RNS Number : 9791I
Alliance Pharma PLC
07 April 2020
 

 

For immediate release

                                                  7 April 2020

 

ALLIANCE PHARMA PLC

("Alliance" or the "Group")

Results for the year ended 31 December 2019

STRONG GROWTH AND CASH GENERATION

Alliance Pharma plc (AIM: APH), the international healthcare group, announces its preliminary results for the year ended 31 December 2019.

 

OVERVIEW

·      See-through revenues up 16% at £144.3m (2018: £124.0m), on both a reported and constant currency basis, in line with expectations

Continued strong performance from International Star and other consumer brands, led by Kelo-cote™

International sales saw another year of strong growth

Includes first full year's revenues from Nizoral™ (under Johnson & Johnson management)

Excluding acquisitions, year on year revenue increased 10% in 2019 (up 8% on a constant currency basis)

·      Statutory revenues up 15%, to £135.6m (2018: £118.2m)

·      Underlying EBITDA* up 22% to £39.4m (2018: £32.4m)

·      Good progress made with Nizoral transition and enhancement of Asia Pacific operations

·      Continued strong cash generation, with leverage falling to 1.48x at December 2019 from 2.33x (December 2018)

·      The Board has decided not to propose a final dividend for FY2019 to prudently preserve cash in light of the COVID-19 pandemic

 

FINANCIAL SUMMARY

Year ended 31 December

2019

£m

2018

£m

Growth

Revenue (see-through basis)*

144.3

124.0

16%

Revenue (statutory basis)

135.6

118.2

15%

Gross profit

86.1

72.6

19%

Underlying EBITDA*

39.4

32.4

22%

Underlying profit before taxation

32.9

28.1

17%

Reported profit before taxation

31.1

22.8

36%

Underlying basic earnings per share

5.09p

4.54p

12%

Reported basic earnings per share

4.80p

3.69p

30%

Free cash flow*

29.1

16.1

81%

Leverage

1.48x

2.33x


Net debt*

59.2

85.8


Total dividend per share

0.536p

1.464p

-63%

 

* The performance of the Group is assessed using Alternative Performance Measures ("APMs"), which are measures that are not defined under IFRS, but are used by management to monitor ongoing business performance against both shorter term budgets and forecasts and against the Groups longer term strategic plans. APMs are defined in note 17.

Specifically, see-through revenue includes sales from Nizoral™ as if they had been invoiced by Alliance. Under the terms of the transitional services agreement with Johnson & Johnson (J&J), Alliance receives the benefit of the net profit on sales of Nizoral from the date of acquisition up until the product licences in the Asia-Pacific territories transfer from J&J to Alliance. For statutory accounting purposes the product margin on Nizoral sales is included within Revenue, in line with IFRS 15.

 

Commenting on the results, Peter Butterfield, Alliance Pharma's Chief Executive Officer, said:

"2019 saw another year of strong sales and profit growth, led by our consumer brands, particularly our International Stars. Cash generation was also very strong, allowing us to significantly reduce our borrowings. We are pleased with the way the Nizoral transition is progressing and look forward to the increased control we will have over the brand as the various territories fully transition to Alliance.

"As a diversified global business, we have been paying close attention to the COVID-19 pandemic and our position on this remains as announced on 23 March 2020.

"We have good control of our cost base and will continue to manage our levels of discretionary spend carefully to help mitigate the potential impact of any reduction in revenue as a result of COVID-19. We have also decided it would be prudent at this time to preserve cash and therefore have taken the decision not to propose a final dividend for year ended 31 December 2019. We will provide further updates at our AGM in May, in our H1 trading update in July and at other times as appropriate.

"Notwithstanding the current uncertainty created by the coronavirus, our underlying business remains resilient, with strong financials, good liquidity and covenant headroom, and we look forward to continuing our path of growth in the years ahead."

 

 

 

CONFERENCE CALL & WEBCAST

 

A conference call for analysts will be held at 10.00am this morning, 7 April 2020. Analysts who require dial-in details, please contact Buchanan at alliancepharma@buchanan.uk.com.

A recorded webcast of the analyst conference call, including the investor presentation slides, will be made available this afternoon at this link:

https://webcasting.buchanan.uk.com/broadcast/5e416265397af40afa52d7c4

 

The recorded webcast will also be made available at the investor section of Alliance's website, https://www.alliancepharmaceuticals.com/investors/

 

For more information, please contact Buchanan on 020 7466 5000 or email alliancepharma@buchanan.uk.com.

 

 



 

For further information

 

Alliance Pharma plc

+ 44 (0)1249 466966

Peter Butterfield, Chief Executive Officer


Andrew Franklin, Chief Financial Officer


www.alliancepharma.co.uk


Buchanan

+ 44 (0)20 7466 5000

Mark Court / Hannah Ratcliff




Numis Securities Limited

+ 44 (0)20 7260 1000

Nominated Adviser: Freddie Barnfield / Huw Jeremy


Corporate Broking: James Black


 

Investec Bank plc

+ 44 (0) 20 7597 5970

Corporate Finance: Daniel Adams / Ed Thomas


Corporate Broking: Patrick Robb / Tejas Padalkar


 

About Alliance

Alliance Pharma plc (AIM: APH) is an international healthcare group, headquartered in the UK with subsidiaries in Europe, the Asia Pacific region and the US and wide international reach through an extensive network of distributors, generating sales in more than 100 countries.

We currently own or in-license the rights to more than 90 consumer healthcare and pharmaceutical products, which are managed on a portfolio basis according to their growth potential. Promotional investment is focused on a small number of brands with significant international or multi-territory reach. The remainder of the portfolio comprises products which are sold in a limited number of local markets and require little or no promotional investment.

Our strategy allows us to benefit both from organic growth opportunities and from enhancing our growth rate through carefully selected acquisitions.

For more information on Alliance, please visit our websitewww.alliancepharmaceuticals.com  

CHIEF EXECUTIVE'S STATEMENT

Trading performance

Overview

The Group continued to trade strongly in 2019 with revenue on a see-through basis up 16% to £144.3m (2018: £124.0m) and up 15% on a statutory basis to £135.6m (2018: £118.2m). See-through revenue benefitted by £9.3m in 2019 due to the inclusion of the first full year's trading revenue from Nizoral, which was acquired in June 2018. Coupled with improving gross profit margins, gross profit increased by 19% to £86.1m (2018: £72.6m). Through maintaining good control over our operating costs, we were pleased to be able to deliver some operational leverage, with underlying EBITDA up 22% to £39.4m (2018: £32.4m).  Underlying profit before tax increased 17% to £32.9m (2018: £28.1m) and reported profit before tax increased 36% to £31.1m (2018: £22.8m).

International Star brands performance

Our portfolio of International Star brands all performed very well during 2019, delivering collective revenue growth of 43% (30% on a like for like basis, excluding Nizoral). These key brands now account for over 45% of Group revenue, with this percentage expected to increase further in the current year.

Kelo-cote - scar prevention and treatment

Kelo-cote delivered another impressive performance in 2019, with revenues up 38% to £31.0m (2018: £22.5m) due to continued strong demand, primarily from China and other countries in the Asia Pacific region, reflecting the growth in the Aesthetic Medicine (AM) market in this part of the world. With rising demand for cosmetic procedures and C-section births, Kelo-cote remains very well-placed to take advantage of this AM growth trend, particularly in China, where it is well established in the market.

During 2019, our global marketing team continued to support the local brand teams in delivering a range of marketing activities to support brand growth, attending several conferences and interacting with healthcare professionals across the globe, to increase brand awareness.

Nizoral - medicated anti-dandruff shampoo

Nizoral (under J&J management during 2019) performed in line with expectations, generating see-through revenues in its first full year of ownership by the Group of £20.2m, as compared with £10.9m in the second half of 2018.

Our focus during 2019 has been on refining and executing detailed transition plans to support the transfer of the product licences in each of the territories from J&J to Alliance, including establishing new trading relationships with suppliers and distributors to enable us to continue to manufacture and sell the product post transfer. As previously reported, during the first half of 2019 we enhanced our presence in Singapore and Shanghai, moving to larger offices in both locations and establishing a dedicated team to support the transfer and subsequent management of Nizoral.

The first two product licences (for Hong Kong and Thailand) transferred to Alliance in Q4 2019 and we expect the majority of the remaining licences to transfer during 2020. Once all of the product licences are under our control, we will be able to manage the associated commercial relationships and brand development more proactively. China continues to be an important market for Nizoral and a future growth-driver for this key brand.

MacuShield - eye health supplement

MacuShield grew strongly in 2019, generating revenues of £8.2m, up 18% year on year (2018: £7.0m), driven by distributor stocking and changes in trading arrangements with a key distributor. Excluding these 'one-off' benefits, the brand delivered underlying growth in 2019 of around 5%.

In addition to launches in Italy and Turkey in the first half of the year, we launched MacuShield in Pakistan during the second half and plan to launch the brand in a further six territories during 2020. In the UK, we expanded the range of products available with the launch of MacuShield chewable tablets in October 2019, for consumers who find the original capsule presentation difficult to swallow.

Vamousse - prevention and treatment of head lice

Vamousse delivered another strong performance, particularly in the US, its core market, with global revenues up 14% to £6.5m (2018: £5.8m) and up 10% on a constant currency basis.

Whilst we continue to evaluate opportunities to introduce Vamousse into new markets, our near-term focus is on continuing to grow the brand in the US, where it continues to out-perform the general market.

Local brands

Our Local brands portfolio delivered a stable performance overall, with revenues of £78.3m, £0.3m above those for the previous year (2018: £78.0m). We saw good performances from some of the consumer brands in this part of our portfolio, with new UK retail listings for Aloclair (treatment for mouth ulcers) and Ashton & Parsons (teething gel) and strong sales of a number of products to our international distributors, offsetting the decline we experienced with some of our heritage pharmaceutical products due to generic competition and competitive tender activity. We also took the decision to discontinue a few products within our Local brands portfolio, which were generating very low revenues and margins, as part of a regular periodic review of our portfolio.  

Going forwards, we will continue to actively manage this part of our portfolio, in particular the heritage pharmaceutical products, and expect sales in this category to modestly decline over time. However, the cash generation from these assets is expected to remain strong, with limited requirements for promotional investment.

Regional performance

International

Our international distributor business continued to go from strength to strength in 2019, benefiting from a full year's revenues from Nizoral and continued strong demand for Kelo-cote, which helped to deliver significant year on year revenue growth across the Asia Pacific region and particularly in China.  We also saw good growth from our Middle East and Africa distributor business, with revenues up 26% on the previous year at £6.7m. See-through revenues for our international distributor business increased 32% to £54.2m in 2019 (2018: £40.9m) and reported revenues increased 30% to £45.6m (2018: £35.1m).

US

Revenues in our new US business increased by 11% in 2019 to £6.1m (2018: £5.5m), with a particularly strong performance by Vamousse, with revenues up 19% to £5.4m (2018: £4.6m), supported by £0.7m of reclassified revenues from products previously included within International sales.

UK and Republic of Ireland

Revenues in the UK and Republic of Ireland were down 2% on the previous year at £51.4m (2018: £52.3m) due to weaker performances from some of our heritage pharma products being partially offset by a stronger performance from our UK consumer products, with MacuShield, Ashton & Parsons and Aloclair all delivering good revenue growth as we continue to invest behind these brands.

Mainland Europe

Our Mainland Europe business saw another year of strong top-line growth in 2019, with revenues increasing by 28% to £32.5m (2018: £25.4m), largely due to continued growth in Kelo-cote, to satisfy both export and regional demand.

Return of Xonvea licensing rights

As we have previously reported, we returned the UK and EU licensing rights to Xonvea, the prescription medicine for the treatment of nausea and vomiting of pregnancy where conservative management has failed, which we launched in the UK in October 2018, to Duchesnay, Inc ('Duchesnay') (the licensor) in November 2019.

Under the terms of the agreement signed with Duchesnay, the £2.0m in milestone payments made to date by Alliance will be repaid to the Group, £0.25m was paid in 2019 and the remaining balance is due in 2020. As a result of this agreement, the Group booked non-underlying inventory provisions and associated restructuring costs of £1.9m in 2019; the total non-underlying loss on disposal being £1.7m.

Alliance will continue to make Xonvea available to patients in the UK for up to 12 months to assist Duchesnay with the transition to a new licensee.

Acquisitions

Our acquisition strategy remains focused on selectively adding to our portfolio, as suitable opportunities arise, with a focus on augmenting our consumer healthcare brands in international markets where we already have a presence. Our strong cash generation in 2019, increased credit facilities and significant reduction in net debt leave us well-placed to pursue this element of our strategy.

 

Operational review

Following the UK's departure from the EU on 31 January 2020, we continue to monitor the progress of negotiations closely to ensure we have the most up to date information available to allow us to ensure continuity of supply, irrespective of the timings or nature of the trade agreements reached with the EU with regard to consumer healthcare and pharmaceutical products, or the nature and duration of any transitional arrangements which may apply.

We remain on track to ensure our technical documentation and processes meet the new requirements of the MDR, which will now start to apply from May 2021. The new regulation places greater scrutiny on the technical documentation, product safety and medical device performance through stricter requirements on clinical information and requires enhanced traceability and transparency.

We continue to progress with the development of our ERP system which, when implemented, will deliver business benefits and scale-up capability through the standardisation of processes.

We have also invested time in several other initiatives aimed at improving our business systems and processes, including our New Product Introduction (NPI) and Sales & Operations Planning (S&OP) processes.

Work is now underway to fully embed these improved processes into the business in 2020, to further improve our operational leverage and facilitate future growth.  

 

People

As previously announced, our two new Non-executive Directors, Jo LeCouilliard and Richard Jones, took up office at the start of 2019 and we are grateful to both for the valuable contributions they have made to the Group's activities during the first year of their tenure. The composition of the Board underwent a further change in June 2019, when John Dawson, founder and former CEO, stepped down as a Non-executive Director of the Group.

We recognise that great results can only be achieved through the combined efforts of our dedicated team of colleagues around the globe, our partners and customers, and through the strong collaborative culture that we have built within Alliance. Alliance currently employs more than 200 people in ten locations around the world. In 2019 we scaled up our existing operations in Asia Pacific, to support the transition and ongoing management of Nizoral. We also appointed our first Head of Global Marketing, as we continue to develop our marketing insight, processes and performance across all our teams to further accelerate the growth of our larger consumer brands. We were delighted to, once again, achieve exceptionally high engagement scores in our annual employee survey, with some aspects of the survey achieving satisfaction levels in excess of 90%, for the second year in succession.

We received several awards this year, including 'Best Place to Work' in the Chippenham Business Awards, where our head office is based. Our social impact activities were again extremely well supported by employees in 2019. Alliance matched employee fundraising enabled us to raise more than £32,000 for the charity Smile Train, and we also supported more than 20 other charities, through fundraising and donations of time and money. In addition, we donated £75,000 of products to International Health Partners, who we have been supporting for more than 10 years now.  

The Group places great importance on attracting and retaining high quality employees and aligning the success of the Group with their rewards. In recognition of this, the Group operates a share option scheme which aims to ensure that all employees have an opportunity to benefit from the growth of the business as reflected in the Company's share price

On behalf of the Board, I would like to take this opportunity to extend my sincere thanks to all those who have contributed to another very successful year for Alliance.

 

COVID-19

Our priority is to ensure the safety of our people across the globe. In the UK, Republic of Ireland, mainland Europe, Singapore and the US, our employees are now working from home in line with local government guidelines. Our investment in IT has ensured a high level of connectivity throughout the world which means we can operate remotely with minimal disruption to the business. In Asia, we are pleased that our Shanghai office has now fully reopened.

Our supply chain is holding up well and we do not anticipate any material supply impact in the current year. For those products we sell directly, we hold typically a minimum of 3 months of inventory and, in some cases more, depending on the level of clinical need.  Most of our international sales are generated via distributors, who typically hold 3-6 months of inventory. We continue to monitor our supplier base for early indications of any issues and are forward booking transport for the remainder of 2020 in order to mitigate any potential future capacity constraints.

Whilst supply is holding up well, demand is harder to forecast. Although the COVID-19 situation in China and across the Asia Pacific region looks to be improving, we anticipate that demand in the Asia Pacific region, including China, will be lower in the first half of 2020 and then, depending on the speed with which this region returns to normality, begin to recover in H2. Sales in our UK and mainland Europe businesses are expected to be impacted, but to a lesser extent, due to the higher proportion of prescription medicines sold in this region.

Given the fast-moving nature of the pandemic, the full-year impact on trading of the COVID-19 coronavirus is very difficult to forecast but we anticipate that trading will be weighted to the second half.

We will provide further updates at our AGM in May, in our H1 trading update in July and at other times as appropriate.

 

Current trading and outlook

After another strong performance in 2019, we entered 2020 well-positioned for further growth.

Whilst we are expecting to see some impact on revenues this year as a result of the COVID-19 coronavirus, we are actively working with our suppliers and distributors to mitigate the impact. Our supply chain is holding up well and we, and our distributors, hold good levels of inventory which provides a level of in-market inventory buffer.

We continue to monitor developments and are looking closely for any changes in market demand so that we can evolve our mitigation plans in response to these; our objective is to minimise the economic impact on our business whilst ensuring that we continue to maintain the safety of our employees in all countries affected by the virus.

As a result of the potential impact of COVID-19 on global economic activity, we have decided it would be prudent at this time to preserve cash and therefore have taken the decision not to propose a final dividend for year ending 2019. We will continue to monitor the situation and to reassess the position later in the year and potentially declare a further interim dividend for 2020.

Operationally, the priorities for the Group remain unchanged: continuing to invest in our consumer healthcare brands in order to deliver organic growth and continuing to progress with the transition of Nizoral, to enable us to benefit from the increased control we will have over the brand as the various territories complete transition.

We will continue to look to selectively add to our portfolio, as suitable opportunities arise, with a focus on augmenting our consumer healthcare brands in international markets where we already have a presence.

 

Peter Butterfield

Chief Executive Officer

7 April 2020

 



 

FINANCIAL REVIEW

 

Financial metrics summary

Year ended 31 December

2019

£m

2018

£m

Growth

Revenue (see-through basis)*

144.3

124.0

16%

Revenue (statutory basis)

135.6

118.2

15%

Gross profit

86.1

72.6

18%

Administration and marketing expenses

(46.7)

(40.2)

(16%)

Underlying EBITDA*

39.4

32.4

22%

Depreciation & amortisation

(2.0)

(3.5)

44%

Underlying EBIT

37.4

28.9

29%

Finance costs

(4.6)

(0.9)

(427%)

Underlying profit before taxation

32.9

28.1

17%

Reported profit before taxation

31.1

22.8

36%

Underlying basic earnings per share

5.09p

4.54p

12%

Total dividend per share

0.536p

1.464p

-63%

 

Note: Underlying profitability metrics are presented as we believe this provides investors with useful information about the performance of the business. For 2019, underlying results exclude a £1.7m charge on the return of the Xonvea rights and a £0.1m charge on the disposal of Flammacerium; for 2018, underlying results exclude £1.5m of profit on the disposal of the Group's interest in Unigreg Limited, a £2.5m impairment charge in relation to the Group's interest in Synthasia International Co. Ltd and a £4.3m impairment charge in relation to the anti-malarial asset. Further detail can be found in note 4.

* The performance of the Group is assessed using Alternative Performance Measures ("APMs"), which are measures that are not defined under IFRS, but are used by management to monitor ongoing business performance against both shorter term budgets and forecasts and against the Groups longer term strategic plans. APMs are defined in note 17.

Specifically, see-through revenue includes sales from Nizoral™ as if they had been invoiced by Alliance. Under the terms of the transitional services agreement with J&J, Alliance receives the benefit of the net profit on sales of Nizoral from the date of acquisition up until the product licences in the Asia-Pacific territories transfer from J&J to Alliance, which is expected to occur during 2019 and 2020. For statutory accounting purposes the product margin on Nizoral sales is included within Revenue, in line with IFRS 15.

 

The Group delivered a strong financial performance in 2019, with see-through revenues increasing 16% to £144.3m (2018: £124.0m) and statutory revenues increasing 15% to £135.6m (2018: £118.2m). The increase was largely driven by a strong performance from our International Star brands, particularly Kelo-cote, and by the inclusion of a full year's post-acquisition revenues from Nizoral. Overall, underlying profit before taxation increased by 17% to £32.9m (2018: £28.1m) and reported   profit before tax increased 36% to £31.1m (2018: £22.8m).

The impact of exchange rate movements on the Group's revenues was limited, the benefit of Sterling weakening against the US Dollar in 2019 being largely offset by Sterling strengthening slightly against the Euro. Likewise, there was minimal impact on operating profits this year as a result of currency movements.

Gross profit increased at a slightly higher rate than revenue, up 18% to £86.1m (2018: £72.6m), resulting in a 1.1% increase in gross margin, from 58.6% to 59.7% of see-through revenue (+2.0% increase from 61.5% to 63.5% of statutory revenue), due to mix and improving inventory management.

Operating costs (defined as underlying administration and marketing expenses, excluding underlying depreciation, amortisation and impairment charges) increased by £6.5m to £44.9m (2018: £38.4m), due to the full year impact of transitional service fees payable to J&J in connection with Nizoral, an increase in employee costs required to support the scale up of our operations in Asia Pacific and the wider business, and the continued growth of our star brands. As a percentage of sales, operating costs were in line with 2018 and represented 31.1% of see-through sales (2018: 31.0%).

The IFRS2 share options charge for 2019 remained in line with that for the previous year, at £1.8m (2018: £1.8m).

Notwithstanding the increase in operating costs, underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 22% to £39.4m (2018: £32.4m), whilst underlying operating profit increased by 29% to £37.4m (2018: £28.9m) and reported operating profit increased 51% to £35.6m (2018: £23.7m).

Depreciation, amortisation and underlying impairment charges

Underlying depreciation, amortisation and impairment charges for 2019 amounted to £2.0m, a £1.5m reduction on the prior year (2018: £3.5m); the 2018 charge included the write-down of a supply agreement of £1.9m.

Finance costs

Overall, net finance costs in 2019 increased by £3.7m to £4.6m (2018: £0.9m) due primarily to a £1.4m adverse movement in foreign currencies (2019: £0.8m loss, 2018: profit £0.6m) and the fair value of contingent consideration in 2018 (£2.0m credit).

Interest payable increased by £0.3m to £3.8m, the increased costs resulting from the Nizoral drawdown in June 2018 and non-utilisation costs on the new credit facilities put in place in July 2019 being offset by lower interest charges due to the reduction in net debt and the lower interest rates associated with the new borrowing facility.

The average interest charge on gross debt during the period (including non-utilisation fees) was 3.37%.

Reconciliation of underlying to reported profit before tax

Year ended 31 December

2019

£m

2018

 

£m

 

Underlying profit before taxation

32.9

28.1

 

Non-underlying items:



 

Return of Xonvea licensing rights

(1.7)


 

Disposal of Flammacerium

(0.1)


 

    Profit on disposal of Unigreg Joint Venture


1.5

 

    Impairment and write-down of Synthasia Joint Venture assets


(2.5)

 

    Impairment of Anti-malarial intangible asset


(4.3)

 

    Exceptional compensation income (from Sinclair)



 

Total

(1.8)

(5.3)

 

Reported profit before taxation

31.8

22.8

 

 



 

Taxation

The total tax charge for the period was £6.1m (2018: £4.4m), resulting in an effective tax rate of 19.5% (2018: 19.5%). Excluding non-underlying items, which generated a tax credit of £0.3m in 2019 (2018: £1.0m tax credit), the underlying tax charge was £6.4m (2018: £5.5m), representing an underlying ETR of 19.5% (2018: 19.6%).

Earnings per share

Underlying basic earnings per share for 2019 was 5.09p, an increase of 12% (2018: 4.54p).

Reported basic earnings per share was 4.80p (2018: 3.69p) due to non-underlying items reducing earnings to a lesser extent in 2019 than in 2018.

Dividend

The Board is closely monitoring the impact of the COVID-19 virus on our people and business. At this stage it is too soon to quantify the impact it may have in the future on our financial performance but, given the scale of the potential impact of COVID-19 on economic activity, the Board has decided it would be prudent to preserve cash at this time and has taken the decision to not to propose a final dividend for year ended 31 December 2019.

The Board will continue to monitor the position with an intention, to the extent that the Board deems it prudent in light of all relevant developments, to reassess the position later in the year and potentially declare a further interim dividend for 2020.

The Company will update the shareholders at the time of the AGM.

Return of the licensing rights to Xonvea

On 27 November 2019, Alliance announced that the Group had reached agreement with Duchesnay Inc. of Canada ("Duchesnay") to return the UK and EU licensing rights to Xonvea, a prescription medicine for the treatment of nausea and vomiting of pregnancy where conservative management has failed. As a result of this agreement, the Group booked non-underlying inventory provisions and associated restructuring costs of £1.9m in the year ending 31 December 2019, incurring a non-underlying loss on disposal of £1.7m.

Balance sheet

Intangible assets decreased by £6.6m in 2019, to £328.7m (2018: £335.2m), £3.1m of which related to foreign currency translation adjustments, the remainder primarily to the disposals of Xonvea and Flammacerium.

Intangible assets currently account for around 80% of the Group's total assets. As part of the wider 2020 strategic review, the Group will continue to consider the appropriateness of accounting estimates for intangible assets within its portfolio. 

Working capital

The Group continued to maintain good control of its working capital with total net working capital of £24.7m, a reduction of £1.4m on the prior year (2018: £26.1m).

Inventories, net of provisions, amounted to £15.5m as at 31 December 2019, a decrease of £3.2m in the year (2018: £18.7m) due to the partial reversal of an inventory build made during 2018 in preparation for the FMD and Brexit and a £1.2m provision for Xonvea following the return of the licensing rights to Duchesnay.

Total receivables increased by £1.8m, which primarily related to the balance of the Xonvea milestone repayments, receivable this year, whilst payables (excluding contingent consideration) increased by £0.1m.



 

Cash flow and net debt

Free cash flow (see note 17 for definition) for the year was very strong at £29.1m (2018: £16.1m), due primarily to the increase in underlying operating profit in 2019.

Net debt decreased by £26.6m to £59.2m at 31 December 2019 (2018: £85.8m), a reflection of the Group's strong underlying cash generation.

Consequently, adjusted net debt/EBITDA leverage reduced to 1.48 times at 31 December 2019 (2018: 2.33 times), comfortably within our covenant limit of 3.0 times.

We expect free cash flow generation to remain good in 2020 and, in the absence of acquisitions, expect leverage to reduce to below 1.0 times during the second half of the year excluding the impact of the coronavirus noted earlier.

Treasury and capital management

The Group's operations are financed by retained earnings and bank borrowings, with additional equity being raised on a periodic basis to finance larger acquisitions.

The Group manages its exposure to currency fluctuations on translation by managing currencies at Group level using bank accounts denominated in its primary trading currencies (Sterling, Euro and US dollars) and foreign exchange forward contracts.

As previously reported, in July 2019, the Group agreed a new £165m fully Revolving Credit Facility, together with a £50m accordion, with an enlarged syndicate of lenders on improved terms, replacing the existing facility which ran through to December 2020. This new facility is available until July 2023, with a one-year extension option, and provides further flexibility for the Group to deliver carefully targeted acquisitions over the next few years to complement its organic growth strategy.

 

Andrew Franklin

Chief Financial Officer

7 April 2020

 



 

CONSOLIDATED INCOME STATEMENT

 

Note

Year ended 31 December 2019

Year ended 31 December 2018

Underlying

£000s

Non-Underlying

£000s

(Note 4)

Total

£000s

Underlying

£000s

Non-Underlying

£000s

(Note 4)

Total

£000s

2,17

135,637

-

135,637

118,208

-

118,208


(49,561)

-

(49,561)

(45,560)

-

(45,560)


86,076

-

86,076

72,648

-

72,648









(46,814)

-

(46,814)

(41,934)

-

(41,934)


(1,816)

-

(1,816)

(1,790)

-

(1,790)


-

-

-

13

-

13

4

-

(1,672)

(1,672)

-

-

 -

4

-

(145)

(145)

-

-

-

4

-

-

-

-

1,508

1,508

4

-

-

-

-

(2,460)

(2,460)

4

-

-

-

-

(4,318)

(4,318)


37,446

(1,817)

35,629

28,937

(5,270)

23,667








5

(3,777)

-

(3,777)

(3,457)

-

(3,457)

5

-

-

-

1,966

-

1,966

5

(776)

-

(776)

627

-

627



(4,553)

-

(4,553)

(864)

-

(864)

3

32,893

(1,817)

31,076

28,073

(5,270)

22,803

6

(6,414)

348

(6,066)

(5,491)

1,044

(4,447)


26,479

(1,469)

25,010

22,582

(4,226)

18,356








7

5.09


4.80

4.54


3.69

7

4.99


4.72

4.42


3.60

 

All of the activities of the Group are classed as continuing.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 


Year ended

31 December 2019

£000s

Year ended

31 December 2018

£000s

25,010

18,356





(1,495)

1,101

489

-

(23)

113

23,981

19,570

 



 

CONSOLIDATED BALANCE SHEET

 


Note

31 December 2019

£000s

31 December 2018

£000s







8

328,660

335,243


11,554

7,594


1,710

1,845


676

180



342,600

344,862




9

15,518

18,706

10

30,992

29,148


697

-


17,830

10,893



65,037

58,747


407,637

403,609




14

5,294

5,182


149,036

144,639


7,208

6,121


(329)

(329)


462

(4)


(4)

1,491


112,513

95,099


274,180

252,199







12

77,040

28,667

13

2,401

2,352


29,810

28,663


-

5



109,251

59,687




12

-

68,035


2,344

1,457

11

21,815

22,231


47

-



24,206

91,723


133,457

151,410


407,637

403,609

 



 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 


Ordinary share capital

£000s

Share premium account

£000s

 Other reserve

£000s

Cash flow hedging reserve

£000s

Translation reserve

£000s

Share option reserve

£000s

Retained earnings

£000s

Total equity

£000s

4,750

110,252

(329)

(117)

390

5,073

83,089

203,108

432

-

-

-

-

-

-

432

-

34,387

-

-

-

-

-

34,387

-

-

-

-

-

-

(6,346)

(6,346)

-

-

-

-

-

1,048

-

1,048

432

34,387

-

-

-

1,048

(6,346)

29,521

-

-

-

-

-

-

18,356

18,356









-

-

-

113

-

-

-

113

-

-

-

-

1,101

-

-

1,101

-

-

-

113

1,101

-

18,356

19,570

5,182

144,639

(329)

(4)

1,491

6,121

95,099

252,199










5,182

144,639

(329)

(4)

1,491

6,121

95,099

252,199

112

-

-

-

-

-

-

112

-

4,397

-

-

-

-

-

4,397

-

-

-

-

-

-

(7,596)

(7,596)

-

-

-

-

-

1,087

-

1,087

112

4,397

-

-

-

1,087

(7,596)

(2,000)

-

-

-

-

-

-

25,010

25,010









-

-

-

489

-

-

-

489

-

-

-

(23)

-

-

-

(23)

-

-

-

-

(1,495)

-

-

(1,495)

-

-

-

466

(1,495)

-

25,010

23,981

5,294

149,036

(329)

462

(4)

7,208

112,513

274,180

 

 

 



 

 

CONSOLIDATED CASH FLOW STATEMENT

 


Note

Year ended

31 December 2019

£000s

Year ended

 31 December 2018

£000s




15

38,958

26,111


(3,200)

(3,941)


35,758

22,170





23

36


-

-


-

-


(12)

(43)


(4,145)

(2,891)


-

1,426


500

2,196


350

-


-

1,000


-

(60,307)


-

(500)


(3,284)

(59,083)





(2,505)

(3,197)


(1,401)

(362)


(726)

(512)


-

32,755


4,509

2,063


(7,596)

(6,346)


1,054

28,000


(18,533)

(15,813)


(25,198)

36,588


7,276

(325)


10,893

11,184


(339)

34


17,830

10,893

 

 

 

 

 



 

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2019

 

1. General information

Alliance Pharma plc ('the Company') and its subsidiaries (together "the Group") acquire, market and distribute pharmaceutical and other medical products. The Company is a public limited company, limited by shares, registered, incorporated and domiciled in England and Wales in the UK. The address of its registered office is Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB. The Company is listed on the AIM stock exchange.

 

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2019 or 31 December 2018. The auditors reported on those accounts and 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 2019 have not yet been delivered to the Registrar of Companies.

 

2. Revenue

Revenue information By Brand

Year ended

31 December 2019

£000s

Year ended

31 December 2018

£000s



31,039

22,467

11,528

5,037

8,236

6,982

6,538

5,756


57,341

40,242



7,647

7,858

8,057

7,207

6,732

6,671

4,409

3,874

2,081

2,702

2,921

2,645

3,458

2,640

2,676

2,225

2,272

2,181

38,043

39,963


78,296

77,966

135,637

118,208

 

*  Nizoral is shown on an agency basis in statutory revenue. Nizoral revenue presented on a see-through income statement basis is included as an alternative performance measure in note 17.

 

Xonvea Revenue is included in Other Local brands following the return of licensing rights (note 4).

 

Revenue information By Geography

Year ended

31 December 2019

£000s

Year ended

31 December 2018

£000s

51,404

52,266

32,496

25,386

45,644

35,077

6,093

5,479

135,637

118,208

 

Major customers

The revenue from the Group's largest customer is as follows. One customer separately comprised 10% or more of revenue (2018: one).

 


Year ended

31 December 2019

£000s

Year ended

31 December 2018

£000s

24,036

22,135

 

3. Profit before taxation

 

Profit before taxation is stated after charging/(crediting):

Year ended

31 December 2019

£000

Year ended

31 December 2018

£000



40

36

161

141

-

114

5

5

179

211

284

6,244

(1,817)

1,508

1,816

1,790

1,496

1,335

74

131

799

(575)

 

4. Non-underlying items

Non-underlying items are those significant items which the Directors have judged, by their nature, are not related to the normal trading activities of the Group. They are therefore separately disclosed as their significant, non-recurring nature does not allow a true understanding of the Group's underlying financial performance. This assessment requires judgement to be applied by the directors as to which transactions are non-underlying and whether this classification enhances the understanding of the users of the financial statements.

 


Year ended

31 December 2019

 £000s

Year ended

31 December 2018

£000s

(1,672)

-

(145)

-

-

1,508

-

(2,460)

-

(4,318)

(1,817)

(5,270)

348

1,044

(1,469)

(4,226)

 

In November 2019, the Group reached an agreement with Duchesnay Inc. of Canada ("Duchesnay") to return the UK and EU licensing rights to Xonvea, a prescription medicine for the treatment of nausea and vomiting of pregnancy where conservative management has failed. Under the terms of the agreement, £2.0m in milestone payments made to date will be repaid to the Group, £0.25m having been paid in 2019 with the balance due in 2020. Additionally, the remaining £0.5m due on initial acquisition of Xonvea previously held as contingent consideration has been waived as part of the agreement. This resulted in the release of the contingent consideration (note 11) and the disposal of the corresponding £0.5m asset under development (note 8). Both the release and disposal have been included within the loss on disposal, resulting in no net impact on the income statement.

 

The Group incurred non-underlying inventory provisions and associated restructuring costs in connection with the return of the Xonvea rights of £1.9m. The total non-underlying loss on disposal was £1.7m.

 

In December 2019, the Group sold the global rights to the brand Flammacerium for gross cash consideration of £0.75m payable over 6 years, £0.10m having been paid in 2019. Flammacerium is used for the prevention and treatment of infections in severe burn wounds. The total non-underlying loss on disposal was £0.1m.

 

The disposals of Xonvea and Flammacerium do not relate to the normal trading activities of the Group hence have been separately disclosed as non-underlying items.

 

In April 2018 the Group sold its 60% interest in Unigreg Limited to its joint venture partner, Pacific Glory Development Limited, for a consideration of £2.9m. The Group profit on disposal was £1.5m net of fees.

 

In May 2018 the Group was notified that the import licence partner was not going to receive the required approval to import Suprememil, the infant milk formula brand owned by Synthasia. Following subsequent discussions with the import licence partner and Synthasia management, the Board concluded to fully impair the joint venture investment of £0.3m and to fully provide for the associated receivables balances of £2.2m. This generated a non-cash, non-underlying impairment charge and receivables provision of £2.5m.

 

Sales of anti-malarial products fell significantly in 2018 due to competition in the UK market. In mid-August 2018, Alliance was notified by the manufacturer of these products of its intention to cease supply due to lower volumes. After due consideration, the Board concluded that, due to the decline in demand, it was not economic to transfer the product to an alternative manufacturer and therefore it was appropriate to write down the value of the £4.3m intangible asset associated with these products in full.

 

5. Finance costs

 


Year ended

31 December 2019

£000s

Year ended

31 December 2018

£000s



On loans and overdrafts

(3,191)

(2,964)

Amortised finance issue costs

(491)

(384)

Unwinding of discount on deferred and contingent consideration

-

(35)

Interest on lease liabilities

(95)

(74)


(3,777)

(3,457)

-

1,966



Interest income

23

52

Net exchange (loss)/gains

(799)

575


(776)

627

(4,553)

(864)

 

Unwinding of discount on deferred and contingent consideration was in respect of amounts payable from the Macuhealth and Vamousse acquisitions. The prior year decrease in contingent consideration related to changes in the original estimated amounts payable for the acquisition of the Vamousse brand. This change in fair value was caused by revisions to financial forecasts following acquisitions and is not considered to be a measurement period adjustment.

 



 

6. Taxation

 

Analysis of the charge for the period is as follows:


Year ended

 31 December 2019

£000s

Year ended

 31 December 2018

£000s



In respect of current period

4,373

3,003

Adjustment in respect of prior periods

(227)

7


4,146

3,010



Origination and reversal of temporary differences

1,804

1,110

Adjustment in respect of prior periods

116

327

6,066

4,447

 

The difference between the total tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:

 


Year ended

 31 December 2019

£000s

Year ended

 31 December 2018

£000s

31,076

22,803

5,904

4,332



166

259

-

(794)

(111)

334

(226)

(142)

277

310

(241)

(135)

297

283

6,066

4,447

 

A change to the UK corporation tax rate was announced in the Chancellor's Budget on 16 March 2016, reducing the main rate from 19% to 17% from 1 April 2020. This commitment was abandoned in the Budget on 11 March 2020. As this change was not substantively enacted at the balance sheet date, the effect is not included in these financial statements and UK timing differences have continued to be recognised at 17% for deferred tax purposes. The overall effect of this change in policy, if it had applied to the deferred tax balance at the balance sheet date, would be to increase the overall net deferred tax liability by £1,698,000. The income tax expense for the period would have increased by £1,854,000, with a charge of £287,000 to the revaluation reserve, and a £444,000 credit to other comprehensive income.

 

The Group has calculated "adjusted underlying effective tax rate" as an alternative performance measure in note 17.

 



 

7. Earnings per share (EPS)

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue 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. There are no differences in earnings used to calculate each measure as a result of the dilutive employee share options.

 

A reconciliation of the weighted average number of ordinary shares used in the measures is given below:

 


Year ended

31 December 2019

Year ended

31 December 2018

520,687,101

497,199,620

9,471,693

13,223,152

530,158,794

510,422,772

 

The underlying basic EPS is intended to demonstrate recurring elements of the results of the Group before non-underlying items. A reconciliation of the earnings used in the different measures is given below:

 


Year ended

31 December 2019

£000s

Year ended

31 December 2018

£000s

25,010

18,356

1,469

4,226

26,479

22,582

 

The resulting EPS measures are:


Year ended

31 December 2019

Pence

Year ended

31 December 2018

Pence

4.80

3.69

4.72

3.60

5.09

4.54

4.99

4.42

 

 

8. Goodwill and intangible assets

 


 Goodwill

£000s

Brands and distribution rights

£000s

Development costs

£000s

Assets under development

£000s

Total

£000s






16,565

328,092

768

1,000

346,425

-

-

12

-

12

(33)

(1,500)

(780)

(1,000)

(2,813)

-

(3,051)

-

-

(3,051)

16,532

323,541

-

-

340,073






-

11,182

-

-

11,182

-

284

-

-

284

-

179

-

-

179

-

(232)

-

-

(232)

-

11,413

-

-

11,413






16,532

312,128

-

-

328,660

16,565

316,910

768

1,000

335,243

 


 Goodwill

£000s

Brands and distribution rights

£000s

Development costs

£000s

Assets under development

£000s

Total

£000s






16,565

263,560

725

2,500

283,350

-

60,307

43

-

60,350

-

(18)

-

-

(18)

-

1,500

-

(1,500)

-

-

2,743

-

-

2,743

16,565

328,092

768

1,000

346,425






-

4,727

-

-

4,727

-

1,926

-

-

1,926

-

4,318

-

-

4,318

-

211

-

-

211

-

11,182

-

-

11,182






16,565

316,910

768

1,000

335,243

16,565

258,833

725

2,500

278,623

 

Goodwill and the majority of brands and distribution rights are considered to have indefinite useful economic lives and are therefore subject to an impairment review at least annually.

 

Brands and distribution rights

Key judgement - useful economic lives

Certain brands were acquired with patent protection, which lasts for a finite period of time. It is the opinion of the Directors that these patents do not provide any incremental value to the value of the brand and therefore no separate value has been placed on these patents. This assessment is based on a view of future profitability after patent expiry and past experience with similar brands.

 

The Directors believe applying indefinite lives to certain acquired brands is appropriate due to the stable long-term nature of the business and the enduring nature of the brands. These brands are assessed on acquisition to ensure they meet set criteria including an established and stable sales history.

 

Where distribution rights are deemed to have a finite life they are amortised accordingly. Amortisation is included in administration and marketing expenses. The remainder of the distribution rights have no defined time period or there is evidence to support the renewal of distribution rights without disproportionate cost. These assets are therefore treated the same as acquired brands.

 

It is the opinion of the Directors that the indefinite life assets meet the criteria set out in IAS 38. This assessment is made on an asset by asset basis taking into account:

·   How long the brand has been established in the market and subsequent resilience to economic and social changes;

·   Stability of the industry in which the brand is used;

·   Potential obsolescence or erosion of sales;

·   Barriers to entry;

·   Whether sufficient marketing promotional resourcing is available; and

·   Dependency on other assets with defined useful economic lives.

 



 

Goodwill

The net book value of brand and distribution rights and goodwill which are considered to have indefinite useful lives are allocated to CGUs in the following table. Goodwill relating to the acquisition of certain assets and businesses from Sinclair IS Pharma plc is allocated to the group of related product CGUs. Other Goodwill amounts are allocated to the product CGU with which they were originally acquired.

 

Year ended 31 December 2019

 Goodwill

£000s

Brands and distribution rights

£000s

Total

£000s

-

60,307

60,307

598

12,876

13,474

-

12,931

 12,931

-

11,596

 11,596

1,748

8,740

 10,488

-

9,100

 9,100

1,849

8,043

 9,892

-

7,697

 7,697

-

7,527

 7,527

-

5,575

 5,575

 1,147

26,882

 28,029




-

41,456

41,456

-

25,198

25,198

-

25,000

 25,000

-

17,800

 17,800

-

17,400

 17,400

-

14,000

 14,000

11,190

-

11,190

 16,532

312,128

328,660

 

Year ended 31 December 2018

 Goodwill

£000s

Brands and distribution rights

£000s

Total

£000s

-

60,307

60,307

598

12,876

13,474

-

12,931

 12,931

-

11,596

 11,596

1,748

8,740

 10,488

-

9,100

 9,100

1,849

8,043

 9,892

-

7,697

 7,697

-

7,527

 7,527

-

5,575

 5,575

 1,147

27,229

 28,376




-

43,075

43,075

-

26,567

 26,567

-

25,000

 25,000

-

17,800

 17,800

-

17,400

 17,400

-

14,000

 14,000

11,223

-

11,223

 16,565

315,463

332,028

 

Recent acquisitions

 

The following acquisition activities took place in the prior year:

 

On 21 June 2018, the Group acquired the exclusive marketing rights to Nizoral, a medical anti-dandruff shampoo, in Asia-Pacific from Janssen Pharmaceutica NV (a member of the Johnson & Johnson group of companies) for a total consideration of £60.0m. Associated legal and due diligence costs were £0.3m. The acquisition was funded by an underwritten equity placing of new ordinary shares in the capital of the Company to raise gross proceeds of £34.0m (net proceeds: £32.8m after deduction of £1.2m directly attributable expenses), and by the draw-down of £28.0m from a £35.0m extension of the Group's debt facilities.

 

In respect of Nizoral, the amounts included in the income statement since 21 June 2018 were revenues of £5.0m and net profit of £3.6m. Had the transaction occurred on 1 January 2018 estimated contribution to Group revenues would have been £10.7m and net profit of £7.6m.

 

Impairment

All intangible assets are stated at the lower of cost less accumulated amortisation and impairment or the recoverable amount.

 

Assets with indefinite useful economic lives and those that are not yet available for use are tested for impairment at least annually, or more frequently if there are indicators that amounts might be impaired. These assets are tested at CGU level (or at group of CGUs level in the case of goodwill relating to the acquisition of certain assets and businesses from Sinclair IS Pharma plc) as the Directors believe these CGUs generate largely independent cash inflows.

 

The impairment test involves determining the recoverable amount of the relevant cash-generating unit, which corresponds to the higher of the fair value less costs to sell or its value in use.

 

The value in use calculation uses cash flow projections based on financial forecasts for up to the next five years extrapolated to perpetuity. Financial forecasts for 2020 are based on the approved annual budget. Financial forecasts for 2021-24 are based on the approved long range plan. Margins are based on past experience and cost estimates.

 

Key source of estimation uncertainty - value in use assumptions

The key assumptions on which cash flow projections are made are as follows (including our assessment of the estimation uncertainty arising):

 

Discount rates

Methodology: Cash flows are discounted at an appropriate rate, based on the Group's post-tax Weighted Average Cost of Capital (WACC) adjusted where appropriate for country specific risks, of between 7.7%-12.0%, or pre-tax 9.6%-15.0% (2018: between 7.9%-10.5%, or pre-tax 9.6%-12.8%).

 

Estimation uncertainty: The assumptions included in the compilation of the CGU specific discount rates are designed to approximate the discount rate that a potential market participant would adopt. Given the nature of the Group's business model, the discount rate necessarily includes estimation uncertainty.

 

Forecast cash-flows

Methodology: Approved budgets and forecasts for up to five years, based on management's best estimate of cash flows by individual CGU. These forecasts are then uplifted to perpetuity using growth rates between -2.8% and 2.0% based on the Group's long-term projections. Higher growth rates have been applied to certain International Star brands in order to reflect the Group's view of the strong long-term growth prospects of these products, taking into account the growth since acquisition and intended marketing investment.

 

Estimation uncertainty: The growth rates assumed in the Group's budgets and forecasts inherently include estimation uncertainty relating to the achievement of commercial initiatives and external factors such as competition.

 

The Group has conducted sensitivity analysis on the impairment tests. The valuations indicate sufficient headroom, the Group does not consider that any reasonably possible change in key assumptions could result in an impairment for all intangibles except Nu-seals as detailed below.

 

Nu-seals

Nu-seals is a low dose aspirin sold mainly in Ireland. In recent years it has seen significant competition from generic alternatives. The recoverable amount of this CGU is based on a value in use calculation with the following key assumptions:


%

10.0

(1.0)

 

The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined based on management's estimate of the long-term prospects for Nu-seals.

 

The estimated recoverable amount of the CGU exceeded its carrying amount of £9.1m by £0.2m. Management has identified that a reasonably possible change in the two key assumptions could cause the carrying amount to exceed the recoverable amount. The following table shows the individual assumptions required for the estimated recoverable amount to be equal to the carrying amount whilst other assumptions are held constant.

 


%

10.3

(1.3)

 

The following table shows the potential impact of reasonably possible changes to individual assumptions on the estimated recoverable amount of the CGU, whilst other assumptions are held constant.

 


Decrease in CGU recoverable amount £000s

 (810) 

 (610)

 

Recent significant impairments

Sales of anti-malarial products fell significantly in 2018 due to competition in the UK market. In mid-August 2018, Alliance was notified by the manufacturer of these products of its intention to cease supply due to lower volumes. After due consideration, the Board concluded that, due to the decline in demand, it was not economic to transfer the product to an alternative manufacturer and therefore it was appropriate to write down the value of the £4.3m intangible asset associated with these products in full in 2018.

 

The Group had a £1.9m intangible asset within Brands and distribution rights representing the value of the agreement with Macuhealth to guarantee supply of MacuShield API. In September 2018 the Group was notified by Macuhealth of their intention to end this supply agreement. As a result of the notification the £1.9m intangible asset was written down in full, and related deferred consideration of £1.1m released to the income statement. The net impact on underlying profit before tax was therefore a charge of £0.8m.

 



 

9. Inventories

 


31 December 2019

£000s

31 December 2018

£000s

19,089

20,544

(3,571)

(1,838)


15,518

18,706

 

Inventory costs expensed through the income statement during the year were £47,926,000 (2018: £44,349,000). During the year £2,673,000 (2018: £1,983,000) was recognised as an expense relating to the write-down of inventories to net realisable value, including £1,152,000 related to the return of Xonvea licensing rights and included within non-underlying items (note 4).

 

10. Trade and other receivables

 


31 December 2019

£000s

31 December 2018

£000s

23,987

23,407

2,522

1,083

703

1,216

3,780

3,442


30,992

29,148

 

The ageing of trade receivables at 31 December is detailed below:

 

Trade and receivables, net estimated allowances for expected credit losses

31 December 2019

£000s

31 December 2018

£000s

19,640

20,482

3,253

1,794

278

391

320

145

496

595


23,987

23,407

 

Trade and receivables, gross of estimated allowances for expected credit losses

31 December 2019

£000s

31 December 2018

£000s

19,640

20,482

3,253

1,794

278

391

320

145

1,495

1,463


24,986

24,275

 

As at 31 December 2019, trade and other receivables of £999,000 (2018: £868,000) were past due and impaired.

 

Our policy requires customers to pay us in accordance with agreed payment terms. Depending on the geographical location, our settlement terms are generally due within 30 or 60 days from the end of the month of sale.



 

11. Trade and other payables

 


31 December 2019

£000s

31 December 2018

£000s

6,970

8,978

3,247

1,808

10,114

10,301

459

197

-

500

1,025

447


21,815

22,231

 

Contingent consideration of £0.5m related to the Licence and Supply Agreement for the product Xonvea with Duchesnay Inc. Following return of the UK and EU licensing rights to Xonvea (note 4), this has been waived.  The waiver resulted in the release of the contingent consideration and the disposal of the corresponding £0.5m asset under development (note 8). Both the release and disposal have been included within the loss on disposal, resulting in no net impact on the income statement.

 

12. Loans and borrowings

     

On 2 July 2019, the Group agreed a new £165m fully Revolving Credit Facility ('RCF'), together with a £50m accordion facility, with an enlarged syndicate of lenders on improved terms, replacing the previous facility which ran through to December 2020. This has been classified as a non-current liability. The bank facility is secured by a fixed and floating charge over the Company's and Group's assets registered with Companies House.

 


31 December 2019

£000s

31 December 2018

£000s



-

68,500

-

(465)


-

68,035

 


31 December 2019

£000s

31 December 2018

£000s



78,848

29,100

(1,808)

(433)


77,040

28,667

 

Movement in loans and borrowings

31 December 2019

£000s

31 December 2018

£000s

96,702

83,499

(17,479)

12,187

(1,401)

(362)

491

384

(1,273)

994

77,040

96,702

 

* Exchange movements on loans and borrowings are reported in other comprehensive income and accumulated in the translation reserve.

 



 

13. Other non-current liabilities

 


31 December 2019

£000s

31 December 2018

£000s

1,997

1,972

404

380


2,401

2,352

 

14. Share capital

 


Allotted, called up and fully paid

No. of shares

£000s

474,989,988

4,750

43,224,238

432

518,214,226

5,182

11,188,393

112

529,402,619

5,294

 

Between 1 January 2019 and 31 December 2019 11,188,393 shares were issued on the exercise of employee share options (2018: 5,861,601).

 

On 21 June 2018 37,362,637 shares were issued at 91.0p in the underwritten equity placing used for the acquisition of Nizoral. This raised gross proceeds of £34.0m before expenses. The net addition to equity was £32.8m after the deduction of £1.2m directly attributable expenses.

 

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

 

Managing Capital

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

 

The capital structure of the Group consists of net bank debt and Shareholders' equity. At 31 December 2019, net debt was £59.2m (2018: £85.8m) (note 17), whilst Shareholders' equity was £274.2m (2018: £252.2m).

 

The business is profitable and cash generative. The main financial covenant applying to bank debt are that leverage (the ratio of net bank debt to EBITDA) should not exceed 3.0 times. The Group complied with this covenant in 2019 and 2018.

 

Smaller acquisitions are typically financed using 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 leverage at comfortable levels.

 

15. Cash generated from operations

 


 Year ended

31 December

2019

£000s

Year ended

31 December

2018

£000s

25,010

18,356

6,066

4,447

3,777

3,457

-

(1,966)

-

(1,048)

(23)

(52)

799

(575)

-

(1,508)

1,672

-

145

-

1,496

1,335

463

6,455

-

2,460

2,036

(4,458)

-

(13)

(498)

(7,628)

(3,801)

5,059

1,816

1,790

-

-

38,958

26,111

 

16. Contingent liabilities

 

Contingent liabilities are possible obligations that are not probable. The Group operates in a highly regulated sector and in markets and geographies around the world each with differing requirements. As a result, and in the normal course of business, the Group can be subject to a number of regulatory inspections/investigations on an ongoing basis. It is therefore possible that the Group may incur penalties for non-compliance. In addition, a number of the Group's brands and products are subject to pricing and other forms of legal or regulatory restrictions from both governmental/regulatory bodies and also from third parties. Assessments as to whether or not to recognise a provision in respect of these matters are judgemental as the matters are often complex and rely on estimates and assumptions as to future events.

 

On 23 May 2019 the UK's Competition and Markets Authority ("CMA") issued a Statement of Objection alleging anti-competitive agreements against the Group and certain other pharmaceutical companies in relation to the sale of prescription prochlorperazine. Prochlorperazine is one of the Group's smaller products and had peak sales in 2015 of £1.9m and sales of less than £0.1m in 2019.

 

The Group confirms that it has had no involvement in the pricing or distribution of prochlorperazine since 2013, when it was out-licensed by the Group. Prior to 2013, prochlorperazine was marketed directly by the Group.

 

The Group has reviewed the CMA Statement of Objection in detail and is working with the CMA to resolve its alleged objections.

 

The Group's assessment as at the date of this report, based on currently available information, is that there are no matters for which a provision is required (31 December 2018: £nil). However, given the inherent uncertainties involved in assessing the outcomes of such matters there can be no assurance regarding the outcome of any ongoing inspections/investigations and the position could change over time as a result of the factors referred to above.

 

17. Alternative performance measures

 

The performance of the Group is assessed using Alternative Performance Measures ("APMs"). The Group's results are presented both before and after non-underlying items. Adjusted profitability measures are presented excluding non-underlying items as we believe this provides both management and investors with useful additional information about the Group's performance and aids a more effective comparison of the Group's trading performance from one period to the next and with similar businesses.

 

In addition, the Group's results are described using certain other measures that are not defined under IFRS and are therefore considered to be APMs. These measures are used by management to monitor ongoing business performance against both shorter term budgets and forecasts but also against the Group's longer term strategic plans.   APMs used to explain and monitor Group performance:

 

Measure

Definition

Reconciliation to GAAP measure

 

A. Underlying EBIT and EBITDA

Reconciliation of Underlying EBIT and EBITDA

Year Ended 31 December 2019

£000s

Year Ended 31 December 2018

£000s

31,076

22,803

1,817

5,270

4,553

864

37,446

28,937

1,496

1,335

284

1,926

179

211

39,405

32,409

 

B. Free cash flow

Reconciliation of free cash flow

Year Ended
31 December 2019

£000s

Year Ended
31 December 2018

£000s

38,958

26,111

(2,505)

(3,197)

(4,145)

(2,891)

(3,200)

(3,941)

29,108

16,082

 

C. Net debt

Reconciliation of net debt

Note

31 December 2019

£000s

31 December 2018

£000s

12

-

(68,035)

12

(77,040)

(28,667)


17,830

10,893


(59,210)

(85,809)

 

D. Adjusted underlying effective tax rate

Reconciliation of adjusted underlying effective tax rate

Year Ended
31 December 2019

£000s

Year Ended
31 December 2018

£000s

(6,066)

(4,447)

(348)

(1,044)

(6,414)

(5,491)

32,893

28,073

19.5%

19.6%

 

E. See-through income statement


2019 statutory values

£000s

See-through adjustment

£000s

2019 see-through values

 £000s

135,637

8,641

144,278

(49,561)

(8,641)

(58,202)

86,076

-

86,076

63.5%


59.7%

 


2018 statutory values

£000s

See-through adjustment

£000s

2018 see-through values

 £000s

118,208

5,834

124,042

(45,560)

(5,834)

(51,394)

72,648

-

72,648

61.5%


58.6%

 

There is no impact from the see-through adjustment on income statement lines below gross profit.

 

F. Constant currency revenue


2019

£000s

Foreign
exchange
impact

£000s

2019
constant
currency
revenue

 £000s

144,278

(767)

143,511

6,538

(237)

6,301

 


2018

£000s

Foreign
exchange
impact

£000s

2018
constant
currency
revenue

 £000s

124,042

516

124,558

5,756

138

5,894

 

18. Post balance sheet events

 

Impact of Coronavirus

As highlighted and discussed in the Chief Executive's Review, the Group notes the developing situation regarding the outbreak of the coronavirus, COVID-19. The Group is actively assessing and monitoring this pandemic and will continue to keep the impact on the business, and the opportunities for us to minimise the economic impact on our business, under review. At the date of this report we are not yet able quantify the potential financial impact, however a range of reasonably possible scenarios have been modelled for the purpose of covenant compliance. Under these scenarios we are forecast to maintain compliance with future covenant requirements.

 


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