Preliminary Results

RNS Number : 4563D

Alliance Pharma PLC

23 March 2011

 



For immediate release

23 March 2011

ALLIANCE PHARMA PLC

("Alliance" or "Alliance Pharma" or "the Group")

Preliminary results for the year ended 31 December 2010

Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is pleased to announce its preliminary results for the year ended 31 December 2010.

Financial Highlights

·      Sales up 60% to £49.9m (2009: £31.2m)

·      Operating profit* up 66% to £18.7m (2009: £11.3m)

·      Pre-tax profit* up 91% to £16.4m (2009: £8.6m)

·      Adjusted basic EPS up 43% to 5.07p (2009: 3.55p)

·      Cash generated from operations up 70% to £18.1m (2009: £10.6m)

·      Dividends

o  Final dividend proposed up 74% to 0.40p per share (2009: 0.23p)

o  Full year dividend up 90% to 0.57p per share (2009: 0.30p)

* before exceptional items

Operational Highlights

·      Acquisition of 18 products from Cambridge Laboratories in February 2010 generating £11.7m of sales

·      Promoted portfolios of Oncology and Dermatology continue strong growth, achieving like for like sales growth of 16% and 18% respectively

·      Sales of Deltacortril^TM / enteric coated prednisolone up 59% to £13.5m (2009: £8.5m)

·      Buccastem^TM and Timodine^TM sales ahead of expectations in first full year at £2.9m

·      New bank facilities and interest swap put in place with Lloyds TSB Corporate Markets reducing effective interest rate by more than 5 percentage points and giving headroom of over £20m to fund acquisitions

·      Conditional acquisition of Anbesol^TM and Ashton & Parsons^TM from Reckitt Benckiser for £2.55m announced today - see separate release

Commenting on the results, Michael Gatenby, Alliance's Chairman, said: "2010 was an excellent year, during which we completed our largest acquisition to date.  We are reporting record sales, operating profit and cash generation and increasing the dividend substantially.  The current year has begun well and our new bank facilities will allow us to take advantage of further acquisition opportunities as they arise."

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 / Jessica Fontaine
Numis Securities	+ 44 (0) 20 7260 1000
Nominated Adviser: Michael Meade / Simon Blank
Corporate Broking: David Poutney

Notes to editors:

About Alliance

Alliance, founded in 1998, is an AIM listed speciality pharmaceutical company based in Chippenham, Wiltshire, UK. The Company has a strong track record of acquiring the rights to established niche products and, following the Cambridge Laboratories acquisition, owns or licenses the rights to more than 50 pharmaceutical products and continues to explore opportunities to expand the range.

Alliance's products are prescribed in the treatment of a wide range of conditions and include products used in the treatment of dermatological conditions, in oncology, in childbirth, in the prevention of heart disease, in Parkinson's disease, in nutrition and in nasal infections.  Alliance's sales are mainly prescription driven.  Its products are distributed to hospitals directly and to pharmaceutical wholesalers, which service both hospital and retail pharmacies with their prescription requirements.

Alliance joined the AIM market of the London Stock Exchange in December 2003 and trades under the symbol APH.

Business Review

Organic growth and acquisitions fuel excellent results

Strong performances from our leading products, plus the benefit of our largest-ever acquisition, resulted in another record year for Alliance in 2010. This has enabled us to increase the dividend significantly, and to adopt a progressive dividend policy going forward.

We look to the future with confidence. Our strong financial position enables us to continue actively seeking further acquisition opportunities to build on the growth we have achieved over the past few years.  The acquisition of Anbesol and Ashton & Parsons that we are announcing alongside these results is a good example of the earnings-enhancing opportunities that we continue to target.

Financial and trading performance

Clearly, 2010 was an excellent year. Sales grew by some 60% to £49.9m, profits doubled, and cash generation was very strong.

Of the £18.6m increase in sales, our February acquisition of Cambridge Laboratories accounted for £11.7m - in line with our expectations.

A further £5.0m of growth came from Deltacortril / enteric coated prednisolone as annual sales rose to £13.5m.  However, as we cautioned last year, this product faces a second generic competitor - which launched on the market in November 2010.

In our promoted portfolio, our dermatology range (excluding the impact of Timodine) grew at 18%, adding £0.9m to sales. Hydromol^TM grew by a particularly encouraging 28% following greater promotional investment. The oncology range acquired with Cambridge Laboratories now accounts for 10% of our business and it delivered good growth under our ownership, with sales up 16%, similar to the pre-acquisition growth rate.

Buccastem and Timodine, acquired from Reckitt Benckiser in August 2009, more than fulfilled their promise in their first full year.  At the time of acquisition the combined sales of these products were running at around £2.6m per annum, but in the first full year in Alliance they achieved £2.9m of sales.

Forceval^TM, which sells mainly in the UK and China, delivered overall growth of some 13%, bringing total sales to £4.2m in 2010.

Sales of Nu-Seals^TM, our enteric-coated low-dose aspirin which sells mainly in the Irish Republic, were down £1.0m, partly due to the adverse effect of exchange rates. The 2010 performance also suffered from a high comparative figure in 2009, when our market share was lifted by a competitor's inventory problems, which have since been resolved.

Profit before tax and exceptional items was £16.4m - a 91% increase on the previous year. After exceptional items the figure was £12.9m, more than double the previous year's £5.7m.

There were three exceptional items (of which two related to the acquisition of Cambridge Laboratories):

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

·      £0.4m charge covering redundancies for staff from the Newcastle and Dublin offices who did not transfer to our office in Chippenham; and

·      £1.8m charge linked to the successful renegotiation of our bank facilities in November. This covered the cost of terminating the existing interest rate swaps and covered loan issue expenses.

The gross margin rate for the year was 60.9%, up from 58.0% in 2009. This was driven by a shift in the sales mix towards higher margin products.

Selling, general and administration (SG&A) expenses fell slightly as a percentage of sales from 21.9% in 2009 to 21.8% in 2010. SG&A expenses increased in absolute terms due to the increase in promotional effort behind the dermatology portfolio and the Cambridge Laboratories acquisition, which brought us an oncology sales force and a modest increase in staff headcount while increasing the overall size of the business by about a third.  The Cambridge Laboratories business had a similar mix of established products and promoted products to that of Alliance and so following the acquisition the proportion of products subject to promotion within Alliance is largely unchanged at just under a quarter of our sales.

We consider most of our acquired brands to have indefinite useful lives, so we do not amortise the intangible assets recognised from their acquisition. However, some of the Cambridge Laboratories products are subject to distribution agreements that are due for renewal every five years. We have therefore decided to amortise them over the remaining life of the agreements, resulting in a charge of £0.8m for the year. Nonetheless, we do expect to renew the agreements as they expire and to maintain these brands as long-term elements in our portfolio. 

We have continued to reduce net debt, and our interest burden, significantly. From the year's free cash flow of some £12.3m (2009: £7.4m) we were able to invest £7.0m net cash in the Cambridge Laboratories acquisition and pay £0.7m in dividends. This still allowed us to reduce bank debt by £4.7m, leaving net bank debt of £17.0m at the year end, equivalent to just 0.9 times EBITDA.

A further substantial reduction in interest charges will result from the refinancing agreed with our bank in November 2010. This replaced our existing bank facilities with enlarged facilities of up to £44m, and cut our effective interest rate from about 9% to about 4%. As well as reducing costs, the deal extends our debt maturity profile and puts us in an even stronger position to fund acquisitions.

With both net debt and interest costs reduced, our financing costs (excluding the refinancing charge) fell from £2.7m to £2.3m in 2010.

For the first time we have seen a reduction in the convertible loan stock, prompted by the increases in the share price during 2010. Just over a third of the outstanding stock was converted during the year, bringing the total down from £7.5m to £4.9m. This figure is not part of the bank debt mentioned above. The conversions further reduce our overall interest costs as the stock pays a fixed coupon of 8%.

Dividend

As our profits have significantly increased and our cash generation has supported a good rate of debt repayment, the Board now intends to adopt a more progressive dividend policy subject to profit growth, investment requirements and the other needs of the business.  Reflecting its confidence in the business, the Board therefore proposes to increase the final dividend to 0.40p per ordinary share (2009: 0.23p), which would make a total for the year of 0.57p per ordinary share (2009: 0.30p), representing a 90% increase on the previous year.

At this level the dividend would be covered 8.9 times by post-tax earnings excluding exceptional items (2009: 11.8).

Strategy

We continue to pursue the strategy we adopted in 2007 in which the focus shifted solely onto trading activities away from a mixture of trading and development. We aim to acquire or license established products with stable sales in niche areas, with the majority requiring little or no promotional support. While there is active commercial management of a number of our products it is only the dermatology and oncology portfolios - accounting for about 23% of sales - which are supported by their own field forces.  If we are able to bring in additional products that can be promoted by our existing field forces then there is the potential to gain additional efficiencies.  We would also consider having field forces in other areas where the likely sales growth would justify it.

We are very actively seeking further acquisitions of products and businesses. We can now draw on over £20m of facilities to fund the right deal or deals and are in a position to contemplate targets somewhat larger than the Cambridge Laboratories acquisition, which was our largest deal so far.

Team

In February 2010 we were pleased to welcome Peter Butterfield, formerly UK Commercial Manager of Cambridge Laboratories, to the Board. Peter now leads our promoted portfolios of dermatology and oncology.  In addition to the oncology field sales team from Cambridge Laboratories, we have also retained David Hope, who heads up the oncology business. These appointments ensured that we maintained the critical continuity of skills and knowledge in the acquired business.

We are pleased to welcome Sarah Robinson as Company Secretary, who has joined us in March 2011.  Sarah has previously held a number of company secretarial roles, including several years at The Financial Times Limited.

Across the company we have invested significantly in developing our structure and processes to keep pace with the growth of the business and prepare it for the future. This has involved considerable work on team development and staff training to strengthen our departments and enhance our capabilities.

Charity

We continue to donate around £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 regular commitment we made a further donation in 2010 following the earthquake in Haiti.

Outlook

After the great strides Alliance has made in the past few years, it would be prudent to sound a note of caution over our ability to sustain this exceptional rate of progress in the short term. Over the coming year our sales growth before the impact of further acquisitions will be affected by three factors:

·      Deltacortril now has two generic competitors, though the impact so far on our sales since the launch of the second competitor in November 2010 has not been quite as significant as we expected.

·      One of the products acquired with Cambridge Laboratories has sales of £5-6m over a cycle which peaks every 2½ years - and 2010 was a peak year

·      The Irish government has been seeking savings on its medicines bill, and the industry has agreed to provide certain savings.  Alliance's contribution to these savings (principally in respect of Nu-Seals) is a one-off £0.6m for 2011.  It is unclear at this stage what will happen in 2012 and beyond.

We are also in discussions with Novartis over an agreement under which we distribute nine of its brands. These brands generate around £0.5m per annum gross margin for Alliance.  Novartis have served notice to end the agreement in December 2012, although the agreement provides for Alliance to receive some compensation.

The dermatology and oncology portfolios continue to grow well and we are working on opportunities in other parts of the portfolio.  In addition we continue to look for potential acquisitions of products or businesses.  We have completed 19 deals in the past 13 years, and are better resourced than we have ever been to make one or more large, value-enhancing acquisitions.

We see a continuing flow of potential opportunities, and we are confident of our ability to strike good deals on the right terms. However, we have no intention of rushing into acquisitions for its own sake: as ever, we recognise the primary importance of taking the long view and judging the sustainability of products and brands against stringent criteria.

Financial Review

Summary

2010 was another successful year for Alliance.

The year started with the acquisition of the trade and assets of Cambridge Laboratories in February, the largest acquisition in Alliance's history, funded by bank debt and an oversubscribed share placing of £7.5m.  Net bank debt reduced from £21.7m to £17.0m despite cash funding of £7.0m for the Cambridge Laboratories acquisition.

Turnover was up 60% and pre-exceptional operating profit was up 66% from £11.3m to £18.7m.

Revenue

Alliance sales grew by £18.6m or 60% in 2010 to £49.9m. 

The Cambridge Laboratories products acquired in February 2010 contributed £11.7m sales in 2010.  This included the oncology portfolio, which receives promotional support and continues to grow strongly achieving 16% growth on 2009.  Deltacortril / enteric coated prednisolone sales grew from £8.5m in 2009 to £13.5m in 2010. The full year effect of the acquisition of Buccastem and Timodine acquired in August 2009 was additional sales of £2.0m. The dermatology franchise (excluding Timodine) grew by 18% with Hydromol growing at 28%.

Profit and other Key Performance Indicators

Gross profit increased to £30.4m (2009: £18.1m).  Gross margins improved from 58.0% to 60.9%, with much of this improvement being driven by changes in product mix.  We have an active programme of looking for cost of goods reductions, which should help to offset any impact from rising commodity prices.

Operating costs (excluding amortisation of intangibles and exceptional items) were £10.9m (2009: £6.9m) which as a percentage of sales has fallen slightly from 21.9% to 21.8%.  We have strengthened our infrastructure to assist in supporting the four Business Units (Established Products, Dermatology, Oncology, and International).  The Cambridge acquisition included a number of distribution agreements which are subject to renewal every five years.  These are amortised over the remaining life of the agreements giving rise to a charge of £0.8m in 2010 (2009: £nil).

The integration of the Cambridge business gave rise to exceptional costs of £1.7m, £0.4m relating to redundancy costs and a £1.3m provision for the future costs of leases on properties in Dublin and Newcastle.  Both offices were closed shortly after the acquisition. 

Finance costs and funding

In November 2010 the Group negotiated new banking facilities with Lloyds TSB Corporate Markets at an effective rate of around 4% per annum to replace its old facilities.  We are pleased with the confidence the bank has demonstrated in our business model by agreeing new facilities which comprised an £18.0m term loan repayable over four years (£17.0m outstanding at year end), a £20.0m four year revolving credit facility (RCF) and a £6.0m working capital facility. £2.0m was drawn on the RCF initially and remained outstanding at the year end, but has since been repaid leaving the full £20.0m RCF undrawn and available to fund acquisitions.

At the same time as the refinancing the existing interest rate swaps were terminated. Together with the cost of writing off loan issue costs this resulted in a £1.8m exceptional charge. In line with our hedging strategy a new two year interest rate swap has been put in place to hedge approximately 75% of net bank debt at current market rates, which are substantially lower than the terminated hedges.

The overall impact of these changes is a reduction of more than 5% per annum in the effective interest rate applied to the Group's bank debt.

The main financial covenants applying to the new facilities are that leverage (the ratio of net bank debt to EBITDA) should not exceed 2.5 times, interest cover (the ratio of EBITDA to finance charges) should not be less than 3.0 times and operating cash flows must exceed debt service cash flows. The maximum leverage reduces to 2.0 times from 2012.

Net bank debt at the year end was £17.0m (2009: £21.7m) and the net bank debt to EBITDA ratio has improved from 1.9 times at December 2009 to just 0.9 times at December 2010, demonstrating the strength of the business and additional borrowing capacity that could be used to fund acquisitions.

During the year £2.6m nominal value of Convertible Unsecured Loan Stock (CULS) converted resulting in £4.9m of CULS remaining.  The CULS carries a fixed 8% coupon and can be converted at any time until November 2013 at 21p per share.

Notional interest costs of £0.3m were charged that related to the unwinding of the discounted value of deferred consideration and onerous contracts.

Earnings per share (EPS) and Dividend

Adjusted basic EPS improved 43% from 3.55p in 2009 to 5.07p in 2010, while basic EPS improved 67% to 3.96p (2009: 2.37p).

During 2010 the number of shares in issue increased from 193.3m to 236.1m.  28.8m shares were issued as a result of the placing to part fund the Cambridge Laboratories acquisition, 12.4m shares were issued on the conversion of £2.6m nominal of the convertible loan stock and the balance of 1.6m related to the exercise of employee share options.   Subsequent to the year end a further 0.4m shares have been issued, mainly on the conversion of loan stock.  If there were no further changes to the share capital, the weighted average number of shares in issue in 2011 would be 236.5m. 

As a result of the strong earnings growth and the strong cash generation an interim dividend of 0.17p was paid on 14 January 2011 and the Board is recommending a final dividend of 0.40p, which would make a total dividend for the year of 0.57p.  The final dividend will be paid, subject to shareholder approval, on 14 July 2011 to shareholders on the register at 17 June 2011.

Cash flow

Cash flow from operations increased from £10.6m to £17.9m, reflecting the strong underlying performance of the Group.   Net bank debt has fallen from £21.7m to £17.0m at the year end, despite £7.0m cash funding for the Cambridge Laboratories acquisition.

Deferred contingent consideration of £2.1m remains outstanding in relation to the Cambridge acquisition.  Of this, £1.1m becomes payable when the distribution rights are extended beyond 31 March 2012, and an amount of between £0.5m and £1.0m is payable during 2011 with the amount dependent on the sales of ImmuCyst^TM during 2010 and 2011.

The Group has fully utilised brought forward tax losses during 2010 and has now started paying more substantial amounts of tax, with payments in 2010 totalling £1.3m.  However the Group continues to benefit from tax relief on most of the intangible assets.

Assets and working capital

Additions to intangibles in the period were £16.2m, which arose from the Cambridge Laboratories acquisition.  The net book value of intangible assets stands at £60.3m at December 2010 (December 2009: £44.9m).  Tangible assets increased by a net £0.8m: the majority of the additions related to the refurbishment and expansion of offices at Avonbridge House following the commencement of a new 10-year lease.  This investment has provided additional space to cater for the increase in headcount following the Cambridge Laboratories acquisition and to cater for potential future growth.  There was also some investment in IT systems.

Working capital balances have grown with the size of the business, though inventory and trade receivables continue to be carefully managed and controlled.  Inventory on hand at December 2010 represented 2.8 months of stock usage (2009: 2.7 months).

The Group net assets stood at £36.1m at December 2010, £19.5m higher than at December 2009.

Managing Capital

Our objective in managing the business' capital structure is to ensure that Alliance has the financial capacity, liquidity and flexibility to support the existing business and to fund acquisition opportunities as they arise.

The business is profitable and cash generative.  The bank covenants require that the business is managed to ensure that it is sufficiently cash generative to meet debt servicing needs and dividend payments.

Smaller acquisitions are typically financed purely with bank debt, while larger acquisitions typically involve a combination of bank debt and additional equity.  The mixture of debt and equity is varied, taking into account the desire to maximise the shareholder returns while keeping gearing at comfortable levels, i.e. net bank debt below around two times EBITDA.

Risk Management

The Group uses interest rate swaps to reduce the risk arising from changes in interest rates and the Convertible Unsecured Loan Stock pays a fixed coupon.  Around 75% of the net bank debt is currently subject to fixed interest rates.

The Group's main transactional currencies are Sterling and Euros, with the majority of income and expenditure in Sterling.  The Euro-denominated income matches the Euro-denominated expenditure quite closely and so the Group has limited exposure to exchange rate movements.

Consolidated Income Statement

		Year ended 31 December 2010		Year ended 31 December 2009
	Note
		£ 000s		£ 000s
Revenue		49,881		31,237
Cost of sales		(19,483)		(13,127)
Gross profit		30,398		18,110
Operating expenses
Administration and marketing expense		(10,769)		(6,828)
Amortisation of intangible assets		(812)		-
Share-based employee remuneration		(128)		(25)
		(11,709)		(6,853)
Operating profit before exceptional items		18,689		11,257
Exceptional items	6	(1,715)		(2,829)
Operating profit		16,974		8,428
Finance costs
Interest paid	2	(2,410)		(2,834)
Interest income	2	7		2
Other finance costs	2	75		144
Exceptional finance costs	6	(1,774)		-
		(4,102)		(2,688)
Profit on ordinary activities before taxation		12,872		5,740
Taxation	3	(3,918)		(1,633)
Profit for the year attributable to equity shareholders		8,954		4,107
Earnings per share
Basic (pence)	5	3.96		2.37
Diluted (pence)	5	3.64		2.14
Adjusted basic EPS	5	5.07		3.55
Adjusted diluted EPS	5	4.63		3.10

Consolidated Statement of Comprehensive Income

			Year to      31 December  2010	Year to  31 December      2009
			£ 000s	£ 000s
Profit for the period			8,954	4,107
Interest rate swaps - cash flow hedge			1,323	30
Deferred tax on interest rate swap			(371)	(8)
Total comprehensive income for the period			9,906	4,129

Consolidated Balance Sheet

			31 December 2010	31 December 2010	31 December 2009	31 December 2009
	Note		£ 000s	£ 000s	£ 000s	£ 000s
Assets
Non-current assets
Intangible assets	7		60,287		44,935
Property, plant and equipment			888		132
				61,175		45,067
Current assets
Inventories			4,544		2,972
Trade and other receivables	8		9,690		7,657
Cash and cash equivalents			1,989		1,104
				16,223		11,733
Total assets				77,398		56,800
Equity
Ordinary share capital			2,361		1,933
Share premium account			24,331		14,674
Share option reserve			244		116
Reverse takeover reserve			(329)		(329)
Other reserve			(20)		(972)
Retained earnings			9,494		1,208
Total equity				36,081		16,630
Liabilities
Non-current liabilities
Long term financial liabilities			15,000		19,009
Convertible debt			4,822		7,333
Other liabilities			60		80
Derivative financial instruments			13		851
Deferred tax liability			3,803		1,450
Provisions for other liabilities and charges			641		-
				24,339		28,723
Current liabilities
Cash and cash equivalents			-		683
Financial liabilities			4,001		3,114
Corporation tax			721		77
Trade and other payables	9		11,869		7,073
Derivative financial instruments			15		500
Provisions for other liabilities and charges			372		-
				16,978		11,447
Total liabilities				41, 317		40,170
Total equity and liabilities				77,398		56,800

Consolidated Statement of Changes in Equity

	Ordinary share capital	Share premium account	Share option reserve	Reverse takeover reserve	Other reserve	Retained earnings	Total
	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s	£ 000s
Balance 31 December 2009	1,933	14,674	116	(329)	(972)	1,208	16,630
Issue of shares	428	9,657	-	-	-	-	10,085
Dividend paid	-	-	-	-	-	(668)	(668)
Employee benefits	-	-	128	-	-		128
Transactions with owners	428	9,657	128	-	-	(668)	9,545
Profit for the period	-	-	-	-	-	8,954	8,954
Other comprehensive income
Interest rate swaps - cash flow hedge	-	-	-	-	1,323	-	1,323
Deferred tax on interest rate swap	-	-	-	-	(371)	-	(371)
Total comprehensive income for the period	-	-	-	-	952	8,954	9,906
Balance 31 December 2010	2,361	24,331	244	(329)	(20)	9,494	36,081

Consolidated Cash Flow Statement

			Year ended 31 December 2010	Year ended  31 December 2009
	Note		£ 000s	£ 000s
Cash flows from operating activities
Cash generated from operations	10		18,104	10,648
Tax paid			(1,290)	(259)
Cash flows from operating activities			16,814	10,389
Investing activities
Interest received			7	2
Payment of deferred consideration			(20)	(20)
Development costs capitalised			-	(116)
Purchase of property, plant and equipment			(934)	(95)
Purchase of other intangible assets			(14,264)	(7,698)
Net cash used in investing activities			(15,211)	(7,927)
Financing activities
Interest paid and similar charges			(1,919)	(2,695)
Termination of interest rate swaps			(1,145)	-
Proceeds from issue of shares			7,290	3,711
Loan issue costs			(480)	(60)
Proceeds from exercise of share options			196	-
Dividend paid			(668)	-
Receipt from borrowings			24,000	2,000
Repayment of borrowings			(27,278)	(2,532)
Net cash received from/(used in) financing activities			(4)	424
Net movement in cash and cash equivalents			1,599	2,886
Cash and cash equivalents at the beginning of the period			421	(2,447)
Exchange losses on cash and cash equivalents			(31)	(18)
Cash and cash equivalents at the end of the period			1,989	421

1. Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2010 or 31 December 2009. The auditors reported on those accounts; their report  was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2010 have not yet been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2009 were delivered to the Registrar of Companies as published on the Group's website on 18 May 2010.

2. Finance costs

	Year ended 31 December 2010	Year ended 31 December 2009
	£ 000s	£ 000s
Interest payable and similar charges
On loans and overdrafts	(1,918)	(2,695)
Amortised finance issue costs	(207)	(139)
Notional interest	(285)	-
	(2,410)	(2,834)
Interest income	7	2
Other finance charges
Foreign exchange movement on long-term euro denominated debt	75	144
	75	144
Exceptional finance costs
Termination of interest rate swaps and loan issue costs	(1,774)	-
	(1,774)	-
Finance costs - net	(4,102)	(2,688)

3. Taxation

Analysis of charge in period.

	Year ended  31 December 2010	Year ended  31 December 2009
	£ 000s	£ 000s
United Kingdom corporation tax at 28% (2009: 28%)
In respect of current period	1,936	155
	1,936	155
Deferred tax
Origination and reversal of temporary differences	1,982	1,478
Taxation	3,918	1,633

4. Dividends

	Year ended  31 December 2010			Year ended  31 December 2009
	Pence/share	£ 000s		Pence/share	£ 000s
Amounts recognised as distributions to owners in the year
Interim dividend for the prior financial year	0.07	135		-	-
Final dividend for the prior financial year	0.23	533		-	-
		668			-
Interim dividend for the current financial year	0.17	401		0.07	135

The proposed final dividend for the current financial year was approved by the Board of Directors on 22 March 2011 and is subject to the approval of shareholders at the Annual General Meeting. The proposed dividend has not been included as a liability as at 31 December 2010 in accordance with IAS 10 Events After the Balance Sheet Date. The interim dividend for the current financial year was paid on 11 January 2011. Subject to shareholder approval, the final dividend will be paid on 14 July 2011 to shareholders who are on the register of members on 17 June 2011.

5. 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 31 December 2010	Year ended 31 December 2009
For basic EPS calculation			226,115,099	173,177,417
Employee share options			4,502,951	3,021,741
Conversion of Convertible Unsecured Loan Stock (CULS)			23,339,310	35,714,286
For diluted EPS calculation			253,957,360	211,913,444

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 31 December 2010	Year ended 31 December 2009
			£ 000s	£ 000s
Earnings for basic EPS			8,954	4,107
Exceptional items			3,489	2,829
Tax effect of exceptional items			(977)	(792)
For adjusted EPS			11,466	6,144
Earnings for basic EPS			8,954	4,107
Interest saving on conversion of CULS			392	600
Tax effect of interest saving on conversion of CULS			(110)	(168)
Earnings for diluted EPS			9,236	4,539

Earnings for adjusted EPS			11,466	6,144
Interest saving on conversion of CULS			392	600
Tax effect of interest saving on conversion of CULS			(110)	(168)
Earnings for diluted adjusted EPS			11,748	6,576

The resulting EPS measures are:

			Year ended 31 December 2010	Year ended 31 December 2009
			Pence	Pence
Basic EPS			3.96	2.37
Diluted EPS			3.64	2.14
Adjusted basic EPS			5.07	3.55
Adjusted diluted EPS			4.63	3.10

6. Exceptional items

			Year ended 31 December 2010	Year ended 31 December 2009
			£ 000s	£ 000s
Onerous contracts			1,266	-
Redundancy costs			449	-
Isprelor™ impairment charge			-	2,829
			1,715	2,829
Termination of interest rate swaps and loan issue costs			1,774	-
			3,489	2,829

 

Leases and associated costs for offices in Newcastle and Dublin, acquired as part of the Cambridge Laboratories acquisition, have subsequently been treated as onerous contracts. In the year ended 31 December 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.

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

In the year ended31 December 2009, capitalised development costs in respect of Isprelor were written off as the Group did not intend to pursue pan-European registration without third party funding, and no such funding had been agreed.  

7. Intangible assets

	Goodwill on consolidation	Purchased Goodwill	Technical know-how, trade marks and distribution rights	Total
The Group	£ 000s	£ 000s	£ 000s	£ 000s
Cost
At 1 January 2010	1,144	-	43,791	44,935
Additions	-	600	15,564	16,164
At 31 December 2010	1,144	600	59,355	61,099
Amortisation and impairment
At 1 January 2010	-	-	-	-
Amortisation for the year	-	-	812	812
At 31 December 2010	-	-	812	812
Net book amount
At 31 December 2010	1,144	600	58,543	60,287
At 1 January 2010	1,144	-	43,791	44,935

	Goodwill on consolidation	Technical know-how, trade marks and distribution rights	Development costs	Total
The Group	£ 000s	£ 000s	£ 000s	£ 000s
Cost
At 1 January 2009	1,144	36,093	6,207	43,444
Additions	-	7,698	116	7,814
At 31 December 2009	1,144	43,791	6,323	51,258
Amortisation and impairment
At 1 January 2009	-	-	3,494	3,494
Impairment for the year	-	-	2,829	2,829
At 31 December 2009	-	-	6,323	6,323
Net book amount
At 31 December 2009	1,144	43,791	-	44,935
At 1 January 2009	1,144	36,093	2,713	39,950

8. Trade and other receivables

	31 December 2010	31 December 2009
	£ 000s	£ 000s
Trade receivables	9,139	7,226
Other receivables	55	41
Prepayments and accrued income	439	276
Amounts owed by joint venture	57	114
	9,690	7,657

9. Trade and other payables - current

		31 December 2010		31 December 2009
		£ 000s		£ 000s
Trade payables		3,799		1,690
Other taxes and social security costs		1,109		1,180
Accruals and deferred income		4,841		4,045
Other payables		2,120		158
		11,869		7,073

10. Cash generated from operations

	Year ended 31 December 2010	Year ended 31 December 2009
	£ 000s	£ 000s
Result for the period before tax	12,872	5,740
Interest paid	1,919	2,695
Interest income	(7)	(2)
Other finance costs	2,190	(5)
Depreciation of property, plant and equipment	178	124
Amortisation of intangibles	812	-
Change in inventories	(1,571)	(707)
Change in trade and other receivables	(2,040)	(1,275)
Change in trade and other payables	3,623	1,224
Write off intangible assets	-	2,829
Share options charges	128	25
Cash flows from operating activities	18,104	10,648

11. Post balance sheet events

In March 2011 Alliance Pharmaceuticals Limited conditionally agreed to buy the UK and Irish rights to the brands Anbesol and Ashton & Parsons from a subsidiary of Reckitt Benckiser Group plc ("Reckitt Benckiser") for £2.55m cash consideration. Alliance intends to fund the acquisition by drawing a loan from the £20m Revolving Credit Facility ("RCF") that was put in place in November 2010 to fund acquisitions. The RCF is not currently utilised.

Anbesol is used to treat mouth ulcers, teething pains and denture irritation.  Ashton & Parsons is used for the symptomatic relief of pain and stomach upset caused by teething. 

As part of the acquisition by Reckitt Benckiser of SSL International plc, Reckitt Benckiser plc has given commitments to the European Commission ("Commission") to divest Anbesol and Ashton & Parsons.  The sale of the brands by Reckitt Benckiser to Alliance is conditional on the approval of the Commission.

For the twelve months ended 31 December 2010 Anbesol and Ashton & Parsons sales were £1.3m and £0.8m respectively.  Sales of Ashton and Parsons in the past few months have been somewhat lower than historically as a result of certain production issues  which Alliance will be seeking to resolve.  The gross margin rates of Anbesol and Ashton & Parsons are in line with other products in Alliance's existing portfolio.

Based on the contribution from Anbesol alone, the proposed acquisition is expected to be earnings enhancing in the current financial year.

 

END

 

 

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