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Alliance Pharma plc
Annual Report and Accounts 2017
Alliance Pharma plc
Annual Report and Accounts 2017
ALLIANCE PHARMA PLC IS AN
INTERNATIONAL SPECIALTY
PHARMACEUTICAL COMPANY.
Headquartered in Chippenham, UK, Alliance commenced
trading in 1998 and has been listed on AIM since 2003.
Alliance has a strong track record of acquiring established
niche products and it currently owns or licenses the rights to
approximately 90 pharmaceutical and consumer healthcare
products. It has sales in more than 100 countries either
directly via its affiliates or through its selected network
of distributor partners.
CONTENTS
Overview
01 2017 Highlights
02 At a Glance
Strategic Report
06 Investment Case
08 Chairman’s and Chief
Executive’s Review
14 Our Business Model and Strategy
16 Strategy in Action – Buy
18 Strategy in Action – Build
20 Strategy in Action – Kelo-cote
22 Strategy in Action – MacuShield
24 Our People
26 Financial Review
28 Risk Management and
Internal Controls
30 Principal Risks and Uncertainties
Governance
38 Board of Directors
40 Corporate Governance
44 Remuneration Report
47 Directors’ Report
Financial Statements
52 Independent Auditor’s Report
56 Consolidated Income Statement
57 Consolidated Statement
of Comprehensive Income
58 Consolidated Balance Sheet
59 Company Balance Sheet
60 Consolidated Statement
of Changes in Equity
61 Company Statement of
Changes in Equity
62 Consolidated and Company
Cash Flow Statements
63 Notes to the Financial Statements
Additional Information
100 Shareholder Information
101 Five Year Summary
102 Advisors and Key
Service Providers
103 Cautionary statement
104 Trade marks
For more information visit
alliancepharmaceuticals.com
Overview | 2017 Highlights
01
2017 HIGHLIGHTS
Revenue
Free Cash Flow**
Dividend
£103.3m
+6%
(2016: £97.5m)
£21.7m
+67%
(2016: £13.0m)
1.331p
+10%
(2016: 1.210p)
Underlying Profit
Before Tax*
Underlying adjusted
basic EPS**
Reported Profit
Before Tax
£24.0m
+8%
(2016: £22.2m)
4.06p
+10%
(2016: 3.69p)
£28.4m
+28%
(2016: £22.2m)
Reported Basic EPS
6.10p
+58%
(2016: 3.85p)
* Underlying Profit Before Tax excludes Sinclair settlement income
** For definitions of non IFRS alternative performance measures see note 33
OPERATIONAL HIGHLIGHTS
• Strong organic performance,
• Acquisition of Vamousse in
driven by our International Star
brands
– Kelo-cote, our scar reduction
brand, grew 34% to £13.3m
(2016: £10.0m)
– MacuShield, the No.1
macular pigment supplement
recommended by eye experts,
grew 38% to £7.3m (2016:
£5.3m)
• Agreed a settlement in March
2017 with Sinclair, including
£5.0m cash compensation, in
relation to the material reduction
of business in Kelo-stretch
December 2017, adding a third
International Star brand and
creating a US operation for the
Group
• Acquisition of Ametop in
December 2017 to complement
our Bedrock portfolio
• Now a £100m+ revenue
business involving operations
on three continents, with good
progress in Asia Pacific through
our distributor network
08
CHAIRMAN'S AND
CHIEF EXECUTIVE’S REVIEW
18
INTERNATIONAL BUSINESS
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 02
AT A GLANCE
We sell our specialty pharmaceutical
and consumer healthcare products
in more than 100 countries.
What we do
With a proven acquisition-led growth strategy,
we own or license the rights to approximately
90 pharmaceutical and consumer healthcare
products. We outsource capital-intensive
activities such as manufacturing, warehousing
and logistics to specialist providers, and focus
on marketing and all the associated business
and regulatory activities.
We distribute our products through wholesalers,
retail pharmacies, hospitals and a well-respected
international network of distributors.
Our portfolio
We manage our portfolio and direct
our promotional resources accordingly:
8
Three International Stars that offer international growth and
receive the highest level of investment:
Kelo-cote
MacuShield
Vamousse
See pages 20 and 21
See pages 22 and 23
See pages 16 and 17
Local Heroes that provide
important growth at a
national level include:
Aloclair, Oxyplastine,
Hydromol
Bedrock of non-promoted
brands that provide stable
cash generation
Revenue
by product*
12% Kelo-cote
7% MacuShield
4% Vamousse
77% Bedrock products & Local Hero brands
* Pro-forma revenue includes pre-acquisition revenue in the 12 months to 31 December 2017
Alliance Pharma plc Annual Report and Accounts 2017 Overview | At a Glance
03
10
OFFICES AND
A BROAD
INTERNATIONAL
BASE OF
DISTRIBUTORS
210
STRONG
DEDICATED
TEAM OF PEOPLE
5
4
6
3
2
1
7
9
10
Geographic footprint
Country with international office
Distributor relationships
International offices
1
2
3
4
5
Chippenham (HQ)
Chester
Dublin
Paris
6
7
8
9
Milan
Madrid
North Carolina
Shanghai
Düsseldorf
10
Singapore
Revenue
by geography*
50% UK
28% International
22% Western Europe (exc. UK)
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 04
Alliance Pharma plc
Annual Report and Accounts 2017
Maximising
our strategic
advantage
Strategic Report
05
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Strategic
Report
06 Investment Case
08 Chairman’s and Chief
Executive’s Review
14 Our Business Model
and Strategy
16 Strategy in Action – Buy
18 Strategy in Action – Build
20 Strategy in Action –
Spotlight on Kelo-cote
22 Strategy in Action –
Spotlight on MacuShield
24 Our People
26 Financial Review
28 Risk Management and
Internal Controls
30 Principal Risks and
Uncertainties
OverviewFinancial StatementsAdditional informationGovernance
06
Alliance Pharma plc
Annual Report and Accounts 2017
INVESTMENT CASE
Alliance Pharma is a profitable, cash-generative,
dividend-paying group with a proven business
model and identified strategies for growth.
Proven
model
Balanced
portfolio
International speciality
pharma group with
successful record of
executing a proven
‘buy & build’ strategy
Asset-light operations
and no R&D risk, leading
to high cash conversion
Investment is focused
on three International
Star growth brands and
a select number of Local
Hero brands, supported
by ‘Bedrock’ products
requiring minimal
promotional support
Balanced exposure to Rx
(prescription), OTC (over
the counter) and OTx
(dual channel) segments
Highly
selective
acquisition
strategy
Strategy combines
growth and stability
For growth, we seek
well-differentiated
brands
For stability, we seek
products that are
tried and tested with
sustainable sales
20
YEARS OF
OPERATION
23%
REVENUES FROM
INTERNATIONAL
STAR GROWTH
BRANDS
35
ACQUISITIONS
Read more on page 08
(Chairman’s and Chief
Executive’s Review)
Read more on page 14
(Our Business Model
and Strategy)
Read more on page 14
(Our Business Model
and Strategy)
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Investment Case
07
Scalable
platform
Ambitious
and
experienced
team
Broad geographic
Stable and
entrepreneurial Senior
Leadership Team (SLT)
with deep sector and
functional expertise
Short lines of
communication and
‘can do’ culture
Strong
financial
performance
High cash generation
Record of
consistent growth
Paying dividends since
2009, with average
annual growth of 10%
footprint, differentiated
portfolio, IT infrastructure
and experienced
management team
provide a sound platform
for growth
Clear strategy to build on
track record of organic
growth, complemented
with ability to identify,
acquire and integrate
attractive assets
9
COUNTRIES
WITH AN ALLIANCE
OFFICE
25
AVERAGE
NUMBER OF
YEARS’ INDUSTRY
EXPERIENCE OF
THE SLT
26%
EBITDA
MARGIN
Read more on page 26
(Financial Review)
Read more on page 24
(Our People)
Read more on page 26
(Financial Review)
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 08
After another year’s
strong performance we
have exceeded £100m
of revenue for the
first time, marking an
important milestone
in the development
of the Group.
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Chairman’s and Chief Executive’s Review
09
CHAIRMAN'S AND CHIEF EXECUTIVE’S REVIEW
Revenue
£103.3m
(2016: £97.5m)
Free Cash Flow
£21.7m
(2016: £13.0m)
“ Following a transformational
2016 in which the Sinclair
Healthcare Products business
was integrated into the Group,
the business delivered strongly
in 2017. The strength of cash
generation, coupled with
the opportunities from our
International Star brands,
means we are well positioned
to pursue growth both
organically and through further
acquisitions in 2018.
The year has started well,
including the establishment
of a US affiliate, and we look
forward to leveraging our
expanded footprint.”
David Cook
Chairman
2017 Highlights
• Strong organic performance,
driven by our International
Star brands.
• Acquisition of Vamousse in
December 2017, adding a
third International Star brand
and creating a US operation
for the Group.
• Now a £100m+ revenue
business involving operations
on three continents, with good
progress in Asia Pacific through
our distributor network.
• Grew underlying profits
before tax by £1.8m (8%)
and generated £21.7m
free cash flow.
Financial results
We are pleased to report the results
of another good year for the Group.
Revenue grew by 6% to reach
£103.3m (2016: £97.5m). At £24.0m
(2016: £22.2m), underlying profit
before tax increased by 8%, in line
with the Board’s expectations.
Our International Star brands
continued their strong performance
in 2017. Sales of our scar reduction
brand Kelo-cote grew across many
international territories to reach
£13.3m, an increase of 34% (2016:
£10.0m). MacuShield, the No.1
macular pigment supplement
recommended by eye experts,
saw sales increase by 38% to
£7.3m (2016: £5.3m). Overall,
our other brands performed in
line with expectations.
Foreign exchange rate movements
had a favourable effect on revenues
of approximately £2.7m on account of
the weakening of Sterling against the
Euro and US Dollar. On a constant
currency basis, the Group delivered
a like-for-like sales increase of 3.2%.
The currency impact on operating
profits is much smaller due to the
larger proportion of cost of goods
and operating costs denominated
in these currencies.
Gross margin improved from 56.3% to
57.1%, reflecting an improving sales mix.
EBITDA margin was 26%, in line with our
stated target after increasing investment
behind our International Star brands to
grow the business.
There was a marked increase in
underlying free cash flow in 2017 to
£21.7m, up from £13.0m in 2016.
The improvement on the prior year
was due to the continued strong cash
generation of the Alliance business
and the normalisation of working
capital following the build-up in H1
2016, due to the acquisition of the
Healthcare Products Business from
Sinclair Pharma plc.
We were also pleased to be able to
announce two acquisitions during
December 2017, both funded from
existing cash and bank facilities:
Ametop, a topical anaesthetic gel,
acquired from Smith and Nephew,
and Vamousse, for the prevention and
treatment of human head lice, acquired
from TyraTech. These products were
acquired for US$7.5m (£5.6m) and
an initial consideration of US$13.0m
(£9.7m) respectively, together with
inventory totalling $0.9m (£0.7m).
Despite cash outflows of £16.0m for
the acquisitions of Vamousse and
Ametop, the Group’s strong underlying
cash generation, together with the
£4.0m settlement claim receipt from
Sinclair, resulted in the Group’s net debt
reducing to £72.3m as at 31 December
2017 (31 December 2016: £76.1m).
Adjusted net debt/EBITDA leverage
therefore decreased from 2.83 times to
2.46 times in the year (and would have
been 2.06 times had we not made the
two acquisitions). As announced in
December, we have renegotiated our
banking covenants, and our net debt to
EBITDA covenant has been increased
from 2.5x to 3.0x for the life of the
credit agreement through December
2020 to provide sufficient headroom
when making acquisitions. Based on
current business performance and
excluding any prospective acquisitions,
we expect leverage to continue to
reduce to below 2.0 times by the end
of this financial year.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 10
CHAIRMAN'S AND CHIEF
EXECUTIVE’S REVIEW CONTINUED
Underlying Profit
Before Tax
£24.0m
(2016: £22.2m)
23%*
REVENUES FROM
INTERNATIONAL
STAR GROWTH
BRANDS
* Pro-forma including acquisition
revenue
Performance by region
UK and Republic of Ireland
Sales in our largest market grew to
£56.3m, an increase of 4% on a
like-for-like basis, driven primarily by
MacuShield, which responded well to
increased marketing investment and
wider distribution, to achieve sales
of £6.2m (2016: £4.6m). Similarly,
Kelo-cote performed well during the
year, with our renewed focus on the
brand generating 38% growth to
£0.8m. Sales of Hydromol remained
static at £7.0m as the emollient
market slowed considerably.
Other highlights include our local hero
brand Lypsyl, which grew by 32% to
£1.2m, as a result of a product refresh
and increased marketing effort.
Mainland Europe
In aggregate, the sales in our
direct European territories (France,
Germany, Switzerland, Austria,
Italy, Spain and Portugal) were
up 2% to £20.6m (decreasing by
4% on a constant currency basis
relative to 2016). We saw a strong
performance from Kelo-cote of
£3.2m (2016: £1.4m), particularly
since we repatriated our distribution
agreements in France and Italy, but
this was offset by distributor stocking
patterns in Spain and Italy, primarily
for Aloclair, as we completed livery
changes. We are working to solidify
our position in these markets. We will
evaluate opportunities to introduce
Vamousse where appropriate and
continue to analyse further acquisition
prospects to leverage our footprint.
International
We were particularly pleased
with our sales in our International
business, which grew by 13% to
£26.4m compared with 2016 (7%
on a constant currency basis). Asia
Pacific was the primary engine of
growth, with sales increasing by 35%
(28% in constant currency) thanks to
robust sales of Kelo-cote and Aloclair
through our distribution partners. Our
Chinese business saw sales grow by
61% (54% in constant currency), with
Kelo-cote the principal driver.
Strategy
Our Buy & Build model continues
to perform well, providing growth,
profitability and cash generation.
A key part of the model is our
portfolio strategy. We segment out our
high growth International Star brands
as the top priority for promotional
2007
Forceval China
£1.95m
2009
Buccastem Timodine
£7.5m
2011
Quinoderm Ceanel
£1.5m
Rizuderm + 5 Products
£2.4m
A DECADE OF
BUY AND BUILD
2007: Sales £18.2m Underlying PBT £0.4m
2008
Pavacol D
£0.6m
2010
Cambridge
Laboratories
£16.4m
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Chairman’s and Chief Executive’s Review
11
investment. These are Kelo-cote,
our patented scar reduction product
and MacuShield, our supplement
product that replenishes the layer of
protective pigment on the macula,
a critical region at the back of the
eye. MacuShield is the No.1 macula
pigment supplement recommended
by UK eye experts. Following the
acquisition at the end of 2017, we
now have a third International Star
brand in Vamousse, a novel, naturally
based, pesticide-free treatment for
headlice. Each of these products
has international potential. Their
individual marketing strategies are
created centrally and adapted locally
to suit different therapeutic and
cultural approaches to treatment.
Vamousse is of special strategic
relevance in that it was developed
in the US, where it records over
80% of its current sales. Acquiring
Vamousse has enabled us to
establish a low-risk entry into the
world’s largest healthcare market
with immediate profitability. This will
undoubtedly allow us to benefit from
further opportunities as we establish
ourselves in this major market.
Vamousse also has good UK sales,
and the brand fits neatly into our
existing UK OTC portfolio.
As well as our International Stars,
we have several Local Heroes which
are national growth brands that
excel in one or two markets without
necessarily having broader global
potential. Examples are Hydromol,
our UK dermatology brand, Aloclair
our brand for mouth ulcers that
performs very well in Italy and Spain,
and Oxyplastine, a well-known
nappy rash product in France and
Francophone Africa.
Of fundamental importance for
providing profitability and cash
contribution are our numerous
Bedrock products. This part of the
portfolio contains around 70 of our
90 brands and provides around 50%
of our sales, providing a sustainable
base for the business. These products
are very well established in market
niches and need minimal promotional
support. Our Bedrock products were
recently boosted by the acquisition
of Ametop from Smith & Nephew in
December 2017. Ametop is a well-
established and widely used local
anaesthetic gel, used on the skin prior
to injections or cannulations.
We continue to work with the
Medicines and Healthcare products
Regulatory Agency (MHRA) on
Diclectin, a treatment for nausea
and vomiting of pregnancy. We
in-licensed the product from the
Canadian group, Duchesnay Inc.
for the UK in 2015 and for a further
nine European territories in 2016.
Working with Duchesnay, we believe
that we are making good progress in
resolving some of the issues initially
expressed by the regulator in July
2017. We expect to have more clarity
on the regulatory position within
the next few months. There are
currently no licensed treatments for
nausea and vomiting of pregnancy
in the UK, highlighting a clear unmet
medical need. If approved, Diclectin
would represent a sizeable mid-term
opportunity, once the initial marketing
investments have paid back.
Over and above our organic growth
opportunities, we will continue to
look for good bolt-on acquisitions
that will further enhance our
growth. Our ability to conclude
such acquisitions is facilitated by
our strong cash generation and our
falling debt leverage position, as
outlined in our financial review. Our
ability to integrate acquisitions has
been finely honed through 35 deals
in the last 20 years.
2013
Lypsyl
£1.9m
Syntometrine (excl. UK)
£7.5m
2015
Sinclair
£127.5m
Diclectin UK
£1.5m
Lefuhzi + 4
Products
£1.4m
MacuShield
£10.8m
2017
Vamousse
$13–17.5m
Ametop
$7.5m
2007: Sales £18.2m Underlying PBT £0.4m
2017: Sales £103.3m Underlying PBT £24.0m
2012
Opus
£8.0m
Avloclor + 2 Products
£4.2m
2014
Irenat (Germany)
Undisclosed
2016
Diclectin EU
£1.0m
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 12
CHAIRMAN'S AND CHIEF
EXECUTIVE’S REVIEW CONTINUED
Dividend
1.331p
+10%
(2016: 1.210p)
Underlying adjusted
basic EPS*
4.06p
+10%
(2016: 3.69p)
* For definitions of non IFRS alternative
performance measures see note 33
Operations
Our new enterprise resource planning
system, Microsoft AX, is anticipated
to be operational by the end of 2018.
By bringing several legacy systems
onto a single platform that will handle
all our financial and supply chain
planning and fulfilment activities, this
will streamline our processes and
provide a scalable platform as we
pursue further growth.
We continue to keep a close eye
on the unfolding situation with
regards to Brexit. Many of our
licences for medicines were granted
on a national basis, so will remain
unaffected. However, we are taking
proactive steps to ensure that our
regulatory, pharmacovigilance and
quality functions can continue to
operate effectively in the post Brexit
environment. The presence of our
European affiliates affords us a good
degree of optionality in this respect
and we expect minimal changes to
our operational cost base as a result.
Working in conjunction with our
contract manufacturers, we are also
well advanced in our preparations
to upgrade our product packs and
distribution systems to comply with
the forthcoming obligations of the EU
Falsified Medicines Directive legislation
(FMD), which is designed to prevent
counterfeit medicines reaching patients.
People
At Board level, Peter Butterfield was
appointed Chief Operating Officer
in June 2017, to add to his duties as
Deputy Chief Executive. This shift
in responsibilities has allowed John
Dawson to be able to focus more on
outward-facing initiatives, and Peter
to continue the transition to CEO. In
March we announced that following
this planned transition period, Peter
will step into the CEO role from the
1 May 2018 and John will become
a Non-executive Director. Peter has
almost 20 years of commercial and
operational healthcare experience,
the last eight being spent at Alliance.
The Chairman, Andrew Smith,
stepped down from the Board on
1 March 2018, and was succeeded
by David Cook, who has been a
Non-executive Director of the
Company for almost four years.
We thank Andrew for his valuable
contribution to the Company over the
past eleven years that has seen our
underlying PBT grow from £0.5m to
£24.0m and our market capitalisation
from £22m to £320m.
To complement our internal
promotions, during the year we
appointed several external candidates
to round out the Group’s capabilities.
These included Amanda Sicvol, our
General Manager for the US market,
who joined Alliance Pharma with
the acquisition of Vamousse; Chris
Delafield, who joined us from Sanofi
as the new Global Marketing Head
for Kelo-cote; and Chris Chrysanthou,
who joined us from Fladgate LLP to
create our own in-house commercial
legal function.
The performance of the business
is built upon the hard work of our
valued employees, and we wish
to thank all our people for their
dedication and contributions to the
success of the Group. In addition to
our ongoing investment in training
and development, in the last couple
of years we have enhanced our
working environments, with significant
refurbishment of our offices in
Chippenham, as well as new offices
in Madrid, Singapore, and – most
recently – in the United States with the
establishment of Alliance Pharma Inc.
in Cary, North Carolina.
We are delighted to report that in
our most recent survey, we received
our highest ever rating on employee
engagement and look forward
to continuing our efforts to make
Alliance a great place to work and
an employer of choice.
Alliance Pharma plc Annual Report and Accounts 2017
Strategic Report | Chairman’s and Chief Executive’s Review
13
£100m+
OF REVENUE AND
AN INTERNATIONAL
GEOGRAPHICAL
PRESENCE
Our geographic operations have
been greatly enhanced by the
creation of our new affiliate in the
US, the world’s largest healthcare
market, where in the medium
term we anticipate finding further
good opportunities.
Our strong cash generation
and access to debt capital give
us firepower to make further
acquisitions, in line with our proven
strategy, and should we achieve a
favourable regulatory outcome in
relation to Diclectin, this would further
enhance our growth prospects.
We are now a business with more
than £100m of revenues, an
international geographical presence
and a strong, capable and ambitious
management team. We have the
scale and infrastructure in place for
further growth and we look forward
to the future with great confidence.
David Cook
Chairman
John Dawson
Chief Executive
27 March 2018
Corporate Citizenship
We contribute to our communities,
and to many local and national
charities. Our primary fundraising
initiative for the year was, alongside
our employees, to raise £30,000 for
SANDS, the stillbirth and neonatal
death charity, through activities
across the Company including
sponsored walks and a 250 mile
cycle ride between our Paris and
Chippenham offices. We also have
a long-established relationship
with International Health Partners,
to which we donate products for
distribution to health practitioners in
areas of great need around the world.
Dividend
We are recommending a final
payment of 0.888p per ordinary
share, which would bring the total
for the year of 1.331p. The final
dividend will be paid on 11 July 2018
to shareholders on the register on
15 June 2018. Including the £2.1m
interim payment, the total dividend
payment for the year will be £6.3m.
Outlook
We ended the year strongly, with
good levels of organic growth
complemented by the two acquisitions
made at the close of the financial
year. We see exciting prospects for
our newly acquired brand Vamousse,
which alongside Kelo-cote and
MacuShield increases the growth
capacity of the International Star
section of our portfolio.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 14
OUR BUSINESS MODEL AND STRATEGY
Our simple, proven model and clear Buy and Build strategy
create value for stakeholders.
Acquiring products and companies that fit our
strategy at an appropriate price to increase our
corporate value, and integrating them seamlessly.
We have an effective and established approach to identifying, screening,
negotiating and integrating acquired brands and companies.
35 DEALS
OVER 20
YEARS
Buy
Sources of competitive advantage
Progress in 2017
• Extensive networking delivering a
rich pipeline of opportunities
• Strong due diligence team to
evaluate acquisitions
• Efficient integration of acquisitions
• Successful record of securing finance
The acquisition in December 2017 of head
lice treatment range Vamousse brought a third
international growth brand to the Group. Topical
anaesthetic gel, Ametop, purchased from Smith &
Nephew in December 2017, adds to the bedrock
range in the UK and Ireland.
THE VALUE
WE CREATE
Revenue
EBITDA*
£103.3m
£26.8m
THE VALUE WE
SHARE WITH
STAKEHOLDERS
Employees
Patients
• Rewarding careers for our staff
• Improved quality of life
• Active participation in the
ownership of the business as all
employees hold share options
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Our Business Model
15
Maximising brand potential through skilled portfolio
management, effective promotional programmes
and distribution gains.
With our clear segmentation model, our brands play explicit roles in our portfolio
and are allocated appropriate levels of investment accordingly.
20+
YEARS FOCUSED
ON GROWTH
Build
Sources of competitive advantage
Progress in 2017
• Diversified range, balanced between reimbursed and
over-the-counter products
• Portfolio management skills with promotional investment
allocated between International Star growth brands and
Local Heroes, with non-promoted brands forming a
Bedrock of cash generation
• Strong routes to market in more than 100 countries
• Asset-light, cash-generative model, with capital-intensive
activities such as manufacturing and logistics outsourced
• Pan-European and newly acquired US footprint
Our International Star brands Kelo-cote
and MacuShield achieved sales of £13.3m
and £7.3m respectively, driven by marketing
initiatives, expansion into new markets
and partnering activities. Asia Pacific was
a particular engine of growth for Kelo-
cote. In Europe, where we have our own
infrastructure, the repatriation of distribution
agreements for Kelo-cote in Germany,
France, Italy and the UK is intended to
bring new momentum in these markets.
Underlying PBT
£24.0m
Underlying adjusted
basic EPS*
4.06p
Free cash flow*
£21.7m
Healthcare providers
Business partners
Shareholders
• Efficacious and cost-effective
therapies
• Attractive and growing business
for our manufacturing and
distribution partners, and all the
other businesses we interact with
• Ownership of a stronger
business
• Growing dividend
* See note 33
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 16
Alliance Pharma plc
Annual Report and Accounts 2017
STRATEGY IN ACTION – BUY
SPOTLIGHT ON
VAMOUSSE
Vamousse is an innovative, pesticide-free
range of consumer healthcare products
for the prevention and treatment of
human head lice.
Vamousse treatment kills
100% of lice and eggs
within 15 minutes
of contact.
With a unique formulation and requiring only a single
application, Vamousse Head Lice Treatment has been
proven to kill 100% of lice and eggs within 15 minutes of
contact in scientific tests. The mousse format allows quick
and accurate application. The range is non-toxic, pesticide-
free and can be used for children 2 years and older.
Launched in 2014, the brand has gained wide distribution
and grown ahead of the category in the US and UK.
Vamousse now holds the #5 position in the US market,
where more than 80% of its sales are generated; the UK
is the brand’s other core market. The global head lice
treatment market was worth an estimated $370m in 2016*
and is growing at an average rate of 5% to 8% per year.
Alliance acquired the exclusive global rights to the brand
at the end of 2017, and sees further international sales
growth potential through the Group’s EU affiliates and
global distributor network. The acquisition brought a
presence for Alliance in the key US market, and the
move of Vamousse’s US Marketing Director to Alliance
will help ensure a seamless transfer of knowledge and
brand management.
* Nicholas Hall DB6 ‘head lice treatments’,
January 2017, based on manufacturers’
selling prices
Strategic Report | Strategy in Action
17
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REVENUE
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#5
IN US
HEAD LICE
TREATMENT
MARKET
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Alliance Pharma plc
Annual Report and Accounts 2017
STRATEGY IN ACTION – BUILD
SPOTLIGHT ON
INTERNATIONAL
BUSINESS
Whilst Alliance has its own operations
selling directly to customers across
Europe, and more recently the US,
of vital importance is its network of
specially selected distribution partners
to access customers in over 90
other countries.
These partners are managed by
a hand-picked unit operating out
of Paris, where Alliance has been
able to build a team that is highly
experienced in pharmaceuticals and
proficient in many languages.
International is a fast growing part
of our business and our success is
down to the fact that we approach
our relationships with our distributors
as true partners. We work together in
understanding and responding to the
needs of the various markets. We stay
close to each other through frequent
visits and gathering together for
conferences and training events on
key products.
With our partners in China and Asia-
Pacific, we have been able to benefit
from the fast growing economies in
this region.
Across our international business,
our most important products are
Kelo-cote, our class-leading scar
reduction product; MacuShield, No.1
recommended supplement by eye
experts; Flammazine for preventing
infections in serious burns; and
Aloclair for mouth ulcers.
KELO-COTE is an advanced
formula silicone treatment
which helps improve
the appearance of
scars and helps prevent
them from forming.
MacuShield a
dietary supplement
derived from the
marigold flower
(Tagetes Erecta) that
combines the three
macular carotenoids:
Meso-zeaxanthin,
Lutein and
Zeaxanthin.
Strategic Report | Strategy in Action
19
Our International
business, built on
partnerships with
distributors in
100 countries, is a core
part of our growth.
F
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70%
OF KELO-COTE
BRAND REVENUE
FROM INTERNATIONAL
BUSINESS
25%
OF GROUP REVENUE
FROM INTERNATIONAL
DISTRIBUTOR BUSINESS
IN PARIS
OverviewAdditional informationGovernanceStrategic Report
20
Alliance Pharma plc
Annual Report and Accounts 2017
STRATEGY IN ACTION
SPOTLIGHT ON
KELO-COTE
Based on a patented silicone
formulation, our Kelo-cote scar
treatment range is sold in over
65 markets around the world.
Overview
Market
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 with added UV protection, 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.
With the exception of the USA, Alliance owns the
global rights to the Kelo-cote trademark.
The formulation is patented to
2023, and has FDA approval
to make claims that are
substantiated with
clinical data.
The global market for scar treatment products is
estimated to be worth £600m. The category is
expected to grow at around 10% per year, driven
by increasing awareness and cultural change.
There is also an increasing desire for perfect skin,
use of aesthetic surgery and elective C-sections,
particularly in Asia Pacific and Latin America.
The market is fragmented, but Kelo-cote is among
the leading brands on a global basis. There is a
great opportunity both to grow the category and to
gain share in existing markets and expand into new.
Performance
Endorsed by Key Opinion Leaders and with a global
marketing strategy, Kelo-cote has grown strongly.
2017 sales were £13.3m, and management sees
potential to reach £25m within five years.
Growth has been strong in China, Kelo-cote’s largest
individual territory, and in the Asia Pacific region
more broadly. Distribution was brought in-house
in France, Italy and the DACH region (Germany,
Austria and Switzerland) as these businesses reached
critical mass.
Strategic Report | Strategy in Action
The global
market for
scar treatment
products is
estimated to
be worth
£600m.
21
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REVENUES
£13.3m
+34%
22
Alliance Pharma plc
Annual Report and Accounts 2017
STRATEGY IN ACTION
SPOTLIGHT ON
MACUSHIELD
Prescribed by ophthalmologists,
MacuShield is the most recommended
eye care supplement in the UK
and Ireland.
Overview
MacuShield is a once-a-day, easy to take, food
supplement which combines all three macula
carotenoids, Lutein, Meso-Zeaxanthin and
Zeaxanthin, in a formula developed in collaboration
with leading eye experts. Scientific research shows
that these three nutrients are found at the back
of the eye, at the macula, where they form the
macular pigment. MacuShield is recommended
by ophthalmologists as it replenishes the three
macular pigments found at the back of the eye.
Market
The global market for eye health supplements is
estimated by Euromonitor to be worth $1.1 billion*.
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.
Performance
Sales of MacuShield grew by 38% in 2017, driven
by increased distribution in its domestic market and
strong growth in new territories Romania, Serbia and
Greece. Alliance has the rights to sell the MacuShield
trademark in any market outside of the Americas
and the Caribbean. The product is currently sold in
16 markets, and has potential for further expansion
to achieve sales of £15m in five years.
* Euromonitor Global Eye Health Supplements, 2016
Strategic Report | Strategy in Action
23
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Sales of
MacuShield grew
by 38% in 2017
REVENUES
£7.3m
+38%
#1
RECOMMENDED
EYE CARE
SUPPLEMENT IN
UK & ROI
24
OUR PEOPLE
Employing around 200 people in 10
locations around the world, we continue
to build expertise as the business grows
and diversifies.
Engagement
Length
of service
< 2 years: 91
3–4 years: 47
5–6 years: 16
7–9 years: 29
>10 years: 14
Employee survey –
Average Score
79
78
80
76
80
60% Industry
Average
13
14
15
16
17
Our people
With 2016 characterised by the
integration of a significant number
of new colleagues from the Sinclair
business, 2017 was a year of
building upon the strong foundations
we have in the EU’s largest markets.
The acquisition of Vamousse at
the end of the year brought with it
our first US employee, marking a
significant milestone for the Group
in this important healthcare market.
Recruitment
In 2017 35 new people joined the
Group, across different functions
and locations. We enhanced our
capabilities in several marketing
roles, both for our International
Star brands and to support our
International distributor business.
We also brought in business systems
skills to support the implementation
of our new Enterprise Resource
Planning system. To ensure our
Sales & Operation Planning
processes are optimised, we recruited
talented individuals to deepen our
expertise in Sourcing, Supply and
Demand Planning.
1
2
Learning and development
Alongside the recruitment of external
talent, we encourage and support
the development of our people’s
skills and knowledge through internal
and external short courses and
formal training programmes. For
2017 this included management
skills programmes for new and
established managers.
Professional qualifications are
important in many of our functional
roles, and in 2017 our people
achieved success in the fields of
Accountancy, Procurement & Supply,
Marketing and Strategy, Change
and Leadership.
We also look to nurture new talent
by supporting people at the early
stages of their careers. In addition
to offering roles to new graduates
in commercial and regulatory
functions, we launched a new IT
apprenticeship scheme which is
proving very successful.
A number of our people were
promoted and transferred into new
roles to develop their careers and
experience with Alliance. This not only
grows our people, as the business
grows, but also creates opportunities
for further new talent to be brought
into the business.
1. Joanne Velicy
International Marketing Manager
2. George Fenne
New IT Apprentice
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Our People
25
3
5
4
6
PRAISE values
Our company values remain at the
forefront of our minds as we deliver
our day to day business, and every
month we celebrate great examples
of our values in practice in our global
briefing. The achievements are many
and varied; from providing excellent
customer service to a concerned
patient, to delivery of challenging
projects, be they commercial,
technical, system and process, or
organisational infrastructure.
Our people take pride in what they do,
demonstrate an entrepreneurial spirit
and work together to achieve more.
As an example, we were proud to
receive an industry award at the OTC
Marketing awards 2018 for Best New
OTC Packaging Design for the Lypsyl
Mirror Compact. This demonstrated
all of our PRAISE values in action for
a cross-functional team, working with
a number of partners, to develop and
launch an innovative, new approach in
a competitive market.
Employee satisfaction
Our people are committed to
and motivated by the success
of the company. Although our
employee surveys have reflected this
consistently, in 2017 we achieved
our highest ever rating, with 80% of
people positive and motivated in their
work. Some aspects reached levels of
satisfaction exceeding 90%.
During the year we participated in
Britain’s Healthiest Workplace – the
UK’s most comprehensive workplace
3. Amanda Sicvol– Country Manager, USA
Andy Pearce – IT Business Systems
4. Dean Willacy – Management Accountant
Rhodri Smith – Head of Sourcing
Tracy Ford Stuart – Demand Manager
5. Vikki O’Sullivan – Customer Service Executive
Michael Buswell – Group Finance Manager
& Projects Manager
Michelle Newman – Project Coordinator
Ranjit Badesha – ERP Report Developer
Michael Kilmister – ERP Business
Systems Manager
6. Lypsyl Best New OTC Packaging
Design award
Our PRAISE values
PERFORMANCE
Our high performing people
continually drive business success.
INTEGRITY
We build trust in all our relationships
through openness and fairness.
REALISM
We set stretching goals and targets
we believe are achievable.
SKILL
We recruit highly skilled people and
develop their talents to the full.
ACCOUNTABILITY
We take responsibility and deliver
what we promise.
ENTREPRENEURSHIP
Our people think of the business as
if it was their own.
wellness study – for the first time. In
addition to the ability to benchmark
against comparable companies,
participating employers receive an
in-depth report detailing the health
profile of their organisation, while
employees receive Personal Health
Reports. We are proud to have scored
among the top quartile in the small
business category.
We also drive engagement by
working together to achieve more for
others. In 2017 we held our biggest
ever charity team challenge. Through
a range of endeavours, from gym
competitions to cycling from our Paris
office to our Chippenham UK HQ, we
raised over £30,000 for our people’s
chosen charity, Sands.
It is this level of engagement that
powers Alliance.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 26
FINANCIAL REVIEW
The Group achieved a strong financial performance with revenue
increasing 6% to £103.3m (2016: £97.5m), underlying profit before tax
increasing 8% to £24.0m (2016: £22.2m) and free cash flow increasing
67% to £21.7m (2016: £13.0m).
Key Financial
Highlights
• Revenue up 6% to £103.3m
(2016: £97.5m)
• PBT up 8% to £24.0m
(2016: £22.2m)
• Free cash flow up 67% to
£21.7m (2016: £13.0m)
• Net debt reduced to
£72.3m (2016: £76.1m),
whilst investing £16.0m in
acquisitions
• Dividend up 10% to 1.331p
(2016: 1.210p)
Group performance
The Group achieved a strong financial
performance with revenue increasing
6% to £103.3m (2016: £97.5m) and
underlying profit before tax increasing
8% to £24.0m (2016: £22.2m).
The Group’s revenue was enhanced
by approximately £2.7m due to the
weakening of Sterling, primarily against
the Euro and US Dollar. However, the
effect on operating profits was much
lower at approximately £0.3m due
to the natural Euro hedge that exists,
whereby Euro-denominated movements
in sales are matched by corresponding
movements in Euro-denominated cost
of goods and operating costs.
Gross profit increased at a faster
rate than revenue, increasing 8% to
£59.0m (2016: £54.8m), resulting in
a gross margin up 0.8% for the year
to 57.1% (2016: 56.3%). The increase
in margin percentage resulting from
the performance of our International
Star growth brands, Kelo-cote and
MacuShield, and we expect this trend
to continue in 2018.
As planned, the Group increased
investment in sales and marketing
during 2017, focussing on our
International Star growth brands to
support sales growth; this additional
spend resulted in an increase in
administration and marketing costs
(excl. depreciation and amortisation)
of £2.4m to £30.8m, representing
29.8% of sales. The IFRS2 share
options charge also increased
from £0.7m to £1.5m following the
increase in employees resulting from
the Sinclair acquisition.
Earnings before interest, taxes,
depreciation and amortisation
(EBITDA), as per note 33, increased
by 3% to £26.8m (2016: £26.0m).
Excluding the IFRS2 share options
charge, EBITDA increased by 6% to
£28.2m (2016: £26.7m); maintained
at 27% of sales.
Finance cost
Finance costs reduced by £1.6m on the
prior year to £1.8m (2016: £3.4m), due
to a reduction in overall gross debt and
a release of £0.6m estimated deferred
consideration (2016: £0.8m charge).
The average interest charge on gross
debt during the year was 2.96%.
Taxation
The total tax credit for the year of
£0.5m (2016: £4.1m tax charge)
is due to several events occurring
in 2017: the enacted reduction in
Corporate Income Taxes in the US
and France reducing our deferred tax
balances relating to intangible assets
held in these jurisdictions, and the
£5.0m compensation from Sinclair in
respect of Kelo-stretch. As illustrated
in note 33, excluding the impact of
these events and the residual impact
of the UK rate reduction results in
a revised underlying tax charge of
£4.8m, representing an effective tax
rate (ETR) of 19.8%. This revised ETR
is in line with expectations and better
reflects the Group’s underlying ETR
for the foreseeable future.
Sinclair settlement
As announced on 21 March 2017,
the Group reached agreement with
Sinclair Pharma plc in connection
with the material reduction of business
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Financial Review
27
Based on current business
performance and excluding any
acquisitions we may make during the
year, we expect leverage to continue
to reduce during 2018 to below
2.0 times by the end of the 2018
financial year.
The Group has total bank facilities
of £100m of which £50.3m (31
December 2016: £66.5m) was drawn
on the Term Loan with £34.0m (31
December 2016: £18.0m) utilised
from the Revolving Credit Facility. In
addition to this, the Group also has
access to a £4.5m working capital
facility, which was undrawn at 31
December 2017, and an additional
undrawn £25.0m facility available
with bank approval.
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. For
this reason, the Directors continue
to adopt the going concern basis in
preparing the financial statements.
Andrew Franklin
Chief Financial Officer
27 March 2018
in Kelo-stretch, acquired in 2015.
The terms of the compensation
agreement were a £4.0m cash
payment to Alliance (received in
April 2017) and a deferred cash
payment of a further £1.0m to be
paid on or before 30 June 2018.
Net compensation of £4.4m is
recognised as non-underlying
exceptional income in the Income
Statement, representing the £5.0m
settlement net of an impairment
charge for Kelo-stretch and
associated costs of £0.6m.
Earnings per share
Reported basic earnings per share
increased 58% to 6.10p (2016:
3.85p) due primarily to the Sinclair
settlement and the impact of the
reduction in US tax rate.
Adjusting underlying basic earnings
per share to exclude non-underlying
items and the effect of tax rate
changes, this metric increased by 10%
to 4.06p (2016: 3.69p). The increase
reflects the Group’s higher underlying
profit after tax and is the measure
used by the Board and Management
in assessing earnings performance.
Dividend
The Directors propose to maintain
a progressive dividend policy and
are recommending a final payment
of 0.888p per ordinary share to
give a total for the year of 1.331p.
This represents an increase of 10%
on 2016.
The final dividend, subject to approval
at the Company’s AGM on 24 May
2018, will be paid on 11 July 2018
to shareholders on the register on
15 June 2018.
The level of dividend cover in 2017
remained prudent at over three times.
The total dividend payment for 2017,
including the £2.1m interim payment,
will be £6.3m.
Intangible assets
Intangible assets increased by
£13.8m to £278.6m (2016:
£264.8m) due to the acquisition
of the worldwide rights to Ametop
announced on 1 December 2017
for $7.5m (£5.6m); the acquisition
of the worldwide rights to Vamousse
announced on 28 December 2017
for estimated consideration of
$15.5m (£11.6m); and £0.5m of
development costs; less foreign
exchange adjustments of £3.4m;
and also less the £0.5m impairment
for Kelo-stretch described above.
Cash flow and net debt
Demonstrating the strong cash
generative nature of the Group,
free cash flow (defined as cash
generated from operating activities
(excluding non-underlying items) less
interest, tax and capital expenditure)
increased 67% in 2017 to £21.7m
(2016: £13.0m).
The increase is driven by the trading
strength of the Group and the
stabilising of working capital in 2017
following its build-up in 2016 after
the Sinclair acquisition.
The Group’s strong underlying
cash generation, together with the
£4.0m settlement claim receipt from
Sinclair, resulted in a reduction in
the Group’s net debt to £72.3m as
at 31 December 2017 (31 December
2016: £76.1m) despite the £16.0m
investment in acquisitions.
Consequently, adjusted net debt/
EBITDA leverage fell to 2.46
times (2016: 2.83 times) against
our covenant limit of 3.0 times
(31 December 2016: 3.0 times).
As announced in December, we
renegotiated our banking covenants,
and our net debt to EBITDA covenant
has been increased from 2.5x to 3.0x
for the life of the credit agreement
through to December 2020.
Excluding the acquisitions completed
in December 2017, our leverage
at 31 December 2017 would have
been 2.06 times.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 28
RISK MANAGEMENT AND INTERNAL CONTROLS
At a global level, Alliance Pharma plc recognises that it is essential
that we actively manage our risks and opportunities. This means
balancing risks and opportunities to not only meet the Group’s
strategic objectives and deliver value to our shareholders but to do so
in a sustainable and considered way. We remain focused on our values
and believe that adopting responsible behaviour across our business
activities plays an important part in achieving our purpose.
Risk management
The Board, assisted by the Audit
& Risk Committee, is ultimately
responsible for overseeing
management’s activities in identifying,
evaluating and managing the risks
facing the Group. Where these risks
are not ones which the Board is
prepared to take, these are avoided,
eliminated as far as possible and/or
transferred to insurers.
In 2017, the Group completed the
development and introduction of a
new process for the identification,
assessment and management of risks
in the business, which is driven and
monitored by the Senior Leadership
Team with the support of the
Company Secretary.
There are risk registers in place at a
departmental and functional level.
Risks are identified and assessed by
the likelihood of them occurring and
their potential impact on the business.
These are then categorised to identify
those that can be effectively managed
at a functional or departmental level
and those that need to be addressed
at a cross-functional business level.
Existing mitigations are considered
for each risk and the residual levels
of exposure assessed. 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. The Senior
Leadership Team reviews all identified
risks on a quarterly basis, with the
principal risks being monitored
monthly and, in the case of principal
risks and uncertainties, such risks are
reported to and reviewed by the Audit
& Risk Committee and the Board.
Our approach to risk
Identify
Assess
Mitigate
Review
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.
The likelihood and
impact of each
risk is assessed
to calculate the
potential level of
exposure on the
business.
Actions being taken
to help mitigate and
reduce the potential
exposure to the
risks are regularly
reviewed to ensure
actions remain
effective.
Risk registers are
regularly reviewed
to capture and
identify new
risks and identify
opportunities
to improve the
mitigating actions.
Report
The Senior Leadership
Team reviews all
identified risks on a
quarterly basis, with
the principal risks
being monitored
monthly and, in the
case of principal risks
and uncertainties,
such risks are
reported to and
reviewed by the Audit
& Risk Committee
and the Board.
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Risk Management and Internal Controls
29
Enterprise Resource
Planning System
To further enhance the Group’s
systems of internal control, a new
enterprise resource planning system
(Microsoft Dynamics AX) is expected to
be implemented by the end of 2018.
Once the installation is complete it
will support systems of control relating
to the Group’s sourcing, distribution,
sales and accounting processes as
well as provide significantly enhanced
management information and an
enhanced internal control environment.
The Group 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.
Each year, the Audit & Risk Committee
and the Board separately consider the
need for an internal audit function
and given its current size, does not
judge it appropriate to maintain a
dedicated internal audit function.
This position is kept under review.
Internal controls
The Group maintains systems of
internal control appropriate to a
business of this size and complexity
and which includes taking into
account the applicable requirements
of pharmaceutical regulators in
the various markets in which the
business operate.
The key components of the current
system of internal control are:
• Setting and communicating clear
strategic goals
• Developing business plans and
budgets in line with strategy,
supported by intra-year forecasting
• Regular reporting of actual
performance relative to those
strategic goals, plans, budgets
and forecasts
• Working within a defined set of
delegated authorities approved by
the Board to the CEO, and through
him, to the Senior Leadership
Team and their delegates through
authorisation registers managed at
a departmental and functional level
• 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 & Risk Committee
reviews the systems of internal
control for the Group alongside
the Group's process for risk
management and reports its
findings to the Board
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 30
OUR PRINCIPAL RISKS AND UNCERTAINTIES
As we continue to grow as a business,
the risks we face continue to be
carefully managed.
The Board has assessed what it
believes are the principal risks
facing the Group, being those that
could threaten our business model,
reputation, future performance,
solvency or liquidity of the business,
and these have been linked to the
key elements of our strategy as
described on pages 14 and 15.
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
internal controls and strategies for
mitigation are and remain effective.
The table below is not an exhaustive
list of all risks the Group faces but are
the principal risks and uncertainties
(which the directors believe include
all known material risks in relation
to the Group and the markets and
industry within which we operate.
The environment in which we operate
is constantly evolving and can be
affected by externalities that are
outside of our control and which
may impact on us operationally.
New risks may arise, the potential
impact of known risks may increase
or decrease, and/or our assessment
of these risks may need to change.
We have explained how each risk is
being managed or mitigated. Our
approach to risk management has
been explained on pages 28 and 29.
Market competition – the products we buy/sell are subject to the market forces of supply and
demand and new competition
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising
and extending
brand potential
International
expansion
The products we sell are subject to normal market
forces, so demand may fall, our products may face new
or increased competition or the price we can achieve
may be reduced.
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.
Competition comes from several different sources.
The Group has to ensure it has adequate resources to
respond to any increased competition which includes
new entrants into UK or overseas markets.
These risks have the potential to compromise our
future performance and, in an extreme scenario,
cash generation.
– The Group constantly monitors that
marketing campaigns deliver to
support the strategy.
– We continue to monitor and
regularly forecast sales, costs,
profits and cash flows.
– We have a model for debt covenant
compliance and where necessary,
mitigating actions could be taken
to ensure we remain within our debt
covenants and are able to meet
scheduled payments and therefore
our liabilities.
This risk has
not changed
materially
since last
year.
Alliance Pharma plc Annual Report and Accounts 2017
Strategic Report | Our Principal Risks and Uncertainties
31
Continued expansion and growth of the business
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising
and extending
brand potential
International
expansion
There can be no guarantee that the Group will be able
to identify suitable targets to continue its expansion.
The market for high quality products (whether bedrock
or growth) is highly competitive and the Group may find
itself unable to compete in such a market if the pricing
of such targets proves prohibitive.
As the Group looks to increase the size of its targets,
the complexity around acquisition and integration of
such targets can also increase. The financial impact
of such potential risks (unidentified risks during due
diligence, external advisers, additional staff etc) could
impact on the profitability of such targets and the Group
as a whole.
This risk has
not changed
materially
since last
year.
–
–
–
Pipeline – We monitor the market
for attractive acquisitions to develop
a pipeline of opportunities that
we could potentially bring into our
portfolio of products thereby ensuring
that we remain competitive in the
industry. Our dedicated Corporate
Development Team has many
years’ experience in identifying and
completing transactions, as well as
a wide network of contacts in both
medium and big pharma.
Integration – continue to ensure that
we integrate acquisitions into the
business in an effective, and efficient
manner, with an experienced due
diligence and integration team within
the various functions.
Business development skills and
expertise have been bolstered
by new in-house legal counsel
with many years’ experience in
M&A transactions.
Supply chain, sourcing and logistics – potential constraints on our ability to supply and
deliver products to our customers
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising and
extending brand
potential
Manufacturing, sourcing or distribution issues, including
an inability to increase production volumes to meet
demand or failing to create demand for forecast
and manufactured production volumes, impinges on
our potential sales. These risks have the potential to
compromise our future performance and, in an extreme
scenario, cash generation.
The products we sell could risk losing their regulatory
approval in the relevant territory or could become
subject to public procurement processes resulting in
constraints on either our ability to supply or the prices
that can be achieved.
This risk has
not changed
materially
since last
year.
–
We have developed forecasting
systems that allow us to work with our
contracted manufacturers to ensure
production volumes meet our ability
to supply products.
– Where necessary and appropriate, we
ensure that the investment in capacity
or sourcing of components from
within our supply chain is increased.
– Generally, we ensure sufficient
stock is held in the supply chain for
most products. This is bolstered
by the dual sourcing of our brands
where it is deemed appropriate.
The diversification through selling
a wide range of products, many
of which do not require regulatory
approval, or are not subject to public
procurement processes.
– Our experienced technical and
regulatory staff build and maintain
their knowledge of the public-sector
procurement process.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 32
OUR PRINCIPAL RISKS AND
UNCERTAINTIES CONTINUED
Product regulation – our products are subject to UK and overseas regulatory requirements
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising and
extending brand
potential
Some of our products may not gain regulatory
approval or could face risk of having their regulatory
status challenged or adversely altered. This could
affect the group’s ability to launch any new products or
expand geographically. These risks have the potential
to compromise our future performance and, in an
extreme scenario, cash generation.
–
–
The business allocates significant
and experienced resources to
supporting the regulatory approval
of products, including any extensions
to other markets.
The business engages in regular
discussions with local regulatory
advisers (internal and external) to
monitor any products that may be
subject to challenge.
This risk has
not changed
materially
since last
year.
Attraction and retention of key employees – losing good people to competitors or
failing to recruit qualified people
Link to strategy
Risk description and impact
Management and mitigation
Trend
Investing in people Competitor’s may try to recruit some of our key
employees. The business recruits and is dependent on
certain key executive employees. Whilst the business
has entered into employment arrangements with the
view of securing their service we cannot guarantee their
retention which means we run the risk of losing good
people, and with it their knowledge, skills and expertise.
Working at an international level means we must be able
to access good qualified people to support the business
both from the UK and in our overseas territories.
Changes in political landscapes, and local rules and
regulations can have an impact on our ability to recruit
foreign nationals.
The loss of those employees could weaken the Group’s
management capabilities, impacting on our day-to-day
operations.
This risk has
not changed
materially
since last
year.
– The Group is committed to putting in
place incentive and reward structures
that are regularly reviewed to ensure
we remain a competitive employer.
– We ensure that roles and
responsibilities are clearly defined and
are supported by documented systems
and procedures to provide a level of
continuity in the event an employee
moves on in their career.
– We work with international and local
country agencies to ensure we find
and recruit good quality employees.
Working with existing foreign nationals
based in the UK to support their
employment in the Group, as the
political landscape changes.
–
Induction and training for new
employees – the Group has a
structured and wide-ranging induction
process for new joiners to ensure
that they understand the Group, its
business and how important the role
they will play is within the Group. This
has helped nurture a positive team
and work ethic within the Group.
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Our Principal Risks and Uncertainties
33
Group-wide financial, legal and regulatory compliance – failing to meet legal or regulatory compliance
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising and
extending brand
potential
As we enter new territories and overseas markets, the
risks we are exposed to in those overseas territories and
markets means we could be subject to matters such as
bribery and corruption.
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 several
regulatory inspections/investigations on an ongoing
basis. It is therefore possible that the Group may incur
penalties for non-compliance and potentially impact
on the sales of our products and cause damage to our
brands and our reputation.
In addition, several of the Group’s brands and products
are subject to pricing controls and other forms of legal
or regulatory restrictions from both governmental/
regulatory bodies and also from third parties.
The Group has ongoing regulatory requirements
(pharmacovigilance etc) which could, if not adhered
to, lead to substantial fines and impact on the group’s
ability to sell certain products.
As the Group expands its operations, the general
tax environment in which it operates becomes more
complex and the risk to incorrectly report and pay
relevant taxes increases.
– The business carries out careful
assessments with its legal, commercial
and operational teams, to determine
whether to recognise a provision
in respect of these matters. These
judgements are often complex and
rely on estimates and assumptions
as to future events.
This risk has
not changed
materially
since last
year.
–
In-house legal function has been
bolstered in order to increase
the internal management of
legal compliance.
– The Group has engaged external
consultants to implement control
improvements using current systems.
This will be further supported by
the introduction of the new ERP
system which will assist with supply
chain management.
– Third party experts are engaged
in our overseas territories to help
us comply with local rules and
regulations and ensure that our
operations are monitors against them.
We request training and support from
service providers (UK and overseas)
to widen internal knowledge
for our employees for legal and
regulatory issues.
–
Induction and training for new
employees – the Group has a
structured and wide-ranging induction
process for new joiners to ensure
that they understand their individual,
and the Group’s, obligations in
relation to such matters as adverse
event reporting. Furthermore,
the Group has a programme of
periodic training around legal and
regulatory compliance.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 34
OUR PRINCIPAL RISKS AND
UNCERTAINTIES CONTINUED
Foreign exchange risk – volatility in reported profits
Link to strategy
Risk description and impact
Management and 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 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
not changed
materially
since last
year.
The risk is primarily to reported profits rather than cash,
but in an extreme scenario could compromise our cash
generation and liquidity position.
Product liability – defective products etc
Link to strategy
Risk description and impact
Management and 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.
– Dedicated in-house Quality
function, supplier audits.
– The Group’s products are well
tolerated, and many have been
in existence for decades.
These risks have the potential to damage our reputation
and compromise our future performance and, in an
extreme scenario, liquidity position or even solvency.
– 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
since last
year.
Information security and data protection
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising and
extending brand
potential
We hold significant amounts of confidential data on
our customers and employees. Some of that data is
being collected via our transaction processes, which
includes financial information and other personal
data. A failure to abide by data protection rules or
incur a breach of data security could post a financial
and reputational risk to the Group.
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.
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.
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.
– Appropriate physical and cyber
security measures are in place
to prevent unauthorised access
to information.
– We provide training and alerts
to staff members to ensure that
they are fully aware of technical
data protocols.
– Third parties are engaged to
review and recommend ongoing
improvements to enhance IT security
and resilience.
This risk has
increased
since last
year
Expanded
to consider
the impact
and changes
required
under
wider data
protection
changes in
2018.
Alliance Pharma plc Annual Report and Accounts 2017 Strategic Report | Our Principal Risks and Uncertainties
35
Business systems – ERP and other systems
Link to strategy
Risk description and impact
Management and mitigation
Trend
Integrating acquired
products and
companies
Maximising
and extending
brand potential
International
expansion
There is always a risk to our business systems
that means we could lose functionality, end up
with corrupted files or suffer errors in our master
data systems.
The ERP system may not be 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.
This risk has
not changed
materially
since last
year.
–
The Group continues to invest in
its systems generally and has also
introduced an IT Steering Group
to provide oversight of core
systems across the business and
lead on changes required as a
result of systems development or
regulatory changes.
– 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 continues to have
the support of the Board and the
Audit & Risk Committee and is
regularly reviewed by the Senior
Leadership Team and reported
on at Board level.
– We continue to work towards
successful implementation of the ERP
system alongside stringent testing
before retiring the legacy systems.
Business continuity – the ability to continue operating in the event of extreme events
Link to strategy
Risk description and impact
Management and mitigation
Trend
Sustained growth
As with many businesses, we are at risk of problems
affecting our ability to continue operations because
of extreme events. This could be an event that affects
our people, operational sites, offices or equipment
and systems, which would prevent our business from
functioning as normal.
– The Group has implemented and
continues to monitor the suitability
of disaster recovery plans to
ensure an ability to continue with
its operations in the event of a
disruption to any of its operating
facilities or systems.
– We use third parties to support and
review resilience of our operating
platforms and recommendations
are implemented as appropriate.
This risk has
not changed
materially
since last
year.
Political uncertainty – Brexit
Link to strategy
Risk description and impact
Management and mitigation
Trend
Sustained growth
The business, its management and employees are all
aware of the potential risks and uncertainties created
as a result of the UK’s vote to leave the EU (Brexit). The
potential impact of Brexit affects aspects across our
business, including product regulation, ability to trade
cross-border, ability to continue to supply under existing
terms, and our ability to recruit foreign nationals to
work with us in the UK.
– The business continues to monitor
the developments affecting our
industry and markets and we
contemplate ‘what-if’ strategies
where we have been alerted to
potential changes that could occur.
– The Group has established an
internal Brexit Strategy Group to
actively manage this uncertainty.
This risk has
not changed
materially
since last
year.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 36
Alliance Pharma plc
Annual Report and Accounts 2017
Building our
performance
through
M&A
Governance
With 35 acquisitions in 20 years,
our model of identifying,
acquiring and integrating assets
is well established.
Governance
38 Board of Directors
40 Corporate Governance
44 Remuneration Report
47 Directors’ Report
37
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38
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.
Committee Membership key
Audit & Risk Committee
Remuneration Committee
Nomination Committee
Committee Chair
David Cook
Independent
Non-Executive Chairman
Peter Butterfield
Executive Director,
Deputy Chief Executive Officer
John Dawson
Executive Director,
Chief Executive Officer
David joined the board of Alliance as
a non-executive director in 2014 and
was appointed Chairman of the Board
on 1 March 2018. He is currently Chief
Financial Officer and an Executive Director
of Ellipses Pharma, a global 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 from the University of Oxford.
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 June 2017. 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 negotiation team with
the UK Government. Prior to joining
Cambridge Laboratories, Peter spent six
years at GlaxoSmithKline in a variety of
marketing and sales roles. He holds an
honours degree in Pharmacology from
the University of Edinburgh.
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.
Peter has significant commercial
experience in the life sciences sector and
strong leadership experience gained in a
variety of contexts.
Peter will take over as CEO on 1 May 2018.
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 fast growing
international pharma company.
John will step down from the CEO role on
1 May 2018 and become a Non-Executive
Director of the Company.
Alliance Pharma plc Annual Report and Accounts 2017 Governance | Board of Directors
39
Peter Butterfield, John Dawson
and David Cook.
Andrew Franklin
Executive Director,
Chief Financial Officer
Thomas Casdagli
Non-Executive Director
Nigel Clifford
Independent Non-Executive Director
Andrew joined Alliance in September 2015
from Panasonic Europe Ltd, 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. 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 of international
businesses, including significant prior
experience in life science companies.
Thomas joined the board of Alliance as
a non-executive director in 2009. He is a
partner at MVM Partners LLP, a healthcare
private equity firm, 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.
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
positions 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.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 40
CORPORATE GOVERNANCE
Chairman’s introduction to Governance at Alliance Pharma plc
As Chairman, I am pleased to introduce this section of the annual report. Governance continues to be crucial
to any company’s future development. Your Board recognises that good governance can help create value by
reducing the risks that we face as we seek to create value for our shareholders and can be used to support our
values and behaviours.
As an AIM quoted company, Alliance Pharma plc has chosen to follow the QCA’s Corporate Governance Code for
small and mid-size quoted companies 2013 (the ‘Code’). The Board believes that this provides an appropriate and
suitable governance framework for a group of our size and complexity. Alongside this, we monitor developments
in the UK Corporate Governance Code, applicable to listed companies traded on the main market, to keep
abreast of best practice but we are not required to apply it.
A good governance framework can provide solid foundations from which to support leadership, accountability,
transparency and disclosure. Strong systems and processes for informed decision-making ensures that the Board
and its Committees are provided with clear agendas, timely information that is delivered through good quality
briefing materials; and, which cover all relevant factors and that our deliberations consider the risks, as well as the
opportunities, inherent in the topic before us.
On 1 March 2018, we announced Andrew Smith’s departure from the Company. As Chairman I will oversee
all matters relating to good governance. The Nominations Committee and the Board is mindful of the current
composition and membership of the Board and all of the Committees and we are working with advisers to ensure
we continue our succession planning and search for high-calibre individuals to join our Board and management
team who possess the right skills and experience necessary to complement our Board. Having a Board that
consists of Directors drawn from a range of backgrounds, skills and experience ensures we are able to continue
to take decisions in the interests of all stakeholders and good governance plays a vital part in helping support the
Company’s growth strategy and in turn its long-term success.
As we continue to deliver on our strategy and grow as a business, we have been focussed on our systems of risk
management and internal controls. We are now in the final stages of implementing and rolling out a Group-wide
Enterprise, Resource and Planning system designed to embed and systematise controls to support the business,
and we have implemented a revised risk management system, managed by the Senior Leadership Team and
reporting directly to both the Board and Audit & Risk Committee.
Details of our principal risks and uncertainties can be found on pages 30 to 35.
The remainder of this section provides an update of our Corporate Governance, the Remuneration Report and
the Directors’ Report. In these reports we set out our governance structures and explain how we have applied the
Code during the year under review.
Thank you for your continued support and the Board looks forward to meeting any shareholder who can join us at
our Annual General Meeting on 24 May 2018.
David Cook
Chairman
Alliance Pharma plc Annual Report and Accounts 2017 Governance | Corporate Governance
41
Board and Committee
balance, composition
The Board currently comprises six
Directors, being the Chairman,
three Executive Directors and three
Non-Executive Directors (including
the Chairman). The Board keeps
under review its current balance
of composition, which 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.
Having considered the guidelines
on independence, on appointment
as Chairman, David Cook was
independent and continues to
be regarded by the Board as
independent alongside Nigel
Clifford. 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
therefore regard him as independent.
The Board is comfortable with the
current composition of the Board
however, as part of the on-going
succession planning, which includes
the changes which are coming into
effect on 1 May 2018, the Board
continues, with the advice Nominations
Committee, to consider any additions
to the Board to further broaden the
experience and effectiveness of the
Board as the Group continues to grow.
As part of this process the Board has
also considered and concluded that,
the appointment of Senior Independent
Director was not necessary at this time
but keeps this issue under review.
Board support
The Company Secretary plays a vital
role in ensuring good governance,
assisting the Chairman. On behalf
of the Chairman, Chris Chrysanthou
is responsible for ensuring that all
Board and Committee meetings are
conducted properly, that the Directors
are properly briefed on any item
of business to be discussed and for
ensuring that governance requirements
are considered and implemented and
for accurately recording each meeting.
Procedures are in place for
distributing meeting agendas and
reports so that they are received
in good time, with the appropriate
information. Ahead of each Board
meeting, the Directors each receive
reports which include updates on
finance and monthly management
accounts, operations including
regulatory, commercial activities,
business development, risk
management, legal and regulatory,
HR and investor relations issues.
operates effectively in the interests
of the shareholders. The CEO is
responsible for the leadership of
the business and implementation
of the strategy.
Non-Executive Directors
The role of our 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
The Directors may have access to
independent professional advice, where
needed, at the Group’s expense.
• Ensure that the systems of risk
management are robust and
defensible
Leadership: Roles and
Responsibilities
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.
Chairman and Chief Executive
Officer (CEO)
The respective responsibilities of
the Chairman and CEO are very
clearly understood. The Chairman
is responsible for leading the Board,
facilitating the effective contribution
of all members and ensuring that it
• Review corporate performance
and the reporting of such
performance to shareholders.
Each of the Non-Executive Directors
sits on the Nominations 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
& Risk Committee, enabling them to
review internal control and financial
reporting matters at first hand, and
have a direct relationship with the
external auditors.
Board and Committee meetings
and attendance
The Board and its Committees meet
regularly on scheduled dates, including
a two-day strategy meeting each
year which is also attended by 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 2017 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.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 42
CORPORATE GOVERNANCE CONTINUED
Leadership: Roles and Responsibilities continued
Board and Committee meetings and attendance continued
In leading and controlling the Company, the table below sets out the total number of meetings held by the Board and
its Committees and records attendance by each member eligible to attend during the year ended 31 December 2017:
No. of scheduled meetings
Directors
Andrew Smith1
Peter Butterfield
Thomas Casdagli
Nigel Clifford
David Cook
John Dawson
Andrew Franklin
Board
11
11
11
11
10
11
11
11
Audit
Committee
Nomination
Committee
Remuneration
Committee
3
3
–
–
2
3
–
–
3
3
–
3
3
3
–
–
4
4
–
4
4
4
–
–
1 Andrew Smith resigned from the Board on 1 March 2018.
Board Effectiveness Review
It is the Company’s policy that a Board
effectiveness review is undertaken
biennially, with the next one due in
2018. Generally, any such review
is done in 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.
Results and outcomes are analysed
by the Company Secretary and
Chairman and any key themes are
reported and discussed with the Board.
Any recommendations arising from
such review which are designed to
specifically address any issues identified
are implemented by the Board.
Diversity
The Board is aware of the continued
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.
Board Committees
The Board has delegated and
empowered an Audit & Risk
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 follows.
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.
In addition to general matters
within its remit, the Remuneration
Committee was involved in the
succession planning process and the
remuneration matters related thereto.
The current members of the
Remuneration Committee, all of
whom held office throughout the year
and to the date of his report, are:
• Nigel Clifford (Chairman of the
Remuneration Committee)
• Thomas Casdagli
• David Cook
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 held five formal
meetings during the year.
The Company’s remuneration policy
and details of the amounts due to
the Directors of the Company in
respect of the year are set out in
the Remuneration Report on pages
44 to 46. As the Company is not
listed, it is not required to produce a
formal remuneration policy or seek
shareholder approval of that policy.
Andrew Smith chaired the Remuneration
Committee until 1 March 2018 when he
stepped down as a director.
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.
Alliance Pharma plc Annual Report and Accounts 2017 Governance | Corporate Governance
43
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. During the
year, in addition to its general role, the
Nomination Committee undertook
and managed the succession planning
process, as part of which it carried
out an internal and external review of
potential candidates for the position of
Chair of the Board.
The members of the Nominations
Committee, all of whom held office
throughout the year and to the date
of this report, are:
• Nigel Clifford (Chairman of
the Nominations Committee)
• Thomas Casdagli
• David Cook
The Company Secretary acts as
secretary to the Nominations
Committee. In addition, John Dawson
has a standing invite for all meetings
and, during this year, the Chief HR
Officer was invited to attend certain
meetings of the Committee, particularly
when succession planning was being
discussed. The committee held three
formal meetings during the year.
Andrew Smith chaired the Nominations
Committee until 1 March 2018 when
he stepped down as a director.
Audit & Risk Committee
The role of the Audit & Risk
Committee is set out in formal
terms of reference, available on the
Company’s website, and is to:
• 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
• 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
place procedures to ensure that the
Directors, and all employees of the
Group, are aware of and understand
the code and the importance of
compliance with it.
•
review the Company’s risk
management and internal control
systems and their effectiveness
The members of the the Audit & Risk
Committee, both of whom held office
throughout the year and to the date
of this report are:
• David Cook (Chairman of the
Audit & Risk Committee)
• Nigel Clifford
The Company Secretary acts
as secretary to the Audit & Risk
Committee. Thomas Casdagli, the
CEO, the Deputy CEO, CFO and the
Group Financial Controller are invited
to 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 Audit & Risk Committee continued
to manage and oversee the relationship
between management and KPMG to
ensure that the processing around audit
worked effectively and were there were
any particular issues they were resolved.
The Committee held three formal
meetings during the year.
Andrew Smith was a member of the
Audit & Risk Committee until 1 March
when he stepped down as a director.
Relations with shareholders
Throughout the year the CEO,
Deputy CEO and 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 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, the Deputy 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.
Annual General Meeting
(“AGM”)
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.
Share dealing
The Group has put in place a share
dealing code appropriate to an AIM
listed company, and the Group has in
This year’s AGM will take place at
10.00am on 24 May at the offices of
Buchanan Communications,
107 Cheapside, London EC2V 6DN.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 44
REMUNERATION REPORT
Remuneration Policy
Remuneration in practice
4.
The remuneration that the Company
offers to its Executive Directors
continues to be based on four
principal components:
1.
Basic Salaries and Benefits
in kind – Basic salaries are
determined by the Remuneration
Committee bearing in mind the
salaries paid in AIM-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.
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.
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.
2.
3.
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 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.
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, or on promotion.
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 have
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.
Alliance Pharma plc Annual Report and Accounts 2017 Governance | Remuneration Report
45
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
gains
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Peter Butterfield
206,667
199,667
10,812
11,111
20,583
20,000
54,664
82,500
292,726
313,278
13,984
John Dawson3
244,000
240,886
13,464
13,495
113,899
10,000
62,546
59,400
433,909
323,781
Andrew Franklin
165,000
150,000
10,967
10,441
16,500
15,000
34,578
42,624
227,045
218,065
Thomas Casdagli
–
–
Nigel Clifford
36,001
35,411
David Cook
37,668
35,411
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36,001
35,411
37,668
35,411
–
–
–
–
–
–
–
–
–
–
–
306,710
313,278
433,909
323,781
227,045
218,065
–
–
36,001
35,411
37,668
35,411
689,336
661,375
35,243
35,047
150,982
45,000
151,788
184,524 1,027,349
925,946
13,984
– 1,041,333
925,946
Former Directors:
Anthony Booley1
–
106,766
Andrew Smith2
72,946
71,750
–
–
–
–
–
–
–
–
–
–
–
–
–
106,766
72,946
71,750
–
–
–
–
–
106,766
72,946
71,750
Total3
762,282
839,891
35,243
35,047
150,982
45,000
151,788
184,524 1,100,295 1,104,462
13,984
– 1,114,279 1,104,462
Notes:
1
Anthony Booley ceased to serve as a Director on 30 June 2016.
2 Andrew Smith ceased to serve as a Director on 1 March 2018.
3
The increased pension contribution in respect of John Dawson is a catch-up of contractual payment entitlement due to underpayment in
previous years.
No Director received any remuneration from a third party in respect of their service as a Director of the Company.
Benefits
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.
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 benefit scheme. No Director
or former Director received any benefits from a retirement benefit scheme that were not otherwise available to all
members of the scheme.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 46
REMUNERATION REPORT CONTINUED
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
Peter
Butterfield
2016
Changes in the year
2017
Date of
Grant
Exercise
price
(pence)
Performance
condition?
Number
of shares
Granted Exercised
Lapsed
Number
of shares
Exercisable
from
Exercisable
to
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 1,000,000
No
115,000
No 1,130,000
No
No
140,000
144,200
23-Oct-13
35.75
EPS growth
400,000
11-Apr-14
33.75
EPS growth
144,200
27-May-15
43.75
EPS growth
166,625
27-Oct-16
47.50
EPS growth
200,000
27-Oct-16
47.50
EPS growth 1,000,000
–
–
–
–
–
–
–
–
–
–
15-Sep-17
53.00
EPS growth
15-Sep-17
53.00
No
–
–
148,397
56,603
(90,222)
–
–
–
–
–
–
–
–
–
–
–
–
–
909,778
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
–
–
148,397
15-Sep-20
15-Sep-27
56,603
15-Sep-20
15-Sep-27
4,440,025 205,000
(90,222)
– 4,554,803
Andrew
Franklin
04-Dec-15
46.75
No 2,000,000
27-Oct-16
47.50
EPS growth
155,000
27-Oct-16
47.50
EPS growth
400,000
–
–
–
15-Sep-17
53.00
EPS growth
–
170,000
2,555,000
170,000
–
–
–
–
–
– 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
170,000
15-Sep-20
15-Sep-27
– 2,725,000
The closing mid-market price of ordinary shares on 29 December 2017 (being the last dealing day in the calendar
year) was 67.13p and the range during the year was from 45.13p to 67.13p.
Alliance Pharma plc Annual Report and Accounts 2017 Governance | Directors’ Report
47
DIRECTORS’ REPORT
Scope of this report
The Directors’ biographies on pages 38 and 39, the discussion of corporate governance matters on pages 40 to 43 and
the remuneration report on pages 44 to 46 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 are instead part of 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, including, to the extent
applicable, 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 38 and
39. In addition, Andrew Smith served as Non-executive Chairman until 1 March 2018.
Directors’ interests
The following table shows the interests of the Directors (and their spouses and minor children) in the shares of the Company.
At 31 December 2016
At 31 December 2017
(or earlier date of leaving)
Beneficial
Non-
beneficial
Total
Beneficial
Non-
beneficial
Total
–
–
–
28,376
–
28,376
78,518 55,483,382 55,561,900
78,518 55,483,382 55,561,900
180,663
102,371
–
–
180,663
180,663
102,371
102,371
–
–
180,663
102,371
36,576,402 20,000,000 56,576,402 36,576,402 20,000,000 56,576,402
–
275,000
–
–
–
–
275,000
275,000
–
–
–
275,000
Director
Peter Butterfield
Tom Casdagli
Nigel Clifford
David Cook
John Dawson
Andrew Franklin
Andrew Smith1
Notes:
1 Andrew Smith ceased to serve as a Director on 1 March 2018.
In addition, Peter Butterfield and Andrew Franklin both hold options over shares of the Company through their
participation in the Company’s Share Option Plan, as set out in the Remuneration Report on page 46.
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.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 48
DIRECTORS’ REPORT CONTINUED
Our employees
The Group places great importance on attracting and retaining high quality employees and aligning the success of
the Group with their rewards. As part of this the Group operates a share option plan which aims to ensure that each
employee has a direct benefit from the growth of the business as it translates to the Company’s share price. Further
information about our values and our people can be found on pages 24 and 25.
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report and the Group and parent Company 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 EU (IFRSs as adopted by
the EU) 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, relevant and reliable;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company
or to cease operations, or have no realistic alternative but to do so.
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 are responsible
for such internal control as they determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error, and 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.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a
Directors’ Report that complies with that law and those regulations.
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 0.443 pence per share (2016: 0.403p) which was paid on
11 January 2018. The Directors are recommending a final dividend of 0.888 pence per share (2016: 0.807p) which, subject
to shareholders’ approval at the annual general meeting, will be paid on 11 July 2018 to shareholders on the register at the
close of business on 15 June 2018. The total dividends paid and proposed in respect of the year ended 31 December 2017
is therefore 1.331 pence per share (2016: 1.210p).
Alliance Pharma plc Annual Report and Accounts 2017 Governance | Directors’ Report
49
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
Our auditor, KPMG LLP, has expressed its willingness to continue in office and a resolution to re-appoint KPMG LLP as
auditor for the next year will be proposed at the Annual General Meeting.
Annual General Meeting
The 2018 Annual General Meeting of the Company will be held on 24 May 2018, 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
Chris Chrysanthou
Company Secretary
27 March 2018
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 50
Realising
value through
our skills and
capabilities
Alliance Pharma plc Annual Report and Accounts 2017 Financial Statements
51
Financial
Statements
52 Independent Auditor’s
Report
56 Consolidated Income
Statement
57 Consolidated Statement of
Comprehensive Income
58 Consolidated Balance
Sheet
59 Company Balance Sheet
60 Consolidated Statement
of Changes in Equity
61 Company Statement
of Changes in Equity
62 Consolidated and
Company Cash Flow
Statements
63 Notes to the Financial
Statements
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
We have a proven record of
generating organic growth
through adept portfolio
management, targeted marketing
investment and relationships with
effective distributors.
OverviewAdditional informationGovernanceStrategic Report
52
Independent
auditor’s report
to the members of Alliance Pharma plc
1. Our opinion is unmodified
We have audited the financial statements of Alliance
Pharma plc (“the Company”) for the year ended 31
December 2017 which comprise the Consolidated
Income Statement, Consolidated Statement of
Comprehensive Income, Consolidated Balance
Sheet, Company Balance Sheet, Consolidated
Statement of Changes in Equity, Company Statement
of Changes in Equity, Consolidated and Company
Cash Flow Statements, and the related notes,
including the accounting policies in note 2.
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 2017 and
of the Group’s profit for the year then ended;
the group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards
as adopted by the European Union (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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities are described below. We
have fulfilled our ethical responsibilities under, and
are independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard
as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate
basis for our opinion.
Overview
Materiality:
Group financial
statements as a
whole
£1.1m (2016:£1.0m)
4.7% (2016:4.5%) of Group profit
before tax*
* Group profit before tax is normalised to exclude the 2017
exceptional compensation income of £4.9 million (net of
costs) as disclosed in note 5.
Coverage
91% (2016: 94%) of Group profit
before tax*
Risks of material misstatement
vs 2016
Recurring
risks
Impairment of indefinite useful
economic life intangible assets
(excluding Goodwill)
Recoverability of parent
company’s investment in
subsidiaries
Financial Statements | Independent auditor’s report
53
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the
financial statements and include the most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in
decreasing order of audit significance, were as follows (unchanged from 2016):
Impairment of
indefinite useful
economic life
intangible assets
(excluding Goodwill)
(£256.7 million; 2016:
£243.3 million)
Refer to page 63
(accounting policy)
and page 74 (financial
disclosures).
The risk
Our response
Forecast-based valuation
The estimated recoverable amount
is subjective due to the inherent
uncertainty involved in forecasting
and discounting future cash flows.
Scoping: We adopted a risk based approach by selecting
higher risk assets for detailed testing based on historic
headroom levels, sensitivities, historic forecasting accuracy,
issues identified from discussions with commercial,
regulatory and financial management and information
about the products in the public domain.
This assessment is based on
assumptions (such as discount rates
and growth rates), which are inherently
highly judgemental.
For the assets scoped in, our procedures included:
– Benchmarking assumptions: Using our own
valuations specialist, we challenged the Group’s
selection of discount and growth rates by comparing
those used to externally derived data (including
competitor analysis) In addition, assessing whether the
forecasts (including growth rate) were consistent with
current business strategies in place;
– Sensitivity analysis: performing our own analysis
to assess the sensitivity of the impairment reviews to
changes in the key assumptions, including the discount
rate, growth rate and the forecast cash flows;
– Historical comparisons: comparing the previously
forecast cash flows to actual results to assess the
historical accuracy of forecasting;
– Assessing transparency: assessing the adequacy
of the Group’s disclosures in respect of the sensitivity to
changes in key assumptions.
Recoverability of
parent company’s
investment in
subsidiaries
(£145.5 million;
2016: £140.0m)
Refer to page 63
(accounting policy)
and page 79 (financial
disclosures).
Low risk, high value
Our procedures included:
The carrying amount of the parent
company’s investments in subsidiaries
represents 99.9% (2016: 99.9%) of the
company’s total assets.
Their recoverability is not at a high risk
of significant misstatement or subject
to significant judgement. However, due
to their materiality in the context of the
parent company financial statements,
this is considered to be the area that
had the greatest effect on our overall
parent company audit.
– Tests of detail: We compared the carrying amount
of 100% of the investments with the net assets value of
the respective subsidiary, being an approximation of
their minimum recoverable amount, to identify whether
the net asset values were in excess of the carrying
amounts and assessing whether those subsidiaries have
historically been profit-making. The Group audit team
performs the statutory audit of all material investments;
– Our sector experience: Where the carrying
value of the investment exceeded the net assets of
the subsidiary we obtained the forecasts used by the
directors’ in their assessment of the recoverability
of their investments. We challenged the underlying
assumptions used in these forecasts, taking into
consideration the assumptions used by the directors in
testing the recoverability of the intangible assets at a
group level.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report
54
INDEPENDENT AUDITOR’S REPORT CONTINUED
3. Our application of materiality and an
overview of the scope of our audit
Group profit
before tax*
Group Materiality
£1.1m (2016: £1.0m)
£23.5m (2016: £22.2m)
Group PBT*
Group materiality
£1.1 million
Whole financial
statements materiality
(2016: £1.0m)
£0.9 million
Range of materiality at
five components (£0.1m
to £0.9m) (2016: £0.5m
to £0.8m)
£55,000
Misstatements reported
to the audit committee
(2016: £50,000)
* Group profit before tax is normalised to exclude the
2017 exceptional compensation income of
£4.9 million (net of costs) as disclosed in note 5.
Group revenue
Group profit before tax
7
4
91%
(2016: 94%)
94
91
10
12
88%
(2016: 88%)
88
88
Group total assets
3
1
90%
(2016: 98%)
98
90
Full scope for group audit purposes 2017
Reviews of financial information (including enquiry) 2017
Full scope for group audit purposes 2016
Reviews of financial information (including enquiry) 2016
Residual components
Materiality for the group financial statements as a whole
was set at £1.1 million, determined with reference to a
benchmark of Group profit before tax normalised to
exclude the 2017 exceptional compensation income
of £4.9 million (net of costs) as disclosed in note 5, of
which it represents 4.7% (2016: 4.5%).
Materiality for the parent company financial statements
as a whole was set at £0.8 million (2016: £0.8 million),
determined with reference to a benchmark of company
total assets, of which it represents 0.5% (2016: 0.5%).
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £55,000, in addition to other identified
misstatements that warranted reporting on
qualitative grounds.
Of the Group’s 18 (2016: 18) reporting components,
we subjected 5 (2016: 5) to full scope audits for
group purposes. We conducted reviews of financial
information (including enquiry) at a further 3 (2016:
3) non-significant components. These non-significant
components are not material from a profit or net assets
perspective nor do they include a significant risk.
However they do include individually material revenues,
costs, assets or liabilities.
The components within the scope of our work accounted
for the percentages illustrated opposite.
For the residual components, we performed analysis
at an aggregated group level to re-examine our
assessment that there were no significant risks of
material misstatement within these.
The Group team instructed component auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the information to be reported back.
The Group team approved the component materialities,
which ranged from £0.1 million to £0.9 million (2016:
£0.5 million to £0.8 million), having regard to the mix of
size and risk profile of the Group across the components.
The work on 1 of the 5 components (2016: 1 of the 5
components) was performed by component auditors and
the rest, including the audit of the parent company, was
performed by the Group team. The group team performed
procedures on the items excluded from normalised group
profit before tax.
The Group team visited one (2016: none) component
location in France (2016: none) to assess the audit risk
and strategy. Telephone conference meetings were
also held with the component auditor. At these visits
and meetings, the findings reported to the Group team
were discussed in more detail, and any further work
required by the Group team was then performed by the
component auditor.
Financial Statements | Independent auditor’s report
55
4. We have nothing to report on
7. Respective responsibilities
going concern
We are required to report to you if we have
concluded that the use of the going concern basis
of accounting is inappropriate or there is an
undisclosed material uncertainty that may cast
significant doubt over the use of that basis for a
period of at least twelve months from the date
of approval of the financial statements. We have
nothing to report in these respects.
5. We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other
information presented in the Annual Report together
with the financial statements. Our opinion on
the financial statements does not cover the other
information and, accordingly, we do not express an
audit opinion or, except as explicitly stated below, any
form of assurance conclusion thereon.
Our responsibility is to read the other information
and, in doing so, consider whether, based on our
financial statements audit work, the information
therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based
solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
–
–
–
we have not identified material misstatements in
the strategic report and the directors’ report;
in our opinion the information given in those
reports for the financial year is consistent with
the financial statements; and
in our opinion those reports have been prepared
in accordance with the Companies Act 2006.
6. We have nothing to report on the other
matters on which we are required to
report by exception
Under the Companies Act 2006, we are required 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.
We have nothing to report in these respects.
Directors’ responsibilities
As explained more fully in their statement set out
on page 48, the directors are responsible for: the
preparation of the financial statements including
being satisfied that they give a true and fair view;
such internal control as they determine is necessary to
enable the preparation of financial statements that are
free from material misstatement, whether due to fraud
or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue our opinion in an
auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of the
financial statements.
A fuller description of our responsibilities is
provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and to
whom we owe our responsibilities
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.
Andrew Campbell-Orde
(Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
66 Queen Square
Bristol
BS1 4BE
27 March 2018
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report
56
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2017
Year ended 31 December 2016
Underlying
£000s
Note
Non-
Underlying
(note 5)
£000s
Total
£000s
Underlying
£000s
Non-
Underlying
(note 5)
£000s
3
103,315
– 103,315
97,492
Administration and marketing expenses
(31,706)
Share-based employee remuneration
7
(1,453)
Revenue
Cost of sales
Gross profit
Operating expenses
Share of Joint Venture profits
Operating profit excluding
exceptional item
Net exceptional compensation income
Operating profit
Finance costs
Interest payable and similar charges
Change in deferred consideration
Finance income
Profit before taxation
Taxation
Profit for the year attributable
to equity shareholders
Earnings per share
Basic (pence)
Diluted (pence)
(44,354)
58,961
19
(33,140)
25,821
–
–
–
–
–
–
–
(44,354)
(42,643)
58,961
54,849
(31,706)
(28,842)
(1,453)
19
(696)
299
(33,140)
(29,239)
25,821
25,610
5
6
6
6
4
8
–
4,356
4,356
–
25,821
4,356
30,177
25,610
(3,064)
618
638
(1,808)
24,013
1,305
–
–
–
–
(3,064)
(3,355)
618
638
(840)
804
(1,808)
(3,391)
4,356
28,369
22,219
(764)
541
(4,127)
25,318
3,592
28,910
18,092
10
10
5.34
5.28
–
–
6.10
6.03
3.85
3.82
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.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000s
97,492
(42,643)
54,849
(28,842)
(696)
299
(29,239)
25,610
–
25,610
(3,355)
(840)
804
(3,391)
22,219
(4,127)
18,092
3.85
3.82
Alliance Pharma plc Annual Report and Accounts 2017 Financial Statements | Consolidated Statement of Comprehensive Income
57
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
28,910
18,092
Net foreign exchange (loss)/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 year
(1,718)
202
27,394
2,076
(221)
19,947
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 58
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
Loans and borrowings
Corporation tax
Trade and other payables
Derivative financial instruments
Total liabilities
Total equity and liabilities
31 December
2017
£000s
31 December
2016
£000s
Note
11
12
31
31
22
14
15
16
23
18
19
22
21
18
17
21
278,623
264,833
3,377
1,483
1,462
2,174
229
1,806
1,464
1,462
1,709
180
287,348
271,454
14,248
23,695
11,184
49,127
15,356
26,706
7,221
49,283
336,475
320,737
4,750
110,252
5,073
(329)
(117)
390
83,358
203,377
41,780
3,525
26,920
63
72,288
41,719
2,436
16,576
79
60,810
133,098
336,475
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
The financial statements were approved by the Board of Directors on 27 March 2018.
John Dawson
Director
Andrew Franklin
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
Company number 04241478
Alliance Pharma plc Annual Report and Accounts 2017
Financial Statements | Company Balance Sheet
59
COMPANY BALANCE SHEET
Assets
Non-current assets
Investment in subsidiaries
Deferred tax asset
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
Total liabilities
Total equity and liabilities
31 December 2017
31 December 2016
Note
£000s
£000s
£000s
£000s
13
145,469
314
21
71
4,750
110,252
5,073
25,052
262
486
15
16
23
17
140,008
–
145,783
140,008
119
90
92
145,875
209
140,217
4,726
109,594
3,306
22,382
145,127
140,008
159
50
748
748
145,875
209
209
140,217
The financial statements were approved by the Board of Directors on 27 March 2018.
John Dawson
Director
Andrew Franklin
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
Company number 04241478
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report
60
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Ordinary
share
capital
£000s
Share
premium
account
£000s
Reverse
takeover
reserve
£000s
Other
reserve
£000s
Translation
reserve
£000s
Share
option
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
Balance 1 January 2016
4,682
108,308
(329)
(98)
32
2,610
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
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance 31 December 2016
4,726
109,594
(329)
–
–
–
–
–
–
(221)
–
–
–
–
–
–
–
–
2,076
(221)
(319)
2,076
2,108
–
–
–
696
696
–
–
44
1,286
(5,152)
(5,152)
–
696
(5,152)
(3,126)
–
18,092 18,092
–
–
–
–
–
(221)
2,076
18,092
19,947
3,306
60,177 179,263
Balance 1 January 2017
4,726
109,594
(329)
(319)
2,108
3,306
60,177 179,263
Issue of shares
Share premium
Dividend paid
Share options charge
(including deferred tax)
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
Balance
31 December 2017
24
–
–
–
24
–
–
–
–
–
658
–
–
658
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
202
–
–
–
–
–
–
–
–
(1,718)
202
(1,718)
–
–
–
–
–
24
658
(5,729)
(5,729)
1,767
1,767
–
1,767
(5,729)
(3,280)
–
28,910
28,910
–
–
–
–
–
202
(1,718)
28,910
27,394
4,750
110,252
(329)
(117)
390
5,073
83,358 203,377
Alliance Pharma plc Annual Report and Accounts 2017 Financial Statements | Company Statement of Changes in Equity
61
COMPANY STATEMENT OF CHANGES IN EQUITY
Ordinary
share
capital
£000s
Share
premium
account
£000s
Share
option
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
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
Balance 1 January 2017
4,726
109,594
3,306
22,382
140,008
Issue of shares
Share premium
Dividend paid
Share options charge (including deferred tax)
Transactions with owners
Profit for the period and total comprehensive income
24
–
–
–
24
–
–
658
–
–
658
–
–
–
–
1,767
1,767
–
–
24
658
(5,729)
(5,729)
–
1,767
(5,729)
(3,280)
–
8,399
8,399
Balance 31 December 2017
4,750
110,252
5,073
25,052
145,127
As permitted by section 408 of the Companies Act 2006, no separate Income Statement is presented in respect of the
Parent Company.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 62
CONSOLIDATED AND COMPANY
CASH FLOW STATEMENTS
Cash flows from operating activities
Cash generated from operations
Tax paid
Cash flows from operating activities
Investing activities
Interest received
Dividend received
Investment in subsidiary
Development costs capitalised
Purchase of property, plant and equipment
Loan to Joint Venture
Exceptional compensation income
Consideration on acquisitions
Note
25
13
11
12
5
Deferred contingent consideration on acquisitions
Net cash from investing activities
Financing activities
Interest paid and similar charges
Loan issue costs
Proceeds from exercise of share options
Dividend paid
Receipt from borrowings
Repayment of borrowings
Net cash received from financing activities
Net movement in cash
and cash equivalents
Group
Company
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
30,311
(3,728)
26,583
104
–
–
(459)
(2,236)
154
4,000
(15,314)
(2,161)
(15,912)
(2,678)
–
682
(5,729)
16,000
(14,730)
(6,455)
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)
1,086
(51)
1,035
3,733
5,721
(5,461)
–
–
–
–
–
–
(333)
–
(333)
3,983
1,731
(1,439)
–
–
–
–
–
–
3,993
4,275
–
–
682
(5,729)
–
–
–
–
1,330
(5,152)
–
–
(5,047)
(3,822)
4,216
3,431
(19)
120
Cash and cash equivalents
at 1 January 2017
Exchange (loss)/gains on cash and cash equivalents
7,221
(253)
Cash and cash equivalents
at 31 December 2017
16
11,184
3,198
592
7,221
90
–
71
(30)
–
90
The accompanying accounting policies and notes form an integral part of these financial statements.
Alliance Pharma plc Annual Report and Accounts 2017 63
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.
These consolidated financial statements have been approved for issue by the Board of Directors on 27 March 2018.
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 (“Adopted IFRS”). The financial statements have been prepared under the historical cost convention,
with the exception of derivatives and contingent consideration 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 2017.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date
on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases. Losses applicable to the
non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-
controlling interests to have a deficit balance.
Joint Ventures
An entity is treated as a Joint Venture where the Group has rights to the net assets of the arrangement, rather than
rights to its assets and obligations for its liabilities. Joint Ventures are accounted for using the equity method (equity
accounted investees) and are initially recognised at cost. The consolidated financial statements include the Group’s
share of the total comprehensive income and equity movements of equity accounted investees, from the date that joint
control commences until the date that joint control ceases. See note 31 for details of Joint Ventures.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions,
are eliminated.
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.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 64
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December
2. Summary of significant accounting policies continued
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
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. Foreign exchange differences arising on
translation are recognised in the income statement except for differences arising on the retranslation of a financial
liability designated as a hedge of the net investment in a foreign operation that is effective, or qualifying cash flow
hedges, which are recognised directly in other comprehensive income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation,
are translated to the Group’s presentational currency, Sterling, at foreign exchange rates ruling at the balance sheet
date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate
approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from
this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the
translation reserve. Foreign currency differences arising on the retranslation of a hedge of a net investment in a foreign
operation are recognised directly in equity, in the translation reserve, to the extent that the hedge is effective.
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
20% – 25% per annum, straight line
Motor vehicles
20% per annum, straight line
2.7 Leases
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.
2.8 Intangible assets and goodwill
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and
is not amortised but is tested annually for impairment.
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.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017
65
(iii) Distribution rights
Payments made in respect of product registration and 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.
Impairment
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed
at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are
not yet available for use, the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of
assets (the “cash-generating unit”). Cash-generating units are determined to be at product-group level cash inflows.
The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating
units, or (“CGU”). For the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are
aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for
internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are
expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in
prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
2.9 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.
2.10 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 66
2. Summary of significant accounting policies continued
2.10 Taxation continued
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided
for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor
taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent
that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the temporary difference can be utilised.
2.11 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.
2.12 Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables,
cash and cash equivalents, loans and borrowings, and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand
and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents
for the purpose only of the cash flow statement.
Investments in debt and equity securities
The Company’s Investment in subsidiaries are stated at amortised cost less impairment.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any
impairment losses.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 67
2.13 Employee benefits – Share-based payment transactions
Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity
instruments are obtained by the Group.
The grant date fair value of share-based payment awards granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled
to the awards. The fair value of the options granted is measured using an option valuation model, taking into account
the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to
reflect the actual number of awards for which the related service and non-market vesting conditions are expected to
be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the
related service and non-market performance conditions at the vesting date. For share-based payment awards with
non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions
and there is no true-up for differences between expected and actual outcomes.
The entirety of the share-based payment charge is recharged to subsidiaries.
2.14 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
“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.
2.15 Investments
Investments in subsidiaries included in the Company’s balance sheet are stated at cost less any provision
for impairment.
2.16 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.
2.17 Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable assets and liabilities
acquired are measured at fair value at acquisition date. Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration
is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent
changes to the fair value of the contingent consideration are recognised in profit or loss.
2.18 Going Concern
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.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 68
2. Summary of significant accounting policies continued
2.19 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 2017 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. The new standard is required to be applied for annual
reporting periods beginning on or after 1 January 2018.
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 is 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 Group’s Chief
Operating Decision Maker (“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,
substantially in the form of, and on the same basis as, the Group’s IFRS financial statements.
Geographical information
The following revenue information is based on the geographical location of the customer:
United Kingdom
Rest of Europe
Rest of the World
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
52,355
29,982
20,978
103,315
49,411
29,006
19,075
97,492
Non-current assets are located within the United Kingdom, France, Italy and the United States of America.
Major customers
During the year there were 2 customers who separately comprised 10% or more of revenue (year ended 31 December
2016: 1).
Major customer 1
Major customer 2
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
22,542
10,597
33,139
17,660
9,406
27,066
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 69
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
– Corporate finance services (either proposed or entered into) by or on behalf of the
Company or any of its associates
Amortisation of intangible assets
Impairment of intangible assets
Share options charge
Depreciation of plant, property and equipment
Operating lease rentals – land and buildings
Research and development
Gain on foreign exchange transactions
Year ended
31 December
2017
£000
Year ended
31 December
2016
£000
26
105
57
276
507
1,453
657
769
169
(534)
25
103
–
92
–
696
337
518
91
(693)
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. Exceptional items, including
settlements and impairments of intangible assets, are also shown as non-underlying items. The non-underlying and
exceptional items relate to the following:
Exceptional compensation income
Associated costs
Associated impairment of intangibles
Net exceptional compensation income before taxation
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
5,000
(137)
(507)
4,356
–
–
–
–
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 2015. The terms of the agreement included a sum of
£5.0m of which £4.0m was paid in 2017 and £1.0m is due on or before 30 June 2018. This settlement less associated
costs and impairment (note 11) are shown as exceptional items.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 70
6. Finance costs
Interest payable and similar charges
On loans and overdrafts
Amortised finance issue costs
Notional interest
Change in fair value of deferred consideration
Finance income
Interest income
Other finance income – foreign exchange movements
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
(2,719)
(303)
(42)
(3,064)
618
104
534
638
(2,868)
(358)
(129)
(3,355)
(840)
111
693
804
Finance costs – net
(1,808)
(3,391)
Notional interest relates to the unwinding of the deferred consideration on the Macuhealth acquisition. The current year
decrease in deferred consideration relates to changes in the original estimated amounts payable for the acquisitions of
MacuVision and Nutraceutical brands. The previous year increase related to a change in the original estimated amount
payable for the Macuvision acquisition. These changes are caused by differences in trading performance compared to
acquisition forecasts.
7. Directors and employees
Employee benefit expenses for the Group during the year 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 was as follows:
Short-term employee benefits
Post-employment benefits
Gain on share options exercised by Directors during the year was £14,000 (2016: £nil).
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
11,102
2,100
766
1,453
15,421
9,481
1,375
644
696
12,196
Year ended
31 December
2017
Number
Year ended
31 December
2016
Number
182
143
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
949
151
1,100
1,059
45
1,104
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 71
The amounts set out above include remuneration in respect of the highest-paid Director as follows:
Emoluments for qualifying services
Pension contributions
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
320
114
434
314
10
324
During the period contributions were paid to defined contribution schemes for three Directors (2016: three).
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
2017
£000s
Year ended
31 December
2016
£000s
949
151
1,100
1,059
45
1,104
Average number of members of the Board of Directors (including non-executive directors) for the year ended
31 December 2017 was seven (2016: seven).
8. Taxation
Analysis of the (credit)/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
2017
£000s
Year ended
31 December
2016
£000s
3,573
44
3,617
(5,101)
943
(541)
3,552
32
3,584
539
4
4,127
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 72
8. Taxation continued
The difference between the total tax (credit)/charge 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
Profit before taxation multiplied by standard rate of corporation tax in
the United Kingdom of 19.25% (2016: 20.00%)
Effect of:
Non-deductible expenses
Non-taxable income
Adjustment in respect of prior periods
Impact of reduction in UK tax rate on deferred tax
Impact of reduction in US and French tax rate on deferred tax
Differing tax rates on overseas earnings
Share options
Other differences and Foreign exchange
Total taxation
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
28,369
22,219
5,461
4,444
145
(1,216)
987
(101)
(5,958)
182
(15)
(26)
(541)
376
(60)
36
(755)
–
205
(133)
14
4,127
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.
During 2017 US and French tax reform were both substantively enacted. The deferred tax rates applied to US and
French timing differences have hence changed from 35.0% to 24.0% and from 33.3% to 25.0% respectively.
To exclude the impact of tax rate changes and non-underlying tax charges the Group has calculated “adjusted
underlying effective tax rate” as an alternative performance measure in note 33.
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 2017
Year ended
31 December 2016
Pence/share
£000s
Pence/share
£000s
0.403
0.807
1.210
0.443
1,904
3,825
5,729
2,104
0.366
0.734
1.100
0.403
1,714
3,438
5,152
1,904
The proposed final dividend of 0.888 pence per share for the current financial year was approved by the Board of
Directors on 23 March 2018 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 2017 in accordance with IAS 10 Events After the Balance
Sheet Date. The interim dividend for the current financial year was paid on 11 January 2018. Subject to shareholder
approval, the final dividend will be paid on 11 July 2018 to shareholders on the register of members on 15 June 2018.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 73
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
2017
Year ended
31 December
2016
473,842,765
469,423,814
5,281,174
4,824,605
479,123,939
474,248,419
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 (note 5)
Earnings for adjusted basic EPS
The resulting EPS measures are:
Basic EPS
Diluted EPS
Adjusted basic EPS
Adjusted diluted EPS
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
28,910
(3,592)
25,318
18,092
–
18,092
Year ended
31 December
2017
Pence
Year ended
31 December
2016
Pence
6.10
6.03
5.34
5.28
3.85
3.82
3.85
3.82
To exclude the impact of tax rate changes the Group has calculated “adjusted underlying basic EPS” as an alternative
performance measure in note 33.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 74
11. Goodwill and intangible assets
The Group
Cost
At 1 January 2017
Additions
Transfer
Exchange adjustments
Goodwill
£000s
16,197
368
–
–
Brands and
distribution
rights
£000s
249,376
17,193
438
(3,447)
At 31 December 2017
16,565
263,560
Amortisation and impairment
At 1 January 2017
Impairment for the year
Amortisation for the year
At 31 December 2017
Net book amount
At 31 December 2017
At 1 January 2017
–
–
–
–
3,944
507
276
4,727
16,565
16,197
258,833
245,432
Development
costs
£000s
Assets under
development
£000s
Total
£000s
704
459
(438)
–
725
–
–
–
–
725
704
2,500
268,777
–
–
–
18,020
–
(3,447)
2,500
283,350
–
–
–
–
3,944
507
276
4,727
2,500
2,500
278,623
264,833
Goodwill
£000s
Brands and
distribution
rights
£000s
Development
costs
£000s
Assets under
development
£000s
The Group
Cost
At 1 January 2016
Additions
Additions due to acquisition
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
15,922
–
275
–
16,197
–
–
–
235,824
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
Goodwill and the majority of brands and distribution rights are considered to have indefinite useful economic lives and
are therefore subject to an impairment review at least annually.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 75
Brands and distribution rights
Key judgement – useful economic lives
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.
Where distribution rights are deemed to have a finite life they are amortised accordingly. Amortisation is included
in administration and marketing expenses. 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 brands 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.
Development costs
Capitalised costs relate to clinical development and regulatory plans expected to be commercialised in future.
Goodwill
The net book value of brand and distribution rights and goodwill which are considered to have indefinite useful lives
are allocated to CGUs in the following table. Goodwill relating to the acquisition of certain assets and businesses from
Sinclair IS Pharma plc is allocated to the group of related product CGUs. Other Goodwill amounts are allocated to the
product CGU with which they were originally acquired.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 76
11. Goodwill and intangible assets continued
Year ended 31 December 2017
Menadiol, Vitamin E & Others
Forceval, Amantadine & Others
Vamousse
MacuShield
Nu-Seals
SkinSafe, Dansac & Others
Timodine & Buccastem
Syntometrine (excluding UK)
Ametop
Others
Products acquired from Sinclair
Kelo-cote (non EU, excluding US)
Oxyplastine, Fazol & Others
Haemopressin, Optiflo & Others
Kelo-cote (EU)
Flamma Franchise
Aloclair
Goodwill
Year ended 31 December 2016
Menadiol, Vitamin E & Others
Forceval, Amantadine & Others
MacuShield
Nu-Seals
SkinSafe, Dansac & Others
Timodine & Buccastem
Syntometrine (excluding UK)
Others
Products acquired from Sinclair
Kelo-cote (non EU, excluding US)
Oxyplastine, Fazol & Others
Haemopressin, Optiflo & Others
Kelo-cote (EU)
Flamma Franchise
Aloclair
Goodwill
Goodwill
£000s
Brands and
distribution rights
£000s
598
–
–
1,748
–
1,849
–
–
–
12,876
12,931
11,596
8,740
9,100
8,043
7,697
7,527
5,575
Total
£000s
13,474
12,931
11,596
10,488
9,100
9,892
7,697
7,527
5,575
1,147
31,462
32,609
–
–
–
–
–
–
11,223
16,565
40,842
26,158
25,000
17,800
17,400
14,000
–
40,842
26,158
25,000
17,800
17,400
14,000
11,223
256,747
273,312
Goodwill
£000s
Brands and
distribution rights
£000s
598
–
1,748
–
1,849
–
–
12,876
12,931
8,740
9,100
8,043
7,697
7,527
Total
£000s
13,474
12,931
10,488
9,100
9,892
7,697
7,527
1,147
31,960
33,107
–
–
–
–
–
–
10,855
16,197
44,826
25,384
25,000
17,800
17,400
14,000
–
44,826
25,384
25,000
17,800
17,400
14,000
10,855
243,284
259,481
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017
77
Recent acquisitions
The following acquisition activities took place in the year:
On 1 December 2017, the Group acquired the worldwide rights to Ametop from global medical technology business
Smith & Nephew for a consideration of US$7.5m (£5.6m).
On 28 December 2017, the Group acquired the worldwide rights to Vamousse from TyraTech Inc for an initial cash
consideration of US$13.0m (£9.7m) and deferred contingent consideration of between US$nil and US$4.5m. Up
to US$2.0m of this the deferred consideration is payable in 2020, and up to US$2.5m is payable in 2021, both
dependent on the revenue growth of Vamousse. An estimated amount of US$2.5m (£1.9m) based on forecast sales
is included in the Vamousse intangible addition and other non-current liabilities. Separate cash consideration of
US$0.5m (£0.4m) was paid for inventories acquired (note 14).
In respect of Vamousse, the amounts included in the consolidated income statement since 28 December 2017 are
revenues of £0.1m and gross profit of £0.1m. Had the transaction occurred 1 January 2017 estimated contribution to
Group revenues would have been £4.9m and gross profit of £3.4m, based on the prior year financial results.
In the prior year the following acquisition activities took place:
On 27 October 2016, the Group secured the distribution rights on additional territories for MacuShield. The consideration
recognised in relation to this was £2.3m and the distribution rights are for a period of ten years which the balance is
therefore being amortised over.
On 12 September 2016 the Group in-licensed Diclectin for a further nine European territories, following the UK
in-license acquired in 2015. The total amount paid to Duchesnay for all territories was £1.5m with a further £1.0m
payable to Duchesnay on successful licence applications; the total £2.5m is included within assets under development
and the £1.0m deferred consideration is included within liabilities. The amount included within assets under
development will be amortised when the product is ready for launch.
As stated in our announcement in July 2017, the Medicine and Healthcare products Regulatory Agency (“MHRA”)
did not approve Diclectin for the UK which was unexpected. Our regulatory team has now had time to work with
Duchesnay Inc. of Canada (“Duchesnay”), the licensor and marketing authorisation applicant, to better understand
the objections of the MHRA. Whilst the communication between the MHRA and Duchesnay remains confidential, we
believe that good progress is being made in resolving some of the issues initially expressed by the regulator. Diclectin is
a much needed product as there is no licensed medicine for treating nausea and vomiting of pregnancy in the UK.
Duchesnay, the licence applicant, has since re-opened discussions with the regulator and the Board has concluded
that it continues to be appropriate to retain the intangible asset (and the associated deferred consideration) whilst this
review is underway. In the event the licence for Diclectin is not approved, the amounts paid to Duchesnay (£1.5m) are
fully refundable and the deferred consideration (£1.0m) would be cancelled resulting in no net financial impact in the
Income Statement.
Impairment
As explained in note 2.8 all intangible assets are stated at the lower of cost less provision for amortisation and
impairment or the recoverable amount.
Indefinite life assets are tested for impairment at least annually, or more frequently if there are indicators that amounts
might be impaired. These assets are tested at CGU level (or at group of CGUs level in the case of goodwill relating
to the acquisition of certain assets and businesses from Sinclair IS Pharma plc) as the Directors believe these CGUs
generate largely independent cash inflows.
The impairment test involves determining the recoverable amount of the relevant 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 2018 and
strategic projections in 2019 representing the best estimate of future performance. Margins are based on past
experience and cost estimates.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 78
11. Goodwill and intangible assets continued
Impairment continued
Key judgement – value in use assumptions
The key assumptions on which cash flow projections are made are:
•
•
•
There will be between 0.0% and 2.0% inflationary growth for 2020 and beyond, varying based on the Group’s
long-term growth projections;
Cash flows are discounted at an appropriate rate, being equal to the Group’s WACC adjusted where appropriate
for country specific risks, of between 8.0% and 11.7%; and
Approved budgets and forecasts for 2018 and 2019, based on management’s best estimate of cash flows by
individual CGU.
Kelo-stretch has been impaired in the current year by £0.5m. An indicator of impairment on this product was
identified due to the material reduction in the business and resulting exceptional compensation income received
(note 5). The value in use has been compared against the carrying value of the asset to calculate the impairment.
The Group has conducted sensitivity analysis on the impairment test. 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.
12. Property, plant and equipment
The Group
Cost
At 1 January 2017
Additions
Transfers
Disposals
At 31 December 2017
Depreciation
At 1 January 2017
Provided in the year
Transfers
Disposals
At 31 December 2017
Net book amount
At 31 December 2017
At 1 January 2017
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
Computer
equipment
£000s
Fixtures,
fittings and
equipment
£000s
Plant &
machinery
£000s
Motor
vehicles
£000s
1,405
1,666
(83)
(52)
2,936
424
454
(274)
(44)
560
2,376
981
1,792
570
(87)
–
2,275
1,055
156
101
–
1,312
963
737
127
–
170
(104)
193
40
46
173
(104)
155
38
87
8
–
–
(8)
–
7
1
–
(8)
–
–
1
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
Total
£000s
3,332
2,236
–
(164)
5,404
1,526
657
–
(156)
2,027
3,377
1,806
Total
£000s
2,435
1,130
(233)
3,332
1,422
337
(233)
1,526
1,806
1,013
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 13. Investments
The Company
Cost
At 1 January 2017
Additions
At 31 December 2017
At 1 January 2016
Additions
At 31 December 2016
79
Investment
in subsidiary
undertakings
£000s
140,008
5,461
145,469
138,569
1,439
140,008
The subsidiary and associated undertakings where the Group held 20% or more of the equity share capital at 31
December 2017 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
Alliance Pharma Inc.
Synthasia International Company Limited
Synthasia Shanghai Co. Limited
USA
Hong Kong
China
Unigreg Limited
British Virgin Islands
Alliance Pharmaceuticals GmbH*
Germany
Alliance Pharmaceuticals GmbH* – Swiss Branch
Switzerland
Alliance Pharmaceuticals SAS*
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
100
20
20
60
100
100
100
100
100
100
100
100
100
100
100
100
100
30
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
Pharmaceutical sales
Non-trading
Non-trading
Non-trading
Non-trading
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 80
13. Investments continued
The registered address in each country is as follows:
Country/Company
Address
Advanced Bio-Technologies Inc.
100 N. Tampa Street, Suite 2700, Tampa, FL 33602, United States
Alliance Pharma Inc
Corporation Trust Company, 1209 N Orange Street, Wilmington, DE 19801-1120
Alliance Pharma France SAS
69, Avenue Franklin D. Roosevelt, 75008 Paris, France
Alliance Pharmaceuticals SAS
69, Avenue Franklin D. Roosevelt, 75008 Paris, France
Alliance Pharmaceuticals (Shanghai) Limited
Room 103, 1st Floor, 56 Meisheng Road, Shanghai Free-Trade-Zone, P.R.C
British Virgin Islands
England & Wales
Germany
Hong Kong
Italy
Northern Ireland
Republic of Ireland
Singapore
Spain
Switzerland
Flemming House, P.O. Box 662, Wickhams Cay, Road Town, Tortola, VG1110
Avonbridge House, Bath Road, Chippenham, Wiltshire, SN15 2BB
Hanseatic Trade Center, Am Sandtorkai 41, D-20457 Hamburg, Germany
Room 2105, 21/ F Office Tower, Langham Place, 8 Argyle Street, Mongkok, Kowloon
Via Brera 6, 20121 Milan, Italy
6 Trevor Hill, Newry, County Down, BT34 1DN
6th Floor, South Bank House, Barrow Street, Dublin 4
9 Raffles Place, #29–01 Republic Plaza Tower 1, Singapore 04861
Paseo de la Castllana 259 C – 18th Floor, Regus Business Center, Torre de Cristal,
Madrid, ZIP Code 28046, Spain
Bahnhofstrasse 37, Postfach 2818, CH-8021 Zürich
Synthasia Shanghai Company Limited
Units 1901-2,19/F, No.69 Jervois Street, Sheung Wan, Hong Kong
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 Unigreg Worldwide Limited
which prepares accounts to 31 May.
14. Inventories
The Group
Finished goods and materials
Inventory provision
31 December
2017
£000s
31 December
2016
£000s
16,077
(1,829)
14,248
17,632
(2,276)
15,356
Inventory costs expensed through the income statement during the year were £36,575,000 (2016: £35,897,000).
During the year £442,000 (2016: £792,000) was recognised as an expense relating to the write-down of inventories to
net realisable value.
On 1 December 2017, the Group acquired the worldwide rights to Ametop from global medical technology business
Smith & Nephew (note 11). As part of this acquisition £0.3m inventories were acquired.
On 28 December 2017, the Group acquired the worldwide rights to Vamousse from TyraTech Inc (note 11). As part of
this acquisition £0.4m inventories were acquired.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 81
15. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Amounts owed by Joint Venture
The Group
The Company
31 December
2017
£000s
31 December
2016
£000s
31 December
2017
£000s
31 December
2016
£000s
17,347
1,759
2,465
2,124
23,695
20,530
1,788
2,110
2,278
26,706
–
12
9
–
21
–
114
5
–
119
The ageing of trade receivables of the Group 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
2017
£000s
31 December
2016
£000s
15,479
782
511
575
17,347
13,948
3,465
1,947
1,170
20,530
Trade and other receivables are stated net of estimated allowances for doubtful debts. As at 31 December 2017, trade
and other receivables of £254,000 (2016: £123,000) were past due and impaired.
Our policy requires customers to pay us in accordance with agreed payment terms. Depending on the geographical
location, our settlement terms are generally due within 30 or 60 days from the end of the month of sale and do not
bear any effective interest rate.
16. Cash and cash equivalents
Cash at bank and in hand
11,184
7,221
71
90
The Group
The Company
31 December
2017
£000s
31 December
2016
£000s
31 December
2017
£000s
31 December
2016
£000s
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 82
17. Trade and other payables
Trade payables
Other taxes and social security costs
Accruals and deferred income
Other payables
Deferred consideration
Amounts owed to Group undertakings
The Group
The Company
31 December
2017
£000s
31 December
2016
£000s
31 December
2017
£000s
31 December
2016
£000s
6,662
326
8,159
776
653
–
16,576
5,655
1,030
11,125
1,120
3,022
–
21,952
3
–
179
–
–
80
262
–
–
159
–
–
–
159
Deferred consideration of £0.2m (2016: £0.5m) relates to an agreement with MacuHealth to guarantee supply of
MacuShield API and secure additional territories to be able to distribute in.
Deferred contingent consideration of £0.5m (2016: £0.5m) relates to the Licence and Supply Agreement for the product
Diclectin with Duchesnay Inc. and is payable in 2018 if the relevant licensing applications are approved (note 11).
Deferred contingent consideration of £nil (2016: £1.8m) relates to the acquisition of MacuVision Europe Limited which
took place on 2 February 2015.
Deferred contingent consideration of £nil (2016: £0.5m) relates to the acquisition of the rights to five Nutraceutical
brands from Sinopharm Nutraceuticals (Shanghai) Co Ltd which took place on 16 September 2015.
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
The Group
The Company
31 December
2017
£000s
31 December
2016
£000s
31 December
2017
£000s
31 December
2016
£000s
42,000
(281)
41,719
26,000
(218)
25,782
–
–
–
–
–
–
The Group
The Company
31 December
2017
£000s
31 December
2016
£000s
31 December
2017
£000s
31 December
2016
£000s
42,338
(558)
41,780
58,478
(924)
57,554
–
–
–
–
–
–
The bank facility is secured by a fixed and floating charge over the Company’s and Group’s assets.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 Financial Statements | Notes to the Financial Statements
83
19. Other non-current liabilities
Deferred consideration
Other non-current liabilities
The Group
The Company
31 December
2017
£000s
31 December
2016
£000s
31 December
2017
£000s
31 December
2016
£000s
3,251
274
3,525
1,609
208
1,817
–
–
–
–
–
–
Deferred contingent consideration of £0.5m (2016: £0.5m) relates to the Licence and Supply Agreement for the
product Diclectin with Duchesnay Inc. and is payable during 2019 if the relevant licensing applications are approved
(note 11).
Deferred consideration of £0.9m (2016: £1.1m) relates to a MacuHealth agreement to guarantee supply of MacuShield
API and extend the territories in which MacuShield can be sold and is payable over 7 years.
Deferred contingent consideration of £1.9m (2016: £nil) relates to the acquisition of the worldwide rights to Vamousse
from TyraTech Inc. Up to US$2.0m is payable in 2020, and up to US$2.5m is payable in 2021, both dependent on the
revenue growth of Vamousse. An estimated amount based on forecast sales is included in the Vamousse intangible and
other non-current liabilities.
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.
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 (2016: £100m). This is made up of amortising Term Debt of £65m (2016: £65m)
and a Revolving Credit Facility (‘RCF’) of £35m (2016: £35m). In order to manage currency risk the Group has
borrowed part of the Term Loans in EUR 18m (£15.9m) (2016: EUR 18m (£15.4m)) and in USD 19.5m (£14.4m) (2016:
USD 32.7m (£26.6m)). The remainder is denominated in Sterling.
At year end the Group had drawn down £34m of the RCF (2016: £18m) and 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 £11.2
million (2016: £7.2 million). Of this £7.1 million (2016: £4.2million) was held in Sterling, £2.9 million in Euro (2016:
£2.0million) and the balance in other currencies.
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 84
20. Financial instruments continued
Liquidity Risk continued
The maturity profile of the Group’s financial gross liabilities (capital and interest) at the year-end is as follows:
31 December 2017
In more than
one year,
but not more
than two
£000s
In more than
two years,
but not more
than five
£000s
914
11,862
–
12,776
2,374
33,866
63
36,303
31 December 2016
In more than
one year,
but not more
than two
£000s
In more than
two years,
but not more
than five
£000s
1,817
9,551
–
11,368
–
52,673
384
53,057
In one year,
or less
£000s
16,576
44,176
79
60,831
In one year,
or less
£000s
21,952
27,805
–
49,757
In more than
five years
£000s
237
–
–
237
In more than
five years
£000s
–
–
–
–
Total
£000s
20,101
89,904
142
110,147
Total
£000s
23,769
90,029
384
114,182
Trade and other payables
Bank loans
Interest rate swaps
Trade and other payables
Bank loans
Interest rate swaps
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
2017
Trade and other
payables
£000s
31 December
2016
Trade and other
payables
£000s
262
159
The Group had £1.0m (2016: £17.0m) undrawn committed borrowing facilities, £4.5m (2016: £4.5m) undrawn
overdraft facilities and £25.0m (2016: £25.0m) undrawn uncommitted facilities all available at 31 December 2017.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 85
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 (year ended 31 December 2016: £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 (year ended 31 December 2016: EUR 18m) 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 2017
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 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
Fixed
£000s
Floating
£000s
Total
£000s
–
–
–
54,000
54,000
15,929
14,409
15,929
14,409
20,000
(20,000)
15,929
(15,929)
–
–
35,929
48,409
84,338
–
(839)
(839)
35,929
47,570
83,499
Fixed
£000s
Floating
£000s
Total
£000s
42,508
15,385
26,585
–
–
20,000
(20,000)
15,385
(15,385)
42,508
15,385
26,585
–
–
35,385
49,093
84,478
–
(1,142)
(1,142)
35,385
47,951
83,336
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 86
20. Financial instruments continued
Interest rate risk
At 31 December 2017
Sterling
Euros
At 31 December 2016
Sterling
Euros
Fixed rate
financial liabilities
Weighted
average
fixed
rate %
Weighted
average
period for
which rate
is fixed
3.74
2.91 years
2.16
2.91 years
3.74
3.91 years
2.46
3.91 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 would reduce pre-tax profits by approximately £0.2m in 2018. A 0.5% decrease would have
the opposite effect.
A 0.5% increase or decrease in EURIBOR would have no impact on pre-tax profits as Euro denominated debt is fully
hedged to fixed rates.
A 0.5% increase in US LIBOR would reduce pre-tax profits by approximately £0.1m in 2018. A 0.5% decrease would
have the opposite effect.
Currency risk
Approximately 33% 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 11% 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 £0.3m 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 effective. As the Group repays its foreign denominated borrowings
the hedged portion of the net investment is reduced.
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).
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 87
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
31 December
2017
Carrying value
£000s
31 December
2016
Carrying value
£000s
(142)
(2,854)
(2,996)
(384)
(3,330)
(3,714)
Level
2
3
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.
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.
Counterparty banks 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 & Risk Committee and the finance team at least every half year, in line with the
Group’s reporting dates.
Contingent consideration (Level 3)
The fair value of deferred contingent consideration is estimated using a present value technique. Fair value is
calculated using discounted cash flows, taking the most likely cash flows and discounting at an appropriate risk
adjusted rate of 3.0%.
During the year £1.7m deferred contingent consideration related to the acquisition of MacuVision Europe Limited was paid.
Additions of £1.9m were recognised related to the acquisition of the worldwide rights to Vamousse from TyraTech Inc.
During the year £0.5m deferred contingent consideration related to acquisition of Nutraceutical brands from
Sinopharm Nutraceuticals (Shanghai) Co Ltd and £0.1m deferred contingent consideration related to of MacuVision
Europe Limited were released. These changes were caused by differences in trading performance compared to
acquisition forecasts.
Level 3 fair value measurements:
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:
Balance at 1 January
Acquired
Cash paid in the year
Amount recognised in profit or loss under finance costs
Balance at 31 December
31 December
2017
Liabilities
£000s
31 December
2016
Liabilities
£000s
3,330
1,855
(1,713)
(618)
2,854
4,694
500
(2,833)
969
3,330
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 88
20. Financial instruments continued
Classification of financial assets and liabilities
Group
Classification of the Group’s financial assets and liabilities is set out below:
At 31 December 2017
Financial assets
Cash and cash equivalents
Trade and other receivables
At 31 December 2017
Financial liabilities
Loans and borrowings
Trade and other payables
Other liabilities
Corporation tax
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
11,184
21,230
32,414
–
2,465
2,465
Other financial
liabilities
£000s
Liabilities not
within the scope
of IAS39
£000s
83,499
16,250
3,525
–
103,274
–
326
–
2,436
2,762
Loans and
receivables
£000s
Non-financial
assets
£000s
7,221
24,596
31,817
–
2,110
2,110
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
Total
£000s
11,184
23,695
34,879
Total
£000s
83,499
16,576
3,525
2,436
106,036
Total
£000s
7,221
26,706
33,927
Total
£000s
83,336
21,952
1,817
2,543
109,648
The Group has issued the following terms for borrowings made to its Joint Ventures:
Joint venture loans
31 December
2017
Interest rate
31 December
2016
Interest rate
3.25% – 7.00%
3.00% – 7.00%
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 89
Company
Classification of the Company’s financial instruments is set out below:
At 31 December 2017
Financial assets
Trade and other receivables
At 31 December 2017
Financial liabilities
Trade and other payables
At 31 December 2016
Financial assets
Trade and other receivables
As at 31 December 2016
Financial liabilities
Trade and other payables
21. Derivative financial instruments
Current portion
Non-current portion
Interest rate swap – cash flow hedge
Loans and
receivables
£000s
Non-financial
assets
£000s
21
21
–
–
Other financial
liabilities
£000s
Liabilities not
within the scope
of IAS39
£000s
262
262
–
–
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
21
21
Total
£000s
262
262
Total
£000s
119
119
Total
£000s
159
159
31 December
2017
Liabilities
£000s
31 December
2016
Liabilities
£000s
79
63
142
–
384
384
The cash flow hedges were tested for effectiveness both retrospectively and prospectively as at 31 December 2017.
They were found to be highly effective, with the ineffective element being 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 £177,000 (year ended 31 December 2016: £175,000).
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 90
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
Interest rate hedge
Losses
Recognised as:
Deferred tax asset
Deferred tax liability
Reconciliation of deferred tax movements:
31 December 2017
£000s
31 December 2016
£000s
(78)
202
602
(7,684)
(19,158)
864
23
483
(57)
8
894
(5,428)
(25,957)
376
65
366
(24,746)
(29,733)
2,174
(26,920)
1,709
(31,442)
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
31 December
2016
£000s
Recognised
in other
comprehensive
income
£000s
Recognised
in the income
statement
£000s
31 December
2017
£000s
3,709
(21)
(26,842)
(78)
(31,385)
(57)
65
894
376
8
366
834
–
(41)
(292)
314
174
–
–
194
116
4,172
(29,733)
815
1,709
(31,442)
24
602
864
202
482
(24,746)
2,174
(26,920)
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 91
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
23. Share capital
31 December
2015
£000s
Recognised
in other
comprehensive
income
£000s
Recognised
in the income
statement
£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)
At 1 January 2016 – ordinary shares of 1p each
Issued during the year
At 31 December 2016 – ordinary shares of 1p each
Issued during the year
At 31 December 2017 – ordinary shares of 1p each
Allotted, called and fully paid
No. of shares
468,179,157
4,389,305
472,568,462
2,421,536
474,989,998
£000s
4,682
44
4,726
24
4,750
Between 1 January 2017 and 31 December 2017 2,421,536 shares were issued on the exercise of employee share
options (2016: 4,389,305).
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one
vote per share at meetings of the Company.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 92
23. Share capital continued
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 53.00p. 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
Exercise
price pence
Exercise
from
31 December 2017
Number
(000’s)
31 December 2016
Number
(000’s)
2007
2008
2009
2010
2011
2012
2013
2013
2014
2015
2016
2016
2017
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
53.0
2010
2011
2012
2013
2014
2015
2016
2018
2017
2018
2019
2021
2020
–
39
130
1,670
2,201
2,156
2,979
2,501
1,750
5,260
9,222
4,400
7,590
39,898
19
610
153
1,871
2,422
2,333
3,613
2,600
2,014
5,415
10,078
4,400
–
35,528
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 2017, net debt
was £72.3m (note 33), whilst Shareholders’ equity was £203.4m.
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 2017 and 2016.
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.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 93
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 by a third-party provider 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,
4.4 million options granted on 27 October 2016 and 1.8 million options granted on 15 September 2017 are subject to
EPS accretion performance criteria and have the extension to five years before they can be exercised.
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 (calculated based on the weighted average
remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available
information. 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 on 15 September 2017 was £1,678,000. The model inputs were
a share price of 53.00p, an exercise price of 53.00p, expected volatility of 24.8% and a risk free rate of 1.38%.
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
2017
2016
Weighted
average
exercise price
Pence
40.56
53.00
27.00
45.15
43.50
33.24
Number
(000)
35,528
7,629
(2,422)
(837)
39,898
9,695
Weighted
average
exercise price
Pence
35.18
47.25
30.83
38.17
40.56
32.44
Number
(000)
26,443
14,503
(4,389)
(1,029)
35,528
12,406
Share options were exercised throughout the financial year. Share options were exercised between 7.75 and 37.25
pence per share.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 94
25. Cash generated from operations
Profit for the year
Taxation
Interest payable and similar charges
Change in deferred consideration
Interest income
Other finance costs
Net exceptional compensation income
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
Dividends received
Cash generated from operations
26. Capital commitments
Group
Company
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
28,910
(541)
3,064
(618)
(104)
(534)
(4,356)
657
276
1,108
(19)
4,011
(2,996)
1,453
–
30,311
18,092
4,127
3,355
840
(111)
(693)
–
337
92
(2,446)
(299)
(14,116)
10,083
696
–
19,957
8,399
487
–
–
5,140
50
–
–
(3,732)
(3,983)
–
–
–
–
–
–
97
102
1,453
(5,720)
1,086
–
–
–
–
–
–
(93)
(412)
696
(1,731)
(333)
The Group had capital commitments at 31 December 2017 totalling £1,940,000 (2016: £569,000).
During the year the Group selected a provider for implementation of the new ERP system. This has resulted in
additional capital commitments relating to the project.
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 2017 based on currently available information is that there are no matters for
which a provision is required (2016: £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.
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDfor the year ended 31 DecemberAlliance Pharma plc Annual Report and Accounts 2017 95
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
2017
£000s
31 December
2016
£000s
766
644
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
2017
Land and
buildings
£000s
31 December
2016
Land and
buildings
£000s
673
1,286
997
2,956
500
1,066
1,082
2,648
30. Related party transactions
Group
During the year the Group made payments on behalf of Unigreg of £67,000 (2016: £105,000). Interest receivable
from Unigreg was £48,000 (2016: £48,000). During the year the Group made payments on behalf of Synthasia of
£4,000 (2016: £399,000). Interest receivable from Synthasia was £40,000 (2016: £42,000).
There are no transactions with directors (other than remuneration) that fall into the scope of IAS 24.
Company
During the year the Company received funds of £178,000 (2016: £4,146,000) from its subsidiary Alliance
Pharmaceuticals Limited.
Net payments of £355,000 (2016: £385,000) were made by Alliance Pharmaceuticals Limited on behalf of Alliance
Pharma plc.
Interest of £3,732,000 (2016: £3,934,000) was charged to Alliance Pharmaceuticals Limited on the total
outstanding debt.
During the year the Company re-invested £796,000 (2016: £1,250,000) in Alliance Pharmaceuticals Limited.
During the year an amount of £1,453,000 (2016: £696,000) was charged to Alliance Pharmaceuticals Limited by the
Company for the employee share based payment.
During the year the Company charged interest of £nil (2016: £49,000) to Alliance Pharmaceuticals SAS on the total
outstanding debt.
Dividends declared by Alliance Pharmaceuticals Limited due to the Company are £5,729,000 for the year
ended 31 December 2017 (2016: £1,731,000). During the year dividends of £5,729,000 were paid by Alliance
Pharmaceuticals Limited to the Company.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 96
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December
31. Joint Ventures
Name
Principal Activity
Country of Incorporation
% Owned
Unigreg Limited
Distribution of pharmaceutical
British Virgin Islands
products to China
Synthasia International
Distribution of infant milk
Hong Kong
Company Ltd
formula products in China
60
20
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 2017
Share of post-tax profits of Joint Ventures
At 31 December 2017
The carrying value of Joint Ventures is split as follows:
Unigreg Limited
Synthasia International Company Limited
Amounts owing from Joint Ventures are as follows:
Joint Venture receivable
Unigreg Limited
£000s
1,464
19
1,483
31 December
2017
£000s
31 December
2016
£000s
1,183
300
1,483
1,027
437
1,464
31 December
2017
£000s
31 December
2016
£000s
1,462
1,462
Alliance Pharma plc Annual Report and Accounts 2017
97
The Joint Venture receivable is a shareholder loan.
Trade and other receivables
Unigreg Limited
Synthasia International Company Limited
31 December
2017
£000s
31 December
2016
£000s
56
2,068
2,124
–
2,278
2,278
The Group’s principal Joint Venture is Unigreg Limited.
The total assets, liabilities, revenue and profits of the Group’s principal Joint Venture, Unigreg Limited, 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
2017
£000s
31 December
2016
£000s
3,250
1,292
(20)
(2,550)
1,972
3,250
800
(99)
(2,437)
1,514
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
939
(483)
(117)
(79)
260
2,068
(1,061)
(352)
(115)
540
The share of losses of the Group’s individually immaterial Joint Venture, Synthasia International Company Limited, is
as follows:
Loss from continuing operations
32. Ultimate controlling party
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
(137)
(26)
The Company’s shares are listed on the Alternative Investment Market (‘AIM’) and are held widely. There is no single
ultimate controlling party.
OverviewFinancial StatementsAdditional informationGovernanceStrategic ReportFinancial Statements | Notes to the Financial Statements 98
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December
33. Alternative performance measures
The performance of the Group is assessed using Alternative Performance Measures (“APMs”). The Group’s results are
presented both before and after exceptional and non-underlying items. Adjusted profitability measures are presented
excluding exceptional and non-underlying items as we believe this provides both management and investors with useful
additional information about the Group’s performance and aids a more effective comparison of the Group’s trading
performance from one period to the next and with similar businesses.
In addition, the Group’s results are described using certain other measures that are not defined under IFRS and are
therefore considered to be APMs. These measures are used by management to monitor ongoing business performance
against both shorter term budgets and forecasts but also against the Group’s longer term strategic plans.
APMs used to explain and monitor Group performance:
Measure
Definition
EBITDA
Earnings before interest, tax, depreciation, amortisation and non-underlying items.
Calculated by taking profit before tax and financing costs, excluding non-underlying
items and adding back depreciation and amortisation.
Free cash flow
Free cash flow is defined as EBITDA less working capital and non-cash movements
(excluding exceptional items), tax payments, interest payments, core capex and other
non-cash movements.
Net debt
Net debt is defined as the Group’s bank debt position net of its cash position.
Adjusted
underlying
basic EPS
Adjusted underlying basic EPS is calculated by dividing underlying earnings
attributable to ordinary shareholders less impact of tax rate changes, by the
weighted average number of shares in issue during the year.
Reconciliation to
GAAP measure
Note A below
Note B below
Note C below
Note D below
Adjusted
underlying
effective tax rate
Adjusted underlying effective tax rate is calculated by dividing total taxation for the year
less impact of tax rate changes and non-underlying charges, by the underlying profit
before tax for the year.
Note E below
A. EBITDA
Reconciliation of EBITDA
Profit before tax
Non-underlying items (note 5)
Finance costs (note 6)
Depreciation
Amortisation
EBITDA
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
28,369
(4,356)
1,808
657
276
22,219
–
3,391
337
92
26,754
26,039
Alliance Pharma plc Annual Report and Accounts 2017 Financial Statements | Notes to the Financial Statements
99
B. Free cash flow
Reconciliation of free cash flow
Cash generated from operations (note 25)
Financing costs
Capital expenditure
Tax paid
Free cash flow
C. Net debt
Reconciliation of net debt
Loans and borrowings – current
Loans and borrowings – non-current
Cash and cash equivalents
Net debt
D. Adjusted underlying basic EPS
Reconciliation of adjusted underlying basic EPS
Underlying profit for the year
Impact of reduction in UK tax rate on deferred tax
Impact of reduction in US and French tax rate on deferred tax
Adjusted underlying profit for the year
Weighted average number of shares (note 10)
Adjusted underlying basic EPS
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
30,311
(2,678)
(2,236)
(3,728)
21,669
19,957
(2,822)
(1,130)
(3,032)
12,973
Note
18
18
16
31 December
2017
£000s
31 December
2016
£000s
(41,719)
(41,780)
11,184
(72,315)
(25,782)
(57,554)
7,221
(76,115)
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
25,318
(101)
(5,958)
19,259
18,092
(755)
–
17,337
473,842,765
469,423,814
4.06
3.69
During 2017 US and French tax reform were both substantively enacted. The deferred tax rates applied to US and
French timing differences have hence changed from 35.0% to 24.0% and from 33.3% to 25.0% respectively. This has
given rise to £6.0m of deferred tax credits during 2017. In 2016 the UK tax rate changed from 18% to 17% giving rise
to a £0.8m deferred tax credit.
E. Adjusted underlying effective tax rate
Reconciliation of adjusted underlying effective tax rate
Total taxation for the year
Impact of reduction in UK tax rate on deferred tax
Impact of reduction in US and French tax rate on deferred tax
Non-underlying tax charge
Adjusted underlying taxation for the year
Underlying profit before tax for the year
Adjusted underlying basic EPS
Year ended
31 December
2017
£000s
Year ended
31 December
2016
£000s
541
(101)
(5,958)
764
(4,754)
24,013
19.8%
(4,127)
(755)
–
–
(4,882)
22,219
22.0%
OverviewFinancial StatementsAdditional informationGovernanceStrategic Report 100
Alliance Pharma plc
Annual Report and Accounts 2017
SHAREHOLDER INFORMATION
Unaudited Information
Shareholder enquiries
The Company’s share register is maintained on our behalf by Link 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 Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF or telephone
0871 664 0300 (calls cost 10p per minute plus network extras, lines are open 9:00am to 5:30pm Monday to Friday).
Financial Calendar
Annual General Meeting
Shares trade ‘ex’ final dividend
Final dividend record date
Payment of final dividend
Interim results announcement
Year End
Preliminary results announcement
24 May 2018
14 June 2018
15 June 2018
11 July 2018
19 September 2018
31 December 2018
March 2019
Additional information | Five Year Summary
101
FIVE YEAR SUMMARY
Year ended
31 December
2013*
£m
Year ended
31 December
2014*
£m
Year ended
31 December
2015
£m
Year ended
31 December
2016
£m
Year ended
31 December
2017
£m
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
11.0
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
3.85
103.3
25.8
4.4
30.2
24.0
28.4
278.6
3.4
49.1
60.8
203.4
473.8
475.0
6.10
5.34
Revenue
Operating profit before
non-underlying items
Exceptional operating items
Operating profit after
exceptional items
Profit before tax before
non-underlying items
Profit before tax after
non-underlying 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
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Alliance Pharma plc
Annual Report and Accounts 2017
ADVISORS AND KEY SERVICE PROVIDERS
Registered Office
Avonbridge House
Bath Road
Chippenham
Wiltshire
SN15 2BB
Company number
04241478
Auditor
KPMG LLP
66 Queen Square
Bristol
BS1 4BE
Registrars
Link Asset Services
PXS 1
34 Beckenham Road
Beckenham
Kent
BR3 4ZF
Nomad and Broker
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Joint Broker
Investec Bank plc
2 Gresham Street
London
EC2V7QP
Financial PR
Buchanan Communications
107 Cheapside
London
EC2V 6DN
Bankers
Lloyds Bank Corporate Markets
The Atrium
Davidson House
Forbury Square
Reading
Berkshire
RG1 3EU
Royal Bank of Scotland
3rd Floor
3 Temple Back East
Bristol
BS1 6DZ
Silicon Valley Bank
Alphabeta
14–18 Finsbury Square
London
EC2A 1BR
Additional information | Cautionary Statement
103
CAUTIONARY STATEMENT
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.
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Alliance Pharma plc
Annual Report and Accounts 2017
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™, Alliance™, Alliance and Logo, Alliance Generics, Aloclair™, Alostop™,
Alphaderm™, Ametop™, Anbesol™, Aquadrate™, Ashton & Parsons™, Ashton & Parsons Infant Powder™, Atarax™,
Atopiclair™, Avloclor™, Biocorneum™, Bio-taches™, Biotanoid™, Buccastem™, Buccastem M™, Canker-X™, Ceanel™,
Clearway™, Clearway Stoma Bridge™, Contisol™, Decapinol™, Deltacortril™, Deogel™, Dermachronic™, Dermacide™,
Dermamist™, Dermoxyl™, Distamine™, Edenfarm™, Effadiane™, Emezine™, Energeyes™, Fadiamone™, Farmil™,
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™, Leniline™, Lift™, Lift Medical Adhesive Remover™, Lift Plus/ Lift +™, LMZ3™,
Lypsyl™, Lypsyl- It’s on everyone’s lips™, Lypsyl Kissables™, Lypsyl Shimmer™, Lysovir™, MacuShield™, MacuShield
Gold™, Men’s Life™, Milkerra ru jia li (Chinese characters)™, MolluDab™, Moomich™, Moomie™, Nabari™, Naseptin™,
Natau™, Natulan™, NaturCare™, NaturCare Breeze™, NaturCare Fragrant™, NaturCare IPD™, NaturCare Zest™,
Neumil™, NuSeals™, Occlusal™, Ondemet™, Opus™, Oxyplastine™, Paludrine™, Papclair™, Papuduo™, Papulex™,
Papustil™, Pavacol™, Pavacol-D™, Pentrax™, Peptavlon™, Periocycline™, Periostan™, Periostand™, Periostat™,
Periostatus™, Permitabs™, Posidorm™, PS20™, Purganol-Daguin™, Q Device™, Quinocort™, Quinoderm™, Reloxyl™,
Reticus™, Rincinol™, Rizotret™, Rizuderm™, Roman in Chariot Device™, ru jia li (Chinese characters)™, Rympa™,
Savarine™, Sebclair™, Skinsafe/Skinsafe™, Skinsafe Non Sting Protective Film™, Stemflova™, Sindrogin Vamousse™,
Supremenil™, Stylised O Device (in orange)™, Syntomet™, Syntometrin™, Syntometrine™, Terra-Cortril™, T-Go™,
Thwart™, Thyrogard™, Timocort™, Timocreme™, Timodine™, Tridesonit™, Triffadiane™, Trust the science™, Uniflu™,
Unigreg™, Unisomnia™, Vamousse™, Variquel™, Verucide™, Vibramycine™, Vita-Dermacide™, Vitamin D3 ai wei di
(Chinese characters)™.
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
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