Providing clinically valuable healthcare
products to people around the world
Alliance Pharma plc Annual Report and Accounts 2019
Our vision
To be a leading international healthcare
business built around products which
are clinically valuable to patients.
We will be both the partner and
employer of choice.
Our mission
Our purpose
Responsible business
To create partnerships that unlock
potential for brands, businesses and people
around the world.
Our purpose is to make a difference to
people’s lives through making a range of
clinically valuable healthcare products
available to consumers and patients around
the world.
We achieve this through working together as
one global team, to create partnerships that
unlock potential for brands, businesses and
people, enabling us to identify and respond
to user demand as the markets
in which we operate continue to grow.
We are committed to operating our business
in an ethical and sustainable way, having
regard to the interests of all our stakeholders
– our customers, suppliers, business partners
and employees. We recognise that
everything we do
has an impact on the natural environment
and on the people and communities within it
and we are committed to looking for ways to
reduce our impact in these areas
to ensure a better future for all.
Contents
Overview
2019 Highlights
At a Glance
Strategic Report
Investment Case
Chief Executive’s Q&A
Our Markets
Our Business Model
Stakeholder Engagement
Our Strategy
Strategy in Action
Chief Executive’s Review
Responsible Business
Financial Review
Risk Management and Internal Controls
Our Principal Risks and Uncertainties
01
02
06
08
12
14
16
20
22
30
34
38
42
44
Governance
Chairman’s Introduction
to Governance
Board of Directors
QCA Code Compliance
Nomination Committee Report
Audit and Risk Committee Report
Remuneration Committee Report
Directors’ Report
52
54
56
62
63
65
73
Financial Statements
Independent Auditor’s Report
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
Notes to the Financial Statements
78
84
85
86
87
88
89
90
91
Additional Information
Unaudited Information
Five Year Summary
Advisors and Key Service Providers
Cautionary Statement
Glossary
132
133
134
135
136
For more information visit
alliancepharmaceuticals.com
2019 Financial Highlights
See-through Revenue*
£144.3m +16%
(2018: £124.0m)
Statutory Revenue
£135.6m +15%
(2018: £118.2m)
Underlying Profit Before Tax
£32.9m +17%
(2018: £28.1m)
2019
2018
2017
2016
£144.3m
2019
£135.6m
2019
£124.0m
£101.6m
£97.5m
2018
2017
2016
£118.2m
£101.6m
£97.5m
2018
2017
2016
£32.9m
£28.1m
£23.9m
£22.2m
Reported Profit Before Tax
£31.1m +36%
(2018: £22.8m)
Underlying Basic EPS**
5.09p +12%
(2018: 4.54p)
Reported Basic EPS
4.80p +31%
(2018: 3.69p)
2019
2018
2017
2016
£31.1m
£22.8m
£28.3m
£22.2m
2019
2018
2017
2016
5.09p
4.54p
4.05p
3.69p
2019
2018
2017
2016
4.80p
3.69p
3.85p
6.08p
*
Non-IFRS alternative performance measures (see note 33). See-through revenue includes sales from Nizoral as if they had been invoiced by Alliance. For statutory accounting purposes the product
margin on Nizoral sales is included within Revenue, in line with IFRS 15
** The 2017 measure refers to the Underlying Adjusted Basic EPS as disclosed in the 2017 Annual Report which was adjusted to normalise the impact of significant changes in overseas tax rates
Overview
• See-through revenues up 16% at £144.3m
(2018: £124m), on both a reported and
constant currency basis, in line with expectations.
• Statutory revenues up 15%, to £135.6m
(2018: £118.2m).
• Underlying EBITDA* up 22% to £39.4m
– Continued strong performance from
(2018: £32.4m).
International Star and other consumer brands,
led by Kelo-cote™.
– International sales saw another year of strong
growth.
• Underlying profit before tax up 17% to £32.9m
(2018: £28.1m); reported profit before tax up 36%
to £31.1m (2018: £22.8m).
• Good progress made with the Nizoral transition
– Includes full year’s revenues from Nizoral™
(under Johnson & Johnson management).
and the enhancement of our Asia Pacific
operations, revenues in line with expectations.
– Excluding acquisitions, year on year revenue
increased 10% in 2019 (up 8% on a constant
currency basis).
• Continued good growth from our US operation,
with year on year revenues up 11%.
• UK and EU licensing rights to Xonvea™ returned.
Under the terms of the agreement, the Group
booked non-underlying inventory provisions and
associated restructuring costs of £1.9m in 2019;
the total non-underlying loss on disposal being
£1.7m. £0.25m of the £2m milestone payments
made to date have already been repaid, with the
balance to be repaid in 2020.
• Continued strong cash generation, with free cash
flow over 80% higher than in the previous year,
and leverage falling to 1.48x from 2.33x at the
end of 2018.
• The Board has decided not to propose a final
dividend for FY2019 to prudently preserve cash in
light of the COVID-19 pandemic.
01
Alliance Pharma plc – Annual Report and Accounts 2019
Alliance Pharma plc – Annual Report and Accounts 2019
02
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information AT A GLANCE
We are an international
healthcare group, supplying
a range of clinically valuable
products to people around
the world.
Who we are
What we do
How we do it
Founded in the UK over 20
years ago, we have grown both
our geographic reach and our
product range and now market
over 90 consumer healthcare and
pharmaceutical products in over
100 countries worldwide.
All our products have an established
clinical heritage – many can trace their
origins back several decades.
Outsourcing all our manufacturing,
warehousing and logistics activities enables
us to remain asset-light and focus on
what we do best – bringing our specialist
expertise to the marketing and regulatory
management of our products, so as to
ensure that they can be made available
to the widest range of people who could
potentially benefit from them, wherever
they may be located.
We continue to look to enhance our
product portfolio through making
carefully selected acquisitions.
We have built a successful business with a
strong collaborative culture. We recognise
that our relevance and value is in how we
work together, both with our colleagues
and with our customers, suppliers and
all other external stakeholders. Our
entrepreneurial spirit and our core values
of performance, realism, accountability,
integrity, skill and entrepreneurship remain
at the heart of how we engage with each
other and conduct our business.
See more in our business model on page 14
Our 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
which 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
Where we operate
We currently employ over
200 people, located in
ten offices around the globe.
Our international presence
is further enhanced by an
extensive network of distributors
enabling us to serve customers in
more than 100 countries worldwide.
Country with international office
Distributor relationships
1
Team
100+
Countries
10
Offices
200+
People
2019 see-through revenue by geography
Employees by location
UK & ROI
£51.4m
(36%)
Other International
£22.8m
(16%)
Mainland Europe
£32.5m
(23%)
US
£6.1m
(4%)
Asia Pacific incl. China
£31.4m
(22%)
UK & ROI
139
Asia Pacific
25
US
6
Mainland Europe
40
Total
210
03
Alliance Pharma plc – Annual Report and Accounts 2019
04
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information Strategic Report
STRATEGIC REPORT
Investment Case
Chief Executive’s Q&A
Our Markets
Our Business Model
Stakeholder Engagement
Our Strategy
Strategy in Action
Chief Executive’s Review
Responsible Business
Financial Review
Risk Management and Internal Controls
Our Principal Risks and Uncertainties
06
08
12
14
16
20
22
30
34
38
42
44
04
Alliance Pharma plc – Annual Report and Accounts 2019
05
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information INVESTMENT CASE
Our established business partnerships, strong
collaborative culture and clearly articulated
strategy have enabled us to deliver an
impressive track record of growth, creating
sustainable value for our shareholders and
other stakeholders. We are committed to
leveraging these capabilities in an ethical and
responsible way as we continue our growth
trajectory in pursuance of our purpose.
Six reasons to invest in Alliance Pharma plc
Recognised
expertise
Clearly articulated strategy
and proven business model
Diversified portfolio creates a
platform for sustainable growth
Strong financial
performance
Ethical business
commitments
Experienced
leadership team
We are a highly capable business, with a
distinctive ‘can do’ culture and deep sector
expertise in the management of many
types of product, from pharmaceuticals to
medical devices, food supplements and
traditional herbal remedies, across multiple
geographies. We also have an established
network of experts we can call on to cover
any requirements for additional specialist
knowledge, as needed.
87 employees in our Scientific Affairs
and Operations team
50 employees in our global
Commercial teams
We have a clearly articulated strategy
for delivering sustainable business growth
which is well understood both within
and outside the business. This centres on
maximising the potential of our brands,
particularly our consumer healthcare
brands, to generate organic growth, and
then supplementing this with carefully
selected acquisitions.
Our business model is well-established and
centres around the following key activities:
Maintaining our cash-generative
heritage pharmaceutical products,
whilst investing behind selected brands,
primarily our consumer healthcare
brands, to drive organic growth
Reinvesting the cash generated from our
trading activities in growing our existing
brands, in paying down debt and
funding further acquisitions
Selectively identifying, acquiring
and integrating new products into
our portfolio, to provide additional
opportunities for growth
Our diversified portfolio of around
90 brands, spanning both consumer
healthcare and pharmaceuticals across
multiple therapy areas and geographies
helps to reduces risk and we have become
adept at managing both the complexity
and the opportunities this creates for us.
2019 see-through revenue by product type
Consumer healthcare products
£79.0m
(55%)
(2018 £62.3m)
Prescription medicines
£65.3m
(45%)
(2018 £61.8m)
2019 see-through revenue by brand
International Star brands
£66.0m
(46%)
(2018 £46.3m)
Local brands
£78.3m
(54%)
(2018 £77.8m)
We are a highly profitable and cash
generative business, with an established
track-record of delivering underlying
profit growth and effectively managing
our borrowing commitments, enabling us
to borrow to fund acquisitions and then
rapidly de-lever. Our profitability and cash
generation capabilities are reflected in the
dividend payments to our shareholders,
which have increased by at least 10% p.a.
every year for the past nine years (to 2018).
We are committed to operating our
business in an ethical and sustainable way,
having regard to the interests of all our
stakeholders – our customers, suppliers,
business partners and employees. We
recognise that everything we do has an
impact on the natural environment and on
the people and communities within it and
we are committed to looking for ways to
reduce our impact in these areas to ensure
a better future for all.
Our leadership team has a collective
length of service of more than 45 years,
all members having held senior leadership
positions since their respective dates of
joining the business and having built up
a wealth of relevant experience in other
businesses prior to this.
Progressive dividend policy
Highly profitable and cash generative,
which supports deal flow and growth
15 acquisitions in the past ten years
For more information see page 34
For more on our strategy see page 20
For more information see page 30
For more information see page 38
For more information see page 34
For more information see page 53
06
Alliance Pharma plc – Annual Report and Accounts 2019
For more on our business model see page 14
07
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information
CHIEF EXECUTIVE’S Q&A
Alliance Chief Executive
Peter Butterfield answers
some key questions on the
business’s operations and
outlook.
See more in the Chief Executive’s Review on page 30
The current Alliance business looks
very different now to how it did a few
years ago – what’s changed and what’s
been the driver behind these changes?
Which of the Group’s achievements
are you most proud of in 2019?
What’s the hardest decision
you had to make in 2019?
What are the Group’s
priorities for 2020?
The business has undergone a period of transformation over the
past four years – it’s evolved to become much more consumer-
focused, with over half our revenues now derived from our
consumer healthcare brands, and has significantly broadened its
geographic reach, with more than 60% of our sales now coming
from international markets. From being a predominantly UK-
based business, we now have an established trading presence in
nine countries around the world.
I’m pleased to say that the Group successfully achieved much
of what it set out to do in 2019 – we’ve grown see-through
revenues by 16% (and reported revenues by 15%), with
some fantastic growth coming through from Kelo-cote, as
we’ve continued to invest behind this key brand. We’ve made
substantial progress with the Nizoral transition and the scaling-
up of our Asia Pacific operations and seen good growth
continuing to come through from our US business.
These changes have been made to move the business closer to
our vision of being a leading international healthcare business
built around products which are clinically valuable to patients.
We’ve also been proactive in evolving the composition of our
Board, so we continue to be equipped to take advantage of
opportunities and address new challenges associated with this
phase in the Group’s development.
The level of free cash flow which we’ve been able to generate
this year, at £29.1m is more than 80% up on that achieved in
2018, with cash generated from operations up almost 50%.
This has allowed us to pay down our debt and reduce our
leverage to below 1.5x – for the first time since 2013. This,
together with the enhanced credit facilities we put in place in
2019, leaves us very well placed to make further acquisitions.
What I’m most proud of though is maintaining our high
employee engagement as the business continues to grow,
both geographically and in scale.
Returning the UK and EU licensing rights to Xonvea was a
particularly difficult decision for us, especially given the
internal restructuring that this involved in our sales team.
However we are pleased that we managed to reach an
agreement with Duchesnay Inc (the licensor) which both
ensures the return of the original milestone payments to
Alliance and more importantly, enables this landmark product
to continue to be made available to patients and clinicians in
the UK, pending the appointment of a new licensor. I think this
is a testament to the good working relationship we have built
up between our respective businesses over the past five years.
Whilst it was by no means an easy decision, we needed
to do what was right for the business in the longer term. By
returning the rights to Xonvea, we have reduced uncertainty
in the business, and allowed investment to be focused on our
growing consumer healthcare portfolio and the continued
expansion of our international business.
On top of driving organic growth and selective acquisitions,
one of our key operational priorities for the Group in 2020 will
be on progressing the implementation of our ERP system. This
project has taken longer than we originally anticipated, and it
will be good to start to see some real business benefits coming
out of this investment – particularly given the ability of these
systems to support our future growth ambitions.
We will also be focusing on the roll-out of our marketing
excellence programme, which aims to ensure that an
appropriate level of support is provided for our consumer
brands, both on a global and local level.
08
Alliance Pharma plc – Annual Report and Accounts 2019
09
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information CHIEF EXECUTIVE’S Q&A CONTINUED
What most excites you
about the future?
Your employees are one of your major
assets – how do you ensure that you
attract, develop and retain the best?
What is it that’s unique
about the culture at
Alliance?
What impact is COVID-19 likely to have on the business
and what steps are you taking to mitigate this?
We’ve built a great platform, with some leading products
and filled it with great people. This bodes well for the future.
I’m excited by the potential that still exists to be realised
from a number of our larger consumer brands – in particular
Kelo-cote, and look forward to the transitional arrangements
for Nizoral starting to fall away during 2020, enabling
us to take greater control of the development of this well-
established brand.
With our relatively low debt levels and strong cash generation,
we are now very well placed to take on the challenge of
another acquisition, as and when a suitable opportunity arises.
Our employees are one of our most important assets and the
great results we have delivered this year bears testament to
the combined efforts of our team of colleagues around the
globe. We aim to attract and retain the very best healthcare
and business professionals, to reward them well and to create
great opportunities for their ongoing career development,
through engaging in fulfilling and frequently challenging
work. Through our annual share option award scheme, all of
Alliance’s employees get to share in the success of the business,
giving them another reason to ‘go the extra mile’ to deliver
great performance.
We are also committed to nurturing early-stage talent, be it
recent graduates or apprentices, giving them the opportunity
to learn and grow – both in a professional and a personal
capacity – in the foundational stage of their careers.
This is something we’ve spent time
looking at over the past couple of years,
and initially it’s quite hard to put your
finger on. However, I think it comes
down to a few key ingredients. First and
foremost, we’ve created an extremely
collegiate approach within the business.
This is evident when you walk through
the door of any of our offices. Secondly,
having completed 15 acquisitions over
the past ten years, the organisation is
well versed in change management
and frankly no-one here expects things
to stay the same for very long. Finally,
there’s the innate drive for performance,
with employees at all levels in the
business benefiting from this through
participation in the Group’s share
option scheme.
As a diversified global business, we
have been paying close attention to the
COVID-19 pandemic and our position
on this remains as announced on
23 March 2020.
We have good control of our cost
base and will continue to manage our
levels of discretionary spend carefully
to help mitigate the potential impact of
any reduction in revenue as a result of
COVID-19.
We have also decided it would be
prudent at this time to preserve cash and
therefore have taken the decision not to
propose a final dividend for year ended
31 December 2019. We will provide
further updates at our Annual General
Meeting (‘AGM’) in May, in our H1
trading update in July and at other
times as appropriate.
Notwithstanding the current uncertainty
created by COVID-19, our underlying
business remains resilient, with strong
financials, good liquidity and covenant
headroom, and we look forward to
continuing our path of growth in the
years ahead.
Case study: MacuShield Chewables
One of the most common questions we were asked by
MacuShield consumers was whether there was another way the
product could be taken. Many of the brand’s consumers suffer
from dysphagia (inability to swallow), which make swallowing
traditional capsules particularly challenging for them.
In response to this, we assembled a cross-functional team
to look at developing an alternative presentation. Working
collaboratively with our ingredient suppliers and our CMO we
developed a chewable tablet which contains the same active
ingredients as the traditional capsule.
MacuShield Chewables were launched in the UK in October
2019 making MacuShield among the first eye health brands in
Europe to offer alternative formats to the traditional capsule –
another example of how we have evolved our product to better
meet the needs of our customers.
1.5m
24
12
packs of MacuShield
sold in 2019
Number of countries
in which MacuShield
is currently sold
registrations
currently in progress
10
Alliance Pharma plc – Annual Report and Accounts 2019
11
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information OUR MARKETS
The changing landscape
of the global market for
consumer healthcare.
Global market overview - trends in consumer healthcare
THE GLOBAL MARKET FOR CONSUMER HEALTHCARE IS BEING DRIVEN BY SEVERAL KEY TRENDS:
Increasing life expectancy
According to the World Health Organisation, global average life
expectancy increased by 5.5 years between 2000 and 2016,
the fastest increase since the 1960s – a trend which is expected
to continue, with global life expectancy expected to increase by
a further 4.4 years by 2040 and life expectancies in 59 countries
including China projected to exceed 80 years.1
With increasing longevity and ageing populations comes an
increased demand for healthcare – particularly for products
which target conditions typically experienced in later life.
Increasing prosperity, self-care and the
wellness movement
Levels of prosperity are also rising in many parts of the world,
particularly in developing countries, creating a greater number of
consumers who can afford to spend money on non-essential items.
The shift towards self-medication using over the counter (OTC)
products, rather than relying on prescription medicines, and an
increased focus on personal wellbeing and on prevention rather
than cure, are also helping to shape the landscape for consumer
healthcare products.
Digital healthcare and the empowerment of
patients and consumers
Whilst many industries have fully embraced digital marketing,
the healthcare industry has been slow to adopt digital strategies.
However, as most consumers, patients and carers are now active
online and with consumers, especially younger ones, increasingly
turning to online resources to self-diagnose and discover solutions
to their health concerns, it is crucial that healthcare brands have
an effective digital strategy, with a strong presence on search
engines and engagement on social media, and provide quality
and informative educational content, so individuals can make
informed choices.
In today’s increasingly digital world, consumers as prospective
patients are now active partners in their healthcare journey.
They no longer simply accept what they are told by healthcare
professionals (doctors, pharmacists, nurses, etc.) and can carry
out extensive research online, making them more knowledgeable
about the services they receive and the products they use.
According to recent research:2
72%
of global internet users have looked online for health
information, including treatments and procedures,
symptoms, conditions or diseases in the past year
77%
of consumers use search engines to start their research
as well as other channels such as social media
40%+
of consumers use social media, with Facebook
being the main platform
45%
of consumers watched an online video on YouTube
(e.g. patient testimonials, patient-generated content)
1. Forecasting life expectancy, years of life lost, and all-cause and cause-specific mortality for
250 causes of death: reference and alternative scenarios for 2016–40 for 195 countries and
territories, The Lancet, 2018
2. How digital marketing is impacting the healthcare industry, January 2019, WBS
3. Nicholas Hall Digital and e-commerce report, December 2019
The opportunity for Alliance
Our consumer healthcare products currently account for around
55% of our revenues, the remainder coming from our prescription
medicine products.
In the consumer healthcare sector, we are positioning ourselves
to take advantage of future growth opportunities through
increasingly focusing our marketing investment on digital content
and communication, ensuring we develop engaging activity
which drives business growth through this channel – prioritising
the growth of Kelo-cote for example using e-commerce
platforms like Tmall in China and Amazon in the UK.
Our pharma heritage means we have significant experience of
operating in the highly regulated environment of prescription
medicines, leaving us well placed to deal with the challenge of
increased regulation that is now impacting consumer healthcare
products – for example medical devices, which are currently
facing increased regulation under the MDR in the EU. We
continue to upskill our medical and regulatory capabilities
to support us in this as needed.
The growth of e-commerce
The rapid expansion of e-commerce sales is being fuelled by
online discounting, the emergence of high-speed mobile data,
and increasingly secure and speedy payment methods, all of
which are leading consumers to embrace the convenience of
online purchases. Already hugely important in the major markets
of China, USA, Japan and Germany, online sales are expanding
rapidly in all markets where permitted.
E-commerce is currently the fastest-growing sales channel in
consumer healthcare. Whilst offline remains the dominant channel,
online sales are growing at a much faster rate and will see their
share of the total consumer health market rise incrementally over
the next few years. Currently accounting for 9% of all consumer
healthcare sales globally, this figure is expected to reach 16% in
the next ten years.3
In the USA, one of the largest e-commerce markets globally,
pharmacy, health and beauty products are among the most
purchased items online, according to a recent e-commerce survey.3
The challenges posed by increasing regulatory scrutiny
Regulatory authorities like the Medicines and Healthcare products
Regulatory Agency (‘MHRA’) in the UK and the Food and Drug
Administration (‘FDA’) in the United States have increased their
level of scrutiny of medicines, in terms of safety and efficacy, in
recent years. Some ingredients which have been switched from
Prescription to OTC status have been reclassified due to safety
concerns. This has meant that companies who develop novel
formulations or new chemical entities (‘NCEs’) have experienced
much longer drug approval times, helping to maintain the demand
for older, more established products.
Case study: Focus on China
In China, the retail medicines market grew by 9% from 2017
to 2018 from RMB400.3 billion (£45.7 billion) in 2017 to
RMB437.7 billion (£49.7 billion) in 2018. The penetration rate
of online drug purchase in China has also increased over the
past few years and is now as high as 37.6%, with huge market
development potential. From 2012 to 2016, the number of
online pharmacies in China grew rapidly, with an average
increase of 111 each year. China is a key market for two of our
largest consumer healthcare products, Kelo-cote and Nizoral.
12
Alliance Pharma plc – Annual Report and Accounts 2019
13
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information OUR BUSINESS MODEL
We have built a successful
business with a strong
collaborative culture.
Our vision is to be a leading international healthcare
business, built around products that are clinically
valuable to patients.
Through our strategy of maximising the potential of our
existing portfolio of brands and selectively acquiring new
products, we look to create sustainable value for all our
stakeholders – our shareholders, employees, consumers
and patients, our suppliers and partners, healthcare
professionals and our communities.
Our resources
How we create value
The value we create
People and culture
Our dedicated team of talented and
engaged people embody the Alliance values
and entrepreneurial spirit and thrive in a ‘can
do’, collaborative culture, working together
to develop and fulfil their potential, whilst
optimising business success
Knowledge and expertise
We have deep sector expertise in the
management of many types of product, from
pharmaceuticals to medical devices, food
supplements and traditional herbal remedies,
across multiple geographies
Invest
Investing behind selected brands,
primarily our consumer healthcare
brands, to drive organic growth
Brands
Our diversified portfolio of around 90
brands, many of which deliver high margins
and are well-positioned in their respective
markets, offer a wide range of opportunities
for growth
Maintain
Maintaining our cash-
generative heritage
pharmaceutical products
Reinvest
Reinvesting the cash
generated from our
trading activities:
• in growing our
existing brands
• in paying down debt
• in funding further
acquisitions
Acquire
Selectively identifying, acquiring
and integrating new products into
our portfolio, to provide additional
opportunities for growth
Relationships
We have strong relationships with 100+
distributors, well-established contract
manufacturing relationships and a reliable
network of warehousing and logistics
partners
Infrastructure
We have offices in three continents and
distributor relationships spanning the globe
Financial resources
Our highly profitable business generates
strong cash flow, enabling us to continue to
invest in our existing business and in funding
further acquisitions
Underpinned by:
Our purpose
Our values
Our purpose is to make a difference
to people’s lives through making
a range of clinically valuable
healthcare products available to
consumers and patients around
the world.
We achieve this through working
together as one global team, to
create partnerships that unlock
potential for brands, businesses
and people, enabling us to identify
and respond to user demand as
the markets in which we operate
continue to grow.
Performance
Our high performing people continually
drive business success
Realism
We set stretching goals and targets
we believe are achievable
Accountability
We take responsibility and deliver
what we promise
Integrity
We build trust in all our relationships
through openness and fairness
Skill
We recruit highly skilled people and
develop their talents to the full
Entrepreneurship
Our people think of the business as if
it was their own
See more in responsible business on page 34
For our shareholders
Our shareholders benefit from the strong financial performance of our business
and its ability to deliver both short-term returns via dividends and longer-term
share price appreciation
10%+ annual dividend growth for the last nine years (to 2018)
For our employees
Alliances currently employs over 200 people, all of whom benefit from our
competitive reward structures, and share in the business’s success through annual
share option awards. This year we increased our headcount in the Asia Pacific
region by a further nine people as we created new opportunities for the very best
healthcare and business professionals to achieve more
200+ employees
For consumers and patients
Consumers and patients rely on us to deliver products that can help to improve
their health. Every day we make a real difference to the lives of millions of people
around the world, through the provision of high quality products which have good
safety and efficacy profiles
40m+ packs sold in 2019
For our suppliers and partners
Our supplier and partners continue to benefit from the growth of our business.
Over the past four years, as the business has grown, there has been a three-fold
increase in our spend on products and a significant expansion of our supplier base,
whilst the percentage of sales generated through our network of international
distribution partners has grown to around 50%
75+ contract manufacturers
For healthcare professionals
Healthcare providers in a range of specialties value our engagement and the
education, information and resources we provide. Through our work with key
opinion leaders (‘KOLs’), we continue to build on our growing global reputation
as trusted experts in selected therapy areas
Relationships maintained with c. 30 KOLs
For our communities
We aim to ensure that as many people as possible can benefit both from our
products and from our employees’ desire to make a difference in their local
communities. Our ongoing involvement with International Health Partners (‘IHP’),
our partnership with Smile Train and our many other charitable initiatives bear
testament to this
£75k of medicines donated to IHP in 2019 and over
£30k raised for Smile Train
14
Alliance Pharma plc – Annual Report and Accounts 2019
15
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STAKEHOLDER ENGAGEMENT
We believe that the continued success of
our business is down to our collaborative
culture and the strong working
relationships we have built up with our
stakeholders – recognising that our
relevance and value is in how we work
together with our customers, suppliers,
and partners to achieve more.
s172 Companies Act 2006
For Alliance, engaging with our stakeholders is an integral part of how we operate as a business – actively seeking to understand
what really matters to our stakeholders and ensuring that we take this into account in our decision-making, both at a strategic and
an operational level. This engagement enables us to continue to make our clinically valuable healthcare products available to people
around the world, through maintaining a motivated workforce, dependable supply chains, customer confidence in our products,
close relationships with healthcare professionals, good returns for our shareholders and social impact in our local communities.
In the table we set out our key stakeholder groups, their material issues and how we engage with them.
Further information on how stakeholder considerations are taken into account by the Board in their decision-making in
accordance with s172 of the Companies Act 2006 is provided in the Governance section.
2019
60% Industry
Average
76
80
80
83
77
Employee Survey – Average ‘yes’ score %
77%
(2018: 83%) -6%
Our key stakeholders
How we engage with them
Their material issues / What's important to them
Key metrics for 2019
Links to other relevant content
Shareholders
Maintaining an open and transparent
dialogue with our shareholders to ensure they
have a good understanding of our business
operations, strategy and performance is a
key element of our corporate governance
processes.
Employees
We recognise that great results can only be
achieved through the combined efforts of our
dedicated and talented team of colleagues
around the world and as such, our employees
represent one of our key assets. We work hard
to ensure that our collaborative culture and
values-based approach provides them with
every opportunity to fulfil their potential.
Our principal means of engaging with our shareholders are through:
• Investor roadshows
• Capital markets days
• One-to-one meetings
• Annual Report and Accounts
• Half year and full year trading and results announcements
• Financial performance
• Dividends
• Share price appreciation
• Strategy
• Business Model
• ESG
• 28% increase in share price
Governance
see page 59
We engage with all our employees on a regular basis, primarily through monthly Company
briefings, a bi-annual appraisal process, annual development reviews and employee surveys,
and more informally through a variety of social events and team away days.
We measure employee engagement through our annual employee engagement survey, the
results of which are shared with and acted on by the Board.
• Fulfilling and rewarding work
• Opportunity to share in the Group's success
• Competitive remuneration and benefits package
• Opportunities for learning and career development
• Opportunities to make a difference
• 77% of employees are positive
and motivated in their work
Responsible Business –
Our people
see page 34
Our Strategy
see page 20
16
Alliance Pharma plc – Annual Report and Accounts 2019
17
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STAKEHOLDER ENGAGEMENT CONTINUED
s172 Companies Act 2006 continued
Our key stakeholders
How we engage with them
Their material issues / What's important to them
Key metrics for 2019
Links to other relevant content
Consumers and patients
Consumers and patients rely on us to deliver
products that can help to improve their health.
Every day we make a real difference to the
lives of millions of people around the world,
through the provision of high quality products
with good safety and efficacy profiles.
Suppliers
As all of our manufacturing activities are
outsourced, it is critical that we maintain
effective working relationships with our
75+ contract manufacturers, to ensure the
continued supply of high quality product,
likewise our network of warehousing and
logistics partners.
Distribution partners
For our consumer healthcare products, we engage with consumers via digital channels
(websites, social media), advertising (across multiple media, including TV, print media and
in-store promotions in pharmacies and retail stores), in addition to providing basic product
information as part of our Medical Information function.
For medicines, our direct engagement with patients is much more limited, due to regulatory
constraints governing promotional activities – although we do provide basic product
information as part of our Medical Information function.
We aim to work collaboratively with our suppliers to build long-term, mutually beneficial
relationships, so as to assure the continued availability of our products for consumers
and patients.
We hold regular cross-functional meetings with key suppliers throughout the year – both at
our offices and at the manufacturing sites, to review their performance and address any issues
or concerns they may have.
We are committed to paying our suppliers in line with agreed payment terms.
Our 100+ distributors are another key
component of our business model, enabling
us to fulfil demand for our products from
all around the globe, helping us to identify
opportunities for growth and providing local
regulatory support.
We see our distributors as trusted business partners and work collaboratively with them to
maximise market opportunities, holding regular meetings to understand market dynamics and
sales performance, provide product training and address any regulatory or supply issues.
Many of these distributors have been with the business for many years, a testament to the efforts
of our commercial team, who work hard to maintain these partnering arrangements and ensure
that they continue to operate in a mutually beneficial way.
• Product quality
• Product safety and efficacy
• Product availability
• Product cost
• 55% of sales: consumer healthcare
• 45% of sales: prescription medicines
Responsible Business –
Our commitment to patients
see page 37
Our Business Model
see page 14
• Long-term partnerships
• Collaborative approach
• Balanced contractual terms
• Fair payment terms
• Growth of our business
• Long-term partnerships
• Collaborative approach
• Balanced contractual terms
• Growth of our business
• Ability to supply
• £50m cost of sales spend
Responsible Business –
Supply chain management
see page 36
• c. 50% of sales via distributors
Our Business Model
see page 14
Healthcare professionals
Healthcare professionals, including doctors,
nurses and pharmacists, are essential
partners and stakeholders in our business. It
is important that HCPs recognise the value of
our products, so that they can prescribe or
recommend them with confidence and offer
informed guidance to users.
Local communities
We aim to ensure that as many people as
possible can benefit both from our products
and from our employees’ desire to make a
difference in their local communities.
We engage with HCPs in a variety of ways, from answering specific questions about our
products, to providing educational materials and resources in associated disease areas, to
acting as a source of scientific and clinical background to enable them to judge the place of our
products in clinical practice, in guidelines and in funding decisions. We also value the expertise
and advice they can provide as we develop our products and educational materials.
Engagement with the leading clinicians or KOLs is crucial to ensure that our activities recognise
their needs and to allow them to act as informed advocates for our products.
• Engagement
• Product expertise
• Education, information and resources
• Engaged with clinical experts at
ten scientific congresses covering
multiple therapy areas
Responsible Business –
Our commitment to transparency
see page 37
• Maintained relationships with around
30 KOLs
Our Business Model
see page 14
We provide support for our local communities through a variety of charity initiatives, from
fundraising, to providing time and expertise, to providing donations of Christmas gifts and
personal care products.
Our ongoing work with International Health Partners enables our products to be made
available to those most in need.
• Time, skills and expertise
• Financial support
• Product donations
• Participation as an active member of
the local business community
• £75k of products donated to
International Health Partners
• Over £30k raised for Smile Train
Responsible Business –
Social impact
see page 36
Our Business Model
see page 14
18
Alliance Pharma plc – Annual Report and Accounts 2019
19
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information OUR STRATEGY
We have a clearly
articulated strategy for
delivering continued
business growth.
Maximising
brand potential
Acquiring and
integrating new products
Investing
in people
We recognise that our people are key
to our success and that great results
can only be achieved through the
combined efforts of our dedicated
team of colleagues across the globe,
our partners and customers, and to
the strong collaborative culture that
we have built within Alliance. We
are committed to ongoing investment
in training and development for
all our employees and to ensuring
that our offices are pleasant and
environmentally friendly places to work.
A key component of our strategy is to
maximise the potential of our existing
portfolio of brands, particularly those in
the consumer healthcare sector. This could
be by range extension to better meet
evolving consumer demand, extending
our geographical reach through
establishing new distributor relationships,
or engaging in targeted marketing activity
to increase brand awareness, either at a
global or local level.
Strategy in action
The opportunity for
Kelo-cote in China
For more information see page 22
Increasing awareness
of Forceval in the UK
For more information see page 24
To supplement the organic growth
delivered primarily by our promoted
brands, we also engage in a selective
programme of acquisitions, to refresh our
portfolio, expand our product range and
take advantage of operating synergies –
both geographic and by therapy area, to
deliver additional growth.
These may be small product acquisitions
or more substantial strategic acquisitions,
of assets or corporates, but all have one
thing in common – that the target products
are clinically valuable to healthcare
consumers and patients. Our acquisition
focus currently is on augmenting
our consumer healthcare brands in
international markets.
We have well-developed integration
capabilities, enabling us to absorb
acquired assets in an appropriate
timeframe, working collaboratively
with the vendor where appropriate.
This is an area where our culture of
working together across functions and
geographies really comes into its own.
Strategy in action
Nizoral transition and
expanding our geographic
presence in Asia Pacific
For more information see page 26
Acting
responsibly
As an ethical business, we aim to
ensure that we conduct our business
in a way that maximises the value
created for all our stakeholders and are
committed to doing this in a responsible
and sustainable way. As part of this
commitment, we continually evaluate
and develop our business practices
to ensure they remain fit for purpose,
in fulfilment of our mission to create
partnerships that unlock potential for
brands, businesses and people around
the world.
For more information on our responsible
business initiatives see page 34
Our strategy is underpinned by a number of Critical Success Factors (‘CSFs’), which
together form the focus for the operational delivery of our strategy – these include:
CSF
Progress in 2019
Focus for 2020
Maintaining a
blended model –
acquisitions and
organic growth
Maximising deal
flow
Developing
our marketing
excellence
Maintaining
operational
excellence
Ensuring
we have an
engaged, skilled
and motivated
workforce
Good progress made with Nizoral
transition and with the continued growth
of our other consumer brands
We reviewed over 120 acquisition
opportunities in 2019, several of
which were progressed to late stage
evaluation
Creation of a new Head of Global
Marketing role, to lead our global
marketing function and increase our
level of expertise in this area
Substantial progress made with our
ERP implementation and several
other initiatives aimed at improving
our business systems and processes,
including our New Product Introduction
(NPI) and Sales & Operations Planning
(S&OP) processes
Further enhancements made to our
global connectivity
Pleasing results from employee
engagement survey, with 77% of
employees positive and motivated in
their work
Continuing to invest in our consumer
brands to maximise future growth
potential, whilst looking to augment
this part of our portfolio and extend
our international reach, through
suitable acquisitions
Identifying and securing one or more
acquisitions which fit our selective
acquisition criteria
Roll-out of marketing excellence
programme, ensuring appropriate
level of support provided for our
consumer brands on a local and
global basis
Continuing to progress with
the development of our ERP
implementation
Fully embedding our improved NPI
and S&OP processes
Working towards the ‘Great Place to
Work’ survey to generate enhanced
data and insights to deepen our levels
of engagement
Ongoing investment in employees’
professional and personal development
across multiple disciplines
Implementation of actions coming
out of Britain’s Healthiest Workplace
survey
Strategy in action
The social impact of our
partnership with Smile Train
For more information see page 28
Expansion of apprenticeship
programme
Scored in the top quartile in Britain’s
Healthiest Workplace (workplace
wellbeing study) for the third year
running
20
Alliance Pharma plc – Annual Report and Accounts 2019
21
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STRATEGY IN ACTION –
MAXIMISING BRAND POTENTIAL
The opportunity for
Kelo-cote in China
China is one of the fastest growing scar treatment markets in the world1,
growing at over 20% per annum, driven by factors such as the rising
demand for cosmetic procedures and C-section births. The Aesthetic
Medicine (AM) market in China has grown rapidly and in 2018 China
overtook the USA in the number of procedures, growing 26.4% on the
previous year, to reach over 20 million!2
Despite this fact, China lags way behind
markets such as Korea in terms of
consumption per head which indicates there
is significant opportunity for further growth.
Consumption is spreading to lower tier cities
and not just confined to the ‘tier one’ cities
anymore i.e. Beijing, Shanghai, Guangzhou
and Shenzhen.
Kelo-cote is well placed to take advantage
of this growth opportunity, having built a
well-established presence in the AM market
in China, growing significantly as a brand
over the past four years under Alliance’s
ownership (CAGR all markets 2015–2019:
42%), with a current market share in this
market of 26%.
Our focus on this category will continue in
2020 and beyond, as we seek to enforce
our leadership position, through working
collaboratively with our distribution partner
in China to maximise their effectiveness
and drive recommendations by healthcare
professionals, supported by a continuing
focus on raising awareness of the brand
more generally through our global marketing
initiatives, such as the roll-out of websites
with a new global identity, improved global
packaging, and featuring Kelo-cote at key
health care congresses.
For more information visit
alliancepharmaceuticals.com
1. Nicholas Hall DB6 database 2018
2. 2019 New-Oxygen White Paper of Aesthetic Medicine Industry
22
Alliance Pharma plc – Annual Report and Accounts 2019
Replace image
23
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STRATEGY IN ACTION –
MAXIMISING BRAND POTENTIAL
Increasing awareness
of Forceval in the UK
Forceval is Alliance’s nutritional support product, comprising Forceval
Capsules, the UK’s most comprehensive licensed multivitamin (and one of
only a small number of medicinal vitamin products), and Forceval Soluble,
an effervescent tablet food supplement.
The purpose of Forceval Capsules is to help
tackle the increasing and significant impact
of malnutrition in the UK, a condition that
impacts three million people across the
country and costs around £20 billion a year
to treat1. It is a condition that is regularly
under recognised and inadequately treated
and so our activities with Forceval in 2019
have focused on driving awareness of
malnutrition with healthcare professionals in
both Primary and Secondary Care and of
the value that using a licensed medicine to
treat this condition can have. In a healthcare
system that is increasingly focused on
the benefits of self-care, NHS England
guidance2 still acknowledges the need
and value of prescribing to treat medically
diagnosed malnutrition.
This messaging, as well as the value that
healthcare professionals continue to place
on the brand, resulted in the capsules
becoming the number one prescribed
multivitamin in the UK in both Primary Care
and Secondary Care in 2019. For a long
time Forceval Capsules was the multivitamin
of choice in Secondary Care, but 2019 saw
the brand achieve this in Primary Care as
well (with Primary Care accounting for over
90% of the prescription market). In a market
that has declined 8% by volume through
2019 due to the move to self-care, Forceval
Capsules has seen over 10% in-market
growth3, further demonstrating the value
that healthcare professionals place on the
brand as part of their suite of measures for
tackling malnutrition.
1. Elia M. on behalf of the Malnutrition Action Group of BAPEN, The cost of
malnutrition in England and potential cost savings from nutrition interventions
(short version), 2015, www.bapen.org.uk/pdfs/economic-report-short.pdf,
accessed February 2020
2. NHS England and NHS Clinical Commissioners. Conditions for which over
the counter items should not routinely be prescribed in
primary care: Guidance for Clinical Commissioning Groups (CCGs), 2018.
Available at: www.england.nhs.uk/publication/conditions-for-which-over-
the-counter-items-should-not-routinely-be-prescribed-in-primary-care-
guidance-for-ccgs/. Accessed January 2020
3. IQVIA HPA Subnational and NHSBSC PCA data
For more information visit
alliancepharmaceuticals.com
24
Alliance Pharma plc – Annual Report and Accounts 2019
Replace image
25
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STRATEGY IN ACTION –
ACQUIRING AND INTEGRATING NEW PRODUCTS
Nizoral transition and
expanding our geographic
presence in Asia Pacific
We have built a successful business with a strong collaborative culture,
recognising that our relevance and value is in the way we work together,
both with our colleagues and with our customers, suppliers and other
external stakeholders. Nowhere has this been more evident in 2019 than
in the development of our operating capabilities in the Asia Pacific region,
to support the Nizoral transition, whilst also providing a platform for
future growth.
When we acquired Nizoral in mid-2018,
we had little by way of local infrastructure
to enable us to trade significantly from a
manufacturing base in Asia Pacific. As part
of this acquisition, we acquired seven new
contract manufacturers (‘CMOs’) and trading
relationships in new territories including India
and Thailand. Therefore, it was essential that
we recruited local people with the capability
to not only manage the Nizoral transition but
to also support Alliance’s future growth plans,
both for the brand and for the region. We
relocated to new larger, more central offices
in both Singapore and Shanghai which could
be easily accessed by CMOs and distributors,
and bolstered our existing headcount with
new appointments of highly skilled personnel
in Technical, Regulatory, Procurement,
Supply Chain and Marketing functions to
deliver the transition and grow the brand. This
included personnel from J&J, with a detailed
understanding of the manufacturing process
for the product, bringing a wealth of invaluable
knowledge into the business.
Once the team was in place, the focus was on
developing our relationships with J&J, both
the various J&J local teams across all the Asia
Pacific territories and reporting up to the Central
teams in EU/US. This enabled us to leverage
the support we needed to ensure an effective
transition, for example, in agreeing an extension
to the transition period in China, where
new guidelines for Marketing Authorisation
Holders are due to be released by the Chinese
authorities in late 2020. We have also built
strong relations with the CMO base across the
Asia Pacific region, some of whom we see as
strategic suppliers of the future, who will enable
Alliance to gain competitive advantage not
only for Nizoral but also potentially for other
products in Alliance’s portfolio too.
To enable us to trade in a compliant and tax
efficient way, we are in the process of creating
new legal entities in Thailand, Philippines and
India, which are expected to go live in 2020.
In each of these regions, we are also having
to source office and warehouse space, recruit
local directors and competent persons in order
to satisfy local regulations. We have identified
strong partners in each of these regions, who are
working with us to achieve this, advising us on the
best approach.
It is this spirit of collaboration which has powered
the progress of the Nizoral transition to date and
will continue to do so through 2020 and beyond.
Nizoral transition – progress to date:
• New distribution agreements in place
for seven out of the 14 markets – several
others close to finalisation.
• Six out of 14 Marketing Authorisation
transfers approved – a further five are
expected during H1 2020.
• One market (Taiwan) is now producing
product in Alliance livery.
26
Alliance Pharma plc – Annual Report and Accounts 2019
27
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information “ We are thrilled with the success of Smile Train UK’s partnership with Alliance Pharma
and the dedicated support from their employees. This partnership helps us continue
to fulfil our vision of supporting free cleft surgery and comprehensive cleft care for
children in need globally. Together, we are changing the world one smile at a time.”
SUSANNAH SCHAEFER
President & CEO, Smile Train
STRATEGY IN ACTION –
ACTING RESPONSIBLY
The social impact of
our partnership with
Smile Train
Smile Train is a global charity with the sole vision of supporting safe
and quality cleft treatment for children all over the world.
Every year, approximately one in 700 babies
is born with a cleft lip or palate globally.
Due to challenges with infrastructure, lack of
trained medical professionals, and poverty
in some areas of the world, many of these
children do not have access to safe and
quality cleft care. If left untreated, these
children often face serious health and
survival issues – including the ability to eat,
breathe, speak and ultimately thrive.
To tackle this global issue, Smile Train’s
sustainable model empowers local medical
professionals with training, funding and
resources to provide free cleft surgery and
comprehensive cleft care to children in their
own communities.
In May 2019, Kelo-cote, Alliance’s scar
prevention and treatment product, announced
that it had entered into a two-year corporate
sponsorship arrangement with Smile Train,
to provide brand sponsorship and product
donation to children who have received cleft
surgery, in order to help prevent post-surgical
hypertrophic and keloid scarring.
Smile Train is now being featured on Kelo-cote
brand materials, which are shared regularly
with partners, healthcare professionals and
consumers globally, to raise awareness. To
date, we have received positive feedback
from several of our distributors who are keen
to participate in this initiative and we have
linked them with Smile Train offices in their
local countries.
We have also been working on the set up of
a pilot with two Smile Train partner hospitals
in India, to provide Kelo-cote to children who
have undergone cleft surgery, to help reduce
post-surgical scarring, with plans to roll-out
to more.
These initiatives have been supported by
a matched fundraising programme for all
Alliance’s employees, which collectively
raised more than £32,000 for the charity
in 2019 – enough to fund 215 operations.
For more information visit
alliancepharmaceuticals.com
28
Alliance Pharma plc – Annual Report and Accounts 2019
29
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information CHIEF EXECUTIVE’S REVIEW
2019 saw another year of strong revenue and profit
growth, led by our consumer brands in international
markets, as we continued to pursue our strategy to
deliver sustainable business growth.
Jo LeCouilliard and
Richard Jones take
up their positions as
independent Non-
executive Directors
Timeline
Jan
Opening of new offices
in Shanghai
Awarded Business of the
Year and Best Place to Work –
Chippenham Business Awards
First MacuShield Global
Marketing Forum held
in Frankfurt
Opening of new offices
in Singapore
Feb
Mar
Apr
May
2019 Highlights
• Strong revenue growth, driven by another
impressive performance from Kelo-cote
(+38%), underpinned by good performances
from our other Star brands
• Good cash generation with leverage now
below 1.5x, leaving us well placed to
selectively add to our portfolio during 2020
• Good progress made with Nizoral transition
and the enhancement of our operating
capabilities in the Asia Pacific region;
continued growth in the US, led by Vamousse
“ I’m really pleased with the way the Group performed
during 2019, both in terms of its financial performance
and also the considerable progress we made in
developing our operating capabilities.”
PETER BUTTERFIELD
Chief Executive
2019
2018
2017
£144.3m
2019
£135.6m
£124.0m
£101.6m
2018
2017
£118.2m
£101.6m
See-through Revenue*
£144.3m
(2018: £124.0m) +16%
Statutory Revenue
£135.6m
(2018: £118.2m) +15%
TRADING PERFORMANCE
Overview
The Group continued to trade strongly in 2019 with revenue on
a see-through basis up 16% to £144.3m (2018: £124m) and
up 15% on a statutory basis to £135.6m (2018: £118.2m).
See-through revenue benefitted by £9.3m in 2019 due to the
inclusion of the first full year’s trading revenue from Nizoral,
which was acquired in June 2018. Coupled with improving gross
profit margins, gross profit increased by 19% to £86.1m (2018:
£72.6m). Through maintaining good control over our operating
costs, we were pleased to be able to deliver some operational
leverage, with underlying EBITDA up 22% to £39.4m (2018:
£32.4m). Underlying profit before tax increased 17% to £32.9m
(2018: £28.1m) and reported profit before tax increased 36% to
£31.1m (2018: £22.8m).
International Star brands performance
Our portfolio of International Star brands all performed very well
during 2019, delivering collective revenue growth of 43% (30%
on a like for like basis, excluding Nizoral). These key brands now
account for over 45% of Group revenue, with this percentage
expected to increase further in the current year.
Kelo-cote – scar prevention and treatment
Kelo-cote delivered another impressive performance in 2019,
with revenues up 38% to £31m (2018: £22.5m) due to continued
strong demand, primarily from China and other countries in the
Asia Pacific region, reflecting the growth in the Aesthetic Medicine
(AM) market in this part of the world. With rising demand for
cosmetic procedures and C-section births, Kelo-cote remains
very well-placed to take advantage of this AM growth trend,
particularly in China, where it is well established in the market.
For more on the continued demand and opportunity for Kelo-cote
in China see page 22.
In addition to launches in Italy and Turkey in the first half of the year,
we launched MacuShield in Pakistan during the second half and
plan to launch the brand in a further six territories during 2020. In the
UK, we expanded the range of products available with the launch of
MacuShield chewable tablets in October 2019, for consumers who
find the original capsule presentation difficult to swallow.
Vamousse – prevention and treatment of head lice
Vamousse delivered another strong performance, particularly in
the US, its core market, with global revenues up 14% to £6.5m
(2018: £5.8m) and up 10% on a constant currency basis.
During 2019, our global marketing team continued to support the
local brand teams in delivering a range of marketing activities
to support brand growth, attending several conferences and
interacting with healthcare professionals across the globe, to
increase brand awareness.
Whilst we continue to evaluate opportunities to introduce Vamousse
into new markets, our near-term focus is on continuing to grow the
brand in the US, where it continues to out-perform the general market.
Further detail on our Star brands can be found on our website:
www.alliancepharmaceuticals.com/our-brands/our-star-brands
Nizoral – medicated anti-dandruff shampoo
Nizoral (under J&J management during 2019) performed in line
with expectations, generating see-through revenues in its first full
year of ownership by the Group of £20.2m, as compared with
£10.9m in the second half of 2018.
Our focus during 2019 has been on refining and executing
detailed transition plans to support the transfer of the product
licences in each of the territories from J&J to Alliance, including
establishing new trading relationships with suppliers and
distributors to enable us to continue to manufacture and sell the
product post transfer. As previously reported, during the first half
of 2019 we enhanced our presence in Singapore and Shanghai,
moving to larger offices in both locations and establishing
a dedicated team to support the transfer and subsequent
management of Nizoral.
The first two product licences (for Hong Kong and Thailand)
transferred to Alliance in Q4 2019 and we expect the majority
of the remaining licences to transfer during 2020. Once all of the
product licences are under our control, we will be able to manage
the associated commercial relationships and brand development
more proactively. China continues to be an important market for
Nizoral and a future growth-driver for this key brand. Further
detail on the Nizoral transition and our geographic expansion
in the Asia Pacific region can be found on page 26.
MacuShield – eye health supplement
MacuShield grew strongly in 2019, generating revenues of
£8.2m, up 18% year on year (2018: £7m), driven by distributor
stocking and changes in trading arrangements with a key
distributor. Excluding these ‘one-off’ benefits, the brand
delivered underlying growth in 2019 of around 5%.
Local brands
Our Local brands portfolio delivered a stable performance overall,
with revenues of £78.3m, £0.3m above those for the previous
year (2018: £78m). We saw good performances from some of
the consumer brands in this part of our portfolio, with new UK
retail listings for Aloclair (treatment for mouth ulcers) and Ashton &
Parsons (teething gel) and strong sales of a number of products to
our international distributors, offsetting the decline we experienced
with some of our heritage pharmaceutical products, due to generic
competition and competitive tender activity. We also took the
decision to discontinue a few products within our Local brands
portfolio, which were generating very low revenues and margins,
as part of a regular periodic review of our portfolio.
Going forwards, we will continue to actively manage this part of
our portfolio, in particular the heritage pharmaceutical products,
and expect sales in this category to modestly decline over time.
However, the cash generation from these assets is expected to
remain strong, with limited requirements for promotional investment.
Regional performance
International
Our international distributor business continued to go from
strength to strength in 2019, benefitting from a full year’s revenues
from Nizoral and continued strong demand for Kelo-cote, which
helped to deliver significant year on year revenue growth across
the Asia Pacific region and particularly in China. We also saw
good growth from our Middle East and Africa distributor business,
with revenues up 26% on the previous year at £6.7m.
*
Non-IFRS alternative performance measures (see note 33). See-through revenue includes sales
from Nizoral as if they had been invoiced by Alliance. For statutory accounting purposes the
product margin on Nizoral sales is included within Revenue, in line with IFRS 15
30
Alliance Pharma plc – Annual Report and Accounts 2019
31
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information CHIEF EXECUTIVE’S REVIEW CONTINUED
Awarded International Company of the Year (25m+
turnover), South West Global Growth awards (UK)
Alliance appoints its first Head of
Global Marketing
Chester to Chippenham cycle ride in aid
of Smile Train
New enhanced credit facilities
agreed, to facilitate future growth
Distribution agreement
signed with new partner
in Saudi Arabia
Timeline
continued
New corporate
website goes live
MacuShield chewables
launched in the UK
Our annual employee
engagement survey delivers
another set of great results
First two product licences for
Nizoral transferred to Alliance
(Hong Kong & Thailand)
Xonvea licensing rights
returned to Duchesnay,
allowing us to focus on
core international brands
First delivery of Alliance-
branded Nizoral ready for
shipment to Taiwan
Our fundraising for
SmileTrain charity reaches
£32,000 – enough to fund
215 operations
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Regional performance continued
Operational review
International continued
See-through revenues for our international distributor business
increased 32% to £54.2m in 2019 (2018: £40.9m) and reported
revenues increased 30% to £45.6m (2018: £35.1m).
US
Revenues in our new US business increased by 11% in 2019 to
£6.1m (2018: £5.5m), with a particularly strong performance
by Vamousse, with revenues up 19% to £5.4m (2018: £4.6m),
supported by £0.7m of reclassified revenues from products
previously included within International sales.
UK and Republic of Ireland
Revenues in the UK and Republic of Ireland were down 2% on the
previous year at £51.4m (2018: £52.3m) due to weaker performances
from some of our heritage pharma products being partially offset by
a stronger performance from our UK consumer products, with
MacuShield, Ashton & Parsons and Aloclair all delivering good
revenue growth as we continue to invest behind these brands.
Mainland Europe
Our Mainland Europe business saw another year of strong top-
line growth in 2019, with revenues increasing by 28% to £32.5m
(2018: £25.4m), largely due to continued growth in Kelo-cote, to
satisfy both export and regional demand.
Return of Xonvea licensing rights
As we have previously reported, we returned the UK and EU licensing
rights to Xonvea, the prescription medicine for the treatment of
nausea and vomiting of pregnancy where conservative management
has failed, which we launched in the UK in October 2018, to
Duchesnay, Inc (‘Duchesnay’) (the licensor) in November 2019.
Under the terms of the agreement signed with Duchesnay, the £2m
in milestone payments made to date by Alliance will be repaid to
the Group, £0.25m was paid in 2019 and the remaining balance is
due in 2020. As a result of this agreement, the Group booked non-
underlying inventory provisions and associated restructuring costs of
£1.9m in 2019; the total non-underlying loss on disposal being £1.7m.
Alliance will continue to make Xonvea available to patients in the
UK for up to 12 months to assist Duchesnay with the transition to a
new licensee.
Acquisitions
Our acquisition strategy remains focused on selectively adding to our
portfolio, as suitable opportunities arise, with a focus on augmenting
our consumer healthcare brands in international markets where
we already have a presence. Our strong cash generation in 2019,
increased credit facilities and significant reduction in net debt leave
us well-placed to pursue this element of our strategy.
Following the UK’s departure from the EU on 31 January 2020,
we continue to monitor the progress of negotiations closely to
ensure we have the most up to date information available to allow
us to ensure continuity of supply, irrespective of the timings or
nature of the trade agreements reached with the EU with regard to
consumer healthcare and pharmaceutical products, or the nature
and duration of any transitional arrangements which may apply.
We remain on track to ensure our technical documentation and
processes meet the new requirements of the MDR, which will now
start to apply from May 2021. The new regulation places greater
scrutiny on the technical documentation, product safety and medical
device performance through stricter requirements on clinical
information and requires enhanced traceability and transparency.
We continue to progress with the development of our ERP system
which, when implemented, will deliver business benefits and
scale-up capability through the standardisation of processes.
We have also invested time in several other initiatives aimed at
improving our business systems and processes, including our
New Product Introduction (NPI) and Sales & Operations Planning
(S&OP) processes.
Work is now underway to fully embed these improved processes
into the business in 2020, to further improve our operational
leverage and facilitate future growth.
People
As previously announced, our two new independent Non-executive
Directors, Jo LeCouilliard and Richard Jones, took up office at the start
of 2019 and we are grateful to both for the valuable contributions
they have made to the Group’s activities during the first year of their
tenure. The composition of the Board underwent a further change in
June 2019, when John Dawson, founder and former CEO, stepped
down as a Non-executive Director of the Group.
We recognise that great results can only be achieved through the
combined efforts of our dedicated team of colleagues around
the globe, our partners and customers, and through the strong
collaborative culture that we have built within Alliance. Alliance
currently employs more than 200 people in ten locations around the
world. In 2019 we scaled up our existing operations in Asia Pacific,
to support the transition and ongoing management of Nizoral. We
also appointed our first Head of Global Marketing, as we continue
to develop our marketing insight, processes and performance
across all our teams to further accelerate the growth of our larger
consumer brands. We were delighted to once again achieve
exceptionally high engagement scores in our annual employee
survey, with some aspects of the survey achieving satisfaction levels
in excess of 90%, for the second year in succession.
We received several awards this year, including ‘Best Place to Work’
in the Chippenham Business Awards, where our head office is based.
Our social impact activities were again extremely well supported
by employees in 2019. Alliance matched employee fundraising
enabled us to raise more than £32,000 for the charity Smile Train
and we also supported more than 20 other charities, through
fundraising and donations of time and money. In addition, we
donated £75,000 of products to International Health Partners,
who we have been supporting for more than ten years now.
The Group places great importance on attracting and retaining
high quality employees and aligning the success of the Group with
their rewards. In recognition of this, the Group operates a share
option scheme which aims to ensure that all employees have an
opportunity to benefit from the growth of the business as reflected
in the Company’s share price.
On behalf of the Board, I would like to take this opportunity to
extend my sincere thanks to all those who have contributed to
another very successful year for Alliance.
COVID-19
Our priority is to ensure the safety of our people across the globe.
In the UK, Republic of Ireland, mainland Europe, Singapore and
the US, our employees are now working from home in line with
local government guidelines. Our investment in IT has ensured a
high level of connectivity throughout the world which means we
can operate remotely with minimal disruption to the business.
In Asia, we are pleased that our Shanghai office has now
fully reopened.
Our supply chain is holding up well and we do not anticipate
any material supply impact in the current year. For those products
we sell directly, we hold typically a minimum of three months of
inventory and, in some cases more, depending on the level of
clinical need. Most of our international sales are generated via
distributors, who typically hold three to six months of inventory.
We continue to monitor our supplier base for early indications of
any issues and are forward booking transport for the remainder of
2020 in order to mitigate any potential future capacity constraints.
Whilst supply is holding up well, demand is harder to forecast.
Although the COVID-19 situation in China and across the Asia Pacific
region looks to be improving, we anticipate that demand in the Asia
Pacific region, including China, will be lower in the first half of 2020
and then, depending on the speed with which this region returns to
normality, begin to recover in H2. Sales in our UK and mainland
Europe businesses are expected to be impacted, but to a lesser
extent due to the higher proportion of prescription medicines sold
in this region.
Given the fast-moving nature of the pandemic, the full-year impact
on trading of the COVID-19 coronavirus is very difficult to forecast
but we anticipate that trading will be weighted to the second half.
We will provide further updates at our AGM in May, in our H1
trading update in July and at other times as appropriate.
Current trading and outlook
After another strong performance in 2019, we entered 2020
well-positioned for further growth.
Whilst we are expecting to see some impact on revenues this
year as a result of the COVID-19 coronavirus, we are actively
working with our suppliers and distributors to mitigate the impact.
Our supply chain is holding up well and we, and our distributors,
hold good levels of inventory which provides a level of in-market
inventory buffer.
We continue to monitor developments and are looking closely for
any changes in market demand so that we can evolve our mitigation
plans in response to these; our objective is to minimise the economic
impact on our business, whilst ensuring that we continue to maintain
the safety of our employees in all countries affected by the virus.
As a result of the potential impact of COVID-19 on global economic
activity, we have decided it would be prudent at this time to
preserve cash and therefore have taken the decision not to propose
a final dividend for year ending 2019. We will continue to monitor
the situation and to reassess the position later in the year and
potentially declare a further interim dividend for 2020.
Operationally, the priorities for the Group remain unchanged:
continuing to invest in our consumer healthcare brands in order to
deliver organic growth and continuing to progress with the transition
of Nizoral, to enable us to benefit from the increased control we will
have over the brand as the various territories complete transition.
We will continue to look to selectively add to our portfolio, as
suitable opportunities arise, with a focus on augmenting our
consumer healthcare brands in international markets where
we already have a presence.
Peter Butterfield
Chief Executive
7 April 2020
32
Alliance Pharma plc – Annual Report and Accounts 2019
33
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information RESPONSIBLE BUSINESS
We are committed to
operating our business in an
ethical and sustainable way,
having regard to the interests
of all our stakeholders - our
customers, suppliers, business
partners and employees.
We recognise that everything we do has an
impact on the natural environment and on
the people and communities within it and we
are committed to looking for ways to reduce
our impact in these areas to ensure a better
future for all.
“ We work hard to ensure the business decisions we
make have a positive impact on our people, society
and the environment.”
JANICE TIMBERLAKE
Chief People and Infrastructure Officer
Our people
Engaging with our employees
Our employees constitute one of our most important stakeholder
groups and play an integral part in the delivery of successful
outcomes for the business. The Group engages regularly with its
employees and monitors closely their views and any concerns
raised. The Group carries out an annual employee engagement
survey, the results of which are reviewed by the Board to ensure
appropriate actions are taken in response to this, so as to deliver
a positive outcome to the process – the results of the 2019 survey
showed that 77% of employees are positive and motivated in
their work, with some aspects of the survey achieving levels of
satisfaction exceeding 90%, for the second year running.
Celebrating success
Alliance’s core values of performance, realism, accountability,
integrity, skill and entrepreneurship remain at the heart of how
we engage with each other and conduct our business. Every
month we celebrate with our employees great examples of
our values in practice in our global employees briefing. These
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 – employees who go above and beyond in putting our
values into practice are identified and recognised.
These briefings also provide an opportunity for the Senior
Leadership Team to communicate Group performance, targets
and operational priorities to all employees, to ensure that
everyone’s efforts remain aligned and maintain an open dialogue
with employees, through providing an opportunity for Q&A.
In June 2019, Alliance was awarded International Company of
the Year (£25m+ turnover) at the South West (UK) Global Growth
Awards, in recognition of the successful expansion of our business
outside of the UK.
Creating opportunities for continued growth
and development
Alongside the recruitment of external talent, we encourage and
support the development of our existing employees’ skills and
knowledge through internal and external short courses and
formal training programmes. As a business, we invested in our
employees’ professional and personal development across a
number of disciplines in 2019, including specialist training for
Regulatory and Pharmacovigilance colleagues on the ABPI and
PAGB codes of practice and professional qualifications in Finance
(CIMA and ACCA), in addition to our bespoke management skills
development programme and external leadership development.
We continue to focus on early career talent development and
after the initial success of our apprenticeship programme, have
expanded this to other functions such as HR. We will look at
furthering these opportunities, together with continuing to cement
our ties with our local community of schools, throughout 2020.
Employee health and wellbeing
Alliance recognises that its people are key to the business’s
success and remains committed to ensuring the health and well-
being of its workforce.
From providing free fruit to all our employees and a gym in our
head office, through to the selection of our healthcare insurance
provider which, for UK-based employees, is an organisation that
actively promotes and rewards members for maintaining a healthy
lifestyle. Healthcare insurance is provided to all permanent
employees and their dependents, subject to qualifying conditions.
As part of our commitment both to our employees and to the
environment, we work hard to ensure that our offices are pleasant
and environmentally friendly places to work. Around 45% of our
employees have now been provided with height-adjustable desks,
which allow users to stand or sit when working, whilst our LED
lighting, as well as being longer lasting and around 89% more
energy efficient, aims to mimic natural daylight.
For the third year running, we participated in Britain’s Healthiest
Workplace – the UK’s most comprehensive workplace wellness
study. 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 again
scored among the top quartile in the small business category.
We have had some great data and feedback from our
participation in the survey to date regarding our organisational
health and wellbeing, our work performance and the work
environment and have developed an action plan to address
some of the key findings.
Our focus in 2020 will be to progress towards ‘Great Place to
Work’ which surveys both the internal trust and engagement of
employees, together with the cultural norms within an organisation;
we believe this will provide us with a richer source of data and
insight into how our employees view Alliance, so as we can further
progress our engagement journey.
Environmental sustainability
Alliance is actively pursuing environmental sustainability,
both within its own operations and within its supply chain.
Within our own business operations, we have entered into a
contract with a new waste-management company to ensure
all waste from our Chippenham head office, where the majority
of our employees are based, is segregated and recycled as
far as possible, so as to minimise what goes to landfill. Over
the past three years, we have also carried out an extensive
building refurbishment programme, implementing a number of
measures designed to reduce our environmental impact, including
the installation of movement-controlled LED lighting, new, more
efficient air conditioning systems, improved building insulation,
new energy efficient flash boilers for hot water generation and
other measures designed to reduce energy consumption.
This is reflected in the assessors comments in our most recent
Energy Savings Opportunity Scheme (ESOS) report, for the four
years to December 2019, which notes that “Alliance Pharma
occupies a historic building in the centre of Chippenham, the
building has been refurbished to a high standard but there is
further scope for improvement subject to the appropriate local
authority consent. The building has a Display Energy rating of 94
which indicates better than average performance”.
We plan to carry out further improvement works, in line with these
recommendations, during 2020 and we are also looking to further
reduce our carbon footprint through reviewing activities such as
stationery purchasing, travel and water usage.
34
Alliance Pharma plc – Annual Report and Accounts 2019
35
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information RESPONSIBLE BUSINESS CONTINUED
Environmental Sustainability continued
From 1 January 2020, we are required to report under the
Streamlined Energy and Carbon Reporting (‘SECR’) regulations
and our first report until these regulations will be provided as
part of our 2020 Annual Report.
Supply chain management
Our well-established vendor selection processes ensure
that our CMOs are assessed, and future performance evaluated
against, a broad set of measures, including compliance with
Alliance’s policies around anti-bribery and anti-slavery, in
addition to appropriate quality and regulatory standards.
We are fully compliant with the LUCID environmental recycling
regulations in Germany, which require all companies to sign up
to a recycling scheme, to ensure that packaging can be recycled,
with the costs for this being born by Alliance as the manufacturer
of the product. All packs have a green dot confirming their
compliance. A similar scheme is in operation in Czech Republic
and Slovakia, which our distributor in these territories participates
in, and in Denmark.
We continue to work with our suppliers to improve the
environmental sustainability of our products on an ongoing
basis. Current initiatives include planning for the implementation
of environmental health and safety audits of our suppliers, to
help identify areas of risk and develop and agree appropriate
mitigation plans.
Modern slavery
In keeping with the Group’s values, we are opposed to modern
slavery. We regularly review and where necessary update our
operating procedures in consideration of the provisions of the
Modern Slavery Act 2015, to ensure that we do what we can
to prevent slavery and human trafficking in our businesses/
supply chains. Our policy can we found on our website: www.
alliancepharmaceuticals.com/en-gb/about/anti-slavery-statement
We are currently working towards independent assessment of
Alliance’s labour standard assurance system (‘LSAS’) by Lloyds
Register Quality Assurance (‘LRQA’), to ensure that both we and
our suppliers (principally our CMOs) have systems and policies in
place which demonstrate that they have given due consideration
to the wellbeing of their employees, having regard to minimum
standards. LSAS provides an extra level of corporate, social and
ethical governance regarding labour standards for organisations
supplying the NHS supply chain.
We are also planning to roll-out training around the provisions
of the Modern Slavery Act 2015 to all members of our Scientific
Affairs and Operations team in 2020, to increase levels of
awareness and understanding in this important area.
Social impact
Our people and the community
Our people have a strong interest in supporting the wider
community, looking for fun but meaningful ways to make a
difference. All our employees globally are given a volunteer
day each year, and these are widely used – as people are
keen to give back time directly to support the charities which
mean the most to them.
Our fundraising for Smile Train
Smile Train is a global charity with the sole vision of supporting
safe and quality cleft treatment for children all over the world.
Smile Train use a sustainable model by training local medical
professionals to be able to carry out this important work.
In May 2019, we announced our corporate sponsorship
partnership between Smile Train and our scar treatment product,
Kelo-cote. More information about this can be found on page 28.
In addition to the brand support provided by Kelo-cote, we also
adopted Smile Train as our chosen charity for 2019, with Alliance
matching employees fundraising to raise more than £32,000 for
the charity, enough to fund 215 operations, through a variety of
physical challenges such as running, walking or climbing walls
and climbing mountains and other activities such as cake sales,
raffles, auctions and sponsored events in the office.
Charity support through PRAISE awards
Our PRAISE awards, which reward employees for outstanding
demonstrations of our values in practice, give recipients the
opportunity to direct the rewards for their achievements to their
favourite charity.
Engaging with our local community
In September 2019 we held an open day at our Chippenham
head office as part of the local museum’s ‘open door’ initiative.
Our head office building, Avonbridge House, is a Grade 2 listed
building with an interesting heritage, having previously been
the site of the first Nestle condensed milk factory in the UK. This
event gave visitors the opportunity to find out more about the
past and present uses of the building, including its current use by
Alliance and to see some of the surviving features from its previous
industrial use.
Other community support initiatives
In 2019, Alliance employees once again provided gifts to those
adults and children spending Christmas in a local domestic
abuse refuge. We also collected donations of toiletries for a local
homeless hostel and the local hygiene bank – similar in concept
to a food bank but focusing on personal and domestic hygiene
products for distribution to those in need.
Our commitment to transparency
Alliance is committed to providing transparency and clarity
around our collaboration with healthcare professionals,
healthcare organisations and patient organisations.
In the UK and Republic of Ireland, Alliance publishes transfers of
value in accordance with the ABPI and IPHA Codes of Practice.
In the US, members of the Alliance team used their annual charity
day to support ‘Habitat for Humanity’, which helps to build safe,
affordable homes for families who otherwise couldn’t afford to
purchase one, by participating in a community house-building
project in Raleigh.
Our commitment to patients
Patients rely on us to deliver products that can help to improve
their health – whether these are prescription medicines, or
products bought off the shelf in their local pharmacy, as part
of a self-care regime, or to treat common ailments.
We are committed to ensuring that all our products meet the
highest standards of safety and efficacy and that we remain fully
compliant with all applicable regulations. Our quality assurance
systems and processes aim to provide an appropriate level of
confidence that suppliers, vendors and contractors are able to
supply consistent quality of materials, components and services
in compliance with regulatory requirements and to identify and
mitigate any associated risks.
Our employees have also supported many other local charities
such as Cancer Research UK, Singapore Children’s Society,
Dorothy House Hospice Care and Save the Children.
It is this level of employee engagement and desire to make a
difference that is at the heart of our business and contributes to
it being a meaningful place to work.
Our work with International Health Partners
International Health Partners (IHP) were set up in 2004 as a
response to the Indian Ocean tsunami and earthquake and are
now Europe’s largest facilitator of product donations between
healthcare companies and agencies. Their mission is to serve those
in need – from those caught up in conflict, to those impacted by
natural disasters, by providing high-quality donated medicines. Last
year alone IHP sent 1.2 million treatments to those suffering due to
a lack of access to medicines. Alliance has been a supporter of IHP
since 2009, regularly donating a range of pharmaceutical products
for inclusion in IHP’s Essential Health Packs (EHPs), pre-packed kit
that is filled with a range of medicines essential to support critical
healthcare delivery in remote or disaster hit areas. Last year,
Alliance provided £75,000 of treatments for inclusion in the EHPs,
which were distributed to 23 countries around the world.
36
Alliance Pharma plc – Annual Report and Accounts 2019
37
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL REVIEW
2019 saw another year of strong performance, with
Group revenues on a see-through basis increasing
by 16%, a 22% increase in underlying EBITDA, very
healthy cash generation and leverage below 1.5 times.
2019 Highlights
• Continued good growth in underlying EBITDA
(+22%) and in underlying operating profit
(+29%) (reported operating profit +51%), with
operating leverage maintained in line with
2018
• Very strong cash generation, helping to bring
net debt down by £26.6m to £59.2m
• Leverage now below 1.5x
“ 2019 saw another year of solid financial performance
by the Group, both in terms of profitability and cash
generation.”
ANDREW FRANKLIN
Chief Financial Officer
2019
2018
2017
2016
£39.4m
2019
£29.1m
£32.4m
£27.2m
£26.0m
2018
2017
2016
£16.1m
£22.0m
£13.0m
Underlying EBITDA*
£39.4m
(2018: £32.4m) +22%
Free Cash Flow*
£29.1m
(2018: £16.1m) +81%
Reported operating profit £35.6m
(2018: £23.7m) + 51%
Cash generated from operations £39m
(2018: £26.1m) +49%
The Group delivered a strong financial performance in 2019,
with see-through revenues increasing 16% to £144.3m (2018:
124m) and statutory revenues increasing 15% to £135.6m
(2018: £118.2m). The increase was largely driven by a strong
performance from our International Star brands, particularly Kelo-
cote, and by the inclusion of a full year’s post-acquisition revenues
from Nizoral. Overall, underlying profit before taxation increased
by 17% to £32.9m (2018: £28.1m) and reported profit before tax
increased 36% to £31.1m (2018: £22.8m).
The impact of exchange rate movements on the Group’s revenues
was limited, the benefit of Sterling weakening against the US
Dollar in 2019 being largely offset by Sterling strengthening
slightly against the Euro. Likewise, there was minimal impact on
operating profits this year as a result of currency movements.
Gross profit increased at a slightly higher rate than revenue, up
18% to £86.1m (2018: £72.6m), resulting in a 1.1% increase
in gross margin, from 58.6% to 59.7% of see-through revenue
(+2.0% increase from 61.5% to 63.5% of statutory revenue),
due to mix and improving inventory management.
Operating costs (defined as underlying administration and
marketing expenses, excluding underlying depreciation,
amortisation and impairment charges) increased by £6.5m to
£44.9m (2018; £38.4m), due to the full year impact of transitional
service fees payable to J&J in connection with Nizoral, an
increase in employee costs required to support the scale up of
our operations in Asia Pacific and the wider business, and the
continued growth of our Star brands. As a percentage of sales,
operating costs were in line with 2018 and represented 31.1% of
see-through sales (2018: 31.0%).
The IFRS2 share options charge for 2019 remained in line with
that for the previous year, at £1.8m (2018: £1.8m).
Notwithstanding the increase in operating costs, underlying
earnings before interest, taxes, depreciation and amortisation
(EBITDA) increased by 22% to £39.4m (2018: £32.4m), whilst
underlying operating profit increased by 29% to £37.4m
(2018: £28.9m) and reported operating profit increased 51%
to £35.6m (2018: £23.7m).
Depreciation, amortisation and impairment charges
Underlying depreciation, amortisation and impairment charges
for 2019 amounted to £2m, a £1.5m reduction on the prior year
(2018: £3.5m); the 2018 charge included the write-down of a
supply agreement of £1.9m.
Finance costs
Overall, net finance costs in 2019 increased by £3.7m to £4.6m
(2018: £0.9m), due primarily to a £1.4m adverse movement in
foreign currencies (2019: £0.8m loss, 2018: profit £0.6m) and
the fair value of contingent consideration in 2018 (£2m credit).
Interest payable increased by £0.3m to £3.8m, the increased
costs resulting from the Nizoral drawdown in June 2018 and
non-utilisation costs on the new credit facilities put in place in July
2019 being offset by lower interest charges due to the reduction
in net debt and the lower interest rates associated with the new
borrowing facility.
The average interest charge on gross debt during the period
(including non-utilisation fees) was 3.37%.
Underlying Profit Before Tax
£32.9m +17%
(2018: £28.1m)
2019
2018
2017
2016
£32.9m
£28.1m
£23.9m
£22.2m
Reported profit before tax £31.1m (2018: 22.8m) +36%
Underlying Basic EPS**
5.09p +12%
(2018: 4.54p)
2019
2018
2017
2016
5.09p
4.54p
4.05p
3.69p
Reported Basic EPS 4.80p (2018: 3.69p) +31%
Dividend Per Share
0.536p -63%
(2018: 1.464p)
2019
2018
2017
2016
0.536p
1.464p
1.331p
1.210p
Net Debt
£59.2m -31%
(2018: £85.8m)
2019
2018
2017
2016
£59.2m
£85.8m
£72.3m
£76.1m
*
Non-IFRS alternative performance measures (see note 33). See-through revenue includes sales from Nizoral as if they had been invoiced by Alliance. For statutory accounting purposes the
product margin on Nizoral sales is included within Revenue, in line with IFRS 15
** The 2017 measure refers to the Underlying Adjusted Basic EPS as disclosed in the 2017 Annual Report which was adjusted to normalise the impact of significant changes in overseas tax rates
38
Alliance Pharma plc – Annual Report and Accounts 2019
39
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL REVIEW CONTINUED
Reconciliation of underlying to reported profit before tax
Year ended 31 December
Underlying profit before taxation
Non-underlying items:
Return of Xonvea licensing rights
Disposal of Flammacerium
Profit on disposal of Unigreg Joint Venture
Impairment and write-down of Synthasia Joint Venture assets
Impairment of anti-malarial intangible asset
Total
Reported profit before taxation
Taxation
The total tax charge for the period was £6.1m (2018: £4.4m),
resulting in an effective tax rate of 19.5% (2018: 19.5%).
Excluding non-underlying items, which generated a tax credit of
£0.3m in 2019 (2018: £1m tax credit), the underlying tax charge
was £6.4m (2018: £5.5m), representing an underlying ETR of
19.5% (2018: 19.6%).
Earnings per share
Underlying basic earnings per share for 2019 was 5.09p,
an increase of 12% (2018: 4.54p).
Reported basic earnings per share was 4.80p (2018: 3.69p)
due to non-underlying items reducing earnings to a lesser
extent in 2019 than in 2018.
Dividend
The Board is closely monitoring the impact of the COVID-19
virus on our people and business. At this stage it is too soon to
quantify the impact it may have in the future on our financial
performance but, given the scale of the potential impact of
2019
£m
32.9
(1.7)
(0.1)
(1.8)
31.1
2018
£m
28.1
1.5
(2.5)
(4.3)
(5.3)
22.8
COVID-19 on economic activity, the Board has decided it would
be prudent to preserve cash at this time and therefore has taken
the decision to not to propose a final dividend for year ended
31 December 2019.
The Board will continue to monitor the position with an intention,
to the extent that the Board deems it prudent in light of all relevant
developments, to reassess the position later in the year and
potentially declare a further interim dividend for 2020.
The Company will update the shareholders at the time of the AGM.
Return of the licensing rights to Xonvea
On 27 November 2019, Alliance announced that the Group
had reached agreement with Duchesnay Inc. of Canada
(‘Duchesnay’) to return the UK and EU licensing rights to Xonvea,
a prescription medicine for the treatment of nausea and vomiting
of pregnancy where conservative management has failed. As
a result of this agreement, the Group booked non-underlying
inventory provisions and associated restructuring costs of £1.9m in
the year ending 31 December 2019, incurring a non-underlying
loss on disposal of £1.7m.
Balance sheet
Intangible assets decreased by £6.6m in 2019, to £328.7m
(2018: £335.2m), £3.1m of which related to foreign currency
translation adjustments, the remainder primarily to the disposals of
Xonvea and Flammacerium.
Intangible assets currently account for around 80% of the Group’s
total assets. As part of the wider 2020 strategic review, the Group
will continue to consider the appropriateness of accounting
estimates for intangible assets within its portfolio.
Working capital
The Group continued to maintain good control of its working
capital with total net working capital of £24.7m, a reduction of
£1.4m on the prior year (2018: £26.1m).
Inventories, net of provisions, amounted to £15.5m as at 31
December 2019, a decrease of £3.2m in the year (2018:
£18.7m), due to the partial reversal of an inventory build made
during 2018 in preparation for the FMD and Brexit and a £1.2m
provision for Xonvea following the return of the licensing rights
to Duchesnay.
Total receivables increased by £1.8m, which primarily related
to the balance of the Xonvea milestone repayments, receivable
this year, whilst payables (excluding contingent consideration)
increased by £0.1m.
Cash flow and net debt
Free cash flow (see note 33 for definition) for the year was very
strong at £29.1m (2018: £16.1m), due primarily to the increase in
underlying operating profit in 2019.
Net debt decreased by £26.6m to £59.2m at 31 December 2019
(2018: £85.8m), a reflection of the Group’s strong underlying
cash generation.
Consequently, adjusted net debt/EBITDA leverage reduced to
1.48 times at 31 December 2019 (2018: 2.33 times), comfortably
within our covenant limit of 3.0 times.
We expect free cash flow generation to remain good in 2020
and, in the absence of acquisitions, expect leverage to reduce to
below 1.0 times during the second half of the year, excluding the
impact of the coronavirus noted earlier.
Treasury and capital management
The Group’s operations are financed by retained earnings and
bank borrowings, with additional equity being raised on a
periodic basis to finance larger acquisitions.
The Group manages its exposure to currency fluctuations on
translation by managing currencies at Group level using bank
accounts denominated in its primary trading currencies (Sterling,
Euro and US Dollars) and foreign exchange forward contracts.
As previously reported, in July 2019, the Group agreed a new
£165m fully Revolving Credit Facility, together with a £50m
accordion, with an enlarged syndicate of lenders on improved
terms, replacing the existing facility which ran through to
December 2020. This new facility is available until July 2023,
with a one-year extension option, and provides further flexibility
for the Group to deliver carefully targeted acquisitions over the
next few years to complement its organic growth strategy.
Andrew Franklin
Chief Financial Officer
7 April 2020
40
Alliance Pharma plc – Annual Report and Accounts 2019
41
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information RISK MANAGEMENT AND INTERNAL CONTROLS
At a global level, Alliance Pharma
recognises that it is essential that we
actively manage our risks and maximise
our opportunities.
We remain focused on our values and believe that adopting responsible behaviour
across our business activities plays an important part in achieving our purpose.
The Board ensures a healthy balance between the risks we face and harnessing the
opportunities to support sustainable growth in order to help meet the Group’s
strategic objectives, delivering value to our shareholders.
Our approach to risk management and internal control
The Board has primary responsibility for the Group’s overall
approach to risk management and systems of internal control. The
Board has delegated oversight of the management of risk and
internal control to the Audit and Risk Committee. During the year,
and in line with its responsibilities pursuant to its terms of reference,
the Audit and Risk Committee reviews the identification, evaluation
and management of the risks facing the business and considers the
effectiveness of associated processes and controls.
The Committee reports regularly to the Board and, at least
once a year, the Board carries out a formal review of risk
management and the risks which have been identified by the
risk management process. Those risks which the Board is not
prepared to take, are avoided, mitigated as far as possible
and/or transferred to insurers.
1 Oversight
and reporting
The Board and
the Audit and Risk
Committee leads
process for risk
management
• The Audit and Risk Committee reviews the framework for risk management and
considered the Group’s principle risks and uncertainties.
• The Audit and Risk Committee reports directly to the Board.
2 Identify and
assess
Top down/bottom
up review
• The identification and assessment and management of risks in the business is driven
and monitored by the Senior Leadership Team with the support of the Company
Secretary.
• 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. As well as a
consolidated Group Risk Register, there are risk registers in place at a functional
business level.
• Risks are identified and assessed by the likelihood of them occurring and their
potential impact on the business. This calculates the potential level of exposure 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.
• Risk registers are regularly reviewed to capture and identify new risks and identify
opportunities to improve the mitigating actions.
• 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 those risks to the Senior Leadership Team. The Senior Leadership Team reviews
all risks on a quarterly basis, with the principal risks being monitored monthly and,
in the case of the principal risks and uncertainties, such risks are reported to and
reviewed by the Audit and Risk Committee as well as the Board.
• Actions being taken, or that should be taken, to help mitigate the potential exposure to
the risks are regularly reviewed to ensure the appropriate individual ‘owns’ the risk and
the actions being taken remain effective.
3 Review and
mitigate
The SLT reviews
progress and
mitigations
4 Report and
review
The Audit and Risk
Committee reviews
and discusses key
risks identified
• The Company Secretary prepares an update report on risk and notifies the Audit
and Risk Committee of key changes to the Group Risk Register.
• Existing mitigations are considered for each risk and the residual levels of exposure
assessed.
“ The Audit and Risk Committee keeps under review the Group’s internal financial
controls systems that identify, assess, manage and monitor financial risks, and
other internal control and risk management systems.”
DAVID COOK
Independent Non-executive Chairman
The responsibilities surrounding risk management and internal control systems are designed to meet the needs of the size and
complexity of the business. It takes into account the applicable requirements of pharmaceutical regulators in the various markets in
which the business operates and the regulatory and legal requirements as a UK AIM quoted plc.
The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against
material misstatement or loss. The key components of the current system of internal control are:
Communicating our strategy and
our values
Setting and communicating clear strategic goals to the business helps ensure all employees
understand the objectives on the business and raises awareness.
Planning
Policies, processes and procedures
Defining the Group’s values and maintaining a code of ethics for all employee to encourage a
culture that promotes good behaviour.
Developing clear business plans and budgets in line with strategy, supported by intra-year
forecasting. This provides the business with clear points of reference.
Developing clear policies and procedures for all areas of the business which consider all aspects
of legal, regulatory and ethical responsibility. Final implementation of the Enterprise Resource
Planning (ERP) system will further strengthen and enhance the Group’s systems of internal control.
This provides the business with an opportunity to review processes and reporting practices
throughout the Group and provide consistency across the same.
Reporting, management information
and discussion
Regular reporting of actual performance relative to those strategic goals, plans, budgets and
forecasts. This ensures the business can track and trace factors that could impact on strategy
and performance.
Organisational structure,
accountability and delegated
authorities
Creating an appropriate structure of responsibility and accountability, including segregation of
duties, appropriate reporting lines for key managers and regular line management communications
and one-to-one meetings where performance is discussed, supported by an appraisal process.
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. This ensures and protects individuals who may
not fully appreciate or understand the risk and maintains controls where most needed to prevent
risks occurring.
Training and monitoring
Training and monitoring employees’ understanding of the external regulatory codes which are
applicable to the Group’s business, as well as the Group’s internal policies and procedures.
Management monitoring of compliance with the external regulatory codes which are applicable
to the Group business, as well as the Group’s internal policies and procedures, and responding
appropriately to any breaches.
Internal Audit Function
Each year, the Audit and Risk Committee and the Board separately consider the need for an internal audit function. Given the current
size of the Group, the Audit and Risk Committee and the Board do not judge it appropriate to maintain a dedicated internal audit
function. This position is kept under review.
42
Alliance Pharma plc – Annual Report and Accounts 2019
43
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information
OUR PRINCIPAL RISKS AND UNCERTAINTIES
As we continue to grow as a business,
the risks we face continue to be carefully
managed.
“ New risks may arise, the potential impact of known risks, including how quickly
they escalate, may increase or decrease, and/or our assessment of these risks may
need to change.”
RICHARD JONES
Chairman of the Audit and Risk Committee
During the year, the Board reviewed the principal risks and
uncertainties facing the Group and continues to focus on those
which could threaten our business model, reputation, future
performance, solvency or liquidity of the business. These have
been linked to the key elements of our strategy as described on
page 20.
Principal risks are assessed on a residual basis according to our
current view of their potential severity (being the combination
of impact and likelihood), and assuming that existing plans for
mitigation are and remain effective.
The table below/overleaf 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 events that are outside of our control and
which may impact on us operationally. New risks may arise,
the potential impact of known risks, including how quickly they
escalate, may increase or decrease, and/or our assessment
of these risks may need to change. One such new risk arising
since the year-end is COVID-19. The Company has mobilised its
business continuity plan and continues to assess and deal with the
challenges emerging as a result of the pandemic on our business
and its operation, further details of which is set out on page 33.
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
–
–
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.
–
The Group has implemented a Global
Marketing excellence programme.
This risk has not
changed materially
since last year.
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 may result in
insufficient cash to reinvest into the business, or to
service our debt 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.
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 the risk of having their
regulatory status challenged or adversely altered.
This could affect the Group’s ability to launch any
new products, maintain sales of its current products
in current jurisdictions 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.
Continued expansion and growth of the business – new markets become less attractive
and potential acquisitions larger in size
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 also increases. 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
are supplemented by 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, 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.
Where possible, and cost effective, the
potential financial impact of supply chain
disruption is mitigated by insurance.
44
Alliance Pharma plc – Annual Report and Accounts 2019
45
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information OUR PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
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 Competitors 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.
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, anti-slavery 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 VAT
and general tax environment in which it operates
becomes more complex and the risk to incorrectly
report and pay relevant taxes increases.
This risk has not
changed materially
since last year.
–
–
–
–
–
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.
In-house Company Secretarial function
has been bolstered in order to increase
the internal management of corporate
compliance.
The Group has engaged external
VAT 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
and VAT reporting.
Third party experts are engaged in our
overseas territories to help us comply with
local rules and regulations and ensure
that our operations are monitored 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.
Foreign exchange risk – volatility in reported profits
Link to strategy
Risk description and impact
Management and mitigation
Trend
International
expansion
The Group earns a proportion of its profits in
currencies other than Sterling, but accounts for
the business in Sterling. The reporting of profits
is therefore subject to volatility due to changes in
exchange rates.
–
–
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 2019 the Group has implemented a
new risk management policy to hedge
up to 75% of its estimated future foreign
currency EBITDA exposure. This for up to
the next 18 months at any point in time.
The Group uses forward foreign exchange
contracts to implement this policy which
are generally designated as cash flow
hedges. At 31 December 2019 the Group
has outstanding forward foreign exchange
contracts to sell €10.7m and $9.4m for
fixed sterling amounts.
The unhedged
portion of the
Group’s profits
earned in
currencies other
than Sterling has
increased in 2019,
however due to
implementation
of the new risk
management
policy the residual
risk is considered
materially similar.
Product liability – defective products etc
Link to strategy
Risk description and impact
Management and mitigation
Trend
Maximising and
extending brand
potential
The Group produces and sells a wide range of
medicines, medical devices, food supplements and
cosmetics. There are inherent risks that some of these
products could cause adverse reactions exposing
the Group to the risk that (i) the product must be
withdrawn from sale and (ii) that we may have legal
liability to those injured by that product.
These risks have the potential to damage our
reputation and compromise our future performance
and, in an extreme scenario, liquidity position or
even solvency.
–
–
–
–
Dedicated in-house Quality
function, supplier audits.
The Group’s products are well
tolerated, and many have been
in existence for decades.
All products have regulatory approval
in the markets we trade in.
We also carry public and products liability
insurance to provide an appropriate 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
This risk has not
changed materially
since last year.
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 malicious) 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.
–
The Group continues to monitor
compliance with GDPR.
46
Alliance Pharma plc – Annual Report and Accounts 2019
47
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information OUR PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Business systems – ERP and other systems
Pandemics and other worldwide events (COVID-19)
Link to strategy
Risk description and impact
Management and mitigation
Trend
Link to strategy
Risk description and impact
Management and mitigation
Trend
Sustained growth
This risk has not
changed materially
since last year.
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.
Once implemented there is a risk that the ERP system
may fail 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.
–
–
–
–
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 the
Group 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 and 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, through its experienced IT
team, 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 leaving the EU (Brexit).
The potential impact of the eventual terms 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.
This risk has not
changed materially
since last year.
– 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. Only a limited amount of
our business is reliant on the movement of
goods between the UK and EU, however
to mitigate potential risk, we have
implemented our Brexit strategy, which
includes: building additional inventory
in order to maintain sufficient supply of
key products; establishing a subsidiary
company in the Republic of Ireland which
now hosts certain registrations; and
duplicating key statutory roles in the UK
and EU albeit on a limited basis.
The unprecedented situation around COVID-19 is
creating an uncertain time. The situation is changing
almost daily, and it is difficult to assess at the time
the final impact of COVID-19. The Group has taken
various steps early on in order to deal with the
situation which it finds itself in as well as to help
mitigate any potential impact to its business and
people.
Whilst supply is holding up well, demand is harder to
forecast. Although the COVID-19 situation in China
and across the Asia Pacific looks to be improving,
we anticipate that demand in the Asia Pacific region,
including China, will be lower in the first half of 2020
and then, depending on the speed with which this
region returns to normality, begin to recover in H2.
Sales in our UK and mainland Europe businesses are
expected to be impacted, but to a lesser extent due to
the higher proportion of prescription medicines sold
in this region.
Given the fast-moving nature of the pandemic,
the full-year impact on trading of the COVID-19
coronavirus is very difficult to forecast but we
anticipate that trading will be weighted to the second
half.
Any significant impact on the turnover of the Group
could affect the Group’s ability to continue to comply
with its financial covenants within its borrowing
facilities.
This is a new risk.
–
–
–
–
–
Our priority is to ensure the safety of
our people across the globe. In the UK,
Republic or Ireland, mainland Europe,
Singapore, and the US, our staff are
now working from home in line with local
government guidelines. Our investment in
IT has ensured a high level of connectivity
throughout the world which means we can
operate remotely with minimal disruption
to the business. In Asia, we are pleased
that our Shanghai office has now fully
reopened.
The Group took action to establish a
COVID-19 planning and action team early
on after the events in China started to take
effect. The team took early action to assess
the impact on and safety of our employees
and our supply chains. Distributors
were also contacted early on, and the
team stays in close and regular contact
with every element of our supply chains
(supplier, logistics and distributors) to
ensure it has up to date information which
allows the Group to plan any necessary
response.
Our supply chain is holding up well and
we do not anticipate any material supply
impact in the current year. For those
products we sell directly, we hold typically
a minimum of three months of inventory
and, in some cases more, depending on
the level of clinical need.
Most of our international sales are
generated via distributors, who typically
hold three to six months of inventory. We
continue to monitor our supplier base
for early indications of any issues and
are forward booking transport for the
remainder of 2020 in order to mitigate
any future capacity constraints.
The Group has sufficient headroom
between operating leverage (31
December 2019: 1.5 times) and its
banking covenants which are set at 3.0
times net debt / EBITDA. The Group
regularly reviews its on-going cashflow
position and this is stress tested on a
monthly basis. The Group’s business is
profitable and cash generative.
48
Alliance Pharma plc – Annual Report and Accounts 2019
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information Governance
“ Governance continues to focus on our ability to develop and build a sustainable and
resilient strategy, centred on delivering growth, maintaining a dynamic management
framework and building trust. This is embedded in our culture of supportive
leadership which harnesses the skills and talents of our people.”
DAVID COOK
Independent Non-executive Chairman
GOVERNANCE
Chairman’s Introduction to Governance
Board of Directors
QCA Code Compliance
Nomination Committee Report
Audit and Risk Committee Report
Remuneration Committee Report
Directors’ Report
52
54
56
62
63
65
73
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE
Chairman’s introduction
to governance
“ We recognise that
good governance can
contribute to our ability to
create shared value. Our
governance framework
promotes a culture
of accountability and
responsibility by actively
managing the risks that
we face, supported by our
values and behaviours.”
DAVID COOK
Chairman of the Board
DEAR SHAREHOLDER,
I am delighted to introduce this section on governance, which describes the activities of the
Board and its Committees during 2019 and how we have ensured governance remains a
pivotal part in the strategic development and day-to-day running of this business.
Maintaining our strong systems of good governance
As an AIM quoted company, our governance framework is underpinned by the Quoted
Companies Alliance (QCA) Corporate Governance Code 2018 (the ‘QCA Code’).
In addition to the QCA Code, we monitor developments and guidance in the UK
Corporate Governance Code, applicable to main market listed companies, to keep
abreast of matters which we feel could also be embedded as best practice as part of
a progressive approach.
Governance continues to focus on our ability to develop and build a sustainable and
resilient strategy, centred on delivering growth, maintaining a dynamic management
framework and building trust. This is embedded in our culture of supportive leadership
which harnesses the skills and talents of our people and is coupled with regular, open
dialogue with our investors at results presentations, one-to-one investor meetings and at our
Annual General Meeting (‘AGM’). Director changes made at the beginning of 2019 have
balanced independence on the Board, and strengthened the skills and experience on the
Board and its Committees. This further enhances our the ability of the Board as a whole to
continue to take decisions in the interests of all stakeholders over the medium to long-term.
In the following sections, we provide an update on our compliance with Corporate
Governance, the Remuneration Report and the Directors’ Report. In these reports we
set out our governance structures, along with overview of how the Company complies
with the Principles of the QCA Code which can be found on our website at:
www.alliancepharmaceuticals.com/investors/governance
Due to the unprecedented situation with COVID-19 and in line with the Government’s Stay
at Home measures, the Board has taken the decision to hold this year’s AGM on the 18
May 2020 at the Company’s offices in Chippenham, with the CEO and CFO attending in
person and the rest of the Board attending via audio conference. Shareholders will not be
permitted to attend the AGM in person. Your Board understands that many shareholders
who would have liked to attend in person and ask questions of the Directors will not be able
to. The Company has arranged for a listen-only conference facility to allow shareholders
to dial in to the meeting for which details are included in the notice of AGM. It should also
be noted that all voting will be conducted on a poll. Only those votes received by proxy or
cast in person will count and, as such, if you are planning on dialling in to the AGM then
you should cast your votes by post or online for them to be validly counted.
Thank you for your continued support and the Board would like to thank all shareholders
in advance for your co-operation around the arrangements for this year’s AGM.
David Cook
Chairman
7 April 2020
OUR GOVERNANCE FRAMEWORK
Shareholders
Our shareholders delegate to the Board collectively, the responsibility for the long-term success of the Company within a framework
of good governance. The Board seeks to understand the investor base through regular dialogue and engagement.
The Board
The Board’s role is to set the vision and strategy for the Company. By putting in place the business model, the Board aims to deliver value to its shareholders.
There is a collective responsibility for the Group’s corporate governance arrangements to achieve the Company’s purpose. This includes taking account
of the risks and opportunities and building and maintaining on healthy relationships with its stakeholders. To assist in discharging its duties, some areas of
responsibility are delegated to the Committees of the Board.
More information on the activities of the Board can be found on pages 56 to 61
The Nomination Committee
The Nomination Committee leads on
succession planning; the process for
recruitment of new Board members; and
evaluating composition and diversity to
ensure Board effectiveness.
The Audit and Risk Committee
The Audit and Risk Committee leads on reviewing
the Company’s integrity of the financial results
and other reporting; challenging external
auditors; and has oversight of the effectiveness of
risk management and systems of internal control.
The Remuneration Committee
The Remuneration Committee leads on
designing remuneration policy, determining
Board and senior executive remuneration; and
takes account of the wider Group pay and
associated policies.
More information on the work of the Nomination
Committee can be found on page 62
More information on the work of the Audit and Risk
Committee can be found on pages 63 and 64
More information on the work of the Remuneration
Committee can be found on pages 65 to 72
Senior Leadership Team
The SLT meets on a regular basis. It is led by the Chief Executive; comprises the senior leadership who have management responsibility;
and has responsibility for business operation and its support functions.
The Matters Reserved to the Board and Committee terms of reference can be viewed on the Company’s website
MEMBERS AND MEETINGS AT A GLANCE
Scheduled and unscheduled meetings between 1 January 2019 and 31 December 2019
Board
13 meetings
Nomination
Committee
2 meetings
Audit and Risk
Committee
3 meetings
Remuneration
Committee
10 meetings
David Cook
Chairman Independent 13/13
Nigel Clifford
Chair 2/2
Richard Jones
Chair 3/3
Nigel Clifford
Chair 10/10
Peter Butterfield CEO
Andrew Franklin CFO
–
–
13/13
David Cook
NED 2/2
David Cook
NED 3/3
David Cook
NED 10/10
13/13
Jo LeCouilliard NED 2/2
Jo LeCouilliard NED 3/3
Jo LeCouilliard NED 10/10
Nigel Clifford
NED
Independent 13/13
Richard Jones
NED 2/2
Jo LeCouilliard
NED
Independent 13/13
Richard Jones
NED
Independent 13/13
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information
BOARD OF DIRECTORS
Our Board is committed to
maintain a high standard of
governance and integrity.
Committee membership key
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Committee Chair
DAVID COOK
Independent Non-executive
Chairman
PETER BUTTERFIELD
Chief Executive Officer
ANDREW FRANKLIN
Chief Financial Officer
NIGEL CLIFFORD
Independent Non-executive
Director
RICHARD JONES
Independent Non-executive
Director
JO LECOUILLIARD
Independent Non-executive
Director
Date joined
David joined the Board of Alliance as
a Non-executive Director in 2014 and
was appointed Chairman of the Board
on 1 March 2018.
Peter was previously the Company’s
Deputy Chief Executive Officer and
was appointed to his present office as
Chief Executive Officer on 1 May 2018
having joined Alliance in 2010 as an
Executive Director.
Andrew joined Alliance in September
2015 from Panasonic Europe Ltd, where
he was General Manager, European
Tax and Accounting.
Nigel joined the Board of Alliance
as a Non-executive Director in 2015.
Richard joined Alliance as a Non-
executive Director on 1 January 2019.
Jo joined Alliance as a Non-executive
Director on 1 January 2019.
Qualifications
David qualified as a
Chartered Accountant with
PricewaterhouseCoopers after
graduating in chemistry at the
University of Oxford.
Experience
He is currently Chief Financial Officer
and an Executive Director of Ellipses
Pharma, an international cancer drug
development company, and was
previously Chief Financial Officer
and Chief Business Officer of Biotie
Therapies Corp, a drug development
company quoted in Helsinki and on
NASDAQ. He has previously held
senior financial positions with Jazz
Pharmaceuticals International, EUSA
Pharma and Zeneus Pharma.
David 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 holds an honours degree in
Pharmacology from the University
of Edinburgh.
Andrew holds an honours degree in
Civil Engineering from the University
of Wales, Cardiff.
Nigel graduated in Geography from
the University of Cambridge and has an
MBA from Strathclyde University.
Richard has a degree in Engineering
from Newcastle University and is a
Chartered Accountant.
Jo graduated in Natural Sciences
from Cambridge University and is a
Chartered Accountant.
Peter has over 20 years’ experience
in the life sciences sector and strong
leadership experience gained in a
variety of contexts. Peter joined the
Board of Alliance in 2010 with the
acquisition of Cambridge Laboratories
where he spent five years, latterly
as UK Commercial Director. Prior to
joining Cambridge Laboratories, Peter
spent six years at GlaxoSmithKline in
a variety of marketing and sales roles.
From 2010 to 2012 Andrew was
Finance Director and Company
Secretary of Genzyme Therapeutics
Ltd, the UK and Ireland subsidiary of
Genzyme Corporation. Prior to that,
he gained 12 years’ pharmaceutical
experience with Wyeth in a variety of
senior financial positions.
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.
He was appointed Deputy Chair at
the UK Government’s new Geospatial
Commission in December 2018 and
is an Operating Partner with Marlin
Operations Group. Previously, he held
Chief Executive and senior positions at
Ordnance Survey, Procserve Holdings,
Micro Focus International plc, Nokia,
Symbian Software, Tertio Telecoms,
Cable and Wireless plc, Glasgow
Royal Infirmary NHS Trust and BT plc.
He also served as a Non-executive
Director of Anite plc.
He 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.
View the Nomination Committee report
on page 62
Since the start of 2017 he has been
CFO and a Board member of Mereo
BioPharma Group PLC, a UK listed
biopharma company developing a
range of products in bone, endocrine
and respiratory therapies with a focus
on rare diseases.
Richard joined Mereo from UK AIM
listed Shield Therapeutics plc where
he was Chief Financial Officer and
Company Secretary from early 2011
having initially joined the Board as
a Non-executive Director in 2010.
At Shield he had a leading role
establishing the finance operations and
guiding Shield through its 2016 IPO.
Prior to this, Richard had a career in
investment banking, holding senior
positions at Investec and Brewin
Dolphin Securities, where he advised
healthcare clients on a wide range of
transactions including IPOs, M&A and
fundraisings.
She has 25 years’ healthcare
management experience gained in
Europe, the US and Asia. Much of her
career has been in pharmaceuticals
at GlaxoSmithKline where, amongst
other roles, she headed the US
vaccines business and Asia Pacific
Pharmaceuticals business and led
a programme to modernise the
commercial model. She was previously
Chief Operating Officer at the BMI
group of private hospitals in the UK.
She was Non-executive Director at
Frimley Park NHS Foundation Trust in
the UK and at the Duke NUS Medical
School in Singapore.
She is currently a Non-executive
Director at the UK listed companies
Circassia Pharmaceuticals plc, Cello
Health plc and is on the Board of
Recordti S.p.a, a company listed in
Milan.
View the Remuneration Committee report
on page 65
View the Audit and Risk Committee report
on page 63
Committee membership
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information
GOVERNANCE CONTINUED
Compliance with the
Principles of the QCA Code
The Board believes that the QCA Code continues to provide an appropriate and
suitable framework for a group of our size and complexity. The following table
demonstrates how we have applied the ten principles of the QCA Code.
QCA Principle
Explanation
QCA Principle
Explanation
1 To establish a strategy and business
model which promote long-term value
for shareholders
The Board meets annually at a two-day strategy planning meeting to review the strategy for the Group.
The strategic plan and business model are reviewed by the Senior Leadership Team on a monthly basis
with relevant operational and management updates being reported to demonstrate delivery and progress.
Decisions of the Board are made in line with the strategic plan and business model for the Group.
6 To ensure that between them the
Directors have the necessary
up-to-date experience, skills and
capabilities
The Nomination Committee reviews the balance and composition of the Board and its
Committees which considers skills and experience of the Board.
Further information on the work of the Nomination Committee can be found on page 62
2 To seek to understand and meet
shareholder needs and expectations
Further information on the Group’s strategy can be found on pages 20 and 21 and on its business model on pages 14 and 15
The Directors are committed to open communication with the Group’s shareholders to ensure that they
clearly understand its business, strategy and performance. The Board actively seeks dialogue with its
shareholders via investor roadshows, capital market days, one-to-one meetings and regular reporting.
The Board believes that open communication with investors and analysts is the best way to ensure it
understands what is expected of the Group in order to allow it to drive its business forward.
3 To take into account wider
stakeholder and social responsibilities
and their implications for long-term
success
The Board values the opinions of key stakeholders in the business and regularly seeks to ensure that the
views of its employees, suppliers, customers and partners are known and where relevant to the success
of our business they are acted upon. The Board continues to be mindful of environmental, social and
governance representation.
8 To promote a culture that is based on
ethical values and behaviours
Further information about our stakeholder engagement can be found on pages 16 to 19
4 To embed effective risk management,
considering both opportunities and
threats, throughout the organisation
The Board, assisted by the Audit and Risk Committee, is ultimately responsible for overseeing
management’s activities in identifying, evaluating and managing the risks facing the Group and records
them on the Group risk register, which is reviewed quarterly. 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.
The management of both risks and opportunities feeds into the decision-making process.
A further explanation of our risk management, risks and internal controls can be found on pages 42 to 49
5 To maintain the Board as a well-
functioning, balanced team led by
the Chair
The Board keeps under review its current balance and 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. Led by the Chair, deliberations are not dominated by one person or any group
of people.
Further information on the board effectiveness, roles and responsibilities can be found on pages 58 to 61
Key activities of the Board and its Committees
The Directors are aware and mindful of their duties and
obligations under s.172 of the Companies Act 2006. The
Board ensures that the decisions it takes, it does so to promote
the success of the Group as a whole and having considered
the likely and long-term consequences and wider stakeholder
considerations. Open and honest discussion at Board level
between management and the Directors considers the impact on
the Group’s stakeholders when reviewing items flowing up to the
Board as part of its activities, whether this is reviewing strategy,
budget or a corporate development opportunity.
7 To evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvement
The Chairman evaluates the performance of the Board through a blend of questionnaires and
one-to-one meetings with each Director. This process offers Directors an opportunity to discuss
their contribution in terms of their skills and experience as well as identifying improvements or
development to enhance the capabilities of the Board as a whole.
Further information on Board evaluation and its effectiveness can be found on page 61
The Board aims to lead by example and make decisions that are in the best interest of the Group
as a whole. Our culture is underpinned by a clear set of values, which guide decision making at
all levels in the business. Both the SLT and the Board reviews and approves the Group’s policies
which are then implemented and communicated internally and externally to those who are
expected to adhere to them.
Further information on people and culture can be found on pages 34 and 35
9 To maintain governance structures
and processes that are fit for purpose
and support good decision-making
by the Board
The Board reviews its assurance and governance framework at least annually to ensure that
the Group’s governance structures remain appropriate and are fit for purpose. This framework
sets out leadership and embeds delegated responsibilities to enable informed and confident
decision-making.
10 To communicate how the Company
is governed and is performing
by maintaining a dialogue with
shareholders and other relevant
stakeholders
The Board ensures that all stakeholders across the business are actively engaged through the
relevant areas of responsibility. This includes making sure that the business as a whole upholds
its values and monitors behaviour for acceptability.
Further information on our dialogues and engagement with shareholders and other stakeholders can be found on
pages 16 to 19, and page 59
For example, all acquisition opportunities are assessed to
understand their impact on not only the potential income
generation and the additional value creation for shareholders,
but also how such an opportunity impacts on costs and wider
resource of the business. Each meeting considers what information
is needed to assist the Directors with their responsibilities.
This can take the form of written reports, market reviews and
guidance, and presentations and briefings from both internal
members of staff and external advisors. Further information on
how the Group engages with its stakeholders is explained on
pages 16 to 19.
2019
January
February
March
April
May
June
July
August
September
October
November
December
Board and Committee activities
Board evaluation
Review European
operations
Annual Report
Final dividend
Re-financing
Product review
CMA discussion
Re-financing
Strategic planning
Risk review
No Board meeting
held*
Half-Year results
Interim dividend
Product review
2020 budget review
and presentations
Product review
2020 budget
approval
Nominated Advisor
presentation
Share option
awards
Shareholder communications
and engagement
Trading update
Preliminary results
Webcast presentation
Investor roadshow
Annual General
Meeting
Trading update
Private Client Fund
Manager meetings
Half-Year results
Investor roadshow
Consultation on
share plans
* Although there is no scheduled meeting in August, a management pack is circulated
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE CONTINUED
LEADERSHIP
The role of the Board
The Board currently comprises six Directors, being the Chairman,
three further independent Non-executive Directors and two
Executive Directors. Together, they are responsible for providing
effective leadership to promote the long-term success of the
Company. There is a formal list of matters reserved for the Board,
which may only be amended by the Board and is available on our
website. The key responsibilities of the Board include:
• setting the Group’s vision and 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;
• responsibility for risk management and systems of internal
control; and
• setting values and standards in corporate governance matters.
Board Committees
The Board has delegated and empowered three Committees:
a Remuneration Committee, a Nomination Committee and an
Audit and Risk Committee. Each Committee has written terms of
reference set by the Board, which are reviewed annually and
are available on the Company’s website. Membership of each
Committee is determined by the Board on the recommendation of
the Nomination Committee. Each Committee Chair reports to the
Board on the activities considered and determined by the relevant
Committee. A summary of the Committees’ responsibilities and
their work during the year can be found in the reports from the
Committees appearing later in this section.
The Company Secretary is secretary to all the Board’s
Committees who has the responsibility for ensuring members
receive relevant and timely information to enable discussions
and decision-making.
Directors’ duties and decision-making
The powers and duties of the Directors are determined by
legislation and the Company’s Articles of Association. Directors
are required to act in good faith in a way that they consider would
be most likely to promote the success and having considered
the views of the wider stakeholders of the Company. The Board
factors the needs and concerns of the Company’s stakeholders
into its discussions and decisions in accordance with s.172 of the
Companies Act 2006.
Where appropriate, the Board receives recommendations in
relation to matters delegated to the Committees of the Board
which conduct their work in accordance with their respective terms
of reference.
Board activities
The Board held 11 scheduled meetings during the year at which
it considered all matters of a routine nature, structured through
clear agenda setting, written reports and presentations from
both internal members of staff as well as external advisors and
consultants. In addition, there were two ad-hoc meetings of the
Board to deal with non-routine business.
Board support, meeting management and attendance
Attendance
The Board and its Committees meet regularly on scheduled dates.
This includes a two-day strategy meeting in each year which is
also attended by all senior executives of the Group, the purpose
of which is to review progress in delivering agreed plans and
to develop and settle the Group’s business plans and long-term
strategic targets and set the framework for the achievement of
those goals.
In leading and controlling the Company, the Directors are
expected to attend all meetings and their attendance for the
financial year 2019 is shown on page 53.
Meeting management
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. His
role is also vital in relation to both legal regulatory compliance
and for ensuring that governance requirements are considered
and implemented and for accurately recording each meeting.
He has a direct line into the Chairman on all matters relating
to governance.
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
strategy, finance, including monthly management accounts,
operations, commercial activities, business development, risk
management, legal and regulatory, people and infrastructure
and on investor relations.
The Directors may have access to independent professional
advice, where needed, at the Group’s expense.
Stakeholder engagement
The Board and its Committees recognise that to meet its
responsibilities to shareholders and its stakeholders, it is important
to ensure effective engagement with, and encourage participation
from, these parties. The Board factors the needs and concerns of
the Company’s stakeholders into its key activities and decisions
through its reporting and throughout its discussions to ensure that
the Directors’ duties under s.172 of the Companies Act 2006.
The Company communicates with shareholders through
the Annual Report and Accounts, full-year and half-year
announcements, the AGM and one-to-one meetings with
existing or potential new shareholders. Such reports as well as
other relevant announcements and related information are all
available on the Company’s corporate website,
www.alliancepharmaceuticals.com
A list of the Company’s major shareholders can be found in
the investor section of our website which is regularly updated
following the formal notification of movements to the Company.
Furthermore, analysts’ notes and brokers’ briefings are received
and considered by the Board in order to ensure, as far as possible,
a clear and up-to-date understanding of investors’ views.
The Company completes regular annual employee surveys to
maintain an open dialogue with employees and holds a monthly
breakfast briefing for all employees around the world where
the Company’s performance, targets and key objectives are
communicated and discussed.
Engagement with our shareholders
Throughout the year the CEO and CFO meet with potential
investors and existing institutional shareholders and the Board is
provided with feedback from all meetings and communications
with shareholders. The Board is provided with an analysis of
the Company’s 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 ‘Investors’ section on the Group’s website is regularly updated
with the aim of providing good information for all investors, but
particularly retail shareholders. The website offers a facility to sign
up for email alert notifications of Company news and regulatory
announcements. In addition, the CEO and CFO regularly present
at conferences attended by many potential and current retail
investors and meet with specialist private client fund managers,
following which feedback is given to the Board.
In addition to meetings arranged throughout the year with
investors or potential investors, there were at least 60 scheduled
meetings held as part of the Company’s investor roadshows for the
annual 2018 and half-year result 2019 results.
Annual General Meeting (‘AGM’)
This year’s AGM will take place at 10.00am on 18 May 2020
at our offices at Avonbridge House, Bath Road, Chippenham,
Wiltshire, SN15 2BB. Due to the unprecedented events around
COVID-19 this year’s AGM will take a more restricted form. Only
the CEO and CFO will attend in person in order to provide a
quorum of shareholders. All other Directors will attend via audio
conferencing, which is a listen-only facility also being made
available to shareholders.
All voting will be taken on a poll and shareholders are being
asked to cast their votes by post or on-line. Shareholders are not
permitted to attend the AGM in person due to the Government’s
Stay at Home measures.
The Notice of Meeting is available on the Company’s website at
www.alliancepharmaceuticals.com/investors/governance/agm
Electronic communications
We wrote to all shareholders in January 2019, requesting that
shareholders consider moving away from hard copy Company
communications. This means that, instead of being obliged to
send Annual Reports, notices of shareholder meetings and other
documents to shareholders in hard copy by post, the Company
can instead elect to publish them on its website at www.
alliancepharmaceuticals.com. Using the website and email allows
us to reduce printing and postage costs and it is better for many
shareholders who can choose and access just the information they
need, from the website, at any time.
Shareholders still have the right to ask for paper versions of
shareholder information, but we are strongly encouraging all
shareholders to consider the electronic option.
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Alliance Pharma plc – Annual Report and Accounts 2019
59
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE CONTINUED
DIVISION OF RESPONSIBILITIES
The responsibilities of both the Chairman and CEO are clearly
defined and understood.
The Chairman
The Chairman, David Cook, has primary responsibility for
leading the Board, facilitating the effective contribution of all
members and ensuring that it operates effectively in the interests
of the shareholders. In addition, he maintains a strong focus on
governance to ensure good practice is embedded in the day to
day operations with good flows in communication and reporting.
He maintains a regular dialogue with the CEO to ensure the
business receives the support from the Board necessary to
progress the strategy.
The Chairman also meets with the Non-executive Directors on
their own together at least once a year and on their own as
part of the Board evaluation process. Shareholders have an
opportunity to engage with the Chairman and the Board at
the Company’s AGM.
The Chief Executive Officer (CEO)
The CEO, Peter Butterfield is responsible for the day-to-day
running of the business which includes implementation of the
strategy. He is supported by the SLT who have management
responsibility for the business operations and support functions.
Relevant matters are reported to the Board by the CEO and, as
appropriate, the Chief Financial Officer and other members from
the SLT.
Board independence
Non-executive Directors
The role of our Non-executive Directors is to:
• provide oversight and scrutiny of the performance of the
Executive Directors;
• constructively challenge to help develop and execute on the
agreed strategy;
• satisfy themselves as to the integrity of the financial reporting
systems and the information they provide;
• satisfy themselves as to the robustness of the internal controls;
• ensure that the systems of risk management are robust and
defensible; and
• review corporate performance and the reporting of such
performance to shareholders.
Each of the Independent Non-executive Directors sits on at
least two of the Audit and Risk, Nomination and Remuneration
Committees. This ensures that the Independent Non-executive
Directors between them have a role in determining the pay and
benefits of the Executive Directors and play a key role in planning
Board succession including the appointment and, if necessary,
removal of Executive Directors. Three Independent Non-executive
Directors, all of whom have an accountancy qualification, sit on
the Audit and Risk Committee, enabling them to review internal
control and financial reporting matters at first hand, and have a
direct relationship with the external auditors.
Each Non-executive Director is appointed for an initial term of
three years, subject to annual re-election by shareholders at the
Company’s AGM. Their appointment term may be renewed by
mutual agreement. On appointment, the Non-executive Directors
receive a structured induction into the business.
Senior Independent Director (SID)
Each year the Nomination Committee considered whether it
is appropriate to have a SID to act as a sounding board and
intermediary for the Chairman or other Board members. As part
of their review in 2019, it was concluded that the appointment of a
SID is not necessary at this time but will be kept under review.
External Directorships
The Chairman and Non-executive Directors hold appointments
as Directors on a small number of other companies, as detailed
in their biographies on pages 54 and 55. It is considered that the
Chairman and Non-executive Directors allocate sufficient time
and commitment to fulfil their duties to the Company.
Directors’ conflicts of interest
The Company has effective procedures in place to monitor and
deal with conflicts of interest. Directors are required to notify
the Company of any situation that cold give rise to a conflict or
potential conflict thereby compromising their independence and
objectivity. Each member is required to disclose any such potential
conflicts at the start of every Board meeting. The Board is fully
aware of the other commitments and interests of its Directors, and
changes to these commitments and interests are reported to and,
where appropriate, agreed with the rest of the Board. Where
any such conflict arises, the Board determines whether or not a
Director can vote or be a party of the item under consideration in
accordance with the Company’s Articles of Association.
The Board is satisfied that potential conflicts have been effectively
managed throughout the year.
BOARD EFFECTIVENESS
The Chairman with the support of the Board, decided that the Company would move from holding a board effectiveness review bi-
annually to holding it on an annual basis. The latest review, which took place in early 2020 consisted of one-to-one meetings between
the Chairman and each Director to discuss various matters relating to Board and Committee performance and their effectiveness; each
meeting was also attended by the Company Secretary, who also obtained feedback from each Director on the Chairman.
Results and outcomes were reviewed, summarised and circulated to Board members for discussion in February 2020. The reviews
determined that the key themes and recommendations flowing from 2019 had largely been appropriately addressed. The key focus
areas arising from the 2020 review included the following:
Areas of focus
Feedback and recommendations
Board management and
strategic planning
Non-executive dialogue
and engagement
• Whilst there is good planning for routine matters throughout the year, enhanced planning will be carried out
to ensure a higher strategic focus pulling in topics requested by Board members.
• During the year there was good dialogue between the Non-executive Directors, however, as a pre-curser to
the strategy meetings, the Non-executives will meet to ensure they are able to continue to provide meaningful
contribution and support to management.
• Enhanced engagement from the Non-executives outside of the formal Board meetings, drawing on their
wider skills and experience to support senior management, will be further encouraged.
The next review is scheduled for early 2021.
Annual re-election of Directors
In accordance with the Company’s Articles of Association, all Directors are subject to election or re-election by shareholders at the AGM.
On the recommendation of the Nomination Committee and in line with good practice, the Board has decided to move to annual re-election
of Directors. Accordingly, all six Directors, being eligible, will put themselves forward for annual re-election at the Company’s AGM.
60
Alliance Pharma plc – Annual Report and Accounts 2019
61
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information NOMINATION COMMITTEE REPORT
AUDIT AND RISK COMMITTEE REPORT
Reviewing the structure, size and composition
of the Board, managing succession planning and
considering the leadership needs of the organisation.
Meetings held
2
100%
Meetings attendance
Monitoring the integrity of the financial statements
and supporting the Board with ongoing oversight
of risk management and internal control systems.
Meetings held
3
100%
Meetings attendance
“ I am pleased to present to you the report of the work
of the Nomination Committee for the year ended 31
December 2019. The Committee supports the Board by
leading on appointments, succession and reviewing skills,
and experience.”
NIGEL CLIFFORD
Chairman of the Nomination Committee
“ On behalf of the Audit and Risk Committee,
I am pleased to present my first Audit and Risk
Committee report for the year ending 31 December 2019
since becoming Chairman earlier in 2019.”
RICHARD JONES
Chairman of the Audit and Risk Committee
CHAIRMAN’S STATEMENT
The Nomination Committee’s (the ‘Committee’) role 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. The Committee also
reviews the leadership needs of the organisation and monitors
succession planning for both Board and senior executive roles.
The framework of duties is set out in its terms of reference, which
are revised annually by the Committee and the Board. The terms
of reference are available on the Company’s website.
Committee membership and meetings
Membership and attendance
As at the date of this report, the members of the Nomination
Committee, all of whom held office throughout the year and to the
date of this report unless otherwise stated, are:
Member
Role
Status
Appointment
date
Attendance
Nigel Clifford Chairman
Independent
26/01/2015 2/2
David Cook
NED
Independent
01/04/2014 2/2
Jo Lecouilliard NED
Independent
29/01/2019 2/2
Richard Jones NED
Independent
29/01/2019 2/2
Where appropriate, the Chief People and Infrastructure Officer is
invited to attend certain meetings of the Nomination Committee to
support with discussion around succession planning, recruitment
and the selection of candidates.
Meetings and activities of the Committee
During the year, the Committee held two scheduled meetings
and reported on its activities to the Board. At both these meetings
the Committee reviews the balance, size and composition of
the Board and its Committees and considered this as part of
succession planning.
Activities of the Committee
• Reviewing the structure, size, and composition of the Board.
• Developing strategies in support of progressive succession
planning for Board and senior management.
• Supporting the process for identifying and nominating for
approval candidates to fill Board vacancies and ensuring that
such a process followed a careful assessment of the balance of
skills, knowledge, experience and diversity on the Board.
• Reviewing the outcomes from the Board performance
evaluation, as appropriate to the activities of the Committee.
Board balance and composition
The Board keeps under review its current 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,
Richard Jones and Jo LeCouilliard.
Board diversity
The Board is aware of the benefits of diversity on the Board and at
the senior management level. It remains committed to considering
diversity when discussing appointments and succession planning.
The Company and the Board always seek to search for, recruit
and appoint the best available person based on 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.
CHAIRMAN’S STATEMENT
The Audit and Risk Committee (the ‘Committee’) assists the Board
with monitoring and reviewing the Company’s integrity of the
financial results and other reporting and has oversight of the
effectiveness of risk management and systems of internal control.
The framework of its duties is set out in its terms of reference, which
are reviewed periodically and can be viewed on the Company’s
website. The Committee reports to the Board which includes
reporting on any matters where it considers action or improvement
is needed, including recommendation of remedial actions.
Committee membership and meetings
Membership and attendance
During the year, the Committee held three scheduled meetings
and reported on its activities to the Board.
As at the date of this report, the members of the Audit and Rick
Committee, all of whom held office throughout the year and to
the date of this report unless otherwise stated, are:
Member
Role
Status
Appointment
date
Attendance
Richard Jones Chairman
Independent
29/01/2019 3/3
David Cook
NED
Independent
01/04/2014 3/3
Jo Lecouilliard NED
Independent
29/01/2019 3/3
All three members of the Committee have recent and relevant
financial experience.
The CEO, Chief Financial Officer (CFO) and the Group Financial
Controller are invited to attend all meetings, while other senior
financial managers will attend as appropriate. The external
auditors attend the meetings to discuss the planning and
conclusions of their work and meet with the members of the Audit
and Risk Committee without any members of the executive team
present after each meeting. The Audit and Risk Committee is able
to call for information from management and consults with the
external auditors directly if required.
Duties of the Committee
The duties of the Committee include:
• considering the appointment of external auditors and the
frequency of re-tendering and rotation of the audit;
• overseeing the relationship with, and the independence and
objectivity of, the external auditors;
• setting policy in relation to the use of the external auditors for
non-audit services;
• reviewing the management and reporting of financial matters
including key accounting policies;
• advising 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; and
• reviewing the Company’s risk management and internal control
systems and their effectiveness.
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information AUDIT AND RISK COMMITTEE REPORT CONTINUED
REMUNERATION COMMITTEE REPORT
Activities of the Committee
The key activities of the Committee during the year include the following:
Area of focus
Key duties and responsibilities
Activities in the year ended 31 December 2019
Financial Statements
and narrative
reporting
The content and integrity of
financial statements and any formal
announcements relating to financial
performance, including review of
the significant financial reporting
judgements contained therein.
• Review of the financial statements and narrative reporting in the Annual
Report and Accounts for 2018 and 2019 and in the unaudited half year
results to 30 June 2019, with particular reference to the reports being fair,
balanced and understandable.
• Review of the preliminary results for the financial years ended 31 December
2018 and the unaudited half year results to 30 September 2019.
• Consideration of reports from the external auditor in respect of the Annual
Report and Accounts for 2018 and 2019 and the half year results to 30 June
2019.
Going concern
Consider matters that have
informed the Board’s assessment
of whether the Company is a going
concern.
• A review of the going concern including methodology, assessment in support
of the going concern assumption, concluding the expectation that the Group
has adequate resources to continue in operation existence for the foreseeable
future.
Risk management
and internal controls
Review of the Company’s financial
and other internal controls and risk
management systems.
Review of external
auditor
Review and monitoring of the
external auditor’s independence
and objectivity and the
effectiveness of the audit process.
Review the policy to control
engagement of the external auditor
to supply non-audit services.
Terms of reference
Reporting to the Board on how
the Committee has discharged
its responsibilities.
• A review of risk management and the Group risk register.
• Review of the Group’s assessment of its control framework including progress
in enhancing the control environment.
• A review of the business and corporate governance statement relating to the
audit and risk management.
• Monitor and consider the need for an internal audit function.
• A review of the Group’s risk management and internal control systems is set
out on pages 42 and 43.
• Meetings with the external auditor without management to consider any
potential areas of concern.
• Review and consideration of the external auditor’s findings and
recommendations and management’s response from the audit of the year
ended 31 December 2018 and 2019.
• Approve the terms of appointment, areas of responsibility and duties.
• Scope and strategy of the 2019 external audit set out in the engagement
letter and recommend approval to the Board.
• Review of the external auditor’s performance, independence and objectivity.
• The Committee reviewed its own terms of reference which are considered to
be satisfactory. The Committee and Board were satisfied that the Committee
and its members continue to operate effectively individually and collectively
and had discharged all of the duties within its remit.
Effectiveness and independence of the external auditor
The Committee is responsible for agreeing the terms of engagement with the Company’s external auditors KPMG LLP. 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 external auditors.
Each year, the Committee assesses a plan for the external auditor’s review of the Company’s full-year financial statements, which sets
out the scope of the audit, areas of significant risk of material misstatement and the timetable. KPMG LLP formally present their findings
to the Committee but throughout the auditing process there is regular dialogue and engagement with management with any significant
matters or risks being communicated.
Reviewing and determining the pay, benefits
and other terms of service of the Executive
Directors and the broad pay strategy with
respect to senior employees.
Meetings held
10
100%
Meetings attendance
“ On behalf of the Board, I am pleased to present the
2019 Remuneration Committee report which sets out
our remuneration policy and remuneration paid to the
Directors of the Company.”
NIGEL CLIFFORD
Chairman of the Remuneration Committee
CHAIRMAN’S STATEMENT
The role of the Remuneration Committee (the ‘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.
Matters reviewed and considered by the Remuneration Committee
included base salaries, annual performance related bonuses,
pension policy, and performance related share options and
awards generally under the Company’s Share Option Plans.
When appropriate to do so, the Remuneration Committee seeks
the support of external advisers and consultants.
This year the Committee spent considerable time reviewing
incentive strategies relating to the Company’s Share Plans. This
was done to ensure they remain aligned to the Group’s strategy
and have the purpose of attracting, retaining and rewarding
employees across the business. Having considered external
advice and guidance received from legal and financial advisers,
and following a consultation with some of the Company’s key
shareholders, we were pleased to recommend the introduction of
a Long-Term Incentive Plan for executive and senior management
under which the first awards were granted in December 2019.
In line with good practice reporting for Remuneration Committees
on AIM, this year’s report provides readers with greater disclosure
of the Boards approach to remuneration.
Committee membership
Membership and attendance
During the year, the Committee held a total of ten meetings
and reported on its activities to the Board. As at the date of
this report, the membership of the Remuneration Committee
comprises three Independent Non-executive Directors, who all
held office throughout the year and to the date of his report. The
members and their attendance is as follows:
Member
Role
Status
Appointment
date
Attendance
Nigel Clifford Chairman
Independent
24/02/2015 10/10
David Cook
NED
Independent
01/04/2014 10/10
Jo Lecouilliard NED
Independent
29/01/2019 10/10
The CEO and the Chief HR Officer are also invited to attend
certain meetings of the Remuneration Committee, when
appropriate. However, no executive participates when their
own remuneration is being discussed.
Remuneration policy
The objective of the Company’s remuneration policy remains
unchanged. Its purpose 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 Group.
Remuneration policy tables
As the Company is not a fully listed company, it is not required
to produce a formal remuneration policy or seek shareholder
approval of that policy. Notwithstanding, we set out below
additional information that the Committee believes will be most
useful to shareholders and reflects remuneration practices that
are appropriate for an AIM company of our size.
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Alliance Pharma plc – Annual Report and Accounts 2019
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information REMUNERATION COMMITTEE REPORT CONTINUED
Policy table in respect of Executive remuneration
Element
Policy and performance measures
Implementation
DIRECTORS’ REMUNERATION
The aggregate remuneration payable to the Directors in respect of the period was as follows:
Base salary
Pension
and other
benefits
Annual
bonus
Base salaries are reviewed annually to ensure they
remain in line with other pharmaceutical and AIM-
quoted companies and reflect the size and scope of
the individual’s role. Within that frame of reference, the
Company aims to be at or near the median level.
Levels are set to attract and retain individuals to
lead and drive forwards the agreed strategy for the
Company.
Executive Directors can participate in the Company’s
defined contribution pension scheme. Only base
salaries are pensionable. The Company contributes
twice the amount contributed by the employee up to a
maximum of 10%.
Other benefits in kind include life assurance, healthcare
and the provision of a cash allowance in lieu of a
company car.
The delivery of the Group’s short-term corporate goals
is incentivised by offering a cash-settled bonus (‘Annual
Bonus’) linked to two factors: (i) the achievement
of budgeted levels of underlying profit before tax
(‘Target’), which is the key metric the Board considers
in monitoring corporate performance; and (ii) personal
performance of each Executive.
As part of this incentive strategy Executive Directors are
eligible for an Annual Bonus and the level of that bonus
is determined by first assessing whether the Target has
been achieved by the business and, once this target has
been achieved, applying a further multiplier which is
determined by assessment of the Executive’s personal
performance for the relevant year.
The Target is set at the start of each financial year
– the Target is determined with the approval of the
Remuneration Committee to ensure it incentivises
Executives and aligns with the Group’s strategy.
Personal performance is measured on various factors
including delivery of pre-set personal targets.
Share
incentive
schemes
The Company operates two share incentive schemes
to help sustain long-term growth and performance.
Executive Directors are able to participate in both the
Company Share Option Plan (CSOP) and the Long-
Term Incentive Scheme (LTIP).
Any awards granted to the Executive Directors are
subject to performance metrics which are reviewed
regularly by the Committee; and the level of award
is reviewed annually to ensure that the aggregate
remuneration remains competitive.
Further information about the Company’s share
incentive plans is set out on pages 67 to 71.
Annual base salaries increase in line with the remuneration policy and
take effect from May each year.
Salary increases follow an annual benchmarking exercise which
considers the context of comparable pharmaceutical companies. The
Committee is committed to ensuring that salaries remain competitive
relative to the AIM 100.
Directors receive an employer pension contribution of twice the amount
contributed by the Director up to a maximum of 10%.
Based on a combination of Target and personal performance the Annual
Bonus that each of the Executives is able to earn is as follows:
Chief Executive Officer
A Target bonus of 50% of base salary for 100% Target performance,
increasing on a sliding scale up to a maximum of 100% of base salary if
200% Target over performance is achieved.
The Target bonus can be further increased by applying a personal
performance multiplier to the achieved Target bonus for over-performance.
The maximum personal performance related multiplier of 1.5x (up to an
additional 50%) is applied to the Target bonus.
The CEO’s potential maximum Annual Bonus reward is 150% of base salary.
Chief Financial Officer
A Target bonus of 40% of base salary for 100% OTE Target performance,
increasing on a sliding scale up to a maximum of 80% of base salary if
200% OTE Target over performance is achieved.
The bonus can be further increased by applying a personal performance
multiplier to the achieved Target bonus for over-performance. The maximum
personal performance related multiplier of 1.5x (up to an additional 50%) is
applied to the Target bonus.
The CFO’s potential maximum Annual Bonus reward is 120% of base salary.
Performance targets for Directors’ awards granted under the LTIP and
CSOP continue to be based on market benchmarked Earnings Per
Share (EPS) and Total Shareholder Return (TSR).
During the year, Executive Directors were awarded LTIPs equal to the
value of 55% of base salary for the CEO and 45% of base salary for
the CFO; and, one share for every £2.00 of base salary under the
CSOP.
Policy table in respect of Non-executive remuneration
Remuneration /
Benefit
Application
Fees
Non-executive Directors of the Company receive a basic fee for the services
provided to the Company and are reviewed by the Company from time to time to
ensure levels remain in line with comparable companies.
Non-executive Directors who also fulfil the role of chairing of the Committees of
the Board receive an additional allowance. Non-executive Directors who chaired
during all or part of 2019 were David Cook, Nigel Clifford and Richard Jones.
Measure
Implementation
There are no
performance measures
in relation to fees paid
to Non-executive
Directors.
Fees are increased
in line with the
remuneration policy
and take effect from
May each year.
Salary or fees
Other
Pension
Bonus
Total remuneration,
excluding share
options
Exercised share
option gains4
Total remuneration,
including share
options
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
266,667
238,333
14,214
11,780
24,004
25,625
206,250
53,250
511,135
328,988 1,223,558
– 1,734,693
328,988
Peter
Butterfield
Andrew
Franklin
Nigel
Clifford
David
Cook
Richard
Jones
186,000
175,333
8,023
11,382
18,258
17,272
114,000
37,914
326,281
241,901
452,250
42,848
41,067
76,069
72,336
41,598
Jo LeCouilliard
37,848
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42,848
41,067
76,069
72,336
41,598
37,848
–
–
–
–
–
–
–
–
–
–
–
778,531
241,901
42,848
41,067
76,069
72,336
41,598
37,848
–
–
651,030
527,069
22,237
23,162
42,262
42,897
320,250
91,164 1,035,779
684,292 1,675,808
– 2,711,587
684,292
Former Directors:
Andrew Smith1
Thomas
Casdagli2
John
Dawson3
–
–
–
85,801
–
287,000
–
–
–
–
–
5,855
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
85,801
–
292,855
–
–
–
–
–
–
–
–
–
85,801
–
292,855
Total
651,030
899,870
22,237
29,017
42,262
42,897
320,250
91,164 1,035,779 1,062,948 1,675,808
– 2,711,587 1,062,948
1. Andrew Smith ceased to serve as a Director on 1 March 2018. The amount paid to him in 2018 included a payment of £73,544 in lieu of notice
2. Thomas Casdagli ceased to serve as a Director on 30 May 2018
3. John Dawson ceased to be Chief Executive Officer on 1 May 2018. The amount of salary paid to him in 2018 included a payment of £205,000 in lieu of notice. John continued to serve as a Non-
executive Director on the Board since 1 May 2018, until his retirement from the Board on the 30 June 2019
4. Details of share option exercised carried out during the year are shown in the notes to the table on share incentive awards on page 70
Non-executive Directors’ fees
In 2019, and following an internal benchmarking review of
the market, the Board approved an increase to Non-executive
Director fees. The annual fee paid to the David Cook increased
from £73,544 to £75,456. Fees paid to Nigel Clifford, Jo
LeCouilliard and Richard Jones increased from £37,203 to
£38,170 per annum. There was no increase to the additional
fee for chairing one or more of the Committees of the Board.
Both Nigel Clifford and Richard Jones received a Chairman’s
allowance of £5,000 for their roles in chairing their Committees.
No Director received any remuneration from a third party in
respect of their service as a Director of the Company.
Base salary
Base salaries were reviewed in April 2019. Annual base salaries
for 2019 increased from £250,000 to £275,000 for the CEO
and from £178,000 to £190,000 for the CFO. These increases
took effect from 1 May 2019.
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, only Executive Directors accrue retirement benefits, all
of whom did 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 benefits scheme that were not otherwise available to
all members of the scheme.
66
Alliance Pharma plc – Annual Report and Accounts 2019
67
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information REMUNERATION COMMITTEE REPORT CONTINUED
Company Share Incentive Plans
The Company operates two share incentive schemes. During
2019, and in consultation with shareholders, the Company
introduced a Long-Term Incentive Plan (LTIP).
Shareholder Consultation 2019
In 2019, the Remuneration Committee felt that it would be
appropriate to consult with a selection of the Company’s
shareholders on long-term reward performance, current
arrangements and options for the future including the design
principles for a long-term incentive plan (LTIP). The Chair of
the Remuneration Committee, Nigel Clifford, together with the
Company’s Chairman, David Cook and the Company Secretary,
Chris Chrysanthou held a series of meetings with certain
shareholders to discuss the key provisions relating to the LTIP as
well as the proposed levels of the awards to Executive Directors.
With the support of the Company’s Nominated Advisor, calls
were held with both fund and compliance managers to discuss the
proposed plan and grant levels, focusing on the type of award,
quantum, dilution and performance targets. The consultation
provided the Committee with helpful insight to ensure that the
LTIP remains in line with market practice and forms a healthy
part of the remuneration strategy for the executive, and the
views of those shareholders who took part in the consultation
were taken on board in structuring the revised Executive Director
compensation packages.
The Committee will continue to monitor trends and developments
in the relation to remuneration and market practices, corporate
governance and welcomes views from its shareholders.
Maintaining a healthy dialogue in this regard helps to ensure
that our remuneration strategy remains appropriate across
all levels of the organisation.
The Alliance Company Share Option Plan 2015 (CSOP)
For many years the Company has operated a CSOP under
which all employees are eligible to receive awards in the form of
market value options. At the discretion of the Committee, awards
are typically granted subject to a three-year vesting period and
following maturity, participants have a seven-year exercise period.
Awards granted are based on a percentage of salary and where
appropriate may attract HMRC tax advantages. Employees based
outside of the UK will receive non-tax advantaged share option
awards and where this is not possible the Committee considers
awards in the form of share appreciation rights. In 2019, the
Committee decided to review the performance conditions attaching
to awards under the CSOP which are granted to Executive Directors
and Senior Management – as such awards under the CSOP to
Executive Directors and Senior Management are subject to the
performance conditions set out below.
The Alliance Long-Term Incentive Plan 2019 (LTIP)
In 2019, following shareholder consultation, the Company
introduced the LTIP which forms part of the remuneration strategy
for the Executive Directors and members of the SLT. Awards
are granted in the form of nil-cost share options based on a
percentage of base salary. All awards granted under the LTIP are
subject to the performance conditions set out below. Subject to
achieving the performance conditions set by the Committee, such
awards will vest three years from the date of grant and participants
will have 12-months in which to exercise any vested award.
Malus and Clawback
All awards under the LTIP are subject to standard malus and
clawback provisions which allow the Company, in certain
circumstances, to either (i) terminate outstanding options or (ii)
seek repayment of after tax value of options which have been
exercised by an Executive which has been dismissed as a result of
a set of prescribed irregularities including the discovery material
misstatement of results of the Company or Group; or a serious
breach of the Company’s code of ethics has arisen; or a serious
regulatory, or health and safety issue has occurred.
Performance conditions
All options granted to Executive Directors will only vest if targets
for growth in the Company’s diluted Earnings Per Share (EPS)
are met over a period of three years. EPS is an important metric
which provides a strong incentive to drive the Group’s business
over that longer-term period and to mitigate downside risks that
could affect the Group’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.
During the year, the Committee reviewed performance targets
as part of the introduction of the LTIP and introduced a second
measure, in addition to EPS, based on Total Shareholder Return
(TSR). As such, all options granted in 2019 to Executives under the
CSOP and LTIP are subject EPS and TSR performance conditions.
50% of the awards are subject to EPS and 50% is subject to TSR
as set out below:
EPS Compound annual Growth Rate over the
performance period
< 5% CAGR
5% - 10% CAGR
> 10% CAGR
% of award that vests (of 50%)
0%
Calculated on a straight-line basis between 50% and 100%
100%
CAGR: means compound annual growth rate
EPS: means the Underlying Diluted Earnings Per Share as presented in Alliance’s published Annual Reports
EPS Compound Annual Growth Rate: means the percentage of increase in the EPS of the Company calculated by reference to the difference between (i) the EPS as presented in the published Annual
Report for the financial year ending 31 December 2018, to (ii) the EPS as presented in the published Annual Report for the financial year ending 31 December 2021
EPS Performance Period: the period from 31 December 2018 to 31 December 2021 (inclusive)
TSR against the FTSE Small Cap Index (ex-Trusts) over the
performance period
% of award that vests (of 50%)
Less than the Index
Equal to the Index
0%
50%
Between the Index but less than 15% out performance of
the Index on a cumulative basis over the TSR performance
period
Calculated on a straight-line basis between 50% and 100%
Equal to or greater than 15% out performance of the index
on a cumulative basis over the TSR performance period
100%
Index: means the FTSE Small Cap Index, excluding investments trusts as determined by the Company’s nominated adviser
TSR: means total shareholder return calculated by reference to the Company’s share price appreciation plus all dividend per share paid (based on ex div date) during the TSR Performance Period, and as
determined by the Company’s Nominated Adviser at the end of the TSR Performance Period
TSR Performance Period: the period starting on the Grant Date and ending on the third anniversary of the Grant Date
90
80
70
60
50
)
p
(
e
c
40
i
r
P
e
r
a
h
30S
20
10
0
Jan-19
Feb-19 Mar-19
Apr-19 May-19
Jun-19
Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
The closing mid-market price of Ordinary shares on 31 December 2019 (being the last dealing day in the calendar year) was 84.1p
and the range during the year was from 60p to 84.1p.
Employee Benefit Trust (EBT/Trust) and management of dilution
The Company manages dilution rates within the standard guidelines. In 2017 the Group established the Alliance Pharma Employee
Benefit Trust to facilitate the acquisition of Ordinary shares in the Company for the purpose of satisfying awards granted under
share option schemes. The Group has been operating the Trust to help manage dilution limits in line with good practice. The Trust is
administered by an independent Trustee who operates the Trust independently of the Group. The EBT is a discretionary trust, the sole
beneficiaries being employees (including Executive Directors) of the Group who have received applicable awards.
The Trustees must act in the best interests of the beneficiaries as a whole and will exercise their discretion in deciding whether or not
to act on any recommendations proposed by the Company. Any assets held by the Trust would be consolidated into the Group’s
financial statements.
The Company may grant awards on the basis that it is the Company’s intention to settle the exercise of awards through shares
purchased in the open market on an arm’s length basis. Awards granted and settled in this way are not included in the Company’s
headroom and dilution calculation. The Group may fund the EBT to purchase on the EBT’s own account shares in the Company on the
open market. This in return for the EBT agreeing to use the shares in the Company that it holds to satisfy certain outstanding awards
made under the Company’s share option schemes. The purchasing in the market of shares to satisfy the exercise of options places a
cash requirement on the business. To date no shares have been purchased by the Trust for satisfaction of outstanding or future share
option awards.
To further help manage dilution limits, and where appropriate and agreed with the Committee, share options are net settled upon exercise.
68
Alliance Pharma plc – Annual Report and Accounts 2019
69
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information
REMUNERATION COMMITTEE REPORT CONTINUED
Share Incentive Awards
LTIP Awards 2019
Executive Directors hold options over the Company’s share option and long-term incentive plans. Details of options held under the
Company’s employee share schemes by the Directors who served during the year are as follows:
As at 31 December 2018
Changes in the year
As at 31 December 2019
Type of
award
Date of
Grant
Exercise
price (p)
Performance
condition
Number of
options over
shares
Peter Butterfield
Granted
Vested
Exercised1
Lapsed
Number of
exercisable
options
Exercisable
from
Exercisable
to
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Approved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Approved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Unapproved
CSOP
Approved
CSOP
Unapproved
26-Mar-10
33.25
No
909,778
29-Apr-10
34.25
No
115,000
28-Apr-11
34.12
No
1,130,000
19-Oct-12
29.25
No
140,000
06-Jun-13
37.25
No
144,200
23-Oct-13
35.75
EPS
400,000
11-Apr-14
33.75
EPS
144,200
27-May-15
43.75
EPS
166,625
27-Oct-16
47.50
EPS
200,000
–
–
–
–
–
–
–
–
–
–
–
909,778
115,000
– 1,130,000
140,000
144,200
400,000
–
–
–
–
–
200,000
27-Oct-16
47.50
EPS
1,000,000
– 1,000,000
15-Sep-17
53.00
EPS
148,397
15-Sep-17
53.00
EPS
56,603
05-Oct-18
81.60
EPS
1,250,000
–
–
–
05-Dec-19
76.90
EPS & TSR
LTIP
05-Dec-19
Nil
EPS & TSR
Andrew Franklin
–
–
137,500
196,684
04-Dec-15
46.75
No
64,171
04-Dec-15
46.75
No
1,935,829
27-Oct-16
47.50
EPS
155,000
27-Oct-16
47.50
EPS
400,000
15-Sep-17
53.00
EPS
170,000
05-Oct-18
81.60
EPS
178,000
–
–
–
–
–
–
05-Dec-19
76.90
EPS & TSR
05-Dec-19
76.90
EPS & TSR
LTIP
05-Dec-19
Nil
EPS & TSR
–
–
–
39,011
55,989
111,183
2,903,000
206,183
555,000 1,500,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26-Mar-13
26-Mar-20
29-Apr-13
29-Apr-20
28-Apr-14
28-Apr-21
19-Oct-15
19-Oct-22
06-Jun-16
06-Jun-23
23-Oct-18
23-Oct-23
11-Apr-17
11-Apr-24
27-May-18
27-May-25
200,000
27-Oct-19
27-Oct-26
1,000,000
27-Oct-21
27-Oct-26
–
–
–
–
–
15-Sep-20
15-Sep-27
15-Sep-20
15-Sep-27
05-Oct-21
05-Oct-28
05-Dec-22
05-Dec-29
05-Dec-22
05-Dec-23
–
–
–
–
–
–
–
–
–
–
–
04-Dec-18
04-Dec-25
500,000
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
178,000
05-Oct-21
05-Oct-28
39,011
05-Dec-22
05-Dec-29
55,989
05-Dec-22
05-Dec-29
111,183
05-Dec-22
05-Dec-23
1,609,183
131,943
12,257
166,625
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
64,171
– 1,435,829
155,000
400,000
–
–
–
–
–
–
–
–
–
–
–
–
5,804,803
334,184 1,200,000 3,137,546
12,257
1,200,000
In 2019, LTIP Awards were granted with a face value of 55% of base salary to the Chief Executive Officer and 45% of base salary to
the Chief Financial Officer, equal to values of £151,250 and £85,500 respectively. These awards will vest on the third anniversary
from the date of grant, 5 December 2022 subject to meeting the EPS and TSR performance targets.
CSOP Awards 2019
In 2019, the Committee also approved the award of market value share options to the Executive Directors under the Company’s Share
Option Plan 2015 equal to one share option for every £2.00 of salary. These awards were granted with an option price of 76.9p (the
closing mid-market price on the 4 December 2019). Based on the exercise price of 76.9p per share, the value of the awards as at the
date of grant were equal to £105,737 for the CEO and £73,055 for the CFO.
Directors’ interests and shareholdings
Share ownership policy
The Company operates a share ownership policy under which the Executive Directors and certain other employees are required when
exercising options to acquire and maintain an interest in Alliance Pharma shares up to a percentage of base salary. The policy requires
Executive Directors when they exercise options to retain shares in the Company with a value equal to 50% of the net gain (post costs
and settlement of tax liabilities) until such time as the required level of shareholding is achieved. Once an Executive Director has built
a stake in the Company equal to the required levels, they are free to exercise without having to retain shares. Interests may also be
maintained as a result of a Director acquiring Ordinary shares in the open market.
The Company Secretary maintains a record of individual required levels and qualifying interests based on information provided by an
individual subject to this policy and reports periodically to the Remuneration Committee regarding compliance. Ordinary shares are
valued at their market value at the time of any calculation carried out using the previous day’s closing middle market quotation.
As at 23 March 2020, the Executive Directors held the following interests in Ordinary shares of the Company:
Director
Peter Butterfield
Andrew Franklin
CEO
CFO
* at the closing market price on the 20 March 2020: 65.0p
Percentage
of salary
100%
100%
2019 Base
salary
£275,000
£190,000
Shareholding
374,376
128,384
Value of
holdings*
£243,344
£83,450
% achieved
88%
44%
The following table shows the interests of the Directors (and their spouses and minor children) in the shares of the Company.
Director
Peter Butterfield
Nigel Clifford
David Cook
Richard Jones
Jo LeCouilliard
Andrew Franklin
At 31 December 2018
At 31 December 2019
Beneficial
Non-beneficial
Total
Beneficial
Non-beneficial
Total
28,376
180,663
102,371
–
–
–
–
–
–
–
–
–
28,376
180,663
102,371
–
–
–
374,376
180,663
102,371
15,000
–
128,384
–
–
–
–
–
–
374,376
180,663
102,371
15,000
–
128,384
1
On the 7 October 2019, Peter Butterfield exercised 3,137,546 options over Ordinary shares of 1p each granted to him by the Company under the CSOP between 2010 and 2015. The average
exercise price was 34.5p per share. 2,791,546 shares were then subsequently sold at a market price of 73.5p per share and 346,000 shares were retained in accordance with the Company’s Share
Ownership Policy
On the 2 December 2019, Andrew Franklin exercised 1,500,000 options over Ordinary shares of 1p each granted to him by the Company under the CSOP in 2016. The average exercise price was
46.75p per share. Following the exercise, on the 5 December 2019, 1,371,616 Ordinary shares were sold at 76.9p per share and 128,384 shares were retained in accordance with the Company’s
Share Ownership Policy
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Alliance Pharma plc – Annual Report and Accounts 2019
71
OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information
REMUNERATION COMMITTEE REPORT CONTINUED
DIRECTORS’ REPORT
Directors’ service contracts
All Executive Directors are employed under 12-month rolling service contracts. The services of all Executive Directors may be
terminated (i) by the Company or individual giving 12 months’ notice or (ii) immediately, in the event that the Director is not re-elected
by shareholders at an AGM.
Executive Director
Date of
appointment
Date of current
contract
Unexpired term
Notice period
(Company)
Notice period
(Director)
Peter Butterfield
Chief Executive
22/02/2010
05/08/2010
Rolling 12 months 12 months
Andrew Franklin
Chief Financial Officer
28/09/2015
25/06/2015
Rolling 12 months 12 months
12 months
12 months
The Non-executive Directors are employed under letters of engagement for which may be terminated by the Company by (i) giving the
appropriate notice, or (ii) immediately, in the event that the Director is not re-elected by shareholders at an AGM.
Non-executive Director
David Cook
Chair & Independent
NED
Date of
appointment
Current term
Unexpired term
01/04/2014
4 years
37 Months
Jo LeCouilliard
Independent NED
01/01/2019
5 years
Nigel Clifford
Richard Jones
Independent NED
26/01/2015
4 years
Independent NED
01/01/2019
5 years
45 Months
45 Months
45 Months
The Executive Directors’ service contracts and Chairman and Non-executive Directors’ letters of appointment are available for inspection
by shareholders at the Company’s registered office. However, due to the unprecedented events around COVID-19, and the revised format
of the AGM, these will not be available at the 2020 AGM in the ordinary way.
Scope of this report
The Directors present their Annual Report, together with the
audited financial statements of the Company and the Group,
for the year ended 31 December 2019. The Directors’ Report
required under the Companies Act 2006 comprises the Directors’
biographies on pages 54 and 55, the corporate governance
statement on pages 56 to 61, the Remuneration Committee report
on pages 65 to 72 and the Strategic Report on pages 4 to 49.
As permitted under the Companies Act, certain matters which
would otherwise need to be included in this Directors’ Report have
instead been discussed in the Strategic Report. These matters are
the discussion of the likely future developments in the business of
the Company and its subsidiaries, the activities of the Company
and its subsidiaries in the field of research and development, the
Company’s use of financial instruments and an indication of its
financial risk management objectives and policies.
Principal activities
The principal activity of the Group is the acquisition, marketing
and distribution of pharmaceutical products. The principal activity
of the Company is to act as a holding company.
Directors
Names and biographical details of the Directors of the Company
at the date of this report are shown on pages 54 and 55. John
Dawson served as Non-executive Director until his retirement on
30 June 2019.
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
Companies Act 2006 was granted by the court.
There were no qualifying pension scheme indemnity provisions in
force during the year.
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.
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 such 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 34 and 35.
Employee share ownership and share dealing
The Group has put in place a share dealing code appropriate to
an AIM quoted company, and the Group has in 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.
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Alliance Pharma plc – Annual Report and Accounts 2019
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information DIRECTORS’ REPORT CONTINUED
Dividends
The Board declared an interim dividend in respect of the year
ending 2019 of 0.536 pence per share (2018: 0.487p) which
was paid on 10 January 2020.
Financial instruments and risks
Details of the Group’s financial instruments and financial risk
management disclosures are included in note 20 of the
financial statements.
Branches
There are no branches of the Company outside the UK. Alliance
Pharmaceuticals GmbH, a company within the Alliance Group,
has a Swiss branch which operates under the name Alliance
Pharmaceuticals GmbH Düsseldorf, Zweigniederlassung Uster.
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.
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Strategic Report,
the Directors’ Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and
parent Company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange
they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs) and applicable law
and have elected to prepare the parent Company financial
statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and
of their profit or loss for that period.
In preparing each of the Group and parent Company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply with the
Companies Act 2006. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and
other irregularities.
The Directors are responsible for 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.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Annual General Meeting
This year’s Annual General Meeting of the Company will be held
on 18 May 2020, the business of which is set out in the Notice
of Meeting. A circular containing the Notice of Meeting together
with an explanatory letter from the Chairman is included with this
Annual Report and is also available in the Investor Section of the
Company’s website at www.alliancepharmaceuticals.com
Your attention is specifically drawn to the revised format of the
2020 AGM due to COVID-19 and the Government’s Stay at
Home measures.
Please also note that following the Company’s move towards
electronic communications, we are no longer producing
hard copy forms of proxy for any shareholder meetings. You
may, however, request a hard copy proxy form directly from
the Company’s Registrars. Shareholders are able to vote
electronically using the following link, www.signalshares.com.
Registering your details on the Link share portal also gives
shareholders easy access to information about their shareholdings
and the ability to vote at general meetings or appoint a proxy to
vote. You will not be able to vote in person at this year’s AGM as
shareholders are not permitted to attend in person.
Chris Chrysanthou
Company Secretary
7 April 2020
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Alliance Pharma plc – Annual Report and Accounts 2019
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OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information Financial Statements
FINANCIAL STATEMENTS
Independent Auditor’s Report
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
Notes to the Financial Statements
ADDITIONAL
INFORMATION
Unaudited Information
Five Year Summary
Advisors and Key Service Providers
Cautionary Statement
Glossary
78
84
85
86
87
88
89
90
91
132
133
134
135
136
76
Alliance Pharma plc – Annual Report and Accounts 2019
77
NOTES TO THE FINANCIAL STATEMENTS CONTINUEDGovernanceStrategic ReportFinancial StatementsOverviewAdditional Information 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 2019 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.
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.
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 2019 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);
Overview
Materiality:
group financial
statements as a
whole
Coverage
£1.4m (2018: £1.1m)
4.3% (2018: 3.9%) of normalised
Group profit before tax
88% (2018: 87%) of total profits and losses
that made up Group profit before tax
Key audit matters vs 2018
• the parent Company financial statements have been
Recurring risks
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.
The impact of uncertainties due to the UK
exiting the European Union on our audit
Impairment of indefinite useful economic
life intangible assets (including goodwill)
Recoverability of parent company’s
investment in subsidiaries
Event driven
New: Going concern
2. Key audit matters: including 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. We summarise below the key audit matters, in arriving at our audit opinion above. 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 2018):
The impact of
uncertainties due to the
UK exiting the European
Union on our audit
Refer to page 48
(principal risks)
Intangible assets
and goodwill
(£328.7m; 2018: £332m)
Refer to page 93 (accounting
policy) and page 105
(financial disclosures).
The risk
Our response
Unprecedented levels of
uncertainty
All audits assess and challenge
the reasonableness of estimates, in
particular as described in impairment
of indefinite useful economic life
intangible assets (including goodwill)
and recoverability of parent company’s
investment in subsidiaries below,
and related disclosures and the
appropriateness of the going concern
basis of preparation of the financial
statements (see below). All of these
depend on assessments of the future
economic environment and the group’s
future prospects and performance.
Brexit is one of the most significant
economic events for the UK, and its
effects are subject to unprecedented
levels of uncertainty of consequences,
with the full range of possible effects
unknown.
Impairment of indefinite useful
economic life intangible assets
(including goodwill)
The estimated recoverable amount is
subjective due to the inherent uncertainty
involved in forecasting and discounting
future cash flows.
This assessment is based on assumptions
(such as forecast cash flows, discount
rates and growth rates), which are
inherently highly judgemental.
Given the quantum of the balance
in relation to our materiality and
the inherent estimation uncertainty
associated with these judgements, we
concluded this to be our most significant
Key Audit Matter.
The effect of these matters is that, as part
of our risk assessment, we determined
that the value in use across the portfolio
has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements
as a whole. The financial statements
(note 11) disclose the range/sensitivity
estimated by the Group.
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in planning and
performing our audits. Our procedures included:
– Our Brexit knowledge: We considered the directors’ assessment
of Brexit-related sources of risk for the group’s business and
financial resources compared with our own understanding of the
risks. We considered the directors’ plans to take action to mitigate
the risks.
– Sensitivity analysis: When addressing impairment of indefinite
useful economic life intangible assets (including goodwill),
recoverability of parent company’s investment in subsidiaries and
other areas that depend on forecasts, we compared the directors’
analysis to our assessment of the full range of reasonably possible
scenarios resulting from Brexit uncertainty and, where forecast cash
flows are required to be discounted, considered adjustments to
discount rates for the level of remaining uncertainty.
– Assessing transparency: As well as assessing individual
disclosures as part of our procedures on impairment of indefinite
useful economic life intangible assets (including goodwill) and
recoverability of the parent company’s investment in subsidiaries we
considered all of the Brexit related disclosures together, including
those in the strategic report, comparing the overall picture against
our understanding of the risks.
However, no audit should be expected to predict the unknowable
factors or all possible future implications for a company and this is
particularly the case in relation to Brexit.
We applied the procedures below to higher risk CGUs 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 available in the public domain.
– 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, we assessed whether
the forecasts (including growth rate) were consistent with current
business strategies in place;
– Sensitivity analysis: We performed 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: We compared the previously forecast
cash flows to actual results to assess the historical accuracy of
forecasting;
– Assessing transparency: We assessed the adequacy of the
Group’s disclosures in respect of the sensitivity to changes in key
assumptions.
– For the remaining population of CGUs, we performed historical
comparisons, sensitivity analysis and held discussions with the
directors.
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information INDEPENDENT AUDITOR’S REPORT CONTINUED
The risk
Our response
Investments in
subsidiaries
(£194.6m; 2018: £184.2m)
Refer to page 94 (accounting
policy) and page 110
(financial disclosures).
Going concern
Refer to page 97 (accounting
policy) and page 131
(financial disclosures).
Our procedures included:
– 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 assessed whether those subsidiaries have
historically been profit-making. The Group audit team performs the
statutory audit of all material investments;
– Test of detail: 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 and assessed 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 and the sensitivity of
impairment of the parent company’s investment in subsidiaries to
these assumptions.
Our procedures included:
– Funding assessment: We obtained confirmation of committed
level of financing.
– Historical comparisons: We compared previously forecast cash
flows against actual cash flows to assess the historical accuracy of
forecasting.
– Our sector experience: We critically assessed the directors’
going concern assessment, including the reasonableness of the
key assumptions used in the cash flow forecasts and the level of
downside sensitivities applied using our knowledge of Covid-19
scenarios being applied by other entities.
– Key dependency assessment: We assessed cash flow and
covenant forecasts to identify key dependencies on individual
future transactions or events.
– Sensitivity analysis: We considered sensitivities over the level
of available financial resources indicated by the Group’s financial
forecasts, taking account of the severe, but plausible adverse
effects that could arise from the identified risks individually or
collectively and the potential impact on the Group’s borrowing
covenants.
– Evaluating directors’ intent: We evaluated the achievability of
the actions the Directors consider they would take to improve the
position should the risks materialise.
– Assessing transparency: We assessed the completeness and
accuracy of the matters covered in the going concern disclosure.
Recoverability of parent
company’s investment in
subsidiaries
The carrying amount of the parent
company’s investments in subsidiaries
represents 99.9% (2018: 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.
Disclosure Quality
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the Group and
parent company.
That judgement is based on an
evaluation of the inherent risks to the
Group’s and Company’s business
model and how those risks might
affect the Group’s and Company’s
financial resources or ability to continue
operations over a period of at least a
year from the date of approval of the
financial statements.
The risks most likely to adversely affect
the Group’s and Company’s available
financial resources over this period are
the impact of Covid-19 on customer
confidence, constraints on supply chain,
sourcing and logistics as well as product
regulation.
There are also less predictable but
realistic second order impacts, such
as the impact of Brexit on the industry
specific regulations underlying the
Group’s and its suppliers’ operations
which could result in a reduction of
available financial resources.
The risk for our audit was whether or not
those risks were such that they amounted
to a material uncertainty that may have
cast significant doubt about the ability to
continue as a going concern. Had they
been such, then that fact would have
been required to have been disclosed.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the group financial statements as a whole was set
at £1.4m, determined with reference to a benchmark of group
profit before tax, normalised to exclude costs relating to the return
of Xonvea Licensing Rights as disclosed in note 5, of £1.7m.
Normalised Group
profit before tax
£32.9m (2018: £28.1m)
Group Materiality
£1.4m (2018: £1.1m)
In the prior year, materiality for the group financial statements
as a whole was set at £1.1m, determined with reference to a
benchmark of group profit before tax, normalised to exclude
£2.5m impairment of Synthasia Joint Venture assets, £4.3m
impairment of Anti-malarial intangible asset and £1.5m profit
on disposal of Unigreg Joint Venture, see note 5.
Materiality represents 4.3% (2018: 3.9%) of this normalised
Group profit before tax.
Materiality for the parent company financial statements as
a whole was set at £1.3m (2018: £0.8m), determined with
reference to a benchmark of company total assets, of which it
represents 0.7% (2018: 0.5%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £70,000,
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 18 (2018: 19) reporting components, we
subjected 4 (2018: 4) to full scope audits for Group purposes.
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 £0.6m to £0.9m (2018: £0.5m to £0.9m), having
regard to the mix of size and risk profile of the Group across the
components. The work on 1 of the 4 components (2018: 1 of the
4 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 (2018: one) component location in
France (2018: France, same component) 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.
£1.4m
Whole financial statements
materiality (2018: £1.1m)
£0.9m
Range of materiality at five
components (£0.6m to £0.9m)
(2018: £0.5m to £0.9m)
£70,000
Misstatements reported
to the audit committee
(2018: £55,000)
Normalised Group PBT
Group materiality
Group revenue
Group profit before tax
8
11
92%
(2018: 88%)
8
9
4
92%
(2018: 87%)
88
92
87
92
Group total assets
3 4
93%
(2018: 95%)
93
100
Full scope for group audit
purposes 2019
Specified risk-focused
audit procedures 2019
Full scope for group audit
purposes 2018
Specified risk-focused
audit procedures 2018
Residual
components
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4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company
or the Group or to cease their operations, and as they have
concluded that the Company’s and the Group’s financial position
means that this is realistic. They have also concluded that there
are no material uncertainties that could have cast significant
doubt over their ability to continue as a going concern for at least
a year from the date of approval of the financial statements (“the
going concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this
audit report. However, as we cannot predict all future events
or conditions and as subsequent events may result in outcomes
that are inconsistent with judgements that were reasonable at
the time they were made, the absence of reference to a material
uncertainty in this auditor’s report is not a guarantee that the
group or the company will continue in operation.
We identified going concern as a key audit matter (see section
2 of this report). Based on the work described in our response to
that key audit matter, 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 a year from the date of approval
of the financial statements.
We have nothing to report in this respect.
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.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 74,
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
7 April 2020
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign exchange translation differences (net of deferred tax)
Forward exchange forward contracts – cash flow hedge (net of deferred tax)
Interest rate swaps – cash flow hedge (net of deferred tax)
Total comprehensive income for the year
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
25,010
18,356
(1,495)
489
(23)
23,981
1,101
–
113
19,570
Revenue
Cost of sales
Gross profit
Operating expenses
Administration and marketing expenses
Share-based employee remuneration
Share of Joint Venture profits
Return of Xonvea Licensing Rights
Disposal of Flammacerium
Profit on disposal of Unigreg Joint Venture
Impairment and write down of Synthasia
Joint Venture assets
Impairment of Anti-malarial intangible asset
Operating profit
Finance costs
Interest payable and similar charges
Change in deferred contingent consideration
Finance (costs)/income
Profit before taxation
Taxation
Profit for the period attributable to equity
shareholders
Earnings per share
Basic (pence)
Diluted (pence)
Underlying
£000s
135,637
Note
3,33
Year ended 31 December 2019
Year ended 31 December 2018
Non-
Underlying
£000s
(Note 5)
–
–
–
–
–
–
Total
£000s
Underlying
£000s
135,637
118,208
(49,561)
(45,560)
86,076
72,648
(46,814)
(41,934)
(1,816)
(1,790)
–
13
(1,672)
(1,672)
(145)
(145)
–
–
–
–
–
–
–
–
–
–
–
Non-
Underlying
£000s
(Note 5)
–
–
–
–
–
–
–
–
Total
£000s
118,208
(45,560)
72,648
(41,934)
(1,790)
13
–
–
1,508
1,508
(2,460)
(2,460)
(4,318)
(4,318)
(49,561)
86,076
(46,814)
(1,816)
–
–
–
–
–
–
37,446
(1,817)
35,629
28,937
(5,270)
23,667
(3,777)
–
(776)
(4,553)
–
–
–
–
(3,777)
(3,457)
–
1,966
(776)
(4,553)
627
(864)
–
–
–
–
(3,457)
1,966
627
(864)
32,893
(1,817)
31,076
28,073
(5,270)
22,803
(6,414)
348
(6,066)
(5,491)
1,044
(4,447)
26,479
(1,469)
25,010
22,582
(4,226)
18,356
7, 24
30
5
5
5
5
5
6
6
6
4
8
10
10
5.09
4.99
4.80
4.72
4.54
4.42
3.69
3.60
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.
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information CONSOLIDATED BALANCE SHEET
COMPANY BALANCE SHEET
31 December 2019
£000s
31 December 2018
£000s
Note
31 December 2019
£000s
31 December 2018
£000s
Note
Assets
Non-current assets
Goodwill and intangible assets
Property, plant and equipment
Deferred tax
Other non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Equity
Ordinary share capital
Share premium account
Share option reserve
Other reserve
Cash flow hedging 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
11
12
22
14
15
20
16
23
18
19
22
20
18
17
20
328,660
11,554
1,710
676
335,243
7,594
1,845
180
342,600
344,862
15,518
30,992
697
17,830
65,037
407,637
5,294
149,036
7,208
(329)
462
(4)
112,513
274,180
77,040
2,401
29,810
–
109,251
–
2,344
21,815
47
24,206
133,457
407,637
18,706
29,148
–
10,893
58,747
403,609
5,182
144,639
6,121
(329)
(4)
1,491
95,099
252,199
28,667
2,352
28,663
5
59,687
68,035
1,457
22,231
–
91,723
151,410
403,609
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
13
194,630
–
194,630
24
97
121
184,211
194
184,405
29
83
112
194,751
184,517
5,294
149,036
6,846
32,316
193,492
225
1,034
1,259
5,182
144,639
6,121
27,751
183,693
221
603
824
194,751
184,517
15
16
23
17
The Company’s profit for the year was £12,161,000 (2018: £9,045,000).
As permitted by section 408 of the Companies Act 2006, no separate Income Statement is presented in respect of the Parent Company.
The financial statements were approved by the Board of Directors on 7 April 2020.
Peter Butterfield
Director
Andrew Franklin
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
Company number 04241478
The financial statements were approved by the Board of Directors on 7 April 2020.
Peter Butterfield
Director
Andrew Franklin
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
Company number 04241478
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
COMPANY STATEMENT OF CHANGES IN EQUITY
Ordinary
share
capital
£000s
Share
premium
account
£000s
Other
reserve
£000s
Cash flow
hedging
reserve
£000s
Translation
reserve
£000s
Share
option
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
Balance 1 January 2018
4,750
110,252
(329)
(117)
390
5,073
83,089
203,108
Issue of shares
Share premium
Dividend paid
Share options charge (including
deferred tax)
432
–
–
–
–
34,387
–
–
Transactions with owners
432
34,387
Profit for the year
Other comprehensive income
Interest rate swaps – cash flow hedge
(net of deferred tax)
Foreign exchange translation differences
(net of deferred tax)
Total comprehensive income for
the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance 31 December 2018
5,182
144,639
(329)
–
–
–
–
–
–
113
–
–
–
–
–
–
–
–
1,101
113
(4)
1,101
1,491
–
–
–
1,048
1,048
–
–
–
–
–
–
432
34,387
(6,346)
(6,346)
–
1,048
(6,346)
29,521
18,356
18,356
–
–
113
1,101
18,356
19,570
6,121
95,099
252,199
Ordinary share
capital
£000s
Share premium
account
£000s
Share option
reserve
£000s
Retained
earnings
£000s
Total
equity
£000s
110,252
5,073
25,052
145,127
Balance 1 January 2018
Issue of shares
Share premium
Dividend paid
Share options charge (including deferred tax)
Transactions with owners
Profit for the period and total comprehensive income
4,750
432
–
–
–
432
–
–
34,387
–
–
34,387
–
Balance 31 December 2018
5,182
144,639
–
–
–
1,048
1,048
–
6,121
–
–
(6,346)
–
(6,346)
9,045
27,751
432
34,387
(6,346)
1,048
29,521
9,045
183,693
Balance 1 January 2019
Issue of shares
Share premium
Dividend paid
Share options charge (including deferred tax)
Transactions with owners
Profit for the period and total comprehensive income
5,182
112
–
–
–
112
–
144,639
6,121
27,751
183,693
–
4,397
–
–
4,397
–
–
–
–
725
725
–
–
–
(7,596)
–
(7,596)
12,161
32,316
112
4,397
(7,596)
725
(2,362)
12,161
193,492
Balance 1 January 2019
5,182
144,639
(329)
(4)
1,491
6,121
95,099
252,199
Balance 31 December 2019
5,294
149,036
6,846
Issue of shares
Share premium
Dividend paid
Share options charge (including deferred
tax)
112
–
–
–
–
4,397
–
–
Transactions with owners
112
4,397
Profit for the year
Other comprehensive income
Foreign exchange forward contracts –
cash flow hedge (net of deferred tax)
Interest rate swaps – cash flow hedge
(net of deferred tax)
Foreign exchange translation differences
(net of deferred tax)
Total comprehensive income for
the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance 31 December 2019
5,294
149,036
(329)
–
–
–
–
–
–
489
(23)
–
–
–
–
–
–
–
–
–
(1,495)
(1,495)
466
462
–
–
–
–
–
112
4,397
(7,596)
(7,596)
1,087
1,087
–
1,087
(7,596)
(2,000)
–
25,010
25,010
–
–
–
–
–
–
–
489
(23)
(1,495)
25,010
23,981
(4)
7,208
112,513
274,180
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
Cash flows from operating activities
Cash generated from operations
Tax paid
Cash flows from/(used in) operating activities
Investing activities
Interest received
Dividend received
Investment in subsidiary
Development expenditure
Purchase of property, plant and equipment
Repayment of loan to Joint Venture on disposal
Proceeds from disposal of Joint Venture Investment
Proceeds from disposal of intangibles
Exceptional compensation income
Consideration on acquisitions
Payment of contingent consideration on acquisition
Net cash (used in)/from investing activities
Financing activities
Interest paid and similar charges
Loan issue costs
Capital lease payments
Net proceeds from issue of shares
Proceeds from exercise of share options
Dividend paid
Proceeds from borrowings
Repayment of borrowings
Note
25
13
11
12
31
31
31
10
20
20
Net cash (used in)/from financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at 31 December
16
Group
Company
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
38,958
(3,200)
35,758
23
–
–
(12)
(4,145)
–
500
350
–
–
–
(3,284)
(2,505)
(1,401)
(726)
–
4,509
(7,596)
1,054
(18,533)
(25,198)
7,276
10,893
(339)
17,830
26,111
(3,941)
22,170
36
–
–
(43)
(2,891)
1,426
2,196
–
1,000
(60,307)
(500)
(59,083)
(3,197)
(362)
(512)
32,755
2,063
(6,346)
28,000
(15,813)
36,588
(325)
11,184
34
10,893
(773)
(445)
(1,218)
–
7,596
(3,277)
–
–
–
–
–
–
–
–
(867)
(686)
(1,553)
–
5,600
(32,507)
–
–
–
–
–
–
–
–
4,319
(26,907)
–
–
–
–
4,509
(7,596)
–
–
–
–
–
32,755
2,063
(6,346)
–
–
(3,087)
28,472
14
83
–
97
12
71
–
83
The accompanying accounting policies and notes form an integral part of these financial statements.
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, registered, incorporated and domiciled in
England and Wales in the UK. 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 7 April 2020.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the periods presented, unless otherwise stated.
2.1 Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards 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 Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’) and equity
account the Group’s interest in Joint Ventures. The parent Company financial statements present information about the Company as a
separate entity and not about the Group.
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.
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 30 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 relevant
circumstances. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed by the Directors on an on-going basis.
Judgements
The following are the critical judgements, apart from those involving estimates (which are dealt with separately below), 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:
• Selection of indefinite useful economic lives for certain intangible assets (note 11).
• Identification and presentation of non-underlying items (note 5).
• Assessment of the Statement of Objection issued by the UK’s Competition and Markets Authority (‘CMA’) (note 27).
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for the year ended 31 December 2019
2. Summary of significant accounting policies continued
2.3 Judgements and estimates continued
Estimates
IAS 1 requires the disclosure of assumptions and estimates at the end of the current reporting period that have a significant risk of
resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
The Directors consider these estimates to be as follows:
• Key assumptions used in discounted cash flow projections for impairment testing of certain intangible assets (note 11).
2.4 Revenue recognition
Identification of performance obligations
Revenue comprises consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities, namely
the distribution of pharmaceutical products. The Group also receives royalties in relation to certain agreements with distributors in
exchange for the licensed use of intellectual property and trademarks owned by the Group, which are generally based on sales
volumes. The Group has assessed the performance obligations as being each unit of good sold by the Group.
Transaction price
The transaction price for each performance obligation comprises the stand-alone selling price for the product excluding value-added
tax and net of rebates and discounts. Intra-Group sales are eliminated in the consolidated financial statements.
Royalty income and the deductions relating to rebates and discounts are based on the Group’s contractual obligations. Certain of the
royalty and rebate arrangements also include elements of variable consideration. The Group does not consider these elements to be
significant, however an estimate of variable consideration is included where appropriate.
The Group has considered whether it is an ‘agent’ or ‘principal’ under IFRS 15 for each commercial arrangement and accounted for
these accordingly.
Timing of recognition
Under IFRS 15 an entity recognises revenue when it satisfies a performance obligation by transferring a good to a customer. An entity
transfers a good to a customer when the customer obtains control of that good. Control may be transferred either at a point in time or
over time. For the Group, revenue is recognised at a point in time when customers have control of the sold goods, or on an appropriate
basis where royalty or other arrangements are in place with third parties.
Specific revenue streams
The Group has the following recognition policies for different commercial arrangements.
(i)
Pharmaceutical product sales – ex-works terms: Recognition at a point in time when each unit of pharmaceutical product is
available to the customer for collection.
(ii)
Pharmaceutical product sales – dispatch terms: Recognition at a point in time when each unit of pharmaceutical product is
dispatched to the customer.
(iii) Pharmaceutical product royalties receivable: Recognition at a point in time when the third-party makes pharmaceutical product
sales subject to a royalty agreement with the Group.
(iv) Pharmaceutical product rebates payable (including VPAS): Recognition as a deduction from revenue when the third-party makes
pharmaceutical product sales subject to a rebate agreement with the Group or when sales are made in the scope of the VPAS
Voluntary Scheme. VPAS applies to branded, licensed medicines which are available on NHS prescription.
(v)
Pharmaceutical product transitional agreements: Recognition a point in time when the third party makes pharmaceutical product
sales subject to a transitional agreement with the Group.
The amount recognised represents the product margin generated by the third party on behalf of the Group. Related transitional
agreement fees are recognised within administrative expenses. This is relevant to Nizoral (note 33) where the Group is an ‘agent’
in the relationship with J&J.
The Group does not consider that judgements made in evaluating when customers obtain control of a promised good to have
significantly influenced the timing of revenue recognition in the year.
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 translation of foreign operations are reported in 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 reported in other comprehensive income and accumulated in the translation reserve, to the extent
that the hedge is effective.
2.6 Property, plant and equipment
Computer software and 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. Depreciation of an asset starts when the asset is available for use. The
rates generally applicable are:
Computer software and 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
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by
the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the
lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right of
use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the
Group’s incremental borrowing rate.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the
income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment.
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.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
2. Summary of significant accounting policies continued
2.8 Intangible assets and goodwill continued
(ii) Patents
Where an acquired intangible includes a definite period of patent protection and the value attributed to the patent is considered
material, the Group has accounted for the value of the patent separate to the underlying brand. The patent is amortised over the
period to patent expiry.
(iii) Distribution rights
Payments made in respect of product registration 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 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 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’). The Directors have
determined that the cash-generating units are at product-group level.
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.
Impairments are classified as underlying when they relate to the normal trading activities of the Group. This would include impairments
resulting from general decline in long term forecasts due to commercial factors. Impairments are classified as non-underlying when
they are significant and one-off in nature, which may be due to factors outside the Group’s control, and therefore do not reflect normal
trading performance.
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.
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
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Derivatives are initially
measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognised in
profit or loss unless designated as cashflow hedges.
The Group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable
forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the
hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether
the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cashflow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative
is recognised in other comprehensive income and accumulated in the cashflow hedging reserve. The effective portion of changes in
the fair value of the derivative that is recognised in other comprehensive income is limited to the cumulative change in fair value of the
hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of
the derivative is recognised immediately in profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised,
then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that
has been accumulated in the cashflow hedging reserve remains in equity until it is reclassified to profit or loss in the same period or
periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the cashflow hedging
reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
Translation risk
Exchange differences arising from the translation of the net investment in foreign operations are reported in other comprehensive
income and accumulated in the translation reserve. Gains and losses on those hedging instruments designated as hedges of the net
investment in foreign operations, are recognised 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.
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for the year ended 31 December 2019
2. Summary of significant accounting policies continued
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.
Modifications of financial instruments (including loans and borrowings) are reviewed quantitatively and qualitatively to determine if
the modification is ‘substantial’. Substantial modification of a financial liability results in de-recognition of the original balance, and
recognition of a new financial liability at fair value. The difference between the carrying amount of the original financial liability and
the fair value of the new financial liability is charged to the income statement. A non-substantial modification of financial liability does
not result in the de-recognition of the original balance, however may also result in a gain or loss recognised in the income statement.
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. The Group’s trade receivables are subject to the IFRS 9 expected
credit loss model. The Group has applied the simplified approach to measuring expected credit losses which uses a lifetime expected
loss allowance based on historic default rates. The expected credit loss rate varies depending on whether and the extent to which
settlement of the trade receivables is overdue.
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. Dividends and interest received are included in investing activities. Dividends and interest paid are included in
financing activities.
Investments in debt and equity securities
The Company’s Investment in subsidiaries is 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.
2.13 Employee benefits – Share-based payment transactions
Employees (including Directors) of the Group receive part of their remuneration in the form of share-based payments, whereby,
depending on the scheme, employees render services in exchange for rights over shares (‘equity-settled transactions’) or entitlement to
a future cash payment (‘cash-settled transactions’), the amount of which is determined with reference to the Company’s share price.
The cost of equity-settled transactions with employees is measured, where appropriate, with reference to the fair value at the date on
which they are granted. Where options need to be valued an appropriate valuation model is applied. The expected life used in the
model has been adjusted, based on management’s best estimate, for the effects of exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is fully recharged to subsidiaries.
The cost of cash-settled transactions is measured with reference to the fair value of the liability, which is taken to be the closing price of
the Company’s shares. Until the liability is settled it is remeasured at the end of each reporting period and at the date of settlement, with
any changes in the fair value being recognised in the income statement
The cost of equity-settled transactions is recognised, along with a corresponding increase in equity, over the years in which the
performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting
date’). The cost of cash-settled transactions is recognised, along with a provision for expected cash settlement, over the vesting period.
At each reporting date, the cumulative expense recognised for equity-settled transactions reflects the extent to which the vesting period
has expired and the number of awards that, in the opinion of management, will ultimately vest. Management’s estimates are based
on the best available information at that date. No expense is recognised for awards that do not ultimately vest, except for awards
where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is
satisfied, provided that all other performance conditions are satisfied.
The provision of shares to satisfy certain of the Group’s share option schemes can be facilitated by purchases of own shares by the
Group’s Employee Benefit Trust. The costs of operating the Trust is borne by the Group but is not material. To date, no shares have been
purchased by the Trust for satisfaction of outstanding or future share option awards.
The Employee Benefit Trust is considered to be controlled by the Group. The activities of the Trust are conducted on behalf of the Group
according to its specific business needs in order to obtain benefits from its operation and, on this basis, the assets held by the Trust are
consolidated into the Group’s financial statements.
2.14 Equity
‘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.
‘Other reserve’ represents the difference between the fair value and nominal value of shares issued on a reverse takeover.
‘Cash flow hedging reserve’ represents the fair value of derivative financial instruments at the balance sheet date that are designated
as cash flow hedges, net of deferred tax, less amounts reclassified through other comprehensive income.
‘Translation reserve’ represents gains and losses arising on translation of the net assets of overseas operations into the Group’s
presentation currency of Sterling.
2.15 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, provisions have been discounted to their present value.
2.16 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. The Group also engages in
acquisitions of product specific assets (such as brands - set out in Note 2.8). Where elements of the consideration paid are variable
and based on future revenues, the cost of the intangible asset recognised is based on the agreed minimum payments and any
additional payments are expensed as the related sales occur.
2.17 Going Concern
The Group is in a net current asset position of £41.8m. This contrasts to the 2018 position where the Group was in a net current liability
position of £33m, principally due to current bank loans of £68.5m. On 2 July 2019, the Group agreed a new £165m fully Revolving
Credit Facility (‘RCF’), together with a £50m accordion, with an enlarged syndicate of lenders on improved terms, replacing the
previous facility which ran through to December 2020.
The directors have prepared cashflow forecasts for a period of 12 months from the date of approval of these financial statements (the
forecast period). These indicate that the Group will have sufficient funds, given the RCF financing available, to meet its liabilities as they
fall due for that period.
The cashflow forecasts include the current estimated impact of COVID-19 coronavirus. Also, the Directors have considered further
potential implications of COVID-19 coronavirus by modelling severe but plausible downside scenarios. In particular, the Directors
considered a scenario involving a 25% decline in revenue from April to December 2020. Trading across the Group’s balanced
portfolio has remained relatively stable in the first three months of 2020 and the Group has sufficient stock to mitigate supply issues that
may arise. Therefore, the Directors are confident that this scenario reflects the worst reasonably possible outcome. In this scenario, the
forecasts indicate that the Group will have sufficient funds to meet its liabilities as they fall due, and will continue to comply with its loan
covenants, throughout the forecast period.
Additionally, given the unprecedented situation, the Directors have modelled a further stress scenario involving the cessation of sales
for a period of three months from April 2020. Even in this scenario, the forecasts indicate that the Group will have sufficient funds to
meet its liabilities as they fall due, and will continue to comply with its loan covenants (albeit with significantly reduced headroom),
throughout the forecast period. The Directors consider the above scenario to be unlikely. However, if even more severe scenarios
were to be realised, the Group would take mitigating actions and the Directors are confident that loan covenant compliance would
be maintained.
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
2. Summary of significant accounting policies continued
2.17 Going Concern continued
The RCF is drawn in short to medium-term tranches of debt which are repayable within 12 months of draw-down. These tranches of
debt can be rolled over provided certain conditions are met, including covenant compliance. The Group considers that it is highly
unlikely it would be unable to exercise its right to roll-over the debt. This due to mitigating actions it could take to maintain compliance
with these conditions, including future covenant requirements, even in downside scenarios. The Directors therefore believe that the
Group has the ability and the intent to roll-over the drawn RCF amounts when due and consequently has presented the RCF as a
non-current liability.
Consequently, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due
for at least 12 months from the date of approval of the financial statements and have therefore determined it is appropriate to adopt
the going concern basis in preparing the financial statements.
2.18 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 non-underlying items. Adjusted profitability measures are presented excluding 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 are presented in note 33.
3. Revenue
Revenue information By Brand
International Star brands:
Kelo-cote
Nizoral*
MacuShield
Vamousse
Local brands:
Flamma Franchise
Aloclair
Hydromol
Forceval
Haemopressin
Optiflo
Oxyplastine
Ashton & Parsons
Ametop
Other Local brands
Total Revenue
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
31,039
11,528
8,236
6,538
57,341
7,647
8,057
6,732
4,409
2,081
2,921
3,458
2,676
2,272
38,043
78,296
135,637
22,467
5,037
6,982
5,756
40,242
7,858
7,207
6,671
3,874
2,702
2,645
2,640
2,225
2,181
39,963
77,966
118,208
* Nizoral is shown on an agency basis in statutory revenue. Nizoral revenue presented on a see-through income statement basis is included as an alternative performance measure in note 33
Xonvea Revenue is included in Other Local brands following the return of licensing rights (note 31).
Revenue information By Geography
UK and Republic of Ireland
Mainland Europe
International
USA
Total Revenue
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
51,404
32,496
45,644
6,093
52,266
25,386
35,077
5,479
135,637
118,208
Major customers
The revenue from the Group’s largest customer is as follows. One customer separately comprised 10% or more of revenue (2018: one).
Major customer 1
4. Profit before taxation
Profit before taxation is stated after charging/(crediting):
Amounts receivable by the Company’s auditor and its associates in respect of
– The audit of these financial statements
– The audit of the financial statements of subsidiaries
– Corporate finance services
– Other assurance services
Amortisation of intangible assets
Impairment of intangible assets
Non-underlying (losses)/profit on disposal
Share options charge
Depreciation of plant, property and equipment
Research and development expense
Loss/(gain) on foreign exchange transactions
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
24,036
22,135
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
40
161
–
5
179
284
(1,817)
1,816
1,496
74
799
36
141
114
5
211
6,244
1,508
1,790
1,335
131
(575)
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information 6. Finance costs
Interest payable and similar charges
On loans and overdrafts
Amortised finance issue costs
Unwinding of discount on deferred and contingent consideration
Interest on lease liabilities
Change in fair value of contingent consideration
Finance income
Interest income
Net exchange (loss)/gains
Finance costs – net
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
(3,191)
(491)
–
(95)
(3,777)
–
23
(799)
(776)
(4,553)
(2,964)
(384)
(35)
(74)
(3,457)
1,966
52
575
627
(864)
Unwinding of discount on deferred and contingent consideration was in respect of amounts payable from the Macuhealth and
Vamousse acquisitions.
The prior year decrease in contingent consideration related to changes in the original estimated amounts payable for the acquisition
of the Vamousse brand. This change in fair value was caused by revisions to financial forecasts following acquisitions and is not
considered to be a measurement period adjustment.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
5. Non-underlying items
Non-underlying items are those significant items which the Directors have judged, 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. This assessment requires judgement to be applied by the
Directors as to which transactions are non-underlying and whether this classification enhances the understanding of the users of the
financial statements.
Return of Xonvea Licensing Rights
Disposal of Flammacerium
Unigreg Joint Venture profit on disposal
Impairment and write down of Synthasia Joint Venture assets
Impairment of Anti–malarial intangible asset
Total non-underlying items before taxation
Taxation
Total non-underlying items after taxation
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
(1,672)
(145)
–
–
–
(1,817)
348
(1,469)
–
–
1,508
(2,460)
(4,318)
(5,270)
1,044
(4,226)
In November 2019, the Group reached an agreement with Duchesnay Inc. of Canada (‘Duchesnay’) to return the UK and EU licensing
rights to Xonvea, a prescription medicine for the treatment of nausea and vomiting of pregnancy where conservative management
has failed. Under the terms of the agreement, £2m in milestone payments made to date will be repaid to the Group, £0.25m having
been paid in 2019 with the balance due in 2020. Additionally, the remaining £0.5m due on initial acquisition of Xonvea previously
held as contingent consideration has been waived as part of the agreement. This resulted in the release of the contingent consideration
(note 17) and the disposal of the corresponding £0.5m asset under development (note 11). Both the release and disposal have been
included within the loss on disposal, resulting in no net impact on the income statement.
The Group incurred non-underlying inventory provisions and associated restructuring costs in connection with the return of the Xonvea
rights of £1.9m. The total non-underlying loss on disposal was £1.7m (note 31).
In December 2019, the Group sold the global rights to the brand Flammacerium for gross cash consideration of £0.75m payable
over six years, £0.10m having been paid in 2019. Flammacerium is used for the prevention and treatment of infections in severe burn
wounds. The total non-underlying loss on disposal was £0.1m (note 31).
The disposals of Xonvea and Flammacerium do not relate to the normal trading activities of the Group hence have been separately
disclosed as non-underlying items.
In April 2018 the Group sold its 60% interest in Unigreg Limited to its joint venture partner, Pacific Glory Development Limited, for a
consideration of £2.9m. The Group profit on disposal was £1.5m net of fees (note 31).
In May 2018 the Group was notified that the import licence partner was not going to receive the required approval to import
Suprememil, the infant milk formula brand owned by Synthasia. Following subsequent discussions with the import licence partner
and Synthasia management, the Board concluded to fully impair the joint venture investment of £0.3m and to fully provide for the
associated receivables balances of £2.2m. This generated a non-cash, non-underlying impairment charge and receivables provision
of £2.5m.
Sales of anti-malarial products fell significantly in 2018 due to competition in the UK market. In mid-August 2018, Alliance was
notified by the manufacturer of these products of its intention to cease supply due to lower volumes. After due consideration, the Board
concluded that, due to the decline in demand, it was not economic to transfer the product to an alternative manufacturer and therefore
it was appropriate to write down the value of the £4.3m intangible asset associated with these products in full.
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for the year ended 31 December 2019
7. Directors and employees
Employee benefit expenses for the Group (including Directors) during the year were as follows:
8. Taxation
Analysis of the charge for the period is 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 (including Directors) during the year was:
Management and administration
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
15,432
2,443
812
1,816
20,503
12,990
2,453
730
1,790
17,963
Year ended
31 December 2019
Number
Year ended
31 December 2018
Number
219
210
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:
Directors’ remuneration
Pension contributions
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
991
43
1,034
1,020
43
1,063
During the year contributions were paid to defined contribution schemes for two Directors (2018: two).
Gain on share options exercised by Directors during the year was £1,676,000 (2018: £nil). The notional non-cash IFRS 2 share based
payment expense in respect of directors was £156,000 (2018: £232,000).
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 2019
£000s
Year ended
31 December 2018
£000s
485
26
511
303
26
329
Average number of members of the Board of Directors (including Non-executive Directors) for the year ended 31 December 2019 was
six (2018: six).
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 2019
£000s
Year ended
31 December 2018
£000s
4,373
(227)
4,146
1,804
116
6,066
3,003
7
3,010
1,110
327
4,447
The difference between the total tax 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 19.00%
(2018: 19.00%)
Effect of:
Non-deductible expenses
Non-taxable income
Adjustment in respect of prior periods
Differences between current and deferred tax rates
Differing tax rates on overseas earnings
Share options
Movement in other tax provisions
Total taxation
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
31,076
22,803
5,904
4,332
166
–
(111)
(226)
277
(241)
297
259
(794)
334
(142)
310
(135)
283
6,066
4,447
A change to the UK corporation tax rate was announced in the Chancellor’s Budget on 16 March 2016, reducing the main rate
from 19% to 17% from 1 April 2020. This commitment was abandoned in the Budget on 11 March 2020. As this change was not
substantively enacted at the balance sheet date, the effect is not included in these financial statements and UK timing differences
have continued to be recognised at 17% for deferred tax purposes. The overall effect of this change in policy, if it had applied to
the deferred tax balance at the balance sheet date, would be to increase the overall net deferred tax liability by £1,698,000. The
income tax expense for the period would have increased by £1,854,000, with a charge of £287,000 to the revaluation reserve, and a
£444,000 credit to other comprehensive income.
The Group has calculated ‘adjusted underlying effective tax rate’ as an alternative performance measure in note 33.
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for the year ended 31 December 2019
9. Dividends
11. Goodwill and intangible assets
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 2019
Year ended
31 December 2018
Pence/share
£000s
Pence/share
£000s
0.487
0.977
1.464
0.536
2,524
5,072
7,596
2,837
0.443
0.888
1.331
0.487
2,104
4,242
6,346
2,524
The interim dividend for the current financial year was paid on 10 January 2020.
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. There are no differences in earnings used to calculate each measure as a
result of the dilutive employee share options.
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 2019
Year ended
31 December 2018
520,687,101
497,199,620
9,471,693
13,223,152
530,158,794
510,422,772
The underlying basic EPS is intended to demonstrate recurring elements of the results of the Group before non-underlying items.
A reconciliation of the earnings used in the different measures is given below:
Earnings for basic EPS
Non-underlying items (note 5)
Earnings for underlying basic EPS
The resulting EPS measures are:
Basic EPS
Diluted EPS
Underlying basic EPS
Underlying diluted EPS
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
25,010
1,469
26,479
18,356
4,226
22,582
Year ended
31 December 2019
Pence
Year ended
31 December 2018
Pence
4.80
4.72
5.09
4.99
3.69
3.60
4.54
4.42
The Group
Cost
At 1 January 2019
Additions
Disposals (note 31)
Exchange adjustments
At 31 December 2019
Amortisation and impairment
At 1 January 2019
Underlying impairment for the year
Amortisation for the year
Disposal (Note 31)
At 31 December 2019
Net book amount
At 31 December 2019
At 1 January 2019
The Group
Cost
Goodwill
£000s
Brands and
distribution rights
£000s
Development costs
£000s
Assets under
development
£000s
16,565
328,092
–
(33)
–
–
(1,500)
(3,051)
16,532
323,541
–
–
–
–
–
11,182
284
179
(232)
11,413
16,532
16,565
312,128
316,910
768
12
(780)
1,000
–
(1,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
768
1,000
Goodwill
£000s
Brands and
distribution rights
£000s
Development costs
£000s
Assets under
development
£000s
At 1 January 2018
16,565
Additions
Disposal
Transfer
Exchange adjustments
At 31 December 2018
Amortisation and impairment
At 1 January 2018
Underlying impairment for the year
Non-underlying impairment for the year
Amortisation for the year
At 31 December 2018
Net book amount
At 31 December 2018
At 1 January 2018
–
–
–
–
263,560
60,307
(18)
1,500
2,743
16,565
328,092
–
–
–
–
–
4,727
1,926
4,318
211
11,182
16,565
16,565
316,910
258,833
2,500
–
–
(1,500)
–
1,000
–
–
–
–
–
725
43
–
–
–
768
–
–
–
–
–
768
725
Total
£000s
346,425
12
(2,813)
(3,051)
340,073
11,182
284
179
(232)
11,413
328,660
335,243
Total
£000s
283,350
60,350
(18)
–
2,743
346,425
4,727
1,926
4,318
211
11,182
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.
1,000
2,500
335,243
278,623
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
11. Goodwill and intangible assets continued
Brands and distribution rights
Key judgement – 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.
The Directors believe 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.
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.
Year ended 31 December 2019
Nizoral
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
Goodwill
£000s
Brands and
distribution rights
£000s
–
598
–
–
1,748
–
1,849
–
–
–
60,307
12,876
12,931
11,596
8,740
9,100
8,043
7,697
7,527
5,575
Total
£000s
60,307
13,474
12,931
11,596
10,488
9,100
9,892
7,697
7,527
5,575
1,147
26,882
28,029
–
–
–
–
–
–
11,190
16,532
41,456
25,198
25,000
17,800
17,400
14,000
–
41,456
25,198
25,000
17,800
17,400
14,000
11,190
312,128
328,660
Year ended 31 December 2018
Nizoral
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
Goodwill
£000s
Brands and
distribution rights
£000s
–
598
–
–
1,748
–
1,849
–
–
–
1,147
–
–
–
–
–
–
11,223
16,565
60,307
12,876
12,931
11,596
8,740
9,100
8,043
7,697
7,527
5,575
27,229
43,075
26,567
25,000
17,800
17,400
14,000
–
Total
£000s
60,307
13,474
12,931
11,596
10,488
9,100
9,892
7,697
7,527
5,575
28,376
43,075
26,567
25,000
17,800
17,400
14,000
11,223
315,463
332,028
Recent acquisitions
The following acquisition activities took place in the prior year:
On 21 June 2018, the Group acquired the exclusive marketing rights to Nizoral, a medical anti-dandruff shampoo, in Asia-Pacific from
Janssen Pharmaceutica NV (a member of the Johnson & Johnson group of companies) for a total consideration of £60m. Associated
legal and due diligence costs were £0.3m. The acquisition was funded by an underwritten equity placing of new Ordinary shares in
the capital of the Company to raise gross proceeds of £34m (net proceeds: £32.8m after deduction of £1.2m directly attributable
expenses), and by the draw-down of £28m from a £35m extension of the Group’s debt facilities.
In respect of Nizoral, the amounts included in the income statement since 21 June 2018 were revenues of £m and net profit of £3.6m.
Had the transaction occurred on 1 January 2018 estimated contribution to Group revenues would have been £10.7m and net profit of
£7.6m.
Impairment
As explained in note 2.8 all intangible assets are stated at the lower of cost less accumulated amortisation and impairment or the
recoverable amount.
Assets with indefinite useful economic lives and those that are not yet available for use 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 up to the next five years extrapolated to
perpetuity. Financial forecasts for 2020 are based on the approved annual budget. Financial forecasts for 2021-24 are based on the
approved long range plan. Margins are based on past experience and cost estimates.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
11. Goodwill and intangible assets continued
Goodwill continued
Key source of estimation uncertainty – value in use assumptions
The key assumptions on which cash flow projections are made are as follows (including our assessment of the estimation uncertainty
arising):
Discount rates
• Methodology: Cash flows are discounted at an appropriate rate, based on the Group’s post-tax Weighted Average Cost of Capital
(WACC) adjusted where appropriate for country specific risks, of between 7.7%–12.0%, or pre-tax 9.6%–15.0% (2018: between
7.9%–10.5%, or pre-tax 9.6%–12.8%).
• Estimation uncertainty: The assumptions included in the compilation of the CGU specific discount rates are designed to approximate
the discount rate that a potential market participant would adopt. Given the nature of the Group’s business model, the discount rate
necessarily includes estimation uncertainty.
Forecast cash-flows
• Methodology: Approved budgets and forecasts for up to five years, based on management’s best estimate of cash flows by
individual CGU. These forecasts are then uplifted to perpetuity using growth rates between -2.8% and 2.0% based on the Group’s
long-term projections. Higher growth rates have been applied to certain International Star brands in order to reflect the Group’s
view of the strong long-term growth prospects of these products, taking into account the growth since acquisition and intended
marketing investment.
• Estimation uncertainty: The growth rates assumed in the Group’s budgets and forecasts inherently include estimation uncertainty
relating to the achievement of commercial initiatives and external factors such as competition.
The Group has conducted sensitivity analysis on the impairment tests. The valuations indicate sufficient headroom, the Group does not
consider that any reasonably possible change in key assumptions could result in an impairment for all intangibles except Nu-seals as
detailed below.
Nu-seals
Nu-seals is a low dose aspirin sold mainly in Ireland. In recent years it has seen significant competition from generic alternatives. The
recoverable amount of this CGU is based on a value in use calculation with the following key assumptions:
Pre-tax discount rate
Terminal margin growth rate
%
10.0
(1.0)
The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was
determined based on management’s estimate of the long-term prospects for Nu-seals.
The estimated recoverable amount of the CGU exceeded its carrying amount of £9.1m by £0.2m. Management has identified that
a reasonably possible change in the two key assumptions could cause the carrying amount to exceed the recoverable amount. The
following table shows the individual assumptions required for the estimated recoverable amount to be equal to the carrying amount
whilst other assumptions are held constant.
Pre-tax discount rate
Terminal margin growth rate
%
10.3
(1.3)
The following table shows the potential impact of reasonably possible changes to individual assumptions on the estimated recoverable
amount of the CGU, whilst other assumptions are held constant.
1.0% increase in pre-tax discount rate
1.0% reduction in terminal margin growth rate
Decrease in CGU
recoverable
amount £000s
(810)
(610)
Recent significant impairments
Sales of anti-malarial products fell significantly in 2018 due to competition in the UK market. In mid-August 2018, Alliance was
notified by the manufacturer of these products of its intention to cease supply due to lower volumes. After due consideration, the Board
concluded that, due to the decline in demand, it was not economic to transfer the product to an alternative manufacturer and therefore
it was appropriate to write down the value of the £4.3m intangible asset associated with these products in full in 2018.
The Group had a £1.9m intangible asset within Brands and distribution rights representing the value of the agreement with Macuhealth
to guarantee supply of MacuShield API. In September 2018 the Group was notified by Macuhealth of their intention to end this supply
agreement. As a result of the notification the £1.9m intangible asset was written down in full, and related deferred consideration of
£1.1m released to the income statement. The net impact on underlying profit before tax was therefore a charge of £0.8m.
12. Property, plant and equipment
5,293
16,517
The Group
Cost
At 1 January 2019
Additions
Effect of movements in exchange rates
Disposals
At 31 December 2019
Depreciation
At 1 January 2019
Provided in the year
Effect of movements in exchange rates
Disposals
At 31 December 2019
Net book amount
At 31 December 2019
At 1 January 2019
The Group
Cost
At 1 January 2018
Additions
Disposals
At 31 December 2018
Depreciation
At 1 January 2018
Provided in the year
Disposals
At 31 December 2018
Net book amount
At 31 December 2018
At 1 January 2018
Computer
software and
equipment
£000s
Fixtures,
fittings &
equipment
£000s
Plant & machinery
£000s
Right of
use lease assets
£000s
5,327
3,461
(9)
(268)
8,511
1,074
367
(1)
(268)
1,172
7,339
4,253
2,036
684
(14)
(7)
2,699
836
375
(4)
(7)
1,200
1,499
1,200
14
–
–
–
14
–
4
–
–
4
10
14
3,964
1,329
–
–
1,837
750
–
–
2,587
2,706
2,127
Computer
software and
equipment
£000s
Fixtures,
fittings &
equipment
£000s
Plant & machinery
£000s
Right of
use lease assets
£000s
2,936
2,406
(15)
5,327
560
529
(15)
1,074
4,253
2,376
2,275
470
(709)
2,036
1,312
233
(709)
836
1,200
963
193
15
(194)
14
155
39
(194)
–
14
38
3,611
353
–
3,964
1,303
534
–
1,837
2,127
2,308
Total
£000s
11,341
5,474
(23)
(275)
3,747
1,496
(5)
(275)
4,963
11,554
7,594
Total
£000s
9,015
3,244
(918)
11,341
3,330
1,335
(918)
3,747
7,594
5,685
108
Alliance Pharma plc – Annual Report and Accounts 2019
109
Property, plant and equipment of £9.7m is located within the United Kingdom (2018: £6.6m) The balance is located in France, Italy,
China, Singapore, Spain, Germany and the United States of America.
GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
13. Investments
The Company
Cost
At 1 January 2019
Additions
At 31 December 2019
At 1 January 2018
Additions
At 31 December 2018
Investment
in subsidiary
undertakings
£000s
184,211
10,419
194,630
145,469
38,742
184,211
Territory
USA
France
China
£32.8m of the 2018 additions related to funds from the equity placing of new Ordinary shares in the capital of the Company. These
were distributed to Alliance Pharmaceuticals Limited for use in the acquisition of Nizoral (note 11). The investment balance includes
outstanding intercompany debt due from subsidiaries (note 29). The Directors do not consider that this amount will be demanded by the
Company and therefore it has been classified as an investment.
The subsidiary and associated undertakings where the Group held 20% or more of the equity share capital at 31 December 2019 are
shown below:
Company
Advanced Bio-Technologies Inc.
Alliance Pharma France SAS
Alliance Pharma (Singapore) Private Limited*
Alliance Pharma S.r.l.
Alliance Pharmaceuticals Limited*
Alliance Pharmaceuticals (Asia) Limited*
Alliance Pharmaceuticals (Shanghai) Limited
Alliance Pharmaceuticals Spain SL*
Alliance Pharma Inc.
Alliance Pharmaceuticals (Thailand) Co., Ltd
Synthasia International Company Limited
Synthasia Shanghai Co. Limited
Maelor Laboratories Limited
Alliance Pharmaceuticals GmbH*
Alliance Pharmaceuticals GmbH* – Swiss Branch
Alliance Pharmaceuticals SAS*
Opus Healthcare Limited
Alliance Pharma (Ireland) Limited
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
*
Investments held directly by Alliance Pharma plc
Country of
registration
or incorporation
USA
France
Singapore
Italy
%
owned Nature of business
100 Pharmaceutical sales
100 Pharmaceutical sales
100 Pharmaceutical sales
100 Pharmaceutical sales
England & Wales
100 Pharmaceutical sales
Hong Kong
China
Spain
USA
Thailand
Hong Kong
China
England & Wales
Germany
Switzerland
France
Republic of Ireland
Republic of Ireland
England & Wales
England & Wales
England & Wales
England & Wales
Northern Ireland
England & Wales
England & Wales
England & Wales
England & Wales
100 Pharmaceutical sales
100 Pharmaceutical sales
100 Pharmaceutical sales
100 Pharmaceutical sales
100 Pharmaceutical sales
20 Pharmaceutical sales
20 Pharmaceutical sales
100 Non-trading
100 Non-trading
100 Non-trading
100 Non-trading
100 Non-trading
100 Non-trading
100 Dormant
100 Dormant
100 Dormant
100 Dormant
100 Dormant
100 Dormant
100 Dormant
100 Dormant
100 Dormant
The registered address in each country is as follows:
Company
Registered Office Address
Advanced Bio-Technologies Inc.
Alliance Pharma Inc.
100 N. Tampa Street, Suite 2700, Tampa, FL 33602,
United States
Corporation Trust Company, 1209 Orange Street,
Wilmington, DE 19801-1120
Alliance Pharmaceuticals SAS
69, avenue Franklin D. Roosevelt, 75008 Paris, France
Alliance Pharma France SAS
69, avenue Franklin D. Roosevelt, 75008 Paris, France
Alliance Pharmaceuticals (Shanghai) Limited
Synthasia Shanghai Company Limited
Germany
Alliance Pharmaceuticals GmbH
Hong Kong
Alliance Pharmaceuticals (Asia) Limited
Room 103, 1st Floor, 56 Meisheng Road, Shanghai Free-
Trade-Zone, P.R.C
Suite 806, Silva Bay Tower, Tower C, 469 Wusong Road,
Hongkou District, Shanghai 200080, P.R. China
Hanseatic Trade Center, Am Sandtorkai 41, D-20457
Hamburg, Germany
Room 2105, 21/ F Office Tower, Langham Place, 8 Argyle
Street, Mongkok, Kowloon
Synthasia International Company Limited
Unit 2402, 24/F, Bonham Trade Centre, 50 Bonham Strand,
Sheung Wan, Hong Kong
Italy
Alliance Pharma S.r.l.
Via Brera 6, 20121 Milan, Italy
Republic of Ireland
Alliance Pharma (Ireland) Limited
6th Floor, South Bank House, Barrow Street, Dublin 4
Singapore
Spain
Opus Healthcare Limited
6th Floor, South Bank House, Barrow Street, Dublin 4
Alliance Pharma (Singapore) Private Limited
6 Battery Road, #10-01, Singapore (049909)
Alliance Pharmaceuticals Spain SL
Paseo de la Castllana 259 C – 18th Floor, Regus Business
Center, Torre de Cristal, Madrid, ZIP Code 28046, Spain
Switzerland (Branch)
Alliance Pharmaceuticals GmbH Düsseldorf
Bahnhofstrasse 37, Postfach 2818, CH-8021 Zürich
Thailand
Alliance Pharmaceuticals (Thailand) Co., Ltd
England & Wales
All Companies
The Ninth Tower 35th floor, 33/4, Tower A Rama 9 Road,
Huaykwang Subdistrict, Huaykwang district, Bangkok,
Thailand 10310
Avonbridge House, Bath Road, Chippenham, Wiltshire,
SN15 2BB
Northern Ireland
Caraderm Limited
6 Trevor Hill, Newry, County Down, BT34 1DN
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.
Maelor Laboratories Limited is exempt from the Companies Act 2006 requirement relating to the audit of its individual accounts by
virtue of Section 479A of the Act as this company has guaranteed the subsidiary company under Section 479C of the Act.
14. Inventories
The Group
Finished goods and materials
Inventory provision
31 December 2019
£000s
31 December 2018
£000s
19,089
(3,571)
15,518
20,544
(1,838)
18,706
Inventory costs expensed through the income statement during the year were £47,926,000 (2018: £44,349,000). During the year
£2,673,000 (2018: £1,983,000) was recognised as an expense relating to the write-down of inventories to net realisable value,
including £1,152,000 related to the return of Xonvea licensing rights and included within non-underlying items (note 31).
110
Alliance Pharma plc – Annual Report and Accounts 2019
111
GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
15. Trade and other receivables
17. Trade and other payables
Trade receivables
Other receivables
Prepayments
Accrued income
The Group
The Company
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
23,987
2,522
703
3,780
30,992
23,407
1,083
1,216
3,442
29,148
–
9
15
–
24
–
20
9
–
29
The ageing of trade receivables of the Group at 31 December is detailed below:
Trade and receivables, net estimated allowances for expected credit losses
Not past due
1–30 days past due
31–60 days past due
61–90 days past due
Past 91 days
Trade and receivables, gross of estimated allowances for expected credit losses
Not past due
1–30 days past due
31–60 days past due
61–90 days past due
Past 91 days
31 December 2019
£000s
31 December 2018
£000s
19,640
3,253
278
320
496
20,482
1,794
391
145
595
23,987
23,407
31 December 2019
£000s
31 December 2018
£000s
19,640
3,253
278
320
1,495
24,986
20,482
1,794
391
145
1,463
24,275
As at 31 December 2019, trade and other receivables of £999,000 (2018: £868,000) 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.
16. Cash and cash equivalents
Sterling
Euros
US Dollars
Other currencies
Cash at bank and in hand
The Group
The Company
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
6,275
6,563
2,071
2,921
17,830
3,345
4,769
1,856
923
10,893
97
–
–
–
97
83
–
–
–
83
Trade payables
Other taxes and social security costs
Accruals
Other payables
Contingent consideration
Lease liabilities
The Group
The Company
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
6,970
3,247
10,114
459
–
1,025
21,815
8,978
1,808
10,301
197
500
447
–
–
225
–
–
–
22,231
225
29
–
192
–
–
–
221
Contingent consideration of £0.5m related to the Licence and Supply Agreement for the product Xonvea with Duchesnay Inc.
Following return of the UK and EU licensing rights to Xonvea (note 5), this has been waived. The waiver resulted in the release of the
contingent consideration (note 17) and the disposal of the corresponding £0.5m asset under development (note 11). Both the release
and disposal have been included within the loss on disposal, resulting in no net impact on the income statement.
18. Loans and borrowings
On 2 July 2019, the Group agreed a new £165m fully Revolving Credit Facility (‘RCF’), together with a £50m accordion facility, with
an enlarged syndicate of lenders on improved terms, replacing the previous facility which ran through to December 2020. This has
been classified as a non-current liability (note 2.17). The bank facility is secured by a fixed and floating charge over the Company’s
and Group’s assets registered with Companies House.
Current
Bank loans due within one year or on demand:
Secured
Finance issue costs
Non-current
Bank loans:
Secured
Finance issue costs
Movement in loans and borrowings
At 1 January
Net (payments)/receipts from borrowing
Additional prepaid arrangement fees
Amortisation of prepaid arrangement fees
Exchange movements*
At 31 December
The Group
The Company
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
–
–
–
68,500
(465)
68,035
–
–
–
–
–
–
The Group
The Company
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
78,848
(1,808)
77,040
29,100
(433)
28,667
–
–
–
–
–
–
31 December 2019
£000s
31 December 2018
£000s
96,702
(17,479)
(1,401)
491
(1,273)
77,040
83,499
12,187
(362)
384
994
96,702
* Exchange movements on loans and borrowings are reported in other comprehensive income and accumulated in the translation reserve
112
Alliance Pharma plc – Annual Report and Accounts 2019
113
GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
19. Other non-current liabilities
Lease liabilities
Other non-current liabilities
The Group
The Company
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
1,997
404
2,401
1,972
380
2,352
–
–
–
–
–
–
20. Financial instruments
The Group uses financial instruments comprising borrowings, derivatives, 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 is responsible for risk management policies on managing each of
these which are summarised below
Liquidity Risk
The Group’s operations are financed by retained earnings and bank borrowings, with additional equity being raised on a periodic
basis to finance larger acquisitions. Borrowings are denominated in Sterling, Euro and US Dollars. The purpose of Euro and US Dollar
borrowings are to manage the currency exposure arising from the Group’s operations.
On 2 July 2019, the Group agreed a new £165m fully Revolving Credit Facility (‘RCF’), together with a £50m accordion facility, with
an enlarged syndicate of lenders on improved terms, replacing the previous facility which ran through to December 2020. This new
facility is available until July 2023, with a one-year extension option, and provides flexibility for the Group to deliver carefully targeted
acquisitions over the next few years to complement its organic growth strategy.
The RCF is drawn in short to medium-term tranches of debt which are repayable within 12 months of draw-down. These tranches of
debt can be rolled over provided certain conditions are met, including covenant compliance. The Group considers that it is highly
unlikely it would be unable to exercise its right to roll-over the debt. This due to mitigating actions it could take to maintain compliance
with these conditions, including future covenant requirements, even in downside scenarios. The Directors therefore believe that the
Group has the ability and the intent to roll-over the drawn RCF amounts when due and consequently has presented the RCF as a non-
current liability.
The Group also has access to an overdraft facility of £4.5m.
The maturity profile of the Group’s financial gross liabilities (capital and interest) at the year-end is as follows:
Trade and other payables
Bank loans*
Interest rate swaps
Lease liabilities
In one year or less
£000s
In more than one
year, but not more
than two
£000s
31 December 2019
In more than two
years, but not more
than five
£000s
In more than
five years
£000s
20,790
79,852
47
1,025
101,714
–
–
–
717
717
–
–
–
1,339
1,339
–
–
–
164
164
Total
£000s
20,790
79,852
47
3,245
103,934
*
Includes an amount of £78.8m in respect of gross contractual cash flows payable under the RCF these are shown as due within one year or less to reflect the contractual maturity of the tranches drawn
down at 31 December 2019. As explained above, the RCF is classified as a non-current liability as the directors have assessed that the Group has the ability and the intent to roll-over the drawn RCF
amounts when due
Trade and other payables
Bank loans
Interest rate swaps
Lease liabilities
31 December 2018
In one year or less
£000s
In more than one
year, but not more
than two
£000s
In more than two
years, but not more
than five
£000s
In more than
five years
£000s
21,784
71,382
5
447
–
31,526
–
307
93,618
31,833
–
–
–
987
987
–
–
–
678
678
Total
£000s
21,784
102,908
5
2,419
127,116
The maturity profile of the Company’s financial gross liabilities (capital and interest) at the year end is as follows:
Trade and other payables
31 December 2019
In one year or less
£000s
31 December 2018
In one year or less
£000s
225
221
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 £8m (2018: £13m) to convert the floating interest rate charge to a
fixed rate interest charge maturing in November 2020.
The Group also has a EUR 12m (2018: EUR 12m) 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 2019
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 2018
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
–
–
–
8,000
10,169
18,169
–
18,169
Fixed
£000s
–
–
–
13,000
10,810
23,810
–
23,810
54,792
13,559
10,497
(8,000)
(10,169)
60,679
(1,808)
58,871
Floating
£000s
66,187
16,216
15,197
(13,000)
(10,810)
73,790
(898)
72,892
54,792
13,559
10,497
–
–
78,848
(1,808)
77,040
Total
£000s
66,187
16,216
15,197
–
–
97,600
(898)
96,702
114
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115
GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
20. Financial instruments continued
Interest rate risk continued
At 31 December 2019
Sterling
Euros
At 31 December 2018
Sterling
Euros
Fixed rate financial liabilities
Weighted average
fixed rate %
Weighted average
period for which
rate is fixed
3.20
2.16
3.20
2.16
0.91 years
0.91 years
1.91 years
1.91 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 £0.4m in 2019. A 0.5% decrease would have the opposite
effect. A 0.5% increase or decrease in EURIBOR would have no material impact on pre-tax profits due to the majority of the Euro
denominated debt being hedged to fixed rates. A 0.5% increase in US LIBOR would reduce pre-tax profits by approximately £0.1m in
2019. A 0.5% decrease would have the opposite effect.
Currency risk
Approximately 48% of the Group’s sales are invoiced in Euros. The Group has a level of Euro expense that naturally offsets a high
portion of the Euro sales. Approximately 16% 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 the majority of other Group expenses, are denominated
in Sterling.
A 5% weakening or strengthening of Sterling against the Euro would have resulted in £1m gain or loss to EBITDA (note 33) in 2019. A
5% weakening or strengthening of Sterling against the US Dollar would have resulted in a £0.6m gain or loss to EBITDA in 2019.
The Group is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales,
purchases, receivables and borrowings are denominated and the respective functional currencies of Group companies. The functional
currencies of Group companies are primarily Sterling, Euro and US Dollars.
The Group’s risk management policy is to hedge up to 75% of its estimated net foreign currency exposure in respect of forecast sales
and purchases for up to the next 18 months at any point in time. The Group uses forward foreign exchange contracts to hedge its
currency risk. These contracts are generally designated as cash flow hedges.
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
The Group has adopted IFRS 13 for financial instruments that are measured in the Group balance sheet at fair value. This requires
disclosure of fair value measurements by level of the following fair value measurement hierarchy:
• quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
• inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices) (Level 2); and
• inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The Group’s financial instruments held at fair value (or for which fair value is disclosed) in the scope of IFRS 13 are as follows:
Interest rate swaps
Forward foreign exchange contracts
Contingent consideration
31 December 2019
Carrying value
£000s
31 December 2018
Carrying value
£000s
Level
2
2
3
(47)
697
–
650
(5)
–
(500)
(505)
For the other financial assets and liabilities, 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
and Risk Committee and the finance team at least every half year, in line with the Group’s reporting dates.
Forward foreign exchange contracts (Level 2)
The Group’s currency rate swaps are not traded in active markets. These have been fair valued using observable currency rates. The
effects of non-observable inputs are not significant for currency rate swaps.
Counterparty banks perform valuations of currency rate swaps for financial reporting purposes, determined by discounting the future
cash flows at rates determined by year end spot and forward rate. The valuation processes and fair value changes are discussed by the
Audit and Risk Committee and the finance team at least every half year, in line with the Group’s reporting dates.
116
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
20. Financial instruments continued
Forward foreign exchange contracts (Level 2) continued
Level 3 fair value measurements:
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:
The following table details the foreign currency forward contracts outstanding at the end of the reporting period. Forward foreign
exchange contract assets and liabilities are presented in ‘Derivative financial instruments’ (either as asset or as liabilities) within the
statement of financial position:
Average forward rate
Notional value: Foreign currency
Carrying amount of the hedging
instruments assets/(liabilities)
Sell Dollars
Less than 3 months
3 to 6 months
6 to 12 months
Sell Euros
Less than 3 months
3 to 6 months
6 to 12 months
2019
rate
1.282
1.283
1.272
1.278
1.153
1.144
1.131
1.143
2018
rate
2019
2018
$000s
€000s
$000s
€000s
2019
£000s
2018
£000s
–
–
–
–
–
–
–
–
2,025
2,225
5,125
9,375
–
–
–
–
9,375
–
–
–
–
3,350
2,800
4,550
10,700
10,700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
68
80
232
380
42
102
173
317
697
–
–
–
–
–
–
–
–
–
Contingent consideration (Level 3)
During the year £0.5m contingent consideration related to Xonvea was cancelled following the return of the UK and EU licensing rights
(note 17).
During the prior year £2m contingent consideration related to acquisition of the Vamousse brands was released.
Balance at 1 January
Cash paid in the year
Amounts recognised in profit or loss under finance costs:
Change in fair value of contingent consideration
Unwinding of discount
Foreign exchange movements
Xonvea contingent consideration waived
Balance at 31 December
Classification of financial assets and liabilities
Group
Classification of the Group’s financial assets and liabilities is set out below:
Financial assets
Financial assets at amortised cost
Trade receivables
Cash and cash equivalents
Derivative financial instruments
Used for hedging
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Loans and borrowings
Other liabilities
Lease liabilities
Derivative financial instruments
Used for hedging
Fair Value
Contingent consideration
31 December 2019
Liabilities
£000s
31 December 2018
Liabilities
£000s
500
–
–
–
–
(500)
–
2,854
(500)
(1,966)
40
72
–
500
31 December 2019
£000s
31 December 2018
£000s
23,987
17,830
697
42,514
23,407
10,893
–
34,300
31 December 2019
£000s
31 December 2018
£000s
20,790
77,040
404
3,022
47
–
101,303
21,284
96,702
380
2,419
5
500
121,290
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
20. Financial instruments continued
Company
Classification of the Company’s financial instruments is set out below:
Financial assets
Financial assets at amortised cost
Trade and other receivables
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Reconciliation to cashflow movements
Cashflows
Non-cash changes
2018
£000s
Principal
£000s
Interest
£000s
Foreign
exchange*
£000s
Net
additions
£000s
Amortisation
£000s
Interest
£000s
Gross Loans and borrowings
97,600
(17,479)
Prepaid arrangement fees
(898)
(1,401)
–
–
Accrued interest
Lease liabilities
85
2,419
–
(2,410)
(726)
(95)
(1,273)
–
–
–
–
–
–
1,329
–
491
–
–
* Exchange movements on loans and borrowings are reported in other comprehensive income and accumulated in the translation reserve
Derivative financial instruments
2019
£000s
78,848
(1,808)
–
–
3,191
866
95
3,022
Current portion
Non-current portion
Interest rate swap – cash flow hedge
Current portion
Forward exchange swap – cash flow hedge
31 December 2019
(Assets)/Liabilities
£000s
31 December 2018
(Assets)/Liabilities
£000s
47
–
47
(697)
(697)
–
5
5
–
–
The cash flow hedges were tested for effectiveness both retrospectively and prospectively as at 31 December 2019. 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 three month Sterling LIBOR. The amount recognised
through the income statement in respect of interest rate swaps during the year was a charge of £103,000 (2018: £123,000). The
amount recognised through the income statement in respect of the outstanding forward foreign exchange contracts during the year was
£109,000 (2018: £nil).
21. 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.
31 December 2019
£000s
31 December 2018
£000s
22. Deferred tax
The Group
Accelerated capital allowances on tangible assets
Temporary differences: trading
Temporary differences: non-trading
24
29
Accelerated allowances on intangible assets
Initial recognition of intangible assets from business combination
31 December 2019
£000s
31 December 2018
£000s
225
221
31 December 2019
£000s
31 December 2018
£000s
(468)
234
662
(10,081)
(19,161)
806
8
(100)
–
(172)
108
716
(8,735)
(19,756)
735
1
–
285
(28,100)
(26,818)
1,710
(29,810)
1,845
(28,663)
Recognised
in other
comprehensive
income
£000s
Recognised
directly in equity
£000s
Recognised
in the income
statement
£000s
31 December 2019
£000s
1 January 2019
£000s
(28,491)
(172)
1
715
735
108
286
–
–
(93)
(53)
–
–
–
(26,818)
(146)
1,845
(28,663)
606
–
–
–
179
–
–
785
(1,357)
(296)
(29,242)
(468)
–
–
(108)
126
(286)
(1,921)
(92)
662
806
234
–
(28,100)
1,710
(29,810)
Share based payments
Interest rate hedge
Foreign exchange forward contracts
Losses
Recognised as:
Deferred tax asset
Deferred tax liability
Reconciliation of deferred tax movements:
The Group
Non-current assets
Intangible assets
Property, plant and equipment
Non-current liabilities
Derivative financial Instruments
Other non-current liabilities
Equity
Share option reserve
Temporary differences
Trading
Losses
Recognised as:
Deferred tax asset
Deferred tax liability
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information Recognised
in other
comprehensive
income
£000s
1 January 2018
£000s
Recognised
directly in equity
£000s
Recognised
in the income
statement
£000s
31 December
2018
£000s
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
22. Deferred tax continued
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)
114
–
–
–
91
(598)
–
–
–
(119)
–
–
(717)
(26,842)
(78)
24
601
864
202
483
(24,746)
2,174
(26,920)
The Group has no unrecognised deferred tax assets (2018: £nil).
23. Share capital
At 1 January 2018 – Ordinary shares of 1p each
Issued during the year
At 31 December 2018 – Ordinary shares of 1p each
Issued during the year
At 31 December 2019 – Ordinary shares of 1p each
(1,051)
(94)
(28,491)
(172)
–
–
(10)
(94)
(197)
(1,446)
1
716
735
108
285
(26,818)
1,845
(28,663)
Allotted, called up and fully paid
No. of shares
474,989,988
43,224,238
518,214,226
11,188,393
529,402,619
£000s
4,750
432
5,182
112
5,294
Between 1 January 2019 and 31 December 2019 11,188,393 shares were issued on the exercise of employee share options
(2018: 5,861,601).
On 21 June 2018 37,362,637 shares were issued at 91.0p in the underwritten equity placing used for the acquisition of Nizoral.
This raised gross proceeds of £34m before expenses. The net addition to equity was £32.8m after the deduction of £1.2m directly
attributable expenses.
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.
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 29.25p to 81.60p (2018:7.75p to 81.60p). 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
2009
2010
2011
2012
2013
2013
2014
2015
2016
2016
2017
2018
2019
2019
Exercise price
pence
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
47.50
53.00
81.60
76.90
0.00
Exercise from
Scheme
31 December 2019
Number (000s)
31 December 2018
Number (000s)
2012
2013
2014
2015
2016
2018
2017
2018
2019
2021
2020
2021
2022
2022
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
CSOP
LTIP
–
79
401
126
1,211
450
581
2,066
5,114
3,500
6,260
6,769
7,331
596
44
1,531
1,745
871
1,695
1,683
907
3,936
8,638
4,400
7,329
7,935
–
–
34,484
40,714
The provision of shares to satisfy certain of the Group’s share option schemes can be facilitated by purchases of own shares by the
Group’s Employee Benefit Trust. The costs of operating the Trust is borne by the Group but is not material. To date, no shares have been
purchased by the Trust for satisfaction of outstanding or future share option awards.
Managing Capital
Our objective in managing the business’s 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 2019, net debt was £59.2m
(2018: £85.8m) (note 33), whilst shareholders’ equity was £274.2m (2018: £252.2m).
The business is profitable and cash generative. The main financial covenant applying to bank debt are that leverage (the ratio of net
bank debt to EBITDA) should not exceed 3.0 times. The Group complied with this covenant in 2019 and 2018.
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.
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for the year ended 31 December 2019
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. The contractual life of an option is ten 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. Options are valued by a third-party provider using the Black-Scholes option-
pricing model.
Certain options are subject to EPS or Total Shareholder Return (TSR) accretion performance criteria, those outstanding are as follows
Year of grant
Exercise price
pence
Exercise from
31 December 2019
Number (000s)
31 December 2018
Number (000s)
2013
2014
2015
2016
2016
2017
2018
2019
2019
35.75
33.75
43.75
47.50
47.50
53.00
81.60
76.90
0.00
2018
2017
2018
2019
2021
2020
2021
2022
2022
450
204
317
875
3,500
1,358
2,411
1,127
596
1,683
514
581
2,557
4,400
1,804
2,775
–
–
10,838
14,314
The total expense for the year relating to share-based payment plans was £1.8m (2018: £1.8m), of which £1m (2018: £1.2m) related
to equity-settled transactions and £0.8m (2018: £0.6m) related to cash-settled transactions.
It is assumed that on average options will be exercised after five 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 cash-settled transaction expense includes provision for social security charges based on the applicable social tax rate applied to
the number of share awards which are expected to vest, valued with reference to the year-end share price.
The estimated total equity-settled fair value of the share options granted on 5 December 2019 was £1,237,000. The model inputs were
a market price of 76.9p, expected volatility of 30.37% and a risk-free rate of 0.58%.
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
2019
2018
Number
(000s)
40,714
7,928
(11,188)
(2,970)
34,484
10,030
Weighted
average price
Pence
52.10
76.90
40.30
62.89
59.40
43.32
Number
(000s)
39,898
8,009
(5,862)
(1,331)
40,714
12,345
Weighted
average price
Pence
43.50
81.60
35.27
49.40
52.10
37.75
Share options were exercised throughout the financial year. Share options were exercised at prices of between 7.75 and 53.0 pence
per share.
25. Cash generated from operations
Profit for the year
Taxation
Interest payable and similar charges
Change in contingent consideration
Change in deferred consideration
Interest income
Foreign exchange loss/(gain)
Profit on disposal of Unigreg Joint Venture
Return of Xonvea licensing Rights
Disposal of Flammacerium
Depreciation of property, plant and equipment
Amortisation and impairment of intangibles
Impairment of Synthasia Joint Venture assets
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/(used in) operations
Group
Company
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
25,010
6,066
3,777
–
–
(23)
799
–
1,672
145
1,496
463
–
2,036
–
(498)
(3,801)
1,816
–
38,958
18,356
4,447
3,457
(1,966)
(1,048)
(52)
(575)
(1,508)
–
–
1,335
6,455
2,460
(4,458)
(13)
(7,628)
5,059
1,790
–
26,111
12,161
877
–
–
–
(6,225)
–
–
–
–
–
–
–
–
–
5
5
–
(7,596)
(773)
9,045
802
–
–
–
(5,066)
(2)
–
–
–
–
–
–
–
–
(8)
(38)
–
(5,600)
(867)
26. Capital commitments
The Group had capital commitments at 31 December 2019 totalling £3,900,000 (2018: £3,560,000).
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.
On 23 May 2019 the UK’s Competition and Markets Authority (‘CMA’) issued a Statement of Objection alleging anti-competitive
agreements against the Group and certain other pharmaceutical companies in relation to the sale of prescription prochlorperazine.
Prochlorperazine is one of the Group’s smaller products and had peak sales in 2015 of £1.9m and sales of less than £0.1m in 2019.
The Group confirms that it has had no involvement in the pricing or distribution of prochlorperazine since 2013, when it was out-
licensed by the Group. Prior to 2013, prochlorperazine was marketed directly by the Group.
The Group has reviewed the CMA Statement of Objection in detail and is working with the CMA to resolve its alleged objections.
The Group’s assessment as at the date of this report, based on currently available information, is that there are no matters for which a
provision is required (31 December 2018: £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.
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for the year ended 31 December 2019
28. Pensions
The Group operates a defined contribution pension scheme for the benefit of certain Directors and employees.
The Group
Contributions payable by the Group for the year
31 December 2019
£000s
31 December 2018
£000s
812
730
29. Related party transactions
During the year, the Group entered into the following transactions with related parties:
(i)
Interest receivable from Unigreg was £nil (2018: £13,000).
(ii) Interest receivable from Synthasia International Company Limited was £nil (2018: £16,000).
(iii) Payments on behalf of Synthasia International Company Limited of £nil (2018: £5,000).
During the year, the Company entered into the following transactions with related parties:
The Company
Transaction values for
the year ended
Amount due from
related parties
31 December 2019
£000s
31 December 2018
£000s
31 December 2019
£000s
31 December 2018
£000s
Alliance Pharmaceuticals Limited – Net funds received
Alliance Pharmaceuticals Limited – Interest received
Alliance Pharmaceuticals Limited – Investments during the year
Alliance Pharmaceuticals Limited – Share based payment
recharge
Alliance Pharmaceuticals Limited – Dividend declared and
received
Alliance Pharmaceuticals SAS
974
6,225
(4,167)
1,070
5,066
(33,619)
(1,025)
(1,169)
7,596
–
5,600
–
170,056
159,568
–
–
–
–
–
–
–
–
–
97
30. Joint Ventures
Name
Principal Activity
Country of
Incorporation
Unigreg Limited
*disposed of in the prior year (note 31)
Distribution of pharmaceutical products to China
British Virgin Islands
Synthasia International Company Limited
Distribution of infant milk formula products in China Hong Kong
% Owned
0
20
In 2018 the Group disposed of its interest in Unigreg Limited (note 31). Previously the Group owned 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 did not have control over the financial and operating policies of Unigreg Ltd, despite the Group’s 60%
ownership interests. Consequently the Company was 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 has determined that, as a result of these rights and
by exercise of judgement, Synthasia is accounted for as a Joint Venture. In accordance with IFRS 11 Joint Arrangements, 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.
In May 2018 the Group was notified that the import licence partner was not going to receive the required approval to import
Suprememil, the infant milk formula brand owned by Synthasia. Following subsequent discussions with the import licence partner and
Synthasia management, the Board concluded that the joint venture investment of £0.3m, and associated loan balances of £2.2m, was
to be written down in full.
Following the impairment further losses from the Synthasia Joint Venture have not been recognised. This is due to the Group having no
obligation to fund such losses.
The carrying value of Joint Ventures is as follows:
Synthasia International Company Limited
Trade and other receivables
Synthasia International Company Limited
31 December 2019
£000s
31 December 2018
£000s
–
–
31 December 2019
£000s
31 December 2018
£000s
–
–
The receivables from Synthasia International Company Limited are stated after a provision of £2.2m (2018 £2.2m).
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for the year ended 31 December 2019
31. Disposals
Return of Xonvea Licensing Rights
In November 2019, the Group reached an agreement with Duchesnay Inc. of Canada (‘Duchesnay’) to return the UK and EU licensing
rights to Xonvea, a prescription medicine for the treatment of nausea and vomiting of pregnancy where conservative management has
failed. Under the terms of the agreement, £2m in milestone payments made to date will be paid to the Group, £0.25m having been
paid in 2019 with the balance due in 2020. Additionally, the remaining £0.5m due on initial acquisition of Xonvea previously held as
contingent consideration has been waived as part of the agreement. This has resulted in the release of the contingent consideration
(note 17) and the disposal of the corresponding £0.5m asset under development (note 11). Both the release and disposal have been
included within the loss on disposal, resulting in no net impact on the income statement.
The Group incurred non-underlying inventory provisions and associated restructuring costs in connection with the return of the Xonvea
rights of £1.9m. The total non-underlying loss on disposal was £1.7m as follows:
Return of Xonvea Licensing Rights
Milestone repayments
Net book amount – intangible asset brand (note 11)
Net book amount – intangible asset under development (note 11)
Release of contingent consideration (Note 17)
Inventory provisions
Associated restructuring costs
Non-underlying loss
£000s
2,000
(1,268)
(1,000)
500
(1,152)
(752)
(1,672)
Xonvea was not considered to represent a separate major line of business at the date of disposal. Therefore it has not been
disaggregated as a specific discontinued operation.
Disposal of Flammacerium
In December 2019, the Group sold the global rights to the brand Flammacerium for gross cash consideration of £0.75m payable
over six years, £0.10m having been paid in 2019. Flammacerium is used for the prevention and treatment of infections in severe burn
wounds. The total non-underlying loss on disposal was £0.1m as follows:
Disposal of Flammacerium
Gross cash consideration
Impact of discounting on cash consideration
Net book amount – intangible asset development costs (note 11)
Net book amount – goodwill (note 11)
Associated transaction costs
Non-underlying loss
£000s
750
(57)
(780)
(33)
(25)
(145)
Disposal of Unigreg Joint Venture
On 18 April 2018 the Group sold its 60% interest in Unigreg Limited to its joint venture partner, Pacific Glory Development Limited, for
a consideration of £2.9 million.
The consideration of £2.9 million for the Unigreg shareholding was settled with an initial payment of £2.4 million cash at completion
and a deferred payment of £0.5 million settled in 2019. In addition, all outstanding shareholder loans made by the Group to Unigreg,
totalling £1.5 million, were repaid in full prior to completion.
As at 18 April 2018 the Alliance Pharma Group’s investment in Unigreg was £1.2 million, representing the initial investment of £0.5
million, together with unremitted profits of £0.7 million. The Group profit on disposal was £1.5 million (net of fees). The profit on
disposal is disclosed as a non-underlying item (note 5).
32. Ultimate controlling party
The Company’s shares are listed on the Alternative Investment Market (‘AIM’) and are held widely. There is no single ultimate
controlling party.
33. 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 non-underlying items. Adjusted profitability measures are presented excluding 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
Underlying
EBIT and EBITDA
Earnings before interest, tax and non-underlying items (EBIT), then depreciation,
amortisation and underlying impairment (EBITDA).
Reconciliation to GAAP
measure
Note A below
Free cash flow
Net debt
Adjusted underlying
effective tax rate
See-through
income statement
Calculated by taking profit before tax and financing costs, excluding non-underlying
items and adding back depreciation and amortisation.
EBITDA margin is calculated using see-though revenue.
Free cash flow is defined as cash generated from operations less cash payments made
for interest payable and similar charges, capital expenditure and tax.
Note B below
Net debt is defined as the group’s gross bank debt position net of finance issue costs and
cash.
Note C below
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 D below
Under the terms of the transitional services agreement with J&J, Alliance receives the
benefit of the net profit on sales of Nizoral from the date of acquisition up until the
product licences in the Asia-Pacific territories transfer from J&J to Alliance. The net
product margin is recognised as part of statutory revenue.
Note E below
The see-through income statement recognises the underlying sales and cost of sales
which give rise to the net product margin, as management consider this to be a more
meaningful representation of the underlying performance of the business, and to reflect
the way in which it is managed.
Constant currency
basis revenue
Revenue stated so that the portion denominated in non-sterling currencies is retranslated
using foreign exchange rates from the previous financial year.
Note F below
Like-for-like
Revenue
Revenue stated excluding the impact of acquisitions in both the current and prior years.
This therefore excludes revenue from Nizoral to ensure comparability.
Note 3 includes
revenue by brand
A. Underlying EBIT and EBITDA
Reconciliation of Underlying EBIT and EBITDA
Profit before tax
Non-underlying items (note 5)
Finance costs (note 6)
Underlying EBIT
Depreciation (note 12)
Underlying impairment (note 11)
Amortisation (note 11)
Underlying EBITDA
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
31,076
1,817
4,553
37,446
1,496
284
179
39,405
22,803
5,270
864
28,937
1,335
1,926
211
32,409
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GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information F. Constant currency revenue
See-through revenue (Note E)
Vamousse product revenue
See-through revenue (Note E)
Vamousse product revenue
2019
£000s
144,278
6,538
2018
£000s
124,042
5,756
Foreign
exchange
impact
£000s
(767)
(237)
Foreign
exchange
impact
£000s
516
138
2019
constant
currency
revenue
£000s
143,511
6,301
2018
constant
currency
revenue
£000s
124,558
5,894
34. Post balance sheet events
Impact of COVID-19 coronavirus
As highlighted and discussed in the Chief Executive’s Review, the Group notes the developing situation regarding the outbreak of the,
COVID-19 coronavirus. The Group is actively assessing and monitoring this pandemic and will continue to keep the impact on the
business, and the opportunities for us minimise the economic impact on our business, under review. At the date of this report we are not
yet able quantify the potential financial impact, however a range of reasonably possible scenarios have been modelled for the purpose
of covenant compliance. Under these scenarios we are forecast to maintain compliance with future covenant requirements.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
33. Alternative performance measures continued
B. Free cash flow
Reconciliation of free cash flow
Cash generated from operations (note 25)
Interest payable and similar charges
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 effective tax rate
Reconciliation of adjusted underlying effective tax rate
Total taxation charge for the year
Non-underlying tax credit
Adjusted underlying taxation charge for the year
Underlying profit before tax for the year
Adjusted underlying effective tax rate
E. See-through income statement
Revenue
Cost of sales
Gross profit
Gross profit margin
Revenue
Cost of sales
Gross profit
Gross profit margin
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
38,958
(2,505)
(4,145)
(3,200)
29,108
26,111
(3,197)
(2,891)
(3,941)
16,082
31 December 2019
£000s
31 December 2018
£000s
Note
18
18
16
–
(77,040)
17,830
(59,210)
(68,035)
(28,667)
10,893
(85,809)
Year ended
31 December 2019
£000s
Year ended
31 December 2018
£000s
(6,066)
(348)
(6,414)
32,893
19.5%
(4,447)
(1,044)
(5,491)
28,073
19.6%
2019 statutory
values
£000s
See-through
adjustment
£000s
2019 see-through
values
£000s
135,637
(49,561)
86,076
63.5%
8,641
(8,641)
–
144,278
(58,202)
86,076
59.7%
2018 statutory
values
£000s
See-through
adjustment
£000s
2018 see-through
values
£000s
118,208
(45,560)
72,648
61.5%
5,834
(5,834)
–
124,042
(51,394)
72,648
58.6%
There is no impact from the see-through adjustment on income statement lines below gross profit.
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131
GovernanceStrategic ReportFinancial StatementsOverviewAdditional Information
UNAUDITED INFORMATION
Shareholder Information
FIVE YEAR SUMMARY
Shareholder enquiries
The Company’s share register is maintained by Link Asset Services (‘Link’) who are responsible for updating the register, including
changes to shareholders’ names or addresses and processing off-market transfers 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 5.0pm Monday to Friday).
Financial Calendar
Annual General Meeting
18 May 2020
Interim results announcement
22 September 2020
Year End
31 December 2020
Preliminary announcement
23 March 2021
Year ended
31 December 2015
£m
Year ended
31 December 2016
£m
Year ended
31 December 2017
£m
Year ended
31 December 2018
£m
Year ended
31 December 2019
£m
Revenue
Operating profit before
non-underlying items
Non-underlying operating items
Operating profit
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
underlying basic (p)
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
3.69
101.6
118.2
135.6
25.8
4.4
30.2
23.9
28.3
278.6
5.7
49.1
61.4
203.1
473.8
475.0
6.08
4.05
28.9
(5.3)
23.7
28.1
22.8
335.2
7.6
58.7
91.7
252.2
497.2
518.2
3.69
4.54
37.4
(1.8)
35.6
32.9
31.1
328.7
11.6
65.0
24.2
274.2
520.7
529.4
4.80
5.09
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GovernanceStrategic ReportFinancial StatementsAdditional InformationOverview
ADVISORS AND KEY SERVICE PROVIDERS
CAUTIONARY STATEMENT
Registered Office
Avonbridge House
Bath Road
Chippenham
Wiltshire
SN15 2BB
Company number
04241478
AUDITOR
KPMG LLP
66 Queen Square
Bristol
BS1 4BE
FINANCIAL PR
Buchanan Communications
107 Cheapside
London
EC2V 6DN
REGISTRARS
Link Asset Services
PXS 1
34 Beckenham Road
Beckenham
Kent
BR3 4ZF
NOMAD AND JOINT BROKER
Numis Securities Limited
BANKERS
Bank of Ireland
Bows Bells House
1 Bread Street
London EC4M 9BE
Citi Bank
Citigroup Centre
33 Canada Square
Canary Wharf
London E14 5LB
10 Paternoster Square
Lloyds Bank Corporate Markets PLC
London
EC4M 7LT
JOINT BROKER
Investec Bank plc
2 Gresham Street
London
EC2V7QP
25 Gresham Street
London EC2V 7HN
National Westminster Bank PLC
250 Bishopsgate
London EC2M 4AA
Silicon Valley Bank
14–18 Finsbury Square
London EC2A 1BR
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.
134
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135
GovernanceStrategic ReportFinancial StatementsAdditional InformationOverview GLOSSARY
ABPI
Association of the British Pharmaceutical Industry
AGM
Annual General Meeting
CEO
Chief Executive Officer
CFO
Chief Finance Officer
CMO
Contract Manufacturer
ERP
Enterprise Resource Planning
FDA
US Food and Drug Administration
EHP
Essential Health Pack
IHP
International Health Partners
IPHA
Irish Pharmaceutical Healthcare Association
J&J
Johnson and Johnson
LRQA
Lloyds Register Quality Assurance
LSAS
Labour Standard Assurance System
MDR
Medical Device Regulation
MHRA
Medicines and Healthcare products Regulatory Agency
NPI
New Product Introduction
OTC
Over the Counter
SECR
Streamlined Energy and Carbon Reporting regulations
S&OP
Sales and Operations Planning
VPAS
Voluntary Pricing and Access Scheme
136
Alliance Pharma plc – Annual Report and Accounts 2019
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GovernanceStrategic ReportFinancial StatementsAdditional InformationOverview 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