Interim Results

RNS Number : 7559N

Alliance Pharma PLC

07 September 2011

 



For immediate release

7 September 2011

 

 

 

ALLIANCE PHARMA PLC

("Alliance Pharma" or "Alliance" or "the Company")

Interim results for the six months ended 30 June 2011

Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2011.

Highlights of the year to date:

·      Half year sales £24.4m (H1 2010: £23.4m)

o  Strong underlying sales growth of 29% (excluding Deltacortril™)

·      Half year operating profit £7.8m (H1 2010: £9.0m before exceptional items)

·      Half year profit before tax £7.0m (H1 2010: £6.0m)

·      Basic earnings per share for the half year 2.38p (H1 2010: 1.97p)

·      Interim dividend up 47% to 0.25p per share (H1 2010: 0.17p)

·      Net bank debt / EBITDA ratio remains at just 0.9 times

·      Acquisition of Anbesol™ and Ashton & Parsons™ in April 2011 for £2.6m

·      Acquisition of six products from Beacon Pharmaceuticals for £2.4m announced today - see separate release

Commenting on the results, Michael Gatenby, Alliance Pharma's Chairman, said:

"We are pleased to have delivered growth in sales and pre-tax profits in the first half of the year despite the additional Deltacortril competition. The 47% increase in dividend demonstrates our continued confidence in the long-term cash-generating ability of our business.

"We are delighted with the two earnings-enhancing acquisitions announced so far this year and continue to assess further opportunities."

For further information:

Alliance Pharma plc	+ 44 (0) 1249 466966
John Dawson, Chief Executive Officer
Richard Wright, Finance Director
www.alliancepharma.co.uk
Buchanan Communications	+ 44 (0) 20 7466 5000
Mark Court / Jessica Fontaine
Numis Securities Limited	+ 44 (0) 20 7260 1000
Nominated Adviser: Michael Meade / Oliver Cardigan
Corporate Broking: David Poutney

Chairman's and Chief Executive's Statement

Alliance's results for the first half of 2011 have inevitably been impacted by the slowdown in Deltacortril / enteric coated prednisolone sales. But more importantly, they also confirm that the Deltacortril profits that we have enjoyed during the past two years have been put to good use. We have invested in expanding our brand portfolio while also reducing debt. As a result, the business is now stronger than ever. Our dermatology and oncology portfolios are both growing well. Indeed, excluding Deltacortril, over the past five years the whole business has grown at an annual average of 21%, of which 6% is organic and around 15% is from acquisitions.

As we have consistently communicated, the substantial income that Alliance received from surging sales of Deltacortril over the past couple of years was not sustainable owing to the expected arrival of a second generic competitor. The competitor arrived in late 2010, which signalled a return to more moderate sales levels.

Our first-half sales for 2011 show a further increase on the same period last year, albeit a modest one. As already indicated by market forecasts, we do not expect to match 2010's exceptional financial performance this year but we are well placed to drive further growth through our continuing acquisition programme and through the organic growth of our promoted portfolio.

Financial performance

First-half sales grew in line with our expectations, up 4% year on year to £24.4m. Given that sales of Deltacortril were down by some £3.7m, this was a good performance (underlying sales growth excluding Deltacortril was 29%) that indicates the strength of the underlying business.

Despite the increase in sales, adjusted operating profit reduced by 13% to £7.8m. This was due largely to additional costs following the Cambridge Laboratories acquisition in February 2010 and a gross margin rate reduced by the changing product mix. With a declining share of higher-margin Deltacortril sales in the mix, the rate fell from 60.9% for 2010 to 56.8% in the first half of 2011.

Selling, general and administration (SG&A) costs increased ahead of inflation - up from £4.9m in H1 2010 to £5.5m.  Key factors were a full half-year of SG&A costs from Cambridge Laboratories, and a further modest uplift in promotional investment for Hydromol™, our primary dermatology product. This was rewarded by further strong sales growth for Hydromol.

The reported pre-tax profit increased by £1.0m.  After stripping out the £1.7m exceptional items of H1 2010, underlying pre-tax profit, however, decreased by £0.7m to £7.0m. This resulted from a combination of lower gross margin and increased costs. 

Our finance costs continue to fall significantly: down from £1.3m in H1 2010 to £0.8m this half year. This reduction was due primarily to the refinancing agreed with our bank in November last year and the consequent reduction in interest charges. Healthy cash flow has enabled us to continue paying down bank debt, although this was offset during the period by the cost of funding product acquisitions (£2.6m) and a £1.0m deferred payment for the Cambridge Laboratories acquisition. As a result, net bank debt increased slightly from £17.0m to £17.7m. The net bank debt / EBITDA ratio remains very strong at just 0.9 times.

Investors have continued to show their confidence in the business by converting the convertible loan stock into equity. A further £0.4m of the outstanding stock was converted during the period, bringing the total outstanding down to £4.5m. This has further reduced our finance costs, as the stock pays a fixed coupon of 8%.

Dividend

Our confidence in the business has been reinforced by its resilient performance even as the Deltacortril boost period comes to an end. We are therefore declaring an interim dividend of 0.25p per share - an increase of 47% on last year's interim dividend. This remains well covered by post-tax profits and reflects our progressive dividend policy.

Strategy

We continue to implement the strategy we adopted in 2007. We acquire or license established prescription products in niche areas where there is little or no competition. These products fit into two complementary portfolios. The majority, spread across a variety of therapeutic areas and currently accounting for about three-quarters of our sales, requires minimal promotional support and generates stable, predictable cash flows. A smaller 'promoted' portfolio in dermatology and oncology offers opportunities to grow sales through selective investment in promotion.

Cambridge Laboratories brought us a range of oncology products for the promoted portfolio and 15 others for the non-promoted portfolio. We completed its integration into the business last year, including rationalisation of staff and premises, and it is performing very much as we had expected.

In April we acquired two products from Reckitt Benckiser for £2.6m: Anbesol is used to treat mouth ulcers, teething pains and denture irritation, and Ashton & Parsons is used to relieve pain and stomach upset caused by teething in infants. Both products have maintained stable sales in the past few years with minimal promotion though, as we reported at the time of the acquisition, there are manufacturing issues with Ashton & Parsons which are likely to take around a year to resolve.  We believe the two products have interesting growth potential and expect the deal to enhance earnings this year. Initial demand levels have been promising.

Alongside these results we are also announcing the acquisition of six products from Beacon Pharmaceuticals Limited for £2.4m in cash.  The main product in this portfolio is Rizuderm™ (isotretinoin), which is used in the treatment of severe acne and fits well in Alliance's dermatology business.  This deal is also expected to make an immediate positive contribution.

We now have over 50 products and an appetite for more.  After completing 20 deals in 13 years, we are more active than ever in seeking further good quality acquisition opportunities.  We are seeing an increased flow of opportunities for appraisal, and are now widely recognised as a significant player in this field.  Potential vendors also recognise that the new borrowing facilities agreed with our bank in November 2010 enable us to acquire on a larger scale than hitherto, if the right opportunities arise.

As previously announced, Novartis has served notice to terminate in December 2012 a distribution agreement which commenced in 1998 covering nine brands which together generate around £0.5m per annum of gross margin.  The agreement provides for Alliance to receive some compensation following its termination.

Sales

The 4% sales increase was achieved despite a reduction in Deltacortril sales from £7.3m in H1 2010 to £3.6m in H1 2011. This decline was concentrated on the second quarter as the impact of the additional competition was felt more severely then, and was also caused by a reduction in the market size as prescribers were encouraged to switch away from the enteric-coated form of prednisolone to cheaper, uncoated tablets.  We therefore expect Deltacortril sales in the second half of the year to be lower than the first half.

Excluding Deltacortril, our other products increased sales by about £4.7m, representing growth of 29%.

This growth included a 26% uplift for Hydromol, a range of ointments and emollients which accounts for half our dermatology sales and is the main focus of our promotional investment.

Our oncology portfolio, acquired from Cambridge Laboratories, also grew strongly. In May we were pleased to renew the agreement under which we distribute ImmuCyst™ in the UK for Sanofi, for up to seven more years.  With annual sales of £3.8m, this bladder cancer treatment is the largest of the oncology products.  Our sales force has been marketing it successfully - like for like sales in the first half of this year were up 13% over the corresponding period of last year.  Sanofi's renewal of the agreement was a vote of confidence in our performance. The renewal triggered the release of deferred payments to Cambridge Laboratories relating to the acquisition.

Sales of our Nu-Seals™ enteric-coated aspirin were impacted by an across-the-board cut in pharmaceuticals prices required by the government in Ireland, Nu-Seals' principal market. Our contribution to an overall industry reduction of €140m a year was set at €0.7m for 2011. This effectively cut the sales value by 14%; but it was partly offset by volume growth in a flat market, as a competitor's stock problems enabled us to gain market share.  We remain cautious about the outlook for Nu-Seals over the next year or two as the Irish government continues to look at measures to reduce the medicines bill and as we now also expect additional competition in the enteric-coated aspirin market.

Charity

We continue to donate about £20,000 worth of products a year to International Health Partners, a charity that distributes medicines to doctors in the world's neediest areas.

Outlook

Our performance in the first half of 2011 benefited from two factors that will not recur in the second half: relatively strong Deltacortril sales in the first quarter, and a contribution from a long-cycle toxicology product. The Deltacortril boost has been valuable to us, helping us to invest in a strong platform for continued expansion. However, it did temporarily result in some distortion of the business. In 2010, Deltacortril accounted for some 25% of our total sales; by 2012, it may well be less than 10%.

Despite the market changes affecting Deltacortril, 2011 is still expected to be the second-best year in Alliance's history. The underlying business continues to grow well. We are profitable and have a strong, cash generative portfolio of products, a proven strategy and ample financial resources to support further acquisitions, a number of which we are pursuing at present.

Consolidated Income Statement

For the six months ended 30 June 2011

		6 months to 30 June 2011	6 months to 30 June 2010	Year to 31 December 2010
	Note	£ 000s	£ 000s	£ 000s
Revenue		24,390	23,357	49,881
Cost of sales		(10,529)	(9,075)	(19,483)
Gross profit		13,861	14,282	30,398
Operating expenses
Administration and marketing expense		(5,468)	(4,913)	(10,769)
Amortisation of intangible assets		(462)	(337)	(812)
Share-based employee remuneration		(93)	(13)	(128)
		(6,023)	(5,263)	(11,709)
Operating profit before exceptional items		7,838	9,019	18,689
Exceptional items	4	-	(1,715)	(1,715)
Operating profit		7,838	7,304	16,974
Finance costs
Interest paid		(805)	(1,457)	(2,410)
Interest income		2	3	7
Foreign exchange rate movement		(38)	118	75
Exceptional finance costs	4	-	-	(1,774)
		(841)	(1,336)	(4,102)
Profit on ordinary activities before taxation		6,997	5,968	12,872
Taxation	5	(1,347)	(1,671)	(3,918)
Profit for the period attributable to equity shareholders		5,650	4,297	8,954
Earnings per share
Basic (pence)	8	2.38	1.97	3.96
Diluted (pence)	8	2.21	1.79	3.64

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2011

		6 months to 30 June 2011	6 months to 30 June 2010	Year to 31 December 2010
		£ 000s	£ 000s	£ 000s
Profit for the period		5,650	4,297	8,954
Interest rate swaps - cash flow hedge		1	(62)	1,323
Deferred tax on interest rate swap		-	17	(371)
Total comprehensive income for the period		5,651	4,252	9,906

Consolidated balance sheet

At 30 June 2011

		30 June 2011	30 June 2010	31 December 2010
	Note	£ 000s	£ 000s	£ 000s
Assets
Non-current assets
Intangible fixed assets		62,375	60,762	60,287
Property, plant and equipment		811	580	888
		63,186	61,342	61,175
Current assets
Inventories		5,402	4,658	4,544
Trade and other receivables	6	8,387	8,413	9,690
Cash and cash equivalents		1,368	2,302	1,989
		15,157	15,373	16,223
Total assets		78,343	76,715	77,398
Equity
Ordinary share capital		2,394	2,315	2,361
Share premium account		24,815	23,492	24,331
Share option reserve		337	129	244
Reverse takeover reserve		(329)	(329)	(329)
Other reserve		(19)	(1,017)	(20)
Retained earnings		13,785	5,369	9,494
Total equity		40,983	29,959	36,081
Liabilities
Non-current liabilities
Long-term financial liabilities		13,550	20,159	15,000
Convertible debt		4,447	5,585	4,822
Other liabilities		40	61	60
Derivative financial instruments		8	887	13
Deferred tax liability		3,871	1,934	3,803
Provisions for other liabilities and charges		387	718	641
		22,303	29,344	24,339
Current liabilities
Cash and cash equivalents		1,480	1	-
Financial liabilities		4,000	3,824	4,001
Corporation tax		504	1,170	721
Trade and other payables	7	8,667	11,453	11,869
Derivative financial instruments		19	526	15
Provisions for other liabilities and charges		387	438	372
		15,057	17,412	16,978
Total liabilities		37,360	46,756	41,317
Total equity and liabilities		78,343	76,715	77,398

Consolidated Statement of Cash Flows

For the six months ended 30 June 2011

		6 months to 30 June 2011	6 months to 30 June 2010	Year to 31 December 2010
		£ 000s	£ 000s	£ 000s
Operating activities
Result for the period before tax		6,997	5,968	12,872
Interest payable		805	1,339	1,919
Interest receivable		(2)	(3)	(7)
Other finance costs		38	124	2,190
Depreciation of property, plant and equipment		132	61	178
Amortisation of intangible assets		462	337	812
Change in inventories		(858)	(1,685)	(1,571)
Change in trade and other receivables		1,303	(790)	(2,040)
Change in trade and other payables		(3,330)	2,558	3,623
Tax paid		(1,497)	(76)	(1,290)
Share options charge		93	13	128
Cash flows from operating activities		4,143	7,846	16,814
Investing activities
Interest received		2	3	7
Payment of deferred consideration		(1,120)	(20)	(20)
Purchase of property, plant and equipment		(55)	(509)	(934)
Purchase of other intangible assets		(2,550)	(13,167)	(14,264)
Net cash used in investing activities		(3,723)	(13,693)	(15,211)
Financing activities
Interest paid and similar charges		(729)	(1,451)	(1,919)
Termination of interest rate swaps		-	-	(1,145)
Proceeds from issue of shares		-	7,290	7,290
Loan issue costs		(26)	(100)	(480)
Proceeds from exercise of share options		123	110	196
Dividend paid		(401)	(136)	(668)
Receipt from borrowings		2,550	4,000	24,000
Repayment of borrowings		(4,000)	(1,948)	(27,278)
Net cash used in financing activities		(2,483)	7,765	(4)
Net movement in cash and cash equivalents		(2,063)	1,918	1,599
Cash and cash equivalents at beginning of period		1,989	421	421
Exchange losses on cash and cash equivalents		(38)	(38)	(31)
Cash and cash equivalents at end of period		(112)	2,301	1,989

Consolidated Statement of Changes in Equity

At 30 June 2011

	Ordinary	Share	Share	Reverse
	share	premium	option	takeover	Other	Retained	Total
	capital	account	reserve	reserve	reserve	earnings	equity
	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s
Balance 1 January 2010	1,933	14,674	116	(329)	(972)	1,208	16,630
Issue of shares	382	8,818	-	-	-	-	9,200
Dividend paid	-	-	-	-	-	(136)	(136)
Employee benefits	-	-	13	-	-	-	13
Transactions with owners	382	8,818	13	-	-	(136)	9,077
Profit for the period	-	-	-	-	-	4,297	4,297
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	(62)	-	(62)
Deferred tax on interest rate swap	-	-	-	-	17	-	17
Total comprehensive income for the period	-	-	-	-	(45)	4,297	4,252
Balance 30 June 2010	2,315	23,492	129	(329)	(1,017)	5,369	29,959
Balance 1 January 2010	1,933	14,674	116	(329)	(972)	1,208	16,630
Issue of shares	428	9,657	-	-	-	-	10,085
Dividend paid	-	-	-	-	-	(668)	(668)
Employee benefits	-	-	128	-	-	-	128
Transactions with owners	428	9,657	128	-	-	(668)	9,545
Profit for the period	-	-	-	-	-	8,954	8,954
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	1,323	-	1,323
Deferred tax on interest rate swap	-	-	-	-	(371)	-	(371)
Total comprehensive income for the period	-	-	-	-	952	8,954	9,906
Balance 31 December 2010	2,361	24,331	244	(329)	(20)	9,494	36,081
Balance 1 January 2011	2,361	24,331	244	(329)	(20)	9,494	36,081
Issue of shares	33	484	-	-	-	-	517
Dividend payable/paid	-	-	-	-	-	(1,359)	(1,359)
Employee benefits	-	-	93	-	-	-	93
Transactions with owners	33	484	93	-	-	(1,359)	(749)
Profit for the period	-	-	-	-	-	5,650	5,650
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	1	-	1
Deferred tax on interest rate swap	-	-	-	-	-	-	-
Total comprehensive income for the period	-	-	-	-	1	5,650	5,651
Balance 30 June 2011	2,394	24,815	337	(329)	(19)	13,785	40,983

Notes to the interim report

For the six months ended 30 June 2011

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 435 of the Companies Act 2006. A copy of the statutory accounts for the period ended 31 December 2010, prepared under International Financial Reporting Standards, has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified.

The interim financial report for the six month period ended 30 June 2011 (including comparatives for the six months ended 30 June 2010) was approved by the Board of Directors on 6 September 2011.

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 2010 Annual Report. The Annual report is available on the company's website at www.alliancepharma.co.uk.

4          Exceptional items

	30 June 2011	30 June 2010	31 December 2010
	£ 000s	£ 000s	£ 000s
Onerous contracts	-	1,266	1,266
Redundancy costs	-	449	449
	-	1,715	1,715
Termination of interest rate swaps and loan issue	-	-	1,774
	-	1,715	3,489

Leases and associated costs for offices in Newcastle and Dublin, acquired as part of the Cambridge Laboratories acquisition , have been treated as onerous contracts. As at 30 June 2010 an amount of £1.3m, discounted at a rate of 10%, representing payments due until the end of each contract had been recognised. The Dublin property lease ran until 2011 and the Newcastle property lease will run until 2015. An amount of £0.4m has also been recognised in relation to redundancy costs associated with the acquisition.

During 2010, the Group restructured its debt, extinguishing its current loans and swaps and replacing them with new. In accordance with IAS 39 the extinguishment method of accounting was used, as opposed to the substantial modification method, as the new terms of the debt restructure were deemed to be substantially different from the old.  As a result £1.8m was recognised in the income statement being consideration paid for the termination of the swaps and release of unamortised finance costs in relation to the previous loans in existence. As required by IAS39 as the new borrowings were with the same lender, these expenses were recognised through the income statement.

Notes to the interim report (continued)

For the six months ended 30 June 2011

5          Taxation

Analysis of charge in period.

	30 June 2011	30 June 2010	31 December 2010
	£ 000s	£ 000s	£ 000s
United Kingdom corporation tax at 27%/28%/28%
In respect of current period	1,504	1,187	1,936
Adjustment in respect of prior periods	(225)	-	-
Current tax	1,279	1,187	1,936
Deferred tax	68	484	1,982
Taxation	1,347	1,671	3,918

6          Trade and other receivables

	30 June 2011	30 June 2010	31 December 2010
	£ 000s	£ 000s	£ 000s
Trade receivables	7,958	8,030	9,139
Other receivables	36	120	55
Prepayments and accrued income	376	221	439
Amounts owed by joint venture	17	42	57
	8,387	8,413	9,690

7          Trade and other payables

	30 June 2011	30 June 2010	31 December 2010
	£ 000s	£ 000s	£ 000s
Trade payables	597	1,870	3,799
Other taxes and social security costs	955	1,531	1,109
Accruals and deferred income	5,092	4,745	4,841
Other payables	1,065	3,307	2,120
Dividend payable	958	-	-
	8,667	11,453	11,869

Notes to the interim report (continued)

For the six months ended 30 June 2011

 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 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:

	6 months to 30 June 2011	6 months to 30 June 2010	Year ended 31 December 2010
	Weighted average number of shares 000s	Weighted average number of shares 000s	Weighted average number of shares 000s
For basic EPS	237,415	217,778	226,115
Share options	2,366	4,937	4,503
Conversion of Convertible Unsecured Loan Stock (CULS)	21,467	27,141	23,339
For diluted EPS	261,248	249,856	253,957

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:

	6 months to 30 June 2011	6 months to 30 June 2010	Year ended 31 December 2010
	£ 000s	£ 000s	£ 000s
Earnings for basic EPS	5,650	4,297	8,954
Exceptional items	-	1,715	3,489
Tax effect of exceptional items	-	(480)	(977)
Earnings for adjusted EPS	5,650	5,532	11,466

	6 months to 30 June 2011	6 months to 30 June 2010	Year ended 31 December 2010
	£ 000s	£ 000s	£ 000s
Earnings for basic EPS	5,650	4,297	8,954
Interest saving on conversion of CULS	180	228	392
Tax effect of interest saving on conversion of CULS	(47)	(64)	(110)
Earnings for diluted EPS	5,783	4,461	9,236

	6 months to 30 June 2011	6 months to 30 June 2010	Year ended 31 December 2010
	£ 000s	£ 000s	£ 000s
Earnings for adjusted EPS	5,650	5,532	11,466
Interest saving on conversion of CULS	180	228	392
Tax effect of interest saving on conversion of CULS	(47)	(64)	(110)
Earnings for diluted adjusted EPS	5,783	5,696	11,748

Notes to the interim report (continued)

For the six months ended 30 June 2011

8          Earnings per share (EPS) (continued)

The resulting EPS measures are:

	6 months to 30 June 2011	6 months to 30 June 2010	Year ended 31 December 2010
	Pence	Pence	Pence
Basic EPS	2.38	1.97	3.96
Diluted EPS	2.21	1.79	3.64
Adjusted basic EPS	2.38	2.54	5.07
Diluted adjusted EPS	2.21	2.28	4.63

9          Acquisitions

In April 2011 Alliance Pharmaceuticals Limited acquired the UK and Irish rights to the brands Anbesol and Ashton & Parsons from a subsidiary of Reckitt Benckiser Group plc for £2.6m cash consideration. Anbesol is used to treat mouth ulcers, teething pains and denture irritation.  Ashton & Parsons is used in infants for the symptomatic relief of pain and stomach upset caused by teething.

In September 2011 Alliance Pharmaceuticals Limited acquired the UK marketing rights to six products from Beacon Pharmaceuticals Limited for £2.4m cash consideration.  The main product acquired is Rizuderm (Isotretinoin), which is used in the treatment of severe acne.

 

END

 

 

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