Preliminary Results
Alliance Pharma PLC
14 March 2008
For immediate release 14 March 2008
ALLIANCE PHARMA PLC
('Alliance' or 'the Group')
Preliminary results for the year ended 31 December 2007
Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is
pleased to announce its preliminary results for the year ended 31 December 2007.
Financial Highlights
• Sales up 6% to £18.2m (2006: £17.3m)
• Operating profit* up 39% to £3.6m (2006: £2.6m)
• Step change in profitability mid-year, with £1.1m pre-tax profit* in the
second half of 2007
• Full year pre-tax profit* of £0.4m (2006: £0.5m)
• Cash flow from operations of £4.1m (2006: £1.1m)
• Non-cash impairment charge of £3.4m in respect of Posidorm(R)
*Before exceptional items
Operational Highlights
• Acquisition of Forceval(R) rights in China through new joint venture
• Successful completion of Phase III trial for Isprelor(R), with
encouraging reaction from potential prescribers
• Strategy implemented to increase profitability and cash generation
• Mid-year reorganisation reduced overheads by more than £1m annually
Commenting on the results, Michael Gatenby, Alliance's Chairman, said: 'We are
greatly encouraged by the speed and effectiveness of the turnaround in the
second half of 2007. Following the decisive action we took, Alliance has
delivered the best six months' performance in its history. The current year has
begun well. Provided there is no unexpected setback on pricing, we are confident
that the improved profitability achieved in the second half of 2007 will be
sustainable through 2008.'
For further information:
Alliance Pharma plc + 44 (0) 1249 466966
John Dawson, Chief Executive
Richard Wright, Finance Director
www.alliancepharma.co.uk
Buchanan Communications + 44 (0) 20 7466 5000
Mark Court / Rebecca Skye Dietrich /
Catherine Breen
Numis Securities + 44 (0) 20 7260 1000
David Poutney / Michael Meade / Nick Westlake
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
Business Review
After a difficult first half of the year caused by supply issues, the decisive
action we took to restore profitability proved highly effective. In the second
half of 2007, the Group delivered the best six months' performance in its
history. Turnover in the second half was £10.4m, up £2.6m on the first half, and
pre-tax profit, before exceptional items, was a record £1.1m in the second half,
helped by additional Forceval(R) sales as wholesalers and pharmacies restocked.
As a result, full-year turnover was £18.2m, a 6% increase on the previous year
(2006: £17.3m). Pre-tax profit, before exceptional items, was in line with
expectations at £0.4m (2006: £0.5m) despite the £0.7m trading loss announced at
the half-year.
However, the reported result for the full year is affected by two exceptional
items. In accordance with international accounting standards, we had been
capitalising the development costs of Posidorm(R), our unique formulation of
melatonin for sleep disorders. Following our decision to put the development of
Posidorm(R) on hold until we have a co-development partner, we have concluded
that it is no longer appropriate to continue carrying these costs on the balance
sheet. We have therefore written off these costs through a one-off £3.4m charge
to the profit and loss account. This is an accounting charge only and has no
impact on the Group's cash position. Securing a co-development partner for
Posidorm(R) is still a top priority within Alliance.
The other exceptional item is a £0.2m charge relating to reorganisation costs as
part of the strategic changes announced at the half-year.
As a result of these two exceptional charges, the reported result for the year
is a loss of £3.2m (2006: £0.5m profit). However, the strong second-half
performance gives a clear indication of what the new strategy is capable of
delivering in 2008.
Strategy
At the start of 2007 it became clear that a change in regulatory procedure would
add significantly to the time and cost involved in obtaining registration for
Posidorm(R). We also experienced supply problems with three of our products,
which cost us an estimated £1m of sales in the first half.
Given the immediate impact on sales and the longer-term deferral of prospective
income from Posidorm(R), we shifted the emphasis of our strategy to maximise
near-term profitability and cash generation in the trading business.
We have suspended development of Posidorm(R) until we have a co-development
partner, although work continues unabated on Isprelor(R), our other development
product.
In our trading business we implemented a cost reduction programme involving a
reduction in marketing expenditure, rationalisation of our sales forces and 11
redundancies across our operations.
This prompt action removed more than £1m per annum of marketing and
administration costs and pre-marketing spend on development products. The
benefit was evident in the second-half performance. We are satisfied that our
current structure and cost base will be sustainable for the foreseeable future.
Our product acquisition strategy has always been to seek out brands that have
established demand and cash flows. As a result, reducing our marketing spend has
had a relatively modest impact on ongoing sales. We will continue to operate on
this basis. Where it is profitable to put more marketing weight behind
individual brands we will consider gain-share arrangements similar to our
successful partnership with Pharmexx, Europe's largest contract sales
organisation, which is developing new sales channels in the UK for two of our
larger brands, Forceval(R) and Hydromol(R).
Our fastest-growing brand, Hydromol(R), has sustained its growth rate under this
new strategy. Reducing support for Periostat(R), another of our major brands,
has slowed its growth but sharply increased profitability. Overall, the
remainder of our brands continue to be very resilient.
Our strategy now puts increased emphasis on the trading portfolio as a driver of
future growth and profits. Our business model is fully scalable and we continue
to seek opportunities to acquire brands with potential to enhance our
profitability by generating additional sales volumes through our existing
infrastructure.
These efforts should benefit from the rationalisation of cost bases being
undertaken by the larger pharmaceutical players as a result of falling R&D
productivity and increased pricing pressure. This creates acquisition
opportunities for us as these companies divest older products that no longer fit
with their global strategies. Our Business Development Director is in regular
contact with companies across the Industry to identify suitable candidate
products.
Trading business
The supply chain problems that held back sales in the first half of 2007 are now
largely resolved: Forceval(R) came back into stock in September; Deltacortril(R)
production is now rapidly approaching demand levels; and Atarax(R) should be
back in supply shortly.
For the year as a whole, gross margins were down on the previous year at 49.0%
(2006: 53.5%). This reduction was mainly the result of a change in the mix of
sales, but also partly due to a 20% price reduction that was temporarily imposed
on Nu-Seals(R) in the Republic of Ireland before being reversed.
Exports accounted for 32% of sales in 2007 and our products are now sold in 20
countries. The most important development in 2007 was the acquisition of
Forceval(R) rights in China from the Administrator of Unigreg Ltd, via a joint
venture with the brand's existing Chinese distributor. Alliance has a 60% share
of the joint venture, with the balance held by the distributor. The joint
venture took over shipments from April 2007 and sales have developed
satisfactorily through the year. Our joint venture with the local distributor
provides a potential sales platform for additional products to be sold into
China and we are currently working to identify gaps in the local market that we
may be able to fill.
Following the Office of Fair Trading report into the Pharmaceutical Price
Regulation Scheme (PPRS), published in February 2007, the UK Department of
Health announced in August 2007 that it wished to renegotiate the terms of the
ongoing 2005 PPRS Agreement only two years into its agreed five-year term.
Discussions are expected to conclude in mid-2008, and until then the industry
faces an unwelcome period of pricing uncertainty. We continue to lobby that any
impact of additional NHS savings should not be borne by older products, such as
many of Alliance's, which have already been subjected to several decreases in
the past and where their cost to the NHS is usually lower than the prescription
charge.
Development business
Development of Isprelor(R), for induction of labour, continues as planned. In
July it successfully completed Phase III clinical trials which confirmed that
Isprelor(R) has similar effectiveness to the current standard treatment,
dinoprostone. It is as well tolerated as the standard treatment, and has the
advantages of being less likely to cause nausea and not requiring refrigerated
storage.
Following discussions with the regulatory authorities we are currently
performing certain studies connected with the formulation of Isprelor(R) which
will increase the robustness of our application for registration. As a result,
we expect to file in early 2009, with first royalty revenues likely to flow in
early 2010. We are currently in advanced discussions with potential distribution
partners for Isprelor(R) across the EU.
We remain convinced that Posidorm(R) has considerable potential and we will
continue to search vigorously for a route to complete its development
cost-effectively.
It remains part of our strategy to seek out late-stage development projects with
potential to boost our medium and long term performance over and above the
growth of our trading portfolio alone. Our approach to investment will remain
cautious for the foreseeable future, and we would be most likely to develop such
products in partnership. Additionally we are also discussing some opportunities
to act as marketing partner on projects that offer attractive growth prospects.
Outlook
We are greatly encouraged by the speed and effectiveness of the turnaround in
the second half of 2007. Modest sales growth can be expected, and the improved
balance between sales and costs has enhanced our inherent profitability and the
rate of cash generation.
The current year has begun well. Provided that the PPRS review delivers no
unexpected setback on pricing, we are confident that the improved profitability
achieved in the second half of 2007 will be sustainable through 2008.
Michael Gatenby John Dawson
Chairman Chief Executive
14 March 2008 14 March 2008
Financial Review
Turnover
Turnover in 2007 was £18.2m, up 6% on the previous year (2006: £17.3m). This was
Alliance's seventh successive year of turnover growth, during which time sales
have trebled.
This growth was achieved despite the supply difficulties in the first half of
the year costing an estimated £1m of sales. Sales in the second half of the year
were £10.4m, up £2.6m on the first half, although the second half was helped by
additional sales of Forceval(R) as wholesalers and pharmacies replenished their
stocks when supplies became available.
Profit
The gross margin for the year was 49.0%, compared with 53.5% in 2006. Margins
were adversely affected in the first half of the year by a number of temporary
effects, including a 20% price reduction that was imposed on Nu-Seals(R) in the
Republic of Ireland, though this was reversed in July. Margins recovered
somewhat in the second half, although they remain below the 2006 level as result
of a change in the mix of sales.
Pre-exceptional operating expenses were down 20% year on year. This was partly
as a result of reduced activity on the development side of the business
following the suspension of activity on Posidorm(R) at the start of the year and
partly as a result of the cost reduction programme that was implemented
mid-year. This exercise reduced the overhead base by more than £1m per annum at
a one-off cost of £0.2m.
Before exceptional items, the operating profit for 2007 was £3.6m, up 39% on
2006, and profit before tax was £0.4m compared with £0.5m in 2006. As a result
of improved sales, better margins and reduced overheads, profitability (before
exceptional items) was substantially better in the second half of the year, with
operating profit at £2.9m for the six months and profit before tax at £1.1m.
First Second 2007 2006 Year
half half 2007 Year
2007
£m £m £m £m
Turnover 7.8 10.4 18.2 17.3
Gross profit 3.6 5.3 8.9 9.2
47.1% 50.4% 49.0% 53.5%
Operating expenses* (2.9) (2.4) (5.3) (6.6)
Operating profit* 0.7 2.9 3.6 2.6
Financing costs* (1.4) (1.8) (3.2) (2.1)
Profit before tax* (0.7) 1.1 0.4 0.5
Adjusted basic EPS (0.86p) 1.31p 0.23p 0.32p
(annualised)
*Before exceptional items
Exceptional items
Exceptional items for 2007 comprised a £0.2m charge for the mid-year
restructuring programme and a £3.4m non-cash impairment charge in respect of
Posidorm(R). Following our decision to put development of Posidorm(R) on hold
until we have a co-development partner, we have concluded that it is no longer
appropriate to continue carrying these costs on the balance sheet. We have
therefore written these costs off through a one-off £3.4m charge to the profit
and loss account. This is an accounting charge only and has no impact on the
Group's cash position
Financing costs
Net interest payable increased from £2.2m in 2006 to £2.8m in 2007 as a result
of the additional debt used to finance the latest acquisitions and higher
interest rates. The weakening of Sterling against the Euro in 2007 led to a
£0.22m cost on re-translation of the Euro-denominated debt against a £0.06m gain
in 2006. There was a £0.03m charge from movement in the fair value of interest
rate hedges compared with a £0.11m credit in 2006. Net financing costs for 2007
were £3.2m (2006: £2.1m).
Earnings per share
The adjusted basic EPS for 2007 was 0.23p (2006: 0.32p), depressed by the weaker
first half year performance. Illustrating the step change in performance since
the mid-year, the adjusted basic EPS for the second half of the year was 1.31p
on an annualised basis.
Cash flow
With the substantially improved pre-exceptional operating profit of £3.6m and a
small net working capital inflow, cash flow from operations in 2007 was £4.1m,
compared with £1.1m in 2006.
The amount reinvested in development projects during 2007 was £0.8m, down from
£1.9m in the previous year following the suspension of work on Posidorm(R).
Intangible assets
The acquisition of Forceval(R) rights in China takes intangible assets in
respect of product licences to £35.5m at the year end. In addition, there is
£2.6m on the balance sheet for Isprelor(R) development costs.
Funding and risk management
The £2.0m investment in Forceval(R) rights in China was funded by bank debt,
taking total bank loans to £23.5m as at 31 December 2007. Over the year there
was a net reduction in overdraft of £0.2m.
The Group uses interest rate swaps to reduce the risk arising from changes in
interest rates and the Convertible Unsecured Loan Stock is at a fixed coupon.
Approximately 65% of the gross debt is now subject to fixed interest rates. A
portion of the debt is denominated in Euros as a hedge against the currency risk
on revenue from the Republic of Ireland and mainland Europe.
Consolidated Income Statement
For the year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
Note £000s £000s
Revenue 18,224 17,253
Cost of sales (9,291) (8,022)
Gross profit 8,933 9,231
Operating expenses
Administration and marketing expense (5,333) (6,595)
Share-based employee remuneration 10 (34)
(5,323) (6,629)
Operating profit before exceptional 3,610 2,602
items
Exceptional items 3 (3,576) -
Operating profit 34 2,602
Finance costs
Interest paid (2,859) (2,171)
Interest income 17 16
Other finance costs (372) (65)
Change in fair value of derivative (30) 110
financial instruments
(Loss)/profit on ordinary activities (3,210) 492
before taxation
Taxation - 11
(Loss)/profit for the year attributable (3,210) 503
to equity shareholders
(Loss)/profit for the year attributable (3,210) 503
to equity shareholders
Earnings per share
Basic and diluted (pence) 2 (1.98) 0.32
Consolidated Balance Sheet
For the year ended 31 December 2007
31 December 31 December
2007 2006
Note £000s £000s £000s £000s
Assets
Non-current assets
Goodwill 1,144 1,129
Intangible assets
- Product licences 4 35,457 33,316
- Development costs 4 2,559 5,017
Property, plant and 254 297
equipment
39,414 39,759
Current assets
Inventories 1,881 2,852
Trade and other 5 4,439 5,224
receivables
Cash and cash 672 232
equivalents
6,992 8,308
Total assets 46,406 48,067
Equity
Ordinary share capital 1,621 1,621
Share premium account 11,275 11,275
Share option reserve 55 65
Reverse takeover reserve (329) (329)
Other reserve (546) -
Retained earnings (5,410) (2,200)
Total equity 6,666 10,432
Liabilities
Non-current liabilities
Long term financial 21,772 18,452
liabilities
Convertible debt 7,251 7,209
Other liabilities 520 940
Derivative financial 431 -
instruments
29,974 26,601
Current liabilities
Cash and cash 3,062 2,839
equivalents
Financial liabilities 1,716 3,031
Trade and other payables 6 4,873 5,164
Derivative financial 115 -
instruments
9,766 11,034
Total liabilities 39,740 37,635
Total equity and 46,406 48,067
liabilities
Consolidated statement of changes in shareholders' equity
For the year ended 31 December 2007
Share Share Shares to Other Retained Total
be
Capital premium issued Reserves Reserve earnings equity
£000s £000s £000s £000s £000s £000s £000s
Balance at 1 January 1,621 11,275 65 (329) - (2,200) 10,432
2007
Interest rate swaps - - - - - (546) - (546)
cash flow hedge
Net expense recognised - - - - (546) - (546)
directly in equity
Loss for the year - - - - - (3,210) (3,210)
Total recognised income
and expense for the year
Employee benefits - - (10) - - (10)
Balance at 31 December 1,621 11,275 55 (329) (546) (5,410) 6,666
2007
Balance at 1 January 1,474 9,031 31 (329) - (2,703)
2006
Profit for the year - - - - - 503 503
Total recognised income - - - - - 503 503
and expense for the year
Issue of shares 147 - - - - - 147
Premium on shares issued - 2,244 - - - - 2,244
Employee benefits - - 34 - - - 34
Balance at 31 December 1,621 11,275 65 (329) - (2,200) 10,432
2006
Consolidated Cash Flow Statement
For the year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
Note £000s £000s
Cash flows from operating activities
Cash generated from operations 7 4,064 1,110
Tax refund - 11
Cash flows from operating activities 4,064 1,121
Investing activities
Interest received 106 17
Payment of deferred consideration (220) (20)
Development costs capitalised (776) (1,941)
Purchase of property, plant and equipment (100) (128)
Proceeds from sales of property, plant 13 12
and equipment
Purchase of other intangible assets (2,156) (6,814)
Net cash used in investing activities (3,133) (8,874)
Financing activities
Net proceeds from the issue of shares - 2,390
Interest paid and similar charges (2,361) (2,030)
Loan issue costs (303) (133)
Other finance charges paid - (1)
Receipt from borrowings 1,950 6,536
Repayment of borrowings - (705)
Finance lease payments - (12)
Net cash received from/used in financing (714) 6,045
activities
Net movement in cash and cash equivalents 217 (1,708)
Cash and cash equivalents at the (2,607) (899)
beginning of the period
Cash and cash equivalents at the end of (2,390) (2,607)
the period
1. Basis of preparation
The financial information set out in the announcement does not constitute the
group's statutory accounts for the years ended 31 December 2007 or 31 December
2006. The financial information for the year ended 31 December 2006 is derived
from the statutory accounts for that year which have been delivered to the
Registrar of Companies as published on the group's website on 17 April 2007.
The auditors reported on those accounts; their report was unqualified and did
not contain a statement under s.237(2) or (3) Companies Act 1985. The statutory
accounts for the year ended 31 December 2007 will be finalised on the basis of
the financial information presented by the directors in this preliminary
announcement. They have not yet been delivered to the Registrar of Companies nor
have the auditors reported on them.
2. 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:
Year ended Year ended
31 December 2007 31 December
2006
For basic EPS calculation 162,061,774 156,662,902
Share options - 34,664
For diluted EPS calculation 162,061,774 156,697,566
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 Year ended
31 December 2007 31 December
2006
Earnings for basic and diluted EPS (3,210) 503
Exceptional items 3,576 -
For adjusted earnings per share 366 503
The resulting EPS measures are:
Year ended Year ended
31 December 2007 31 December
2006
Pence Pence
Basic EPS (1.98) 0.32
Diluted EPS (1.98) 0.32
Adjusted basic EPS 0.23 0.32
3. Exceptional items
Year ended Year ended
31 December 2007 31 December
2006
£000s £000s
Posidorm(R) impairment charge 3,374 -
Restructuring costs 202 -
3,576 -
In the absence of confirmed funding to complete the Posidorm(R) development,
development costs that had been capitalised in relation to the project have been
written off. The restructuring costs arose out of the strategic review conducted
mid-year.
4. Intangible assets
Trademarks
and Subtotal
of
Purchased Technical distribution product Development
goodwill Know-how rights licences costs Total
£ 000s £ 000s £ 000s £ 000s £ 000s £ 000s
Cost
At 1 January 2007 2,669 14,296 16,351 33,316 5,137 38,453
Additions - 159 1,982 2,141 916 3,057
At 31 December 2007 2,669 14,455 18,333 35,457 6,053 41,510
Amortisation and
impairment
At 1 January 2007 - - - - 120 120
Impairment charge - - - - 3,374 3,374
At 31 December 2007 - - - - 3,494 3,494
Net book amount
At 31 December 2007 2,669 14,455 18,333 35,457 2,559 38,016
At 1 January 2006 2,669 14,296 16,351 33,316 5,017 38,333
Trademarks
and Subtotal
of
Purchased Technical distribution product Development
goodwill Know-how rights licences costs Total
£ 000s £ 000s £ 000s £ 000s £ 000s £ 000s
Cost
At 1 January 2006 2,669 10,827 12,005 25,501 3,196 28,697
Additions - 3,469 4,346 7,815 1,941 9,756
At 31 December 2006 2,669 14,296 16,351 33,316 5,137 38,453
Amortisation and
impairment
At 1 January 2006 - - - - 120 120
At 31 December 2006 - - - - 120 120
Net book amount
At 31 December 2006 2,669 14,296 16,351 33,316 5,017 38,333
At 1 January 2005 2,669 10,827 12,005 25,501 3,076 28,577
5. Trade and other receivables
31 December 2007 31 December
2006
£000s £000s
Trade receivables 4,102 4,671
Other receivables 107 104
Prepayments and accrued income 230 449
4,439 5,224
6. Trade and other payables - current
31 December 2007 31 December
2006
£000s £000s
Trade payables 2,151 3,298
Other taxes and social security costs 352 496
Accruals and deferred income 1,930 1,150
Amount owed to joint venture 20 -
Other payables 420 220
4,873 5,164
7. Cash generated from operations
Year ended Year ended
31 December 31 December
2007 2006
£ 000s £ 000s
Result for the year before tax (3,210) 492
Interest paid 2,859 2,171
Interest income (17) (16)
Other finance costs 372 65
Change in fair value of derivative 30 (110)
financial instruments
Depreciation of property, plant and 138 112
equipment
Change in inventories 971 (112)
Profit on disposal of fixed assets (8) (12)
Change in trade and other receivables 785 (2,189)
Change in trade and other payables (1,220) 675
Write-off intangible assets 3,374 -
Share options charges (10) 34
Cash flows from operating activities 4,064 1,110
This information is provided by RNS
The company news service from the London Stock Exchange
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