UDG.L Regulatory News (UDG)

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.

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.

· Adjusted diluted earnings per share1 (EPS) increased by 24% (21% on a constant currency basis).

· Guidance reiterated for FY18 constant currency adjusted EPS1 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 profit1 growth of 15% (11% on a constant currency basis) to $67.4 million. Adjusted net operating margin2 declined marginally from 12.0% to 11.8%.

· Adjusted profit before tax1 up 19% (16% on a constant currency basis).

· Ashfield's operating profit1 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.

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.

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: £0.7891 and $1: €0.9047 and during H1 2018 were $1: £0.7357 and $1: €0.8310 (H1 2017 rates were $1: £0.8066 and $1: €0.9330). 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

Ashfield

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

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

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.

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

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: £0.7357 and $1: €0.8310 (2017: $1: £0.8066 and $1: €0.9330).

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.

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:

Statement of Directors

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

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

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

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

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

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

On behalf of the Board(i)

21 May 2018

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

Condensed consolidated income statement

Condensed consolidated statement of

comprehensive income

Condensed consolidated statement of changes in

equity

Condensed consolidated balance sheet

Condensed consolidated cash flow statement

Notes to the condensed interim financial statements

1. Reporting entity

UDG Healthcare plc (the "Company") is a company domiciled in Ireland. The unaudited condensed consolidated interim financial information of the Company for the six months ended 31 March 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:

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:

4. Share of joint ventures' profit after tax

5. Exceptional items

Exceptional items are those which, in management's judgement, should be disclosed separately by virtue of their nature or amount. Such items are included within the Income Statement caption to which they relate and are separately disclosed in the notes to the Group Interim Financial Statements.

The Group reports the following exceptional items:

(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

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

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

10. Movement in goodwill, intangible assets and investment in joint ventures and associates

11. Other reserves

12. Net (debt)/cash

13. Provisions