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APH Full Year Results


("Alliance" or the "Group")

Results for the year ended 31 December 2017

Alliance Pharma plc (AIM: APH), the international specialty pharmaceutical company, is pleased to announce its results for the year ended 31 December 2017.

Financial highlights

  • Revenue up 6% to £103.3m (2016: £97.5m)
    • FX effect approximately £2.7m, up 3% on constant currency basis
  • EBITDA* up 3% to £26.8m (2016: £26.0m)
  • Reported pre-tax profit up 28% to £28.4m (2016: £22.2m)
    • Underlying pre-tax profit up 8% to £24.0m (2016: £22.2m)
  • Reported basic EPS up 58% to 6.10p (2016: 3.85p) including the impact of the Sinclair settlement income and the effect of tax rate changes, primarily in the US
    • Underlying adjusted basic EPS* up 10% to 4.06p (2016: 3.69p)
  • Free cash flow* up 67% to £21.7m (2016: £13.0m)
  • Net bank debt* of £72.3m (2016: £76.1m)
    • A reduction in net debt despite the £16.0m investment in acquisitions
    • Leverage at year end of 2.46 times (Adjusted net debt to EBITDA ratio)
  • Proposed dividend:
    • Final dividend up 10% to 0.888p per share (2016: 0.807p)
    • Full year dividend up 10% to 1.331p per share (2016: 1.210p)

* For definitions of non IFRS alternative performance measures see note 16

Operational highlights

  • Strong organic performance, driven by our International Star brands
    • Kelo-coteTM, our scar reduction brand, grew 34% to £13.3m (2016: £10.0m)
    • MacuShieldTM, the No.1 macular pigment supplement recommended by eye experts, grew 38% to £7.3m (2016: £5.3m)
  • Agreed a settlement in March 2017 with Sinclair, including £5.0m cash compensation, in relation to the material reduction of business in Kelo-stretchTM
  • Acquisition of VamousseTM in December 2017, adding a third International Star brand and creating a US operation for the Group
  • Acquisition of AmetopTM in December 2017 to complement our Bedrock portfolio
  • Now a £100m+ revenue business involving operations on three continents, with good progress in Asia Pacific through our distributor network

“Following a transformational year in 2016 in which the Sinclair Healthcare Products business was integrated into the Group, the business has delivered strongly in 2017. The strength of cash generation, coupled with the opportunities from our International Star brands, means we are well positioned to pursue growth both organically and through further acquisitions in 2018.
The year has started well, including the establishment of a US affiliate, and we look forward to leveraging our expanded footprint.”

David Cook, Alliance’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

Alliance Pharma plc is an international specialty pharmaceutical company.

Headquartered in Chippenham, UK, Alliance commenced trading in 1998 and has been listed on AIM since 2003. Alliance has a strong track record of acquiring established niche products and it currently owns or licenses the rights to approximately 90 pharmaceutical and consumer healthcare products. It has sales in more than 100 countries either directly via its affiliates or through its selected network of distributor partners. 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 Review

After another year’s strong performance we have exceeded £100m of revenue for the first time, marking an important milestone in the development of the Group.

Performance by region

UK and Republic of Ireland

Sales in our largest market grew to £56.3m, an increase of 4% on a like-for-like basis, driven primarily by MacuShield, which responded well to increased marketing investment and wider distribution, to achieve sales of £6.2m (2016: £4.6m). Similarly, Kelo-cote performed well during the year, with our renewed focus on the brand generating 38% growth to £0.8m. Sales of HydromolTM remained static at £7.0m as the emollient market slowed considerably.

Other highlights include our Local Hero brand LypsylTM, which grew by 32% to £1.2m, as a result of a product refresh and increased marketing effort.

Mainland Europe

In aggregate, the sales in our direct European territories (France, Germany, Switzerland, Austria, Italy, Spain and Portugal) were up 2% to £20.6m (decreasing by 4% on a constant currency basis relative to 2016). We saw a strong performance from Kelo-cote of £3.2m (2016: £1.4m), particularly since we repatriated our distribution agreements in France and Italy, but this was offset by distributor stocking patterns in Spain and Italy, primarily for AloclairTM, as we completed livery changes. We are working to solidify our position in these markets. We will evaluate opportunities to introduce Vamousse where appropriate and continue to analyse further acquisition prospects to leverage our footprint.


We were particularly pleased with our sales in our International business, which grew by 13% to £26.4m compared with 2016 (7% on a constant currency basis). Asia Pacific was the primary engine of growth, with sales increasing by 35% (28% in constant currency) thanks to robust sales of Kelo-cote and Aloclair through our distribution partners. Our Chinese business saw sales grow by 61% (54% in constant currency), with Kelo-cote the principal driver.


Our Buy & Build model continues to perform well, providing growth, profitability and cash generation. 

A key part of the model is our portfolio strategy.  We segment out our high growth International Star brands as the top priority for promotional investment.  These are Kelo-cote, our patented scar reduction product, and MacuShield, our supplement product that replenishes the layer of protective pigment on the macula, a critical region at the back of the eye.  MacuShield is the No.1 macula pigment supplement recommended by UK eye experts.  Following the acquisition at the end of 2017, we now have a third International Star brand in Vamousse, a novel, naturally based, pesticide-free treatment for headlice.  Each of these products has international potential.  Their individual marketing strategies are created centrally and adapted locally to suit different therapeutic and cultural approaches to treatment.

Vamousse is of special strategic relevance in that it was developed in the US, where it records over 80% of its current sales.  Acquiring Vamousse has enabled us to establish a low-risk entry into the world’s largest healthcare market with immediate profitability. This will undoubtedly allow us to benefit from further opportunities as we establish ourselves in this major market.  Vamousse also has good UK sales, and the brand fits neatly into our existing UK OTC portfolio.

As well as our International Stars, we have several Local Heroes which are national growth brands that excel in one or two markets without necessarily having broader global potential.  Examples are Hydromol, our UK dermatology brand; Aloclair, our brand for mouth ulcers that performs very well in Italy and Spain; and OxyplastineTM, a well-known nappy rash product in France and francophone Africa.

Of fundamental importance for providing profitability and cash contribution are our numerous Bedrock products. This part of the portfolio contains around 70 of our 90 brands and provides around 50% of our sales, providing a sustainable base for the business. These products are very well established in market niches and need minimal promotional support.  Our Bedrock products were recently boosted by the acquisition of Ametop from Smith & Nephew in December 2017.  Ametop is a well-established and widely used local anaesthetic gel, used on the skin prior to injections or cannulations.  

We continue to work with the Medicines and Healthcare products Regulatory Agency (MHRA) on DiclectinTM, a treatment for nausea and vomiting of pregnancy. We in-licensed the product from the Canadian group, Duchesnay Inc., for the UK in 2015 and for a further nine European territories in 2016. Working with Duchesnay, we believe that we are making good progress in resolving some of the issues initially expressed by the regulator in July 2017. We expect to have more clarity on the regulatory position within the next few months.  There are currently no licensed treatments for nausea and vomiting of pregnancy in the UK, highlighting a clear unmet medical need. If approved, Diclectin would represent a sizeable mid-term opportunity, once the initial marketing investments have paid back.

Over and above our organic growth opportunities, we will continue to look for good bolt-on acquisitions that will further enhance our growth.  Our ability to conclude such acquisitions is facilitated by our strong cash generation and our falling debt leverage position, as outlined in our financial review. Our ability to integrate acquisitions has been finely honed through 35 deals in the past 20 years.


Our new enterprise resource planning system, Microsoft AX, is anticipated to be operational by the end of 2018. By bringing several legacy systems onto a single platform that will handle all our financial and supply chain planning and fulfilment activities, this will streamline our processes and provide a scalable platform as we pursue further growth. 

We continue to keep a close eye on the unfolding situation with regards to Brexit. Many of our licences for medicines were granted on a national basis, so will remain unaffected. However, we are taking proactive steps to ensure that our regulatory, pharmacovigilance and quality functions can continue to operate effectively in the post Brexit environment. The presence of our European affiliates affords us a good degree of optionality in this respect and we expect minimal changes to our operational cost base as a result.  

Working in conjunction with our contract manufacturers, we are also well advanced in our preparations to upgrade our product packs and distribution systems to comply with the forthcoming obligations of the EU Falsified Medicines Directive legislation (FMD), which is designed to prevent counterfeit medicines reaching patients.


At Board level, Peter Butterfield was appointed Chief Operating Officer in June 2017, to add to his duties as Deputy Chief Executive. This shift in responsibilities has allowed John Dawson to be able to focus more on outward-facing initiatives, and Peter to continue the transition to CEO. In March we announced that following this planned transition period, Peter will step into the CEO role from the 1 May 2018 and John will become a Non-executive Director. Peter has almost 20 years of commercial and operational healthcare experience, the last eight being spent at Alliance.  The Chairman, Andrew Smith, stepped down from the Board on 1 March 2018, and was succeeded by David Cook, who has been a Non-executive Director of the Company for almost four years.

We thank Andrew for his valuable contribution to the Company over the past eleven years that has seen our underlying PBT grow from £0.5m to £24.0m and our market capitalisation from £22m to £320m.

To complement our internal promotions, during the year we appointed several external candidates to round out the Group’s capabilities. These included Amanda Sicvol, our General Manager for the US market, who joined Alliance Pharma with the acquisition of Vamousse; Chris Delafield, who joined us from Sanofi as the new Global Marketing Head for Kelo-cote; and Chris Chrysanthou, who joined us from Fladgate LLP to create our own in-house commercial legal function.

The performance of the business is built upon the hard work of our valued employees, and we wish to thank all our people for their dedication and contributions to the success of the Group. In addition to our ongoing investment in training and development, in the last couple of years we have enhanced our working environments, with significant refurbishment of our offices in Chippenham, as well as new offices in Madrid, Singapore, and – most recently – in the United States with the establishment of Alliance Pharma Inc. in Cary, North Carolina. 

We are delighted to report that in our most recent survey, we received our highest ever rating on employee engagement and look forward to continuing our efforts to make Alliance a great place to work and an employer of choice.

Financial review

Group performance

The Group achieved a strong financial performance with revenue increasing 6% to £103.3m (2016: £97.5m) and underlying profit before tax increasing 8% to £24.0m (2016: £22.2m).

The Group’s revenue was enhanced by approximately £2.7m due to the weakening of Sterling, primarily against the Euro and US Dollar. However, the effect on operating profits was much lower at approximately £0.3m due to the natural Euro hedge that exists, whereby Euro-denominated movements in sales are matched by corresponding movements in Euro-denominated cost of goods and operating costs.

Gross profit increased at a faster rate than revenue, increasing 8% to £59.0m (2016: £54.8m), resulting in a gross margin up 0.8% for the year to 57.1% (2016: 56.3%).  The increase in margin percentage resulted from the performance of our International Star growth brands, Kelo-cote and MacuShield, and we expect this trend to continue in 2018.

As planned, the Group increased investment in sales and marketing during 2017, focusing on our International Stars to support sales growth; this additional spend resulted in an increase in administration and marketing costs (excl. depreciation and amortisation) of £2.4m to £30.8m, representing 29.8% of sales. The IFRS2 share options charge also increased from £0.7m to £1.5m following the increased number of employees resulting from the Sinclair acquisition.

Earnings before interest, taxes, depreciation and amortisation (EBITDA), as per note 16, increased by 3% to £26.8m (2016: £26.0m).  Excluding the IFRS2 share options charge, EBIDTA increased by 6% to £28.2m (2016: £26.7m), maintaining its ratio of 27% of sales.

Finance cost

Finance costs reduced by £1.6m on the prior year to £1.8m (2016: £3.4m), due to a reduction in overall gross debt and a release of £0.6m estimated deferred consideration (2016: £0.8m charge). 
The average interest charge on gross debt during the year was 2.96%.


The total tax credit for the year of £0.5m (2016: £4.1m tax charge) is due to several events occurring in 2017: the enacted reduction in Corporate Income Taxes in the US and France reducing our deferred tax balances relating to intangible assets held in these jurisdictions, and the £5.0m compensation from Sinclair in respect of Kelo-Stretch.  As detailed in note 16, excluding the impact of these events and the residual impact of the UK tax rate reduction results in a revised underlying tax charge of £4.8m, representing an effective tax rate (ETR) of 19.8%.  This revised ETR is in line with expectations and better reflects the Group’s underlying ETR for the foreseeable future.

Sinclair settlement

As announced on 21 March 2017, the Group reached agreement with Sinclair Pharma plc in connection with the material reduction of business in Kelo-Stretch, acquired in 2015. The terms of the compensation agreement were a £4.0m cash payment to Alliance (received in April 2017) and a deferred cash payment of a further £1.0m to be paid on or before 30 June 2018.

Net compensation of £4.4m is recognised as non-underlying exceptional income in the Income Statement, representing the £5.0m settlement net of an impairment charge for Kelo-Stretch and associated costs totalling £0.6m.

Earnings per share

Reported basic earnings per share increased 58% to 6.10p (2016: 3.85p) due primarily to the Sinclair settlement and the impact of the reduction in the US tax rate.

Adjusting underlying basic earnings per share to exclude non-underlying items and the effect of tax rate changes, this metric increased by 10% to 4.06p (2016: 3.69p). The increase reflects the Group’s higher underlying profit after tax and is the measure used by the Board and Management in assessing earnings performance.

Intangible assets

Intangible assets increased by £13.8m to £278.6m (2016: £264.8m) due to the acquisition of the worldwide rights to Ametop announced on 1 December 2017 for $7.5m (£5.6m); the acquisition of the worldwide rights to Vamousse announced on 28 December 2017 for estimated consideration of $15.5m (£11.6m); and £0.5m of development costs; less foreign exchange adjustments of £3.4m; and also less the £0.5m impairment for Kelo-Stretch described above.

Cash flow and net debt

Demonstrating the strong cash generation of the Group, free cash flow (defined as cash generated from operating activities (excluding non-underlying items) less interest, tax and capital expenditure) increased 67% in 2017 to £21.7m (2016: £13.0m).  

The increase is driven by the trading strength of the Group and the stabilising of working capital in 2017 following its build-up in 2016 after the Sinclair acquisition. 

The Group's strong underlying cash generation, together with the £4.0m settlement claim receipt from Sinclair, resulted in a reduction in the Group's net debt to £72.3m as at 31 December 2017 (31 December 2016: £76.1m) despite the £16.0m investment in acquisitions.

Consequently, adjusted net debt/EBITDA leverage fell to 2.46 times (2016: 2.83 times) against our covenant limit of 3.0 times (31 December 2016: 3.0 times). As announced in December, we renegotiated our banking covenants, and our net debt to EBITDA covenant has been relaxed from 2.5x to 3.0x for the life of the agreement through to December 2020. Excluding the acquisitions completed in December 2017, our leverage at 31 December 2017 would have been 2.06 times.

Based on current business performance and excluding any acquisitions we may make during the year, we expect leverage to continue to reduce during 2018 to below 2.0 times by the end of the 2018 financial year.
The Group has total bank facilities of £100.0m of which £50.3m (31 December 2016: £66.5m) was drawn on the Term Loan with £34.0m (31 December 2016: £18.0m) utilised from the Revolving Credit Facility. In addition to this, the Group also has access to a £4.5m working capital facility, which was undrawn at 31 December 2017, and an additional undrawn £25.0m facility available with bank approval.


The Directors propose to maintain the progressive dividend policy and are recommending a final payment of 0.888p per ordinary share to give a total for the year of 1.331p. This represents an increase of 10% on 2016. 

The final dividend, subject to approval at the Company’s AGM on 24 May 2018, will be paid on 11 July 2018 to shareholders on the register on 15 June 2018. 

The level of dividend cover in 2017 remained prudent at over three times. The total dividend payment for the 2017 financial year will be £6.3m, including the £2.1m interim payment.


We ended the year strongly, with good levels of organic growth complemented by the two acquisitions made at the close of the financial year. We see exciting prospects for our newly acquired brand Vamousse, which alongside Kelo-cote and MacuShield increases the growth capacity of the International Star section of our portfolio.

Our geographic operations have been greatly enhanced by the creation of our new affiliate in the US, the world’s largest healthcare market, where in the medium term we anticipate finding further good opportunities. 

Our strong cash generation and access to debt capital give us firepower to make further acquisitions, in line with our proven strategy, and should we achieve a favourable regulatory outcome in relation to Diclectin, this would further enhance our growth prospects.

We are now a business with more than £100m of revenues, an international geographical presence and a strong, capable and ambitious management team. We have the scale and infrastructure in place for further growth and we look forward to the future with great confidence.

*For the full Announcement please go to Reports & Presentations