Full Year Results

RNS Number : 8463A

Alliance Pharma PLC

29 March 2017

 

29 March 2017

ALLIANCE PHARMA PLC

("Alliance" or the "Group")

Results for the year ended 31 December 2016

Alliance Pharma plc (AIM: APH), the specialty pharmaceutical company, is pleased to announce its results for the year ended 31 December 2016.

Financial Highlights

·      Revenue up 102% at £97.5m (2015: £48.3m)

o  Reflecting a full year's ownership of the products acquired from Sinclair Pharma plc ("Sinclair") in December 2015

·      EBITDA* up 102% to £26.0m (2015: £12.9m)

·      Pre-tax profit up 103% to £22.2m (2015: £11.0m (underlying))

·      Diluted EPS** up 11% at 3.82p (2015: 3.44p)

·      Free cash flow*** up 110% to £13.0m (2015: £6.2m) - £10.9m generated in the second half of the year

·      Net bank debt**** of £76.1m (2015: £71.5m) - a reduction from £79.0m at 30 June 2016

o  Gearing at year end of 2.8 times (Net debt to adjusted EBITDA ratio)

·      Proposed dividend:

o  Final dividend up 10% to 0.807p per share (2015: 0.734p)

o  Full year dividend up 10% to 1.210p per share (2015: 1.100p)

*See note 3 **See note 8 ***See note 13 ****See note 12

Operational Highlights

·      Successfully integrated 27 products acquired from Sinclair, effectively doubling the size of the Group

·      Achieved strong growth with Kelo-cote™ and MacuShield™, our key international growth products.  Kelo-cote became our first £10m brand

·      Negotiated the in-licensing of Diclectin™ across a further nine EU territories - a unique opportunity for nausea and vomiting of pregnancy

·      Agreed settlement post year-end with Sinclair, including £5m cash compensation, in relation to the material reduction of business in Kelo-stretch™, as announced on 21 March 2017

Commenting on the results, Andrew Smith, Alliance's Chairman, said: "2016 has been transformational for Alliance following the acquisition of the Sinclair healthcare products business. Sales and profits have broadly doubled and our geographic reach extends to more than 100 countries. Having successfully integrated the acquisition, we are now focused on our three international growth opportunities - Kelo-cote, MacuShield and Diclectin.

"The current year has started well and we look forward to building on our foundations: an attractive, balanced portfolio, an expanded geographic footprint and a strong team."

For further information:

Alliance Pharma plc	+ 44 (0) 1249 466966
John Dawson, Chief Executive
Andrew Franklin, Chief Financial Officer
www.alliancepharma.co.uk
Buchanan	+ 44 (0) 20 7466 5000
Mark Court / Sophie Cowles / Jane Glover
Numis Securities Limited	+ 44 (0) 20 7260 1000
Nominated Adviser: Michael Meade / Freddie Barnfield
Corporate Broking: James Black / Toby Adcock

Notes to editors:

About Alliance

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 Review

We are pleased to report a year of significant progress for the Group, including the successful integration of our transformational acquisition announced in December 2015.

Significant achievements in the year

We successfully integrated the ex-Sinclair products into Alliance - effectively doubling our size - while at the same time achieving our growth targets. One of the successes of the acquisition has been the establishment of a meaningful infrastructure across the 'big 5' EU markets. An early example of the value of this is the signing of an in-licensing agreement for Diclectin for the EU. This is our first pan-European deal, and would not have been possible prior to the acquisition of the Sinclair products. Our new offices in Milan, Madrid, and Singapore, along with the enlargement of our Düsseldorf office, the major refurbishment of our Paris office and the significant broadening of our distributor base, give us a strong platform for further international growth.

Kelo-cote, our scar reduction product, passed a milestone to become our first £10m brand. MacuShield, our nutritional supplement product for age-related macular degeneration (AMD), also performed strongly, growing by 40% to achieve sales of £5.3m. Hydromol™, our emollient range, achieved sales of £7.0m in a competitive market (+6% vs. 2015). We also saw strong growth from our UK consumer health products as a result of marketing and distribution initiatives, including Ashton & Parsons Infants' Powders™, whose sales grew by 34% to £2.0m (2015: £1.5m).

These achievements, and more, are testament to the calibre and hard work of our 175 colleagues, who are now part of stronger, more capable teams working to a common set of values. We are proud of our 'can do' culture and progressive approach to employment practices, and our enlarged business and international footprint provide greater opportunities for development and growth.

Delivery of such growth performance is only possible with a supply chain that is robust and flexible, for which we wish to thank our partners with whom we work closely.

Market context

We operate in the international market for healthcare products, of which global prescribed medicines had estimated sales of €853 billion in 2015, up 29% from 2013 (Source: IMS MIDAS WRPWW). Healthcare is set to remain an attractively growing market, underpinned by longstanding factors such as on-going medical advances and aging populations in many developed markets in which we operate.

There has been a theme of budgetary control from the funders of prescription healthcare in several of our markets. In the UK, Clinical Commissioning Groups are exerting strong budgetary influences on the prescribing of general practitioners. Similarly, in Germany, the Krankenkassen health insurance funds are employing price control measures. Despite such cash constraints in European healthcare, the sector remains attractive.

The diversity of our portfolio (with a balance between consumer and prescription products) and our international footprint together position us well to benefit from trends in specific segments and geographies and equally to reduce risk.

Strategy

Our vision is to be the rising star of European specialty pharma, and with the establishment of our pan-European infrastructure we have laid down a strong foundation to achieve this ambition.

Our growth strategy comprises two key strands:

·      Buy (acquisitions and in-licensing); and

·      Build (maximising and extending brand potential, and international expansion).

Buy

Acquisitions and in-licensing

Our focus in 2016 was the integration of the very large acquisition of Sinclair's Healthcare Products business, which was approximately equivalent in size to Alliance Pharma. For that reason we did not make any acquisitions in 2016, although we kept in touch with the market through our networking activities, and have a pipeline of opportunities to evaluate in 2017.

The principal in-licensing opportunity was the European rights for Diclectin, and we expect to submit for regulatory approval for nine EU territories later in 2017, following the anticipated UK approval in Q3 2017. We are excited about the opportunity to serve this unmet market, as there is no licensed treatment for nausea and vomiting of pregnancy in the UK, nor in most European markets. Extensive market research points to the large unmet need for such a treatment.

Build

Maximising and extending brand potential

Our portfolio has grown considerably to more than 90 products.   Naturally we focus our brand-building efforts where we see the greatest potential.

Our key international growth brands are Kelo-cote, MacuShield and Diclectin (to be launched). Kelo-cote grew by 24% to become our first £10m brand with China being it's largest market and we were delighted last year to sign a new agreement with our distributor there. Additionally we were also pleased to see good performance in other territories of the Asia Pacific region, where the market for advanced personal care products is strong and growing. MacuShield also performed well, growing from £3.5m in 2015 (11 months) to £5.3m in 2016. A feature common to both Kelo-cote and MacuShield is the two-pronged approach to promotion. We promote the advantages of the products to clinicians who give a recommendation to their patients to purchase the product from a retailer, where our consumer marketing ensures distribution and availability on the shelf.

At the national level, key products that are a focus for brand-building include: Hydromol for eczema (2016 sales £7.0m mainly in the UK, vs £6.6m in 2015), Aloclair™ for mouth ulcers, where the major markets are Italy and Spain (2016 total brand sales of £6.3m); Oxyplastine™ for nappy rash/eczema, where the major markets are France and N. Africa (2016 total brand sales £2.8m); and Ashton & Parsons for teething infants in the UK (2016 sales £2.0m vs £1.5m in 2015).

Finally, completing our portfolio is a bedrock of over 70 products that deliver stable and reliable sales without any significant promotional expenditure. These products are predominantly prescription medicines, occupying niche positions and are engrained into prescribing practice. 

We have greatly expanded the number of territories to which we distribute. Our teams are now exploring opportunities in countries where our brands are not currently sold, within the constraints of the regulatory environment, clinical practice and the competitive backdrop in those markets.

Delivering efficiency gains

Efficiency and operational capabilities are further core elements of our strategy to build value. As part of the integration of the acquired Sinclair products we have taken the opportunity to develop our internal structures to manage the expanded and more international business, and have brought in new functions and capabilities such as treasury and international tax management. The refurbishment of several of our offices will ensure we continue to provide an attractive working environment for our valued colleagues.

We are also embarking on the implementation of an ERP system, having evaluated the options with a highly skilled project team that included third party specialists. The ERP system will cover all of the Group's financial and supply chain planning and fulfilment activities, and we expect this to be operational in 2018.

Financial Review

Group performance

Group revenue for 2016 is more than double the prior year at £97.5m (2015: £48.3m). The ex-Sinclair products delivered sales of £43.8m and represented 45% of total sales, with the remaining Alliance portfolio performing strongly and delivering a sales increase of 13% to £53.7m for the year (2015: £47.5m).

Group sales were enhanced by approximately £4.2m due to the weakening of Sterling that occurred over the year, primarily against the Euro and US Dollar. However the effect on operating profits was much lower at approximately £0.6m due to the natural Euro hedge that exists, whereby Euro-denominated movements in sales are matched by corresponding movements in Euro-denominated cost of goods and operating costs.

Gross profit was up 91% to £54.8m (2015: £28.7m), giving a gross margin for the year of 56.3% (2015: 59.4%). The reduction to the margin on the rate achieved in 2015 was due to the change in sales mix in the expanded portfolio. We expect to maintain an average gross margin in the range of 55-60% of sales.

EBITDA increased to £26.0m from £12.9m (see note 3) representing a 102% increase. Operating expenses were £29.2m in 2016 against £16.3m (underlying) in 2015. The increase resulted from the full-year effect of the ex-Sinclair products' cost base and increased promotional support given to our key growth brands.

The tax charge for the year of £4.1m is based upon the prevailing tax rates in the relevant countries, after taking into account the impact of the planned reduction in the UK corporation tax rate on our deferred tax balances, and equates to an effective rate of 18.6%. The Group's underlying effective tax rate for 2016, in the absence of the UK tax rate reduction impact on deferred tax, was 22.0% which better reflects our effective tax rate forecast.

Diluted earnings per share grew by 11% to 3.82p (2015: 3.44p (underlying)). 

Working capital

The build-up of trade receivables and trade payables in 2016 was a result of the acquisition of the Sinclair Healthcare Products Business.

As such, trade receivables increased from £11.6m to £26.7m and trade payables increased from £13.9m to £22.0m. These increases primarily occurred in the first half of 2016 and have now stabilised.

Inventories increased over the period from £12.9m to £15.4m as a result of the strategic build-up of certain key products whilst they were transferred to new manufacturing partners.

Cash flow and net debt

The increase in cash and cash equivalents over the year was £4.0m.

The first half of 2016 was affected by the normalisation of working capital movements. Full year free cash flow (cash generation from operating activities less interest, tax and capital expenditure) was up 110% increasing to £13.0m (2015: £6.2m). Cash conversion was particularly good in the second half of the year with the generation of more than £10m of free cash flow.  

Net debt was £71.5m as at 31 December 2015, £79.0m as at 30 June 2016 and reducing to £76.1m as at 31 December 2016. This is despite the adverse translational effects on the conversion of US Dollar and Euro debt following the weakening of Sterling. Expressed at 31 December 2015 currency rates, net debt would have been £69.1m.

At the year-end, the adjusted net debt/EBITDA ratio was 2.8 times and comfortably below our banking covenant of 3.0 times.

We expect net debt and leverage to progressively reduce during 2017 driven by the Group's strong cash generation, including utilising our surplus US Dollar position, to service debt repayments.

In addition, as announced on 21 March 2017, the Group reached a settlement with Sinclair, in connection with the material reduction of business in Kelo-stretch, which was acquired in the prior year. The result of the settlement is a £5.0m cash payment to Alliance (£4.0m to be received before 30 April 2017 and £1.0m on or before 30 June 2018) and also the retained rights to Flammacerium (US) to be relinquished, with immediate effect. This will be treated as exceptional income in the 2017 financial statements and the cash element of the compensation will be used to reduce the Group's current bank loans.

The Group has a total bank facility of £100.0m of which £66.5m (2015: £65.0m) remains drawn on the Term Loan and £18.0m (2015: £10.0m) utilised from the Revolving Credit Facility (RCF) as at 31 December 2016. In addition to this facility, the Group also has access to a £4.5m overdraft which was undrawn at 31 December 2016.

External factors

Future currency movements are clearly an unknown. However the Group is broadly naturally hedged against movements in the Euro as our sales and costs are largely balanced, but we have some exposure to the US Dollar. We monitor this closely, and also keep a close eye on the possible implications of the UK leaving the EU. The balance of our business in both the UK and EU spreads our exposure, and it is important to note that our licences to trade are local to each member state. As previously mentioned, there is a trend that funders of prescription products are becoming increasingly budget-conscious. This is mitigated, to a certain degree, by the breadth of our portfolio, which includes a large and growing proportion of consumer products where pricing can move with the market.

Dividend

The Directors propose to maintain a progressive dividend policy and are recommending a final payment of 0.807p per ordinary share to give a total for the year of 1.21p. This represents an increase of 10% on 2015.

The final dividend will, subject to approval at the Company's AGM on 25 May 2017, be paid on 12 July 2017 to shareholders on the register on 16 June 2017.

The level of dividend cover in 2016 remained ample at over three times. The total dividend payment for 2016 will be approximately £5.7m including the £1.9m interim payment.

Outlook

We anticipate continued growth from our key international growth brands, Kelo-cote and MacuShield, where we have been strengthening our brand strategies and distribution arrangements. This will be supplemented by various growth initiatives that are being implemented for our key local brands in many territories.

The Group continues to generate good levels of free cash flow, as demonstrated by the £10.9m generated in H2 2016. The net debt/EBITDA ratio has reduced in Q1 and we project the downward progression to continue in 2017. This has been assisted by the funds to be received from Sinclair in relation to the Kelo-stretch settlement.

A major growth initiative is the launch of Diclectin to meet the unmet need for an approved treatment of nausea and vomiting of pregnancy. This depends on regulatory approval which is anticipated to be in Q3 2017 for the UK and approximately one year later for our other EU territories.

We look forward to building on our foundations: an attractive, balanced portfolio, an expanded geographical footprint and a strong team. 

Consolidated Income Statement

				Year ended 31 December 2016			Year ended 31 December 2015
		Underlying	Non-Underlying (note 4)	Total	Underlying	Non-Underlying (note 4)	Total
	Note	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s
Revenue		97,492	-	97,492	48,344	-	48,344
Cost of sales		(42,643)	-	(42,643)	(19,614)	-	(19,614)
Gross profit		54,849	-	54,849	28,730	-	28,730
Operating expenses
Administration and marketing expense		(28,842)	-	(28,842)	(15,833)	(1,846)	(17,679)
Share-based employee remuneration		(696)	-	(696)	(615)	-	(615)
Share of joint venture profits		299	-	299	194	-	194
		(29,239)	-	(29,239)	(16,254)	(1,846)	(18,100)
Operating profit/(loss) excluding exceptional item Exceptional compensation income	4	25,610 -	- -	25,610 -	12,476 -	(1,846) 6,332	10,630 6,332
Operating profit		25,610	-	25,610	12,476	4,486	16,962
Finance costs
Interest payable and similar charges	5	(4,195)	-	(4,195)	(1,698)	(273)	(1,971)
Finance income	5	804	-	804	191	-	191
		(3,391)	-	(3,391)	(1,507)	(273)	(1,780)
Profit before taxation		22,219	-	22,219	10,969	4,213	15,182
Taxation	6	(4,127)	-	(4,127)	(1,375)	(1,115)	(2,490)
Profit for the year attributable to equity shareholders		18,092	-	18,092	9,594	3,098	12,692
Earnings per share
Basic (pence)	8	3.85		3.85	3.52		4.65
Diluted (pence)	8	3.82		3.82	3.44		4.55

Consolidated Statement of Comprehensive Income

			Year ended  31 December 2016	Year ended   31 December 2015
			£000s	£000s
Profit for the period			18,092	12,692
Other comprehensive income Items that may be reclassified to profit or loss
Net foreign exchange gain on investment in foreign subsidiaries (net of hedged items)			2,076	32
Interest rate swaps - cash flow hedge (net of deferred tax)			(221)	5
Total comprehensive income for the period			19,947	12,729

 

Consolidated Balance Sheet

			31 December 2016		31 December 2015
	Note		£000s		£000s
Assets
Non-current assets
Goodwill and intangible assets	9		264,833		249,832
Property, plant and equipment			1,806		1,013
Joint Venture investment			1,464		1,465
Joint Venture receivable			1,462		1,462
Deferred tax asset			1,709		956
Other non-current assets			180		122
			271,454		254,850
Current assets
Inventories			15,356		12,910
Trade and other receivables	10		26,706		11,630
Cash and cash equivalents	12		7,221		3,229
			49,283		27,769
Total assets			320,737		282,619
Equity
Ordinary share capital			4,726		4,682
Share premium account			109,594		108,308
Share option reserve			3,306		2,610
Reverse takeover reserve			(329)		(329)
Other reserve			(319)		(98)
Translation reserve			2,108		32
Retained earnings			60,177		47,237
Total equity			179,263		162,442
Liabilities
Non-current liabilities
Loans and borrowings	12		57,554		58,968
Other liabilities			1,817		1,496
Deferred tax liability			31,442		27,838
Derivative financial instruments			384		120
			91,197		88,422
Current liabilities
Bank overdraft	12		-		31
Loans and borrowings	12		25,782		15,776
Corporation tax			2,543		2,075
Trade and other payables	11		21,952		13,873
			50,277		31,755
Total liabilities			141,474		120,177
Total equity and liabilities			320,737		282,619

Consolidated Statement of Changes in Equity

	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	4,682	108,308	2,610	(329)	(98)	32	47,237	162,442
Issue of shares	44	-	-	-	-	-	-	44
Share premium	-	1,286	-	-	-	-	-	1,286
Dividend paid	-	-	-	-	-	-	(5,152)	(5,152)
Share options charge	-	-	696	-	-	-	-	696
Transactions with owners	44	1,286	696	-	-	-	(5,152)	(3,126)
Profit for the period	-	-	-	-	-	-	18,092	18,092
Other comprehensive income
Interest rate swaps - cash flow hedge (net of deferred tax)	-	-	-	-	(221)	-	-	(221)
Foreign exchange translation differences	-	-	-	-	-	2,076	-	2,076
Total comprehensive income for the period	-	-	-	-	(221)	2,076	18,092	19,947
Balance 31 December 2016	4,726	109,594	3,306	(329)	(319)	2,108	60,177	179,263

Consolidated Cash Flow Statements

			Year ended 31 December 2016	Year ended  31 December 2015
	Note		£000s	£000s
Cash flows from operating activities
Cash generated from operations		13	19,957	9,836
Tax paid			(3,032)	(1,860)
Cash flows received from operating activities			16,925	7,976
Investing activities
Interest received			111	139
Dividend received			300	-
Development costs capitalised			(266)	(7)
Purchase of property, plant and equipment			(1,130)	(647)
Net assets acquired on acquisition			-	(221)
Loan to Joint Venture			(1,018)	-
Consideration on acquisitions			(1,289)	(133,629)
Deferred contingent consideration on acquisitions			(4,737)	-
Net cash (used in)/received from investing activities			(8,029)	(134,365)
Financing activities
Interest paid and similar charges			(2,822)	(1,163)
Loan issue costs			(326)	(1,174)
Proceeds from issue of shares			-	83,500
Costs incurred on issue of shares			-	(2,661)
Proceeds from exercise of share options			1,330	121
Dividend paid			(5,152)	(2,643)
Receipt from borrowings			8,000	80,500
Repayment of borrowings			(6,495)	(28,000)
Net cash received (used in)/from financing activities			(5,465)	128,480
Net movement in cash and cash equivalents			3,431	2,091
Cash and cash equivalents at the beginning of the period			3,198	1,020
Exchange gains on cash and cash equivalents			592	87
Cash and cash equivalents at the end of the period	12		7,221	3,198

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2016 or 31 December 2015. The auditors reported on those accounts; their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2016 have not yet been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2015 were delivered to the Registrar of Companies as published on the Group's website on 28 April 2016.

2. Segmental reporting

Operating segments

The Group is engaged in single business activity of pharmaceuticals. The Group's pharmaceutical business consists of the marketing and sales of acquired products. The Group's Board of Directors ("the Board") is the Group's Chief Operating Decision Maker (CODM), as defined by IFRS 8, and all significant operating decisions are taken by the Board. In assessing performance, the Board reviews financial information on an integrated basis for the Group as a whole, substantially in the form of, and on the same basis as, the Group's IFRS financial statements. During the financial year, one of the key activities undertaken has been the integration of the brands and companies acquired from Sinclair Pharma plc. The form of reporting provided to the Board has necessarily evolved as required while this integration process was ongoing.

Geographical information

The following revenue information is based on the geographical location of the customer:

			Year ended 31 December 2016	Year ended 31 December 2015
			£000s	£000s
United Kingdom			49,411	39,444
Rest of Europe			29,006	3,240
Rest of the World			19,075	5,660
Statutory Revenue			97,492	48,344

3. Profit before taxation

Profit before taxation is stated after charging/(crediting):

	Year ended 31 December 2016	Year ended 31 December 2015
	£000	£000
Fees payable to the Company's auditor for the audit of the Company's annual accounts	25	-
Fees payable by the Group to the Company's auditor for other services:
- The audit of the financial statements of subsidiaries	103	-
Fees payable to the Company's previous auditor for the audit of the Company's annual accounts	-	63
Fees payable by the Group to the Company's previous auditor for other services:
- The audit of the financial statements of subsidiaries	-	50
- Audit-related assurance services	-	9
- All other taxation advisory services	-	67
- All services relating to corporate finance transactions (either proposed or entered into) by or on behalf of the Company or any of its associates	-	356
Amortisation of intangible assets	92	199
Share options charge	696	615
Depreciation of plant, property and equipment	337	239
Operating lease rentals - land and buildings	383	100
Research and development	91	12
Gain on foreign exchange transactions	(693)	(52)

As referred to above, "EBITDA" is defined by the CODM as:

		31 December 2016		31 December 2015
Reconciliation of EBITDA		£000s		£000s
Profit before tax		22,219		15,182
Non-underlying items (note 4)		-		(4,213)
Financing costs (note 5)		3,391		1,507
Depreciation		337		239
Amortisation		92		199
Total		26,039		12,914

4.   Non-underlying and exceptional items

Non-underlying items are those significant items which the Directors consider, by their nature, are not related to the normal trading activities of the Group. They are therefore separately disclosed as their significant, non-recurring nature does not allow a true understanding of the Group's underlying financial performance. One-off items relating to acquisitions e.g. acquisition costs and the costs of restructuring post-acquisition are shown as non-underlying.  Exceptional items, including settlements and impairments of intangible assets, are also shown as non-underlying items.

The non-underlying and exceptional items relate to the following:

	Year ended 31 December 2016	Year ended 31 December 2015
	000s	£000s
a)    Acquisition costs	-	1,846
b)    Exceptional compensation income	-	(6,332)
c)    Charge in respect of loan settlement	-	273
	-	(4,213)

a)    Costs related to the acquisition of the Healthcare Products Business from Sinclair Pharma plc in December 2015 amounted to £1.8m.  The main costs included legal and professional fees of £1.2m and staffing costs of £0.5m.

b)    The exceptional income related to £6.7m compensation received from Sanofi Pasteur, net of £0.4m associated costs, for the suspension of ImmuCyst production.

c)     The charge in respect of the loan settlement related to the release of £0.3m prepaid loan issue costs on the £18m loan repaid on 17 December 2015.

In the prior year Annual Report, the unwinding/fair value movement in relation to deferred consideration was treated as non-underlying. It is considered to be an underlying activity, therefore treated as such in the current year and comparative.

5. Finance costs

	Year ended 31 December 2016	Year ended 31 December 2015
	£000s	£000s
Interest payable and similar charges
On loans and overdrafts	(2,868)	(1,116)
Amortised finance issue costs	(358)	(378)
Notional interest	(969)	(477)
	(4,195)	(1,971)
Interest income	111	139
Other finance income
Foreign exchange movements	693	52
	693	52
Finance costs - net	(3,391)	(1,780)

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

6. Taxation

Analysis of the charge for the period is as follows:

		Year ended         31 December 2016	Year ended          31 December 2015
		£000s	£000s
Corporation tax
In respect of current period		3,552	2,977
Adjustment in respect of prior periods		32	-
		3,584	2,977
Deferred tax (see note 22)
Origination and reversal of temporary differences		539	(398)
Adjustment in respect of prior periods		4	(89)
Taxation		4,127	2,490

The difference between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

	Year ended  31 December 2016	Year ended  31 December 2015
	£000s	£000s
Profit before taxation	22,219	15,182
Profit before taxation multiplied by standard rate of corporation tax in the United Kingdom of 20% (2015: 20.25%)	4,444	3,074
Effect of:
Non-deductible expenses	376	429
Non-taxable income	(60)	(39)
Adjustment in respect of prior periods	36	(89)
Impact of reduction in UK tax rate on deferred tax liability	(755)	(827)
Differing tax rates on overseas earnings	205	54
Share options	(133)	(175)
Other differences	14	63
Total taxation	4,127	2,490

Changes to the UK corporation tax rate were announced in Finance Act (No 2) 2015 and Finance Act 2016, reducing the UK's main rate to 17% from 1 April 2020. As the change was substantively enacted at the balance sheet date the effect is included in these financial statements.

7. Dividends

	Year ended  31 December 2016			Year ended  31 December 2015
	Pence/share	£000s		Pence/share	000s
Amounts recognised as distributions to owners in the year
Interim dividend for the prior financial year	0.366	1,714		0.333	880
Final dividend for the prior financial year	0.734	3,438		0.667	1,763
	1.100	5,152		1.000	2,643
Interim dividend for the current financial year	0.403	1,904		0.366	1,714

The proposed final dividend of 0.807 pence per share for the current financial year was approved by the Board of Directors on 27 March 2017 and is subject to the approval of shareholders at the Annual General Meeting.  The proposed dividend has not been included as a liability as at 31 December 2016 in accordance with IAS 10 Events After the Balance Sheet Date. The interim dividend for the current financial year was paid on 12 January 2017.  Subject to shareholder approval, the final dividend will be paid on 12 July 2017 to shareholders on the register of members on 16 June 2017.

8. Earnings per share (EPS)

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue 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:

			Year ended 31 December 2016	Year ended 31 December 2015
Basic EPS calculation			469,423,814	272,729,247
Employee share options			4,824,605	6,322,550
Diluted EPS calculation			474,248,419	279,051,797

The adjusted basic EPS is intended to demonstrate recurring elements of the results of the Group before exceptional items.  A reconciliation of the earnings used in the different measures is given below:

			Year ended 31 December 2016	Year ended 31 December 2015
			£000s	£000s
Earnings for basic EPS			18,092	12,692
Non-underlying: Exceptional items			-	(6,332)
Other non-underlying items			-	2,119
Tax effect of non-underlying items			-	1,115
For adjusted EPS			18,092	9,594

The resulting EPS measures are:

			Year ended 31 December 2016	Year ended 31 December 2015
			Pence	Pence
Basic EPS			3.85	4.65
Diluted EPS			3.82	4.55
Adjusted basic EPS			3.85	3.52
Adjusted diluted EPS			3.82	3.44

9. Goodwill and intangible assets

	Goodwill	Brands and distribution rights	Development costs	Assets under development	Total
The Group	£000s	£000s	£000s	£000	£000s
Cost
At 1 January 2016	15,922	235,824	438	1,500	253,684
Additions	-	2,339	266	1,000	3,605
Fair value adjustments	275	-	-	-	275
Exchange adjustments	-	11,213	-	-	11,213
At 31 December 2016	16,197	249,376	704	2,500	268,777
Amortisation and impairment
At 1 January 2016	-	3,852	-	-	3,852
Amortisation for the year	-	92	-	-	92
At 31 December 2016	-	3,944	-	-	3,944
Net book amount
At 31 December 2016	16,197	245,432	704	2,500	264,833
At 1 January 2016	15,922	231,972	438	1,500	249,832

The following acquisition activities took place in the year:

·      On 12 September 2016, the Group entered a further Licence and Supply Agreement for the product Diclectin with Duchesnay Inc. Alliance acquired UK rights to Diclectin in January 2015 and this additional agreement secures rights to launch the product in a further nine EU countries including Germany, France and Italy.  The consideration recognised in relation to this is £1.0m. This amount is included within assets under development and will be amortised when the product is ready for launch. UK approval is pending with the UK's regulatory body, the Medicines and Healthcare products Regulatory Agency, with this anticipated to be in mid-2017. Following UK approval, certain other EU territories are forecast for approval in 2018.

·      On 27 October 2016, the Group secured the distribution rights on additional territories for MacuShield.  The consideration recognised in relation to this is £2.3m and the distribution rights are for a period of ten years which the balance will therefore be amortised over.

10. Trade and other receivables

	31 December 2016	31 December 2015
	£000s	£000s
Trade receivables	20,530	8,783
Other receivables	1,788	1,062
Prepayments and accrued income	2,110	525
Amounts owed by       Joint Venture	2,278	1,260
	26,706	11,630

11. Trade and other payables - current

	31 December 2016	31 December 2015
	£000s	£000s
Trade payables	5,655	1,153
Other taxes and social security costs	1,030	905
Accruals and deferred income	11,125	5,663
Other payables	1,120	728
Deferred consideration for acquisitions	3,022	5,026
Amounts due to Joint Ventures	-	398
	21,952	13,873

12. Loans and borrowings

	31 December 2016	31 December 2015
Current	£000s	£000s
Bank loans due within one year or on demand:
Secured	26,000	16,000
Finance issue costs	(218)	(224)
	25,782	15,776

	31 December 2016	31 December 2015
Non-current	£000s	£000s
Bank loans:
Secured	58,478	59,918
Finance issue costs	(924)	(950)
	57,554	58,968

 

Reconciliation of net debt		31 December 2016		31 December 2015
		£000s		£000s
Loans and borrowings - current		(25,782)		(15,776)
Loans and borrowings - non-current		(57,554)		(58,968)
Cash and cash equivalents		7,221		3,229
Bank overdraft		-		(31)
Total		(76,115)		(71,546)

The Group has a total committed bank facility of £100.0m (31 December 2015: £100.0m) maturing in November 2020 of which £65m is drawn as term loan and £35m is available to draw down through a Revolving Credit Facility ('RCF').  The RCF is repayable within one to three months and therefore included within current liabilities.

The bank facility is secured by a fixed and floating charge over the Company's and Group's assets.

13. Cash generated from operations

	Group			Company
	Year ended 31 December 2016 £000s	Year ended 31 December 2015 £000s		Year ended 31 December 2016 £000s	Year ended 31 December 2015 £000s
Profit before taxation	22,219	15,182		3,459	1,571
Interest payable and similar charges	4,195	1,971		-	-
Interest income	(111)	(139)		(3,983)	(2,097)
Other finance costs	(693)	(52)		-	-
Depreciation of property, plant and equipment	337	239		-	-
Amortisation of intangibles	92	199		-	-
Change in inventories	(2,446)	(6,996)		-	-
Share of post-tax Joint Venture profits	(299)	(194)		-	-
Change in trade and other receivables	(14,116)	(3,308)		(93)	(1)
Change in trade and other payables	10,083	2,319		(412)	388
Share based employee remuneration	696	615		696	615
Cash generated from operations	19,957	9,836		(333)	476

As referred to above, "free cash flow" is defined by the CODM as:

		31 December 2016		31 December 2015
Reconciliation of free cash flow		£000s		£000s
Cash generated from operations		19,957		9,836
Financing costs		(2,822)		(1,163)
Capital expenditure		(1,130)		(647)
Tax paid		(3,032)		(1,860)
Total		12,973		6,166

 

END

 

 

FR GUGDXDXDBGRC