Interim Results for the six months ended 30 June 2016
ALLIANCE PHARMA PLC
("Alliance" or the "Group")
Alliance Pharma plc (AIM: APH), the specialty pharmaceutical company, is pleased to announce its interim results for the six months ended 30 June 2016.
- Half year revenue up 104% at £46.4m (H1 2015: £22.8m)
- Ex-Sinclair products have made an immediate contribution to our results, in line with our expectations and enabling revenues to more than double
- Underlying revenue growth of 6% in the original Alliance portfolio
- Our largest-selling brand is now the scar reduction product, Kelo-cote™, which achieved H1 sales of £4.1m from a widely spread international base
- Hydromol™, our emollient range, maintained its double digit growth rate, with H1 sales of £3.5m
- MacuShield™, our nutritional supplement product for age related macular degeneration (AMD), delivered H1 sales of £2.0m (£1.4m in the five months after we acquired it in February 2015)
- Half year EBITDA up 109% at £13.2m (H1 2015: £6.3m)
- Half year PBT up 113% at £11.7m (H1 2015: £5.5m)
- Basic earnings per share 2.04p (H1 2015: 1.65p)
- Interim dividend up 10% to 0.403p (H1 2015: 0.366p)
- Net bank debt £79.0m (31 December 2015: £71.5m)
- Driven jointly by increases in working capital and Sterling's weakness
“Alliance Pharma is a transformed business with sales and profits in the first half of 2016 having doubled from those of 2015. We are already seeing opportunities to exploit our expanded international capabilities. We were delighted to announce yesterday the signing of an EU licensing and distribution agreement for Diclectin with Duchesnay Inc., which provides the opportunity to launch this product in a further nine EU territories. This agreement highlights the potential of our strengthened European base.”Andrew Smith, Alliance Pharma's Chairman
For further information:
Alliance Pharma plc + 44 (0)1249 466966
Peter Butterfield, Chief Executive Officer
Andrew Franklin, Chief Financial Officer
Buchanan + 44 (0)20 7466 5000
Mark Court / Sophie Wills / Hannah Ratcliff
Numis Securities Limited + 44 (0)20 7260 1000
Nominated Adviser: Michael Meade / Freddie Barnfield
Corporate Broking: James Black
Investec Bank plc + 44 (0)20 7597 5970
Corporate Finance: Daniel Adams / Ed Thomas
Corporate Broking: Patrick Robb / Tejas Padalkar
Notes to editors:
Alliance, founded in 1998, is an international specialty pharmaceutical company based in Chippenham, Wiltshire, UK. The Company has sales in more than 100 countries worldwide via direct sales, joint ventures and a network of distributors. Alliance has a strong track record of acquiring the rights to established niche products and it currently owns or licenses the rights to approximately 90 pharmaceutical and consumer healthcare products. The Company continues to explore opportunities to expand its product portfolio.
Alliance joined the AIM market of the London Stock Exchange in December 2003 and trades under the symbol APH.
Chairman's and Chief Executive's Statement
Alliance Pharma in 2016 is twice the size that it was in 2015. We are a transformed business looking forward to greatly increased opportunities in 2016 and beyond. The integration of the Sinclair Healthcare Products business acquired in December 2015 has brought us 27 new products, increasing our portfolio to some 90 products, and extended our reach from around 40 countries to over 100. We are now a truly international business, with half of our sales in markets outside the UK.
The original Alliance products performed strongly in the first half and the ex-Sinclair products have made an immediate contribution to our results, in line with our expectations.
Integration of the Sinclair operations is advancing well. We have maintained the flow of the business and will be independent from Sinclair in terms of the cash generating activities in Q4 this year. Other items such as packaging and livery changes that depend upon regulatory approvals will take up to 18 months to be complete in all the territories.
Most of the key positions within the organisation have now been filled and we are working hard to implement standard ways of working and to develop a common culture, building on the best of the two organisations.
In the first half of 2016, sales more than doubled to £46.4m (H1 2015: £22.8m). The ex-Sinclair products contributed sales of £20.6m, in line with expectations, while the balance of £25.8m represented over 13% growth in the original Alliance portfolio. This strong performance reflected 6% underlying growth, augmented by 7% from one-off events such as the full year effects of products acquired in 2015 or products with restored availability.
The weakening of Sterling against the Euro and the US Dollar that developed during the half year had the effect of increasing sales by 2% when compared to the rates at the start of the year. The impact to profit before tax is significantly less due to the benefit to sales being offset by increased costs denominated in these currencies.
Our three strategic growth brands all performed well. Our largest-selling brand is now the scar reduction product, Kelo-cote™, which achieved H1 sales of £4.1m from a widely spread international base. Hydromol™, our emollient range, maintained its double digit growth rate, with H1 sales of £3.5m predominantly from the UK. And MacuShield™, our nutritional supplement product for age related macular degeneration (AMD) delivered H1 sales of £2.0m, the majority of which originated from the UK and Ireland. This compared with £1.4m in the five months after we acquired it in February 2015.
The UK remains our largest territory returning sales of £24.0m (H1 2015: £18.3m).
In addition to Hydromol, mentioned above, other notable achievements included:
The consumer healthcare brands performing well. Ashton & Parsons Infants' Powders grew by 51% to £1.1m in H1 as we signed-up more national retail chains and supported them with advertising investment. Brand loyalty is strong and we expect further growth as awareness of the brand spreads. Additionally, Anbesol, our treatment for mouth ulcers and teething, had sales of £0.8m in H1, an increase of 10% over the prior year.
In ophthalmology, UK MacuShield sales were £1.3m, compared with £1.0m for the first five months of 2015.
We were able to bring our bladder cancer treatment, ImmuCyst™, back to the market in February as our supplier, Sanofi Pasteur, resumed production after a 3½-year suspension. Production remains restricted, so we will not be able to expand our market share beyond about 25% and we are thus managing sales carefully to ensure continuity of care to every patient who begins a course of treatment. Volumes have been building steadily and we are confident that we will sell all our available supplies, yielding revenues of around £1 million in 2016.
Sales of Forceval capsules continued their strong recovery from stock-outs, with UK sales up 36% to £1.3m in H1 2016.
Western Europe (excl. UK)
Sales for the rest of Western Europe totalled £11.7m (H1 2015: £2.3m).
In France sales were £4.5m with the largest seller being the burns treatments Flammazine / Flammacerium at £1.4m.
In the Republic of Ireland, sales were £2.4m. Nu-Seals achieved sales of £1.1m compared with £1.0m in the prior year as the threat of generic substitution seems to have abated. Additionally MacuShield performed strongly with sales of £0.4m compared with £0.2m in the first five months of 2015.
In the Germany, Austria, Switzerland (DACH) region, sales were £2.0m with the largest product being Flammazine at £0.9m.
Spain and Italy recorded sales of £1.4m and £1.3m respectively with Aloclair, the mouth ulcer treatment, being the largest product in each country with sales of £0.8m and £0.9m respectively.
Total sales outside of Western Europe were £10.7m (H1 2015: £2.2m).
Kelo-cote was the largest selling international product recording sales of £3.2m, with £0.6m coming from Latin America, £0.9m coming from China and £0.8m from Southeast Asia.
Flammazine sold £1.1m with £0.5m coming from Central and Eastern Europe (CEE) and £0.5m from the Middle East and Africa (MEA); and Aloclair £1.0m with £0.5m from CEE. International sales for Syntometrine were £0.7m and the range of child nutrition products acquired from Sinopharm in China last year achieved sales of £0.4m.
Pre-tax profits more than doubled to £11.7m (H1 2015: £5.5m). This was a particularly encouraging result in the first period following the acquisition of the Sinclair products.
Gross margin was 56.0%, resulting in gross profit of £26.0m (H1 2015: £13.8m, 60.5%). This lower gross margin percentage is in line with our expectations as the Sinclair business has a slightly lower average gross margin than our original Alliance business. We expect average margin for the combined business to be in the range 55%-60% going forward.
Operating costs for the half year totalled £13.4m compared with £7.7m in the first half of 2015. Marketing investment was mainly directed at Kelo-cote, Hydromol, MacuShield, Diclectin, Ashton & Parsons, the re-introduction of ImmuCyst and the Flamma franchise. Transition costs, including interim staff, totalled £1.3m. Whilst there have been transition costs associated with the integration of the Sinclair acquisition that will not recur in 2017, they will be compensated by the full year effect of employees recruited during this year.
Earnings before interest, taxes, depreciation and amortisation (EBITDA), defined as Operating Profit (incl. share of Joint Venture profit) less Depreciation and Amortisation, was £13.2m (H1 2015: £6.3m). This represents 28.5% of sales, placing us close to the top of our 25-30% target range.
Alliance remains a strongly cash-generative business. However, cash generation in the short term has been constrained by an increase in working capital from the balance of trade debtors and creditors associated with the acquisition of the Sinclair products. Working capital, with the exception of inventory, was not purchased as part of the Sinclair acquisition and we have therefore seen a build-up in H1 that we expect to now stabilise. Despite this, cash flow from Operating Activities in the first half increased to £4.2m (H1 2015: £2.8m).
Net debt rose to £79.0m from £71.5m at the end of 2015. The increase was partly due to increases in working capital levels and partly due to Sterling's weakness following the EU referendum, as approximately half our debt is denominated in Euros and US Dollars. At constant exchange rates, the 2016 half year figure would have been approximately £75.8m. The movement in foreign denominated loans and subsidiaries is largely accounted for within equity, therefore there is minimal P&L impact from the exchange rate movement on our loans.
The bank debt/EBITDA ratio remained stable over the period, being 2.8 times at the end of the first half and also 2.8 times at the end of 2015 (both including historic Sinclair pro forma EBITDA). The ratio at half year was adversely impacted by Sterling's weakness on net debt and the increase in working capital. From the second half of 2016 onwards we expect to reduce this figure progressively as cash generation increases and working capital stabilises.
At the end of the period we had unused bank facilities of £20.5m. This gives us ample headroom to finance bolt-on additions if attractive opportunities arise.
In line with our progressive dividend policy, and given the strong progress made in the first half of 2016, we are making an interim payment of 0.403p per ordinary share (H1 2015: 0.366p). This represents an increase of 10% on last year's figure while maintaining dividend cover at more than 3 times earnings.
The interim dividend will be paid on 12 January 2017 to shareholders on the register on 23 December 2016.
Our strategy is to build our portfolio by acquiring products that are already established in their market or by in-licensing already-developed products for launch. We deploy our capital to grow our cash generating portfolio, leaving activities such as manufacturing, storage and logistics to be outsourced to leading specialist organisations in these fields.
In building our portfolio we balance two elements: the first being brands with growth potential in which we invest and the second being well-established niche brands that will maintain their sales for many years with little or no promotion, thus providing a cash generating "bedrock" that feeds the growth activities. By balancing the two elements, we can invest in targeted marketing to grow sales while maintaining good cash generation and profitability.
Under our long-established 'buy and build' strategy we supplement organic growth with acquisitions that allow us to accelerate expansion and adjust the balance of our portfolio. The Sinclair transaction in December 2015 was our 31st and largest-ever acquisition. We made no acquisitions in H1 2016.
The Sinclair business brought us brands in both the 'growth' and 'bedrock' categories, leaving the balance broadly unchanged. Since the acquisition we have been refining our strategies for individual brands, to determine which products and which markets will be the focus of our marketing investment.
Sinclair has greatly expanded our international footprint - lifting non-UK sales from about 19% of turnover to approximately 50%, giving us a market presence in some 60 additional countries and giving us critical mass in the major EU territories. This creates new opportunities to broaden the marketing and distribution of brands - although careful analysis and planning is necessary, as a successful niche brand from one country may face a very different competitive landscape in other markets. Our greater scale and footprint also bring strategic advantages. Alliance is now a credible candidate for larger and more complex acquisitions in a wider range of territories; and we are also well placed to broaden the scope of existing agreements, as indicated by yesterday's announcement to acquire the licensing and distribution rights to Diclectin in a further nine EU countries
We continue to make good progress towards UK registration for Diclectin. This well-established product, which has been a routinely used treatment in Canada for over 30 years for nausea and vomiting of pregnancy. In the United States, it was licensed by the FDA in 2013 under the name Diclegis with a Category A safety rating for drugs used during pregnancy, and has performed strongly since launch. We expect UK registration next year, enabling us to begin sales in the second half.
In the meantime, in the UK consumer health market, we are preparing to relaunch Lypsyl in the second half of this year. We have re-engineered the product and upgraded the pack design to enhance its shelf presence. The lip balm market is a crowded one, but Lypsyl still enjoys high consumer awareness - the trademark was first registered 125 years ago - and we are confident that this rejuvenated brand can reclaim a strong position.
The significantly greater scale of our business has highlighted the need for investment in a new enterprise resource planning (ERP) system to manage the enlarged portfolio and facilitate further expansion in the future. We will start this project in early 2017 once the majority of the Sinclair integration has completed.
Prior to the acquisition of the Sinclair products, we had fine-tuned the leadership of the major functions within the business and also had in place Country Managers for France and Germany. This greatly facilitated our absorption of the Sinclair products business. As part of the Sinclair transaction, Dario Opiparo transferred to us as Country Manager for Italy. We promoted Steve Lobb to Head of UK & Ireland; Alex Duggan to Head of Strategy for our Global Consumer Brands; and Karim Husny to be Head of our International Business. Thus we have been able to hit the ground running in taking over the new business that effectively doubled the size of our operation. To complement the foregoing, we have appointed Luis Silva as Country Manager for Spain, Roger Lim as Regional Business Manager for Southeast Asia and we expect to appoint a new head of our enlarged China business in the near future. We thus have in place senior managers who can provide market insight and knowledge across all our geographic interests.
We continue to donate products regularly to International Health Partners, which distributes medicines to doctors in the world's neediest areas. We also support employee fundraising for local causes including Wiltshire Air Ambulance and national charities such as British Heart Foundation and The Alzheimer's Society.
We are confident in the outlook for Alliance. We are putting together a high calibre team within an efficient organisation using class-leading systems to support further profitable transformation over the next few years. In addition we will be investing in Diclectin to provide a new platform for future growth.
In terms of the business environment, it is still too early to assess the long-term impact of the UK's decision to renegotiate its relationship with the European Union, which is reported will take considerable time. However, with operations in France, Germany, Italy and Spain, we do not expect market access to be a problem - and all our licences are held within individual member states.
For the rest of this year, our focus will be on assimilating the ex-Sinclair business and beginning to exploit the opportunities it opens up for us. We do not anticipate any further substantial acquisitions in the very near term, but remain alert to bolt-on opportunities that add value. As we move through into next year, we will be looking for the kind of product acquisitions and in-licensing deals across Europe, such as Diclectin, that might not have been open to us before. The past six months have begun the transformation of Alliance, and we are encouraged by its progress so far.