Final Results
Alliance Pharma PLC
12 May 2004
12 May 2004
ALLIANCE PHARMA PLC (AIM: APH)
('Alliance' or 'the Company')
PRELIMINARY RESULTS FOR THE YEAR ENDED 29 FEBRUARY 2004
Financial Highlights
• Turnover increased 25% to £10.4 million - 8% like-for-like and 17%
for new brand acquisition (2003: £8.3 million)
• Profits (EBAT) up 20.0% to £1.2 million (2003: £1.0 million)
• Gross margin up to 48.4% (2003: 43.7%)
• Basic EPS of -2.4p (2003: -1.0p)
• Adjusted EPS 1.2p (2003: 0.9p)
• Good cash generation at operational level
Operational Highlights
• Successful reverse takeover of AIM listed Peerless Technology Group
in December 2003
• Successful Placing and Open Offer as part of the reverse takeover
raising a total of £11.17 million
• Board strengthened with highly experienced non-executive chairman and
non-executive director
• Successful acquisition of Dermapharm Ltd and four dermatology brands
• Development projects progressing well, particularly a sleep disorders
product
John Dawson, CEO of Alliance Pharma commented: '2003 was a tremendous year for
Alliance. We achieved 25% growth in sales, fuelled by Nu-Seals and Symmetrel.
We made concrete progress with our in-house developments in obstetrics and sleep
disorders and capped it all with our flotation onto AIM in December'
For further information contact:
John Dawson, Alliance Pharma Plc
01249 466966
David Poutney, Numis Securities Ltd
020 7776 1500
James Chandler, Beattie Financial
020 7398 3300
CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT
Introduction
It is a great pleasure to present Alliance's first financial results as a public
company. The Company was admitted to AIM in December 2003 through the reverse
takeover by Alliance Pharmaceuticals Ltd of Peerless Technology Group plc
raising a total of £11.17 million before expenses through a combination of
ordinary shares and convertible loan stock. Following this, Peerless Technology
changed its name to Alliance Pharma plc and the existing business of Alliance
has continued, unchanged and uninterrupted.
Company Overview
Alliance was founded in 1996 by John Dawson, Chief Executive, and commenced
trading in 1998 with a clear two-stage strategy.
The first was to establish a profitable, cash positive business through the
acquisition of manufacturing, sales and distribution rights to branded
pharmaceutical products, which were already established, but lacked the ultimate
sales potential to be of interest to major international pharmaceutical
companies.
This achieved, the second stage of the strategy envisaged a continued investment
in established products, but also the development and eventual marketing of new
products, with far greater turnover and margin potential, probably in
partnership with, or by acquisition from smaller biotechnology and R&D
companies.
This strategy has been successfully pursued by Alliance in its five years of
trading. Initially brands were acquired on a relatively low-cost, low-risk,
low-return 'fostering' basis from Novartis. Then, from 1999, Alliance acquired
brands by conventional outright acquisition using debt finance, so that it now
has a broad portfolio of established pharmaceutical products, of which Nu-Seals
(heart disease), Syntocinon / Syntometrine (childbirth), and Symmetrel
(Parkinson's disease) are the most significant. In the main, these are
prescription products and in all cases manufacturing and distribution are
outsourced, although Alliance retains and exercises overall control.
Positive steps have also been taken in relation to the development of new
products, the most significant of which is in the area of sleep disorders.
Against this background of growth, it became clear during 2003 that Alliance
needed to broaden its financial base, raise cash, and obtain access to other
sources of capital, if it was to continue the implementation of its strategy and
take advantage of profitable opportunities. To this end, in December 2003 the
Company conducted a successful reverse takeover of Peerless and joined the AIM
market.
Financial Review
The financial results for the year to 29 February 2004 appear complex as they
reflect the reverse takeover and the costs and financial re-arrangements that
were an integral part of the transaction. However, the results show an
encouraging picture.
Turnover has increased by 25% from £8.327 million to £10.416 million (the
like-for-like increase being 8% with acquisitions of new brands accounting for
17%).
Gross margin grew from 43.7% to 48.4%, of sales, the improvement being due to
relocating the production of Nu-Seals, our low-dose aspirin product, and
Naseptin, our antibiotic nasal cream.
The cash generative nature of the company increased by 30% from £2.087m to
£2.712m, as measured by EBITA excluding the administrative expenses incurred by
Peerless of £0.258m.
After additional expenditure in marketing infrastructure and promotional
investment, where the return is not immediate, the profitability of the company
increased by 20.0% to £1.210 million as measured by EBAT (earnings before
amortisation, tax, exceptional finance charges and finance issue costs) as shown
in the following table.
2004 2003
Amount (£m) Amount (£m)
Loss on ordinary activities before taxation £2.152 £0.731
Amortisation of intangible assets £0.907 £1.400
Prior Year Exceptional Items - £0.339
Costs associated with Peerless Technology prior to the reverse takeover £0.258 -
Amortisation of reverse takeover goodwill £0.843 -
Debt redemption premia £1.185 -
Exceptional finance charges and finance issue costs £0.169 -
Trading Profit £1.210 £1.008
The star performing brands were Nu-Seals, our product for the prevention of
heart disease and strokes, and Symmetrel, our product for Parkinson's disease,
which both achieved significant growth. .
Overall Alliance has shown good growth in sales and has increased profitability
after laying down investment for future growth.
Operational and Product Review
The year ending February 29 2004 was a productive one on many fronts, the
highlight of which was undoubtedly the Company's flotation onto AIM in December
2003, one of the most pivotal events in the company's history.
Operationally, over the year, Alliance developed its organisation in several
dimensions. We built a specialist UK hospital field force, which is initially
on an outsourced basis for speed of operation. This team is currently promoting
Symmetrel in Parkinson's disease, but plans are in preparation to extend its use
to our various dermatological products.
Good progress was made on our two in-house developments. On APL 202, our
intra-vaginal misoprostol project for labour induction, we have recently sourced
our formulation and clinical trials are planned to commence in the second half
of the current year, with an application for marketing approval expected in the
first half of 2005. With APL 510, our melatonin project for sleep disorders, we
have created a special, modified release formulation which has performed well in
Phase 1 trials, demonstrating rapid and sustained blood levels of melatonin. We
are planning to commence registration trials in the second half of 2004, with an
application for marketing authorisation in the first half of 2006.
On the distribution front, we signed agreements with the Spanish development
company, GES, and with the US dermatology company, Barrier Therapeutics Inc.
The products concerned are currently going through registration in the chosen
territories.
Resources
We have significantly strengthened an already very capable Board with the
appointments of Michael Gatenby as non-executive chairman and Paul Ranson as a
non-executive director.
Alliance has also built depth into its financial resources in order to enable
Maddy Scott to respond to her wider role as the finance director of a public
company.
Overall, we would like to highlight our small team of dedicated people, to all
of whom thanks are due for their unstinting hard work and commitment over the
last year. Maintaining and developing the business at the same time as handling
the extra demands of the AIM listing has resulted in a heavy workload and all
deserve credit for the achievement.
Acquisitions
In February 2004, we acquired the privately-owned pharmaceuticals company,
Dermapharm Ltd, together with four dermatology brands for a total cash
consideration of £875,000, wholly funded by bank debt from Bank of Scotland.
The four brands had annual sales of £360,000 at the time of acquisition and we
plan to extract further growth as we are capable of applying more marketing and
promotional resources.
The four brands are 'Occlusal', used as a treatment for warts and verrucas and '
Meted', 'Pentrax' and 'Acnisal' which are specialist dermatology products used
in the treatment of scalp conditions and acne. The brands have been integrated
into Alliance's existing range, bringing to 27, the total number of branded
pharmaceutical products in our portfolio.
Outlook
We see an encouraging number of opportunities to grow profitability within our
chosen strategy. The continuing trend of mergers is resulting in ever-larger
companies at the top end of the pharmaceutical sector. This will inevitably
create more opportunities for Alliance to acquire brands which, although
established and profitable, are not 'core' to these major companies. In the
year ahead Alliance will therefore continue to seek and secure further
acquisitions of established, cash-generative brands to reinforce the Company's
strong financial base and grow the product portfolio.
We will also continue to expand marketing efforts and push forward with our
in-house developments. There are increasing opportunities for the launching of
brands, obtained under licensing agreements, since as we establish the Company
more firmly and broadly we are seen as a valuable partner by other companies
with limited UK / European capabilities.
To succeed in this we will be strengthening our head office team, both in the
marketing and scientific areas and we also intend to extend distribution
relationships on the Continent.
Whilst it is early in the current year, we are pleased to report that trading is
satisfactory and is proceeding according to plan.
Michael Gatenby, Chairman
John Dawson, Chief Executive
May 12 2004
CONSOLIDATED PROFIT & LOSS ACCOUNT
For the year ended February 29 2004
Note Year ended Year ended
Year ended Year ended 29 February 28 February
29 February 29 February 2004 2003
2004 2004 Total (restated)
Pre-exceptional Exceptional
£ £ £ £
Turnover
Continuing operations 10,387,967 - 10,387,967 8,327,497
Acquisitions (Dermapharm Limited) 28,069 - 28,069 -
10,416,036 - 10,416,036 8,327,497
Cost of sales
Continuing operations (5,356,824) - (5,356,824) (4,686,926)
Acquisitions (Dermapharm Limited) (20,355) - (20,355) -
(5,377,179) - (5,377,179) (4,686,926)
Gross profit
Continuing operations 5,031,143 - 5,031,143 3,640,571
Acquisitions (Dermapharm Limited) 7,714 - 7,714 -
5,038,857 - 5,038,857 3,640,571
Operating expenses
Continuing operations
Administrative and Marketing expenses (2,326,509) - (2,326,509) (1,553,283)
Amortisation of goodwill and intangible (902,370) - (902,370) (1,400,062)
assets
(3,228,879) - (3,228,879) (2,953,345)
Acquisitions
Administrative expenses (Peerless) (258,102) - (258,102) -
Amortisation of goodwill (4,704) (843,171) (847,875) -
(262,806) (843,171) (1,105,977) -
Operating profit
Continuing operations 1,802,264 - 1,802,264 687,226
Acquisitions (255,092) (843,171) (1,098,263) -
1,547,172 (843,171) 704,001 687,226
Net interest payable and similar charges
Net interest and similar charges (1,502,058) - (1,502,058) (1,418,439)
Other finance charges (9,268) (1,345,181) (1,354,449) -
2 (1,511,326) (1,345,181) (2,856,507) (1,418,439)
Loss on ordinary activities before taxation 35,846 (2,188,352) (2,152,506) (731,213)
Tax on loss on ordinary activities - 197,856 197,856 (992)
Loss transferred to reserves 35,846 (1,990,496) (1,954,650) (732,205)
(Loss)/earnings per share
Basic (pence) 3 (2.44) (1.00)
Adjusted (pence) 3 1.18 0.92
The results for the year ending 28 February 2003 have been restated due to the
reclassification of goodwill amortisation charges from cost of sales to
operating expenses in order to provide a fairer reflection of the gross profits
generated by the underlying trade.
There were no recognised gains or losses other than the loss for the financial
year.
The accompanying accounting policies and notes form an integral part of these
financial statements.
CONSOLIDATED BALANCE SHEET
For the year ending 29 February 2004
At 29 At 29 At 28 At 28
February February February February
2004 2004 2003 2003
£ £ £ £
Fixed assets
Intangible assets 17,987,603 16,837,453
Tangible assets 147,853 214,409
18,135,456 17,051,862
Current assets
Stocks 1,739,516 1,928,180
Debtors 1,984,093 1,629,647
Cash at bank and in hand 4,579,197 206,182
8,302,806 3,764,009
Creditors: amounts falling due within one (5,482,778) (5,136,259)
year
Net current assets/(liabilities) 2,820,028 (1,372,250)
Total assets less current liabilities 20,955,484 15,679,612
Creditors: amounts falling due after more (18,731,378) (15,674,895)
than one year
Provisions for liabilities and charges - (197,856)
2,224,106 (193,139)
Capital and reserves
Called up share capital 1,107,939 281,182
Share premium account 5,214,638 6,818
Other reserve (329,349) -
Profit and loss account (3,769,122) (481,139)
Shareholders' funds - equity interests 2,224,106 (193,139)
The financial statements were approved by the Board of Directors on 10 May 2004.
John Dawson Madeleine Scott
Director Director
The accompanying accounting policies and notes form an integral part of these
financial statements.
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 29 February 2004
Year ended Year ended
29 February 28 February
2004 2003
Note £ £
Net cash inflow from operating activities 4 2,112,318 2,089,251
Returns on investments and servicing of finance
Interest received 35,446 4,352
Interest paid and similar charges (1,562,879) (1,083,826)
Loan redemption premiums paid (1,185,181) -
Finance issue costs paid (416,125) -
Other finance charges paid (160,000)
Hire purchase interest paid (2,848) -
Net cash outflow for returns on investments and servicing of (3,291,587) (1,079,474)
finance
Taxation - (33,177)
Capital expenditure
Purchases intangible assets (928,155) (12,134,688)
Purchases tangible assets (16,694) (101,703)
Receipts from sales of tangible assets - 7,499
Net cash outflow for capital expenditure (944,849) (12,228,892)
Acquisitions
Purchase of subsidiary undertakings (1,233,435) -
Net cash acquired with subsidiary undertakings 2,213,664 -
Net cash inflow from acquisitions 980,229 -
Financing
Issue of shares 3,309,514 -
Warrant buy-back (1,333,333) -
Receipts from borrowings 9,960,000 14,297,520
Repayment of borrowings (6,393,312) (2,454,415)
Capital element of hire purchase contracts (25,965) (24,873)
Net cash inflow from financing 5,516,904 11,818,232
Increase in cash in the year 5 4,373,015 565,940
The accompanying accounting policies and notes form an integral part of these
financial statements.
NOTES
1. Basis of preparation
The financial information set out in the announcement does not constitute the
Group financial statements for the year ended 29 February 2004 or 28 February
2003. The financial information for the year ended 28 February 2003 is derived
from the statutory accounts of Alliance Pharmaceuticals Limited as a result of
the reverse takeover described below in the basis of consolidation. Those
financial statements have been delivered to the Registrar of Companies. The
auditors reported on those accounts; their report was unqualified and did not
contain a statement under s237(2) or (3) Companies Act 1985. The Group accounts
for the year ended 29 February 2004 will be finalised on the basis of the
financial information presented by the directors in this preliminary
announcement and will be delivered to the Registrar of Companies following the
Company's annual general meeting.
Basis of consolidation
The Group financial statements, which form the basis of the financial
information set out in the announcement, consolidate those of the Company and
its subsidiary undertakings drawn up to 29 February 2004. Acquisitions of
subsidiaries are dealt with by the acquisition method of accounting except for
the reverse takeover transaction detailed below.
On 23 December 2003 the Company, then named Peerless Technology Group plc,
became the legal parent company of Alliance Pharmaceuticals Limited in a
share-for-share transaction. Due to the relative values of the companies, the
former Alliance Pharmaceuticals Limited shareholders became the majority
shareholders with 67 per cent of the enlarged share capital. Following the
transaction the Company's continuing operations and executive management were
those of Alliance Pharmaceuticals Limited. Accordingly, the substance of the
combination was that Alliance Pharmaceuticals Limited acquired Peerless
Technology Group plc in a reverse acquisition. As part of the business
combination Peerless Technology Group plc changed its name to Alliance Pharma
plc and extended its accounting reference date to 29 February 2004 from 31
December 2003.
The Companies Act 1985, FRS 6 and FRS 7 would normally require the Company's
consolidated accounts to follow the legal form of the business combination. In
that case the pre-acquisition results would be those of Peerless Technology plc
and its subsidiary undertakings, which would exclude Alliance Pharmaceuticals
Limited. The results of Alliance Pharmaceuticals Limited would then be included
in the Group from 23 December 2003. However, this would portray the combination
as an acquisition of Alliance Pharmaceuticals Limited by Peerless Technology
Group plc and would, in the opinion of the directors, fail to give a true and
fair view of the substance of the business combination. Accordingly, the
directors have adopted reverse acquisition accounting as the basis of
consolidation in order to give a true and fair view.
In invoking the true and fair override the directors note that reverse
acquisition accounting is endorsed under International Financial Reporting
Standard 3. Furthermore, the Urgent Issues Task Force of the UK's Accounting
Standards Board considered the subject and concluded that there are instances
where it is right and proper to invoke the true and fair override in such a way.
As a consequence of applying reverse acquisition accounting, the results for the
Group for the year ended 29 February 2004 comprise the results of Alliance
Pharmaceuticals Limited for its year ended 29 February 2004 plus those of
Peerless Technology Group plc from 23 December 2003, the date of the reverse
acquisition, to 29 February 2004. The comparative figures for the Group are
those of Alliance Pharmaceuticals Limited for the year ended 28 February 2003.
The figures in the profit and loss account for the Parent Company are those of
Peerless Technology Group plc for the fourteen month period ending 29 February
2004, the comparatives being for the year ending 31 December 2002. As set out in
note 23, goodwill amounting to £843,171 arose on the difference between the sum
of the fair value of Peerless Technology Group plc's share capital and the costs
of acquisition and, the fair value of its net assets at the reverse acquisition
date. The goodwill has been written off in the year ended 29 February 2004
because Peerless Technology Group plc had no continuing business and therefore
the goodwill has no intrinsic value.
The effect on the consolidated financial statements of adopting reverse
acquisition accounting, rather than following the legal form, are widespread.
However, the following table indicates the principal effect on the composition
of the consolidated reserves.
Reverse Normal Impact of
acquisition acquisition reverse
accounting accounting acquisition
(as accounting
disclosed)
£ £ £
Called up share capital 1,107,939 1,107,939 -
Share premium account 5,214,638 5,214,638 -
Merger reserve - 10,937,500 (10,937,500)
Other reserve (329,349) - (329,349)
Profit and loss account (3,769,122) (2,424,152) (1,344,970)
2,224,106 14,835,925 (12,611,819)
2. Net interest payable and other charges
The Group The Company
Year ended Year ended 14 months
29 February 28 February ended Year ended
2004 2003 29 February 31 December
2004 2002
£ £ £ £
(a) Net interest and similar charges (normal)
Exchange gain/(loss) on long term loan 28,223 (338,965) - -
On loans and overdrafts (1,562,879) (1,080,623) (89,426) -
Interest receivable and similar income 35,446 4,352 62,241 80,260
Hire purchase interest (2,848) (3,203) - -
Finance issue costs (9,268) - (6,935) -
(1,511,326) (1,418,439) 34,120 80,260
(b) Other finance charges (exceptional)
Costs of debt refinancing (160,000) - - -
Loan redemption premiums (1,185,181) - - -
(1,345,181) - - -
(2,856,507) (1,418,439) (34,120) 80,260
3. (Loss)/earnings per share
The basic loss per share is based on equity losses of £1,954,650 (2003:
£732,205) and 79,973,248 (2003: 72,916,667) ordinary shares at 1p each, being
the average number of shares in issue during the year. The weighted average
number of ordinary shares for the year ended 29 February 2004 assumes that the
72,916,667 ordinary shares issued in relation to the reverse acquisition of
Alliance Pharma plc (formally Peerless Technology Group plc) existed for the
entire year. Alliance Pharma plc shares have been included since 23 December
2003, the date of the reverse takeover, and all other shares have been included
in the computation based on the weighted average number of days since issuance.
The weighted average number of ordinary shares for the year ended 28 February
2003 is assumed to be equal to the 72,916,667 ordinary shares issued in relation
to the reverse acquisition.
There are currently no dilutive potential ordinary shares.
An adjusted earnings per share has been disclosed in order to show performance
undistorted by amortisation, one-off finance charges and a reversal of deferred
tax. The adjusted earnings per share is based on equity earnings of £942,920
(2003: £667,857), after adding back amortisation, one-off finance charges and
the reversal of deferred tax.
Basic
Year ended Year ended
29 28 February
February 2003
2004
p p
Loss per share (2.44) (1.00)
Effect of eliminating amortisation, one-off finance charges 3.62 1.92
and reversal of deferred tax
Adjusted earnings per share 1.18 0.92
4. Net cash inflow from operating activities
Year ended Year ended
29 February 28 February
2004 2003
£ £
Operating profit 704,001 687,226
Depreciation of tangible fixed assets 83,250 67,205
Amortisation of intangible fixed assets 1,750,245 1,400,062
Profit on disposal of fixed assets - (1,729)
Decrease/(Increase) in stocks 213,361 (253,872)
Increase in debtors (260,649) (720,290)
(Decrease)/Increase in creditors (377,890) 910,649
Net cash inflow from operating activities 2,112,318 2,089,251
5. Reconciliation of net cash flow to movement in net debt
Year ended Year ended
29 February 28 February
2004 2003
£ £
Increase in cash in the year 4,373,015 565,940
Cash inflow from borrowings (3,540,723) (11,865,715)
Cash outflow from loan issue costs paid 416,125 -
Change in net debt resulting from cash flows 1,248,417 (11,299,775)
Non-cash movements 158,955 (338,965)
Net debt at 1 March 2003 (17,409,596) (5,770,856)
Net debt at 29 February 2004 (16,002,224) (17,409,596)
6. Analysis of changes in net debt
At At
1 March Cash 29 February
2003 flow Acquisition Non-cash 2004
£ £ £ £ £
Cash at bank and in hand 206,182 2,159,351 2,213,664 - 4,579,197
Overdraft - - - - -
206,182 2,159,351 2,213,664 - 4,579,197
Debt
Bank loans falling due within one year (1,914,917) (93,324) - 5,941 (2,002,300)
Bank loans falling due after one year (15,647,153) 4,026,636 - 159,949 (11,460,568)
Convertible unsecured loan stock due after - (7,083,875) - (6,935) (7,090,810)
one year
Hire purchase contracts (53,708) 25,965 - (27,743)
(17,409,596) (965,247) 2,213,664 158,955 (16,002,224)
Included in Cash at bank and in hand is an amount of £1,200,000 held in an
escrow account, the use of which is restricted to the payment of interest on the
cumulative unsecured loan stock.
7. Major non-cash transactions
During the year the group received a loan for which issue costs totalling
£140,000 have been accrued. No cash has been paid in respect of these issue
costs as at 29 February 2004. Furthermore, capitalised issue costs amortised in
the profit and loss account during the year amount to £9,268.
An exchange gain amounting to £28,223 relating to a bank loan denominated in
euros has been recognised during the year.
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