ALLIANCE PHARMA plc Annual Report and
Accounts for the year ended 31 December 2012
Contents
Business Summary*
Highlights
Our Products
Our Business Model
Acquisition Timeline
Questions and Answers
01
02
04
06
08
Report of the Directors
Business Review 10
Financial Review 14
Board of Directors
Corporate Governance
Directors’ Remuneration
Other matters
16
18
20
22
Financial Statements
Independent Auditor’s Report
to the Members of Alliance
Pharma plc
25
Consolidated Income Statement
26
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Company Balance Sheet
Consolidated Statement of
Changes in Equity
Company Statement of
Changes in Equity
Consolidated and Company
Cash Flow Statements
27
28
29
30
31
32
Notes to the Financial Statements
33
Supplementary Information*
Shareholder Information
Five Year Summary
Advisors
67
68
69
*Unaudited information.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Alliance Pharma
plc is an AIM
listed speciality
pharmaceutical
company
Alliance has a strong track record of acquiring
the rights to established niche products and
owns or licences the rights to more than 60
pharmaceutical products and continues to
explore opportunities to expand the range.
The group commenced trading in 1998 and has
since grown to an annual turnover of £45m.
Alliance has its headquarters in the UK at
Chippenham, Wiltshire.
Highlights
Business Summary
01
Key Numbers
2012 Key Facts
Sales
£44.9m
Profit
before tax
£10.8m
Free cash
flow
£11.0m
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
21.8
31.2
5.7
49.9
46.0
44.9
10.7
10.8
2.4
2.5
7.3
8.4
12.2
11.0
Dividend
0.825p
Interim
Final
2008 0
2009
0.07
0.23
2010
0.17
0.40
Debt to
EBITDA*
1.3
2011
2012
2008
2009
2010
2011
2012
0.25
0.275
0.50
0.55
4.0
1.9
0.8
1.3
1.3
Two acquisitions with
combined annual profit
of £3.2m
Underlying sales growth
of 13%**
Hydromol sales growth
of 29% to £4.7m
12.9
Operating profit 27%
of sales
Further £10m of
financing agreed to
fund acquisitions
Full year dividend up 10%
to 0.825p per share (2011:
0.75p per share)
Free cash flow of £11.0m
up 31%
R
E
H
T
R
U
F
M OF FINANCING
AGREED
0
TO FUND
1
£
ACQUISITIONS
*EBITDA based on bank covenants definition.
**Excluding Deltacortril and ImmuCyst.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
02
Our Products
Other products 31.9%
Symmetrel 2.3%
Naseptin 2.5%
Vitamin E 2.8%
Deltacortril 3.7%
Buccastem 4.4%
Anti malarials 4.5%
*
PROFORMA
2012
SALES
B
Y
B
R
A
N
D
Hydromol 9.5%
Other
Dermatology
6.9%
Opus stoma
Products 8.2%
Nu-Seals 8.0%
Promoted Portfolio
Forceval 10.0%
Other Secondary
Care 5.3%
Alliance promotes products in two areas of specialisation, Dermatology and Secondary Care.
Selective promotional investment of products enables effective use of marketing resources.
Dermatology
Products in the portfolio
The Hydromol range grew by 29% to £4.7m (2011: £3.6m) supported by a
small field force. The remainder of the portfolio grew by 2%, on a like-for-
like basis. The total portfolio had sales of £10.1m (2011: £9.0m).
Pentrax
Hydromol
Acnisal
Alphaderm Isotretinoin Permitabs
Quinoderm
Aquadrate
Atarax
Timodine
Dermamist
Meted
Naseptin
Occlusal
Secondary Care
Products in the portfolio
We were delighted to add the Opus stoma care products, acquired in 2012, to
our Secondary Care portfolio. The stoma care products added £0.7m in 2012
and have annual sales of £3.8m. Gelclair, now a £1m, brand delivered growth
of 9%.
Absorbagel
Clearway
Deogel
Gelclair
ImmuCyst Naturcare
La Vera
Lift
Lift plus
SkinSafe
Ultracleanse
*Includes full year figures for products acquired during 2012.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Business Summary
03
International
2012 Geographical Distribution
n UK
£36.7m
n EU (excluding UK) £5.1m
n Rest of the World £3.2m
During 2012 Alliance was pleased to welcome Philippe Pasdelou as our Country Manager in
France and Lars Boerger as our Country Manager in Germany, Austria and Switzerland. Both
are skilled and experienced pharmaceutical professionals.
Philippe will manage the sales of our anti-malarial products, acquired during the year, in
Europe and our export markets including francophone Africa. Annual sales of these products
are circa £1m, which provide a foundation on which to build our European infrastructure. This
will change our presence in Europe from using distributors to selling direct to market. Our
presence in France and Germany is already increasing the number of acquisition opportunities
we see. The intention is to replicate the successful Alliance business model in Europe.
In non-European markets we continue to sell via our distributor network and will build on this
where opportunities arise.
We continue to learn about the Chinese market. This will stand us in good stead as we continue
to study this market for opportunities.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
04
Our Business Model
Strategy
Alliance’s strategy is to acquire established, niche pharmaceutical products within key European
markets by acquisition or licence.
Acquisitions of products are typically financed by a combination of bank debt and equity in a
ratio that optimises earnings per share whilst maintaining acceptable levels of gearing. Surplus
cash generated after providing for debt servicing and the operational needs of the business is
then available for dividend payments.
Within the product portfolio, brands are selected for promotional investment where
management’s forecasts suggest an increased return on investment. Non promoted products
are managed to maximise their contribution, taking advantage of market opportunities when
they occur.
Labour and capital intensive activities, such as manufacturing, warehousing and distribution are
outsourced so that new products may be quickly integrated into the Alliance portfolio with
minimal increase in overheads. Outsourcing enables management to concentrate on key
decisions and act quickly to take advantage of opportunities as they arise.
The Acquisition Process
Identify
Negotiate
Acquire
l Pharmaceutical products in
our key markets
l Niche brands with limited
competition
l Brands with history of
sustainable sales
l Product fit
l Payback period
l Price
l Intellectual property
l Cost effective manufacturing
l Financing
l Timing
We have proven ability, having
completed 23 deals in 15 years.
Our current Business
Development team has been
involved in the last 13 deals.
The project teams used for due
diligence and integration cover
all core competencies and have
a wide range of industry
experience.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
RISK
W
O
L
STABLE SALES
LIMITED COMPETITION
Business Summary
05
Product Selection
Product life-cycle: Alliance products are usually at least 10 years post patent expiry, low volume
with stable sales history and limited or no direct competition.
Patent protection
l High price/short life
l Big Pharma
l Heavy marketing
l Volume risk ++
Higher volume – generic
competition
l Very price competitive
l Price risk ++
Lower volume – typically no
competition
T I M E
l Limited or no
competition
l 10+ years out
of patent
l Stable sales
l Low risk
H
S
A
C
Development Biotechs
l Development risk +++
Plan
Integrate
Maximise
Detailed integration plans are
created during the due diligence
process ensuring a smooth
transition into our operational
systems once the deal has been
signed.
Our internal organisational
structure is designed to allow us
to quickly incorporate new
products with minimal disruption.
l Transfer manufacturing to
one of Alliance’s contract
manufacturers
l Incorporate into Alliance’s
existing brand portfolios
l Integrate into our European
operations
Market growth strategies
including selective promotion,
brand extensions and new
territories are used to build on
the profitability and value of the
acquired assets.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
06
Acquisition Timeline
Alliance has a strong track record of successful acquisitions and has
considerable expertise in selecting acquisition targets, negotiating the
acquisitions and integrating products.
23 deals
in 15 years
Over 60
products
Building
operations in
France and
Germany
Hydromol from Ferndale
Pharmaceuticals
Atarax, Deltacortril &
Terra-cortril from Pfizer
Syntometrine from
Novartis
Permitabs from
Derma UK
Dermamist from
Caraderm
£7.4m
Forceval (excluding
China) from Unigreg
Periostat from
CollaGenex
4 dermatology products
from DermaPharm
£9.7m
Nu-Seals from Eli
Lilly & Co
Alphaderm & Aquadrate
from Procter & Gamble
£11.1m
S
U
A
C
C
Q
C
E
X
P
U
E
E
R
S
I
S
I
T
I
O
T
I
S
S
F
U
L
E
N
STARGETS
RECORD
STRONG TRACK
e
u
l
a
v
t
n
e
m
t
s
e
v
n
I
Symmetrel & Slow-K
from Novartis
Distamine from Eli
Lilly & Co
£4.5m
4 products
from Bioglan Labs
£2.1m
1999
2001
2002
2004
2006
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Business summary
07
Avloclor, Paludrine
& Savarine from
AstraZeneca
8 products from Opus
£12.8m
Anbesol & Ashton &
Parson from Reckitt
Benckiser
6 products from Beacon
Pharmaceuticals
Quinoderm and Ceanel
from Ferndale
Pharmaceuticals
£6.5m
Y SEARCHING FOR
ACQUISITIONS
L
E
V
I
T
C
A
18 products from
Cambridge Laboratories
£16.4m
Buccastem &
Timodine from Reckitt
Benckiser
£7.5m
Forceval China
from Unigreg
£1.95m
Pavacol-D from William
Ransom & Son
£0.6m
2007
2008
2009
2010
2011
2012
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
08
Questions and Answers
with John Dawson, Chief Executive Officer
Q
How are you
managing key risks
in your business?
The Board reviews, on a monthly
basis, key risks and the actions being
taken to mitigate those risks. For
example, we have increased the size of
our product portfolio to help mitigate
reliance on a few key products. Our
reliance on the majority of sales in the
United Kingdom is being reduced by
the appointment of our Country
Managers in France and Germany to
increase our European sales. This has
already been achieved in 2012 as we
are already selling anti-malarial
products in France and francophone
Africa. There was the risk that the
shortage of credit that has affected
many organisations would affect
Alliance, as our business model is
mainly acquisitive. We have
maintained throughout the period a
strong relationship with our banker
from whom we obtained a further
£10m revolving credit facility in
January 2013. The supply side risk
continues to be actively managed – for
example we streamlined the supply
chain this year by outsourcing hospital
distribution and adopting a reduced
wholesaler model. In 2013 we will
continue to develop and invest in the
supply chain team n
Hydromol sales
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
m
£
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Q
How is price
regulation likely to
affect Alliance over the
next few years?
82% of our sales are based in the UK.
Sales of branded products in the UK are
subject to the Pharmaceutical Price
Regulation Scheme (PPRS), the latest
version of which came into force at the
start of 2009 and runs for five years.
Negotiations have started for any
amendments to the existing scheme
from 2014. We maintain an
involvement in industry affairs in order
to influence these negotiations as far
as is possible n
Q
Alliance completed
two acquisitions in
2012. How do these fit into
the existing portfolio?
In August 2012 Alliance completed the
acquisition of anti-malarial products
from AstraZeneca, This included sales
in France and to francophone Africa,
which opened new territories to
Alliance, and provides critical mass for
our new operations in France. Our
acquisition of Opus Group Holdings
Limited is an acquisition of established
products in the UK and Ireland that fits
neatly with our existing dermatology
and secondary care portfolios n
Q
How do you
promote your
branded products?
We use small dedicated sales teams to
promote products in two areas of
specialisation, dermatology and
secondary care. Hydromol our lead
dermatology brand continues to grow
strongly, achieving 29% growth in 2012,
as illustrated by the graph left.
ImmuCyst was growing at 18% prior to
the supply issues and Gelclair grew at
9% in 2012 to reach a £1m brand n
3
1
0
2
N
I
WE WILL CONTINUE
TO DEVELOP AND INVEST IN
THE SUPPLY CHAIN
M
A
E
T
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Business Summary
09
Q
How is Alliance
managing
international growth?
The organisation has re-structured to
two directorates. The UK directorate is
headed by Peter Butterfield who will
concentrate on maintaining UK market
share and UK expansion. The
International Directorate, headed by
Tony Booley, is focused on creating
critical mass in Europe and looking for
suitable worldwide opportunities.
Alliance is expanding international sales
by supporting the Country Managers
from the Company’s headquarters, to
control start-up costs and use our
existing expertise n
Q
Is there any news
on ImmuCyst?
The impact of the loss of ImmuCyst has
been fully explained in the business
review. Looking forward, we continue to
work closely with Sanofi Pasteur to
expedite the return of this important
bladder cancer treatment for UK
patients. We have been told by Sanofi
Pasteur that the product should return
to market in early 2014 n
Q
How does the size
of acquisition
opportunity impact
Alliance?
With our growing portfolio,
infrastructure and capability Alliance is
now able to consider larger acquisition
opportunities than before. The
emphasis remains on ensuring the
acquisition fits our stringent criteria
rather than simply adding sales
volume n
Q
How are you
preparing your
people for the growth of
the business, particularly
expansion into Europe?
Alliance employs many people who
have previous experience of large
pharmaceutical or global companies.
This brings a wealth of experience and
an in-depth knowledge of the industry,
both within and outside the UK. By
developing these people further and
also recruiting additional expertise, for
example, in France and Germany, we
are continuing to build the capability
we need for the future n
ALLIANCE IS
EXPANDING
INTERNATIONAL
S
A
L
E
S
Q
How have your non-
promoted products
been performing?
Our core brands, excluding Deltacortril,
have continued to grow over the last
10 years which demonstrates the
sustainability of these products, as
illustrated by the graph below n
Like-for-like sales growth of core brands
200
150
x
e
d
n
I
100
50
Jan-03
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Q
What will be the
impact of the
maturity of the Convertible
Unsecured Loan stock
(”CULs”)?
The CULs will mature in November
2013. After this we will not be required
to pay 8% interest on the outstanding
stock. The interest payment in 2012
was £0.3m. The remaining stock
holders have a choice of converting to
shares at a rate of 21p per ordinary
share or redemption on the nominal
value of the loan stock. If the remaining
stock holders convert to shares (which
is our expectation) there will be an
additional 18.1m shares issued (as at
19 March 2013) n
Q
How do you build
staff motivation?
As soon as anyone joins Alliance, they
undergo a comprehensive induction
programme so that they fully
understand our business and can
contribute best to the team effort. We
have a proven set of corporate values
that are reinforced on a regular basis by
personal awards for exemplary
performance and behaviour. We have
monthly question and briefing meetings
for all office-based people where they
can build their understanding of our
products, projects and business
progress. Similar meetings also occur
for field-based staff n
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
10
Business Review
John Dawson, Chief Executive Officer
Our underlying performance in 2012 was robust, with good organic sales growth from our
promoted products and a small increase in pre-tax profits. There was a substantial sales
contribution from the five acquisitions made over the past two years. This was more than
enough to offset the expected decline of Deltacortril sales, which resulted from the launch of
a second generic competitor and changing clinical preferences. However, sales growth was
affected by a setback in the summer, when Sanofi Pasteur suspended production of the
ImmuCyst bladder cancer treatment until late 2013 because of regulatory issues at its
manufacturing facility.
TO ADD IMPETUS
TO OUR GROWTH
IN THE UK WE
ALSO ACQUIRED
OPUS GROUP
IN OCTOBER 2012
Important developments in 2012 that
have prepared the ground for renewed
growth include the launch of new
operations in France and Germany,
where we have recruited Country
Managers.
We have already commenced sales in
France, following our acquisition in
August 2012 of the anti-malarial brands
Paludrine™, Avloclor™ and Savarine™
from AstraZeneca. These brands are
sold in a number of countries but
mainly in the UK and France. As well
established and well known products
they are sold over the counter as well as
on prescription, and come with around
£1.1m per annum of EBITDA.
To add impetus to our growth in the UK
we also acquired Opus Group in October
2012. This business sells products for
stoma care, including skin creams and
cleansers, and has been growing
strongly: sales rose 14% in 2012. The
main influences of its sales are the
hospital units already served by our
secondary care sales force, which has
capacity to give it particularly strong
support during the ImmuCyst supply
hiatus. We expect Opus to add around
£2m to annual operating profit initially.
Financial performance
Sales were impacted by the loss of
ImmuCyst from May onwards and the
diminished contribution from
Deltacortril. However, these negative
effects were largely offset by growth in
the rest of the business as we benefited
from two acquisitions in the second half
and further strong growth in Hydromol
sales. The net effect was a 2% reduction
in sales to £44.9m (2011: £46.0m)
although the underlying performance,
excluding Deltacortril and ImmuCyst,
was 13% growth.
It is worth noting that our 2012 sales
still represent a 45% increase over the
past three years. This demonstrates the
effectiveness of our acquisition strategy,
and the Group’s resilience in the face of
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
THE BOARD’S CONFIDENCE
Y
C
IN THE BUSINESS IS REFLECTED
I
L
O
IN OUR PROGRESSIVE DIVIDENDP
short-term headwinds. The temporary
boost that Deltacortril provided in 2010
and 2011 has enabled us to fund
acquisitions to provide a sustainable
business.
Despite the slight reduction in sales,
pre-tax profit edged ahead to £10.8m
(2011: £10.7m). This reflected a
substantial strengthening of the gross
margin to 55.9% (2011: 53.3%), due
largely to changes in the sales mix and
our successful efforts to reduce
distribution costs. In cash terms the
gross margin was £0.6m higher than
2011 at £25.1m (2011: £24.5m).
The uplift in cash margin was offset by
a £0.6m increase in administration
and marketing costs. A large
proportion of this increase was due to
investment in establishing our
presence in France and Germany.
Some cost savings were realised,
offsetting the impact of inflation.
Borrowing rose over the year as we
spent some £12.8m on acquisitions.
However, with strong cash generation,
net debt rose only £3.4m to £21.8m at
the year-end (2011: £18.4m). As both
acquisitions were completed in the
second half, the average debt over the
year was lower; helping to reduce
financing costs slightly to £1.5m (2011:
£1.6m). We also continued to benefit
from investors demonstrating their
confidence in the business by
switching their convertible loan stock
into equity. The total amount of
convertible loan stock outstanding
reduced to £4.2m at the year-end
(2011: £4.5m), and has since fallen to
£3.8m. The option to convert remains
open until November 2013.
The ratio of bank debt to EBITDA
(including annualised EBITDA from
acquisitions) remains very comfortable
at 1.3 times (2011: 1.3 times).
Dividend
The Board’s confidence in the
business is reflected in our
progressive dividend policy. We are
recommending a final dividend of
0.55p per ordinary share (2011: 0.50p),
making a total for the year of 0.825p
(2011: 0.75p), a 10% increase. At this
level, the dividend is covered 4.4 times
by after-tax earnings (2011: 4.8 times).
Strategy
Alliance acquires and licenses
established products with stable sales
in niche areas. While most of these
require little or no promotional
support, we actively market a number
of products with clear growth
potential. These promoted products
account for around a fifth of our sales.
We have two UK field forces, one
focused on dermatology and the other
focused on specialist hospital
products, and have scope for
economies of scale when we bring in
products that these teams can
promote alongside the existing ones.
Report of the Directors
11
Michael Gatenby, Chairman
ESTABLISHED
PRODUCTS WITH
STABLE SALES
IN NICHE AREAS
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
12
Business Review continued
IN 2012
WE APPOINTED
TWO COUNTRY
MANAGERS
We currently generate just under a fifth
of our sales outside the UK, and aim to
diversify the business by increasing this
proportion – primarily through
increased sales in Western Europe. For
most of our existing portfolio, the
opportunities for expanding
international sales are limited; so our
international strategy is to replicate the
successful UK model by acquiring
established products in overseas
markets. Our research indicates that
other Western European countries are
well suited to this approach.
In 2012 we appointed two Country
Managers to drive the acquisition and
development of product portfolios in
Western Europe. Dr Philippe Pasdelou
has this role in France, and Lars Börger
covers Germany, Switzerland and
Austria. Having a presence on the
Continent has already increased the
flow of opportunities available to us.
Marketing
We now have a portfolio of over 60
products. Organic sales growth in 2012
was led by the Hydromol dermatology
range, which achieved a record £1.1m
increase – up 29% on the previous year.
Hydromol is now almost a £5m brand
and one of our largest. Customers like
the products, the pricing is competitive,
and we continue to invest in the brand.
(Hydromol is one of the fastest growing
brands in the emollient market). With a
share of less than 3% in a fragmented
market, there is still plenty of scope for
future growth.
Our toxicology product was on the
upswing of its 30 month sales cycle in
2012, and sales rose by £0.6m to £2.1m.
Sales will reach their peak level in the
first half of 2013, giving a useful boost
to turnover.
Hydromol is one of the fastest growing brands in the emollient market.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Report of the Directors
13
Team
Outlook
Apart from the appointment of our two
European Country Managers, staff
numbers were stable in 2012. However,
some additional recruitment is taking
place in 2013 to strengthen the
support functions in anticipation of
further growth.
In particular, we need to maintain
effective control of the supply chain as
our product range expands: the number
of stock keeping units has increased to
over 230. We therefore intend to appoint
an Operations Director to oversee the
supply chain and we are planning to
upgrade our systems to more efficiently
integrate our operations overall.
Charity
We continue to donate about £20,000
worth of products a year to International
Health Partners, a charity that
distributes medicines to doctors in the
world’s neediest areas.
We look forward with confidence to
growth in 2013. In addition to the
underlying strength of our portfolio we
can expect a full year’s contribution
from our 2012 acquisitions and a top-
of-cycle contribution from our
toxicology product.
We aim to supplement this growth with
further acquisitions, and look to
maintain or increase our deal rate. We
are exploring opportunities in the UK
and continental Europe and in
December we agreed with our bankers
a £10m extension to our acquisition
facility. This gives us headroom on the
current acquisition facilities of £13.5m,
which will be further augmented by
continuing strong cash generation
during the year.
SHEADROOM
ON THE CURRENT
ACQUISITION
FACILITIES
OF £13.5M
U
S
E
V
I
G
S
H
T
I
Gelclair™ was another growth story in
2012 as sales reached £1.0m for the
first time. This product, acquired
alongside ImmuCyst from Cambridge
Laboratories, relieves oral mucositis, a
painful and debilitating side effect of
cancer chemotherapy and radiotherapy.
We are seeing good results from our
marketing support and clinicians are
recognising the clear benefits for
their patients.
Sales of ImmuCyst had been growing
well until production was suspended in
June, and the moving annual sales total
had reached £4.4m. The competitor is
likely to gain some ground during the
hiatus, pending ImmuCyst’s return to
the market, which is still expected at
the beginning of 2014.
As predicted, our Nu-Seals™ enteric-
coated low-dose aspirin, sold mainly in
the Irish Republic, suffered from the
arrival of two new generic competitors.
Sales fell 25% to £4.0m, and we expect
a further reduction this year as the Irish
government enacts long-anticipated
legislation to introduce both reference
pricing and generic substitution. To
mitigate the impact we have been
strengthening relationships with
pharmacists through a contracted
field force.
As previously announced, a group of
nine products which Alliance has
distributed on behalf of Novartis for
many years is being transferred back to
Novartis. Between them these products
have been generating a combined gross
margin of about £0.5m a year.
When we acquired Ashton & Parsons
from Reckitt Benckiser in 2011 we
cautioned that this infant teething
product’s sales would be limited initially
by unresolved manufacturing issues.
We are now implementing a solution
which should relieve volume
constraints, unlocking the prospect of
significant sales growth. We expect the
higher production volumes to
commence in the second half of 2013.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
14
Financial Review
THE ANTI-MALARIAL
2
1
PORTFOLIO ADDED
0
2
SALES OF £1.6M
N
I
Richard Wright, Finance Director
Revenue
2012 has been an important year for Alliance. Strong growth of 29% in our leading dermatology
brand Hydromol, acquisition of our anti-malarials and stoma care products and the full year
effect of acquisitions made in 2011 largely offset the headwinds from the supply issues affecting
ImmuCyst, the slowdown in Deltacortril and generic competition for Nu-Seals. Total turnover
for the year was £44.9m (2011: £46.0m).
The acquisition of stoma care products and the anti-malarial portfolio added sales of £1.6m in
2012 and the full year effect of 2011 acquisitions was an additional £2.1m of sales.
Profit and other key
performance indicators
Operating profit, a key metric, was
£12.3m (2011: £12.3m). As a percentage
of sales this remains strong at 27.4%
(2011: 26.8%). Profit before tax
increased to £10.8m from £10.7m.
Gross profit increased by £0.6m to
£25.1m, while gross margins improved
from 53.3% to 55.9%. The improvement
in gross margins reflected a change in
sales mix, partly as a result of the
acquisitions.
Administration and marketing expenses
were £11.9m, an increase of £0.6m on
2011. These costs include the addition
of our two Country Managers and the
strengthening of infrastructure in
preparation for European expansion.
Amortisation costs have fallen from
£0.7m to £0.6m. The ImmuCyst licence
renewal in 2011 for a further 7 years
extends the period over which it is
amortised, reducing the annual cost.
Finance costs and funding
Interest payable in the year fell slightly
to £1.5m (2011: £1.6m). Net bank debt
at the year end was £21.8m (2011:
£18.4m). The increase of £3.4m was
after funding two acquisitions in the
year for £12.8m.
At the end of 2012, net bank debt stood
at £21.8m (2011: £18.4m). We were
pleased that Lloyds Banking Group
agreed to provide an additional £10.0m
Revolving Credit Facility in December
2012. This increased headroom to
£13.5m on the acquisition facilities.
Our previous interest rate hedges have
expired and so since the year end we
have put in place new interest rate
swaps fixing the LIBOR element of our
debt costs at 1.24% on £18m of our debt
for the next 5 years. This means that
approximately 80% of current bank debt
is hedged at a very low rate.
The Convertible Unsecured Loan Stock
(“CULS”) carries a fixed interest rate of
8% and can be converted at any time
until 30 November 2013 at 21p per
share. CULS not converted at this date
are due to be redeemed at par. During
the year £0.3m (2011: £0.4m) nominal
value of CULS were converted resulting
in £4.2m outstanding as at 31
December 2012 and since the year end
a further £0.4m have converted.
Covenants
The main financial covenants applying
to the facilities with our Bank are that
leverage (the ratio of net bank debt to
EBITDA) should not exceed 2.0 times,
interest cover (the ratio of EBITDA to
finance charges) should be no less than
3.0 times, and operating cash flows
must exceed debt service cash flows.
The Group continues to comply
comfortably with these covenants.
Net bank debt at the year end was
£21.8m (2011: £18.4m) and the net bank
debt to EBITDA ratio was 1.7 times,
though as measured for the bank
covenant (including pro forma EBITDA
of recent acquisitions) the ratio was just
1.3 times.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Report of the Directors
15
TRADING CASHFLOW
IMPROVED
£2.7M TO £14.4M
Earnings per share and
dividends
Basic EPS was virtually unchanged at
3.61p (2011: 3.62p), while diluted EPS
was 3.40p (2011: 3.39p). During 2012 the
number of shares in issue increased
from 240.1m to 243.0m. A total of 1.4m
shares were issued on the conversion of
£0.3m nominal of the CULS and a
further 1.5m were issued on the
exercise of employee share options.
Since the year end a further 1.9m
shares have been issued on conversion
of CULS. If all the remaining CULS
convert by the 30 November 2013 the
issued share capital will increase by
18.1m shares or 7%.
As a result of the strong underlying
performance of the business and strong
cash generation an interim dividend of
0.275p was paid on 15 January 2013 and
the Board is recommending a final
dividend of 0.55p, which would make a
total dividend for the year of 0.825p, a
10% increase on the prior year. The
final dividend will be paid, subject to
shareholder approval, on 11 July 2013
to shareholders on the register at 14
June 2013.
Cashflow
Trading cashflow improved £2.7m to
£14.4m, reflecting an improvement in
working capital. Free cash flow in turn
improved by £2.6m to £11.0m.
Corporation tax paid during the
period was £2.0m (2011: £1.5m). The
Group continues to benefit from tax
relief on most of its intangible assets.
The effective cash rate of tax for 2012
was 18.3%.
£12.8m was used to fund acquisitions
in 2012. Hence the majority of the
investment in acquisitions was funded
from cash generation in the year. The
overall increase in net bank debt was
just £3.4m, to £21.8m.
Assets and working capital
Additions to intangibles totalled
£14.3m, virtually all of which was due
to the two acquisitions during the year.
The net book value of intangible assets
stands at £79.9m at the year end
(2011: £66.1m).
Working capital balances continue to
be carefully managed and controlled.
Inventory on hand at December 2012
represents a ratio of 3.2 months, a
slight increase on the 2011 ratio of 3.1
months, due to the additional stock
acquired in October for the stoma care
products.
The Group’s net assets stood at
£51.8m at December 2012, £7.7m
higher than December 2011.
Managing Capital
Our objective in managing the
business’ capital structure is to ensure
that Alliance has the financial
capacity, liquidity and flexibility to
support the existing business and to
fund acquisition opportunities as they
arise.
The business is profitable and cash
generative. In line with the bank
covenants, the business is managed to
ensure that it is sufficiently cash
generative to meet debt servicing
needs and dividend payments.
Smaller acquisitions are typically
financed purely with bank debt, while
larger acquisitions typically involve a
combination of bank debt and additional
equity. The mixture of debt and equity is
varied, taking into account the desire to
maximise shareholder returns while
keeping gearing at comfortable levels.
Risk Management
To reduce the risk arising from changes
in interest rates, the Group uses
interest rate swaps, where appropriate,
and the CULS pay a fixed coupon.
The Group’s main transactional
currencies are Sterling and Euro, with
the majority of income and expenditure
in Sterling. The Euro-denominated
income matches the Euro-denominated
expenditure quite closely and so the
Group has limited exposure to exchange
rate movements.
SMARGINS
S
IMPROVED
O
FROM 53.3%
R
TO 55.9%
G
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
16
Board of Directors
Directors who held office at the date of this report are set out below. All were Directors
throughout 2012.
Michael Gatenby – Chairman 136
Michael joined the Board of Alliance as non-executive Chairman in 2004. He had a
successful career in corporate finance for over 25 years, having been a director of
Hill Samuel and Co and vice-chairman of Charterhouse Bank. Michael graduated in
Law from Trinity Hall, Cambridge in 1966 and qualified as a Chartered Accountant in
1969 with Peat, Marwick, Mitchell (now KPMG LLP).
John Dawson – Chief Executive Officer 4
John founded Alliance in 1996. He gained multi-disciplinary experience in the
pharmaceutical industry over thirty years. John held various senior roles at Sandoz
(now Novartis AG) as director of finance and administration and deputy managing
director. John has a BSc (Pharmacy) and an MSc (Finance) from the London
Business School.
Richard Wright – Finance Director
Richard joined the Board of Alliance in 2007. He is a Chartered Accountant with over
20 years of experience in financial roles across a variety of sectors. Richard read
Mathematics at Robinson College, Cambridge and qualified as an accountant with
Ernst & Young LLP before joining Somerfield plc. More recently, he held senior
finance positions at FirstGroup plc and Parragon Publishing.
Tony Booley – Executive Director
Tony joined Alliance in 1998. He has had around 30 years experience in the
pharmaceutical and healthcare industries, with positions at Leo Pharma, Glaxo
Wellcome (now GlaxoSmithKline “GSK”) and Getinge Industrier AB. His senior
management experience includes positions in the UK and internationally. Tony
graduated in Physiology, has an MBA from Warwick and is a Chartered Marketer.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Report of the Directors
17
Peter Butterfield – Executive Director
Peter joined the board of Alliance in February 2010 following the acquisition of
Cambridge Laboratories, where he spent five years, latterly as UK Commercial
Director. He is a Board Member of the Association of the British Pharmaceutical
Industry ("ABPI") and is chairman of the ABPI Small Companies Forum. Prior to
joining Cambridge Laboratories, Peter spent six years at GlaxoSmithKline. He holds
an honours degree in Pharmacology from the University of Edinburgh.
Thomas Casdagli – Non-Executive Director 4
Thomas joined the board of Alliance as a non-executive director on 3 March 2009.
He is a partner at MVM Life Science Partners LLP, a life science venture capital
fund. He has been an active investor in life sciences since joining MVM in 2002.
Before joining MVM, Thomas worked at PricewaterhouseCoopers LLP where he
qualified as a Chartered Accountant. Thomas graduated in Molecular and
Cellular Biochemistry from the University of Oxford in 1998.
Paul Ranson – Non-Executive Director 245
Paul joined Alliance as a non-executive director in 2003. He has worked in a legal
capacity in the pharmaceutical sector for over 25 years. He spent the early years of
his career as an in-house lawyer for Smith Kline & French and Merck. Paul
specialises exclusively in the commercial and regulatory aspects of life sciences and
he was a partner in the international law firm Fasken Martineau LLP before his
move to Pinsent Masons LLP in 2013.
Andrew Smith – Non-Executive Director 246
Andrew joined the Board of Alliance in 2006. He has held various senior positions in
the pharmaceutical industry in the UK and USA having been managing director and
senior vice-president of SmithKline Beecham Pharmaceuticals (now GSK), chief
executive of Cerebrus plc until its sale and president international medical
marketing services with Parexel International. Andrew is a founder of Navitas
BioPharma Consulting. He graduated in Natural Sciences from the University
of Cambridge.
1 Chairman Audit Committee, 2 Audit Committee member, 3 Chairman Nomination Committee,
4 Nomination Committee member, 5 Chairman Remuneration Committee, 6 Remuneration Committee member.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
18
Corporate Governance
Introduction
Alliance Pharma plc is an AIM listed company and the Board is committed to
achieving good standards of corporate governance, integrity and business ethics.
There is a list of matters reserved for
the Board which may be updated by the
Board and approved by the Board only.
Reporting Structure
Committees
The Chairman is responsible for leading
the Board, facilitating the effective
contribution of all members and
ensuring that it operates effectively in
the interests of the shareholders. The
Chief Executive Officer is responsible for
the leadership of the business and
implementation of the strategy. The
Company Secretary is responsible, on
behalf of the Chairman, for ensuring
that all Board and Committee meetings
are conducted properly, that the
Directors receive the appropriate
information prior to the meeting, for
ensuring that governance requirements
are considered and implemented and
for accurately recording each meeting.
The Directors may have access to
independent professional advice, where
needed, at the Group’s expense.
Management Teams
During 2012 the Board delegated
management of the business to the
Corporate Organisation Team and the
UK and International Review and
Planning Teams. The Executive Team,
which comprises the Executive
Directors is the chief operating decision
maker and attends the Corporate
Organisation Team and Review and
Planning team meetings.
The Board has an Audit Committee, a
Nominations Committee and a
Remuneration Committee, each with
written terms of reference. The terms
of reference are available on the
Group’s website.
Meetings
The Board meets regularly on pre-
determined dates and has a strategy
meeting each year consisting of the
Board and other Senior Managers, the
purpose of which is to discuss progress
on the strategy, to review the long term
strategy and develop the strategic
framework for the achievement of the
Group’s targets. During 2012 the Board
held ten scheduled meetings and all
members of the Board attended all of
those meetings. In addition there were a
number of ad-hoc meetings.
Non-Executive Directors
The role of the non-executive directors
is to:
l Challenge constructively and help
develop proposals on strategy
l Satisfy themselves as to the financial
integrity of the financial information
l Satisfy themselves as to the
robustness of the controls
l Ensure that the systems of risk
management are robust and
defensible
l Review management performance
and the monitoring and reporting of
such performance.
Governance Review
A review of governance was undertaken
in 2011 which concluded that the
Company has in place the most
appropriate governance methods based
on its corporate culture, size, and
business complexity. The governance
review recommended that during 2012 a
Nominations Committee is formed to
ensure that there is an appropriate
balance of skills, experience, knowledge
and independence. Accordingly, the new
Nominations Committee has been
constituted. The 2011 governance
review also recommended a Board
evaluation; this was conducted in 2012
and the results considered by the
Board. A further governance review will
be undertaken in 2013 to maintain the
development and enhancement of
governance methods to suit the
Company as it grows.
Responsibilities of the Board
The Board is responsible to the
shareholders for:
l Setting the Group’s strategy
l Maintaining the policy and decision-
making process around which the
strategy is implemented
l Ensuring that necessary financial
and human resources are in place to
meet strategic aims
l Monitoring performance against key
financial and non-financial indicators
l Providing leadership whilst
maintaining the controls for
managing risk
l Overseeing the system of risk
management
l Setting values and standards in
corporate governance matters.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
They have a role in determining the pay
and benefits of the Executive Directors,
to play a key role in the appointment
and, if necessary, removal of Executive
Directors and Board succession.
Risk Management
The Board is ultimately responsible for
the Group’s system of internal control
and for reviewing its effectiveness. This
includes having an ongoing process in
place for identifying, evaluating and
managing significant risks.
The Group’s established internal
procedures include the following:
l The Management Team meetings
cover in detail most, if not all, of the
significant risks to which the Group
is exposed, these deliberations are
reported to the Board and further
discussion considered
l A table of significant risks has been
prepared for the Board, splitting the
categories by
l Trading – Significantly between Sales
and Supply Chain
l Financial – In particular the integrity
with which the Group is viewed by
lenders and investors as a public
company and exposure to liquidity
and interest and exchange rates
l General – Such as legal risk, the
ability to recruit quality staff and the
workload pressures existing on the
current team
l The Group prepares an annual
budget, developed through a
comprehensive strategic and
operational process prior to
commencement of the financial year.
A revised forecast is also prepared
each month, including a projection of
performance against bank
covenants, and is reviewed by the
Board. The Board and management
teams monitor the actual monthly
performance of the Group against
budget and forecasts with any
significant variances highlighted
and explained.
Relations with Shareholders
At each meeting, the Board is updated
on the meetings and communications
with the shareholders and an analysis
of the shareholder base is presented.
Research notes by brokers are
circulated to all Board members.
Throughout the year the Chief Executive
Officer and Finance Director meet with
the large, institutional shareholders
who hold the majority of the shares.
Regular feedback is given to the Board
following meetings with the
shareholders from the financial PR
advisors, and from the shareholders via
the brokers.
The Group recognises that whilst the
majority of the shares are held by large
institutions, attention should be paid to
the private shareholders and the
Investor Relations section of the
Group’s website is regularly updated
and amended with the aim being to
provide good information to all
shareholders, particularly private
Report of the Directors
19
investors. The website provides a facility
to receive email alert notifications of
Group news and stock exchange
announcements. In addition the Chief
Executive Officer and Finance Director
regularly present at conferences
attended by many potential and current
private shareholders and meet with
Private Client Fund Managers
representing the interests of private
investors following which feedback is
given to the Group.
At the Annual General Meeting the
Chairman issues a statement on
current trading. All Directors are
available following the meeting to
answer questions and for informal
discussions. The results of the proxy
votes are announced at the meeting,
including the abstentions and these
are published on the website following
the meeting.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
20
Directors‘ Remuneration
Remuneration Committee
The members of the Remuneration Committee are:
Paul Ranson (Chairman of the Remuneration Committee)
Michael Gatenby
Andrew Smith
The Company Secretary attends the meetings of the Remuneration Committee as secretary to the Remuneration Committee.
The Chief Executive Officer and the Human Resources Director are also invited to attend certain meetings of the
Remuneration Committee.
Role of the Remuneration Committee
The Remuneration Committee reviews and determines on behalf of the Board and shareholders of the Company the pay,
benefits and other terms of service of the Executive Directors of the Company and the broad pay strategy with respect to senior
Company employees.
Remuneration Policy
The objective of the Company’s remuneration policy is to attract and retain the directors and senior executives needed to run the
Company in a cost-effective manner.
The remuneration policy of the Company has four principal components:
1. Basic Salaries and Benefits in Kind – Basic salaries are determined by the Remuneration Committee bearing in mind the salaries
paid in AIM-listed and other small market capitalisation healthcare companies. Within that frame of reference, it is intended that
pay should be at or near the median level. Benefits in kind include the provision of company cars (or a salary alternative).
2. Bonuses – Bonuses are payable to staff according to the achievement by the Group of certain pre-determined earnings targets.
The level of bonuses payable on achievement of the targets is set at the level perceived appropriate to provide the necessary
incentives for Executive Directors and senior managers. There are appropriate adjustments to the bonus payable in the event of
over- or under-achievement of the Group against those targets. In addition, bonuses are adjusted for personal performance and
the amount of bonus paid will reflect any substantial periods of absence or unavailability of the employee.
3. Share Options Scheme – The Company has in place a share option scheme covering all employees, under which share options
are normally granted once a year. The exercise price of the options granted under the scheme is set equal to the market value of
the company’s shares at the time of grant. The share option scheme is overseen by the Remuneration Committee which shall
determine the terms under which eligible individuals may be invited to participate. The scheme is normally an HMRC approved
scheme but may be unapproved in relation to certain individuals.
4. Pensions – There is a defined contribution scheme for all Executive Directors and employees. Only basic salaries are
pensionable, except in the case of Tony Booley, whose bonus is also pensionable.
Directors’ Remuneration
The aggregate remuneration, excluding pension contributions, payable to the directors during the period was as follows:
Total
remuneration
2012 Share-based
payments1
£
Year ended
Year ended
31 December 31 December
2011
£
2012
£
186,123
194,805
-
256,015
72,573
32,736
33,676
185,106
13,014
104,780
-
-
-
-
-
13,115
199,137
299,585
-
256,015
72,573
32,736
33,676
198,221
197,714
462,241
-
254,194
69,322
31,560
31,560
195,899
Other
1,932
469
-
4,503
648
-
940
1,732
10,224
961,034
130,909
1,091,943
1,242,490
Salary
Bonuses
Relocation
expenses
Tony Booley
Peter Butterfield
Thomas Casdagli
John Dawson
Michael Gatenby
Paul Ranson
Andrew Smith
Richard Wright
149,074
148,536
-
202,900
71,925
32,736
32,736
148,536
35,117
43,896
-
48,612
-
-
-
34,838
786,443
162,463
1 Share based payment is the IFRS2 charge recognised in the period
-
1,904
-
-
-
-
-
-
1,904
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Report of the Directors
21
The Group operates a defined contribution pension scheme. The aggregate contributions payable by the Group (not included in
remuneration above) in respect of the period were as follows:
Year ended
Year ended
31 December 31 December
2011
£
2012
£
Tony Booley
Peter Butterfield
John Dawson
Richard Wright
17,544
13,834
10,000
13,834
55,212
18,770
13,549
10,000
13,333
55,652
Directors’ Service Contracts
All Executive Directors are employed under service contracts. The services of all Executive Directors may be terminated by the
provision of a maximum of 12 months’ notice by the Company.
Directors’ Share Options
Details of options for the directors who served during the year are as follows:
Tony Booley
Peter Butterfield
Richard Wright
31 December
2011
Number
Granted
Number
Exercised
Number
31 December
2012
Number
Exercise
price
Pence
Date from
which
exercisable
110,000
116,500
130,000
-
1,000,000
115,000
1,130,000
-
649,376
113,000
118,650
130,000
-
-
-
-
140,000
-
-
-
140,000
-
-
-
-
140,000
-
-
-
-
-
-
-
-
-
-
-
-
-
110,000
116,500
130,000
140,000
1,000,000
115,000
1,130,000
140,000
649,376
113,000
118,650
130,000
140,000
7.75
34.25
34.12
29.25
33.25
34.25
34.12
29.25
8.50
7.75
34.25
34.12
29.25
13/04/12
29/04/13
28/04/14
19/10/15
26/03/13
29/04/13
28/04/14
19/10/15
23/04/11
13/04/12
29/04/13
28/04/14
19/10/15
Expiry
date
12/04/19
28/04/20
27/04/21
18/10/22
25/03/20
28/04/20
27/04/21
18/10/22
22/04/18
12/04/19
28/04/20
27/04/21
18/10/22
The market price of ordinary shares at 31 December 2012 was 31.75 pence and the range during the period was from 23.00 pence to
31.87 pence.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
22
Other Matters
Principal activities
The principal activity of the Group is the acquisition, marketing and distribution of pharmaceutical products. The principal activity of
the Company is to act as a holding company.
Directors
The following table shows the beneficial interests of the Directors (and their spouses and minor children) in the shares of the Company:
Tony Booley
Peter Butterfield
Thomas Casdagli
John Dawson
Michael Gatenby
Paul Ranson
Andrew Smith
Richard Wright
Beneficial
interest
Number
4,610,723
-
20,947
40,036,402
350,000
48,000
200,000
190,768
Ordinary shares
Non-
beneficial
interest At end of year
Number
Number
At start of year
or subsequent
appointment
Number
-
-
19,281,197
20,000,000
-
-
-
-
4,610,723
-
19,302,144
60,036,402
350,000
48,000
200,000
190,768
6,810,723
-
19,300,000
62,261,402
350,000
48,000
200,000
190,768
Directors’ Responsibilities Statement
The directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have to
prepare the Group financial statements and have elected to prepare the Company financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law the directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss
of the company and group for that period. In preparing these financial statements, the directors are required to:
l select suitable accounting policies and then apply them consistently;
l make judgements and accounting estimates that are reasonable and prudent;
l state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial
statements;
l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue
in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that:
l in so far as each of the directors is aware there is no relevant audit information of which the company’s auditor is unaware; and
l the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and
to establish that the auditor is aware of that information.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Report of the Directors
23
Principal risks and uncertainties
The Group’s principal risks and uncertainties are outlined below.
Sales volumes being affected by a change in demand
Changes in demand for pharmaceutical products could be caused by a number of factors, such as changes in the competitive
environment. Key criteria when Alliance selects products to add to its portfolio are that the products are in niche areas, with the
majority requiring little or no promotional support, and that the products have many years of steady sales history before acquisition.
Sales volumes being affected by supply chain constraints
Issues within the supply chain can interrupt supply leading to insufficient stock being available to meet demand. Over the last few
years Alliance has taken a number of measures to strengthen its supply chain. These include where possible strengthening the
supply chain team within the business, dual sourcing of some key products and some key ingredients, holding larger buffer stocks
of selected products and improved communication with suppliers.
Sales pricing being reduced by regulatory action
The Pharmaceutical Price Regulation Scheme (PPRS) is the UK Government’s tool for controlling pricing for the NHS. Alliance is a
member of the ABPI and other industry bodies which are consulted by the Government on changes to PPRS. The latest scheme
commenced in 2009 and runs for five years.
Cost price inflation affecting gross margins
Increases in the cost of goods could erode gross margins. In a number of cases Alliance has arrangements with suppliers which
either fix prices or limit price increases over the next few years. At the expiry of such arrangements, prices are tested against
prevailing rates in the market. Alliance also looks for improvements in production techniques to reduce the cost of manufacturing.
Other risks and uncertainties are explained in the Business Review and Financial Review.
Supplier payment policy
The payment policy for the Company and the Group is to set the terms of payment with suppliers when agreeing the terms of the
transaction and to comply with those terms. Group and Company trade creditors at the period end amounted to 13 days (2011: 16
days) and nil days (2011: nil days) respectively of average supplies for the year, which is consistent with contractually agreed terms.
Financial risk management objectives and policies
The Group monitors credit risk closely and considers that its current policies of credit checks meets its objectives of managing
exposure to credit risk. The Group’s other financial risk management policies and objectives are detailed in note 21 of the financial
statements.
Disabled employees
Applications for employment by disabled persons are fully considered, bearing in mind the aptitudes of the applicant concerned.
In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues
and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of
disabled persons should, as far as possible, be identical to that of other employees.
Employee information and consultation
The Group continues to involve its staff in the future development of the business. Information is provided to employees through the
Group’s website, intranet site and by regular briefing meetings.
The Group operates a Group Personal Pension Plan and a Stakeholder Pension Plan which is available to all employees.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
24
Other Matters continued
Going concern
As explained in the Financial Review, the current rate of cash generation by the Group comfortably exceeds the capital and debt
servicing needs of the business (though there cannot, of course, be absolute certainty that the rate of cash generation will be
maintained). The Board remains confident that all the bank covenants will continue to be met. The Group has an £8m Working
Capital Facility which is largely undrawn and which the Board believes should comfortably satisfy the Group’s working capital needs
for at least the next 12 months.
After making enquiries, the directors have formed a judgement that there is reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going
concern basis in preparing the financial statements.
Political and charitable donations
Charitable donations totalling £19,151 (2011: £41,753) were made during the year. There were no political donations made during
the period.
Auditor
A resolution to re-appoint Grant Thornton UK LLP as auditor for the next year will be proposed at the annual general meeting in
accordance with section 489 of the Companies Act 2006.
Annual General Meeting
The 2013 Annual General Meeting of the Company will be held on 22 May 2013, the business of which is set out in the Notice
of Meeting.
On behalf of the Board
Sarah Robinson
Company Secretary
20th March 2013
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Independent Auditor’s Report
to the Members of Alliance Pharma plc
Financial Statements
25
We have audited the financial statements of Alliance Pharma plc for the year ended 31 December 2012 which comprise the
consolidated income statement, consolidated statement of comprehensive income, consolidated and parent company balance sheet,
the consolidated and parent company statement of changes in equity, the consolidated and parent company cash flow statements
and the notes to the financial statements. The financial reporting framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company
financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB's website at
www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
l the financial statements give a true and fair view of the state of the Group's and of the parent company's affairs as at 31 December
2012 and of the group's profit for the year then ended;
l the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
l the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
l the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
l adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
l the parent company financial statements are not in agreement with the accounting records and returns; or
l certain disclosures of directors’ remuneration specified by law are not made; or
l we have not received all the information and explanations we require for our audit.
Tracey James
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Bristol
20 March 2013
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
44,897
(19,779)
25,118
(11,856)
(573)
(369)
(12,798)
45,957
(21,469)
24,488
(11,235)
(735)
(179)
(12,149)
12,320
12,339
(1,541)
-
30
(1,511)
10,809
(2,119)
8,690
3.61
3.40
(1,600)
2
(29)
(1,627)
10,712
(2,076)
8,636
3.62
3.39
26
Consolidated Income Statement
Revenue
Cost of sales
Gross profit
Operating expenses
Administration and marketing expense
Amortisation of intangible assets
Share-based employee remuneration
Operating profit
Finance costs
Interest payable and similar charges
Interest income
Other finance income/(charges)
Profit on ordinary activities before taxation
Taxation
Profit for the year attributable to equity shareholders
Earnings per share
Basic (pence)
Diluted (pence)
Note
3
6
5
5
5
4
7
9
9
All of the activities of the Group are classed as continuing.
The accompanying accounting policies and notes form an integral part of these financial statements.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Consolidated Statement of
Comprehensive Income
Financial Statements
27
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Profit for the period
Interest rate swaps – cash flow hedge
Deferred tax on interest rate swaps
Total comprehensive income for the period
8,690
6
(2)
8,694
8,636
22
(6)
8,652
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
28
Consolidated Balance Sheet
Note
10
11
13
14
15
25
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Ordinary share capital
Share premium account
Share option reserve
Reverse takeover reserve
Other reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Long term financial liabilities
Convertible debt
Other liabilities
Derivative financial instruments
Deferred tax liability
Provisions for other liabilities
Current liabilities
Cash and cash equivalents
Financial liabilities
Convertible debt
Corporation tax
Trade and other payables
Derivative financial instruments
Provisions for other liabilities
18
18,19
20
22
23
24
15
18
18,19
17
22
24
Total liabilities
Total equity and liabilities
31 December 31 December 31 December 31 December
2011
£000s
2012
£000s
2012
£000s
2011
£000s
1 January
2011
£000s
1 January
2011
£000s
79,890
564
5,393
10,145
4,634
2,430
25,297
792
(329)
-
23,658
20,225
-
20
-
6,124
364
1
6,250
4,189
1,322
10,086
-
197
66,130
765
60,287
888
80,454
66,895
61,175
20,172
100,626
15,391
82,286
5,652
8,660
1,079
2,401
24,866
423
(329)
(4)
16,771
4,544
9,690
1,989
2,361
24,331
244
(329)
(20)
9,494
16,223
77,398
51,848
44,128
36,081
15,225
4,460
40
-
4,064
510
26,733
24,299
1
4,250
-
1,046
8,367
6
189
22,045
48,778
100,626
13,859
38,158
82,286
15,000
4,822
60
13
3,803
641
-
4,001
-
721
11,869
15
372
24,339
16,978
41,317
77,398
The financial statements were approved by the Board of Directors on 20 March 2013.
John Dawson
Director
Richard Wright
Director
The accompanying accounting policies and notes form an integral part of these financial statements. Company number 04241478
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Company Balance Sheet
Financial Statements
29
Assets
Non-current assets
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Ordinary share capital
Share premium account
Share option reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Convertible debt
Note
12
14
15
25
31 December 31 December 31 December 31 December
2011
£000s
2012
£000s
2012
£000s
2011
£000s
1 January
2011
£000s
1 January
2011
£000s
37,618
10,021
182
2,430
25,297
792
14,719
36,402
32,260
37,618
36,402
32,260
10,203
47,821
2,020
77
2,401
24,866
423
6,028
2,097
38,499
7,086
25
2,361
24,331
244
7,202
7,111
39,371
43,238
33,718
34,138
18,19
-
4,460
4,822
-
4,460
4,822
Current liabilities
Convertible debt
Corporation tax
Trade and other payables
18,19
17
4,189
4
390
-
-
321
-
95
316
Total liabilities
Total equity and liabilities
4,583
4,583
47,821
321
4,781
38,499
411
5,233
39,371
The financial statements were approved by the Board of Directors on 20 March 2013.
John Dawson
Director
Richard Wright
Director
The accompanying accounting policies and notes form an integral part of these financial statements. Company number 04241478
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
30
Consolidated Statement
of Changes in Equity
Ordinary
share
capital
£000s
Share
premium
account
£000s
Share
option
reserve
£000s
Reverse
takeover
reserve
£000s
Other
reserve
£000s
Retained
earnings
£000s
(329)
(20)
Balance 1 January 2011
2,361
24,331
Issue of shares
Dividend paid
Share options charge
Transactions with owners
Profit for the period
Other comprehensive income
Interest rate swaps – cash
flow hedge
Deferred tax on interest rate swaps
Total comprehensive income for
the period
Balance 31 December 2011
Balance 1 January 2012
Issue of shares
Dividend paid
Share options charge
Transactions with owners
Profit for the period
Other comprehensive income
Interest rate swaps – cash
flow hedge
Deferred tax on interest rate swaps
Total comprehensive income for
the period
40
-
-
40
-
-
-
-
2,401
2,401
29
-
-
29
-
-
-
-
535
-
-
535
-
-
-
-
24,866
24,866
431
-
-
431
-
-
-
-
244
-
-
179
179
-
-
-
-
423
423
-
-
369
369
-
-
-
-
-
-
-
-
-
-
-
-
(329)
(329)
-
-
-
-
-
-
-
-
Total
equity
£000s
36,081
575
(1,359)
179
(605)
8,636
22
(6)
9,494
-
(1,359)
-
(1,359)
8,636
-
-
8,636
8,652
16,771
44,128
16,771
-
(1,803)
-
(1,803)
8,690
-
-
44,128
460
(1,803)
369
(974)
8,690
6
(2)
8,690
8,694
23,658
51,848
-
-
-
-
-
22
(6)
16
(4)
(4)
-
-
-
-
-
6
(2)
4
-
Balance 31 December 2012
2,430
25,297
792
(329)
The balance on the share premium account may not be legally distributed under section 831 of the Companies Act 2006.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Company Statement of
Changes in Equity
Financial Statements
31
Balance 1 January 2011
Issue of shares
Dividend paid
Share options charge
Transactions with owners
Profit for the period
Balance 31 December 2011
Balance 1 January 2012
Issue of shares
Dividend paid
Share options charge
Transactions with owners
Profit for the period
Ordinary
share
capital
£000s
Share
premium
account
£000s
2,361
24,331
40
-
-
40
-
535
-
-
535
-
2,401
2,401
24,866
24,866
29
-
-
29
-
431
-
-
431
-
Share
option
reserve
£000s
Retained
earnings
£000s
7,202
-
(1,359)
-
(1,359)
185
6,028
6,028
-
(1,803)
-
(1,803)
244
-
-
179
179
-
423
423
-
-
369
369
-
Total
equity
£000s
34,138
575
(1,359)
179
(605)
185
33,718
33,718
460
(1,803)
369
(974)
10,494
10,494
Balance 31 December 2012
2,430
25,297
792
14,719
43,238
The balance on the share premium account may not be legally distributed under section 831 of the Companies Act 2006.
The profit for the year dealt with in the financial statements of the parent company was £10,494,000 (2011: £185,000). As permitted
by section 408 of the Companies Act 2006, no separate income statement is presented in respect of the parent company.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
32
Consolidated and Company
Cash Flow Statements
Group
Company
Note
27
10
10
11
10
Cash flows from operating activities
Cash generated from operations
Tax paid
Cash flows from operating activities
Investing activities
Interest received
Dividend received
Payment of deferred consideration
Development costs capitalised
Net proceeds from sale of intangible assets
Net assets acquired in Opus, net of cash
Purchase of property, plant and equipment
Purchase of other intangible assets
Net cash (used in)/ received from investing activities
Financing activities
Interest paid and similar charges
Loan issue costs
Proceeds from exercise of share options
Dividend paid
Transfer from subsidiary undertakings
Receipt from borrowings
Repayment of borrowings
Net cash received from/(used in) financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Exchange gains/(losses) on cash and cash equivalents
Cash and cash equivalents at the end of the period
15
Year ended
Year ended
Year ended
31 December 31 December 31 December 31 December
2011
£000s
2012
£000s
2012
£000s
2011
£000s
Year ended
14,417
(1,982)
12,435
-
-
(20)
(107)
-
(422)
(73)
(12,377)
(12,999)
(1,198)
(100)
190
(1,803)
-
10,000
(3,000)
4,089
3,525
1,078
30
4,633
11,654
(1,496)
10,158
2
-
(2,120)
(203)
102
-
(140)
(6,475)
(8,834)
(1,439)
(65)
182
(1,359)
-
6,475
(6,000)
(2,206)
(882)
1,989
(29)
1,078
(1,437)
4
(1,433)
1,310
2,000
-
-
-
-
-
-
3,310
(352)
-
164
(1,803)
219
-
-
(1,772)
105
77
-
182
(4,915)
(94)
(5,009)
1,096
5,000
-
-
-
-
-
-
6,096
(358)
-
182
(1,359)
500
-
-
1,035
52
25
-
77
The accompanying accounting policies and notes form an integral part of these financial statements.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Notes to the Financial
Statements
for the year ended 31 December 2012
Financial Statements
33
1. General information
Alliance Pharma plc (‘the Company’) and its subsidiaries (together ‘the Group’) acquire, market and distribute pharmaceutical
products. The Company is a public limited company incorporated and domiciled in England. The address of its registered office is
Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB.
The Company is listed on the AIM stock exchange.
These consolidated financial statements have been approved for issue by the Board of Directors on 20 March 2013.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the periods presented, unless otherwise stated.
2.1 Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted
by the European Union (‘EU’) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The
financial statements have been prepared under the historical cost convention. A summary of the more important Group and
Company accounting policies are set out below. The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions in these statements, particularly in relation to determining the
useful economic life of assets, that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s
best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
2.2 Consolidation
The consolidated balance sheet includes the assets and liabilities of the company and its subsidiaries which are made up to 31
December 2012. Entities over which the Group has the ability to exercise control are accounted for as subsidiaries. Interests
acquired in entities are consolidated from the effective date of acquisition and interests sold are consolidated up to the date of
disposal. Balances between Group companies are eliminated; no profit is taken on sales between Group companies. Goodwill
arising on the acquisition of interests in subsidiaries, representing the excess of purchase consideration over the Group's share of
the fair values of identifiable assets, liabilities and contingent liabilities acquired, is capitalised as a separate item.
An entity is treated as a joint venture where the Group holds a long term interest and shares control under a contractual agreement.
In the Group accounts, interests in joint ventures are accounted for using the proportionate consolidation method of accounting. The
consolidated income statement includes the Group’s share of the joint ventures’ turnover and includes the Group’s share of the
operating results, interest, pre-tax results and attributable taxation of such undertakings.
2.3 Judgements and estimates
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in
accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’. Critical estimates and assumptions that
are applied in the preparation of the consolidated financial statements include:
Depreciation and amortisation
The Group exercises judgement to determine useful lives and residual values of intangibles, computer equipment, and fixtures,
fittings and equipment. The assets are depreciated down to their residual values over their estimated useful lives.
Impairment
The value in use calculation uses cash flow projections based on financial forecasts for the next two years approved by management
covering the lower of useful economic life and extrapolated for a 15 year period. In each case it is assumed there will be no growth
beyond 2014 and the cash flows of each acquisition are discounted at a rate of 10%, which approximates to the Group’s weighted
average cost of capital.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
34
Notes to the Financial Statements continued
for the year ended 31 December 2012
2. Summary of significant accounting policies continued
Provisions
Provisions have been made for onerous leases and associated costs (see note 24) and for slow moving and obsolete stock. These
provisions are estimates and the actual costs and timing of future cash flows are dependent on future events. The difference
between expectations and the actual future liability will be accounted for in the period when such determination is made.
Deferred consideration
The Company determines that where there is an obligation to pay consideration dependent on the sale of a product, and the
Company can control whether the product is sold or not, the consideration is only recognised once a sale is made.
Consolidation of Joint Venture
The Group owns 60% of the issued share capital of Unigreg Limited. The Group considered the existence of substantive participating
rights held by the minority shareholder which provide that shareholder with a veto right over the significant financial and operating
policies of Unigreg Ltd and determined that, as a result of these rights, the Group does not have control over the financial and
operating policies of Unigreg Ltd, despite the Group's 60% ownership interests and consequently the company is integrated with
proportionate consolidation.
2.4 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the
Group’s activities. Revenue is shown net of value-added tax, estimated returns, rebates and discounts and after eliminating sales
within the Group and represents amounts invoiced to third parties in relation to the Group’s sole principal activity namely the
distribution of pharmaceutical products. Revenue is recognised when a Group entity has delivered products to the customer.
2.5 Foreign currency transactions
The consolidated financial statements are presented in sterling, which is the presentational currency of the Group and the
functional currency of the parent Company. Foreign currency transactions by Group companies are booked at the exchange rate
ruling on the date of the transaction. Foreign currency monetary assets and liabilities are retranslated into local currency at the rate
of exchange ruling at the balance sheet date. Exchange differences are booked to the income statement.
2.6 Property, plant and equipment
Computer equipment, fixtures, fittings and equipment are stated at the cost of purchase less any provisions for depreciation and
impairment. The rates generally applicable are:
Computer equipment
Fixtures, fittings and equipment
33.3% per annum, straight line
20% – 33.3% per annum, straight line
Material residual value estimates are updated as required, but at least annually, whether or not the asset is revalued.
2.7 Leases
Leasing agreements which transfer to the Group substantially all the benefits and risks of ownership are treated as finance leases,
as if the asset had been purchased outright. The assets are included within computer equipment, fixtures, fittings and equipment
and the capital element of the leasing commitments are shown as obligations under finance leases. Assets held under finance
leases are depreciated on a basis consistent with similar owned assets or the lease term if shorter. The interest element of the
lease rental is included in the income statement. All other leases are considered operating leases and the annual rentals are
included in the income statement on a straight line basis over the lease term.
2.8 Goodwill
Goodwill represents the excess of the consideration of acquisition over the fair value of the Group’s share of the identifiable net
assets acquired. Goodwill is reviewed for impairment at least annually by assessing the recoverable amount of each acquisition,
considered to be a cash-generating unit, to which the goodwill relates. The recoverable amount is the higher of fair value less
costs to sell and value in use. When the recoverable amount of the cash-generating unit is less than the carrying amount an
impairment loss is recognised. Any impairment is recognised immediately in the Consolidated Income Statement and is not
subsequently reversed.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
35
2. Summary of significant accounting policies continued
2.9 Intangible assets
Acquired intangible assets
Intangible assets are stated at the lower of cost less provision for amortisation and impairment or the recoverable amount
(explained further in note 10). Technical know-how and trademarks are deemed to have an indefinite useful life and are tested for
impairment annually. Distribution licences are amortised over the current life of the licence on a straight line basis and are tested
for impairment annually, if the licence period can be extended the useful life of the intangible asset shall include the renewal period
only if there is evidence to support renewal by the entity without disproportionate cost. In determining the useful economic life of
distribution rights each acquisition has been reviewed separately and consideration given to the period over which the Group
expects to derive economic benefit.
Internally-generated intangible assets –Research and development expenditure
Research expenditure is charged to the Consolidated Income Statement in the period in which it is incurred. Development
expenditure is capitalised when it can be reliably measured and the project it is attributable to is separately identifiable, is
technically feasible, demonstrates future economic benefit, and will be used or sold by the Group once completed.
The capitalised cost is amortised over the period during which the Group is expected to benefit and begins when the asset is ready
for use.
Development costs are reviewed at least annually for impairment by assessing the recoverable amount of each cash-generating
unit, to which the development costs relate. The recoverable amount is the higher of fair value less costs to sell and value in use.
When the recoverable amount of the cash-generating unit is less than the carrying amount an impairment loss is recognised. Any
impairment is recognised immediately in the Consolidated Income Statement and is not subsequently reversed.
Development costs not meeting the recognition criteria are expensed as incurred.
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-
generating unit level. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with
an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in
use based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro
rata to the other assets in the cash generating unit. With the exception of goodwill and development costs, all assets are
subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
2.10 Inventories
Inventories are included at the lower of cost less any provision for impairment or net realisable value. Cost is determined on a first-
in-first-out basis using the weighted average cost.
2.11 Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit reported in the income
statement because the former excludes items of income or expense that are either taxable or deductible in other years or that are
never taxable or deductible, and it includes tax reliefs that are not included in the income statement. The Group’s liability for current
tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are provided in full on temporary differences, and deferred tax assets are
recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can
be utilised. Deferred tax is provided using the rates of tax that are expected to apply in the period when the liability is settled or the
asset is realised, based on rates that have been substantively enacted by the balance sheet date. Deferred tax assets and liabilities
are not discounted. The Group is able to control the sharing of profits in the joint venture and as such no deferred tax has been
recognised on temporary differences.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
36 Notes to the Financial Statements continued
for the year ended 31 December 2012
2. Summary of significant accounting policies continued
2.12 Derivative financial instruments and hedging activities
Derivative financial instruments are used to manage exposure to market risk from treasury operations. The principal financial
instrument used by the Group is interest rate swaps. The Group does not hold or issue derivative financial instruments for trading or
speculative purposes. Derivative financial instruments are recognised in the balance sheet at fair value and then re-measured at
subsequent reporting dates. The fair value is calculated by reference to market interest rates and supported by counterparty
confirmation.
The interest rate swaps are designated as cash flow hedges.
The effective portion of changes in the fair value of derivative financial instruments that are designated as cash flow hedges are
recognised in other comprehensive income, while the gain or loss relating to the ineffective portion is recognised immediately in the
income statement. Changes in the fair value of derivative financial instruments that are not designated as cash flow hedges are
recognised in the income statement as they arise.
2.13 Debt instruments
Debt instruments are initially stated at their fair value net of issue costs, and subsequently measured at amortised cost using the
effective interest rate method.
Convertible Unsecured Loan Stock issued by the Company is regarded as compound financial instruments. Compound financial
instruments are split and recorded respectively within each of its two components, equity and liability. The fair values of the liability
component and the equity conversion component were determined at issuance of the bond. The equity component was determined
as nil and the fair value of the liability component, included in long-term borrowings, was calculated using a market interest rate for
an equivalent non-convertible bond.
2.14 Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
rate method.
2.15 Financial assets – loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are
classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash
equivalents’ in the balance sheet (note 2.16 and 2.17).
2.16 Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective
evidence that the Group will not be able to collect amounts due according to the original terms of the receivables.
2.17 Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks,
other short-term highly liquid investments, available with no penalty, with original maturities of three months or less, bank
overdrafts and working capital facilities.
2.18 Working capital facility
The terms of this arrangement are such that the risk and reward of ownership of the trade receivables do not pass to the finance
provider. As such the receivables are not de-recognised on funds drawn down against this facility. This facility is recognised as a
liability for the amount drawn.
2.19 Employee benefits – share-based compensation
The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange
for the grant of the options is recognised as an expense over the vesting period. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options granted. Non-market vesting conditions are included in assumptions
about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of
the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any,
in the Consolidated Income Statement, with a corresponding adjustment to equity. The proceeds received net of any directly
attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
37
2. Summary of significant accounting policies continued
2.20 Equity
Equity comprises the following:
“Share capital” represents the nominal value of equity shares.
“Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of
expenses of the share issue.
“Share option reserve” represents equity-settled share-based employee remuneration until such share options are exercised.
“Other reserve” represents the fair value of derivative financial instruments at the balance sheet date that are designated as cash
flow hedges net of deferred tax.
“Retained earnings” represents retained profit.
“Reverse takeover reserve” represents the difference between the fair value and nominal value of shares issued on a reverse takeover.
2.21 Investments
Investments in subsidiaries included in the Company’s balance sheet are stated at cost less any provision for impairment.
2.22 Provisions
Provisions are recognised when there is a present legal or constructive obligation as a result of a past event, for which it is probable
that a transfer of economic benefits will be required to settle the obligation and where a reliable estimate can be made of the
amount of the obligation.
Where material, the provisions have been discounted to their present value.
2.23 Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable assets, liabilities and contingent
liabilities acquired are measured at fair value at acquisition date. The consideration transferred is measured at fair value and
includes the fair value of any contingent consideration. The costs of acquisition are charged to the income statement in the period in
which they are incurred.
2.24 New standards not yet applied
A number of new EU adopted standards, amendments to standards and interpretations are not yet effective for the year ended
31 December 2012 and have not been applied in preparing these financial statements. The following list is not comprehensive but
includes the most significant to these financial statements:
l IFRS11 Joint Arrangements issued in May 2011 (effective date 1 January 2014) supersedes IAS31 Interests in Joint Ventures.
The new standard restricts the use of proportionate consolidation, currently used by the Group to account for its joint venture
Unigreg Limited, in favour of the equity method of accounting. This will affect the presentation of both the balance sheet and
the income statement. The results of Unigreg Limited will be brought into the accounts within one line on the income statement
and the investment will be shown as one line on the balance sheet rather than on a line by line basis.
l IFRS10 Consolidated financial Statements issued in May 2011 (effective date 1 January 2014) replaces IAS27 Consolidated and
Separate Financial Statements which has been renamed IAS27 Separate Financial Statements. IFRS10 changes the definition of
control but the core principle remains the same as such no changes in disclosure are expected.
l IFRS12 Disclosure of interests in other entities is a new disclosure standard issued in May 2011 and is effective from
1 January 2014.
l IAS19 Employee Benefits (amendment) is not anticipated to have any impact since the Group does not operate a defined benefit
pension scheme.
The Group continually reviews amendments to the standards made under the IASB’s annual improvements project.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
38 Notes to the Financial Statements continued
for the year ended 31 December 2012
3. Segmental reporting
Operating segments
An operating segment is defined as a component of the entity:
l that engages in business activities from which it may earn revenues and incur expenses,
l whose operating results are regularly reviewed by the entity’s chief operating decision maker (CODM) to make decisions about
the resources to be allocated to the segment and assess its performance, and
l for which discrete financial information is available.
For the year ended 31 December 2012 the Executive Team has been identified as the CODM.
Our management information system produces reports for the Executive Team grouping financial performance under the following
business areas:
l Hydromol
l Secondary Care
l Community and Consumer Products
l Established Products
l International
All business areas are responsible for developing, marketing and distributing a range of pharmaceutical products. As permitted by
IFRS 8, since these business areas are deemed to have similar economic characteristics and are similar, if not the same, in all of
the following:
l business areas derive their revenue from the supply of pharmaceutical products,
l the production and distribution process is the same across all business areas,
l business areas supply to similar customers i.e. pharmaceutical distributors or pharmacies, and
l all business areas are subject to a similar regulatory environment.
The business areas have been aggregated into a single reportable operating segment, namely pharmaceuticals. Each month the
CODM is presented with financial information prepared in accordance with IFRS as adopted in the EU and the accounting policies
set out in note 2 to these financial statements. As such the financial information provided to the CODM regarding the operating
segment has already been disclosed in the financial statements.
Geographical information
The following revenue information is based on the geographical location of the customer:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
United Kingdom
Ireland
China
Rest of the world
All non-current assets are located within the United Kingdom.
36,719
4,288
2,475
1,415
44,897
37,295
5,653
1,812
1,197
45,957
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
39
3. Segmental reporting continued
Major customers
During the year there were 2 (year ended 31 December 2011: 3) customers who separately comprised 10% or more of revenue.
Major customer 1
Major customer 2
Major customer 1
Major customer 2
Major customer 3
4. Profit before taxation
Profit before taxation is stated after charging/(crediting):
Year ended
31 December
2012
£000s
14,283
10,097
24,380
Year ended
31 December
2011
£000s
9,438
7,855
6,295
23,588
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable by the Group to the Company’s auditor for other services:
– The audit of the Company’s subsidiaries
– Other advisory services
– Consultancy
Amortisation of intangible assets
Share options charge
Depreciation of plant, property and equipment
Operating lease rentals
Profit on disposal of intangible assets
Loss on foreign exchange transactions
8
40
50
-
573
369
274
97
-
73
8
35
13
2
735
179
263
97
(50)
128
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
40 Notes to the Financial Statements continued
for the year ended 31 December 2012
5. Finance costs
Interest payable and similar charges
On loans and overdrafts
Amortised finance issue costs
Notional interest
Interest income
Other finance charges
Foreign exchange movement on euro denominated debt
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
(1,466)
(26)
(49)
(1,541)
-
30
30
(1,504)
(31)
(65)
(1,600)
2
(29)
(29)
Finance costs – net
(1,511)
(1,627)
Notional interest relates to the unwinding of the discount applied to the provisions (see note 24).
6. Directors and employees
Employee benefit expenses for the Group during the period were as follows:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Wages and salaries
Social security costs
Other pension costs (note 30)
Share-based employee remuneration (note 26)
The average number of employees of the Group during the period was:
4,288
566
306
369
5,529
3,760
566
251
179
4,756
Year ended
Year ended
31 December 31 December
2011
2012
Management and administration
63
59
Remuneration in respect of Directors was as follows:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Emoluments
Relocation expenses
959
2
961
941
194
1,135
Gain on share options recognised by directors during the year was £nil (2011: £349,000).
For additional disclosures please refer to Directors’ Remuneration section of the Directors’ Report.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
41
6. Directors and employees continued
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Emoluments for qualifying services
Relocation expenses
256
-
256
183
194
377
During the period contributions were paid to money purchase schemes for four directors (year ended 31 December 2011: four).
Key management of the Group are the Executive Team. For the year ended 31 December 2011 the Corporate Performance Team,
consisting of the Executive Team and appropriate Senior Managers was considered the key management of the Group. Benefit
expenses in respect of the key management was as follows:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Emoluments
Relocation expenses
Social security costs
Share-based payments
Company pension contributions to money purchase schemes
820
2
109
131
55
1,117
1,833
194
306
197
137
2,667
Average number of members of the CODM for the year ended 31 December 2012 was four (the Executive Team) (year ended 31
December 2011: 15 (Corporate Performance Team)).
7. Taxation
Analysis of charge in period.
United Kingdom corporation tax at 24.5% (2011: 26.5%)
In respect of current period
Adjustment in respect of prior periods
Deferred tax (see note 23)
Origination and reversal of temporary differences
Taxation
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
1,910
-
1,910
209
2,119
2,046
(225)
1,821
255
2,076
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
42 Notes to the Financial Statements continued
for the year ended 31 December 2012
7. Taxation continued
The difference between the total current tax 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
Year ended
31 December 31 December
2011
£000s
2012
£000s
Profit on ordinary activities before tax
10,809
10,712
Profit on ordinary activities multiplied by standard rate of corporation
tax in the United Kingdom of 24.5% (2011: 26.5%)
Effect of:
Non-deductible expenses
Attributable to joint venture
Impact of reduction in UK tax rate on deferred tax liability
Adjustment in respect of prior periods
Other differences
Total taxation
2,648
21
(189)
(353)
-
(8)
2,119
2,839
(61)
(129)
(314)
(225)
(34)
2,076
A number of changes to the UK Corporation tax system were announced in the Finance Act 2012. The main rate of corporation tax
was reduced from 26% to 24% from 1 April 2012 and reduced further to 23% from 1 April 2013. Further reductions to the main rate
are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. At the balance sheet date the substantively enacted rate
was 23% (2011: 25%). The further 1% reduction has not been substantively enacted at the balance sheet date and therefore not
included in these financial statements.
The proposed reduction of the main rate of corporation tax by 1% from 1 April 2014 is expected to be enacted during 2013. The
overall effect of this change from 23% to 22%, if applied to the deferred tax balance at 31 December 2012, would be to decrease the
deferred tax liability by £266,000.
8. Dividends
Amounts recognised as distributions to owners in the year
Interim dividend for the prior financial year
Final dividend for the prior financial year
Interim dividend for the current financial year
Year ended
31 December
2012
£000s
Year ended
31 December
2011
£000s
Pence/share
Pence/share
0.25
0.50
0.275
600
1,203
1,803
666
0.17
0.40
0.25
401
958
1,359
600
The proposed final dividend of 0.55p per share for the current financial year was approved by the Board of Directors on 20 March
2013 and is subject to the approval of shareholders at the Annual General Meeting. The proposed dividend has not been included as
a liability as at 31 December 2012 in accordance with IAS 10 Events After the Balance Sheet Date. The interim dividend for the
current financial year was paid on 15 January 2013. Subject to shareholder approval, the final dividend will be paid on 11 July 2013
to shareholders who are on the register of members on 14 June 2013.
9. Earnings per share (EPS)
Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all dilutive potential ordinary shares.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
43
9. Earnings per share (EPS) continued
A reconciliation of the weighted average number of ordinary shares used in the measures is given below:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
For basic EPS calculation
Employee share options
Conversion of Convertible Unsecured Loan Stock (CULS)
For diluted EPS calculation
240,881,464
2,032,846
20,053,595
238,601,884
2,751,890
21,466,690
262,967,905
262,820,464
A reconciliation of the earnings used in the different measures is given below:
Year ended
Year ended
31 December 31 December
2011
£000s
2012
£000s
Earnings for basic EPS
Interest saving on conversion of CULS
Tax effect of interest saving on conversion of CULS
Earnings for diluted EPS
The resulting EPS measures are:
8,690
337
(81)
8,946
8,636
361
(94)
8,903
Year ended
Year ended
31 December 31 December
2011
Pence
2012
Pence
Basic EPS
Diluted EPS
10. Intangible assets
The Group
Cost
At 1 January 2012
Additions
At 31 December 2012
Amortisation and impairment
At 1 January 2012
Amortisation for the year
At 31 December 2012
Net book amount
At 31 December 2012
At 1 January 2012
3.61
3.40
3.62
3.39
Technical
know-how,
trademarks
Purchased and distribution
rights
£000s
Goodwill
£000s
Development
costs
£000s
Goodwill on
consolidation
£000s
1,144
-
1,144
-
-
-
1,144
1,144
600
1,849
2,449
-
-
-
2,449
600
65,730
12,377
78,107
1,547
573
2,120
75,987
64,183
203
107
310
-
-
-
310
203
Total
£000s
67,677
14,333
82,010
1,547
573
2,120
79,890
66,130
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
44 Notes to the Financial Statements continued
for the year ended 31 December 2012
10. Intangible assets continued
Technical know-how, trademarks and distribution rights
Acquired trademarks and distribution rights when purchased are assessed to ensure they meet a set of criteria including an
established and stable sales history. The products are generally in niche areas where there is limited foreseeable prospect of
erosion of sales and they require little or no promotion to maintain sales.
The following acquisition activities took place in the year:
l On 2 August 2012, the Group acquired the antimalarial brands PaludrineTM, AvloclorTM and SavarineTM from AstraZeneca UK
Limited for cash consideration of £4.2m. Dependent upon sales of these brands to specified customers at the discretion of the
Group, further consideration may become payable over the next three years of around £0.5m.
l On 19 October 2012, the Group acquired Opus Group Holdings Limited for £8.0m plus the net asset value of Opus at completion
which was £1.6m. Following the acquisition, the entire trade and assets of Opus Healthcare Ltd (registered in the UK) and Opus
Group Holdings Limited were transferred to Alliance Pharmaceuticals Limited. The fair value of the intangible asset acquired
was £8.0m included within technical know-how, trademarks and distribution rights.
The consideration value for both acquisitions was payable on completion. Both acquisitions were funded by drawing loans from the
£20m Revolving Credit Facility ("RCF") that was put in place in November 2010. At the year-end £16.5m (2011: £6.5m) was drawn
down on the facility leaving an availability of £3.5m.
Purchased goodwill
During the year ended 31 December 2010, the Group completed the purchase of the trade and certain assets of Cambridge
Laboratories (Ireland) Limited and Cambridge Laboratories Limited. The goodwill of £600k that arose on acquisition reflects
Alliance’s entry into the oncology market with an established brand name and sales force.
Goodwill of £1.85m arose on the acquisition of Opus Group Holdings Limited (see note 33).
Goodwill on consolidation
The goodwill on consolidation arose on the acquisition of Dermapharm Ltd, which took place during the year ended 29 February 2004.
Impairment
As explained in note 2.8 and 2.9 all intangible assets are stated at the lower of cost less provision for amortisation and impairment
or the recoverable amount.
Goodwill (allocated across cash-generating units that are expected to benefit from it), indefinite life assets and development costs
are tested for impairment annually, or more frequently if there are indications that amounts might be impaired. The impairment test
involves determining the recoverable amount of the relevant asset or 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 considers each asset or cash generating unit on a case by case basis and uses cash flow projections
based on financial forecasts for the next two years approved by management covering the lower of useful economic life and
extrapolated for a 15 year period.
The key assumptions on which cash flow projections are made are:
l There will be no growth beyond 2014;
l Cash flows are discounted at an appropriate rate. The discount rates consider market information and specific circumstances of
each asset or cash-generating unit. A rate of 10%, which approximates to the Group’s weighted average cost of capital and is
considered appropriate for all assets; and
l The CODM considers 15 years to be a sufficient period to represent the indefinite useful economic lives of the products.
The value in use calculations for all assets and cash generating units, when tested with assumptions beyond a reasonable range the
recoverable amounts would not fall below their carrying amounts.
Development projects are reviewed as to the likelihood of their completion and valued using a discounted cash flow, using
appropriate risk factors, to assess whether the project is impaired.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
45
10. Intangible assets continued
Unigreg Ltd, the joint venture company of which the Group holds 60%, has applied to China’s State Food and Drug Administration
(‘SFDA’) to vary the licence for importing Forceval into China. There is uncertainty about whether or when this variation will be
approved. There is a risk that for a period of time Unigreg will be unable to import further product into China. There are a number of
measures of mitigation that can be taken to offset this risk. The Board’s view is that these mitigation measures are likely to be
sufficient to ensure the continuation of the business in the long term, and that the intangible asset relating to Forceval in China is
unlikely to be impaired. The carrying value of the related intangible asset is £1.95m.
The Group
Cost
At 1 January 2011
Disposals
Additions
At 31 December 2011
Amortisation and impairment
At 1 January 2011
Amortisation for the year
At 31 December 2011
Net book amount
At 31 December 2011
At 1 January 2011
The Group
Cost
At 1 January 2010
Additions
At 31 December 2010
Amortisation and impairment
At 1 January 2010
Amortisation for the year
At 31 December 2010
Net book amount
At 31 December 2010
At 1 January 2010
Technical
know-how,
trademarks
Purchased and distribution
rights
£000s
Goodwill
£000s
Development
costs
£000s
Goodwill on
consolidation
£000s
1,144
-
-
1,144
-
-
-
1,144
1,144
600
-
-
600
-
-
-
600
600
59,355
6,475
(100)
65,730
812
735
1,547
64,183
58,543
-
203
-
203
-
-
-
203
-
Technical
know-how,
trademarks
Purchased and distribution
rights
£000s
Goodwill
£000s
Goodwill on
consolidation
£000s
1,144
-
1,144
-
-
-
1,144
1,144
-
600
600
-
-
-
600
-
43,791
15,564
59,355
-
812
812
58,543
43,791
Total
£000s
61,099
6,678
(100)
67,677
812
735
1,547
66,130
60,287
Total
£000s
44,935
16,164
61,099
-
812
812
60,287
44,935
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
46 Notes to the Financial Statements continued
for the year ended 31 December 2012
11. Property, plant and equipment
The Group
Cost
At 1 January 2012
Additions
Disposals
At 31 December 2012
Depreciation
At 1 January 2012
Provided in the year
Eliminated on disposals
At 31 December 2012
Net book amount
At 31 December 2012
At 1 January 2012
Computer
equipment
£000s
Fixtures
fittings and
equipment
£000s
271
18
(67)
222
127
83
(67)
143
79
144
902
55
(5)
952
281
191
(5)
467
485
621
Total
£000s
1,173
73
(72)
1,174
408
274
(72)
610
564
765
The net book amount held under finance leases was £nil (year ended 31 December 2011: £1,000, year ended 1 January 2011: £1,000).
Computer
equipment
£000s
Fixtures
fittings and
equipment
£000s
224
83
(36)
271
84
79
(36)
127
144
140
890
57
(45)
902
142
184
(45)
281
621
748
Total
£000s
1,114
140
(81)
1,173
226
263
(81)
408
765
888
The Group
Cost
At 1 January 2011
Additions
Disposals
At 31 December 2011
Depreciation
At 1 January 2011
Provided in the year
Eliminated on disposals
At 31 December 2011
Net book amount
At 31 December 2011
At 1 January 2011
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
11. Property, plant and equipment continued
The Group
Cost
At 1 January 2010
Additions
Disposals
At 31 December 2010
Depreciation
At 1 January 2010
Provided in the year
Eliminated on disposals
At 31 December 2010
Net book amount
At 31 December 2010
At 1 January 2010
12. Investments
The Company
Cost
At 1 January 2012
Additions
At 31 December 2012
At 1 January 2011
Additions
At 31 December 2011
At 1 January 2010
Additions
At 31 December 2010
Financial Statements
47
Computer
equipment
£000s
Fixtures
fittings and
equipment
£000s
176
127
(79)
224
96
67
(79)
84
140
80
116
807
(33)
890
64
111
(33)
142
748
52
Total
£000s
292
934
(112)
1,114
160
178
(112)
226
888
132
Investment in
subsidiary
undertakings
£000s
36,402
1,216
37,618
32,260
4,142
36,402
25,538
6,722
32,260
The additions in the year relate to the increased investment the company has made in its subsidiary to support the acquisition of
new product licenses and £20,000 to establish Alliance Pharmaceuticals GmbH.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
48 Notes to the Financial Statements continued
for the year ended 31 December 2012
12. Investments continued
The subsidiary and associated undertakings where the Group held 20% or more of the equity share capital at 31 December 2012 are
shown below:
Company
Alliance Pharmaceuticals Limited
Dermapharm Limited
Alliance Health Limited
Alliance Consumer Health Limited
Alliance Generics Limited
Alliance Healthcare Limited
Caraderm Limited
Unigreg Limited
Unigreg Worldwide Limited
Opus Group Holdings Limited
Opus Healthcare Limited
Opus Healthcare Limited
Alliance Pharmaceuticals GmbH
Country of registration
or incorporation
Shares held
Class
%
owned
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Northern Ireland
British Virgin Islands
United Kingdom
United Kingdom
United Kingdom
Republic of Ireland
Germany
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
60
100
100
100
100
100
Nature of business
Pharmaceutical sales
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Pharmaceutical sales
Dormant
Dormant
Dormant
Non-trading
Non-trading
All subsidiary undertakings prepare accounts to 31 December, except Opus Healthcare Limited (Republic of Ireland) which prepares
accounts to 28 February. Alliance Pharmaceuticals Limited and Alliance Pharmaceuticals GmbH are the only investments held
directly by Alliance Pharma plc. All other investments are held by Alliance Pharmaceuticals Limited.
13. Inventories
The Group
Finished goods and materials
31 December 31 December
2011
£000s
2012
£000s
1 January
2011
£000s
5,393
5,652
4,544
Inventory costs expensed through the income statement during the year were £17,062,000 (year ended 31 December 2011:
£18,423,000, year ended 1 January 2011: £16,521,000). During the year £41,000 (2011: £1,083,000) was recognised as an expense
relating to the write-down of inventory to net realisable value.
14. Trade and other receivables
The Group
The Company
31 December 31 December
2011
£000s
2012
£000s
1 January 31 December 31 December
2011
£000s
2012
£000s
2011
£000s
Trade receivables
Other receivables
Prepayments and accrued income
Amounts owed by joint venture
9,583
212
350
-
10,145
8,152
147
331
30
8,660
9,139
55
439
57
9,690
-
10,011
10
-
10,021
-
2,008
12
-
2,020
1 January
2011
£000s
-
7,080
6
-
7,086
Dividends declared but not paid between Alliance Pharmaceuticals Limited and the Company of £10m for the year ended 31 December
2012 (for the year ended 31 December 2011: £2m, for the year ended 31 December 2010: £7m) are included within other receivables.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
14. Trade and other receivables continued
The ageing of trade receivables at 31 December is detailed below:
Not past due
Due 30-31 December*
Past due 3 days to 91 days
Past 91 days
Financial Statements
49
31 December 31 December
2011
£000s
2012
£000s
1 January
2011
£000s
5,194
3,732
569
88
9,583
3,858
3,289
782
223
8,152
5,073
3,952
26
88
9,139
* For the year ended 31 December 2012 £3,149,000 was received by the 11 January 2013. For the year ended 31 December 2011
£2,128,000 was received by the 13 January 2012. For the year ended 31 December 2010 £3,381,000 was received by the 11
January 2011.
Trade and other receivables are stated net of estimated allowances for doubtful debts. As at 31 December 2012, trade and other
receivables of £111,000 (for the year ended 31 December 2011: £63,000) 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 and do not bear any effective interest rate.
Trade receivables subject to the working capital facility are recognised in the balance sheet until they are settled by the customer.
Amounts outstanding from qualifying customers are held as security against the working capital facility.
15. Cash and cash equivalents
The Group
The Company
31 December 31 December
2011
£000s
2012
£000s
1 January 31 December 31 December
2011
£000s
2012
£000s
2011
£000s
Cash at bank and in hand
Working capital facility
4,634
(1)
4,633
1,079
(1)
1,078
1,989
-
1,989
182
-
182
77
-
77
1 January
2011
£000s
25
-
25
16. Major non-cash transactions
Principal non-cash transactions include finance issue costs amortised in the income statement during the year of £26,000 (year
ended 31 December 2011: £31,000) and an exchange movement of £30,000 (year ended 31 December 2011: £29,000) (see note 5).
Interest rate swaps designated as cash flow hedges resulted in a £6,000 charge (year ended 31 December 2011: £22,000 charge) to
other comprehensive income. As a consequence of the onerous contracts a notional interest charge representing the unwinding of
the discounted value of the onerous contract provision of £49,000 (year ended 31 December 2011: £65,000) was recognised in the
income statement. Amortisation of intangible assets resulted in a charge of £573,000 (year ended 31 December 2011: £735,000)
being recognised in the income statement.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
50 Notes to the Financial Statements continued
for the year ended 31 December 2012
17. Trade and other payables – current
The Group
The Company
31 December 31 December
2011
£000s
2012
£000s
1 January 31 December 31 December
2011
£000s
2012
£000s
2011
£000s
Trade payables
Other taxes and social security costs
Accruals and deferred income
Other payables
902
1,225
7,019
940
10,086
1,194
864
6,168
141
8,367
3,799
1,109
4,841
2,120
11,869
-
-
370
20
390
-
-
321
-
321
18. Financial liabilities – borrowings
The Group
The Company
Current
Bank loans due within one year
or on demand
Secured (a)
Net obligations under finance leases
Convertible debt (note 19)
Non-current
Bank loans:
Secured (a)
Convertible debt (note 19)
31 December 31 December
2011
£000s
2012
£000s
1 January 31 December 31 December
2011
£000s
2012
£000s
2011
£000s
6,250
-
6,250
4,189
10,439
4,250
-
4,250
-
4,250
4,000
1
4,001
-
4,001
-
-
-
4,189
4,189
-
-
-
-
-
The Group
The Company
31 December 31 December
2011
£000s
2012
£000s
1 January 31 December 31 December
2011
£000s
2012
£000s
2011
£000s
20,225
20,225
-
20,225
15,225
15,225
4,460
19,685
15,000
15,000
4,822
19,822
-
-
-
-
-
-
4,460
4,460
1 January
2011
£000s
7
-
309
-
316
1 January
2011
£000s
-
-
-
-
-
1 January
2011
£000s
-
-
4,822
4,822
(a) The bank loans are secured by a fixed and floating charge over the Company's and Group’s assets
During the year £10m was drawn down on the revolving credit facility to fund acquisitions in the year.
19. Convertible debt
The convertible unsecured loan stock is convertible into ordinary shares at any time between the date of issue and 30 November
2013, unconditionally and at the option of the note holder. The conversion rate is 21p per ordinary share. Interest is charged on the
loan stock at a fixed rate of 8% per annum and is paid every six months.
During the year, the Company received conversion notices in respect of £296,750 (year ended 31 December 2011: £393,250) nominal
value of the Company’s 8% Convertible Unsecured Loan Stock. Accordingly, the Company has allotted 1,413,093 ordinary shares of
1p each in the Company.
The fair values of the liability component and the equity conversion component were determined at issuance of the bond. The equity
component was determined as nil and the fair value of the liability component, included in long-term borrowings, was calculated
using a market interest rate for an equivalent non-convertible bond.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
51
20. Other non-current liabilities
The Group
The Company
31 December 31 December
2011
£000s
2012
£000s
1 January 31 December 31 December
2011
£000s
2012
£000s
2011
£000s
Deferred consideration for acquisitions
20
20
40
40
60
60
-
-
-
-
1 January
2011
£000s
-
-
Deferred consideration of £20,000 (year ended 31 December 2011: £40,000, year ended 1 January 2011: £60,000) relates to the
acquisition of Dermapharm Limited which took place in the year ended 29 February 2004.
21. Financial instruments
The Group uses financial instruments comprising borrowings, some cash and liquid resources, and various items such as trade
receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to raise
finance for the Group’s operations.
The Group also has a bank facility denominated in euros. The purpose of this facility is to manage the currency risk arising from the
Group's operations. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and
liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These
policies have remained unchanged from the previous year.
Interest rate risk
The Group finances its operations through a mixture of debt and equity.
The Group uses interest rate swaps to reduce the risk arising from changes in interest rates. These swaps are re-measured to fair
value at each period end by Lloyds Bank Corporate Markets. The valuations are indicative values based on mid-market levels as at
the close of business on the balance sheet date.
The Group has in place interest rate swaps with a nominal value of £nil (year ended 31 December 2011: £8m, year ended 1 January
2010: £16m) to convert the floating interest rate charge to a fixed rate interest charge.
Since the year end the Group has put in place interest rate swaps with a nominal value of £18m for the 5 years from 11 April 2013.
The interest rate exposure of the financial liabilities of the Group at the period end was:
At 31 December 2012
Bank loans – sterling denominated
Convertible loan stock
Sterling subtotal
Working capital facility – euro denominated
Euro subtotal
Total financial liabilities
Unamortised issue costs
Net book value of financial liabilities
Fixed
£000s
-
4,211
4,211
-
-
Floating
£000s
26,475
-
26,475
1
1
Total
£000s
26,475
4,211
30,686
1
1
4,211
26,476
30,687
(22)
-
(22)
4,189
26,476
30,665
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
52 Notes to the Financial Statements continued
for the year ended 31 December 2012
21. Financial instruments continued
At 31 December 2011
Bank loans – sterling denominated
Convertible loan stock
Interest rate hedges
Sterling subtotal
Working capital facility – euro denominated
Euro subtotal
Total financial liabilities
Unamortised issue costs
Net book value of financial liabilities
At 31 December 2010
Bank loans – sterling denominated
Convertible loan stock
Interest rate hedges
Total financial liabilities
Unamortised issue costs
Fixed
£000s
Floating
£000s
-
4,508
8,000
12,508
-
-
19,475
-
(8,000)
11,475
1
1
Total
£000s
19,475
4,508
-
23,983
1
1
12,508
11,476
23,984
(48)
-
(48)
12,460
11,476
23,936
-
4,901
16,000
20,901
(79)
19,000
-
(16,000)
3,000
-
19,000
4,901
-
23,901
(79)
Net book value of financial liabilities
20,822
3,000
23,822
Fixed rate financial liabilities
Weighted
average
period for
which rate
is fixed
Weighted
average
fixed rate
%
8.00
0.92 years
3.64
1.27 years
2.78
2.14 years
At 31 December 2012
Sterling
At 31 December 2011
Sterling
At 1 January 2011
Sterling
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
53
21. Financial instruments continued
The Sterling floating rate borrowings bear interest at rates based on LIBOR.
The Group balance sheet also includes financial assets in the form of cash at bank and in hand totalling £4,634,000 (31 December
2011: £1,079,000, 1 January 2011: £1,989,000) which are exposed to floating interest rates based on LIBOR.
A 0.5% increase in LIBOR would reduce pre-tax profits by approximately £17,000 in 2013. A 0.5% decrease would have the
opposite effect.
Currency risk
Approximately 10% of the Group's sales are to overseas customers in the EU. These sales are invoiced in euros. Certain expenses of
the Group are also in euros. The level of euro expenses broadly matches the level of euro income.
All other Group sales and all but a small proportion of other Group expenses are denominated in sterling.
A 5% weakening of sterling against the euro would result in a £65,000 decrease in predicted pre-tax profits, while a 5%
strengthening of sterling would have the opposite effect.
Liquidity risk
The Group seeks to manage financial risk, to ensure sufficient liquidity is available to meet the identifiable needs of the Group and
to invest cash assets safely and profitably. The Group’s long-term funding is provided by a combination of convertible unsecured
loan stock which is convertible into ordinary shares at a conversion rate of 21p per ordinary share up until 30 November 2013 and
bank loans with a repayment schedule of £1.25m per quarter from December 2012. The existing bank facilities are due for renewal
in November 2014. The Group’s policy is to re-finance the debt well in advance of the term loan expiry. Short-term flexibility is
achieved through the use of the working capital facility.
Fair value measurement
Effective from 1 January 2009, the Group adopted the amendments to IFRS7 for financial instruments that are measured in the
Consolidated Balance Sheet at fair value. This requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
l quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
l inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices) (Level 2); and
l inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2012:
Liabilities
Derivative financial instruments:
Interest rate swaps
Level 1
£000s
Level 2
£000s
Level 3
£000s
Total
£000s
-
-
-
-
-
-
-
-
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2011:
Liabilities
Derivative financial instruments:
Interest rate swaps
Level 1
£000s
Level 2
£000s
Level 3
£000s
Total
£000s
-
-
6
6
-
-
6
6
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 1 January 2011:
Liabilities
Derivative financial instruments:
Interest rate swaps
Level 1
£000s
Level 2
£000s
Level 3
£000s
Total
£000s
-
-
28
28
-
-
28
28
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
54 Notes to the Financial Statements continued
for the year ended 31 December 2012
21. Financial instruments continued
The maturity profile of the Group’s bank loans (capital only) at the year end is as follows:
At
1 January
2011
£000s
4,000
4,250
5,000
5,750
19,000
Total
£000s
10,106
1
27,703
4,436
561
42,807
Total
£000s
8,407
1
21,040
6
5,110
807
35,371
At
At
31 December 31 December
2011
£000s
2012
£000s
Due within:
One year
More than one year, not more than two years
More than two years, not more than three years
More than three years, not more than four years
6,250
20,225
-
-
26,475
4,250
5,000
10,225
-
19,475
The maturity profile of the Group’s financial gross liabilities (capital and interest) at the year end is as follows:
31 December 2012
In more than In more than
two years,
one year,
In one year, but not more but not more In more than
five years
£000s
than five
£000s
than two
£000s
or less
£000s
Trade and other payables
Working capital facility
Bank loans
Convertible loan stock
Onerous contracts
Trade and other payables
Working capital facility
Bank loans
Derivative financial instruments
Convertible loan stock
Onerous contracts
10,086
1
6,957
4,436
197
21,677
20
-
20,746
-
182
20,948
-
-
-
-
182
182
-
-
-
-
-
-
In more than
one year,
but not more
than two
£000s
31 December 2011
In more than
two years,
but not more
than five
£000s
In more than
five years
£000s
In one year,
or less
£000s
8,367
1
4,975
6
362
189
20
-
5,546
-
4,748
198
13,900
10,512
20
-
10,519
-
-
420
10,959
-
-
-
-
-
-
-
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
55
21. Financial instruments continued
Finance leases
Trade and other payables
Working capital facility
Bank loans
Derivative financial instruments
Convertible loan stock
Onerous contracts
In more than
one year,
but not more
than two
£000s
1 January 2011
In more than
two years,
but not more
than five
£000s
In more than
five years
£000s
In one year,
or less
£000s
1
11,869
-
4,740
15
392
372
17,389
-
20
-
4,858
13
393
195
5,479
-
40
-
11,291
-
5,162
398
16,891
-
-
-
-
-
-
219
219
Total
£000s
1
11,929
-
20,889
28
5,947
1,184
39,978
The maturity profile of the Company’s financial gross liabilities (capital and interest) at the year end is as follows:
31 December 2012
31 December 2011
1 January 2011
Trade
payables
and other
£000s
Bank
borrowings
and other
loans
£000s
Trade
payables
and other
£000s
Bank
borrowings
and other
loans
£000s
Trade
payables
and other
£000s
Bank
borrowings
and other
loans
£000s
In one year, or less
In more than one year, but not more than two
In more than two years, but not more than five
In more than five years
390
-
-
-
390
4,436
-
-
-
4,436
321
-
-
-
321
362
4,748
-
-
5,110
410
-
-
-
410
392
393
5,162
-
5,947
The Group had £11,499,000 (31 December 2011: £21,524,000, 1 January 2011: £21,432,000) undrawn committed borrowing facilities
available at 31 December 2012.
Classification of the Group’s financial instruments is set out below:
As at 31 December 2012
Financial assets
Cash
Trade and other receivables
Loans and Non financial
assets
£000s
receivables
£000s
4,634
9,795
14,429
-
350
350
Total
£000s
4,634
10,145
14,779
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
56 Notes to the Financial Statements continued
for the year ended 31 December 2012
21. Financial instruments continued
Classification of the Group’s financial instruments is set out below:
Held for
trading
£000s
Other
financial
liabilities
£000s
Liabilities
not within
scope of
IAS39
£000s
-
-
-
-
-
-
-
-
-
-
1
20,225
4,189
20
6,250
8,861
-
-
-
39,546
-
-
-
-
-
1,225
1,225
364
197
3,108
Loans and Non financial
assets
receivables
£000s
£000s
1,079
8,329
9,408
-
331
331
Held for
trading
£000s
Other
financial
liabilities
£000s
Liabilities
not within
scope of
IAS39
£000s
-
-
-
-
-
-
-
-
-
6
6
1
15,225
4,460
40
4,250
7,503
-
-
-
-
31,479
-
-
-
-
-
864
1,046
510
189
-
2,609
Total
£000s
1
20,225
4,189
20
6,250
10,086
1,322
364
197
42,654
Total
£000s
1,079
8,660
9,739
Total
£000s
1
15,225
4,460
40
4,250
8,367
1,046
510
189
6
34,094
As at 31 December 2012
Financial liabilities
Cash and cash equivalents
Long term financial liabilities
Convertible debt
Other liabilities
Financial liabilities
Trade and other payables
Corporation tax
Onerous contracts – non current
Onerous contracts – current
As at 31 December 2011
Financial assets
Cash
Trade and other receivables
As at 31 December 2011
Financial liabilities
Cash and cash equivalents
Long term financial liabilities
Convertible debt
Other liabilities
Financial liabilities
Trade and other payables
Corporation tax
Onerous contracts – non current
Onerous contracts – current
Derivative financial instruments – current
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
21. Financial instruments continued
As at 1 January 2011
Financial assets
Cash
Trade and other receivables
As at 1 January 2011
Financial liabilities
Long term financial liabilities
Convertible debt
Other liabilities
Financial liabilities
Trade and other payables
Corporation tax
Onerous contracts – non current
Onerous contracts – current
Derivative financial instruments – non current
Derivative financial instruments – current
Classification of the Company’s financial instruments is set out below:
As at 31 December 2012
Financial assets
Cash
Trade and other receivables
As at 31 December 2012
Financial liabilities
Convertible debt
Trade and other payables
Corporation tax
Financial Statements
57
Loans and Non financial
assets
receivables
£000s
£000s
1,989
9,251
11,240
-
439
439
Held for
trading
£000s
Other
financial
liabilities
£000s
Liabilities
not within
scope of
IAS39
£000s
-
-
-
-
-
-
-
-
13
15
28
15,000
4,822
60
4,001
10,760
-
-
-
-
-
34,643
-
-
-
-
1,109
722
641
372
-
-
2,844
Loans and Non financial
assets
£000s
receivables
£000s
182
-
182
-
10,021
10,021
Other
financial
liabilities
£000s
Liabilities
not within
the scope of
IAS39
£000s
4,189
390
-
4,579
-
-
4
4
Total
£000s
1,989
9,690
11,679
Total
£000s
15,000
4,822
60
4,001
11,869
722
641
372
13
15
37,515
Total
£000s
182
10,021
10,203
Total
£000s
4,189
390
4
4,583
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
58 Notes to the Financial Statements continued
for the year ended 31 December 2012
21. Financial instruments continued
Loans and Non financial
assets
receivables
£000s
£000s
77
-
77
-
2,020
2,020
Other
financial
liabilities
£000s
4,460
321
4,781
Loans and Non financial
assets
receivables
£000s
£000s
25
-
25
-
7,086
7,086
Other
financial
liabilities
£000s
Liabilities
not within
scope of
IAS39
£000s
4,822
316
-
5,138
-
-
95
95
Total
£000s
77
2,020
2,097
Total
£000s
4,460
321
4,781
Total
£000s
25
7,086
7,111
Total
£000s
4,822
316
95
5,233
As at 31 December 2011
Financial assets
Cash
Trade and other receivables
As at 31 December 2011
Financial liabilities
Convertible debt
Trade and other payables
As at 1 January 2011
Financial assets
Cash
Trade and other receivables
As at 1 January 2011
Financial liabilities
Convertible debt
Trade and other payables
Corporation tax
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
22. Derivative financial instruments
Interest rate swap – cash flow hedge
Current portion
Non current portion
Financial Statements
59
31 December 31 December
2011
Liabilities
£000s
2012
Liabilities
£000s
1 January
2011
Liabilities
£000s
-
-
-
-
6
6
6
-
28
28
15
13
The cash flow hedges were tested for effectiveness during the year and were found to be highly effective. The ineffective element
was immaterial. The hedge and interest on the bank debt are settled on a quarterly basis on the same date and measured against
the same benchmark, namely 3 month sterling LIBOR. The amount recognised through the income statement in respect of interest
rate swaps during the year was a charge of £6,000 (year ended 31 December 2011: £47,873 charge).
23. Deferred tax asset/(provision)
The Group
Accelerated capital allowances
Accelerated allowances on intangible assets
Initial recognition of intangible from business combination
Interest rate hedge
Deferred tax asset
Deferred tax provision
Reconciliation of deferred tax movements:
31 December 31 December
2011
£000s
2012
£000s
1 January
2011
£000s
(4)
(4,271)
(1,849)
-
(6,124)
-
(41)
(4,025)
-
2
(4,064)
-
(86)
(3,725)
-
8
(3,803)
-
(6,124)
(4,064)
(3,803)
The Group
Non-current assets
Intangible assets
Initial recognition of intangible from
business combination
Property, plant and equipment
Current Liabilities
Derivative financial instruments
Recognised as:
Deferred tax asset
Deferred tax liability
Recognised
in other
Recognised
31 December comprehensive in the income
statement
£000s
income
£000s
2011
£000s
Recognised
on business 31 December
2012
combination
£000s
£000s
(4,025)
-
(41)
2
(4,064)
-
(4,064)
-
-
-
(2)
(2)
(246)
-
(4,271)
-
37
-
(1,849)
-
(1,849)
(4)
-
-
(209)
(1,849)
(6,124)
-
(6,124)
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
60 Notes to the Financial Statements continued
for the year ended 31 December 2012
23. Deferred tax asset/(provision) continued
Deferred tax has been calculated at the prevailing rate of 23% (2011: 25% and 2010: 27%).
A number of changes to the UK Corporation tax system were announced in the Finance Act 2012.The main rate of corporation tax
was reduced from 26% to 24% from 1 April 2012 and reduced further to 23% from 1 April 2013. Further reductions to the main rate
are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. At the balance sheet date the substantively enacted rate
was 23% (2011: 25%). The further 1% reduction has not been substantively enacted at the balance sheet date and therefore not
included in these financial statements.
The proposed reduction of the main rate of corporation tax by 1% from 1 April 2014 is expected to be enacted during 2013. The
overall effect of this change from 23% to 22%, if applied to the deferred tax balance at 31 December 2012, would be to decrease the
deferred tax liability by £266,000.
Recognised
in other
Recognised
1 January comprehensive in the income 31 December
2011
£000s
statement
£000s
income
£000s
2011
£000s
(3,725)
(86)
4
4
-
(3,803)
-
(3,803)
-
-
(4)
(2)
-
(6)
(300)
45
(4,025)
(41)
-
-
-
-
2
-
(255)
(4,064)
-
(4,064)
The Group
Non-current assets
Intangible assets
Property, plant and equipment
Non-current Liabilities
Derivative financial instruments
Current Liabilities
Derivative financial instruments
Unused tax losses
Recognised as:
Deferred tax asset
Deferred tax liability
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
24. Provisions for other liabilities
At start of year
Amount provided for in year
Amount utilised in year
Unwinding of discount
At year end
Financial Statements
61
31 December 31 December
2011
£000s
2012
£000s
1 January
2011
£000s
699
-
(187)
49
561
1,013
-
(378)
64
699
-
1,268
(340)
85
1,013
Leases and associated costs for offices in Newcastle and Dublin, acquired as part of the Cambridge Laboratories acquisition have
subsequently been treated as onerous contracts. As at 31 December 2012 an amount of £561,000 (year ended 31 December 2011:
£699,000) discounted at a rate of 10%, representing payments due until the end of each contract has been recognised. The Dublin
property lease expired in 2011 and the Newcastle property lease will run until 2015.
The balances are analysed as follows:
Current
Non-Current
25. Share capital
At 31 December 2012 – ordinary shares of 1p each
At 31 December 2011 – ordinary shares of 1p each
At 1 January 2011 – ordinary shares of 1p each
At 1 January 2011 – ordinary shares of 1p each
Issued during the year
At 31 December 2011 – ordinary shares of 1p each
Issued during the year
At 31 December 2012 – ordinary shares of 1p each
31 December 31 December
2011
£000s
2012
£000s
1 January
2011
£000s
197
364
189
510
372
641
Authorised
No. of shares
Authorised
£000s
400,000,000
400,000,000
400,000,000
Allotted,
called and
fully paid
No. of shares
236,105,418
3,961,866
240,067,284
2,968,358
243,035,642
4,000
4,000
4,000
Allotted,
called and
fully paid
£000s
2,361
40
2,401
29
2,430
Between 1 January 2012 and 31 December 2012 1,555,265 shares were issued on the exercise of employee share options (2011:
2,089,250).
During the year, the Company received conversion notices in respect of £296,750 nominal value of the Company’s 8% Convertible
Unsecured Loan Stock (2011: £393,250). Accordingly, the Company has allotted 1,413,093 ordinary shares of 1p each in the Company
(2011: 1,872,616).
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
62 Notes to the Financial Statements continued
for the year ended 31 December 2012
25. Share capital continued
Potential issues of ordinary shares
Under the Group's share option scheme for employees and Directors options have been granted to subscribe for shares in the
Company at prices ranging from 7.75p to 34.25p. Options are exercisable three years after date of grant. Options outstanding are as
follows:
Year of grant
2005
2006
2007
2008
2009
2010
2011
2012
Exercise
price
pence
Exercise
from
31 December 31 December
2011
Number
2012
Number
19.00
18.75
9.25
8.50
7.75
33.25 and 34.25
34.12 and 31.00
29.25
2008
2009
2010
2011
2012
2013
2014
2015
9,000
40,250
33,250
1,308,426
1,037,045
2,633,889
4,248,253
3,494,826
9,000
40,250
33,250
1,419,526
2,481,210
2,633,889
4,248,253
-
1 January
2011
Number
9,000
74,750
231,126
3,276,400
2,481,210
2,668,639
-
-
12,804,939
10,865,378
8,741,125
See Note 19 for details of the Convertible Unsecured Loan Stock.
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 2012, net bank debt was
£21.8 million (excluding convertible unsecured loan stock), whilst Shareholders’ equity was £51.8 million.
The business is profitable and cash generative. The main financial covenants applying to bank debt are that leverage (the ratio of net
bank debt to EBITDA) should not exceed 2.0 times, interest cover (the ratio of EBITDA to finance charges) should be no less than 3.0
times, and operating cash flows must exceed debt service cash flows. The Group comfortably complied with these covenants in 2012
and 2011.
Smaller acquisitions are typically financed purely with bank debt, while larger acquisitions typically involve a combination of bank
debt and additional equity. The mixture of debt and equity is varied, taking into account the desire to maximise the shareholder
returns while keeping gearing at comfortable levels, i.e. net bank debt below around two times EBITDA.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
63
26. Share based payments
Under the Group's share option scheme for employees and Directors options to subscribe for shares in the Company are granted
normally once each year. Options are granted with a fixed exercise price equal to the market price of the shares under option at the
date of grant. The contractual life of an option is 10 years from date of grant. Options granted become exercisable on the third
anniversary of the date of grant. Exercise of an option is normally subject to continued employment. All share-based employee
remuneration is settled in equity. Options are valued using the Black-Scholes option-pricing model. There are no performance
conditions attached to the options. The assumptions used in the calculation are as follows:
Grant date
27/07/05
04/05/06
02/05/07
23/04/08
14/04/09
26/03/10
29/04/10
28/04/11
21/09/11
19/10/12
Share price
at issue
Exercise
price
19.00p
18.75p
9.25p
8.50p
7.75p
33.25p
34.25p
34.12p
31.00p
29.25p
19.00p
18.75p
9.25p
8.50p
7.75p
33.25p
34.25p
34.12p
31.00p
29.25p
Number of
Number
of options
remaining at
options 31 December
2012
granted
424,516
901,190
1,402,425
5,419,950
2,307,860
1,300,000
1,502,778
3,981,916
300,000
3,494,826
9,000
40,250
33,250
1,308,426
1,051,345
1,300,000
1,333,889
3,948,253
300,000
3,494,826
Expected
volatility
Risk free
rate
22.8%
14.9%
20.4%
18.6%
25.5%
43.5%
45.7%
43.9%
53.2%
49.7%
4.13%
4.30%
4.62%
4.90%
4.08%
3.90%
3.90%
4.10%
4.10%
1.70%
In each case, it is assumed the majority of options will be exercised at the earliest opportunity and that on average they are
exercised after 4 years. The expected volatility is based on historical volatility from 23 December 2003. The risk free rate of return is
based on UK government bonds of a term consistent with the assumed option life.
Share options and weighted average exercise price are as follows for the reporting periods presented:
2012
2011
2010
Weighted
average
exercise
price
Pence
24.82
29.25
10.54
-
Number
8,741,125
4,281,916
(2,089,250)
(68,413)
Number
10,865,378
3,494,826
(1,555,265)
-
Outstanding at start of year
Granted
Exercised
Forfeited
Outstanding at end of year
12,804,939
27.77
10,865,378
Weighted
average
exercise
price
Pence
16.59
33.90
8.70
-
24.82
Number
7,936,543
2,802,778
(1,564,906)
(433,290)
8,741,125
Exercisable at end of year
2,427,971
8.40
1,502,026
8.89
314,876
Weighted
average
exercise
price
Pence
10.08
33.79
12.48
22.54
16.59
11.35
Share options were exercised throughout the financial year. Share options were exercised between 29p and 30.5p per share.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
64 Notes to the Financial Statements continued
for the year ended 31 December 2012
27. Cash generated from operations
Group
Company
Year ended
Year ended
Year ended
31 December 31 December 31 December 31 December
2011
£000s
2012
£000s
2012
£000s
2011
£000s
Year ended
Result for the period before tax
Interest paid
Interest income
Other finance costs
Profit on disposal of intangibles
Depreciation of property, plant and equipment
Amortisation of intangibles
Change in inventories
Change in investments
Change in trade and other receivables
Change in trade and other payables
Share options charges
Cash flows from operating activities
28. Capital commitments
10,809
1,466
-
45
-
274
573
505
-
(724)
1,100
369
14,417
10,712
1,504
(2)
124
(50)
263
735
(1,109)
-
1,078
(1,780)
179
11,654
10,494
352
(1,310)
26
-
-
-
-
(1,435)
(10,001)
68
369
(1,437)
185
358
(1,096)
31
-
-
-
-
(4,643)
66
5
179
(4,915)
Neither the Group nor Company had any capital commitments at 31 December 2012 or at 31 December 2011.
29. Contingent liabilities
Neither the Group nor Company had any contingent liabilities at 31 December 2012 or at 31 December 2011.
30. Pensions
The Group operates a defined contribution group personal pension scheme for the benefit of certain Directors and employees.
The Group
Contributions payable by the group for the year
The Group also operates a stakeholder pension plan available to all employees.
31 December 31 December
2011
£000s
2012
£000s
306
251
31. Leasing commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
31 December 31 December
2011
Land and
buildings
£000s
2012
Land and
buildings
£000s
1 January
2011
Land and
buildings
£000s
361
753
317
286
900
415
432
985
729
1,431
1,601
2,146
No later than one year
Later than one year and no later than five years
Later than five years
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Financial Statements
65
32. Related party transactions
The group paid £642,000 (year ended 31 December 2011: £431,000) for services from Fasken Martineau LLP, a firm of which P
Ranson was a partner during 2012. At 31 December 2012 there was a balance of £13,624 (31 December 2011: £12,150) outstanding
in respect of services from Fasken Martineau LLP.
Lynette Booley, wife of Director Tony Booley, was paid £14,000 (31 December 2011: £45,000) for promotional services and goods.
£Nil was outstanding at 31 December 2012 (Year ended 31 December 2011: £2,000).
The group paid £24,000 (year ended 31 December 2011: £24,000) for services from Patient Connect Service Limited, a company of
which T Casdagli is a director.
During the year the Company received funds of £219,000 (year ended 31 December 2011: £500,000) from its subsidiary Alliance
Pharmaceuticals Limited. Net payments of £2,359,000 (year ended 31 December 2011: £1,752,000) were made by Alliance
Pharmaceuticals Limited on behalf of Alliance Pharma plc. Interest of £1,309,000 (year ended 31 December 2011: £1,096,000) was
charged to Alliance Pharmaceuticals Limited on the total outstanding debt. During the year the Company re-invested £2,010,000
(year ended 31 December 2011: £5,300,000) in Alliance Pharmaceuticals Limited. During the year an amount of £369,000 (year end
31 December 2011: £179,000) was charged to Alliance Pharmaceuticals Limited by the Company for the employee share based
payment. The amount owed by Alliance Pharmaceuticals Limited at the year end is £43,161,000 (31 December 2011: £32,065,000).
At the year-end dividends declared by Alliance Pharmaceuticals Limited due to the Company of £10,000,000 for the year ended 31
December 2012 (for the year ended 31 December 2011: £2,000,000, for the year ended 31 December 2010: £7,000,000) are included
within other receivables and are still outstanding. During the year dividends of £2,000,000 were paid by Alliance Pharmaceuticals
Limited to the Company.
During the year the Group made payments on behalf of Unigreg of £377,000 (year ended 31 December 2011: £129,000), interest
receivable from Unigreg was £48,000 (Year ended 31 December 2011: £48,000).
33. Acquisitions
Details of the acquisition of significant subsidiaries are given below.
During the year the Group acquired 100% of the share capital of Opus Group Holdings Ltd (“Opus”) for £8,040,000 plus the net asset
value of the Opus Group which was £1,626,848. In the twelve months to 31 March 2012 the turnover of Opus was £3.8m and the pre-
tax profit, before directors’ emoluments, was £2.1m. The group incurred acquisition related costs of £206,000 that have been
expensed to the income statement.
Intangible fixed assets
Current assets (excluding cash and cash equivalents)
Cash and cash equivalents
Current liabilities
Net assets
Deferred tax liability
Goodwill
Total consideration
Book of value
assets and
liabilities
acquired
£000s
Fair value of
assets and
liabilities
acquired
£000s
Fair value
adjustments
£000s
3
1,045
1,204
(625)
1,627
-
-
1,627
8,040
-
-
-
8,040
(1,849)
1,849
8,040
8,043
1,045
1,204
(625)
9,667
(1,849)
1,849
9,667
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
66 Notes to the Financial Statements continued
for the year ended 31 December 2012
34. Joint Venture
Name
Principal Activity
Country of Incorporation
Unigreg Ltd
Distribution of pharmaceutical products to China
British Virgin Islands
% Owned
60
The Group considered the existence of substantive participating rights held by the minority shareholder which provide that
shareholder with a veto right over the significant financial and operating policies of Unigreg Ltd and determined that, as a result of
these rights, the Group does not have control over the financial and operating policies of Unigreg Ltd, despite the Group’s 60%
ownership interest.
The company is accounted for using the proportionate consolidation method of accounting. The following amounts are included in
the balance sheet and the income statement of the Group, being the Group’s share of those items.
Inter-company transactions are also eliminated proportionally.
31 December 31 December
2011
£000s
2012
£000s
1 January
2011
£000s
1,950
658
(145)
2,463
1,950
853
(309)
2,494
1,950
836
(600)
2,186
Year ended
Year ended
Year ended
31 December 31 December 31 December
2010
£000s
2012
£000s
2011
£000s
2,475
(1,415)
(239)
821
1,812
(1,029)
(249)
534
1,874
(1,033)
(276)
565
Intangible fixed assets
Current assets
Current liabilities
Net assets
Income
Cost of sales
Administration and marketing expense
Profit on ordinary activities before taxation
35. Ultimate controlling party
There is no single ultimate controlling party.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Shareholder Information
Supplementary Information
67
Shareholder enquiries
The Company’s share register is maintained on our behalf by Capita Registrars, who are responsible for updating the register,
including details of changes to shareholders’ addresses and purchases and sales of the Company’s shares. If you have any
questions about your shareholding in the Company or need to notify any changes to your personal details you should write to Capita
Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire HD8 0LA or telephone 0871 664 0300
(calls cost 10p per minute plus network extras, lines are open 9:00am to 5:30pm Monday to Friday).
Financial Calendar
Annual General Meeting
Final dividend record date
Payment of final dividend
22 May 2013
14 June 2013
11 July 2013
Interim results announcement
11 September 2013
Year End
31 December 2013
Preliminary announcement
March 2014
Shareholder Analysis
Below is an analysis of the share register by size of holding as at 18 March 2013:
Size of shareholding
1-5,000
5,001-10,000
10,001-50,000
50,001-100,000
100,001-500,000
500,001-1,000,000
1,000,001-5,000,000
5,000,001-10,000,000
10,000,001-50,000,000
As at 18 March 2013 the Company has 584 registered shareholders.
Proportion of
shareholders
Number of Proportion of
shares
shares held
29%
17%
35%
5%
5%
3%
4%
1%
1%
354,946
787,468
4,600,062
2,585,630
8,195,923
11,099,612
51,386,763
31,444,199
134,509,099
0.14%
0.32%
1.88%
1.06%
3.35%
4.53%
20.98%
12.84%
54.90%
100%
244,963,702
100%
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
68 Five Year Summary
Year ended
Year ended
Year ended
31 December 31 December 31 December 31 December 31 December
2012
£m
Year ended
Year ended
2011
£m
2010
£m
2009
£m
2008
£m
Revenue
Operating profit before exceptional items
Exceptional operating items
Operating profit after exceptional items
Exceptional finance items
Profit before tax before exceptional items
Profit before tax after exceptional items
Intangible assets
Tangible assets
Current assets
Current liabilities
Equity
Average shares in issue (millions)
Shares in issue at period end (millions)
Earnings per share – basic (p)
Earnings per share – adjusted basic (p)
21.8
6.4
-
6.4
-
2.4
2.4
40.0
0.2
8.7
11.1
8.8
162.1
162.1
1.55
1.17
31.2
11.2
(2.8)
8.4
-
8.5
5.7
44.9
0.1
11.7
11.4
16.6
173.2
193.3
2.37
3.55
49.9
18.7
(1.7)
17.0
(1.8)
16.4
12.9
60.3
0.9
16.2
17.0
36.1
226.1
236.1
3.96
5.07
46.0
12.3
-
12.3
-
10.7
10.7
66.1
0.8
15.4
13.9
44.2
238.6
240.0
3.62
3.62
44.9
12.3
-
12.3
-
10.8
10.8
79.9
0.6
20.2
22.0
51.8
240.9
243.0
3.61
3.61
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Supplementary Information
69
Advisors
AUDITOR
Grant Thornton UK LLP
Hartwell House
55-61 Victoria Street
Bristol
BS1 6FT
BANKERS
REGISTRARS
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 3TU
Lloyds Bank Corporate Markets
SOLICITORS
The Atrium
Davidson House
Forbury Square
Reading
Berkshire
RG1 3EU
CORPORATE ADVISORS
Numis Securities Ltd
10 Paternoster Square
London
EC4M 7LT
FINANCIAL PR
Buchanan Communications
107 Cheapside
London
EC2V 6DN
Fasken Martineau LLP
17 Hanover Square
London
W1S 1HU
Taylor Wessing LLP
5 New Street Square
London
EC4A 3TW
REGISTERED OFFICE
Avonbridge House
Bath Road
Chippenham
Wiltshire
SN15 2BB
COMPANY NUMBER
04241478
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
70
Supplementary Information
Cautionary statement regarding forward-looking statements
This Annual Report has been prepared for the members of the Company and no one else. The Company, its Directors, employees or
agents do not accept or assume responsibility to any other person in connection with this document and any such responsibility or
liability is expressly disclaimed.
This Annual Report contains certain forward-looking statements with respect to the principal risks and uncertainties facing
Alliance. By their nature, these statements and forecasts involve risk and uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward-
looking statements reflect the knowledge and information available at the date of preparation of this Annual Report, and will not be
updated during the year. Nothing in this Annual Report should be construed as a profit forecast.
The Report of the Directors in this Annual Report has been drawn up and presented in accordance with English company law and
the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
In particular, Directors would be liable to the Company (but not to any third party) if the Report of the Directors contains errors as a
result of recklessness or knowing misstatement or dishonest concealment of a material fact, but would not otherwise be liable.
Trademarks
The following are registered trademarks of Alliance Pharmaceuticals Limited (a subsidiary of Alliance Pharma plc) and are
protected in a number of countries:
AbsorbagelTM, AcnisalTM, ALLIANCE, ALLIANCE and Logo, ALLIANCE GENERICS, ALLIANCE PHARMACEUTICALS, AlphadermTM,
AnbesolTM, AquadrateTM, Ashton & Parsons Infants’ PowderTM, AtaraxTM, AvloclorTM, BuccastemTM, CeanelTM, ClearWayTM, ClearWay
MiniTM, ClearWay Stoma BridgeTM, DeoGelTM, DeltacortrilTM, Dermamist, DistamineTM, ForcevalTM, HydromolTM, IsprelorTM, LiftTM,
Lift+TM, Lift PlusTM, LysovirTM, MetedTM, MolluDabTM, NaseptinTM, NaturCareTM, NaturCare BreezeTM, NaturCare FragantTM, NaturCare
ZestTM, NaturCare IPDTM, Nu-SealsTM, OcclusalTM, OndemetTM, OPUS and Logo, PaludrineTM, PavacolTM, Pavacol-DTM, PentraxTM,
PeriostatTM, PermitabsTM, PosidormTM, QuinodermTM and Quinoderm Q device, RizudermTM, Roman in a chariot device, SavarineTM,
SkinSafeTM, SkinSafe Non Sting Protective FilmTM, Terra-cortrilTM, ThwartTM, TimodineTM, UnifluTM, UnigregTM.
The following are all used under licence by Alliance Pharmaceuticals Limited:
XenazineTM is a registered trademark of Biovail Laboratories International (Barbados)
GelclairTM is a registered trademark of Helsinn Healthcare S.A.
ImmuCystTM is a registered trademark of Sanofi Pasteur Limited
Designed & produced by Design Wall.
A l l i a n c e P h a r m a p l c | A n n u a l R e p o r t 2 0 1 2
Alliance Pharma plc
Avonbridge House
Bath Road
Chippenham
Wiltshire
SN15 2BB
United Kingdom
T: +44 (0)1249 466966
F: +44 (0)1249 466977
E: ir@alliancepharma.co.uk
www.alliancepharma.co.uk