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Edited Transcript of UDG.L earnings conference call or presentation 21-May-19 7:30am GMT

Half Year 2019 UDG Healthcare plc Earnings Call

London May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of UDG Healthcare PLC earnings conference call or presentation Tuesday, May 21, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Brendan Patrick McAtamney

UDG Healthcare plc - CEO & Executive Director

* Keith Byrne

UDG Healthcare plc - Head of IR, Strategy & Corporate Communications

* Mike O'Hara

UDG Healthcare plc - MD & President of Sharp Packaging

* Nigel Clerkin

UDG Healthcare plc - CFO & Executive Director

* Rob Wood

UDG Healthcare plc - Global President of Advisory Services & Business Development

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Conference Call Participants

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* Alistair David Campbell

Liberum Capital Limited, Research Division - Analyst

* Allan Smylie

Davy, Research Division - Transport, Distribution and Logistics Analyst

* Amy Lucinda Walker

Peel Hunt LLP, Research Division - Analyst

* Brian Templeton White

Cantor Fitzgerald Europe, Research Division - Research Analyst

* Catherine Tennyson

BofA Merrill Lynch, Research Division - Analyst

* Gerry Hennigan

Goodbody Stockbrokers, Research Division - Investment Analyst

* Hassan Al-Wakeel

Barclays Bank PLC, Research Division - Research Analyst

* James Alexander Stewart Vane-Tempest

Jefferies LLC, Research Division - Senior Equity Analyst

* Max Stephen Herrmann

Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD

* Paul Cuddon

Numis Securities Limited, Research Division - Director for Healthcare Equity Research

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Presentation

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [1]

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Okay, good morning, everybody. I think we're going to kick off. I think we're ready to go on the phones and the webcast. So good morning, and you're very welcome to UDG Healthcare's Interim Financial Results Presentation, which covers the period 1 October 2018 through to 31st of March 2019.

I'm Keith Byrne, I head up IR of UDG, as most of you know. I'm joined on the stage for the presentation today by Brendan McAtamney, our CEO; and Nigel Clerkin, our CFO.

Also in the room today from the management team are Rob Wood, Grainne McAleese, Julian Tompkins and Mike O'Hara, and they will be available for questions as well when we get to that part.

Before we begin, as always, a few housekeeping items. For those of you in the room, obviously, you have a copy of the presentation deck. The presentation's at the front end of that booklet that you have with some backup information towards the rear and the appendices, and that is available on our website for anyone dialing in and indeed on the webcast.

We'll have a presentation for about 30 minutes, and then we'll follow that by Q&A, starting with Q&A in the room, and then open it up to the webcast and the phone lines.

Before we begin, I just want to also point out that, as you will have noticed the group has adopted IFRS 15 from 1 October 2018, which relates to a new revenue recognition standard. However, prior year financials are on an IAS 18 basis. Therefore, to enable a meaningful like-for-like comparison and analysis, all analysis in the presentation and discussion is on IAS 18 basis. The impact of adopting IFRS 15 for the group is not significant. And for those of you interested, there's plenty more details in Note 19 of the interim statement.

And finally, before I start, just to remind you of our forward-looking statements. Today's presentation may contain forward-looking statements based on current expectations and projections about future events. As you know, actual results may differ materially from those expressed and applied in such forward-looking statements.

So with that, I'll hand over to Brendan McAtamney.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [2]

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Good morning, everyone, and welcome to our 2019 first half results presentation. So a quick infographic of the group as it is today with disposal of Aquilant last year. So 2 global platforms, Ashfield and Sharp; operating with 9,000 employees around the world; working with the top 30 clients, particularly in pharma; with presence in 26 countries; very proud of the 30-year dividend growth story; and listed here in the London Stock Exchange.

So in terms of operating profit split, you can see now Ashfield combined just a nudge under 70%, Sharp at 31%. And again, within Ashfield, you can see kind of 2/3 is our Communications & Advisory with Commercial & Clinical at 25% of the group, plus 36% of Ashfield.

In the middle, you can see the geographic revenue split, and you can see this has migrated more and more to the U.S. So as we stood here in November, it was circa under 60%, about 54%. So quite a move. And you'll see us, we will discuss Sharp US going strongly. And with the acquisitions in the U.S., that is probably on a trajectory to go upwards.

And then in terms of customer concentration, very pleased to stay the course that no single client has grown within 10% of our revenue, which kind of risks adjusts our kind of playbook.

So financial highlights. Nigel's going to kind of unpack these in a little while in more detail, but I'm very pleased that particularly as -- it starts with revenue, very solid underlying constant currency growth of 6%, operating profit at 3%. That obviously is affected by the STEM aXcellerate investments. Margin increased compared to the same period last year, perhaps before tax at 4% constant currency. And again, our EPS -- so our guidance of 4% to 6%, we've come in at 7% constant currency.

And again, we will talk about the acquisitions. We'll talk about the increase in guidance. But underlying 4% to 6%, excluding guidance, was always going to be our statement of today's results, and, again, another increase in the dividend.

And again, what's pleasing for me as CEO for the results that we'll present this morning, so the financial metrics, I believe, are on the money. We've tightened the cash flow, and Nigel will report on that. Really, really pleased with the 2 acquisitions in terms of the capabilities that they're bringing into the group. But more importantly is the 9,000 people that work around the world who really, really create a staple, working really, really hard on behalf of their clients and really doing some smart work. So really pleased with this first half of the year's performance.

So moving into the acquisitions. Putnam is a super acquisition. So initial outlay of $60 million risen to $88.6 million over a 5-year earnout. As you can see, it has adjusted operating profit of approximately $8 million.

So this was founded in 1988 as a strategic management consulting very much like Vynamic. But Vynamic -- or Vynamic is on-market and more commercialization, and Putnam is very much in terms of the new product strategy and pricing reimbursement and advisory services rather than getting into and onto the market with a good reimbursement level and in supporting the clients in terms of their portfolio development.

Their main headquarters is in Boston. And again, we have Vynamic in Boston, but, also, they have an office in San Francisco.

And again, what's pleasing about the Putnam acquisition is the development of our advisory suite of services.

So as some of you will remember, we had a Capital Markets Day here in September 2016 in London. We talked about developing an advisory arm within Ashfield. We did the acquisition with STEM in October 2016, and we have done an investment called STEM aXcellerate. That might come up in questions on how it's going. And with Vynamic, we acquired that in 2017. As I said, that's more on-market strategic management consulting services. Already, we've expanded that to open a London office.

Last year, we acquired SmartAnalyst, which gives us back-office support from an offshore base like India. And then this year, with Putnam, that pricing reimbursement market access support for clients prelaunch is really, really, not just a hot space, but really a capability that our clients are looking for.

An interesting thing is -- Rob is leading advisory, had the heads of STEM, Vynamic and SmartAnalyst working with Putnam as part of the diligence process to ensure that fit was complementary and, obviously, engaging for our clients. So we do see cross-selling, international expansion and service expansion for our clients with the addition of Putnam into the group.

Equally exciting, a little bit smaller, but is Incisive Health. This was a younger company founded in 2013. And what they do is produce the content in terms of those conversations about market access, about strategy development and, more importantly, about policy development in terms of health care the payers pay.

So they produce the content, and then they use it with public affairs and with advocacy and payer engagement, based here in London, but also with an office in Brussels. And you can see the deal initial upfront was $10.4 million, risen to $17.5 million -- $17.7 million. And that's over a 3-year earnout.

So a really smart acquisition. They've already been collaborating with our Pegasus agency. That's a PR agency based in Brighton. And our Galliard agency which is, again, our communication to Physicians agency, which is based in London. So really complementary fit that will fold into our communications space.

And again, this is as we have evolved, particularly over the last 5 years, with the disposal of the supply chain, with the adding of acquisitions that Nigel is going to take you through, the model of build and buy from an Ashfield perspective. So really solid underlying growth being punched out, supplemented by inorganic growth from M&A that is complementary to our clients. That is global in reach and, for me, is a great investment thesis, but also, as you can see, punching out double-digit growth over the last. That is absolute, so it does include some FX.

So with that, I'm going to hand it over to Nigel, who's going to walk you through the financial metrics.

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Nigel Clerkin, UDG Healthcare plc - CFO & Executive Director [3]

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Thank you, Brendan, and good morning, everybody. So as Brendan has outlined, we've had a very good start to the year financially. In the first half, we saw our constant currency underlying net revenues grow by 6% and our earnings per share grow by 7%. In terms of cash flow, also very good performance. We had free cash flow conversion in the first half of 77%. And then finally, as Brendan mentioned, given the 2 strategic transactions we announced this morning, we're obviously also pleased to be upgrading our full year EPS growth guidance as well from 4% to 6%, we've published originally to 5% to 7% today.

So I'm going to take you -- take a few minutes just to walk you through those financial highlights in a bit more detail. And so starting first with revenues. So our revenues for the first half did actually fall slightly, but, again, principally driven by, firstly, a little bit of currency impact, but principally the divestments of our former Aquilant business as well.

So from an underlying revenue perspective, as Brendan mentioned, we had growth of 6% in the first half. And that 6% revenue growth translated into 3% growth in operating profit. And again, principally, the difference between those 2 metrics really being the cause of that investments that we're making in the STEM aXcellerate program. And then that 3% operating profit growth converted into the 7% EPS growth at constant currency, mainly reflecting the benefit -- the full benefit of last year's U.S. tax reforms. So because of that good strong performance in the first half, we are, this morning, increasing our interim dividend by 5% as well.

So Brendan will go through the divisional performance in a little bit -- in more detail later on, but just at a high level, starting first with Ashfield. So Ashfield saw constant currency total operating profit growth of 6% in the first half. From an underlying perspective, it was approximately flat. And again, the delta really -- well, the 6% principally benefiting from the acquisitions that we did last year and the relatively flat operating growth from an underlying perspective reflecting, again, the investments in the STEM aXcellerate program. From an operating margin perspective, Ashfield's operating margin expanded slightly during the first half from 12.3% in H1 last year to 12.4% in H1 this year.

Sharp also had a very good half with constant currency growth of 12% in its operating profits. So again, very good strong performance from Sharp, although its operating margins actually fell from 13.3% in the first half of last year to 12.5% in the first half of this year, and that mainly relates to increased losses at Sharp Europe, which Brendan will touch on again a bit further a bit later on. But overall, though, the group's operating margins expanded from 11.8% in the first half of last year to 12.5% in the first half of this year, benefiting from the divestment of the lower-margin Aquilant business and consistent with the continued evolution of the group over time towards higher-growth, higher-margin opportunities.

And EPS, again, as I mentioned, we had 7% constant currency growth during the half. If you wanted the composition of that, essentially about 4% coming from the underlying business; 4% coming from lower interest in tax, again, mainly related to U.S. tax reform last year; and then we had a roughly 1% negative impact from the acquisitions and disposals, again, reflecting the Aquilant divestment last year. And so 7% constant currency, translating into 5% reported EPS growth because of a 2% foreign exchange drag from constant currency to report it.

On net debt and cash, again as we said, we've had a very good performance on cash flow in the first half. So we had a free cash flow conversion as remeasures of 77%. And just as a reminder, we define free cash flow as EBITDA less working capital, less CapEx, all as a percentage of EBITDA.

So measured that way, again, 77%. So a very strong performance in the first half, principally driven by working capital, where we had a modest inflow during the half of about $2 million. And that reflects the expected unwind of $10 million outflow that we saw in 2018, you may recall, related to the implementation of the Oracle program as part of Future Fit. So we did see that $10 million outflow last year reverse and come back in, in the first half of this year, as we expected.

So underlying that, working capital was in line with what we would've expected and leaves us well positioned for our full year expected working capital outflow of between $10 million and $20 million for the year as a whole.

On CapEx, H1 CapEx was $21 million. And here, too, we remain on track for our full year expectation for CapEx of approximately $60 million.

So when you put that altogether, a very, very strong performance on cash flow in the first half and leaves us well positioned to be within touching distance hopefully of the 60% to 65% medium-term outlook that we would have for free cash flow within this year as well.

And then from a net debt perspective, we ended the half with net debt-to-EBITDA ratio of about 0.3x. Pro forma for the 2 transactions we announced this morning, that would have been 0.7x. So we continue to have a very solid capital structure and plenty of room for further acquisitions.

Which brings me to our capital allocation priorities. So these remain consistent with what we have talked about before. Firstly, we will always look for opportunities to reinvest organically within the business and to drive further value creation there, where we see suitable opportunities. Secondly, we will continue with a progressive shareholder returns policy. And again, we've announced this morning a 5% increase in our interim dividend. And then thirdly, we will continue to make further acquisitions in line with our strategic priorities, as evidenced by the 2 announcements from earlier this morning.

And so those 2 transactions bring our total spend on acquisitions over the last number of years to north of $850 million. And as you know, we've also been very active in reshaping the portfolio overall and have generated over $600 million over that same time frame from divestments also. And so it's been a very active profile in terms of the company continuing to evolve over time through M&A, and we would expect that pace to continue into the future as well.

And then finally, just before I hand you back over to Brendan, just to recap on the outlook and the guidance for this year. So as Brendan mentioned, our original EPS growth guidance for this year was 4% to 6% constant currency, and we're very pleased with a very solid start we made to the year so far underpinning that for the balance of the year. But on top of that, we have made 2 transactions this morning, which add a further 1% to our EPS growth expectations for the full year. And so we've upgraded the growth guidance to 5% to 7%.

Just in terms of briefly on the financial metrics, I guess, on those 2 transactions. So as Brendan mentioned, we spent about $70 million in total upfront on the 2 deals this morning for businesses that combined have an operating profit of about $10 million. So approximately a 7x blended multiple on the 2 transactions and with a return on capital employed already into the low teens on those businesses.

Those 2 businesses together, again, that $10 million would translate into about a 5% incremental EPS growth in a full year, but, obviously, we only have them for a few months for the remainder of this year due to seasonality with the summer months being the quietest period for Putnam in particular. That brings it to an incremental 1%, which gets us to the 5% overall.

And then finally just on the medium-term outlook, nothing new here. This is consistent with what you would have heard us say before on the different parts of the business. But Ashfield continues to be a business that over the medium term, we would expect its operating profits to grow between 5% and 10% a year.

Sharp continues also to be a business we would expect operating profit growth in the double digits on average over the medium term each year.

From a cash flow perspective, as I mentioned, we have free cash flow generation targets annually of 60% to 65% of EBITDA, and that's in part based on an expected average CapEx outflow each year of about $50 million through the cycle. And so with that, I will pass you back over to Brendan.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [4]

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Thanks, Nigel. So I'm just going to walk through the divisions and starting with Ashfield. So the Communications & Advisory, 44% of the group and 64% of Ashfield; I would say really solid, 6% underlying revenue growth; aided with acquisitions brings it up to 16% constant currency; and then from an operating profit, 9%, but, again, impacted by the investments in STEM aXcellerate, so just below at minus 1%.

Just for the math, without STEM aXcellerate investment, that would have been kind of similar to the revenue growth of 7%. You can see the margin has been impacted, but a really solid first half of the year for those businesses. Really pleased with the scientific medical writing on both sides of the Atlantic. Really pleased with the acquisitions and how they're performing. So a really good start to the year.

I can tell you that people in STEM aXcellerate have done an outstanding job because they are building the plan on slyness at the same time. So they really ramped up the hire. I know that will come up in questions and answers. A lot of leadership change because a lot of the kind of promotions came from within. So we are backfilling key positions and, at the same time, turning our services to our clients right around the world.

And so this is a slide I used at the AGM. And it's helpful. We've -- it's helpful for some of the analysts' meetings, particularly for those that don't know us so well. But just as a little bit of a kind of history lesson in terms of where we started, which is bottom left. We bought Ashfield in 2000. That was really a sales rep business and exclusively only in the U.K. And over that 18.5 years, we have morphed and Nigel showed the slide. Since 2012, we've done 19 acquisitions -- no, sorry 21 acquisitions now. And I think largely all, but 2 or 3 of them, have been an Ashfield.

And so we've developed our suite of capabilities into communications, into advisory, into North America. But particularly what was a pure-play doctor business that's gone to patients, that's gone to payers, but also now is supported not just face-to-face, but with digital, the Internet of Things, fueled by data and analytical capability to drive home really personalized message delivery.

So that has kind of continued its development with the acquisition of Putnam and Incisive today. And, again, that is the strategy in terms of how we're building and setting out our Ashfield playbook.

Turning into Commercial & Clinical. Slightly better performance, frankly, than what we guided in November. And really, that's been fueled by the U.S. Very strong performance in the U.S., I'll come onto that in a minute, but equally still challenged in the U.K. I remember -- U.K. and Germany. I remember, EMEA, at the November results, is a cyclical area. That's structural. And honestly, we think, in Europe, it's probably more structural and definitely in the U.S. more cyclical. But that blend, we think, is bottoming out in Europe, but -- and then the growth will return in the U.S.

And one of the examples I'm just going to speak to is the difference between the U.S. and Europe for Commercial & Clinical.

In Europe, 70% of the business is still reps in U.K. and Europe. Whereas in the U.S., 70% of the business is non-rep. And this is an example. This is a top 5 client that we've won in the middle of the year. It will kick off in the second half of the year -- or in, sorry, more like FY '20. And it's for a 5-year contract. We -- it was head-to-head against one of our major competitors. And these are engagement specialists in-field, but also in-house.

And they are commercial and clinical. And they help patients, on the right-hand side, with medical information -- well, and pharmacists' medical information, but also patients from the patient support point of view in terms of the medicine. And then on the left-hand side, commercial support for pharmacists, for patients in terms of access reimbursement and authorization inquiries.

And again, the nice thing about this, this was a big win, but also we were able to engage Vynamic, which is in our advisory business, to support the project management moving from the incumbent into commercial and clinical and MicroMass in terms of behavioral training for those specialists that are dealing with patients. So a very nice example.

We won another one which is in the West Coast, which was -- has really helped our first half of the performance. We are in the final stages of another big client. And very similar model, this blend of in-house, in-field, multichannel support by Ashfield Commercial & Clinical in the U.S.

And the play for Europe is really to diversify and, again, morph away from the pure-play rep in the U.K. and Europe business as well.

Sharp, so this is the U.S. business going really, really strong again. It has been helped by a softer comp because quarter 1 2018, as many of you know, was a bit soft. And so we are helped by that comp. But nevertheless, very, very strong growth, both in revenue and in operating profit, a little bit of leverage with 20 basis points improvement in the operating margin, and, again, that those facilities are running very strongly.

And in Europe, whilst the revenue was solid enough at 5%, we are still burdened by an operating cost. So again, versus the similar comp last year, we ran into negative profitability. And again, largely, we have a new facility dedicated to a client in Netherlands. And again, we've put a lot of cost in upfront for that.

So we continue to build out our footprint. On the left-hand side, you can see our 2 Sharp clinical facilities, 1 in South Wales, which has now been approved by the MHRA; and in Bethlehem in the U.S. we've completed. We were in Phoenixville in 2 sites and we moved. These are both in Pennsylvania. We moved into our Bethlehem facility that we purchased off DSI a couple of years ago. So those have been completed, and we've got really 2 very, very nice facilities for our clients.

And then on the right-hand side, this is a snapshot of building 4. We have a couple of markets there early last year. Some of you attended. So part of that building was followed.

So again, we have done a deal with a client, a 5-year deal, where we're going to set out that remaining portion of building 4. And again, the nice thing about this deal with the client is that they pay 75% of the CapEx and they're locked into a kind of take-or-pay deal for 5 years. So really, part of that more strategic partnership than transactional. And again, that is the methodology that we're trying to operate with our clients because, again, the demand is clearly there.

So in summary, the market fundamentals underpin our growth story. We see the global pharmaceutical markets continue to -- the prognosis is for growth driven by volume consumption and also by new products approval. More and more of these products continue to be in that specialty care area that needs a lot of, I would say, high-touch support for the patient, for the payers, et cetera. And our clients, again, are more and more willing to outsource to specialist subject matter experts like we have in our company.

So in summary, I'm really, really pleased, as I said, with our ability to confirm EPS growth of 7% constant currency, a nudge over our guidance. The cash flow at 77%. Our debt pre the 2 acquisitions was 0.33. That will move to 0.7 with the 2 acquisitions. So still a fairly healthy balance sheet, the dividend increase, the 2 acquisitions.

And then in terms of guidance, just to echo what Nigel says, without the acquisitions this morning, we would have been all day long confirming our 4% to 6% underlying growth for this year. That's all day long going to happen. And then supplementing this is the benefit of the 2 acquisitions. And then as Nigel said, these are summer months. They are -- we will get through those summer months, and we will have another opportunity to discuss guidance at our August IMS. But for now, we're putting that nudge of 1% on our EPS growth for this year.

So with that, thank you very much, and we're open for Q&A led by Keith.

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Questions and Answers

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [1]

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Excellent. Thanks, Brendan. So we're going to start in the room, as I said, and then we will move on to calls, the webcast with the phone. So catching the one in front of me, Allan Smylie of Davy, please. There's a microphone that should be with you in 2 seconds. Thanks.

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Allan Smylie, Davy, Research Division - Transport, Distribution and Logistics Analyst [2]

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Yes. So I have 2 questions. Brendan (inaudible) First question for Brendan or for Rob. (inaudible) acquisition of (inaudible), how do you think about the capability of the service?

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [3]

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Just wait a second. We're just getting another microphone for those on the webcast. Do you want to share it, Allan?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [4]

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So again, I think the question was, how do we think about the capability fit?

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Allan Smylie, Davy, Research Division - Transport, Distribution and Logistics Analyst [5]

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Well, what's your ways of capabilities within advisory (inaudible)

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [6]

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That's a great question. That's a great question. So I'm glad Rob is here. I have a view which is -- and I'm really pleased. It's funny. One of our competitors came out with similar acquisitions just this morning. But market access, this whole -- the value of equation for payers, how they understand it, how they fund it, populations are getting older, but these medicines are getting much more expensive. So how they think through that funding equation is really important for them, but it's also important for pharma to communicate that coherently. And what I like about Putnam and Incisive is both acquisitions help the construct of that conversation on behalf of their clients. One produces the content, the other produces the strategy. So I really like that. I've -- I think I have said before, I really like -- so we have management consulting. We have auditing. We have kind of franchised the franchise development play through SmartAnalyst. For me, honestly, I would like more kind of insights. So insights are the old word of market research, really drive decision-making in behalf of pharma. So helping with that, I think, would be helpful. And again, I think geographic expansion is really going to be important as well to us. But Rob, you and your team have had conversations on this.

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Rob Wood, UDG Healthcare plc - Global President of Advisory Services & Business Development [7]

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Yes. I thought the question was going to be asked as part of the complementary (inaudible) which would be easy to answer. One of the gaps we have is it's actually harder (inaudible) I think Liam Logue has done brilliant job over the last 3 years. Advisory didn't exist 3 years ago. And we've mapped out the services that a client might need from the start of a preclinical right through the loss of exclusivity. And we cover most things now. And we've just gone through quite an extensive sort of Advisory Board, where we've asked a lot of their top 10 companies what they want from consultancy services. We've got a prioritized hierarchy of sort of needs analysis. The biggest need actually was price and the market access, and Putnam now fills that. Other needs around real-world evidence. We already have that. General strategic consultancy and operational consultancy, we already have that. As Brendan said, we could supplement it with a bit more insight, and that would actually help the existing both Putnam and Vynamic. And the other possible gap is around clinical trials to help with clinical trial recruitment, which came out as one of the needs. But like I said, Liam Logue's done a great job, and we've got a really nice suite of services now.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [8]

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And just for the room, Liam Logue is our Head of M&A. He's based In the U.S.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [9]

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Thank you, Allan, and Gerry Hennigan of Goodbody behind you.

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Gerry Hennigan, Goodbody Stockbrokers, Research Division - Investment Analyst [10]

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Gerry of Goodbody. Brendan, you mentioned a few times about the investment in STEM. Where are you with regards to STEM? When do we start seeing positive contribution from that as opposed to a drag from the investment point of view?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [11]

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Well, with immediate effect, Gerry, actually. So the second half of the year, so a lot of the investment was the first half of the year. And don't forget, there's a combo -- there was investment because it was a growth story, and on top, we added, I think it's $2.3 million, for the first half of this year. And we talked about this November, there's about 50 people that we've added throughout the world. Those 50 people came in, but at the top, there was a number. So our new CEO was head of Americas. We hired a head of America. Our head of Europe has become COO, so we've had a new head of Europe. So a lot of the management change kind of shuffled. So as I said, they were kind of building the team and signing about the same time. And so the second half of the year, we should see some of that result and benefit coming in and definitely throughout 2020 and beyond.

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Gerry Hennigan, Goodbody Stockbrokers, Research Division - Investment Analyst [12]

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Okay. And just secondly, on your comments on Commercial & Clinical and the variation between the U.S. and the Europe. What do you think, Brendan, is required, both internally yourselves and also from a market point of view, to change the landscape in Europe in particular for Commercial & Clinical?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [13]

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Yes, it's a good question, Gerry, because it's interesting. Despite project Europe by the people in Brussels, unfortunately, in pharma land, the individual countries are still purchasing individually. There's not a lot of joined-up purchasing regionally. We get regional MSAs, but then the individual countries are still purchasing as individual countries. So pharma can't police it kind of. Whereas you compare that to the U.S. and you've got one country, one language, usually one management hierarchy and the volume is just different. And that ability to add in the suite of occasional services has been very, very helpful.

So in Europe, clearly, we're going to work out of the legislative change because that's kind of like a step change in Germany, so that, hopefully, we will be out of that by this year.

In the U.K. as well, we've talked about pricing in the U.K. being tight. And there's only so much tightness that pricing can go from an elasticity point of view. So we would be hopeful that it should bottom out in the next -- the end of this year, early next year. And if that flatlines, we are planning, we are targeting growth for 2020. Whether we will confirm that in November will depend a lot on how we progress with what we do in the next 6 months. Because honestly, with IQV and ourselves, we're market leaders, so we should be determining the market and driving the market. But as I said, the issue is still it's very regionalized in its purchase.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [14]

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Thanks, Gerry. I'll try to switch over to this side of the room.

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Catherine Tennyson, BofA Merrill Lynch, Research Division - Analyst [15]

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It's Catherine from Bank of America. I just have 3 for Brendan. So the first will be on the underlying guidance. I appreciate that we've upgraded by 1% due to acquisitions, and you kind of reiterated what we should expect for the underlying business. Really, if the environment in Commercial & Clinical isn't as bad as we thought it would be in November, what do you think will be the most likely drivers if we were to see an underlying upgrade in that? Is it more ongoing improved momentum in the U.S. or is it to do with an uptick in Europe? Which of those 2 would be more likely? And then I just have 2 quick questions on Sharp.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [16]

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Okay. So the -- so U.S. was really strong. It was helped by we had a very large West Coast, who's in the influenza game. So we had a really multichannel support, which occurred in the first half of the year. That is a 3-year, 5-year deal, Julian? 5-year deal. So that's out of our business for the second half of the year, which is why we're kind of keeping our guidance for the full year for C&C.

So the question, what needs to happen, well, again, as we just said to Gerry, we probably need to do a better job to really encourage Commercial & Clinical in Europe to stabilize. And we are working very, very hard. And Julian and his team have done a lot of work on that as of actually this month as well. So if that stabilizes, we are still signaling minus 5% for the full year. And as I said, that's...

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Operator [17]

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(Operator Instructions)

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [18]

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(technical difficulty) So we don't see it as much. But we are running very strong in our biotech. So that building 4 is a biotech center of excellence. We have 13 suites. They're kind of, I wouldn't say, full, but they're being fully occupied. So we are -- we had 20 -- I think it's 20%, Mike, is it, of the facility underdeveloped in building 4?

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Mike O'Hara, UDG Healthcare plc - MD & President of Sharp Packaging [19]

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In rooms in the production side, we're about 25% (inaudible) phase 2.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [20]

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Okay. So 25%, and we are now going to develop that. And as I said, we'll probably get 6 suites in there and 3 will be dedicated to the clients that are supporting us. And as I said, they're paying 75% of the CapEx, and it's a 5-year deal with take-or-pay. In other words, if they don't use the room, there would be fees associated with that. So I think we're in a really good space. And actually, probably in the next year, we probably will need some further additional (inaudible). And in terms of Netherlands, we have started the commercial bathroom really as we speak, Mike, is that right?

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Mike O'Hara, UDG Healthcare plc - MD & President of Sharp Packaging [21]

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Coming out of validation.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [22]

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Yes. So we're coming out of validation. So really it should be an FY 2020 impact.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [23]

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Thanks, Catherine. If you won't mind just pass to Amy of Peel Hunt, in front there.

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Amy Lucinda Walker, Peel Hunt LLP, Research Division - Analyst [24]

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I've got a couple, if I can. Just on Ashfield and the acquisition, Brendan, you mentioned the possibility of synergies with Putnam and Vynamic. And I'm sure you don't want to give us guidance on what those might be, but in terms of thinking about the sort of magnitude, would that be needle-moving? Has it been baked into the earnouts that you've set for those businesses? And can you tell us anything about what the basis for the earnouts for the acquisitions is in terms of the financial hurdles?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [25]

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You sound like a Board member, Amy, because these are the kind of questions when we bring the transaction for approval. They're all saying, "What's the top line synergies, Brendan?" (inaudible) So the funny thing in Ashfield, it is hard to quantify the top line synergies because we have multiple P&Ls when we book that. The interesting thing is when I met Putnam first, they definitely -- if you think launch as a needle, they're much more left with prelaunch activities, and they believe they're leaving money on the table by not having that stronger capability in terms of consulting from an on-market perspective.

Equally, Vynamic, from that launch, they're more on the right-hand side. So more commercializations, support organization designed to support market entry. And they believe they're leaving money on the table by not having that kind of prelaunch consultancy support. So we definitely do things that are complementary. Calling that a dollar number, I'm not really willing to go there at this point.

Equally, their earnout is on -- it's on a gross profit and PBCIT perspective. And it's a -- there's a 3-year cost and a 5-year cost. And again, we don't disclose that. But it's growth. Trust me. It's solid, pretty solid growth. And we do stretch people in terms of the earnout, and they sign up to it because they're confident in the business.

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Amy Lucinda Walker, Peel Hunt LLP, Research Division - Analyst [26]

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Okay, that's helpful. I guess just to follow up, this morning, it was mentioned that some of the cashouts from the investment -- on the investment side of the cash flow, which relates to earnouts from previous acquisitions, to what extent do those exceed the minimum thresholds for payment of those earnouts? Can you give us any sort of color on how performance is?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [27]

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STEM and Vynamic, they've gone like a train. So happy -- we're happy to pay.

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Amy Lucinda Walker, Peel Hunt LLP, Research Division - Analyst [28]

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Okay, great. And then just on Commercial & Clinical, I'm sorry, I may have misunderstood, but I think you alluded to a 3- to 5-year contract that has seasonality because it skewed into flu cycle, and that helped you in the first half of the year. Is that 3- to 5-year -- how recent is that contract? Is that something that's been...

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [29]

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This is our first year after we've won it. So this was our first exit. We won it as we came out of 2018. This was our first execution. Actually, we're really, really pleased. I was able to listen in. It's amazing. I don't know if we spoke about this in November, but the in-house people and how they were discussing the product combing with clients in primary care in the States, so we listened in. And so we've got a bit of an extension so much where they pleased with us. They actually try to look at other parts of portfolios that they would morph onto to keep this down, but they didn't. But we will -- it'll be reengaged in probably October, September.

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Amy Lucinda Walker, Peel Hunt LLP, Research Division - Analyst [30]

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And presumably, because this is around promotional activities, it doesn't matter whether there's an anticipation that fee season is going to be strong in any given year, there will be a call on your services?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [31]

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Correct. The anticipation, it's early and strong. Whether it's liaison week is another thing, but you have to plan for early and strong.

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Amy Lucinda Walker, Peel Hunt LLP, Research Division - Analyst [32]

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Got it. And then my very last one. Just starting with C&C, I'm confused. Can I go back to my structural versus cyclical question in Europe? I'm still a little bit confused because what I'm hearing you say is that the geographic barriers are always going -- I mean, it's not going to go away, and you can see it's getting higher rapidly. So if that's the case, then, I mean, is it a matter of investing more? What is it that you could -- or do you just have to wait until sort of -- I'm just trying to assess what...

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [33]

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Yes. No, no, no, I got the question. And you couldn't introduce that new complexity of the kind of disparity of the countries, it was always there. But it has become really polarized, in my view, given the occurrence of the cyclical rebirth of C&C in the U.S. really going strongly. And this multichannel play. Because, as I said, definitely, when we won, the one-eyed profile is another client, and we're at final stages with another client, very, very similar, and, again, a top 10 pharma client. We don't see those in Europe. That's the problem. And so, therefore, can we do anything about that? We are. So we think, first of all, structurally, Germany, as I said, from a step-change will settle down. We think U.K., structurally, from a pricing point of view, will settle down. We think we have to look at our organization how we organize ourselves to communicate the compelling offer of how we're doing our business. And at best, we get it to flat, we think, for next year without giving away guidance today for FY '20, which we never do. But the return to growth is the aspiration, but I think it will be predicated by fuel from the U.S. and more solidness in Europe.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [34]

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Thanks, Amy. Just the gent in the front, please.

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Alistair David Campbell, Liberum Capital Limited, Research Division - Analyst [35]

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Alistair Campbell from Liberum. Just a couple of questions. If I could go back to the M&A, I mean, if you look at the headline numbers for the deals you announced this morning, they, frankly, look pretty attractive in terms of multiples, in terms of EPS accretion. Frankly, your clients will struggle to do deals that look that attractive, so I'm trying to understand what's the secret source here. It sort of feels like this is not -- is this going to be that competitive in terms of getting these deals done? Or perhaps your partner of choice has made sure you're in a better position to make these acquisitions? So -- and just to get a sense of does that mean you still feel there's lots of opportunity out there to continue to do deals of this kind of sort of financials in terms of accretion going forward?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [36]

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So do we have a -- Rob mentioned one part of our secret source, which is Liam Logue. So Liam is very experienced. And so we do get some, what we call preemptive deals, where like it's very distracting for a company to run a process. So -- because if you're on a process, people are walking through your offices, your facilities, going through your books, you could have 10 or 15 companies doing that. Then you have to narrow it down to like 3 to 5, and then you might narrow it down to 2. You give them exclusivity. And it's not just exhausting, but it can be very distracting for a business. So if a seller has a number in their mind, and they get what we call preemptive, they're open to a dialogue. So that has helped on occasion. I'm not saying whether that was the case with these 2. But Liam is very, very good in terms of that Rolodex, and he develops relationships with companies. So when the time is right, we sometimes get an early read in terms of how they're thinking.

The second thing is just the cultural set. Particularly with Putnam, Putnam were really -- like as you would imagine for management consultants, really thoughtful in terms of where they wanted to land. They see our partners. So one of them will be CEO and 130-odd people. And they're really conscious of the cultural fit and the -- back to the synergies question, that this is good for the business as well as the ability for them to take some money off the table. And that's helpful rather than someone could've gone down PE route and possibly got a few quid more . And in fact, your (inaudible) who had better offers for this business than UDG. But again, the environment that you want to land your team in, I think, matter to Rob a lot. And it matters to a lot of these particularly owner founders because they know nearly every single person in the organization. They know their spouses, their cats' and their dogs' names, their kids' names. And they really -- it's one thing to take money off the table, but there's a kind of moral duty of care. So it's helped. That definitely helps us. And we hold discipline. I can tell you, we walked away with a Board meeting last week. We walked away from a deal because it was too high. And some people say, "Go on push them. Look, create some top line synergies. You can make the financials work." In our view, it didn't. It wouldn't -- it was too tight a financial model. I think I spoke in the call in January, we had 2 other companies that we went through diligence. And diligence is not cheap. And one was a financial tightness and one was a cultural fit. And so we walked away from both. So I do think we have good discipline. If you look at the 21 -- I know we got a bit of flak because of the deferred considerations online last year. But if you look at 21 deals that we've done, on the whole, 95% return what we expect them to return. And some up and some down, but on aggregate, we're very, very close to the model. And we did the math on the one since 2014 and, again we are there or thereabouts. So it's hard work. It's discipline. It's connections. It's -- you kiss a lot of frogs, I can tell you. And you do a lot of management, and you sell what you can bring to these organizations.

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Alistair David Campbell, Liberum Capital Limited, Research Division - Analyst [37]

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Can I just follow up on the synergies -- the revenue synergy you might see on some of these transactions? I mean, obviously, I get the concept that Vynamic and Putnam talk 2 different parts of that value chain. But can you maybe give us a sense of the overlap in terms of their client bases. Does that actually lay or grab into new clients you haven't worked with before as you bring these organizations together?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [38]

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Yes. I'll give you a great example. So there is a -- there's been 2 big deals in pharma. So I'm not going to say which ones. So 2 big deals. And Vynamic is a big -- one of those that's being acquired is a big client of Vynamic. And so Vynamic, we're able to introduce Create NYC, because Create NYC has modeled one of our comms agencies, is they do a lot of the kind of basic work, changing of your doctor labels, prescribing information, websites. And so that acquisitions -- we think that acquisition worked to Create NYC. It was a direct function of Vynamic being in there and they being a client of Vynamic. And we see that multiple times. I think in November, we had listed 4 examples of that cross-selling. And it's more cross-introductions because the subject matter expert has to sell that capability when they get in through the door. So I'll call it more cross-introduction than cross-selling. But it's becoming more apparent, putting a dollar number on it is always kind of tricky, but it's part of our thesis, and it has contributed to the growth story of UDG and Ashfield in particular.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [39]

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Thanks, Alistair. Just behind you. Paul Cuddon of Numis, if you don't mind. Thank you.

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Paul Cuddon, Numis Securities Limited, Research Division - Director for Healthcare Equity Research [40]

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3 questions, please. So Mike, you've got a shiny new clinical packaging facility in the U.K. and the U.S And I think in the appendix, you talked about a bigger market opportunity and more outsourcing. So the first question will be, kind of what proportion of that market is addressable right now, and what you might need to do to tap into more of it? And secondly, for Nigel on IFRS 15 profits in Sharp US, please, to give us a baseline. And then finally was on the -- I've forgotten it now, but I'll get back to it in a second.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [41]

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Okay. We'll take the first 2. I will take it. It's simple. You have Catalent, Fisher and Almac, and they're all $250 million to $300 million? That's the addressable market. There are 3. There -- I shouldn't call them 800-pound gorillas, but they are the large incumbents. They do an excellent job. And it's our job to go after that market. But these have huge curbside appeal, which is the head of clinical frankly says. So curbside appeal for pharma. They're pharma-esque in their finish, and so it's up to us from a BD perspective to fill that.

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Mike O'Hara, UDG Healthcare plc - MD & President of Sharp Packaging [42]

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Yes. I would have thought it's a $7 billion market in the clinical -- and as you guys have said, Brendan, dominated by 3 players. And the problem (inaudible) the finish (inaudible) we wouldn't have tried to increase pharma. So now we've got 2 branded facilities that will actually attract in these types of clients because it's big pharma who have the constant pipeline of new products coming out. Our current clients have one-offs, so you actually have to go out and win this every time. So getting big pharma in. And we're seeing orders coming into these facilities, and it's very positive. Before, unfortunately, if we got big pharma into older facilities, we'd fail the facility. It's as basic as that. So we've transformed the facility side of things. So now we need to get them in all at the facilities and win some business and getting -- winning some of these big pharma to get after that large market.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [43]

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Thanks, Mike.

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Nigel Clerkin, UDG Healthcare plc - CFO & Executive Director [44]

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And so, Paul, and then on your question on IFRS 15, I suppose, overall, directionally, we would see it is not particularly material to the group. Just high level in terms of the change from an accounting perspective, it's a model that sort of changes the route to look at more how service is provided over time, right? So in some cases, that can lead to revenue being recognized more slowly. For example, if you have setup costs for certain activities, you wouldn't, under the old rules, have booked that originally. Initially, under the new rules, you would spread it over the future period.

On the other hand, in other circumstances, it can lead to revenue being recognized more quickly. For example, under the old rules, you would wait until you ship the products to the customer before you book the sales on that product. Now because we are a service provider to them, we actually recognize revenue ratably over the period that we're actually making the products because you are doing the packaging. So the balance of that can go a little bit one way or the other. In the first half, it was about a $3 million difference between the old and the new rules, where the old rules, the revenue and the profit on Sharp US was higher under the old rules and the new rules. But just to give you some context, when we did the initial adoption at the start of the year, you have to do sort of a catch-up for the history. And it was $3.8 million the other way cumulatively. So it combines around a little bit each side of the line depending on the particular mix of what's going on. But overall, we wouldn't say it is particularly material.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [45]

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Okay, thank you, Paul. I'm conscious. We're running up against a little bit of time here in the room. So we got Max and James, and then we'll open the phone lines.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [46]

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So Max Herrmann from Stifel. Just a couple of questions. Firstly, just on the contingent consideration just to get a feel for what you anticipate, I know you'll have a sort of discounted number on the balance sheet, but what do we kind of expect in terms of cash outflow, the sort of $24 million, in the first half of the year? So just to get a feel for what the future contingent payments are? And then just in terms of capacity at Sharp, I guess, primarily the U.S., you talked about building 4 and getting potentially 25% increase in capacity there. But looking at the overall business, this is obviously growing fantastically well. What are your capacity needs? When do you estimate that you're going to need to put more space for the whole group?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [47]

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I'll take the second one, Nigel -- are you good to go?

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Nigel Clerkin, UDG Healthcare plc - CFO & Executive Director [48]

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Yes. So on the deferred consideration, Max, for the balance of the year, we wouldn't expect much. It was about $24 million in the first half, it's maybe $2 million or $3 million higher for the second half, but certainly much more than that. And actually then for next year and the year after, we'd expect roughly a similar level in each of those 2 years. So somewhere in the $25 million to $30 million range depending on specific performance for each of the next 2 years.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [49]

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So on capacity, it's a great question. And the reason it's a great question, Max, you could just try that number, 67%, as our current utilization. You always need at least 20% to sell, so that's kind of getting a bit tight. The reality is that also we're trying to work on the efficiencies because there's a lot of changeovers. There's a lot of downtimes. There's a lot of how we release product from a quality point of view. And all of that eats into time. And the machine is not working when it's done, so we're also working parallel looking at our footprint and what capacity we need. We're also looking at how we are getting product flowing through the -- so kind of normal kind of kaizen velocity, trying to take out value, destroying activities and only doing value-adding activities and doing it as efficiently as possible. So we're kind of doing both. Plus, I would say from -- your question is really when do we need to spend CapEx on the plant, I suspect. So '20 -- back in 2020...

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Mike O'Hara, UDG Healthcare plc - MD & President of Sharp Packaging [50]

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I think (inaudible) in 2020. And I thought it's not just about production rooms, it's also warehousing, it's also car parking, Max. So you have the whole lot. So we're trying to find -- well, we've identified a couple of appropriate opportunities. And it's just getting them across the line, and it's just the timing of that. Because when you're selling this business, as Brendan is alluding to, you have to have free capacity, which is ironic in an operational standpoint, because you need free capacity available. They need to see it. You can't just tell them I'll have it. So yes, it's probably 2020 as opposed the bottom line we have online.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [51]

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But again, in terms of forward guidance, though, the $50-odd million of CapEx, $35 million with Sharp, we're not -- often, that will be 10%, that's right.

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Nigel Clerkin, UDG Healthcare plc - CFO & Executive Director [52]

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Yes. I mean, that $50 million a year on average over the next number of years, Max, it's about $60 million this year, as we said, not really driven by Sharp actually, more because of the Oracle setup and so on. So for the next year or 2, you might see a similar sort of level as we do that sort of investment in Sharp before it ticks back down again.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [53]

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And just one last thing on Sharp. Have you seen any change since the serialization legislation came in? I mean, there was some concern that the growth spurt that you've seen was driven by serialization. Have you seen any change in the attitude since that's now been implemented in the U.S.?

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Mike O'Hara, UDG Healthcare plc - MD & President of Sharp Packaging [54]

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And you're right, Max, it's one of the big enablers in our growth, I would say to you. And Sharp US has been around our -- I suppose our investment in serialization. A lot of people are still struggling with serialization. And indeed, we've seen some -- Brendan mentioned efficiency. We're trying to make sure that we're keeping the operation as efficient as we can because it's not printing the information on the box, it's the handling of the data. That's the complexity side of it. And we've seen some of our clients struggling with this, and we won business from them very recently, and we've seen some of other CDMOs. But it will normalize over a period of time. So it's up to us to make sure we keep that business.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [55]

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Thanks, Max. So I think the last question in the room is from James at Jefferies, please.

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James Alexander Stewart Vane-Tempest, Jefferies LLC, Research Division - Senior Equity Analyst [56]

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It's James Vane-Tempest from Jefferies. 3 if I can, please. Firstly, we've seen a number of deals over the past few years. And then in subsequent years, we've seen either a cost savings or an investments initiative. So given we've had Future Fit, STEM aXcellerate, with the larger deals announced today, can we expect to see some Incisive investment plan or sort of something else as these kind of 2 deals get integrated next year?

Secondly, I know it's small, but if we can just come back to the European packaging business. Just curious when we're going to start to see some improvements there because whenever there are sort of some greenshoot improvements, the business then sort of takes a setback. So just wondering why you keep this business, I guess, given the return on investment and perhaps kind of greater local competition from the integrated manufacturers and packages.

And then my final question is just on the U.S. market for the Commercial & Clinical business. Some greater clarity on some of the improvements you've seen this year would be helpful. Is it market share gains? Is It any kind of in the overall market itself that sort of contributed to the performance? Because I think there has been some confusion in terms of what's come out of what some of the U.S. majors have reported in terms of whether it is sort of market share gains or if it's macro approvals or anything that you're kind of seeing, so we can get a sense. Outside of the product-specific point that you mentioned, other market dynamics would be helpful.

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [57]

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Okay. So the first question's investment plans for the likes of Putnam, Incisive or even SmartAnalyst and Vynamic, again, the advisory aside. So there will be some expansion plans. So for example, I just mentioned Vynamic. We've opened an office here in London. I know Vynamic is looking for alternative offices outside of Philly, Austin in North America. So now with Putnam having an office in San Francisco, it might be. But the long story short is we're probably going to try to eat that organically. So we won't be having a call-out at this point if something significant opens up. I have to say I was surprised a little bit about the reaction to the investment in Sharp or STEM aXcellerate, because it was seen as a cost, really as an investment. And -- but that said, we will look to try and do that organically.

In terms of EU packaging, that's a great question, James. I ask Mike that nearly every week. Yes. Plus, we have seen greenshoots. We were profitable at this time last year, for example. It's just the volume of clients. We just don't have enough to leverage the facilities and the cost of the tariff that we have there. So that is continually under review.

And then U.S. Commercial & Clinical, just to be specific, there's no hard data. Like you -- there's no nascent data pack. Is this market share growth or just a rise in pay lift novels? You see our -- one of our larger competitors coming out with very strong numbers. So we can see that as well. And then one of our other competitors that was attached to a Big Data and see our own not so good because they don't have this much diversified capabilities in that commercial piece that we do and the other competitor does. So I think the diversification story is really resonating in the U.S. I think our clients want to give it to subject matter experts in that fund and field capability. And again, the job that we've done, that West Coast client, the one that we've just won with the other top client, they're great case studies. When you go to the next RFP, they're great proof points of your ability to execute and be a strategic partner. So is that helpful?

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James Alexander Stewart Vane-Tempest, Jefferies LLC, Research Division - Senior Equity Analyst [58]

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Yes.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [59]

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Okay. Thanks, James. I think we have a couple of questions on the phone line, so we might raffle through those as well and then wrap up. Could you open the line there, please? Thank you.

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Operator [60]

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And the first question comes from the line of Brian White from Cantor Fitzgerald.

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Brian Templeton White, Cantor Fitzgerald Europe, Research Division - Research Analyst [61]

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Just a very quick question for me on the general acquisition environment. It does look as if it's improving. Is one of the reasons for that are, are there just more candidates available? Are the targets more mature? Do you know better what gaps to fill and/or has there been less competition from private equity? And given all of that, can we then expect to see an acceleration in acquisitions from UDG?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [62]

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Thanks, Brian. So the acquisition environment remains kind of healthy. Prices, despite -- there has been some toppiness. Let me rephrase. I would love to get something over the line in Sharp, frankly. It's at 31%. We've always said I'd like it to be more than that, but some of the multiples are very toppy, and private equity are all over that. And that just kind of adds to that. So that challenges us. We obviously have our organic play in terms of investment in our own footprint, but it would be nice to get some complementary assets into that Sharp story because it's been very successful, Europe aside.

So our own funnel remains healthy. I mentioned 2 that we didn't progress. We've talked about 2 that we did progress. And we -- at any stage, we would have 3 or 5 in the hubbard that we're at kind of any stage of discussion, introductions, thinking about it. We killed one last week at the Board, for example. We didn't even go into diligence. So I think it's healthy. The prices, as we talked to an earlier question, they still remain pretty solid from our perspective. And I said -- I would say my pinchpoint is getting something away with Sharp, I think.

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Operator [63]

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And the next question comes from the line of Hassan Al-Wakeel with Barclays.

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Hassan Al-Wakeel, Barclays Bank PLC, Research Division - Research Analyst [64]

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I have a couple, please. So firstly, could you provide an update on Cambridge BioMarketing, please? When should we expect the positive impact from some of the changes that you've made here?

And secondly, with your stronger free cash flow in the half, where would you expect working capital and free cash flow for the second half, please?

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Brendan Patrick McAtamney, UDG Healthcare plc - CEO & Executive Director [65]

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So, I'll take -- hi, Hassan, good morning, and I'll let Nigel take the second half. In CBM, it is improving. We've done some management changes. We've forecast the first month. That forecast has been positive, so I do think we are sequentially improving it. And in time, I think that will be a very good acquisition because it's in a very, very good space, and we're an orphan disease market.

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Nigel Clerkin, UDG Healthcare plc - CFO & Executive Director [66]

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And, Hassan, just on the free cash flow, in terms of numbers, firstly. So H1, we had an inflow of $2 million, but that benefited from the unwind of the $10 million Oracle timing issue last year. So it was underlying a net outflow of $8 million. For the full year, we'd expect a working capital outflow of $10 million to $20 million. So very much on track for that. And in terms of sort of free cash flow management and working capital management, we're doing quite a lot, as you might anticipate. To add consistent further rigor to that process, as spearheaded by our Group Controller, Grainne McAleese, is in the room here today. So as you know, what gets measured gets managed. So we're doing a lot of work around consistent metrics that we track with each part of the business each month as part of our business reviews with them. We've introduced a new, more extensive cash flow forecasting process with each part of the business as well. We've done a lot of work on supplier payment terms also in terms of changing those and also client payment terms. We're doing a lot to standardize the approach across the group as well and to get a more consistent view and a more consistent approval process for payment terms in general. So there's a lot of work going on to make the working capital improvement that we've seen in the first half consistent and sustainable over time.

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Keith Byrne, UDG Healthcare plc - Head of IR, Strategy & Corporate Communications [67]

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Great. Thank you, Hassan. So with that, I think we're going to wrap up. Thank you for your time and attending today, and look forward to engaging with you all over the coming days and weeks.