Interim Results

RNS Number : 3288S

Alliance Pharma PLC

08 September 2010

 



For Immediate Release

8 September 2010

 

 

 

ALLIANCE PHARMA PLC

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

Interim results for the six months ended 30 June 2010

Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2010.

Highlights of the year to date:

·      Half year sales up 77% to £23.4m (H1 2009: £13.2m)

·      Half year operating profit before exceptional items up 123% to £9.0m (H1 2009: £4.1m)

·      Half year profit before tax and exceptional items up 166% to £7.7m (H1 2009: £2.9m)

·      Adjusted earnings per share* for the half year up 98% to 2.54p (H1 2009: 1.28p)

·      Interim dividend up 143% to 0.17 pence per share (H1 2009: 0.07 pence)

·      Half year operating cash flow more than doubled to £7.8m (H1 2009: £3.7m)

·      Cambridge Laboratories acquisition in February 2010 successfully integrated

*Adjusted to exclude the impact of exceptional items

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

"We are delighted to announce yet another set of record results, reflecting a strong performance from the existing business and the benefits of two significant acquisitions.  This performance has enabled us to more than double the interim dividend to 0.17 pence per share."

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 / Simon Blank
Corporate Broking: David Poutney

Chairman's and Chief Executive's Statement

As we anticipated in our last report to you, 2010 is proving to be an outstanding year for Alliance.

In the first half of the year sales have grown strongly, benefiting from the Cambridge Laboratories acquisition in February, an initial first half year contribution from  Buccastem^® and Timodine^®, continuing strong sales of Deltacortril^® / enteric coated prednisolone and continuing organic growth in our dermatology portfolio. The business is trading very profitably and generating such strong cash flow that net debt has reduced during the first half despite the investment in acquiring Cambridge Laboratories.

We intend to continue adding brands that fit our strategy, and are well placed to fund further acquisitions when we find the right deals.

Financial performance

Sales for the period totalled £23.4m, a 77% increase on the same period last year. In addition to the contribution of recent acquisitions, this growth was aided by the continuing strong sales of Deltacortril^®.

The gross margin rate for the first half was 61%, in line with the second half of last year and up from 53% in the first half of last year due to a shift in the sales mix towards higher margin products. 

We have continued to increase promotional investment in our dermatology portfolio, and Cambridge Laboratories brought us additional products that benefit from marketing support. As a result, promoted brands now account for around one quarter of our sales. 

Operating costs remain well controlled. Selling, general and administration (SG&A) expenses in total increased in absolute terms, due largely to the Cambridge Laboratories acquisition, which brought an oncology sales force and a modest increase in support staff headcount while increasing the overall size of the business by about a third. However, as a percentage of turnover, SG&A costs reduced from 22.6% in the first half of 2009 to 21.1% in the same period in 2010.

As expected at the time of the Cambridge Laboratories acquisition, there are two exceptional items included in the results for the first half of 2010 which relate to the acquisition:

•           A provision of £1.3m for onerous contracts mainly relating to the leases for the offices in Newcastle and Dublin, both of which have now been closed; and

•           A £0.4m charge for redundancies for those staff from the Newcastle and Dublin offices who did not transfer to Alliance's existing office in Chippenham.

We do not amortise the intangible assets recognised from the acquisition of most of our brands as they are considered to have indefinite useful lives. However, some of the Cambridge Laboratories products are subject to distribution licences that must be renewed every five years. We have therefore decided to amortise them over the remaining life of the licences. This results in a charge of £0.3m in the first half of the year. We do, however, expect to renew the licences as they expire and to maintain these brands as long-term elements of our portfolio.

Before exceptional items, the pre-tax profit for the period was £7.7m. Even after exceptional items, pre-tax profit was £6.0m, more than double last year's first-half figure of £2.9m.

Despite funding around £7m of the Cambridge Laboratories acquisition with debt, we ended the first half with net bank debt slightly lower than in December 2009. The business is strongly cash generative and the bank debt/EBITDA ratio continues to improve.  On a rolling 12-month basis it now stands at 1.3 times (excluding exceptional items), compared with 2.0 times at the end of 2009. Total finance charges for the period were £1.3m, compared with £1.2m in the first half of 2009.

For the first time we have also seen a reduction in outstanding convertible loan stock, from £7.5m to £5.0m by the end of August 2010, as the rising value of Alliance shares has encouraged investors to exercise their option to convert. 

Dividend

As the business is clearly generating more than sufficient cash to support a good level of debt repayment, we are declaring an interim dividend of 0.17 pence per share. This represents a 143% increase on last year's interim dividend.  We continue to aim to pay around one third of the annual dividend at the interim stage and two thirds as a final dividend.  The interim dividend will be paid on 14 January 2011 to shareholders on the register at 3 December 2010.

Strategy

The strategy we adopted in 2007 continues to serve us well. We aim to acquire or license established prescription products in niche areas too small to attract competition, with the majority requiring little or no promotional support.

The success of this approach over recent years has greatly increased our ability to fund new acquisitions, although we remain highly selective. We are investing to grow our dermatology and newly acquired oncology products, but as only a quarter of our sales require such support our promotion costs are relatively low compared with those of other speciality pharma companies. Maintaining relatively high operating margins in this way is an important part of our strategy.

We acquired Cambridge Laboratories in February, gaining a range of strongly growing oncology products and 15 others that fit well with our non-promoted portfolio. The sales of these products have fully met our expectations, as have the sales of Buccastem^® and Timodine^®, acquired from Reckitt Benckiser last year.

Both of these deals were part-funded by share placings to allow us to continue reducing our gearing to a much more comfortable level. With much lower levels of gearing now, we can use a higher proportion of debt to fund future deals. In the meantime, we will continue to pay down our existing borrowings.

Trading business

Demand for our non-promoted products tends to increase modestly each year, reflecting demographic changes and ageing populations. In dermatology we are gaining market share through effective promotion. In oncology demand for our particular therapies is growing and we are also benefiting from better adherence to treatment protocols.

Deltacortril^®, for inflammatory and auto-immune conditions, continued with strong sales in the first half, at a monthly run rate a little higher than the latter part of 2009. We remain cautious in outlook because another competitor may well enter the market in the next few months, which could lead to a reduction in market share.

Our dermatology sales grew at 16%, similar to last year, led by further growth of 27% for Hydromol^®. We continue to invest in these products to drive further growth.

Nu-Seals^®, our enteric-coated low-dose aspirin, grew rapidly last year as volume growth was supplemented by favourable exchange rate impacts on sales in Ireland. This year sales value has dropped slightly as the exchange rate effect reversed with sterling strengthening a little against the euro.  As part of its austerity measures, the Irish Government is currently looking at steps to reduce its medicines bill.  Some of these measures may be introduced over the next year or so, though it is too early to say how significantly these will impact Nu-Seals^®.

Forceval^® accelerated its growth to 18% overall, with sales into China benefitting particularly from both higher volumes and stronger pricing.

Buccastem^® and Timodine^® are both delivering the expected level of sales. We are seeing very encouraging initial results in New Zealand after appointing a new distributor for Buccastem^®.

Our newly acquired oncology portfolio is responding well to our promotional efforts, with year on year growth running at around 24%.

Charity

We continue to donate £20,000 worth of products a year to International Health Partners, a charity which distributes medicines to doctors in the world's neediest areas.  In addition to this existing commitment we have made further donations following the earthquake in Haiti and the flooding in Pakistan.

Outlook

We are well on the way to making 2010 another record year for Alliance. In uncertain times our non-promoted portfolio, which is largely unaffected by economic conditions, provides a continuing source of stability. While we are unlikely to gain additional growth momentum from Deltacortril^®, our increasingly substantial portfolio of promoted products has enhanced growth potential. In addition, Alliance is well positioned to take advantage of current market conditions by seeking out further acquisition opportunities.

Consolidated Income Statement

For the six months ended 30 June 2010

		6 months to 30 June 2010	6 months to 30 June 2009	Year to 31 December 2009
	Note	£ 000s	£ 000s	£ 000s
Revenue		23,357	13,226	31,237
Cost of sales		(9,075)	(6,188)	(13,127)
Gross profit		14,282	7,038	18,110
Operating expenses
Administration and marketing expense		(4,913)	(2,969)	(6,828)
Amortisation of intangible assets		(337)	-	-
Share-based employee remuneration		(13)	(17)	(25)
		(5,263)	(2,986)	(6,853)
Operating profit before exceptional items		9,019	4,052	11,257
Exceptional items	4	(1,715)	-	(2,829)
Operating profit		7,304	4,052	8,428
Finance costs
Interest paid		(1,457)	(1,372)	(2,834)
Interest income		3	27	2
Foreign exchange rate movement		118	178	144
		(1,336)	(1,167)	(2,688)
Profit on ordinary activities before taxation		5,968	2,885	5,740
Taxation	5	(1,671)	(808)	(1,633)
Profit for the period attributable to equity shareholders		4,297	2,077	4,107
Earnings per share
Basic (pence)	8	1.97	1.28	2.37
Diluted (pence)	8	1.79	1.16	2.14

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2010

		6 months to 30 June 2010	6 months to 30 June 2009	Year to 31 December 2009
		£ 000s	£ 000s	£ 000s
Profit for the period		4,297	2,077	4,107
Interest rate swaps - cash flow hedge		(62)	121	30
Deferred tax on interest rate swap		17	(34)	(8)
Total comprehensive income for the period		4,252	2,164	4,129

Consolidated balance sheet

At 30 June 2010

		30 June 2010	30 June 2009	31 December 2009
	Note	£ 000s	£ 000s	£ 000s
Assets
Non-current assets
Intangible fixed assets
- Product licences		60,762	37,237	44,935
- Development costs		-	2,777	-
Property, plant and equipment		580	135	132
Deferred tax		-	70	-
		61,342	40,219	45,067
Current assets
Inventories		4,658	2,298	2,972
Trade and other receivables	6	8,413	6,258	7,657
Cash and cash equivalents		2,302	203	1,104
		15,373	8,759	11,733
Total assets		76,715	48,978	56,800
Equity
Ordinary share capital		2,315	1,621	1,933
Share premium account		23,492	11,275	14,674
Share option reserve		129	108	116
Reverse takeover reserve		(329)	(329)	(329)
Other reserve		(1,017)	(907)	(972)
Retained earnings		5,369	(822)	1,208
Total equity		29,959	10,946	16,630
Liabilities
Non-current liabilities
Long-term financial liabilities		20,159	19,038	19,009
Convertible debt		5,585	7,313	7,333
Other liabilities		61	81	80
Derivative financial instruments		887	870	851
Deferred tax liability		1,934	816	1,450
Provisions for other liabilities and charges		718	-	-
		29,344	28,118	28,723
Current liabilities
Cash and cash equivalents		1	1,665	683
Financial liabilities		3,824	2,389	3,114
Corporation tax		1,170	241	77
Trade and other payables	7	11,453	5,229	7,073
Derivative financial instruments		526	390	500
Provisions for other liabilities and charges		438	-	-
		17,412	9,914	11,447
Total liabilities		46,756	38,032	40,170
Total equity and liabilities		76,715	48,978	56,800

Consolidated Statement of Cash Flows

For the six months ended 30 June 2010

		6 months to 30 June 2010	6 months to 30 June 2009	Year to 31 December 2009
		£ 000s	£ 000s	£ 000s
Operating activities
Result for the period before tax		5,968	2,885	5,740
Interest paid		1,339	1,372	2,695
Interest income		(3)	(27)	(2)
Other finance costs		124	(178)	(5)
Depreciation of property, plant and equipment		61	68	124
Amortisation of intangible assets		337	-	-
Change in inventories		(1,685)	(33)	(707)
Change in trade and other receivables		(790)	(45)	(1,275)
Change in trade and other payables		2,558	(513)	1,224
Write-off intangible assets		-	-	2,829
Tax (paid)/received		(76)	170	(259)
Share options charge		13	17	25
Cash flows from operating activities		7,846	3,716	10,389
Investing activities
Interest received		3	27	2
Payment of deferred consideration		(20)	(20)	(20)
Development costs capitalised		-	(64)	(116)
Purchase of tangible assets		(509)	(42)	(95)
Purchase of other intangible assets		(13,167)	-	(7,698)
Net cash used in investing activities		(13,693)	(99)	(7,927)
Financing activities
Interest paid and similar charges		(1,451)	(1,478)	(2,695)
Proceeds from issue of shares		7,290	-	3,711
Loan issue costs		(100)	-	(60)
Dividend paid		(136)	-	-
Proceeds from exercise of share options		110	-	-
Receipt from borrowings		4,000	-	2,000
Repayment of borrowings		(1,948)	(1,130)	(2,532)
Net cash used in financing activities		7,765	(2,608)	424
Net movement in cash and cash equivalents		1,918	1,009	2,886
Cash and cash equivalents at beginning of period		421	(2,447)	(2,447)
Exchange losses on cash and cash equivalents		(38)	(24)	(18)
Cash and cash equivalents at end of period		2,301	(1,462)	421

Consolidated Statement of Changes in Equity

At 30 June 2010

	Share	Share	Shares to		Other	Retained	Total
	capital	premium	be issued	Reserves	Reserve	earnings	equity
	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s
Balance 1 January 2009	1,621	11,275	91	(329)	(994)	(2,899)	8,765
Employee benefits	-	-	17	-	-	-	17
Transactions with owners	-	-	17	-	-	-	17
Profit for the period	-	-	-	-	-	2,077	2,077
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	121	-	121
Deferred tax on interest rate swap	-	-	-	-	(34)	-	(34)
Total comprehensive income for the period	-	-	-	-	87	2,077	2,164
Balance 30 June 2009	1,621	11,275	108	(329)	(907)	(822)	10,946
Balance 1 January 2009	1,621	11,275	91	(329)	(994)	(2,899)	8,765
Issue of shares	312	3,399	-	-	-	-	3,711
Employee benefits	-	-	25	-	-	-	25
Transactions with owners	312	3,399	25	-	-	-	3,736
Profit for the period	-	-	-	-	-	4,107	4,107
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	30	-	30
Deferred tax on interest rate swap	-	-	-	-	(8)	-	(8)
Total comprehensive income for the period	-	-	-	-	22	4,107	4,129
Balance 31 December 2009	1,933	14,674	116	(329)	(972)	1,208	16,630
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	-	13	-	-	(136)	259
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

Notes to the interim report

For the six months ended 30 June 2010

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 2009, 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 2010 (including comparatives for the six months ended 30 June 2009) was approved by the Board of Directors on 7 September 2010.

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 2009 Annual Report.  It has been decided to amortise those products acquired as part of the Cambridge Laboratories acquisition that are subject to distribution licences, over the life of the licence. The Annual report is available on the company's website at www.alliancepharma.co.uk.

4          Exceptional items

	30 June 2010	30 June 2009	31 December 2009
	£ 000s	£ 000s	£ 000s
Onerous contracts	1,266	-	-
Redundancy costs	449	-	-
Isprelor® impairment charge	-	-	2,829
	1,715	-	2,829

Leases and associated costs for offices in Newcastle and Dublin, acquired as part of the Cambridge Laboratories acquisition (see note 9), 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 has been recognised. The Dublin property lease will run 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.

As at 30 December 2009, capitalised development costs of £2.8m in respect of Isprelor^® have been written off as the Group does not intend to pursue pan-European registration without third party funding, and no such funding has yet been agreed.  No income is expected to be generated in the foreseeable future.

Notes to the interim report (continued)

For the six months ended 30 June 2010

5          Taxation

Analysis of charge in period.

	30 June 2010	30 June 2009	31 December 2009
	£ 000s	£ 000s	£ 000s
United Kingdom corporation tax at 28%
In respect of current period	1,187	63	155
Current tax	1,187	63	155
Deferred tax	484	745	1,478
Taxation	1,671	808	1,633

6          Trade and other receivables

	30 June 2010	30 June 2009	31 December 2009
	£ 000s	£ 000s	£ 000s
Trade receivables	8,030	5,833	7,226
Other receivables	120	103	41
Prepayments and accrued income	221	237	276
Amounts owed by joint venture	42	85	114
	8,413	6,258	7,657

7          Trade and other payables

	30 June 2010	30 June 2009	31 December 2009
	£ 000s	£ 000s	£ 000s
Trade payables	1,870	1,287	1,690
Other taxes and social security costs	1,531	815	1,180
Accruals and deferred income	4,745	2,584	4,045
Amount owed to joint venture	-	123	-
Other payables	3,307	420	158
	11,453	5,229	7,073

      Other payables include deferred consideration of £3.1m in relation to the acquisition of the trade and certain assets of Cambridge Laboratories (Ireland) Limited and Cambridge Laboratories Limited.

Notes to the interim report (continued)

For the six months ended 30 June 2010

 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 2010	6 months to 30 June 2009	Year ended 31 December 2009
	Weighted average number of shares 000s	Weighted average number of shares 000s	Weighted average number of shares 000s
For basic EPS	217,778	162,062	173,177
Share options	4,937	725	3,022
Conversion of Convertible Unsecured Loan Stock (CULS)	27,141	35,714	35,714
For diluted EPS	249,856	198,501	211,913

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 2010	6 months to 30 June 2009	Year ended 31 December 2009
	£ 000s	£ 000s	£ 000s
Earnings for basic EPS	4,297	2,077	4,107
Exceptional items	1,715	-	2,829
Tax effect of exceptional items	(480)	-	(792)
Earnings for adjusted EPS	5,532	2,077	6,144

	6 months to 30 June 2010	6 months to 30 June 2009	Year ended 31 December 2009
	£ 000s	£ 000s	£ 000s
Earnings for basic EPS	4,297	2,077	4,107
Interest saving on conversion of CULS	228	300	600
Tax effect of interest saving on conversion of CULS	(64)	(84)	(168)
Earnings for diluted EPS	4,461	2,293	4,539

	6 months to 30 June 2010	6 months to 30 June 2009	Year ended 31 December 2009
	£ 000s	£ 000s	£ 000s
Earnings for adjusted EPS	5,532	2,077	6,144
Interest saving on conversion of CULS	228	300	600
Tax effect of interest saving on conversion of CULS	(64)	(84)	(168)
Earnings for diluted adjusted EPS	5,696	2,293	6,576

Notes to the interim report (continued)

For the six months ended 30 June 2010

8          Earnings per share (EPS) (continued)

The resulting EPS measures are:

	6 months to 30 June 2010	6 months to 30 June 2009	Year ended 31 December 2009
	Pence	Pence	Pence
Basic EPS	1.97	1.28	2.37
Diluted EPS	1.79	1.16	2.14
Adjusted basic EPS	2.54	1.28	3.55
Diluted adjusted EPS	2.28	1.16	3.10

9           Cambridge Laboratories acquisition

On 22 February 2010, the Group completed the purchase of the trade and certain assets of Cambridge Laboratories (Ireland) Limited and Cambridge Laboratories Limited. The fair value of the net assets acquired totaled £16.2m, for 18 prescription products across a range of therapeutic areas.

Deferred consideration of £1.1m remains payable in October 2010. Consideration of between £1.6m and £2.1m is contingent on the licence for ImmuCyst^® being extended beyond 31 March 2012. The actual amount payable is dependent on the sales of ImmuCyst^® during 2010 and 2011. The contingent consideration has been discounted at a rate of 10%. As at 30 June 2010 deferred consideration of £3.1m has been recognised within current trade and other payables.

 

END

 

 

IR LIFFSAIITIII