ALLIANCE PHARMA plc Annual Report and
Accounts for the year ended 31 December 2013
2013 Annual Report
Contents
Business Summary*
Highlights 01
Our Business Model 02
Products 04
International Commercial Presence 06
Report of the Directors
Strategic Report 08
Board of Directors 12
Senior Team Members 14
Corporate Governance 15
Directors’ Remuneration 16
Other Matters 18
Financial Statements
Independent Auditor’s Report 20
to the Members of Alliance
Pharma plc
Consolidated Income Statement 21
Consolidated Statement of
Comprehensive Income 22
Consolidated Balance Sheet 23
Company Balance Sheet 24
Consolidated Statement of 25
Changes in Equity
Company Statement of 26
Changes in Equity
Consolidated and Company 27
Cash Flow Statements
Notes to the Financial Statements 28
Supplementary Information*
Shareholder Information 61
Five Year Summary 62
Advisors 63
*Unaudited information.
Alliance Pharma plc | Annual Report 2013
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
£46m. Alliance has its headquarters in the UK at
Chippenham, Wiltshire.
Highlights
Business Summary
Key
Numbers
Revenue
Profit
before tax
44.9
45.5
12.0
10.8
£45.5m
£12.0m
2013
Key Facts
2012
2013
2012
2013
Dividend
EPS – basic
0.605
0.55
3.82
3.61
0.908p
3.82p
0.303
0.275
2012
2013
Interim
Final
2012
2013
Three acquisitions of
products since June 2013
with annualised gross
margin of £2.6m
France and Germany both
now trading profitably
Hydromol continues
good growth, achieving
year on year revenue
growth of 12%
New packaging
equipment for Ashton &
Parsons Infants’ Powders
now operational, with
production volumes
ramping-up
Full year dividend up
10% to 0.908p per share
(2012: 0.825p)
Low gearing with Debt to
EBITDA ratio of 1.6 times*
Operating profit 29%
of sales
*Including proforma EBITDA of acquisitions.
Alliance Pharma plc | Annual Report 2013
01
Our Business Model
Strategy
Alliance is a speciality pharma company pursuing a buy and build strategy. It expands its portfolio by
acquisition or inward licensing. It does not engage in R&D, except for minor line extensions.
The acquired products are ones whose
market position has been established by
their originators. Where necessary,
Alliance ensures the product’s viability by
regulatory and technical initiatives so that
the established franchise can be relied
upon to provide sustainable cash-flow into
the foreseeable future. Acquired products
are assessed for their potential to respond
to promotional investment. If promotion
would produce an economic return, then it
is implemented via Alliance’s specialised
sales and marketing operation. For many
products, however, having had their
Longevity of Brands
market positions established many years
ago, the most economic strategy is to
maintain them for their cash generation.
servicing and the operational needs
of the business, is then available for
dividend payments.
Corporate growth is further enhanced by
licensing in and marketing products that
have been developed by other companies’
R&D activities.
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
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.
PRODUCT
Hydromol
Toxicology Product
Nu-Seals
Syntometrine
Buccastem
Forceval
Timodine
Syntocinon
Paludrine
Vitamin E
ANNUAL REVENUE 2013
LAUNCH
£5.3m
£3.9m
£3.0m
£2.8m
£2.3m
£1.9m
£1.6m
£1.6m
£1.5m
£1.5m
1987
1991
1978
1956
1987
1970
1972
1956
1972
1989
Risk Reduction
Through Diversity
Any potential risk is spread
across a portfolio of over
60 products, the largest
representing just over
10% of Alliance’s sales.*
Deltacortril 1.3%
Buccastem 4.6%
Forceval 3.9%
Anti malarials 4.3%
Vitamin E 3.1%
Nu-Seals 6.2%
Symmetrel 2.3%
Other Secondary care 2.4%
Opus stoma products 8.0%
Risk Reduction Through Diversity
AVERAGE
AGE 38
YEARS
Hydromol 10.8%
Naseptin 2.6%
Syntometrine 5.9%
Other Dermatology 7.3%
Other 37.3% (35 products)
*Proforma 2013 Revenue.
02 Alliance Pharma plc | Annual Report 2013
Business Summary
Product Acquisition Strategy
Product life-cycle: Alliance’s bedrock products are usually at least 10 years post patent expiry with a
stable sales history and a low volume that limits direct competition.
Patent protection
Patent protection
High price/short life
High price/short life
Big Pharma
Big Pharma
Heavy marketing
Heavy marketing
VoVolulumeme r risisk k ++++
Volume risk ++
H
S
A
C
Development Biotechs
Development risk +++
26
60
26 deals
in 16 years
Over 60
products
Building global
operation
2012
£12.4m
2 deals
2013
£9.4m
2 deals
Higher volume – generic
Higher volume – generic
competition
competition
Very price competitive
Very price competitive
Price risk ++
Price risk ++
Lower volume – typically
Lower volume – typically
no competition
no competition
I MT
T I M E
Limited or no
competition
10+ years out of
patent
Stable sales
Low risk
Actively
searching for
acquisitions
Alliance has a strong track
record of successful
acquisitions and has
considerable expertise in
target selection, contract
negotiation and integration
of the products into its
operations. It has considerable
financial resources available
for future deals.
2010
£16.4m
1 deal
2009
£7.5m
1 deal
2011
£6.5m
3 deals
2001
£4.5m
2 deals
20
2002
£11
£11.1m
2 deals
1999
£2.1m
1 deal
2004
£9.7m
3 deals
Total Investment Since 1999
2008
£0.6m
1 deal
2007
£1.95m
1 deal
2006
£7.4m
5 deals
Alliance Pharma plc | Annual Report 2013
03
Products
Balanced Portfolio
The bedrock of non-promoted products provides considerable cash generation to support the growth
activities behind the Dermatology, Specialised Secondary Care and Consumer products. In this way a
healthy corporate operating profit of 29% of sales is maintained.
15%
13%
8%
19%
Dermatology
A range of products for the
remission of eczema and skin
complaints.
Specialist
Secondary Care
A range of products used by
hospitals.
Consumer
A range of products sold over
the counter.
International
Products where we hold
international marketing
authorisation where required.
45%
The bedrock: core portfolio of non-promoted products
Portfolio Profiles
Alliance has acquired products in a range of therapy areas; details on some of these are
provided below:
Dermatology
Hydromol – an emollient range of creams,
bath additives and ointments to maintain
skin hydration and prevent exacerbations
of eczema.
Timodine – is used to treat inflamed skin
conditions, such as eczema and severe
nappy rash, particularly involving the
fungal infection Candida albicans.
Gelclair – an oral gel that helps to
relieve the severe pain associated with oral
mucositis and other oral lesions
that can occur with common cancer
treatments.
Opus stoma care products – a range
of ancillary products such as barrier
creams, adhesive removers and absorbent
gels that make the wearing of stoma bags
more comfortable.
Specialist Secondary Care
Consumer
ImmuCyst – Immunotherapy for non-
muscle-invasive bladder cancer.
ImmuCyst is instilled into the bladder and
produces an intensive, local immune
response that destroys the tumour cells.
Ashton & Parsons – a well renowned
herbal product traditionally used in
infants for the symptomatic relief of
the pain and stomach upset associated
with teething.
Anbesol – to relieve the pain of mouth
ulcers, denture irritation and teething pain
in children.
Quinoderm – a dual action product for
acne, particularly in teenagers.
MolluDab – a proven treatment for
molluscum contagiosum, which is a
common and highly contagious viral
infection of the skin, particularly in
school children.
Lypsyl – a classic brand of lip salve for
preventing cracked lips.
04 Alliance Pharma plc | Annual Report 2013
Business Summary
Hydromol
Alliance acquired Hydromol in 2006 from Ferndale Pharmaceuticals. Hydromol is promoted by a small
field force covering hospital and general practice. Sales have grown from £0.9m at the time of
acquisition to £5.3m in 2013.
£6m
£5m
£4m
£3m
£2m
£1m
Hydromol sales
Moving Annual
Total
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Opus stoma
care products
Alliance acquired the
Opus stoma care business
in 2012. Turnover in 2013
was £3.9m.
Ashton & Parsons Infants’ Powders
Ashton & Parsons Infants’ Powders were first produced in London in the late 1800s and soon became
a popular treatment with parents for easing the symptoms of teething.
Alliance acquired the brand in 2011.
However, the specialist packaging
machinery required to produce the
traditional paper wrap originated in the
1950s, was unreliable and could not
service the demand for the product.
Alliance has re-designed the pack into a
modern sachet and, together with its
contract manufacturer, has invested in
modern high speed machinery.
Production levels are being ramped up in
2014 to meet the previously unsatisfied
demand. In the past, the brand’s popularity
was maintained through recommendation
by generations of grandparents and
parents. With increased product
availability, promotion of the brand, which
had been limited for decades because of
limited supply, now becomes possible.
As technology has moved on, so have the
means of communication. The format of
support networks for new mums and dads
has changed and online social forums
have become the main ways of seeking
advice and support from a much wider
network. Responding to this shift, the 2014
Ashton and Parsons communication
program features a family album of mums
through the decades and aims to
encourage parents to spread the word
about Ashton and Parsons which, with full
product availability, no longer has to
remain ‘Mum’s little secret’ and parents
are now free to pass it on!
Alliance Pharma plc | Annual Report 2013
05
International Commercial Presence
Direct Presence
Joint Venture
Local Partners
Local Partners:
Netherlands
Denmark
Finland
Sweden
Iceland
Spain
Portugal
Italy
Malta
Cyprus
Lebanon
Pakistan
Qatar
Oman
Egypt
Gabon
Niger
Burkina Faso
Madagascar
Kenya
South Africa
Namibia
Swaziland
Mauritius
Sri Lanka
Malaysia
Brunei
Singapore
Hong Kong
Australia
New Zealand
The Caribbean
Europe
Germany
As reported in 2012, Alliance has been
identifying an increasing number of
acquisition opportunities in Germany.
In January 2014 we moved to a position
of profitable trading by acquiring Irenat
from Bayer. Irenat is an established
endocrinology brand that is mainly used
for diagnosing and treating
hyperthyroidism.
France
In France where we achieved profitability
via the anti-malarial business that was
acquired in 2012, we are also seeing a
large number of opportunities for further
acquisitions.
06 Alliance Pharma plc | Annual Report 2013
Republic of Ireland
Although competition against
Nu-Seals has increased ahead of the
anticipated price referencing and generic
substitution changes due in 2014, our
commercial activities have been effective
in maintaining sales at a higher level
than expected.
The Opus stoma care products acquired
in 2012 grew strongly at 40%.
China
Alliance is well positioned to benefit from
growth in China’s mother and baby market.
Since 2007, via its joint venture partner, it
has been selling the vitamin / mineral
supplement FushiFu (Forceval) for use in
early pregnancy.
In 2014 Alliance acquired for £0.5m a 20%
stake in Synthasia, a Shanghai based
company supplying the Chinese market with
Suprememil, its advanced infant milk
formula brand, which it has specially
manufactured for it in Switzerland.
Suprememil has an excellent reputation
amongst the increasing numbers of medium
and high income households. Demand for
high quality baby milk products from abroad
is high within China and the future market
may see further growth following the recent
Business Summary
government announcements relaxing the
one child policy.
Alliance has a shareholder agreement
providing it with joint managerial control
and has options to acquire the remaining
80% stake at pre-agreed performance
multiples over the next 9 years. Synthasia
provides an operating base potentially
enabling Alliance to acquire other products
in the fast-growing China market.
Rest of the World
In June 2013 Alliance acquired the
worldwide rights to Syntometrine.
Alliance already owned the UK rights to
Syntometrine, an obstetric drug used in
the final stage of labour. This acquisition
added several important new territories
including Australia, South Africa and
Malaysia, thus providing Alliance with new
distributor relationships that may be
valuable in the event of further
acquisitions.
Far left: Suprememil.
Left: Syntometrine.
Above: FushiFu (Forceval).
Alliance Pharma plc | Annual Report 2013
07
Strategic Report
Alliance returned to double-digit headline profit growth in 2013, with pre-tax profits up by 11% to £12.0m.
This robust performance reflects the resilience of the business and the strength of our increasingly
broad product portfolio. Since 2010 the business has absorbed a reduction in gross margin from
Deltacortril of £11m, a product we acquired in 2006 for less than £1m. Excluding Deltacortril, the
underlying pre-tax profits grew 21% in 2013 and have grown at a compound annual growth rate of 30%
over the past three years, underlining our confidence in our buy and build strategy.
Revenue of the stoma care products,
which we acquired in October 2012, was
£3.9m, up slightly on the £3.8m pre-
acquisition level.
Our Gelclair treatment for oral mucositis
accelerated its revenue growth to 16% in
2013 and achieved £1.2m in revenue.
In the first half of 2013 we launched
MolluDab, the first effective treatment for
the highly infectious skin condition
molluscum contagiosum, which was part
of the Beacon Pharmaceuticals acquisition
in 2011. It has been warmly received in
both prescription and over-the-counter
(OTC) markets, with favourable comments
in consumer media such as Mumsnet, and
sales are steadily building.
The planned hand-back of nine products
that we had been distributing for Novartis
has been partly phased through over the
past year and is expected to be completed
soon. These products were generating
some £0.5m of annual gross margin for us,
and we received a termination payment of
about the same amount.
Revenue of our Nu-Seals enteric-coated
low-dose aspirin, sold mainly in the Irish
Republic, has been reducing more slowly
than anticipated since the arrival of
generic competitors during 2012. The
decline of less than £1m to £3.0m
suggests that our strategy of maintaining
relationships with pharmacists through a
contracted sales force is having some
success. The position of Nu-Seals in the
implementation schedule of the long-
anticipated reference pricing and generic
substitution regime means that this may
not impact on prices for some time –
possibly not until late 2014.
In China we had to cut back deliveries
of Forceval in 2013 as lower than expected
in-market revenue left our distributor
overstocked. The distributor is now re-
stocking and in-market revenue has
recovered somewhat. Elsewhere, there
was an interruption in supply of Forceval
for the UK and other international markets
as a move between contract
manufacturers took longer than expected
and buffer stocks were exhausted before
the new supply commenced.
Financial performance
The gross margin rate in 2013 rose to
60.3% (2012: 55.9%), benefiting from top-
of-cycle revenue of our higher-margin
toxicology product. We expect the
percentage rate to return to closer to
2012 levels in 2014.
We continue to manage our cost base
carefully. However, in a busy year for new
acquisitions, including a large aborted deal
and the Synthasia International deal
explained below, deal-related costs
totalled £0.9m. Staff costs also increased,
following some recruitment in late 2012 to
support our growing product portfolio and
the build-up of our new Operations team in
2013. As a result, operating costs rose by
£1.4m to £13.7m.
Total marketing investment was broadly
unchanged, with a modest shift from the
dermatology portfolio in favour of the OTC
consumer products where we see scope
for driving more revenue growth. In 2013
these products included MolluDab,
Anbesol for mouth ulcers and teething,
Quinoderm for acne, and Pavacol-D cough
syrup. In 2014 we will also be supporting
Ashton & Parsons Infants’ Powders and
our newly acquired Lypsyl lip care range.
Revenue increased by 1.4% to £45.5m
despite some headwinds, including the
temporary production issues with
ImmuCyst. This augurs well for our
prospects over the next couple of years,
as we reap the benefits of recent
acquisitions and expect to resume sales
of ImmuCyst at the end of this year.
With five acquisitions completed in the
past two years, we have continued to
demonstrate our ability to find and
negotiate attractive deals. Given our strong
funding position and healthy pipeline of
prospective targets, we expect to continue
growth through further acquisitions over
the coming months and years.
ALLIANCE
RETURNED TO
DOUBLE-DIGIT
PROFIT
GROWTH
Trading performance
Our revenue growth in 2013 was
underpinned by the continuing success of
the Hydromol dermatology range. With
revenue up 12% to £5.3m in 2013,
Hydromol is now our largest brand. We are
increasing manufacturing capacity for
Hydromol after demand briefly outstripped
production during the year.
Our cyclical toxicology product also made
a significant contribution, particularly in
the first half, as it reached the peak of
its 30-month sales cycle. However, sales
are now on the cyclical downswing and,
with several competitors entering the
market, we expect future sales to be
markedly lower.
08 Alliance Pharma plc | Annual Report 2013
As a result of the higher revenue and
improved gross margin rate, operating
profit increased 8% to £13.4m (2012:
£12.3m). This represents 29.4% of revenue,
a strong improvement on the 27.4% of
2012. Profit before tax increased 11% to
£12.0m (2012: £10.8m).
Cash generation remained strong, with
free cash flow of £8.4m, albeit this was
lower than the £11.0m of 2012 because of
movements in working capital, particularly
trade and other payables being relatively
high at December 2012 and then relatively
low at December 2013. These movements
are within the normal range of variation
from month to month.
In October 2013 we replaced the bank
facilities, which were due to mature in
2014, with new enlarged facilities that will
be available until June 2018 and are on
improved terms. We now have undrawn
acquisition facilities of over £20m,
positioning us strongly to continue
expanding our product portfolio.
Healthy cash generation enabled us to
finance nearly £10m of acquisitions in 2013
largely from cash flow. Net debt rose by
just £3.2m to £25.0m at the year-end
(2012: £21.8m). The bank debt to EBITDA
ratio remains comfortable at just 1.6 times,
including pre-acquisition EBITDA from the
2013 deals.
Financing
Earnings per share
Holders of our convertible loan stock
continued to convert to equity ahead of
the maturity date in November 2013,
and all outstanding stock was converted
in December. Over recent years
conversion of loan stock has increased the
number of Alliance shares on the market
by some 16%, with a consequent dilutive
effect on earnings per share. The
completion of conversions brings this
dilution to an end.
Our finance costs reduced again in 2013,
to £1.4m (2012: £1.5m), benefiting from
conversion of the loan stock. We have
interest rate swaps in place fixing the
LIBOR element of our debt costs at 1.24%
on £20m of our debt until 2018, and so are
well protected against interest rate rises
over the next few years.
Basic EPS improved 6% to 3.82p (2012:
3.61p), while diluted EPS improved 8% to
3.68p (2012: 3.40p). During 2013 the
number of shares in issue increased by
21.0m to 264.1m, 20.0m of which was due
to the loan stock conversions and 1.0m
from exercises of employee share options.
Dividend
We are maintaining our progressive
dividend policy, proposing a final payment
of 0.605 pence per ordinary share to give a
total dividend for the year of 0.908 pence.
This represents an increase of 10% on last
year’s dividend while still maintaining
ample cover of 4.2 times (2012: 4.4 times).
The final dividend will be paid on 10 July
2014 to shareholders on the register on
13 June 2014.
MAINTAINING
OUR PROGRESSIVE
DIVIDENDP
Y
C
I
L
O
Report of the Directors
FINANCED
NEARLY£10M
OF ACQUISITIONS
IN 2013 LARGELY
FROM CASH FLOW
Strategy
Our long-established business model is
based on acquiring and licensing
established products with stable revenue
in niche areas with limited or no
competition. Most of these require little or
no promotional support. In recent years we
have been broadening the scope of our
portfolio, primarily to include consumer
healthcare products. These typically
require some modest marketing
investment but offer potential for organic
growth; they also help to balance risk
across the portfolio because they are not
exposed to government price control.
In December 2013 we further expanded
our consumer healthcare portfolio with the
US$3.0m acquisition of the Lypsyl lip care
range. We believe the brand has good
turnaround potential – it was UK market
leader in 2003 but has since suffered from
lack of marketing support.
Our UK sales force is focused on
dermatology and on specialist hospital
products. As we add further products –
such as MolluDab for the dermatology
team – we will benefit from economies
of scale.
We currently generate about a fifth of our
revenue outside the UK. In 2012 we
launched a strategy to increase the flow
of acquisition opportunities by replicating
our successful UK model in overseas
markets, primarily in Western Europe. In
2012 we appointed Country Managers to
develop product portfolios in France and
Germany. Both operations are now
generating profits: France from the
antimalarial brands acquired in 2012 and
Germany from Irenat, a thyroid product
acquired from Bayer in January 2014.
With both businesses fully operational
and profitable we are now well placed to
find and negotiate further acquisitions in
those countries.
Alliance Pharma plc | Annual Report 2013
09
Strategic Report continued
W ASHTON &
PARSONS
E
INFANTS’
N
POWDERS
N
O
I
T
C
U
D
O
R
P
R
O
F
Y
R
E
N
H
C
A
M
I
We maintain an opportunistic approach to
international products. In June 2013 we
acquired the international rights to the
obstetric drug Syntometrine – a product
we already know well from producing and
marketing it for the UK. International
revenue, which we are managing through
distributors, made a useful contribution to
profits in the second half of the year.
In January 2014 we supplemented our
existing joint venture in China with a small
investment to take a minority stake in
Synthasia International. We have joint
managerial control and the option to take
full ownership over the next nine years.
Synthasia International, a Shanghai and
Hong Kong based business which markets
Swiss-made infant formula milk in China,
complements the Forceval business as
they are both in the mother and baby
market and sold through largely the same
channels. This gives us an operating base
from which to acquire other products in
the fast-growing Chinese market.
Our project to introduce new production
machinery for Ashton & Parsons Infants’
Powders in partnership with the contract
manufacturer has recently completed.
We are now ramping-up sales, which
had been constrained by limited
production capacity. We have also been
able to increase the product’s consumer
appeal with redesigned packaging in easy-
open sachets.
We look forward to the resumption of
ImmuCyst production at the end of this
year. Sanofi Pasteur has completed
refurbishment of its aseptic manufacturing
plant to address regulatory issues, and the
lengthy process of obtaining approvals is
progressing on schedule. Customers have
switched to using an alternative product,
but there are encouraging indications that
a number intend to return to ImmuCyst. It
is unlikely to regain all of its former 90%
market share, but we expect a steady
build-up of revenue through 2015.
Team
In 2013 we set up a small Operations team
under Stephen Kidner, which is already
making a substantial contribution to
optimising efficiency in the supply chain.
After a decade at the helm, our Chairman,
Michael Gatenby, retires from the
Company at the Annual General Meeting.
He will be succeeded by non-executive
director Andrew Smith, who has been
with Alliance since 2006. Non-executive
director Paul Ranson, who has also been
with Alliance for 10 years, has also
indicated he intends to retire from the
Board later this year.
Charity
For some years we have been donating
around £20,000 worth of products
annually to International Health Partners,
a charity that distributes medicines to
doctors in the world’s neediest areas. In
2013 we increased the value of our
contribution to £41,000 including £10,000
cash for the appeal following the
devastation that Typhoon Haiyan caused in
the Philippines.
Outlook
In the UK a new five-year price regulation
regime began at the start of this year,
requiring us to pay a rebate of 3.74% on
sales under the scheme. However, these
now account for less than a third of our
total revenue and the impact on revenue
will be about £0.5m this year.
Our buy and build strategy has been very
effective at producing growth, which at the
headline level has been clouded by
Deltacortril’s decline from its peak of £11m
margin in 2010 to just £0.3m in 2013. At
this level, changes in Deltacortril profits
will no longer mask the benefit of future
acquisitions.
Given the strength of our portfolio, the
acquisitions made in the past couple of
years and the healthy pipeline of
opportunities we are seeing, we are
confident of good revenue and profit
growth over the next few years. We plan to
gain momentum from further acquisitions
during 2014.
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.
10 Alliance Pharma plc | Annual Report 2013
F
Report of the Directors
STRONGLY
EXPANDING
POSITIONED TO CONTINUE
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.
Risk management
To reduce the risk arising from changes
in interest rates, the Group uses interest
rate swaps, where appropriate, and the
Convertible Unsecured Loan Stock paid a
fixed coupon.
The Group’s main transactional currencies
are Sterling and Euros, with the majority of
income and expenditure in Sterling. The
Euro-denominated income matches the
Euro-denominated expenditure quite
closely and so the Group has limited
exposure to exchange rate movements.
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 pharmaceuticals
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 of some key ingredients,
holding larger buffer stocks of selected
products and improved communication
with suppliers.
Sales pricing being reduced by
regulatory action
Around one third of the Group’s revenues
are from products covered by the
Pharmaceutical Price Regulation Scheme
(PPRS), which 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 January
2014 and runs for five years. Most of the
other UK revenue is from products that are
medical devices, sold over the counter or
are generic. The regulatory regime for
medical devices allows for inflationary
price increases each year and over the
counter and generic products are freely
priced. In Ireland, a new pricing regime is
being implemented which is likely to
impact Nu-Seals later in 2014.
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.
I
YBROAD
PRODUCT
RANGE
L
G
N
S
A
E
R
C
N
I
Alliance Pharma plc | Annual Report 2013
11
Board of Directors
Directors who held office at the date of this report are set out below.
All were Directors throughout 2013.
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.
12 Alliance Pharma plc | Annual Report 2013
Report of the Directors
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.
Alliance Pharma plc | Annual Report 2013
13
Senior Team Members
Janice Timberlake –
Human Resources Director
Dan Thomas –
Business Development Director
Dr David Yau –
Technical & Quality Director RP
Janice joined Alliance in 2011 as HR
Director. She is a Fellow of the Chartered
Institute of Personnel & Development
and has over 20 years of experience in
HR roles across a variety of industry
sectors. Janice’s early career was in the
UK mining industry, followed by Board
roles in the UK division of MyTravel Plc
(formerly Airtours) and latterly the
Natural Environment Research Council.
She is currently a non-executive Director
and Trustee of Plymouth Marine
Laboratory Ltd, and holds a BSc
honours degree in Geography from
Hull University.
Since joining Alliance in 2006 Dan has led
Alliance’s M&A and licensing activity,
completing over 14 deals. Dan has
worked in senior management in the
clinical research (CRO) sector, at Chiltern
International and in the biotech research
and diagnostics sector, at R&D Systems
Europe (Techne Corp Inc), responsible for
international regional sales operations.
Dan has worked in Canada, Germany and
France. He holds a first class honours
degree in Applied Biochemistry from
Brunel University. In 2011 Dan won the
PLG/AstraZeneca BD Executive of the
Year award.
David joined Alliance in 2008. He has
over 25 years of experience in the
pharmaceutical and healthcare
industries having held positions at
Reckitt & Colman Pharmaceuticals,
Seven Seas and GlaxoSmithKline. David
graduated with a PhD and an MBA from
the University of Bradford.
Margaret Boulton –
Medical & Regulatory Affairs Director
Stephen Kidner –
Operations Director
Sarah Robinson –
Company Secretary
Margaret joined Alliance in 2009. She has
around twenty years of experience in the
pharmaceutical and healthcare
industries, with Regulatory/Scientific
Affairs positions at Abbott, Baxter and
Élan. Margaret graduated in Animal
Science at Nottingham, has a PhD from
Edinburgh and an MBA from Bath.
Stephen joined Alliance in August 2013
bringing a background in development,
manufacturing and supply chain
management gained in the
pharmaceutical industry over a 23 year
career with Wyeth and Mundipharma
International.
A science graduate, Stephen holds a MSc
in Pharmaceuticals and an MBA.
Sarah joined Alliance in 2010 as the
Company Secretary. She has worked in
Asia, the UK and the USA, was Company
Secretary for the Financial Times and has
further experience in the financial
services and health sector. A Chartered
Secretary, Sarah gained her MBA from
Southampton University.
14 Alliance Pharma plc | Annual Report 2013
Corporate Governance
Report of the Directors
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.
Responsibilities of the Board
Management Teams
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.
There is a list of matters reserved for the
Board which may be updated by the Board
and approved by the Board only.
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.
During 2013 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
attended the Corporate Organisation Team
and Review and Planning team meetings.
Reporting Structure
Committees
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
website. The Report of the Remuneration
Committee and Report of the Nominations
Committee form part of this governance
section. Each Committee reports to the
Board on its activities.
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 2013 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.
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.
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
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. 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.
Alliance Pharma plc | Annual Report 2013
15
Directors’ Remuneration
Remuneration Committee
The members of the Remuneration Committee are:
Paul Ranson (Chairman of the Remuneration Committee)
Thomas Casdagli (appointed 9 September 2013)
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.
There were 6 Remuneration Committee meetings held during the year.
The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 do not apply to companies
quoted on AIM; the Remuneration Committee is committed to use the Regulations to influence the Report and follow best practice where
appropriate.
The terms of reference of the Remuneration Committee are available on www.alliancepharma.co.uk
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 payable to the directors during the period was as follows:
Salary Bonus Other Pension Total Remuneration
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
A R Booley 153,001 149,074 35,908 35,117 2,114 1,932 17,792 17,544 208,815 203,667
P J Butterfield 153,001 148,536 45,063 43,896 473 2,373 14,280 13,834 212,817 208,639
T T Casdagli - - - - - - - - - -
J Dawson 209,076 202,900 49,904 48,612 6,086 4,503 10,000 10,000 275,066 266,015
M R B Gatenby 74,246 71,925 - - 770 648 - - 75,016 72,573
P M Ranson 33,791 32,736 - - - - - - 33,791 32,736
A L Smith 33,791 32,736 - - 499 940 - - 34,290 33,676
R D Wright 153,001 148,536 36,050 34,838 1,610 1,732 14,280 13,834 204,941 198,940
809,907 786,443 166,925 162,463 11,552 12,128 56,352 55,212 1,044,736 1,016,246
16 Alliance Pharma plc | Annual Report 2013
Report of the Directors
Directors’ Remuneration continued
Total Remuneration Share based payments Total
2013 2012 2013 2012 2013 2012
A R Booley 208,815 203,667 20,227 13,014 229,042 216,681
P J Butterfield 212,817 208,639 80,077 104,780 292,894 313,419
T T Casdagli - - - - - -
J Dawson 275,066 266,015 - - 275,066 266,015
M R B Gatenby 75,016 72,573 - - 75,016 72,573
P M Ranson 33,791 32,736 - - 33,791 32,736
A L Smith 34,290 33,676 - - 34,290 33,676
R D Wright 204,941 198,940 20,258 13,115 225,199 212,055
1,044,736 1,016,246 120,562 130,909 1,165,298 1,147,155
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:
Number 2012 Granted Exercised Number 2013
Not subject to Subject to Not subject to Subject to Not subject to Subject to Not subject to Subject to Exercise Date from
performance performance performance performance performance performance performance performance price which Expiry
conditions conditions conditions conditions conditions conditions conditions conditions (pence) exercisable date
A R Booley 110,000 - - - - - 110,000 - 7.75 13/04/12 12/04/19
116,500 - - - - - 116,500 - 34.25 29/04/13 28/04/20
130,000 - - - - - 130,000 - 34.12 28/04/14 27/04/21
140,000 - - - - - 140,000 - 29.25 19/10/15 18/10/22
- - 144,200 - - - 144,200 - 37.25 06/06/16 05/06/23
- - - 400,000 - - - 400,000 35.75 23/10/18 22/10/23
P J Butterfield 1,000,000 - - - - - 1,000,000 - 33.25 26/03/13 25/03/20
115,000 - - - - - 115,000 - 34.25 29/04/13 28/04/20
1,130,000 - - - - - 1,130,000 - 34.12 28/04/14 27/04/21
140,000 - - - - - 140,000 - 29.25 19/10/15 18/10/22
- - 144,200 - - - 144,200 - 37.25 06/06/16 05/06/23
- - - 400,000 - - - 400,000 35.75 23/10/18 22/10/23
R D Wright 649,376 - - - 649,376 - - - 8.50 23/04/11 22/04/18
113,000 - - - 113,000 - - - 7.75 13/04/12 12/04/19
118,650 - - - - - 118,650 - 34.25 29/04/13 28/04/20
130,000 - - - - - 130,000 - 34.12 28/04/14 27/04/21
140,000 - - - - - 140,000 - 29.25 19/10/15 18/10/22
- - 144,200 - - 144,200 - 37.25 06/06/16 05/06/23
- - - 400,000 - - - 400,000 35.75 23/10/18 22/10/23
The market price of ordinary shares at 31 December 2013 was 41.00 pence and the range during the period was from 31.85 pence to
41.00 pence.
Alliance Pharma plc | Annual Report 2013
17
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.
Ordinary shares
At start of year
Beneficial Non-beneficial or subsequent
interest interest At end of year appointment
Number Number Number Number
Anthony Booley 4,610,723 - 4,610,723 4,610,723
Peter Butterfield - - - -
Thomas Casdagli 26,101 24,035,799 24,061,900 19,302,144
John Dawson 39,576,402 20,000,000 59,576,402 60,036,402
Michael Gatenby 350,000 - 350,000 350,000
Paul Ranson 48,000 - 48,000 48,000
Andrew Smith 200,000 - 200,000 200,000
Richard Wright 190,768 - 190,768 190,768
On 17 January 2014, Mrs Lynette Booley, wife of Mr Anthony Booley, sold 300,000 Shares at 33.5p.
Directors’ Responsibilities Statement
The directors are responsible for preparing the Strategic Report and 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 elected to
prepare the Group financial statements and 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 judgments 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 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 auditors are 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.
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.
18 Alliance Pharma plc | Annual Report 2013
Report of the Directors
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
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.
Going concern
As explained in the Strategic Report, 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 a £5m 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 £42,792 (2012: £19,151) 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 2014 Annual General Meeting of the Company will be held on 21 May 2014, the business of which is set out in the Notice of Meeting.
On behalf of the Board
Sarah Robinson
Company Secretary
25 March 2014
Alliance Pharma plc | Annual Report 2013
19
Independent Auditor’s Report
to the members of Alliance Pharma plc
We have audited the financial statements of Alliance Pharma plc for the year ended 31 December 2013 which comprise the consolidated
income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the company balance sheet,
the consolidated statement of changes in equity, company statement of changes in equity, and the consolidated and company cash flow
statements and the related notes. 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 Financial Reporting Council'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
2013 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; and
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 Strategic Report and 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.
Norman Armstrong
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Bristol
25 March 2014
20 Alliance Pharma plc | Annual Report 2013
Consolidated Income Statement
Financial Statements
Year ending Year ending
31 December 31 December
2013 2012
Notes £000s £000s
Revenue 3 45,513 44,897
Cost of sales (18,072) (19,779)
Gross profit 27,441 25,118
Operating expenses
Administration and marketing expense (13,027) (11,856)
Amortisation of intangible assets (422) (573)
Share-based employee remuneration 6 (632) (369)
(14,081) (12,798)
Operating profit 13,360 12,320
Finance costs
Interest payable and similar charges 5 (1,281) (1,541)
Interest income 5 2 -
Other finance (charges)/income 5 (72) 30
(1,351) (1,511)
Profit on ordinary activities before taxation 4 12,009 10,809
Taxation 7 (2,425) (2,119)
Profit for the year attributable to equity shareholders 9,584 8,690
Earnings per share
Basic (pence) 9 3.82 3.61
Diluted (pence) 9 3.68 3.40
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.
Alliance Pharma plc | Annual Report 2013
21
Consolidated Statement of
Comprehensive Income
Year ending Year ending
31 December 31 December
2013 2012
£000s £000s
Profit for the period 9,584 8,690
Other comprehensive income
Other items recognised directly in equity
Items that may be reclassified to profit or loss
Interest rate swaps – cash flow hedge 443 6
Deferred tax on interest rate swaps (93) (2)
Total comprehensive income for the period 9,934 8,694
22 Alliance Pharma plc | Annual Report 2013
Consolidated Balance Sheet
Financial Statements
31 December 31 December 31 December 31 December 1 January 1 January
2013 2013 2012 2012 2012 2012
Note £000s £000s £000s £000s £000s £000s
Assets
Non-current assets
Intangible assets 10 89,061 79,890 66,130
Property, plant and equipment 11 592 564 765
Derivative financial instruments 22 443 - -
90,096 80,454 66,895
Current assets
Inventories 13 5,468 5,393 5,652
Trade and other receivables 14 10,539 10,145 8,660
Cash and cash equivalents 15 888 4,634 1,079
16,895 20,172 15,391
Total assets 106,991 100,626 82,286
Equity
Ordinary share capital 25 2,641 2,430 2,401
Share premium account 29,380 25,297 24,866
Share option reserve 1,424 792 423
Reverse takeover reserve (329) (329) (329)
Other reserve 350 - (4)
Retained earnings 31,202 23,658 16,771
Total equity 64,668 51,848 44,128
Liabilities
Non-current liabilities
Long term financial liabilities 18 20,881 20,225 15,225
Convertible debt 18,19 - - 4,460
Other liabilities 20 - 20 40
Deferred tax liability 23 6,294 6,124 4,064
Provisions for other liabilities 24 199 364 510
27,374 26,733 24,299
Current liabilities
Cash and cash equivalents 15 2,125 1 1
Financial liabilities 18 2,895 6,250 4,250
Convertible debt 18,19 - 4,189 -
Corporation tax 1,154 1,322 1,046
Trade and other payables 17 8,585 10,086 8,367
Derivative financial instruments 22 - - 6
Provisions for other liabilities 24 190 197 189
14,949 22,045 13,859
Total liabilities 42,323 48,778 38,158
Total equity and liabilities 106,991 100,626 82,286
The financial statements were approved by the Board of Directors on 25 March 2014.
John Dawson Richard Wright
Director Director
The accompanying accounting policies and notes form an integral part of these financial statements. Company number 04241478
Alliance Pharma plc | Annual Report 2013
23
Company Balance Sheet
31 December 31 December 31 December 31 December 1 January 1 January
2013 2013 2012 2012 2012 2012
Note £000s £000s £000s £000s £000s £000s
Assets
Non-current assets
Investment in subsidiaries 12 47,119 37,618 36,402
47,119 37,618 36,402
Current assets
Trade and other receivables 14 50 10,021 2,020
Cash and cash equivalents 15 12 182 77
62 10,203 2,097
Total assets 47,181 47,821 38,499
Equity
Ordinary share capital 25 2,641 2,430 2,401
Share premium account 29,380 25,297 24,866
Share option reserve 1,424 792 423
Retained earnings 13,527 14,719 6,028
Total equity 46,972 43,238 33,718
Liabilities
Non-current liabilities
Convertible debt 18,19 - - 4,460
- - 4,460
Current liabilities
Convertible debt 18,19 - 4,189 -
Corporation tax - 4 -
Trade and other payables 17 209 390 321
209 4,583 321
Total liabilities 209 4,583 4,781
Total equity and liabilities 47,181 47,821 38,499
The financial statements were approved by the Board of Directors on 25 March 2014.
John Dawson Richard Wright
Director Director
The accompanying accounting policies and notes form an integral part of these financial statements. Company number 04241478
24 Alliance Pharma plc | Annual Report 2013
Consolidated Statement of
Changes in Equity
Financial Statements
Ordinary Share Share Reverse
share premium option takeover Other Retained Total
capital account reserve reserve reserve earnings equity
£000s £000s £000s £000s £000s £000s £000s
Balance 1 January 2012 2,401 24,866 423 (329) (4) 16,771 44,128
Issue of shares 29 431 - - - - 460
Dividend paid - - - - - (1,803) (1,803)
Share options charge - - 369 - - - 369
Transactions with owners 29 431 369 - - (1,803) (974)
Profit for the period - - - - - 8,690 8,690
Other comprehensive income
Interest rate swaps –
cash flow hedge - - - - 6 - 6
Deferred tax on interest rate swap - - - - (2) - (2)
Total comprehensive income
for the period - - - - 4 8,690 8,694
Balance 31 December 2012 2,430 25,297 792 (329) - 23,658 51,848
Balance 1 January 2013 2,430 25,297 792 (329) - 23,658 51,848
Issue of shares 211 4,083 - - - - 4,294
Dividend paid - - - - - (2,040) (2,040)
Share options charge - - 632 - - - 632
Transactions with owners 211 4,083 632 - - (2,040) 2,886
Profit for the period - - - - - 9,584 9,584
Other comprehensive income
Interest rate swaps –
cash flow hedge - - - - 443 - 443
Deferred tax on interest rate swap - - - - (93) - (93)
Total comprehensive income
for the period - - - - 350 9,584 9,934
Balance 31 December 2013 2,641 29,380 1,424 (329) 350 31,202 64,668
The balance on the share premium account may not be legally distributed under section 831 of the Companies Act 2006.
Alliance Pharma plc | Annual Report 2013
25
Company Statement of
Changes in Equity
Ordinary Share Share
share premium option Retained Total
capital account reserve earnings equity
£000s £000s £000s £000s £000s
Balance 1 January 2012 2,401 24,866 423 6,028 33,718
Issue of shares 29 431 - - 460
Dividend paid - - - (1,803) (1,803)
Share options charge - - 369 - 369
Transactions with owners 29 431 369 (1,803) (974)
Profit for the period - - - 10,494 10,494
Balance 31 December 2012 2,430 25,297 792 14,719 43,238
Balance 1 January 2013 2,430 25,297 792 14,719 43,238
Issue of shares 211 4,083 - - 4,294
Dividend paid - - - (2,040) (2,040)
Share options charge - - 632 - 632
Transactions with owners 211 4,083 632 (2,040) 2,886
Profit for the period - - - 848 848
Balance 31 December 2013 2,641 29,380 1,424 13,527 46,972
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 £848,000 (2012: Profit £10,494,000).
As permitted by section 408 of the Companies Act 2006, no separate income statement is presented in respect of the parent company.
26 Alliance Pharma plc | Annual Report 2013
Consolidated and Company
Cash Flow Statements
Financial Statements
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2013 2012 2013 2012
Note £000s £000s £000s £000s
Cash flows from operating activities
Cash generated from operations 27 12,546 14,417 (23) (2)
Tax paid (2,516) (1,982) (4) 4
Cash flows from operating activities 10,030 12,435 (27) 2
Investing activities
Interest received 2 - 1,464 1,310
Dividend received - - 10,000 2,000
Investment in subsidiary - - (9,501) (1,435)
Payment of deferred consideration (20) (20) - -
Development costs capitalised 10 (63) (107) - -
Net assets acquired in Opus, net of cash - (422) - -
Purchase of property, plant and equipment 11 (298) (73) - -
Purchase of other intangible assets 10 (9,534) (12,377) - -
Net cash (used in) / received from investing activities (9,913) (12,999) 1,963 1,875
Financing activities
Interest paid and similar charges (1,232) (1,198) (148) (352)
Loan issue costs (500) (100) - -
Proceeds from exercise of share options 82 190 82 164
Dividend paid (2,040) (1,803) (2,040) (1,803)
Transfer from subsidiary undertakings - - - 219
Receipt from borrowings 28,500 10,000 - -
Repayment of borrowings (30,725) (3,000) - -
Net cash (used in) / received from financing activities (5,915) 4,089 (2,106) (1,772)
Net movement in cash and cash equivalents (5,798) 3,525 (170) 105
Cash and cash equivalents at the beginning of the period 4,633 1,078 182 77
Exchange (losses) / gains on cash and cash equivalents (72) 30 - -
Cash and cash equivalents at the end of the period 15 (1,237) 4,633 12 182
The accompanying accounting policies and notes form an integral part of these financial statements.
Alliance Pharma plc | Annual Report 2013
27
Notes to the Financial
Statements
for year ended 31 December 2013
1. General information
Alliance Pharma plc (‘the Company’) and its subsidiaries (together ‘the Group’) acquire, market and distribute pharmaceutical and other
medical products. The Company is a public limited company 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 25 March 2014.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. IFRS 13 has
been applied for the first time in these financial statements. 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 as adopted by the 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, with the exception of derivatives which are included at fair value. 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
2013. 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 consideration transferred 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 judgements, 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 2015 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.
28 Alliance Pharma plc | Annual Report 2013
Financial Statements
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 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 principle activity namely the distribution of
pharmaceutical products. Revenue is recognised when a Group entity has delivered products to the customer and confirmation of receipt
is confirmed. The risks and rewards are transferred upon customers receiving the goods.
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
20% – 33.3% per annum, straight line
20% – 25% 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 transferred 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 Group Income Statement and is not subsequently reversed.
Alliance Pharma plc | Annual Report 2013
29
Notes to the Financial
Statements continued
for year ended 31 December 2013
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 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 Group Income Statement. Any reversal of a previously recorded impairment loss in a subsequent period
would also be recognised immediately in the Group 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
jointly controls the sharing of profits in the joint venture and as such no deferred tax has been recognised on temporary differences.
30 Alliance Pharma plc | Annual Report 2013
Financial Statements
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 is 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 drawdown against this facility. This facility is recognised as a liability for the
amount drawn.
Alliance Pharma plc | Annual Report 2013
31
Notes to the Financial
Statements continued
for year ended 31 December 2013
2. Summary of significant accounting policies continued
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 Group 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.
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 reserves” represents the fair value of derivative financial instruments at the balance sheet date that are designated as cash flow
hedges net of deferred tax, less amounts reclassified through other comprehensive income.
“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 2013 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.
l IFRS12 Disclosure of interests in other entities is a new disclosure standard issued in May 2011 and is effective from 1 January 2014.
The Group continually reviews amendments to the standards made under the IASB’s annual improvements project.
32 Alliance Pharma plc | Annual Report 2013
Financial Statements
3. Segmental reporting
Operating segments
An operating segment is defined as a component of the entity:
i)
that engages in business activities from which it may earn revenues and incur expenses,
ii) 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
iii) for which discrete financial information is available.
For the year ended 31 December 2013 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 and other medical 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 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
2013 2012
£000s £000s
United Kingdom 38,890 36,719
Ireland 3,626 4,288
China 239 2,475
Rest of the world 2,758 1,415
45,513 44,897
All non-current assets are located within the United Kingdom.
Alliance Pharma plc | Annual Report 2013
33
Notes to the Financial
Statements continued
for year ended 31 December 2013
3. Segmental reporting continued
Major customers
During the year there were 2 (year ended 31 December 2012: 2) customers who separately comprised 10% or more of revenue.
Year ended
31 December
2013
£000s
Major customer 1 15,252
Major customer 2 10,937
26,189
Year ended
31 December
2012
£000s
Major customer 1 14,283
Major customer 2 10,097
24,380
4. Profit before taxation
Profit before taxation is stated after charging:
Year ended Year ended
31 December 31 December
2013 2012
£000s £000s
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 8 8
Fees payable by the Group to the Company’s auditor for other services:
– The audit of the Company’s subsidiaries 38 40
– Other advisory services 112 50
Amortisation of intangible assets 422 573
Share options charge 632 369
Depreciation of plant, property and equipment 266 274
Operating lease rentals 97 97
Loss on foreign exchange transactions 72 73
34 Alliance Pharma plc | Annual Report 2013
Financial Statements
5. Finance costs
Year ended Year ended
31 December 31 December
2013 2012
£000s £000s
Interest payable and similar charges
On loans and overdrafts (1,222) (1,466)
Amortised finance issue costs (22) (26)
Notional interest (37) (49)
(1,281) (1,541)
Interest income 2 -
Other finance charges
Foreign exchange movement on euro denominated debt (72) 30
(72) 30
Finance costs – net (1,351) (1,511)
Notional interest relates to the unwinding of the discount applied to 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
2013 2012
£000s £000s
Wages and salaries 4,691 4,288
Social security costs 639 566
Other pension costs (note 30) 307 306
Share-based employee remuneration (note 26) 632 369
6,269 5,529
The average number of employees of the Group during the period was:
Year ended Year ended
31 December 31 December
2013 2012
Management and administration 72 63
Remuneration in respect of Directors (including pension) was as follows:
Year ended Year ended
31 December 31 December
2013 2012
£000s £000s
Emoluments 1,045 1,014
Relocation expenses - 2
1,045 1,016
Gain on share options recognised by directors during the year was £212,920 (2012: £nil).
For additional disclosures please refer to Directors’ Remuneration section of the Directors’ Report.
Alliance Pharma plc | Annual Report 2013
35
Notes to the Financial
Statements continued
for year ended 31 December 2013
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
2013 2012
£000s £000s
Emoluments for qualifying services 265 256
During the period contributions were paid to money purchase schemes for four directors (year ended 31 December 2012: four).
Key management of the Group are the Executive Team. Benefit expenses in respect of the key management was as follows:
Year ended Year ended
31 December 31 December
2013 2012
£000s £000s
Short term employee benefits 986 931
Share-based payments 121 131
Post-employment benefits 56 55
1,163 1,117
Average number of members of the CODM (the Executive Team) for the year ended 31 December 2013 was four (year ended 31
December 2012:4).
7. Taxation
Analysis of charge in period.
Year ended Year ended
31 December 31 December
2013 2012
£000s £000s
United Kingdom corporation tax at 23.25% (2012: 24.5%)
In respect of current period 2,242 1,910
Adjustment in respect of prior periods 106 -
2,348 1,910
Deferred tax (see note 23)
Origination and reversal of temporary differences 77 209
Taxation 2,425 2,119
36 Alliance Pharma plc | Annual Report 2013
Financial Statements
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
2013 2012
£000s £000s
Profit on ordinary activities before tax 12,009 10,809
Profit on ordinary activities multiplied by standard rate of corporation
tax in the United Kingdom of 23.25% (2012: 24.5%) 2,792 2,648
Effect of:
Non-deductible expenses 139 21
Attributable to joint venture (11) (189)
Adjustment in respect of prior period 106 -
Impact of reduction in UK tax rate on deferred tax liability (597) (353)
Other differences (4) (8)
Total taxation 2,425 2,119
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 24% to 23% from 1 April 2013. Further reductions to the main rate are proposed to reduce the rate by 2% per annum to 21%
from 1 April 2014 and will reduce by another 1% to 20% from 1 April 2015. At the balance sheet date the substantively enacted rate was
21% (2012: 23%). The further 1% reduction has not been substantively enacted at the balance sheet date and is therefore not included in
these financial statements.
The proposed reduction of the main rate of corporation tax by 1% from 1 April 2015 is expected to be enacted during 2014. The overall
effect of this change from 21% to 20%, if applied to the deferred tax balance at 31 December 2013, would be to decrease the deferred tax
liability by £300,000 (2012: £266,000).
8. Dividends
Year ended Year ended
31 December 31 December
2013 2012
Pence/share £000s Pence/share £000s
Amounts recognised as distributions to owners in the year
Interim dividend for the prior financial year 0.275 666 0.250 600
Final dividend for the prior financial year 0.550 1,374 0.500 1,203
2,040 1,803
Interim dividend for the current financial year 0.303 800 0.275 666
The proposed final dividend of 0.605 per share for the current financial year was approved by the Board of Directors on 25 March 2014 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 2013 in accordance with IAS 10 Events After the Balance Sheet Date. The interim dividend for the current financial year was
paid on 15 January 2014. Subject to shareholder approval, the final dividend will be paid on 10 July 2014 to shareholders who are on the
register of members on 13 June 2014.
Alliance Pharma plc | Annual Report 2013
37
Notes to the Financial
Statements continued
for year ended 31 December 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
in issue during the year. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares.
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
2013 2012
For basic EPS calculation 250,836,337 240,881,464
Employee share options 2,020,036 2,032,846
Conversion of Convertible Unsecured Loan Stock (CULS) 12,154,481 20,053,595
For diluted EPS calculation 265,010,854 262,967,905
A reconciliation of the earnings used in the different measures is given below:
Year ended Year ended
31 December 31 December
2013 2012
£000s £000s
Earnings for basic EPS 9,584 8,690
Interest saving on conversion of CULS 204 337
Tax effect of interest saving on conversion of CULS (47) (81)
Earnings for diluted EPS 9,741 8,946
The resulting EPS measures are:
Year ended Year ended
31 December 31 December
2013 2012
Pence Pence
Basic EPS 3.82 3.61
Diluted EPS 3.68 3.40
38 Alliance Pharma plc | Annual Report 2013
Financial Statements
10. Intangible assets
Technical
know-how,
trademarks
and
Goodwill on Purchased distribution Development
consolidation Goodwill rights costs Total
The Group £000s £000s £000s £000s £000s
Cost
At 1 January 2013 1,144 2,449 78,107 310 82,010
Additions - - 9,534 63 9,597
Disposals - - (4) - (4)
At 31 December 2013 1,144 2,449 87,637 373 91,603
Amortisation and impairment
At 1 January 2013 - - 2,120 - 2,120
Amortisation for the year - - 422 - 422
At 31 December 2013 - - 2,542 - 2,542
Net book amount
At 31 December 2013 1,144 2,449 85,095 373 89,061
At 1 January 2013 1,144 2,449 75,987 310 79,890
Goodwill on consolidation
The goodwill on consolidation arose on the acquisition of Dermapharm Ltd, which took place during the year ended 29 February 2004.
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 £0.6m 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 acquisition of Opus Group Holdings Limited in the year ended 31 December 2012.
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 6 June 2013, the Group acquired all existing rights to Syntometrine from Novartis AG and Novartis Pharma AG (together "Novartis")
for a consideration of US$11.5 million. Alliance already owned the UK rights to Syntometrine, but Novartis and its affiliates ("the
Novartis Group") had been selling Syntometrine in a number of countries worldwide including Australia, South Africa, Malaysia and
New Zealand. In the 12 months to March 2013 the total sales of Syntometrine by the Novartis Group were US$3.2 million and the gross
margin generated was US$2.8 million. Alliance expects to have annual distribution and operating costs of approximately £0.5 million
associated with these new territories.
l On 18 December 2013, the Group acquired all UK and Republic of Ireland rights to Lypsyl from Novartis AG for a consideration of
US$3.0 million. In the 12 months to September 2013, total sales of Lypsyl by the Novartis Group were £1.2 million and the gross
margin generated was £0.5 million. Alliance intends to reinvest a proportion of the gross margin in marketing activity to promote
the brand.
The consideration value for the Syntometrine and Lypsyl acquisitions was payable on completion. The acquisitions were funded from
available cash and existing facilities. £25 million was undrawn on the Group’s acquisition facilities at year end.
Alliance Pharma plc | Annual Report 2013
39
Notes to the Financial
Statements continued
for year ended 31 December 2013
10. Intangible assets continued
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, which are based on historic sales trends and management’s sales growth assumptions.
These forecasts are 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 2015;
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, 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, did not
result in the recoverable amounts falling 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.
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.
A new generic substitution and reference pricing regime is in the process of being implemented in the Republic of Ireland. This is
expected to adversely impact Nu-Seals sales, and may occur later this year. The Board’s view is that this impact will not be sufficiently
great as to cause the related intangible asset of £9.1m to be impaired. The recoverable amount, based on value in use, is estimated at
£9.7m. The key assumptions in arriving at the value in use are that the Nu-Seals’ volumes will fall by around 8%, that pricing will reduce
by 50% and that these impacts will be felt from Quarter 4 2014. The intangible asset could be impaired if volumes fell by more than 18%,
or if pricing fell by more than 53%.
Technical
know-how,
trademarks
and
Goodwill on Purchased distribution Development
consolidation Goodwill rights costs Total
The Group £000s £000s £000s £000s £000s
Cost
At 1 January 2012 1,144 600 65,730 203 67,677
Additions - 1,849 12,377 107 14,333
At 31 December 2012 1,144 2,449 78,107 310 82,010
Amortisation and impairment
At 1 January 2012 - - 1,547 - 1,547
Amortisation for the year - - 573 - 573
At 31 December 2012 - - 2,120 - 2,120
Net book amount
At 31 December 2012 1,144 2,449 75,987 310 79,890
At 1 January 2012 1,144 600 64,183 203 66,130
40 Alliance Pharma plc | Annual Report 2013
Financial Statements
10. Intangible assets continued
Technical
know-how,
trademarks
and
Goodwill on Purchased distribution Development
consolidation Goodwill rights costs Total
The Group £000s £000s £000s £000s £000s
Cost
At 1 January 2011 1,144 600 59,355 - 61,099
Additions - - 6,475 203 6,678
Disposals - - (100) - (100)
At 31 December 2011 1,144 600 65,730 203 67,677
Amortisation and impairment
At 1 January 2011 - - 812 - 812
Amortisation for the year - - 735 - 735
At 31 December 2011 - - 1,547 - 1,547
Net book amount
At 31 December 2011 1,144 600 64,183 203 66,130
At 1 January 2011 1,144 600 58,543 - 60,287
11. Property, plant and equipment
Fixtures,
Computer fittings and
equipment equipment Total
The Group £000s £000s £000s
Cost
At 1 January 2013 222 952 1,174
Additions 257 41 298
Disposals - (4) (4)
At 31 December 2013 479 989 1,468
Depreciation
At 1 January 2013 143 467 610
Provided in the year 68 198 266
At 31 December 2013 211 665 876
Net book amount
At 31 December 2013 268 324 592
At 1 January 2013 79 485 564
The net book amount held under finance leases was £nil (year ended 31 December 2012: £nil, year ended 1 January 2012: £1,000).
Alliance Pharma plc | Annual Report 2013
41
Notes to the Financial
Statements continued
for year ended 31 December 2013
11. Property, plant and equipment continued
Fixtures,
Computer fittings and
equipment equipment Total
The Group £000s £000s £000s
Cost
At 1 January 2012 271 902 1,173
Additions 18 55 73
Disposals (67) (5) (72)
At 31 December 2012 222 952 1,174
Depreciation
At 1 January 2012 127 281 408
Provided in the year 83 191 274
Eliminated on disposals (67) (5) (72)
At 31 December 2012 143 467 610
Net book amount
At 31 December 2012 79 485 564
At 1 January 2012 144 621 765
Fixtures,
Computer fittings and
equipment equipment Total
The Group £000s £000s £000s
Cost
At 1 January 2011 224 890 1,114
Additions 83 57 140
Disposals (36) (45) (81)
At 31 December 2011 271 902 1,173
Depreciation
At 1 January 2011 84 142 226
Provided in the year 79 184 263
Eliminated on disposals (36) (45) (81)
At 31 December 2011 127 281 408
Net book amount
At 31 December 2011 144 621 765
At 1 January 2011 140 748 888
42 Alliance Pharma plc | Annual Report 2013
Financial Statements
12. Investments
Investment in
subsidiary
undertakings
The Company £000s
Cost
At 1 January 2013 37,618
Additions 9,501
At 31 December 2013 47,119
At 1 January 2012 36,402
Additions 1,216
At 31 December 2012 37,618
At 1 January 2011 32,260
Additions 4,142
At 31 December 2011 36,402
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 £20,902 to establish Alliance Pharmaceuticals SAS.
The subsidiary and associated undertakings where the Group held 20% or more of the equity share capital at 31 December 2013
are shown below:
Country of registration Shares held %
Company or incorporation Class owned Nature of business
Alliance Pharmaceuticals Limited United Kingdom Ordinary 100 Pharmaceutical sales
Dermapharm Limited United Kingdom Ordinary 100 Dormant
Alliance Health Limited United Kingdom Ordinary 100 Dormant
Alliance Consumer Health Limited United Kingdom Ordinary 100 Dormant
Alliance Generics Limited United Kingdom Ordinary 100 Dormant
Alliance Healthcare Limited United Kingdom Ordinary 100 Dormant
Caraderm Limited Northern Ireland Ordinary 100 Dormant
Unigreg Limited British Virgin Islands Ordinary 60 Pharmaceutical sales
Unigreg Worldwide Limited United Kingdom Ordinary 60 Dormant
Opus Group Holdings Limited United Kingdom Ordinary 100 Dormant
Opus Healthcare Limited United Kingdom Ordinary 100 Dormant
Opus Healthcare Limited Republic of Ireland Ordinary 100 Non-trading
Alliance Pharmaceuticals GmbH Germany Ordinary 100 Non-trading
Alliance Pharmaceuticals SAS France Ordinary 100 Pharmaceutical sales
All subsidiary undertakings prepare accounts to 31 December, except Opus Healthcare Limited (Republic of Ireland) which prepares
accounts to 28 February and Unigreg Worldwide Limited which prepares accounts to 31 May. Alliance Pharmaceuticals Limited, Alliance
Pharmaceuticals GmbH and Alliance Pharmaceuticals SAS are the only investments held directly by Alliance Pharma plc. All other
investments are held by Alliance Pharmaceuticals Limited with the exception of Opus subsidiaries which are held by Opus Group Holdings
Limited and Unigreg Worldwide Limited which is held by Unigreg Limited.
Alliance Pharma plc | Annual Report 2013
43
Notes to the Financial
Statements continued
for year ended 31 December 2013
13. Inventories
31 December 31 December 1 January
2013 2012 2012
The Group £000s £000s £000s
Finished goods and materials 5,468 5,393 5,652
Inventory costs expensed through the income statement during the year were £15,945,000 (year ended 31 December 2012: £17,062,000,
year ended 1 January 2012: £18,423,000). During the year £157,217 (2012: £41,000) 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 1 January 31 December 31 December 1 January
2013 2012 2012 2013 2012 2012
£000s £000s £000s £000s £000s £000s
Trade receivables 9,131 9,583 8,152 - - -
Other receivables 536 212 147 38 10,011 2,008
Prepayments and accrued income 804 350 331 12 10 12
Amounts owed by joint venture 68 - 30 - - -
10,539 10,145 8,660 50 10,021 2,020
Dividends declared but not paid between Alliance Pharmaceuticals Limited and the Company of nil for the year ended 31 December 2013
(for the year ended 31 December 2012: £10m, for the year ended 31 December 2011: £2m) are included within other receivables.
The ageing of trade receivables at 31 December is detailed below:
31 December 31 December 1 January
2013 2012 2012
£000s £000s £000s
Not past due 4,292 5,194 3,858
Due 30-31 December* 3,994 3,732 3,289
Past due 3 days to 91 days 662 569 782
Past 91 days 183 88 223
9,131 9,583 8,152
* For the year ended 31 December 2013 £3,384,000 was received by the 10 January 2014. 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.
Trade and other receivables are stated net of estimated allowances for doubtful debts. As at 31 December 2013, trade and other
receivables of £108,000 (for the year ended 31 December 2012: £111,000) 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.
15. Cash and cash equivalents
The Group The Company
31 December 31 December 1 January 31 December 31 December 1 January
2013 2012 2012 2013 2012 2012
£000s £000s £000s £000s £000s £000s
Cash at bank and in hand 888 4,634 1,079 12 182 77
Working capital facility (2,125) (1) (1) - - -
(1,237) 4,633 1,078 12 182 77
44 Alliance Pharma plc | Annual Report 2013
Financial Statements
16. Major non-cash transactions
Principal non-cash transactions include finance issue costs amortised in the income statement during the year of £22,000 (year ended 31
December 2012: £26,000) and an exchange movement of £72,000 (year ended 31 December 2012: £30,000) (see note 5). Interest rate
swaps designated as cash flow hedges resulted in a £443,000 gain (year ended 31 December 2012: £6,000 gain) 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 £37,000 (year ended 31 December 2012: £49,000) was recognised in the income statement. Amortisation of
intangible assets resulted in a charge of £422,000 (year ended 31 December 2012: £573,000) being recognised in the income statement.
17. Trade and other payables – current
The Group The Company
31 December 31 December 1 January 31 December 31 December 1 January
2013 2012 2012 2013 2012 2012
£000s £000s £000s £000s £000s £000s
Trade payables 1,118 902 1,194 19 - -
Other taxes and social security costs 1,123 1,225 864 - - -
Accruals and deferred income 6,028 7,019 6,168 190 370 321
Other payables 316 940 141 - 20 -
8,585 10,086 8,367 209 390 321
18. Financial liabilities – borrowings
The Group The Company
31 December 31 December 1 January 31 December 31 December 1 January
2013 2012 2012 2013 2012 2012
Current £000s £000s £000s £000s £000s £000s
Bank loans due within one year or on demand
Secured (a) 3,000 6,250 4,250 - - -
Finance issue costs (105) - - - - -
2,895 6,250 4,250 - - -
Convertible debt (note 19) - 4,189 - - 4,189 -
2,895 10,439 4,250 - 4,189 -
The Group The Company
31 December 31 December 1 January 31 December 31 December 1 January
2013 2012 2012 2013 2012 2012
Current £000s £000s £000s £000s £000s £000s
Bank loans:
Secured (a) 21,250 20,225 15,225 - - -
Finance issue costs (369) - - - - -
20,881 20,225 15,225 - - -
Convertible debt (note 19) - - 4,460 - - 4,460
20,881 20,225 19,685 - - 4,460
(a) The bank loans are secured by a fixed and floating charge over the Company's and Group’s assets.
During the year £3.5m was drawn down on the revolving credit facility to fund acquisitions in the year.
In October 2013 the bank debt was repaid in full and new loans were drawn under new facilities provided by Lloyds Bank and Royal Bank
of Scotland.
Alliance Pharma plc | Annual Report 2013
45
Notes to the Financial
Statements continued
for year ended 31 December 2013
19. Convertible debt
All outstanding convertible unsecured loan stock was converted into ordinary shares during 2013. The conversion rate was 21p per
ordinary share.
The Company received conversion notices in respect of £4,211,255 (year ended 31 December 2012: £296,750) nominal value of the
Company’s 8% Convertible Unsecured Loan Stock. Accordingly, the Company has allotted 20,053,570 ordinary shares of 1p each in
the Company.
20. Other non-current liabilities
The Group The Company
31 December 31 December 1 January 31 December 31 December 1 January
2013 2012 2012 2013 2012 2012
£000s £000s £000s £000s £000s £000s
Deferred consideration for acquisitions - 20 40 - - -
- 20 40 - - -
Deferred consideration of £nil (year ended 31 December 2012: £20,000, year ended 1 January 2012: £40,000) 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. 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 £20m (year ended 31 December 2012: £nil, year ended 1 January 2012:
£8m) to convert the floating interest rate charge to a fixed rate interest charge.
The interest rate exposure of the financial liabilities of the Group at the period end was:
Fixed Floating Total
£000s £000s £000s
At 31 December 2013
Bank loans – sterling denominated - 24,250 24,250
Interest rate hedges 20,000 (20,000) -
Sterling subtotal 20,000 4,250 24,250
Working capital facility - 2,124 2,124
Total financial liabilities 20,000 6,374 26,374
Unamortised issue costs - (474) (474)
Net book value of financial liabilities 20,000 5,900 25,900
46 Alliance Pharma plc | Annual Report 2013
Financial Statements
21. Financial instruments continued
Fixed Floating Total
£000s £000s £000s
At 31 December 2012
Bank loans – sterling denominated - 26,475 26,475
Convertible loan stock 4,211 - 4,211
Sterling subtotal 4,211 26,475 30,686
Working capital facility – euro denominated - 1 1
Euro subtotal - 1 1
Total financial liabilities 4,211 26,476 30,687
Unamortised issue costs (22) - (22)
Net book value of financial liabilities 4,189 26,476 30,665
At 31 December 2011
Bank loans – sterling denominated - 19,475 19,475
Convertible loan stock 4,508 - 4,508
Interest rate hedges 8,000 (8,000) -
Sterling subtotal 12,508 11,475 23,983
Working capital facility – euro denominated - 1 1
Euro subtotal - 1 1
Total financial liabilities 12,508 11,476 23,984
Unamortised issue costs (48) - (48)
Net book value of financial liabilities 12,460 11,476 23,936
Fixed rate financial liabilities
Weighted
Weighted average
average period for
fixed rate which rate
% is fixed
At 31 December 2013
Sterling 3.19 4.27 years
At 31 December 2012
Sterling 8.00 0.92 years
At 1 January 2012
Sterling 3.64 1.27 years
The Sterling floating rate borrowings bear interest at a rate based on LIBOR.
The Group balance sheet also includes financial assets in the form of cash at bank and in hand totalling £888,000 (31 December 2012:
£4,634,000, 1 January 2012: £1,079,000) which are exposed to floating interest rates based on LIBOR.
A 0.5% increase in LIBOR would reduce pre-tax profits by approximately £43,000 in 2014. A 0.5% decrease would have the opposite effect.
Alliance Pharma plc | Annual Report 2013
47
Notes to the Financial
Statements continued
for year ended 31 December 2013
21. Financial instruments continued
Currency risk
Approximately 9% 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. Approximately 5% of the Group’s sales are
invoiced in other currencies.
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 £33,000 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 bank loans with a repayment schedule of £750,000 per
quarter from December 2013. The existing bank facilities are due for renewal in June 2018. 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 £5,000,000 working capital facility.
Fair value measurement
Effective from 1 January 2013, the Group adopted the amendments to IFRS13 for financial instruments that are measured in the Group
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).
Lloyds Bank performs valuations of financial items for financial reporting purposes. Valuation techniques are selected based on the
characteristics of each instrument, with the overall objective of maximising the use of market-base information. Valuation processes and
fair value changes are discussed among the audit committee and the finance team, who report to the Finance Director (FD) at least every
year, in line with the Group's reporting dates.
The valuation techniques used for instruments categorised in Level 2 are described below:
Interest rate swaps (Level 2)
The Group's interest rate swaps are not traded in active markets. These have been fair valued using observable interest rates. The effects
of non-observable inputs are not significant for interest rate swaps.
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2013:
Level 1 Level 2 Level 3 Total
Assets £000s £000s £000s £000s
Derivative financial instruments:
Interest rate swaps - 443 - 443
- 443 - 443
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2012:
Level 1 Level 2 Level 3 Total
Liabilities £000s £000s £000s £000s
Derivative financial instruments:
Interest rate swaps - - - -
- - - -
The following table presents the Group’s financial assets and liabilities that are measured at fair value at 1 January 2012:
Level 1 Level 2 Level 3 Total
Liabilities £000s £000s £000s £000s
Derivative financial instruments:
Interest rate swaps - 6 - 6
- 6 - 6
48 Alliance Pharma plc | Annual Report 2013
Financial Statements
21. Financial instruments continued
The maturity profile of the Group's bank loans (capital only) at the year end is as follows:
At At At
31 December 31 December 1 January
2013 2012 2012
£000s £000s £000s
Due within:
One year 3,000 6,250 4,250
More than one year, not more than two years 3,000 20,225 5,000
More than two years, not more than three years 3,000 - 10,225
More than three years 15,250 - -
24,250 26,475 19,475
The maturity profile of the Group's financial gross liabilities (capital and interest) at the year end is as follows:
31 December 2013
In more than In more than
one year, two years,
In one year, but not more but not more In more than
or less than two than five five years Total
£000s £000s £000s £000s £000s
Trade and other payables 8,585 - - - 8,585
Working capital facility 2,125 - - - 2,125
Bank loans 3,737 3,642 19,436 - 26,815
Convertible loan stock - - - - -
Onerous contracts 190 199 - - 389
14,637 3,841 19,436 - 37,914
31 December 2012
In more than In more than
one year, two years,
In one year, but not more but not more In more than
or less than two than five five years Total
£000s £000s £000s £000s £000s
Trade and other payables 10,086 20 - - 10,106
Working capital facility 1 - - - 1
Bank loans 6,957 20,746 - - 27,703
Convertible loan stock 4,436 - - - 4,436
Onerous contracts 197 182 182 - 561
21,677 20,948 182 - 42,807
Alliance Pharma plc | Annual Report 2013
49
Notes to the Financial
Statements continued
for year ended 31 December 2013
21. Financial instruments continued
1 January 2012
In more than In more than
one year, two years,
In one year, but not more but not more In more than
or less than two than five five years Total
£000s £000s £000s £000s £000s
Trade and other payables 8,367 20 20 - 8,407
Working capital facility 1 - - - 1
Bank loans 4,975 5,546 10,519 - 21,040
Derivative financial instruments 6 - - - 6
Convertible loan stock 362 4,748 - - 5,110
Onerous contracts 189 198 420 - 807
13,900 10,512 10,959 - 35,371
The maturity profile of the Company's financial gross liabilities (capital and interest) at the year end is as follows:
31 December 2013 31 December 2012 1 January 2012
Bank Bank Bank
Trade borrowings Trade borrowings Trade borrowings
payables other loans payables and other payables and other
and other loans and other loans and other loans
£000s £000s £000s £000s £000s £000s
In one year, or less 209 - 390 4,436 321 362
In more than one year, but not more than two - - - - - 4,748
In more than two years, but not more than five - - - - - -
In more than five years - - - - - -
209 - 390 4,436 321 5,110
The Group had £25,000,000 (31 December 2012: £11,499,000, 1 January 2012: £21,524,000) undrawn committed borrowing facilities
available at 31 December 2013 and £2,875,000 of working capital facility available.
Classification of the Group’s financial instruments is set out below:
Loans and Non-financial
receivables assets Total
As at 31 December 2013 £000s £000s £000s
Financial assets
Cash 888 - 888
Trade and other receivables 9,734 805 10,539
10,622 805 11,427
50 Alliance Pharma plc | Annual Report 2013
Financial Statements
21. Financial instruments continued
Liabilities
Other not within
Held for financial scope of
trading liabilities IAS39 Total
As at 31 December 2013 £000s £000s £000s £000s
Financial liabilities
Cash and cash equivalents - 2,125 - 2,125
Long term financial liabilities - 21,250 - 21,250
Convertible debt - - - -
Other liabilities - - - -
Financial liabilities - 3,000 - 3,000
Trade and other payables - 7,462 1,123 8,585
Corporation tax - - 1,154 1,154
Onerous contracts – non current - - 199 199
Onerous contracts – current - - 190 190
- 33,837 2,666 36,503
Loans and Non-financial
receivables assets Total
As at 31 December 2012 £000s £000s £000s
Financial assets
Cash 4,634 - 4,634
Trade and other receivables 9,795 350 10,145
14,429 350 14,779
Liabilities
Other not within
Held for financial scope of
trading liabilities IAS39 Total
As at 31 December 2012 £000s £000s £000s £000s
Financial liabilities
Cash and cash equivalents - 1 - 1
Long term financial liabilities - 20,225 - 20,225
Convertible debt - 4,189 - 4,189
Other liabilities - 20 - 20
Financial liabilities - 6,250 - 6,250
Trade and other payables - 8,861 1,225 10,086
Corporation tax - - 1,322 1,322
Onerous contracts – non current - - 364 364
Onerous contracts – current - - 197 197
- 39,546 3,108 42,654
Alliance Pharma plc | Annual Report 2013
51
Notes to the Financial
Statements continued
for year ended 31 December 2013
21. Financial instruments continued
Loans and Non-financial
receivables assets Total
As at 1 January 2012 £000s £000s £000s
Financial assets
Cash 1,079 - 1,079
Trade and other receivables 8,329 331 8,660
9,408 331 9,739
Liabilities
Other not within
Held for financial scope of
trading liabilities IAS39 Total
As at 1 January 2012 £000s £000s £000s £000s
Financial liabilities
Cash and cash equivalents - 1 - 1
Long term financial liabilities - 15,225 - 15,225
Convertible debt - 4,460 - 4,460
Other liabilities - 40 - 40
Financial liabilities - 4,250 - 4,250
Trade and other payables - 7,503 864 8,367
Corporation tax - - 1,046 1,046
Onerous contracts – non current - - 510 510
Onerous contracts – current - - 189 189
Derivative financial instruments - current 6 - - 6
6 31,479 2,609 34,094
Classification of the Company’s financial instruments is set out below:
Loans and Non-financial
receivables assets Total
As at 31 December 2013 £000s £000s £000s
Financial assets
Cash 12 - 12
Trade and other receivables - 50 50
12 50 62
Liabilities
Other not within
financial scope of
liabilities IAS39 Total
As at 31 December 2013 £000s £000s £000s
Financial liabilities
Convertible debt - - -
Trade and other payables 19 190 209
Corporation tax - - -
19 190 209
52 Alliance Pharma plc | Annual Report 2013
Financial Statements
21. Financial instruments continued
Loans and Non-financial
receivables assets Total
As at 31 December 2012 £000s £000s £000s
Financial assets
Cash 182 - 182
Trade and other receivables - 10,021 10,021
182 10,021 10,203
Liabilities
Other not within
financial scope of
liabilities IAS39 Total
As at 31 December 2012 £000s £000s £000s
Financial liabilities
Convertible debt 4,189 - 4,189
Trade and other payables 390 - 390
Corporation Tax - 4 4
4,579 4 4,583
Loans and Non-financial
receivables assets Total
As at 1 January 2012 £000s £000s £000s
Financial assets
Cash 77 - 77
Trade and other receivables - 2,020 2,020
77 2,020 2,097
Other
financial
liabilities Total
As at 1 January 2012 £000s £000s
Financial liabilities
Convertible debt 4,460 4,460
Trade and other payables 321 321
4,781 4,781
Alliance Pharma plc | Annual Report 2013
53
Notes to the Financial
Statements continued
for year ended 31 December 2013
22. Derivative financial instruments
31 December 31 December 1 January
2013 2012 2012
Assets Liabilities Liabilities
£000s £000s £000s
Interest rate swap – cash flow hedge 443 - 6
443 - 6
Current portion - - 6
Non-current portion 443 - -
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 £105,000 (year ended 31 December 2012: £6,000 charge).
23. Deferred tax provision
31 December 31 December 1 January
2013 2012 2012
The Group £000s £000s £000s
Accelerated capital allowances (18) (4) (41)
Accelerated allowances on intangible assets (4,493) (4,271) (4,025)
Initial recognition of intangible from business combination (1,690) (1,849) -
Interest rate hedge (93) - 2
(6,294) (6,124) (4,064)
Deferred tax asset - - -
Deferred tax provision (6,294) (6,124) (4,064)
Reconciliation of deferred tax movements:
Recognised
in other Recognised Recognised
31 December comprehensive in the income on business 31 December
2012 income statement combination 2013
The Group £000s £000s £000s £000s £000s
Non-current assets
Intangible assets (4,271) - (222) - (4,493)
Initial recognition of intangible from
business combination (1,849) - 159 - (1,690)
Property, plant and equipment (4) - (14) - (18)
Current Liabilities
Derivative financial instruments - (93) - - (93)
(6,124) (93) (77) - (6,294)
Recognised as:
Deferred tax asset - -
Deferred tax liability (6,124) (6,294)
54 Alliance Pharma plc | Annual Report 2013
Financial Statements
23. Deferred tax provision continued
The Finance Act 2012 included legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013. The reduction
from 24% to 23% was substantively enacted at the balance sheet date and has therefore been reflected in these Group financial
statements.
In addition to the changes in the rates of corporation tax disclosed above, it was announced in the December 2012 Budget Statement that
the rate would be reduced from 23% to 21% from 1 April 2014 and in the March 2013 Budget Statement it was announced that the rate
would be further reduced to 20% from 1 April 2015.
At the balance sheet date the substantively enacted rate was 21% (2012: 23%). The further 1% reduction (to 20%) has not been
substantively enacted at the balance sheet date and is therefore not included in these financial statements. The overall effect of these
changes, if applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax liability by £300,000 (2012:
£266,000). Deferred tax has been calculated at the prevailing rate of 21% (2012: 23% and 2011: 25%).
Recognised
in other Recognised Recognised
1 January comprehensive in the income on business 31 December
2012 income statement combination 2012
The Group £000s £000s £000s £000s £000s
Non-current assets
Intangible assets (4,025) - (246) - (4,271)
Initial recognition of intangible from
business combination - - (1,849) (1,849)
Property, plant and equipment (41) - 37 - (4)
Current Liabilities
Derivative financial instruments 2 (2) - - -
(4,064) (2) (209) (1,849) (6,124)
Recognised as:
Deferred tax asset - -
Deferred tax liability (4,064) (6,124)
Alliance Pharma plc | Annual Report 2013
55
Notes to the Financial
Statements continued
for year ended 31 December 2013
24. Provisions for other liabilities
31 December 31 December 1 January
2013 2012 2012
£000s £000s £000s
At start of year 561 699 1,013
Amount provided for in year - - -
Amount utilised in year (209) (187) (378)
Unwinding of discount 37 49 64
At year end 389 561 699
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 2013 an amount of £389,000 (year ended 31 December 2012:
£561,000) 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:
31 December 31 December 1 January
2013 2012 2012
£000s £000s £000s
Current 190 197 189
Non-Current 199 364 510
25. Share capital
Authorised Authorised
No. of shares £000s
At 31 December 2013 – ordinary shares of 1p each 400,000,000 4,000
At 31 December 2012 – ordinary shares of 1p each 400,000,000 4,000
At 1 January 2012 – ordinary shares of 1p each 400,000,000 4,000
Allotted, Allotted,
called and called and
fully paid fully paid
No. of shares £000s
At 1 January 2012 – ordinary shares of 1p each 240,067,284 2,401
Issued during the year 2,968,358 29
At 31 December 2012 – ordinary shares of 1p each 243,035,642 2,430
Issued during the year 21,045,231 211
At 31 December 2013 – ordinary shares of 1p each 264,080,873 2,641
Between 1 January 2013 and 31 December 2013, 991,661 shares were issued on the exercise of employee share options (2012: 1,555,265).
During the year, the Company received conversion notices in respect of £4,211,255 nominal value of the Company’s 8% Convertible
Unsecured Loan Stock (2012: £296,750). Accordingly, the Company has allotted 20,053,570 ordinary shares of 1p each in the Company
(2012: 1,413,093).
56 Alliance Pharma plc | Annual Report 2013
Financial Statements
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 37.25p. Options are exercisable three years after date of grant, but in certain instances this can be
extended to five years. Options outstanding are as follows:
Exercise 31 December 31 December 1 January
price Exercise 2013 2012 2012
Year of grant pence from Number Number Number
2005 19.00 2008 9,000 9,000 9,000
2006 18.75 2009 40,250 40,250 40,250
2007 9.25 2010 33,250 33,250 33,250
2008 8.5 2011 644,750 1,308,426 1,419,526
2009 7.75 2012 709,060 1,037,045 2,481,210
2010 33.25 and 34.25 2013 2,482,139 2,633,889 2,633,889
2011 34.12 and 31.00 2014 4,030,261 4,248,253 4,248,253
2012 29.25 2015 3,250,600 3,494,826 -
2013 37.25 and 35.75 2016 5,228,976 - -
2013 35.75 2018 4,000,000 - -
20,428,286 12,804,939 10,865,378
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 2013, net bank debt was £25.0
million, whilst Shareholders’ equity was £64.7 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 2.5 times, interest cover (the ratio of EBITDA to finance charges) should be no less than 4.0 times, and
operating cash flows must exceed debt service cash flows. The Group comfortably complied with these covenants in 2013 and 2012.
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.
Alliance Pharma plc | Annual Report 2013
57
Notes to the Financial
Statements continued
for year ended 31 December 2013
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. Generally, options granted become exercisable on the third
anniversary of the date of grant, but in certain instances this can be extended to five years. 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 generally no performance conditions attached to the options, but 4m of the options granted on 23 October 2013
are subject to performance criteria and have the extension to five years before they can be exercised. The assumptions used in the
calculation are as follows:
Number
of options
Number of remaining at
Share price Exercise options 31 December Expected Risk free
Grant date at issue price granted 2013 volatility rate
27/07/05 19.00p 19.00p 424,516 9,000 22.8% 4.13%
04/05/06 18.75p 18.75p 901,190 40,250 14.9% 4.30%
02/05/07 9.25p 9.25p 1,402,425 33,250 20.4% 4.62%
23/04/08 8.50p 8.50p 5,419,950 644,750 18.6% 4.90%
14/04/09 7.75p 7.75p 2,307,860 709,060 25.5% 4.08%
26/03/10 33.25p 33.25p 1,300,000 1,300,000 43.5% 3.90%
29/04/10 34.25p 34.25p 1,502,778 1,182,139 45.7% 3.90%
28/04/11 34.12p 34.12p 3,981,916 3,730,261 43.9% 4.10%
21/09/11 31.00p 31.00p 300,000 300,000 53.2% 4.10%
19/10/12 29.25p 29.25p 3,494,826 3,250,600 49.7% 1.70%
06/06/13 37.25p 37.25p 3,370,703 3,328,976 49.8% 2.40%
23/10/13 35.75p 35.75p 5,900,000 5,900,000 49.5% 2.60%
In each case, it is assumed the majority of options will be exercised at the earliest opportunity and that on average they are exercised one
year after they become exercisable. 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:
2013 2012 2011
Weighted Weighted Weighted
average average average
exercise exercise exercise
price price price
Number Pence Number Pence Number Pence
Outstanding at start of year 12,804,939 27.77 10,865,378 24.82 8,741,125 16.59
Granted 9,270,703 36.30 3,494,826 29.25 4,281,916 33.90
Exercised (991,661) 8.24 (1,555,265) 10.54 (2,089,250) 8.70
Forfeited (655,695) 32.54 - - (68,413) -
Outstanding at end of year 20,428,286 32.43 12,804,939 27.77 10,865,378 24.82
Exercisable at end of year 3,918,449 16.79 2,427,971 8.40 1,502,026 8.89
Share options were exercised throughout the financial year. Share options were exercised between 31.75 and 36.50 pence per share.
58 Alliance Pharma plc | Annual Report 2013
Financial Statements
27. Cash generated from operations
Group Company
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2013 2012 2013 2012
£000s £000s £000s £000s
Result for the period before tax 12,009 10,809 848 10,494
Interest paid 1,281 1,466 171 352
Interest income (2) - (1,464) (1,310)
Other finance costs 72 45 - 26
Depreciation of property, plant and equipment 266 274 - -
Amortisation of intangibles 422 573 - -
Change in inventories (75) 505 - -
Change in trade and other receivables (394) (724) (28) (10,001)
Change in trade and other payables (1,665) 1,100 (182) 68
Share options charges 632 369 632 369
Cash flows from operating activities 12,546 14,417 (23) (2)
28. Capital commitments
Neither the Group nor Company had any capital commitments at 31 December 2013 or at 31 December 2012.
29. Contingent liabilities
Neither the Group nor Company had any contingent liabilities at 31 December 2013 or at 31 December 2012.
30. Pensions
The Group operates a defined contribution group personal pension scheme for the benefit of certain Directors and employees.
31 December 31 December
2013 2012
The Group £000s £000s
Contributions payable by the group for the year 307 306
The Group also operates a stakeholder pension plan available to all employees.
31. Leasing commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
31 December 31 December 1 January
2013 2012 2012
Land and Land and Land and
buildings buildings buildings
£000s £000s £000s
No later than one year 287 361 286
Later than one year and no later than five years 589 753 900
Later than five years 220 317 415
1,096 1,431 1,601
32. Related party transactions
The group paid £163,000 (year ended 31 December 2012: £642,000) for services from Fasken Martineau LLP and £15,000 for services from
Pinsent Mason (year ended 31 December 2012: £nil), both firms had Paul Ranson as a partner during 2013. At 31 December 2013 there
was a balance of £33,238 (31 December 2012: £13,624) outstanding in respect of services from Fasken Martineau LLP and £nil in respect
of Pinsent Mason.
Alliance Pharma plc | Annual Report 2013
59
Notes to the Financial
Statements continued
for year ended 31 December 2013
32. Related party transactions continued
Financial Statements
Lynette Booley, wife of director Tony Booley, was paid £nil (31 December 2012: £14,000) for promotional services and goods. £nil was
outstanding at 31 December 2013 (year ended 31 December 2012: £nil).
The group paid £nil (year ended 31 December 2012: £24,000) for services from Patient Connect Service Limited, a company of which
Thomas Casdagli is a director.
During the year the Company received funds of £12,450,000 (year ended 31 December 2012: £219,000) from its subsidiary Alliance
Pharmaceuticals Limited. Net payments of £485,000 (year ended 31 December 2012: £2,359,000) were made by Alliance Pharmaceuticals
Limited on behalf of Alliance Pharma plc. Interest of £1,464,000 (year ended 31 December 2012: £1,309,000) was charged to Alliance
Pharmaceuticals Limited on the total outstanding debt. During the year the Company re-invested £5,550,000 (year ended 31 December
2012: £2,010,000) in Alliance Pharmaceuticals Limited. During the year an amount of £632,000 (year end 31 December 2012: £369,000)
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 £42,108,000 (31 December 2012: £43,161,000).
Dividends declared by Alliance Pharmaceuticals Limited due to the Company are £nil for the year ended 31 December 2013 (for the year
ended 31 December 2012: £10,000,000, for the year ended 31 December 2011: £2,000,000). During the year dividends of £10m were paid
by Alliance Pharmaceuticals Limited to the Company.
During the year the Group made payments on behalf of Unigreg of £299,000 (year ended 31 December 2012: £377,000). Interest receivable
from Unigreg was £52,000 (year ended 31 December 2012: £48,000).
33. Joint Venture
Name
Principal Activity Country of Incorporation % Owned
Unigreg Ltd
Distribution of pharmaceutical products to China British Virgin Islands 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 1 January
2013 2012 2012
£000s £000s £000s
Intangible fixed assets 1,950 1,950 1,950
Current assets 200 658 853
Current liabilities (54) (145) (309)
Net assets 2,096 2,463 2,494
Year ended Year ended Year ended
31 December 31 December 31 December
2013 2012 2011
£000s £000s £000s
Income 239 2,475 1,812
Cost of sales (129) (1,415) (1,029)
Administration and marketing expense (111) (239) (249)
(Loss)/profit on ordinary activities before taxation (1) 821 534
34. Ultimate controlling party
There is no single ultimate controlling party.
35. Subsequent event
On 14 January 2014, the Company acquired the rights to the thyroid product Irenat from subsidiaries of Bayer AG ("Bayer") for a
consideration of €3.3 million. Irenat, a sodium perchlorate monohydrate, is marketed in Germany and is mainly used for diagnosing and
treating hyperthyroidism. In the 12 months to October 2013, total sales of Irenat by Bayer were €0.8 million and the gross margin
generated was €0.5 million.
60 Alliance Pharma plc | Annual Report 2013
Shareholder Information
Supplementary Information
Shareholder enquiries
The Company’s share register is maintained on our behalf by Capita Asset Services, 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 Asset Services,
PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF 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
21 May 2014
13 June 2014
10 July 2014
Interim results announcement
10 September 2014
Year end
31 December 2014
Preliminary announcement
March 2015
Shareholder Analysis
Below is an analysis of the share register by size of holding as at 6 January 2014:
Proportion of Number of Proportion of
Size of shareholding shareholders shares held shares
1-5,000 22% 395,695 0.16%
5,001-10,000 13% 858,792 0.34%
10,001-50,000 39% 8,049,629 3.24%
50,001-100,000 12% 7,050,331 2.83%
100,001-500,000 7% 11,878,494 4.78%
500,001-1,000,000 3% 18,637,596 7.50%
1,000,001-5,000,000 2% 56,764,970 22.84%
5,000,001-10,000,000 1% 19,336,071 7.78%
10,000,001-50,000,000 1% 125,597,976 50.53%
100% 248,569,554 100%
As at 6 January 2014 the Company has 353 registered shareholders.
Alliance Pharma plc | Annual Report 2013
61
Five Year Summary
Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December
2009 2010 2011 2012 2013
£m £m £m £m £m
Revenue 31.2 49.9 46.0 44.9 45.5
Operating profit before exceptional items 11.2 18.7 12.3 12.3 13.4
Exceptional operating items (2.8) (1.7) - - -
Operating profit after exceptional items 8.4 17.0 12.3 12.3 13.4
Exceptional finance items - (1.8) - - -
Profit before tax before exceptional items 8.5 16.4 10.7 10.8 12.0
Profit/(loss) before tax after exceptional items 5.7 12.9 10.7 10.8 12.0
Intangible assets 44.9 60.3 66.1 79.9 89.1
Tangible assets 0.1 0.9 0.8 0.6 0.6
Current assets 11.7 16.2 15.4 20.2 16.9
Current liabilities 11.4 17.0 13.9 22.0 14.9
Equity 16.6 36.1 44.1 51.8 64.7
Average shares in issue (millions) 173.2 226.1 238.6 240.9 250.8
Shares in issue at period end (millions) 193.3 236.1 240.1 243.0 264.1
Earnings per share – basic (p) 2.37 3.96 3.62 3.61 3.82
Earnings per share – adjusted basic (p) 3.55 5.07 3.62 3.61 3.82
62 Alliance Pharma plc | Annual Report 2013
Advisors
Supplementary Information
AUDITOR
FINANCIAL PR
Grant Thornton UK LLP
Buchanan Communications
Hartwell House
55-61 Victoria Street
Bristol
BS1 6FT
BANKERS
107 Cheapside
London
EC2V 6DN
REGISTRARS
Capita Asset Services
Lloyds Bank Corporate Markets
PXS 1
The Atrium
Davidson House
Forbury Square
Reading
Berkshire
RG1 3EU
Royal Bank of Scotland
3rd Floor
3 Temple Back East
Bristol
BS1 6DZ
34 Beckenham Road
Beckenham
Kent
BR3 4ZF
REGISTERED OFFICE
Avonbridge House
Bath Road
Chippenham
Wiltshire
SN15 2BB
COMPANY NUMBER
CORPORATE ADVISORS
04241478
Numis Securities Ltd
10 Paternoster Square
London
EC4M 7LT
Alliance Pharma plc | Annual Report 2013
63
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, Irenat™, IsprelorTM, LiftTM, Lift+TM,
Lift PlusTM, Lypsyl™, Lypsyl – It’s On Everyone’s Lips™, Lypsyl Kissables™, Lypsyl Shimmer™, 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, Syntometrine™,
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.
64 Alliance Pharma plc | Annual Report 2013
Designed & produced by Design Wall.
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