Interim Results

RNS Number : 0426M

Alliance Pharma PLC

12 September 2012

 



For immediate release

12 September 2012

 

 

 

ALLIANCE PHARMA PLC

("Alliance" or the "Company")

Interim results for the six months ended 30 June 2012

Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2012.

Highlights of the year to date:

·      Half year sales £22.0m (H1 2011: £24.4m)

·      Underlying sales growth of 2%, excluding Deltacortril^TM

·      Half year profit before tax £5.3m (H1 2011: £7.0m)

·      Underlying pre-tax profit growth of 16%, excluding Deltacortril

·      Basic earnings per share for the half year 1.80p (H1 2011: 2.38p)

·      Interim dividend up 10% to 0.275p per share (H1 2011: 0.25p)

·      Net bank debt reduced to £14.3m (31 December 2011: £18.4m)

·      Acquisition of anti-malarial brands from AstraZeneca UK Ltd in August 2012

·      First stage of Continental expansion underway

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

"We are pleased with the underlying performance in the first half year.  We have an attractive and robust portfolio, which, boosted by the product acquisitions we have made over the past 12 months, gives us plenty of scope for driving organic sales growth. We remain well placed to fund further acquisitions and we have substantially broadened our search for targets to include opportunities on the Continent. We are confident that Alliance will continue to make solid progress."

For further information:

Alliance Pharma plc	+ 44 (0) 1249 466966
John Dawson, Chief Executive
Richard Wright, Finance Director
www.alliancepharma.co.uk
Buchanan	+ 44 (0) 20 7466 5000
Mark Court / Fiona Henson / Sophie Cowles
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

In the first half of 2012 we delivered growth in underlying sales and profits and benefited from robust cash generation.  We also made progress with our acquisition strategy, resulting in the purchase of three products from AstraZeneca UK in August. This acquisition was particularly important as it gives Alliance a foothold in continental Europe, part of a strategy to significantly increase the number of acquisition opportunities.

Underlying sales (excluding the previously highlighted decline in Deltacortril) in the first half were up 2% on the same period in 2011 and underlying pre-tax profits were up 16%.  Total sales were £22.0m (H1 2011: £24.4m) and total pre-tax profits were £5.3m (H1 2011: £7.0m). Hydromol^TM grew particularly well, recording growth of 28% in the first half. Our healthy cash flows have allowed us both to make further reductions in net debt and to increase the interim dividend by 10%.

Sales of Deltacortril / enteric coated prednisolone now appear to have stabilised at a run rate of around £2m per annum, following the decline seen in early 2011 after the launch of a second generic competitor and changes in clinical preference.

As discussed over the past 18 months we have seen increased competition in Ireland for Nu-Seals^TM, our enteric-coated low-dose aspirin. Also, as announced in June, Sanofi Pasteur has suspended production of the ImmuCyst^TM bladder cancer treatment, with production expected to resume by late 2013.

In August 2011 we acquired the antimalarial brands Paludrine^TM, Avloclor^TM and Savarine^TM from AstraZeneca for an initial consideration of £4.2m with a further sum payable over the next three years not expected to exceed £1m.  These brands are sold mainly in the UK and France and are expected to contribute around £1.1m per annum to our operating profit.

Financial performance

Sales and operating profit showed improvement on the previous six months as the business returned to growth, demonstrating our recovery from the rapid Deltacortril decline of 2011. Sales increased from £21.6m in H2 2011 to £22.0m in H1 2012 and pre-tax profit increased over the same period from £3.7m to £5.3m.

Compared with the first half of 2011, total sales were down by 10% at £22.0m - reflecting the substantially greater benefit that we were still receiving from Deltacortril at the start of 2011; however, the underlying business, excluding Deltacortril, achieved year-on-year growth of 2%. Continued growth in Hydromol and the benefits of the 2011 acquisitions more than offset the reduction in Nu-Seals sales and the impact of the ImmuCyst production issue.

Gross margin has stabilised after a period of decline caused largely by the reducing contribution from higher-margin Deltacortril sales in the product mix. The gross margin rate in the first half of 2012 was 54.0%, compared with 56.8% in the first half of 2011 and 53.3% in the whole of 2011.

Total administration and marketing expenses were virtually unchanged from a year earlier as our programme of cost savings offset inflationary pressures. We have pursued savings across all areas of activity; as expected, the greatest economies came from the supply chain, particularly from retendering distribution contracts.

Operating profit was £6.0m (H1 2011: £7.8m) and pre-tax profit was £5.3m (H1 2011: £7.0m).  Excluding the Deltacortril gross margin, underlying operating profit increased by 10% and underlying pre-tax profit by 16%.

Continued healthy cash flows enabled us to make further reductions in net bank debt - down from £18.4m to £14.3m over the period. This resulted in a further modest reduction in financing costs, from £0.8m in H1 2011 to £0.7m in H1 2012. The debt/EBITDA ratio reduced to 1.32, from 1.41 at the end of 2011. The cash generated in the first half year effectively funded the acquisition of the anti-malarial products from AstraZeneca in August.

Products and marketing

The interruption to the production of ImmuCyst, which we license from Sanofi Pasteur for distribution in the UK and Ireland, is particularly frustrating because we had been achieving significant sales growth with this product. By May this year, the moving annual sales total had reached £4.4m, representing annual growth of 18% and making ImmuCyst one of our largest products.

Our organic sales growth continues to be led by our dermatology product Hydromol. This increased sales by 28% in the first half, to £2.2m (H1 2011:£1.7m).

This year we have seen increased competition for Nu-Seals, our enteric-coated low-dose aspirin, which is sold mainly in the Irish Republic. The single existing competitor was joined by two new generic competitors and as a result Nu-Seals sales were down from £2.8m in the first half of 2011 to £2.1m in the same period in 2012.  In July 2012 the Irish Government published draft legislation intended to introduce both generic substitution and reference pricing and as a result we expect sales to fall back further over the next 12 months.

As previously announced, our distribution contract for nine Novartis products will cease at the end of this year, although we are due to receive a termination payment.

In 2011 we acquired a total of 10 products in three separate deals. These products between them brought annualised sales of around £5m.  They include some very interesting consumer brands, such as Anbesol^TM for pain caused by mouth ulcers or teething and Quinoderm^TM for acne. These brands have a strong heritage and bring with them the potential for growth.

Dividend

Our confidence in the business remains strong. Indeed, the evident resilience of the business confirms that our progressive dividend policy is soundly based. We therefore propose to pay an increased interim dividend of 0.275p, up 10% on last year's interim payment.  This interim dividend remains well covered by after-tax earnings.  The interim dividend will be paid on 15 January 2013 to shareholders on the register on 7 December 2012.

Strategy

Alliance acquires and licenses established products with stable sales in niche areas. While most of these require little or no promotional support, we actively market a small number of products with clear growth potential. These account for less than a fifth of our sales. We have two field forces, focused on dermatology and specialist hospital products, and have scope for economies of scale when we bring in products that these teams can promote alongside the existing ones. Following the ImmuCyst production issue, we are re-evaluating the use of the specialist hospital team, whose focus for the time being has shifted to other products within the portfolio. 

We currently generate just under a fifth of our sales outside the UK, and have ambitions to diversify the business by significantly increasing this proportion - primarily through increased sales in Western Europe. For most of our existing portfolio, the opportunities for expanding international sales are limited: as long-established products occupying well-defended niches, they would have to dislodge similarly well-entrenched competitors elsewhere at disproportionate cost.

Our international strategy is therefore to replicate the model that has proved so effective in the UK by acquiring established products in overseas markets. Our extensive research across Europe indicates that other Western European countries are well suited to this approach.

Our newly acquired anti-malarial products give us a useful foothold in France, where they are already well established with annual sales of about £1m. We have also recently appointed two country managers to develop opportunities and sales on the Continent: one will cover France and the other Germany, Austria and Switzerland. Their remit is to reinforce our continuing search for acquisition targets in those countries, advise on the deals and build the resulting businesses.

Team

As part of our international strategy outlined above, in August we announced the appointment of two country managers to drive the development of product portfolios in Western Europe through acquisition.

Dr Philippe Pasdelou, country manager for France, has considerable experience of managing pharmaceutical companies in France and other countries - including establishing a company with a similar business model to ours. His new role includes managing sales of our newly-acquired anti-malarial brands in France.

Lars Börger, country manager for Germany, Switzerland and Austria, has experience across a number of pharmaceutical and medical device companies in both strategic and operational roles. He was most recently Director Licensing with Grünenthal.

Outlook

In terms of headwinds, the temporary absence of ImmuCyst will clearly be a constraint until it returns and we know that the Irish Government plans to enact legislation enabling generic substitution in the next few months that may increase the impact of competition on Nu-Seals. Against this, Hydromol is growing well and we are set to benefit from the upswing in sales of our cyclical toxicology product, which will be going through the peak of its replacement cycle over the next 12 months.

We have an attractive and robust portfolio, which, boosted by the product acquisitions we have made over the past 12 months, gives us plenty of scope for driving organic sales growth. We remain well placed to fund further acquisitions and we have broadened our search for targets to include opportunities on the Continent. We are confident that Alliance will continue to make solid progress.

Consolidated Income Statement

For the six months ended 30 June 2012

		6 months to 30 June 2012	6 months to 30 June 2011	Year to 31 December 2011
	Note	£ 000s	£ 000s	£ 000s
Revenue		22,004	24,390	45,957
Cost of sales		(10,129)	(10,529)	(21,469)
Gross profit		11,875	13,861	24,488
Operating expenses
Administration and marketing expense		(5,446)	(5,468)	(11,235)
Amortisation of intangible assets		(251)	(462)	(735)
Share-based employee remuneration		(198)	(93)	(179)
		(5,895)	(6,023)	(12,149)
Operating profit		5,980	7,838	12,339
Finance costs
Interest paid		(707)	(805)	(1,600)
Interest income		2	2	2
Foreign exchange rate movement		32	(38)	(29)
		(673)	(841)	(1,627)
Profit on ordinary activities before taxation		5,307	6,997	10,712
Taxation	4	(974)	(1,347)	(2,076)
Profit for the period attributable to equity shareholders		4,333	5,650	8,636
Earnings per share
Basic (pence)	7	1.80	2.38	3.62
Diluted (pence)	7	1.69	2.21	3.39

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

		6 months to 30 June 2012	6 months to 30 June 2011	Year to 31 December 2011
		£ 000s	£ 000s	£ 000s
Profit for the period		4,333	5,650	8,636
Interest rate swaps - cash flow hedge		1	1	22
Deferred tax on interest rate swap		-	-	(6)
Total comprehensive income for the period		4,334	5,651	8,652

Consolidated balance sheet

At 30 June 2012

		30 June 2012	30 June 2011	31 December 2011
	Note	£ 000s	£ 000s	£ 000s
Assets
Non-current assets
Intangible fixed assets		66,120	62,375	66,130
Property, plant and equipment		663	811	765
		66,783	63,186	66,895
Current assets
Inventories		4,622	5,402	5,652
Trade and other receivables	5	9,288	8,387	8,660
Cash and cash equivalents		3,161	1,368	1,079
		17,071	15,157	15,391
Total assets		83,854	78,343	82,286
Equity
Ordinary share capital		2,407	2,394	2,401
Share premium account		24,982	24,815	24,866
Share option reserve		621	337	423
Reverse takeover reserve		(329)	(329)	(329)
Other reserve		(3)	(19)	(4)
Retained earnings		19,301	13,785	16,771
Total equity		46,979	40,983	44,128
Liabilities
Non-current liabilities
Long-term financial liabilities		12,725	13,550	15,225
Convertible debt		4,352	4,447	4,460
Other liabilities		19	40	40
Derivative financial instruments		-	8	-
Deferred tax liability		4,067	3,871	4,064
Provisions for other liabilities and charges		433	387	510
		21,596	22,303	24,299
Current liabilities
Cash and cash equivalents		1	1,480	1
Financial liabilities		4,750	4,000	4,250
Corporation tax		973	504	1,046
Trade and other payables	6	9,372	8,667	8,367
Derivative financial instruments		5	19	6
Provisions for other liabilities and charges		178	387	189
		15,279	15,057	13,859
Total liabilities		36,875	37,360	38,158
Total equity and liabilities		83,854	78,343	82,286

Consolidated Statement of Cash Flows

For the six months ended 30 June 2012

		6 months to 30 June 2012	6 months to 30 June 2011	Year to 31 December 2011
		£ 000s	£ 000s	£ 000s
Operating activities
Result for the period before tax		5,307	6,997	10,712
Interest payable		707	805	1,504
Interest receivable		(2)	(2)	(2)
Other finance costs		(32)	38	124
Profit on disposal of intangibles		-	-	(50)
Depreciation of property, plant and equipment		137	132	263
Amortisation of intangible assets		251	462	735
Change in inventories		1,030	(858)	(1,109)
Change in trade and other receivables		(628)	1,303	1,078
Change in trade and other payables		(307)	(3,330)	(1,780)
Tax paid		(1,044)	(1,497)	(1,496)
Share options charge		198	93	179
Cash flows from operating activities		5,617	4,143	10,158
Investing activities
Interest received		2	2	2
Payment of deferred consideration		(20)	(1,120)	(2,120)
Development costs capitalised		(66)	-	(203)
Net proceeds from sale of intangible assets		-	-	102
Purchase of property, plant and equipment		(35)	(55)	(140)
Purchase of other intangible assets		(175)	(2,550)	(6,475)
Net cash used in investing activities		(294)	(3,723)	(8,834)
Financing activities
Interest paid and similar charges		(648)	(729)	(1,439)
Loan issue costs		(26)	(26)	(65)
Proceeds from exercise of share options		-	123	182
Dividend paid		(600)	(401)	(1,359)
Receipt from borrowings		-	2,550	6,475
Repayment of borrowings		(2,000)	(4,000)	(6,000)
Net cash used in financing activities		(3,274)	(2,483)	(2,206)
Net movement in cash and cash equivalents		2,049	(2,063)	(882)
Cash and cash equivalents at beginning of period		1,078	1,989	1,989
Exchange losses on cash and cash equivalents		33	(38)	(29)
Cash and cash equivalents at end of period		3,160	(112)	1,078

Consolidated Statement of Changes in Equity

At 30 June 2012

	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 2011	2,361	24,331	244	(329)	(20)	9,494	36,081
Issue of shares	40	535	-	-	-	-	575
Dividend paid	-	-	-	-	-	(1,359)	(1,359)
Employee benefits	-	-	179	-	-	-	179
Transactions with owners	40	535	179	-	-	(1,359)	(605)
Profit for the period	-	-	-	-	-	8,636	8,636
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	22	-	22
Deferred tax on interest rate swap	-	-	-	-	(6)	-	(6)
Total comprehensive income for the period	-	-	-	-	16	8,636	8,652
Balance 31 December 2011	2,401	24,866	423	(329)	(4)	16,771	44,128
Balance 1 January 2011	2,361	24,331	244	(329)	(20)	9,494	36,081
Issue of shares	33	484	-	-	-	-	517
Dividend 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
Total comprehensive income for the period	-	-	-	-	1	5,650	5,651
Balance 30June 2011	2,394	24,815	337	(329)	(19)	13,785	40,983
Balance 1 January 2012	2,401	24,866	423	(329)	(4)	16,771	44,128
Issue of shares	6	116	-	-	-	-	122
Dividend payable/paid	-	-	-	-	-	(1,803)	(1,803)
Employee benefits	-	-	198	-	-	-	198
Transactions with owners	6	116	198	-	-	(1,803)	(1,483)
Profit for the period	-	-	-	-	-	4,333	4,333
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	1	-	1
Total comprehensive income for the period	-	-	-	-	1	4,333	4,334
Balance 30 June 2012	2,407	24,982	621	(329)	(3)	19,301	46,979

Notes to the interim report

For the six months ended 30 June 2012

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 and is un-audited. A copy of the statutory accounts for the period ended 31 December 2011, 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 2012 (including comparatives for the six months ended 30 June 2011) was approved by the Board of Directors on 11September 2012.

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 2011 Annual Report. The Annual report is available on the company's website at www.alliancepharma.co.uk.

4          Taxation

Analysis of charge in period.

	30 June 2012	30 June 2011	31 December 2011
	£ 000s	£ 000s	£ 000s
United Kingdom corporation tax at 25%/27%/26.5%
In respect of current period	971	1,504	2,046
Adjustment in respect of prior periods	-	(225)	(225)
Current tax	971	1,279	1,821
Deferred tax	3	68	255
Taxation	974	1,347	2,076

5          Trade and other receivables

	30 June 2012	30 June 2011	31 December 2011
	£ 000s	£ 000s	£ 000s
Trade receivables	8,761	7,958	8,152
Other receivables	49	36	147
Prepayments and accrued income	400	376	331
Amounts owed by joint venture	78	17	30
	9,288	8,387	8,660

Notes to the interim report (continued)

For the six months ended 30 June 2012

6          Trade and other payables

	30 June 2012	30 June 2011	31 December 2011
	£ 000s	£ 000s	£ 000s
Trade payables	1,132	597	1,194
Other taxes and social security costs	996	955	864
Accruals and deferred income	5,366	5,092	6,168
Other payables	675	1,065	141
Dividend payable	1,203	958	-
	9,372	8,667	8,367

7          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 2012	6 months to 30 June 2011	Year ended 31 December 2011
	Weighted average number of shares 000s	Weighted average number of shares 000s	Weighted average number of shares 000s
For basic EPS	240,430	237,415	238,602
Share options	2,733	2,366	2,752
Conversion of Convertible Unsecured Loan Stock (CULS)	20,887	21,467	21,467
For diluted EPS	264,050	261,248	262,821

Notes to the interim report (continued)

For the six months ended 30 June 2012

7          Earnings per share (EPS) (continued)

	6 months to 30 June 2012	6 months to 30 June 2011	Year ended 31 December 2011
	£ 000s	£ 000s	£ 000s
Earnings for basic EPS	4,333	5,650	8,636
Interest saving on conversion of CULS	175	180	361
Tax effect of interest saving on conversion of CULS	(43)	(47)	(94)
Earnings for diluted EPS	4,465	5,783	8,903

The resulting EPS measures are:

	6 months to 30 June 2012	6 months to 30 June 2011	Year ended 31 December 2011
	Pence	Pence	Pence
Basic EPS	1.80	2.38	3.62
Diluted EPS	1.69	2.21	3.39

8          Dividends

		6 months to 30 June 2012					6 months to 30 June 2011			Year ended 31December 2011
			Pence/share	£ 000s			Pence/share		£ 000s		Pence/share £ 000s
	Amounts recognised as distributions to owners in the year
	Interim dividend for the prior financial year		0.25			600	0.17	401		0.17		401
	Final dividend for the prior financial year		-			-	-	-		0.40		958
	Proposed final dividend for the prior financial year		0.50			1,203	0.40	958		-		-
					1,803			1,359				1,359

The proposed final dividend for the prior financial year was approved by the Board of Directors on 21 March 2012 and subsequently by the shareholders at the Annual General Meeting on 23 May 2012. The proposed dividend has been included as a liability as at 30June 2012 in accordance with IAS 10 Events After the Balance Sheet Date. The proposed final dividend for the prior financial year was paid on 12 July 2012 to shareholders who were on the register of members at 15 June 2012.

9          Post balance sheet events

The Group acquired the antimalarial brands Paludrine, Avloclor and Savarine from AstraZeneca UK Limited on 1 August 2012 for an initial consideration of £4.2 million, and may pay a further sum over the next three years, which is not expected to exceed £1.0 million, dependent on sales of the brands.

The initial consideration was funded from existing cash and bank facilities, including a £2 million drawdown from the Group's £20 million Revolving Credit Facility ("RCF"), and any deferred consideration will be funded from future cash generation.

The acquired products are sold mainly in the UK and France.

The Group expects the acquired products to generate incremental contribution before financing costs of approximately £1.1 million per annum.

 

END

 

 

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