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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@alliancepharmaceuticals.com
www.alliancepharmaceuticals.com
A transformational year
Alliance Pharma plc
Annual Report and Accounts 2016
Alliance Pharma plc
is an AIM quoted specialty
pharmaceutical company
Alliance, commencing trading in 1998, is an
international specialty pharma company
headquartered in Chippenham, Wiltshire, UK.
Our core presence is in Western Europe, but our
products reach more than 100 countries via joint
ventures or distributors.
Our expertise lies in marketing, and all the associated
business and regulatory activities. We outsource
capital-intensive processes such as manufacturing
and distribution to specialist providers.
By acquisition, we have built up a portfolio of over
90 pharmaceutical and consumer healthcare
products, specialising in dermatology, mother
and child and ophthalmology.
Overview
01 Highlights
02 Alliance Pharma
at a Glance
Strategic Report
Investment Case
06
08 Our Business Model
10 Our Vision and Growth
Strategy
12 2017 Growth Brand Focus
18 Chairman’s and Chief
Executive’s Review
22 Organisation and People
24 Financial Review
26 Risk Management and
Internal Control
27 Principal Risks and
Uncertainties
Governance
32 Board of Directors
34 Corporate Governance
37 Remuneration Report
40 Directors’ Report
Financial Statements
44
Independent Auditor’s
Report
Consolidated Income
Statement
45
46 Consolidated Statement
of Comprehensive Income
47 Consolidated Balance
Sheet
48 Company Balance Sheet
49 Consolidated Statement
of Changes in Equity
50 Company Statement of
Changes in Equity
51 Consolidated and Company
Cash Flow Statements
52 Notes to the Financial
Statements
Additional Information
84 Shareholder Information
86 Five Year Summary
87 Advisors and Key
Service Providers
88 Cautionary statement
regarding forward-looking
statements
89 Trade marks
01
Operational
highlights
> Achieved strong
growth with Kelo-
cote and MacuShield,
our key international
growth brands
> Successfully
integrated 27
products from the
Sinclair acquisition,
effectively doubling
the size of the Group
> Added to our pan-EU
footprint, now with
operational presence
in UK, Ireland,
Germany, France,
Italy and Spain
> Completed the
successful in-
licensing of Diclectin –
a unique opportunity
for nausea and
vomiting of pregnancy
– across a further
nine EU territories
Highlights
Highlights
Revenue
£97.5m
+102%
Financial Statements –
pages 42 to 83
Our portfolio
of products
Growth
Profitability
Customer
preference
Market research
Sales potential
Return on
investment
Strategic Report – pages 06 to 29
Profit before tax
Reported
Underlying
£22.2m
+46%
+103%*
£13.0m
+110%
Free cash flow**
Governance – pages 30 to 41
Dividend
1.21p
+10%
Diluted EPS
3.82p
+11%***
Kelo-cote
MacuShield
Our international
growth brands
Diclectin
* Before non-underlying items in 2015,
being primarily compensation from
Sanofi and acquisition costs for
Sinclair
** See note 25 for the definition of free
cash flow
*** The 2015 comparative being
underlying Diluted EPS as per
Note 10
For more information visit
alliancepharmaceuticals.com
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationOverview › 02
Alliance Pharma at a Glance
We sell our specialty pharmaceutical and consumer
healthcare products in more than 100 countries.
Our portfolio
We own or license the rights to approximately 90
pharmaceutical and consumer healthcare products.
Three international growth brands...
Kelo-cote
see pages 12 and 13
MacuShield
see pages 14 and 15
Diclectin
see pages 16 and 17
...our local hero brands
...and a bedrock of non-promoted brands
Revenue by
product
10% Kelo-cote
8% Flamma
7% Hydromol
7% Aloclair
5% MacuShield
4% Haemopressin
4% Forceval
3% Optiflo
3% Oxyplastine
49% Other
(80 products)
Annual Report and Accounts 2016Alliance Pharma plc Alliance Pharma at a Glance
03
Our geographic footprint
We have offices in eight
countries and a broad
international base
of distributors.
3
2
1
International offices
Chippenham
Chester
Dublin
Paris
Düsseldorf
1
2
3
4
5
6 Milan
7 Madrid
8
9
Shanghai
Singapore
8
9
5
4
6
Distributor
relationships
7
Team
1
Offices
9
Countries
>100
People
175
50% UK
25% Europe excluding UK
25% Rest of world
Revenue
by geography
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationOverview ›
04
Our portfolio
of products
Growth
Profitability
Customer
preference
Market research
Sales potential
Return on
investment
Annual Report and Accounts 2016Alliance Pharma plc Strategic Report
05
Strategic Report
06
Investment Case
08 Our Business Model
10 Our Vision and Growth Strategy
12 2017 Growth Brand Focus
18 Chairman’s and Chief
Executive’s Review
22 Organisation and People
24 Financial Review
26 Risk Management and
Internal Control
27 Principal Risks and Uncertainties
Kelo-cote
MacuShield
Our international
growth brands
Diclectin
Identifying transformational
growth opportunities
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 06
Investment Case
We have a robust record of performance,
and our strengths and capabilities position
us for further growth.
Successful Buy
& Grow strategy
Track record of
performance
Acquisition of products
that are already established
We can be opportunistic
across a range of product
areas, as unencumbered
by commitment to R&D
programmes
Skillful networking assures
pipeline of opportunities
Good growth in both
Dividend return and
Diluted EPS
Diluted EPS (p)*
3.36
3.44
3.82
2014
2015
2016
Dividend per share (p)
1.21
1.10
1.00
2014
2015
2016
33
Acquisitions
in 19 years
* The 2015 comparative being underlying Diluted EPS as per Note 10
Pan-European
footprint for
acquisitions
and launches
Licensing in products for
launch and marketing
Direct presence in the UK,
Germany, France, Italy,
Spain and Ireland, as well
as in China and Singapore
Other countries served
via distribution partners
75% of sales in Western
Europe
75%
of sales in
Western Europe
Annual Report and Accounts 2016Alliance Pharma plc Investment Case
07
Diversified portfolio
in attractive markets
Asset-light
model
Entrepreneurial
management team
Three international
growth brands
Ten local hero brands
>70 stable, non-promoted
‘bedrock’ brands
Participation in growing
markets, underpinned by
long-term fundamentals
Outsourced manufacturing,
warehousing and logistics
Highly cash-generative
model
Streamlined management
team that is committed,
experienced and fleet of foot
Short lines of
communication
and a ‘can do’ culture
Growth brands
& local heroes
70%
of revenues
Bedrock
brands
30%
of revenues
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 08
Our Business Model
Our business model, built upon our sources
of competitive advantage, delivers sustainable
growth and value to all of our stakeholders.
1
We utilise our resources and sources of competitive advantage...
• Portfolio management skills, from specialist secondary care to OTC products
• Extensive networking delivering a rich pipeline of opportunities
• Strong due diligence team to evaluate acquisitions
• Integration of new assets and businesses
• Successful record of securing ready access to finance
• Pan-European footprint
• Established medicines in niches, typically with no direct competition
• Fleet of foot and ability to be opportunistic, as not locked into R&D programmes
1
We utilise our resources and sources
of competitive advantage...
Underpinned by:
PERFORMANCE REALISM ACCOUNTABILITY
Reinvestment
(organic growth
and M&A)
...and add value for our stakeholders
4
...and add value for our stakeholders.
Employees
• Rewarding careers for our staff
Patients
• Improved quality of life
• Active participation in the ownership
of the business as all employees
hold share options
Healthcare providers
• Efficacious and cost-effective
therapies
Business partners
• Attractive and growing business for
our manufacturing and distribution
partners, and all the other
businesses we interact with
Shareholders
• Ownership of a stronger business
• Growing dividend
Annual Report and Accounts 2016Alliance Pharma plc Our Business Model
09
2
2
...in our chosen businesses and markets...
Diversified portfolio
• Balanced split between reimbursed and
consumer-driven products
• Focused use of promotional investment:
Asset-light model
• Capital-intensive activities, such as manufacturing
and logistics, are outsourced: this results in high
cash conversion
– 50% allocated to three international growth brands
– 50% to more than ten ‘Local Hero’ brands
Strong routes to market
• Via wholesalers, direct to hospitals and also national
• >70 stable, non-promoted ‘Bedrock’ brands (30% of sales)
grocery chains
Buy & Build strategy
• Acquisition of products that are already established
(33 acquisitions in 19 years)
Sales in more than 100 countries
• 75% in Western Europe (50% UK), direct presence
in UK, Germany, France, Italy, Spain and Ireland
• In-licensing of products for launch and marketing
• 12% in Far East, direct presence in Shanghai for
China and Singapore for SE Asia
• Other countries direct to distribution partners
...in our chosen businesses and markets...
...and add value for our stakeholders
INTEGRITY SKILL ENTREPRENEURSHIP
4
3
...to generate returns...
3
...to generate returns...
Revenue
£97.5m
EBITDA
£26.0m
PBT
£22.2m
Free cash flow
£13.0m
Diluted EPS
3.82p
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report ›
10
Our Vision and Growth Strategy
Our vision
Our vision for Alliance is to breathe life into medicines
around the world. We will remain dedicated to
patients and continue to serve all our stakeholders
by remaining true to our core values.
Our growth strategy
Buy
Acquiring…
…selective products and
companies, fitting our overall
strategy, at the right price to
increase our corporate value
Integrating…
…acquired products and
companies into our organisation
smoothly and effectively using
our significant experience
Following the transformative acquisition of
Sinclair’s Healthcare Products business in
December 2015, 2016 was a year driven by
integration. However, our Corporate Development
team continued to network and gather intelligence
on future acquisition opportunities.
Expanding the organisation and integrating the
Sinclair acquisition, involving over 300 individual
product-market presentations, was a major feat
achieved in 2016.
Investment per annum over
the last 10 years
33
Deals
in 19 years
£141.9m
Strategy in action
£16.4m
£12.2m
£9.4m
£7.5m
£1.95m
£0.6m
£3.9m
£m*
£1.0m
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
* Undisclosed
Annual Report and Accounts 2016Alliance Pharma plc Our Vision and Growth Strategy
11
Grow
Maximising & extending
brand potential…
…by skilled portfolio management
and creative promotional
programmes delivered by
dedicated experienced teams
2016 saw us effectively organise our enlarged
portfolio of over 90 products into international
growth brands, local hero brands and bedrock
brands that are stable in the absence of promotion.
Kelo-cote, our leading scar reduction product
acquired from Sinclair, grew to over £10m.
MacuShield, for age-related macular degeneration,
and the most recommended eye supplement by UK
ophthalmologists and optometrists, grew to £5.3m
(2015: £3.5m).
International
expansion…
…to widen the target markets
for our specialist products
In 2016 we expanded or opened new offices in
Düsseldorf, Paris, Milan, Madrid, Singapore and
Shanghai to facilitate our geographic expansion.
We quickly established relationships with around
70 new distributor partners, introduced via the
Sinclair acquisition.
Our sales outside the UK grew to 50% (2015: 20%)
providing much enhanced diversification.
Strategy in action
Strategy in action
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FO R M ULE
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EXISTE EN GEL, GEL UV ET SPRAY
EXISTE EN GEL, GEL UV ET SPRAY
www.kelocote.fr
Ce dispositif Médical de classe I est un produit de santé réglementé qui porte,
au titre de cette réglementation, le marquage CE.
Lire attentivement les instructions figurant sur la notice ou sur les fiches produits.
Fabricant : Advanced Bio-Technologies, Inc. Suwanee, GA 30024, USA.
CE Représentant autorisé : Alliance Pharma S.r.l., Italie.
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www.kelocote.fr
Ce dispositif Médical de classe I est un produit de santé réglementé qui porte,
au titre de cette réglementation, le marquage CE.
Lire attentivement les instructions figurant sur la notice ou sur les fiches produits.
Fabricant : Advanced Bio-Technologies, Inc. Suwanee, GA 30024, USA.
CE Représentant autorisé : Alliance Pharma S.r.l., Italie.
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OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report ›
12
2017 Growth Brand Focus
Kelo-cote
Based on a patented silicone formulation, our Kelo-cote
scar treatment range is sold in 65 markets around the world.
Growth Strategy
• Optimise route to market and rate of
sale by replacing underperforming
distributors, increasing support to
existing markets and developing
targeted new markets.
• Develop OTx strategy to educate
healthcare professionals of the
benefits of recommending to
consumers that they purchase
Kelo-cote. Effort is focused
particularly on dermatologists,
plastic surgeons, maxillo-facial
specialists, obstetricians and
gynaecologists.
• Build on growing global influence
with opinion leaders (such as high
profile dermatologists, plastic
surgeons, Scar Club, congresses,
global Advisory Board, etc.).
• Develop links with national patient
associations and charities.
• Update global communications for
local adaptation and use, built on an
integrated social purpose to benefit
society and to align brand image with
healthcare professionals.
• Develop product range
with selected innovation.
Overview
Kelo-cote is a range of quick-drying silicone gels for the
management and prevention of hypertrophic and keloid
scars. By supporting the normalisation of collagen
production, it helps to relieve the itching, discomfort
and redness associated with scars, as well as helping
to flatten and soften raised scars.
Once applied, Kelo-cote forms an invisible and odourless
layer over the skin and can be used underneath make-
up or sun cream. As well as gel formats, Kelo-cote is
available as a spray, which allows the gel to be applied
without the need for rubbing or touching, making it
particularly useful for large, painful and sensitive scars,
or those in hard to reach places.
The brand has seen robust growth, with sales exceeding
£10m in 2016. The success of Kelo-cote is founded on
strong intellectual property; with the exception of the
USA, Alliance owns the global rights to the Kelo-cote
trademark. The formulation is patented to 2023 and its
performance validated in clinical trials.
Market
The global market for scar treatment products is
estimated to be worth $800m. The category is expected
to grow at around 10% per year1, driven by increasing
awareness and cultural change. There is an increasing
desire for perfect skin, use of aesthetic surgery, elective
C-sections, etc, particularly in Asia Pacific and Latin
America. The market is fragmented, and Kelo-cote is
among the leading brands in its chosen geographical
markets. There is an opportunity both to grow the
category and to gain share.
The brand is sold in 65 markets. China is Kelo-
cote’s largest individual territory, and a distribution
contract re-newed in November 2016 provides further
opportunities for growth. South-east Asia and Brazil are
also rapidly growing markets.
Product forms
6
Revenues
£10m
+30%
1 Source: Technavio
Annual Report and Accounts 2016Alliance Pharma plc 2017 Growth Brand Focus
13
Kelo-cote became
our first £10m brand
Case study
Kelo-cote is a unique topical
silicone gel for the prevention and
management of abnormal scars. Its
patented technology uses a volatile
silicone that evaporates across a
temperature gradient when applied to
the skin forming an ultra thin, robust,
breathable, membrane. Its efficacy
has been proven for the improvement
of scar redness and itchiness as
well as reduction of scar height in
numerous clinical trials. Based on
the solid study data and the great
patient satisfaction with the product
we nowadays recommend it as an
aftercare for most immature scars
to our patients.
Priv.-Doz. Dr. med. Gerd Gauglitz, MMS (HFA)
The brand is sold in
65 markets. China is
Kelo-cote’s largest
individual territory, and
a distribution contract
re-newed in November
2016 provides further
opportunities for growth.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 14
2017 Growth Brand Focus continued
MacuShield
Prescribed by ophthalmologists for slowing the progression of age-related
macular degeneration (AMD), MacuShield is the most recommended food
supplement for general eye health in the UK and Ireland.
Growth Strategy
• Develop OTx strategy to educate
ophthalmologists of the benefits of
recommending to consumers that
they purchase MacuShield.
• Build on growing global
influence with opinion leaders
(ophthalmologists and optometrists),
and develop global Scientific
Advisory Board.
• Develop links with national patient
associations and charities.
• Provide focussed marketing support
to existing markets and develop
targeted new markets.
• Develop product range with
selected innovation.
• Develop global communication
materials for local adaptation and
use, including international website
and training materials.
• Leverage scientific research into
MacuShield’s influence on visual
performance, glaucoma, diabetic
retinopathy, etc.
Overview
MacuShield is a once-a-day, easy to take, food
supplement containing the three macular carotenoids,
lutein, meso-zeaxanthin and zeaxanthin (LMZ). These
nutrients are found at the back of the eye, where they
form the macular pigment. The MacuShield Gold variant
also contains zinc, which helps to maintain normal
vision, as well as vitamin C, vitamin E and copper,
which help to protect cells from oxidative stress.
Backed by more scientific data than any other
product in the category, sales grew by more than
40% in 2016, boosted by being featured in the BBC TV
programme Trust Me, I’m a Doctor, which highlighted
MacuShield’s benefits.
Market
The global market for eye health supplements is
estimated by Euromonitor to be worth $1.1 billion2.
AMD is the most common form of blindness in the
Western world, with over 500,000 cases in the UK alone.
The total market grew by 4% in the year to 2016, but the
superior qualities of LMZ-based products saw a higher
rate of growth for that sub-category.
Alliance has the rights to sell the globally owned
MacuShield trademark in any market outside of the
Americas. The product is currently sold in 16 markets,
and has potential for further expansion.
Product forms
5
Revenue
£5.3m
+40%
2 Euromonitor Global Eye Health Supplements, 2016
Annual Report and Accounts 2016Alliance Pharma plc 2017 Growth Brand Focus
15
MacuShield grew
by over 40%
Vision with AMD
Normal vision
Case study
The progressive deterioration of
central vision that is typical of this
disease generally incapacitates the
elderly, hindering daily activities and,
consequently, their quality of life.
Williams et al. applied evaluation
instruments on patients with AMD
in order to establish scores related
to emotional and quality of life
aspects and obtained results similar
to those found in diseases such as
AIDS, chronic obstructive pulmonary
disease, cardiac disorders, melanoma
and leukemia. Furthermore, it was
shown that most individuals with AMD
reported the ocular disease as being
their main limiting factor.
Williams RA, Brody BL, Thomas RG, Kaplan RM,
Brown SI. The psychosocial impact of macular
degeneration. Arch Ophthalmol 1998;116:514-20.
The global market for
eye health supplements is
estimated by Euromonitor
to be worth $1.1 billion.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 16
2017 Growth Brand Focus continued
Diclectin
Marketed for over 40 years in Canada, and launched in
2013 in the US following FDA approval, Diclectin is a
treatment for nausea and vomiting of pregnancy (NVP).
Growth Strategy
• Build on successful pre-launch
activities undertaken in 2016.
• UK approval anticipated Q3 2017.
• Execute promotional strategy to
GPs, obstetricians, and midwives.
• Launch in EU territories from
Q3 2018.
• Build on growing global acceptance
by opinion leaders.
• Develop global communications for
local adaptation and use.
10
EU territories
signed
Anticipated UK approval
Q3
2017
Over
$160m
annual sales in the
US since launch
Marketing
Exclusivity for
10 yrs
post UK launch
Following the in-licensing of Diclectin for the UK market
in 2015, we were pleased to sign agreements for a
further nine EU territories (including Germany, France
and Italy) in 2016 – achievable due to the establishment
of our pan European footprint.
Overview
Diclectin is the most studied medicine in pregnancy
and consists of a fixed combination of 10mg of
doxylamine succinate (an antihistamine) and 10mg
of pyridoxine hydrochloride (vitamin B6) in a delayed-
release formulation.
Nausea and vomiting of pregnancy is commonly known
as “morning sickness”, but this term is misleading as
the symptoms can occur at any time throughout the day
and night. Diclectin employs a delayed-release action,
which means taking it the night before will lead to an
effective concentration in the blood in the morning when
pregnant women often need it most. If the symptoms
extend into the afternoon then a further delayed-
release tablet taken in the morning can be expected to
maintain the concentration in the blood during the early
afternoon. Similarly another tablet can be taken mid-
afternoon, to prolong the action of the product into the
evening if needed.
Market
There is currently no licensed treatment for this
condition in the UK or in the nine European territories for
which Alliance has agreements. Up to 80% of pregnant
women suffer from nausea and vomiting of pregnancy,
and approximately 30% have severe symptoms. These
can pose both a physical and emotional challenge for
a pregnant woman, such as disruption to work,
household tasks or social activities and also lead to
anxiety and depression.
Diclegis (Diclectin) was approved by the US FDA with
Category A safety status in 2013 and since its launch,
uptake has been strong. Within three years the brand
has already achieved a 12% penetration of all patients
suffering NVP, achieving sales of $160m per annum.
Annual Report and Accounts 2016Alliance Pharma plc 2017 Growth Brand Focus
17
Diclectin was our
first pan-European
in-licensing deal
Case study
As part of our detailed pre-launch
preparations, we commissioned a
review on the burden of Nausea and
Vomiting of Pregnancy in a typical
NHS Health Economy in the North
East of England. This was the first
study of its kind and has provided
a detailed understanding of the
NHS resources used for pregnant
women who seek assistance and
treatment when presenting with
NVP. Of significance, in this one
health economy alone, an emergency
ambulance is dispatched once every
other day for women who call NHS
emergency and urgent telephone
numbers with NVP symptoms.
This study suggests that there is
a clear unmet need for clear
guidelines and consistency when
treating this condition.
Following the in-licensing
of Diclectin for the UK
market in 2015, we
were pleased to sign
agreements for a further
nine EU territories.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 18
Chairman's and Chief Executive’s Review
With the successful integration of our transformational acquisition
we are pleased to report a year of significant progress for the Group.
2016 Highlights
>
>
Integrating the Sinclair business into
Alliance, while at the same time hitting
our growth targets
Endorsement of new pan-European footprint
with in-licensing of Diclectin
> More than £10m cash generated in H2
>
>
Kelo-cote becoming our first
£10m brand
New offices in Milan, Madrid,
and Singapore
Left: John Dawson, Chief Executive Officer
Right: Andrew Smith, Indpependent Non-Executive Chairman
Profit before tax
£22.2m
Kelo-cote
New international
offices
3
£10m+
Sales 2016
33
Deals
in 19 years
Tagetes erecta (Mexican marigold) – source of macular pigments in MacuShield
2007
Forceval
China
£1.95m
2008
Pavacol D
£0.6m
2009
Buccastem
Timodine
£7.5m
2010
Cambridge
£16.4m
A decade of growth and continuing...Annual Report and Accounts 2016Alliance Pharma plc
Chairman's and Chief Executive’s Review
19
We are pleased to report a year of
significant progress for the Group,
including the successful integration of our
transformational acquisition announced in
December 2015.
Significant achievements
in the year
We successfully integrated the ex-Sinclair
products into Alliance – effectively doubling
our size – while at the same time achieving
our growth targets. One of the successes of
the acquisition has been the establishment
of a meaningful infrastructure across the
‘big 5’ EU markets. An early example of the
value of this is the signing of an in-licensing
agreement for Diclectin for the EU. This is
our first pan-European deal, and would not
have been possible prior to the acquisition
of the Sinclair products. Our new offices in
Milan, Madrid, and Singapore, along with the
enlargement of our Düsseldorf office, the
major refurbishment of our Paris office and
the significant broadening of our distributor
base, give us a strong platform for further
international growth.
In relation to our portfolio, particular
highlights are the performance of the
following brands:
Kelo-cote, our scar reduction product,
passed a milestone to become our first
£10m brand. MacuShield, our nutritional
supplement product for age-related
macular degeneration (AMD) also
performed strongly, growing by 40% to
achieve sales of £5.3m. Hydromol, our
emollient range, achieved sales of £7.0m in
a competitive market (+6% vs. 2015). We also
saw strong growth from our UK consumer
health products as a result of marketing and
distribution initiatives, including Ashton &
Parsons Infants’ Powders, whose sales grew
by 34% to £2.0m (2015: £1.5m).
These achievements, and more, are
testament to the calibre and hard work of
our 175 colleagues, who are now part of
stronger, more capable teams working to a
common set of values. We are proud of
our ‘can do’ culture and progressive
approach to employment practices, and
our enlarged business and international
footprint provide greater opportunities for
development and growth.
One of the outcomes
of the acquisition has
been the establishment
of a meaningful
infrastructure across
the ‘big 5’ EU markets.
Delivery of such growth performance is only
possible with a supply chain that is robust
and flexible, for which we wish to thank our
partners with whom we work closely.
Financial results
Group revenue more than doubled to
£97.5m (2015: £48.3m). This was driven by
the transformational acquisition of the ex-
Sinclair products and the continued strong
performance of the legacy Alliance portfolio,
which grew by 13% to £53.8m (2015: £47.5m).
Profit before tax was £22.2m, in line with our
expectations (2015: £11.0m, underlying).
Group sales were enhanced by
approximately £4.2m due to the weakening
of Sterling, primarily against the Euro
and US Dollar. However, the effect on
profits was much lower due to the
natural Euro hedge that exists, whereby
currency-induced movements in sales are
matched by corresponding movements
in Euro-denominated cost of goods and
operating costs.
At £13.0m, free cash flow more than doubled
relative to the prior year (2015: £6.2m).
Following the uptake of working capital in
the first half of the year, arising from the
acquisition of the ex-Sinclair products, cash
conversion was particularly strong in the
second half, with generation of £10.9m of
free cash flow.
Net debt was £71.5m as at 31 December
2015, £79.0m as at 30 June 2016 and
reducing from £79.0m at 30 June 2016 to
£76.1m as at 31 December 2016. This is
despite the adverse translational effects
on the conversion of US Dollar and Euro
debt following the weakening of Sterling.
Expressed at 31 December 2015 currency
rates, net debt would have been £69.1m.
Market context
We operate in the international market
for healthcare products, of which global
prescribed medicines had estimated sales
of €853 billion in 2015, up 29% from 2013.
Healthcare is set to remain an attractively
growing market, underpinned by longstanding
factors such as on-going medical advances
and aging populations in many developed
markets in which we operate.
There has been a theme of budgetary control
from the funders of prescription healthcare
in several of our markets. In the UK, Clinical
Commissioning Groups are exerting strong
budgetary influences on the prescribing of
general practitioners. Similarly in Germany,
the Krankenkassen health insurance funds
are employing price control measures.
Despite such cash constraints in European
healthcare, the sector remains attractive.
2011
Quinoderm
Ceanel
£1.5m
Rizuderm +
5 Products
£2.4m
2012
Opus
£8.0m
Antimalarials
£4.2m
2013
Lypsyl
£1.9m
Syntometrine
(excl. UK)
£7.5m
2014
Irenat
(Germany)
Undisclosed
2015
Diclectin UK
£1.5m
Sinclair
£127.5m
Sinopharm
£1.4m
MacuShield
£11.5m
2016
Diclectin EU
£1.0m
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 20
Chairman's and Chief Executive’s Review continued
Grow
Maximising and extending
brand potential
Our portfolio has grown considerably to
more than 90 products. Naturally we focus
our brand-building efforts where we see the
greatest potential.
Our key international growth brands are
Kelo-cote, MacuShield and Diclectin (to be
launched). Kelo-cote grew by 32% to become
our first £10m brand with China being its
largest market and we were delighted last
year to sign a new agreement with our
distributor there. Additionally we were also
pleased to see good performance in other
territories of the Asia Pacific region, where
the market for advanced personal care
products is strong and growing. MacuShield
also performed well growing from £3.5m in
2015 (11 months) to £5.3m in 2016. A feature
common to both Kelo-cote and MacuShield
is the two-pronged approach to promotion.
We promote the advantages of the products
to clinicians who give a recommendation to
their patients to purchase the product from
a retailer, where our consumer marketing
ensures distribution and availability on
the shelf.
At the national level, key products that are a
focus for brand-building include: Hydromol
for eczema (2016 sales £7.0m mainly in the
UK, vs £6.6m in 2015), Aloclair for mouth
ulcers where the major markets are Italy
and Spain (2016 total brand sales of £6.3m),
Oxyplastine for nappy rash/eczema where
the major markets are France and N. Africa
(2016 total brand sales £2.8m) and Ashton &
Parsons for teething infants in the UK (2016
sales £2.0m vs £1.5m in 2015).
Finally, completing our portfolio is a bedrock
of over 70 products that deliver stable
and reliable sales without any significant
promotional expenditure. These products
are predominantly prescription medicines,
occupying niche positions and are engrained
into prescribing practice.
Significant distribution gains for Ashton and Parsons
The diversity of our portfolio (with
a balance between consumer and
prescription products) and our international
footprint together position us well to benefit
from trends in specific segments and
geographies and equally to reduce risk.
Strategy
Our vision is to be the rising star of
European specialty pharma, and with
the establishment of our pan-European
infrastructure we have laid down a strong
foundation to achieve this ambition.
Our growth strategy comprises two key
strands, outlined on pages 10 and 11:
• Buy (acquisitions and in-licensing); and
• Grow (maximising and extending brand
potential, and international expansion).
Buy
Acquisitions
Our focus in 2016 was on the integration
of the very large acquisition of Sinclair
Pharma’s Healthcare Products business,
which was approximately equivalent in size
to Alliance Pharma at the time. For that
reason we did not make any acquisitions
in 2016, although we kept in touch with the
market through our networking activities,
and have a pipeline of opportunities to
evaluate in 2017.
In-licensing
The principal in-licensing opportunity was
the European rights for Diclectin, and we
expect to submit for regulatory approval for
nine EU territories later in 2017, following
the anticipated UK approval in Q3 2017. We
are excited about the opportunity to serve
this unmet market, as there is no licensed
treatment for nausea and vomiting of
pregnancy in the UK, nor in most European
markets. Extensive market research points to
the large unmet need for such a treatment.
Annual Report and Accounts 2016Alliance Pharma plc Chairman's and Chief Executive’s Review continued
Chairman's and Chief Executive’s Review
21
International expansion
We have greatly expanded the number of
territories to which we distribute. Our teams
are now exploring opportunities in countries
where our brands are not currently sold,
within the constraints of the regulatory
environment, clinical practice and the
competitive backdrop in those markets.
Delivering efficiency gains
Efficiency and operational capabilities are
further core elements of our strategy to
build value. As part of the integration of the
acquired Sinclair products we have taken
the opportunity to develop our internal
structures to manage the expanded and
more international business, and have
brought in new functions and capabilities
such as treasury and international tax
management. The refurbishment of several
of our offices will ensure we continue to
provide an attractive working environment
for our valued colleagues.
We are also embarking on the
implementation of an ERP system, having
evaluated the options with a highly skilled
project team that included third party
specialists. The ERP system will cover all
of the Group’s financial, and supply chain
planning and fulfilment activities, and we
expect this to be operational in 2018.
Charity
We continued our charitable contributions
in 2016 with our ongoing support of
International Health Partners, which
distributes medicines to doctors in the
world’s neediest areas. Through a variety
of fundraising activities we were able to
donate to our local charities, Wiltshire
Air Ambulance Service, the CALM Trust
and national charity, Sands. Our major
fundraising initiative for 2017 is May250,
where in the month of May our people,
participating in various teams and by
various means, will raise money by
completing 250 miles under their
own steam.
Dividend
In light of the strong performance of the
business and our progressive dividend
policy, we are recommending a final
payment of 0.807p per ordinary share, to
give a total for the year of 1.210p. The final
dividend will be paid on 12 July 2017 to
shareholders on the register on 16 June
2017. The total dividend payment for
2016 will be £5.7m, including the £1.9m
interim payment.
Outlook
We anticipate continued growth from our
key international growth brands, Kelo-
cote and MacuShield, where we have been
strengthening our brand strategies and
distribution arrangements. This will be
supplemented by various growth initiatives
that are being implemented for our key local
brands in many territories.
The Group continues to generate good
levels of free cash flow, as demonstrated
by the £10.9m generated in H2 2016. The
net debt/EBITDA ratio has reduced in Q1
and we project the downward progression
to continue in 2017. This has been assisted
by the funds to be received from Sinclair in
relation to the Kelo-stretch settlement.
A major growth initiative is the launch of
Diclectin to meet the unmet need for an
approved treatment of nausea and vomiting
of pregnancy. This depends on regulatory
approval which is anticipated to be in Q3
2017 for the UK and approximately one
year later for our other EU territories.
We look forward to building on our
foundations: an attractive, balanced
portfolio, an expanded geographical
footprint and a strong team.
Andrew Smith
Chairman
John Dawson
Chief Executive
28 March 2017
We refurbished our Chippenham Corporate Head Quarters and Paris offices in 2016
New offices
established in
Düsseldorf, Madrid
and Singapore
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 22
Organisation and People
2016 saw the Alliance organisation transformed into an
international business of over 175 people across 8 countries.
Our values
Explicit
Measured
Recognised
PERFORMANCE
REALISM
ACCOUNTABILITY
Our high performing people
continually drive business success
We set stretching goals and
targets we believe are achievable
We take responsibility and
deliver what we promise
Strategy and Achievements
Our strategy has been, and continues to be, to
build strength in the EU’s 5 largest markets.
We have attracted high quality talent into
key positions and specialist roles, often
promoting from within and have created
a strong, positive, dynamic environment
and culture.
Our organisation now spans over 30 areas
of expertise covering medical, regulatory,
technical and operations, sales & marketing,
Finance, IT, HR, Legal and Corporate
Development. In the last 12 months we
successfully transferred and integrated 41
people from the Sinclair business in Chester,
Paris and Milan and brought on board over
50 new recruits. These new colleagues
have brought us new skills, experience
and approaches.
To complement this inward investment of
people, we have promoted our internal talent
into new and expanded positions. Of the total
number of newly created positions in our
larger structure, 30% were filled internally
as promotions.
We are able to attract people with diverse
backgrounds from major pharma, consumer
and wider industry who bring with them the
knowledge of many therapy areas, markets
and professions vital to our new business, and
to help us shape the next stage in our growth.
Engagement
Length of Service
Employee Survey – Average Score %
< 2 years
3–4 years
5–6 years
7–9 years
> 10 years
77
76
80
79
81
75
60% Industry
Average
2011
2012
2013
2014
2015
2016
Our people are located in 9 offices
internationally; our largest being in
Chippenham, Paris and Milan, complemented
by smaller offices in Chester, Madrid,
Düsseldorf, Dublin, Singapore and Shanghai.
All have been, or are in the process of being,
refurbished to ensure we have attractive
accommodation with supporting technology.
Communicating effectively across the
world is a high priority, and through 'virtual'
meetings and monthly briefings we ensure
that whatever the location, our people
are informed and involved in the wider
business performance.
This breadth of disciplines and geographical
reach gives us a strong platform upon which
to build.
Learning and Development
As an organisation, and as individuals, we
never stop learning and developing; through
our experiences gained from acquisitions,
the experiences of our new recruits, as well
as planned development within roles. Our
business growth has presented exciting
opportunities for our people to develop their
careers with us, and we encourage our
people to stretch themselves personally by
taking on fresh challenges.
We run a number of partnered development
programmes, and ensure that internal
development is supplemented with external
programmes. We sponsor professional
qualifications such as CIMA/ACCA and
CIPS, and have a successful commercial
graduate programme.
Annual Report and Accounts 2016Alliance Pharma plc Organisation and People
Organisation and People
23
INTEGRITY
SKILL
ENTREPRENEURSHIP
We build trust in all our relationships
through openness and fairness
We recruit highly skilled people
and develop their talents to the full
Our people think of the business
as if it were their own
In 2016 we have created the enlarged EU
infrastructure, built the right organisation
and now have the right people and culture
in place to move from a company in transition
to one that can perform in 2017 to its full
new potential.
“There is always
something new to
try my hand at as we
grow and expand.”
Karen Hampshire
Senior Brand Manager
Having promoted much of our internal talent
into enlarged roles during this transition
year, we are actively focussed on building
our talent pipeline for future growth.
Culture
Alliance has a strong culture built on our
PRAISE values; the behaviours that have
proven to be successful in building our
business so far.
Bringing a significant number of new people
into the business has required us to harness
the enthusiasm around these values, while
being sensitive to local cultures. We have
done this by ensuring that our values are
well communicated, recognised and built into
performance measures, as we have done
successfully in previous years.
Ensuring our people are motivated and
engaged is an important ingredient in our
success – our people want to be part of an
exciting story. Annual employee engagement
scores from our survey consistently achieve
75–80%, and we have been able to maintain
these high levels during this past year,
despite the level of change our people
have experienced.
We now have a good balance of fresh thinking
and long Alliance experience, and turnover
remains low at an average 8%.
Our peoples’ rewards are linked to our
business success, through bonuses and
share option schemes, which help to drive a
focus on results and delivery of our strategy.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 24
Financial Review
Group revenue for 2016 is more than double the prior year at £97.5m
(2015: £48.3m). This has been driven by the transformational acquisition
of the ex-Sinclair products in December 2015 and the continued strong
performance of the original Alliance portfolio.
2016 Highlights
>
>
>
>
>
Revenue: £97.5m (2015: £48.3m)
EBITDA: up 102% to £26.0m (see note 4)
Profit before tax: up 103%*
to £22.2m (2015: £11.0m (underlying),
£15.2m (reported))
Diluted EPS: 3.82p
(2015: 3.44p (adjusted))
Strong cash generation:
Free cash flow of £13.0m,
£10.9m generated in H2
(2015: £6.2m for the year)
* On an underlying basis
EBITDA up
102%
Profit before tax
£22.2m
3.82p
Diluted EPS
£97.5m
Revenue
Annual Report and Accounts 2016Alliance Pharma plc Financial Review
25
Group performance
Group revenue for 2016 is more than double
the prior year at £97.5m (2015: £48.3m). The
ex-Sinclair products delivered sales of £43.8m
and represented 45% of total sales, with
the remaining Alliance portfolio performing
strongly and delivering a sales increase of
13% to £53.7m for the year (2015: £47.5m).
Group sales were enhanced by approximately
£4.2m due to the weakening of Sterling that
occurred over the year, primarily against
the Euro and US Dollar. However, the effect
on operating profits was much lower at
approximately £0.6m due to the natural
Euro hedge that exists, whereby Euro-
denominated movements in sales are matched
by corresponding movements in Euro-
denominated cost of goods and operating costs.
Gross profit was up 90% to £54.8m (2015:
£28.7m), giving a gross margin for the year
of 56.3% (2015: 59.4%). The reduction to the
margin on the rate achieved in 2015 was due
to the change in sales mix in the expanded
portfolio. We expect to maintain an average
gross margin in the range of 55–60% of sales.
EBITDA increased to £26.0m from £12.9m
(see note 4) representing a 102% increase.
Operating expenses were £29.2m in 2016
against £16.3m (underlying) in 2015. The
increase resulted from the full-year effect
of the ex-Sinclair products’ cost base and
increased promotional support given to our
key growth brands
The tax charge for the year of £4.1m is
based upon the prevailing tax rates in the
relevant countries, after taking into account
the impact of the planned reduction in the
UK corporation tax rate on our deferred tax
balances, and equates to an effective rate of
18.6%. The Group’s underlying effective tax
rate for 2016, in the absence of the UK tax
rate reduction impact on deferred tax, was
22.0% which better reflects our effective tax
rate forecast.
Diluted earnings per share grew by 11% to
3.82p (2015: 3.44p (adjusted)).
Dividend
The Directors propose to maintain a
progressive dividend policy and are
recommending a final payment of 0.807p
per ordinary share to give a total for the year
of 1.21p. This represents an increase of 10%
on 2015.
The final dividend will, subject to approval
at the Company’s AGM on 25 May 2017, be
paid on 12 July 2017 to shareholders on the
register on 16 June 2017.
The level of dividend cover in 2016 remained
ample at over three times. The total dividend
payment for 2016 will be £5.7m including
the £1.9m interim payment.
Intangible assets
Intangible assets increased by £15.0m
to a total of £264.8m (2015: £249.8m).
Diclectin EU and additional territories for
MacuShield added £3.3m, with non-Sterling
denominated assets appreciating from the
weakening of Sterling adding £11.2m.
Working capital
The build-up of trade receivables and
trade payables in 2016 was a result of
the acquisition of the Sinclair Healthcare
Products Business.
As such, trade receivables increased from
£11.6m to £26.7m and trade payables
increased from £13.9m to £22.0m. These
increases primarily occurred in the first half
of 2016 and have now stabilised.
Inventories increased over the period from
£12.9m to £15.4m as a result of strategic
builds on key products whilst they were
transferred to new manufacturing partners.
Cash flow and net debt
The increase in cash and cash equivalents
over the year was £4.0m.
The first half of 2016 was affected by the
normalisation of working capital movements.
Full year free cash flow (cash generation from
operating activities less interest, tax and capital
expenditure) was up 110% increasing to £13.0m
(2015: £6.2m). Cash conversion was particularly
good in the second half of the year with the
generation of more than £10m of free cash flow.
Net debt was £71.5m as at 31 December
2015, £79.0m as at 30 June 2016 and
reducing from £79.0m at 30 June 2016 to
£76.1m as at 31 December 2016. This is
despite the adverse translational effects
on the conversion of US Dollar and Euro
debt following the weakening of Sterling.
Expressed at 31 December 2015 currency
rates, net debt would have been £69.1m.
At the year-end, the adjusted net debt/
EBITDA ratio was 2.8 times and comfortably
below our banking covenant of 3.0 times.
We expect net debt and leverage to
progressively reduce during 2017 driven
by the Group's strong underlying cash
generation, including utilising our surplus US
Dollar position to service debt repayments.
In addition, as announced on 21 March 2017,
the Group reached a settlement with Sinclair,
in connection with the material reduction of
business in Kelo-stretch, which was acquired
in the prior year. The result of the settlement
is a £5.0m cash payment to Alliance (£4.0m
to be received before 30 April 2017 and £1m
on or before 30 June 2018) and also the
retained rights to Flammacerium (US) to be
relinquished, with immediate effect. This will
be treated as exceptional income in the 2017
financial statements and the cash element of
the compensation will be used to reduce the
Group’s current bank loans.
The Group has a total bank facility of £100.0m
of which £66.5m (2015: £65.0m) remains
drawn on the Term Loan and £18.0m (2015:
£10.0m) utilised from the Revolving Credit
Facility (RCF) as at 31 December 2016.
In addition to this facility, the Group also
has access to a £4.5m overdraft which was
undrawn at 31 December 2016.
External factors
Future currency movements are clearly an
unknown. However, the Group is broadly
naturally hedged against movements in
the Euro as our sales and costs are largely
balanced, but we have some exposure to the
US Dollar, which we monitor closely. We also
keep a close eye on the possible implications
of the UK leaving the EU. The balance of our
business in both the UK and EU spreads our
exposure, and it is important to note that our
licences to trade are local to each member
state. As previously mentioned, there is a
trend that funders of prescription products
are becoming increasingly budget-conscious.
This is mitigated, to a certain degree, by the
breadth of our portfolio, which includes a large
and growing proportion of consumer products
where pricing can move with the market. Read
more about our risks on page 27.
Going concern
As described above, the current rate of cash
generation by the Group comfortably exceeds
the capital and debt servicing needs of the
business. The Board remains confident that
all the bank covenants will continue to be met
and the Group will be able to meet its 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.
This Strategic Report, containing all of the
disclosures from page 6 to 29 inclusive, was
approved by the Board on 28 March 2017.
Andrew Franklin
Chief Financial Officer
28 March 2017
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 26
Risk Management and Internal Control
All businesses choose to take considered risks in the expectation
of earning a return for their shareholders.
Risk management
The Board is responsible for overseeing
management’s activities in identifying,
evaluating and managing the risks facing
the Group. Where the risks are not ones
which the Board is prepared to take, these
are avoided or eliminated as far as possible
and/or transferred to insurers.
During the year the Company developed
a new process for the identification,
assessment and management of risk
which, following a formal review by the
Audit Committee, is expected to be fully
implemented during H1 2017. Risks are
identified by line management, and the
likelihood and impact of the risk is assessed
in its gross or raw state. Existing mitigations
are then identified for each risk and the
residual levels of exposure are assessed.
Opportunities to improve the mitigating
steps or the management of risk more
generally are considered, a target level of risk
identified and an action plan developed. Each
risk is allocated a business owner, who is
responsible for implementing the mitigating
actions and reporting on progress with those
improvements and the status of the risk to
the Senior Leadership Team and, in the case
of principal risks, through them to the Board.
Assess
The likelihood and
impact of each risk is
assessed to calculate
the risk exposure at
gross (raw), residual
and target levels
Identify
The existence of a
risk is identified from
either a 'bottom-up'
process involving
line management
or a 'top-down'
review by the Senior
Leadership Team or
the Board
Mitigate
Existing mitigations
are identified and
their effectiveness
checked
Improve
Opportunities
to improve the
mitigating actions
are identified
Report
Status of risks
and progress with
improving mitigations
is reported to the
Senior Leadership
Team or the Board
Internal control
The Company has implemented and maintains systems of internal control appropriate to a business of this size and complexity and
which takes into account the applicable requirements of pharmaceutical regulators in the various markets in which we operate.
The key components of the current system
of internal control are:
• Setting strategic goals, business plans
and budgets, supported by intra-
year forecasting
• Regular reporting of actual performance
relative to those goals, plans, budgets
and forecasts
• Delegation of authorities from the Board
to the CEO and through him to various
members of the Senior Leadership Team
and their delegates
• Creating an appropriate structure
of responsibility and accountability,
including segregation of duties,
appropriate reporting lines for key
managers and regular line management
communications and 1:1 meetings where
performance is discussed, supported by
an appraisal process
• The Audit Committee reviews the system
of internal control, both generally and
in relation to specific focus areas. In
addition, the Audit Committee also
monitors the Group's risk management
system and the Group-wide risk register
Following the acquisition of the former
Sinclair healthcare products business in
December 2015, the scale and complexity
of the Group has increased considerably,
especially with regard to sales and profits
achieved outside the UK. In addition, while
management of these activities has been
integrated and rationalised under a single
management team, the Group is currently
operating two legacy IT systems.
As a result, the Board has decided to
implement the Microsoft Dynamics AX
enterprise resource planning system, which
is expected to be implemented in the first
half of 2018. The installation is intended
to cover all of the Company’s sourcing,
distribution, sales and accounting processes
and will provide significantly enhanced
management information and
an enhanced internal control environment.
The Company does not intend to customise
the base system, thus retaining the strong
control environment inherent in this market-
leading product. The implementation of the
ERP system also provides an opportunity
to review processes and reporting practices
throughout the Group.
Given its current size, the Company does not
judge it appropriate to maintain a dedicated
internal audit function, though this is kept
under review.
Annual Report and Accounts 2016Alliance Pharma plc Principal Risks and Uncertainties
27
Principal Risks and Uncertainties
The business faces a wide range of risks on a daily basis.
The Board has assessed what it believes are the principal risks facing the Company, being those that could threaten its business model,
future performance, solvency or liquidity, and these have been linked to the key elements of business strategy described on pages 10 and 11.
The risks have been assessed on a residual basis according to our current view of their potential severity (being the combination of impact
and probability), assuming that existing controls are effective.
The table below is not an exhaustive list of all risks the Company faces. The environment in which we operate is constantly evolving; new
risks may arise, the potential impact of known risks may increase or decrease and/or our assessment of these risks may change. We have
explained how each risk is being managed or mitigated.
External Risks
Sales volumes being affected by changes in demand
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Maximising and
extending brand
potential
International
expansion
The products we sell are
subject to normal market
forces, so demand may fall,
our product may face new
or increased competition
or the price we can achieve
may be reduced.
These risks have
the potential to
compromise our future
performance and, in
an extreme scenario,
cash generation.
Diversification through selling
a wide range of products and
marketing support where
appropriate.
This risk has
not changed
materially
year-on-year.
Impact on price or ability to supply from regulatory action or changes in government policy
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Maximising and
extending brand
potential
The products we sell lose
their regulatory approval,
or are subject to public
procurement processes
which result in either
constraints on our ability to
supply or the selling prices
that can be achieved.
These risks have
the potential to
compromise our future
performance and, in
an extreme scenario,
cash generation.
Diversification through selling
a wide range of products,
many of which do not require
regulatory approval or are
subject to public procurement
processes; our experienced
staff build and maintain their
knowledge of the public sector
procurement process.
This risk has
not changed
materially
year-on-year.
Foreign exchange exposures
Link to strategy
Risk
Nature of threat
Mitigation
Trend
International
expansion
The Group now earns a
proportion of its profits
in currencies other than
sterling, but accounts for
the business in sterling.
The reporting of profits
earned outside the UK may
therefore become more
volatile. In an extreme
scenario, were exchange
controls imposed it may
become difficult or even
impossible to repatriate cash
earned in some markets.
The risk is primarily
to reported profits
rather than cash, but
in an extreme scenario
could compromise our
cash generation and
liquidity position.
The Group is funded by a
combination of sterling-,
dollar- and euro-denominated
debt, which provides a natural
hedge to some of these
exposures. In addition, we
can use financial instruments
such as forward contracts,
to help manage these risks.
This risk has
increased in
the year as a
consequence
of volatility
in sterling
exchange rates
following the
UK's vote to
leave the EU.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 28
Principal Risks and Uncertainties continued
External Risks continued
Diclectin fails to gain UK and European regulatory approval
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Maximising and
extending brand
potential
Diclectin fails to obtain
MHRA approval or
the equivalent EU
authorisations, either
within the intended
timescale or at all.
These risks have
the potential to
compromise our future
performance and, in
an extreme scenario,
cash generation.
This risk has
not changed
materially
year-on-year.
Diclectin first obtained
regulatory approval in Canada
more than 40 years ago and
gained FDA approval in the
USA in 2013. The product
has been in widespread use
in those markets.
The Company has allocated
significant and experienced
resources to supporting the
UK regulatory approval of this
product (and the consequent
extension to other EU markets),
and regulatory approval is
expected in Q3 2017.
Operational Risks
Sales volumes being affected by supply side constraints
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Maximising and
extending brand
potential
International
expansion
Manufacturing or
distribution issues, or
an inability to increase
production volumes to
meet demand, impinges
on our potential sales.
These risks have
the potential to
compromise our future
performance and, in
an extreme scenario,
cash generation.
Forecasting systems to enable
our contract manufacturers to
plan their production volumes
well ahead of time including,
where necessary, investment
in increased capacity or
sourcing of components from
upstream suppliers. Stocks
are held in the supply chain
for most products.
This risk has
not changed
materially
year-on-year.
Failure to generate cash from operations
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Acquiring selective
products and
companies
Our inability to generate
profits from sales, or
to convert those profits
into cash flow result in
insufficient cash to reinvest
into the business, or
to service our debt or
equity capital.
Any inability to
generate cash would
impact on our liquidity
and could lead to
non-compliance with
the covenants to which
our debt facilities are
subject or our ability
to maintain dividend
payments.
The Group monitors and
regularly forecasts its sales,
costs, profits and cash flows
and has a model for debt
covenant compliance. Where
necessary, mitigating actions
could be taken to remain within
the debt covenants and to meet
scheduled debt payments.
The Group
is cash-
generative and
the business is
more diverse
and therefore
more robust,
so this risk is
reducing.
Annual Report and Accounts 2016Alliance Pharma plc Principal Risks and Uncertainties
29
Operational Risks continued
Product liability
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Maximising and
extending brand
potential
The Group produces a wide
range of medicines, medical
devices, food supplements
and cosmetics. There are
inherent risks that some of
these products could cause
adverse reactions exposing
the Group to the risk that
(i) the product must be
withdrawn from sale and
(ii) that we may have legal
liability to those injured by
that product.
These risks have
the potential to
compromise our future
performance and, in
an extreme scenario,
liquidity position or
even solvency.
The Group's products are
well tolerated and many have
been in existence for decades.
All products have regulatory
approval in the markets we
trade in. We also carry public
and products liability insurance
to provide a level of protection
for the Company.
This risk has
not changed
materially
year-on-year.
Failure of IT systems (including cyber risk)
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Maximising and
extending brand
potential
We co-ordinate a complex
supply chain with many
contract manufacturers,
logistics intermediaries and
distributors, all of which
rely on the availability of
our IT systems. In addition,
we sell some products
directly through our website
and therefore hold some
customer data, the loss of
which (whether accidental
or following hacking) would
cause disruption and cost
to the Group. In addition,
the Group’s own data on
employees is exposed to the
same risks of loss.
These risks are likely
to be short-term in
nature, but could affect
our performance
and, potentially, cash
generation. There
would also be a
reputational impact if
we suffered a major
loss of personal data.
The Group has a range of
measures in place to monitor
and mitigate this risk including
anti-virus software, firewalls
and network segmentation that
are regularly updated; regular
introduction of more up to
date software also provides
additional in-built security;
and incident management,
business continuity
management and IT disaster
recovery plans are in place.
As the Group
now supplies
a wider range
of products
and has
become more
geographically
diverse, it is
more reliant on
its IT systems,
so this risk is
increasing.
ERP system implementation
Link to strategy
Risk
Nature of threat
Mitigation
Trend
Integrating
acquired products
and companies
Maximising and
extending brand
potential
International
expansion
The ERP system is not
implemented on time,
fails to work as intended
or deliver the expected
benefits.
In addition, while this
is expected to improve
the internal control
environment, the transition
from, and eventual removal
of, legacy IT systems
creates continuity risks.
In addition, the design and
implementation of new
operating practices and
culture needed to bring the
ERP system into full effect
creates further risk to the
Group’s business.
These risks have
the potential to
compromise our future
performance and, in
an extreme scenario,
cash generation.
We have selected an ERP
system with a good track
record and an experienced
company to support Alliance in
the implementation through a
structured process, developed
a carefully-considered project
plan, hired experienced project
managers and released staff
from their normal roles to
focus on the project.
The project has Board-level
executive sponsorship and
is regularly reviewed by the
Senior Leadership Team and
reported on at Board level.
We intend to
implement the
ERP system
and retire the
legacy systems,
so this risk is
increasing.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationStrategic Report › 30
Transforming a £1 million
brand to a +£7 million brand
Annual Report and Accounts 2016Alliance Pharma plc Governance
31
Governance
Governance
32 Board of Directors
34 Corporate Governance
37 Remuneration Report
40 Directors’ Report
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationGovernance › 32
Board of Directors
Biographical details of the Directors in office at the
date of this report, all of whom held office throughout
the year, are set out below.
A
RN
N
Andrew Smith
Independent Non-Executive Chairman
Andrew joined the Board as a Non-Executive
Director in 2006 and became Chairman in
2014. 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 Officer of start-up biotech Cerebrus
plc and President of Parexel International's
medical marketing services business. He is
a founder of Navitas BioPharma Consulting.
Andrew has an MA in Natural Sciences
(Genetics) from the University of Cambridge
and is a Fellow of the Institute of Directors.
Andrew provides the Board with a wealth of
experience in the strategic management of
life sciences businesses, the marketing of
pharmaceuticals and related products, and
in navigating the regulatory environment
around these activities.
Peter Butterfield
Executive Director, Deputy
Chief Executive Officer
Peter joined the Board of Alliance in 2010 with
the acquisition of Cambridge Laboratories
where he spent five years, latterly as UK
Commercial Director. Peter was previously
the Company’s Chief Commercial Officer and
was appointed to his present office in October
2016. He served eight years as a Board
Member of the Association of the British
Pharmaceutical Industry and was an integral
part of the 2014 PPRS negotiating team. Prior
to joining Cambridge Laboratories, Peter
spent six years at GlaxoSmithKline. He holds
an honours degree in Pharmacology from the
University of Edinburgh.
Peter has significant commercial experience
in the life sciences sector and strong
leadership experience gained in a variety
of contexts.
John Dawson
Executive Director,
Chief Executive Officer
John founded Alliance in 1996. He gained
multi-disciplinary experience in the
pharmaceutical industry over thirty years,
including 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.
John's vast industry and managerial
experience has equipped him to provide
the leadership that has enabled Alliance
to transform from an entrepreneurial
start-up to a well-managed and growing
international pharma company.
Andrew Franklin
Executive Director, Chief Financial Officer
Andrew joined Alliance in September
2015 from Panasonic Europe, where he
was General Manager, European Tax and
Accounting. From 2010 to 2012 Andrew was
Finance Director and Company Secretary
of Genzyme Therapeutics Ltd, the UK &
Ireland subsidiary of Genzyme Corporation,
the biotechnology company acquired by
Sanofi. Prior to that, he gained 12 years
pharmaceutical experience with Wyeth in a
variety of senior financial positions. Andrew
holds an honours degree in Civil Engineering
from the University of Wales, Cardiff.
Andrew is a Fellow of the Institute of
Chartered Accountants in England and
Wales with extensive experience of financial
management in international businesses,
including significant prior experience in life
science companies.
Annual Report and Accounts 2016Alliance Pharma plc Board of Directors
33
Nigel Clifford
Independent Non-Executive Director
Nigel joined the Board of Alliance as a Non-
Executive Director in 2015. He is currently
chief executive officer of Ordnance Survey
and formerly a non-executive director of
Anite plc. He has previously held Chief
Executive and senior roles at Procserve
Holdings, Micro Focus International plc,
Nokia, Symbian Software, Tertio Telecoms,
Cable and Wireless plc, Glasgow Royal
Infirmary NHS Trust and BT plc. Nigel
graduated in Geography from the University
of Cambridge and has an MBA from
Strathclyde University.
Nigel brings significant experience of the
strategic and commercial management
of complex global businesses, gained in
a variety of industry sectors and under a
variety of ownership structures.
Committee membership key
A
N
R
Audit Committee
Nomination Committee
Remuneration Committee
Committee Chairman
N
R
A
N
R
A
N
R
Thomas Casdagli
Non-Executive Director
Thomas joined the Board of Alliance as
a Non-Executive Director in 2009. He is a
partner at MVM Life Science Partners LLP,
a life science venture capital fund, and has
been an active investor in the sector since
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.
Thomas brings extensive experience
in the evaluation and financing of life
sciences businesses and in the investment
management sector to the Board. He was
nominated as a director by MVM under
an agreement entered into in 2009 and,
provided he remains connected with MVM,
will continue to hold office while they hold
more than 9% of the company’s equity.
David Cook
Independent Non-Executive Director
David joined the Board of Alliance as a Non-
Executive Director in 2014. He is currently
Chief Financial Officer and an Executive
Director of Ellipses Pharma, an international
cancer drug development company and
was previously Chief Financial Officer and
Chief Business Officer of Biotie Therapies
Corp, a drug development company
quoted in Helsinki and on NASDAQ. He has
previously held senior financial positions
with Jazz Pharmaceuticals International,
EUSA Pharma and Zeneus Pharma. David
qualified as a chartered accountant with
PricewaterhouseCoopers after graduating in
chemistry at the University of Oxford.
David has extensive experience of financial
and general business management
(including the implementation of buy and
build strategies) in the life sciences sector,
of financing those businesses and managing
investor relations across a number of stock
markets globally.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationGovernance › 34
Corporate Governance
Chairman’s introduction
I am pleased to introduce this section of the annual report as it is a topic which I regard as crucial to any company’s future development.
Alliance Pharma plc is an AIM quoted company and we have chosen to follow the QCA’s Corporate Governance Code for small and
mid-size quoted companies (the ‘Code’), as we believe that this provides an appropriate governance framework for a group of our size.
We monitor developments in the UK Corporate Governance Code, applicable to listed companies traded on the main market, to keep
abreast of best practice.
Corporate governance plays a crucial role in helping to preserve value for shareholders by providing a process for decision-making
which should ensure that all major decisions are considered in good time, that the Board is provided with good quality briefing materials
which cover all relevant factors and that our deliberations consider the risks, as well as the opportunities, inherent in the topic before
us. Having Directors drawn from a range of backgrounds, with a cumulatively wide range of relevant skills and experiences, helps us
to take decisions in the interests of all shareholders and which take into account the interests of a wide range of stakeholders. It is for
these reasons that the Board is committed to achieving high standards of corporate governance.
As a result, good corporate governance is vital in supporting the Company’s growth strategy and in turn its long-term success.
The remainder of this report explains how we have applied the Code during the year under review.
Andrew Smith
Chairman
Board composition and support
The Board currently comprises seven
Directors, being the Chairman, three
Executive Directors and three Non-Executive
Directors. The Board believes that its current
composition provides a sufficiently wide
range of skills and experience to enable it
to pursue its strategic goals and to address
anticipated issues in the foreseeable future.
Its deliberations are not dominated by one
person or a group of people.
The Chairman was independent on
appointment and continues to be regarded
by the Board as independent, and Nigel
Clifford and David Cook are also regarded
as being independent. While Thomas
Casdagli fulfils his duties to the Company
in an exemplary way and demonstrates
independence of character and judgement,
since he was nominated as a Director by a
significant shareholder, the Board does not
regard him as independent.
The respective responsibilities of the
Chairman and Chief Executive Officer (CEO)
are very clearly understood. 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 CEO is
responsible for the leadership of the business
and implementation of the strategy.
The Board has not felt that the appointment of
Senior Independent Director was necessary,
but keeps this issue under review.
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.
The Directors are provided with good
quality information on a timely basis
including monthly management accounts,
regular updates on commercial, business
development, regulatory, HR and investor
relations issues and detailed briefing papers
on all substantive matters to be discussed at
Board meetings.
Responsibilities of the Board
The Board is responsible to the Company’s
shareholders for:
• Setting the Group’s strategy
• Maintaining the policy and decision-
making process through which the
strategy is implemented
• Checking that necessary financial and
human resources are in place to meet
strategic aims
• Providing entrepreneurial leadership
within a framework of good governance
and sound risk management
• Monitoring performance against key
financial and non-financial indicators
• Overseeing the systems of risk
management and internal control
• Setting values and standards in corporate
governance matters.
There is a formal list of matters reserved for
the Board, which may only be amended by
the Board.
Non-Executive Directors
The role of the Non-Executive Directors is to:
• Challenge constructively and help develop
proposals on strategy
• Satisfy themselves as to the integrity of
the financial reporting systems and the
information they provide
• Satisfy themselves as to the robustness
of the internal controls
• Ensure that the systems of risk
management are robust and defensible
• Review corporate performance and
the reporting of such performance to
shareholders.
Each of the Non-Executive Directors sits
on the Nomination and Remuneration
Committees, enabling them to have a role
in determining the pay and benefits of the
Executive Directors and to play a key role
in planning Board succession including the
appointment and, if necessary, removal of
Executive Directors.
In addition, each independent Non-Executive
Director sits on the Audit Committee,
enabling them to review internal control
and financial reporting matters at first
hand, and have a direct relationship with
the external auditors.
Annual Report and Accounts 2016Alliance Pharma plc Corporate Governance
35
Attendance records
The participation of the individual Directors at the meetings of the Board and its committees they were eligible to attend during the year
ended 31 December 2016 was as follows:
Director
Andrew Smith
Anthony Booley
Peter Butterfield
Thomas Casdagli
Nigel Clifford
David Cook
John Dawson
Andrew Franklin
Board
11 of 11
5 of 6
11 of 11
11 of 11
10 of 11
10 of 11
11 of 11
11 of 11
Audit
Committee
3 of 3
–
–
–
3 of 3
3 of 3
–
–
Nomination
Committee
Remuneration
Committee
1 of 1
–
–
1 of 1
1 of 1
1 of 1
1 of 1
–
5 of 5
–
–
5 of 5
5 of 5
5 of 5
–
–
Board meetings
The Board meets regularly on scheduled
dates, including a two-day strategy
meeting in each year which is also
attended by all senior executives of the
Group, the purpose of which is to review
progress in delivering agreed plans and
to develop and settle the Group’s business
plans and long-term strategic targets and
set the framework for the achievement of
those goals. During 2016 the Board held
eleven scheduled meetings, with a number
of additional ad-hoc meetings to discuss
specific issues or grant formal approvals
of non-substantive matters.
Committees
The Board has delegated and empowered
an Audit Committee, a Nominations
Committee and a Remuneration
Committee, each of which is accountable
to the Board on all matters within its
remit. Each committee has written terms
of reference, which are available on the
Company’s website. A summary of the
responsibilities of each committee and
their work during the year is given below.
Board Effectiveness Review
In line with its policy of undertaking a
review biennially, the Board has undertaken
a review of its effectiveness. This took
the form of a structured questionnaire
circulated to all Directors, asking them to
rate the Board’s performance in a number
of strategically important areas and provide
a rationale for their view. The results were
analysed by the Company Secretary and
Chairman, key themes identified and the
results, using the comments in unattributed
form, were presented to the Board together
with suggested improvement actions.
Relations with shareholders
Throughout the year the CEO and Chief
Financial Officer (CFO) meet with the
institutional shareholders who hold the
majority of the shares and the Board is
provided with feedback from all meetings
and communications with shareholders.
The Board is provided with an analysis
of the investor base at each meeting
and research notes by sell-side analysts
are circulated to all Directors. Further
information on investor sentiment is
provided to the Board by the Company’s
brokers and financial PR advisors.
The Board concluded that it functions
efficiently and had sufficient members,
drawn from a range of backgrounds and
with a wide range of skills and experience,
to do so effectively. The incremental
improvement opportunities identified
are being pursued.
Diversity
The Board is aware of the current focus
on diversity in relation to Board and senior
management appointments, which tends to
focus on gender and race. The Company and
the Board always seeks to search for, recruit
and appoint the best available person on the
basis of aptitude and ability, regardless of
sex, marital or civil partnership status, race,
colour, nationality, ethnic or national origins,
pregnancy, disability, age, sexual orientation,
religion, belief or gender reassignment.
The Group recognises the importance of
retail shareholders and the Investor Relations
section of the Group’s website is regularly
updated with the aim of providing good
information for all investors, but particularly
retail shareholders. The website offers a
facility to sign up for email alert notifications
of Company news and regulatory
announcements. In addition the CEO and CFO
regularly present at conferences attended by
many potential and current retail investors
and meet with specialist private client fund
managers, following which feedback is given
to the Board.
All Directors attend the Annual General
Meeting at which the Chairman presents a
statement on current trading and there is
an opportunity to ask questions formally.
Directors are available following the
meeting for informal discussions. While
voting at the AGM is on a show of hands, the
proxy voting results (including any votes
withheld) are announced at the meeting.
Voting results are announced to the market
and published on the website.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationGovernance › 36
Corporate Governance continued
Board Committees
As noted above, the Board has
delegated certain of its responsibilities
to Board committees:
Remuneration Committee
The role of the Remuneration Committee
is to review and determine on behalf of the
Board the pay, benefits and other terms of
service of the Executive Directors of the
Company and the broad pay strategy with
respect to other senior executives. The
terms of reference of the Remuneration
Committee are available on the
Company’s website.
The members of the Remuneration
Committee, all of whom held office
throughout the year and to the date of
this report, are:
• Andrew Smith (Chairman of the
Remuneration Committee)
• Thomas Casdagli
• David Cook
• Nigel Clifford
The Company Secretary acts as secretary
to the Remuneration Committee. The CEO,
the Deputy CEO (since appointment) and the
Chief HR Officer are also invited to attend
certain meetings of the Remuneration
Committee. However, no executive
participates when their own remuneration
is being discussed.
The Committee also reviews the leadership
needs of the organisation and monitors
succession planning for both Board and
senior executive roles. The terms of
reference of the Nominations Committee
are available on the Company’s website.
The members of the Nominations
Committee, all of whom held office
throughout the year and to the date
of this report, are:
• Andrew Smith (Chairman of the
Nominations Committee)
• John Dawson
• Thomas Casdagli
• Nigel Clifford
• David Cook
The Company Secretary acts as secretary
to the Nominations Committee. In addition,
the Chief HR Officer may also attend certain
meetings of the Committee, particularly when
succession planning is being discussed.
Following the significant changes to Board
composition during 2014 and 2015, the
committee only met once during the year,
to recommend to the Board the appointment
of Peter Butterfield as Deputy CEO.
Audit Committee
The role of the Audit Committee is set out in
formal terms of reference, available on the
Company’s website, and is to:
The committee held five formal meetings
during the year, four of which dealt with
routine matters. The fifth was a one-off
meeting to settle the remuneration to be
offered to Peter Butterfield on promotion to
Deputy CEO.
• consider the appointment of external
auditors and the frequency of re-
tendering and rotation of the audit
• oversee the relationship with, and the
independence and objectivity of, the
external auditors
The Company’s remuneration policy and
details of the amounts due to the Directors
of the Company in or in respect of the year
are set out in the Remuneration Report
on pages 37 to 39. As the Company is not
listed, it is not required to produce a formal
remuneration policy or seek shareholder
approval of that policy.
Nominations Committee
The role of the Nominations Committee is to
review the structure, size and composition
of the Board (including in terms of skills,
knowledge, experience and diversity) and
to identify and nominate candidates to fill
Board vacancies.
• set policy in relation to the use of the
external auditors for non-audit services
• review the management and reporting
of financial matters including key
accounting policies
• advise the Board on the Company’s
appetite for and tolerance of risk and the
strategy in relation to risk management
and review any non-conformances
with these
• review the Company’s risk management
and internal control systems and
their effectiveness
The members of the Audit Committee,
all of whom held office throughout the year
and to the date of this report, are:
• David Cook (Chairman of the
Audit Committee)
• Nigel Clifford
• Andrew Smith
The Company Secretary acts as secretary
to the Audit Committee. The CEO, the
Deputy CEO (since appointment), the CFO
and the Group Financial Controller attend
all meetings, while other senior financial
managers will attend as necessary. The
external auditors attend the meetings to
discuss the planning and conclusions of
their work and meet with the members of
the Committee without any members of the
executive team present after each meeting.
The Committee is able to call for information
from management and consults with the
external auditors directly if required.
The objectivity and independence of
the external auditors is safeguarded by
reviewing the auditors’ formal declarations,
monitoring relationships between key audit
staff and the Company and tracking the level
of non-audit fees payable to the auditors.
The Committee held three formal meetings
during the year. Aside from routine matters,
the Committee has reviewed the proposed
system by which the Company will identify
and assess risk and suggested certain
improvements and, at its meeting in
September 2016, reviewed the results of a
tender process and decided to recommend
to the Board the appointment of KPMG LLP
as external auditors. This recommendation
was subsequently accepted by the Board
and KPMG LLP has provided an audit
opinion on the accounts for the year
ended 31 December 2016.
Annual Report and Accounts 2016Alliance Pharma plc Remuneration Report
37
Remuneration Report
Remuneration in practice
The remuneration that the Company
offers to its Executive Directors has
four principal components:
4.
1.
2.
3.
Basic Salaries and Benefits in kind –
Basic salaries are determined by the
Remuneration Committee bearing in
mind the salaries paid in AIM-quoted
and other pharmaceutical businesses
of similar size and complexity. Within
that frame of reference, it is intended
that guaranteed pay should be at or
near the median level. Benefits in kind
include life assurance, healthcare and
the provision of a cash allowance in lieu
of a company car.
Pensions – The Company operates
a defined contribution scheme for all
Executive Directors and employees.
Only basic salaries are pensionable
although, historically, Anthony Booley
also received pension contributions in
respect of bonus payments.
Short-term incentives – Bonuses are
payable to staff (including the Executive
Directors) according to the achievement
by the Group of certain pre-determined
profit targets. The amount of bonus
payable on achievement of the target
is set at the level felt appropriate to
provide the necessary incentive, with
appropriate adjustments to the bonus
payable in the event of over- or under-
achievement against those targets.
In addition, bonuses are adjusted
for personal performance and the
amount of bonus paid can also reflect
any substantial periods of absence or
unavailability of the employee.
Long-term incentives – The Company
operates a share option scheme
covering all permanent employees
(including the Executive Directors, other
than John Dawson) under which share
options are normally granted once in
each year. Options normally vest on
the third anniversary of the date of
grant and can then be exercised until
the tenth anniversary. The exercise
price of the options is set at the market
value of the Company's shares at the
time of grant, so that the individual only
benefits if there has been share price
growth. In addition, certain tranches
of options can only vest if there has
been pre-defined levels of growth in
the Company’s earnings per share, on a
diluted basis. The share option scheme
is overseen by the Remuneration
Committee which determines the terms
under which eligible individuals may be
invited to participate, including the level
of awards. The scheme utilises HMRC
approved options to the extent possible
and tax-unapproved options thereafter.
Directors’ Service Contracts
All Executive Directors are employed
under service contracts. The services of
all Executive Directors may be terminated
by the Company or individual giving
12 months’ notice.
The Non-Executive Directors are employed
under letters of engagement for fixed terms
of up to five years, which may be terminated
by the Company (i) giving 12 months’ notice
or (ii) immediately, in the event that the
Director is not re-elected by shareholders at
an AGM. A sample Non-Executive Director
engagement letter is available on the
Company’s website.
Remuneration Policy
The objective of the Company’s
remuneration policy is to facilitate the
recruitment and retention of executives
of an appropriate calibre, to ensure that
the senior executives of the Company are
provided with appropriate incentives to
encourage enhanced performance and are,
in a fair and responsible manner, rewarded
for their individual contributions to the
success of the Company.
Strategic alignment
The Remuneration Committee is satisfied
that the pay that can be earned is appropriate
for a company of comparable size and
complexity, at each level of performance.
The delivery of the Company’s short-
term corporate goals is incentivised by
offering a cash-settled bonus linked to
the achievement of pre-defined levels
of profit before tax, which is the key
metric the Board considers in monitoring
corporate performance.
All of the Executive Directors have
significant exposure to the Company’s
share price: John Dawson has a significant
personal shareholding in the Company and
the other Executive Directors hold options
over the Company’s shares. Certain of the
options granted will only vest if targets for
growth in the Company’s diluted earnings
per share are met over a period of five
years. EPS is an important metric which
provides a strong incentive to drive the
Company’s business over that longer-term
period and also to mitigate downside risks
that could affect the Company’s profitability.
Reputational risks could reasonably be
expected to affect the share price, so the
executive is further incentivised to mitigate
these exposures, if they wish to maximise
the potential value of their options.
The Board has been considering alternative
forms of long-term incentive arrangements
which would be less dilutive and also result
in a lower expense being charged to the
Company's accounts. This thinking is well
advanced and it is likely that a new plan will
be implemented during 2017.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationGovernance › 38
Remuneration Report continued
Directors’ Remuneration
The aggregate remuneration payable to the Directors in respect of the period was as follows:
Salary
or fees
Other
Pension
Bonus
Total
remuneration
Share
option gains4
Total
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Anthony Booley1
106,766
195,301
–
370,291
–
–
–
62,131
106,766
627,723
Peter Butterfield
199,667
175,065
11,111
537
20,000
16,553
82,500
92,438
313,278 284,593
Thomas Casdagli
–
–
–
–
–
–
–
–
–
–
John Dawson
240,886
219,614
13,495
1,922
10,000
10,000
59,400
96,680
323,781
328,216
Andrew Franklin2 150,000
38,802
10,441
Andrew Smith
71,750
74,003
David Cook
35,411
37,474
Nigel Clifford
35,411
33,997
–
–
–
–
–
657
562
15,000
2,333
42,624
9,807
218,065
50,942
–
–
–
–
–
–
–
–
–
–
–
–
71,750
74,003
35,411
38,131
35,411
34,559
839,891
774,256
35,047
373,969
45,000
28,886
184,524
261,056 1,104,462 1,438,167
Former Director:
Richard Wright3
–
65,389
–
147,353
–
6,114
–
–
–
218,856
Total4
Notes:
839,891 839,645
35,047
521,322
45,000
35,000
184,524
261,056 1,104,462 1,657,023
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
106,766
627,723
313,278 284,593
–
–
323,781
328,216
218,065
50,942
71,750
74,003
35,411
38,131
35,411
34,559
– 1,104,462 1,438,167
14,466
– 233,322
14,466 1,104,462 1,671,489
1. Anthony Booley ceased to serve as a Director on 30 June 2016.
2. Andrew Franklin was appointed as a Director on 28 September 2015. The 2015 comparator therefore relates to a period of approximately three months.
3. Richard Wright ceased to serve as a Director on 29 May 2015.
4.
The column titled ‘Share option gains’ has been restated for the prior year to show the gross gains made on the exercise of share options by employees whilst
serving as a Director of the Company. The figures stated in previous years’ annual reports were the accounting charge for options subsisting for each Director,
which are not sums to which they would ever become entitled, nor the number required to be disclosed under the Companies Act. No options were exercised by
Directors of the Company during 2016.
No Director received any remuneration from a third party in respect of their service as a Director of the Company.
The column headed ‘Other’ in the table above shows the value of benefits provided to each executive Director, including a cash allowance in
lieu of a company car and healthcare. For Richard Wright and Anthony Booley these figures also include payments of £146,100 and £362,000
(respectively) in lieu of notice on leaving the Company’s employment. The latter amount was accrued and reported in respect of the 2015
financial year, though only paid following the termination of Mr Booley’s employment.
As seen from the table, three Directors are accruing retirement benefits, all of whom do so through defined contribution (money purchase)
schemes. The Company does not operate a defined benefits scheme. No Director or former Director received any benefits from a retirement
benefits scheme that were not otherwise available to all members of the scheme.
Annual Report and Accounts 2016Alliance Pharma plc Remuneration Report
39
Directors’ Share Options
Details of options held under the Company’s employee share schemes by the Directors who served during the year are as follows:
Director
Date of Grant
Exercise
price
(pence)
Performance
condition?
Number of
shares
Granted
Exercised
Lapsed
Number of
shares
Exercisable
from
Exercisable
to3
2015
Changes in the year
20162
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Anthony Booley1
13-Apr-09
7.75
29-Apr-10
34.25
28-Apr-11
19-Oct-12
06-Jun-13
34.12
29.25
37.25
No
No
No
No
No
110,000
116,500
130,000
140,000
144,200
23-Oct-13
35.75
EPS growth
400,000
11-Apr-14
27-May-15
33.75
43.75
Peter Butterfield
26-Mar-10
29-Apr-10
28-Apr-11
19-Oct-12
06-Jun-13
33.25
34.25
34.12
29.25
37.25
No
No
No
No
No
No
No
144,200
149,653
1,334,553
1,000,000
115,000
1,130,000
140,000
144,200
23-Oct-13
35.75
EPS growth
400,000
11-Apr-14
27-May-15
27-Oct-16
33.75
43.75
47.50
No
No
No
144,200
166,625
–
200,000
27-Oct-16
47.50
EPS growth
–
1,000,000
Andrew Franklin
04-Dec-15
27-Oct-16
46.75
47.50
No
No
27-Oct-16
47.50
EPS growth
Notes:
1. Anthony Booley ceased to serve as a Director on 30 June 2016.
2. At year-end or the earlier date of ceasing to hold office.
3,240,025
1,200,000
2,000,000
–
–
–
155,000
400,000
2,000,000
555,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
110,000
13-Apr-12
13-Apr-19
116,500
29-Apr-13
29-Apr-20
130,000
28-Apr-14
28-Apr-21
140,000
19-Oct-15
19-Oct-22
144,200
06-Jun-16
06-Jun-23
184,987
215,013
23-Oct-18
23-Oct-23
37,400
106,800
11-Apr-17
11-Apr-24
94,986
54,667
27-May-18
27-May-25
317,373
1,017,180
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,000,000
26-Mar-13
26-Mar-20
115,000
29-Apr-13
29-Apr-20
1,130,000
28-Apr-14
28-Apr-21
140,000
19-Oct-15
19-Oct-22
144,200
06-Jun-16
06-Jun-23
400,000
23-Oct-18
23-Oct-23
144,200
11-Apr-17
11-Apr-24
166,625
27-May-18
27-May-25
200,000
27-Oct-19
27-Oct-26
1,000,000
27-Oct-21
27-Oct-26
4,440,025
2,000,000
04-Dec-18
04-Dec-25
155,000
27-Oct-19
27-Oct-26
400,000
27-Oct-21
27-Oct-26
2,555,000
3. The 'exercisable to' date assumes that shareholders approve the changes to the rules of the relevant plans to be proposed for approval at the 2017 AGM.
The closing mid-market price of ordinary shares on 30 December 2016 (being the last dealing day in the calendar year) was 47.38p and the
range during the year was from 41.75p to 55.00p.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationGovernance › 40
Directors' Report
Scope of this report
The Directors’ biographies on pages 32 and 33, the discussion of corporate governance matters on pages 34 to 36 and the remuneration
report on page 37 to 39 are hereby incorporated by reference to form part of this Directors’ report.
As permitted under the Companies Act, certain matters which would otherwise need to be included in this Directors’ report have instead
been discussed in the strategic report. These matters are the discussion of the likely future developments in the business of the Company
and its subsidiaries, the activities of the Company and its subsidiaries in the field of research and development, the Company’s use of
financial instruments and an indication of its financial risk management objectives and policies.
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
Names and biographical details of the Directors of the Company at the date of this report are shown on pages 32 to 33. In addition, Anthony
Booley served as an executive Director until 30 June 2016.
Directors’ interests
The following table shows the interests of the Directors (and their spouses and minor children) in the shares of the Company.
Director
Anthony Booley1
Peter Butterfield
Tom Casdagli
Nigel Clifford
David Cook
John Dawson
Andrew Franklin
Andrew Smith
Notes:
At 31 December 2015
At 31 December 2016
(or earlier date of leaving)
Beneficial
2,055,723
–
Non-
beneficial
Total
Beneficial
Non-
beneficial
Total
–
–
2,055,723
2,055,723
–
2,055,723
–
–
–
–
78,518
55,483,382
55,561,900
78,518 55,483,382 55,561,900
180,663
–
–
–
180,663
180,663
–
102,371
–
–
180,663
102,371
39,576,402
20,000,000
59,576,402
36,576,402
20,000,000
56,576,402
–
275,000
–
–
–
–
275,000
275,000
–
–
–
275,000
1. Anthony Booley ceased to serve as a Director on 30 June 2016.
In addition, Peter Butterfield and Andrew Franklin hold options over shares of the Company through their participation in the Company’s
employee share schemes, which are detailed in the remuneration report on page 39.
Directors’ liabilities
The Company's articles of association contain provision for Directors to be indemnified (including the funding of defence costs) to the extent
permitted by the Companies Act 2006. This indemnity would only be available if judgement was given in the individual's favour, or he or she
was acquitted, or relief under the Act was granted by the court.
There were no qualifying pension scheme indemnity provisions in force during the year.
Annual Report and Accounts 2016Alliance Pharma plc Directors' Report
41
Annual General Meeting
The 2017 Annual General Meeting of the
Company will be held on 25 May 2017,
the business of which is set out in the
notice of meeting. A circular containing
the notice of meeting and an explanatory
letter from the Chairman is being posted
to shareholders and is also available on
the Company’s website.
On behalf of the Board
Andrew Franklin
Chief Financial Officer
28 March 2017
Directors’ obligations to
the auditor
The Directors confirm that:
• so far as each of the Directors is aware,
there is no relevant audit information
of which the Company’s auditor is
unaware; and
• they have each taken all the steps that
they ought to have taken as Directors to
make themselves aware of any relevant
audit information and to establish that the
auditor is aware of that information.
Dividends
The Board declared an interim dividend
in respect of the year of 0.403 pence
per share (2015: 0.366p) which was paid
on 12 January 2017. The Directors are
recommending a final dividend of 0.807
pence per share (2015: 0.734p) which,
subject to shareholders’ approval at the
annual general meeting, will be paid on
12 July 2017 to shareholders on the register
at the close of business on 16 June 2017.
The total dividends paid and proposed in
respect of the year ended 31 December
2016 is therefore 1.210 pence per share
(2015: 1.100p).
Branches
There are no branches of the Company
outside the UK.
Political donations
No political donations were made or political
expenditure incurred during the period.
Auditor
As explained in the Corporate Governance
report, KPMG LLP were appointed as auditor
during the year following a tender process.
A resolution to re-appoint KPMG LLP as
auditor for the next year will be proposed at
the annual general meeting.
Post-balance sheet events
In March 2017, the Group reached a
settlement agreement with Sinclair
Pharma plc, in connection with the material
reduction of business in Kelo-stretch, which
was acquired in the prior year. The terms
of the agreement are the sum of £5.0m of
which £4.0m is payable on or before 30 April
2017 and £1m on or before 30 June 2018,
and all rights to Flammacerium (US) with
immediate effect.
Directors’ Responsibilities
Statement
The Directors are responsible for preparing
the Strategic Report, the Directors’ Report
and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors
to prepare Group and parent company
financial statements for each financial
year. As required by the AIM Rules of the
London Stock Exchange they are required
to prepare the Group financial statements
in accordance with International Financial
Reporting Standards as adopted by the
European Union (IFRSs) and applicable
law and have elected to prepare the parent
company financial statements on the same
basis. 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 of
the Group and parent company and of their
profit or loss for that period.
In preparing each of the Group and parent
company financial statements, the Directors
are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
• state whether they have been prepared in
accordance with IFRSs as adopted by the
EU; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
and the parent company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the parent company
and enable them to ensure that its financial
statements comply with the Companies
Act 2006. They have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets of
the Group and to prevent and detect fraud
and other irregularities.
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.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationGovernance ›
42
Rising star in European
specialty pharma
Annual Report and Accounts 2016Alliance Pharma plc Financial Statements
43
Financial
Statements
Independent Auditor’s Report
Consolidated Income Statement
Financial Statements
44
45
46 Consolidated Statement of
Comprehensive Income
47 Consolidated Balance Sheet
48 Company Balance Sheet
49 Consolidated Statement of
Changes in Equity
50 Company Statement of Changes
in Equity
51 Consolidated and Company
Cash Flow Statements
52 Notes to the Financial Statements
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationFinancial Statements › 44
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 2016 set out on pages 45 to 83. The
financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the EU 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 set out on page 41, 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 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/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• 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 2016
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the
financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic
Report and the Directors’ Report:
• we have not identified material misstatements in those reports; and
• in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
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:
• 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
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Andrew Campbell-Orde (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
66 Queen Square
Bristol
BS1 4BE
28 March 2017
Annual Report and Accounts 2016Alliance Pharma plc Consolidated Income Statement
45
Consolidated Income Statement
Year ended 31 December 2016
Year ended 31 December 2015
Underlying
£000s
Note
3
97,492
(42,643)
54,849
(28,842)
(696)
299
(29,239)
25,610
–
25,610
(4,195)
804
(3,391)
22,219
(4,127)
18,092
7
5
6
6
4
8
Non-
Underlying
(note 5)
£000s
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000s
Underlying
£000s
97,492
48,344
(42,643)
(19,614)
54,849
28,730
Non-
Underlying
(note 5)
£000s
–
–
–
Total
£000s
48,344
(19,614)
28,730
(28,842)
(15,833)
(1,846)
(17,679)
(696)
299
(615)
194
–
–
(615)
194
(29,239)
(16,254)
(1,846)
(18,100)
25,610
12,476
–
–
(1,846)
6,332
10,630
6,332
25,610
12,476
4,486
16,962
(4,195)
(1,698)
(273)
(1,971)
804
191
–
191
(3,391)
(1,507)
(273)
(1,780)
22,219
(4,127)
10,969
(1,375)
4,213
(1,115)
15,182
(2,490)
18,092
9,594
3,098
12,692
10
10
3.85
3.82
3.85
3.82
3.52
3.44
4.65
4.55
Revenue
Cost of sales
Gross profit
Operating expenses
Administration and marketing expenses
Share-based employee remuneration
Share of Joint Venture profits
Operating profit/(loss) excluding
exceptional item
Exceptional compensation income
Operating profit
Finance costs
Interest payable and similar charges
Finance income
Profit before taxation
Taxation
Profit for the year attributable
to equity shareholders
Earnings per share
Basic (pence)
Diluted (pence)
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.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationFinancial Statements › 46
Annual Report and Accounts 2016
Consolidated Statement of Comprehensive Income
Profit for the period
Other comprehensive income
Items that may be reclassified to profit or loss
Net foreign exchange gain on investment in foreign subsidiaries (net of hedged items)
Interest rate swaps – cash flow hedge (net of deferred tax)
Total comprehensive income for the period
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
18,092
12,692
2,076
(221)
19,947
32
5
12,729
Alliance Pharma plc Consolidated Balance Sheet
47
Consolidated Balance Sheet
Assets
Non-current assets
Goodwill and intangible assets
Property, plant and equipment
Joint Venture investment
Joint Venture receivable
Deferred tax asset
Other non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Ordinary share capital
Share premium account
Share option reserve
Reverse takeover reserve
Other reserve
Translation reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Loans and borrowings
Other liabilities
Deferred tax liability
Derivative financial instruments
Current liabilities
Bank overdraft
Loans and borrowings
Corporation tax
Trade and other payables
Total liabilities
Total equity and liabilities
31 December
2016
£000s
31 December
2015
£000s
Note
11
12
31
31
22
14
15
16
23
18
19
22
21
16
18
17
264,833
249,832
1,806
1,464
1,462
1,709
180
1,013
1,465
1,462
956
122
271,454
254,850
15,356
26,706
7,221
49,283
12,910
11,630
3,229
27,769
320,737
282,619
4,726
109,594
3,306
(329)
(319)
2,108
60,177
179,263
57,554
1,817
31,442
384
91,197
–
25,782
2,543
21,952
50,277
141,474
320,737
4,682
108,308
2,610
(329)
(98)
32
47,237
162,442
58,968
1,496
27,838
120
88,422
31
15,776
2,075
13,873
31,755
120,177
282,619
The financial statements were approved by the Board of Directors on 28 March 2017.
John Dawson
Director
Andrew Franklin
Director
The accompanying accounting policies and notes form an integral part of these financial statements. Company number 04241478
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationFinancial Statements ›
48
Company Balance Sheet
Assets
Non-current assets
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Ordinary share capital
Share premium account
Share option reserve
Retained earnings
Total equity
Liabilities
Current liabilities
Trade and other payables
Corporation tax
Cash and cash equivalents
Total liabilities
Total equity and liabilities
31 December 2016
31 December 2015
Note
£000s
£000s
£000s
£000s
13
140,008
138,569
140,008
138,569
15
16
23
17
16
119
90
4,726
109,594
3,306
22,382
159
50
–
26
–
209
140,217
26
138,595
4,682
108,308
2,610
22,394
140,008
137,994
571
–
30
209
209
140,217
601
601
138,595
The financial statements were approved by the Board of Directors on 28 March 2017.
John Dawson
Director
Andrew Franklin
Director
The accompanying accounting policies and notes form an integral part of these financial statements. Company number 04241478
Annual Report and Accounts 2016Alliance Pharma plc
Consolidated Statement of Changes in Equity
49
Consolidated Statement of Changes in Equity
Ordinary
share
capital
£000s
Share
premium
account
£000s
Share
option
reserve
£000s
Reverse
takeover
reserve
£000s
Other
reserve
£000s
Translation
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
Balance 1 January 2015
2,641
29,388
1,995
(329)
(103)
Issue of shares
Share premium
Dividend paid
Share options charge
2,041
–
–
–
–
78,920
–
–
Transactions with owners
2,041
78,920
Profit for the period
Other comprehensive income
Interest rate swaps – cash flow hedge
(net of deferred tax)
Foreign exchange translation
differences
Total comprehensive income
for the period
–
–
–
–
–
–
–
–
–
–
–
615
615
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
5
Balance 31 December 2015
4,682
108,308
2,610
(329)
(98)
-
–
–
–
–
–
–
–
32
32
32
37,188
70,780
–
–
2,041
78,920
(2,643)
(2,643)
–
615
(2,643)
78,933
12,692
12,692
–
–
5
32
12,692
12,729
47,237
162,442
Balance 1 January 2016
4,682
108,308
2,610
(329)
(98)
32
47,237
162,442
Issue of shares
Share premium
Dividend paid
Share options charge
Transactions with owners
Profit for the period
Other comprehensive income
Interest rate swaps – cash flow hedge
(net of deferred tax)
Foreign exchange translation
differences
Total comprehensive income
for the period
44
–
–
–
44
–
–
–
–
–
1,286
–
–
1,286
–
–
–
–
–
–
–
696
696
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance 31 December 2016
4,726
109,594
3,306
(329)
–
–
–
–
–
–
(221)
–
–
–
–
–
–
–
–
2,076
–
–
44
1,286
(5,152)
(5,152)
–
696
(5,152)
(3,126)
18,092
18,092
–
–
(221)
2,076
(221)
(319)
2,076
2,108
18,092
19,947
60,177
179,263
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationFinancial Statements › 50
Company Statement of Changes in Equity
Balance 1 January 2015
Issue of shares
Share premium
Dividend paid
Share options charge
Transactions with owners
Profit for the period and total comprehensive income
Ordinary
share
capital
£000s
Share
premium
account
£000s
Share
option
reserve
£000s
Retained
earnings
£000s
2,641
29,388
1,995
17,766
2,041
–
–
–
–
78,920
–
–
2,041
78,920
–
–
–
–
–
615
615
–
Total
equity
£000s
51,790
2,041
78,920
–
–
(2,643)
(2,643)
–
615
(2,643)
78,933
7,271
7,271
Balance 31 December 2015
4,682
108,308
2,610
22,394
137,994
Balance 1 January 2016
4,682
108,308
2,610
22,394
137,994
Issue of shares
Share premium
Dividend paid
Share options charge
Transactions with owners
Profit for the period and total comprehensive income
44
–
–
–
44
–
–
1,286
–
–
1,286
–
–
–
–
696
696
–
–
–
(5,152)
–
(5,152)
5,140
44
1,286
(5,152)
696
(3,126)
5,140
Balance 31 December 2016
4,726
109,594
3,306
22,382
140,008
As permitted by section 408 of the Companies Act 2006, no separate Income Statement is presented in respect of the Parent Company.
Annual Report and Accounts 2016Alliance Pharma plc Consolidated and Company Cash Flow Statements
51
Consolidated and Company Cash Flow Statements
Note
25
13
11
12
Cash flows from operating activities
Cash generated from operations
Tax paid
Cash flows received from operating activities
Investing activities
Interest received
Dividend received
Investment in subsidiary
Development costs capitalised
Purchase of property, plant and equipment
Net assets acquired on acquisition
Loan to Joint Venture
Consideration on acquisitions
Deferred contingent consideration on acquisitions
Net cash (used in)/received from investing activities
Financing activities
Interest paid and similar charges
Loan issue costs
Proceeds from issue of shares
Costs incurred on issue of shares
Proceeds from exercise of share options
Dividend paid
Receipt from borrowings
Repayment of borrowings
Net cash received (used in)/from financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Exchange gains on cash and cash equivalents
Cash and cash equivalents at the end of the period
16
Group
Company
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
19,957
(3,032)
16,925
111
300
–
(266)
(1,130)
–
(1,018)
(1,289)
(4,737)
(8,029)
(2,822)
(326)
–
–
1,330
(5,152)
8,000
(6,495)
(5,465)
3,431
3,198
592
7,221
9,836
(1,860)
7,976
139
–
–
(7)
(647)
(221)
–
(133,629)
–
(333)
–
(333)
3,983
1,731
476
–
476
2,097
5,700
(1,439)
(86,632)
–
–
–
–
–
–
–
–
–
–
–
–
(134,365)
4,275
(78,835)
(1,163)
(1,174)
83,500
(2,661)
121
(2,643)
80,500
(28,000)
128,480
2,091
1,020
87
3,198
–
–
–
–
1,330
(5,152)
–
–
–
–
83,500
(2,661)
121
(2,643)
–
–
(3,822)
78,317
120
(30)
–
90
(42)
12
–
(30)
The accompanying accounting policies and notes form an integral part of these financial statements.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationFinancial Statements › 52
Notes to the Financial Statements
for the year ended 31 December
1. General information
Alliance Pharma plc (‘the Company’) and its subsidiaries (together ‘the Group’) acquire, market and distribute pharmaceutical and other
medical products. The Company is a public limited company, limited by shares, 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.
In the prior year, the Group completed the acquisition of certain assets and businesses from Sinclair IS Pharma plc, and acquired 100% of
the share capital of MacuVision Europe Limited (‘MacuVision’). This is the first set of consolidated accounts prepared which incorporate a full
financial year’s contribution from these acquired businesses.
These consolidated financial statements have been approved for issue by the Board of Directors on 28 March 2017.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to all the periods presented.
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.
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
2016. 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. The
Company accounts for its investment in Joint Ventures under IFRS 11 using the equity method in accordance with IAS 28. See note 31 for
details of Joint Ventures. The consolidated income statement includes the Group’s share of the Joint Ventures’ profit.
2.3 Judgements and estimates
The preparation of the consolidated financial statements requires the Directors 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 relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed by the Directors on an on-going basis. Revisions to accounting estimates are
recognised in accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’. The following are the critical
judgements that the Directors have made in the process of applying the Group’s accounting policies that have the most significant effect
on the amounts recognised in the Group’s financial statements. These are as follows:
• determination of useful economic lives for intangible assets (note 11);
• key assumptions used in discounted cash flow projections for impairment testing of goodwill and intangible assets (note 11);
• assessment of joint control for the Group’s Joint Ventures (note 31);
• assumptions underlying the inventory obsolescence provision (note 14); and
• measurement of consideration and assets and liabilities acquired as part of business combinations (note 33).
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, including the Pharmaceutical Price Regulation Scheme,
and discounts and after eliminating sales within the Group and represents amounts invoiced to third parties in relation to the Group’s sole
activity, namely the distribution of pharmaceutical products. Revenue is recognised at the point when substantially all of the risks and
rewards of ownership are transferred to the customer; normally this is on dispatch.
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 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 Sterling at the rate of exchange ruling at the balance
sheet date. Differences on exchange resulting from the translation of overseas assets and liabilities are recognised directly in equity.
Gains and losses arising on currency borrowings used to hedge the foreign currency exposure on the net assets of the foreign operations
are accounted for directly in equity, to the extent that hedge accounting criteria are met and are included in the consolidated statement of
comprehensive income and expense.
Annual Report and Accounts 2016Alliance Pharma plc 53
2.6 Property, plant and equipment
Computer equipment, fixtures, fittings and equipment, plant and machinery and motor vehicles are stated at the cost of purchase less any
provisions for depreciation and impairment. The rates generally applicable are:
Computer equipment
20% – 33.3% per annum, straight line
Fixtures, fittings and equipment
20% – 25% per annum, straight line
Plant and machinery
Motor vehicles
20% – 25% per annum, straight line
20% per annum, straight line
2.7 Leases
Leasing agreements which transfer substantially all the benefits and risks of ownership to the Group are treated as finance leases, as if the
asset had been purchased outright. 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 the single cash-generating unit. 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.
2.9 Other intangible assets
Acquired intangible assets
(i) Brands
Separately acquired brands are shown at cost less accumulated amortisation and impairment. Brands acquired as part of a business
combination are recognised at fair value at the acquisition date, where they are separately identifiable. Brands are amortised over their
useful economic life, except when their life is determined as being indefinite.
Applying indefinite lives to certain acquired brands is appropriate due to the stable long-term nature of the business and the enduring
nature of the brands. Indefinite life brands are tested at least annually for impairment.
A review of the useful economic life of brands is performed annually, to ensure that these lives are still appropriate. If a brand is
considered to have a finite life, its carrying value is amortised over that period.
(ii) Patents
Where an acquired intangible includes a definite period of patent protection and the value attributed to the patent is considered
material, the Group has accounted for the value of the patent separate to the underlying brand. The patent is amortised over the
period to patent expiry.
(iii) Distribution rights
Payments made in respect of product registration, acquired and reacquired distribution rights are capitalised where the rights comply
with the above requirements for recognition of acquired brands. If the registration or distribution rights are for a defined time period, the
intangible asset is amortised over that period. If no time period is defined, the intangible asset is treated in the same way as acquired
brands with an indefinite life. 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.
Development costs
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.
Development costs not meeting the recognition criteria are expensed as incurred.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 54
Notes to the Financial Statements continued
for the year ended 31 December
2. Summary of significant accounting policies continued
2.9 Other intangible assets continued
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
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, 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. Inventory provisions have been made 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.
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 prevailing for the year.
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 Ventures and as such no deferred tax has been recognised on temporary differences.
Deferred tax is recognised on any fair value adjustment recognised on a business combination to the extent that the fair value adjustment
has no corresponding tax base cost. The rate of tax applied in the calculation of the deferred tax asset or liability is the rate substantially
enacted at the balance sheet date relating to the country in which any fair value adjustment occurs.
2.12 Derivative financial instruments and hedging activities
Interest rate risk
Derivative financial instruments are used to manage exposure to market risk from treasury operations. The 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.
Translation risk
Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity. Gains and
losses on those hedging instruments designated as hedges of the net investment in foreign operations, are recognised in equity to the extent
that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated
in the statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income
statement for the period. Gains and losses accumulated in the translation reserve are reclassified to the income statement when the foreign
investment is disposed of.
Annual Report and Accounts 2016Alliance Pharma plc 55
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.
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’.
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 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 Company 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. The Company accounts for share-based compensation
on the same basis as the Group, however it then recharges the IFRS 2 charge to other group companies.
2.19 Equity
Equity comprises the following for both the Company and Group:
“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.
“Retained earnings” represents retained profit.
Also included in Group equity is:
“Reverse takeover reserve” represents the difference between the fair value and nominal value of shares issued on a reverse takeover.
“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.
“Translation reserve” represents gains and losses arising on translation of the net assets of overseas operations into Sterling.
2.20 Investments
Investments in subsidiaries included in the Company’s balance sheet are stated at cost less any provision for impairment.
2.21 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.
2.22 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. Any contingent consideration to be transferred by the acquirer will be recognised
at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or
liability will be recognised in accordance with IFRS 3 in the income statement.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 56
Notes to the Financial Statements continued
for the year ended 31 December
2. Summary of significant accounting policies continued
2.23 Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker
('CODM'). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified
as the Board of Directors ('the Board'). In the prior year, five operating segments were aggregated into one reporting segment. Following the
Sinclair acquisition, the level of reporting reviewed by the CODM is now consistent with a single operating segment.
2.24 New standards not yet applied
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2016 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:
• IFRS 9 ‘Financial Instruments’ (2014), representing the completion of the IASB project to replace IAS 39 ‘Financial Instruments:
Recognition and Measurement’. The new standard introduces extensive changes to IAS 39’s guidance on the classification and
measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also
provides new guidance on the application of hedge accounting. The new standard is required to be applied for annual reporting periods
beginning on or after 1 January 2018.
• IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related
interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas
not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable
pricing, customer refund rights, supplier repurchase options, and other common complexities.
• IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’. The new standard requires lessees to recognise a lease liability reflecting future lease
payments and a ‘right-of-use’ asset for virtually all lease contracts, excluding certain short-term leases and leases of low-value assets.
The new standard is required to be applied for annual reporting periods beginning on or after 1 January 2019.
The Group are currently assessing the impact of the new standards on the financial position or consolidated results of the Group and
continually reviews amendments to the standards made under the IASB’s annual improvements project.
3. Segmental reporting
Operating segments
The Group is engaged in a single business activity of pharmaceuticals. The Group’s pharmaceutical business consists of the marketing and
sales of acquired products. The Group’s Board of Directors ('the Board') is the 'CODM', as defined by IFRS 8, and all significant operating
decisions are taken by the Board. In assessing performance, the Board reviews financial information on an integrated basis for the Group
as a whole, substantially in the form of, and on the same basis as, the Group’s IFRS financial statements. During the financial year, one of the
key activities undertaken has been the integration of the brands and companies acquired from Sinclair IS Pharma plc (see note 33). The form
of reporting provided to the Board has necessarily evolved as required while this integration process was ongoing.
Geographical information
The following revenue information is based on the geographical location of the customer:
United Kingdom
Rest of Europe
Rest of the World
Non-current assets are located within the United Kingdom, France, Italy and the United States of America.
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
49,411
29,006
19,075
97,492
39,444
3,240
5,660
48,344
Annual Report and Accounts 2016Alliance Pharma plc 57
Major customers
During the year there was one customer who separately comprised 10% or more of revenue (year ended 31 December 2015: two).
Major customer 1
Major customer 2
4. Profit before taxation
Profit before taxation is stated after charging/(crediting):
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable by the Group to the Company’s auditor for other services:
– The audit of the financial statements of subsidiaries
Fees payable to the Company’s previous auditor for the audit of the Company’s annual accounts
Fees payable by the Group to the Company’s previous auditor for other services:
– The audit of the financial statements of subsidiaries
– Audit-related assurance services
– All other taxation advisory services
– All services relating to corporate finance transactions (either proposed or entered into) by or on
behalf of the Company or any of its associates
Amortisation of intangible assets
Share options charge
Depreciation of tangible assets
Operating lease rentals – land and buildings
Research and development
Gain on foreign exchange transactions
As referred to elsewhere in the Annual Report, “EBITDA” is defined by the CODM as:
Reconciliation of EBITDA
Profit before tax
Non-underlying items (note 5)
Financing costs (note 6)
Depreciation
Amortisation
Total
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
12,926
9,406
22,332
13,470
10,420
23,890
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
25
103
–
–
–
–
–
92
696
337
383
91
(693)
–
–
63
50
9
67
356
199
615
239
100
12
(52)
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
22,219
–
3,391
337
92
15,182
(4,213)
1,507
239
199
26,039
12,914
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 58
Notes to the Financial Statements continued
for the year ended 31 December
5. Non-underlying and exceptional items
Non-underlying items are those significant items which the Directors consider, by their nature, are not related to the normal trading
activities of the Group. They are therefore separately disclosed as their significant, non-recurring nature does not allow a true understanding
of the Group's underlying financial performance. One-off items relating to acquisitions e.g. acquisition costs and the costs of restructuring
post-acquisition are shown as non-underlying. Exceptional items, including settlements are also shown as non-underlying items.
The non-underlying and exceptional items relate to the following:
a) Acquisition costs
b) Exceptional compensation income
c) Charge in respect of loan settlement
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
–
–
–
–
1,846
(6,332)
273
(4,213)
a) Costs related to the acquisition of the Healthcare Products Business from Sinclair IS Pharma plc in December 2015 amounted to £1.8m. The main costs included legal
and professional fees of £1.2m and staffing costs of £0.5m.
b) The exceptional income related to £6.7m compensation received from Sanofi Pasteur, net of £0.4m associated costs, for the suspension of ImmuCyst production.
c) The charge in respect of the loan settlement related to the release of £0.3m prepaid loan issue costs on the £18m loan repaid on 17 December 2015.
In the prior year Annual Report, the unwinding/fair value movement in relation to deferred consideration was treated as non-underlying. It is
considered to be an underlying activity, and has therefore been treated as such in the current year and comparative.
6. Finance costs
Interest payable and similar charges
On loans and overdrafts
Amortised finance issue costs
Notional interest
Interest income
Other finance income – Foreign exchange movements
Finance costs – net
Notional interest relates to the unwinding of the deferred consideration on the MacuVision acquisition.
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
(2,868)
(358)
(969)
(4,195)
111
693
(1,116)
(378)
(477)
(1,971)
139
52
(3,391)
(1,780)
Annual Report and Accounts 2016Alliance Pharma plc 7. Directors and employees
Employee benefit expenses for the Group during the period were as follows:
Wages and salaries
Social security costs
Other pension costs (note 28)
Share-based employee remuneration (note 24)
The average number of employees of the Group during the period was:
Management and administration
Remuneration in respect of Directors (including pension) was as follows:
Emoluments
Gain on share options exercised by Directors during the year was £134,000 (2015: £14,000).
The amounts set out above include remuneration in respect of the highest-paid Director as follows:
Emoluments for qualifying services
Pension contributions
59
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
9,481
1,375
644
696
12,196
6,604
819
362
615
8,400
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
143
86
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
1,104
1,104
1,671
1,671
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
314
10
324
628
–
628
During the period contributions were paid to defined contribution schemes for three Directors (year ended 31 December 2015: four).
Key management of the Group are the Board of Directors (including Non-Executive Directors). Benefit expenses in respect of the key
management was as follows:
Short-term employee benefits
Post-employment benefits
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
1,059
45
1,104
1,636
35
1,671
Average number of members of the Board of Directors (including Non-Executive Directors) for the year ended 31 December 2016 was seven
(year ended 31 December 2015: eight).
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 60
Notes to the Financial Statements continued
for the year ended 31 December
8. Taxation
Analysis of the charge for the period is as follows:
Corporation tax
In respect of current period
Adjustment in respect of prior periods
Deferred tax (see note 22)
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Taxation
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
3,552
32
3,584
539
4
4,127
2,977
–
2,977
(398)
(89)
2,490
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:
Profit before taxation
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
22,219
15,182
Profit before taxation multiplied by standard rate of corporation tax in the United Kingdom of 20%
(2015: 20.25%)
4,444
3,074
Effect of:
Non-deductible expenses
Non-taxable income
Adjustment in respect of prior periods
Impact of reduction in UK tax rate on deferred tax liability
Differing tax rates on overseas earnings
Share options
Other differences
Total taxation
376
(60)
36
(755)
205
(133)
14
429
(39)
(89)
(827)
54
(175)
63
4,127
2,490
Changes to the UK corporation tax rate were announced in Finance Act (No 2) 2015 and Finance Act 2016, reducing the UK’s main rate to 17%
from 1 April 2020. As the change was substantively enacted at the balance sheet date the effect is included in these financial statements.
9. Dividends
Amounts recognised as distributions to owners in the year
Interim dividend for the prior financial year
Final dividend for the prior financial year
Interim dividend for the current financial year
Year ended
31 December 2016
Year ended
31 December 2015
Pence/share
£000s Pence/share
£000s
0.366
0.734
1.100
0.403
1,714
3,438
5,152
1,904
0.333
0.667
1.000
0.366
880
1,763
2,643
1,714
Annual Report and Accounts 2016Alliance Pharma plc 61
The proposed final dividend of 0.807 pence per share for the current financial year was approved by the Board of Directors on 28 March 2017
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 2016 in accordance with IAS 10 'Events After the Balance Sheet Date'. The interim dividend for the current financial year was
paid on 12 January 2017. Subject to shareholder approval, the final dividend will be paid on 12 July 2017 to shareholders on the register of
members on 16 June 2017.
10. 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:
Basic EPS calculation
Employee share options
Diluted EPS calculation
Year ended
31 December
2016
Number
of shares
Year ended
31 December
2015
Number
of shares
469,423,814
272,729,247
4,824,605
6,322,550
474,248,419
279,051,797
The adjusted basic EPS is intended to demonstrate recurring elements of the results of the Group before exceptional items. A reconciliation
of the earnings used in the different measures is given below:
Earnings for basic EPS
Non-underlying: Exceptional items
Other non-underlying items
Tax effect of non-underlying items
Adjusted EPS
The resulting EPS measures are:
Basic EPS
Diluted EPS
Adjusted basic EPS
Adjusted diluted EPS
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
18,092
–
–
–
18,092
12,692
(6,332)
2,119
1,115
9,594
Year ended
31 December
2016
Pence
Year ended
31 December
2015
Pence
3.85
3.82
3.85
3.82
4.65
4.55
3.52
3.44
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 62
Notes to the Financial Statements continued
for the year ended 31 December
11. Goodwill and intangible assets
The Group
Cost
At 1 January 2016
Additions
Fair value adjustments (note 33)
Exchange adjustments
At 31 December 2016
Amortisation and impairment
At 1 January 2016
Amortisation for the year
At 31 December 2016
Net book amount
At 31 December 2016
At 1 January 2016
The Group
Cost
At 1 January 2015
Additions
Additions due to acquisition
Exchange adjustments
At 31 December 2015
Amortisation and impairment
At 1 January 2015
Amortisation for the year
At 31 December 2015
Net book amount
At 31 December 2015
At 1 January 2015
Brands and
distribution
rights
£000s
Goodwill
£000s
Development
costs
£000s
Assets under
development
£000s
15,922
235,824
–
275
–
16,197
–
–
–
2,339
–
11,213
249,376
3,852
92
3,944
16,197
15,922
245,432
231,972
438
266
–
–
704
–
–
–
704
438
Total
£000s
253,684
3,605
275
11,213
1,500
1,000
–
–
2,500
268,777
–
–
–
3,852
92
3,944
2,500
1,500
264,833
249,832
Brands and
distribution
rights
£000s
Goodwill
£000s
Development
costs
£000s
Assets under
development
£000s
3,593
–
88,504
15,425
12,329
130,565
–
1,330
431
7
–
–
–
1,500
–
–
Total
£000s
92,528
16,932
142,894
1,330
15,922
235,824
438
1,500
253,684
–
–
–
3,653
199
3,852
15,922
3,593
231,972
84,851
–
–
–
438
431
–
–
–
3,653
199
3,852
1,500
–
249,832
88,875
Goodwill
Goodwill is deemed to have an indefinite life and relates to the Group’s single cash-generating unit. Goodwill is reviewed at least annually for
impairment as described below.
Annual Report and Accounts 2016Alliance Pharma plc 63
Brands and distribution rights (including Assets under development)
Key judgement – useful economic lives
The majority of brands and distribution rights are considered to have indefinite lives and therefore are subject to an impairment review at
least annually.
Applying indefinite lives to certain acquired brands is appropriate due to the stable long-term nature of the business and the enduring nature
of the brands. These brands are assessed on acquisition to ensure they meet set criteria including an established and stable sales history –
often over a number of generations.
Where distribution rights are deemed to have a finite life they are amortised accordingly. The remainder of the distribution rights have
no defined time period or there is evidence to support the renewal of distribution rights without disproportionate cost. These assets are
therefore treated the same as acquired brands.
It is the opinion of the Directors that the indefinite life assets meet the criteria set out in IAS 38. This assessment is made on an
asset-by-asset basis taking into account:
• How long the brand has been established in the market and subsequent resilience to economic and social changes;
• Stability of the industry in which the brand is used;
• Potential obsolescence or erosion of sales;
• Barriers to entry;
• Whether sufficient marketing promotional resourcing is available; and
• Dependency on other assets with defined useful economic lives.
Certain of the brands acquired from Sinclair IS Pharma plc (see acquisitions below) were acquired with patent protection, which lasts for a
finite period of time. It is the opinion of the Directors that these patents do not provide any incremental value to the value of the brand and
therefore no separate value has been placed on these patents. This assessment is based on a view of future profitability after patent expiry
and past experience with similar brands.
The net book value of intangible assets which are considered to have an indefinite useful life is £243.3m (2015: £231.9m). The book value of
the major brands and distribution rights are as follows:
Assets
Kelo-cote (non EU, excluding US)
Oxyplastine, Fazol & Others
Haemopressin, Optiflo & Others
Kelo-cote (EU)
Flamma Franchise
Aloclair
Menadiol, Vitamin E & Others
Forceval, Amantadine & Others
MacuShield
Nu-Seals
SkinSafe, Dansac & Others
Timodine & Buccastem
Syntometrine (excluding UK)
Others
Net book value
Year ended
31 December
2016
£000s
Year ended
31 December
2015
£000s
44,826
25,384
25,000
17,800
17,400
14,000
13,474
12,931
9,480
9,100
8,043
7,697
7,527
37,203
22,326
25,000
17,800
17,400
14,000
13,474
12,931
9,480
9,100
8,043
7,697
7,527
30,622
243,284
29,899
231,880
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 64
Notes to the Financial Statements continued
for the year ended 31 December
11. Goodwill and intangible assets continued
Recent acquisitions
The following acquisition activities took place in the year:
• On 12 September 2016, the Group entered a further Licence and Supply Agreement for the product Diclectin with Duchesnay Inc. Alliance
acquired UK rights to Diclectin in January 2015 and this additional agreement secures rights to launch the product in a further nine EU
countries including Germany, France and Italy. The consideration recognised in relation to this is £1.0m. This amount is included within
assets under development and will be amortised when the product is ready for launch. UK approval is pending with the UK’s regulatory
body, the Medicines and Healthcare products Regulatory Agency, with this anticipated to be in Q3 2017. Following UK approval, certain
other EU territories are forecast for approval in 2018.
• On 27 October 2016, the Group secured the distribution rights on additional territories for MacuShield. The consideration recognised in
relation to this is £2.3m and the distribution rights are for a period of ten years which the balance will therefore be amortised over.
In the prior year the following acquisition activities took place:
• On 2 February 2015, the Group completed the acquisition of MacuVision Europe Limited (‘MacuVision’) for initial consideration of £5.5m plus
the net asset value of MacuVision at completion (£0.5m) and deferred contingent consideration of up to £6.0m (estimated at acquisition to be
£3.2m). MacuVision sells MacuShield, an eye care treatment designed to be taken by sufferers of dry age-related macular degeneration and
other eye conditions. The fair value of the intangible asset acquired was £8.8m included within brands and distribution rights.
• On 29 January 2015, the Group entered a Licence and Supply Agreement for the product Diclectin with Duchesnay Inc. The consideration
recognised in relation to this is £1.5m. Diclectin is a product to treat nausea and vomiting of pregnancy and is anticipated to launch in
Q3 2017. This amount is included within assets under development and will be amortised when the product is ready for launch.
• On 16 September 2015 the Group acquired the rights to five Nutraceutical brands from Sinopharm Nutraceuticals (Shanghai) Co Ltd
for an estimated total consideration of RMB 13.7m (£1.4m). Rujiali (Calcium), Lefuzhi (DHA capsules), Aiweidi (Vitamin D drops), Manlun
Junshe and Changmin (probiotic powder drink) are marketed in China. The consideration was payable in four instalments including a final
instalment payable based on 2016 sales.
• On 17 December 2015, the Group completed the acquisition of certain assets and businesses from Sinclair IS Pharma plc (see note 33).
Impairment
As explained in notes 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.
Indefinite life assets (excluding Goodwill) and Assets under development are tested for impairment at least annually, or more frequently if
there are indications that amounts might be impaired. These assets are tested at individual asset level as the Directors believe these assets
generate largely independent cash inflows.
Goodwill is tested for impairment at least annually at a Group level, which includes all CGUs of the Group.
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 uses cash flow projections based on financial forecasts for the next two years extrapolated to perpetuity.
Financial forecasts for the next two years are based on the approved annual budget for 2017 and strategic projections in 2018 representing
the best estimate of future performance. Margins are based on past experience and cost estimates.
Key judgement – value in use assumptions
The key assumptions on which cash flow projections are made are:
• There will be no growth beyond 2018; and
• Cash flows are discounted at an appropriate rate. The discount rates consider market information and specific circumstances of each
asset or CGU. A pre-tax rate of 10%, based on the Group’s weighted average cost of capital, is considered appropriate for all assets,
including goodwill.
In respect of Goodwill, the estimated recoverable amount of the CGU exceeded its carrying amount by approximately £51m.
The Group has conducted sensitivity analysis on the impairment test of the CGU's carrying values. The valuations indicate sufficient
headroom such that a reasonably possible change in a key assumption is unlikely to result in an impairment.
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.
Annual Report and Accounts 2016Alliance Pharma plc 12. Property, plant and equipment
The Group
Cost
At 1 January 2016
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2016
Provided in the year
Disposals
At 31 December 2016
Net book amount
At 31 December 2016
At 1 January 2016
The Group
Cost
At 1 January 2015
Additions
Additions due to acquisition
At 31 December 2015
Depreciation
At 1 January 2015
Provided in the year
At 31 December 2015
Net book amount
At 31 December 2015
At 1 January 2015
Computer
equipment
£000s
Fixtures,
fittings and
equipment
£000s
Plant &
machinery
£000s
Motor
vehicles
£000s
998
615
(208)
1,405
438
194
(208)
424
981
560
1,320
497
(25)
1,792
981
99
(25)
1,055
737
339
109
18
–
127
–
40
–
40
87
109
8
–
–
8
3
4
–
7
1
5
Computer
equipment
£000s
Fixtures,
fittings and
equipment
£000s
Plant &
machinery
£000s
Motor
vehicles
£000s
584
414
–
998
322
116
438
560
262
995
223
102
1,320
861
120
981
339
134
–
–
109
109
–
–
–
109
–
–
–
8
8
–
3
3
5
–
65
Total
£000s
2,435
1,130
(233)
3,332
1,422
337
(233)
1,526
1,806
1,013
Total
£000s
1,579
637
219
2,435
1,183
239
1,422
1,013
396
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 66
Notes to the Financial Statements continued
for the year ended 31 December
13. Investments
The Company
Cost
At 1 January 2016
Additions
At 31 December 2016
At 1 January 2015
Additions
At 31 December 2015
Investment
in subsidiary
undertakings
£000s
138,569
1,439
140,008
51,936
86,633
138,569
The additions in the year relate to the increased investment the Company made in Alliance Pharmaceuticals Limited to support the
acquisition of new brands and distribution rights.
The subsidiary and associated undertakings where the Group held 20% or more of the equity share capital at 31 December 2016 are shown below:
Country of registration
or incorporation
%
owned
Company
Advanced Bio-Technologies Inc.
Alliance Pharma France SAS
USA
France
Alliance Pharma (Singapore) Private Limited*
Singapore
Alliance Pharma S.r.l.
Italy
Alliance Pharmaceuticals Limited*
England & Wales
Alliance Pharmaceuticals (Asia) Limited*
Hong Kong
Alliance Pharmaceuticals (Shanghai) Limited
Alliance Pharmaceuticals Spain SL*
China
Spain
Maelor Laboratories Limited
England & Wales
Synthasia International Company Limited
Synthasia Shanghai Co. Limited
Unigreg Limited
Alliance Pharmaceuticals GmbH*
Alliance Pharmaceuticals SAS*
Hong Kong
China
British Virgin Islands
Germany
France
Opus Healthcare Limited
Republic of Ireland
Alliance Consumer Health Limited
Alliance Generics Limited
Alliance Health Limited
Alliance Healthcare Limited
Caraderm Limited
Dermapharm Limited
MacuVision Europe Limited
Opus Group Holdings Limited
Opus Healthcare Limited
Unigreg Worldwide Limited
* Investments held directly by Alliance Pharma plc.
England & Wales
England & Wales
England & Wales
England & Wales
Northern Ireland
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
100
100
100
100
100
100
100
100
100
20
20
60
100
100
100
100
100
100
100
100
100
100
100
100
60
Nature of business
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Pharmaceutical sales
Non-trading
Non-trading
Non-trading
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Annual Report and Accounts 2016Alliance Pharma plc 67
The registered address in each country is as follows:
Country / Company
Address
Alliance Pharma France SAS
35 rue d’Artois, 75008, Paris
Alliance Pharmaceuticals SAS
70 rue Cortambert, 75116, Paris
Alliance Pharmaceuticals
(Shanghai) Limited
Room 103, 1st Floor, 56 Meisheng Road, Shanghai Free-Trade-Zone, P.R.C
British Virgin Islands
Flemming House, P.O. Box 662, Wickhams Cay, Road Town, Tortola, VG1110
England & Wales
Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB
Germany
Hong Kong
Italy
Northern Ireland
Republic of Ireland
Singapore
Spain
Prinzenallee 7, 40549, Düsseldorf
Room 2105, 21/F Office Tower, Langham Place, 8 Argyle Street, Mongkok, Kowloon
Viale Restelli Francesco, 5 CAP, 20124, Milan
6 Trevor Hill, Newry, County Down, BT34 1DN
6th Floor, South Bank House, Barrow Street, Dublin 4
6 Battery Road, # 10–01, Singapore, 049909
Regus Business Center, Torre de Cristal, Paseo de la Castellana 259 C Planta 18, Cuatro Torres
Business área, Madrid
Synthasia Shanghai Company Limited Suite 806, 8/F, Silva Bay Tower, Block C, No 469 Wusong Road, Hongkou, Shanghai, 200080
USA
Corporation Service Company, 1201 Hays Street, Tallahassee, Florida, FL 32301
Unless otherwise stated, the share capital comprises ordinary shares and the ownership percentage is provided for each undertaking. 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.
All other investments are held by Alliance Pharmaceuticals Limited with the exception of Opus subsidiaries which are held by Opus Group
Holdings Limited, Unigreg Worldwide Limited which is held by Unigreg Limited, Synthasia Shanghai Co. Ltd which is held by Synthasia
International Company Ltd, Alliance Pharmaceuticals Shanghai Limited which is held by Alliance Pharmaceuticals (Asia) Limited, and
Alliance Pharma France SAS which is held by Alliance Pharmaceuticals SAS.
14. Inventories
The Group
Finished goods and materials
Inventory provision
31 December
2016
£000s
31 December
2015
£000s
17,632
(2,276)
15,356
14,196
(1,286)
12,910
Inventory costs expensed through the income statement during the year were £35,897,000 (2015: £15,693,000). During the year £792,000
(2015: £265,000) was recognised as an expense relating to the write-down of stock to net realisable value.
15. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Amounts owed by Joint Venture
The Group
The Company
31 December
2016
£000s
31 December
2015
£000s
31 December
2016
£000s
31 December
2015
£000s
20,530
1,788
2,110
2,278
8,783
1,062
525
1,260
26,706
11,630
–
114
5
–
119
–
16
10
–
26
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 68
Notes to the Financial Statements continued
for the year ended 31 December
15. Trade and other receivables continued
The ageing of trade receivables at 31 December is detailed below:
Not past due
Due 30–31 December
Past due 3 days to 91 days
Past 91 days
31 December
2016
£000s
31 December
2015
£000s
13,948
3,465
1,947
1,170
20,530
5,965
1,403
1,228
187
8,783
Trade and other receivables are stated net of estimated allowances for doubtful debts. As at 31 December 2016, trade and other receivables
of £nil (2015: £nil) 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.
16. Cash and cash equivalents
Cash at bank and in hand
Bank overdraft
17. Trade and other payables – current
Trade payables
Other taxes and social security costs
Accruals and deferred income
Other payables
Deferred consideration for acquisitions
Amounts due to Joint Ventures
The Group
The Company
31 December
2016
£000s
31 December
2015
£000s
31 December
2016
£000s
31 December
2015
£000s
7,221
–
7,221
3,229
(31)
3,198
90
–
90
–
(30)
(30)
The Group
The Company
31 December
2016
£000s
31 December
2015
£000s
31 December
2016
£000s
31 December
2015
£000s
5,655
1,030
11,125
1,120
3,022
–
1,153
905
5,663
728
5,026
398
–
–
159
–
–
–
–
–
571
–
–
–
21,952
13,873
159
571
Deferred contingent consideration of £1.8m (2015: £2.8m) relates to the acquisition of MacuVision Europe Limited which took place on
2 February 2015 and is payable in 2017. Deferred consideration of £0.2m (2015: £0.4m) relates to the acquisition of the rights to five
Nutraceutical brands from Sinopharm Nutraceuticals (Shanghai) Co Ltd which took place on 16 September 2015 and is payable during 2017.
Deferred consideration of £0.5m relates to an agreement with MacuHealth to guarantee supply of MacuShield API and secure additional
territories to be able to distribute in (2015: £nil). Deferred consideration of £nil (2015: £1.8m) relates to the acquisition of certain assets and
businesses from Sinclair IS Pharma plc which took place on the 17 December 2015. Deferred consideration of £0.5m (2015: £nil) relates to
the Licence and Supply Agreement for the product Diclectin with Duchesnay Inc. and is payable in 2017.
Annual Report and Accounts 2016Alliance Pharma plc 18. Loans and borrowings
Current
Bank loans due within one year or on demand:
Secured
Finance issue costs
Non–current
Bank loans:
Secured
Finance issue costs
69
The Group
The Company
31 December
2016
£000s
31 December
2015
£000s
31 December
2016
£000s
31 December
2015
£000s
26,000
(218)
25,782
16,000
(224)
15,776
–
–
–
–
–
–
The Group
The Company
31 December
2016
£000s
31 December
2015
£000s
31 December
2016
£000s
31 December
2015
£000s
58,478
(924)
57,554
59,918
(950)
58,968
–
–
–
–
–
–
The Group has a total committed bank facility of £100.0m (31 December 2015: £100.0m) maturing in November 2020 of which £65m is drawn
as term loan and £35m is available to draw down through a Revolving Credit Facility (‘RCF’). The RCF is repayable within one to three months
and therefore included within current liabilities.
The bank facility is secured by a fixed and floating charge over the Company's and Group’s assets.
19. Other non-current liabilities
Deferred consideration for acquisitions
Other non-current liabilities
The Group
The Company
31 December
2016
£000s
31 December
2015
£000s
31 December
2016
£000s
31 December
2015
£000s
1,609
208
1,817
1,383
113
1,496
–
–
–
–
–
–
Deferred contingent consideration of £nil (2015: £0.9m) relates to the acquisition of MacuVision Europe Limited which took place on 2
February 2015. Deferred consideration of £0.5m (2015: £0.5m) relates to the Licence and Supply Agreement for the product Diclectin with
Duchesnay Inc. and is payable during 2019. Deferred consideration of £1.1m (2015: £nil) relates to a MacuHealth agreement to guarantee
supply of MacuShield API (2015: £nil) and extend the territories in which MacuShield can be sold, and is payable over 8 years.
20. Financial instruments
The Group uses financial instruments comprising borrowings, derivatives, some cash and liquid resources, and various items such as trade
receivables and trade payables that arise directly from its operations. The main risks arising from the Group’s financial instruments are
liquidity risk, interest rate risk and foreign currency 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.
In addition to Sterling, the Group also has bank facilities denominated in Euros and US Dollars. The purpose of these facilities is to manage
the currency risk arising from the Group's operations.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 70
Notes to the Financial Statements continued
for the year ended 31 December
20. Financial instruments continued
Liquidity Risk
The Group seeks to manage financial risk by ensuring at all times there is sufficient liquidity to meet its financial liabilities as they fall due
and to invest any surplus cash safely and profitably. The Group finances its operations through a mixture of debt and equity. The Group’s
main source of debt is provided by a £100m committed Credit Facility maturing in November 2020 (2015: £100m). This is made up of
amortising Term Debt of £65m (2015: £65m) and a Revolving Credit Facility (‘RCF’) of £35m (2015: £35m). In order to manage currency risk
the Group has borrowed part of the Term Loans in Euros and US Dollars as follows: EUR 18m (£15.4m) (2015: EUR 18m (£13.2m)) and USD
32.7m (£26.6m) (2015: USD 36m (£24.3m)); the remainder is denominated in Sterling.
At year end the Group had also drawn down £18m of the RCF (2015: £10m). The Group also has access to an uncommitted overdraft facility
of £4.5m.
The Group balance sheet also includes financial assets in the form of cash at bank and in hand totalling £7.2 million (2015: £3.2 million).
Of this £4.2 million was held in Sterling, £2.0 million in Euro and the balance in other currencies.
The maturity profile of the Group's financial gross liabilities (capital and interest) at the year-end is as follows:
Trade and other payables
Bank loans
Interest rate swaps
Trade and other payables
Working capital facility
Bank loans
Interest rate swaps
31 December 2016
In one year,
or less
£000s
In more than
one year, but not
more than two
£000s
In more than two
years, but not more
than five
£000s
In more than
five years
£000s
21,952
27,805
–
49,757
1,817
9,551
–
11,368
–
52,673
384
53,057
–
–
–
–
31 December 2015
In one year,
or less
£000s
In more than
one year, but not
more than two
£000s
In more than two
years, but not more
than five
£000s
In more than
five years
£000s
13,873
31
17,946
–
31,850
1,496
–
9,658
–
11,154
–
–
55,310
120
55,430
–
–
–
–
–
Total
£000s
23,769
90,029
384
114,182
Total
£000s
15,369
31
82,914
120
98,434
The maturity profile of the Company's financial gross liabilities (capital and interest) at the year end is as follows:
In one year, or less
31 December 2016
31 December 2015
Trade payables
and other
£000s
Bank borrowings
and other loans
£000s
Trade payables
and other
£000s
Bank borrowings
and other loans
£000s
159
159
–
–
571
571
31
31
The Group had £17.0m (2015: £25.0m) undrawn committed borrowing facilities available and £4.5m of undrawn uncommitted facility
available at 31 December 2016.
Annual Report and Accounts 2016Alliance Pharma plc 71
Interest rate risk
The Group’s debt is provided on a floating interest rate basis. The Group uses interest rate swaps to fix the rates paid on a portion of its debt
in order to mitigate against the risks of increasing interest rates. These swaps are re-measured to fair value at each period end.
The Group has in place interest rate swaps with a nominal value of £20m (2015: £20m) to convert the floating interest rate charge to a fixed
rate interest charge maturing in April 2018. Replacing this, a forward dated interest rate swap with nominal value £16m commences in April
2018 maturing in November 2020.
The Group also has an EUR 18m (2015: EUR Nil) interest rate swap to convert the floating interest rate charge to a fixed rate interest charge
maturing in November 2020.
The interest rate exposure of the financial liabilities of the Group at the period end was:
At 31 December 2016
Bank loans – Sterling denominated
Bank loans – Euro denominated
Bank loans – US Dollar denominated
Interest rate hedges – Sterling denominated
Interest rate hedges – Euro denominated
Total financial liabilities
Unamortised issue costs
Net book value of financial liabilities
At 31 December 2015
Bank loans – Sterling denominated
Bank loans – Euro denominated
Bank loans – US Dollar denominated
Interest rate hedges – Sterling denominated
Total financial liabilities
Unamortised issue costs
Net book value of financial liabilities
Fixed
£000s
Floating
£000s
–
–
–
20,000
15,385
35,385
–
35,385
Fixed
£000s
–
–
–
20,000
20,000
–
20,000
42,508
15,385
26,585
(20,000)
(15,385)
49,093
(1,142)
47,951
Floating
£000s
38,359
13,235
24,324
(20,000)
55,918
(1,174)
54,744
Total
£000s
42,508
15,385
26,585
–
–
84,478
(1,142)
83,336
Total
£000s
38,359
13,235
24,324
–
75,918
(1,174)
74,744
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 72
Notes to the Financial Statements continued
for the year ended 31 December
20. Financial instruments continued
At 31 December 2016
Sterling
Euros
At 31 December 2015
Sterling
Euros
Fixed rate financial liabilities
Weighted average
fixed rate
%
Weighted average
period for which
rate is fixed
3.74
2.46
3.74
2.46
3.91 years
3.91 years
4.91 years
4.91 years
The Sterling floating rate borrowings bear interest at a rate based on LIBOR. The Euro floating rate borrowings bear interest at a rate based
on EURIBOR. The US Dollar floating rate borrowings bear interest at a benchmark rate (US Dollar LIBOR).
A 0.5% increase in LIBOR or US LIBOR would reduce pre-tax profits by approximately £0.1m in 2017 in each respectively. A 0.5% decrease
would have the opposite effect in each respectively.
Currency risk
Approximately 30% of the Group's sales are invoiced in Euros. The Group also has a level of Euro expense that naturally offsets a high portion
of the Euro sales. Approximately 10% of the Group’s sales are invoiced in US Dollar, a portion of which will be used to service the US Dollar
denominated debt. The majority of other Group sales, and all but a small proportion of other Group expenses, are denominated in Sterling.
A 5% weakening or strengthening of Sterling against the Euro would result in minimal impact in predicted pre-tax profits. A 5% weakening of
Sterling against the US Dollar would result in a £0.1m increase in predicted pre-tax profits, while a 5% strengthening of Sterling would have
the approximate opposite effect.
Net investment hedges
The Group uses currency denominated borrowings to hedge the exposure of a portion of its net investment in overseas operations against
changes in value due to changes in foreign exchange rates. The net investment hedge was tested for effectiveness during the year and found
to be highly effective.
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:
• quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
• 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
• inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The Group’s financial instruments held at fair value (or for which fair value is disclosed) in the scope of IFRS 13 are as follows:
Interest rate swaps
Deferred contingent consideration
Level
2
3
31 December 2016
Carrying value
£000s
31 December 2015
Carrying value
£000s
(384)
(2,510)
(3,194)
(120)
(3,674)
(3,794)
For the other financial assets and liabilities in the scope of IFRS 7, the carrying amount is a reasonable approximation of fair value and
therefore no further disclosure is provided.
Annual Report and Accounts 2016Alliance Pharma plc 73
The valuation techniques used for instruments categorised in Levels 2 and 3 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.
Lloyds Bank perform valuations of interest rate swaps for financial reporting purposes, determined by discounting the future cash flows at
rates determined by year end yield curves. The valuation processes and fair value changes are discussed by the Audit Committee and the
finance team at least every year, in line with the Group's reporting dates.
Contingent consideration (Level 3)
The fair value of deferred contingent consideration related to the acquisition of MacuVision Europe Limited and Diclectin are estimated using
a present value technique. The £2.8 million fair value is calculated using the discounted cash flow, taking the most likely cash flows and
discounting at a risk adjusted rate of 10% (see note 11).
Level 3 fair value measurements:
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:
31 December 2016
Liabilities
£000s
31 December 2015
Liabilities
£000s
Balance at 1 January 2016
Acquired
Cash paid in the year
Amount recognised in profit or loss under finance costs
Balance at 31 December 2016
Classification of financial assets and liabilities
Group
Classification of the Group’s financial assets and liabilities is set out below:
4,174
500
(2,833)
969
2,810
At 31 December 2016
Financial assets
Cash and cash equivalents
Trade and other receivables
At 31 December 2016
Financial liabilities
Loans and borrowings
Trade and other payables
Other liabilities
Corporation tax
Loans and
receivables
£000s
Non-financial
assets
£000s
7,221
25,612
32,833
–
1,094
1,094
Other financial
liabilities
£000s
Liabilities not
within the scope
of IAS39
£000s
83,336
20,922
1,817
–
106,075
–
1,030
–
2,543
3,573
–
3,697
–
477
4,174
Total
£000s
7,221
26,706
33,927
Total
£000s
83,336
21,952
1,817
2,543
109,648
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 74
Notes to the Financial Statements continued
for the year ended 31 December
20. Financial instruments continued
At 31 December 2015
Financial assets
Cash and cash equivalents
Trade and other receivables
At 31 December 2015
Financial liabilities
Working capital facility
Loans and borrowings
Trade and other payables
Other liabilities
Corporation tax
Loans and
receivables
£000s
Non-financial
assets
£000s
3,229
10,705
13,934
–
925
925
Other financial
liabilities
£000s
Liabilities not
within the scope
of IAS39
£000s
31
74,744
12,968
1,496
–
89,239
–
–
905
–
2,075
2,980
Total
£000s
3,229
11,630
14,859
Total
£000s
31
74,744
13,873
1,496
2,075
92,219
The Group has issued the following terms for borrowings made to its Joint Ventures:
Joint venture loans
Company
Classification of the Company’s financial instruments is set out below:
At 31 December 2016
Financial assets
Trade and other receivables
At 31 December 2016
Financial liabilities
Trade and other payables
31 December 2016
Interest rate
31 December 2015
Interest rate
2.75% – 7.00%
2.75% – 7.00%
Loans and
receivables
£000s
Non-financial
assets
£000s
119
119
–
–
Other financial
liabilities
£000s
Liabilities not
within the scope
of IAS39
£000s
159
159
–
–
Total
£000s
119
119
Total
£000s
159
159
Annual Report and Accounts 2016Alliance Pharma plc 75
Total
£000s
26
26
Total
£000s
30
571
601
Loans and
receivables
£000s
Non- financial
assets
£000s
26
26
–
–
Other financial
liabilities
£000s
Liabilities not
within the scope
of IAS39
£000s
30
571
601
–
–
–
At 31 December 2015
Financial assets
Trade and other receivables
At 31 December 2015
Financial liabilities
Cash and cash equivalents
Trade and other payables
21. Derivative financial instruments
Interest rate swap – cash flow hedge
Non-current portion
31 December 2016
Liabilities
£000s
31 December 2015
Liabilities
£000s
384
384
120
120
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 £175,000 (2015: £133,000).
22. Deferred tax
The Group
Accelerated capital allowances on tangible assets
Temporary differences: trading
Temporary differences: non-trading
Accelerated allowances on intangible assets
Initial recognition of intangible assets from business combination
Share based payments
Losses
Recognised as:
Deferred tax asset
Deferred tax liability
31 December 2016
£000s
31 December 2015
£000s
(57)
8
959
(5,428)
(25,957)
376
366
(51)
7
21
(4,726)
(23,061)
390
538
(29,733)
(26,882)
1,709
(31,442)
956
(27,838)
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 76
Notes to the Financial Statements continued
for the year ended 31 December
22. Deferred tax continued
Reconciliation of deferred tax movements:
The Group
Non-current assets
Intangible assets
Property, plant and equipment
Non-current liabilities
Derivative financial instruments
Other non-current liabilities
Equity
Share option reserve
Temporary differences
Trading
Losses
Recognised as:
Deferred tax asset
Deferred tax liability
The Group
Non-current assets
Intangible assets
Initial recognition of intangible
from business combination
Property, plant and equipment
Non-current liabilities
Derivative financial instruments
Equity
Share option reserve
Temporary differences
Trading
Losses
Recognised as:
Deferred tax asset
Deferred tax liability
31 December
2015
£000s
Recognised in other
comprehensive
income
£000s
Recognised
in the income
statement
£000s
Recognised
on business
combination
£000s
31 December
2016
£000s
(27,787)
(51)
(3,246)
–
21
–
390
7
538
44
894
–
–
–
(26,882)
(2,308)
956
(27,838)
(352)
(6)
–
–
(14)
1
(172)
(543)
–
–
–
–
–
–
–
–
(31,385)
(57)
65
894
376
8
366
(29,733)
1,709
(31,442)
31 December
2014
£000s
Recognised in other
comprehensive
income
£000s
Recognised
in the income
statement
£000s
Recognised
on business
combination
£000s
31 December
2015
£000s
(4,699)
(1,610)
6
26
162
–
–
(6,115)
194
(6,309)
–
–
–
(5)
–
–
–
(5)
(27)
162
(57)
–
228
7
–
313
–
(4,726)
(21,613)
(23,061)
–
–
–
–
538
(21,075)
(51)
21
390
7
538
(26,882)
956
(27,838)
Annual Report and Accounts 2016Alliance Pharma plc 23. Share capital
At 1 January 2015 – ordinary shares of 1p each
Issued during the year
At 31 December 2015 – ordinary shares of 1p each
Issued during the year
At 31 December 2016 – ordinary shares of 1p each
77
Allotted, called and
fully paid
No. of shares
Allotted, called and
fully paid
£000s
264,148,365
204,030,792
468,179,157
4,389,305
472,568,462
2,641
2,041
4,682
44
4,726
Between 1 January 2016 and 31 December 2016, 4,389,305 shares were issued on the exercise of employee share options (2015: 372,245).
Potential share options commitment
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 47.50p. 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:
Year of grant
2006
2007
2008
2009
2010
2011
2012
2013
2013
2014
2015
2016
2016
Exercise
price pence
18.75
9.25
8.50
7.75
33.25 and 34.25
31.00 and 34.12
29.25
35.75 and 37.25
35.75
33.75
43.75 and 46.75
44.00 and 47.5
47.5
Exercise
from
2009
31 December 2016
Number
000s
–
31 December 2015
Number
000s
27
2010
2011
2012
2013
2014
2015
2016
2018
2017
2018
2019
2021
19
610
153
1,871
2,422
2,333
3,613
2,600
2,014
5,415
10,078
4,400
35,528
19
630
680
2,168
3,697
2,861
4,812
3,300
2,408
5,841
–
–
26,443
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 2016, net bank debt was £76.1m,
whilst Shareholders’ equity was £179.3m.
Reconciliation of net debt
Loans and borrowings – current
Loans and borrowings – non-current
Cash and cash equivalents
Bank overdraft
31 December 2016
£000s
31 December 2015
£000s
Note
18
18
16
16
(25,782)
(57,554)
7,221
–
(76,115)
(15,776)
(58,968)
3,229
(31)
(71,546)
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 3.0 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 complied with these covenants in 2016 and 2015.
Smaller acquisitions are typically financed using bank debt, while larger acquisitions typically involve a combination of bank debt and
additional equity. The mixture of debt and equity is varied, taking into account the desire to maximise the shareholder returns while keeping
leverage at comfortable levels.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 78
Notes to the Financial Statements continued
for the year ended 31 December
24. 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 4 million of the options granted on 23 October 2013 and 4.4 million options
granted on 27 October 2016 are subject to EPS accretion performance criteria and have the extension to five years before they can be
exercised. The assumptions used in the calculation are as follows:
Grant date
Share
price at issue
Exercise price
Number of
options granted
000s
Number of options
remaining at
31 December 2016
000s
Expected
volatility
Risk
free rate
02/05/07
23/04/08
14/04/09
26/03/10
29/04/10
28/04/11
19/10/12
06/06/13
23/10/13
11/04/14
27/05/15
04/12/15
10/05/16
27/10/16
27/10/16
9.25p
8.50p
7.75p
33.25p
34.25p
34.12p
29.25p
37.25p
35.75p
33.75p
43.75p
46.75p
44.00p
47.50p
47.50p
9.25p
8.50p
7.75p
33.25p
34.25p
34.12p
29.25p
37.25p
35.75p
33.75p
43.75p
46.75p
44.00p
47.50p
47.50p
1,402
5,420
2,308
1,300
1,503
3,982
3,495
3,371
5,900
2,727
3,840
2,000
1,000
9,078
4,400
19
610
153
1,300
571
2,422
2,333
2,397
3,816
2,014
3,414
2,000
1,000
9,078
4,400
20.4%
18.6%
25.5%
43.5%
45.7%
43.9%
49.7%
49.8%
49.5%
49.0%
47.6%
45.3%
51.6%
51.7%
51.7%
4.62%
4.90%
4.08%
3.90%
3.90%
4.10%
1.70%
2.40%
2.60%
2.70%
2.00%
2.00%
1.68%
1.27%
1.27%
In each case, it is assumed the majority of options will be exercised at the earliest opportunity and that on average they are exercised
after four years. The expected volatility is based on historical volatility from 23 December 2003. The risk free rate of return is based on UK
government bonds of a term consistent with the assumed option life.
The estimated fair value of the share options granted during the year was £3,187,000 (2015: £987,000). The charge is spread evenly over the
vesting period of the options.
Share options and weighted average exercise price are as follows for the reporting periods presented:
Outstanding at start of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
2016
2015
Number
000s
26,443
14,503
(4,389)
(1,029)
35,528
12,406
Weighted average
exercise price
Pence
35.18
47.25
30.83
38.17
40.56
32.44
Number
000s
22,053
5,840
(372)
(1,078)
26,443
10,082
Weighted average
exercise price
Pence
32.56
44.78
32.58
34.98
35.18
35.18
Share options were exercised throughout the financial year. Share options were exercised between 7.75 and 43.75 pence per share.
Annual Report and Accounts 2016Alliance Pharma plc 79
25. Cash generated from operations
Group
Company
Year ended
31 December 2016
£000s
Year ended
31 December 2015
£000s
Year ended
31 December 2016
£000s
Year ended
31 December 2015
£000s
Profit before taxation
Interest payable and similar charges
Interest income
Other finance costs
Depreciation of property, plant and equipment
Amortisation of intangibles
Change in inventories
Share of post-tax Joint Venture profits
Change in trade and other receivables
Change in trade and other payables
Share based employee remuneration
Cash generated from operations
22,219
4,195
(111)
(693)
337
92
(2,446)
(299)
(14,116)
10,083
696
19,957
15,182
1,971
(139)
(52)
239
199
(6,996)
(194)
(3,308)
2,319
615
9,836
As referred to elsewhere in the Annual Report, 'free cash flow' is defined by the CODM as:
Reconciliation of free cash flow
Cash generated from operations
Financing costs
Capital expenditure
Tax paid
3,459
–
(3,983)
–
–
–
–
–
(93)
(412)
696
(333)
1,571
–
(2,097)
–
–
–
–
–
(1)
388
615
476
31 December
2016
£000s
31 December
2015
£000s
19,957
(2,822)
(1,130)
(3,032)
12,973
9,836
(1,163)
(647)
(1,860)
6,166
26. Capital commitments
The Group had capital commitments at 31 December 2016 totalling £569,000 (2015: £nil).
27. Contingent liabilities
Contingent liabilities are possible obligations that are not probable. The Group operates in a highly regulated sector and in markets
and geographies around the world each with differing requirements. As a result, and in the normal course of business, the Group can
be subject to a number of regulatory inspections/investigations on an ongoing basis. It is therefore possible that the Group may incur
penalties for non-compliance. In addition, a number of the Group’s brands and products are subject to pricing and other forms of legal
or regulatory restrictions from both governmental/regulatory bodies and also from third parties. Assessments as to whether or not
to recognise a provision in respect of these matters are judgemental as the matters are often complex and rely on estimates and
assumptions as to future events.
The Group’s assessment at 31 December 2016 based on currently available information is that there are no matters for which a provision
is required (2015: £nil). However, given the inherent uncertainties involved in assessing the outcomes of such matters there can be no
assurance regarding the outcome of any ongoing inspections/investigations and the position could change over time as a result of the
factors referred to above.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 80
Notes to the Financial Statements continued
for the year ended 31 December
28. Pensions
The Group operates a defined contribution group personal pension scheme for the benefit of certain Directors and employees.
The Group
Contributions payable by the Group for the year
31 December 2016
£000s
31 December 2015
£000s
644
362
The Group also operates a stakeholder pension plan which is available to all employees.
29. Leasing commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
No later than one year
Later than one year and no later than five years
Later than five years
31 December 2016
Land and buildings
£000s
31 December 2015
Land and buildings
£000s
500
1,066
1,082
2,648
148
415
–
563
During the year, the Group entered into an extended and enlarged lease agreement in respect of its UK registered office, based in Chippenham.
30. Related party transactions
During the year the Company received funds of £697,000 (2015: £300,000) from its subsidiary Alliance Pharmaceuticals Limited.
Net payments of £60,000 (2015: £54,000) were made by Alliance Pharmaceuticals Limited on behalf of Alliance Pharma plc. Interest of
£3,983,000 (2015: £2,064,000) was charged to Alliance Pharmaceuticals Limited on the total outstanding debt. During the year the Company
re-invested £2,128,000 (2015: £64,010,000) in Alliance Pharmaceuticals Limited. During the year an amount of £696,000 (2015: £615,000)
was charged to Alliance Pharmaceuticals Limited by the Company for the employee share based payment. During the year the Company
charged interest of £49,000 (2015: £33,000) to Alliance Pharmaceuticals SAS on the total outstanding debt.
Dividends declared by Alliance Pharmaceuticals Limited due to the Company are £1,731,000 for the year ended 31 December 2016
(2015: £5,700,000). During the year dividends of £1,731,000 were paid by Alliance Pharmaceuticals Limited to the Company.
During the year the Group made payments on behalf of Unigreg of £105,000 (2015: £719,000). Interest receivable from Unigreg was £48,000
(2015: £48,000). During the year the Group made payments on behalf of Synthasia of £399,000 (2015: £353,000). Interest receivable from
Synthasia was £42,000 (2015: £37,000).
There are no transactions with Directors (other than remuneration) that fall into the scope of IAS 24.
Annual Report and Accounts 2016Alliance Pharma plc 81
Principal Activity
Country of Incorporation
% Owned
Distribution of pharmaceutical products to China
British Virgin Islands
60
20
31. Joint Ventures
Name
Unigreg Limited
Synthasia International Company Ltd Distribution of infant milk formula products in China Hong Kong
In accordance with IFRS 11 'Joint Arrangements', the Group has determined that Unigreg Limited and Synthasia International Company
Limited are Joint Ventures. A Joint Venturer shall recognise its interest in a Joint Venture as an investment and shall account for that
investment using the equity method in accordance with IAS 28 'Investments in Associates and Joint Ventures'.
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 accounted for as a Joint Venture.
The Group owns 20% of the issued share capital of Synthasia International Company Limited (‘Synthasia’). The Group considered the
existence of substantive participating rights held by both the Group and another shareholder which provide both parties with a veto right
over the significant financial and operating policies of Synthasia and determined that, as a result of these rights, Synthasia is accounted for
as a Joint Venture.
In accordance with IFRS 11, the Group’s investments made to date in joint arrangements are characterised as Joint Ventures in which the Group
has rights to a share of the arrangement’s net assets rather than direct rights to underlying assets and obligation for underlying liabilities.
Movement in investments in Joint Ventures in the year:
At 1 January 2016
Share of post-tax profits of Joint Ventures
Dividends received
At 31 December 2016
The carrying value of Joint Ventures is split as follows:
Unigreg Limited
Synthasia International Company Limited
Amounts owing from Joint Ventures are as follows:
Unigreg Limited
The Group’s principal Joint Venture is Unigreg Limited.
£000s
1,465
299
(300)
1,464
31 December 2016
£000s
31 December 2015
£000s
1,027
437
1,464
1,003
462
1,465
31 December 2016
£000s
31 December 2015
£000s
1,462
1,462
1,462
1,462
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 82
Notes to the Financial Statements continued
for the year ended 31 December
31. Joint Ventures continued
The total assets, liabilities, revenue and profits of the Group’s principal Joint Venture, Unigreg Limited, which are included in the Group’s
financial statements, are as follows:
Intangible fixed assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Income
Cost of sales
Administration and marketing expenses
Finance charges
Profit before taxation
31 December 2016
£000s
31 December 2015
£000s
3,250
800
(99)
(2,437)
1,514
3,250
1,393
(533)
(2,437)
1,673
Year ended
31 December 2016
£000s
Year ended
31 December 2015
£000s
2,068
(1,061)
(352)
(115)
540
1,523
(781)
(274)
(115)
353
The share of losses of the Group’s individually immaterial Joint Ventures which are included in the Group’s financial statements, are as follows:
Loss from continuing operations
Year ended
31 December 2016
£000s
Year ended
31 December 2015
£000s
(26)
(18)
32. Ultimate controlling party
The Company’s shares are listed on the Alternative Investment Market (‘AIM’) and are held widely. There is no single ultimate controlling party.
33. Acquisitions
On 17 December 2015 the Company completed the acquisition of certain assets and businesses from Sinclair IS Pharma plc. The acquisition
included 27 products including four key growth brands (Kelo-cote, Flammacerium, Aloclair and Atopiclair).
The total consideration for the acquisition was £127.5m, plus £5.3m for inventory. Total consideration of £131.0m was satisfied on
completion, being £126.3m plus the estimated stock value of £4.7m. A further £1.2m was paid in January 2016 and the remaining £0.6m
paid during 2016. These amounts were satisfied wholly in cash, funded partly by way of new loans, and partly by the issue and allotment
of additional shares.
Management uses valuation techniques when determining the fair values of certain assets and liabilities acquired in a business combination.
In particular, the fair value of contingent consideration is dependent on the outcome of many variables including the acquirees’ future sales
(see note 20). In the 2015 Annual Report provisional fair values were assigned to identified assets and liabilities. During 2016, these fair
values have been finalised and new information about facts and circumstances that existed at the date of acquisition has been used to
adjust the acquisition accounting.
Annual Report and Accounts 2016Alliance Pharma plc 83
The adjusted fair values of the assets acquired, as at 17 December 2015, are as follows:
Intangible fixed assets
Tangible fixed assets
Other non-current assets
Current assets (excluding cash and cash equivalents)
Non-Current liabilities
Net assets (note 11)
Deferred tax liability (note 22)
Goodwill
Fair value of net assets acquired
Cash paid
Cash payable
Total Consideration
Provisional fair
value of assets and
liabilities acquired
£000s
Fair value
adjustments
£000s
Finalised fair
value of assets and
liabilities acquired
£000s
135,800
209
122
5,255
(109)
141,277
(29,200)
20,694
132,771
–
–
–
(175)
(100)
(275)
10,113
(9,838)
–
135,800
209
122
5,080
(209)
141,002
(19,087)
10,856
132,771
131,000
1,771
132,771
The fair value review of intangibles acquired as a result of the Sinclair business combination on 17 December 2015 identified a fair value
adjustment of £128.4m. In the prior year it was estimated that none of this fair value adjustment would be reflected in the fiscal accounts of
any group companies and so would not attract any tax relief. During management's final review of the Sinclair business combination, it has
become apparent that £53.2m of this fair value adjustment will in fact be reflected in the fiscal accounts of a UK group company and will be
qualifying for intangibles tax relief. Accordingly, the £29.2m deferred tax liability arising on the total fair value adjustments of the Sinclair
business combination disclosed in the 2015 consolidated accounts has been revised to £19.1m with the goodwill arising on acquisition being
reduced accordingly by £10.1m.
The other fair values adjustments identified of £0.3m have been adjusted in the current financial year.
The goodwill fair value adjustment in relation to deferred tax has been adjusted in the comparative, as a measurement period adjustment,
which is consistent with the guidance in IFRS 3.
34. Post balance sheet events
In March 2017, the Group reached a settlement agreement with Sinclair Pharma plc, in connection with the material reduction of business
in Kelo-stretch, which was acquired in the prior year. The terms of the agreement are the sum of £5.0m of which £4.0m is payable on or
before 30 April 2017 and £1m on or before 30 June 2018, and all rights to Flammacerium (US) with immediate effect. This will be treated as
exceptional income in the 2017 financial statements, and the cash element of the compensation will be used to reduce the Group's current
bank loans.
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Financial StatementsFinancial Statements › 84
Shareholder Information
(Unaudited 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).
Annual General Meeting
The Company's next Annual General Meeting will be held at 10:00am on Thursday 25 May 2017 at the offices of Buchanan Communications,
107 Cheapside, London EC2V 6DN.
Financial Calendar
Annual General Meeting
Shares trade ‘ex’ final dividend
Final dividend record date
Payment of final dividend
25 May 2017
15 June 2017
16 June 2017
12 July 2017
Interim results announcement
13 September 2017
Year end
31 December 2017
Preliminary announcement
late March 2018
Annual Report and Accounts 2016Alliance Pharma plc
Shareholder Information
85
Beware of side-effects…
Private investors sometimes receive unsolicited approaches, often by phone, inviting them to undertake a transaction in shares they
own. These are often fraudulent and can begin with the offer of a free research report into a company in which you hold shares, a
free gift or discount on their dealing charges. You will often be told that you need to make a quick decision or miss out on the deal.
A common scam is for fraudsters to cold-call investors offering them worthless, overpriced or even non-existent shares, with the
promise of high returns. Those who invest usually end up losing their money and the Financial Conduct Authority (FCA) found that
victims of share fraud lose an average of £20,000, with the biggest individual loss recorded by the police being £6m.
If you do not know the source of the call, check the details against the FCA website below and, if you have any specific information,
report it to the FCA using the Consumer Helpline or the Online Reporting Form. If you have any concerns whatsoever, do not take any
action and do not part with any money without being certain that:
• you fully understand the transaction
• you know who you are dealing with and that they are registered with and authorised by the FCA; and
• you have consulted a financial adviser if you have any doubts
Remember, if it sounds too good to be true, it almost certainly is. You run the risk of losing any money you part with.
If you are worried that you may already have been a victim of fraud, report the facts immediately using the Action Fraud Helpline.
Should you want any more information about ‘boiler room’ and other investment-based fraud, here are some useful official sources:
Action Fraud Helpline
0300 123 2040
Action Fraud website
www.actionfraud.police.uk
FCA Consumer Helpline
0800 111 6768
FCA Scams & Swindles website
www.fca.org.uk/scams
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationAdditional information › 86
Five Year Summary
Revenue
Operating profit before exceptional items
Exceptional operating items
Operating profit after exceptional items
Profit before tax before exceptional items
Profit before tax after exceptional items
Intangible assets
Tangible assets
Current assets
Current liabilities
Equity
Average shares in issue (millions)
Shares in issue at period end (millions)
Earnings per share – basic (p)
Earnings per share – adjusted basic (p)
*Restated for impact of IFRS 11
Year ended
31 December
2012*
£m
Year ended
31 December
2013*
£m
Year ended
31 December
2014*
£m
Year ended
31 December
2015
£m
Year ended
31 December
2016
£m
42.4
12.3
–
12.3
10.8
10.8
77.9
0.6
19.5
21.9
51.8
240.9
243.0
3.61
3.61
45.3
13.3
–
13.3
12.0
12.0
87.1
0.6
16.8
14.9
64.7
250.8
264.1
3.82
3.82
43.5
11.8
0.6
11.2
10.8
10.2
88.9
0.4
15.7
11.4
70.8
264.1
264.1
3.17
3.36
48.3
10.6
(6.3)
17.0
8.9
15.2
259.9
1.0
27.8
31.8
162.4
272.7
468.2
4.65
3.69
97.5
25.6
–
25.6
22.2
22.2
264.8
1.8
49.3
50.3
179.3
469.4
472.6
3.85
3.82
Annual Report and Accounts 2016Alliance Pharma plc Advisors and Key Service Providers
87
Advisors and Key Service Providers
Corporate Advisor
Numis Securities Ltd
10 Paternoster Square
London EC4M 7LT
Registrars
Capita Asset Services
PXS 1
34 Beckenham Road
Beckenham
Kent BR3 4ZF
Royal Bank of Scotland
3rd Floor
3 Temple Back East
Bristol BS1 6DZ
Silicon Valley Bank
Alphabeta
14–18 Finsbury Square
London EC2A 1BR
Auditor
KPMG LLP
66 Queen Square
Bristol BS1 4BE
Financial PR
Buchanan Communications
107 Cheapside
London EC2V 6DN
Bankers
Lloyds Bank Corporate Markets
The Atrium
Davidson House
Forbury Square
Reading
Berkshire RG1 3EU
Registered Office
Avonbridge House
Bath Road
Chippenham
Wiltshire
SN15 2BB
Company number
04241478
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationAdditional information › 88
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.
Annual Report and Accounts 2016Alliance Pharma plc Trade marks
89
Trade marks
The following are registered trade marks of subsidiaries of Alliance Pharma PLC and are protected in a number of countries:
Absorbagel™, Acnisal™, Actidose Aqua™, Affina-Lift™, Alliance™, Alliance and Logo, Alliance Generics, Aloclair™, Alostop™, Anbesol™,
Aquadrate™, Ashton & Parsons™, Ashton & Parsons Infant Powder™, Atarax™, Atopiclair™, Avloclor™, Biocorneum™, Biorphen™, Bio-
taches™, Biotanoid™, Broflex™, Buccastem™, Buccastem M™, Canker-X™, Ceanel™, Clearway™, Clearway Stoma Bridge™, Contisol™,
Decapinol™, Deltacortril™, Deogel™, Dermachronic™, Dermacide™, Dermamist™, Distamine™, Effadiane™, Emezine™, Energeyes™,
Fadiamone™, Fazol™, Flammacerium™, Flammaclair™, Flammasun™, Flammazine™, Forceval™, Forceval Junior™, Fractar Fractar 5™,
Gen-ongles™, Gregovite C™, Hemopressin™, Herpclair™, Hydrobath™, Hydromol™, Irenat™, ISIB™, Isprelor™, Jonctum™, Kelo-cote™,
Kelo-stretch™, Lift™, Lift Medical Adhesive Remover™, Lift Plus/ Lift +™, Lypsyl™, Lypsyl- It’s on everyone’s lips™, Lypsyl Kissables™, Lypsyl
Shimmer™, Lysovir™, MacuShield™, MacuShield Gold™, Meted™, MolluDab™, Naseptin™, Natulan™, NaturCare™, NaturCare Breeze™,
NaturCare Fragrant™, NaturCare IPD™, NaturCare Zest™, NuSeals™, Occlusal™, Ondemet™, Opus™, Oxyplastine™, Paludrine™, Papclair™,
Papuduo™, Papustil™, Pavacol™, Pavacol-D™, Pentrax™, Peptavlon™, Periocycline™, Periostan™, Periostand™, Periostat™, Periostatus™,
Permitabs™, Posidorm™, PS20™, Q Device™, Quinocort™, Quinoderm™, Quinosept™, Reloxyl™, Reticus™, Rincinol™, Rizotret™, Rizuderm™,
Roman in Chariot Device™, Rympa™, Savarine™, Sebclair™, Skinsafe/Skinsafe™, Skinsafe Non Sting Protective Film™, Stemflova™, Stylised
O Device (in orange)™, Syntomet™, Syntometrin™, Syntometrine™, Terra-Cortril™, T-Go™, Thwart™, Thyrogard™, Timocort™, Timocreme™,
Timodine™, Tridesonit™, Trust the science™, Uniflu™, Unigreg™, Unisomnia™, Variquel™, Verucide™, Vibramycine™, Vita-Dermacide™.
The following marks are all used under licence by Alliance Pharmaceuticals Limited:
Xenazine™ is a registered trade mark of Biovail Laboratories International (Barbados)
Gelclair™ is a registered trade mark of Helsinn Healthcare S.A.
ImmuCyst™ is a registered trade mark of Sanofi Pasteur Limited
OverviewStrategic ReportGovernanceFinancial StatementsAdditional InformationAdditional information › A
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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@alliancepharmaceuticals.com
www.alliancepharmaceuticals.com
A transformational year