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Alliance Pharma PLC  -  APH   

Interim Results

Released 07:00 13-Sep-2017

RNS Number : 5694Q
Alliance Pharma PLC
13 September 2017
 

For immediate release

13 September 2017

 

ALLIANCE PHARMA PLC

("Alliance" or the "Company")

 

Interim Results for the six months ended 30 June 2017

 

 

Alliance Pharma plc (AIM: APH), the specialty pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2017.

 

Financial Highlights

·      Revenue up 8% to £50.3m (H1 2016: £46.4m)

Kelo-cote™ up 52% to £6.2m (H1 2016: £4.1m)

MacuShield™ up 67% to £3.4m (H1 2016: £2.0m)

·      EBITDA* up 3% to £13.6m (H1 2016: £13.2m)

·      Free cash flow (excluding Sinclair settlement)* up £9.0m to £11.1m (H1 2016: £2.1m)

Working capital normalisation following the Sinclair Healthcare Products acquisition

·      Leverage (adjusted net debt to EBITDA ratio) of 2.4 times (31 December 2016: 2.8 times)

·      Net debt* reduced by £12.7m to £63.4m (H1 2016: £76.1m)

·      Interim dividend up 10% to 0.443p (H1 2016: 0.403p)

* See note 15

 

Operational Highlights

·      Strong growth from our international brands, Kelo-cote and MacuShield, underlining the exciting potential of these products

·      Infrastructure and management teams developed and strengthened, supporting continued growth and acquisitions

·      Strong cash generation with leverage continuing its reduction profile, on current trends, to 2 times by year-end

 

Commenting on the results, Andrew Smith, Alliance Pharma's Chairman, said:

"Following a transformational 2016, the business has performed well in the first half of 2017. With the integration of the Sinclair Pharma products now complete we are strategically positioned for growth and, with leverage levels reducing, we are now able to pursue bolt-on acquisitions."

 

Analyst meeting

A meeting for analysts will be held at 11.00am this morning, 13 September 2017, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further details, please contact Buchanan on 020 7466 5000.

 

For further information:

 

Alliance Pharma plc

+ 44 (0) 1249 466966

John Dawson, Chief Executive Officer

Peter Butterfield, Deputy Chief Executive Officer

Andrew Franklin, Chief Financial Officer

 

www.alliancepharma.co.uk

 

Buchanan

+ 44 (0) 20 7466 5000

Mark Court / Sophie Cowles

 

 

 

Numis Securities Limited

+ 44 (0) 20 7260 1000

Nominated Adviser: Michael Meade / Freddie Barnfield

 

Corporate Broking: James Black / Toby Adcock

 

 

 

Investec Bank plc

+44 (0) 20 7597 5970

Corporate Finance: Daniel Adams / Ed Thomas

Corporate Broking: Patrick Robb / Rob Baker

 

 

 

Notes to editors:

 

About Alliance Pharma

 

Alliance, founded in 1998, is an international speciality pharmaceutical company based in Chippenham, Wiltshire, UK. The Company has sales in more than 100 countries worldwide via direct sales, joint ventures and a network of distributors.  Alliance has a strong track record of acquiring the rights to established niche products and it currently owns or licenses the rights to approximately 90 pharmaceutical and consumer healthcare products. The Company continues to explore opportunities to expand its product portfolio.

 

Alliance joined the AIM market of the London Stock Exchange in December 2003 and trades under the symbol APH.

 

 

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

 

Trading performance

 

Sales for the six months ended 30 June 2017 were £50.3m, 8% higher than the same period last year (H1 2016: £46.4m). Underlying profit before tax was £11.9m (H1 2016: £11.7m) and, including the Sinclair compensation, the reported profit before tax was £16.9m (H1 2016: £11.7m).

 

Exchange rate movements boosted revenues for the half year by £2.6m (equivalent to 5 percentage points of revenue growth) as Sterling weakened against both the Euro and the Dollar relative to the rates for the same period last year. The impact on profit before tax was significantly lower, due to the greater proportion of cost of goods and operating costs denominated in these currencies.

 

The investment we have made in our international growth brands has yielded promising results. Sales of Kelo-cote, our scar reduction product, increased by 52% to reach £6.2m (H1 2016: £4.1m) across its markets.  MacuShield, for age-related macular degeneration, also performed well, seeing a 67% increase in revenues to £3.4m (H1 2016: £2.0m). This has been driven by a combination of distribution gains in new territories and growth in the rates of sale in existing outlets, stimulated by our increased marketing investment.

 

Overall, our trading performance has been in line with the Board's expectations, and sets us up well for the second half of the year.

 

Diclectin

 

As stated in our announcement in July 2017, the Medicine and Healthcare products Regulatory Agency ("MHRA") did not approve Diclectin, a treatment for nausea and vomiting of pregnancy, for the UK which was unexpected. Our regulatory team has now had time to work with Duchesnay Inc. of Canada ("Duchesnay"), the licensor and marketing authorisation applicant, to better understand the approach taken by the MHRA. Whilst the communication between the MHRA and Duchesnay remains confidential, we believe there are grounds to re-open discussions. There is no financial impact of this decision at this time.

 

Diclectin is a much-needed product as there is no licensed medicine for treating nausea and vomiting of pregnancy in the UK. At this stage we expect these discussions to continue well into 2018 and, in the meantime, we will re-direct our commercial resources to other important growth projects within Alliance.

 

UK

 

We generated revenues of £25.2m (H1 2016: £24.5m), representing overall growth of 3%.

 

MacuShield recorded strong sales of £2.7m, a 98% increase of £1.3m over H1 2016 (H1 2016: £1.4m). The product continues to benefit from our promotional activities in the ophthalmic and consumer healthcare arenas.

 

Hydromol sales were £3.4m, representing a 4% decline compared with H1 2016, most of which was due to non-availability of the Hydromol Intensive presentation, which has recently returned to supply, although the emollient market has declined slightly over the past six months.

 

Our consumer products group (Anbesol, Ashton & Parsons, and Lypsyl) achieved sales totalling £2.2m, a decline of 3%, caused by volatility within the buying patterns of the major retailers. There have been good distribution gains for Ashton & Parsons Infants' Powders, with new and expanded listings including, most recently, Morrisons, both in-store and online. The brand has a sound distribution platform in place ahead of further promotional campaigns planned for the second half of the year, which positions it well for future growth. Lypsyl also saw pleasing growth, following a product redesign and reformulation, and is beginning to respond to promotional focus. The Board still believes there to be significant brand value to extract despite the underinvestment prior to our ownership. The remainder of our UK portfolio achieved sales of £16.9m, showing a small decline of 3% although sales are expected to improve in the second half of the year.

 

Western Europe

 

Revenues for Western Europe (excluding the UK) showed a modest improvement to £12.6m for the half year (H1 2016: £11.7m). In France, our largest affiliate outside the UK, sales grew 7% to £4.8m, benefiting from a stronger Euro, with sales in local currency showing a slight (-4%) decline. The sales team has now started to focus on selling Kelo-cote directly, having repatriated the distribution agreement from Recordati in March this year. The DACH (Germany, Austria and Switzerland) region was up 14% in reportable currency, up 4% in constant currency, and continues to perform solidly and in line with expectations. Spain and Italy are predominantly driven by Aloclair, our treatment for mouth ulcers. Spain ended the first six months significantly ahead, up 18% on a constant currency basis at £1.7m, benefiting from Aloclair, which continues to grow well in market. Kelo-cote also performed well, driven by sales in Portuguese private hospitals. In Italy, our smallest affiliate, sales were up 9% in reportable currency but down 2% on a constant currency basis at £1.4m. The repatriation of Kelo-cote distribution agreements has successfully taken place in France, Germany and Italy. Overall, the pan-European structure has now been completed and is well placed for further acquisitions. 

 

International

 

The International side of the business performed very well in the first half, with revenues up 23% in reportable currency and 9% in constant currency. Strong performances from our lead brand Kelo-cote in the Asia Pacific region, and in China particularly, along with our Central European business have more than made up for a slightly weaker than anticipated performance in the Middle East and Africa region where the business has been subject to uneven distributor ordering patterns. The transition of the Sinclair distributor business has been embedded smoothly into our Paris office with most distributors now transferred into Alliance. In the first half of the year we have also taken the opportunity to re-organise our Chinese business behind our Nutraceuticals portfolio, which continues to perform well.

 

Financial review

 

Group Performance

 

Sales in the first half of 2017 grew by £3.9m (+8%) to £50.3m (H1 2016: £46.4m) following the solid performance of our international growth brands Kelo-cote and MacuShield. The gross margin achieved of 57.6%, resulting in a gross profit of £29.0m, was 1.6 percentage points higher than the comparative period (H1 2016: 56.0%, £26.0m) and reflects an improving sales mix.

 

Administration and marketing expenses for the half year increased by £2.2m (H1 2017: £15.1m, H1 2016: £12.9m) and were broadly in line with spend in the second half of last year (H2 2016: £15.9m). The increase on the same period last year is due to the full-year effect of the ex-Sinclair products' cost base and increased promotional support given to our key growth brands.

 

Earnings before interest, taxes, depreciation and amortisation (EBITDA), defined as Operating Profit excluding non-underlying items (including share of Joint Venture profit) less Depreciation and Amortisation, was £13.6m (H1 2016: £13.2m), representing an overall margin of 27.1% of sales.

 

As announced on 21 March 2017, the Group reached agreement with Sinclair Pharma plc in connection with the material reduction of business in Kelo-stretch™, which was acquired in 2015. The terms of the compensation agreement were a £4.0m cash payment to Alliance (received in April 2017) and a further £1.0m cash receipt to be paid on or before 30 June 2018. The total compensation of £5.0m is recognised as a non-underlying exceptional income in the Income Statement.

 

Interest costs in the six-month period reduced to £1.5m (H1 2016: £1.7m). This is as a result of the reduction in overall net debt, partially offset by the translation effect of the Euro and US Dollar denominated interest into a weaker Sterling.

 

Underlying profit before tax increased to £11.9m (H1 2016: £11.7m).

 

The underlying tax charge for the period of £2.6m is based upon the prevailing tax rates in the relevant countries and equates to an effective tax rate (ETR) of 21.8%, in line with the Group's forecasted underlying tax rate of 22%. The ETR for the prior period of 18.5% had benefited from the planned reduction in the UK corporation tax rate on our deferred tax balances.

 

Basic adjusted earnings per share (EPS) for the six months was 1.97p (H1 2016: 2.04p), and including non-underlying items was 2.84p (H1 2016: 2.04p). Adjusting for the Group's underlying ETR of 21.8% in H1 2017, the basic adjusted EPS for the prior period would have been 1.96p.

 

Cash flow and net debt

 

Demonstrating the strongly cash generative nature of the Group, free cash flow (defined as cash generated from operating activities excluding non-underlying items less interest, tax and capital expenditure) generated in the first half was £11.1m and a significant improvement on the same period last year (H1 2016: £2.1m) which was adversely affected by the build-up of working capital following the Sinclair Healthcare Products acquisition. Free cash flow in the period was ahead of the cash generated in the second half of last year of £10.9m. As a result, cash and cash equivalents increased £1.8m to £9m as at 30 June 2017 (H1 2016: £7.2m).

 

Inventory was held broadly level with last year at £15.2m (H1 2016: £15.4m), however we expect a modest increase towards the end of 2017 as a result of certain strategic inventory builds to secure supply.

 

Net debt reduced to £63.4m as at 30 June 2017 (31 December 2016: £76.1m), due largely to the Group's strong cash generation as well as the £4.0m compensation received from Sinclair and a foreign exchange benefit of approximately £1.0m. Our adjusted net debt/EBITDA ratio as at 30 June 2017 was 2.4 times (31 December 2016: 2.8 times), against our covenant limit of 2.75 times (31 December 2016: 3.0 times). We continue to anticipate that leverage will reduce, on current trends, to around 2.0 times by the end of the year.

 

The Group has total bank facilities of £100m of which £55.4m (31 December 2016: £66.5m) remains drawn on the Term Loan with £18.0m (31 December 2016: £18.0m) currently utilised from the Revolving Credit Facility (RCF). In addition to this, the Group also has access to a £4.5m working capital facility, which was largely undrawn at 30 June 2017, and an additional undrawn £25m facility available with bank approval.

 

 

 

 

 

Dividend

 

In line with our strong cash generation in the first half of 2017, we are making an interim payment of 0.443p (H1 2016: 0.403p).  This represents an increase of 10% on last year's figure while maintaining dividend cover at 3 times adjusted earnings.

 

The interim dividend will be paid on 11 January 2018 to shareholders on the register on 22 December 2017.

 

Strategy

 

Our strategy for growth remains two-fold.  We drive organic growth in selected brands via targeted marketing investment and we seek additional growth from bolt-on acquisitions. This strategy is in effect a buy and grow strategy.

 

Our marketing investment concentrates on two International Star brands, Kelo-cote and MacuShield, which benefit from a global strategy developed centrally and adapted locally in each market.  Additionally we have national growth brands, known as Local Heroes which are very important to individual countries and whose marketing strategy is driven locally.

 

Kelo-cote

 

Kelo-cote is our largest and fastest growing brand and has global reach, now selling in 65 countries. Compared with H1 2016, sales grew by £2.1m to £6.2m in the first half of 2017. Kelo-cote is a silicone gel for the treatment of scars. Silicon gels are well established as the first line treatment in scar management. Kelo-cote is the most technically advanced product in this class and, through its unique patented formula, is the quickest drying silicone gel on the market. In this fast growing market this important benefit gives us a competitive advantage that is appreciated by clinicians and users alike. We have global rights, outside of the US.

 

We have recently strengthened our management of the brand by the appointment of an experienced global marketing head who will focus on developing both the brand's strategy and relationships with key global opinion leaders. Alliance was the lead sponsor at this year's Scar Club conference in Montpellier in June, which was attended by leaders in the scar management field. We continue to work on new product development and line extensions for the Kelo-cote brand to help reinforce its position as a professionally endorsed specialist product.

 

The Asia-Pacific region continues to perform well with sales progressing ahead of expectations, via our network of local distribution partners, with China, Kelo-cote's largest market, developing particularly well. In Europe, where we have developed our own infrastructure in the major EU countries, we are in the process of repatriating the distribution agreements both to give us more control over the marketing of the brand and to improve margins. Discussions are well underway for the launch of the product into some new markets.

 

MacuShield

 

MacuShield is a dietary supplement of macular pigments for slowing the progression of age-related macular degeneration (AMD). It can also aid visual performance, improving contrast sensitivity in situations where there is high glare - such as night driving. It currently sells in 17 markets and we have global rights, outside of the Americas and the Caribbean. 

 

In the first half of 2017, sales grew by £1.4m to £3.4m, compared with the same period in 2016. MacuShield is at an earlier phase of its international development with sales in the UK and Ireland developing well to £2.9m, compared with £1.7m in the first half of 2016. In the UK our presence in Boots has increased with a further 800 stores taking the MacuShield Gold presentation and better in-store positioning. Our marketing strategy is two-pronged with our retail and consumer activities run in parallel with communications to ophthalmologists via our medical sales team. 

 

MacuShield growth has been further bolstered by good performances in some of the newer European territories, including Romania, Serbia and Greece where sales are growing as our distributors roll out the brand through their respective routes to market. We have also used our newly formed International team to negotiate MacuShield into new distributors outside of Europe, and the first six months of the year have seen three new distributors signed in Israel, Lebanon and Pakistan, with several others in discussion.

 

National growth products (Local Heroes)

 

As a large part of Alliance's historic growth has been by acquisition, we have several products that are important in only one or a limited number of countries and which are not part of our global strategy. Some of these have growth potential that respond to marketing investment in an economic way and are managed locally. Examples are Aloclair in Spain and Italy, Hydromol in the UK and the UK group of consumer products (Anbesol, Ashton & Parsons and Lypsyl).

 

Bedrock

 

Very important to our strategy is the existence within our portfolio of a bedrock of well-established products that require minimal promotional efforts to maintain meaningful sales. These products constitute approximately 50% of total group revenues and provide a reliable source of cash flow that can be used for marketing investment elsewhere in the portfolio, or to fund further bolt-on acquisitions. These products cover a wide range of therapy areas as promotional synergies are not a prerequisite.

 

Acquisitions

 

In addition to organic growth, bolt-on acquisitions have been and will continue to be an important source of growth.  We acquire products where we can see a good history of stable sales and therefore this element of our strategy is relatively low risk. From larger pharmaceutical companies, we tend to acquire very well established products that are no longer core to those organisations. From smaller entrepreneurial companies we tend to acquire growing products that have been developed, launched and established, but whose further growth requires a larger organization with a broader distribution footprint.

 

Following the integration of the transformational acquisition of the pharma products from Sinclair Pharma, and as our leverage levels reduce, we are now in a position to re-commence our activity of securing bolt-on acquisitions as and when attractive opportunities arise. Our expanded infrastructure enables us to take advantage of opportunities across a wider range of territories.  Similarly we shall keep a watch for in-licensing opportunities that could be exploited via our expanded infrastructure, although these are less available than bolt-on acquisitions, where several interesting opportunities are currently under evaluation.

 

Appointment of Second Broker

 

As we are now an enlarged group we have appointed a second broker, Investec Bank plc, to work alongside Numis Securities Limited, our Nominated Adviser and broker.

 

 

 

 

People & Infrastructure

 

Recent promotions, accompanied by the appointment of external talent, have rounded out the management structure required to achieve our growth ambition.

 

Peter Butterfield was appointed Chief Operating Officer in June, to add to his Deputy CEO duties. The change in role signals a sharing of responsibilities with CEO John Dawson, who can now focus more on outward-facing initiatives.

 

In addition to this and other internal promotions, we made several key appointments of external candidates. Chris Delafield joined us from Sanofi as the new Global Marketing Head for Kelo-cote, Matthew Toms joined as Head of Supply Chain from Refresco UK, Dr. Verity Rawson joined as Medical Affairs Manager from Merck, and we have brought our commercial legal function in-house with the appointment of Chris Chrysanthou from Fladgate LLP.

 

Our office infrastructure was completed with the refurbishment of our Chippenham head office to provide a more effective working environment.

 

In 2016 we took the decision to invest in a new enterprise resource planning system to streamline our processes, which will bring the legacy Alliance Pharma and Sinclair systems onto a single integrated platform that will cover all of our financial and supply chain planning and fulfilment activities. Following a review of external providers, we selected Microsoft Dynamics as our system of choice, and it is on target to be operational across the business in mid-2018.

 

Charity

 

We strive to make a contribution to the community and, with our employees, are strong fundraising supporters, recently raising £30,000 for Sands, the stillbirth and neonatal death charity, through activities across the Company including sponsored walks and a 250 mile cycle ride between our Paris and Chippenham offices. We also have a long established relationship with International Health Partners, to which we donate products for distribution to health practitioners in the world's neediest areas.

 

Outlook

 

With the physical and management infrastructure we now have in place and the encouraging financial performance achieved to date from our targeted investments, we see scope for continued organic growth. We anticipate that this will be driven by our international growth brands Kelo-cote and MacuShield as well as our local hero brands, funded by the cash generated by these and our bedrock products that require little or no promotional investment. We will supplement our organic growth with bolt-on acquisitions as and when suitable candidates arise that will add value to the Group. Our European footprint, diversified portfolio and strong management team also provide a sound foundation for attracting in-licensing opportunities, which we will evaluate alongside product acquisitions.

 

We continue to monitor the landscape in relation to Brexit where we would advocate a frictionless outcome as regards cross-border trading, medicines regulation, adequate freedom of movement and access to specialised talent for the Group head office in the UK. There is uncertainty at this early stage of negotiation, however our balanced revenue base, pan-European infrastructure and nationally held EU licences will ensure our ability to trade in the EU market of the future.

 

Having delivered results in this period in line with expectations, and having a sound platform in place, we look forward to the second half and beyond with confidence.

 

 

Unaudited Consolidated Income Statement

For the six months ended 30 June 2017

 

 

 

 

 

Unaudited

Six months

ended

30 June 2017

Unaudited 

Six months

ended

30 June 2016

(See Note below)

 

 

 

 

 

 

 Underlying

 

 

Non-Underlying

 

 

 

 

Total

 

 

 

 

Total

 

Note

£000s

£000s

(Note 5)

£000s

£000s

Revenue

 

50,310

-

50,310

46,372

Cost of sales

 

(21,331)

-

(21,331)

(20,392)

Gross profit

 

28,979

-

28,979

25,980

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

Administration and marketing expenses

 

(15,101)

-

(15,101)

(12,946)

Share-based employee remuneration

 

(704)

-

(704)

(404)

Share of Joint Venture profits

 

92

-

92

343

 

 

(15,713)

-

(15,713)

(13,007)

 

 

 

 

 

 

Operating profit excluding exceptional item

 

13,266

-

13,266

12,973

 

 

 

 

 

 

Exceptional compensation income

 

-

5,000

5,000

-

 

 

 

 

 

 

Operating profit

 

13,266

5,000

18,266

12,973

 

 

 

 

 

 

Finance costs

 

 

 

 

 

Interest payable and similar charges

4

(1,516)

-

(1,516)

(1,660)

Finance income

4

145

-

145

429

 

 

(1,371)

-

(1,371)

(1,231)

 

 

 

 

 

 

Profit before taxation

 

11,895

5,000

16,895

11,742

Taxation

6

(2,595)

(850)

(3,445)

(2,169)

Profit for the year attributable to equity shareholders

 

9,300

4,150

13,450

9,573

Earnings per share

 

 

 

 

 

Basic (pence)

11

1.97

 

2.84

2.04

Diluted (pence)

11

1.95

 

2.82

2.02

 

 

Note: The results for 2016 all relate to underlying trading performance

 

 

 

 

Unaudited Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2017

 

 

 

 

Unaudited  

Six months

ended

30 June 2017

Unaudited

Six months

ended

30 June 2016

 

 

 

£ 000s

£ 000s

 

 

 

 

 

Profit for the period

 

 

13,450

9,573

 

Other comprehensive income

 

 

 

 

 

Items that may be reclassified to profit or loss:

 

Interest rate swaps - cash flow hedge

 

 

158

(509)

Deferred tax on interest rate swaps

 

 

(32)

102

Foreign exchange translation differences

 

 

(939)

1,129

 

 

 

 

 

Total comprehensive income for the period

 

 

12,637

10,295

 

 

 

 

 

 

 

 

Unaudited Consolidated Balance Sheet

As at 30 June 2017

 

 

 

 

Unaudited

30 June 2017

 

Audited

31 December 2016

 

 

Note

 

£000s

 

£000s

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

7

 

262,769

 

264,833

Property, plant and equipment

 

 

2,564

 

1,806

Joint Venture investment

 

 

1,650

 

1,464

Joint Venture receivable

 

 

1,462

 

1,462

Deferred tax asset

 

 

1,648

 

1,709

Other non-current assets

 

 

202

 

180

 

 

 

270,295

 

271,454

Current assets

 

 

 

 

 

Inventories

 

 

15,181

 

15,356

Trade and other receivables

8

 

24,339

 

26,706

Cash and cash equivalents

 

 

9,006

 

7,221

 

 

 

48,526

 

49,283

Total assets

 

 

318,821

 

320,737

 

 

 

 

 

 

Equity

 

 

 

 

 

Ordinary share capital

 

 

4,743

 

4,726

Share premium account

 

 

110,083

 

109,594

Share option reserve

 

 

4,010

 

3,306

Reverse takeover reserve

 

 

(329)

 

(329)

Other reserve

 

 

(193)

 

(319)

Translation reserve

 

 

1,169

 

2,108

Retained earnings

 

 

67,902

 

60,177

Total equity

 

 

187,385

 

179,263

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Long term financial liabilities

13

 

46,635

 

57,554

Other liabilities

10

 

1,826

 

1,817

Deferred tax liability

 

 

32,376

 

31,442

Derivative financial instruments

 

 

227

 

384

 

 

 

81,064

 

91,197

Current liabilities

 

 

 

 

 

Financial liabilities

13

 

25,819

 

25,782

Corporation tax

 

 

3,343

 

2,543

Trade and other payables

9

 

21,210

 

21,952

 

 

 

50,372

 

50,277

 

 

 

 

 

 

Total liabilities

 

 

131,436

 

141,474

 

 

 

 

 

 

Total equity and liabilities

 

 

318,821

 

320,737

                                                                                               

 

 

 

 

 

 

Unaudited Consolidated Statement of Cash Flows

For the six months ended 30 June 2017

 

 

 

Unaudited

Six months

ended

30 June 2017

Unaudited

Six months

ended

30 June 2016

 

 

£ 000s

£ 000s

 

 

 

 

 

 

 

 

Operating activities

 

 

 

Result for the period before tax

 

16,895

11,742

Interest payable

 

1,516

1,660

Other finance income

 

(145)

(429)

Exceptional income

 

(5,000)

-

Depreciation of property, plant and equipment

 

226

181

Amortisation of intangible assets

 

157

84

Share-based employee remuneration

 

704

404

Change in inventories

 

175

(3,306)

Change in investments

 

(92)

(343)

Change in trade and other receivables

 

3,392

(11,088)

Change in trade and other payables

 

(2,853)

7,429

Tax paid

 

(1,370)

(2,101)

Cash flows from operating activities

 

13,605

4,233

 

 

 

 

Investing activities

 

 

 

Interest received

 

54

54

Deferred contingent consideration on acquisitions

 

(1,714)

(4,503)

Development costs capitalised

 

(265)

(46)

Purchase of property, plant and equipment

 

(984)

(325)

Purchase of other non-current assets

 

-

(203)

Settlement income

 

4,000

-

Loan to Joint Venture

 

(25)

-

Net cash used in investing activities

 

1,066

(5,023)

 

 

 

 

Financing activities

 

 

 

Interest paid and similar charges

 

(1,557)

(1,353)

Loan issue costs

 

-

(280)

Proceeds from exercise of share options

 

506

26

Dividend paid

 

(1,904)

(1,714)

Receipt from borrowings

 

-

4,500

Repayment of borrowings

 

(10,136)

(3,000)

Net cash used in financing activities

 

(13,091)

(1,821)

 

 

 

 

Net movement in cash and cash equivalents

 

1,580

(2,611)

Cash and cash equivalents at beginning of period

 

7,221

3,198

Effects of exchange rate movements

 

205

1,049

Cash and cash equivalents at end of period

 

9,006

1,636

 

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statement of Changes in Equity

For the six months ended 30 June 2017

 

 

Ordinary Share capital

Share Premium account

Share Option reserve

Reverse takeover reserve

Other reserve

               Translation Reserve

Retained earnings

Total equity

 

£ 000s

£ 000s

£ 000s

£ 000s

£ 000s

£ 000s

£ 000s

£ 000s

 

 

 

 

 

 

 

 

 

Balance 1 January 2016 (audited)

4,682

108,308

2,610

(329)

(98)

32

47,237

162,442

 

 

 

 

 

 

 

 

 

Issue of shares

2

24

-

-

-

-

-

26

Dividend payable/paid

-

-

-

-

-

-

(5,151)

(5,151)

Share options charge

-

-

404

-

-

-

-

404

Transactions with owners

2

24

404

-

-

-

(5,151)

(4,721)

Profit for the period

-

-

-

-

-

-

9,573

9,573

Other comprehensive income

 

 

 

 

 

 

 

 

Interest rate swaps - cash flow hedge

-

-

-

-

(509)

-

-

(509)

Deferred tax on interest rate swaps

-

-

-

-

102

-

-

102

Foreign exchange translation differences

-

-

-

-

-

1,129

-

1,129

Total comprehensive income for the period

-

-

-

-

(407)

 

1,129

9,573

10,295

Balance 30 June 2016 (unaudited)

4,684

108,332

3,014

(329)

(505)

1,161

51,659

168,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance 1 January 2017 (audited)

4,726

109,594

3,306

(329)

(319)

2,108

60,177

179,263

 

 

 

 

 

 

 

 

 

Issue of shares

17

489

-

-

-

-

-

506

Dividend payable/paid

-

-

-

-

-

-

(5,725)

(5,725)

Share options charge

-

-

704

-

-

-

-

704

Transactions with owners

17

489

704

-

-

-

(5,725)

(4,515)

Profit for the period

-

-

-

-

-

-

13,450

13,450

Other comprehensive income

 

 

 

 

 

 

 

 

Interest rate swaps - cash flow hedge

-

-

-

-

158

-

-

158

Deferred tax on interest rate swaps

-

-

-

-

(32)

-

-

(32)

Foreign exchange translation differences

-

-

-

-

-

(939)

-

(939)

Total comprehensive income for the period

-

-

-

-

126

 

(939)

13,450

12,637

Balance 30 June 2017 (unaudited)

4,743

110,083

4,010

(329)

(193)

1,169

67,902

187,385

 

 

 

 

 

 

 

 

 

Notes to the Half Yearly Report

For the six months ended 30 June 2017

 

1.         Nature of operations

 

Alliance Pharma plc ("the Company") and its subsidiaries (together "the Group") acquire, market and distribute pharmaceutical products. The company is a public limited company incorporated and domiciled in England. The address of its registered office is Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB.

               

                The company is listed on the London Stock Exchange, Alternative Investment Market (AIM).

 

2.         General information

 

The information in these financial statements does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and is un-audited. These financial statements have been prepared in accordance with the AIM rules, and IAS 34 has not been adopted. A copy of the Group's statutory accounts for the period ended 31 December 2016, prepared under International Financial Reporting Standards as adopted by the European Union, has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain statements under section 498(2) or section 498(3) of the Companies Act 2006.

 

This interim financial report for the six-month period ended 30 June 2017 (including comparatives for the six months ended 30 June 2016) was approved by the Board of Directors on 11 September 2017.

 

The current rate of cash generation by the Group comfortably exceeds the capital and debt servicing needs of the business (though there cannot, of course, be absolute certainty that the rate of cash generation will be maintained).  The Board remains confident that all the bank covenants will continue to be met for at least the next 12 months.  The Group has a £4.5m Working Capital Facility of which £4.1m is undrawn at the balance sheet date and which the Board believes should comfortably satisfy the Group's working capital needs for at least the next 12 months.

 

3.         Accounting policies     

 

The same accounting policies and methods of computation are followed in the interim financial report as published by the company in its 31 December 2016 Annual Report. The Annual report is available on the company's website alliancepharmaceuticals.com.

 

4.         Finance costs               

 

Unaudited

Six months

ended

 30 June 2017

Unaudited

Six months

ended

30 June 2016

 2015

 

£000s

£000s

Interest payable and similar charges

 

 

        On loans and overdrafts

(1,421)

(1,397)

        Amortised finance issue costs

(179)

(177)

        Notional interest

84

(86)

Interest payable and similar charges

(1,516)

(1,660)

 

 

 

Interest income

54

54

Other finance income - Foreign exchange movements

91

375

Finance Income

145

429

Finance costs - net

(1,371)

(1,231)

 

            Notional interest relates to the unwinding of the deferred consideration on the MacuVision acquisition. 

 

 

 

 

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2017

 

5.         Non-underlying item

 

In March 2017, the Group reached agreement with Sinclair Pharma plc, in connection with the material reduction of business in Kelo-stretch, acquired in 2015. The terms of the agreement was a £4.0m cash payment (received in April 2017) and a further £1m to be paid on or before 30 June 2018, together with all remaining rights to Flammacerium (US) with immediate effect.

 

The total compensation of £5 million has been treated as a non-underlying exceptional income in these financial statements.

 

The associated non-underlying tax charge relates to the deferred tax impact of the reduction in intangibles tax relief in future years arising from the reduction in consideration paid for Kelo-stretch.

 

6.         Taxation

 

Analysis of charge for the period is as follows:

 

 

 Unaudited

Six months ended

30 June 2017

 Unaudited

Six months

ended

30 June 2016

 

£ 000s

£ 000s

Corporation tax

 

 

    In respect of current period

2,450

2,046

 

2,450

2,046

 

 

 

Deferred tax

995

123

Taxation

3,445

2,169

 

 

7.         Intangible assets

 

 

Goodwill

Brands and distribution rights

Development costs

Assets under development

Total

 

 

£ 000s

£ 000s

£ 000s

£ 000s

£ 000s

Cost

 

 

 

 

 

 

At 1 January 2017 (audited)

 

16,197

249,376

704

2,500

268,777

Additions

 

-

-

265

-

265

Transfer In/(Out)

 

-

438

(438)

-

-

Exchange adjustments

 

-

(2,172)

-

-

(2,172)

At 30 June 2017 (unaudited)

 

16,197

247,642

531

2,500

266,870

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

At 1 January 2017 (audited)

 

-

3,944

-

-

3,944

Amortisation for the period

 

-

157

-

-

157

At 30 June 2017 (unaudited)

 

-

4,101

-

-

4,101

 

 

 

 

 

 

Net book amount

 

 

 

 

 

 

At 30 June 2017 (unaudited)

 

16,197

243,541

531

262,769

At 1 January 2017 (audited)

 

16,197

245,432

704

2,500

264,833

 

 

 

 

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2017

 

8.         Trade and other receivables

 

 Unaudited

30 June 2017

 Audited

31 December 2016

 

£ 000s

£ 000s

 

 

 

Trade receivables

19,218

20,530

Other receivables

1,327

1,788

Prepayments and accrued income

1,491

2,110

Amounts owed by Joint Venture

2,303

2,278

 

24,339

26,706

 

9.         Trade and other payables

 

 Unaudited

30 June 2017

 Audited

31 December 2016

 

£ 000s

£ 000s

 

 

 

Trade payables

5,473

5,655

Other taxes and social security costs

374

1,030

Accruals and deferred income

9,037

11,125

Other payables

1,181

1,120

Deferred consideration

1,324

3,022

Dividend payable

3,821

-

 

21,210

21,952

           

10.       Other non-current liabilities

 

 Unaudited

30 June 2017

 Audited

31 December 2016

 

£ 000s

£ 000s

 

 

 

Deferred consideration

1,609

1,609

Other non-current liabilities

217

208

 

1,826

1,817

 

11.       Earnings per share (EPS)

 

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.  For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

           

A reconciliation of the weighted average number of ordinary shares used in the measures is given below:

 

Six months

ended

30 June 2017

Six months

ended

30 June 2016

 

Weighted average number of shares 000s

Weighted average number of shares 000s

For basic EPS

472,900

468,297

Share options

4,338

6,329

For diluted EPS

477,238

474,626

 

 

 

 

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2017

 

11.       Earnings per share (EPS) (continued)

 

 

Six months to

30 June 2017

Six months to

30 June 2016

 

£ 000s

£ 000s

Earnings for basic and diluted EPS

13,450

9,573

Non-underlying: Exceptional items

(4,150)

-

Adjusted EPS

9,300

9,573

 

 

The resulting EPS measures are:

 

Six months to

30 June 2017

Six months to

30 June 2016

 

Pence

Pence

Basic EPS

2.84

2.04

Diluted EPS

2.82

2.02

Adjusted basic EPS

1.97

2.04

Adjusted diluted EPS

1.95

2.02

 

 

12.       Dividends

 

Six months

ended

30 June 2017

Six months

ended

30 June 2016

 

 

 

 

 

 Pence/share

£ 000s

Pence/share   £ 000s

Amounts recognised as distributions to

owners in the year

 

 

 

Interim dividend for the prior financial year

   0.403

1,904

0.366

1,714

Final dividend for the prior financial year

   0.807

3,821

0.734

3,438

 

 

5,725

 

5,152

 

 

 

 

           

The final dividend for the prior financial year was approved by the Board of Directors on 27 March 2017 and subsequently by the shareholders at the Annual General Meeting on 25 May 2017. This dividend has been included as a liability as at 30 June 2017, in accordance with IAS 10 Events After the Balance Sheet Date, and was paid on 12 July 2017 to shareholders who were on the register of members at 16 June 2017.

 

 

 

 

 

 

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2017

 

13.       Borrowings

 

            Movements in borrowings are analysed as follows:     

 

Six months

ended

30 June 2017

 £ 000s

At 1 January 2017 (audited)

83,336

Repayment of borrowings 

(10,136)

Amortisation of prepaid arrangement fees

179

Exchange movements

(925)

At 30 June 2017 (unaudited)

                           72,454

 

 

The carrying amount of the group's borrowings are denominated in the following currencies:

 

 Unaudited

30 June 2017

 Audited

31 December 2016

 

£ 000s

£ 000s

 

 

 

GBP

38,128

42,508

USD

19,500

26,585

EUR

15,789

15,385

Loan issue costs

(963)

(1,142)

 

72,454

83,336

 

14.       Post balance sheet events

 

As stated in our announcement in July 2017, the Medicine and Healthcare products Regulatory Agency ("MHRA") did not approve Diclectin for the UK, a treatment for nausea and vomiting of pregnancy which was unexpected. Our regulatory team has now had time to work with Duchesnay Inc. of Canada ("Duchesnay"), the licensor and marketing authorisation applicant, to better understand the objections of the MHRA. Whilst the communication between the MHRA and Duchesnay remains confidential, we believe there are grounds to re-open discussions.. Diclectin is a much needed product as there is no licensed medicine for treating nausea and vomiting of pregnancy in the UK. At this stage we expect these discussions to continue well into 2018 and, in the meantime, we will re-direct our commercial resources to other important growth projects within the company.

 

The Group in-licensed Diclectin for the UK in 2015 and for a further nine European territories in 2016. The total amount paid to Duchesnay for all territories was £1.5 million with a further £1.0 million payable to Duchesnay on successful licence applications; the total £2.5m is included within intangible fixed assets and the £1.0m deferred consideration is included within liabilities.

 

Duchesnay, the licence applicant, has notified the regulator that it wants to re-open discussions and the Board has concluded that it continues to be appropriate to retain the intangible asset (and the associated deferred consideration) whilst this review is underway. In the event the licence for Diclectin is not approved, the amounts paid to Duchesnay (£1.5 million) are fully refundable and the deferred consideration (£1.0 million) would be cancelled resulting in no net financial impact in the Income Statement.

 

 

 

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2017

 

15.       Alternative performance measures

 

The performance of the group is assessed using Alternative Performance Measures (APMs). The group's results are presented both before and after exceptional and non-underlying items. Adjusted profitability measures are presented excluding exceptional and non-underlying items as we believe this provides both management and investors with useful additional information about the group's performance and aids a more effective comparison of the group's trading performance from one period to the next and with similar businesses.

 

In addition, the group's results are described using certain other measures that are not defined under IFRS and are therefore considered to be APMs. These measures are used by management to monitor on-going business performance against both shorter term budgets and forecasts but also against the groups longer term strategic plans.

 

APMs used to explain and monitor group performance:

Measure

Definition

Reconciliation to GAAP measure

EBITDA

Earnings before interest, tax, depreciation, amortisation and non-underlying items. Calculated by taking profit before tax and financing costs, excluding non-underlying items and adding back depreciation and amortisation.

Note A below

Free cash flow

Free cash flow is defined as EBITDA less working capital and non-cash movements (excluding exceptional items), tax payments, interest payments, core capex and other non-cash movements.

Note B below

Net debt

Net debt is defined as the group's bank debt position net of its cash position.

Note C below

 

A.    EBITDA

 

 

Unaudited

Six months

ended

 30 June 2017

 

Unaudited

Six months

ended

 30 June 2016

Reconciliation of EBITDA

 

£000s

 

£000s

Profit before tax

 

16,895

 

11,742

Exceptional item (note 5)

 

(5,000)

 

-

Financing costs (note 4)

 

1,371

 

1,231

Depreciation

 

226

 

181

Amortisation

 

157

 

84

Total

 

13,649

 

13,238

 

B.    Free cash flow

 

 

Unaudited

Six months

ended

 30 June 2017

 

Unaudited

Six months

ended

 30 June 2016

Reconciliation of free cash flow

 

£000s

 

£000s

Cash generated from operations

 

14,975

 

6,334

Financing costs

 

(1,557)

 

(1,633)

Capital expenditure

 

(984)

 

(528)

Tax paid

 

(1,370)

 

(2,101)

 

 

11,064

 

2,072

 

 

 

Notes to the Half Yearly Report (continued)

For the six months ended 30 June 2017

 

11.       Alternative performance measures (continued)

 

C.   Net debt       

 

Unaudited

30 June 2017

 

Audited

31 December 2016

 

Reconciliation of net debt

 

£000s

 

£000s

 

Loans and borrowings - current

13

(25,819)

 

(25,782)

 

Loans and borrowings - non-current

13

(46,635)

 

(57,554)

 

Cash and cash equivalents

 

9,006

 

7,221

 

 

 

(63,448)

 

(76,115)

 

 


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