The recoverable amount of the Aquilant Group at 31 March 2018
was $32,922,000 and was determined based on value-in-use
calculations, consistent with the methods used at 30 September
2017. Note 12 of the consolidated financial statements of the
Group's 2017 annual report outlines the methods of the goodwill
impairment test. As a result of loss of contracts and lower
anticipated growth in the business, the cash flow forecasts in the
CGU are lower than was expected at 30 September 2017. A pre-tax
discount rate of 9.5% (30 September 2017: 8.1%) and terminal growth
rate of 2.0% (30 September 2017: 2.5%) were applied.
(c) Deferred contingent consideration
Deferred contingent consideration of $3,469,000 in respect of
Cambridge BioMarketing was released in the period following a
review of expected performance against earn out targets.
(d) Tax
The exceptional credit to the income statement of $9,715,000
reflects the one-off benefit of a reduction in the Group's deferred
tax liabilities following the enactment of the US Tax Cuts and Jobs
Act. A credit of $408,000 also arises in the statement of
comprehensive income as a further consequence of this
legislation.
6. Finance income and expense
Six months Six months
ended ended
31 March 31 March
2018 2017
$'000 $'000
Finance income
Income arising from cash deposits 736 487
Fair value adjustments to fair value hedges - 975
Fair value of cash flow hedges transferred from equity - 10,132
Fair value adjustments to guaranteed senior unsecured loan notes 1,001 -
Foreign currency gain on retranslation of guaranteed senior unsecured loan notes 8,095 -
Ineffective portion of cash flow hedges 63 224
Net finance income on pension scheme obligations 158 98
---------------------------------------------------------------------------------- ------------- -------------
10,053 11,916
---------------------------------------------------------------------------------- ------------- -------------
Finance expense
Interest on bank loans and other loans
-wholly repayable within 5 years (1,764) (3,745)
-wholly repayable after 5 years (3,073) (2,736)
Interest on finance leases (1) (1)
Interest on overdrafts (17) (12)
Unwinding of discount on provisions (264) (178)
Fair value adjustments to fair value hedges (1,001) -
Fair value of cash flow hedges transferred to equity (8,095) -
Fair value adjustments to guaranteed senior unsecured loan notes - (975)
Foreign currency loss on retranslation of guaranteed senior unsecured loan notes - (10,132)
(14,215) (17,779)
---------------------------------------------------------------------------------- ------------- -------------
Net finance expense, pre-exceptional item (4,162) (5,863)
Finance income relating to exceptional item 3,469 -
Net finance expense (693) (5,863)
---------------------------------------------------------------------------------- ------------- -------------
7. Net result from discontinued operations and assets and
liabilities classified as held for sale
The Group has treated the joint venture arrangement with Magir
Limited as a discontinued operation and asset held for sale in
accordance with IFRS 5 as the business is no longer a strategic
asset following our exit from the Pharma Wholesaling segment of the
market and given the decision by management to dispose of the
shareholding as it is non-core. The Group did not recognise an
operating profit from the asset in the current or prior period.
The assets and liabilities classified as held for sale in the
Group balance sheet have a nil carrying value at 31 March 2018
(2017: nil).
8. Earnings per ordinary share
Six months Six months
ended ended
31 March 31 March
2018 2017
$'000 $'000
Profit attributable to the
owners of the parent 1,091 31,059
Adjustment for amortisation
of acquired intangible assets
(net of tax) 11,881 7,697
Adjustment for transaction
costs (net of tax) 895 1,563
Adjustment for exceptional
items (net of tax) 36,551 -
Adjusted profit attributable
to owners of the parent 50,418 40,319
------------------------------------------ ---------------- ------------
2018 2017
Number Number
of shares of shares
Weighted average number of shares 248,370,162 247,658,940
Number of dilutive shares under option 1,288,679 701,068
Weighted average number of shares,
including share options 249,658,841 248,360,008
------------------------------------------ ---------------- ------------
2018 2017
Basic earnings per
share - cent 0.44 12.54
Diluted earnings per
share - cent 0.44 12.51
Adjusted basic earnings
per share - cent(1) 20.30 16.28
Adjusted diluted earnings
per share - cent(1) 20.19 16.23
(1) Adjusted profit attributable to owners of the parent is
stated before the amortisation of acquired intangible assets
($11.9m, net of tax), transaction costs ($0.9m, net of tax) and
exceptional items ($36.6m, net of tax).
Non-IFRS information
The Group reports certain 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. The Group believes that the
presentation of these non-IFRS measurements provide useful
supplemental information which, when viewed in conjunction with our
IFRS financial information, provides investors with a more
meaningful understanding of the underlying financial and operating
performance of the Group and its divisions. These measurements are
also used internally to evaluate the historical and planned future
performance of the Group's operations and to measure executive
management's performance based remuneration.
The Group has treated the joint venture arrangement with Magir
Limited as a discontinued operation and asset held for sale in
accordance with IFRS 5.
Treasury shares have been excluded from the weighted average
number of shares in issue used in the calculation of earnings per
share. A total of 2,297,264 (2017: 2,004,074) anti-dilutive share
options have been excluded from the calculation of diluted earnings
per share.
The average market value of the Company's shares for the
purposes of calculating the dilutive effect of share options was
based on quoted market prices for the period.
9. Property, plant and equipment
Land and Plant and Computer Assets under
buildings equipment Motor vehicles equipment construction Total
$'000 $'000 $'000 $'000 $'000 $'000
At 1 October 2017
Opening net book
amount 76,463 80,564 271 10,014 1,091 168,403
Additions in the
period 1,195 5,591 2 1,331 6,573 14,692
Depreciation (2,684) (6,644) (30) (2,670) - (12,028)
Impairment - (190) - - - (190)
Disposals in
period (30) (1,017) - (17) - (1,064)
Reclassifications 743 - - - (743) -
Translation
adjustment 1,369 848 20 208 172 2,617
------------------- ---------------- --------------- --------------- ----------------
At 31 March 2018 77,056 79,152 263 8,866 7,093 172,430
------------------- ---------------- --------------- --------------- ---------------- --------------- ----------
At 31 March 2018
Cost or deemed
cost 109,857 157,262 829 28,513 7,093 303,554
Accumulated
depreciation (32,801) (78,110) (566) (19,647) - (131,124)
------------------- ---------------- --------------- --------------- ---------------- --------------- ----------
Net book amount 77,056 79,152 263 8,866 7,093 172,430
------------------- ---------------- --------------- --------------- ---------------- --------------- ----------
10. Movement in goodwill, intangible assets and investment in
joint ventures and associates
Investment
Intangible in joint
Goodwill assets ventures
and associates
$'000 $'000 $'000
Balance at 1 October 2017 542,554 227,617 8,838
Investment in computer software - 9,985 -
Amortisation of acquired
intangible assets - (15,238) -
Amortisation of computer
software - (2,615) -
Impairment charge (57,648) - -
Share of joint ventures'
profit after tax - - 137
Translation adjustment 16,122 6,702 499
Balance at 31 March 2018 501,028 226,451 9,474
--------------------------------- ----------- ------------- ----------------
11. Other reserves
Cash Capital
flow Share-based Foreign Treasury redemption
hedge payment exchange shares reserve Total
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 October
2017 (12,854) 8,992 (155,465) (7,676) 347 (166,656)
Effective portion
of cash flow hedges (3,864) - - - - (3,864)
Deferred tax on
cash flow hedges 483 - - - - 483
Share-based payment
expense - 2,563 - - - 2,563
Release from share-based
payment reserve - (581) - - - (581)
Translation adjustment - - 19,364 - - 19,364
Balance at 31 March
2018 (16,235) 10,974 (136,101) (7,676) 347 (148,691)
-------------------------- --------- ------------ ---------- --------- ------------ ----------
Cash Capital
flow Share-based Foreign Treasury redemption
hedge payment exchange shares reserve Total
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 October
2016 (12,499) 5,956 (165,574) (7,676) 347 (179,446)
Effective portion
of cash flow hedges (593) - - - - (593)
Deferred tax on
cash flow hedges 74 - - - - 74
Share-based payment
expense - 1,699 - - - 1,699
Release from share-based
payment reserve - (548) - - - (548)
Translation adjustment - - (15,192) - - (15,192)
Balance at 31 March
2017 (13,018) 7,107 (180,766) (7,676) 347 (194,006)
-------------------------- --------- ------------ ---------- --------- ------------ ----------
12. Net (debt)/cash
As As at As at
at 31 March 30 Sept
31 March 2017 2017
2018
$'000 $'000 $'000
Current assets
Cash at bank and short-term deposits 208,836 365,465 187,469
Derivative financial instruments 2,104 11,631 2,450
Non-current assets
Derivative financial instruments - 19,602 1,302
Current liabilities
Interest-bearing loans (228) (64,871) 72
Finance leases (81) (106) (130)
Non-current liabilities
Interest-bearing loans (245,450) (240,631) (244,043)
Finance leases (17) (4) (34)
Derivative financial instruments (11,761) - (352)
Net (debt)/cash (46,597) 91,086 (53,266)
-------------------------------------- ----------- ---------- ----------
13. Provisions
Restructuring
Deferred contingent Onerous and other
consideration leases costs Total
$'000 $'000 $'000 $'000
Balance at 1 October
2017 71,878 324 173 72,375
Release to income
statement (3,469) - (46) (3,515)
Utilised during the
period (3,210) (71) (33) (3,314)
Unwinding of discount 264 - - 264
Translation adjustment 2,154 12 5 2,171
------------------------ ---------------------- ---------- -------------- --------
Balance at 31 March
2018 67,617 265 99 67,981
------------------------ ---------------------- ---------- -------------- --------
Non-current 35,104 207 61 35,372
Current 32,513 58 38 32,609
Total 67,617 265 99 67,981
------------------------ ---------------------- ---------- -------------- --------
14. Acquisition of subsidiary undertakings
During the six months ended 31 March 2018, the Group did not
complete any acquisitions.
At 31 March 2017 the carrying amount of the assets and
liabilities acquired in that period were as follows:
2017
$'000
Assets
Non-current assets
Property, plant and
equipment 122
Intangible assets 54,327
--------------------------------------- --------
Total non-current assets 54,449
--------------------------------------- --------
Current assets
Trade and other receivables 9,448
--------------------------------------- --------
Total current assets 9,448
--------------------------------------- --------
Non-current liabilities
Deferred income tax
liabilities (9,235)
--------------------------------------- --------
Total non-current liabilities (9,235)
--------------------------------------- --------
Current liabilities
Trade and other payables (3,758)
Current income tax
liabilities 620
--------------------------------------- --------
Total current liabilities (3,138)
--------------------------------------- --------
Identifiable net assets
acquired 51,524
Goodwill 53,170
--------------------------------------- --------
Total consideration
(enterprise value) 104,694
--------------------------------------- --------
Satisfied by:
Cash 63,247
Net cash acquired (3,358)
--------------------------------------- --------
Net cash outflow 59,889
Equity instruments
(724,997 ordinary shares) 6,051
Deferred contingent
acquisition consideration 38,754
Total consideration 104,694
--------------------------------------- --------
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 UDG Healthcare plc to create the combined
Group. The goodwill arising from acquisitions in the prior period
that is expected to be tax deductible is nil.
The intangible assets arising on the prior period acquisition
are related to the trade names, client relationships and
technology.
The contractual assets are not materially different from the
disclosed trade and other receivables.
The fair value of contingent consideration recognised at the
date of acquisition is calculated by discounting the expected
future payment to present value at the acquisition date. In
general, for contingent consideration to become payable,
pre-defined profit thresholds must be exceeded. On an undiscounted
basis, the future payments for which the Group may be liable in
respect of the acquisition completed in the prior period ranges
from $6,412,000 to $39,222,000.
The total transaction related costs for acquisition activity
amounts to $974,000 (2017: $1,752,000). These are presented
separately in the Group Income Statement.
15. Employee benefits
Employee Employee Employee
benefit benefit benefit
asset liability total
$'000 $'000 $'000
Employee benefit asset/(liability)
at 1 October 2017 12,379 (3,162) 9,217
Current service cost (1,517) - (1,517)
Interest 191 (33) 158
Contributions paid - 49 49
Remeasurement gain/(loss) 543 (2,388) (1,845)
Translation adjustment - (194) (194)
------------------------------------ --------- -------------- ---------
Employee benefit asset/(liability)
at 31 March 2018 11,596 (5,728) 5,868
------------------------------------ --------- -------------- ---------
Employee Employee Employee
benefit benefit benefit
asset liability total
$'000 $'000 $'000
Employee benefit asset/(liability)
at 1 October 2016 13,939 (20,442) (6,503)
Current service cost (1,194) - (1,194)
Settlement gain - 2,666 2,666
Interest 199 (101) 98
Contributions paid - 4,096 4,096
Remeasurement gain 669 9,105 9,774
Translation adjustment - 821 821
------------------------------------ --------- -------------- ---------
Employee benefit asset/(liability)
at 31 March 2017 13,613 (3,855) 9,758
------------------------------------ --------- -------------- ---------
As set out in the consolidated financial statements for the year
ended 30 September 2017, the Group operates a number of defined
benefit pension schemes which are funded by the payments of
contribution 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 (ROI)
pension schemes. The ROI schemes have a remeasurement loss in the
current period which primarily relates to a decrease in the
discount rate. The change in the discount rate is reflective of
changes in bond yields during the period. The United States scheme
has a remeasurement gain in the current period arising from a
higher discount rate. In the ROI schemes, there is no longer a
salary increase assumption due to the accrual of pension benefits
ceasing from 1 December 2015.
During the prior period, a general offer was made to the members
of the ROI schemes to transfer their accrued benefits from the
schemes in exchange for a fixed monetary amount. Acceptance of the
offer was at the discretion of individual members and resulted in a
settlement gain of $2,666,000. Related professional fees amounted
to $106,000.
The principal assumptions are as follows:
Republic of Ireland United States
Schemes Scheme
As at As at As at As at
31 March 30 Sept 31 March 30 Sept
2018 2017 2018 2017
Rate of increase
in salaries n/a n/a 2.75-4.00% 2.75-4.00%
Rate of increase
in pensions 0-1.65% 0-1.65% 0.00% 0.00%
Inflation rate 1.65% 1.65% 2.75% 2.75%
Discount rate 1.70% 2.05% 3.80% 3.60%
16. Financial instruments
The fair values of financial assets and financial liabilities,
together with the carrying amounts in the condensed consolidated
balance sheet at 31 March 2018, are as follows:
Carrying Fair
value value
$'000 $'000
Financial assets
Trade and other receivables 242,330 242,330
Derivative financial assets 2,104 2,104
Cash and cash equivalents 208,836 208,836
------------------------------------ --------- --------
453,270 453,270
----------------------------------- --------- --------
Financial liabilities
Trade and other payables 65,710 65,710
Derivative financial liabilities 11,761 11,761
Interest-bearing loans and
borrowings 245,678 245,678
Finance lease liabilities 98 98
Deferred contingent consideration 67,617 67,617
------------------------------------ --------- --------
390,864 390,864
----------------------------------- --------- --------
The fair values of the financial assets and liabilities
disclosed in the above tables have been determined using the
methods and assumptions set out below.
Trade and other receivables/payables
For receivables and payables the carrying value less impairment
provision is deemed to reflect fair value, where appropriate.
Cash and cash equivalents
For cash and cash equivalents, the nominal amount is deemed to
reflect fair value.
Interest-bearing loans and borrowings (excluding finance lease
liabilities)
The fair value of interest-bearing loans and borrowings is based
on the fair value of the expected future principal and interest
cash flows discounted at interest rates effective at the balance
sheet date and adjusted for movements in credit spreads.
Finance lease liabilities
For finance lease liabilities, the fair value is the present
value of future cash flows discounted at current market rates.
Valuation techniques and significant unobservable inputs
Fair value hierarchy of assets and liabilities measured at fair
value
The Group has adopted the following fair value hierarchy in
relation to its financial instruments that are carried in the
balance sheet at fair value as at the period end:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs, other than quoted prices included within
Level 1, that are observable for the asset or liability either
directly (as prices) or indirectly (derived from prices); and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The following table sets out the fair value of all financial
assets and liabilities that are measured at fair value:
Level 1 Level 2 Level 3 Total
$'000 $'000 $'000 $'000
Assets measured at fair
value
Designated as hedging
instruments
Cross currency interest
rate swaps - 2,104 - 2,104
---------------------------------- ------- ------- ------- ------
- 2,104 - 2,104
---------------------------------- ------- ------- ------- ------
Liabilities measured
at fair value
Designated as hedging
instruments
Cross currency interest
rate swaps - 11,761 - 11,761
At fair value through
profit or loss
Deferred contingent consideration - - 67,617 67,617
---------------------------------- ------- ------- ------- ------
- 11,761 67,617 79,378
---------------------------------- ------- ------- ------- ------
Summary of derivatives:
Amount Amount
of financial Related of financial Related
assets/liabilities amounts assets/liabilities amounts
as presented not offset as presented not offset
in the in the 31 March in the in the 31 March
balance balance 2018 balance balance 2017
sheet sheet Net sheet sheet Net
$'000 $'000 $'000 $'000 $'000 $'000
Derivative
financial
assets 2,104 - 2,104 31,233 - 31,233
Derivative
financial
liabilities 11,761 - 11,761 - - -
-------------- --------------------- ------------- ----------- --------------------- ------------- -----------
All derivatives entered into by the Group are included in Level
2 of the fair value hierarchy and consist of cross currency
interest rates swaps. The fair values of cross currency interest
rate swaps are calculated at the present value of the estimated
future cash flows based on the terms and maturity of each contract
and using forward currency rates and market interest rates as
applicable for a similar instrument at the measurement date. Fair
values reflect the credit risk of the instrument and include, where
appropriate, adjustments to take account of the credit risk of the
Group entity and counterparty.
Deferred contingent consideration
Deferred contingent consideration is included in level 3 of the
fair value hierarchy. Details of movements in the period are
included in note 13. The deferred contingent consideration
liability arises from acquisitions completed by the Group. The fair
value is determined considering the expected payment, discounted to
present value using a risk adjusted discount rate. The expected
payment is determined separately in respect of each individual earn
out agreement taking into consideration the expected level of
profitability of each acquisition. The provision for deferred
consideration is in respect of acquisitions completed during 2012,
2016 and 2017.
The significant unobservable inputs are as follows:
-- forecasted average annual net revenue growth rate 14% (2017: 12%);
-- forecasted average EBIT growth rate 7% (2017: 17%); and
-- risk adjusted discount rate 0.02%-1.55% (2017: 0.6%-6.5%).
Inter-relationship between significant unobservable inputs and
fair value measurement:
The estimated fair value would increase/(decrease) if:
-- the annual net revenue growth was higher/(lower);
-- the EBIT growth rate was higher/(lower); and
-- the risk adjusted discount rate was lower/(higher).
For the fair value of deferred contingent consideration, a
reasonable possible change to one of the significant unobservable
inputs at 31 March 2018, holding the other inputs constant, would
have the following effects:
Increase Decrease
$'000 $'000
------------------------------------------ --------- ---------
Effect of change in assumption on
income statement
Annual net revenue growth rate (1%
movement) - -
Annual EBIT growth rate (1% movement) - -
Risk-adjusted discount rate (1% movement) 327 (185)
------------------------------------------ --------- ---------
Financial ratios
Financial covenants in our principal debt facilities are based
on net debt to EBITDA being less than 3.5 times and EBITDA interest
cover being greater than three times.
2018 2017
Times Times
Net (debt)/cash to annualised EBITDA (0.28) 0.61
Annualised EBITDA interest cover 20.2 13.4
------------------------------------------ -------- --------
17. Dividends
The Board has proposed an interim dividend of 4.25 $ cent per
share (2017 interim dividend: 3.58 $ cent). This dividend has not
been provided for in the balance sheet at 31 March 2018 as there
was no present obligation to pay the dividend at the reporting
date. During the first half of the financial year, the final
dividend for 2017 (9.72 $ cent per share), was paid giving rise to
a reduction in shareholders' funds of $24,137,000.
18. Foreign currency
The principal exchange rates used in translating sterling and
euro balance sheets and income statements were as follows:
31 March 31 March
2018 2017
$1=StgGBP $1=StgGBP
Balance sheet (closing rate) 0.7101 0.8002
Income statement (average rate) 0.7357 0.8066
$1=EuroEUR $1=EuroEUR
Balance sheet (closing rate) 0.8116 0.9354
Income statement (average rate) 0.8310 0.9330
19. 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.
At 31 March 2018, Magir Limited, the Group's joint venture
investment, was classified as an asset held for sale. The Group has
provided a guarantee to Magir's bankers for an amount of
GBP9,500,000 and a loan, gross of interest, of GBP11,181,000.
IAS 24 Related Party Disclosures requires the disclosure of
compensation paid to the Group's key management personnel. Key
management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group. UDG Healthcare classifies directors, the
Company Secretary and members of its executive team as key
management personnel. This executive team is the body of senior
executives that formulates business strategy along with the
directors, follows through on the implementation of that strategy
and directs and controls the activities of the Group on a day to
day basis.
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 $6,347,000 for the six months ended 31 March 2018
(2017: $5,282,000).
20. Events after the balance sheet date
There have been no significant events after the balance sheet
date which require disclosure.
21. Board approval
This interim report was approved by the Board of Directors of
UDG Healthcare plc on 21 May 2018.
Additional Information
Key performance indicators and non-IFRS performance measures
The Group reports certain 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. 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. These measurements are
also used internally to evaluate the historical and planned future
performance of the Group's operations and to measure executive
management's performance based remuneration.
None of the non-IFRS measurements should be considered as an
alternative to financial measurements derived in accordance with
IFRS. The non-IFRS measurements can have limitations as analytical
tools and should not be considered in isolation or as a substitute
for an analysis of results as reported under IFRS.
The principal non-IFRS measurements used by the Group, together
with reconciliations where the non-IFRS measurements are not
readily identifiable from the Financial Statements, are as
follows:
Net revenue
Definition
This comprises of gross revenue as reported in the Group Income
Statement, adjusted for revenue associated with pass-through costs
for which the Group does not earn a margin.
Six months Six months
ended ended
31 March 31 March
2018 2017
Calculation $'000 $'000
----------------------- ----------------- ---------- ----------
Revenue Income Statement 675,307 578,860
Pass - through revenue (106,634) (90,899)
------------------------------------------ ---------- ----------
Net revenue 568,673 487,961
------------------------------------------ ---------- ----------
Adjusted operating profit
Definition
This comprises of operating profit as reported in the Group
Income Statement before amortisation of acquired intangible assets,
transaction costs and exceptional items (if any).
Six months
Six months
ended ended
31 March 31 March
2018 2017
Calculation $'000 $'000
------------------------------------------- ----------------- ---------- ----------
Operating profit Income Statement 2,440 46,779
Transaction costs Income Statement 974 1,752
Amortisation of acquired intangible assets Note 10 15,238 10,243
Exceptional items 48,703 -
-------------------------------------------------------------- ---------- ----------
Adjusted operating profit 67,355 58,774
-------------------------------------------------------------- ---------- ----------
Adjusted profit before tax
Definition
This comprises of profit before tax as reported in the Group
Income Statement before amortisation of acquired intangible assets,
transaction costs and exceptional items (if any).
Six months Six months
ended ended
31 March 31 March
2018 2017
Calculation $'000 $'000
--------------------------- ----------------- ---------- ----------
Profit before tax Income Statement 1,747 40,916
Transaction costs Income Statement 974 1,752
Amortisation of acquired
intangible assets Note 10 15,238 10,243
Exceptional items 45,234 -
---------------------------------------------- ---------- ----------
Adjusted profit before tax 63,193 52,911
---------------------------------------------- ---------- ----------
Adjusted net operating margin
Definition
Measures the adjusted operating profit as a percentage of net
revenue.
Six months Six months
ended ended
31 March 31 March
2018 2017
Calculation $'000 $'000
-------------------------- ---------- ---------- ----------
Adjusted operating profit Per above 67,355 58,774
Net revenue Per above 568,673 487,961
-------------------------- ---------- ---------- ----------
Net operating margin 11.8% 12.0%
-------------------------------------- ---------- ----------
Adjusted effective tax rate
Definition
The Group adjusted effective tax rate expresses the income tax
expense adjusted for the tax impact of exceptional items,
transaction costs and the amortisation of acquired intangible
assets as a percentage of adjusted profit before tax.
Six months Six months
ended ended
31 March 31 March
2018 2017
Calculation $'000 $'000
-------------------------------------------------------- ----------- ---------- ----------
Income
Tax charge Statement 580 9,857
Tax relief with respect to transaction costs 79 189
Deferred tax credit with respect to acquired intangible
amortisation 3,357 2,546
Tax relief with respect to exceptional items Note 5 (1,032) -
Deferred tax credit associated with the US Tax Cuts
and Jobs Act Note 5 9,715 -
-------------------------------------------------------- ----------- ---------- ----------
Income tax expense before exceptional, transaction
costs and deferred tax attaching to amortisation
of acquired intangible assets 12,699 12,592
--------------------------------------------------------------------- ---------- ----------
Adjusted profit before tax Per above 63,193 52,911
Adjusted effective tax rate 20.1% 23.8%
--------------------------------------------------------------------- ---------- ----------
Annualised EBITDA
Definition
Annualised EBITDA is continuing and discontinued earnings before
net interest, tax, depreciation, amortisation of intangible assets,
exceptional items for the previous twelve months adjusted for the
share of joint venture profits, dividends received from joint
ventures, profit or loss on disposal of property, plant and
equipment, impairment of intangible assets, the annualisation of
the EBITDA of companies acquired during the year and the EBITDA of
completed disposals.
12 months 12 months
ended ended
31 March 31 March
2018 2017
Calculation $'000 $'000
-------------------------------------------------------- --- --------- ---------
Operating profit (continuing) 107,550 101,211
Operating profit (discontinued) - 1,492
Depreciation (continuing) 23,321 20,311
Amortisation of computer software (continuing) 4,699 2,117
Amortisation of acquired intangible assets (continuing) 27,061 18,185
Joint venture profit share (continuing) (365) (623)
Joint venture profit share (discontinued) - (685)
(Profit)/loss on disposal of property, plant
and equipment (254) 105
Annualised EBITDA of acquisitions 5,700 7,493
------------------------------------------------------------- --------- ---------
Annualised EBITDA 167,712 149,606
------------------------------------------------------------- --------- ---------
Financial ratios
Definition
The net (debt)/cash to EBITDA and EBITDA interest cover ratios
disclosed are calculated using annualised EBITDA and adjusted net
finance expense (net finance expense excluding interest on pension
scheme obligations, the unwinding of discount on provisions and
exceptional items, see note 6). Net (debt)/cash represents the net
total of current and non-current borrowings, current and
non-current derivative financial instruments and cash and cash
equivalents as presented in the Group Balance Sheet and as
calculated in note 12.
Return on capital employed (ROCE)
Definition
ROCE is the continuing adjusted operating profit expressed as a
percentage of the Group's net assets employed. Net assets employed
is the average of the opening and closing net assets in the year
excluding net debt/(cash) adjusted for the historical amortisation
of acquired intangible assets and restructuring charges.
As at
As at 31
31 March March
2018 2017
Calculation $'000 $'000
------------------------------------ -------- --------- --------
Balance
Net assets Sheet 875,524 819,568
Net debt/(cash) Note 12 46,597 (91,086)
------------------------------------ -------- --------- --------
Assets before net debt/(cash) 922,121 728,482
Cumulative intangible amortisation 201,525 150,542
Cumulative restructuring costs 93,655 43,399
---------------------------------------------- --------- --------
Total capital employed 1,217,301 922,423
---------------------------------------------- --------- --------
Average total capital employed 1,069,862 888,366
Rolling 12 month adjusted operating
profit 137,861 122,352
---------------------------------------------- --------- --------
Return on capital employed 12.9% 13.8%
---------------------------------------------- --------- --------
Measurements removed from the additional information section
that are shown elsewhere in the interim announcement are as
follows:
-- Net interest (net finance cost) - this measurement is shown in note 6.
-- Adjusted earnings per share and adjusted diluted earnings per
share - these measurements are shown in note 8.
-- EBITDA interest cover - this measurement is shown in Note 16.
-- Net (debt)/cash to EBITDA - this measurement is shown in Note 16.
A number of measurements have been removed from the additional
information section. The Group believes these are not necessary to
provide stakeholders with a more meaningful understanding of the
underlying financial performance of the Group and its divisions as
other performance measures are deemed more appropriate.
Measurements removed are as follows:
-- Adjusted operating profit (discontinued) is not presented as
there were no results from discontinued operations in the current
or prior period.
-- Adjusted operating margin is not presented as adjusted net
operating margin is considered a more meaningful measure as the
Group does not earn a margin for revenue associated with
pass-through costs.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKDDPABKDAPB
(END) Dow Jones Newswires
May 22, 2018 02:00 ET (06:00 GMT)
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