United Drug plc Annual Report 2007...United Drug plc Annual Report 2007 John Peter Appointed a...
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United Drug plc Annual Report 2007 Focus on growth
Transcript of United Drug plc Annual Report 2007...United Drug plc Annual Report 2007 John Peter Appointed a...
United D
rug plc Annual R
eport 20
07
United Drug House Magna Drive Magna Business Park Citywest Road Dublin 24
Telephone: +353 1 459 8877 Facsimile: +353 1 459 6893 Email: [email protected] Website: www.united-drug.ie
United Drug plc Annual Report 2007
Focus on
growth
ContentsOur vision 1
Financial highlights 2007 2
Divisional structure 4
Directors’ and other information 6
Chairman’s statement 9
Chief Executive’s review 13
Finance review 19
Corporate social responsibility 22
Consolidated financial statements 25
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Our vision is to be a dynamic, leading
international healthcare services company,
fostering enhanced patient outcomes through
partnerships with healthcare manufacturers,
government agencies, providers and payors.
Focus on growthPharma WholesaleCraig & Hayward
Sangers
United Drug Wholesale
Contract Sales OutsourcingAlliance Healthcare Information
Ashfield In2Focus
Ashfield Ireland
Ashfield USA
Procon
Supply Chain ServicesBlackhall
Budelpack
MASTA
Pemberton
Pharma Logistics Investments
TD Packaging
UniDrug Distribution Group (UDG)
United Drug Distributors
Medical & ScientificEndoscopy UK
Intrapharma
Intraveno
JVA Analytical
Mantis Surgical
New Splint
Presearch
Pyramed
Ulster Anaesthetics
Unitech
United Drug plc
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2
IFRSbased2007€’000
Intangibleamortisation
2007€’000
Adjusted2007€’000
IFRSbased2006€’000
Intangibleamortisation
2006€’000
Adjusted 2006€’000 Increase
Revenue 1,583,622 - 1,583,622 1,466,979 - 1,466,979 8%
Operating profit 60,038 6,554 66,592 54,517 2,410 56,927 17%
Profit before tax 55,773 6,554 62,327 51,776 2,410 54,186 15%
Diluted earnings per share (cent) 20.81c 2.21c 23.02c 19.14c 1.08c 20.22c 14%
Dividend per share (cent) 7.30c - 7.30c 6.35c - 6.35c 15%
United Drug believes that the adjusted operating profit, adjusted profit before tax and adjusted diluted
earnings per share are more appropriate measures of the underlying group performance than those
measurements set out in the primary financial statements, as this information is in a format communicated to
and reviewed by the investment community.
Financial highlights 2007
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Preliminary announcement of results Issued 21 November 2007
Annual report Issued 25 January 2008
Annual General Meeting To be held 26 February 2008
Interim dividend Paid 13 July 2007
Final dividend Payment date 27 February 2008
%5 year
%10 year
%15 year
%20 year
Revenue 10 15 20 19
Profit before tax 17 21 20 21
Earnings per share 15 19 14 16
Dividend per share 15 15 13 14
The information contained in the above table is based on Irish GAAP, as all historic information was not
restated for IFRS.
Compound average annual growth rates
Financial diary
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Pharma Wholesale
United Drug Wholesale
Provides time-critical pharmaceutical delivery
services, together with complementary pharmacy
products to retail and hospital pharmacies,
throughout the Republic of Ireland.
Sangers
Provides time-critical pharmaceutical delivery
services, together with complementary pharmacy
products to retail and hospital pharmacies,
throughout Northern Ireland.
Craig & Hayward
Provides time-critical delivery services of specially
prepared products manufactured to meet specific
patients’ prescription requirements throughout
the UK.
Supply Chain Services
United Drug Distributors
Provides contract distribution and other services to
pharmaceutical and animal health manufacturers in
the Republic of Ireland.
UniDrug Distribution Group (UDG)
Provides contract distribution and other services to
pharmaceutical and animal health manufacturers in
the UK.
Pemberton/Blackhall
Provide sales, marketing and contract distribution
services to consumer products and health and
beauty manufacturers in the Republic of Ireland.
MASTA
Healthcare service provider in the travel field,
specialising in the sale and distribution of vaccines,
medical information and provision of clinical
services.
TD Packaging/Budelpack/PLI
Provide primary and secondary packaging solutions
to the healthcare industry.
Contract Sales Outsourcing
Ashfield In2Focus/Ashfield Ireland/Ashfield USA/
Alliance Healthcare Information
Provide contract sales outsourcing and sales
and marketing services to pharmaceutical
manufacturers in the UK, the Republic of Ireland
and in the USA.
Procon
Provides conference services for UK
pharmaceutical companies.
Medical & Scientific
Unitech/Intraveno
Provide contract distribution services, sales and
marketing and technical support to medical and
scientific equipment and consumable manufacturers
in the Republic of Ireland.
Unitech UK/Ulster Anaesthetics
Provide contract distribution services, sales and
marketing and technical support to medical and
scientific equipment and consumable manufacturers
in the UK.
Presearch
Provides contract distribution services, sales and
marketing and technical support to laboratory
instrumentation and consumable manufacturers in
the UK.
Endoscopy UK
Provides medical distribution services, specialising
in the sales and technical support of flexible
endoscopy equipment.
Pyramed
Provides medical distribution services, specialising
in surgical products in the cardiology, radiology,
neuroradiology and cardiothoracic sectors.
JVA Analytical
Provides medical distribution services to Ireland’s
analytical, environmental, educational and
regulatory laboratories.
Divisional structure
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DirectorsR. Kells (British) (Chairman) L. FitzGerald (Chief Executive)B. McGrane (Finance Director)C. Corbin (British)A. Flynn P. Gray G. McGannK. McGowanJ. Peter (British)
Secretary
K. Geoghegan
Registered officeUnited Drug House Magna Drive Magna Business Park Citywest Road Dublin 24
Registered number12244
AuditorKPMG Chartered Accountants 1 Stokes Place St. Stephen’s Green Dublin 2
SolicitorsArthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2
BankersUlster Bank Group George’s Quay Dublin 2
StockbrokersDavy 49 Dawson Street Dublin 2
Ronnie Kells Chairman
Ronnie Kells is Chairman and non-executive director of United Drug plc. Ronnie was appointed Chairman on 5 October 2005 having served as a non-executive director since 1999. Prior to joining United Drug plc, Ronnie was Group Chief Executive of Ulster Bank. Ronnie is also a director of Readymix plc and a number of other companies.
Liam FitzGerald Chief Executive
Chief Executive and director of United Drug plc, Liam was previously Managing Director of United Drug Distributors having joined the Group in 1993. Prior to joining United Drug plc, Liam worked in Dimension Marketing Limited and Jefferson Smurfit Group plc. Liam is currently a non-executive director of C&C Group plc, Chairman of Traidlinks, and is a former Chairman of the Marketing Society.
Barry McGrane Finance Director
Barry McGrane joined United Drug plc in 1993 and held various senior finance roles in the Group, including that of Company Secretary, before being appointed Finance Director in 2001. Formerly, Barry worked with Reflex Investments plc and Andersen, Dublin.
Peter GrayAppointed a non-executive director in 2004, Peter is Chief Executive of ICON plc, the Irish based multinational pharmaceutical development services company. Prior to joining ICON plc as Chief Financial Officer, Peter held senior positions in a number of Irish public companies, including Elan Corporation plc.
Karen Geoghegan Company Secretary
Karen joined United Drug plc in 2004 and held various positions in the Group finance function before being appointed Company Secretary on 29 August 2007. Formerly, Karen worked with PricewaterhouseCoopers, Dublin.
Directors’ and other information
Ronnie Kells Liam FitzGerald
Peter Gray Karen GeogheganBarry McGrane
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John PeterAppointed a non-executive director in 2005, John Peter is an executive member of the Board of Solvay UK Holdings Limited, responsible for co-ordinating Solvay’s business in the UK and Ireland. John was Chief Executive of Solvay Healthcare in the UK from 1992 to 1 January 2008 and previously held various senior positions in research and development, international marketing and business development in Europe and the US.
Dermot Egan
Dermot Egan was appointed a non-executive director in 1992 and retired from the Board on 20 November 2007. Dermot is a director of the National Concert Hall and an Adjunct Professor of Dublin City University Business School. Formerly, he was Deputy Chief Executive of AIB Group. He is a past Chairman of the Irish Management Institute and Past President of Cothú – the Business Council for the Arts.
Gary McGann
Appointed a non-executive director in 2004, Gary McGann was appointed the Senior Independent non-executive Director on 20 November 2007. Gary is Group Chief Executive of the Smurfit Kappa Group and Chairman of the Dublin Airport Authority. Before joining the Jefferson Smurfit Group in 1998 as Chief Financial Officer, he held various senior executive positions in Irish industry. Gary is also a director of Anglo Irish Bank plc and Aon McDonagh Boland and a member of the European Round Table of Industrialists (ERT).
Chris Corbin
Appointed a director of United Drug plc in 2003, Chris founded Ashfield Healthcare in 1997 and is Managing Director of this company, which merged with a fellow group company during 2007 to form Ashfield In2Focus. Prior to setting up this company, Chris held sales management positions with Parke Davis, Fisons, Astra and May & Baker. Chris is Chairman of Leicestershire Business Awards 2007 and 2008, Patron for SETPOINT Leicestershire and a member of Derbyshire Magistrates Bench.
Kieran McGowanAppointed a non-executive director in 1999, Kieran McGowan was formerly Chief Executive of IDA Ireland. Kieran is Chairman of CRH plc and his directorships include Elan Corporation plc and Irish Life and Permanent plc. Kieran is also Chairman of the Governing Authority of University College Dublin.
Annette Flynn
Appointed a director of United Drug plc in 2004, Annette took responsibility for the Supply Chain Services division during 2006, having previously been responsible for implementing and developing group strategy. Annette joined United Drug plc in 1996 and prior to this held senior positions with Kerry Group plc working in their Irish, UK and US operations.
Chris Corbin Kieran McGowan Annette Flynn
John Peter Dermot Egan Gary McGann
FOCUS ON GROWTHUnited Drug has delivered double digit earnings growth for each of the 22 years it has been listed as a public company.
We are committed to continuing this performance.
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Chairman’s statement
Financial performance
This has been a significant year for United
Drug. The year marked our first acquisitions in
Continental Europe and subsequently in the US
and, for the first time in our history, in excess of
50 per cent of our profit was earned from outside
our domestic market. I have referred to this trend
in previous statements and I will elaborate more
on the strategy we are following to develop the
Company into an international healthcare services
company. Firstly, let me outline our results for the
year, as they provide the clearest evidence of the
significant progress that has been achieved.
Pre-tax profits before intangible amortisation
increased by 15% to €62.3 million in the year
under review. Equally encouraging was the cash
generation in all of our divisions that enabled us
to make four acquisitions during the year while
retaining a relatively low gearing ratio.
Dividend
This strong financial performance has enabled your
Board to propose a final dividend of 5.33 cent per
share. Together with our interim dividend of 1.97
cent per share, this represents an increase of 15%
over the previous year.
International acquisitions
The outsourcing of non-core activities to specialist
firms is a growing trend among international
pharmaceutical and healthcare companies.
Against this background and in line with our
vision to develop United Drug into an international
healthcare services company, an important
strategic objective for us is to continue developing
significant businesses in areas that will benefit
from this trend.
During 2007, we made further progress towards
that vision through the acquisition of businesses
in Continental Europe, the US and the UK, which
complement our service offering to pharmaceutical
and healthcare companies. Our Supply Chain
Services division acquired two pharma packaging
companies, Budelpack in Belgium and PLI in The
Netherlands. These businesses together with
our existing UK packaging business will create
a strong platform for the development of this
service. In the UK, we acquired Pyramed, a high
quality medical equipment distributor and this
business has now been fully integrated into our
Basingstoke headquarters. Also in the UK, our
Pharma Wholesaling division acquired Craig &
Hayward, a distributor of special medicines. In
October 2007, we acquired Alliance Healthcare
Information, a company based in Philadelphia, in
the US, providing a range of services supporting
the sales and marketing efforts of pharmaceutical
companies. This is our first acquisition in the US
and we believe we can generate further growth
within this company by broadening our service
offering and developing customer relationships
that will provide us with a valuable platform, from
which to grow in this market.
Ronnie Kells
Chairman
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Chairman’s statement (continued)
In each of these companies we have acquired strong
management that will be supported by members of
our own management team as we integrate them into
the Group, providing a framework to accelerate their
growth.
Irish Government and the HSE
The reduction in the price of off-patent branded
medicines with generic equivalents agreed between
the Irish Government and the pharmaceutical
companies came into effect on 1 March 2007. The
transition to this new pricing regime was very well
managed by our Pharma Wholesale division and the
reduction in growth in the market was in line with
our expectations.
The Irish Health Service Executive has declared
its intention to reduce the amount of their
reimbursement for drugs sold through pharmacies.
This will impact on pharmacy profitability
countrywide and if it is introduced inappropriately
may result in closures thus affecting access to
medicines and the level of service to patients.
Corporate governance
Your Board remains committed to the highest
standards of corporate governance and we support
the Combined Code on Corporate Governance.
A detailed statement setting out our key governance
principles and practices is set out on pages 30 to
35 in this report. We are satisfied that appropriate
systems of internal control are in place throughout
the Group.
People
What gives me most confidence in our future are the
people that make up United Drug, and in particular
the commitment of our management team, led by
Liam FitzGerald. This commitment is self evident in
the way they have managed the increased challenges
facing the business in a competitive marketplace and
maximised the opportunities of our rapidly growing
business. I am truly grateful to them and to all of
our people for their work in maintaining the high
standard of customer service and relationships that
have been at the core of taking the Company to the
success it is today.
Board
I would like to take this opportunity to thank Dr.
Dermot Egan who has retired from the Board after
15 years’ service. As the Senior Independent non-
executive Director, he has made an exceptional
contribution to the effectiveness of the Board
and to the Company, not only as a non-executive
director and a Chairman of sub committees, but
as a facilitator for the executive strategy sessions.
I have very much appreciated his sound counsel
and assistance. We wish him a long and happy
retirement. I would also like to take this opportunity
to thank all the non-executive directors for their
work in what was a very busy year.
Looking forward
We are a well diversified healthcare services
group, not overly dependent on any one customer
or service. Our strong cash flow and low gearing
provides us with the scope to vigorously pursue
our international strategy while at the same time
enhancing our service offering to our customers in
existing and new markets.
This position gives us particular confidence that
we can continue to achieve strong revenue growth
in all of our divisions, both organically and through
acquisitions.
As a result, your Board believes that the Company
is well positioned to deliver solid earnings growth in
the coming year.
Ronnie Kells
Chairman
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FOCUS ON DIVERSITYUnited Drug is a diversified healthcare services group
providing services to a broad range of healthcare clients and end-customers across five geographies.
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FOCUS ON CUSTOMER SERVICESWe recognise that customer service is central to our future growth.
Each of our divisions puts service to customers at the core of its offering. We invest in best-in-class people and infrastructure to
develop our services to customers continuously.
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Chief Executive’s review
During the 2007 financial year, United Drug
made significant progress in its development as
an international healthcare services company.
Strong performance from our well managed Irish
and UK based businesses has been enhanced
by strategically important acquisitions in high
growth areas enabling us to broaden our service
offering to international healthcare manufacturers.
This year has seen us take our first steps into
Continental Europe with acquisitions in both
Belgium and The Netherlands in our pharma
contract packaging business and since the end of
the financial year we have added to our contract
sales and marketing services in the United States
with another bolt-on acquisition.
These developments have helped to deliver further
record results for the year as we continue to deliver
double-digit profit and earnings growth. Group
revenue for the year of €1.58 billion is 8% ahead of
2006. Headline profit, before intangible amortisation
and tax, is €62.3 million, an increase of 15%, and
fully diluted earnings per share, measured on the
same basis, increased 14% to 23.02 cent.
The Company remains committed to rewarding
shareholders with improved dividend payments and
this is reflected by a proposed final dividend of
5.33 cent per share, an increase of 15% over the
2006 final dividend. When combined with the interim
dividend of 1.97 cent per share, the proposed final
dividend brings the total dividend payable for 2007
to 7.30 cent per share, an increase of 15% on the
2006 total dividend.
Pharma Wholesale
2007 has been another year of strong performance
from our Pharma Wholesale business with sales,
profits and market share all increasing over the
year. The Pharma Wholesale division continues to
provide a top-quality, customer focused service to
our independent pharmacy customers and gives
them access to a full range of support services
enabling them to compete effectively in the
marketplace.
Our Republic of Ireland based pharmaceutical
wholesale business, United Drug Wholesale
(UDW), has further enhanced its position as the
leading wholesaler supporting independent retail
pharmacy in the growing Irish pharmaceutical
market. In the Irish retail pharmacy market,
UDW’s dynamic owner managed, independent
customers continue to outperform the corporate
owned pharmacies of our wholesale competitors.
As a result, we have again been able to further
increase our market share in a market that
continues to show good volume growth. A
significant focus for UDW during the year has
been Government intervention in the market. A
new four year agreement on drug prices in the
Republic of Ireland market, announced in 2006,
took effect on 1 March 2007. The new price
agreement reduced growth in the market, in line
with our expectations. The transition to the new
pricing regime was very well managed within our
Pharma Wholesale business and provides certainty
on pricing until late 2010.
Liam FitzGerald
Chief Executive
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On 17 September 2007, after completing its review
of the Irish Pharmaceutical Wholesaling sector, the
Irish Health Service Executive (HSE) announced
its intention to reduce the reimbursement price
it pays to community pharmacy for any medicines
that it funds via various HSE schemes. Discussions
continue in relation to this matter but the
announced measure will result in a reduction in the
profitability of community pharmacy in Ireland.
We have again invested in automation within
our businesses during 2007, to further improve
productivity levels and to continue to drive
reductions in our key cost to sales ratios. This has
been a consistent focus within our business and
allows us to manage the significant forecasted
volume growth without significant cost growth, and
to continue to provide the best possible service to
our customers.
Within the UDW business, niche areas such as
Ostomy supplies and our OTC supplies business,
Profitlines, have performed well during the year.
They form part of a broad range of support
services for our independent community pharmacy
customers. Services such as these supplement
our core offering which is a top-quality, customer-
focused wholesale service at a competitive cost.
On 1 October 2007, we commenced supply to the
Boots pharmacy chain of 43 shops in the Republic
of Ireland. This will substantially increase sales and
volumes within the business.
In Northern Ireland, our Sangers business has had
another good year with sales, profits and market
share all increasing and significant cash flows
being generated. In an environment of ongoing
Government cost saving interventions in this
market over recent years, strong underlying volume
growth continues to underpin value growth in the
market. Sangers continues to thrive within this
market, through a continuous focus on customer
relationships and cost improvement.
During the past year, a number of pharmaceutical
manufacturers in the UK market have introduced
a variety of ‘Direct to Pharmacy’ schemes through
which the manufacturer seeks to develop a closer
relationship with community pharmacy. A significant
amount of time and effort has been spent in
Sangers during 2007 in amending our IT and
general business processes to allow us to change
our business model to successfully adapt to this
change in the market. We are already servicing
this market in Northern Ireland and, as the leading
player in the market with the most efficient and
flexible business processes, we are well placed
to benefit further from this change in market
structure.
In May 2007, we acquired Craig & Hayward, an
Oxfordshire based distributor of specials medicines.
A ‘specials medicine’ is a specially prepared
product manufactured to meet specific patients’
prescription requirements. Craig & Hayward act as
a ‘one stop specials shop’ for the retail pharmacy
sector in the UK.
Craig & Hayward has performed well since
acquisition and the management team is now
focusing on leveraging the Group’s existing
customer relationships to further expand its
business base.
Each of the three business units within the Pharma
Wholesale division have had a very successful
year, and despite operating under different market
conditions, each has increased sales, profits and
market share during the period. Overall, despite
exposure to markets which are the focus of
ongoing Government cost saving initiatives, there
is very strong underlying growth in our markets
driven by increasing and ageing populations and
the increased demand for the medicines and
services we supply. Within these growth markets,
our business units are well placed to continue to
prosper based on our strong market positions, our
focus on efficiency and our customer relationships.
Supply Chain Services
The Supply Chain Services division is focused
on providing outsourced logistics and related
services to pharmaceutical, biotech and veterinary
manufacturers. Development in this division is
based on adding a range of high value-add,
higher margin services in growth areas that
are complementary to the core logistics offering
in existing and new markets. The division has
Chief Executive’s review (continued)
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recorded strong revenue and profit growth during
the year and is well positioned to exploit future
growth opportunities.
During the year, this division strengthened its
position as a comprehensive supply chain solutions
provider for the pharmaceutical industry. The
acquisition of two contract packaging companies,
Budelpack in Belgium and Pharma Logistics
Investments (PLI) in The Netherlands, were
significant milestones as they represent the Group’s
first businesses in Continental Europe. These
acquisitions add to our successful UK packaging
business, TD Packaging, further enhancing the range
of packaging solutions we provide and placing the
Group in a good position to capitalise on the growing
European Pharma contract packaging opportunities.
Our specialist supply chain solutions provider for
vaccines in the UK, MASTA, performed very well
during the year. MASTA offers route-to-market
services to the vaccine manufacturer as well as
administering vaccines to the travelling public
through wholly owned and partnered clinics. Our
commitment to the specialist distribution area was
further demonstrated in Ireland by the investment
in, and successful operation of, the national vaccine
contract for the HSE and the acquisition of an
interest in Temperature Controlled Pharmaceuticals
(TCP). TCP is a cold-chain logistics and specialist
home care provider.
Our pre-wholesale business in Ireland, United Drug
Distributors, had a solid performance during the
year, benefiting from efficiencies accruing from
high class infrastructure, while operating in a
highly competitive environment. A smaller part of
this division is our consumer products business,
trading as Pemberton. Considerable time has been
invested in this business in the current year and
it has now been restructured to produce a more
streamlined and efficient operation.
In the UK, our joint venture with Alliance Boots,
UniDrug Distribution Group (UDG), had an excellent
year. UDG provides full logistics services to
pharmaceutical manufacturers and continues to
strengthen its position in the growing outsourced
pharma logistics market in the UK.
The Supply Chain Services division is well
positioned to continue to provide value-added
solutions for customers and to grow earnings for
shareholders.
Medical & Scientific
The 2007 financial year has seen continued strong
growth and significant development in the Medical
& Scientific (M&S) division, both in Ireland and the
UK. The growth is based on a focused provision of
best-in-class sales, technical services and back-
office support to high quality, technology-driven,
medical equipment and devices manufacturers. The
development comes through broadening the range
of clinical areas that we service, both organically
and through acquisition.
M&S Ireland produced another year of record
profits for the division. Particular areas of success
included the introduction of a comprehensive
range of infection control products from Molnycke
Healthcare and continued expansion of our hyper
immunoglobulins products business, sourced from
Biotest. Strong sales in the year saw us build
on our position as a leading supplier of infusion
devices and associated consumables, representing
the Alaris product from Cardinal Health. The
Scientific and Clinical Diagnostics business unit
delivered another strong performance, built around
the product offerings of Sysmex and Tosoh.
In Northern Ireland, the combined businesses
of Vector Scientific, Primacare and Ulster
Anaesthetics continued strong sales and profit
growth. Particular successes were the first UK
placements of the new Sysmex analyser, the
CS2100, resulting in increased market share.
In the UK, our endoscopy business, Endoscopy UK
(EUK), had a very successful year. Our offering of
advanced products combined with strong clinical
support continues to be well received in the private
hospital sector. 2007 saw significant breakthroughs
into the mainstream NHS sector, driven, in part, by
a programme of increased cancer screening and
also by improved market coverage. EUK is confident
of building on this position.
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Chief Executive’s review (continued)
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Our core UK businesses of Mantis Surgical and
New Splint continued their growth trend during
the year, with both companies expanding the size
and scope of their sales teams. New Splint hosted
a revision knee-surgery symposium in June 2007
where over 50 specially invited orthopaedic
surgeons spent two days in the presence of
an eminent orthopaedic faculty discussing the
management of this highly specialised area of
surgery. The symposium was also attended by
senior management from LINK, our manufacturer
partner.
M&S UK was further strengthened by the
acquisition of Pyramed in February 2007. Pyramed
represents a range of clinically differentiated
surgical products in the cardiology, radiology,
neuroradiology and cardiothoracic sectors.
During the year both Pyramed and Presearch, our
Analytical Chemistry business, were successfully
integrated into our Basingstoke headquarters,
thereby benefiting from cost efficiency while
gaining access to a quality administrative and
logistics infrastructure.
Our investment in expanding our clinical training
resource in support of the daVinci surgical robot
was validated by strong sales growth in the
year. Of particular note was the purchase of two
systems in Ireland, in the Gynaecology and Urology
specialities, which for the first time offers Irish
patients direct access to the significant patient
benefits of this surgical approach.
Once again, the M&S division is well placed to deliver
further sales and profit growth for the year ahead.
Contract Sales Outsourcing
The Contract Sales Outsourcing (CSO) division
provides flexibility to pharmaceutical manufacturers
in the deployment of their sales effort. This
flexibility is provided by delivering excellence in the
recruitment, training and administration of sales
representatives and nurse advisors and through
solutions that add value to the manufacturers’
sales efforts. The Division, which comprises market
leading businesses in the UK and Ireland along with
a small US operation, performed well during the
year and recorded very good growth in revenue and
profits. The strategy for the division is to continue
to grow and develop the existing businesses
while broadening the revenue streams both
geographically within CSO and by diversification into
selected complementary service offerings.
2007 has seen the successful integration of the
existing UK CSO businesses, Ashfield and In2Focus.
The combined entity, now re-branded as Ashfield
In2Focus, provides a comprehensive service
offering to pharma manufacturers and is now a
more efficient organisation. Ashfield In2Focus
remains as the supplier of choice for the provision
of field based sales and nursing services in the UK
pharma marketplace.
In the UK, pharmaceutical manufacturers continue
to restructure their sales efforts and seek the
increased inbuilt flexibility which is achieved via
the use of a CSO. During 2007, companies such
as Pfizer, Sanofi Aventis and Janssen-Cilag
significantly downsized their in-house sales forces
in the UK market and replaced much of that sales
effort with outsourced sales solutions. Many other
companies are known to be actively considering new
business models, to take advantage of the flexibility
offered by CSO.
We expect this trend to continue, potentially
resulting in fewer representatives directly
employed but with a much higher proportion
outsourced. Ashfield In2Focus is well positioned to
benefit from this trend, with the most sophisticated
and extensive offering. During the financial year,
new business has been won with AstraZeneca,
Pfizer, Nycomed, Solvay, Roche Diagnostics and
Daiichi Sankyo.
Ashfield In2Focus Professional Nursing Services
has continued to develop strongly, with a move
towards more innovative programmes tailored to
the individual and local needs of both our clients
and the NHS. The first ever industry sponsored
service redesign programme was launched in July
in partnership with Schering Plough, and we have
had significant business wins with AstraZeneca,
Sanofi Aventis and Convatec for the provision of
bespoke nursing services.
�7
The marketplace within Ireland continues to be
buoyant, which coupled with Ashfield Ireland’s
continued focus on business development and
diversification of service offering has led to
another strong performance with the company
exceeding targets. Notable business wins include
Schering Plough, Boehringer Ingelheim, Recordati
and Astellas. Ashfield Ireland is also developing its
Sales Force Effectiveness (SFE) function, which
has been successfully pioneered in the UK, and has
enjoyed recent success in this area with Janssen-
Cilag, AstraZeneca, MSD and Schering Plough.
Our SFE offering continues to enjoy international
success and this year our largest ever event was
held in Japan, which accommodated 1,000 people.
We have now held events in 13 different countries.
The USA continues to be well positioned to
deliver growth in what is a large and somewhat
underdeveloped contract sales marketplace. This
year we have won a new sales contract team with
Pam Labs and has introduced two new services to
the US market. The new SFE programme has been
well received by the US pharmaceutical and device
companies and this year we have run ten different
SFE events within six different pharmaceutical
companies. Additionally, we have started a new
nurse adviser service and have secured two new
contracts with Novartis.
Another important development for the CSO
division occurred just after the end of the financial
year with the acquisition of Alliance Healthcare
Information in the US. Alliance provides a range of
solutions to support pharma companies’ sales and
marketing efforts in the US market. This acquisition
will allow us to bring additional scale to our existing
US business and to broaden our service offering
and customer relationships in the US market.
Group Development and Outlook
During the 2007 financial year the Company further
broadened the range of services available for our
healthcare manufacturer customers in existing
and new markets and enhanced its offering to our
retail pharmacy customers. The Company now has
a more diversified earnings base and will continue
to pursue its ambition to be a dynamic, leading
international healthcare services organisation.
The Company has a well developed physical
infrastructure, a strong management talent
pool and access to significant capital resources
enhanced by strong internally generated cash
flows. The ability to leverage each of these assets
and pursue a range of exciting opportunities
within the healthcare services arena leaves us
very confident in our ability to continue to produce
strong growth in the business, continuing our long
term successful track record.
I would like to extend my sincere thanks and
appreciation to Dr. Dermot Egan on his retirement
from the Board of United Drug, following 15 years
service. Dermot’s contribution to the growth of the
Company over the years has been immense, and he
has been a source of great guidance and advice to
me personally. I would like to wish him well in the
future.
Liam FitzGerald
Chief Executive
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FOCUS ON ACQUISITIONS
We recognise that acquisitions are an ongoing part of our growth story. The Group is committed to continuing to find acquisition opportunities that will strengthen our position in key markets.
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Barry McGrane
Finance Director
Finance review
Results
2007 has been an excellent year for United Drug.
In financial terms some of the highlights of the
year include further record results, with continued
double-digit profit, earnings and dividend growth,
a continuation of the trend of increasing margins
across the Group and all of this complemented by
very strong cash flows leaving us with a strong
balance sheet at the end of the year. A detailed
review of the businesses within the Group and the
factors impacting on the financial performance is
contained in Liam FitzGerald’s Chief Executive’s
review. The Group’s key financial performance
indicators are discussed in the following paragraphs.
Profit growth
Profit before tax and amortisation of intangible
assets increased by 15% to €62.3 million. Within this
pre tax profit growth, operating profit, again before
amortisation of intangible assets, has increased
by 17% to €66.6 million. Operating profit growth is
driven by strong organic growth in each of our four
divisions complemented by accretive acquisitions.
The 2007 results include a first time contribution
from Pyramed, Budelpack, Craig & Hayward and PLI,
each of which was acquired during the financial year.
The net interest charge for the year was €4.3
million an increase of €1.5 million over the 2006
charge. The increase in the net interest charge
reflects the additional cost of financing the recent
acquisitions and an increase in interest rates on
short term borrowings. Interest cover for the year
was 15.6 times (2006: 20.8 times).
Earnings growth
Earnings per share for the year grew by 14%
to 23.02 cent. This growth in earnings is driven
by the 15% growth rate in pre tax profits, being
diluted slightly by the issue of some new shares
during the year. A total of 4.76 million new shares
were issued during the year. 375,939 of these
shares were issued as part consideration for one
of the acquisitions completed during the year with
the remainder issued under the Company’s scrip
dividend share scheme and other share schemes
and the exercise of share options.
Dividends
The final dividend proposed for 2007 is 5.33 cent
per share, an increase of 15% over the 2006 final
dividend. The final dividend along with the interim
dividend paid of 1.97 cent per share gives a total
dividend for the year of 7.30 cent per share an
increase of 15% over the 2006 total dividend. The
dividend is covered 3.15 times (2006: 3.18 times) by earnings per share.
In accordance with International Financial
Reporting Standards the final dividend proposed
is not provided for in our balance sheet as at 30
September 2007. This proposed dividend does not
become payable until approved by shareholders at
our Annual General Meeting.
Cash flow
The Group has generated strong cash flows
from trading activities during the year. Before
acquisition expenditure the Group recorded a
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cash inflow of €47.9 million, up from €42.9 million
in 2006. The strong cash flow performance is as
a result of tight working capital management and
limited capital expenditure requirements across the
business. Expenditure on acquisitions completed
during the year and deferred consideration
payments on acquisitions completed in prior years
amounted to €64.0 million (2006: €40.6 million). The
Group recorded a net cash outflow of €16.1 million
after the acquisition expenditure.
Group financing
Year end net debt amounted to €68.3 million (2006: €51.7 million). This amount is made up of gross
debt of €125.8 million and short-term cash deposits
of €57.5 million. Most of this debt is repayable after
more than one year and a significant proportion
is repayable after more than five years. A more
detailed analysis of this debt is included in note 22,
financial instruments, to the financial statements.
At the end of the year our gearing (debt/equity)
ratio was 20.6% (2006: 18.3%).
Shareholders’ funds
Shareholders’ funds increased by €47.8 million,
to €331.1 million, at 30 September 2007. The
increase in shareholders’ funds is as a result
of the retention of profits after tax and dividend
payments.
Financial risk management
The management of the financial risks facing
the Group is governed by policies reviewed and
approved by the Board of Directors. These policies
primarily cover liquidity risk, credit risk, interest
rate risk and currency risk. The primary objective
of the Group’s policies is to minimise financial risk
at reasonable cost. The Group does not trade in
financial instruments.
The Group uses financial instruments throughout
its businesses: borrowings and cash resources
are used to finance the Group’s operations;
trade debtors and creditors arise directly from
operations; and interest rate swaps and forward
foreign currency contracts are used to manage
interest rate and currency risks and to achieve the
desired currency profile of borrowings. Further
details of financial instruments used by the Group
are given in note 22 to the financial statements.
Liquidity risk management
The Group ensures that it has sufficient financing
facilities available through cash flow generated
from operating activities, loan notes issued,
committed banking facilities and access to equity
markets to meet its projected short and medium
term funding requirements.
Interest rate risk management
The Group finances its operations through a
mixture of retained profits and bank borrowings.
The Group’s policy is to borrow in the desired
currencies at both fixed and floating rates of
interest and use interest rate swaps to generate
the desired interest profile and to manage the
Group’s exposure to interest rate fluctuations.
Currency risk management
United Drug’s reporting currency and that in which
its share capital is denominated is the euro. Given
the nature of the Group’s businesses, exposure
arises in the normal course of business to other
currencies, principally sterling.
The majority of the Group’s activities are
conducted in the local currency of the country
of operation. The primary foreign exchange risk
arises from the fluctuating value of the Group’s net
investment in different currencies. Borrowings, to
finance acquisitions or major capital expenditure
programmes, are made in the currency of the
country of operation.
Where sales or purchases are invoiced in other
than the local currency and there is not a natural
hedge with other activities within the Group, the
policy is to eliminate at least 50% of the currency
exposures through forward currency contracts.
A proportion of the Group’s operating profits are
denominated in sterling and, where appropriate,
foreign currency hedges are put in place to
minimise the related exchange rate volatility.
Barry McGrane Finance DirectorU
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Finance review (continued)
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FOCUS ON INNOVATIVE SpECIAlIST SUpplY CHAIN SOlUTIONS
Our clients are continuously challenging us to develop new supply chain solutions around specialist products and services to meet their emerging
needs. Our packaging and distribution services focus on innovating continuously around the challenges presented to us by our clients.
22
United Drug recognises the importance of Corporate Social Responsibility (CSR) in the way it manages its business and it is imbedded throughout the Group. We understand our responsibilities to our stakeholders who are; our employees, our customers and suppliers, our shareholders, the environment and the community at large. The Group is committed to the highest professional and ethical standards when interacting with our stakeholders. The Group’s reputation and the trust of its stakeholders are the foundation of its success and are of fundamental importance for the future of the organisation.
EmployeesWe recognise that our clients and customers experience the quality and professionalism of our services through the people they encounter on a day-to-day basis. Consequently we believe our employees are our greatest asset.
Our Human Resource policies focus on ensuring equal opportunities for all and to promote diversity throughout our workforce to the greatest possible extent. We are committed to harnessing the strength which this brings to the Group.
We aim to engage with employees in a way that will assist all to achieve their maximum potential. As a Group we are investing in and developing talent so that our people are a driver for growth.
People by Geography
People by Division
Health and SafetyUnited Drug is committed to providing a safe and comfortable working environment, with the highest regard for the health and safety of employees, customers, suppliers and the community at large.
We ensure compliance with relevant statutory requirements and best practice guidelines issued by national health and safety authorities, and implement and promote appropriate safe working practices throughout the Group.
MarketplaceWe play a leading role in the provision of healthcare services and work closely with independent pharmacists and local healthcare providers to advise and inform the communities we serve. Our business contributes to supporting the best level of care to patients and acts in their best interests.
The Group is committed to providing the highest quality services and developing and maintaining long-standing relationships with our customers and suppliers.
As part of our commitment to quality, we have made significant investment in ensuring our facilities meet the highest industry standards for packaging, storage and delivery of product, and we ensure our people maintain the highest quality standards.
EnvironmentWe are committed to the conservation of the environment in its broadest sense and recognise that certain resources are finite and must be used responsibly. We ensure that relevant statutory requirements and the highest standards are adhered to and apply good environmental practice in providing services to our customers.
We constantly seek to limit energy use in each facility. We also aim to maximise the life of all refrigeration equipment and to minimise the risk of gas emissions by ensuring best environmental practice.
Across the Group, we operate programmes to ensure the responsible disposal of packaging, and re-use and recycle as much as possible. We actively participate in the Irish Repak packaging waste management and the Waste Electrical and Electronic Equipment (WEEE) schemes. We also operate programmes to collect, and safely dispose of, non-recyclable waste, ensuring controlled and licensed neutralisation and disposal in collaboration with regulators.
Corporate social responsibility
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Students at Ashby Willesley Primary School learning through an interactive
whiteboard funded by Ashfield In2Focus under their Corporate Citizenship
programme. Secondary school Headteacher Vivien Kellar-Garnett said:
“Ashby School is incredibly fortunate to have such a forward-thinking
and progressive company as a partner. The support we’ve received
on all levels has been second to none.”
Liam FitzGerald addressing coffee growers in
a village in the Rwenzori Mountains, Uganda,
through Traidlinks, a not-for-profit organisation,
which aims to facilitate business development of
African companies through a mentoring process
whereby Irish companies offer support and technical
advice and expertise to build their business.
CommunityWe believe that a responsible approach to developing relationships between companies and the communities they serve is a vital part of delivering business success. Therefore, we support local community and charity initiatives both financially and by the sharing of our time and skills. The Group also actively encourages and supports participation by employees in such projects.
Education and the welfare of children is an important focus for the Group. During the year the Group facilitated employees participating in the Schools Business Partnership programme. Sangers and Ashfield In2Focus also strengthened relationships with schools in their local communities through their Business in the Community and Corporate Citizenship programmes respectively.
In April 2007, the Group seconded an employee to ‘Goal’, an Irish humanitarian NGO, for one year. This secondment demonstrates the Group’s commitment to assisting the wider community.
The Group also supports Liam FitzGerald in his role as Chairman of Traidlinks and in his capacity as a Board member of the Barnardos’ ‘Learning through Poverty’ Campaign.
The Group will be a primary corporate supporter of Tedfest ’08, Ireland’s ‘Father Ted Round Ireland Milk Float Push’ in aid of Down Syndrome Ireland and their sister group, Down Syndrome Association of Northern Ireland, scheduled to commence later this month.
ConclusionUnited Drug believes in the value of good corporate social responsibility practices for the Group and for all stakeholders. We are committed to continue improving our CSR programme.
Details of our Group policies and activities are also available on the Group’s website www.united-drug.ie
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FOCUS ON RESpONSIBIlITY
We are committed to the conservation of the environment in its broadest sense and recognise that certain
resources are fi nite and must be used responsibly.
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Consolidated financial statementsYear ended 30 September 2007
Contents
Directors’ report 26
Directors’ statement on corporate governance 30
Report of the Remuneration Committee on directors’ remuneration 36
Statement of directors’ responsibilities 41
Independent auditor’s report 42
Group income statement 44
Group statement of recognised income and expense 45
Group balance sheet 46
Group cash flow statement 47
Significant accounting policies 48
Notes forming part of the Group financial statements 56
Company statement of recognised income and expense 88
Company balance sheet 89
Company cash flow statement 90
Notes forming part of the Company financial statements 91
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Directors’ report
The directors present their annual report and audited financial statements for the year ended
30 September 2007.
Review of business
United Drug is a leading healthcare services provider involved in the areas of Pharmaceutical Wholesaling,
Supply Chain Services, Contract Sales Outsourcing and Medical & Scientific sales and distribution in Ireland,
the UK and Continental Europe. Detailed commentaries are contained in the Chairman’s statement, Chief
Executive’s review and Finance review.
Dividends
An interim dividend of 1.97 cent per share was paid during the year (2006: 1.71 cent per share). A final
dividend of 5.33 cent per share is proposed (2006: 4.64 cent per share).
Directors and secretary
Ms. A. Flynn, Mr. P. Gray, Mr. G. McGann and Mr. B. McGrane will retire from the Board, in accordance with
the Articles of Association and, being eligible, offer themselves for re-election.
Dr. D. Egan retired from the Board on 20 November 2007.
Ms. C. Heeley resigned as Company Secretary on 20 July 2007 and Ms. K. Geoghegan was appointed as
Company Secretary on 29 August 2007.
There has not been any contract or arrangement with the Company or any subsidiary undertaking during, or
at the end of, the financial year in which a director of the Company was materially interested and which was
significant in relation to the Company’s business. Details in respect of directors’ remuneration are provided
in the Report of the Remuneration Committee on directors’ remuneration on pages 36 to 40.
Results
Details of the results for the year are set out in the Group income statement on page 44 and related notes.
Treasury shares
During the year ended 30 September 1998, the Group acquired Dublin Drug Company Limited for
consideration of €11,726,031, which at the date of its acquisition held 2,225,438 ordinary shares of
32 cent each in United Drug plc which had a nominal value of €706,431 and at the date of their acquisition
represented 9.84% of the Company’s issued ordinary share capital. Subsequent to the acquisition, these
ordinary shares were converted into redeemable ordinary shares of 32 cent each.
On 29 January 2002, 1,150,000 of these redeemable ordinary shares of 32 cent each were redeemed at
their market value both out of the proceeds of a placing in the market of 1,150,000 new ordinary shares of
32 cent each and the distributable reserves of the Company, in accordance with Article 3A of the Articles of
Association of the Company and Section 207 of the Companies Act, 1990, and immediately thereafter were
cancelled.
During the year ended 30 September 2003, the Company’s shareholders approved a 7 for 1 split of the
ordinary share capital and redeemable ordinary share capital of the Company. At 30 September 2007, Dublin
Drug Company Limited continued to hold 7,528,066 redeemable ordinary shares and they have been treated
as treasury shares in the Group balance sheet in accordance with the requirements of Irish Company Law.
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During the year ended 30 September 2005, a subsidiary undertaking, Ashfield Healthcare Limited, acquired
95,000 ordinary shares in the Company, on the open market, at a cost of €365,979. These shares have also
been treated as treasury shares in the Group balance sheet in accordance with the requirements of Irish
Company Law.
The 7,623,066 treasury shares (2006: 7,623,066) held by the Group do not rank for dividend and have
therefore been excluded from the weighted average number of shares in issue used in the calculation of
earnings per share, as set out in note 7.
At 30 September 2007 the 7,623,066 treasury shares represented 3.23% (2006: 3.30%) of the issued
ordinary and redeemable ordinary share capital of the Company.
Interests of directors and secretary
The interests, all of which were beneficially owned, of the directors, the secretary and their families in the
share capital of the Company or Group companies at 30 September 2007 and 1 October 2006 were as follows:
30 September 2007Ordinary shares
1 October 2006(or date of
appointment if later)Ordinary shares
R. Kells 144,123 124,123
L. FitzGerald 673,619 420,188
C. Corbin 1,810,160 1,779,735
D. Egan* 158,200 158,200
A. Flynn 166,211 162,780
P. Gray 8,000 8,000
G. McGann 8,000 8,000
K. McGowan 48,007 47,320
B. McGrane 397,050 363,329
J. Peter - -
K. Geoghegan 6,215 6,215
* Dr. D. Egan retired from the Board on 20 November 2007
On 21 November 2007, Mr. B. McGrane exercised share options thereby increasing the number of ordinary
shares held by 40,000. The price per share option exercised was €1.01.
There have been no further changes in the interests of the directors, the secretary and their families in the
share capital of the Company or Group companies between 30 September 2007 and 8 January 2008.
Except as disclosed above, no director or secretary held any other interest in shares of any Group
company during the year. Details of directors’ and secretary share options are set out in the Report of the
Remuneration Committee on directors’ remuneration on pages 36 to 40.
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Substantial interests
As at 8 January 2008, the Company had received notification of the following interests in its ordinary share
capital:
Bank of Ireland Nominees Limited 19.04%
Bank of America Corporation 7.71%
FMR Corporation/Fidelity International Limited 6.01%
Bank of Ireland Asset Management Limited 5.00%
Each notification states that these shareholdings are not beneficially owned by them.
Share price
The Company’s shares are listed on the London and Irish Stock Exchanges. The price of the Company’s ordinary
shares ranged between €3.28 and €4.25, with an average price of €3.85 during the year ended 30 September
2007. The share price at the end of the 2007 financial year was €3.28 and the market capitalisation of the
Group was €749 million. On 8 January 2008, the share price was €3.90 and the market capitalisation of the
Group was €893 million. The directors have proposed a final dividend for 2007, subject to shareholder approval
at the Annual General Meeting, of 5.33 cent per share (2006: 4.64 cent), thereby giving a total dividend for the
year of 7.30 cent per share (2006: 6.35 cent).
Principal risks and uncertainties
Under Irish company law, the Group and the Company are required to give a description of the principal
risks and uncertainties which they face.
Risk management is an integral part of the Group’s business process. A detailed risk register is maintained
by each division within the Group and plans to address the identified risks are updated and reviewed by the
executive directors on a regular basis. The consolidated risk register is also reviewed and approved by the
Audit Committee and is the subject of a report to the Board.
The risks and uncertainties which are currently judged to have the largest impact on the Group’s
performance are noted below.
n The Group faces strong competition in its various markets and if it fails to compete successfully, market
share and profitability may decline.
n Distribution of third party products by the Group is currently by agreement. There is no certainty that
these agreements will be renewed when they expire, which could lead to a decline in sales and profitability.
n Changes in government regulations, particularly in the healthcare and pharmaceutical sectors, may
adversely affect the Group.
n Movements in foreign currency exchange rates and higher interest rates may adversely affect the Group.
The management of these risks is detailed in note 22 to the financial statements.
n The Group is subject to stringent Irish Medicines Board (IMB) medical and quality regulations and any
significant change in these could result in increased compliance costs which could adversely affect
profitability.
n Should the Group not be able to fulfil the demand for its products due to circumstances such as the loss
of a packaging or storage facility or disruptions to its supply chains, sales volumes and profitability could
be affected.
Directors’ report (continued)
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n Group IT facilities could be subject to hacking or viruses, which could result in downtime, which in turn
could lead to a decline in sales and profitability.
n The success of the Group is built upon a strong effective management team committed to achieving
a superior performance in each of our divisions. The loss of key personnel could for a time have a
significant impact on business performance.
The Group has a comprehensive system of risk management and internal controls as detailed under ‘Internal
controls’ in the Directors’ statement on corporate governance on pages 34 and 35, which are intended to
deal with and mitigate such risks and uncertainties.
Financial risk management
As also required by Irish company law, the financial risk management objectives and policies of the Group
and the Company, including hedging and the exposure of the Company and the Group to financial risk are set
out in the Finance review on pages 19 and 20 and in note 22 to the financial statements.
The principal key performance indicators used by the Group to measure performance are detailed in the
Finance review on pages 19 and 20.
Accounting records
The directors believe that they have complied with the requirements of Section 202 of the Companies Act
1990 with regard to books of account by employing accounting personnel with appropriate expertise and by
providing adequate resources to the financial function. The books of account are maintained at United Drug
House, Magna Drive, Magna Business Park, Citywest Road, Dublin 24.
Political donations
During the year, the Group and Company did not make any donations disclosable in accordance with the
Electoral Act 1997.
Subsidiaries
The Group’s significant subsidiary undertakings as at 30 September 2007 are detailed in note 40.
Important events since year end
The Group has acquired three additional companies since 30 September 2007, details of which are disclosed
in note 25.
Auditor
In accordance with Section 160(2) of the Companies Act 1963, the auditor, KPMG, Chartered Accountants,
will continue in office.
On behalf of the Board
R. Kells
Director
L. FitzGerald
Director
8 January 2008
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Directors’ statement on corporate governance
The directors are committed to maintaining the highest standards of corporate governance. The updated
version of the Combined Code on Corporate Governance of the Irish and London Stock Exchanges (‘the Code’)
became applicable for the Group on 1 October 2007. This statement sets out how the relevant principles and
provisions of the Code are applied by the Group.
Board of directors
The Board is responsible for the proper management of the Group, takes all significant strategic decisions
and retains full and effective control while allowing operating management sufficient flexibility to run the
business efficiently and effectively within a centralised reporting framework.
The Board has reserved certain items for its review including, inter alia, the approval of the annual
financial statements, budgets, corporate plans, significant acquisitions and disposals, investments in joint
ventures, significant contracts, property transactions, major investments, significant expenditure and
senior management appointments. The Group has a comprehensive process for reporting management
information to the Board. The Board is provided with monthly information on a timely basis, which includes
key performance and risk indicators for all aspects of the business. The Board also delegates some of its
responsibilities to Board Committees, details of which are set out below.
The roles of Chairman and Chief Executive are separate with a clear division of responsibility between
them. The Chairman has overall responsibility for ensuring the effective and efficient working of the Board.
He is responsible for ensuring that the Board considers the key strategic risks facing the Group and
that the directors receive timely and accurate information. He also ensures appropriate interaction with
shareholders. The Chief Executive is responsible for developing and delivering the Group’s strategic plan and
is accountable for its overall performance and day-to-day management.
The appointment and removal of the Company Secretary is a matter for the Board. All directors have access
to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures
are followed and that applicable rules and regulations are complied with.
The Group’s professional advisers are available for consultation by the Board as required. Individual
directors take independent professional advice, if necessary, at the Group’s expense.
On appointment, all directors are provided with briefing documents on the Group and its operations as well
as training where relevant. Visits to Group businesses and briefings with senior management are arranged
as appropriate and ongoing briefings are also provided.
Membership
During the year, the Board comprised of four executive and six non-executive directors. On 20 November
2007, Dr. D. Egan retired as a non-executive director. Biographical details are set out on pages 6 and 7.
The Board has evaluated the independence of each of its non-executive directors and has determined that,
throughout the reporting period, all were independent. In arriving at this conclusion, the Board considered
many factors including, inter alia, whether any of the non-executive directors:
n has been an employee of the Group;
n has, or had within the last three years, a material business relationship with the Group;
n receives remuneration from the Group other than a director’s fee;
n has close family ties with any of the Group’s advisers, directors or senior employees;
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n holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies; or
n represents a significant shareholder.
In particular, the Board considered the position of Dr. D. Egan in the context of the Combined Code. Dr. D. Egan
was appointed to the Board in 1992 and as his length of service exceeded nine years, the Code provides that
an explanation be made to shareholders concerning his independence. The Board considered the independence
and integrity of Dr. D. Egan to be beyond doubt. Dr. D. Egan was financially independent of the Group. Through
his considerable business experience, he made a valuable and unique contribution to the Board in what has
been a period of considerable growth and development.
All of the non-executive directors bring judgement to bear on issues of strategy, performance, resources, key
appointments and standards. The Board considers that between them, the directors bring a range of skills,
knowledge and experience necessary to lead the Group.
Dr. D. Egan retired and Mr. G. McGann was appointed as the Senior Independent non-executive Director
on 20 November 2007. Mr. G. McGann is available to shareholders who have concerns, for which contact
through the normal channels of Chairman, Chief Executive or Finance Director, have failed to resolve or for
which such contact is inappropriate. He is also available to meet major shareholders on request.
Terms of appointment
The Group’s Articles of Association provide that one third of directors must retire by rotation each year and
that each director must submit themself for re-election at the Annual General Meeting at least every three
years. Directors appointed by the Board must submit themselves for re-election at the first Annual General
Meeting following their appointment. All directors over the age of seventy must submit themselves for re-
election at the Annual General Meeting on an annual basis.
The non-executive directors are engaged under the terms of a letter of appointment. A copy of the standard
letter of appointment is available from the Company Secretary on request. It is Board policy that non-
executive directors are normally appointed for a period of three years. Notice periods of executive directors
do not exceed a period of greater than one year.
Meetings
The Board routinely meets at least six times a year and additionally as required as a result of time critical
business needs. Details of directors’ attendance at these meetings are set out in the table on page 35.
The Chairman sets the agenda for each meeting in consultation with the Chief Executive and the Company
Secretary. The agenda and board papers, which provide the directors with relevant information, to enable
them to fully consider the agenda items in advance, are circulated prior to each meeting.
Performance evaluation
The Board conducts an annual review of its own performance and that of its committees and of each
individual director. During the year this review was primarily achieved through discussions held by the
Chairman with directors on both an individual and group basis and a detailed questionnaire was also
completed by each director. In addition, the Chairman also independently met with the non-executive
directors. The Chairman summarised the results of the evaluation processes and reported them to the Board
for its consideration, the results of which were satisfactory. The Senior Independent non-executive Director
also met with the other non-executive directors to review the performance of the Chairman.
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Share ownership and dealing
Details of directors’ shareholdings are set out on page 27.
The Group has a policy on dealing in shares that applies to all directors and senior management. This policy
adopts the terms of the Model Code as set out in the Listing Rules published by the UK Listing Authority and
the Irish Stock Exchange.
Communication with shareholders
The Group recognises the importance of shareholder communications and has an established investor
relations programme in place to provide information to shareholders. There is regular dialogue between
the executive directors and institutional shareholders as well as general presentations at the time of the
release of the annual and half year results. The Board is subsequently briefed on the views and concerns of
institutional shareholders. The Annual General Meeting is normally attended by all directors. Shareholders
are invited to ask questions during the meeting and the directors are available to meet with them after the
formal proceedings have ended.
Results announcements are sent out promptly to all shareholders. Trading statements are issued in April and
October after the closing of each reporting period end and going forward Interim Management Statements will
be issued in accordance with requirements under the EU Directive 2004/109/EC (‘the Transparency Directive’).
Acquisitions are notified to the market and the Group’s website, www.united-drug.ie, presents information about
the Group including half year and annual results and other announcements. The directors believe that the annual
report and financial statements and other shareholder communications provide a balanced and understandable
assessment of the Group’s position and prospects. The annual report and notice of Annual General Meeting
are sent to shareholders at least 21 working days before the meeting. At the meeting, after each resolution
has been dealt with, details will be given of the level of proxy votes lodged and the balance for and against that
resolution.
Board committees
The Board is assisted by committees of Board members which focus on specific aspects of its
responsibilities. Each committee has specific terms of reference which are available on request from the
Company Secretary. The membership of each committee is set out in this report. Details of attendance at
meetings are set out in the table on page 35. The Chairmen of each of these committees attend the Annual
General Meeting and are available to answer questions from shareholders.
Audit Committee
During the year, the Audit Committee comprised of Mr. K. McGowan (Chairman), Mr. P. Gray and Dr. J. Peter,
all of whom are non-executive directors. The Chief Executive, Mr. L. FitzGerald and the Finance Director,
Mr. B. McGrane, are not members of the Audit Committee but may be invited to attend its meetings. The
Group Internal Auditor attends all meetings. The external auditor also attends meetings and has direct
access to the Chairman for independent discussions.
The Committee meets a minimum of three times a year. During the year under review, the Committee met six
times. Attendance at meetings is set out on page 35.
The Committee has determined that Mr. P. Gray is the Audit Committee financial expert.
Under its written terms of reference, the Audit Committee examines any matters relating to the financial
affairs of the Group. These include review of the financial statements, company announcements, internal
control procedures, risk management systems, accounting policies and compliance with accounting
standards.
Directors’ statement on corporate governance (continued)
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The Committee is responsible for monitoring the effectiveness of the external audit process and making
recommendations to the Board in relation to the appointment, re-appointment and remuneration of the
external auditor. It is responsible for ensuring compliance with the Group’s policy on the provision of non-
audit services by the external auditor. It also reviews the effectiveness of the Group’s internal audit function
and approves the annual internal audit plan.
The Committee discharged its obligations during the year by:
n reviewing the Group’s preliminary announcement of results, annual report, trading statements and half
year results prior to Board approval;
n reviewing the external audit plan as presented by the external auditor in advance of the audit, which
included an assessment of the scope of the work to be performed;
n reviewing a post-audit report from the external auditor including confirmation of their independence;
n reviewing the internal audit work plan and all reports prepared by the Group Internal Auditor;
n reviewing the results of the Group’s risk identification and assessment process.
The Audit Committee regularly monitors the nature, extent and scope of the non-audit services provided
to the Group by the external auditor in order to ensure that this does not impair their independence and
objectivity. It is current Audit Committee policy that where it is deemed to be in the best interests of the
Group, alternative professional advisers, beyond the incumbent external auditor, are engaged to provide
non-audit services. Four key principles underpin the provision of non-audit services by the external auditor,
namely that the auditor shall not:
n audit its own firm’s work;
n make management decisions for the Group;
n have a mutuality of financial interest with the Group; or
n be put in the role of advocate for the Group.
The Committee also reviewed the Group’s practices in respect of the hiring of former employees of the
external auditor and is advised in advance of any such appointments which might be proposed.
Details of amounts paid to the external auditor during the year are set out in note 3 to the financial statements.
Remuneration Committee
The Remuneration Committee consists solely of non-executive directors of the Company and during the
year ended 30 September 2007, it comprised of Dr. D. Egan (Chairman), Mr. R. Kells, Mr. G. McGann,
Mr. K. McGowan and Dr. J. Peter. On 20 November 2007, Dr. D. Egan retired from the Remuneration Committee
and Mr. G. McGann was appointed Chairman. The Chief Executive, Mr. L. FitzGerald, is not a member of this
committee but may be invited to attend its meetings, except those where his own remuneration is discussed and
agreed. The Committee meets at least once a year and attendance at meetings is set out on page 35.
The Remuneration Committee determines the terms and conditions, including annual remuneration and bonus
awards, of the executive directors and advises on the remuneration of senior management. The Committee
also makes recommendations in respect of the remuneration of the Chairman and the non-executive
directors, which are ultimately decided by the Board. The Committee is responsible for reviewing all share
incentive schemes and approving the grant of options under the Executive Share Option Plan. The Committee
also oversees the preparation of the Report of the Remuneration Committee as set out on pages 36 to 40.
The Committee is empowered to use the services of external independent consultants to advise on all
compensation and remuneration matters as required.
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Nomination Committee
During the year ended 30 September 2007, the Nomination Committee comprised of Mr. R. Kells (Chairman),
Dr. D. Egan, Mr. P. Gray, Mr. L. FitzGerald, Mr. G.McGann and Mr. K. McGowan. On 20 November 2007,
Dr. D. Egan retired from this committee.
The Nomination Committee advises the Board on all board appointments. The Nomination Committee meets
at least once per year and additionally as required. The Nomination Committee considers the Board’s
membership, size and composition and recommends changes as required. It also advises on the identification
of suitable candidates for appointment to the Board and its sub-committees. Additionally, the Nomination
Committee oversees the Group’s succession planning process. The Committee is also empowered to use the
services of independent consultants to facilitate the search for suitable candidates as required. Details of
attendance at meetings held during the year are set out on page 35.
Acquisitions and Finance Committee
The Acquisitions and Finance Committee advises the Board on matters relating to acquisitions and during
the year ended 30 September 2007, comprised of Mr. R. Kells (Chairman), Mr. L. FitzGerald, Ms. A. Flynn,
Mr. P. Gray, Mr. G. McGann and Mr. B. McGrane. The Committee meets during the year as required. Details
of attendance at meetings held during the year are set out on page 35.
Corporate social responsibility
The Group’s corporate social responsibility policies and activities are summarised on pages 22 and 23.
Internal controls
The directors have overall responsibility for the system of internal control for the Company and its
subsidiaries and for reviewing the effectiveness of these controls. The directors have delegated the
implementation of this system to executive management. The system of internal control is designed to
manage, rather than eliminate, the risk of failure to achieve business objectives. In pursuing these objectives,
internal controls can provide reasonable but not absolute assurance against material misstatement or loss.
There is a continuous process for identifying, evaluating and managing the significant risks faced by the
Group which has been in place during the year under review and up to the date on which the financial
statements were signed. The Group’s management operates a risk management process which identifies the
key risks facing the business, and reports to the Audit Committee on how these risks are being managed. This
is based on each business unit producing a risk register which identifies its key risks, the probability of those
risks occurring, their impact if they do occur and actions being taken to manage those risks to the desired
level. This information is compiled by executive management, who meet twice annually to discuss these risks,
and other risks faced at group level, and this process culminates in the production of the Group’s risk
register. On an ongoing basis, management ensures that steps are taken to further embed internal control
and risk management into the operations of the Group and to identify any areas for improvement.
The Audit Committee satisfies itself as to the adequacy of the Group’s internal control systems including,
inter alia, accounting controls, computer system security and the internal audit function. The Chairman of the
Audit Committee reports to the Board on significant matters considered by the Committee.
The Group’s system of internal control provides reasonable, though not absolute, assurance that assets are
safeguarded, transactions authorised and recorded properly and that material errors or irregularities are
either prevented or detected within a timely period.
Directors’ statement on corporate governance (continued)
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Key procedures that have been established and are designed to provide effective internal financial control are:
n an organisational structure with clearly defined lines of responsibility and delegation of authority;
n the approval by the Board of comprehensive annual budgets, and the monthly monitoring of performance
against these budgets;
n Board approval is required for all major capital projects;
n the Audit Committee considers all significant internal control matters;
n the existence of an independent internal audit function; and
n internal financial controls are documented and updated on a regular basis within the financial systems
and control manuals.
The directors confirm that they have reviewed and are satisfied with the effectiveness of the system of
internal financial control which operated during the period covered by the financial statements and up to the
date on which the financial statements were signed. In particular, they have considered the significant risks
affecting the business and the way in which these risks are managed, controlled and monitored.
Compliance statement
During the period under review, the Board has taken the necessary steps to ensure compliance with the
provisions set out in Section 1 of the Code.
Going concern
The directors have made enquiries and are satisfied that the Group has adequate resources to continue in
operational existence for the foreseeable future and accordingly, consider it appropriate to adopt the going
concern basis in preparing the financial statements.
Attendance at Board and Committee meetings
Attendance at scheduled Board meetings and Committee meetings during year ended 30 September 2007 is
set out below:
Board Audit Remuneration NominationsAcquisitions and finance
No. of meetings 7 6 3 1 6
R. Kells 7 - 3 1 6
L. FitzGerald 7 *6* - 1 6
C. Corbin 4 - - - -
D. Egan (i) 7 - 3 1 -
A. Flynn 7 - - - 6
P. Gray 5 5 - 1 4
G. McGann 6 - 3 1 5
K. McGowan 7 6 2 - -
B. McGrane 7 *6* - - 6
J. Peter 6 6 2 - -
* In attendance only
(i) Dr. D. Egan retired from the Board on 20 November 2007.
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Report of the Remuneration Committee on directors’ remuneration
The Remuneration Committee
The Remuneration Committee aims to ensure that remuneration packages are competitive and that they will
attract, retain and motivate directors of the quality required and that they link rewards to corporate and
individual performance.
Remuneration policy
Remuneration packages consist of basic salary and benefits, annual performance related bonus comprised of
a cash and share award element, pension and participation in the executive share option scheme. The basic
salaries of executive directors are reviewed annually. The Group pays annual performance related bonuses,
through a cash incentive plan and a share incentive scheme, based on individual performance and the overall
performance of the Group. The Group grants share options, under approved executive share option schemes,
to senior executives across the Group to encourage identification with shareholders’ interests.
The Group also operates an employee share participation scheme. In total there are in excess of 450 employees
of all categories who are shareholders in the Group through the Employee Share Participation Scheme.
Executive directors’ remuneration
Basic salary and benefits
The basic salaries of executive directors are reviewed annually having regard to personal performance,
divisional and/or Group performance, step changes in responsibilities and competitive market practice in the
area of operation. No fees are payable to executive directors.
Annual performance related bonus
Cash incentive plan
Under the performance related cash incentive plan a bonus up to a maximum of 60% of basic salary may be
achieved for meeting clearly defined annual performance targets. The primary performance targets, each
with a maximum potential award of between 20% and 30% of basic salary, relate to the following categories:
1 Individual performance. Strategic priorities and action plans are agreed at the start of the year.
2 Divisional profitability and cost performance. Challenging targets are set each year.
3 Group profitability and cost performance. Challenging targets are set each year.
Share incentive scheme
A performance related share incentive scheme was introduced during the financial year ended 30 September
2007 for executive directors, excluding the Chief Executive who has a special incentive plan details of which
are outlined in this report, and senior executives. The scheme is designed to retain these individuals and also
to align their interests with those of the Group’s shareholders. Under the terms of the scheme, the Group
can, on a contingent basis, award to the senior executives, shares with a value of up to a maximum of 20%
of basic salary where superior annually set financial targets are achieved. Shares awarded and allocated to
senior employees under the scheme are subject to restrictions, primarily the risk of forfeiture of the shares
awarded, should the employee leave the Group within three years. A charge of €44,000 has been recognised
in the Group income statement in respect of directors participating in the scheme for the year ended
30 September 2007.
Following the conclusion of the previous special incentive plan, a new plan for the Chief Executive was
approved by shareholders on 27 February 2007 under which targets are set annually for a three-year
period. Performance targets have to be achieved in respect of total shareholder return by comparison with
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a peer group, growth in earnings per share and the strategic development of the Group. The total maximum
annual earnings potential is 40% of basic salary, which takes the form of a conditional award of shares in
the Company. A charge of €80,000 has been recognised in the Group income statement for the year ended
30 September 2007. The amounts accrued under the previous plan have been paid in full. No charge in
relation to the previous plan was charged to the income statement in the current financial year.
Non-executive directors’ remuneration
The Remuneration Committee makes recommendations in respect of the remuneration of the non-executive
directors, which is decided by the Board. The fees paid to non-executive directors are set at a level which
will attract individuals with the necessary experience and ability to make a substantial contribution to the
Group’s affairs and reflect the time and travel demands of their Board duties. The non-executive directors
do not participate in the Company’s performance-related incentive plans or share schemes.
Directors’ remuneration and interests in share capital
Details of individual directors’ remuneration for the year ended 30 September 2007 are provided below.
Details of directors’ and secretary’s shareholdings and share options are shown on pages 27, 39 and 40.
Directors’ remuneration
Executive directors
Basicsalary€’000
Benefitsin kind€’000
Annual bonus€’000
Pension contribution
€’000
Share-based payment expense
€’000
2007Total€’000
2006Total
€’000
L. FitzGerald 552 28 300 183 82 1,145 902
C. Corbin 387 2 187 178 53 807 720
A. Flynn 185 18 93 63 46 405 327
B. McGrane 298 17 157 97 57 626 494
1,422 65 737 521 238 2,983 2,443
The pension contribution on behalf of Mr. C. Corbin is to a defined contribution pension scheme.
Non-executive directors
Basicfees
€’000
Otherfees
€’000
2007Total€’000
2006Total
€’000
R. Kells 45 105 150 150
D. Egan* 45 20 65 65
P. Gray 45 10 55 55
G. McGann 45 10 55 55
K. McGowan 45 15 60 60
J. Peter 45 10 55 55
270 170 440 440
* Dr. D. Egan retired from the Board on 20 November 2007.
Other fees for non-executive directors include remuneration for Chairman and Board Committee work.
During 2007, the Chief Executive, Mr. L. FitzGerald acted as a non-executive director of C&C Group plc.
During the year ended 28 February 2007 he retained fees of €60,000 in respect of this appointment.
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Directors’ pension benefits
The pension benefits attributable to existing executive directors under the defined benefit pension scheme
are as follows:
Increase in accumulated accrued pensionduring the year
(excluding inflation)2007€’000
Transfer valueof increase
2007€’000
Accumulated accrued pension at year end
2007€’000
L. FitzGerald 24 242 125
B. McGrane 11 127 74
A. Flynn 7 67 35
42 436 234
Increase in accumulated accrued pensionduring the year
(excluding inflation)2006€’000
Transfer valueof increase
2006€’000
Accumulated accrued pension at year end
2006€’000
L. FitzGerald 17 162 97
B. McGrane 11 109 59
A. Flynn 5 40 27
33 311 183
Accrued pension shown is that which would be paid annually on normal retirement date.
Report of the Remuneration Committee on directors’ remuneration (continued)
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Executive share option schemes
A summary of share options outstanding to directors and the secretary under the provisions of the United
Drug plc executive share option schemes are as follows. An explanation of the various tiers of options
available to the executive directors is set out in note 21.
Options exercised during year
30 September
2006Granted
in yearExercised
in year
30 September
2007
Weighted average
option price at 30
September 2007
€
Weighted average exercise
price €
Weighted average market
price at date of
exercise €
Basic tier options
L. FitzGerald 848,000 100,000 (250,000) 698,000 2.60 0.91 3.40
C. Corbin 418,500 45,000 - 463,500 2.28 - -
A. Flynn 125,000 45,000 - 170,000 3.40 - -
B. McGrane 593,500 45,000 (35,000) 603,500 2.11 0.69 4.15
K. Geoghegan - 20,000 - 20,000 4.06 - -
1,985,000 255,000 (285,000) 1,955,000
Second tier options
L. FitzGerald 385,000 80,000 - 465,000 2.67 - -
C. Corbin 147,500 40,000 - 187,500 3.04 - -
A. Flynn 130,000 40,000 - 170,000 3.16 - -
B. McGrane 135,000 40,000 - 175,000 3.16 - -
K. Geoghegan - 5,000 - 5,000 4.06 - -
797,500 205,000 - 1,002,500 - - -
Executive share option exercise dates
Earliest exercisable date Latest exercisable date
Basic tier options
L. FitzGerald Currently exercisable 20 June 2017
C. Corbin Currently exercisable 20 June 2017
A. Flynn Currently exercisable 20 June 2017
B. McGrane Currently exercisable 20 June 2017
K. Geoghegan 20 June 2010 20 June 2017
Second tier options
L. FitzGerald Currently exercisable 20 June 2017
C. Corbin Currently exercisable 20 June 2017
A. Flynn Currently exercisable 20 June 2017
B. McGrane Currently exercisable 20 June 2017
K. Geoghegan 20 June 2012 20 June 2017
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These options are exercisable for a period of either:
n seven years from the third anniversary of the date on which the options were granted (basic tier
options), or
n five years from the fifth anniversary of the date on which the options were granted (second tier options).
None of the options expire prior to 24 June 2008.
At 30 September 2007 certain other key management had options to subscribe for a maximum of 8,056,181
(2006: 8,398,026) ordinary shares in accordance with the terms of the United Drug plc executive share
option schemes. The share-based payment expense recognised in the Group income statement in respect of
these options totalled €888,000 (2006: €769,000).
The Group operates two share option schemes. The first scheme covers options granted up to and including
13 February 2002. Under this scheme:
n Basic tier options are exercisable only when earnings per share (EPS) growth exceeds the growth of
the Irish Consumer Price Index over a period of at least three years subsequent to the granting of the
options.
n Second tier options are exercisable only when EPS growth is within the top quartile of EPS growth for
the companies quoted on the ISEQ index over a period of at least five years subsequent to the granting
of the options.
With respect to the second scheme, which covers options granted after 13 February 2002:
n Basic tier options are exercisable only when EPS growth exceeds the growth of the Irish Consumer Price
Index by 5% compounded over a period of at least three years subsequent to the granting of the options.
n Second tier options are exercisable only when EPS growth exceeds the growth of the Irish Consumer
Price Index by 10% compounded, over a period of at least five years subsequent to the granting of the
options. In addition to this requirement, second tier options may only be exercised if EPS growth over the
same period places the Company:
(1) In the top 25% of companies listed on the ISEQ index, in which case these options may be exercised in
their entirety;
(2) In the midpoint position of companies listed on the ISEQ index, in which case half of the options may be
exercised;
(3) Between the midpoint and the top 25% of companies listed on the ISEQ index, in which case the
proportion of the options which may be exercised increases on a straight line basis;
(4) Below the midpoint position of companies listed on the ISEQ index, in which case no options may be
exercised.
Details of all share options outstanding to directors and the secretary will be available for inspection at the
forthcoming Annual General Meeting.
On behalf of the Remuneration Committee
G. McGann R. Kells
Director Director
Report of the Remuneration Committee on directors’ remuneration (continued)
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Statement of directors’ responsibilities in respect of the Annual Report and the financial statements
The directors are responsible for preparing the Annual Report and the Group and Company financial
statements, in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Company financial statements for each financial
year. Under that law the directors are required to prepare the Group financial statements in accordance
with IFRSs as adopted by the EU and have elected to prepare the Company financial statements in
accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the
Companies Acts, 1963 to 2006.
The financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial
position and performance of the Group and the Company; the Companies Acts, 1963 to 2006 provide
in relation to such financial statements that references in the relevant part of these Acts to financial
statements giving a true and fair view are references to their achieving a fair presentation.
In preparing each of the Group and Company financial statements, the directors are required to:
n select suitable accounting policies and then apply them consistently;
n make judgements and estimates that are reasonable and prudent; and
n prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Group and the Company will continue in business.
The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at
any time the financial position of the Company and enable them to ensure that its financial statements comply
with the Companies Acts, 1963 to 2006. They are also responsible for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under Irish Company law and the requirements of the Listing Rules issued by the Irish Stock Exchange,
the directors are also responsible for preparing a Directors’ Report and reports relating to directors’
remuneration and corporate governance that comply with that law and those Rules.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Group and the Company’s website. Legislation in the Republic of Ireland governing the
preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board
R. Kells L. FitzGerald
Director Director
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Independent auditor’s report to the members of United Drug plc
We have audited the Group and Company financial statements (the ‘‘financial statements’’) of United Drug plc
for the year ended 30 September 2007 which comprise the Group Income Statement, the Group and Company
Statements of Recognised Income and Expense, the Group and Company Balance Sheets, the Group and
Company Cash Flow Statements and the related notes. These financial statements have been prepared under
the accounting policies set out therein.
This report is made solely to the Company’s members, as a body, in accordance with section 193 of the
Companies Act, 1990. Our audit work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance
with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU are set
out in the statement of directors’ responsibilities on page 41.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view in accordance
with IFRSs as adopted by the EU and, in the case of the Company as applied in accordance with the
provisions of the Companies Acts, 1963 to 2006, and have been properly prepared in accordance with the
Companies Acts, 1963 to 2006 and Article 4 of the IAS Regulation. We also report to you our opinion as to
whether; proper books of account have been kept by the Company; at the balance sheet date, there exists
a financial situation requiring the convening of an extraordinary general meeting of the Company under
Section 40(1) of the Companies (Amendment) Act, 1983; and whether the information given in the Directors’
Report is consistent with the financial statements. In addition, we state whether we have obtained all the
information and explanations necessary for the purposes of our audit, and whether the Company balance
sheet is in agreement with the books of account.
We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish
Stock Exchange regarding directors’ remuneration and transactions is not disclosed and, where practicable,
include such information in our report.
We review whether the directors’ statement on corporate governance, including the Report of the
Remuneration Committee on directors’ remuneration, reflects the Company’s compliance with the nine
provisions of the 2006 FRC Combined Code specified for our review by the Listing Rules of the Irish Stock
Exchange, and we report if it does not. We are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate
governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report and consider whether it is consistent with
the audited financial statements. The other information comprises only the Directors’ report, the Chairman’s
statement, the Chief Executive’s review, the Finance review, the Corporate social responsibility statement,
the Directors’ statement on corporate governance and the Report of the Remuneration Committee on
directors’ remuneration. We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to
any other information.
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Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued
by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to
the amounts and disclosures in the financial statements. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in
the financial statements.
Opinion
In our opinion:
n the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU,
of the state of the Group’s affairs as at 30 September 2007 and of its profit for the year then ended;
n the Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the
EU and as applied in accordance with the provisions of the Companies Acts, 1963 to 2006, of the state of
the Company’s affairs as at 30 September 2007; and
n the financial statements have been properly prepared in accordance with the Companies Acts, 1963 to
2006 and Article 4 of the IAS Regulation.
We have obtained all the information and explanations which we considered necessary for the purposes of
our audit. In our opinion proper books of account have been kept by the Company. The Company balance
sheet is in agreement with the books of account.
In our opinion, the information given in the directors’ report is consistent with the financial statements.
The net assets of the Company, as stated in the Company balance sheet on page 89 are more than half of the
amount of its called-up share capital and, in our opinion, on that basis there did not exist at 30 September
2007 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would
require the convening of an extraordinary general meeting of the Company.
Chartered Accountants
Registered Auditor
Dublin, Ireland
8 January 2008
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Group income statementfor the year ended 30 September 2007
Notes2007€’000
2006€’000
Revenue 1 1,583,622 1,466,979
Cost of sales (1,352,186) (1,266,916)
Gross profit 231,436 200,063
Distribution expenses (161,617) (141,797)
Administrative expenses (6,372) (3,704)
Other operating expenses 10 (6,554) (2,410)
Share of joint ventures’ profit after tax 11 3,145 2,365
Operating profit 3 60,038 54,517
Finance income 4 1,556 1,175
Finance expense 4 (5,821) (3,916)
Profit before tax 55,773 51,776
Income tax expense 5 (8,443) (8,880)
Profit for the financial year attributable to equity holders of the Company 47,330 42,896
Earnings per share
Basic 7 20.96c 19.31c
Diluted 7 20.81c 19.14c
On behalf of the Board
R. Kells Director
L. FitzGerald Director
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Group statement of recognised income and expensefor the year ended 30 September 2007
Notes2007 €’000
2006 €’000
Items of income/(expense) recognised directly within equity:
Foreign currency translation adjustment 14 (7,211) 1,692
Group cash flow hedges:
Effective portion of cash flow hedges 14 1,926 (1,429)
Movement in deferred tax 19 (241) 178
Group defined benefit pension schemes:
Actuarial gain/(loss) 14 6,461 (666)
Movement in deferred tax 19 (1,265) 26
Net expense recognised directly within equity (330) (199)
Profit for the financial year 47,330 42,896
Total recognised income and expense for the year attributable to equity holders of the Company 47,000 42,697
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Group balance sheet as at 30 September 2007
Notes2007€’000
2006€’000
Assets
Non-current
Property, plant and equipment 8 68,093 56,658
Goodwill 9 148,544 123,018
Intangible assets 10 39,404 15,661
Investment in joint ventures 11 20,857 18,955
Deferred tax assets 19 - 722
Total non-current assets 276,898 215,014
Current
Inventories 12 161,882 154,668
Trade and other receivables 13 279,550 262,785
Cash and cash equivalents 57,547 45,912
Total current assets 498,979 463,365
Total assets 775,877 678,379
Equity
Equity share capital 14 11,801 11,563
Share premium 14 103,473 94,439
Other reserves 14 (8,170) (3,770)
Retained earnings 14 223,965 181,005
Capital and reserves attributable to equity holders of the Company 331,069 283,237
Liabilities
Non-current
Interest-bearing loans and borrowings 15 74,873 81,683
Other payables 16 9,161 5,535
Provisions 17 216 1,453
Employee benefits 21 6,334 12,930
Derivative financial instruments 22 7,574 3,684
Deferred tax liabilities 19 9,525 3,479
Total non-current liabilities 107,683 108,764
Current
Bank overdrafts 15 8,000 2,764
Interest-bearing loans and borrowings 15 28,810 5,016
Trade and other payables 16 286,369 268,964
Current tax liabilities 6,915 4,811
Provisions 17 463 360
Derivative financial instruments 22 6,568 4,463
Total current liabilities 337,125 286,378
Total liabilities 444,808 395,142
Total equity and liabilities 775,877 678,379
On behalf of the Board
R. Kells Director
L. FitzGerald Director
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Group cash flow statementfor the year ended 30 September 2007
Notes2007€’000
2006€’000
Cash flows from operating activities
Profit before tax 55,773 51,776
Finance income 4 (1,556) (1,175)
Finance expense 4 5,821 3,916
Operating profit 60,038 54,517
Share of joint ventures’ profit after tax 11 (3,145) (2,365)
Depreciation charge 8 8,171 7,305
(Profit)/loss on disposal of property, plant and equipment 3 (331) 134
Amortisation of intangible assets 10 6,554 2,410
Share-based payment expense 21 1,126 921
Charge in respect of share entitlement scheme 14 70 18
Increase in inventories (3,449) (14,434)
Increase in trade and other receivables (12,020) (15,073)
Increase in trade and other payables 13,011 11,997
Interest paid (6,350) (3,878)
Income taxes paid (8,828) (13,449)
Net cash inflow from operating activities 54,847 28,103
Cash flows from investing activities
Interest received 1,556 1,175
Purchase of property, plant and equipment 8 (9,589) (5,215)
Proceeds from disposal of property, plant and equipment 1,313 19,905
Acquisition of subsidiaries (net of cash and cash equivalents acquired) 20 (51,467) (28,070)
Deferred acquisition consideration paid (11,727) (5,123)
Investment in joint ventures 11 (809) (7,429)
Dividends received from joint ventures 11 1,628 -
Net cash outflow from investing activities (69,095) (24,757)
Cash flows from financing activities
Proceeds from issue of shares (including share premium thereon, net of scrip dividend) 7,761 7,014
Increase in interest-bearing loans and borrowings 22,535 2,566
Increase/(decrease) in finance leases 1,002 (63)
Dividends paid to equity holders of the Company 6 (9,636) (8,122)
Net cash inflow from financing activities 21,662 1,395
Net increase in cash and cash equivalents 7,414 4,741
Currency translation adjustment (1,015) 375
Cash and cash equivalents at beginning of year 43,148 38,032
Cash and cash equivalents at end of year 49,547 43,148
Cash and cash equivalents are broken down as follows:
Cash at bank and short term deposits 57,547 45,912
Bank overdrafts (8,000) (2,764)
49,547 43,148
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Significant accounting policiesfor the year ended 30 September 2007
United Drug plc (‘the Company’) is a public limited company domiciled and incorporated in Ireland. The
Group’s financial statements for the year ended 30 September 2007 consolidate the individual financial
statements of the Company and its subsidiaries (together referred to as ‘the Group’) and show the Group’s
interest in joint venture undertakings using the equity method of accounting.
The individual and Group financial statements of the Company were authorised for issue by the directors on
8 January 2008.
The accounting policies applied in the preparation of the financial statements for the year ended
30 September 2007 are set out below.
Statement of compliance
The Group financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU which comprises standards and interpretations approved by the
International Accounting Standards Board (IASB). The individual financial statements of the Company
(‘Company financial statements’) have been prepared in accordance with IFRS as adopted by the EU and as
applied in accordance with the Companies Acts, 1963 to 2006 except for the exemption contained in Section
148(8) of the Companies Act 1963, which permits a company that publishes its Company and Group financial
statements together to exclude the Company income statement and related notes that form part of the
approved Company financial statements, from the Group’s financial statements presented to its members.
IFRS that were adopted by the EU and that were effective on 30 September 2007, with the exception of
IFRIC 11, which the group has chosen to adopt early, have been applied in the preparation of the Group and
Company financial statements. The IASB and the International Financial Reporting Interpretations Committee
(IFRIC) have issued the following standards and interpretations that are not yet effective for the Group:
nIFRS 7 Financial Instruments: Disclosures (effective date: financial periods beginning on or after
1 January 2007);
nIFRS 8 Operating Segments (effective date: financial periods beginning on or after 1 January 2009);
nAmendment to IAS 1 Capital Disclosures (effective date: financial periods beginning on or after
1 January 2007); and
nIFRIC Interpretation 10 Interim Financial Reporting and Impairment (effective date: financial periods
beginning on or after 1 November 2006).
These standards and interpretations will be applied for the purposes of the Group and Company financial
statements with effect from their respective effective dates.
Whilst the application of IFRS 7 and IFRS 8 will result in amendments to the financial instruments and
segment information notes accompanying the Group financial statements, these amendments will not be of a
recognition and measurement nature, given the disclosure focus of both standards.
Application of the Amendment to IAS 1 and IFRIC Interpretation 10 is not expected to have a material
impact on the Group or Company financial statements.
Basis of preparation
The Group and Company financial statements are prepared on a historical cost basis except for the following
items which are measured at fair value or grant date fair value:
nderivative financial instruments;
npension obligations; and
nshare-based payment arrangements.
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The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. In addition, it requires management to exercise judgement in the process of applying
the Group’s accounting policies. The areas involving a high degree of judgement or complexity, or areas
where assumptions and estimates are significant to the Group’s financial statements, relate primarily to
accounting for defined benefit pension schemes, financial instruments, share-based payments, provisions,
property, plant and equipment, intangible assets, goodwill impairment and deferred tax and are documented
in the relevant accounting policies below.
The accounting policies set out below have been applied consistently by all of the Group’s subsidiaries and
joint ventures to all periods presented in these financial statements.
Functional and presentation currency
The consolidated financial statements are presented in euro and rounded to the nearest thousand, which is
the Company’s functional currency.
Basis of consolidation
The Group’s financial statements include the financial statements of the Company and all of its subsidiaries
and joint ventures.
Accounting for subsidiaries and joint ventures
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities.
In assessing control, potential voting rights that currently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in the Group financial statements from the
date that control commences until the date that control ceases.
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup
transactions are eliminated in preparing the Group financial statements, except to the extent they provide
evidence of impairment. Unrealised gains arising from transactions with equity accounted joint ventures are
eliminated against the investment to the extent of the Group’s interest. Unrealised losses are eliminated in
the same way as unrealised gains, but only to the extent there is no evidence of impairment.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual
arrangement and requiring unanimous consent for strategic financial and operational decisions. Joint ventures
are included in the financial statements using the equity method of accounting, from the date that joint control
commences until the date that joint control ceases. The Group income statement reflects in operating profit, the
Group’s share of profit after tax of its joint ventures in accordance with IAS 31, Interests in Joint Ventures.
The Group’s interest in its net assets is included as investment in joint ventures in the Group balance sheet at
an amount representing the Group’s share of the fair value of the identifiable net assets at acquisition plus the
Group’s share of post acquisition retained profits or losses of the joint ventures.
Business combinations
All business combinations are accounted for by applying the purchase method of accounting.
Goodwill
Goodwill is the excess of the consideration paid over the fair value of the identifiable assets, liabilities and
contingent liabilities in a business combination and relates to the future economic benefits arising from
assets which are not capable of being individually identified and separately recognised.
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In respect of acquisitions completed prior to 1 October 2004, goodwill is included on the basis of its deemed
cost, i.e. original cost less accumulated amortisation since acquisition up to 30 September 2004, which
represents the historical amount recorded under Irish GAAP. The classification and accounting treatment
of business combinations that occurred prior to 1 October 2004 has not been reconsidered in preparing
the Group’s opening IFRS balance sheet at 1 October 2004 as permitted by IFRS 1. Goodwill is allocated to
cash generating units and is tested annually for impairment at a consistent time each year. Goodwill is stated
at cost or deemed cost less any accumulated impairment losses. In respect of joint ventures, the carrying
amount of goodwill is included in the carrying amount of the investment.
Goodwill which arose on acquisitions prior to 1 October 1999 was eliminated against reserves on acquisition
as a matter of accounting policy permitted under historical Irish GAAP. In preparing the Group’s IFRS
balance sheet at 1 October 2004 this goodwill is considered to have been permanently offset against
retained earnings and, on any subsequent disposal, will not form part of the gain or loss on the disposal of
the business as permitted by IFRS 1.
Intangible assets
Intangible assets, that are acquired by the Group, are stated at cost less accumulated amortisation and
impairment losses, when separable or arising from contractual or other legal rights and are reliably measurable.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives
of the intangible assets. Intangible assets are amortised over periods ranging from two to eight years
depending on the nature of the asset.
Property, plant and equipment
Property, plant and equipment is reported at cost less accumulated depreciation and impairment losses. Cost
includes expenditure that is directly attributable to the acquisition of the asset. Depreciation is calculated,
on a straight line basis on cost less estimated residual value, to write property, plant and equipment off over
their anticipated useful lives using the following annual rates:
Land and buildings
Freehold land not depreciated
Freehold buildings 2%
Plant and equipment 10%
Computer equipment 20 - 33%
Motor vehicles 20%
Depreciation is provided on additions with effect from the first day of the month following commissioning and
on disposals up to the end of the month of retirement. The residual value of assets, if not insignificant, and
the useful life of assets is reassessed annually. Gains and losses on disposals are determined by comparing
the proceeds received with the carrying amount and are included in operating profit.
Impairment reviews and testing
The carrying amounts of the Group’s non-financial assets, other than inventories, (which are carried
at the lower of cost and net realisable value) and deferred tax assets, (which are recognised based on
recoverability), are reviewed to determine whether there is any indication of impairment when an event or
transaction indicates that there may be, except for goodwill which is reviewed annually. If any such indication
exists, an impairment test is carried out and the asset is written down to its recoverable amount.
The recoverable amount of a non-financial asset or cash generating unit is the greater of its net selling price
and value in use. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
Significant accounting policies (continued)
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risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or
groups of assets (the “cash generating unit”). Goodwill acquired in a business combination is allocated to cash
generating units that are expected to benefit from the combination’s synergies. An impairment loss is recognised
if the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount.
Goodwill is tested for impairment at each balance sheet date.
A financial asset is assessed at each reporting date to determine whether there is any objective evidence
that it is impaired. A financial asset is considered to be impaired if objective evidence indicates, that one or
more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost, is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the
original effective interest rate. An impairment loss arising on financial assets is recognised in the income
statement. Individually significant financial assets are tested for impairment on an individual basis. The
remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
All impairment losses are recognised in the income statement.
Leases
Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of
ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease
at the lower of the fair value of the leased asset or the present value of the minimum lease payments.
The corresponding rental obligations, net of finance charges, are included in interest-bearing loans and
borrowings. The interest element of the finance cost is charged to the income statement over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each
period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of
the useful life of the asset or the lease term.
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases are charged to the income statement
on a straight line basis over the term of the lease.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is based on the first in, first out
principle and includes all expenditure which has been incurred in the normal course of business in bringing
the products to their present location and condition. Net realisable value is the estimated selling price of
inventory on hand less all costs expected to be incurred in marketing, distribution and selling.
Foreign currency
Transactions in foreign currencies are translated into the functional currency of the related entity at the
foreign exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities carried at
historic cost are not subsequently re-translated. Non-monetary assets carried at fair value are subsequently
re-measured at the exchange rate at the date fair value was determined. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated into functional currencies at the
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foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised
in the income statement, except for qualifying cash flow hedges which are recognised directly in equity.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation, are translated to euro at the foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of foreign operations are translated to euro at the average exchange rate for the
financial period. Foreign exchange differences arising on translation of the net investment in a foreign
operation are recognised directly in equity.
On disposal of a foreign operation, accumulated currency translation differences are recognised in the
Group income statement as part of the overall gain or loss on disposal. The cumulative currency translation
differences arising prior to 1 October 2004 (the transition date to IFRS) have been set to zero for the
purposes of ascertaining the gain or loss on disposal of a foreign operation subsequent to that date.
Translation differences arising from 1 October 2004 are presented as a separate component of equity in the
foreign currency translation reserve to the Group balance sheet.
Financial guarantee contracts
Where the Group enters into financial guarantee contracts to guarantee the indebtedness of other parties,
the Group considers these to be insurance arrangements and accounts for them as such. The Group treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Group will be
required to make a payment under the guarantee.
Revenue recognition
Revenue represents the fair value of products and services provided to third party customers in the financial
reporting period. The fair value of sales is exclusive of value added tax and after allowances for discounts
and returns and is recognised in the income statement when the significant risks and rewards of ownership
have been transferred to the buyer, the consideration can be measured reliably and it is probable that
the economic benefits will flow to the Group. Revenue from services rendered is recognised in the income
statement in proportion to the stage of completion of the related contract or fully when no further obligations
exist on the related service contract. When the Group acts in the capacity of an agent rather than as the
principal in a transaction, the revenue recognised is the net amount of commission earned by the Group.
Finance income and expenses
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in
profit or loss, using the effective interest method. Finance expenses comprise interest expense on borrowings.
All borrowing costs are recognised in the profit or loss using the effective interest method.
Employee benefits
Pension obligations
A defined contribution pension plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income
statement as incurred.
A defined benefit plan is a post-employment plan other than a defined contribution plan. The Group’s net
obligation in respect of defined benefit pension plans is calculated, separately for each plan, by estimating the
present value of the amount of future benefits that employees have earned in return for their service in the
current and prior periods; less the fair value of any plan assets. The discount rate is the yield at the balance
sheet date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s
Significant accounting policies (continued)
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obligations. The calculation is performed by a qualified actuary using the projected unit method. All actuarial
gains and losses as at 1 October 2004, the date of transition to IFRS, were recognised in full against retained
earnings as permitted by the amendment to IAS 19. Actuarial gains and losses for subsequent periods are
recognised in the statement of recognised income and expense as they arise.
Performance related incentive plans
The Group recognises the present value of a liability for short term employee benefits including costs
associated with performance related incentive plans in the income statement when an employee has
rendered service in exchange for these benefits and a constructive obligation to pay those benefits arises.
Share-based payment transactions
The Group operates share option schemes which allow employees acquire shares in the Company. They are all
equity settled arrangements under IFRS 2 Share-based payment. The fair value of share entitlements granted
is recognised as an expense in the income statement with a corresponding increase in equity. The amount
recognised as an expense is adjusted to reflect the actual number of share options that vest. The fair value
is determined by an external valuer using a trinomial valuation model. Share options granted by the Company
are subject to certain non-market based vesting conditions. Non-market vesting conditions are not taken into
account when estimating the fair value of options as at the grant date. The share-based payments expense in
the income statement is based on the fair value of the total number of options expected to vest and is allocated
to accounting periods on a straight line basis over the vesting period. The cumulative charge to the income
statement is only reversed where options do not vest because all non-market performance conditions have not
been met or where an employee in receipt of options relinguishes service before the end of the vesting period.
The proceeds received on the exercise of share options are credited to share capital and share premium.
In line with the transitional arrangements set out in IFRS 2, the recognition and measurement principles of
this standard have been applied only in respect of share entitlements granted after 7 November 2002.
The Group does not operate any cash-settled share-based payment schemes or share-based payment
transactions with cash alternatives as defined in IFRS 2.
Income tax expense
Income tax expense recognised in the profit or loss for the year comprises current and deferred tax.
Taxation is recognised in the income statement except to the extent that it relates to items recognised directly
in equity, in which case the related tax is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws that
have been enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. If the deferred tax arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction does not affect accounting
nor taxable profit or loss, it is not recognised. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
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Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same tax entity
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis.
Segmental reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or
services (business segment), or in providing products or services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from other segments.
The Group has adopted the business segment as its primary reporting segment, based on the Group’s
management and internal reporting structures.
Inter-segment pricing is determined on an arm’s length basis.
Cash and cash equivalents
Cash and cash equivalents, comprise cash balances and deposits, including bank deposits of less than three
months maturity. Bank overdrafts that are repayable on demand and form an integral part of the Group’s
cash management are included as a component of cash and cash equivalents for the purpose of the Group
cash flow statement.
Financial instruments
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate
risks arising from operational, financing and investment activities. In accordance with its treasury policy, the
Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that
do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised at fair value. The gain or loss on re-measurement to fair value
is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of the item being hedged, as set out below.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to
terminate the swap at the balance sheet date, taking into account current interest rates and the current
creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted
market price at the balance sheet date, being the present value of the quoted forward price.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a
recognised asset or liability, or a highly probable forecasted transaction, the effective part of any gain or
loss on the derivative financial instrument is recognised directly in equity in the cash flow hedge reserve.
When the forecasted transaction results in the recognition of a non-financial asset or non-financial liability,
the associated cumulative gain or loss is removed from equity and included in the initial cost or other
carrying amount of the non-financial asset or liability. If a hedge of a forecasted transaction subsequently
results in the recognition of a financial asset or a financial liability, the associated gains and losses that
were recognised directly in equity are reclassified into profit or loss in the same period or periods during
which the asset acquired or liability assumed affects profit or loss (i.e. when interest income or expense
is recognised). For cash flow hedges, the associated cumulative gain or loss is removed from equity and
recognised in the income statement in the same period or periods during which the hedged forecast
transaction affects profit or loss. The ineffective part of any gain or loss is recognised immediately in the
income statement.
Significant accounting policies (continued)
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When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation
of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative
gain or loss at that point remains in equity and is recognised in accordance with the above policy when the
transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised
gain or loss recognised in equity is recognised immediately in the income statement.
Fair value hedges
Where a derivative financial instrument is designated as a hedge of a change in the fair value of an asset or
liability, gains or losses arising from the re-measurement of the hedging instrument to fair value are reported
in the income statement. In addition, any gain or loss on the hedged item which is attributable to the hedged
risk is adjusted against the carrying amount of the hedged item and reflected in the income statement. Where
the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is
amortised to the income statement with the objective of achieving full amortisation by maturity.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and
cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments
are recognised at fair value.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the
instrument. Financial assets are de-recognised if the Group’s contractual rights to the cash flows from the
financial assets expire or if the Group transfers the financial asset to another party without retaining control
of substantially all risks and rewards of the asset. Purchases and sales of financial assets are accounted for
at trade date i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are
de-recognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings, other than those accounted for under the
fair value hedging model outlined above, are stated at amortised cost with any difference between cost and
redemption value being recognised in the income statement over the period of the borrowings on an effective
interest basis. Effective interest rate is calculated by taking into account any issue costs and any expected
discount or premium on settlement.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation
as a result of a past event, and it is probable that an outflow of economic benefits will be required to
settle the obligation which can be measured reliably. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares and share options are recognised as a deduction from equity, net of any tax effects.
Where share capital recognised as equity is repurchased, the amount of the consideration paid, including
directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased
shares are classified as treasury shares and are presented as a deduction from total equity.
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Notes forming part of the Group financial statements
1. Revenue2007€’000
2006€’000
Goods for resale 1,479,715 1,363,876
Services 98,867 95,140
Commission income 5,040 7,963
Total revenue 1,583,622 1,466,979
Commission income has been reclassified from other operating income to revenue in the prior year to conform with the current year presentation. Commission income relates to the sale of products where the Group acts as an agent in the transaction rather than as a principal.
2. Segmental reporting Segmental information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure. Inter-segment pricing is determined on an arms-length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Due to the nature of certain liabilities, which are not segment specific, they have not been allocated to a segment but rather have been disclosed in aggregate immediately after the relevant segment note. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Business segments
United Drug is a leading healthcare services provider in both Ireland and the UK, and during the current financial year expanded into new markets in Continental Europe.
The Group’s operations are divided into the following primary segments:n Pharma Wholesalen Supply Chain Servicesn Medical & Scientificn Contract Sales Outsourcing
Geographical segments
The Group operates in three principal geographical regions being the Republic of Ireland, the UK and Continental Europe. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of the Group’s subsidiaries. Segment assets are based on the geographical location of the assets.
Business segment analysisPharma
Wholesale2007€’000
SupplyChain
Services2007€’000
Medical &Scientific
2007€’000
ContractSales
Outsourcing2007€’000
GroupTotal2007€’000
Revenue 979,267 399,061* 101,518 103,776 1,583,622
Adjusted operating profit** 27,040 16,351 14,670 9,657 67,718
Amortisation of intangible assets (804) (3,312) (1,609) (829) (6,554)
Share-based payment expense (349) (473) (124) (180) (1,126)
Operating profit 25,887 12,566 12,937 8,648 60,038
Finance income 1,556
Finance expense (5,821)
Profit before tax 55,773
Income tax expense (8,443)
Profit for the financial year 47,330
* Supply Chain Services revenue is net of inter-segment sales of €336,157,000.
** excluding amortisation of intangible assets and share-based payment expense.
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2. Segmental reporting (continued)
PharmaWholesale
2006€’000
SupplyChain
Services2006€’000
Medical &Scientific
2006€’000
ContractSales
Outsourcing2006€’000
GroupTotal2006€’000
Revenue 915,525 375,753* 84,016 91,685 1,466,979
Adjusting operating profit** 23,864 13,429 11,781 8,774 57,848
Amortisation of intangible assets - (1,361) (489) (560) (2,410)
Share-based payment expense (285) (387) (103) (146) (921)
Operating profit 23,579 11,681 11,189 8,068 54,517
Finance income 1,175
Finance expense (3,916)
Profit before tax 51,776
Income tax expense (8,880)
Profit for the financial year 42,896
* Supply Chain Services revenue is net of inter-segment sales of €281,773,000.
** excluding amortisation of intangible assets and share-based payment expense.
PharmaWholesale
2007€’000
SupplyChain
Services2007€’000
Medical &Scientific
2007€’000
ContractSales
Outsourcing2007€’000
GroupTotal2007€’000
Segment assets 297,676 256,006 129,986 92,209 775,877
775,877
PharmaWholesale
2007€’000
SupplyChain
Services2007€’000
Medical &Scientific
2007€’000
ContractSales
Outsourcing2007€’000
GroupTotal2007€’000
Segment liabilities 145,903 124,338 31,050 25,050 326,341
Unallocated liabilities 118,467
444,808
Unallocated liabilities comprise amounts relating to interest-bearing loans and borrowings, derivative
financial instruments, current tax liabilities and deferred tax liabilities.
PharmaWholesale
2006€’000
SupplyChain
Services2006€’000
Medical &Scientific
2006€’000
ContractSales
Outsourcing2006€’000
GroupTotal2006€’000
Segment assets 286,509 205,253 105,075 81,542 678,379
678,379
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2. Segmental reporting (continued)
PharmaWholesale
2006€’000
SupplyChain
Services2006€’000
Medical &Scientific
2006€’000
ContractSales
Outsourcing2006€’000
GroupTotal2006€’000
Segment liabilities 154,125 102,858 25,967 20,305 303,255
Unallocated liabilities 91,887
395,142
Unallocated liabilities comprise amounts relating to interest-bearing loans and borrowings, derivative
financial instruments, current tax liabilities and deferred tax liabilities.
Other segment informationPharma
Wholesale2007€’000
SupplyChain
Services2007€’000
Medical &Scientific
2007€’000
ContractSales
Outsourcing2007€’000
GroupTotal2007€’000
Depreciation 4,608 1,728 730 1,105 8,171
Capital expenditure 24,347 39,645 14,647 2,160 80,799
Amortisation of intangible assets 804 3,312 1,609 829 6,554
Share-based payment expense 349 473 124 180 1,126
2006€’000
2006€’000
2006€’000
2006€’000
2006€’000
Depreciation 3,481 1,609 1,062 1,153 7,305
Capital expenditure 2,881 27,409 11,198 1,275 42,763
Amortisation of intangible assets - 1,361 489 560 2,410
Share-based payment expense 285 387 103 146 921
Capital expenditure comprises acquisition of property, plant and equipment, goodwill and intangible assets.
The results and assets of joint ventures are included within the Supply Chain Services business segment.
Geographical analysis Republicof Ireland
2007€’000
UnitedKingdom
2007€’000
ContinentalEurope
2007€’000
GroupTotal2007€’000
Revenue 1,056,039 507,862 19,721 1,583,622
Segment assets 475,419 278,163 22,295 775,877
Capital expenditure 3,199 38,730 38,870 80,799
2006€’000
2006€’000
2006€’000
2006€’000
Revenue 1,022,357 444,622 - 1,466,979
Segment assets 390,821 287,558 - 678,379
Capital expenditure 2,830 39,933 - 42,763
Notes forming part of the Group financial statements (continued)
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3. Statutory and other information2007€’000
2006€’000
Operating profit is stated after:
Depreciation of property, plant and equipment 8,171 7,305
(Profit)/loss on disposal of property, plant and equipment (331) 134
Amortisation of intangible assets 6,554 2,410
Auditor’s remuneration 380 345
Auditor’s remuneration for non-audit services* 430 306
Operating lease rentals:
- Land and buildings 3,893 3,077
- Other assets 4,581 4,991
Foreign exchange losses/(gains) 119 (42)
*In addition, during the year to 30 September 2007, an amount of €75,000 (2006: €nil) paid to the auditors
has been included in the fair value of purchase consideration of business combinations.
Details of directors’ remuneration, pension entitlements and interests in share options are set out in the
Report of the Remuneration Committee on directors’ remuneration on pages 36 to 40.
4. Finance income and expense
2007€’000
2006€’000
Finance income
Income arising from cash deposits (1,556) (1,175)
Finance expense
Interest on bank loans and overdrafts
- wholly repayable within five years 1,929 498
- wholly repayable after five years 3,826 3,308
Interest on finance leases 15 32
Other 51 78
5,821 3,916
Net finance expense 4,265 2,741
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5. Income tax expense
Recognised in the income statement2007€’000
2006€’000
Current tax
Ireland
Adjustment in respect of prior years (197) 853
Corporation tax on profit for the year 4,132 4,335
3,935 5,188
Overseas
Adjustment in respect of prior years (574) (306)
Current year tax on profit for the year 7,117 4,959
6,543 4,653
Total current tax expense 10,478 9,841
Deferred tax
Origination and reversal of temporary differences:
Property, plant and equipment (423) (149)
Intangible assets (1,514) (723)
Other items (98) (89)
Total deferred tax credit (2,035) (961)
Income tax expense 8,443 8,880
The deferred tax credit for the year to 30 September 2007 includes a credit of €361,000 arising from a reduction
in the corporation tax rate in the United Kingdom and from other changes to United Kingdom legislation, and a
credit of €300,000 in respect of an overprovision for deferred tax in prior years.
Reconciliation of effective tax rate 2007%
2007€’000
2006%
2006€’000
Profit before tax 55,773 51,776
Taxation based on Irish corporation tax rate 12.50 6,972 12.50 6,472
Expenses not deductible for tax purposes 608 389
Tax on income from joint ventures (393) (296)
Differences in tax rates 2,188 1,745
Adjustments to prior years (1,071) 547
Other items 139 23
8,443 8,880
The Group’s share of joint ventures’ profit after tax includes a tax charge of €1,190,000 (2006: €1,012,000).
Notes forming part of the Group financial statements (continued)
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6. Dividends – equity shares
2007€’000
2006€’000
Dividends paid
Final dividend for 2006 of 4.64 cent (2005: 4.00 cent) 10,389 8,804
Interim dividend for 2007 of 1.97 cent (2006: 1.71 cent) 4,465 3,798
Total dividends 14,854 12,602
Total dividends 14,854 12,602
Scrip issue (5,218) (4,480)
Dividends paid per Group cash flow statement 9,636 8,122
The directors have proposed a final dividend for 2007 of 5.33 cent per share (2006: 4.64 cent per share)
amounting to €12,186,000 (2006: €10,385,000), subject to shareholder approval at the Annual General
Meeting. The total dividend for the year is 7.30 cent per share (2006: 6.35 cent).
The final dividend for 2007 has not been provided for in the balance sheet at 30 September 2007, as there
was no present obligation to pay the dividend at year-end.
7. Earnings per ordinary share
2007€’000
2006€’000
Profit for the financial year 47,330 42,896
Adjustment for amortisation of intangible assets (net of tax) 5,040 2,410
Earnings adjusted for amortisation of intangible assets 52,370 45,306
Numberof shares
Numberof shares
Weighted average number of shares 225,863,180 222,155,656
Number of dilutive shares under option 1,617,076 1,957,140
Weighted average number of ordinary shares, including share options 227,480,256 224,112,796
Basic earnings per share – cent 20.96 19.31
Diluted earnings per share – cent 20.81 19.14
Adjusted basic earnings per share – cent* 23.19 20.39
Adjusted diluted earnings per share – cent* 23.02 20.22
*excluding amortisation of intangible assets
The adjusted figures for earnings per share are intended to demonstrate the results of the Group after
eliminating the impact of amortisation of intangible assets and are deemed by management to be the key
metric of monitoring group performance.
The 7,623,066 (2006: 7,623,066) treasury shares held by the Group do not rank for dividend and have
therefore been excluded from the weighted average number of shares in issue used in the calculation of
earnings per share.
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8. Property, plant and equipment
Land andBuildings
2007€’000
Plant andEquipment
2007€’000
MotorVehicles
2007€’000
ComputerEquipment
2007€’000
Total2007€’000
Cost
At 1 October 2006 43,425 28,002 5,698 12,238 89,363
Additions in year 929 3,790 3,537 1,333 9,589
Arising on acquisition 2,626 8,903 - 62 11,591
Disposals in year (16) (1,118) (1,302) (1,429) (3,865)
Translation adjustment (627) (421) (31) (98) (1,177)
At 30 September 2007 46,337 39,156 7,902 12,106 105,501
Depreciation
At 1 October 2006 5,158 15,700 2,834 9,013 32,705
Depreciation charge for the year 1,000 3,970 1,506 1,695 8,171
Eliminated on disposal (13) (795) (897) (1,178) (2,883)
Translation adjustment (98) (318) (40) (129) (585)
At 30 September 2007 6,047 18,557 3,403 9,401 37,408
Carrying amount
At 30 September 2007 40,290 20,599 4,499 2,705 68,093
At 30 September 2006 38,267 12,302 2,864 3,225 56,658
Land andBuildings
2006€’000
Plant andEquipment
2006€’000
MotorVehicles
2006€’000
ComputerEquipment
2006€’000
Total2006€’000
Cost
At 1 October 2005 42,423 26,690 5,764 14,593 89,470
Additions in year 822 2,146 1,095 1,152 5,215
Arising on acquisition - 72 219 26 317
Disposals in year - (1,018) (1,385) (3,576) (5,979)
Translation adjustment 180 112 5 43 340
At 30 September 2006 43,425 28,002 5,698 12,238 89,363
Depreciation
At 1 October 2005 4,148 13,272 2,761 10,488 30,669
Depreciation charge for the year 986 3,328 1,092 1,899 7,305
Eliminated on disposal - (984) (1,024) (3,417) (5,425)
Translation adjustment 24 84 5 43 156
At 30 September 2006 5,158 15,700 2,834 9,013 32,705
No borrowings are secured on the above assets with the exception of leased assets noted below.
Leased property, plant and equipment
The Group leases items of property, plant and equipment under a number of finance lease agreements. At 30 September 2007, the carrying amount of leased assets included in property, plant and equipment was €2,495,000 (2006: €93,000) and related depreciation amounted to €479,000 (2006: €54,000).
Notes forming part of the Group financial statements (continued)
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9. Goodwill
2007€’000
2006€’000
Cost
At beginning of year 123,018 91,700
Revisions to prior year acquisitions (note 20) 256 528
Acquired during the year (note 20) 28,472 29,567
Translation adjustment (3,202) 1,223
At end of year 148,544 123,018
Goodwill acquired through business combinations has been allocated for impairment testing to the following
Cash Generating Units (CGUs):
2007€’000
2006€’000
Republic of Ireland 17,890 17,890
UK 118,241 105,128
Continental Europe 12,413 -
148,544 123,018
Goodwill arises in connection with acquisitions, including revisions of estimates of consideration as detailed
in note 20.
Goodwill acquired through business combinations has been allocated to CGUs for the purpose of impairment
testing. The CGU represents the lowest level within the Group at which associated goodwill is monitored for
management purposes and is not bigger than the segments determined in accordance with IAS 14, Segment
Reporting.
The recoverable amounts of CGUs are based on value in use calculations. The cash flow forecasts used for
the value in use computations exclude incremental profits and other cash flows derived from acquisition
activities. The computations use five year cash flow forecasts. For individual CGUs, between one and three
years forecasts have been approved by senior management. The remaining years’ forecasts have been
extrapolated using growth rates of between 5% to 15% based on the historical annual growth experience
of individual CGUs. For the purposes of calculating terminal values, a terminal growth rate of 2% has been
adopted. The cash flows are discounted using appropriate risk adjusted pre-tax discount rates averaging
7.4% (2006: 6.0%).
The key assumptions used for the value in use computations are that the markets will grow in accordance
with publicly available data, the Group will maintain its current market share, gross margins will be
maintained at current levels and that overheads will increase in line with expected levels of inflation.
There was no impairment charge for the year ended 30 September 2007 (2006: €nil).
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10. Intangible assets
CustomerRelationships
€’000
TradeNames€’000
ContractBased€’000
Total€’000
Cost
At 1 October 2005 6,158 4,665 - 10,823
Acquired during the year 5,341 2,323 - 7,664
Translation adjustment 33 (2) - 31
At 30 September 2006 11,532 6,986 - 18,518
Acquired during the year 17,088 7,996 6,063 31,147
Translation adjustment (571) (363) (153) (1,087)
At 30 September 2007 28,049 14,619 5,910 48,578
Amortisation
At 1 October 2005 251 181 - 432
Amortisation during the year 1,538 872 - 2,410
Translation adjustment 10 5 - 15
At 30 September 2006 1,799 1,058 - 2,857
Amortisation during the year 3,873 1,615 1,066 6,554
Translation adjustment (150) (75) (12) (237)
At 30 September 2007 5,522 2,598 1,054 9,174
Carrying amount
At 30 September 2007 22,527 12,021 4,856 39,404
At 30 September 2006 9,733 5,928 - 15,661
The amortisation charge for the year has been charged to other operating expenses in the income statement.
Intangible assets are amortised over their useful lives, ranging from two to eight years, depending on the
nature of the asset.
Notes forming part of the Group financial statements (continued)
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11. Investment in joint ventures
The Group’s interest in its joint ventures, all of which are unlisted, are set out below.
€’000
At 1 October 2005 8,904
Investment during the year 7,429
Share of profit after tax 2,365
Translation adjustment 257
At 30 September 2006 18,955
Investment during the year 809
Share of profit after tax 3,145
Dividends received from joint ventures (1,628)
Translation adjustment (424)
At 30 September 2007 20,857
The investment in the joint ventures represents the Group’s share of the net assets of the joint ventures at
the balance sheet date as follows:
2007€’000
Non-current assets 17,586
Cash and cash equivalents 41,294
Other current assets 63,026
Non-current liabilities (11,445)
Current liabilities (97,339)
13,122
Goodwill 7,735
At 30 September 2007 20,857
2006€’000
Non-current assets 14,350
Cash and cash equivalents 19,676
Other current assets 66,505
Non-current liabilities (8,266)
Current liabilities (80,408)
11,857
Goodwill 7,098
At 30 September 2006 18,955
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11. Investment in joint ventures (continued)
Included in investment in joint ventures is goodwill with a carrying value of €7,735,000 (2006: €7,098,000).
This goodwill is subject to annual impairment testing on a similar basis to the goodwill arising in the Group’s
subsidiaries.
2007€’000
2006€’000
Group share of revenue 429,437 455,979
2007€’000
2006€’000
Group share of expenses, inclusive of tax 426,292 453,614
Capital Commitments
The Group’s share of the capital expenditure of the joint ventures authorised and contracted amounted to
€510,000 at the balance sheet date. At 30 September 2006, the Group’s share of the capital expenditure
authorised, but not contracted, amounted to €550,000.
The following are the significant joint ventures of United Drug plc at 30 September 2007:
Incorporated and trading in the United Kingdom
Name Nature of Business Group Share
UniDrug Distribution Group Limited Distribution of pharmaceutical products 50%
UniDrug Distribution Group Limited has its registered office at UDG House, Amber Business Park, South
Normanton, Derbyshire, DE55 2FH.
Magir Limited Healthcare and retail organisation 25%
Magir Limited has its registered office at 44 Montgomery Road, Belfast, BT6 9ML.
All shares held are ordinary shares.
12. Inventories
2007€’000
2006€’000
Raw materials 3,341 1,159
Work in progress 258 23
Finished goods 158,283 153,486
161,882 154,668
In 2007, raw materials, work in progress and finished goods recognised as cost of sales amounted to
€1,349,749,000 (2006: €1,262,002,000). There was no material write-down of inventories to net realisable
value during the years ended 30 September 2007 and 2006.
Current replacement cost does not differ materially from historical cost.
Notes forming part of the Group financial statements (continued)
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13. Trade and other receivables
2007€’000
2006€’000
Current
Trade debtors 259,904 244,915
Other debtors 13,252 15,066
Prepayments and accrued income 6,394 2,804
279,550 262,785
Included in trade debtors is an amount of €16,440,000 (2006: €18,151,000), which falls due after more
than one year but is part of the normal operating cycle of the Group. A total expense of €1,516,000 was
recognised in the income statement during the year arising from an impairment of trade receivables.
14. Capital and reserves
Other reserves
Equityshare
capital€’000
Sharepremium
€’000
Cashflow
hedge€’000
Share-based
payment€’000
Foreignexchange
€’000
Treasuryshares€’000
Retainedearnings
€’000
Totalequity€’000
At 1 October 2006 11,563 94,439 (1,119) 1,861 1,521 (6,033) 181,005 283,237
New shares issued 238 14,252 - - - - - 14,490
Scrip issue - (5,218) - - - - 5,218 -
Effective portion of cash flow hedges - - 1,926 - - - - 1,926
Deferred tax on cash flow hedges - - (241) - - - - (241)
Share-based payment expense - - - 1,126 - - - 1,126
Currency translation adjustment - - - - (7,211) - - (7,211)
Profit for the financial year - - - - - - 47,330 47,330
Dividends to equity holders - - - - - - (14,854) (14,854)
Transfer in respect of share entitlement scheme - - - - - - 70 70
Actuarial gain on defined benefit pension schemes - - - - - - 6,461 6,461
Deferred tax on defined benefit pension schemes - - - - - - (1,265) (1,265)
At 30 September 2007 11,801 103,473 566 2,987 (5,690) (6,033) 223,965 331,069
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14. Capital and reserves (continued)
Other reserves
Equityshare
capital€’000
Sharepremium
€’000
Cashflow
hedge€’000
Share-based
payment€’000
Foreignexchange
€’000
Treasuryshares€’000
Retainedearnings
€’000
Totalequity€’000
At 1 October 2005 11,382 87,606 132 940 (171) (6,033) 146,853 240,709
New shares issued 181 11,313 - - - - - 11,494
Scrip issue - (4,480) - - - - 4,480 -
Effective portion of cashflow hedges - - (1,429) - - - - (1,429)
Deferred tax on cashflow hedges - - 178 - - - - 178
Share-based payment expense - - - 921 - - - 921
Currency translation adjustment - - - - 1,692 - - 1,692
Profit for the financial year - - - - - - 42,896 42,896
Dividends to equity holders - - - - - - (12,602) (12,602)
Transfer in respect of share entitlement scheme - - - - - - 18 18
Actuarial loss on defined benefit pension schemes - - - - - (666) (666)
Deferred tax on defined benefit pension schemes - - - - - - 26 26
At 30 September 2006 11,563 94,439 (1,119) 1,861 1,521 (6,033) 181,005 283,237
Notes forming part of the Group financial statements (continued)
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14. Capital and reserves (continued)
Equity share capital 2007Number
of Shares
2006Number
of Shares
Authorised
Ordinary shares of 5 cent each 292,471,934 248,471,934
Redeemable ordinary shares of 5 cent each 7,528,066 7,528,066
300,000,000 256,000,000
Allotted, called-up and fully paid
Ordinary shares of 5 cent each 228,490,675 223,735,669
Redeemable ordinary shares of 5 cent each 7,528,066 7,528,066
In issue at 30 September 236,018,741 231,263,735
The redeemable ordinary shares rank pari-passu with ordinary shares in all respects, except that the redeemable ordinary shares can be redeemed by the Company with the agreement of holders of such shares, at the market price of the ordinary shares of the Company at the date of redemption. All redeemable ordinary shares are held by the Group.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.
Ordinary sharesRedeemable
ordinary shares
2007 2006 2007 2006
In issue at beginning of year 223,735,669 220,111,339 7,528,066 7,528,066
Exercise of share options 1,355,025 548,500 - -
Employee share participation scheme 370,270 218,880 - -
Customer share scheme 1,199,808 1,618,386 - -
Scrip issue 1,453,964 1,238,564 - -
Acquisition consideration 375,939 - - -
In issue at end of year 228,490,675 223,735,669 7,528,066 7,528,066
Company profit The profit in the financial statements of the holding Company for the year ended 30 September 2007 was €27,772,000 (2006: €5,084,000). As permitted by Section 148(8) of the Companies Act, 1963, the income statement of the Company has not been separately presented in these financial statements.
Cash flow hedge reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.
Share-based payment reserve This reserve comprises amounts expensed in the income statement in connection with share-based payments.
Foreign exchange reserve The currency translation reserve comprises all foreign exchange differences from 1 October 2004, arising from the translation of the net assets of the Group’s non-euro denominated operations, including the translation of the profits of such operations from the average exchange rate for the year to the exchange rate at the balance sheet date.
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14. Capital and reserves (continued)
Treasury shares At 30 September 2007, Dublin Drug Company Limited, a subsidiary undertaking, held 7,528,066 (2006: 7,528,066) redeemable ordinary shares in the Company at a cost of €5,667,000 (2006: €5,667,000). In addition, Ashfield Healthcare Limited, a subsidiary undertaking, held 95,000 (2006: 95,000) ordinary shares in the Company at a cost of €366,000 (2006: €366,000). These shares have been treated as treasury shares in the Group balance sheet.
15. Interest-bearing loans and borrowings
2007€’000
2006€’000
Non-current
Bank borrowings 4,456 3,815
Finance leases 469 -
Guaranteed senior unsecured notes 69,948 77,868
74,873 81,683
Current
Bank overdrafts 8,000 2,764
Bank borrowings 28,234 4,973
Finance leases 576 43
36,810 7,780
Interest-bearing loans and borrowings are repayable as follows: 2007€’000
2006€’000
Bank borrowings and overdrafts
Within one year 36,234 7,737
After one but within two years 1,641 1,087
After two but within five years 30,080 33,876
After five years 42,683 46,720
Finance leases
Within one year 576 43
After one but within five years 469 -
111,683 89,463
Non-current 74,873 81,683
Current 36,810 7,780
111,683 89,463
Notes forming part of the Group financial statements (continued)
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15. Interest-bearing loans and borrowings (continued)During 2004, the Group completed a US$102 million debt financing in the US Private Placement Market and issued the following notes:
2007US$’000
2006US$’000
5.25% Series ‘A’ guaranteed senior unsecured notes, 2011 40,000 40,000
5.68% Series ‘B’ guaranteed senior unsecured notes, 2014 40,000 40,000
5.85% Series ‘C’ guaranteed senior unsecured notes, 2016 22,000 22,000
102,000 102,000
The loan notes were issued by United Drug Finance Limited, a wholly owned subsidiary, and have been guaranteed by United Drug plc and other group undertakings.
The US dollar proceeds were swapped into euro and the fixed interest rates applicable to the debt were swapped into a mixture of fixed and floating rate debt to generate the desired interest profile.
These loans are repayable in full on maturity.
Bank overdrafts are repayable on demand.
Other bank borrowings amounting to €650,000 are repayable after five years.
Borrowing facilities
As at 30 September 2007, the Group had approximately €39.2 million of undrawn overdraft and loan facilities available for draw down. These facilities were uncommitted and once drawn, repayable on demand.
Subsequent to 30 September 2007, the Group secured total facilities of €100,000,000. €80,000,000 of these facilities are committed, with all amounts maturing in October 2012. €20,000,000 of the facilities are uncommitted but available for drawdown by the Group.
As at 30 September 2006, the Group had approximately €68.9 million of undrawn overdraft and term loan facilities. Approximately €12.5 million of these facilities were committed, with a maturity date of less than one year from the balance sheet date. The remaining facilities were uncommitted but available for draw down at 30 September 2006. These facilities were repayable on demand.
16. Trade and other payables2007€’000
2006€’000
Non-current
Deferred consideration 9,161 5,535
Current
Trade payables 228,566 210,402
Accruals and deferred income 33,276 25,652
Other payables 4,675 10,678
PAYE, VAT and social welfare 12,378 10,338
Deferred consideration 7,474 11,894
286,369 268,964
The deferred consideration may become payable over the period from February 2008 to November 2010.
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17. ProvisionsOther
provisions2007€’000
Redundancyprovision
2007€’000
Total2007€’000
Total2006€’000
At beginning of year 1,699 114 1,813 2,443
Provisions created during the year - - - 114
Adjustments to estimates (772) - (772) -
Utilised during the year (248) (114) (362) (744)
At end of year 679 - 679 1,813
2007€’000
2006€’000
Non-current 216 1,453
Current 463 360
679 1,813
Other provisions primarily relate to several onerous leases that the Group remains committed to following
the rationalisation of the Group’s property portfolio. In calculating these provisions the Group made certain
estimates and assumptions in assessing the amount provided for excess facilities. The provision was calculated
by taking into consideration the committed rental charges associated with the premises, the period of time to
the earliest date on which the Group can exit from the premises and an assessment of the sublet rental income
that could be achieved based on current market conditions. Adjustments to estimates of the level of provisions
required have been recognised in the Group income statement within administrative expenses.
18. Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as set out below. These amounts represent the minimum
future lease payments, in aggregate, that the Group is required to make under existing lease agreements.
2007€’000
2006€’000
Less than one year 6,942 6,052
Between two and five years 18,291 17,459
More than five years 26,598 30,616
51,831 54,127
The Group leases certain property, plant and equipment under operating leases. The leases typically run for
an initial lease period with the potential to renew the leases after the initial period.
The significant operating leases entered into by the Group are in respect of office and warehouse facilities
in Dublin. These leases commenced in June 2004 for a term of twenty five years and provide for rent reviews
every five years. On each rent review date, the rent payable shall be set at open market value, subject to the
revised annual rent being a minimum of 115% of the applicable annual rent prior to the rent review date. The
Group has the ability to terminate the leases in June 2019.
Notes forming part of the Group financial statements (continued)
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19. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities are attributable to the following:
Assets2007€’000
Liabilities2007€’000
Net2007€’000
Assets2006€’000
Liabilities2006€’000
Net2006€’000
Property, plant and equipment - (1,713) (1,713) - (1,903) (1,903)
Intangible assets - (9,534) (9,534) - (3,516) (3,516)
Employee benefits 961 - 961 2,226 - 2,226
Derivative financial instruments - (63) (63) 178 - 178
Other items 824 - 824 263 (5) 258
Tax assets/(liabilities) 1,785 (11,310) (9,525) 2,667 (5,424) (2,757)
Reclassification (1,785) 1,785 - (1,945) 1,945 -
Net tax (liabilities)/assets - (9,525) (9,525) 722 (3,479) (2,757)
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures as the
Group does not anticipate additional tax on any ultimate remittance.
Movement in temporary differences during the year
1 October2006€’000
Arisingin income
€’000
Arisingin equity
€’000
Arising onacquisitions
€’000
Translationadjustment
€’000
30 September2007€’000
Property, plant and equipment (1,903) 423 - (233) (1,713)
Intangible assets (3,516) 1,514 - (7,782) 250 (9,534)
Employee benefits 2,226 - (1,265) - - 961
Derivative financial instruments 178 - (241) - - (63)
Other items 258 98 - 477 (9) 824
(2,757) 2,035 (1,506) (7,538) 241 (9,525)
1 October2005€’000
Arisingin income
€’000
Arisingin equity
€’000
Arising onacquisitions
€’000
Translationadjustment
€’000
30 September2006€’000
Property, plant and equipment (2,052) 149 - - - (1,903)
Intangible assets (2,482) 723 - (1,769) 12 (3,516)
Employee benefits 2,282 (82) 26 - - 2,226
Derivative financial instruments - - 178 - - 178
Other items 87 171 - - - 258
(2,165) 961 204 (1,769) 12 (2,757)
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20. Acquisition of subsidiary undertakings
The principal acquisitions completed by the Group during the year, together with percentages acquired were
as follows:
nPyramed Limited (100%): a specialist UK based distributor of medical devices and equipment. This
company was acquired on 2 February 2007.
nBudelpack Hamont N.V. (100%): a Belgium based company providing contract packaging services designed
specifically for the pharmaceutical and healthcare industry. This company was acquired on 11 April 2007.
nCraig & Hayward Limited (100%): a UK based supplier of specials medicines in the UK market. This
company was acquired on 4 May 2007.
nPharma Logistics Investments B.V. (100%): specialised contract packaging company focused on packaging
and production services for pharmaceuticals and healthcare products, based in The Netherlands. This
company was acquired on 17 August 2007.
Including estimated deferred consideration payable of €11,288,000, the total consideration for all these
transactions was €65,760,000.
The Group has also reviewed its estimate of consideration in respect of prior year acquisitions. Arising from
this review, additional cash consideration of €256,000 in excess of amounts previously accrued was paid
during the year. This has resulted in a corresponding increase in goodwill in excess of amounts previously
accrued. The Group did not dispose of any subsidiaries in 2007 or 2006.
Notes forming part of the Group financial statements (continued)
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20. Acquisition of subsidiary undertakings (continued)
None of the business combinations completed during the year were considered sufficiently material as to
warrant separate disclosure of the fair values attributable to these combinations. The carrying amounts of
assets and liabilities which were acquired, determined in accordance with IFRS, before completion of the
combinations were as follows:
Bookvalues2007€’000
Fair valueadjustments
2007€’000
Total inrespect of
current yearacquisitions
2007€’000
Adjustmentsto prior yearacquisitions
2007€’000
Total2007€’000
Property, plant and equipment 11,591 - 11,591 - 11,591
Intangible assets - 31,147 31,147 - 31,147
Inventories 4,821 - 4,821 - 4,821
Trade and other receivables 8,863 - 8,863 - 8,863
Trade and other payables (current) (11,596) - (11,596) - (11,596)
Deferred tax (233) (7,305) (7,538) - (7,538)
Net identifiable assets and liabilities acquired 13,446 23,842 37,288 - 37,288
Goodwill arising on acquisition 28,472 256 28,728
65,760 256 66,016
Satisfied by:
Cash consideration 52,476 256 52,732
Professional fees incurred 1,311 - 1,311
Net cash and cash equivalents acquired on acquisition (2,576) - (2,576)
51,211 256 51,467
Equity share capital issued 1,511 - 1,511
Interest bearing loans and borrowings assumed on acquisition 1,750 - 1,750
Deferred consideration 11,288 - 11,288
65,760 256 66,016
The initial assignment of fair values to identifiable net assets acquired has been performed on a provisional
basis in respect of a number of the business combinations disclosed above given the timing of completion of
these transactions. Any amendments to these fair values within the twelve month timeframe from the date of
acquisition will be disclosable in the 2008 Annual Report as stipulated by IFRS 3, Business Combinations.
Goodwill is attributable to the future economic benefits arising from assets which are not capable of being
individually identified and separately recognised. The significant factors giving rise to the goodwill include the
value of the workforce and management teams within the businesses acquired and the enhancement of the
competitive position of the Group in the marketplace and the strategic premium paid by United Drug plc to
create the combined Group.
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20. Acquisition of subsidiary undertakings (continued)
The Group’s results for the year ended 30 September 2007 includes the following amounts in respect of the
businesses acquired during the year:
2007€’000
2006€’000
Revenue 26,361 5,113
Gross profit 10,854 2,551
Distribution expenses (6,702) (1,789)
Administration expenses (446) (180)
Other operating expenses* (2,983) (491)
Operating profit 723 91
Net interest expense (1,059) (512)
Loss before tax (336) (421)
Income tax 149 116
Loss after tax (187) (305)
*Other operating expenses consists of amortisation of intangible assets.
Had these acquisitions been effected on 1 October 2006 the combined Group would have recorded total revenues of €1,616,503,000 and profit after interest and tax for the financial year of €50,061,000.
2006 Business combinations
In May 2006, the Group acquired 100% of Endoscopy UK Limited, a UK based medical distributor, specialising in the sales and technical support of flexible endoscopy equipment. In July 2006, the Group acquired 100% of MASTA, a healthcare provider in the travel field, specialising in the sale and distribution of vaccines, medical information and provision of clinical services. The carrying amounts of assets and liabilities which were acquired, determined in accordance with IFRS, before completion of the combinations were as follows:
Bookvalues2006€’000
Fair valueadjustments
2006€’000
Total inrespect of
current yearacquisitions
2006€’000
Adjustmentsto prior yearacquisitions
2006€’000
Total2006€’000
Property, plant and equipment 317 - 317 - 317
Intangible assets - 7,664 7,664 - 7,664
Inventories 4,102 - 4,102 - 4,102
Trade and other receivables 2,215 - 2,215 - 2,215
Trade and other payables (current) (5,583) - (5,583) - (5,583)
Deferred tax - (1,769) (1,769) - (1,769)
Net identifiable assets and liabilities acquired 1,051 5,895 6,946 - 6,946
Goodwill arising on acquisition 29,567 528 30,095
36,513 528 37,041
Satisfied by:
Cash consideration 32,683 183 32,866
Professional fees incurred 895 - 895
Net cash and cash equivalents acquired on acquisition (5,691) - (5,691)
27,887 183 28,070
Deferred consideration 8,626 345 8,971
36,513 528 37,041
Notes forming part of the Group financial statements (continued)
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20. Acquisition of subsidiary undertakings (continued)
Had the acquisitions of MASTA and Endoscopy been effected on 1 October 2005 the combined Group would
have recorded total revenues of €1,473,863,000 and profit after interest and tax for the financial year of
€44,629,000.
21. Employee benefits2007€’000
2006€’000
The aggregate employee costs for the Group are as follows:
Wages and salaries 103,215 86,700
Social security contributions 9,183 9,601
Pension costs – defined contribution schemes 3,163 1,783
Pension costs – defined benefit schemes 1,652 1,594
Share-based payment expense 1,126 921
118,339 100,599
The average weekly number of employees, including executive directors, during the year was as follows:
2007 2006
Marketing, distribution and selling 2,579 2,330
Administration 161 132
2,740 2,462
A further 685 (2006: 580) personnel are employed in the Group’s joint ventures.
(i) Defined contribution schemes
The Group makes contributions to a number of defined contribution schemes, the assets of which are vested
in independent trustees for the benefit of members and their dependants.
(ii) Defined benefit schemes
The Group also operates a number of defined benefit schemes which are funded by the payment of
contributions to separately administered trust funds. All defined benefit schemes have been closed to new
entrants since 1 January 2003.
The contributions to the schemes are determined with the advice of independent qualified actuaries obtained
at regular intervals using the projected unit method of funding. Each defined benefit scheme is independently
funded and the assets are vested in the independent trustees for the benefit of members and their dependants.
The valuations are not available for public inspection but the results are advised to members of the schemes.
The most recent full actuarial valuations for the principal schemes were conducted as at 30 June 2006 for the
Republic of Ireland (R.O.I.) schemes and 1 April 2006 for the Northern Ireland (N.I.) scheme. The principal
assumption used in both reviews was that the annual rate of return on investments would be 2-2.5% higher
than the annual rate of increase in pensionable salaries.
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21. Employee benefits (continued)
The principal assumptions used by the actuaries as at 30 September 2007 were:
R.O.I. Schemes N.I. Scheme
2007 2006 2005 2007 2006 2005
Valuation method Projected unit method Projected unit method
Rate of increase in salaries 3.50% 3.50% 3.50% 3.90% 3.50% 3.40%
Rate of increase in pensions 0-2.25% 0-2.25% 0-2.25% 3.40% 3.00% 2.80-3.00%
Inflation rate 2.25% 2.25% 2.25% 3.40% 3.00% 2.90%
Discount rate 5.40% 4.50% 4.25% 5.90% 5.00% 5.00%
The expected rates of return at 30 September 2007 were:
R.O.I. Schemes N.I. Scheme
2007 2006 2005 2007 2006 2005
Equities 7.75% 7.50% 7.10% 7.75% 7.25% 7.25%
Bonds 4.50% 3.80% 3.10% 4.75% 4.25% 4.25%
Property 6.50% 6.50% 6.10% 6.75% 6.25% 6.25%
Other 2.25% 2.25% 2.25% 4.75% 4.75% 4.50%
The assumptions are based on long term expectations, which are believed to be relatively stable.
The R.O.I. and N.I. schemes used certain mortality rate assumptions when calculating scheme obligations.
The current assumptions for all major schemes retain a prudent allowance for future improvements in
longevity and reflect actual experience. All schemes used the PMA 92 (2025) mortality table for current
employees. The R.O.I. schemes and the N.I. scheme used the PMA 92 (2004) and the PMA 92 (2015)
mortality tables respectively, for retired members.
The market values of assets in the pension schemes at 30 September 2007 were:
R.O.I.2007€’000
N.I.2007€’000
Total2007€’000
Equities 16,256 8,152 24,408
Bonds 2,721 4,239 6,960
Property 1,593 1,085 2,678
Other 868 9 877
Fair value of scheme assets 21,438 13,485 34,923
Present value of scheme obligations (26,803) (14,454) (41,257)
Employee benefits (liability) (5,365) (969) (6,334)
Deferred tax assets 670 291 961
Net liability (4,695) (678) (5,373)
Notes forming part of the Group financial statements (continued)
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21. Employee benefits (continued)2006€’000
2006€’000
2006€’000
Equities 14,487 7,963 22,450
Bonds 2,511 3,875 6,386
Property 1,352 1,030 2,382
Other 966 56 1,022
Fair value of scheme assets 19,316 12,924 32,240
Present value of scheme obligations (28,760) (16,410) (45,170)
Employee benefits (liability) (9,444) (3,486) (12,930)
Deferred tax assets 1,180 1,046 2,226
Net liability (8,264) (2,440) (10,704)
Movements in fair value of plan assets
R.O.I.2007€’000
N.I.2007€’000
Total2007€’000
R.O.I.2006€’000
N.I.2006€’000
Total2006€’000
At beginning of year 19,316 12,924 32,240 16,372 11,108 27,480
Expected return on scheme assets 1,330 806 2,136 1,081 710 1,791
Employer contributions 1,233 605 1,838 1,466 626 2,092
Employee contributions 68 139 207 67 126 193
Benefit payments (556) (879) (1,435) (517) (347) (864)
Actual return less expected return on scheme assets 47 344 391 847 879 1,726
Translation Adjustment - (454) (454) - (178) (178)
At end of year 21,438 13,485 34,923 19,316 12,924 32,240
Movements in present value of defined benefit obligations
R.O.I.2007€’000
N.I.2007€’000
Total2007€’000
R.O.I.2006€’000
N.I.2006€’000
Total2006€’000
At beginning of year 28,760 16,410 45,170 24,979 15,209 40,188
Current service costs 1,257 428 1,685 1,098 418 1,516
Interest on scheme obligations 1,288 815 2,103 1,108 761 1,869
Employee contributions 68 139 207 67 126 193
Benefit payments (556) (879) (1,435) (517) (347) (864)
Actuarial loss on experience variations 1,547 12 1,559 1,261 275 1,536
Effect of changes in actuarial assumptions (5,561) (2,068) (7,629) 764 92 856
Translation Adjustment - (403) (403) - (124) (124)
At end of year 26,803 14,454 41,257 28,760 16,410 45,170
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21. Employee benefits (continued)
Reconciliation of the actuarial loss to the plan assets and present value of the defined benefit obligation is
as follows:
R.O.I.2007€’000
N.I.2007€’000
Total2007€’000
R.O.I.2006€’000
N.I.2006€’000
Total2006€’000
R.O.I.2005€’000
N.I.2005€’000
Total2005€’000
Actual return less expected return on scheme assets 47 344 391 847 879 1,726 1,866 1,294 3,160
Actuarial (loss)/gain on experience variations (1,547) (12) (1,559) (1,261) (275) (1,536) (448) 1,493 1,045
Effect of changes in actuarial assumptions 5,561 2,068 7,629 (764) (92) (856) (4,673) (2,114) (6,787)
Actuarial gain/(loss) recognised in statement of recognised income and expense 4,061 2,400 6,461 (1,178) 512 (666) (3,255) 673 (2,582)
Defined benefit pension expense recognised in the income statement
R.O.I2007€’000
N.I.2007€’000
Total2007€’000
Current service costs (1,257) (428) (1,685)
Interest on scheme obligations (1,288) (815) (2,103)
Expected return on schemes assets 1,330 806 2,136
(1,215) (437) (1,652)
R.O.I2006€’000
N.I.2006€’000
Total2006€’000
Current service costs (1,098) (418) (1,516)
Interest on scheme obligations (1,108) (761) (1,869)
Expected return on schemes assets 1,081 710 1,791
(1,125) (469) (1,594)
The tax effect relating to these items is disclosed in note 19.
The cumulative actuarial loss recognised in the statement of recognised income and expense is €137,000
(2006: €6,598,000).
The expected employers’ contribution for the year ended 30 September 2008 is €1,672,000.
Notes forming part of the Group financial statements (continued)
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21. Employee benefits (continued)
Share-based payment
The Group operates two share option schemes, both equity settled, which entitle key management to purchase
shares in United Drug plc so as to provide an incentive to perform strongly over an extended period and to
align their interests with those of shareholders. The terms of these schemes are outlined in the Report of the
Remuneration Committee on directors’ remuneration on pages 36 to 40. Under the terms of the schemes, two
types of options are granted to employees:
(i) Basic tier options which cannot be exercised before the expiration of three years and which are
subject to performance criteria as set out in the Report of the Remuneration Committee on directors’
remuneration; and
(ii) Second tier options which cannot be exercised before the expiration of five years and which are
subject to performance criteria as set out in the Report of the Remuneration Committee on directors’
remuneration.
The contractual life of both basic and second tier options is ten years. Options were last granted in June
2007 and a total of 1,495,000 basic tier and 570,000 second tier options (2006: 900,000 and 1,090,000
respectively) were granted at that time. In accordance with the terms of the relevant scheme, options are
exercisable at the market price of the underlying share on the last dealing day preceding the date of grant.
The measurement requirements of IFRS 2 have been implemented in respect of share options that were
granted after 7 November 2002.
The trinomial valuation method has been used to value options. Volatility is a key driver of option value.
The most important indicator of the volatility is that of the share price of United Drug plc, which since the
beginning of 2000, has had an average annual volatility of 20%. This average percentage was used in the
valuation calculation.
A summary of the details in respect of share options granted in 2007 and 2006 is set out below:
Basic tier stock options
2007 2006
Grant date 20 June 2007 23 June 2006
Fair value at measurement date €0.93 €0.84
Share price at date of grant €4.14 €3.32
Exercise price €4.06 €3.32
Expected volatility 20% 20%
Expected life (years) 6.5 10
Expected dividend yield 2.5% 1.76%
Risk-free interest rate 4.35% 3.9%
Valuation model Trinomial model Trinomial model
Vesting period 3 years 3 years
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21. Employee benefits (continued)
Second tier stock options
2007 2006
Grant date 20 June 2007 23 June 2006
Fair value at measurement date €0.97 €0.83
Share price at date of grant €4.14 €3.32
Exercise price €4.06 €3.32
Expected volatility 20% 20%
Expected life (years) 7.5 10
Expected dividend yield 2.5% 1.76%
Risk-free interest rate 4.35% 3.9%
Valuation model Trinomial model Trinomial model
Vesting period 5 years 5 years
The total expense for share options recognised in the income statement is as follows:
2007€’000
2006€’000
Administrative expenses 1,126 921
The number and weighted average exercise price of share options are as follows:
2007Weightedexercise
price€
2007Number
of options’000
2006Weightedexercise
price€
2006Number
of options’000
Options outstanding at beginning of year 2.48 11,301 2.27 10,380
Lapsed during the year 3.08 (937) 2.57 (521)
Exercised during the year 1.49 (1,355) 1.54 (548)
Granted during the year 4.06 2,005 3.32 1,990
Options outstanding at end of year 2.84 11,014 2.48 11,301
Options exercisable at end of year 1.84 3,907 1.45 3,621
At 30 September 2007 the range of exercise prices was from €0.87 to €4.06.
Analysis of share options outstanding at year end
Options by exercise price
Exerciseprices
€
2007Number of
options’000
2006Number of
options’000
0.69 - 175
0.87 140 325
0.99 345 490
1.01 245 432
1.84 1,103 1,453
1.90 1,243 1,421
1.99 932 1,069
2.83 1,485 1,790
3.32 1,735 1,990
3.48 1,806 2,156
4.06 1,980 -
11,014 11,301
Notes forming part of the Group financial statements (continued)
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22. Financial instruments
Derivative financial instruments, which have been recognised at fair value on the Group balance sheet are
analysed as follows:
2007€’000
2006€’000
Non-current liabilities
Losses on cash flow hedges maturing after one year 844 2,282
Losses on fair value hedges maturing after one year 6,730 1,402
7,574 3,684
Current liabilities
Losses on cash flow hedges maturing within one year 637 1,125
Losses on fair value hedges maturing within one year 5,931 3,338
6,568 4,463
Total derivative liabilities 14,142 8,147
All of the above derivatives are cross currency swaps entered into as a hedge on balance sheet debt and are described in further detail below. The interest element of the cash flow hedges will be recognised in the income statement in the periods to 30 September 2016, as the associated interest on the hedged debt is recognised.
The swaps are a mixture of fixed to fixed and fixed to floating rate swaps. The Group classifies the fixed to floating swaps as fair value hedges and has stated them at their fair value with a corresponding opposite adjustment to the underlying debt for the risk being hedged. Both of these adjustments are recorded within the income statement and to the extent they do not offset, this represents the ineffective portion of the fair value hedge. The fair value of these swaps at 30 September 2007 was €12,661,000 (2006: €4,740,000).
The fixed to fixed rate cross currency interest rate swaps are classified as cash flow hedges and are stated at their fair value. The fair value of these swaps at 30 September 2007 was €1,481,000 (2006: €3,407,000), and the effective portion of this adjustment was accounted for in the cashflow hedge reserve. The fair value movement out of the cashflow hedge reserve during the year was €61,000 (2006: €228,000).
Nature of Derivative
InstrumentsHedge Period
Underlying hedge
Notional payable amount of contracts
outstanding
Notional receivable amount of contracts
outstanding Fair value liability
Cross currency swaps
July 2004 to July 2016
(inclusive)
Interest rate & foreign currency
2007USD$’000102,000
2006USD$’000102,000
2007€’000
84,718
2006€’00084,718
2007€’000
14,142
2006€’0008,147
Risk exposures
The Group’s multi-national operations expose it to different financial risks that include foreign exchange rate risks, credit risks, liquidity risks and interest rate risks. The Group has a risk management programme in place which seeks to limit the impact of these risks on the financial performance of the Group. The Board has determined the policies for managing these risks. It is a policy of the Board to manage these risks in a non-speculative manner.
Treasury policy
The Group’s treasury policies, which are regularly reviewed, are designed to reduce the financial risk in a cost efficient way. A limited number of cross currency and interest rate swaps are undertaken periodically to hedge underlying trading and interest rate exposures.
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22. Financial instruments (continued)
Foreign currency risk
The majority of trade conducted by the Group’s Irish and continental Europe based businesses is in euro.
Sterling is the principal currency of the Group’s UK businesses.
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a
currency other than the respective functional currencies of Group entities. The Group ensures that its net
exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary
to address short-term imbalances.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.
Credit evaluations are performed on an ongoing basis across all divisions.
At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to
credit risk is represented by the carrying amount of each financial asset.
Interest rate risks
The majority of the Group’s ongoing operations are financed from a mixture of cash generated from
operations and borrowings. Borrowings are initially secured at floating interest rates and interest rate risk
is monitored on an ongoing basis. Interest rate swaps and forward rate agreements are used to manage
interest rate risk when considered appropriate having regard to the interest rate environment.
The Group’s US dollar borrowings are exposed to fair value interest rate risk, being the risk the value of the
borrowings will fluctuate because of changes in market interest rates.
The Group has entered into cross currency interest rate swaps to manage this risk.
Funding and Liquidity
The Group has significant cash resources and bank debt facilities at its disposal, which provides flexibility in
financing existing operations, acquisitions and other developments.
Currency profile
The currency profile of the Group’s net debt as at 30 September 2007, after reflecting the effect of
derivatives was as follows:
Euro2007€’000
Sterling2007€’000
Total2007€’000
Euro2006€’000
Sterling2006€’000
Total2006€’000
Fixed rate debt (guaranteed senior unsecured notes) (35,090) - (35,090) (38,472) - (38,472)
Floating rate debt (guaranteed senior unsecured notes) (34,858) - (34,858) (44,224) - (44,224)
Cash at bank and short term deposits 25,038 32,509 57,547 12,168 33,744 45,912
Bank overdrafts (8,000) - (8,000) (2,764) - (2,764)
Other loans and borrowings (29,086) - (29,086) - - -
Derivatives (14,142) - (14,142) (8,147) - (8,147)
Finance leases - (1,045) (1,045) - (43) (43)
Loan notes payable on acquisitions - (3,604) (3,604) - (3,960) (3,960)
Net debt by currency (96,138) 27,860 (68,278) (81,439) 29,741 (51,698)
Notes forming part of the Group financial statements (continued)
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22. Financial instruments (continued)
Maturity profile of net debt
The maturity profile of the Group’s net debt is summarised as follows:
Cash atbank and
short termdeposits
2007€’000
Derivatives2007€’000
Bank andother debt
2007€’000
Total2007€’000
Due within one year 57,547 (6,568) (36,810) 14,169
Between one and two years - (5,034) (2,110) (7,144)
Between two and five years - (845) (30,080) (30,925)
After five years - (1,695) (42,683) (44,378)
57,547 (14,142) (111,683) (68,278)
2006€’000
2006€’000
2006€’000
2006€’000
Due within one year 45,912 (4,463) (7,780) 33,669
Between one and two years - (3,113) (1,087) (4,200)
Between two and five years - (266) (33,876) (34,142)
After five years - (305) (46,720) (47,025)
45,912 (8,147) (89,463) (51,698)
In respect of income-earning financial assets and interest-bearing financial liabilities, the following table
indicates their effective interest rates at the balance sheet date and the periods in which they mature or, if
earlier, reprice.
30 September 2007
Effectiveinterest rate
€’000Total€’000
Less thanone year
€’0001-2 Years
€’0002-5 Years
€’000
More than5 years€’000
Cash at bank and short term deposits 5.16% 57,547 57,547 - - -
Bank overdrafts 5.28% (8,000) (8,000) - - -
Cash and cash equivalents 49,547 49,547 - - -
Other loans and borrowings 5.19% (29,086) (24,630) (1,641) (2,165) (650)
Finance leases (1,045) (576) (469) - -
Loan Notes
Floating rate debt 4.38% (34,858) - - (6,853) (28,005)
Fixed rate debt 4.74% (35,090) - - (21,062) (14,028)
Loan notes on acquisitions 6.00% (3,604) (3,604) - - -
Total loan notes (73,552) (3,604) - (27,915) (42,033)
Total before derivatives (54,136) 20,737 (2,110) (30,080) (42,683)
Effect of derivatives - (34,858) - 6,853 28,005
(54,136) (14,121) (2,110) (23,227) (14,678)
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22. Financial instruments (continued)
30 September 2006
Effectiveinterest rate
€’000Total
€’000
Less thanone year
€’0001-2 Years
€’0002-5 Years
€’000
More than5 years€’000
Euro deposits 2.58% 1,448 1,448 - - -
Cash at bank and short term deposits 5.36% 44,464 44,464 - - -
Bank overdrafts 3.41% (2,764) (2,764) - - -
Cash and cash equivalents 43,148 43,148 - - -
Other loans and borrowings 6.38% (4,828) (1,013) (1,086) (2,729) -
Finance leases (43) (43) - - -
Loan Notes
Floating rate debt 3.47% (38,472) - - (7,504) (30,968)
Fixed rate debt 4.74% (39,396) - - (23,645) (15,751)
Loan notes on acquisitions 4.20% (3,960) (3,960) - - -
Total loan notes (81,828) (3,960) - (31,149) (46,719)
Total before derivatives (43,551) 38,132 (1,086) (33,878) (46,719)
Effect of derivatives - (38,472) - 7,504 30,968
(43,551) (340) (1,086) (26,374) (15,751)
The effect of the derivatives included above has been to swap US dollar denominated debt to euro
denominated debt and to partially swap fixed rate interest into floating rate interest.
Fair value of financial assets and financial liabilities
The fair value and book value of the Group’s financial assets and liabilities are not materially different in the
current and prior year. The Group estimates the fair value of financial instruments by using interest rate
yield curves to create and discount future cash flows.
23. Capital commitments
Capital expenditure authorised but not contracted amounted to €6,750,000 (2006: €3,936,000) at the
balance sheet date.
Notes forming part of the Group financial statements (continued)
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24. Related parties
The Group trades in the normal course of business with its joint venture undertakings. The aggregate value
of these transactions is not material in the context of the Group’s financial results.
IAS 19 also requires the disclosure of compensation paid to the Group’s key management personnel.
This comprises its executive and non-executive directors, together with Persons Discharging Managerial
Responsibility (‘PDMRs’) as defined in Section 12(8) of the Irish Market Abuse Directive (MAD) Regulations.
Remuneration of key management personnel
2007€’000
2006€’000
Short term benefits (salary, bonus, incentives) 4,410 3,473
Pension contributions 710 499
5,120 3,972
In accordance with IFRS 2 Share-based payment an expense of €459,000 (2006: €292,000) has been
recognised in the Group income statement in respect of share options granted to key management personnel.
Details of the remuneration of the Group’s individual directors, together with the number of United Drug
shares owned by them and their outstanding share options are set out in the directors’ report on page 27
and in the Report of the Remuneration Committee on directors’ remuneration on pages 36 to 40.
25. Events after the balance sheet date
On 15 October 2007, the Group acquired the entire issued share capital of Alliance Healthcare Information
Inc, a pharmaceutical sales and marketing services company based in Pennsylvania in the United States of
America. The consideration for the acquisition was US$9.5 million in cash, paid on completion, plus additional
consideration of up to US$1 million, payable based on achievement of agreed targets over the twelve months
subsequent to the date of acquisition.
On 20 November 2007, the Group acquired the entire issued share capital of Procon Conferences Limited, a
pharmaceutical conference services company based in Harrogate in the United Kingdom. The consideration
for the acquisition was Stg£4.2 million in cash, paid on completion, plus additional consideration of up to
Stg£1.2 million, payable based on achievement of agreed targets over the twelve months subsequent to the
date of acquisition.
On 13 December 2007, the Group acquired the entire issued share capital of JVA Analytical Limited,
a specialist analytical chemistry distributor based in Dublin. The consideration for the acquisition was
€16.5 million in cash, paid on completion, plus additional consideration of up to €4.5 million, payable based
on achievement of agreed targets over the twenty four months subsequent to the date of acquisition.
The Group is currently reviewing the fair values of the individual assets and liabilities acquired in respect
of the above acquisitions. Therefore, it is impractical to provide the detailed disclosure requirements under
IFRS 3 Business Combinations at this point in time.
26. Comparative figures
Certain comparative figures have been reclassified to conform to the current year presentation.
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Company statement of recognised income and expensefor the year ended 30 September 2007
Notes2007€’000
2006€’000
Items of income/(expense) recognised directly within equity:
Company defined benefit pension schemes:
Actuarial gain/(loss) 36 1,966 (516)
Movement in deferred tax (250) 64
Net income/(expense) recognised directly within equity 1,716 (452)
Profit for the financial year 27,772 5,084
Total recognised income and expense for the year attributable to equity holders of the Company 29,488 4,632
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Company balance sheetas at 30 September 2007
Assets Notes2007€’000
2006€’000
Non-current
Property, plant and equipment 27 3,729 4,103
Other investments 28 60,256 73,987
Deferred tax assets 29 412 820
Total non-current assets 64,397 78,910
Current
Inventories 30 61,023 54,598
Trade and other receivables 31 307,463 416,481
Income tax asset 813 261
Total current assets 369,299 471,340
Total assets 433,696 550,250
Equity
Equity share capital 32 11,801 11,563
Share premium 32 103,473 94,439
Other reserves 32 52,529 51,403
Retained earnings 32 75,920 56,068
Capital and reserves attributable to equity holders of the Company 243,723 213,473
Liabilities
Non-current
Provisions 35 216 1,453
Employee benefits 36 2,551 4,463
Total non-current liabilities 2,767 5,916
Current
Bank overdrafts 33 56,890 248,327
Interest-bearing loans and borrowings 33 22,250 -
Trade and other payables 34 107,603 82,174
Provisions 35 463 360
Total current liabilities 187,206 330,861
Total liabilities 189,973 336,777
Total equity and liabilities 433,696 550,250
On behalf of the Board
R. Kells Director
L. FitzGerald Director
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Company cash flow statement for the year ended 30 September 2007
Notes2007€’000
2006€’000
Cash flows from operating activities
Profit before tax 28,027 5,576
Finance income (138) (75)
Finance expense 3,756 2,858
Operating profit 31,645 8,359
Depreciation charge 27 604 569
Profit on disposal of property, plant and equipment (9) (17)
Profit on disposal of subsidiary undertaking 28 (26,893) -
Share-based payment expense 36 412 376
Increase in inventories (6,424) (8,688)
Decrease/(increase) in trade and other receivables 161,529 (160,507)
Increase/(decrease) in trade and other payables 24,096 (7,083)
Interest paid (3,756) (2,858)
Income taxes paid (398) (3,343)
Net cash inflow/(outflow) from operating activities 180,806 (173,192)
Cash flows from investing activities
Interest received 138 75
Purchase of property, plant and equipment 27 (239) (1,105)
Proceeds from disposal of property, plant and equipment 18 62
Investment in subsidiary undertakings 28 (9,661) -
Net cash outflow from investing activities (9,744) (968)
Cash flows from financing activities
Proceeds from issue of shares (including share premium thereon, net of scrip issue) 7,761 7,014
Increase in interest-bearing loans and borrowings 22,250 -
Dividends paid to equity holders of the Company (9,636) (8,122)
Net cash inflow/(outflow) from financing activities 20,375 (1,108)
Net increase/(decrease) in cash and cash equivalents 191,437 (175,268)
Cash and cash equivalents at beginning of year (248,327) (73,059)
Cash and cash equivalents at end of year (56,890) (248,327)
Cash and cash equivalents are broken down as follows:
Cash at bank and short term deposits - -
Bank overdrafts (56,890) (248,327)
(56,890) (248,327)
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Notes forming part of the Company financial statements
27. Property, plant and equipment
Cost
Land andBuildings
2007€’000
Plant andEquipment
2007€’000
MotorVehicles
2007€’000
ComputerEquipment
2007€’000
Total2007€’000
At 1 October 2006 3,829 4,624 990 3,624 13,067
Additions in year - 43 136 60 239
Disposals in year - - (33) - (33)
At 30 September 2007 3,829 4,667 1,093 3,684 13,273
Depreciation
At 1 October 2006 645 3,948 825 3,546 8,964
Depreciation charge for the year 77 314 115 98 604
Eliminated on disposal - - (24) - (24)
At 30 September 2007 722 4,262 916 3,644 9,544
Carrying amount
At 30 September 2007 3,107 405 177 40 3,729
At 30 September 2006 3,184 676 165 78 4,103
Cost
Land andBuildings
2006€’000
Plant andEquipment
2006€’000
MotorVehicles
2006€’000
ComputerEquipment
2006€’000
Total2006€’000
At 1 October 2005 3,829 3,853 951 3,471 12,104
Additions in year - 771 181 153 1,105
Disposals in year - - (142) - (142)
At 30 September 2006 3,829 4,624 990 3,624 13,067
Depreciation
At 1 October 2005 568 3,679 863 3,382 8,492
Depreciation charge for the year 77 269 59 164 569
Eliminated on disposal - - (97) - (97)
At 30 September 2006 645 3,948 825 3,546 8,964
No borrowings are secured on the above assets.
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28. Other investments2007€’000
2006€’000
Cost
At beginning of year 73,987 73,442
Additions in year 9,661 -
Disposals in year (24,107) -
Share options granted to employees of subsidiary companies 715 545
At end of year 60,256 73,987
Other investments relate to investment in subsidiary undertakings. The significant subsidiaries are detailed
in note 40.
As part of an internal reorganisation of the Group’s business during the year, the Company disposed of its
interests in a subsidiary undertaking at market value to a fellow group undertaking. The Company realised a
profit of €26,893,000 on the disposal. This amount has been recognised in the Company’s income statement
during the year.
29. Deferred tax assets2007€’000
2006€’000
At beginning of year 820 638
Temporary differences (158) 118
Employee benefits (250) 64
At end of year 412 820
30. Inventories2007€’000
2006€’000
Finished goods 61,023 54,598
In 2007, finished goods recognised as cost of sales amounted to €546,002,000 (2006: €504,010,000). There
were no material write-down of inventories to net realisable value in the years ended 30 September 2007
and 2006.
Current replacement cost does not differ materially from historical cost.
31. Trade and other receivables2007€’000
2006€’000
Current
Trade debtors 50,530 55,596
Amounts due from subsidiaries 251,582 356,592
Other debtors 5,295 4,042
Prepayments and accrued income 56 251
307,463 416,481
All amounts fall due within one year. A total expense of €500,000 was recognised in the income statement
during the year arising from an impairment of trade receivables.
Notes forming part of the Company financial statements (continued)
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32. Capital and reserves
Equity sharecapital€’000
Sharepremium
€’000
Otherreserves
€’000
Retainedearnings
€’000Total€’000
At 1 October 2005 11,382 87,606 50,482 59,558 209,028
Total recognised income and expense - - - 4,632 4,632
New shares issued 181 11,313 - - 11,494
Scrip issue - (4,480) - 4,480 -
Dividends - - - (12,602) (12,602)
Share-based payment expense - - 921 - 921
At 1 October 2006 11,563 94,439 51,403 56,068 213,473
Total recognised income and expense - - - 29,488 29,488
New shares issued 238 14,252 - - 14,490
Scrip issue - (5,218) - 5,218 -
Dividends - - - (14,854) (14,854)
Share-based payment expense - - 1,126 - 1,126
At 30 September 2007 11,801 103,473 52,529 75,920 243,723
Other reserves represents a share-based payment reserve of €2,987,000 (2006: €1,861,000), a treasury
shares reserve of (€6,033,000) (2006: (€6,033,000)), a goodwill reserve of (€93,000) (2006: (€93,000))
and a non-distributable reserve of €55,668,000 (2006: €55,668,000).
The Company’s non-distributable reserve consists of €16,762,000 (2006: €16,762,000) transferred from
the share premium account against which goodwill, arising from acquisitions in financial periods prior to
1 October 1999, is offset on consolidation and a transfer from the income statement of €38,906,000
(2006: €38,906,000) arising on the restructuring of group activities.
Details of equity share capital are set out in note 14.
33. Interest-bearing loans and borrowings
2007€’000
2006€’000
Current
Bank overdrafts 56,890 248,327
Bank loans and borrowings 22,250 -
79,140 248,327
These balances are repayable on demand.
Details of how the Company manages risk exposures are set out in note 22.
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34. Trade and other payables
2007€’000
2006€’000
Current
Trade payables 101,244 77,868
Accruals and deferred income 5,241 3,541
Other creditors 1,118 765
107,603 82,174
35. Provisions
2007€’000
2006€’000
Non-current 216 1,453
Current 463 360
679 1,813
A detailed description of the above provisions is provided in note 17.
36. Employee benefits
2007€’000
2006€’000
The aggregate employee costs for the Company are as follows:
Wages and salaries 7,319 4,606
Social security contributions 737 365
Pension costs – defined contribution schemes 146 182
Pension costs – defined benefit schemes 500 426
Share-based payment expense 412 376
9,114 5,955
The average weekly number of employees, including executive directors, during the year were as follows:
2007 2006
Marketing, distribution and selling 54 58
Administration 64 51
118 109
(i) Defined contribution schemes
The Company makes contributions to a number of defined contribution schemes, the assets of which are
vested in independent trustees for the benefit of members and their dependants.
(ii) Defined benefit schemes
The Company also operates a number of defined benefit schemes which are funded by the payment of
contributions to separately administered trust funds. All defined benefit schemes are closed to new entrants
since 1 January 2003.
Notes forming part of the Company financial statements (continued)
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36. Employee benefits (continued)
The contributions to the schemes are determined with the advice of independent qualified actuaries obtained
at regular intervals using the projected unit method of funding. Each defined benefit scheme is independently
funded and the assets are vested in the independent trustees for the benefit of members and their dependants.
The valuations are not available for public inspection but the results are advised to members of the schemes.
The most recent full actuarial valuations for the principal schemes were conducted as at 30 June 2006. The
principal assumption used was that the annual rate of return on investments would be 2-2.5% higher than
the annual rate of increase in pensionable salaries.
The principal assumptions used by the actuaries as at 30 September 2007 were:
2007 2006 2005
Valuation method Projected unit method
Rate of increase in salaries 3.50% 3.50% 3.50%
Rate of increase in pensions 0 - 2.25% 0-2.25% 0 - 2.25%
Inflation rate 2.25% 2.25% 2.25%
Discount rate 5.40% 4.50% 4.25%
The expected rates of return at 30 September 2007 were:
2007 2006 2005
Equities 7.75% 7.50% 7.10%
Bonds 4.50% 3.80% 3.10%
Property 6.50% 6.50% 6.10%
Other 2.25% 2.25% 2.25%
The assumptions are based on long term expectations, which are believed to be relatively stable.
The market values of assets in the pension schemes at 30 September 2007 were:
2007€’000
2006€’000
Equities 7,748 6,766
Bonds 1,325 1,173
Property 714 631
Other 408 451
Fair value of scheme assets 10,195 9,021
Present value of scheme obligations (12,746) (13,484)
Employee benefits (liability) (2,551) (4,463)
Deferred tax assets 308 558
Net liability (2,243) (3,905)
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36. Employee benefits (continued)
Movements in fair value of plan assets2007€’000
2006€’000
At beginning of year 9,021 7,654
Expected return on scheme assets 989 757
Employer contributions 445 517
Employee contribution 1 1
Benefits paid (283) (304)
Actual return less expected return on scheme assets 22 396
At end of year 10,195 9,021
Movements in present value of defined benefit obligations2007€’000
2006€’000
At beginning of year 13,484 11,678
Current service costs 506 428
Interest on scheme obligations 982 769
Actuarial loss on experience variations 550 592
Employee contributions 1 1
Benefits paid (283) (304)
Effect of changes in actuarial assumptions (2,494) 320
At end of year 12,746 13,484
Reconciliation of the actuarial loss to the plan assets and present value of the defined benefit obligation is
as follows:
2007€’000
2006€’000
2005€’000
Actuarial loss on experience variations (550) (592) (14)
Actual return less expected return on scheme assets 22 396 245
Effect of changes in actuarial assumptions 2,494 (320) (1,537)
Actuarial gain/(loss) recognised in the statement of recognised income and expense 1,966 (516) (1,306)
Mortality rate assumptions and share-based payment information are detailed in note 21.
Notes forming part of the Company financial statements (continued)
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37. Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as set out below. These amounts represent the minimum
future lease payments in aggregate, that the Company is required to make under existing lease agreements.
2007€’000
2006€’000
Less than one year 2,450 2,450
Between two and five years 9,801 9,801
More than five years 18,941 21,391
31,192 33,642
The Company leases certain property, plant and equipment under operating leases. The leases typically run
for an initial lease period with the potential to renew the leases after the initial period.
The significant operating leases entered into by the Company are in respect of office and warehouse facilities
in Dublin. These leases commenced in June 2004 for a term of twenty five years and provide for rent reviews
every five years. On each rent review date, the rent payable shall be set at open market value, subject to the
revised annual rent being a minimum of 115% of the applicable annual rent prior to the rent review date. The
Company has the ability to terminate the leases in June 2019.
38. Related party transactions
The Company has related party relationships with its subsidiaries and with the directors of the Company.
Details of the remuneration of the Company’s individual directors, together with the number of shares in the
Company owned by them and their outstanding share options are set out in the Directors’ report on page 27
and in the Report of the Remuneration Committee on directors’ remuneration on pages 36 to 40.
Transactions with subsidiaries:
2007€’000
2006€’000
Management charges to subsidiaries 6,887 3,761
Sales to subsidiaries 309,130 263,193
Details of balances outstanding with subsidiaries are provided in note 31.
IAS 19 requires the disclosure of compensation paid to the Company’s key management personnel. This
comprises its executive and non-executive directors, together with Persons Discharging Managerial
Responsibility (‘PDMRs’) as defined in Section 12(8) of the Irish Market Abuse Directive (MAD) Regulations.
Remuneration of key management personnel2007€’000
2006€’000
Short term benefits (salary, bonus, incentives) 3,761 2,846
Pension contributions 614 443
4,375 3,289
In accordance with IFRS 2 Share-based payment an expense of €325,000 (2006: €190,000) has been
recognised in the income statement in respect of share options granted to key personnel.
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39. Contingent liabilities
Guarantees have been given by the Company in respect of borrowing facilities of certain subsidiary
undertakings and customers.
40. Significant subsidiaries
The following are the significant subsidiary undertakings of United Drug plc at 30 September 2007.
Incorporated and trading in the Republic of Ireland
Name Nature of business Group share
United Drug Wholesale Limited Wholesale distribution of pharmaceutical products
100%
Unitech Limited* Distribution of medical and scientific equipment and consumables
100%
Blackhall Pharmaceutical Distributors Limited Distribution of pharmaceutical products 100%
Ashfield Healthcare (Ireland) Limited Contract sales outsourcing 100%
Pemberton Marketing International Limited* Distribution of consumer products 100%
Intraveno Healthcare Limited Distribution of medical and pharmaceutical equipment and consumables
100%
Intrapharma Limited Distribution of medical and pharmaceutical equipment and consumables
100%
All of the above companies have their registered office at United Drug House, Magna Drive, Magna Business
Park, Citywest Road, Dublin 24.
* Subsidiary undertakings owned directly by United Drug plc.
All shares held are ordinary shares.
Incorporated and trading in the United Kingdom
Name Nature of business Group share
Sangers (Northern Ireland) Limited (1) Wholesale distribution of pharmaceutical products 100%
Ulster Anaesthetics Limited (2) Distribution of medical equipment and consumables 100%
United Drug (U.K.) Holdings Limited (3)* Investment holding company 100%
Ashfield In2Focus Limited (3) Contract sales outsourcing 100%
New Splint Limited (3) Supply and distribution of medical devices 100%
Mantis Surgical Limited (3) Supply and distribution of surgical products 100%
TD Packaging Limited (4) Primary and secondary packaging solutions provider 100%
Presearch Limited (3) Distribution of laboratory equipment 100%
MASTA Limited (5) Service provider in the travel health field 100%
Endoscopy UK Limited (3) Distribution of medical equipment 100%
Notes forming part of the Company financial statements (continued)
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40. Significant subsidiaries (continued)
Name Nature of business Group share
Craig & Hayward Limited (6) Distribution of specialised medicines 100%
Pyramed Limited (3) Distribution of specialised medical equipment 100%
(1) This company has its registered office at 2 Marshalls Road, Belfast BT5 6SR.
(2) This company has its registered office at Maryland Industrial Estate, Ballygowan Road, Castlereagh,
Belfast BT23 6BL.
(3) These companies have their registered office at Ashfield House, Resolution Road, Ashby de la Zouch,
Leicestershire, LE65 1HW.
(4) This company has its registered office at Unit 6, Stephenson Road, Groundwell Industrial Estate,
Swindon, SN25 5AX.
(5) This company has its registered office at Unit 15, Moorfield Close, Yeadon, Leeds, LS19 7BN.
(6) This company has its registered office address at 7 Thames Park, Lester Way, Wallingford, Oxfordshire,
OX10 9TA.
* Subsidiary undertakings owned directly by United Drug plc.
Incorporated and trading in Europe
Name Nature of business Group share
Budelpack Hamont N.V. (7)* Packaging solutions provider 100%
Pharma Logistics Investments B.V. (8) Packaging solutions provider 100%
(7) This company has its registered office at Klöcknerslyaat 1, 3930 Hamont-Achel, Belgium.
(8) This company has its registered office at Appelhof 13, 8465 AX Oudehaske, The Netherlands.
* Subsidiary undertakings owned directly by United Drug plc.
