Interim Results
Alliance Pharma PLC
13 September 2006
For Immediate Release 13 September 2006
ALLIANCE PHARMA PLC
('Alliance Pharma' or 'the Company')
Interim Results for the six month period ended 30 June 2006
Alliance Pharma plc (AIM: APH), an emerging speciality pharmaceutical company,
is pleased to announce its interim results for the half year ended 30 June 2006.
Financial highlights
• Sales up 13.2% to £7.8m (compared with the six months to June 2005)
• Operating profit of £0.9m
• Pre-tax loss of £0.2m
• Strengthened investment in marketing growth products - up 22% to £1.2m
• Strengthened investment in development projects - up 16% to £2.3m
• Planned marketing investment and two short-term operational factors
adversely affected profits in the first half of the year
Operational highlights
• Development projects making good progress towards submission in 2007 and
2008
• Out-licensing discussions for development projects are ongoing
• Pre-marketing for development products includes successful international
symposium on melatonin
• Three acquisitions completed bringing critical mass to the dermatology
range:
o Hydromol: a range of emollients
o Dermamist: a spray for dry skin
o Atarax, Terra-Cortril and Deltacortril: acquired from Pfizer post
half-year
Commenting on the results, Michael Gatenby, Alliance Pharma's Chairman, said:
'We have made encouraging progress in implementing our strategy for sustainable
long-term growth. We acquired four new brands for our growth portfolio and
continued to broaden the distribution network for this segment. We also acquired
a further product for the core portfolio that generates cash for further
investment. In addition we advanced our two development projects towards their
planned submission.
'In the second half we expect sales to be stronger, with a return to
satisfactory profitability, and to have a significantly stronger trading
business supporting an increasing weight of investment in the development
products. This will position us for the next phase of our growth, as we make
progress towards our new product submissions in 2007 and 2008.'
For further information:
Alliance Pharma Plc + 44 (0) 1249 466 966
John Dawson, Chief Executive
Maddy Scott, Finance Director
www.alliancepharma.co.uk
Buchanan Communications + 44 (0) 207 466 5000
Mark Court/Lisa Baderoon/Rebecca Skye
Dietrich
Chairman's statement
In the first six months of 2006, and post the period end, we made encouraging
progress in implementing our strategy for sustainable long-term growth. We
acquired four new brands for our growth portfolio and continued to broaden the
distribution network for this segment. We also acquired a further product for
the core portfolio that generates cash for further investment. In addition we
advanced our two development projects towards their planned submission.
Given this good progress, it was disappointing that two short-term operational
issues slowed our sales growth and that, together with the planned increase in
marketing investment, this resulted in a modest loss for the half year. However,
these operational issues, the nature of which is described below, have now been
resolved and we believe we are on track to deliver full-year sales and profits
in line with expectations.
Financial performance
At the end of 2005 we changed our accounting year-end from 28 February to 31
December. The figures in this interim report are for the six months to 30 June
2006, and the comparative figures in this statement are for the six months to
June 2005.
Sales grew to £7.8m - a 13.2% increase on the corresponding period last year.
The overall increase would have been substantially greater, had it not been for
two temporary impacts. One was a stockout of Naseptin, caused by a manufacturing
problem; the other involved parallel imports into Ireland, which reduced sales
and margins. We believe the combined impact on sales was close to £300,000. This
was disappointing, but it is clear that these factors will not play a part in
future trading and that the underlying sales trend remains very strongly upward.
Costs rose by 48% to £3.3m as planned, constraining profits in the short term as
we substantially increased promotional investment behind our growth brands and
increased the pre-launch marketing activity associated with our development
projects. We are acutely aware of the need to maintain rigorous cost discipline,
but judge that these increases in spend are necessary as we expand our
infrastructure to manage additional products, grow sales and progress towards
launch of our development products.
Increased costs, combined with the temporary impact on sales growth, resulted in
a first-half loss of £0.2m. We anticipate this to be more than offset in the
second half, as sales resume their growth curve and we receive the additional
benefit of the marketing investment and product acquisitions made in the first
half.
It is useful to segment the Company into the underlying trading business,
covering our core and growth portfolios, and the development business, covering
the two development products. The trading business remains strongly profitable,
with a first-half operating profit of £2.1m. The investment of £0.9m in the
development business, accounted as a loss, reflects increasing expenditure as we
move closer to launch. The investment risk remains relatively low: Isprelor is
based on an already marketed molecule and Posidorm is a copy of a naturally
occurring hormone.
Six months to Ten months
to
Jun 06 Jun 05 Dec 05
£000 £000 £000
Trading company
Sales 7,801 6,893 12,276
Cost of sales 3,658 3,170 5,601
Gross margin 4,144 3,723 6,675
% 53.1% 54.0% 54.1%
Project costs 1,099 836 1,348
Overheads 905 642 1,639
Total selling, general 2,005 1,478 2,987
and administrative costs (SG&A)
Operating profit 2,139 2,246 3,688
% of sales 27.4% 32.6% 30.0%
Development projects
Project costs 462 195 600
Overheads 457 239 544
Total development spend 919 434 1,145
% of sales 11.8% 5.6% 9.3%
Unallocated overheads 359 309 604
Operating profit 861 1,503 1,939
In May we raised additional funding of £2.5m before expenses through a share
placing that was well supported by existing and new shareholders. This has given
us additional funding and flexibility as we move towards the regulatory filing
and launch of our development products.
Growth brands
Our growth portfolio is increasingly focused on dentistry and dermatology.
Overall sales in this segment grew 16% to £3.8m as we benefited from past
marketing investment and the acquisition of new products. Although sales of many
of the products in the portfolio have continued to increase, we have been
concentrating marketing investment this year on Periostat and the dermatology
products.
Our experience to date with Periostat has convinced us that it has excellent
growth potential and is continuing to build momentum. In May we reached
agreement in Italy with a leading local dental specialist company to distribute
and market Periostat, and in the second half we expect to gain approval to
launch it in Turkey in 2007. We are stepping-up marketing in the UK; in Europe
and further afield we are revitalising existing distribution arrangements and
pursuing new ones. So far this year we have invested more in marketing the
product than it has earned in revenues, and we expect to reap increasing benefit
from this investment.
Core brands
Our core brands, which do not receive promotional support, continued to provide
stable cash flows to underpin our growth and development portfolios. This
relatively stable cash generation underpins our strategy, supports our debt and
allows us to run an optimally leveraged operation.
Brand acquisitions
This year we have given the dermatology portfolio real critical mass. In
February we acquired the Hydromol range of prescription emollients, which is
increasing sales at over 30% in a market growing by 10% a year. In May we
acquired Caraderm, whose primary product is Dermamist, a spray for dry skin
conditions. After the Hydromol acquisition we expanded and reorganised the sales
force into separate dermatology and dental teams. We will continue to enlarge
our sales capability, at a pace that can be funded out of ongoing sales growth.
In July, at the beginning of the current half year, we acquired the UK rights to
three products from Pfizer: Atarax, for itchy skin disorders, is growing at 11%
a year and joins our growth portfolio; Deltacortril, for a wide range of
steroid-responsive conditions, joins our core portfolio; and we plan to relaunch
Terra-Cortril, which has been off the market for 18 months but has been much in
demand from burns units.
Development brands
We have made substantial progress on our development programmes and are
continuing the pre-launch marketing of both products among clinical opinion
leaders. This included investment in a highly successful symposium on melatonin
at the Royal Society of Medicine in London, which attracted a wide range of
international experts in care of the elderly, neurology, occupational health and
ophthalmology.
Isprelor, an intravaginal tablet of misoprostol for induction of labour, is
planned to complete its Phase III clinical trial programme in 2006, allowing
submission in 2007.
Posidorm, a novel surge-sustained tablet of melatonin for sleep disorders, is on
track to finish development in 2007, allowing submission in early 2008.
We are progressing discussions on outlicensing both products in Europe. We also
continue to look for additional low-risk development opportunities where the
therapeutic proof of principle has been established and we can undertake the
final development to registration.
People
In June we were pleased to announce the appointment of Andrew Smith as our third
non-executive director. Andrew brings us extensive international experience of
the pharmaceutical, biotechnology and medico-marketing services sectors, gained
in senior positions at companies including SmithKline Beecham, Cerebrus and
Parexel International. His knowledge will be particularly valuable to us as we
roll-out our development projects.
Investor relations
We recognise the importance of communicating effectively with our investors,
both institutional and retail. In particular, we wish to ensure understanding of
the interrelationship between the two components of the company: the trading
business and the development business. In the year to date we have held three
conferences for investors and the financial media, and we will continue to
explain and update our story as it progresses.
Outlook
In the second half we expect sales to be stronger with a return to satisfactory
profitability and to have a significantly stronger trading business supporting
an increasing weight of investment in the development products. This will
position us for the next phase of our growth, as we make progress towards our
new product submissions in 2007 and 2008.
Michael Gatenby
Chairman
13 September 2006
Consolidated Income Statement
For the six months ended 30 June 2006
6 months to 6 months to 10 months
30 June 31 Aug 2005 to 31 Dec
2006 2005
Note £ £ £
Revenue 4 7,801,369 7,545,724 12,275,888
Cost of sales (3,657,599) (3,501,628) (5,601,143)
Gross profit 4,143,770 4,044,096 6,674,745
Operating expenses
Administration and marketing (3,268,117) (2,618,909) (4,716,258)
expense
Share based employee remuneration (14,736) (10,187) (19,083)
(3,282,853) (2,629,096) (4,735,341)
Operating profit pre non-recurring 860,917 1,415,000 1,939,404
items
Non-recurring items - - 227,731
Operating profit before finance 860,917 1,415,000 2,167,135
costs
Finance costs
Interest paid (1,057,722) (906,300) (1,366,747)
Other finance costs (59,689) (20,806) (76,373)
Change in fair value of derivative financial 74,942 (115,263) (62,846)
instruments
(1,042,469) (1,042,369) (1,505,966)
Profit/(Loss) on ordinary (181,552) 372,631 661,169
activities before taxation
Taxation 11,456 12,497 -
Profit for the year attributable (170,096) 385,128 661,169
to equity shareholders
Earnings per share
Basic (pence) 6 (0.11) 0.26 0.45
Diluted (pence) 6 (0.11) 0.46 0.45
Consolidated balance sheet
At 30 June 2006
30 Jun 06 31 Aug 05 31 Dec 05
£ £ £
Assets
Non-current assets
Goodwill 1,128,973 1,128,973 1,128,973
Intangible fixed assets
- Product licences 29,139,849 25,621,988 25,501,988
- Development costs 3,855,727 2,070,239 3,075,200
Property, plant and equipment 256,836 299,048 280,977
Deferred tax assets - 12,497 -
34,381,385 29,132,745 29,987,138
Current assets
Inventories 2,537,019 2,351,889 2,739,869
Trade and other receivables 3,014,589 3,377,500 3,034,240
Cash and cash equivalents - 267,853 -
5,551,608 5,997,242 5,774,109
Total assets 39,932,993 35,129,987 35,761,247
Equity
Ordinary share capital 1,620,616 1,473,559 1,473,559
Share premium account 11,285,268 9,030,959 9,030,959
Share option reserve 46,242 22,610 31,506
Reverse takeover reserve (329,349) (329,349) (329,349)
Retained earnings (2,872,213) (2,978,159) (2,702,117)
Total equity 9,750,564 7,219,620 7,504,558
Liabilities
Non-current
Long-term financial liabilities 16,011,462 12,905,164 14,794,873
Convertible debt 7,187,906 7,153,229 7,167,100
Other liabilities 179,023 163,889 177,778
23,378,391 20,222,282 22,139,751
Current liabilities
Cash and cash equivalents 687,437 - 899,066
Financial liabilities 3,391,234 3,016,827 933,749
Trade and other payables and 2,725,367 4,671,258 4,284,123
provisions
6,804,038 7,688,085 6,116,938
Total liabilities 30,182,429 27,910,367 28,256,689
Total equity and liabilities 39,932,993 35,129,987 35,761,247
Consolidated Statement of Cash Flows
For the six months ended 30 June 2006
6 months to 6 months to 10 months
30 June 31 Aug 2005 to 31 Dec
2006 2005
£ £ £
Operating activities
Result for the period before tax 860,917 1,415,000 2,167,135
and finance costs
Depreciation of property, plant 56,084 65,526 108,374
and equipment
Change in inventories 211,929 117,474 (270,506)
Change in trade and other 47,657 (1,227,887) (884,627)
receivables
Change in trade and other (1,602,126) 1,443,781 876,429
payables
Write-off intangible assets - - 120,269
Gain on divestment of Uniflu - - (348,000)
Tax received/(paid) 11,456 (1,420) -
Share options charges 14,736 10,187 19,083
Cash flows from operating (399,347) 1,822,661 1,788,157
activities
Investing activities
Interest received - 51,621 61,215
Payment of deferred consideration - (13,889) -
Development costs capitalised (780,526) (724,630) (1,849,860)
Purchase of tangible assets (31,943) (58,001) (82,778)
Investment in subsidaries (253,605)
Proceeds from divestment of - - 500,000
Uniflu
Transaction costs on divestment - - (32,000)
of Uniflu
Purchase of other intangible (3,377,972) (1,555) (1,555)
assets
Net cash used in investing (4,444,046) (746,454) (1,404,978)
activities
Financing activities
Net proceeds from the issue of 2,401,366 - -
shares
Interest paid and similar charges (1,138,933) (956,719) (1,426,319)
Other finance charges paid - (1,202) (1,643)
Receipt from borrowings 3,800,000 - -
Repayment of borrowings - (1,115,514) (1,115,839)
Finance lease payments (7,457) (10,378) (13,904)
Net cash used in financing 5,054,976 (2,083,813) (2,557,705)
activities
Net movement in cash and cash 211,583 (1,007,606) (2,174,526)
equivalents
Cash and cash equivalents at 1 (899,066) 1,275,460 1,275,460
January 2006
Cash and cash equivalents at 30 (687,483) 267,854 (899,066)
June 2006
Consolidated Statement of Changes in Equity
At 30 June 2006
Share Share Shares to Retained Total
capital premium be issued Reserves earnings equity
£ £ £ £ £ £
Balance 1 March 1,473,559 9,030,959 12,423 (329,349) (3,363,287) 6,824,305
2005
Employee benefits - - 10,187 - - 10,187
Profit for the - - - - 385,128 385,128
period
Balance 31 August 1,473,559 9,030,959 22,610 (329,349) (2,978,159) 7,219,620
2005
Balance 1 September 1,473,559 9,030,959 22,610 (329,349) (2,978,159) 7,219,620
2005
Employee benefits - - 8,896 - - 8,896
Profit for the - - - - 276,042 276,042
period
Balance 31 December 1,473,559 9,030,959 31,506 (329,349) (2,702,117) 7,504,558
2005
Balance 1 January 1,473,559 9,030,959 31,506 (329,349) (2,702,117) 7,504,558
2006
Issue of shares 147,057 - - - - 147,057
Premium on shares - 2,254,309 - - - 2,254,309
issued
Employee benefits - - 14,736 - - 14,736
Profit for the - - - - (170,096) (170,096)
period
Balance 30 June 1,620,616 11,285,268 46,242 (329,349) (2,872,213) 9,750,564
2006
Notes to the interim report
For the six months ended 30 June 2006
1 Nature of operations
Alliance Pharma plc ('the Company') and its subsidiaries (together 'the Group')
develop, 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 AIM exchange
2 General information
The information in these financial statements does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. A copy of the
statutory accounts for the period ended 31 December 2005, 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 2006
(including comparatives for the six months ended 31 August 2005) were approved
by the board of directors on 8 September 2006.
3 Accounting policies
The interim financial report has been prepared in accordance with International
Accounting Standard 34 Interim Financial Reporting
The same accounting policies and methods of computation are followed in the
interim financial report as published by the company in its 31 December 2005
Annual Report which is available on the company's website at
www.alliancepharma.co.uk (a copy of which is included as an appendix to this
interim report).
Notes to the interim report (continued)
For the six months ended 30 June 2006
4 Segmental information
The business is split between the trading business, consisting of those brands
which have no promotional investment, and the Development Brands.
Growth Core Trading Development Central and Total
Brands Brands Business Brands Unallocated Group
£ £ £ £ £ £
For the half year
ended 30 June 2006
Segment revenue 3,692,673 4,108,694 7,801,367 - - 7,801,367
Segment result 1,237,146 902,089 2,139,235 (919,086) (359,233) 860,916
For the half year
ended 31 August
2005
Segment revenue 3,586,822 3,958,904 7,545,726 - - 7,545,726
Segment result 1,568,625 874,788 2,443,413 (590,530) (437,679) 1,415,204
For the 10 months
ended 31 December
2005
Segment revenue 5,651,609 6,624,279 12,275,888 - - 12,275,888
Segment result 2,362,333 1,325,517 3,687,850 (1,144,733) (603,713) 1,939,404
At 30 June 2006 Growth Core Trading Development Central and Total
Brands Brands Business Brands Unallocated Group
£ £ £ £ £ £
Segment assets
Non current assets
Goodwill 1,128,973 - 1,128,973 - - 1,128,973
Product licences 19,388,845 9,751,004 29,139,849 - - 29,139,849
Development costs - - 0 3,855,727 - 3,855,727
Property plant and 14,000 - 14,000 - 242,836 256,836
equipment
Current assets
Inventories 737,790 1,799,229 2,537,019 - - 2,537,019
Trade & other 1,446,996 1,539,587 2,986,583 - - 2,986,583
receivables
Non-current
liabilities
Long term 10,932,576 5,078,886 16,011,462 - - 16,011,462
financial
liabilities
Convertible debt 5,462,809 - 5,462,809 1,725,097 - 7,187,906
Other liabilities 179,023 - 179,023 - - 179,023
Current
liabilities
Cash & cash - - - - 687,437 687,437
equivalents
Financial 2,310,156 1,081,078 3,391,234 - - 3,391,234
liabilities
Trade & other - - 0 - 2,725,367 2,725,367
payables
At 31 August 2005 Growth Core Trading Development Central and Total
Brands Brands Business Brands Unallocated Group
£ £ £ £ £ £
Segment assets
Non current assets
Goodwill 1,128,973 - 1,128,973 - - 1,128,973
Product licences 15,837,010 9,784,978 25,621,988 - - 25,621,988
Development costs - - - 2,070,239 - 2,070,239
Property plant and 19,833 - 19,833 - 279,215 299,048
equipment
Deferred tax - - - - 12,497 12,497
assets
Current assets
Inventories 700,152 1,651,737 2,351,889 - - 2,351,889
Trade & other 1,605,477 1,772,023 3,377,500 - - 3,377,500
receivables
Cash and cash - - - - 267,853 267,853
equivalents
Non-current
liabilities
Long term 7,551,380 5,353,784 12,905,164 - - 12,905,164
financial
liabilities
Convertible debt 5,436,454 5,436,454 1,716,775 - 7,153,229
Other liabilities 163,889 - 163,889 - - 163,889
Current
liabilities
Financial 955,183 2,061,644 3,016,827 - - 3,016,827
liabilities
Trade & other - - - - 4,671,258 4,671,258
payables
At 31 December Growth Core Trading Development Central and Total
2005 Brands Brands Business Brands Unallocated Group
£ £ £ £ £ £
Segment assets
Non current assets
Goodwill 1,128,973 - - - - 1,128,973
Product licences 15,837,010 9,664,978 25,501,988 - - 25,501,988
Development costs - - - 3,075,200 - 3,075,200
Property plant and 17,500 - 17,500 - 263,477 280,977
equipment
Current assets
Inventories 806,986 1,932,883 2,739,869 - - 2,739,869
Trade & other 1,396,913 1,637,327 3,034,240 - 3,034,240
receivables
Non-current
liabilities
Long term 8,916,484 5,878,389 14,794,873 - - 14,794,873
financial
liabilities
Convertible debt 5,446,996 - 5,446,996 1,720,104 - 7,167,100
Other liabilities 177,778 - 177,778 - - 177,778
Current
liabilities
Cash & cash - - - - 899,066 899,066
equivalents
Financial 588,402 345,347 933,749 - - 933,749
liabilities
Trade & other - - - - 4,284,123 4,284,123
payables
Notes to the Interim Report (continued)
For the six months ended 30 June 2006
6 Earnings per share
Basic earning per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. For diluted earnings per share, the weighted
average number of ordinary shares in issue is adjusted to assume conversation of
all dilutive potential shares. The group has two categories of dilutive
potential ordinary shares: share options granted to directors and employees and
convertible unsecured loan stock. For employee share options a calculation is
done to determine the number of shares that could have been acquired at fair
value (determined as the average annual market share price of the Company's
shares) based on the monetary value of the subscription rights attached to
outstanding share options. The number of shares calculated as above is compared
with the number of shares that would have been issued assuming the exercise of
the share options. The convertible unsecured loan stock is convertible into
ordinary shares at any time between the date of issue and 30 November 2013,
unconditionally and at the option of the note holder. The conversion rate is
£4.7619 nominal of Ordinary share capital for every £100 nominal of loan stock.
These could potentially dilute the earnings per share into the future, but were
not included in the calculation of diluted earnings per share because they are
anti-dilutive for the periods presented.
6 months to 6 months to 10 months
30 June 31 Aug 2005 to 31
2006 December
2005
Weighted Weighted Weighted
average average average
number of number of number of
shares shares shares
For basic earnings per share 151,114,061 147,355,891 147,355,891
Exercise of options 209,523 - 130,968
For diluted earnings per share 151,323,584 147,355,891 147,486,859
6 months to 6 months to 10 months
30 June 31 Aug 2005 to 31
2006 December
2005
£ £ £
Basic (loss)/profit (170,096) 385,128 661,169
For diluted earnings per share (170,096) 385,128 661,169
Basic earning per share (pence) (0.11) 0.26 0.45
Diluted earnings per share (pence) (0.11) 0.26 0.45
7 Acquisition of subsidiary undertaking
Assets Book value Fair value Fair value
adjustment
Non-current assets
Intangible assets - product 111,000 148,890 259,890
licences
Current assets
Inventories 9,079 9,079
Trade and other receivables 28,006 28,006
37,085 37,085
Total assets 148,085 296,975
Current liabilities
Trade and other payables and (43,370) (43,370)
provisions
Total liabilities (43,370) (43,370)
Net assets 104,715 253,605
Goodwill -
Satisfied by:
Cash 253,605
On 18th May, the Group acquired 100% of the share capital of Caraderm Limited.
The company earned a profit on ordinary activities after taxation on £20,280 in
the 3 month period ended 30 June 2006, of which £Nil arose in the period from 18
May 2006 to 30 June 2006.
Appendix
Group accounting policies based on International Financial Reporting Standards
('IFRS')
Consolidation
The consolidation balance sheet includes the assets and liabilities of the
company and its subsidiaries and are made up to 30 June 2006. Entities over
which the Group has the ability to exercise control are accounted for as
subsidiaries. Interest acquired in entities are consolidated from the effective
date of acquisition and interests sold are consolidated up the date of disposal.
Balances between group companies are eliminated; no profit I taken on sales
between group companies. Deferred tax relief on unrealised intro-group profit is
accounted for only to the extent it is considered recoverable. Goodwill arising
on the acquisition of interests in subsidiaries representing the excess of
purchase consideration over the Group's share of the fair values of identifiable
assets, liabilities and contingent liabilities acquired, is capitalised as a
separate item.
Foreign currency transactions
Foreign currency transactions by Group companies are booked at the exchange rate
ruling on the date of the transaction. Foreign currency monetary assets and
liabilities are retranslated into local currency at the rate of exchange ruling
at the balance sheet date. Exchange differences are booked to the income
statement.
Research and development
Research expenditure is charged to the income statement in the period in which
it is incurred. Development expenditure is capitalised when it can be reliably
measured and the project it is attributable to is separately identifiable, is
technically feasible, demonstrates future economic benefit, and will be used or
sold by the Group once completed. Development costs not meeting the criteria are
expensed as incurred. The capitalised cost is amortised over the period during
which the Group is expected to benefit.
Property, plant and equipment
Computer equipment, fixtures and equipment, and motor vehicles are stated at the
cost of purchase less any provisions for depreciation and impairment. Financing
costs are not capitalised. The rates generally applicable are:
Computer equipment 33.3% per annum, straight line
Fixtures, fittings and equipement 16.7% - 25% per annum, straight line
Motor vechicles 25% per annum, straight line
Leases
Leasing agreements which transfer to the Group substantially all the benefits
and risks of ownership are treated as finance leases, as if the asset had been
purchased outright. The assets are included within computer equipment, fixtures,
fittings and equipment and motor vehicles and the capital element of the leasing
commitments are shown as obligations under finance leases. Assets held under
finance leases are depreciated on a basis consistent with similar owned assets
or the lease term if shorter. The interest element of the lease rental is
included in the income statement. All other leases are considered operating
leases and the annual rentals are included in the income statement on a straight
line basis over the lease term.
Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value
of the group's share of the identifiable met assets acquired, is capitalised and
reviewed annually for impairment. Goodwill is carried at cost less accumulated
impairment losses.
Intangible fixed assets
Intangible assets are stated at cost less provision for impairment. Technical
know-how, trade marks and distribution rights acquired or acquired as part of a
business combination are deemed to have an indefinite useful life and are tested
for imparirment annually.
Inventories
Inventories are included at the lower of cost and net relisable value. Cost is
determined on a first in first out basis.
Taxation
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases on assets and liabilities and their
carrying amounts in the financial statements, Deferred tax assets are recognised
to the extent that it is probable that future taxable profits will be available
against which the temporary differences can be utilised. Deferred tax is
provided using the rates of tax that have been enacted of substantively enacted
by the balance sheet date. Deferred tax assets and liabilities are not
discounted.
Derivative financial instruments and hedging activities
Derivative financial instruments are used to manage exposure to market risk from
treasury operations. The principal financial instrument used by Alliance Pharma
plc is interest rate swaps. The Group does not hold or issue derivative
financial instruments for trading or speculative purposes. Derivative financial
instruments are originally recognised in the balance sheet at cost and then
remeasured at subsequent reporting date to fair value. Changes in the fair value
of derivatives designated as fair value hedges are recorded in the income
statement. Changes in the fair value of derivatives designated as cash flow
hedges are recognised in equity. Amounts deferred in equity are transferred to
the income statement in line with the hedged forecast transaction. Changes in
fair value of any derivative instrument that does not quality for hedge
accounting is recognised immediately in the income statement.
Debt instruments
Unhedged debt instruments are stated at the amount of net proceeds, adjusted to
amortise the issue costs of the debt over its term.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
cash on hand, deposits held at call with banks, other short highly liquid
investments, available with no penalty, with ordinary maturities of three months
or less and bank overdrafts.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic enciroment that are
subject to risks and returns that are different from those of segments operating
in other economic enviroments.
Employee benefits - share based compensation
The Group operates an equity-settled, share-based compensation plan. The fair
value of the employee services received in exchange for the grant of the options
is recognised as an expense. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options granted.
Non-market vesting conditions are included in assumption about the number if
options that are expected to become exercisable. At each balance sheet date, the
entity revises its estimates of the number of options that are expected to
become exercisable. It recognises the impact of the revision of original
estimates, if any, on the income statement, with a corresponding adjustment to
equity. The proceeds received net of any directly attributable transaction costs
are credited to share capital (nominal value) and share premium when the options
are exercised.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for
the sale of goods and services in the ordinary course of the Group's activities.
Revenue is shown, net of value-added tax, estimated returns, rebates and
discounts and after eliminated sales within the Group. Revenue is recognised
when a Group entity has delivered products to the customer, the customer has
accepted the products and collectibillity of the related receivables is
reasonably assured.
Equity
Equity comprises the following:
• 'Share capital' represents the nominal value of equity shares.
• 'Share premium' represents the excess over nominal value of the fair
value of consideration received for equity shares, net of expenses of the
share issue.
• 'Share option reserve' represents equity-settled share-based employee
remuneration until such share options are exercised.
• 'Retained earnings' represents retained profit.
• 'Reserve takeover reserve' represents the difference between the fair
value of shares issued on a reverse takeover.
Investments
Investments in subsidiaries included in the company's balance sheet are stated
at cost less any provision for impairment.
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