Alliance Pharma Regulatory News (APH)

13 Sep 2006 07:01

Alliance Pharma PLC13 September 2006 For Immediate Release 13 September 2006 ALLIANCE PHARMA PLC ("Alliance Pharma" or "the Company") Interim Results for the six month period ended 30 June 2006 Alliance Pharma plc (AIM: APH), an emerging speciality pharmaceutical company,is pleased to announce its interim results for the half year ended 30 June 2006. Financial highlights • Sales up 13.2% to £7.8m (compared with the six months to June 2005) • Operating profit of £0.9m • Pre-tax loss of £0.2m • Strengthened investment in marketing growth products - up 22% to £1.2m • Strengthened investment in development projects - up 16% to £2.3m • Planned marketing investment and two short-term operational factors adversely affected profits in the first half of the year Operational highlights • Development projects making good progress towards submission in 2007 and 2008 • Out-licensing discussions for development projects are ongoing • Pre-marketing for development products includes successful international symposium on melatonin • Three acquisitions completed bringing critical mass to the dermatology range: o Hydromol: a range of emollients o Dermamist: a spray for dry skin o Atarax, Terra-Cortril and Deltacortril: acquired from Pfizer post half-year Commenting on the results, Michael Gatenby, Alliance Pharma's Chairman, said: "We have made encouraging progress in implementing our strategy for sustainablelong-term growth. We acquired four new brands for our growth portfolio andcontinued to broaden the distribution network for this segment. We also acquireda further product for the core portfolio that generates cash for furtherinvestment. In addition we advanced our two development projects towards theirplanned submission. "In the second half we expect sales to be stronger, with a return tosatisfactory profitability, and to have a significantly stronger tradingbusiness supporting an increasing weight of investment in the developmentproducts. This will position us for the next phase of our growth, as we makeprogress towards our new product submissions in 2007 and 2008." For further information: Alliance Pharma Plc + 44 (0) 1249 466 966John Dawson, Chief ExecutiveMaddy Scott, Finance Directorwww.alliancepharma.co.uk Buchanan Communications + 44 (0) 207 466 5000Mark Court/Lisa Baderoon/Rebecca SkyeDietrich Chairman's statement In the first six months of 2006, and post the period end, we made encouragingprogress in implementing our strategy for sustainable long-term growth. Weacquired four new brands for our growth portfolio and continued to broaden thedistribution network for this segment. We also acquired a further product forthe core portfolio that generates cash for further investment. In addition weadvanced our two development projects towards their planned submission. Given this good progress, it was disappointing that two short-term operationalissues slowed our sales growth and that, together with the planned increase inmarketing investment, this resulted in a modest loss for the half year. However,these operational issues, the nature of which is described below, have now beenresolved and we believe we are on track to deliver full-year sales and profitsin line with expectations. Financial performance At the end of 2005 we changed our accounting year-end from 28 February to 31December. The figures in this interim report are for the six months to 30 June2006, and the comparative figures in this statement are for the six months toJune 2005. Sales grew to £7.8m - a 13.2% increase on the corresponding period last year.The overall increase would have been substantially greater, had it not been fortwo temporary impacts. One was a stockout of Naseptin, caused by a manufacturingproblem; the other involved parallel imports into Ireland, which reduced salesand margins. We believe the combined impact on sales was close to £300,000. Thiswas disappointing, but it is clear that these factors will not play a part infuture trading and that the underlying sales trend remains very strongly upward. Costs rose by 48% to £3.3m as planned, constraining profits in the short term aswe substantially increased promotional investment behind our growth brands andincreased the pre-launch marketing activity associated with our developmentprojects. We are acutely aware of the need to maintain rigorous cost discipline,but judge that these increases in spend are necessary as we expand ourinfrastructure to manage additional products, grow sales and progress towardslaunch of our development products. Increased costs, combined with the temporary impact on sales growth, resulted ina first-half loss of £0.2m. We anticipate this to be more than offset in thesecond half, as sales resume their growth curve and we receive the additionalbenefit of the marketing investment and product acquisitions made in the firsthalf. It is useful to segment the Company into the underlying trading business,covering our core and growth portfolios, and the development business, coveringthe two development products. The trading business remains strongly profitable,with a first-half operating profit of £2.1m. The investment of £0.9m in thedevelopment business, accounted as a loss, reflects increasing expenditure as wemove closer to launch. The investment risk remains relatively low: Isprelor isbased on an already marketed molecule and Posidorm is a copy of a naturallyoccurring hormone. Six months to Ten months to Jun 06 Jun 05 Dec 05 £000 £000 £000Trading companySales 7,801 6,893 12,276Cost of sales 3,658 3,170 5,601Gross margin 4,144 3,723 6,675% 53.1% 54.0% 54.1%Project costs 1,099 836 1,348Overheads 905 642 1,639Total selling, general 2,005 1,478 2,987and administrative costs (SG&A)Operating profit 2,139 2,246 3,688% of sales 27.4% 32.6% 30.0% Development projectsProject costs 462 195 600Overheads 457 239 544Total development spend 919 434 1,145% of sales 11.8% 5.6% 9.3% Unallocated overheads 359 309 604 Operating profit 861 1,503 1,939 In May we raised additional funding of £2.5m before expenses through a shareplacing that was well supported by existing and new shareholders. This has givenus additional funding and flexibility as we move towards the regulatory filingand launch of our development products. Growth brands Our growth portfolio is increasingly focused on dentistry and dermatology.Overall sales in this segment grew 16% to £3.8m as we benefited from pastmarketing investment and the acquisition of new products. Although sales of manyof the products in the portfolio have continued to increase, we have beenconcentrating marketing investment this year on Periostat and the dermatologyproducts. Our experience to date with Periostat has convinced us that it has excellentgrowth potential and is continuing to build momentum. In May we reachedagreement in Italy with a leading local dental specialist company to distributeand market Periostat, and in the second half we expect to gain approval tolaunch it in Turkey in 2007. We are stepping-up marketing in the UK; in Europeand further afield we are revitalising existing distribution arrangements andpursuing new ones. So far this year we have invested more in marketing theproduct than it has earned in revenues, and we expect to reap increasing benefitfrom this investment. Core brands Our core brands, which do not receive promotional support, continued to providestable cash flows to underpin our growth and development portfolios. Thisrelatively stable cash generation underpins our strategy, supports our debt andallows us to run an optimally leveraged operation. Brand acquisitions This year we have given the dermatology portfolio real critical mass. InFebruary we acquired the Hydromol range of prescription emollients, which isincreasing sales at over 30% in a market growing by 10% a year. In May weacquired Caraderm, whose primary product is Dermamist, a spray for dry skinconditions. After the Hydromol acquisition we expanded and reorganised the salesforce into separate dermatology and dental teams. We will continue to enlargeour sales capability, at a pace that can be funded out of ongoing sales growth. In July, at the beginning of the current half year, we acquired the UK rights tothree products from Pfizer: Atarax, for itchy skin disorders, is growing at 11%a year and joins our growth portfolio; Deltacortril, for a wide range ofsteroid-responsive conditions, joins our core portfolio; and we plan to relaunchTerra-Cortril, which has been off the market for 18 months but has been much indemand from burns units. Development brands We have made substantial progress on our development programmes and arecontinuing the pre-launch marketing of both products among clinical opinionleaders. This included investment in a highly successful symposium on melatoninat the Royal Society of Medicine in London, which attracted a wide range ofinternational experts in care of the elderly, neurology, occupational health andophthalmology. Isprelor, an intravaginal tablet of misoprostol for induction of labour, isplanned to complete its Phase III clinical trial programme in 2006, allowingsubmission in 2007. Posidorm, a novel surge-sustained tablet of melatonin for sleep disorders, is ontrack to finish development in 2007, allowing submission in early 2008. We are progressing discussions on outlicensing both products in Europe. We alsocontinue to look for additional low-risk development opportunities where thetherapeutic proof of principle has been established and we can undertake thefinal development to registration. People In June we were pleased to announce the appointment of Andrew Smith as our thirdnon-executive director. Andrew brings us extensive international experience ofthe pharmaceutical, biotechnology and medico-marketing services sectors, gainedin senior positions at companies including SmithKline Beecham, Cerebrus andParexel International. His knowledge will be particularly valuable to us as weroll-out our development projects. Investor relations We recognise the importance of communicating effectively with our investors,both institutional and retail. In particular, we wish to ensure understanding ofthe interrelationship between the two components of the company: the tradingbusiness and the development business. In the year to date we have held threeconferences for investors and the financial media, and we will continue toexplain and update our story as it progresses. Outlook In the second half we expect sales to be stronger with a return to satisfactoryprofitability and to have a significantly stronger trading business supportingan increasing weight of investment in the development products. This willposition us for the next phase of our growth, as we make progress towards ournew product submissions in 2007 and 2008. Michael GatenbyChairman13 September 2006 Consolidated Income StatementFor the six months ended 30 June 2006 6 months to 6 months to 10 months 30 June 31 Aug 2005 to 31 Dec 2006 2005 Note £ £ £ Revenue 4 7,801,369 7,545,724 12,275,888 Cost of sales (3,657,599) (3,501,628) (5,601,143) Gross profit 4,143,770 4,044,096 6,674,745 Operating expensesAdministration and marketing (3,268,117) (2,618,909) (4,716,258)expenseShare based employee remuneration (14,736) (10,187) (19,083) (3,282,853) (2,629,096) (4,735,341) Operating profit pre non-recurring 860,917 1,415,000 1,939,404itemsNon-recurring items - - 227,731Operating profit before finance 860,917 1,415,000 2,167,135costs Finance costsInterest paid (1,057,722) (906,300) (1,366,747)Other finance costs (59,689) (20,806) (76,373)Change in fair value of derivative financial 74,942 (115,263) (62,846)instruments (1,042,469) (1,042,369) (1,505,966) Profit/(Loss) on ordinary (181,552) 372,631 661,169activities before taxation Taxation 11,456 12,497 - Profit for the year attributable (170,096) 385,128 661,169to equity shareholders Earnings per shareBasic (pence) 6 (0.11) 0.26 0.45Diluted (pence) 6 (0.11) 0.46 0.45 Consolidated balance sheetAt 30 June 2006 30 Jun 06 31 Aug 05 31 Dec 05 £ £ £ AssetsNon-current assetsGoodwill 1,128,973 1,128,973 1,128,973Intangible fixed assets- Product licences 29,139,849 25,621,988 25,501,988- Development costs 3,855,727 2,070,239 3,075,200Property, plant and equipment 256,836 299,048 280,977Deferred tax assets - 12,497 - 34,381,385 29,132,745 29,987,138 Current assetsInventories 2,537,019 2,351,889 2,739,869Trade and other receivables 3,014,589 3,377,500 3,034,240Cash and cash equivalents - 267,853 - 5,551,608 5,997,242 5,774,109 Total assets 39,932,993 35,129,987 35,761,247 EquityOrdinary share capital 1,620,616 1,473,559 1,473,559Share premium account 11,285,268 9,030,959 9,030,959Share option reserve 46,242 22,610 31,506Reverse takeover reserve (329,349) (329,349) (329,349)Retained earnings (2,872,213) (2,978,159) (2,702,117)Total equity 9,750,564 7,219,620 7,504,558 LiabilitiesNon-currentLong-term financial liabilities 16,011,462 12,905,164 14,794,873Convertible debt 7,187,906 7,153,229 7,167,100Other liabilities 179,023 163,889 177,778 23,378,391 20,222,282 22,139,751Current liabilitiesCash and cash equivalents 687,437 - 899,066Financial liabilities 3,391,234 3,016,827 933,749Trade and other payables and 2,725,367 4,671,258 4,284,123provisions 6,804,038 7,688,085 6,116,938 Total liabilities 30,182,429 27,910,367 28,256,689 Total equity and liabilities 39,932,993 35,129,987 35,761,247 Consolidated Statement of Cash FlowsFor the six months ended 30 June 2006 6 months to 6 months to 10 months 30 June 31 Aug 2005 to 31 Dec 2006 2005 £ £ £ Operating activitiesResult for the period before tax 860,917 1,415,000 2,167,135and finance costsDepreciation of property, plant 56,084 65,526 108,374and equipmentChange in inventories 211,929 117,474 (270,506)Change in trade and other 47,657 (1,227,887) (884,627)receivablesChange in trade and other (1,602,126) 1,443,781 876,429payablesWrite-off intangible assets - - 120,269Gain on divestment of Uniflu - - (348,000)Tax received/(paid) 11,456 (1,420) -Share options charges 14,736 10,187 19,083Cash flows from operating (399,347) 1,822,661 1,788,157activities Investing activitiesInterest received - 51,621 61,215Payment of deferred consideration - (13,889) -Development costs capitalised (780,526) (724,630) (1,849,860)Purchase of tangible assets (31,943) (58,001) (82,778)Investment in subsidaries (253,605)Proceeds from divestment of - - 500,000UnifluTransaction costs on divestment - - (32,000)of UnifluPurchase of other intangible (3,377,972) (1,555) (1,555)assetsNet cash used in investing (4,444,046) (746,454) (1,404,978)activities Financing activitiesNet proceeds from the issue of 2,401,366 - -sharesInterest paid and similar charges (1,138,933) (956,719) (1,426,319)Other finance charges paid - (1,202) (1,643)Receipt from borrowings 3,800,000 - -Repayment of borrowings - (1,115,514) (1,115,839)Finance lease payments (7,457) (10,378) (13,904)Net cash used in financing 5,054,976 (2,083,813) (2,557,705)activities Net movement in cash and cash 211,583 (1,007,606) (2,174,526)equivalentsCash and cash equivalents at 1 (899,066) 1,275,460 1,275,460January 2006 Cash and cash equivalents at 30 (687,483) 267,854 (899,066)June 2006 Consolidated Statement of Changes in EquityAt 30 June 2006 Share Share Shares to Retained Total capital premium be issued Reserves earnings equity £ £ £ £ £ £ Balance 1 March 1,473,559 9,030,959 12,423 (329,349) (3,363,287) 6,824,3052005 Employee benefits - - 10,187 - - 10,187Profit for the - - - - 385,128 385,128period Balance 31 August 1,473,559 9,030,959 22,610 (329,349) (2,978,159) 7,219,6202005 Balance 1 September 1,473,559 9,030,959 22,610 (329,349) (2,978,159) 7,219,6202005 Employee benefits - - 8,896 - - 8,896Profit for the - - - - 276,042 276,042period Balance 31 December 1,473,559 9,030,959 31,506 (329,349) (2,702,117) 7,504,5582005 Balance 1 January 1,473,559 9,030,959 31,506 (329,349) (2,702,117) 7,504,5582006 Issue of shares 147,057 - - - - 147,057Premium on shares - 2,254,309 - - - 2,254,309issuedEmployee benefits - - 14,736 - - 14,736Profit for the - - - - (170,096) (170,096)period Balance 30 June 1,620,616 11,285,268 46,242 (329,349) (2,872,213) 9,750,5642006 Notes to the interim reportFor the six months ended 30 June 2006 1 Nature of operations Alliance Pharma plc ("the Company") and its subsidiaries (together 'the Group')develop, market and distribute pharmaceutical products. The company is a publiclimited company incorporated and domiciled in England. The address of itsregistered office is Avonbridge House, Bath Road, Chippenham, Wiltshire, SN152BB. The company is listed on the AIM exchange 2 General information The information in these financial statements does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. A copy of thestatutory accounts for the period ended 31 December 2005, prepared underInternational Financial Reporting Standards, has been delivered to the Registrarof Companies. The auditors' report on those accounts was unqualified. The interim financial report for the six month period ended 30 June 2006(including comparatives for the six months ended 31 August 2005) were approvedby the board of directors on 8 September 2006. 3 Accounting policies The interim financial report has been prepared in accordance with InternationalAccounting Standard 34 Interim Financial Reporting The same accounting policies and methods of computation are followed in theinterim financial report as published by the company in its 31 December 2005Annual Report which is available on the company's website atwww.alliancepharma.co.uk (a copy of which is included as an appendix to thisinterim report). Notes to the interim report (continued)For the six months ended 30 June 2006 4 Segmental information The business is split between the trading business, consisting of those brandswhich have no promotional investment, and the Development Brands. Growth Core Trading Development Central and Total Brands Brands Business Brands Unallocated Group £ £ £ £ £ £For the half yearended 30 June 2006 Segment revenue 3,692,673 4,108,694 7,801,367 - - 7,801,367 Segment result 1,237,146 902,089 2,139,235 (919,086) (359,233) 860,916 For the half yearended 31 August2005 Segment revenue 3,586,822 3,958,904 7,545,726 - - 7,545,726 Segment result 1,568,625 874,788 2,443,413 (590,530) (437,679) 1,415,204 For the 10 monthsended 31 December2005 Segment revenue 5,651,609 6,624,279 12,275,888 - - 12,275,888 Segment result 2,362,333 1,325,517 3,687,850 (1,144,733) (603,713) 1,939,404 At 30 June 2006 Growth Core Trading Development Central and Total Brands Brands Business Brands Unallocated Group £ £ £ £ £ £Segment assetsNon current assetsGoodwill 1,128,973 - 1,128,973 - - 1,128,973Product licences 19,388,845 9,751,004 29,139,849 - - 29,139,849Development costs - - 0 3,855,727 - 3,855,727Property plant and 14,000 - 14,000 - 242,836 256,836equipment Current assetsInventories 737,790 1,799,229 2,537,019 - - 2,537,019Trade & other 1,446,996 1,539,587 2,986,583 - - 2,986,583receivables Non-currentliabilitiesLong term 10,932,576 5,078,886 16,011,462 - - 16,011,462financialliabilitiesConvertible debt 5,462,809 - 5,462,809 1,725,097 - 7,187,906Other liabilities 179,023 - 179,023 - - 179,023 CurrentliabilitiesCash & cash - - - - 687,437 687,437equivalentsFinancial 2,310,156 1,081,078 3,391,234 - - 3,391,234liabilitiesTrade & other - - 0 - 2,725,367 2,725,367payables At 31 August 2005 Growth Core Trading Development Central and Total Brands Brands Business Brands Unallocated Group £ £ £ £ £ £Segment assetsNon current assetsGoodwill 1,128,973 - 1,128,973 - - 1,128,973Product licences 15,837,010 9,784,978 25,621,988 - - 25,621,988Development costs - - - 2,070,239 - 2,070,239Property plant and 19,833 - 19,833 - 279,215 299,048equipmentDeferred tax - - - - 12,497 12,497assets Current assetsInventories 700,152 1,651,737 2,351,889 - - 2,351,889Trade & other 1,605,477 1,772,023 3,377,500 - - 3,377,500receivablesCash and cash - - - - 267,853 267,853equivalents Non-currentliabilitiesLong term 7,551,380 5,353,784 12,905,164 - - 12,905,164financialliabilitiesConvertible debt 5,436,454 5,436,454 1,716,775 - 7,153,229Other liabilities 163,889 - 163,889 - - 163,889 CurrentliabilitiesFinancial 955,183 2,061,644 3,016,827 - - 3,016,827liabilitiesTrade & other - - - - 4,671,258 4,671,258payables At 31 December Growth Core Trading Development Central and Total2005 Brands Brands Business Brands Unallocated Group £ £ £ £ £ £Segment assetsNon current assetsGoodwill 1,128,973 - - - - 1,128,973Product licences 15,837,010 9,664,978 25,501,988 - - 25,501,988Development costs - - - 3,075,200 - 3,075,200Property plant and 17,500 - 17,500 - 263,477 280,977equipment Current assetsInventories 806,986 1,932,883 2,739,869 - - 2,739,869Trade & other 1,396,913 1,637,327 3,034,240 - 3,034,240receivables Non-currentliabilitiesLong term 8,916,484 5,878,389 14,794,873 - - 14,794,873financialliabilitiesConvertible debt 5,446,996 - 5,446,996 1,720,104 - 7,167,100Other liabilities 177,778 - 177,778 - - 177,778 CurrentliabilitiesCash & cash - - - - 899,066 899,066equivalentsFinancial 588,402 345,347 933,749 - - 933,749liabilitiesTrade & other - - - - 4,284,123 4,284,123payables Notes to the Interim Report (continued)For the six months ended 30 June 2006 6 Earnings per share Basic earning per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period. For diluted earnings per share, the weightedaverage number of ordinary shares in issue is adjusted to assume conversation ofall dilutive potential shares. The group has two categories of dilutivepotential ordinary shares: share options granted to directors and employees andconvertible unsecured loan stock. For employee share options a calculation isdone to determine the number of shares that could have been acquired at fairvalue (determined as the average annual market share price of the Company'sshares) based on the monetary value of the subscription rights attached tooutstanding share options. The number of shares calculated as above is comparedwith the number of shares that would have been issued assuming the exercise ofthe share options. The convertible unsecured loan stock is convertible intoordinary shares at any time between the date of issue and 30 November 2013,unconditionally and at the option of the note holder. The conversion rate is£4.7619 nominal of Ordinary share capital for every £100 nominal of loan stock.These could potentially dilute the earnings per share into the future, but werenot included in the calculation of diluted earnings per share because they areanti-dilutive for the periods presented. 6 months to 6 months to 10 months 30 June 31 Aug 2005 to 31 2006 December 2005 Weighted Weighted Weighted average average average number of number of number of shares shares sharesFor basic earnings per share 151,114,061 147,355,891 147,355,891Exercise of options 209,523 - 130,968For diluted earnings per share 151,323,584 147,355,891 147,486,859 6 months to 6 months to 10 months 30 June 31 Aug 2005 to 31 2006 December 2005 £ £ £Basic (loss)/profit (170,096) 385,128 661,169For diluted earnings per share (170,096) 385,128 661,169 Basic earning per share (pence) (0.11) 0.26 0.45Diluted earnings per share (pence) (0.11) 0.26 0.45 7 Acquisition of subsidiary undertaking Assets Book value Fair value Fair value adjustmentNon-current assetsIntangible assets - product 111,000 148,890 259,890licences Current assetsInventories 9,079 9,079Trade and other receivables 28,006 28,006 37,085 37,085 Total assets 148,085 296,975 Current liabilitiesTrade and other payables and (43,370) (43,370)provisions Total liabilities (43,370) (43,370) Net assets 104,715 253,605 Goodwill - Satisfied by:Cash 253,605 On 18th May, the Group acquired 100% of the share capital of Caraderm Limited.The company earned a profit on ordinary activities after taxation on £20,280 inthe 3 month period ended 30 June 2006, of which £Nil arose in the period from 18May 2006 to 30 June 2006. Appendix Group accounting policies based on International Financial Reporting Standards('IFRS') Consolidation The consolidation balance sheet includes the assets and liabilities of thecompany and its subsidiaries and are made up to 30 June 2006. Entities overwhich the Group has the ability to exercise control are accounted for assubsidiaries. Interest acquired in entities are consolidated from the effectivedate of acquisition and interests sold are consolidated up the date of disposal.Balances between group companies are eliminated; no profit I taken on salesbetween group companies. Deferred tax relief on unrealised intro-group profit isaccounted for only to the extent it is considered recoverable. Goodwill arisingon the acquisition of interests in subsidiaries representing the excess ofpurchase consideration over the Group's share of the fair values of identifiableassets, liabilities and contingent liabilities acquired, is capitalised as aseparate item. Foreign currency transactions Foreign currency transactions by Group companies are booked at the exchange rateruling on the date of the transaction. Foreign currency monetary assets andliabilities are retranslated into local currency at the rate of exchange rulingat the balance sheet date. Exchange differences are booked to the incomestatement. Research and development Research expenditure is charged to the income statement in the period in whichit is incurred. Development expenditure is capitalised when it can be reliablymeasured and the project it is attributable to is separately identifiable, istechnically feasible, demonstrates future economic benefit, and will be used orsold by the Group once completed. Development costs not meeting the criteria areexpensed as incurred. The capitalised cost is amortised over the period duringwhich the Group is expected to benefit. Property, plant and equipment Computer equipment, fixtures and equipment, and motor vehicles are stated at thecost of purchase less any provisions for depreciation and impairment. Financingcosts are not capitalised. The rates generally applicable are: Computer equipment 33.3% per annum, straight lineFixtures, fittings and equipement 16.7% - 25% per annum, straight lineMotor vechicles 25% per annum, straight line Leases Leasing agreements which transfer to the Group substantially all the benefitsand risks of ownership are treated as finance leases, as if the asset had beenpurchased outright. The assets are included within computer equipment, fixtures,fittings and equipment and motor vehicles and the capital element of the leasingcommitments are shown as obligations under finance leases. Assets held underfinance leases are depreciated on a basis consistent with similar owned assetsor the lease term if shorter. The interest element of the lease rental isincluded in the income statement. All other leases are considered operatingleases and the annual rentals are included in the income statement on a straightline basis over the lease term. Goodwill Goodwill representing the excess of the cost of acquisition over the fair valueof the group's share of the identifiable met assets acquired, is capitalised andreviewed annually for impairment. Goodwill is carried at cost less accumulatedimpairment losses. Intangible fixed assets Intangible assets are stated at cost less provision for impairment. Technicalknow-how, trade marks and distribution rights acquired or acquired as part of abusiness combination are deemed to have an indefinite useful life and are testedfor imparirment annually. Inventories Inventories are included at the lower of cost and net relisable value. Cost isdetermined on a first in first out basis. Taxation Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases on assets and liabilities and theircarrying amounts in the financial statements, Deferred tax assets are recognisedto the extent that it is probable that future taxable profits will be availableagainst which the temporary differences can be utilised. Deferred tax isprovided using the rates of tax that have been enacted of substantively enactedby the balance sheet date. Deferred tax assets and liabilities are notdiscounted. Derivative financial instruments and hedging activities Derivative financial instruments are used to manage exposure to market risk fromtreasury operations. The principal financial instrument used by Alliance Pharmaplc is interest rate swaps. The Group does not hold or issue derivativefinancial instruments for trading or speculative purposes. Derivative financialinstruments are originally recognised in the balance sheet at cost and thenremeasured at subsequent reporting date to fair value. Changes in the fair valueof derivatives designated as fair value hedges are recorded in the incomestatement. Changes in the fair value of derivatives designated as cash flowhedges are recognised in equity. Amounts deferred in equity are transferred tothe income statement in line with the hedged forecast transaction. Changes infair value of any derivative instrument that does not quality for hedgeaccounting is recognised immediately in the income statement. Debt instruments Unhedged debt instruments are stated at the amount of net proceeds, adjusted toamortise the issue costs of the debt over its term. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprisecash on hand, deposits held at call with banks, other short highly liquidinvestments, available with no penalty, with ordinary maturities of three monthsor less and bank overdrafts. Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic enciroment that aresubject to risks and returns that are different from those of segments operatingin other economic enviroments. Employee benefits - share based compensation The Group operates an equity-settled, share-based compensation plan. The fairvalue of the employee services received in exchange for the grant of the optionsis recognised as an expense. The total amount to be expensed over the vestingperiod is determined by reference to the fair value of the options granted.Non-market vesting conditions are included in assumption about the number ifoptions that are expected to become exercisable. At each balance sheet date, theentity revises its estimates of the number of options that are expected tobecome exercisable. It recognises the impact of the revision of originalestimates, if any, on the income statement, with a corresponding adjustment toequity. The proceeds received net of any directly attributable transaction costsare credited to share capital (nominal value) and share premium when the optionsare exercised. Revenue recognition Revenue comprises the fair value of the consideration received or receivable forthe sale of goods and services in the ordinary course of the Group's activities.Revenue is shown, net of value-added tax, estimated returns, rebates anddiscounts and after eliminated sales within the Group. Revenue is recognisedwhen a Group entity has delivered products to the customer, the customer hasaccepted the products and collectibillity of the related receivables isreasonably assured. Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares. • "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. • "Share option reserve" represents equity-settled share-based employee remuneration until such share options are exercised. • "Retained earnings" represents retained profit. • "Reserve takeover reserve" represents the difference between the fair value of shares issued on a reverse takeover. Investments Investments in subsidiaries included in the company's balance sheet are statedat cost less any provision for impairment. This information is provided by RNS The company news service from the London Stock Exchange